Understanding Learning Curves

UNDERSTANDING LEARNING CURVES

Jenny Wilson is a buyer at Flextron, a manufacturer of large industrial pumps. She has a

requirement for a customized subassembly that a preferred supplier, Vistral, is building for the

first time. She is preparing for negotiation with Vistral, where a key issue will be the price of the

subassembly. Given the unique nature of this subassembly, Jenny expects to incorporate into

the contract price reduction targets based on learning curve estimates. While Jenny does not

have specific data for Vistral, she has accumulated data for a subassembly that was similar in

design and manufacturing complexity.

Units Total Labor Average Labor Per Unit Learning Rate 1 6 6 ***** 2 10.8 5.4 0.1 or 10% 4 19.2 4.8 0.111 or 11.1% 8 35.2 4.4 0.0833 or 8.33% 16 64 4 0.0909 or 9.09% 32 115.2 3.6 0.1 or 10% 64 211.2 3.3 0.0833 or 8.33% 128 384 3 0.0909 or 9.09%
Overall average improvement rate: 9.42% or average of 9%
Applicable learning curve: 90.58% or average of 91%

Assignment Questions

1. Given the above data, calculate the average labor per unit given the cumulative total labor hours provided.

The average labor per unit is 6 hours. 2. Calculate the appropriate learning rate and the overall