Supplement
I Learning Curve Analysis
1. The Learning Curve Concept
• Organizational learning
• Learning effect
1. Background
2. Learning curves and competitive strategy
a. Can project the manufacturing cost per unit for a given cumulative production quantity.
b. Product design changes disrupt the learning effect.
c. Using volume to quickly move down the learning curve, discouraging competitors from
entering the market.
2. Developing Learning Curves
• The direct labor required for the nth unit kn, is
b
nnkk 1
=
where
k1 = direct labor hours for the 1st unit
n = cumulative number of units produced
2log
log r
b=
r = learning rate Example I.1
• Assumptions
o
o
o
• Application I.1: Estimating Direct Labor Requirements
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?
3. Using Learning Curves
1. Bid preparation
2. Financial planning
3. Labor requirement estimation
a. Based on doublings
b. Based on conversion factors tables
4. Use Application I.2: Estimating Cumulative Labor Hours for an example of using the
learning model to test budget constraints.
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?
=
=
38
38
Total
Average
b. How many additional hours would you need for a second job of 26 additional units?
=−
=
=
3864
64
64
TotalTotal
Total
Average
4. Managerial Considerations in the Use of Learning Curves
• Obtaining good estimate of the learning rate
• Complexity of service or product
• The entire learning curve is based on the time required for the first unit
• Greatest advantage in the early stages of new product or service production
• Implementing a team approach
• Only approximations