March 18, 2015

Learning Curves - Review Notes

Learning curves are important in a variety of business applications, especially manufacturing. The learning curve theory is a relationship between unit production time and the cumulative number of units produced. As individuals or organizations collectively repeat a particular process, they gain skill or efficiency from their experience and production time improvements result.

The learning curve theory is based on three assumptions: (1) the amount of time required to complete a given task or unit of a product will be less each time the task is undertaken, (2) the unit time will decrease at a decreasing rate, and (3) the reduction in time will follow a predictable pattern. This is often referred to as "practice makes perfect."

If production has been in progress for some time, the learning percentage can be obtained from production records. The longer the production history, the more accurate the estimate will be. For new production projects, it is more a function of guesswork and expert opinion to estimate a learning curve percentage.

A firm's learning rate may differ from that of the industry due to differences in operating characteristics or even procedural differences. Often the rates will vary whether the industry rate is based on a single product or an entire product line. The manner in which the data were aggregated will cause rates to vary. Learning curves and organizational knowledge can depreciate if key individuals leave the organization or if technologies become inaccessible or difficult to use. Learning curves provide an excellent means to examine performance.

Learning curve theory was generalized into experience effect and it was made applicable to costs. The cumulative volume and average cost of production have an inverse relationship. As cumulative volume doubles average cost goes down by a certain percentage. For example, 90% learning curve implies, if the cumulative volume doubles, the average cost will come to 90% of the earlier average cost, This means, the firm selling more volume will be able to produce the incremental units at a lower cost, when the law is in operation and can sell at a lower price, thus enlarging the market demand for its products. Customers may shift their demand to that company and wait buying from it at lower price. Thus experience effect becomes a competitive strategy issue.

Application of Learning Curves
Learning Curve Defined
Individual Learning Defined
Organizational Learning Defined

Plotting Learning Curves
Logarithmic Analysis
Learning Curve Tables
Estimating the Learning Percentage
How Long Does Learning Go On?

General Guidelines for Learning
Individual Learning
Organizational Learning

Learning Curves Applied to Heart Transplant Mortality

Full note of the book

Summaries of all Chapters of Operation Management

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