Tag: Goal Seek

Guest Post: Learning Curves, Batteries and Product Life Cycles

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?

Guest Post: Break-even Analysis: Excel Makes Algebra Obsolete

Our Guest Post today comes from Howard Weiss, who is Professor of Operations Management at Temple University. Howard has developed both POM for Windows and Excel OM for our text.

When I began to use Excel in my classes, my main objective was to make the computations easier for the students so that we could focus on the models, inputs and outputs. At this point though, I have changed my priorities and I think it is important for us as OM (or Finance or Stat) professors to help the students develop their Excel skills as best as we can in our courses. To that end, I have taken a different approach to teaching Breakeven Analysis.

In the past, I used to develop the Break-even point algebraically just as is done in Heizer/Render/Munson and just about every other OM or business textbook. At the computer lab I would have my students enter into Excel the Fixed cost, Variable cost, Price and then the formula for the break-even point F/(P-V).

Recently, I have instead used Goal Seek, rather than the formula, to have the students find the break-even point. Instead of entering the break-even formula, I have them create a cell for the number of units, a cell for the total revenue and a cell for the total cost based on the number of units. I think expressing the total cost and total revenue in Excel helps the student to better understand these two admittedly simply concepts. I then tell the students that instead of finding the number of units where TC = TR we will create a cell for the difference between the two and use Goal Seek to search for a difference of 0 between TC and TR. The spreadsheet for Example S5 (Supp. 7) in the textbook appears as follows, along with a capture of the Goal Seek window.

I think this approach gives the student a better understanding of both break-even analysis and Goal seek.