Thursday, January 21, 2016

On Production Costs, or, the $350,000,000 Saturn

A fun fact from NDIA might put the cost of some defense systems in context, especially for dramatically reduced orders:
While working on the B-2 bomber, [Tom Vice, president of Northrop Grumman Aerospace Systems] recalls, the company studied General Motors’ production process for introducing its new Saturn line and estimated that if only 20 cars had been built, each would have cost $350 million.
In the case of the B-2, this happened:
The company set up an assembly line in a one million square-feet facility to build 132 bombers, but the order was truncated to 21. The poor economies of scale inflated the price of the aircraft to about $2 billion each.
The fixed costs of production (designs, machinery, tools, etc.) have to be covered by what is actually produced, whether 20 or 20,000.

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