EXPERIENCE CURVE EFFECTS

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Bruce Henderson, the founder of the Boston Consulting Group, was studying production at a microchip plant in the 1960’s when he noticed production costs decreased by 25% when volume doubled. As he studied other industries, he noted cost reductions of 10% to 25% when volume doubled. He called this reduction of costs the Experience Curve.

The reasons he identified included labor efficiency due to workers becoming physically and mentally more confident in their tasks, and over time learning short cuts and improvements. The same applies to managers and other staff.

Better use of equipment is another area. As equipment (such as AR machines) increase production, it lowers unit costs and justifies the purchase of more productive equipment.
Technology driven learning in an optical laboratory would include the use of conveyor belts and robotics in the production process.

Specialization was another factor. As people specialize in one particular phase of production, they become better and faster at that area. Examples in our industry would be found at almost every phase of production, from customer service, surfacing and edging to lens treatments and shipping. The more experience the employee gains at edging, the better and faster they become at the job, and the less likely they are to make mistakes.
Experts have also said that the experience curve is closely intertwined with economies of scale, to the degree that it is hard to separate the two. What does this mean for your lab? Here are a few takeaways:

Keep your lab as busy as possible! We used to find that our lab would tend to get sloppy when work slowed down around holidays or slow business times. If possible, during slowdowns utilize some of your people to perform required maintenance on equipment or other tasks and keep the production teams busy.

Make sure you are using the appropriate technology to maximize production and minimize your costs. That expensive piece of equipment may have a scary price, but if the return on investment is there over time, it is a good spend. Then brag about your equipment and people to current and potential customers to get even more work!

Eric Rollins is a veteran of the optical retail, frame and lab industries. His firm, Rollins Consulting, LLC, consults with the three Os to improve profitability. Email him at EricRollins@Comcast.net.

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