Unit 5 Learning Curve Analysis not the case in the real business

world.
Learning Curves ● (5)Any ​changes in process,
● Also known as ​“experience curves” product, or personnel​ disrupts the
● (1)The premise that people and learning curve. This is a reality in the
organizations get better at their real business world.
tasks as the tasks are repeated
● It takes less time to complete each *(3)These two factors should work
additional unit a firm produces. together since no matter how
● (2)First applied to industry in a report efficient is the process and how
by T.P, Wright of Curtis-Wright Corp. promising is the product if
in 1936. management is dysfunctional, then
● Learning curves have since been the process and product will not
applied not only to labor but also to a improve and reach their maximum
wide variety of other costs including potential. On the other hand, even if
materials and purchased the management is doing a great job
components. at managing its administrative
● It plays a major role in many duties, if there is no solid product or
strategic decisions related to process in place, then the
employment levels, costs, capacity, management’s efforts will be in vain,
and pricing and the desired improvement will not
*(1) For example, if it takes you 30 minutes materialize.
to solve a risk and return problem when you
did it for the first time, now you can do it in *(4)Theoretically speaking, there is
only 5 minutes through practice and an assumption of continuous
repetition of the task. Similarly in business, improvement, but this is not the case
if a manufacturing company continues to in the real business world since
produce the same product, it would take unforeseen circumstance can often
lesser time to complete each additional unit. cause a setback rendering a hiccup
in business operations,
*(2)Wright was an American Aeronautical consequently interrupting the
Engineer and educator, and he described improvement process.
how direct labor costs of making a particular
airplane decreased with leaning. A theory *(5) Example, if you have an
since confirmed by other aircraft employee who became very
manufacturers. competent in doing his job since he
● (3)The rate of learning varies has been trained well and is well
depending on the ​quality of experienced in performing his tasks,
management​ and the​ potential of and suddenly he resigns, it will take
the process and product. some time for your newly hired
● (4)In the classroom setting, we have employee to be as competent as the
to assume that learning curves are previous employee. Thereby,
continuing and permanent, but this is causing an interruption in the
learning curve.
Industry Learning Curves

● Learning curves vary across

industries
● The lower the learning curve,
the steeper the slope.The
higher the learning curve, the
flatter the slope.
● Eg: for Aircraft assembly, the
LC is 80%, which means that
there s a 20% improvement
(decrease in DL hours) each
time the number of
repetitions is doubled. Which
results in an increase in units
produced.
● A low learning curve means
there is a greater
improvement, whereas, a
high learning curve means a The learning curve states
lower improvement. that cost/time per repetition
Therefore, having a low decreases as the number of
learning curve is better than repetitions increases
having a high learning curve.

The Learning Curve

assumes and is based on the
doubling of production.
 ● The formula is read
as: T-sub-N is equal
to T times L to the
power of n.

● Take note: N refers to

the number of times T
is doubled, and not
1st requirement = 4.9 hours
just the number of
times the activity is 2nd requirement = 2.401 hours
repeated.

● The formula above is

the Arithmetic
Approach.
Purposes of considering the effects of
Example: learning
-The learning curve is 80%
-2nd unit takes 80% of the time of the first ● Internal purposes
unit. ○ Labor forecasting
-The fourth unit would take 80% of the time ○ Scheduling
of the 2nd unit. ○ Establishing costs and
-The eighth-unit, would take 80% of the time budgets
of the 2nd unit. ● External Purposes
○ Supply-chain negotiation
● Notice how it doubles ● Strategic Purposes
the number of units ○ (1)Evaluation of company
produced before performance, including costs
stating that it would and pricing
take 80% of the time. ○ Evaluation of industry
performance, including costs
and pricing
○ Done by comparing one’s
Example: learning curve with that of the
-The first unit of Product A takes 10 labor industry
hours to complete. If a 70% learning curve *In labor forecasting, companies should
is present, how many hours will it take to take into account that employees will be
complete the fourth unit of Product A? able to develop their skills as they gain
experience from repetitively doing the tasks
-How many hours will it take to complete the assigned to them. Example: If a company
16th unit of Product A? needs to produce 100 thousand products
per day, and on average, newly hired
employees can produce 100 units in their
first day of work. If the company doesn’t
take into account the possibility that
employees can learn, the company would *Lastly Strategic purposes
be likely to hire 1,000 employees to meet A strategy means a plan of action employed
the 100 thousand units needed per day. by a company, to achieve a long-term
However, employees will surely make more objective to ensure the going concern and
than 100 in their second day of work and so overall financial success of the company, it
on, since they already gained some is necessary to
experience and in reality, the company
doesn’t actually need to hire 1000 (1)evaluate its performance to see if it is
employees. The failure to consider the improving as the years progress.
effects of learning can lead to overestimates
of labor needs which equates to higher (2) equally important, is to compare itself
labor costs. against the industry to see if it is ahead of,
at par with, or behind other companies in
*Scheduling the industry. Specifically if the company is
Companies will be able to schedule their looking at budgeting its costs which
workforce more effectively if the effects of eventually determines pricing, are affected
learning are considered. If an employee by the rate of learning.
who used to finish a task 5-years ago, in
8-hours. He may be able to do the same job (3)Thus, in strategic planning in learning
today in just 3 hours. Therefore, the curves, it is necessary for a company to
company can assign that employee to do compare its learning curve to that of the
another task to maximize capacity. industry to see how it fairs compared to
others.
*Establishing costs and budgets
If a company is able to consider the effects Strategic Planning in learning Curves
of learning, then the costs and estimates will ● How does strategic planning work in
be more realistic and the budgets they will the case of bringing down costs?
produce would be more reliable since there ○ (1)Follow an aggressive
would be less variations and slack involved . pricing policy
Consequently, the company will be able to ○ (2)Focus on contributing cost
manage its resources more effectively and reduction and productivity
efficiently. improvement
○ (3)Building on shared
*Supply chain negotiations experience.
Suppose you have a business and you ○ (4)Keeping capacity growing
contract a supplier to supply the parts of a ahead of demand.
product that you sell for 2 years.You can
negotiate with the supplier to charge you (1) This means that they adopt a
with a lower price, since making the parts predatory pricing, or below the cost
repeatedly in the long run, would entail pricing in an attempt to eliminate
reduced set-up time and improved skill of competition and get the most market
the employees of the supplier making the share, however, managers must
parts. understand their competitors before
 embarking on a learning curve The ways to approach the Mathematics
strategy.Companies that are small of Learning Curves
and relatively weak, should not even
attempt to engage in a price war.
Since they can never win with his
competition against strong and well
established companies since the
latter are more capable of sustaining
a price war.
(2) Done by constantly finding new and
innovative cost saving processes
and procedures to increase Logarithmic approach = T-sub-N, equals
efficiency. This can often be done by T-sub-1 , times N to the power of b
investing in new and state of the art
technology. Learning Curve Coefficient Approach
(3) Companies may hire employees that T-sub-N, equals T-sub-1 times C
have already gained experience
from their previous employment. Regardless of which approach you choose,
When they join a new company, they you should be able to get the same answer
can provide value by sharing what
they have experienced, so the Arithmetic Approach
company can learn from these -To make one unit takes 100 hours. If the
experiences. learning curve is 80%, complete the table
(4) If the demand this year is 10 million below:
units,and at present the company
can produce 10 million units, it must
find ways to increase its capacity in
anticipation for the future.It is healthy
for a company to produce more than
the demand, so that there won't be
any opportunity loss and so that they
will be able to accommodate
unexpected increase in orders in the
future.

Limitation: Not flexible. It does not tell us

how many hours will be needed to produce
other units other than those numbers
(1,2,4,8,16) and doubling of subsequent
numbers.So if you want to know from let’s
say 10 units, you cannot use that
method.You need to use either logarithmic
or learning curve coefficient approach.
 Logarithmic Approach
Learning Curve Coefficient Approach
Example:

-It took a Korean shipyard 125,000 labor

hours to produce the first of several
tugboats that you expect to purchase for
your shipping company. Great Lakes, Inc.
Boats 2 and 3 have been produced by the
Example: Koreans with a learning factor of 85%. At
The learning rate for a particular operation $40 per hour, what should you, as
is 80% and the first unit of production takes purchasing agent, expect to pay for the 4th
100 hours. How many hours does it take to unit?
produce the 3rd unit? How about the 9th
unit?

This approach allows us to determine the

number of hours required for any unit
produced.
*Use table to get C

Learning Curve Coefficient

As the purchasing agent you would expect

to pay $3,615,000 for the fourth boat.

-How much time would it take to make all

*C can be found in the learning curve
four boats?
coefficient table
*The C to be used this time is total time
since it requires the time needed for all four
boats.
 the 129,366.1061 labor hours instead of the
invalid 125,000 given labor hours.

Limitation of Learning Curves

● Time Consuming
○ Because learning curves
*So to make 4 boats it will take 418.125 differ among companies and
labor hours. among industries, estimates
for each organization should
be developed rather than
-Assume that great lakes Inc. believes that applying someone else’s.
unusual circumstances in producing the first ○ A company should develop
boat imply that the time estimate of 125,000 its own learning curve, and
hours is not as valid a base as the time this is time consuming to do
required to produce the third boat. Boat no. so because learning curves
3 was completed in 100,000 hours. What is differ among industries and
the revised estimate for the number of hours companies.
needed to produce the first boat. ● Accuracy is needed
○ Learning curves are often
*First we need to find the revised estimate based on the time necessary
for the number of hours needed to produce to complete the early units,
the first boat since the 125,00 is stated to be therefore those times must
invalid. be accurate. ​As current
information becomes
*To find it we must start with the value of the available, reevaluation is
3rd unit completed in 100,000 hours and appropriate​.(any new
work our way back to get to the first unit information that affects the
learning curve necessitates
the reevaluation and
changes of the affected
variables if any)
. ○ Remember you need to know
the number of hours needed
to complete the first unit to
know the number of hours for
completion of the end unit.So
the time needed to complete
*It would take 129,366.1061 labor hours to the first unit must be
make the first boat, and that is our revised accurate or else the
estimate. estimates for the end unit will
*If there is a subsequent requirement asking be erroneous.
us to find the number of labor hours to make
the 10th boat, considering the revised
estimate for example, Then T-sub-1 will be
● Learning curves are bound to when you are doing a project
change and it is near the end of the
○ Any changes in personnel, project, there is a possibility
design, or procedure can be that you will lose interest and
expected to alter the learning motivation and instead of
curve, causing the curve to continuous improvement, a
spike up for a short time decline in productivity may
even if it is going to drop in result .
the long run.
○ This shows a concern on the Additional Problem:
reliability of learning curves -Digicomp produces a new
in case changes are telephone system with built-in TV
frequent. screens. its learning rate is 80%.
● May not apply to indirect materials The first one took 56 hours to
and labor produce.
○ While workers and processes
may improve, the same *Since we are usually not given the
learning curves do not coefficient table, we will use the
always apply to indirect logarithmic approach.
materials and labor
○ These may be beyond the -Requirement 1 : how long will it take
control of the company. For Digicomp to make the 11th system?
example, when you hire a
security guard from an
agency, you may not control
it when the agencies send
another security guard to It will take Digicomp 25.8782 hours
report to your workplace. to finish the 11th system.
● Learning curves are dependent on
several factors that may change -Requirement 2: How long will
○ Culture of the workplace and producing the first 11 systems take
resource availability and in total?
changes in the process may
alter the learning curve. Eg:
as a project nears its end,
worker interest and effort
may drop, curtailing progress
down the curve.
○ Although the learning curve
concept states that there will
be an improvement every
time a task is repeated,
human nature may overturn
this concept. For example:
*It will take 379.539 labor hours to
produce all 11 systems in total.

**Computed by computing the labor

hours for each unit from 1 to 11 one
by one.

-Requirement 3: As a purchasing
agent, you expect to buy units 12
through 15 of the new phone
system. What would be your
expected cost for the units if
Digicomp charges $30 for each labor
hour?