The experience curve analysis is a strategic controlling instrument. It forms the connection between sales success and production costs.
By repeating the production process, employees gain experience. As their performance improves and they are able to do the jobs and tasks to be done much faster, the amount of time needed to make the product decreases. As a result, the overall production costs fall.
The experience curve analysis helps to identify the individual drivers for the reduction in effort. The management can than take appropriate measures to reinforce these positive factors across all business units to increase production efficiency.
The more efficient production is, the faster specific experience levels rise - thus leading to even more efficiency. There is an overall self-strengthening process.
Amongst other things, piece costs fall, because fixed costs are spread over a growing quantity (fixed cost degression). As more experience is gained, production is rationalized, further reducing piece costs. Meanwhile, the underlying technologies continue to advance, further optimizing production.