RIDING THE EXPERIENCE CURVE


FIGURE 4 Notional calculations using iso-experience curves


Cumulative Production Units


1 2 3


4 5 6 7 8 9


10 100 Iso-Experience Curves 95% 90% 85% 80% 75% 70%


1000 950 922 903 888 876 866 857 850 843


711


1000 901 848 812 786 764 747 732 719 708


501


1000 845 766 714 677 647 624 604 587 572


327


1000 801 704 642 597 564 536 514 495 479


229


1000 753 637 566 517 480 450 426 406 389


151


1000 702 571 493 440 401 371 346 326 309


95 1st unit cost =1000


Even management and administrative functions, the


2^b (2 raised to the power of b)


95% Experience curve slope 90% Experience curve slope 85% Experience curve slope 80% Experience curve slope 75% Experience curve slope 70% Experience curve slope


0.95 0.90 0.85 0.80 0.75 0.70


b


-0.07 -0.15 -0.24 -0.32 -0.41 -0.51


EVALUATE THE ESTIMATE


This table shows the calculations that underlie the notional cost curves in Figure 3, assuming a production run of 10 items. One way to make the source-selection process more rigorous would be to evaluate not just the absolute cost that manufacturers propose, but how much they could lower the per-item cost over time. The manufacturers’ estimates could be compared with model-generated estimates, to evaluate whether the manufacturers are prepared to fully exploit the experience curve’s ability to save money. (SOURCE: Sudhakar Arepally, DASA(DE&C))


“overhead” regarded as a necessary evil among customers, tend to shrink and become minimally burdensome when these practices are rigorously applied.


and singled out the F-35 aircraft. While a price drop for the F-35 was already in the works, according to defense market ana- lysts, Lockheed Martin credited Trump with accelerating the reduction. In Feb- ruary 2017, the company announced an average cost reduction of 7.5 percent, or $455 million, for the government’s pur- chase of 55 planes, compared with the previous lot. Notwithstanding Trump’s conversations with Lockheed Martin, it is no surprise that the overall savings were a dividend of the experience curve.


Considering the economic concept’s financial implications, future Army pro- grams should consider the calculus early in acquisition planning. As old-fashioned as it may be, the experience curve method is a source of optimism for cost man- agement of


large 24 and complex Army Army AL&T Magazine July-September 2017


programs. Just like the Chicago Cubs, whose extraordinary preparation and per- formance resulted in their long-awaited victory, the Army should posture now for a win when it embarks on a new major platform. It is time to put an end to the long dry spell.


For more information, contact the author at sudhakar.r.arepally.civ@mail.mil or 703-545-9102.


MR. SUDHAKAR AREPALLY is on a one-year developmental assignment in the Office of the Deputy Assistant Secretary of the Army for Defense Exports and Cooperation, Arlington, Virginia. He


is tasked with


developing internal strategic plans. A May 2016 graduate of the Senior Service College Fellowship program, he served previously as


associate director for systems engineering and analytics at the U.S. Army Tank Automotive Research,


Development reviewing in


Center, where he was responsible for planning, directing, efforts


and computational modeling


and Engineering


coordinating and


simulation. He also has extensive private industry


experience, having worked as a


senior project engineer for General Motors Co. and as a senior project engineer and program manager for what was then TRW Automotive Systems. He holds MBA degrees from Lawrence Technological University and the University of Michigan, an M.E. in industrial


engineering Technological University and a B.E.


from Tennessee in


mechanical (production) engineering from Andhra University. He is Level III certified in engineering and a member of the Army Acquisition Corps.


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