Morgan Swink Broad Graduate School of Management Michigan State "ni#ersity

Managing Operations Across the Supply Chain, Swink McGraw-Hill !rwin

Technical Supplement 3 Learning Curves

LEARNING OBJECTIVES
After studying this technical supplement, you should $e a$le to% &' ()plain the learning cur#e concept *' !dentify different uses of learning cur#es in operations management +' Calculate the estimated time re,uired to do a task for a gi#en learning cur#e LEARNING C RVES AN! O"ERATIONS #ANAGE#ENT As people gain e)perience in doing a task, they usually can do the task more ,uickly' -or e)ample, consider the time it might take someone to wash a car for the first time' .hen imagine how that person might $e a$le to wash his car in less time as through repetitions he learns to se,uence the tasks more efficiently or perhaps as he uses $etter tools to do the tasks' .he same learning effect occurs in many different operational settings' .he learning cur#e is an analytical tool that can $e used to estimate the rate at which cumulati#e e)perience allows workers to do tasks faster and with less cost' Operations managers use learning cur#es to estimate how much the repetitions of a task will ena$le them to reduce the amount of resources re,uired to accomplish the ask' A learning cur#e is defined $y an e,uation that contains the rate of impro#ement /i'e', reduction in costs or reduction in time taken0 in performing a task as a function of the cumulati#e repetitions of the task' As early as &1*2, managers $egan de#eloping learning cur#e concepts' .he commander at 3right-4atterson Air -orce Base in 5ayton, Ohio, o$ser#ed that workers performing manufacturing operations at the $ase e)hi$ited a definite learning pattern' He noted that most aircraft manufacturing tasks e)perienced what he called an 67 percent learning rate, meaning that workers need *7 percent fewer hours to make a part each time their cumulati#e e)perience making that part dou$led' .hus, if the first part took &77 minutes, the second would re,uire 67 minutes, the fourth would re,uire 89 minutes, and so on' ()hi$it & graphs the reduction in unit time re,uired to complete a task as a function of the num$er of times that the task is repeated when the organi:ation has an 67 percent learning rate'

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Morgan Swink Broad Graduate School of Management Michigan State "ni#ersity

Managing Operations Across the Supply Chain, Swink McGraw-Hill !rwin

E$hi%it & Learning Curve ' () "ercent Learning Rate

1 0.9

0.8

0.7

Time per unit

0.6

0.5

0.4

0.3

0.2

0.1

20

40

60

80

100

Cumulative repetitions

.he learning cur#e is also sometimes referred to as an e)perience cur#e, a progress function, or an impro#ement function' (ssentially, the learning cur#e is a mathematical function that can $e used to chart the progress of workers as they learn to do their work faster' An operations manager can e)press the relationship $etween the amount of time it takes an organi:ation with a learning rate percentage of r to produce the nth item as an e,uation% .n ; .& /n$0 3here% .n ; time re,uired to complete the nth task r ; learning rate percentage b ; ln/r0 ln/*0 E$ample* Consider the information gi#en in the aircraft manufacturing e)ample a$o#e% .& ; &77 minutes .* ; 67 minutes .9 ; 89 minutes 3hat would $e the time re,uired to produce the eighth part< .6 ; /&770/6-7'+**0 ; 2&'* minutes since b; ln/7'670 ln/*0 ; -7'+**

Morgan Swink Broad Graduate School of Management Michigan State "ni#ersity

Managing Operations Across the Supply Chain, Swink McGraw-Hill !rwin

3e can #erify that this is the correct answer $y remem$ering that the fourth unit re,uired 89 minutes' Since the eighth unit represents a dou$ling of output $eyond the fourth unit, we would e)pect its task time to $e 67 percent of the time re,uired for the fourth unit' .hus, .6 ; 89/7'670 ; 2&'*' .his is the same answer gi#en $y the learning cur#e e,uation a$o#e' Appendi) A at the end of this supplement presents a ta$le gi#ing task time #alues for selected learning rates' .he appendi) shows that the estimated time for the eighth unit produced on an 67= learning cur#e is 7'2&* times the task time re,uired for the first unit' Again this confirms the result we calculated a$o#e' How much time would $e re,uired to produce all eight parts< >ote that the ta$le also gi#es the total time re,uired to produce a cumulati#e num$er of units' !n our e)ample, the total time re,uired to produce the first eight parts would $e 2'+98 ? &77 ; 2+9'8 minutes' .he a#erage time per part would $e 2+9'8 6 ; 88'6 minutes' +O, O"ERATIONS #ANAGERS SE LEARNING C RVES .he learning cur#e helps operations managers make task time estimates $y accounting for the fact that initial la$or re,uirements usually do not accurately represent future re,uirements' @earning cur#es e)press the effects of impro#ements in task procedures o#er time that ser#e to reduce the time needed to e)ecute a task' "sing these cur#es managers can de#elop resource re,uirement estimates that may $e used to financially Austify the de#elopment of a new product or process' Howe#er, operations managers must e#aluate learning cur#e e)pectations carefully' ()pectations are $ased on the skill le#els of workers, incenti#es and rewards for impro#ement, performance measurements, and other factors' !mportantly, an organi:ationBs culture must support learning in order to deri#e any $enefits from the learning cur#e' Selecting the proper learning rate #alue sometimes poses a pro$lem' How should managers go a$out setting an e)pectation for learning< .o estimate this rate for a new product, industrial engineers often try to identify similar e)isting products and gather historical data to compute their o$ser#ed learning rates' .hey may also e#aluate the comple)ity of the process, since a more comple) process offers greater potential learning' !n addition, they may look for outside effects on the pace of a process, such as the technology $eing used, the details of a la$or contract, etc' !n addition to estimating what a learning rate might $e, operations managers also consider what methods they might use in order to achie#e a targeted learning rate' An unusually slow learning rate, perhaps around 12 percent, may indicate that the organi:ationBs culture inhi$its learning, or it could indicate that e)cellent production methods and training programs ma)imi:ed producti#ity early on in the proAect' An unusually fast learning rate, perhaps around C2 percent, may indicate that a proAect $egan with insufficient planning and worker training, or it could indicate that highly moti#ated workers are straining to impro#e'

Morgan Swink Broad Graduate School of Management Michigan State "ni#ersity

Managing Operations Across the Supply Chain, Swink McGraw-Hill !rwin

!n general, the maAority of learning rates range $etween C7= to 17=' Dodney Stewart and Dichard 3yskida /&16C0& gi#e the following guidelines for e)pected learning rates in different situations% or Aerospace E 62= learning Ship$uilding E 67-62= Comple) machine tools for new models E C2-62= Depetiti#e electronics manufacturing E 17-12= Depetiti#e machining or punch-press operations E 17-12= Depetiti#e electronic operations E C2-62= Depetiti#e welding operations E 17= Daw materials E 1+-18= 4urchased parts E 62-66= C2= hand assem$ly *2= machining E 67= learning 27= hand assem$ly 27= machining E 62= learning *2= hand assem$ly C2= machining E 17= learning

"sing learning cur#es creates se#eral key $enefits for operations managers% Impr-ve. capacit/ planning% @earning cur#es help managers know how to manage capacity throughout the life of a production proAect' Managers typically want to ha#e more capacity at the start of a proAect' As workers $ecome more skilled and e)perienced, with the same amount of capacity they can make more' Alternati#ely, fewer workers are needed to achie#e the same le#el of output' .his knowledge can $e $uilt into a schedule for hiring and firing personnel as well as a schedule for material usage re,uirements' Impr-ve. C-sting% .he learning cur#e also tells managers how costs can $e e)pected to fall o#er time' .his reali:ation has $een used $y some companies as a competiti#e weapon' .e)as !nstruments, for e)ample, during the &1C7s, used this knowledge to dri#e out many of its competitors' Managers at .e)as !nstruments priced products lower than the initial costs to produce them with the e)pectation that the lower prices would generate more demand, which, in turn, would dri#e down the actual costs to the point that products then $ecame profita$le' By planning on their a$ility to achie#e a certain learning rate, .e)as !nstruments was a$le to undercut its competitorsB prices' !n the same way managers can use learning cur#e estimates to negotiate prices with their suppliers for purchased items' Changes in "r-.uct "r-cess !esign% A company that understands the causes of learning effects can design its products and processes in ways that ma)imi:e the potential for learning' Some companies ha#e $een #ery successful at fostering learning through product design, and more importantly $y de#eloping processes that moti#ate and reward learning' '

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Dodney 5' Stewart and Dichard M' 3yskida' &16C' Cost Estimators Reference Manual' >ew Fork, >F% 3iley' 9

Morgan Swink Broad Graduate School of Management Michigan State "ni#ersity

Managing Operations Across the Supply Chain, Swink McGraw-Hill !rwin

S ##AR0 Almost all operational tasks in#ol#e some le#el of learning' !n this supplement, we define learning specifically as reductions in task time that occur as a result of repetitions of the task' Such learning has $een shown to $e fairly steady and predicta$le in many operational settings' Conse,uently, learning cur#es can $e used to estimate task times and associated resource re,uirements' @earning cur#es and learning analysis are important tools that help operations managers to plan for capacity needs, product pricing, and product process design' SOLVE! "ROBLE# A firm must make a $id on a contract to make &* units of a new product' (ngineering analysis indicates that the nature of this product and its manufacturing processes resem$le those for the firmBs current Model *78, so the firm decides to $ase its $id on the 62 percent learning rate it e)perienced on that model' !f engineers estimate that the first unit will re,uire &7 hours of la$or, how many hours will the &* unit re,uire< How many hours will the firm take to make all &* units< S-luti-n* -ind the unit times for an 62 percent learning rate in Appendi) A'
"nit 4roduced "nit .ime Hours per "nit Cumulati#e Hours De,uired

& * + 9 2 8 C 6 1 &7 && &*

&'7777 7'6277 7'CC*1 7'C**2 7'862C 7'82C7 7'8++C 7'8&9& 7'21C9 7'26*6 7'2811 7'2269

&7'7 hrs' 6'27 C'C+ C'*+ 8'68 8'2C 8'+9 8'&9 2'1C 2'6+ 2'C7 2'26

&7'77 hrs' &6'27 *8'*+ ++'92 97'+& 98'66 2+'** 21'+8 82'++ C&'&8 C8'68 6*'99

.his ta$le indicates that the &*th unit will re,uire 2'26 hours, and the total num$er of hours needed to make all &* units to 6*'99 hours' 3e can also calculate the time re,uired for the &*th unit directly using the learning cur#e e,uation% $ ; ln/7'620 ln/*0 ; -7'*+9 .&* ; &7 /&*0-7'*+9 ; 2'26 hours 2

Morgan Swink Broad Graduate School of Management Michigan State "ni#ersity

Managing Operations Across the Supply Chain, Swink McGraw-Hill !rwin

""ROBLE#S &' A home $uilder needs to schedule la$or for the construction of *9 homes in a su$di#ision' !n the past the $uilder has noted a 17= learning rate' !f the first home re,uires *777 la$or hours to $uild, estimate the time re,uired to $uild% a' .he 9th house $' .he &2th house c' All *9 houses *' 3hat would the la$or estimate for all *9 homes in pro$lem & $e if the learning rate were% a' 62= $' 67= c' C2= +' A new worker re,uires *7 minutes to complete a task' !f he e)periences a 27= learning rate, how much time will it take him to complete the 9th task< 9' !f a production team e)periencing a C2= learning rate takes &7 hours to produce the 9th unit, how many hours would it $e e)pected to take to produce the &*th unit< 2' Suppose that a consulting company typically sees an 6C= learning rate for software installations at its clientsB operating sites' !f the first installation re,uired &77 la$or hours, what is your estimate of the la$or re,uired for% a' .he +rd installation $' .he &7th installation c' .he *7th installation 8' >ew workers at company ABC typically learn at a CC= rate' !f a new worker re,uires +7 minutes to produce his first unit of output, how many units will he need to produce $efore his output rate e)ceeds &7 units per hour< C' A new product re,uires 27 la$or hours for the first unit' !f the production line operates at an 6*= learning rate, what will $e the a#erage la$or hours per unit re,uired to produce 9 units< 6' >ew technicians performing MD! procedures in a radiology department are processing patients at rates shown $elow' 4atient num$er% 4rocess time /min0% & C2 * 8& + 2* 9 27 2 92 8 9+ C 97 6 +1

a' 3hat is the appro)imate learning rate< $' 3hat is the appro)imate total time re,uired to process &2 patients<

Morgan Swink Broad Graduate School of Management Michigan State "ni#ersity

Managing Operations Across the Supply Chain, Swink McGraw-Hill !rwin

Morgan Swink Broad Graduate School of Management Michigan State "ni#ersity

Managing Operations Across the Supply Chain, Swink McGraw-Hill !rwin

Appendix LC-A Learning Curve Coefficients