1. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 E-1 Operations Management Learning Curves Module E

2. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 E-2 Outline  LEARNING CURVES IN SERVICES AND MANUFACTURING  APPLYING THE LEARNING CURVE  Arithmetic Approach  Logarithmic Approach  Learning-Curve Coefficient Approach  Strategic Implications of Learning Curves  Limitations of Learning Curves

3. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 E-3 Learning Objectives When you complete this chapter, you should be able to Identify or Define :  What a learning curve is  Examples of learning curves  The doubling concept Describe or Explain:  How to compute learning curve effects  Why learning curves are important  The strategic implication of learning curves

4. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 E-4  Learning: Relatively permanent change in behavior due to repetition & rewards  Types of learning  Individual  Organizational  Results in ‘learning curve effect’  First observed in 1936 in airplane industry Learning

5. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 E-5  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 Learning Curve Effect

6. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 E-6 Learning Curve Graph Hours per unit, T N Cumulative units, N 90 % curve 80% curve T N = (100)(N log.90/log2 )

7. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 E-7 Examples of Learning Curve Effects ExampleImproving ParameterCumulative Parameter Learning Curve Slope (%) Time Frame 1. Model-T Ford production PriceUnits produced861910- 1926 2.Aircraft assemblyDirect labor-hours per unitUnits produced801925- 1957 3.Equipment maintenance at GE Average time to replace a group of parts Number of replacements 76Around 1957 4. Steel productionProduction worker labor-hours per unit produced Units produced791920- 1955 5.Integrated circuitsAverage price per unitUnits produced72 * 1964- 1972 6.Hand-held calculatorAverage factory selling priceUnits produced741975- 1978 7.Disk memory drivesAverage price per bitNumber of bits761975- 1978 8.Heart transplants1-year death ratesTransplants completed 791985- 1988

8. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 E-8 Workers’ Skills Tools Product Design Material Learning Curve Work Methods Continuous Improvement Methods Process Design Factors Affecting Learning Curves

9. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 E-9 Aircraft Assembly (1925-57): 80% Calculator (1975- 78): 74% Heart Transplants (1985-88): 79% © 1995 Corel Corp. Learning Curves Vary by Product and Industry

10. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 E-10  Internal  Determine labor standards  Establish labor costs & budgets  Scheduling  External  Purchasing  Subcontracting  Strategic  Determine volume-cost changes  Evaluation of company and industry performance Learning Curve Applications

11. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 E-11  Lack strong theoretical justification  Intermingle variables  Learning effects  Economies of scale  Technological improvements  Focus on cost not profit © 1984-1994 T/Maker Co. Criticisms of Learning Curves

12. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 E-12  Arithmetic approach  Uses relationship: T 2 N = L * T N  Useful only if values doubled  Logarithmic analysis  Uses relationship: T N = T 1 N log L / log 2  N = Unit of interest; T 1 = Time for unit 1  Can find time for any value of N  Learning curve coefficients approach  Uses relationship: T N = T 1 C (from Table) Developing Learning Curves

13. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 E-13 Learning Curve Coefficients Table Unit (N)80%85% Unit Time Total Time Unit Time Total Time 1…1.000 2…0.8001.8000.8501.850 3…0.7022.5020.7732.623 4…0.6403.1420.7233.345 ::::::

14. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 E-14 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 4 th boat take so that raiding can begin? © 1995 Corel Corp. Learning Curves Example 1

15. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 E-15  Formula: T 2 N = L * T N  1 st unit: T 1 =125,000 hr.  2 nd unit: T 2 = L * T 1 =.85 * 125,000 =106,250 hr.  4 th unit: T 4 = L * T 2 =.85 * 106,250 =90,312 hr. Arithmetic Approach

16. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 E-16  Formula: T N = T 1 ( N log L / log 2 )  N = Unit of interest  T 1 = Time for unit 1  L = Learning rate  T 1 = 125,000 hr.  4 th unit: T 4 = T 1 ( N log L / log 2 ) =125,000 (4 log.85 / log 2 ) =90,312 hr. Logarithmic Approach

17. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 E-17  Formula: T N = T 1 C  N = Unit of interest  T 1 = Time for unit 1  C = Learning curve coefficient from table  T 1 = 125,000 hr.; C =.723 from Table E3 (at 85%)  4 th unit: T 4 = T 1 C =125,000 * (.723) =90,375 hr. (rounding C ) Coefficient Approach

18. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 E-18 Learning Curves and Strategy 0 20 40 60 80 100 120 0100200300400 Hours per unit Cumulative units Industry average Steeper curve For a low price, high volume strategy, firm must lower unit hours & costs to maintain profit margins (i.e., steeper curve)

19. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 E-19 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

20. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 E-20 Industry Learning Curve for Price Compared to Company Learning Curve for Cost