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The experience curve examines the relationship between production costs and quantity, including marketing, administration, distribution, and manufacturing costs. It helps identify areas for improvement, such as minimizing slow points in the production process and making changes to increase productivity and reduce costs. Companies must closely observe each step of the manufacturing process to make changes and eliminate unnecessary tasks.
The experience curve is a form of learning curve that uses more information to properly assess the status of a given situation. First described in 1960 by Bruce Henderson, an experience curve is used to examine the relationship between production costs and production quantity. The general idea behind the curve is that as necessary actions in the production process are repeated over time, the cost of performing those actions will decrease.
Unlike the basic learning curve, which tends to focus more on the labor aspect, the experience curve looks at a broader range of elements that impact the production process. This includes elements such as marketing strategies and cost, administration, distribution cost, and costs associated with manufacturing such as the cost of raw materials. This more detailed approach can make it much easier to determine whether the cumulative cost of producing each unit is actually falling. If this is not the case, the shape of the curve can help identify areas where improvements can be made and trigger this cost-saving trend.
For example, experience curve plotting can help identify ways to minimize slow points in the production process and thereby increase production and reduce total cost per unit. For example, if a manufacturing process requires machines to be stopped for twenty minutes when a new batch of raw materials is loaded into the machine, the solution may be to buy larger batches. This change makes it possible to load the machine to full capacity and allow it to run longer before more materials are needed. If this process change results in downtime being reduced by 25%, the same type of task produces more goods for sale in the same period, which in turn helps lower the cost invested in each unit.
Effective use of the experience curve requires companies to look closely at any element that may affect the process and the cumulative amount of production. Changes in technology can make it possible to perform the same tasks and maintain the same level of production, but use fewer resources, such as labor, to do so. Closely observing each step of the manufacturing process can result in reorganizing the sequence of tasks, resulting in greater productivity. In some cases, tasks can be repetitive and unnecessary to the production process and can be completely eliminated.
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