Q U A N T I T A T I V E
Learning Curves
E M O D U L E
DISCUSSION QUESTIONS 2. What should the learning curve rate be to keep the total cost
of the first 4 boats below $16,000,000?
1. Limitations of the use of learning curves include:
0.81
Any change in the process, product, or personnel,
3. How many boats need to be produced before the cost of the
disrupts the curve
next boat is at or below $4,000,000?
Volume must increase for a learning curve to exist
3
Not all products, processes, or management styles
benefit from learning to a significant degree 4. How many boats need to be produced before the average cost
of each boat is below $4,000,000?
2. Some applications of the learning curve are: Internal
6
manpower forecasting, scheduling, establishing costs and budgets;
external purchasing and subcontracting of items; and strategic
evaluation of company and industry performance, including costs END-OF-MODULE PROBLEMS
and pricing. E.1 1st return takes 45 minutes
3. Three approaches to solving learning curve problems are by: (a) 2nd return takes (45 min)(0.85) = 38.25 min
logarithms, learning curve coefficients, and arithmetic.
(b) 4th takes (38.25)(0.85) = 32.5 min
4. We cannot determine the implications for Great Lakes
(c) 8th takes (32.5)(0.85) = 27.6 min
Services, Inc., if the engine in the tug boats is changed. Any
change in product or process may disrupt the curve and require E.2 1st day took 9 hours and 23 min = 563 min
recalculations. (a) 2nd day = (563)(0.90) = 507 min (with rounding)
5. Learning curves are not as applicable to assembly lines for (b) 4th day = (507)(0.90) = 456 min
the short run as in other activities because the whole line is paced
(c) 8th day = (456)(0.90) = 410 min
to run/produce at a certain speed/output. Many lines mix
technology, which is fixed-speed, with humans. (d) 16th day = (410)(0.90) = 369 min
6. The learning curve can be disrupted by any change in process, E.3 (a) For the 25th unit, at an 80% learning factor, the learning-
product, or personnel. curve coefficient (from Table E.3) is 0.355
7. The doubling effect in learning curves means that each time 15 0.355 = 5.325 minutes
output is doubled (say from 4 to 8 units), the time required to (b) For the first 10 units, at an 80% learning factor, the
produce the doubled unit is x% of the time to produce the base learning-curve coefficient (from Table E.3) is 6.315
unit, where x stands for the learning curve rate. So if the 4th unit
15 6.315 = 94.725 minutes
took 10 hours and the learning curve rate is 85%, the 8th unit will
take (0.85) (10 hours) = 8.5 hours. E.4 Cumulative times using Table E.3:
8. Pursue a steeper learning curve by: (a) First 3 = (2.746)(563) = 1,546
Following an aggressive pricing policy (b) First 6 = (5.101)(563) = 2,872
Focusing on continuing cost reduction and productivity (c) First 8 = (6.574)(563) = 3,701
improvement
(d) First 16 = (12.040)(563) = 6,779
Building on shared experience
Keeping capacity growing ahead of demand E.5 T1 = 30 hr 80% learning curve
(a) T5 = (30)(0.596) = 17.88 hr
ACTIVE MODEL EXERCISE 5
(b) Ti (30)(3.738) 112.14 hr
ACTIVE MODEL E.1: Unit Curve, Cumulative Curve i 1
and Costs (c) T18 = (30)(0.394) = 11.82 hr
1. If the learning is not as good as expected and rises to 90%,
how much will the 4th boat cost?
$4,050,000
269
270 QUANTITATIVE MODULE E LE A R N I N G C U R V E S
18 (b) For Julie: 3rd unit required 4 hours; 6th unit required
(d) Ti (30)(9.716) 291.48 hr 3 hours
i 1
When volume doubled from 3 to 6, learning
E.6 $5,000 = cost/hr improved 1 hour or 25% (1 hr/4 hr = 0.25) or a
(a) T10 = T1(0.477) = 30(0.477) = 14.31 hr learning curve of 75%
(b) Cost10 = (14.31 hr)($5,000/hr) = $71,550 4
10 N 375 , C 0.634 6.31 for the first unit
(c) Ti (30)(6.315) 189.45 hours total 0.634
i 1 3
N 675 , C 0.475 6.31 for the first unit
Cost for all 10 = (189.45)($5,000/hr) = $947,250 0.475
E.7 T1 = 112; Rate = 90% 10th unit will require 0.385 6.31 2.43 hours
The cumulative factor for the 8th unit at 90%, Table E.3 is 6.574. Neither is expected to reach 1 hour by the 10th unit.
So the first 8 units will take 6.574(112) = 736.29. The last 7 units
E.13 Using Table E.3, 6th unit at 80% = 0.562
will take 736.29 – 112 = 624.29 hours.
E.8 T1 = 5 hr T2 = 4 hr N680 20 min
Thus,
(a) Learning rate = 4/5 = 80% 20
(b) T3 = T1 C = (5)(0.702) = 3.51 1st unit 35.58 min
0.562
(c) T4 = 5(0.640) = 3.2
Using Table E.3, 3rd unit at 80% = 0.702.
T5 = 5(0.596) = 2.98 Therefore the 3rd unit should require (35.58 0.702) =
T6 = 5(0.562) = 2.81 24.98 min, or about 25 minutes.
6
(d) Ti 5(4.299) 21.5 E.14 T3 = 20,000, Cost = $40/hour, 85% learning curve,
i 1
Resolve for plane #1 N = 3, C = 0.773 for 85%
E.9 For the 15th unit at a 90% learning factor, the learning- 20,000 hr
curve coefficient (from Table E.3) is 0.663. 25,873 hrs for plane #1
0.773
6 0.663 = 3.978 hours
Now, T4 T1 C 25,873 0.723:
E.10 T1 = 80 hours
so cost 18,706 hours $40 $748,240
T4 = ?
T5 25,873 0.686:
Use the doubling effect twice to reach the 4th unit
so cost 17,749 hours $40 $709,960
(a) 95% L.C.
T6 25,873 0.657:
(0.95)(0.95)(80 hours) = 72.2 hours
so cost 16,999 hours $40 $679,960
(b) 87% L.C.
(0.87)(0.87)(80 hours) = 60.552 hours E.15 T12 T1 C 25,873 0.558 14,437 hrs
(c) 72% L.C. T13 T1 C 25,873 0.548 14,178
(0.72)(0.72)(80 hours) = 41.472 hours T14 T1 C 25,873 0.539 13,946
E.11 (a) T4 = T1(0.92)(0.92) = 46 0.92 0.92 = 38.9 hours T15 T1 C 25,873 0.530 13,713
T8 = T4(0.92) = 35.8 hours T12 through T15 Cost = 56,274 $40
(b) T4 = T1(0.84)(0.84) = 46 0.84 0.84 = 32.4 hours $2,250,960
T8 = T4(0.84) = 27.3 hours 12
E.16 (a) Expected price at a volume of 1.4 10 bits:
(c) T4 = T1(0.77)(0.77) = 46 0.77 0.77 = 27.3 hours
From Table E.3:
T8 = T4(0.77) = 21.0 hours
Learning curve coefficient for 0.70 learning curve
E.12 (a) For Torri: 4th unit required 5 hours; 8th unit required
factor and doubling:
4 hours
When volume doubled from 4 to 8, learning C = 0.7000
improved 1 hour or 20% (1 hr/5 hr = 0.2) or a learning Cost:
curve of 80%. Cost = Base cost Learning curve coefficient
= 100 0.7000 = 70 milli-cents/bit
5 12
N 480 , C 0.640, so 7.81 for the first unit (b) Expected price at a volume of 89.6 10 bits
.64
Using the general learning curve formula: Cost of
4 n
N 880 , C 0.512, so 7.81 for the first unit the nth unit = TN L where: T is the present unit
0.512 cost, L is the learning curve factor, n is the number
10th unit will require 0.477 7.81 3.67 hours of times the volume will double over the present
So Torri will not make the standard; 10th unit is volume.
estimated to take 3.67 hours.
QUANTITATIVE MODULE E LE A R N I N G C U R V E S 271
For the present problem: at 2,500 hours each). From Table E.3, five boats would
T = 100 milli-cents/ bit
L = 0.7
7
n = 7 (Note: 89.6/0.7 = 128 = 2 )
12
Therefore, cost per bit for a volume of 89.6 10 is given
by:
7
Cost = 100 0.7 = 100 0.0823543 = 8.235 milli-cents/ bit
E.17 T3 = 460; cost = $60/ hour; 80% learning curve. Factor for
3rd unit, Table E.3 = 0.702
Estimated time for turbine number 1 = 460/.702 = 655.27
Using factors from Table E.3
T4 = 655.27(0.64) = 419.37 hours = $25,162.
T5 = 655.27(0.596) = 390.54 hours = $23,432.
T6 = 655.27(0.562) = 368.26 hours = $22,096.
E.18 Time to produce eighth locomotive = 28,718 hours
Learning factor = 0.80
Time to produce first engine:
From Table E.3: Learning curve coefficient for 0.80
learning curve factor and 8th unit:
C = 0.5120
Time (first engine) is given by:
Time to produce eighth engine
Time
Learning curve factor
28,718
56,090 hours
0.5120
Time to produce the tenth engine:
Learning curve coefficient for 0.80 learning curve factor
and 10th unit:
C = 0.4765
Time (tenth engine) is then given by:
Time = First engine time C = 56,090 0.4765
= 26,755 hours
Note rounding in Table E.3 to 0.477 for the value of C.
E.19 (a) From Table E.3, the 40 units will require 700 13.723 =
9,606.1 hours.
(b) The average time per unit is 9,606.1/40 = 240.2 hours.
(c) It will take 9,606.1/2,080 = 4.62 workers to complete
the contract within one year.
E.20(a) T1 4 hrs; 85% Learning curve
T1 T12 T1 through T12 4 8.244 32.976 hrs.
T1 T20 T1 through T20 4 12.402 49.608 hrs.
(b) If 5th took 2.5 hr,
2.5
3.644 hours for 1st
0.686
This implies T1 T12 = 3.644 8.244 = 30.04 hr
The quote is high. The learning curve rate may have
been better for the previous crew.
E.21 (a) 4.0 is 90% of 4.44 hours
(b) 4.44 0.729 = 3.24 hours
(c) 4.44 6.574 = 29.2 hours
E.22 (a) The firm can offer 25,000 hours of labor (10 employees
272 QUANTITATIVE MODULE E LE A R N I N G C U R V E S
require 6000 4.339 = 26,034 hours, while four boats are sufficient to explain the consistent and significant
would require 6000 3.556 = 21,336 hours. Thus four increase in cost over the last 200 units produced.
boats can be completed, but five cannot. (c) The optimum time for the 10th unit is approximately
(b) At the improved learning rate, five boats require 6000 110 hours.
4.031 = 24,186, now within the stated labor limits. (d) The actual time for the 10th unit is approximately
E.23 (a) In order to estimate the learning curve rate, we take the 135 hours.
ratios of the units that have doubled:
Report 2 56
= = 0.848 CASE STUDY
Report 1 66
Report 4
SMT’S NEGOTIATION WITH IBM
48
= = 0.857 This case is adapted from the book by Raymond Corey,
Report 2 56
Procurement Management: Strategy, Organization, and Decision
Report 6 45 Making, CMI Publishing Company, Inc., Boston. There is some
= = 0.849
Report 3 53 additional background provided in that book. The case shows
Report 8 actual use of learning curves as applied to this purchase from SMT
41
= = 0.854 by IBM.
Report 4 48
1(a). What are the advantages and disadvantages to IBM of this
The learning curve rates are not identical for each approach?
paired comparison, but since they are in the range of 85 The advantage to IBM is that they have a reliable supplier that has
percent to 86 percent (average = .854), we can safely been appropriately evaluated and should be able to perform in
use 85 percent. accordance with the contract. The disadvantage is that IBM may
(b) Since the 6th report took 45 minutes, the 12th unit be paying slightly more than they might have been able to
should take 85 percent of 45 minutes, or 38.25 minutes. purchase the parts for on an ad hoc basis.
Multiplying again by 85 percent yields a time of 32.5 1(b). What are the advantages and disadvantages to SMT from
minutes for the 24th report. One more multiplication this approach?
yields a time of 27.6 minutes for the 48th report. An The advantage to SMT is that SMT has the business and knows
even more exact answer can be found using Excel OM what it will be paid. The disadvantage is that it may not make as
or POM for Windows software. Or a third approach is much money on this contract, and that IBM knows its business
the formula TN = T1C, where C 0.402 (from Table and its costs. If SMT has indeed underestimated its costs by a
E.3): significant amount, IBM’s knowledge of its business and its
T48 = (66)(0.402) = 26.5 minutes honesty in sharing information may prove to be beneficial.
E.24 Time for first unit: 1 hour
Learning factor: 80%
Find time for unit 100:
T100 = T1 C10th unit C10th unit
where C10th unit is obtained from Table E.3:
From Table E.3: Learning curve coefficient for 0.80
learning curve factor and 10th unit
C = 0.477
Time (100th unit) is given by:
Time = 1 C C = 1 0.477 0.477 = 0.227 hours
E.25 (a) Management seems to be having considerable
difficulty controlling costs. Actual cost is consistently
above forecast or optimum; sometimes by as much as
30 percent–40 percent. In addition, costs for units 180–
400 are seen to rise drastically—exceeding forecast by
as much as 250 percent.
(b) Possible causes of excess cost include: fluctuations in
the quality of raw materials, turnover in the workforce,
inconsistent maintenance of machinery, and changes in
the design of the product or production process. (If the
product or process was changed, the company should
have abandoned the existing learning curve.) It is not at
all clear, however, that the raw material, workforce, or
maintenance problems as individuals or in combination,
QUANTITATIVE MODULE E LE A R N I N G C U R V E S 273
2. How does the SMT proposed learning rate compare with that
of other industries?
Refer to Table E.1. SMT is to produce a new machine to be used
in the manufacture of logic chips. This machine is a highly
advanced design, and contains a network of piping of different
materials, both plastic and metal. The aircraft assembly industry is
probably as close as any to the SMT example in terms of the
nature of the actual assembly, the need for precision and very high
quality control standards, the frequency of engineering change
orders, etc. Historically, aircraft assembly has enjoyed a learning
curve of about 80 percent.
This case may provide a good demonstration of not only how
one uses learning curves in a practical situation, but also, as to
how a supplier and purchaser can deal honestly with each other to
develop a long-term relationship.
3. What are the limitations of the learning curve in this case?
The limitations of learning curves include any change in the
specification, process, or personnel. Changes in any of these are
likely to adversely affect the curve and have negative
consequences on time and cost. Additionally, in this case both
IBM and SMT are assuming that SMT can move from a 90%
curve to an 85%
curve—an unproven assumption.
Learning curves for estimating, as may be true in this case,
are often time-based because dollars add another variable. As
suggested in the case, overtime pay may be an issue. If overtime
becomes an issue then costs could escalate even if the 85% learning
curve is achieved.
