Dear donna,
The Learning Curve Effect
The learning curve effect states that the more often a task is performed, the less time will be required on each iteration. This relationship was first quantified in 1925 at Wright-Patterson Air Force Base in the United States, where it was determined that every time aircraft production doubled, the required labour time decreased by 10 to 15 percent. Subsequent empirical studies from other industries have yielded different values ranging from only a couple of percent up to 30 percent, but in most cases it is a constant percentage: It did not vary at different scales of operation.
The Experience Curve Effect
The experience curve effect is broader in scope than the learning curve effect encompassing far more than just labour time. It states that the more often a task is performed, the lower will be the cost of doing it. The task can be the production of any good or service. Each time cumulative volume doubles, value added costs (including administration, marketing, distribution, and manufacturing) fall by a constant and predictable percentage. This broader effect was first noticed in the late 1960s by Bruce Henderson at the Boston Consulting Group (BCG). Research by BCG in the 1970s observed experience curve effects for various industries that ranged from 10 to 25 percent.
These effects are often expressed graphically. The curve is plotted with cumulative units produced on the horizontal axis and unit cost on the vertical axis. A curve that depicts a 15% cost reduction for every doubling of output is called an “85% experience curve”, indicating that unit costs drop to 85% of their original level.
Two Experience Curves
Examples
NASA has calculated the following experience curves:
Aerospace 85%
Shipbuilding 80-85%
Complex machine tools for new models 75-85%
Repetitive electronics manufacturing 90-95%
Repetitive machining or punch-press operations 90-95%
Repetitive electrical operations 75-85%
Repetitive welding operations 90%
Raw materials 93-96%
Purchased Parts 85-88%
Reasons for the Effect
There are a number of reasons why the experience curve and learning curve apply in most situations. They include:
Labour Efficiency - Workers become physically more dexterous. They become mentally more confident and spend less time hesitating, learning, experimenting, or making mistakes. Over time we learn short-cuts and improvements. This applies to all employees and managers, not just those directly involved in production. Standardization, Specialization, and Methods Improvements - As processes, parts, and products become more standardized, efficiency tends to increase. When employees specialize in a limited set of tasks, they gain more experience with these tasks and operate at a faster rate. Technology-Driven Learning - Automated production technology and information technology can introduce efficiencies as they are implemented and people learn how to use them efficiently and effectively. Changes in the Resource Mix - As a company acquires experience, it can alter its mix of inputs and thereby become more efficient. Product Redesign - As consumers have more experience with the product, they can suggest improvements. This filters through to the manufacturing process. A good example of this is Cadillac's testing of various "bells and whistles" specialty accessories. The ones that did not break became mass produced in other GM products; the ones that didn't stand the test of user "beatings" were discontinued, saving the car company money. As GM produced more cars, they learned how to best produce products that work for the least money. Value Chain Effects - Experience curve effects are not limited to your company. Suppliers and distributors will also ride down the learning curve, making the whole value chain more efficient. Shared Experience Effects - Experience curve effects are reinforced when two or more products share a common activity or resource. Any efficiencies learned from one product can be applied to the other products.
Experience Curve Discontinuities
The experience curve effect can on occasion come to an abrupt stop. Graphically, the curve is truncated. Existing processes become obsolete and the firm must upgrade to remain competitive. The upgrade will mean the old experience curve will be replaced by a new one. This occurs when:
Competitors introduce new products or processes that you must respond to Technological change requires that you or your suppliers change processes The experience curve strategies must be re-evaluated because they are leading to price wars they are not producing a marketing mix that the market values |
