The Learning Curve - Essay Example

The Learning Curve Contents Table of Figures 2 Introduction 3 Applications of the learning curve 5 Internal applications 6External applications 7 Strategic planning 8 Limitations of the learning curve 12 References 13 Table of Figures Figure 1:Sample learning curves 5 Figure 2:Learning curves that can be used for strategic planning 11 Introduction All companies have prospects of growing. They implement the learning curve in their many departments, and the organization as a whole, in implementing their growth strategies (Iniguez, 2011). This learning curve works on the principle that doing something repeatedly creates experience among the workers. The experience they gain increases their efficiency and allows them produce more in the same period. Moreover, the time taken to create a particular item reduces at a rate that is proportional to the number of repeated productions of a similar product. The improved production also reduces the cost of production such that it becomes cheaper to produce more goods in a reduced amount of time, with reduced machine utilization due to the large-scale production effect (Carothers, 1999). The doubling of production affects the learning curve through the decrease in time per unit. This variation can be explained by the formula below: T x Ln = time required for the production of the nth unit in a manufacturing or production line. T is the cost of production of the 1st unit or the time taken in the production of the initial unit. L is the rate of the learning curve, which is mostly represented as a percentage. The learning curve rate indicates the amount of the previous time or cost that will be spent in producing the current product. A rate of 80% means that the next unit will be created in 20% less cost or time as compared to the previous one. This calculation indicates that the higher the rate of the learning curve the steeper the slope of the graph, and the more efficient the production. This efficiency is evident in the reduced cost and time of production. The n in the equation represents the number of times that T is doubled (Nathan, 2006). Figure 1 below represents a sample learning curve from Speelman (2005). It shows different rates of the learning curve and their implications on the cost per unit, as well as the number of units produced in a given time. Using regular units in plotting the graph gives an exponential curve while plotting using log scales gives a straight line. Having a smaller rate in the learning curve is indicated by the lower 70% curve that is dashed. It shows that experience increases and cost of production reduces at a higher rate with doubling production. The units also produced increase with the doubling production. The 70% rate is represented by a steep slope on the log scale, showing the rapid increase in manufacturing efficiency as the number of production times increases. Figure 1:Sample learning curves Applications of the learning curve Small and medium enterprises use learning curves to increase their production rates, reduce costs and increase efficiency so as to rank higher among their competitors. Manufacturing industries are highly competitive because there are many players per industry. A company has to have a good learning curve so as to realize profits as well as reduce the costs involved (Lapre, 1998). A good medium manufacturing company can be used as a case study in understanding the applications of the learning curve. The applications vary per company and industry because the factors affecting production in the various industries are not the same. Some companies also require extreme cost utilization, as well as a vast number of employees so as to maintain sufficient production. Such companies must be careful when determining the price of their goods so as to ensure they make a good gross profit at the end of the financial year. A good medium enterprise that is in the manufacturing industry and that can apply a learning curve is a shoe manufacturing company (Lapre, 2011). This company uses leather to produce its shoes, as well as a little rubber for soles. It also has employees who work on the purchased leather in terms of tanning, dying and sewing it to the final product. The company can apply learning curves for internal, external and strategic purposes (Berk, 2010). Internal applications These applications are those that are felt within the company, and that are caused and controlled by internal manufacturing processes and policies. One of the applications that are internal to a leather manufacturing company include labor forecasting (Kleinfeld, 1993). The leather manufacturing company is labor-intensive and requires a lot of people to work in tanning the leather and sewing it into shoes. The workers work day in day out and need a lot of time, skill and patience. The repeated manufacture of shoes and the constant sewing creates experience among the workers such that they end up improving their efficiency through the length of time taken to produce a single shoe. The number of shoes each worker produces per day increases with the number of repeated times they make the shoe. After a given period, all the workers in the company become experienced such that they attain the required units in less time than before. Thus, the company might not need as many workers as when it was beginning production. The managers can, therefore, predict the future labor requirement that will ensure they produce a good amount of shoes and reduce the expense of having excess workers. They should, therefore, start with a smaller number of workers who can be trained over time and increase their efficiency according to the learning curve. In the end, a small number of workers achieves a significant production rate due to repetition in the production of the same kind of products. In other words, they gain experience and reduce the cost of production (Gobetto, 2014). Another internal application of the learning curve in a medium shoe-manufacturing company is in the establishing of costs and budgets for the company (Verdin, 2001). Repeated production determines the average cost of production and allows the company to know the amount of money that can be planned for in the future activities of shoe production. The budgeting is applied in terms of the amount of money that can be required for future production. In terms of cost pf production and its future value, the company can assess the experience of its workers and evaluate the amount of time that will be taken to produce shoes in future (Stewart, 1995). The budgeting calculations can be done through the learning curve as shown in the introduction. The cost of producing the nth unit of shoes can be determined by using this equation. This prediction can be used to know the amount of money that can be channeled into the purchase of extra raw materials and machines of production (Nanda, 1982) Thus, the medium company grows in terms of the units produced per year, resulting in a consequent growth of the company. External applications External applications of the learning curve are those that originate from outside the company (hirschey, 2009). Such applications include controlling the supply chain and managing it correctly, relative to the cost of production. The number of shoes produced per given time increases with the increasing experience of manufacturers and other workers. This increased production reduces the cost per unit of shoes and has a consequent result of the supply of leather and other materials used in the production of leather shoes. This supply chain management creates efficiency in the shoe manufacturing company such that the number of shoes produced is increased due to the availability of leather and other raw materials (Arora, 2004). The learning curve rate for this company is given in terms of percentages, and as time goes by, the cost and time of production of a unit decreases. This decrease has a resulting effect on the profits, such that the shoe company will get enough cash to order for additional raw materials. They will also utilize the leather in a shorter period than before, and the company needs to be aware of when to order the next supplies. Maintaining a proper supply chain also involves the deployment of manufactured shoes. This deployment is the sale of the shoes to the customers, either directly or through retailers. The sale of the shoes begins with a slow turnover as the company is still young and new to the industry. However, experience in selling leads to increased sales and a reduced need for marketers (Drury, 2007). Strategic planning Strategic planning is another major application of the learning curve. This curve can be used to identify the areas of the business that will be essential in improving the business, and those that will cut on the cost of production. The strategic planning involves the evaluation of the performance of the manufacturing industry (Ima, 2012). The shoe manufacturing industry can identify its area of specialty and the design that brings in more profits from sales. They can also identify the shoes that are easy to make for the sewers and leather tanners so as to increase production and enhance the experience. The company can plan for the areas in which to employ more workers, and those to reduce the production. Having experienced workers in the most crucial production lines reduces the amount of time spent on meeting the demand for shoes. The company can plan for the future distribution of experienced workers after studying its learning curve (Burtonshaw-Gunn, 2008). The cost of shoes and their pricing are determined from their learning curves. A logarithmic curve of the two is an essential tool in planning for the future pricing of the shoes. The price is set by comparing the cost of producing a shoe to the price with which it can be sold. A certain threshold is set as the minimum price below which the company will make losses. This strategic planning is important in determining the retail price to implement so as to avoid discouraging customers from purchasing the shoes due to their high cost (Argote, 2013). The learning curves in figure 2 below can be applied in determining the price of shoes. The cost of production shows the level at which the management can place the price of shoes. This price should be higher than the cost of production so as to realize a profit. Thus, for a company to realize future benefits, they should strategize by carefully observing the concerned learning curves. Figure 2:Learning curves that can be used for strategic planning Limitations of the learning curve One of the key limitations in the learning curve and its applications is the fact that one cannot apply the statistics of one company on another. The learning curves of different companies and industries are different (Sun, 2002). These differences are as a result of the various operations carried out by the companies. They also prioritize different groups so as to achieve their different goals and objectives. This understanding brings up the problem of having to design and implement a learning curve that is independent of that of another company. Analytical skills are necessary for creating a learning curve (Mcintosh, 2001). Another limitation of the learning curve is the lack of progress due to the working culture and availability of raw materials in a company (Nathan, 2006). A project can proceed positively over its development period, with experience kicking in and improving the rate at which it is worked on. However, as the development nears its end, laxity kicks in, reducing the effect of the learning curve in reducing the time and cost of production (Krishnan, 1995). Thirdly, the times used to complete the early units in a manufacturing industry are not accurate. This inaccuracy is due to the lack of collection of timing data at the start of a business. The shoe manufacturing company mentioned throughout this article might not have the correct data on time taken to complete the first shoe. Therefore, the data used to calculate the subsequent production times might not be accurate (Monczka, 2009). A change in the designs used by the company, as well as the personnel and procedure of processing the final product could lead to an upward spike in the learning curve. This peak means that there will be reduced efficiency for a period before the workers get used to the modes of operation. The upward spike leads to an increased cost of production, as well as reduced net profit. Companies, therefore, should be careful when implementing change to avoid losses that might result from excessive production costs. The fifth limitation of learning curves is the fact that they do not apply to raw materials and indirect labor. This indirect labor is in the form of casual laborers that are temporary and change on a regular basis. 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