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Guest Post: Learning Curves, Batteries and Product Life Cycles

November 20, 2020

Our Guest Post comes from Prof. Howard Weiss, the developer of Excel OM and POM.  These 2 software packages (that we provide for free) have helped our books become number 1 in U.S. and global markets.

In the figure below, you can see that a 1 kWh lithium-ion battery that cost over $1,100 in 2010 now costs less than $160. Batteries are critical especially as more and more car models are electric or hybrid.

Module E in your Heizer/Render/Munson textbook explains: “… if the learning curve is an 80% rate, the second unit takes 80% of the time of the first unit, the 4th unit takes 80% of the time of the 2nd unit, the 8th unit takes 80% of the time of the 4th unit, and so forth.” Learning curve unit times or costs are based on the volume doubling.

The formula for the time or cost of the Nth unit is TN = T1(Nb)

where TN is the time/cost for the Nth unit and b = (log of the learning rate)/ (log 2)

Using Excel’s Goal Seek we determine that to have the cost reduced from $1160 to $153 would require production in 2019 to be 1183 times the number of units produced in 2010. The steep increase in volume agrees with the introduction stage of product life cycles displayed in text Figure 5.2 (see p. 164).

Classroom discussion questions:
1. What products have had their costs decline as steeply as the batteries in this article?
2. What is the current stage in the product life cycle of Zoom?

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