Learning and Experience Curve

Learning Curve
 Based on the premise that people and organizations become better at their tasks as the tasks are repeated  Time to produce a unit decreases as more units are produced  Learning curves typically follow a negative exponential distribution  The rate of improvement decreases over time

Learning Curve

Cost/time per repetition

Number of repetitions (volume)

Concept of Learning Curve

The concept of the Learning Curve basically states that there is less and less learning as more repetitive steps are taken. The Boston Consulting Group conducted some empirical studies and below are the conclusions from that study:  The time required to perform a task decreases as the task is repeated.  The amount of improvement decreases as more units are produced.  The rate of improvement has sufficient consistency to allow its use as a prediction tool.

Rate of Learning
The constant percentage by which the time of doubled quantities decrease is called the rate of learning. The slope of the learning curve is 100 minus the rate of learning. For example, if the hours between doubled quantities are reduced by 20% (rate of learning), it would be described as a curve with an 80% slope (Ref Figure1).
Figure 1: Time per unit vs. Output

Experience Curve
The experience curve differs from the learning curve. The learning curve describes the observed reduction in the number of required direct labor hours as workers learn their jobs. The experience curve by contrast applies not only to labor intensive situations, but also to process oriented ones. It states that the more often a task is performed, the lower will be the cost of doing it. The task can be the production of any good or service. Each time cumulative volume doubles, value added costs (including administration, marketing, distribution, and manufacturing) fall by a constant and predictable percentage.

Experience Curve
In the late 1960s Bruce Handerson of the Boston Consulting Group (BCG) began to emphasize the implications of the experience curve for strategy.
The curve is plotted with cumulative units produced on the horizontal axis and unit cost on the vertical axis. A curve that depicts a 30% cost reduction for every doubling of output is called an 70% experience curve, indicating that unit costs drop to 70% of their original level.

Reasons for the effect

The primary reason for why experience and learning curve effects: Labour efficiency - Workers become mentally more confident and spend less time hesitating, learning, experimenting, or making mistakes. Over time they learn short-cuts and improvements. This applies to all employees and managers, not just those directly involved in production. Standardization, specialization, and methods improvements - As processes, parts, and products become more standardized, efficiency tends to increase. When employees specialize in a limited set of tasks, they gain more experience with these tasks and operate at a faster rate. Technology-Driven Learning - Automated production technology and information technology can introduce efficiencies as they are implemented and people learn how to use them efficiently and effectively.

Reasons for the effect

Better use of equipment - As total production increases, manufacturing equipment will be fully exploited, lowering fully accounted unit costs. In addition, purchase of more productive equipment can be justifiable. Product redesign - As the manufacturers and consumers have more experience with the product, they can usually find improvements. This filters through to the manufacturing process. Shared experience effects - Experience curve effects are reinforced when two or more products share a common activity or resource. Any efficiency learned from one product can be applied to the other products.

Learning Curve
0.30 Process time per unit (hr) 0.25 0.20 0.15 0.10 Learning 0.05 period 0 | 50 Learning curve

Standard time | | 250 300

| | | 100 150 200

Cumulative units produced

Figure 1 Learning Curve, Showing the Learning Period and the Time When Standards Are Calculated

Developing Learning Curves

In developing learning curves we make the following assumptions  The direct labor required to produce the n + 1st unit will always be less than the direct time of labor required for the nth unit  Direct labor requirements will decrease at a declining rate as cumulative production increases  The reduction in time will follow an exponential curve

Developing Learning Curves

Using a logarithmic model to draw a learning curve, the direct labor required for the nth unit, kn, is

kn = k1 n b
where k1 = direct labor hours for the first unit n = cumulative numbers of units produced log r b! log 2 r = learning rate (as decimal)
Doubling of the quantity reduces the time per unit by (1 r)

Developing Learning Curves

TABLE 1 | | CONVERSION FACTORS FOR THE CUMULATIVE AVERAGE NUMBER OF DIRECT LABOR HOURS PER UNIT 80% Learning Rate (n = cumulative production) n 1 2 3 4 5 6 7 8 9 10 1.00000 0.90000 0.83403 0.78553 0.74755 0.71657 0.69056 0.66824 0.64876 0.63154 n 11 12 13 14 15 16 17 18 19 20 0.61613 0.60224 0.58960 0.57802 0.56737 0.55751 0.54834 0.53979 0.53178 0.52425 n 21 22 23 24 25 26 27 28 29 30 0.51715 0.51045 0.50410 0.49808 0.49234 0.48688 0.48167 0.47668 0.47191 0.46733

Developing Learning Curves

TABLE 1 | | CONVERSION FACTORS FOR THE CUMULATIVE AVERAGE NUMBER OF DIRECT LABOR HOURS PER UNIT 90% Learning Rate (n = cumulative production) n 1 2 3 4 5 6 7 8 9 10 1.00000 0.95000 0.91540 0.88905 0.86784 0.85013 0.83496 0.82172 0.80998 0.79945 n 11 12 13 14 15 16 17 18 19 20 0.78991 0.78120 0.77320 0.76580 0.75891 0.75249 0.74646 0.74080 0.73545 0.73039 n 21 22 23 24 25 26 27 28 29 30 0.72559 0.72102 0.71666 0.71251 0.70853 0.70472 0.70106 0.69754 0.69416 0.69090

Using Learning Curves

EXAMPLE - 1 A manufacturer of diesel locomotives needs 50,000 hours to produce the first unit. Based on past experience with similar products, you know that the rate of learning is 80 percent. a. Use the logarithmic model to estimate the direct labor required for the 40th diesel locomotive and the cumulative average number of labor hours per unit for the first 40 units. b. Draw a learning curve for this situation.

Using Learning Curves

SOLUTION a. The estimated number of direct labor hours required to produce the 40th unit is k40 = 50,000(40)(log 0.8)/(log 2) = 50,000(40)0.322 = 50,000(0.30488) = 15,248 hours

For a cumulative production of 40 units and an 80 percent learning rate, the factor is 0.42984. The cumulative average direct labor hours per unit is 50,000(0.42984) = 21,492 hours.

Using Learning Curves

b. Plot the first point at (1, 50,000). The second unit s labor time is 80 percent of the first, so multiply 50,000(0.80) = 40,000 hours. Plot the second point at (2, 40,000). The third is 80 percent of the second, so multiply 40,000(0.80) = 32,000 hours. Plot the point (3, 32,000). The result is shown in Figure 2.
50 Direct labor hours per locomotive (thousands) 40 30 20 10 0
| | | | | | |

40

80 120 160 200 240 Cumulative units produced

280

Figure 2 The 80 Percent Learning Curve

Example - 2
The first unit of a new product is expected to take 1000 hours to complete. If the rate of learning is 80 percent, how much time should the 50th unit take? SOLUTION Given k1 = 1,000 n = 50 r = 0.80 kn = k1nb k50 = 1000(50)(log 0.8/log 2) = 1000(50)0.32192 = 1000(0.283827) = 283.8 hours

k50

Example - 3
The manager of a custom manufacturer has just received a production schedule for an order for 30 large turbines. Over the next 5 months, the company is to produce 2, 3, 5, 8, and 12 turbines, respectively. The first unit took 30,000 direct labor hours, and experience on past projects indicates that a 90 percent learning curve is appropriate; therefore, the second unit will require only 27,000 hours. Each employee works an average of 150 hours per month. Estimate the total number of full-time employees needed each month for the next 5 months.

Example - 3
SOLUTION The following table shows the production schedule and cumulative number of units scheduled for production through each month:

Month 1 2 3 4 5

Units per Month 2 3 5 8 12

Cumulative Units 2 5 10 18 30

Example 3
We first need to find the cumulative average time per unit (using Table 1 or excel calculator) and the cumulative total hours through each month. We then can determine the number of labor hours needed each month. The calculations for months 1 5 follow.

Month 1 2 3 4 5

Cumulative Average Time per Unit 30,000(0.95000) = 28,500.0 30,000(0.86784) = 26,035.2 30,000(0.79945) = 23,983.5 30,000(0.74080) = 22,224.0 30,000(0.69090) = 20,727.0

Cumulative Total Hours for All Units (2)28,500.0 = 57,000 (5)26,035.2 = 130,176 (10)23,983.5 = 239,835 (18)22,224.0 = 400,032 (30)20,727.0 = 621,810

Example 3
Calculate the number of hours needed for a particular month by subtracting its cumulative total hours from that of the previous month.

Month 1: Month 2: Month 3: Month 4: Month 5:

57,000 0 = 57,000 hours 130,176 57,000 = 73,176 hours 239,835 130,176 = 109,659 hours 400,032 239,835 = 160,197 hours 621,810 400,032 = 221,778 hours

Example 3
The required number of employees equals the number of hours needed each month divided by 150, the average number of hours each employee can work. Month 1: Month 2: Month 3: Month 4: Month 5: 57,000/150 = 380 employees 73,176/150 = 488 employees 109,659/150 = 731 employees 160,197/150 = 1,068 employees 221,778/150 = 1,479 employees

Example 4
A company has a contract to make a product for the first time. The total budget for the 38-unit job is 15,000 hours. The first unit took 1000 hours, and the rate of learning is expected to be 80 percent. a. Do you think the 38-unit job can be completed within the 15,000-hour budget? b. How many additional hours would you need for a second job of 26 additional units?

Example 4
SOLUTION a. Average38 Total38 = 1000(0.43634) = 436.34 hrs/pc = 436.34(38) = 16,581 hours

They will have trouble meeting the 15,000 hour budget b. Average64 = 1000(0.37382) = 373.82 hrs/pc Total64 = 373.82(64) = 23,924 hours Total64 Total38 = 23,924 16,581 = 7,343 additional hours required

Managerial Considerations
 The simpler the service or product, the less the learning rate  The entire learning curve is based on the time required for the first unit  Learning curves are used to greatest advantage in the early stages of new product or service production  Implementing a team approach can change organizational learning rates  Learning curves are only approximations

Limitations of Learning Curves

Learning curves differ from company to company as well as industry to industry so estimates should be developed for each organization Learning curves are often based on time estimates which must be accurate and should be reevaluated when appropriate

Limitations of Learning Curves

Any changes in personnel, design, or procedure can be expected to alter the learning curve Learning curves do not always apply to indirect labor or material The culture of the workplace, resource availability, and changes in the process may alter the learning curve