FIGURE 3


and -0.07 (slope coefficient correspond- ing to the 95 percent experience curve) are assigned to the variables ‘A’, ‘X’ and ‘b’. Using this


information, the model


produces a ‘Y’ value of 950. Similar cal- culations are employed to generate all the other ‘Y’ values in Figure 4, including the predictions for the 100th unit associated with the iso-experience curves.


Following contractors’ bid responses to the RFP, when the source selection evalu- ation board begins the evaluation process, the novelty of


this notional approach


becomes clear. Instead of rating a manu- facturer’s proposal on a single, fixed-cost estimate (along with other performance criteria),


the manufacturers should be


required to provide projections of unit cost reductions for the future produc- tion units. Te government then would compare these against its own reference iso-experience the RFP.


200 400 600 800 1000 1200


0


123456789 10 Units produced


WHAT WILL THE NEXT ONE COST? curves generated before


Without a doubt, the data would pro- vide an indication of the contractors’ motivation to manage costs over the long run. For instance, if a contractor’s pro- posal indicates only a 5 percent average unit cost reduction for every doubling of production output and another con- tractor’s proposal demonstrates a 30 percent reduction, such a glaring dif- ference in cost structure would require further scrutiny. It might also reveal how determined contractors are to pursue


With an estimate of what the first item will cost, a series of curves can be generated to show how the per-item cost could drop over time, assuming a likely decline from 5 to 30 percent. Studies have observed the experience curve’s ability to lower per-item cost by those amounts. (SOURCE: Sudhakar Arepally, DASA(DE&C))


Notional average unit production costs using the iso-experience curves


innovative approaches to lowering costs. Both insights are a win for the Army acquisition process.


CONCLUSION Defense industry manufacturers need to be aware of cost-cutting opportuni- ties and should create an environment in which the workforce wholeheartedly embraces best practices for efficiency and


effectiveness. Only then will opportuni- ties for cost reduction come to fruition. Te defense acquisition community,


in


turn, should recognize the long-term benefits of the experience curve in galva- nizing the industrial base.


To that end, the acquisition commu- nity


should take necessary measures


Firms that perform complex design, engineering development and manufacturing activities derive the most benefit from the experience curve.


to maintain continuity of production operations. One such approach is to bal- ance the demand for defense articles, stretching production over longer peri- ods as opposed to intermittent bursts of production, to avoid generally exorbitant costs of manufacturing startup and shut- down costs.


In December 2016, President-elect


Trump voiced his concerns about the high acquisition costs of defense products


ASC.ARMY.MIL 23


ACQUISITION


Average unit cost ($)


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