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Operations Management Introduction To Learning Curves Module E

Operations Management Introduction To Learning Curves Module E. Learning. Learning: Relatively permanent change in behavior due to repetition & rewards 2 Types of learning Individual Organizational Results in ‘learning curve effect’ First observed in 1936 in airplane industry.

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Operations Management Introduction To Learning Curves Module E

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  1. Operations ManagementIntroduction To Learning CurvesModule E © 2001 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

  2. Learning • Learning: Relatively permanent change in behavior due to repetition & rewards • 2 Types of learning • Individual • Organizational • Results in ‘learning curve effect’ • First observed in 1936 in airplane industry © 2001 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

  3. Learning Curve Effect • Time needed to produce a unit decreases with each additional unit • Time needed decreases at a decreasing rate as cumulative production increases • Decrease in time follows an exponential curve called learning or experience curve © 2001 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

  4. Hours per unit, TN TN = (100)(N log.90/log2) 90% curve 80% curve Cumulative units, N Learning Curve Graph © 2001 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

  5. Workers’ Skills Material Work Methods Learning Curve Product Design Tools Continuous Improvement Methods Process Design Factors Affecting Learning Curves © 2001 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

  6. Aircraft Assembly (1925-57): 80% Calculator (1975-78): 74% © 1995 Corel Corp. Heart Transplants (1985-88): 79% © 1995 Corel Corp. Learning Curves Vary by Product and Industry © 2001 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

  7. Learning Curve Applications • Internal • Determine labor standards • Establish labor costs & budgets • Scheduling • External • Purchasing • Subcontracting • Strategic • Determine volume-cost changes • Evaluation of company and industry performance © 2001 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

  8. Criticisms of Learning Curves • Lack strong theoretical justification • Intermingle variables • Learning effects • Economies of scale • Technological improvements • Focus on cost not profit © 1984-1994 T/Maker Co. © 2001 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

  9. Developing Learning Curves • Arithmetic approach • Uses relationship: T2N = L * TN • Useful only if values doubled • Logarithmic analysis • Uses relationship: TN = T1N log L / log 2 • N = Unit of interest; T1= Time for unit 1 • Can find time for any value ofN • Learning curve coefficients approach • Uses relationship: TN = T1C(from Table) © 2001 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

  10. Unit … 80% 85% (N) … Unit Total Unit Total Time Time Time Time 1 … 1.000 1.000 1.000 1.000 2 … .800 1.800 .850 1.850 3 … .702 2.502 .773 2.623 4 … .640 3.142 .723 3.345 : : : : : : Learning Curve Coefficients Table Table E.3 P. 838 © 2001 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

  11. Excel OM – Arithmetic Sample © 2001 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

  12. Learning CurvesDetermining Time Example You’re a planner for Viking Ships. The first boat took 125,000 labor-hours to make. Boats 2 & 3 were produced with a learning factor of 85%. How long will the 4th boat take so that raiding can begin? © 1995 Corel Corp. © 2001 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

  13. Arithmetic Approach • Formula: T2N = L * TN • 1st unit: T1 = 125,000 hr. • 2nd unit: T2 = L * T1 = .85 * 125,000 = 106,250 hr. • 4th unit: T4 = L * T2 = .85 * 106,250 = 90,312 hr. © 2001 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

  14. Logarithmic Approach • Formula: TN = T1 (N log L / log 2) • N = Unit of interest • T1 = Time for unit 1 • L = Learning rate • T1 = 125,000 hr. • 4th unit: T4 = T1 (Nlog L / log 2) = 125,000 • (4 log .85 / log 2) = 90,312 hr. © 2001 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

  15. Coefficient Approach • Formula: TN = T1 C • N = Unit of interest • T1 = Time for unit 1 • C = Learning curve coefficient from table • T1 = 125,000 hr.; C = .723 from Table E3 • 4th unit: T4 = T1 C = 125,000 * (.723) = 90,375 hr. (rounding C) © 2001 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

  16. Learning CurvesDetermining Rate Example • If you Know the First Ship took 125,000 hours to construct, • And the 4th ship took 100,000 hours to construct… • What will your Learning Curve Be? • Excel OM >> Learning Curves >> Determining The Rate © 2001 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

  17. Hours per unit For a low price, high volume strategy, a firm must lower unit hours & costs to maintain profit margins (i.e., steeper curve). 120 100 80 60 Industry average 40 Steeper curve 20 0 0 100 200 300 400 Cumulative units Learning Curves and Strategy © 2001 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

  18. Learning Curves and Strategy To pursue a learning curve steeper than that of the industry, a firm must: • follow an aggressive pricing policy • focus on continuing cost reduction and productivity improvement • build on shared experience • keep capacity growing ahead of demand © 2001 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

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