NTH UNIT PRODUCED HOURS FOR NTH UNIT

MANSCI 01: LEARNING CURVES 1 100

2 80.0 = (.8 x 100)
4 64.0 = (.8 x 80)
Theory behind learning curves: “Learn, Practice, Improve” 8 51.2 = (.8 x 64)
 Premise: People and organizations become better at their tasks as 16 41.0 = (.8 x 51.2)
the tasks are repeated.  The logarithmic approach allows us to determine labor for
 Sometimes called experience curves any unit by the formula:
TN = T1( Nb )
Where It All Started: where TN = time for the Nth unit
 Learning curves were first applied to industry in a report by T.P. T1 = hours to produce the first unit
Wright of Curtis-Wright Corp. in 1936 b = (log of the learning rate)/(log 2) = slope of
o Direct labor costs of making a particular airplane the learning curve
decreased with learning. Example:
 The learning rate for a particular operation is 80% and the
BASIS: Doubling of Production first unit of production took 100 hours. The hours required to
o When production doubles, the decrease in time per unit affects the produce the third unit may be computed as follows:
rate of the learning curve TN = T1( Nb )
o If the learning curve is 80%: T3 = (100 hours)(3b)
 2nd unit takes 80% of the time of the 1st unit = (100)(3log .8/log 2)
 4th unit takes 80% of the time of the 2nd unit = (100)(3-.322)
 8th unit takes 80% of the time of the 4th unit = 70.2 labor-hours
 And so forth
3. Learning-Curve Coefficients
T x Ln = Time required for the nth unit  The learning-curve coefficient technique is expressed in the
where T = unit cost or unit time of the first unit following equation:
L = learning curve rate
n = number of times T is doubled TN = T1C
Example: Where TN = number of labor-hours required to produce the Nth unit
 If the first unit of a particular product took 10 labor hours, and if a T1 = number of labor-hours required to produce the first unit
70% learning curve is present, the hours the fourth unit will take C = learning-curve coefficient
require doubling twice – from 1 to 2 to 4. How many hours will it
take to finish the 4th unit?
o 10 x 70%2 = 4.9 hours

CAUTION:
 Caution should be exercised in assuming that a learning curve is
continuing and permanent.
 Any change in process, product, or personnel disrupts the learning
curve.

USEFUL FOR:
 Internal: Labor forecasting, scheduling, establishing costs and
budgets
o Determine labor standards and rates of material supply
required
 External: Supply-chain negotiations
o Determine purchase costs
 Strategic: evaluation of company and industry performance,
including costs and pricing
o Determine volume-cost changes

APPLYING THE LEARNING CURVE Example:

1. Arithmetic Approach  It took a Korean shipyard 125,000 labor hours to produce the
 The simplest approach to learning-curve problems first several tugboats that you expect to purchase for your
 Each time the production doubles, labor per unit declines by a shipping company, Great Lakes, Inc. Boats 2 and 3 have been
constant factor, known as the learning rate produced by the Koreans with a learning factor of 85%. At
$40 per hour, what should you, as purchasing agent, expect to
Example: pay for the fourth unit?
 So if we know that the learning rate is 80% and that the first unit TN = T1C
produced took 100 hours, the hours required to produce the second, T4 = (125,000 hours)(.723)
fourth, eighth, and sixteenth units are as follows: = 90,375 hours

To find the cost, multiply by $40

90,375 x $40 per hour
= $3,615,000

How long will all four boats require?

 As long as we wish to find the hours required to produce N TN = T1C

units and N is one of the doubled values, then this approach T4 = (125,000 hours)(3.345)
works. = 418,125 hours in total for all four boats
 Arithmetic analysis does not tell us how many hours will be
needed to produce other units. What happens if our most recent or most reliable information available
pertains to some other unit?
2. Logarithmic Approach
Great Lakes, Inc. believes that unusual circumstances in producing the first
boat imply that the time estimate of 125,000 hours is not as valid a base as the
time required to produce the third boat. Boat number 3 was completed in
100,000 hours. To solve for the revised estimate for boat number 1, we return
to the table, with a unit value of N=3 and a learning-curve coefficient of
C=.773 in the 85% column.

100,000
= 129,366 hours
.773
Before using learning curves, some cautions are in order:
o Because learning curves differ from company to company, as well
as industry to industry, estimates for each organization should be
developed rather than applying someone else’s.
o Learning curves are often based on the time necessary to complete
the early units; therefor, those times must be accurate.
o Any changes in personnel, design, or procedure can be expected to
alter the learning curve, causing the curve to spike up for a short
time, even if it is going to drop in the long run.
o While workers and process may improve, the same learning curves
do not always apply to indirect labor and material.
o The culture of the workplace, as well as resource availability and
changes in the process, may alter the learning curve. For instance,
as a project nears its end, worker interest and effort may drop,
curtailing progress down the curve.