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MANUFACTURING TECHNOLOGY CORNERSTONE OF A RENEWED DEFENSE INDUSTRIAL BASE Committee on the Role of the Manufacturing Technology Program in the Defense Industrial Base Manufacturing Studies Board Commission on Engineering and Technical Systems National Academy Press Washington, D.C. 1987

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NOTICE: The project that is the subject of this report was approved by the Governing Board of the National Research Council, whose members are drawn from the councils of the National Academy of Sciences, the National Academy of Engineering, and the Institute of Medicine. The members of the committee responsible for the report were chosen for their special competences and with regard for appropriate balance. This report has been reviewed by a group other than the authors according to procedures approved by a Report Review Committee consisting of members of the National Academy of Sciences, the National Academy of Engineering, and the Institute of Medicine. The National Academy of Sciences is a private, nonprofit, self-perpetuating society of distinguished scholars engaged in scientific and engineering research, dedicated to the furtherance of science and technology and to their use for the general welfare. Upon the authority of the charter granted to it by the Congress in 1863, the Academy has a mandate that requires it to advise the federal government on scientific and technical matters. Dr. Frank Press is president of the National Academy of Sciences. The National Academy of Engineering was established in 1964, under the charter of the National Academy of Sciences, as a parallel organization of outstanding engineers. It is autonomous in its administration and in the selection of its members, sharing with the National Academy of Sciences the responsibility for advising the federal government. The National Academy of Engineering also sponsors engineering programs aimed at meeting national needs, encourages education and research, and recognizes the superior achievements of engineers. Dr. Robert M. White in president of the National Academy of Engineering. The Institute of Medicine was established in 1970 by the National Academy of Sciences to secure the services of eminent members of appropriate professions in the examination of policy matters pertaining to the health of the public. The Institute acts under the responsibility given to the National Academy of Sciences by its congressional charter to be an adviser to the federal government and, upon its own initiative, to identify issues of medical care, research, and education. Dr. Samuel O. Thier is president of the Institute of Medicine. The National Research Council was organized by the National Academy of Sciences in 1916 to associate the broad community of science and technology with the Academy's purposes of furthering knowledge and ad~riaing the federal government. Functioning in accordance with general policies determined by the Academy, the Council has become the principal operating agency of both the National Academy of Sciences and the National Academy of Engineering in providing services to the government, the public, and the scientific and engineering communities. The Council is administered jointly by both Academies and the Institute of Medicine. Dr. Frank Press and Dr. Robert M. White are chairman and vice chairman, respectively, of the National Research Council. This study was supported by Contract ISI-8506440 between the National Science Foundation and the National Academy of Sciences. A limited number of copies are available from: Manufacturing Studies Board National Research Council 2101 Constitution Avenue Washington, D.C. 20418 Printed in the United States of America

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COMMITTEE MEMBERSHIP WICKHAM SKINNER, Chairman, James E. Robison Professor of Business Administration (emeritus), Harvard University, Boston, Massachusetts JAMES BRIMSON, Vice President, Business Development, CAM-I, Arlington, Texas GARY W. FRENCH, President, Colt Firearms, Hartford, Connecticut MARGARET B. W. GRAHAM, Associate Professor, School of Management, Boston University, Boston, Massachusetts HAMILTON HERMAN, Senior Vice President (retired), American Can Company, New Canaan, Connecticut WILLIAM A. HETZNER, Center for Social and Economic Issues, Industrial Technology Institute, Ann Arbor, Michigan HENRY JOHANSSON, Partner, Coopers & Lybrand, New York, New York ROBERT S. KAPLAN, Arthur Lowe s Dickinson Professor of Accounting, Graduate School of Business Administration, Harvard University, Boston, Massachusetts PETER W. LIKINS, President, Lehigh University, Bethlehem, Pennsylvania ROBERT LUND, Research Professor, Center for Technology and Policy, Boston University, Boston, Massachusetts HERBERT L. MISCH, Vice President (retired), Ford Motor Company, Detroit, Michigan THOMAS D. MORRIS, Commissioner (retired), Federal Supply Service, General Services Administration, Washington, D.C. RAYMOND L. RISSLER, Program Manager (retired), General Electric Company, Louisville, Kentucky DEAN M. ROWE, Senior Vice President, Operations, Copeland Corporation, Sidney, Ohio iii

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CHARLES C. SILVA, Vice President and Corporate Director of Manufacturing (retired), Motorola, Inc., Schaumburg, Illinois JEROME A. SMITH, Director of Operations, Martin Marietta Corporation, Bethesda, Maryland JOHN M. STEWART, Director, McKinsey and Company, Inc., New York, New York JOHN G. T. THORNTON, Publisher, CIM Magazine and CIM Newslinc, Elk Grove Village, Illinois ROBERT F. TRIMBLE, Vice President, Contracts, Martin Marietta Corporation, Bethesda, Maryland JOHN A. WHITE, Regents' Professor of Industrial and Systems Engineering, Georgia Institute of Technology Atlanta, Georgia STAFF GEORGE H. KUPER, Executive Director, Manufacturing Studies Board CAROLYN P. CASTORE, Staff Officer JANICE E. GREENE, Staff Officer LUCY V. FUSCO, Administrative Assistan KENNETH M. REESE, Editor iv at >

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MANUFACTURING STUDIES BOARD WICKHAM SKINNER, Chairman, James E. Robison Professor of Business Administration (emeritus), Harvard University, Boston, Massachusetts ANDERSON ASHBURN, Editor, AMERICAN MACHINIST, New York, New York AVAK AVAKIAN, Vice President, GTE Sylvania Systems Group, Waltham, Massachusetts IRVING BLUESTONE, Professor of Labor Studies, Wayne State University, Detroit, Michigan BARBARA A. BURNS, Manager, SYSTECON, Division of Coopers & Lybrand, Duluth, Georgia CHARLES E. EBERLE, Vice President, Engineering (retired), The Procter and Gamble Company, Cincinnati, Ohio ELLIOTT M. ESTES, President (retired), General Motors Corporation, Detroit, Michigan ROBERT S. KAPLAN, Arthur Lowe s Dickinson Professor of Accounting, Graduate School of Business Administration, Harvard University, Boston, Massachusetts ROBERT B. KURTZ, Vice President (retired), General Electric Corporation, Fairfield, Connecticut JAMES F. LARDNER, Vice President, Component Group, Deere & Company, Moline, Illinois MARTIN J. McHALE, Vice President, Control Data Corpora- tion, Bloomington ? Minnesota THOMAS J. MURRIN, President, Energy and Advanced Technol ogy Group, Westinghouse Electric Company, Pittsburgh, Pennsylvania ROGER N. NAGEL, Director, Manufacturing Systems Engi- neering, Lehigh University, Bethlehem, Pennsylvania RICHARD R. NELSON, H. C. Luce Professor of International Political Economy, Columbia University, New York, New York v

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DAN L. SHUNK, Director, Center for Automated Engineering and Robotics, Arizona State University, Tempe, Arizona JEROME A. SMITH, Director of Operations, Martin Marietta Corporation, Bethesda, Maryland JOHN M. STEWART, Director, McKinsey and Company, Inc., New York, New York STEVEN C. WHEELWRIGHT, Kleiner Perkins Caulfield & Byers Professor of Management, Stanford University, Stanford, California JOHN A. WHITE, Regents' Professor of Industrial and Systems Engineering, Georgia Institute of Technology, Atlanta, Georgia EDWIN M. ZIMMERMAN, Member, D.C. Bar, Washington, D.C. STAFF GEORGE H. KUPER, Executive Director KERSTIN B. POLLACK, Director, Program Development CAROLYN P. CASTORE, Staff Officer JANICE E. GREENE, Staff Officer THOMAS C. MAHONEY, Staff Officer VERNA J. BOWEN, Administrative Assistant LUCY V. FUSCO, Administrative Assistant MICHAEL S. RESNICK, Administrative Assistant vi

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PREFACE The Manufacturing Technology (ManTech) program of the Department of Defense (DOD) is intended to improve the productivity and responsiveness of the U.S. defense indus- trial base by funding the development of manufacturing technologies. The DOD program, by providing seed funding for development of process and equipment technology, permits contractors to upgrade their manufacturing capabilities. Ultimately, the program aims to produce high-quality weapon systems with shorter lead times and reduced acquisition costs. The ManTech program has recently been criticized, and its continuance has been in doubt. In the late 1970s and early 1980s, the program was projected to grow at a rapid pace. By 1986, however, the Army ManTech program has been largely dismantled and the Navy program has been reduced and redirected. The Air Force program, while remaining stable, has not achieved its planned growth. The Army, Navy, Air Force, and National Science Foundation asked the National Research Council, through its Manufacturing Studies Board, to form a committee to answer fundamental questions being asked about the need for and directions of the program. The committee was directed to examine the basic principles underlying the program and recommend the appropriate role and mechanisms for DOD to encourage the development of manufacturing technology. The National Science Foundation's interest in the topic derives from its experience in developing methodology for evaluating federal programs. The Manufacturing Studies Board accordingly set up the Committee on the Role of the Manufacturing Technology Program in the Defense Industrial Base. It comprises 20 members (12 original members, 8 who were added for this report) with experience in advanced manufacturing vii

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technology, military procurement, financial accounting, manufacturing management, and manufacturing strategic planning. As is true of all Research Council committees, the Com- mittee on the Role of the Manufacturing Technology Program in the Defense Industrial Base was selected to balance the "biases" of its members regarding the subject of study. In this case, the committee had roughly equal numbers of ManTech supporters, persons skeptical of the program, and persons who had not yet formed an opinion of the merits of ManTech. Through its research and deliberations, the committee achieved a convergence of opinion, which is reflected in this consensus report. The committee divided its work into two phases. This report summarizes its conclusions from phase II. In its phase I report, The Role of the Department of Defense in Supporting Manufacturing Technology Development, the committee examined what role, if any, DOD should have in supporting the development of manufacturing technology. The committee concluded that such support is critical to the nation's defense, and that direct funding via the ManTech program can provide essential benefits that other methods cannot. During phase II, the committee directed its efforts to determining how DOD should manage its investments in manu- facturing technology development. The committee examined the experience of the ManTech program and formulated its answer in relation to the program. Throughout the report, the committee refers to the pro- cesses and equipment used in production as manufacturing technology (using lower case m and t). The DOD program is referred to as either the Manufacturing Technology program or ManTech (using upper case M and T). viii

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ACKNOWLEDGMENTS The Committee on the Role of the Manufacturing Technology Program in the Defense Industrial Base is responsible for organizing and conducting the research and writing the findings of this study. Our work would not have been possible, however, without the contributions of the Manufacturing Studies Board staff who facilitated our work: executive director George Kuper, staff officers Carolyn Castore and Janice Greene, and administrative assistants Lucy Fusco and Michael Resnick. We are grateful to the General Accounting Office for allowing Ms. Castore to work on this project through an Interagency Personnel Agreement. We wish to thank the four peer reviewers--Norman Augustine, Jacques Gansler, David Mowery, and William Spurgeon. Their thoughtful comments on our draft report enabled us to fine-tune its substance and presentation. Thanks are owed to McKinsey and Company for assistance with the computer analysis of ManTech projects and to Gerald Susman of the Pennsylvania State University for conducting a case study of a ManTech project. In addition, the many people who spoke freely with the committee provided invaluable information. Finally, we wish to thank our liaisons in the federal government for their assistance: Assistant Secretary of Defense for Production and Logistics Robert Costello; Deputy Assistant Secretary John Mittino; Richard Donnelly, Charles Kinzey, and Lloyd Lehn of the Office of the Assis tent Secretary of Defense for Production and Logistics; Robert Fear and Fred Michel of the Army Materiel Command; John McInnis and Steven Linder, Office of the Assistant Secretary of the Navy for Shipbuilding and Logistics; Gary Denman, Vincent Russo, and Nathan Tupper of the Air Force Materials Laboratory; Daniel Gearing and Donald O'Brien, ix

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Defense Logistics Agency; and George Hazelrigg of the National Science Foundation. We particularly appreciate Charles Kimzey's coordination of the Defense Department's participation in this study. This report was greatly enhanced by the willing and open exchange of information by the officials of the Manufacturing Technology program. Wickham Skinner Chairman x

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CONTENTS SUMMARY . 1. THE COMPETITION FOR MANUFACTURING SUPREMACY. The Role of DOD in That Competition, 5 The Need for the ManTech Program, 5 A New ManTech Program, 6 Notes, 7 2. UNDERESTIMATING THE IMPORTANCE OF MANTECH LIMITS ITS IMPACT. . . . . . . . . . . . ManTech: A Collection of Small, Low-Risk Projects, 9 The ManTech Program Needs Top Management Attention, 12 Conclusion, 15 3. STRATEGY AND ORGANIZATION . . . 1 . . . 4 . . . . . . . . . . . 17 What a Manufacturing Strategy Entails, 17 Organizational Relationships, 18 An Example, 20 Conclusion, 20 Notes, 21 4. SELECTING PROJECTS AND EVALUATING THE MANTECH PROGRAM . . . . . . . . . . . Fundamental Program Mission, 22 Overall Program Characteristics, 22 Individual Project Objectives, 24 Evaluation Criteria, 25 xi . 22

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5 . CONCLUS ION . Appendix A: ANALYSIS OF MANUFACTURING TECHNOLOGY PROJECTS. . . Summary of Results, 29 Results by Criterion and Service, 30 Appendix B: PROBLEMS IN MEASURING COST REDUCTION AN EXAMPLE ............. xii . 27 . 28 \ . . 34