The more you do something, the better you get at it. The learning curve model helps you to analyze direct-labor performance over the life of a production contract. This video defines the learning curve, provides an excellent example, and demonstrates when it is appropriate to apply this model.
- Practice makes perfect, we've all heard that. … Professional athletes certainly prove this to be true. … Even the very best baseball players … take batting practice every day. … In general, the more you do something, … the better you are at it, … which is a result of your learning. … You can also apply this principle to your business … with what is called the learning curve. … The learning curve applies to direct labor costs … in a production factory. … It establishes the rate of improvement … in direct labor costs as production volume increases. … Each time production volume doubles, … you improve at a specified rate. … For example, an 85% learning curve states … that each time your production volume doubles, … you realize a 15% reduction in direct labor costs per unit. … So how do you apply the learning curve? … Here's a good example applied to a purchasing contract. … Your supplier has already completed an order for 200 pieces, … and in the cost breakdown of that order, … direct labor costs were $50 per unit …
- Explain the purchasing process.
- Define purchase order.
- Describe the intent of a purchasing policy.
- Distinguish types of purchasing structures.
- List the steps of selecting a supplier.
- Identify enablers for success in worldwide sourcing.
- Perform price and cost analysis.
- Measure supply management performance.