2006 Prentice Hall, Inc. E – 1 Operations Management Module E – Learning Curves 2006 Prentice Hall, Inc. PowerPoint presentation to accompany PowerPoint presentation to accompany Heizer/Render Heizer/Render Principles of Operations Management, 6e Principles of Operations Management, 6e Operations Management, 8e Operations Management, 8e
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PowerPoint presentation to accompanyPowerPoint presentation to accompany Heizer/Render Heizer/Render Principles of Operations Management, 6ePrinciples of Operations Management, 6eOperations Management, 8e Operations Management, 8e
Based on the premise that people and Based on the premise that people and organizations become better at their organizations become better at their tasks as the tasks are repeatedtasks as the tasks are repeated
Time to produce a unit decreases as Time to produce a unit decreases as more units are producedmore units are produced
Learning curves typically follow a Learning curves typically follow a negative exponential distributionnegative exponential distribution
The rate of improvement decreases The rate of improvement decreases over timeover time
T x LT x Lnn = Time required for the n = Time required for the nthth unit unit
wherewhere TT == unit cost or unit time of the first unitunit cost or unit time of the first unitLL == learning curve ratelearning curve ratenn == number of times T is doublednumber of times T is doubled
First unit takes First unit takes 1010 labor-hours labor-hours70%70% learning curve is present learning curve is presentFourth unit will require doubling twice — Fourth unit will require doubling twice — 11 to to 2 2 to to 44
Hours required for unit Hours required for unit 4 = 10 x (.7)4 = 10 x (.7)22 = 4.9 = 4.9 hourshours
Strategic:Strategic: evaluation of company and evaluation of company and industry performance, industry performance, including costs and pricingincluding costs and pricing
Labor cost declines at a constant rate, Labor cost declines at a constant rate, the learning rate, as production doublesthe learning rate, as production doubles
Nth Unit ProducedNth Unit Produced Hours for Nth UnitHours for Nth Unit
To pursue a strategy of a steeper curveTo pursue a strategy of a steeper curvethan the rest of the industry, a firm can:than the rest of the industry, a firm can:
1.1. Follow an aggressive pricing policyFollow an aggressive pricing policy
2.2. Focus on continuing cost reduction Focus on continuing cost reduction and productivity improvementand productivity improvement
3.3. Build on shared experienceBuild on shared experience
4.4. Keep capacity ahead of demandKeep capacity ahead of demand
Limitations of Learning Limitations of Learning CurvesCurves
Learning curves differ from company Learning curves differ from company to company as well as industry to to company as well as industry to industry so estimates should be industry so estimates should be developed for each organizationdeveloped for each organization
Learning curves are often based on Learning curves are often based on time estimates which must be accurate time estimates which must be accurate and should be reevaluated when and should be reevaluated when appropriateappropriate
Limitations of Learning Limitations of Learning CurvesCurves
Any changes in personnel, design, or Any changes in personnel, design, or procedure can be expected to alter the procedure can be expected to alter the learning curvelearning curve
Learning curves do not always apply to Learning curves do not always apply to indirect labor or materialindirect labor or material
The culture of the workplace, resource The culture of the workplace, resource availability, and changes in the process availability, and changes in the process may alter the learning curvemay alter the learning curve