Contracts awarded by the Department of Defense traditionally have covered the time period to the next project milestone decision point, at which each project must justify its continuation into the next phase. Funding, on the other hand, has been subject to the annual DoD and Congressional budget review and appropriation processes, as well as reprogramming options within the procuring department. One result of this paradox is that projects in rate production have, on short notice, been deprived of sufficient funding to sustain planned production levels. Traditional reaction to this dilemma has been to stretch-out the delivery schedule - sometimes reducing the production level to the "misery rate" which barely keeps the line going - or temporarily shut down production entirely, which puts a discrete break or gap in the delivery schedule. There have been other reasons for rescheduling production as well, among them suspension for time to implement design changes, to synchronize delivery rates with availability of "holes" in aircraft, ships, tanks, et al.
Project delays result in overall project cost increases, if due only to inflation. But much more significant effects of production gaps and stretch-outs on both cost and reliability are due to loss of learning. Learning includes many factors: optimization of repetitive tasks, effective problem recognition and solution, optimization of production flow, improvements in assembly and automated fabrication tooling, automated test equipment, optimized procedures and processes, and other intangibles which simply result from familiarity with the job. While not a learning factor per se, the reduced unit cost of increased quantities of purchased parts can be merged into the learning curve in terms of the effect of overall unit cost of continuous production. Consider for a moment what can happen when manufacturing is temporarily interrupted.
Employees must either be paid from funded projects or be released from employment in order for any company to long retain profitable. A stretch-out or a production break, although temporary, means reassignment of key personnel in both engineering and manufacturing positions to other projects which are funded, and layoff or dismissal of surplus production workers. The negative effects are twofold: psychological and practical. Job instability affects personal security, one of the most basic in the hierarchy of motivational needs. Even temporary reassignments may be interpreted as a less challenging alternative and a negative influence on motivation. But the big loss is in experience: the daily hands on practice which maintains expertise and efficiency. The "learning curve" is not an abstract concept - it has been quantified by many studies in terms of cost and time. Learning is a fragile commodity, easily and quickly lost through disuse.
Floor space and expensive machinery are, after employees, industry's next most valuable resources. These too cannot be allowed to remain idle for long. Not only are they of potential value to other projects in the same facility, but also they add to the overhead burden charged to the funded project. Production breaks, if lengthy, can only result in facility rearrangements, breakup of smoothly-running production flow, and loss of floor space for the affected project.
Production breaks have a domino effect on vendors, especially the smaller companies. The relatively small percentage of a project's components purchased from a small vendor may represent a relatively large percentage of that vendor's capacity, and either he must find other customers or face bankruptcy. When production is scheduled to resume, that vendor may no longer be a viable source, and in a worst case situation, product redesign may be necessary to accommodate the loss.
The end result of a production gap is a significant restart effort. The lessons learned originally must be learned again. Vendor relations must be reestablished, personnel must be hired or reassigned and retrained, machinery and manufacturing processes must be debugged and fine tuned, and administrative and production management procedures must be worked out again. The same problems and rejects experienced the first time around will be experienced all over again, to a degree depending on the length of the break. Not only does the production break increase the overall project cost, but also the equivalent unit cost will be achieved only at some higher order quantity than would have been the case had production continued uninterrupted.
One well-documented case history involving multiple breaks clearly illustrates the consequences. During the first four months, the program lost assembly and fabrication personnel. In the next three months, the loss overtook key personnel responsible for developing improvements through changes to methods, tools, design, facilities, and vendors. Past the eighth month, vendors and facilities were lost and key project personnel were reassigned. Within a year, major facility rearrangements would have been forced by corporate demands for other projects and initiatives.
The net results of a total of 16 months (in two breaks) included a $23 million increase in recurring costs, the effects of 16 months of inflation, and a 75 percent increase in the number of units produced before the unit cost has decreased to the value it would have been without breaks. What doesn't show are the effects on unit quality during the restart and learning periods following the breaks. The government also was required to devote a disproportionate level of attention to this project to ensure that an acceptable reliability threshold was not breached.
Production breaks are not a viable means to reduce costs, whether initiated by the government or by the contractor. True multiyear contracting with vendor flow down is the ultimate answer. This will permit sustained production across fiscal years and Congresses through project completion. In the meantime, avoid production breaks and stretch-outs by all possible alternatives.