LEARNING CURVESLEARNING CURVES

Prof. Milind Jagtap

INTRODUCTIONINTRODUCTION

LEARNING CURVES: T.P.Wright-1936

Costs per unit tend to decrease in a predictable pattern as the workers and their supervisors become more familiar with the work. The decreasing cost are the function of a learning process in which fewer man hours are required to produce a unit of work as more and more units are produced.

POM LEARNING CURVE

Adam Smith Principle - Repeated activity Skill

Learning Process

Expertise

Improvements

Productivity

Growth

Individuals, Groups, Organisations

Ease of Opn., Work Simplification,Shortcuts

Quality Circles, SGA

Work Study, TPM, Inventory Control

Technology & Methods of Mfg.

Unit

Cost

Cumulative Qty. Produced

With increase in production volume Time / Unit reduces resulting in less cost per unitReduction expressed in % age

Effect Cum. Volume & Time / Unit vary in inverse proportion

POM LEARNING CURVE

LEARNING CURVE EFFECT

POM LEARNING CURVE

Equation of the curve b

Tn = T1 x nWhere

T 1 Cost of First unitTn Cost of n th Unit

n Cumulative output in unitsb Log r/log 2r = learning curve percentage

80% learning curve describes 20% improvement rate

90% learning curve describes 10% improvement

Number of units in sequence

Cumulative average time per unit at 90% learning curve

Cumulative average time per unit at 80% learning curve

1

2

4

8

16

32

100.0

90.0

81.0

72.9

65.6

59.1

100.0

80.0

64.0

51.2

40.9

32.8

LEARNING CURVES

LEARNING CURVES ON LOG –LOG SCALE

APPLICATIONS OF LEARNING CURVES IN CONSTRUCTION

Construction of roads, tunnels and high rise buildings

Bid preparation and contract negotiations.

LEARNING CURVE AND COMPETITIVE STRATEGYLEARNING CURVE AND COMPETITIVE STRATEGY

POM LEARNING CURVE

UsesProjection of cost per unit for future growthDeciding business strategyBudgeting for growthInvestment & technological decisionsTechnology choice for less experienced firmsAggressive pricing choice for greater

experience Predicting profitability at various levels of activityDiscount structuresIncentive schemes

POM LEARNING CURVE

APPLICATIONS

1. AER0SPACE

2. ELECTRONICS

3. SHIPBUILDING

4. CONSTRUCTION

5. DEFENSE

Two undergraduate students from Pune university , produce customized personal computer systems. They shop around and purchase cheap components and then put them together to assemble the computers, which have various special features for faculty, students and local business. Each time they get an order, it takes them a while to assemble the first unit, but they learn as they go and they reduce the assembly time as they produce more number of units. Recently, they have received their biggest order to date from the Statistics department for 36 customized personal computers. It is near the end of University’s financial year and computers are needed urgently to charge them on this year’s budget. The students assembled the first unit as trial and it took them 18 hours of direct labor. In order to ensure if they can fulfill the order in allotted time, they want to apply learning curve effect to estimate the time to complete 9th ,18th and 36th unit for assembly. Based on their previous experience, they believe that learning percentage for computer assembly is 80%. Moreover, they have estimated that it is not profitable to accept the order if the assembly of each unit takes more than 10 hours. Should students accept this order? Explain.

Honda Motor company has discovered a problem in the exhaust system of one of its automobile lines and has voluntarily agreed to make the necessary modifications to confirm with government safety norms. Standard procedure is for the firm to pay a flat fee to dealers for each modification completed.

Honda is trying to establish a fair amount of compensation to be paid to the dealers and has decided to choose a randomly selected mechanics and Observe their performance and learning rate. Analysis demonstrated that the average learning rate was 90 percent and Honda decided to pay a $60Fee for each repair(3 hour@$20 per hour).

Southwest Honda has complained to Honda Motors about the fee.Six mechanics working independently have completed two modifications each. All took 9 hours on average to do the first unit and 6.3 hours to do the second. Southwest Honda refuses to do any more repairs unless Honda Motors allows at least 4.5 for each repair. Dealers are supposed to perform repairs on 300 vehicles.

What is your opinion of Honda’s allowed rate and the mechanics performance.