06. learning curve

8/13/2019 06. Learning Curve

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Learning Curve

(Experience Curve)

Any repetitive type of job an individual keeps on

improving his speed. Also will do it better. Makes Minor

Changes and attains Higher productivity. Also in relation

to intensity of repetition, Consumes less resources.

The same thing happens to an organization also.

The resource input required to produce an unit of

production diminishes.

Initially this drop is high and gradually it flattens off

This benefit of learning is predictable.


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The Rate of Learning is not same in all cases /situations.

The general equation of the curve is

Yi = Kib

Yi = Labour hours required to produce ith unit

K = Labor hours required to produce 1st unit

b = Index of learning

i = Ordinal No. of Unit

Industrial Engineers fix the learning rates for different

type of jobs.

The crucial decision is to estimate and fix K and b inthe equation.

If K and b are wrong the analysis will be misleading and

we will reach wrong decisions.


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Figure : An 80% Learning Curve plotted on

arithmetic coordinates the first unit requires 60

labor hours

0

10

20

30

40

50

60

1 3 5 7 9 11 13 15 19 20


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Labour Hours Required for

Cumulative Unit

Cumulative

Unit

70% Curve 80% Curve 90% Curve

1

2

4

8

16

100.0

70.0

49.0

34.3

24.0

100.0

80.0

64.0

51.2

41.0

100.0

90.0

81.0

72.9

65.6


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Learning Rate is specified in percentage

The meaning of percentage is ;

in a 90% learning curve,if 1st Unit takes 100 hours to make

2nd Unit takes 90 hours

4th Unit will take 81 hours

8th Unit will take 72.9 hours

16th Unit will take 65.6 hours etc.

For every stage of doubling of numbers, hours requiredgets reduced to learning percentage times.

Learning curve concepts are also used on the basis ofmonths of production, quarters of production, years ofproduction. This is also done on the basis of first 100or 1000 etc. The concept of all these methodology is

similar.


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Learning Curve

Reduction in time consumed is the effect of several things

that an organization does and not only pure labour

learning.Improvements in several areas:

Improved methods

Product re-engineering

Training

Facilities Re-Layout

Improved working environment

Eliminating Inspection

Simple Examples:

Reducing Machining

Allowance

Improvement in

Machinability

Select Better Tools.

Provide Right accessoriesand gauges.

Do offline programming

Maintain Machines

properly


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Uses of Learning Curve

Calculating Labour hours required and man

power planning.

Estimating delivery schedules

Estimating cost

Estimating profitability

Strategic pricing and facing competition

Working out cash flow

Breakeven analysis

Gestation period


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Case ExampleSure Float Boat Builders

New Model Yacht

80% Learning Curve expected

1st Unit 500 Lab Hours

Month Order Quantity1

2

3

4

5

2

6

10

10

15

Total 43

Manpower

Requirement ?

Cash Flow ?


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Exercise

If month 7 to 12 monthly cash flow?

Requirement 12 pm

Profits ?

(1)Group exercise

(2)Alsowhen experience curve really

count. What should firm A do now?

- Group Exercise


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Cumulative

Unit

Labour

Hours

required for

Cumulative

Unit

(rounded)

Month Yachts Labour

Hours

required

for

Cumulative

Units

(rounded)

Change

in Labour

Hours

from

Previous

Month

Change in

output

from

Previous

month

Monthly

Manpowe

r

equivalent

of people

1

2

3

4

56

7

8

9

10

19

28

29

42

43

500

400

351

320

298281

267

256

246

238

194

171

169

150

149

1

2

3

4

5

2

6

10

10

15

900

1773

2185

1816

2373

+98.1%

+23.2

-16.8

+31.0

+200.0%

+67.7

0

+50.0

5.62

11.0

13.65

11.35

14.83

Total Labour hours 9,047 Total Yachts = 43


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Obtained from Table S4.1 and Equation S4.1

labour hours for yacht one = Y1 = (500)(1.000) = 500

A person is assumed to work 20 days / month.

Thus a manpower equivalent is 20 x 8 =

160 hours / month. For each month the

manpower equivalent is found by dividing

the monthly labor hours by 160. Hence, for

month 1, 900 / 160 = 5.62


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Sureflout cashflow for six monthsMonth

1 2 3 4 5 6

Units produced and delivered 2 6 10 10 15 15

Cash inflow from sales 0 $24,000 $72,000 $120,000 $120,000 $180,000

Outflows

Wages $5,620 $11,080 $13,650 $11,350 $ 14,830 $13,500

Direct Material ( $ 6,000 peryacht)

12,000 36,000 60,000 60,000 90,000 90,000

Variable materials overhead

(10%

of direct material)

1,200 3,600 6,000 6,000 9,000 9,000

Fixed administrative and

marketing overhead

10,000 10,000 10,000 10,000 10,000 10,000

Monthly outflow $28,820 $60,680 $89,650 $187,350 $123,830 $122,500

Net monthly cash flow (inflow-

outflow)

(28,820) (36,680) (17,650) 32,650 (3,830) 57,500

Cumulative Cash flow position

(month-end)

(28,820) (65,500) (83,150) (50,500) (54,330) 3,170

C l l i


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CalculationsTable S4.1 Labour hours for yacht one = 500.

Equation S4.1

Yacht Two = 500 x 0.7999

= 400

Yacht three = 500 x 0.7021

= 351 etc.

A person works 20 days a month 8 hours per day I.e. 20 x 8 =

160 hours per month.

Hence no. of persons required in month 1 = (500 + 400) / 160

= 900 / 160

= 5.62


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Wage is $ 1000 per month per employee

Wages in month 1 = 5.62 x 1000 = 5620

For month 2 it will be 1773 / 160 = 11.08 x 1000

= 11080 etc

Sale price of each Yacht = 12000

06. learning curve

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