Learning Curve (Experience Curve)

Any repetitive type of job an individual keeps on improving his speed. Also will do it better. Makes Minor Changes and attains Higher productivity. Also in relation

to intensity of repetition, Consumes less resources.

The same thing happens to an organization also. The resource input required to produce an unit of production diminishes. Initially this drop is high and gradually it flattens off This benefit of learning is predictable.

The Rate of Learning is not same in all cases / situations.

The general equation of the curve is Yi = Kib

Yi
K b i

=
= = =

Labour hours required to produce ith unit

Labor hours required to produce 1st unit Index of learning Ordinal No. of Unit

Industrial Engineers fix the learning rates for different type of jobs.

The crucial decision is to estimate and fix K and b in the equation.

If K and b are wrong the analysis will be misleading and we will reach wrong decisions.

Figure : An 80% Learning Curve plotted on arithmetic coordinates the first unit requires 60 labor hours
60 50 40 30 20 10 0 1 3 5 7 9 11 13 15 19 20

Labour Hours Required for Cumulative Unit

Cumulative 70% Curve 80% Curve 90% Curve
Unit 1 2 4 100.0 70.0 49.0 100.0 80.0 64.0 100.0 90.0 81.0

8
16

34.3
24.0

51.2
41.0

72.9
65.6

Learning Rate is specified in percentage The meaning of percentage is ; in a 90% learning if 1st Unit takes 100 hours to make 2nd Unit takes 90 hours 4th Unit will take 81 hours 8th Unit will take 72.9 hours 16th Unit will take 65.6 hours etc. For every stage of doubling of numbers, hours required gets reduced to learning percentage times. Learning curve concepts are also used on the basis of months of production, quarters of production, years of production. This is also done on the basis of first 100 or 1000 etc. The concept of all these methodology is similar. curve,

Learning Curve
Reduction in time consumed is the effect of several things that an organization does and not only pure labour learning. Improvements in several areas: Simple Examples:
Improved methods Product re-engineering Reducing Machining Allowance Improvement in Machinability Select Better Tools. Facilities Re-Layout Provide Right accessories and gauges. Do offline programming Maintain Machines properly

Training

Improved working environment

Eliminating Inspection

Uses of Learning Curve

Calculating Labour hours required and man power planning. Estimating delivery schedules Estimating cost Estimating profitability Strategic pricing and facing competition Working out cash flow

Breakeven analysis
Gestation period

Case Example
Sure Float Boat Builders New Model Yacht 80% Learning Curve expected 1st Unit 500 Lab Hours

Month 1 2 3 4 5
Total

Order Quantity 2 6 10 10 15
43

Manpower Requirement ?

Cash Flow ?

Exercise
If month 7 to 12 monthly cash flow? Requirement 12 pm

Profits ?
(1)Group exercise (2)Alsowhen experience curve really count. What should firm A do now? - Group Exercise

Cumulative Unit

Labour Month Hours required for Cumulative Unit (rounded) 500 400 351 320 298 281 267 256 246 238 194 171 169 150 149 1 2

Yachts

Labour Hours required for Cumulative Units (rounded) 900 1773

Change in Labour Hours from Previous Month

Change in output from Previous month

Monthly Manpowe r equivalent of people

1 2 3 4 5 6 7 8 9 10 19 28 29 42 43

2 6

5.62 +98.1% +200.0% 11.0

3 4 5

10 10 15

2185 1816 2373

+23.2 -16.8 +31.0

+67.7 0 +50.0

13.65 11.35 14.83

Total Labour hours 9,047

Total Yachts = 43

Obtained from Table S4.1 and Equation S4.1 labour hours for yacht one = Y1 = (500) (1.000) = 500

A person is assumed to work 20 days / month.

Thus a manpower equivalent is 20 x 8 = 160 hours / month. For each month the manpower equivalent is found by dividing

the monthly labor hours by 160. Hence, for

month 1, 900 / 160 = 5.62

Sureflout cashflow for six months

Month
1 Units produced and delivered 2 2 6 3 10 4 10 5 15 6 15

Cash inflow from sales

Outflows Wages Direct Material ( $ 6,000 per yacht) Variable materials overhead (10% of direct material) Fixed administrative and marketing overhead Monthly outflow Net monthly cash flow (inflowoutflow) Cumulative Cash flow position (month-end)

0
$5,620 12,000 1,200

$24,000
$11,080 36,000 3,600

$72,000
$13,650 60,000 6,000

$120,000
$11,350 60,000 6,000

$120,000
$ 14,830 90,000 9,000

$180,000
$13,500 90,000 9,000

10,000 $28,820 (28,820) (28,820)

10,000 $60,680 (36,680) (65,500)

10,000 $89,650 (17,650) (83,150)

10,000 $187,350 32,650 (50,500)

10,000 $123,830 (3,830) (54,330)

10,000 $122,500 57,500 3,170

Calculations
Table S4.1
Equation S4.1 Yacht Two = 500 x 0.7999

Labour hours for yacht one = 500.

=
Yacht three = =

400
500 x 0.7021 351 etc.

A person works 20 days a month 8 hours per day I.e. 20 x 8 = 160 hours per month. Hence no. of persons required in month 1 = (500 + 400) / 160 = 900 / 160 = 5.62

Wage is $ 1000 per month per employee Wages in month 1 = 5.62 x 1000 = 5620 For month 2 it will be 1773 / 160 = 11.08 x 1000 = 11080 etc

Sale price of each Yacht

= 12000