Strategy Library

Experience curve analysis

The basic idea of the experience curve is the phenomenon that productivity increases with the cumulative output. The experience curve assumes that the real unit cost of a product's own added value decreases by a relatively constant proportion (20-30 %) each time the product experience expressed in cumulative product volume doubles.

Description of experience curve analysis

The basic idea of the experience curve is the phenomenon that productivity increases with the cumulative output. The experience curve assumes that the real unit cost of a product's own added value decreases by a relatively constant proportion (20-30%) each time the product experience expressed in cumulative product volume doubles. The unit costs include the costs of the production factors involved in the business value creation (production costs, administrative costs, capital costs, etc.). In addition to the "hard" effects of pure cost degression, there are always "soft" effects in process improvement or in the optimization of know-how:

Repeating the production process increases the experience of the employees. The resulting exercise also reduces the consumption of resources to produce the product, especially time. All in all, this reduces the costs of production.

The analysis of this effort reduction results in their individual causes. These favorable factors can then be selectively strengthened in all divisions to increase that increase in production efficiency.

The more efficient the production, the faster the specific experience increases – and the more the efficiency increases. Overall, therefore, there is a self-reinforcing process.

Among other things, the unit costs fall because the fixed costs are distributed over a growing number of units (fixed cost degression). The simultaneous increase in experience leads to the rationalization of production, which further reduces the unit costs. Meanwhile, the basic technologies are advancing, which further optimizes production.

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