Learning Curve (Experience Curve): 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.
PowerPoint Presentation: The Rate of Learning is not same in all cases / situations. The general equation of the curve is Y i = Ki b Y i = Labour hours required to produce i th unit K = Labor hours required to produce 1 st 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 in the equation. If K and b are wrong the analysis will be misleading and we will reach wrong decisions.
Figure : An 80% Learning Curve plotted on arithmetic coordinates the first unit requires 60 labor hours: Figure : An 80% Learning Curve plotted on arithmetic coordinates the first unit requires 60 labor hours
Labour Hours Required for Cumulative Unit: 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 81.9 72.9 65.6
PowerPoint Presentation: Learning Rate is specified in percentage The meaning of percentage is ; in a 90% learning curve, if 1 st Unit takes 100 hours to make 2 nd Unit takes 90 hours 4 th Unit will take 81 hours 8 th Unit will take 72.9 hours 16 th Unit will take 65.6 hours etc. For every stage of doubling of numbers, hours required gets reduced to learning percentage times. Learning curve concepts are also used on the basis of months of production, quarters of production, years of production. This is also done on the basis of first 100 or 1000 etc. The concept of all these methodology is similar.
PowerPoint Presentation: 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 accessories and gauges. Do offline programming Maintain Machines properly
Uses of Learning Curve: 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
Case Example: Case Example Sure Float Boat Builders New Model Yacht 80% Learning Curve expected 1 st Unit 500 Lab Hours Month Order Quantity 1 2 3 4 5 2 6 10 10 15 Total 43 Manpower Requirement ? Cash Flow ?
Exercise: Exercise If month 7 to 12 monthly cash flow? Requirement 12 pm Profits ? Group exercise Also…when experience curve really count. What should firm ‘A’ do now?’ - Group Exercise
PowerPoint Presentation: 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 Manpower equivalent of people 1 2 3 4 5 6 7 8 9 10 19 28 29 42 43 500 400 351 320 298 281 267 256 246 238 194 171 169 150 149 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
PowerPoint Presentation: 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
Sureflout cashflow for six months: Sureflout cashflow for six months Month 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 per yacht) 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
Calculations: Calculations Table 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
PowerPoint Presentation: 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