1. E - 1© 2011 Pearson Education, Inc. publishing as Prentice Hall E E Learning Curves PowerPoint presentation to accompany Heizer and Render Operations Management, 10e Principles of Operations Management, 8e PowerPoint slides by Jeff Heyl

2. E - 2 © 2011 Pearson Education, Inc. publishing as Prentice Hall Outline  Learning Curves in Services and Manufacturing  Applying the Learning Curve  Arithmetic Approach  Logarithmic Approach  Learning-Curve Coefficient Approach  Strategic Implications of Learning Curves  Limitations of Learning Curves

3. E - 3 © 2011 Pearson Education, Inc. publishing as Prentice Hall Learning Objectives When you complete this module you should be able to: 1.Define a learning curve 2.Use the arithmetic concept to estimate times 3.Compute learning curve effects with the logarithmic and learning-curve coefficient approaches 4.Describe the strategic implications of learning curves

4. E - 4 © 2011 Pearson Education, Inc. publishing as Prentice Hall Learning Curves  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

5. E - 5 © 2011 Pearson Education, Inc. publishing as Prentice Hall Learning Curve Effect Figure E.1 Cost/time per repetition Number of repetitions (volume) 0

6. E - 6 © 2011 Pearson Education, Inc. publishing as Prentice Hall Learning Curves T x L n = Time required for the n th unit whereT=unit cost or unit time of the first unit L=learning curve rate n=number of times T is doubled First unit takes 10 labor-hours 70% learning curve is present Fourth unit will require doubling twice — 1 to 2 to 4 Hours required for unit 4 = 10 x (.7) 2 = 4.9 hours

7. E - 7 © 2011 Pearson Education, Inc. publishing as Prentice Hall Learning Curve Examples Table E.1 Example Improving Parameters Cumulative Parameter Learning- Curve Slope (%) Model -T Ford production PriceUnits produced86 Aircraft assembly Direct labor-hours per unit Units produced80 Equipment maintenance at GE Average time to replace a group of parts Number of replacements 76

8. E - 8 © 2011 Pearson Education, Inc. publishing as Prentice Hall Learning Curve Examples Table E.1 Example Improving Parameters Cumulative Parameter Learning- Curve Slope (%) Steel production Production worker labor-hours per unit produced Units produced79 Integrated circuits Average price per unit Units produced72 Handheld calculator Average factory selling price Units produced74

9. E - 9 © 2011 Pearson Education, Inc. publishing as Prentice Hall Learning Curve Examples Table E.1 Example Improving Parameters Cumulative Parameter Learning- Curve Slope (%) Disk memory drives Average price per bit Number of bits76 Heart transplants 1-year death ratesTransplants completed 79 Cesarean section baby deliveries Average operation time Number of surgeries 93

10. E - 10 © 2011 Pearson Education, Inc. publishing as Prentice Hall Uses of Learning Curves Internal:labor forecasting, scheduling, establishing costs and budgets External:supply chain negotiations Strategic:evaluation of company and industry performance, including costs and pricing

11. E - 11 © 2011 Pearson Education, Inc. publishing as Prentice Hall Arithmetic Approach  Simplest approach  Labor cost declines at a constant rate, the learning rate, as production doubles  An example using an 80% learning curve Nth Unit ProducedHours for Nth Unit 1100.0 280.0= (.8 x 100) 464.0= (.8 x 80) 851.2= (.8 x 64) 1641.0= (.8 x 51.2)

12. E - 12 © 2011 Pearson Education, Inc. publishing as Prentice Hall Logarithmic Approach Determine labor for any unit, T N, by T N = T 1 (N b ) whereT N =time for the N th unit T 1 =hours to produce the first unit b=(log of the learning rate)/(log 2) =slope of the learning curve

13. E - 13 © 2011 Pearson Education, Inc. publishing as Prentice Hall Logarithmic Approach Determine labor for any unit, T N, by T N = T 1 (N b ) whereT N =time for the N th unit T 1 =hours to produce the first unit b=(log of the learning rate)/(log 2) =slope of the learning curve Learning Rate (%) b 70–.515 75–.415 80–.322 85–.234 90–.152 Table E.2

14. E - 14 © 2011 Pearson Education, Inc. publishing as Prentice Hall Logarithmic Example Learning rate = 80% First unit took 100 hours T N =T 1 (N b ) T 3 =(100 hours)(3 b ) =(100)(3 log.8/log 2 ) =(100)(3 –.322 ) =70.2 labor hours

15. E - 15 © 2011 Pearson Education, Inc. publishing as Prentice Hall Coefficient Approach TN=T1CTN=T1C whereT N =number of labor-hours required to produce the N th unit T 1 =number of labor-hours required to produce the first unit C=learning-curve coefficient found in Table E.3

16. E - 16 © 2011 Pearson Education, Inc. publishing as Prentice Hall Learning-Curve Coefficients Table E.3 70%85% Unit Number (N) Unit Time Total Time Unit Time Total Time 11.000 2.7001.700.8501.850 3.5682.268.7732.623 4.4902.758.7233.345 5.4373.195.6864.031 10.3064.932.5837.116 15.2486.274.5309.861 20.2147.407.49512.402

17. E - 17 © 2011 Pearson Education, Inc. publishing as Prentice Hall Coefficient Example First boat required 125,000 hours Labor cost = $40/hour Learning factor = 85% T N =T 1 C T 4 =(125,000 hours)(.723) =90,375 hours for the 4 th boat 90,375 hours x $40/hour = $3,615,000 T N =T 1 C T 4 =(125,000 hours)(3.345) =418,125 hours for all four boats

18. E - 18 © 2011 Pearson Education, Inc. publishing as Prentice Hall Coefficient Example Third boat required 100,000 hours Learning factor = 85% 100,000.773 = 129,366 hours New estimate for the first boat

19. E - 19 © 2011 Pearson Education, Inc. publishing as Prentice Hall Strategic Implications To pursue a strategy of a steeper curve than the rest of the industry, a firm can: 1.Follow an aggressive pricing policy 2.Focus on continuing cost reduction and productivity improvement 3.Build on shared experience 4.Keep capacity ahead of demand

20. E - 20 © 2011 Pearson Education, Inc. publishing as Prentice Hall Industry and Company Learning Curves Figure E.2 Price per unit (log scale) Accumulated volume (log scale) Gross profit margin Loss (a) (c) (b) Company cost Industry price

21. E - 21 © 2011 Pearson Education, Inc. publishing as Prentice Hall 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

22. E - 22 © 2011 Pearson Education, Inc. publishing as Prentice Hall 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

23. E - 23 © 2011 Pearson Education, Inc. publishing as Prentice Hall All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.