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Learning Curves
 Based on the premise that people and
Learning Curves organizations become better at their tasks
as the tasks are repeated
 Time to produce a unit decreases as
more units are produced
 Learning curves typically follow a negative
exponential distribution
 The rate of improvement decreases over
time

Learning Curve Effect Learning Curves

T x Ln = Time required for the nth unit

where T = unit cost or unit time of the first unit

Cost/time per repetition

L = learning curve rate

n = number of times T is doubled

First unit takes 10 labor-hours

70% learning curve is present
Fourth unit will require doubling twice — 1 to 2 to 4

Hours required for unit 4 = 10 x (.7)2 = 4.9 hours

0 Number of repetitions (volume)
Figure E.1

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Learning Curve Examples Learning Curve Examples

Learning- Learning-
Curve Curve
Improving Cumulative Slope Improving Cumulative Slope
Example Parameters Parameter (%) Example Parameters Parameter (%)
Model -T Ford Price Units produced 86 Integrated Average price per Units 72
production circuits unit produced
Aircraft Direct labor-hours Units produced 80 Handheld Average factory Units 74
assembly per unit calculator selling price produced
Equipment Average time to Number of 76 Disk memory Average price per Number of bits 76
maintenance replace a group of replacements drives bit
at GE parts
Steel Production worker Units produced 79 Heart 1-year death rates Transplants 79
production labor-hours per transplants completed
unit produced
Table E.1 Table E.1

Uses of Learning Curves Arithmetic Approach

 Simplest approach
Internal: labor forecasting, scheduling,
establishing costs and  Labor cost declines at a constant rate, the
budgets learning rate, as production doubles

External: supply chain negotiations Nth Unit Produced Hours for Nth Unit
Strategic: evaluation of company and 1 100.0
industry performance, 2 80.0 = (.8 x 100)
including costs and pricing 4 64.0 = (.8 x 80)
8 51.2 = (.8 x 64)
16 41.0 = (.8 x 51.2)

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Logarithmic Approach Logarithmic Approach

Determine labor for any unit, TN , by Determine labor for any unit, TN , by

TN = T1(Nb) TN = T1(Nb)
Learning
b
where TN = time for the Nth unit where TN = time for the Nth unit
Rate (%)
T1 = hours to produce the first unit T1 = hours to produce the70 first unit – .515
b = (log of the learning rate)/(log 2) b = (log of the learning rate)/(log 2)
75 – .415
= slope of the learning curve = slope of the learning curve
80 – .322
85 – .234
90 – .152
Table E.2

Logarithmic Example Coefficient Approach

Learning rate = 80%
T N = T 1C
First unit took 100 hours
where TN = number of labor-hours required to
TN = T1(Nb) produce the Nth unit
T3 = (100 hours)(3b) T1 = number of labor-hours required to
produce the first unit
= (100)(3log .8/log 2)
C = learning-curve coefficient found in
= (100)(3–.322) Table E.3
= 70.2 labor hours

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Learning-Curve Coefficients Coefficient Example

Table E.3
70% 85%
First boat required 125,000 hours
Labor cost = $40/hour
Unit
Number Learning factor = 85%
(N) Unit Time Total Time Unit Time Total Time
T N = T 1C
1 1.000 1.000 1.000 1.000
T4 = (125,000 hours)(.723)
2 .700 1.700 .850 1.850 = 90,375 hours for the 4th boat
3 .568 2.268 .773 2.623
4 .490 2.758 .723 3.345 90,375 hours x $40/hour = $3,615,000

5 .437 3.195 .686 4.031

10 .306 4.932 .583 7.116
T N = T 1C
T4 = (125,000 hours)(3.345)
15 .248 6.274 .530 9.861
= 418,125 hours for all four boats
20 .214 7.407 .495 12.402

Coefficient Example Strategic Implications

Third boat required 100,000 hours To pursue a strategy of a steeper curve
Learning factor = 85% than the rest of the industry, a firm can:
1. Follow an aggressive pricing policy
New estimate for the first boat
2. Focus on continuing cost reduction and
100,000 productivity improvement
.773 = 129,366 hours
3. Build on shared experience
4. Keep capacity ahead of demand

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Industry and Company

Limitations of Learning Curves
Learning Curves
 Learning curves differ from company to
company as well as industry to industry so
Price per unit (log scale)

estimates should be developed for each

organization
(c)
Loss
(b)  Learning curves are often based on time
Gross profit (a)
estimates which must be accurate and
margin should be reevaluated when appropriate

Figure E.2 Accumulated volume (log scale)

Limitations of Learning Curves

 Any changes in personnel, design, or

procedure can be expected to alter the
learning curve
 Learning curves do not always apply to
indirect labor or material
 The culture of the workplace, resource
availability, and changes in the process
may alter the learning curve