The basic principle behind this negotiating technique is that after the supplier "learns" how to make a product, the direct labor that is associated with it decreases when more of the unit is produced. As time goes on, if contracts are not renegotiated, suppliers are basically making more profit from you every day.
This is where you should seek to recover some of the savings from the supplier. The basic definition of a learning curve is the percentage of direct labor that is required per unit when production doubles. For instance, if there was a 100% learning curve, no savings would occur because it takes 100% of the direct labor to make the first and second products.
There are many methods in calculating this "learning curve" that depend on how much production data your company is given. Protodea consultants are available to calculate exactly how much your company should be saving in product costs. This specific technique may save your company a great deal of much-needed money in the long run. See Protodea services for more details.
