LEARNING CURVES

Concept of Learning
Human performance show improvement when activities

are done on a repetitive basis. The time required to

perform a task decreases with increasing repetition.
The degree of improvement depends on task
If the task is short and somewhat routine modest improvement

happens and generally it occurs during the first few repetitions

Task fairly complex and has long duration, improvement will

happen over longer interval (i.e. large number of repetitions)

Industries That Use Learning

Curve
Although Learning curve can be applied to
many different businesses its impact is more
pronounced in complex, long duration,

repetitive operations where work is done

mostly by people, not machines
Job Shop
Aerospace
Ship Building
Construction

Learning Curve
Learning Curve is a line displaying the
relationship between unit production time
and the cumulative number of units

produced.
It reflects that as workers repeat task, they

will improve performance. The time required

to perform a task decreases with increase
repetitions.

Learning Curve

Three Assumptions
Amount of time to complete a task or unit of
a product will be less each time the task is
undertaken
The unit time will decrease at a decreasing
rate
The reduction in time will follow a predictable

pattern

Learning Curves
By analyzing workers learning situations, we
are able to estimate:
The average number of labor-hours required per

unit for N units in a production run

The total number of labor-hours required to
produce N units in a production run
The exact number of labor-hours required to
produce the nth unit of a production run

Why Learning Curve?

Used to estimate time for production
Estimating labour hours and manpower

planning
Scheduling
Estimating cost of production
Pricing decisions
Capacity Planning

Learning Curve
Experts agree that learning effect is the result
of other factors in addition to actual worker
learning. Some of the improvement can be

traced back to preproduction factors such as

Selection of tool and equipment
Product design
Methods analysis
Better planning, scheduling, motivation and

control

Learning Curve
Three approaches to learning curve problem
Arithmetic analysis
Logarithmic analysis

Learning curve tables

Arithmetic Approach
For 80% learning curve, the second unit takes
80% of the first unit, fourth takes 80% of the
second unit, 8th takes 80% of time of fourth

unit
Time reqd. for nth unit = TLn
T = unit time of the first unit
L = learning curve rate
n = number of times T is doubled

Arithmetic Approach
If the first unit of a particular product takes 10
labour hours, and if a 70% learning curve is
present, the hours the fourth unit will take

requiring doubling twice --- from 1 to 2 to 4,

Therefore, the formula is
Hours required for unit 2 = 10 (0.7)1 = 7 hours
Hours required for unit 4 = 10(0.7)2 = 4.9 hours

Units vs. Labour Hours

(80% Learning Rate)
nth Unit Produced
1
2
4
8
16
32
64
128

Labour-Hours for nth

unit
100
0.8100=80
0.880=64
0.864=51.2
51.20.8 = 41
410.8 = 32.8
26.2
21

Arithmetic Plot of 70, 80 &

90% Learning Curve
Arithm etic Plot of Different Learning Curves

1.2000

70%

1.0000

80%

Unit Time

90%
0.8000
0.6000
0.4000
0.2000
0.0000
1

9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45
Unit Num ber

Learning Curve
An 80% learning curve denotes a 20%
decrease in unit (or average) time with
doubling of repetitions
A 90% curve denotes a 10% improvement
rate
A 100% curve would imply no improvement

at all

Example:

EZ Machine Shop (A)

Learning Curve - Arithmetic Analysis

EZ Machine Shop has a contract to manufacture 100
turbines. The first 20 turbines have been completed.
The labor-hours required for a portion of the
completed turbines are listed below. Use this data to
estimate the shops learning rate in manufacturing the
turbines.
Unit No. Labor-Hours Unit No. Labor-Hours
1
140
5
95
2
118
10
81
3
109
15
75
4
102
20
68

Example:
(A)

EZ Machine Shop

Learning Curve - Arithmetic Analysis

Compute the learning rate for each of the doubles.
Units 1 and 2
Units 2 and 4
Units 5 and 10
Units 10 and 20

118/140
102/118
81/95
68/81

= .8429
= .8644
= .8526
= .8395

(.8429 + .8644 + .8526 + .8395)/4 = .8499

The approximate learning rate is 85%.

Arithmetic Analysis
Arithmetic analysis does not answer labour
hours required for every unit, say 7th unit
To find answer for any unit, we use

logarithmic analysis

Logarithmic Analysis

Tn = T1(nb)
Where, Tn= labour hours required to
produce nth unit
n = nth unit
T1 = labour hours required to
produce 1st unit
b = slope of the learning curve
r = learning rate %

Learning Curve Values for

b
Learning Rate
70%
75%
80%
85%
90%

b
-0.515
-0.415
-0.322
-0.234
-0.152

Note: b = (log r) / log 2, r = learning rate

For example, with a 70% learning rate b = (log 0.7/(log2)

Example:
(C)

EZ Machine Shop

Logarithmic Analysis
Compute, using logarithmic analysis, the
labor-hours required for the 50th turbine
(assuming an 85% learning rate and 140 laborhours required for the 1st unit).
b = log (.85) / log (2) = - 0.234465253
T50 = 140(50-0.234465253)
= 55.96 labour hours

Selecting Learning Rate

Production analysts are trained to analyze
operation and fit a learning rate
Trade journals provide date on specific types of
operations and their learning rates
Compare historical records with learning rates

within their own companies and categorize

operations according to established learning
rates

Uses of Learning Curve

In job shops, learning curve theory is vital
Products and services tend to be custom designs

that require workers to start near the beginning of

small batches
Batches tend to be small; thus, labour-hours per
unit improve dramatically from the first to the last
unit
Product/service tend to be complex; thus labourhours per unit improve quickly

Learning Curve for Mass

Production

Limitations of Learning
Curve
Varies from company to company, industry to
industry
Estimate should be developed for each orgn.

Learning curves are based on time necessary for

early units
Those times must be accurate

Any change in design or procedure can alter the

learning curve
Appropriate in job shop and customer service
operations since batches tend to be small

How Long Does the Learning

Go On?
Does output stabilize or is there continual improvement?
Some areas show improvement continually
Radios, computers, electronic devices, automobiles,

washing machines, refrigerators, and most

manufactured goods)
If the learning is valid for several thousand units, it will
probably be valid for several thousand more.
In contrast, highly automated systems may have a near
zero learning , because after installation, they quickly
reach a constant volume

What types of jobs are best suited to apply

learning curves? How would you determine this?
Eighty-percent learning curves are generally accepted as

a standard, although the ratio of machine work to

manual assembly affects the curve percentage.
Obviously, no learning takes place if all assembly is done
by machine. Jobs with a high percent of human labor are
ideal for learning curve analysis. As a rule of thumb, if
the ratio of manual to machine work is 3 to 1 (threefourths manual), then 80 percent is a good value; if the
ratio is 1 to 3, then 90 percent is often used. An even split
of manual and machine work would suggest the use of an
85 percent learning curve. The learning factor may also
be estimated from past histories of similar parts,
products or projects.

Inventory Control
Chapter 15

Inventory
Inventory: Stock of any item or resource used
in an organization.

Inventory

Inventory At Successive
Points

Manufacturing Inventory
Manufacturing Inventory: Items that contribute
to or become part of a firms product.
Raw material inventory
Physical inputs at the start of the production process.
(Typically, the stock point at the beginning of the a routing is
termed raw material inventory even though the material may
have already undergone some processing.)

Work-in-process
Inventory between the start and end points of a product
routine

Finished goods
The stock point at the end of a routine

Service Inventory
Inventory: Tangible goods necessary to
administer the services in various types of
service organizations (hospitals, banks)
Hospitals: (medicines, syringes, sutures, glucose

bottle, bandages etc.)

Banks: brochures, pamphlets, currency notes,

coins

Reasons to Hold Inventory

1. To satisfy customer demand
2. To provide a buffer between successive

operations (decouple operations)

3. To provide safeguard for variation in rawmaterial delivery time
4. To protect against price increases and take
advantage of quantity discount
5. To protect against stochastic demands

Inventory Costs
Basically two types of costs
Ordering costs (costs associated with placing an order)
Managerial and clerical costs (salaries)
Stationery, postage, telephone and electricity bills

Holding costs

Cost of storage facilities (rent, if rented)

Cost of capital investment in inventory
Handling
Insurance
Pilferage
Obsolescence
Depreciation and taxes

Independent Demand vs.

Dependent Demand
Independent Demand: Demand for various items
unrelated to each other (Usually demand for
finished goods)
Example: Demand for Cars

Dependent Demand: Demand for an item

depends on the demand of some other item
(demand for components, sub-assemblies)
Example: Demand for tyres, wheels, speedometers

ABC Inventory Planning

ABC classification divides inventory items into
three group
A items (high rupee volume): strict inventory control
B items (moderate rupee volume): intermediate

inventory control
C items (low rupee volume): low inventory control
Note: Rupee volume is a measure of importance; an
item low in cost but high in volume can be more
important than a high-cost item with low volume.

Annual Usage of Inventory

Item No

Annual Rupee Usage

% of Total Value

22

95000

40.69

68

75000

32.13

27

25000

10.71

15000

6.43

82

13000

5.57

54

7500

3.21

36

1500

0.64

19

800

0.34

23

425

0.18

41

225

0.1

233,450

100%

ABC Grouping of Inventory

Items

Classification

Item No.

Annual Rupee Usage

% of
Total

22, 68

Rs 170,000

72.90%

27, 03, 82

53,000

22.7

54, 36, 19, 23, 41

10,450

4.4

Multi-period Inventory
Systems
Two types
Fixed order quantity model (Q Model)
Event or quantity triggered

Fixed time period model (P-model)

Time Triggered

Basic Fixed Order Quantity

Model
Q-Model

Inventory on hand
Q

Demand Rate
Avg. Inventory
(Q/2)

R
Reorder Pt.
L
Order Placed

Time
Order Receipt

L = Lead Time
R = Reorder Point

Fixed Order Quantity Model

Lead Time: Time

between placing an
order and its receipt
Reorder Point: The
inventory level at
which a new order
should be placed.

Fixed Order Quantity Model

Assumptions
Annual demand for item is constant and uniform

throughout
Lead time is constant
Price per unit of product constant
Inventory holding cost is based on avg. inventory
Ordering or set-up costs are constant
Instantaneous replenishment
There are no quantity discounts

Fixed Order Quantity Model

Total Annual Material Cost = Annual Purchase Cost + Annual Ordering
Cost + Annual Holding Cost

TC = DC + (D/Q)S + (Q/2)H
Where, TC = Total annual cost
D = Demand
C = Unit cost
Q = Quantity to be ordered
S = Ordering cost or set-up cost
R = reorder point
L = Lead Time
H = Annual holding or storing cost per unit of average inventory

Fixed Order Quantity Model

Item cost (PD) is not a function of the order
quantity there are no quantity discounts so
the amount PD is constant. Therefore, the

value of Q that minimizes the equation is the

value that minimizes the sum of the ordering
costs and holding costs, called the total
inventory cost or total stock cost. This
quantity is called Economic Order Quantity
(EOQ).

Fixed Order Quantity Model

Total inventory cost = Ordering cost + Holding cost

Total Inventory Cost = (D/Q)S + (Q/2)H

Fixed Order Quantity Model

Q opt=

2DS
H

Reorder Point, R = dL

(constant demand, so no safety stock)

Where, d = average daily demand

L = Lead time in days

The square root formula is the EOQ, also referred as economic lot size

Safety Stock
EOQ model assumed deterministic demand
Demand in reality varies from day-to-day
Probability of stock out during lead time
Need to keep safety stock in addition to expected

demand

Amount of safety stock depends on

Service Level

Probability that inventory on hand during lead time

in sufficient to meet expected demand, i.e., the
probability that stock out will not occur.

Fixed Order Qty Model With

Safety Stock

Safety Stock

Safety Stock
Safety stock

Reorder Point, R = dL + zL
Where d = Average daily demand
L = Lead Time in days
Z = No of standard deviations for
a specified probability
L = Standard dev. of usage
during lead time

Price Break Models

Equation:

TC = DC + (D/Q)S + (Q/2)H

Fixed Time Period with

Safety Stock (P-Model)
Inventory is counted at fixed time intervals,
as specified, and orders are placed: time
triggered
Order quantities vary from period-to-period
Safety stock must protect against stock outs

during review period as well as during lead

time
Order Qty = Target Inventory Level On-Hand Inventory

Fixed Time Period with

Safety Stock
Order Qty = Avg. demand + Safety Stock - Inventory on hand
Q = d (T + L) + z T+L - I
Where,
q = Quantity to be ordered
T = The number of days between reviews
L = Lead time in days
d = Forecast average daily demand
Z = std. deviation of demand over the review period and lead time
I = Current inventory level (includes items on order)

Inventory Turnover
Annual Sales (at cost)
Inventory Turnover = ------------------------------------Avg. aggregate inv value