From the Publisher
The costs of military aircraft are coming under increasing scrutiny inthe post-Cold War threat environment because of the decreasing sizeof the budgets of the military departments, particularly the procure-mentportions of these budgets. As part of this focus, the Depart-mentof Defense (DoD) established a number of studies and costreduction initiatives during the 1990s to control or reduce the cost ofthe weapon systems planned, under development, or in production.Under the umbrella of the concept of "Acquisition Reform," suchinitiatives as Cost as an Independent Variable (CAIV), the LeanAerospace Initiative (LAI), and the use of integrated product teams(IPTs) were established.At the same time, manufacturers claimed that the package of newtools and techniques known as "lean production" would enablethem to produce new weapons systems at costs below those pre-dictedby historical cost estimating models. Lean production is amanufacturing system deriving from the Japanese Toyota auto-mobileproduction model, where closely coupled manufacturingsystems characterized by very low inventory and first-time qualityremove much of the non-value-added work. The application of"lean" as a descriptor of manufacturing activities has many interpre-tationsand varies somewhat from organization to organization.Generally, lean production involves a reconceptualization of theentire production process as a closely interconnected system fromwhich buffers are removed. All the different activities that are part ofthe production process must be carefully coordinated to maximizethe benefits of lean production. The associated organizational andcoordination requirements make implementing lean production adifficult and complex endeavor. Liker and Wu (2000) define "lean" as"a philosophy of manufacturing that focuses on delivering thehighest-quality product at the lowest cost and on time." A systematicand continuing search for non-value-added activities and sources ofwaste concentrates the focus on quality and cost. New tools andtechniques are incorporated as part of the continual effort to cutcosts and improve quality and to enable reduced inventories andother lean practices.As part of the increased scrutiny of costs, DoD decisionmakers beganinsisting on better forecasts of weapon systems costs, so cost growthcould be minimized. However, DoD cost estimators faced the task ofhow to assess the impacts of both of these phenomena in their esti-matesfor future aircraft systems. Many of the DoD decisionmakersand some professional cost analysts believed that use of historicalcost data as the basis for estimates of future systems was analogousto "trying to drive a car while looking through the rear view mirror."The basic questions were whether the historically derived costestimating methodologies should be modified and, if so, how to do it.This report (one of a series on estimating future aircraft costs) wasundertaken in Project AIR FORCE's Resource Management Programfor the Assistant Secretary of the Air Force (Acquisition) to determinewhether current cost estimating tools for new aircraft could beadjusted to account for lean production impacts. It should be ofinterest to all DoD acquisition personnel. It assesses the extent oflean implementation in the military aircraft industry and claims ofsavings and offers insights and issues for the government cost esti-matorsto consider when incorporating new production processesinto aircraft cost estimates.Project AIR FORCEProject AIR FORCE, a division of RAND, is the Air Force federallyfunded research and development center (FFRDC) for studies andanalyses. It provides the Air Force with independent analyses ofpolicy alternatives affecting the development, employment, combatreadiness, and support of current and future aerospace forces.Research is performed in four programs: Aerospace Force Develop-ment;Manpower, Personnel, and Training; Resource Management;and Strategy and Doctrine.
About the Author
Jeanne S. Ringel (Ph.D. Economics, University of Maryland at College Park) is an associate economist at RAND.
KAREN A. RICCI (University of Massachusetts, Amherst, MA, Master of Public Health) is an associate natural scientist/clinical project manager at RAND.
Sydne Jennifer Newberry (Massachusetts Institute of Technology, Ph.D. (1984) Nutritional Biochemistry and Metabolism/Neuroendocrine Regulation) is a communications analyst at RAND.
BARBARA J GENOVESE (M.A. Humanities - Literature California State University, Dominguez Hills California 1997) is a project manager/research assistant, RAND, Santa Monica CA.
Michael Schoenbaum (University of Michigan, Ann Arbor, Michigan Ph.D., Economics) is an Economist at RAND Corporation, Santa Monica, California.