Question

Craig Phillips is a buyer at Socon, a manufacturer of large industrial pumps. He has a requirement for a customized subassembly that his preferred supplier, Oriel, is building for the first time. He is preparing for negotiation with Oriel, where a key issue will be the price of a subassembly. Given the unique nature of this subassembly, Craig expects to incorporate into the contract price reduction targets based on learning curve estimates.

While Craig does not have specific data for Oriel, he has accumulated data for a subassembly that was similar in design and manufacturing complexity.

Units	Total Labour Hours	Average Labour (per unit)	Learning Rate
1	6		**********
2	10.8
4	19.2
8	35.2
16	64
32	115.2
64	211.2
128	384
Overall average improvement rate:
Applicable learning curve:

Assignment:

1. Given the above data, calculate the average labour per unit given the cumulative total hours provided.
2. Calculate the appropriate learning rate and the overall average improvement rate for this data set.
3. Are gains from learning realized early in production or at a later point?
4. A learning curve applies to improvements in the direct labour portion of a process. How does the learning curve differ from the experience curve

Answer 1

Answer :

The average labor per unit is calculated by finding Total Labor Hours / Number of units .

For example:

For 2 units we have;

10.8/2 = 5.4 labor per unit.

The calculations for the rest of the data is tabulated below:

The associated formulas are as follows:

The learning rate for a particular point is ratio of the time take in that point to the time take in making the number of units previous to that.

(c) and (d)

Improvements are always more in the earlier stage than the later stage for any learning effect. As time progresses, the learning flattens and after some particular unit production, the average time required to produce a unit practically becomes constant i.e. the improvement factor becomes constant.

The learning curve only considers the reduction in direct labor hours (and the associated cost) by the process of learning. The experience curve, on the other hand, is a more macro concept that considers the improvement in the total output of any function. The experience curve is used to determine the overall cost saving as the production grows in volume.

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