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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