GMS401 Chapter 6: Learning Curves

The premise that people and organizations get better at their tasks as the tasks are repeated; sometimes called experience curves- learning usually follows a negative exponential curve - first applied to the industry by T.P. Wright of Curtis-Wright Corp. in 1936- LC have been applied not only to labour but also to a wide variety of other costs- LC play a major role in many strategic decisions related to employment levels, costs, capacity and pricing- LC based on a doubling of production - when production doubles, the decrease in time per unit affects the rate of the learning curveT x L^n = Time required for the nth unitwhere T = unit cost or time of the first unitL = learning curve raten = number of times T is doubled

- Different organizations/products have different learning curves- Rate of learning varies, depending on the quality of management and the potential of the process and product (any change in process, product, or personnel disrupts the learning curve)- Steeper the slope of the learning curve, the faster the drop in cost

1.

Internal: labour forecasting, scheduling, establishing costs and budgets2. External: supply-chain negotiations3. Strategic: evaluation of company and industry performance, including costs and pricing

If Learning Curve is ignored, problems could arise:- scheduling mismatches- idle labour and productive facilities- refusal to accept new orders because capacity is assumed to be full- missing an opportunity to negotiate with suppliers for lower purchase prices as a result of large orders

Arithmetic Approach - uses production doubling equation Logarithmic Approach - allows us to determine labour for any unit TN = Tz (N^b)TN = time for the Nth unitT1 = hours to produce the first unitb = (log of the learning rate)(log 2) = slope of the learning curve

Learning-Curve Coefficient Approach:TN = T1CTN = number of labour-hours required to produce the Nth unitT1 = number of labour-hours required to produce the first unitC = learning-curve coefficient found in "Unit Time Coefficient" columns - learning-curve coefficient, C, depends on both the learning rate and the unit number of interest

When a firm's strategy is to pursue a learning cost curve steeper than the industry average, it can do this by:1. Following an aggressive pricing policy2. Focusing on continuing cost reduction and productivity improvement3.

Building on shared experience4. Keeping capacity growing ahead of demandManagers must understand competitors before embarking on a learning-curve strategy.

- because learning curves differ from company to company, as well as industry to industry, estimates for each organization should be developed rather than applying to someone else's- learning curves are often based on the time necessary to complete the early units; therefore, those times must be accurate (as current information becomes available, re-evaluation must occur)- any changes in personnel, design, or procedure can be expected to alter the learning curve, causing the curve to spike up for a short time, even if it is going to drop in the long run- while works/process may improve, the same learning curves do not always apply to indirect labour and material- culture of the workplace, as well as resource availability and changes in the process may alter the learning curve