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2 UNDERESTIMATING THE IMPORTANCE OF MANTECH LIMITS ITS rMPACT The existing Manufacturing Technology program could have been the strong program advocated in the previous chapter. Its accomplishments have fallen short of DOD's needs, however, because the program's direction was not sufficiently integrated into overall DOD strategy. In the few instances when leadership was present and coordinated groups of ManTech projects were aimed at significant future performance requirements, the program succeeded in greatly improving the production of weapon systems. Since this study began, major reductions in the Army and Navy ManTech programs have left the Air Force as the only service with a meaningful ManTech program. The Army budget, formerly the largest of the three, has been reduced to S16 million and supports only government-owned arsenals, depots, and ammunition plants. The Navy ManTech budget has continued its historical pattern of extreme fluctuations. In 1987, its budget was reduced by $20 million to S29 million. Despite planned growth, the Air Force ManTech budget has remained constant. These declines in ManTech support and funding have made more urgent the needs for adequate investment in manufacturing technology and broad systemic changes in the program. MANTECH: A COLLECTION OF SMALL, LOW-RISK PROJECTS To determine the strategy implicit in the current ManTech program, the committee analyzed the 238 multi-year projects that received funding in 1985 or 1986 and that had total budgets of at least S1 million. These projects represented a spectrum of projects begun between the late 1970s and 1986, equaling 40 percent of all ManTech 9

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10 projects funded during 1985 and 1986. They had a combined total budget exceeding $800 million over the duration of the projects. Our project analysis, described in Appendix A, led to several broad conclusions: The program spread small amounts of funds across many diverse projects. modest ~ The projects, particularly in the Axmy and Nary, were largely unrelated and did not comprise coordinated thrusts focused on particular technological innovations. The projects' objectives were severely limited in scope, risk, and technical challenge. As a result, the program's overall impact has been We believe that the S1 . 2 billion expended by the ManTech program during 1980-1986 could have produced major advances in manufacturing technology. Indeed, the small portion of ManTech funds spent on technically challenging, related sets of projects has produced a far greater aggregate impact than the much greater amount spent on unrelated projects of limited scope. The Superlative Few ~ few of the projects in the ManTech program were designed to create technological innovations for future weapon systems. In three areas--electronic materials, infrared sensing materials, and composites--related sets of ambitious projects were directed at process develop- ments to improve the material's performance and increase yield and quality. The Air Force program offers other examples of well-directed technological thrusts that yielded new products and product features, while reducing manufacturing cost and increasing quality: new processes for unusual materials substantially increased the performance of Jet engines, flexible machining of short runs of parts, noncontact gauging and testing technologies to improve the in-process quality control of a variety of products, and production of new types of aircraft made possible by advances in the production of composite structures.

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11 The Integrated Computer-Aided Manufacturing (SCAM) program was one of the largest sets of related Air Force ManTech projects. The ICAM program mobilized teams of defense contractors and universities to attack several dozen aspects--including management as well as technol- ogy--of a highly significant problem. Not all projects were ultimately incorporated into the solution of the problem; those that were technically ready at a cutoff date were combined in a demonstration of an integrated sheet metal manufacturing center. The advances achieved in these process technologies will play B part in weapon system production for years to come. Because of their breadth and importance, successful sets of ManTech projects in areas such as electronics, composites, and computer-integrated manufacturing will continue to stimulate further advances. In each of these innovations, the following circum- stances helped shape the investment and were critical to its success: 1. Weapon system program managers recognized that advances in manufacturing technology were indispensable to the feasibility and ultimate performance of the weapon system. 2. Funding for product development was closely paralleled by funding for process development. 3. No commercial application was apparent to stimulate development of the enabling manufacturing technologies quickly enough to meet the defense needs of the country. These successful examples provide a model that, if ex- tended to a broader set of technologies, would constitute a highly effective ManTech program. The Limitations of Investing Without a Strategy In contrast to these few high-impact areas, most of the 238 ManTech projects we analyzed showed the following general trends: Purpose: More projects (40 percent) had cost reduction as the primary purpose than any other single purpose. In addition, cost reduction was made a secondary objective for numerous other projects.

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12 Materials: Many of the projects (36 percent) were focused on metals. Emerging technologies for processing new materials, such as ceramics and composites, received much less attention. Breadth: More than half the projects were directed at a narrow technical objective, a single product, and, particularly in the Army, a single facility. Technology: The Army expended more than 30 percent of its funds on projects aimed at the inspection process, while the Navy and Air Force divided their funds largely among other processes, such as machining, assembly, and forming. These characteristics add up to a DOD NanTech program concentrated on the near-term needs of DOD, with narrowly focused, unrelated projects. Only the Air Force program had discernible groups of projects focused on achieving particular goals. The wide variety of technical projects undertaken by the ManTech program testifies to the number and variety of technologies incorporated in current weapon systems. However, without a strategy that targets important technologies, the program's resources have not been directed toward areas of maximum impact. THE MANTECH PROGRAM NEEDS TOP MANAGEMENT ATTENTION Managing ManTech--that is, identifying technical needs, setting priorities, selecting projects, allocating funds, monitoring progress, and communicating results--is a complex process involving many levels of authority and many different units within the services and DOD. The dispersion of projects indicated by our analysis suggests that these strategic choices have not been made. To get further insight into the management of the pro- gram, we interviewed officials at 22 defense contracting companies, 10 ManTech program managers and officials in the Office of the Secretary of Defense, 3 staff members of the House of Representatives Defense Appropriations Sub- committee, 11 senior officials--including career civilian, military, and political--in OSD and the services, and 5 former senior officials of DOD. These interviews confirmed that the lack of high-level policy direction, and the relatively low priority given to manufacturing technology within DOD, had caused the fundamental problems of the program.

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13 Common Myths Our interviews pointed to four myths about manufac- turing technology and the defense industrial base that are insupportable but are still widely held. Videspread belief in these myths has reduced support for and under- standing of the ManTech program. Myth #1. The defense industrial base, if forced to compete, will develop and invest in state-of-the-art manufacturing technology. Myth #2. Once excellent products have been designed and developed, excellent processes for producing them will be routinely available. Myth #3. Investment in manufacturing technology is worthwhile only if it causes verifiable short-term cost reductions. Myth #4. "Overhead" is bad; it connotes inefficiency at best and virtual fraud at worst. The first myth perpetuates the belief that direct DOD funding for manufacturing technology development is inappropriate and that indirect actions, particularly to stimulate increased competition, will be sufficient to assure adequate manufacturing processes. The myth ignores the unique nature of weapon systems and the unusual market in which only one primary buyer exists for products that require years to develop and produce. Although competi- tion for defense contracts is intended to provide the advantages of a free market, the ability of that competi- tion to stimulate manufacturing technology development is limited by several factors: Price is negotiated. As the only buyer, DOD exerts a level of control absent in a free market, which increases the contractor's risk and vulnerability. The time lag between the decision to pursue the concept of a new weapon system and production is often between ~ and 10 years. It is, therefore, natural that awards of contracts emphasize design capability. Uncertainty over winning a production contract is likely to deter a contractor from considering or investing in manufacturing technology during product design. Most production contracts have annual competitions or renegotiations, and prices are reduced to reflect reductions in costs.

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14 Many also believe the second myth that process technol ogy automatically follows product development. If that were so, then process development would not require the attention of DOD. However, process technology often must precede or coincide with product development; otherwise a long, difficult effort is required to develop essential and efficient new manufacturing processes to support a weapon system. This second myth also reflects lack of understanding of how new manufacturing technology can permit creation of new product designs and performance features as well as facilitate the production of products already planned. In fact, the United States is becoming increasingly dependent on foreign suppliers for critical equipment. Change must occur quickly if several existing domestic sources of leading-edge technology are to survive. The third myth, which stresses measurable cost reduction as the primary goal, manifests itself in two ways. Some in DOD top management support the ManTech program because of its potential to reduce costs, while others question the need for the program when it cannot show demonstrable cost reductions. ManTech program managers, in response to these reactions, have emphasized projects where cost reduction can apparently be measured objectively. The program's current emphasis on short-term, demonstrable cost reduction is self-defeating. While improvements in quality, lead time, flexibility, and other manufacturing characteristics can often lead to substantial cost reductions, the pursuit of measurable cost savings generally leads to low-payoff projects that address near-term needs. In addition, despite the continuing emphasis on demonstrable cost savings, cost reduction efforts can rarely be measured accurately. If a new technology is used on a system that has Just entered production, there is no baseline against which to measure savings. Even for systems already in production, present cost accounting practices will produce faulty estimates of cost reduction (as described in Appendix B). The fourth myth, that overhead is always bad, is as pervasive as the first three though it stems from a different set of false assumptions. It reflects a misunderstanding of the difference between overhead rates and overhead accounts--and a fear of both. An overhead rate is the ratio of indirect costs to direct labor costs. As direct labor decreases, the overhead rate

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15 will increase even if the actual indirect costs remain constant. Overhead accounts are a bookkeeping category. Neither the rate nor the account is a measure of efficiency or of total cost. Acting to reduce overheat limits investments in manufacturing technology in two ways. First, investments that improve manufacturing technology will increase the fraction of total costs that appear in overhead accounts. Second, many advances in manufacturing technology are directed at reducing direct labor and may increase some indirect costs such as computer programming or maintenance. In both cases, the overhead rate will rise. Thus, a company that is successfully implementing advanced manufacturing technology is likely to increase its overhead rates and overheat expenditures--although the total cost of production can be expected to decrease even while lead times, quality, and yields improve. ~ goal to control the increase in overhead rates will surely feat to less efficient and less effective manufacturing processes. Elevating the Status of the Program The lack of understanding of manufacturing technology is evident not only in the absence of policy direction from DOD or in the prevalence of manufacturing technology myths, but also in the organizational location of the ManTech program. The ManTech program has been located far down in the hierarchies of all three services. Some of the individuals interviewed attribute the limited use of the ManTech program to its small sloe, especially relative to many other programs--such as weapon system procurement budgets. Even at the program's highest level of funding in 1982, only S204 million was appro- priated for all three services, an amount representing just over 0.1 percent of the defense procurement budget Of S150 billion. Nevertheless, ManTech's importance far exceeds its share of the budget because of its enormous leverage and potential to strengthen the competitiveness of the U.S. industrial base. CONCLUS ION Much of the ManTech program of the past decade has had only a modest impact. Within the program, however, there have been highly successful examples where related sets of

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16 technically challenging projects were aimed to solve fundamental problems in producing the next generation of weapon systems. Examples include composites, integrated computer-aided manufacturing, and electronic materials. If the entire program were managed to solve challenging, fundamental manufacturing technology problems, the overall effect of the program's modest expenditures would have been enormous. The actual impact of the program, however, was limited by the lack of strategic guidance from the Department of Defense. Several groundless but widely held myths have been used to support the erroneous belief that manu- facturing technology was either an unimportant or an inappropriate concern of DOD. Continued acceptance of these myths could be devastating for the next generation of weapon systems. DOD must provide direct support for manufacturing technology development if the defense industrial base is to produce high quality, reliable weapon systems in a timely, efficient manner.