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The experience curve is a form of learning curve that makes use of more information in order 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 the actions necessary 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 like marketing strategies and cost, administration, the cost of distribution, and the costs associated with the manufacturing, such as the cost of the raw materials. This more detailed approach can make it much easier to determine if the cumulative cost of producing each unit is in fact falling. If that is not the case, the shape of the curve may help identify areas where improvement can be made and trigger that trend of decreasing cost.
For example, plotting the experience curve may help identify ways to minimize slow spots in the production process, and thus increase production and lower the overall cost per unit. For example, if a manufacturing process requires that machinery be stopped for twenty minutes as a new lot of raw materials is loaded into the machine, the solution may be to purchase larger lots. This change makes it possible to load the machine to full capacity and allow it to run longer before more materials are required. If this change in the process results in reducing the downtime by 25%, then the same type of tasks ultimately produce more goods for sale in the same amount of time, which in turn helps to lower the cost invested in each unit.
The effectiveness of using the experience curve requires that companies look closely at any element that can affect the process and the cumulative production quantity. Changes in technology may 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. Looking closely at each step in the manufacturing process may result in rearranging the sequence of tasks, resulting in higher productivity. In some cases, tasks may found to be repetitive and not necessary to the production process, and can be eliminated altogether.
@RambleWoods - After just reading this article, and a few similar ones, I would say that you might want to look at what larger companies in your same industry have done to become more efficient.
At my job, we were trying to compete with big-box retailers and thought they were going to run us out of business. The owner ended up hiring an efficiency expert who helped us find small things that we were able to change throughout our daily operations. That ultimately helped us to jump ahead on the 'experience curve' and compete with the larger companies. Since then we have grown considerable amounts and are still going strong.
A lot of the changes we made had to do with combining processes to become more efficient.
I'm sure your boss would be pleased if you could find ways to do that for your company.
Good luck with your endeavors.
I looked this topic up because I just started a new job and one of my bosses kept using this term when we were talking today. I was expecting the experience curve definition to be the same as the learning curve, but I guess it's a little more specific.
It seems to me that the experience curve is more concerned with efficiency related matters. Does anyone have any input on how that might help someone trying to grow a small business?