Tuesday, March 3, 2015

Experience Curve, Continuous Cost Reduction and Breakthrough Cost Reduction through Industrial Engineering

Experience Curve, Continuous Cost Reduction and Breakthrough Cost Reduction or Continuous Productivity Improvement and Breakthrough Productivity Improvement.

I  created the framework for industrial engineering activity by saying it can be applied to technical processes, business processes and managerial processes. If the classification can be made more finer, it is applicable to various processes in that detailed classification. So one question is what is the contribution of industrial engineering in technical process, managerial processes and  business processes. An effort to give an estimate of the contribution is required.

Second question is the experience curve effect. Experience effect is discussed in various subjects like strategic management, operations management and of course in industrial engineering subject the concept of experience effect.

If we are able to reduce the total cost of production by 5% every year, in seven years by the time production doubles (assuming a growth rate of 10% of production every year), the  cost will  come down to 69.8% of the production cost previous to the year in which the cost reduction process started.

Average cost per unit or unit cost in the 7 year, when cumulative production doubles in 7 years with 5% cost reduction in total cost of production per year                         -    0.698   (0.95^7)

I think cost reductions of this order are happening in many industries.

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