Running head: APPLY THE LEARNING CURVE THEORY

Apply the Learning Curve Theory
Thomas E. Sawyer
University of Phoenix

CONCEPT OF THE LEARNING CURVE A popular focus of many small businesses, and those looking to start a business, is the bottom line: profitability. The road to profitability involves finding the correct business formula, for the specific business, that will minimize losses and increase sales. The Pizza Store layout simulation, the focus of this paper, requires the user to take a management position and make decisions that impact profitability. As to be expected, making business decisions like this involve a learning curve consisting of repeatedly analyzing decisions. This paper will cover the learning curve theory, the decisions made during the Pizza Store layout simulation, and the best conclusion reached as a result of those decisions. LEARNING CURVE THEORY According to Operations Management for Competitive Advantage, a learning curve is a line displaying the relationship between unit production time and the cumulative number of units produced. Learning curves can be applied to individuals or organizations, but in the Pizza Store layout simulation the learning curve applies to an organization. Additionally, learning curve theory is based on three assumptions: 1. The amount of time required to complete a given task or unit of a product will be less each time the task is undertaken. 2. The unit time will decrease at a decreasing rate. 3. The reduction in time will follow a predictable pattern (Chase, Jacobs, Aquilano, 2006, technical note 4).
In particular, the third assumption applies to the Pizza Store layout simulation. During the simulation the main focus is on the steps necessary to maximize profits. The key is figuring out the relationship between firm-specific factors that management can control and that will result in the Pizza Store’s improved performance. Following the results of popular research, accounting-based variables are the measure of success or failure. When using these variables, it is necessary to realize their limitations: accuracy, the accounting methods used and the owner’s discretionary control over various expenses (Galbraith, Emmanuel, 2005, paragraph 1).
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|Total |Balked |Lost Sales |Total |Balked |Lost Sales | | | | |Weeks 3-4 |72 |5 |$75 |104 |12 |$360 |6.01 |2.57 |$1,530 | |Weeks 5-6 |69 |3 |$45 |107 |11 |$330 |4.63 |2.61 |$1,653 | |Weeks 7-8 |96 |7 |$105 |143 |21 |$630 |3.03 |2.7 |$2,009 | | | | | | | | | |Table 1 | |SCENARIO RESULTS Table 1 shows the results of the Pizza Store simulation and how the business decisions made impact three key metrics: average wait time, average queue length, and profit. The improvements from the beginning to the end are obvious and indicate a 30% increase. Numbers so dramatically different require a more in-depth analysis.
WEEKS 3-4 The simulation requires us to make a decision prior to weeks 3-4 focusing on the tables for groups of 2 or 4, the wait staff, and the kitchen staff. Experimenting with these numbers show adjusting the table allotted for groups of 2 and groups of 4 give us the largest increase in profits. Changing the available tables (18) for groups of two from zero to 8 and reducing the number of tables available for groups of four to 10 gives us a profit of $1,530. However, there is still room for improvement. We see that 17 groups balked, the average wait time was 6.01 minutes and we lost sales of $435. At this point there is definite room for improvement and we are at another decision point.
WEEKS 5-6 At this point we have people waiting too long, people balking and lost sales of $435 that could be reduced. Our decision at this juncture is to decide to purchase new Plax ovens and the MenuPoint system. Our decision, which proves to be the most profitable, is to shut down the manual ovens, buy one Plax, and buy the MenuPoint system. Our profit increases by $123 dollars, our lost sales are reduced to $375, our average wait time decreased and the average queue length decreased. Also, our number of customers who balk goes down to 14, but we would like that number to improve when we make our next decision.
WEEKS 7-8 At this time we must make a decision focusing on capacity. We can either establish Mario’s Take Away service or rent the empty bakery next door Cream Puffs. We choose to make the most profitable decision and rent Cream Puffs. Our profits Jump to $2,009 and our average wait time nose dives to 3.03 minutes. However, we lose sales totally $735 and 28 groups balk and leave before eating. Also worth noting is the fact that we must increase our wait and kitchen staff by 1 each and buy an additional Plax oven to handle capacity.
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The graph above shows how the decisions from the simulation affect average wait time. Even though our profits are up, and average wait time is down, it seems as though some money is being left on the table. For that reason, it is necessary to explore an alternate process.

ALTERNATE PROCESS It is apparent that there is something more, or differently, that can be done to increase profits and reduce lost sales. Although we passed on Mario’s Take Away, a similar approach could prove profitable. The alternate decision is to build a take out counter in the restaurant and promote the new service. This alternate is the best choice because it takes advantage of the Plax oven capacity. When deciding to use Cream Puffs, an additional Plax oven was purchased. The two ovens are only used 58.33% of the time and additional profits may be realized by creating a takeout service within the current restaurant. Additionally, takeout may reduce the number of customers who balk and lost sales. This all adds up to increased profits and an alternate decision which will add to the bottom line.
CONCLUSION
This paper analyzed the learning curve theory, the decisions made during the Pizza Store Layout simulation, and the best conclusion based on information gathered during the simulation. Learning curve theory was demonstrated during the six week simulation. The numbers noted during the simulation and the graph, showing average wait time, illustrate how the learning curve applies to the Pizza Store layout simulation. Deciding to start a takeout service will take advantage of the increased capacity; increase profits and cause change the learning curve in a profitable manner.

REFERENCES

Chase, R. B., Jacobs, F. R., & Aquilano, N. J. (2006) Operations management for competitive advantage (11th ed). New York: McGraw Hill/Irwin. Retrieved July 18, 2010, from University of Phoenix, rEsource, OPS 571-Operations Management Course Web site.
University of Phoenix (2009). Operations Management, Process Control and Problem Solving. Pizza Layout Simulation. Retrieved Retrieved July 18, 2010, from University of Phoenix, Week two, rEsource. OPS 571—Operations Management Course Web site.
Galbraith, Craig S., and Emmanuel Nkwenti-Zamcho. "The effect of management policies on plant-level productivity: a longitudinal study of three U.S. and Mexican small businesses." Retrieved Retrieved July 18, 2010, Journal of Small Business Management 43.4 (2005): 418+. General OneFile. Web. 18 July 2010