Cut costs and get agile: U.S. defense industry faces low-rate, low-cost production

Published: August 5, 2011

Executive summary

Traditional defense manufacturers are facing a period of change that, if poorly navigated, could severely cripple their competitiveness and even threaten their very existence. With cuts in the defense budget already under way and likely to continue for many years, some companies may find themselves woefully unprepared for the dramatically different market they face — a landscape where lower, perhaps less predictable production volume and demand for more affordable products will become the norm.

Traditional responses to troughs in the business cycle such as “hunkering down” or “chasing base” are counterproductive in this situation. Moreover, well-tuned efforts to drive lean processes, reduce discretionary spending, or trim overhead by thinning management ranks are necessary and helpful but insufficient. The capabilities that led to success in the past are no longer adequate, and ongoing investment in legacy assets may not only drive an uncompetitive cost position but also distract from a needed focus on new strategic approaches that will drive profitability.

Success in today’s defense market will require (1) understanding and investing in new capabilities such as improving workforce flexibility or speeding up processes for developing and prototyping products; (2) attacking structural costs by consolidating facilities, segmenting production, or rethinking collaboration with suppliers; and (3) advancing systemic processes, including driving decision making closer to the shop floor to improve agility and lower costs.

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Cut costs and get agile: U.S. defense industry faces low-rate, low-cost production

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