f~l INDUSTRIAL INSIGHTS0-H

DOD CONCURRENT ENGINEERING

PRQRAN

Contract MDA972-88-C-0010

OCTOBER 1988

Sponsored by:

DOD (DARPA) - Order 6293and

DOT (TSC) - P. A. 68-8002 DTIC... ELECTE

22 JAN 18

The Pymatuning Group, Inc.2000 N. 15th Street, Suite 707

Arlington, VA 22201 E(703) 243-3993

FOR OPr P'J'CATO1 APPROVW - FOR PUELIC 7E!_E SE 8 8 5 6 8 6JAN 1D ," U LI, .

,'wQ 4i..... 89 I 19 048- --F E1.

K!

I

The work reported on in this document

was initiated under DARPA Contract No.

MDA 972-88-C-0010 and completed under

TSC Contract No. 88-P-82436. The

publication of this PGI paper does not

indicate endorsement by the Department

of Defense or the Department of Trans-

Cportation, nor should the contents beconstrued as reflecting the official

position of either agency.

NTIS '2

DTIC TAuUnarn c c, c-

Distvibuation/

Availhisitt Coles

iDist [ S e i

4

TABLE OF CONTENTS

Paae Number

Preface i

Executive Summary ii

Major Finding and Principal Recommendations vii

I. Purpose 1

II. Method of Approach 2

III. Context 3

A. DoD: An Historical Perspective on its Support 3of Product and Production Process Development

B. Concurrent Engineering: Some Perspectives 7

C. Factors Influencing Industry's Implementation 9

of DoD Objectives

IV. General Observations by Industry 11

V. Continuing Industry Support 15

VI. Table I - Summary of Recommendations for 16Concurrent Engineering

Attachments:

1. Letter from Asst. Deputy Assistant Secretaryof Defense (P&L) for Systems

2. Concurrent Engineering Forum -Industry Participants

3. Extracts from "Financial Dialogue BetweenGovernment and Industry", April 1988

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PREFACE

This report was prepared by The Pymatuning Group. However,acknowledgement of the individual contributors to large segmentsof the report is key to the premise of the Report: namely, thatthe best insights on an industry activity can only come from theinvolved industry.

The members of the Concurrent Engineering Forum are thecontributors to Section III and Section IV. Specific individualcontributors that should be cited are:

John Alber: Grumman Aircraft Systems

Ruth M. Davis: The Pymatuning Group, Inc.

James J. Duhig: Lockheed Aeronautical Systems Co.

Bob Estrada:- IBM

Istvan Gorog: David Sarnoff Research Center

Dick Jamison: Hughes Aircraft Co.

Clinton Kelly: SAIC

Don McConnell: Battelle

Troy Pfannkuche: Hughes Radar Systems

Don Snyder: McDonnell Aircraft Co.

Mike Watts: Northrop

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EXECUTIVE SUMMARY

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PURPOSE

This Report presents some first insights from a cross-sectionof industrial officials asked to consider DoD's newly-initiatedConcurrent Engineering Program. Since the implementation of thisProgram will take place principally in the laboratories of industryand on the production lines of industry, it is industrial managersand officials that must understand, support, and justify the costsof the associated changes to corporate management and corporateBoards.

At the same time, to the Defense Industrial Base, DoD is forall intents and purposes a "monopolistic" customer. DoDacquisition regulations, requirements, schedules, and audits governthe defense marketplace. It is DoD, therefore, that takes the leadin introducing changes that must be implemented by defense vendorsas a sort of "entry fee" to the defense market.

METHOD OF 'APPROACH

Meaningful interaction between industry and DoD is alwaysdifficult. This is sometimes intentional as prescribed by law,sometimes intentional as directed by DoD, and sometimesunintentional through lack of understanding and difference ofpurpose.

In this instance, the needed insights by industry on how bestto introduce and implement Concurrent Engineering practices wereso important to OSD in the formative stage of the program, thatThe Pymatuning Group was asked to employ a quick-reaction mechanismthat would stimulate industry response and expedite its influenceon the program. The mechanism employed was that of an IndustrialConcurrent Engineering Strategy Forum with voluntary participationby a selected cross-section of industry officials and managers.

CONTEXT - AN HISTORICAL PERSPECTIVE

World War II was a triumph of manufacturing in which thematerial resources of the United States were marshalled to win awar of attrition. The U. S. won by out-producing the enemy andoverwhelming him with its quantity of weapons and logisticalsupport. This emphasis on production was retained by theDepartment of Defense as a key element of national security

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strategy until the mid-1950's. Then with the adoption of the"qualitative superiority" policy, manufacturing, the means ofproduction, as a key element of weapons systems acquisition, wasimplicitly de-emphasized. Coincidentally, and for differentreasons, this demphasis of manufacturing in the defense sector wasmirrored by a similar change in attitude toward manufacturing inthe civil sector.

For the last 20 years, in keeping with the decreased emphasison manufacturing, both defense and civil sector research in theU. S. has focused primarily on device or product technology to theneglect of process innovation. This single-minded fixation ondevice technology and performance, has an impact beyond that ofslowing manufacturing process innovation: it accentuates theseparation between design, manufacturing, and field service. Thisgives rise to increased problems of producibility and support-ability (these issues simply are not considered to any extent inthe design phase) and increased development time. As aconsequence, we have created very sophisticated weapons systemsfrom advanced device technologies but have been increasinglyfrustrated by an inability to rapidly and efficiently produce theseweapon systems with the reliability and maintainability requiredto sustain the desired operational advantage. When they aredeployed, they suffer from reliability and supportability problems-all traceable to flaws in design and manufacturing.

eMany industries in other countries believe that manufacturingis as important as product innovation or marketing in obtainingmarket share and have increasingly emphasized manufacturing designand process research and development. While it is very difficultto provide precise figures, different studies are in generalagreement that Japan spends a much larger fraction of its R&D fundson manufacturing than does the U. S. One study puts the percentageof R&D devoted to manufacturing at 40 percent in Japan versus 10percent in the U. S. Another study estimates that Japan devotestwo-thirds of its R&D funds to improved processes and one-third toimproved products, while it estimates that in the U. S. this ratiois exactly reversed. This focus has led to a distinctivecompetitive advantage and ascension to a position of dominance byforeign manufacturing over domestic industries in key areas.

Industry managers believe that the Defense Industrial Basecould produce just as efficiently if modern structural factorchanges and manufacturing innovation were emphasized by its primarycustomer, DoD, rather than continuing with the current emphasis oncrippling documentation and on prohibitions to process innovation.If the Defense Industrial Base were allowed to operate effectivelyindustrial leaders believe that the DoD could have all the systemsit requires early enough to allow its technical superiority toconvey decisive operational advantage, with high reliability sothey work when needed, and with corresponding improvement in the"tooth-to-tail" ratio.

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There are concerns that the emphasis of engineering educationin the U. S. needs to change to an emphasis on integratedinterdisciplinary processes in order to provide the national poolof skills and talent needed for widespread implementation /ofconcurrent engineering practices.

CONCURRENT ENGINEERING: SOME PERSPECTIVES

Objectives of Concurrent Enaineering

The objectives of concurrent engineering are to 1) reduce therisk of going from weapons system design to full-scale production,2) reduce initial weapons system acquisition costs, 3) reduceinitial weapons systems operational costs, 4) improve weaponssystem field capability and availability, and 5) reduce.the timerequired to go from design to deployment.

Definition of Concurrent Engineering

We define "concurrent engineering" to mean the set of methods,techniques and practices that:

o Cause significant consideration within the designphases of factors from later in the life cycle,

o Produce, along with the product design, the designof processes to be employed later in the life of theproduct,

o Facilitate the reduction of the time required totranslate designs into the fielded products, and

o Enhance the ability of products to satisfy users'expectations and needs.

An essential element of concurrent engineering is good designengineering management which encourages the many involvedengineering disciplines to support concurrentl and withoutdelaying, the product design decision process.

Experience shows that concurrent engineering practices aremost effective when they occur during initial phases of product andproduction process developments, and, it is already apparent fromon-going industrial actions that the improvement of concurrent

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engineering practices will involve substantive changes andimprovements in: 1) concurrent engineering-related technologies;2) industrial structural approaches to product design andproduction process development; 3) the conventional-and outdated-procurement or acquisition process followed by DoD; 4) industrialcapital investment; and, 5) educational emphasis on manufacturingand process engineering.

GENERAL OBSERVATIONS

o Experience since the beginning of World War IIprovides evidence that the best mechanism forintroducing change in industry responsive togovernmental demand is that of a structured.Darticipative. contractual, coooerative arrangementwith l co-leadership by industry andgovernment. This has been the case not only for DoD,but for the Departments of Agriculture, Energy andInterior, and NASA.

o DoD gives a top priority to improvement inperformance, capabilities, and lifetime of itsweapons systems/platforms. Its recent approach toobtaining such improvement can be called "singlefeature improvement". These single features havebecome loosely referred to as the "ilities", e.g.,reliablity, maintainability, producibility, etc.This "single feature" or "ility" approach hasunfortunately been conducive to separate, non-interacting program offices and separate budget lineitems in the DoD acquisition process each directedto a "single feature improvement" objective. Inaddition, it has led to a cumbersome, sequential, andprohibitively costly, sub-optimized procurementprocess.

o The use of concurrent engineering practices early inthe design process will skew the traditionalprocurement funding profile by greater up-frontloading of costs. At the same time, experience showsthat potential savings in life cycle product costsfrom improved reliability, supportability, etc. morethan offset the higher initial cost. To achieve theanticipated improvements, therefore, some well-established contractual funding and budget procedureswill need to be revised and modified.

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o Currently there are inhibitors in the requirementsspecification procedures of DoD that make itdifficult and often impossible to introduceconcurrent engineering practices. There are twogeneral classes of these inhibitors: namely;

- The lack of clarity in the definition of therequirements themselves, and

- The lack of a realistic process for generatingrequirements.

o A real concern of industry is that DoD will imposeon industry requirements for concurrent engineeringpractices that will exceed cost and schedulecommitments by industry without the needed time andfunding. The result will be limited, restricted,incremental improvements that do not take advantageof either the available technological or themanagerial aspects of concurrent engineeringpractices. - Change in contract funding profiles isessential for proper deployment of these new designpractices.

o Both DoD and its Defense Industrial Base are in a"catch-up" situation in developing and deployingconcurrent engineerirg technology. To attain desiredsuperiority DoD must become proactive in: 1)explicit R&D budget support for ConcurrentEngineering; 2) explicit cooperative arrangementswith and support of industry in DoD-specificmanufacturing design and process development; and 3)sponsorship and support of manufacturing engineeringeducation and training.

CONTINUING INDUSTRY SUPPORT

Important aspects of the Concurrent Engineering Program whichwill be considered by the Forum in the near term (through 1988),include:

1. Selection of contracts for inclusion of concurrentengineering practices

2. Financial and incentive mechanisms that can beemployed to foster concurrent engineering practices

3. Means for accelerating the pace at which concurrentengineering practices and technologies are deployed

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4. Contractual and specification changes, and

5. Risk reduction activities.

MAJOR FINDING

The major finding by the Forum is that Concurrent Engineeringis a sound concept, that it has benefitted both the customers andthe producing industries where applied, that it can and has yieldedmajor reductions in cost and development time for modest up-frontinvestments, and that it makes good sense to encourage theapplication of Concurrent Engineering practices and methodologiesthroughout all industrial organizations supplying the Departmentof Defense.

PRINCIPAL RECOMMENDATIONS

The Forum recommends that the Department of Defense:

1. Develop policies and procedures to actively encourage,but not mandate, the implementation of ConcurrentEngineering practices by the Defense Industrial Base.

0 2. Explicitly acknowledge Concurrent Engineering as aprincipal means for achieving the Department's TotalQuality Management (TQM) objectives.

3. Establish a "Concurrent Engineering Initiative" toprovide funds for education and research to acceleratethe adoption and advancement of Concurrent Engineeringpractices and methodologies.

4. Create a Requirements Development, Request for Proposals(RFP), and Acquisition process which provides greaterlatitude for on-going trade-offs of system requirements.This process should:

- Encourage sensitivity to the cost and scheduleimplications of pursuing marginal increases inperformance

- Place emphasis on satisfying end-user needs forwhich rigid specifications may be a poor surrogate.

- Provide for elimination of RFP items consistent withUSDA strategies for "Could Cost", "Streamlining",and "Accelerated Technology Insertion".

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Encourage end-user involvement with the ConcurrentEngineering team, and

Incorporate familiarization programs for governmentprogram management and acquisition personnel on'thepractice and implementations of ConcurrentEngineering so as to facilitate credible evaluationof proposals and bids.

Specific actions through which these recommendations might begiven effect are detailed in Table I, "Summary of Recommendationsfor Concurrent Engineering" provided as Section VI of this Report.

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I. PURPOSE

This paper presents some first insights from a cross-sectionof industrial officials asked to consider DoD's current planningfor its newly-initiated Concurrent Engineering Program. Since theimplementation of the Concurrent Engineering Program will takeplace principally in the design and development laboratories ofindustry and on the production lines of industry, it is industrialmanagers and officials who must understand, support, and manage theConcurrent Engineering practices sought by DoD.

Similarly, it is individual industrial companies that mustmeet the DoD's objectives by replacing or adding equipment, bychanging design and production processes, by retraining employees,by changing management practices, and presumably by changing designand production cost structures. Individual industrial managers andofficers must justify the costs of these changes to seniorofficials and corporate boards. Again these industrial officialsmust understand, support, and manage the costs incurred in makingthe changes needed to put in place the Concurrent Engineeringpractices sought by DoD.

To the Defense industry official, DoD is for all intents andpurposes a monopolistic customer. Although defense products/services may be sold to foreign military customers or to othersecondary domestic customers, the initial product/service isusually bid to DoD specifications or designed to DoDspecifications. DoD acquisition regulations, requirements,schedules, and audits govern the defense marketplace.

It is DoD, therefore, that as the sole customer, takes thelead most frequently in introducing changes that must beimplemented by the vendors as a sort of "entry fee" to the defensemarket. It is DoD, however, that "pays the price" for poorquality, for poor performance, for the high costs of customizationand for poor reliability.

It is very obvious that in this perhaps artificial, andatypical, but still attractive market place, the need for dialogbetween DoD and its' defense industry is essential.

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II. METHOD OF APPROACH

Meaningful interaction between industry and DoD is alwaysdifficult. This is sometimes intentional as prescribed by law,sometimes intentional as directed by DoD, and sometimesunintentional through lack of understanding and differences ofpurpose. Productive interaction has become even more constrainedin the near past and especially now by more restrictive procurementprocedures and by government concerns over fraud, corruption, andabuse. Progressive retrenchment by industry or increasingbeleaguerment of industry by government, as the case may be, hasbecome commonplace.

The needed insights by industry on how best to introduce andimplement Concurrent Engineering practices were so important toOSD/USD(A) at this formative stage of the Program, that thePymatuning Group was asked by DASD(P&L) Assistant Deputy OASD(Systems) to employ a quick-reaction mechanism that would stimulateindustry response and expedite its influence on the Program. (SeeAttachment 1.)

The mechanism employed was that of an Industrial ConcurrentEngineering Strategy Forum with voluntary participation by aselected cross-section of industry officials and managers. Themembership is shown in Attachment 2. The necessary anonymity ofindividual viewpoints was made possible by the reporting formatadopted by The Pymatuning Group. No balance or consensus wasdemanded: however, concerns, and opinions shared by a majority ofForum participants were assured of inclusion in this Forum report.

This initial set of insights will be augmented, refined andstrengthened as the interaction continues between industry andgovernment during the formative stages of the ConcurrentEngineering Program.

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III. CONTEXT

A. DoD: AN HISTORICAL PERSPECTIVE ON ITS SUPPORTOF PRODUCT AND PRODUCTION PROCESS DEVELOPMENT

World War II was a triumph of manufacturing in which thematerial resources of the United States were marshalled to win awar of attrition. The U. S. won by out-producing the enemy andoverwhelming him with quantity of weapons and logistical support.This emphasis on production was retained by the Department ofDefense as a key element of national security strategy until themid-1950's. Then with the adoption of the "qualitativesuperiority" policy, manufacturing, the means of production, as akey element of weapons systems acquisition, was implicitly de-emphasized. Coincidentally, and for different reasons, thisdemphasis of manufacturing in the defense sector was mirrored bya similar change in attitude toward manufacturing in the civilsector.

Focus on qualitative superiority of weapon systems overquantitative (numeric) superiority has lead to focus of RDT&E ondevices/features at the expense of processes. In addition, theshift to more sophisticated weapons required the development ofequally sophisticated manufacturing technologies; technology whichoften exceeds the demands of current commercial production. Focuson qualitative superiority has also led to smaller lots or morehighly differentiated, sophisticated weapons (e.g., B-2, ATF),which require innovative manufacturing processes to be developedand applied to progressively smaller production lots.Consequently, the time available to both develop and amortize newmanufacturing technologies during the course of weapons productionhas been significantly reduced.

Historically, the DoD has relied on the strength of Americanmanufacturing. DoD procurement has been oriented towards thepurchase of items required for use by the military. It was largelyassumed that the suppliers possessed the know-how and the resourcesrequired to provide the fabrication facilities in that standardprocesses used for commercial as well as military products wereavailable. DoD's R&D programs financed the development and designof products needed by the military, but industry was expected toprovide for the development of the wide range of technologies andthe facilities that were needed to create these weapons.

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For the last 20 years, in keeping with the decreased emphasison manufacturing, both defense and civil sector research in the U.S. has focused primarily on device or product technology to theneglect of process innovation. This single-minded fixation 'ondevice technology and performance, has an impact beyond that'ofslowing manufacturing process innovation: it accentuates theseparation between design, manufacturing, and field service. Thisgives rise to increased problems of producibility andsupportability (these issues simply are not considered to anyextent in the design phase) and increased development time. As aconsequence, we have created very sophisticated weapons systemsfrom advanced device technologies but have been increasinglyfrustrated by an inability to rapidly and efficiently produce theseweapon systems with the reliability and maintainability requiredto sustain the desired operational advantage. When they aredeployed, they suffer from reliability and supportability problems--all traceable to flaws in design and manufacturing.

Similarly, in the civil sector, product innovation alone hasnot been sufficient to capture market share. Unlike an earliertime when the U. S. could exploit the temporary monopoly arisingfrom a novel development, markets are now increasingly dominatedby those producers who can most rapidly commercialize newtechnologies whether or not they initially developed them.Concurrent engineering and manufacturing innovation is a keyCdeterminant in rapid commercialization.

Throughout much of this century, until the 1970's, Americanindustry was the world-leader in all manufacturing technologies ofstrategic significance. As world-wide competition intensified,profit margins began to erode. In response to this competitivepressure, U. S. manufacturers sought various cost reduction meansto improve their operating performance. Investments into newprocess development were frequently delayed or not made at all.Labor cost savings were achieved by moving manufacturing operationsto low-wage areas abroad and by increasingly relying on outsourcingof components. As new products that required major investmentsinto new processes emerged, many American companies elected tobecome merchandisers rather than manufacturers. For example, allVCR's are imported, and there is no American facility that iscapable of mass producing the precision head-assemblies that arethe heart of these recorders. This led to a significant relativeweakening of the strategically significant precision electro-mechanical systems capabilities in America.

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In some strategically significant industries, structuralfactors put American industry at a relative disadvantage withregard to making the investments into process technologies thatare required to stay competitive. For example, in thesemiconductor industry, new process investment requirements 'Mayreach one-third of the revenue flow for sustained periods of time,and independent American manufacturers have great difficultycompeting against vertically integrated foreign firms who maketheir investment into components manufacturing based on expectedsystems sales and then also sell components which they can produceat low marginal costs. As a consequence of this, American DRAMmanufacturing is virtually extinct.

Unlike the U. S., the Japanese believe that manufacturing isas important as product innovation or marketing in obtaining marketshare and have increasingly emphasized manufacturing design andprocess research and development. While it is very difficult toprovide precise figures, different studies are in general agreementthat Japan spends a much larger fraction of its R&D funds onmanufacturing than does the U. S. One study puts the percentageof R&D devoted to manufacturing at 40 percent in Japan versus 10percent in the U. S. Another study estimates that Japan devotestwo-thirds of its R&D funds to improved processes and one-third toimproved products, while it estimates that in the U. S. this ratiois exactly reversed. In design, the Japanese have pioneered in thedevelopment and use of concurrent engineering or simultaneousengineering as a way of identifying and addressing producibilityand supportability concerns early in design--an approachessentially unknown in the Defense Industrial Base. This focus onmanufacturing process technology and concurrent engineeringtogether with continuous capital investment in new processtechnology has paid big dividends. The average development time,concept to first production, for a variety of Japanese products--from aerospace to office automation equipment--is typically one-half that for comparable U. S. products.

This focus has lead to a distinctive competitive advantage toJapanese manufacturers, and the ascension to a position ofdominance by foreign manufacturing over domestic industries in keyareas. A prime example is Honda Motors decision to move to a3-year new auto entry cycle from the U. S. industry average ofnearly 7 years. This capacity to apply and implement manufacturinginnovation has resulted in both low product cost and high quality.

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Industry managers believe that the Defense Industrial Basecould produce just as efficiently if modern structural factorchanges and manufacturing innovation were emphasized by itsprimary customer, DoD, rather than the current emphasis oncrippling documentation and on prohibitions to process innovation.If the Defense Industrial Base were allowed to operate effectivelythe DoD could have all the systems it requires early enough toallow its technical superiority to convey decisive operationaladvantage, with high reliability so they work when needed, and withcorresponding improvement in the "tooth-to-tail" ratio. All thiscould be accomplished in the face of a flat to declining defensebudget. The manufacturing process is an important element in abroader strategy to improve defense acquisition.

Limited examples of concurrent product and process developmentcan be found in current DoD practice. One example is thedevelopment of precision optics fabrication capabilities inparallel with laser based SDI systems, where it has been recognizedthat, assuming adequate performance of the system, implementationwould be impossible without concurrent advances in manufacturing.Another example is the DoD VHSIC program. The VHSIC program hasput into effect a structured methodology for designing andmanufacturing very high performance and density integratedcircuits. Throughout the effort, significant attention has beengiven to concurrent engineering practices which have focused onproducibility, interoperability, reliability, maintainability, andtestability. A key element of the program has been the rapidprototyping and simulation activity supporting the design andmanufacturing cycle. The elements of concurrent engineering areimbedded in all VHSIC chips which are used in weapon systems.

The broad application of concurrent engineering demands muchmore advanced manufacturing technology capabilities than did thesequential design approach. American industry is currently lessadvanced in these technologies than is its foreign competition anda major national effort is required to address this shortcoming.While the U.S. has not lost its scientific leadership or capacityto generate new technologies, there is concern that the lack ofemphasis on engineering education, and more specifically,manufacturing education, weakens the national commitment to usetechnology to improve the productivity of industry, and diminishesits performance in international competition.

A specific difficulty is the formal higher education ofmanufacturing engineers. A recent study indicates that in the U.S.today there are only two degree-granting programs in manufacturingengineering; at Boston University (30 graduates in 1986-87) and atUtah State University (12 graduates in 1986-87). The U.S. produced

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only 42 manufacturing degree graduates out of 75,735 totalengineering graduates! Further, out of some 1.4 million practicingengineers in the U.S., only about 75,000 are practicing asmanufacturing engineers--and of these only 3,000 hold engineeringdegrees. /

Engineering education which accentuates differences amongengineering disciplines is antithetical to the spirit of concurrentengineering. The current educational emphasis on specializeddisciplines needs to change to an emphasis on integratedinterdisciplinary processes for creating, delivering, maintaining,and disposing of new products so as to provide the national poolof skills and talent required to implement the practice ofConcurrent Engineering.

B. CONCURRENT ENGINEERING: SOME PERSPECTIVES

ObJectives of Concurrent EngineerinQ

The objectives of concurrent engineering are to 1) reduce therisk of going from weapons system design to full-scale production,2) reduce initial weapons system acquisition costs, 3) reduceinitial weapons system operational costs, 4) improve weapons system

S field capability and availability, 5) reduce the time required togo from design to deployment.

Definition of Concurrent EnaineerinQ

We define "concurrent engineering" to mean the set of methods,techniques, and practices that:

o cause significant consideration within the designphases of factors from later in the life cycle,

o produce, along with the product design, the design ofprocesses to be employed later in the life of theproduct,

o facilitate the reduction of the time required totranslate designs into fielded products, and

o enhance the ability of products to satisfy users'expectations and needs.

Concurrent engineering is an essential element of good designengineering management which encourages the many involvedengineering disciplines to support concurrently, and withoutdelaying, the product design decision process.

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Concurrent engineerina Dractices occur during initial phasesof product and production process developments. Concurrentengineering practices repeat as many times during a procurementprocess as do iterations in product and process designdevelopments. /

The only effective way to reduce the life cycle cost of aweapons system is to ensure that it is designed from the beginningwith as much attention to operational costs (and operationalreadiness) as is given to weapons system function. The biggest costdriver for initial procurement costs is change once productionbegins. Change can double the cost of sub-contracted items. Thegoal of concurrent design is to "do it right the first time", sothat changes will not be required.

Although concurrent engineering is a long-accepted engineeringpractice, the recent rapid advances which are without precedent inelectronic, computer, information and automation technologies amongothers, have made obsolete overnight the concurrent engineeringpractices of a decade ago. Simultaneously, these same technologiesmake possible an unparalleled improvement in product/systemperformance, reliability, and maintainability throughout theproduct or system life cycle.

One aspect which adds greatly to the complexity of modernweapons system development, is that the contractor teams comprisemany individual companies, of varying sizes and locations, and thatthe definition of the product and the processes used to build itand maintain it are performed in a number of widely-distributedlocations.

Concurrent Engineering requires larger numbers of disciplinesto work much more closely and interactively together, to achievethe stated objectives. Larger numbers of companies participatingin future weapons system development will exacerbate the alreadygrowing communications and data sharing problems. In every weaponssystem procurement, the cost of contractually-required product andprogram documentation is large and growing, however, very largepotential savings are anticipated through development andimplementation of electronic means of data delivery.

Concurrent engineering practices are an integral part ofquality management and quality engineering. Hence the DoDConcurrent Engineering Program is an integral part of and a keyfoundation for DoD's Total Quality Management Program. Through theuse of concurrent engineering practices the focus of qualityimprovements can be moved to the beginning of product developmentand the associated production process developments. This willreduce the very expensive resolution of quality and performanceproblems first observed in later procurement phases. It will alsorepresent, through concurrency of design, the necessary first stageof both product and process design optimization.

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The improvement of concurrent engineering practices willinvolve substantive changes and improvements in:

1. Concurrent engineering-related technologies

2. Industrial structural approaches to product design andproduction process development

3. The conventional-and outdated-procurement or acquisition

process followed by DoD, and

4. Industrial capital investment, and

5. Educational emphasis on manufacturing and processengineering.

C. FATORS INFLUENCING INDUSTRY'SACCEPTANCE OF DOD OBJECTIVES

Since OSD management is just in the process of delineatingDoD objectives for the Concurrent Engineering Program, one shouldanticipate that there will be considerable fluidity in theseobjectives for some time to come.

At the same time, industry recognizes that DoD objectives forsuch a program generally impose requirements and goals on itscontractor base as well as on DoD agencies, departments, andservices. The requirements and goals that can be imposed onindustry by DoD are properly constrained by legislation,regulation, and Executive Branch directives. Pragmatically,however, there is still considerable flexibility in what can berequested from the defense industry by DoD.

The extent of requirements that can realistically be leviedupon and implemented by industry are generally determined by somecombination of factors such as:

o The perceived benefit to the company's overall BalanceSheet (for both defense and consumer business) asforecasted in the company's Financial Plan,

o The resultant attractiveness to the company of defensebusiness in the near-term as well as in the long-term,

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o The arrangements for sharing of front-end and down-siderisks between DoD and the company,

o The pace of change demanded by DoD and whether it canmatch the corporate planning cycle or whether it, isdisruptive or arbitrary in the sense of schedule, costand skill-mix,

O The effect on the company's competitiveness for DoDcontracts,

o The likelihood of significant reductions in certainsectors of the Industrial Supplier Base,

o The perceived effect on the complexity of the DoDprocurement and acquisition processes,

o The funding or financial risk-sharing mechanisms thatare being identified and/or proffered by DoD,

o The loss of company control over "proprietary" data,

marketable products and production processes

o The potential for micromanagement by DoD and

o The public perception.

The observations and recommendations of this report reflectindustry's concern with and sensitivity to these factors.

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IV. GENERAL OBSERVATIONS BY INDUSTRY

This initial set of insights concentrates on those issues andactions that will be useful during the formative stage of theConcurrent Engineering Program of DoD.

The first comment is a plea to DoD to identify those aspectsof the modified start-up phases of the acquisition and contractualprocesses that will necessitate changes by industry in processtechnology deployment, in structural factors, in front-endscheduling, in capitalization, in product development andproduction schedules, and in funding profiles.

The underlying reason is that introducing change in industryis more than just a demand for new product development. It implieschanges as noted earlier in manufacturing processes, financialchanges and changes in corporate structures. And, the deploymentof Concurrent Engineering practices by industry is just such aprocess change.

Experience since the beginning of World War II providesevidence that the best mechanism for introducing change in industryresponsive to governmental demand is that of a structured.participative, contractual cooperative arrangement with long-termco-leadership by industry and government. This has been the casenot only for DoD, but for the Departments of Agriculture, Energyand Interior, and NASA.

Product development in the United States has been a largelysequential process. Engineers handle the design and "toss it overthe wall" to manufacturing specialists. The manufacturingdepartment then devises means to produce and deliver the product:finally field service engineers maintain the equipment and resolvecustomer complaints.

Sequential product development can still work reasonably wellwith unsophisticated products, and where the designer has broadknowledge of manufacturing and use of the product. However, ifthe product is a highly sophisticated weapons system pushing thestate-of-the-art, sequential development will generally yielddesigns which are needlessly difficult (and expensive) tomanufacture, are prone to failure, and difficult to maintain in thefield.

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DoD gives a top priority to improvement in performance,capabilities, and lifetime of its weapons systems/platforms. Itsrecent approach to obtaining such improvement is characterized bywhat can be called "single feature improvement". These singlefeatures have become loosely referred to as the "ilities", e.q.,reliability, maintainability, producibiLity, etc. This "singlefeature" or "ility" approach has unfortunately been conducive toseparate, non-interacting program offices and separate budget lineitems in the DoD acquisition process each directed to a "singlefeature improvement" objective. In addition, it has led to acumbersome, sequential, and prohibitively costly, sub-optimizedprocurement process.

Concurrent engineering practices provide real promise forescaping from the out-dated "ility-silo" syndrome. A speciallyapplicable feature of concurrent engineering is the multifunctiondesign team which, equipped with appropriate tools, e.g., CAD/CAM,insures up-front consideration of most if not all the "ilities" orsingle-feature improvements.

Currently there are inhibitors in the requirementsspecification procedures of DoD that make it difficult and oftenimpossible to introduce concurrent engineering practices. Thereeare two general classes of these offending inhibitors: namely;

o The lack of clarity in the definition of the requirementsthemselves, and

o The lack of a realistic process for generatingrequirements.

The first class of inhibitors occurs because of DoD's over-specified acquisition process which, in reality, results in aninability currently to define real requirements in the earlyconcept and design definition phases of a program. DoD is,therefore, unable to realize the benefits of concurrent engineeringpractices in later system phases of production, operation, andmaintenance. Often, early phases of major programs have differentobjectives set by Program Managers which do not factor in full lifecycle considerations. This results from setting initialunrealistic requirements, perhaps motivated by performance withoutgiving adequate priority to producibility, cost, or life cyclesupport.

13

The perceived immutability of requirements, and the isolationof customer from vendor caused by the Defense acquisition process,pose special problems for the application of concurrent engineeringin Defense acquisition. Performing adequate trade-off studiesduring early phases for a given DoD system is essential' todetermine the recommended development implementation. -- Supporttools are needed so that these trade-offs can be performed withreasonable prioritization applied.

The second class of inhibitors relates to the DoD process ofgenerating the requirements. In the industry sector, a strongsystem engineering function which directs all areas includingtechnical product definition, schedules for development, and allaspects of cost, is essential for a successful product offering.Similarly, DoD must also have a strong system engineering functionwhich directs all phases of the DoD system development, production,and support activities. Frequently, this function is lacking oris delegated to a level which does not provide adequate direction.The result of not having strong system engineering leadership inthe government on a specific weapon system is catastrophic torealizing concurrent engineering attributes. Inadequate trade-offsand prototyping leading to incorrect conclusions during ConceptDefinition phases will often establish unrealistic and inadequateobjectives for Full Scale Development and Production.

A related problem is that of over-specification of the weaponssystem leading to unnecessary design objectives which add cost andrisk to the program. A strong system engineering function in thiscase would apply reasonable judgment to the imposed specificationtree and eliminate unnecessary requirements.

The current DoD acquisition process of technical leveling ofall competition is often an inhibitor to innovative concurrentengineering approaches because specification and contract languagerequired for leveling is frozen too early in the process andalternate approaches are discouraged.

The use of concurrent engineering practices early in thedesign process will skew the traditional procurement fundingprofile by greater up-front loading of costs. Experience shows,however, that potential savings in life cycle product costs fromimproved reliability, supportability, etc. more than offset thehigher initial cost.

14

DoD contractors generally strongly endorse the ConcurrentEngineering Program of DoD. However, they share a major concernthat requests by DoD for concurrent engineering practices thatexceed contractor's cost and schedule commitments will be imposedwithout the necessary attendant time and funding to design,develop, and test a responsive configuration. The result will belimited, restricted, incremental improvements that do not take fulladvantage of either the available technological or managerialaspects of concurrent engineering practices. They also sharecommon concerns about any meaningful wide-spread introduction ofconcurrent engineering practices in the current regulatoryenvironment now coupled with on-going contractor investigations.Nevertheless, the consensus on the urgency for improving weaponssystems/platforms design and development processes far exceedsthese concerns.

Both DoD and its Defense Industrial Base are in a "catch-up"situation in developing and deploying concurrent engineeringtechnology. As noted in Section III, DoD has consistentlyneglected process innovation since World War II even in thosespecialized types of production peculiar to DoD's military needs.

For DoD to reach its quantitive superiority over foreignadversaries and to achieve an acceptable deployment schedule forits weapons systems/platforms it must immediately become proactivein three areas of Concurrent Engineering activities: namely;

1. Explicit R&D budget support for ConcurrentEngineering

2. Explicit cooperative arrangements with and supportof industry in DoD-specific manufacturing design andprocess development, and

3. Sponsorship and support of manufacturing engineeringeducation and training.

15

V. CONTINUING INDUSTRY SUPPORT

The current members of the Industrial ConcurrentEngineering Strategy Forum believe that their insights are /valuable to the DoD, especially at this formative stage of theConcurrent Engineering Program. They also are convinced fromexperience that their review of and comments on the evolvingDoD and Service programs will serve to assure a realisticProgram that can be supported by the Defense Industry.

The Pymatuning Group plans to continue the present Forumeffort to more fully develop important aspects of theConcurrent Engineering Program that need attention in the nearterm (through 1988). These include:

1. Selection of contracts for inclusion ofconcurrent engineering practices,

2. Financial and incentive mechanisms that can beemployed to foster concurrent engineeringpractices,

3. Means for accelerating the pace at whichconcurrent engineering practices andtechnologies are employed,

4. Contractual and specification changes, and

5. Risk reduction activities.

16

TABLE I

VI. SUMMARY OF RECOMMENDATIONS£OR

CONCURRENT ENGINEERING

1. DEVELOP POLICIES AND PROCEDURES TO ACTIVELY ENCOURAGE, BUT NOTMANDATE, THE IMPLEMENTATION OF CONCURRENT ENGINEERINGPRACTICES BY THE DEFENSE INDUSTRIAL BASE.

a. Continue the informal, participative relationship betweenindustry and DoD to constructively accelerate thedeployment of Concurrent Engineering.

b. Establish a strong systems engineering function for majorDoD programs to ensure that Concurrent Engineeringpractices are incorporated in weapon systems development.

c. Re-examine, -for compatibility with Concurrent Engineeringconcepts, the approach DoD currently uses for generatingrequirements and specifications so as to recognizecommerciality both in terms of system requirements andlife cycle management processes.

d. Re-evaluate DoD competition policies for compatibilitywith Concurrent Engineering practices. Considerpermitting industry consortia to set forth the best setof proposals to satisfy true requirements, without regardto limitations forced by competition advocacy. Long termstable relationships between primes and vendors shouldbe facilitated.

e. Make a concerted effort to structure production contractsto allow contractor-DoD sharing of the life-cycle savingsresulting from the application of Concurrent Engineering.

2. EXPLICITLY ACKNOWLEDGE CONCURRENT ENGINEERING AS A PRINCIPALMEANS FOR ACHIEVING THE DEPARTMENT'S TOTAL QUALITY MANAGEMENT(TQM) OBJECTIVES.

a. Incorporate Concurrent Engineering objectives into theUnder Secretary of Defense for Acquisition (USD(A))strategies under the aegis of "Could Cost", i.e., eachacquisition to be aggressively examined by a contractorto report back what a program could cost if designrequirements and management systems which do not addvalue to the product are eliminated.

17

b. Incorporate Concurrent Engineering objectives into USD(A)strategies on the matter of Acquisition Regulatory Reformto enable commanders and managers to get the qualityproducts and services they want, when they want them ata reasonable price.

C. Include Concurrent Engineering practices in USD(A)strategies as a key means for reducing the lead time forTechnology Insertion into weapon systems and platforms.

d. Incorporate Concurrent Engineering practices into USD(A)strategies as integral to the knowledge base of the corpsof dedicated and qualified Acquisition Officers.

e. Incorporate Concurrent Engineering practices into DoDDirective 5000.43 which deals with Streamlining andElimination of Counterproductive Requirements, andprovide flexibility to subsequently change specificationsto facilitate employment of Concurrent Engineeringpractices.

3. ESTABLISH A "CONCURRENT ENGINEERING INITIATIVE" TO PROVIDEFUNDS FOR EDUCATION AND RESEARCH TO ACCELERATE THE ADOPTIONAND ADVANCEMENT OF CONCURRENT ENGINEERING PRACTICES ANDMETHODOLOGIES AND TO PUT A FOCUS ON THESE RECOMMENDATIONS.

a. Initiate immediately a broad program of education of bothgovernment and industrial personnel to developreceptivity to the contractual and procurement changeswhich must accompany the adoption of ConcurrentEngineering practices.

Incorporate Concurrent Engineering strategybriefings and lectures into appropriate DoDeducational curricula and structures.

Promote, in cooperation with relevant industryassociations, an "Education of Industry" program topresent the Concurrent Engineering philosophy tosenior and middle management levels of Defense BaseIndustries.

b. Initiate Concurrent Engineering Pilot Programs within DoDas a means for familiarization and training of DoDpersonnel.

c. Consider re-establishing a program along the lines of theNational Defense Education Act of 1958 to encourage thehigher education of manufacturing engineers for theDefense Industrial Base.

18

d. Establish an explicit design and manufacturing researchbudget line at a level which is a significant percentageof the amount allocated for device research and weaponsystem development, and conduct design and manufacturingresearch in the following areas: /

- Concurrent Engineering methods and techniquesfocusing on means for identifying tradeoffs acrossperformance, cost, manufacturability andsupportability,

- Product design methods keyed to low volumeproduction,

- New techniques for analyzing and improving productdesigns for enhanced quality and supportability, and

- Systematic design procedures that identify qualityfactors and focus on quality-by-design rather thanquality-by-oversight.

e. Use the R&D Program to highlight demonstrations centeredon existing weapon systems programs which can focus theR&D, establish quantitative goals, and serve astechnology transfer mechanisms.

f. Provide for each procurement request for sophisticated,novel or complex products to include a parallel fundingline for manufacturing innovations.

g. Identify and apply funding mechanisms and incentives thatcan be used for Concurrent Engineering developments. Inparticular, IRAD and CRAD funding for ConcurrentEngineering projects should be encouraged.

4. CREATE A REQUIREMENTS DEVELOPMENT, REQUEST FOR PROPOSALS(RFP), AND ACQUISITION PROCESS WHICH PROVIDES GREATER LATITUDEFOR ON-GOING TRADE-OFFS OF SYSTEM REQUIREMENTS. THIS PROCESSSHOULD:

ENCOURAGE SENSITIVITY TO THE COST AND SCHEDULEIMPLICATIONS OF PURSUING MARGINAL INCREASES INPERFORMANCE.

PLACE EMPHASIS ON SATISFYING END-USER NEEDS FORWHICH RIGID SPECIFICATIONS MAY BE A POOR SURROGATE.

19

PROVIDE FOR ELIMINATION OF RFP ITEMS CONSISTENT WITHUSD/A STRATEGIES FOR "COULD COST", STREAMLINING",AND "ACCELERATED TECHNOLOGY INSERTION",

1

ENCOURAGE END-USER INVOLVEMENT WITH THE CONCURRENTENGINEERING TEAM, AND

INCORPORATE FAMILIARIZATION PROGRAMS FOR GOVERNMENTPROGRAM MANAGEMENT AND ACQUISITION PERSONNEL ON THEPRACTICE AND IMPLICATIONS OF CONCURRENT ENGINEERINGSO AS TO FACILITATE CREDIBLE EVALUATION OF PROPOSALSAND BIDS.

a. Establish, in both Government and Industry, programengineers specifically responsible to achieve betterbalance between improved product life-cycle features andproduct performance.

b. Clarify MIL-STD-499 on Engineering Management to placethe responsibility for all "ilities" (reliability,maintainability, supportability, producibility, etc.)with the Program Engineer.

c. Ensure that RFPs endorse and use the Program Engineerconcept and that Source Selection Boards are notinfluenced by the "ilities" as if each had equal meritfor the particular application.

d. Include in the proposal evaluation process an assessmentof the design and manufacturing process capabilities.The quality of the design and manufacturing processshould be made an integral part of the selectionconsiderations, and should be an explicit condition foraward of contracts.

IL I*AY 3L

THE OFFICE OF THE ASSISTANT SECRETARY OF DEFENSE

' WASHINGTON. D.C. 10301-01*0

26 April 1988

PRODUCTION ANDLOGISTICS

Dr. Ruth M. Davis, PresidentThe Pymatuning Group, Inc.2000 N. 15th Street, Suite 107Arlington, VA 22201

Dear Dr. Davis,

As you know, the UnderSecretary of Defense (Ac-quisition and Logistics) has recently stated hisintent to initiate a Concurrent Design program as ahigh-priority defense effort. I have attached hismemorandum to that effect for you information.

Industry plays a key role in developing andimplementing the policies, procedures, and practicesthat will characterize concurrent design as a requiredstep in the modernized manufacturing processes neces-sary for future weapons systems procurements. It isessential therefore that OSD officials have an effec-tive means for continuing and timely dialogue withindustrial representatives responsible for, knowledge-able of, concurrent design as just discussed.

I should like you to arrange and take responsi-bility for effecting such a continuing dialogue be-tween selected and voluntary industry representativesand our office. I anticipate that this can be accom-plished in manner similar to the CALS Senior StrategyForum which you manage.

As we have discussed, Mr. Larry Lemke of McDon-nell Douglas would be a most acceptable industrychairman for this activity. Contractual funding tosupport this effort has been provided to The Pymatun-ing Group, Inc.

Sincerely,

Russell Shorey

Attachment 2

TNDUSTRY PARTICTPANTS TN nOn TNDUSTRIAI.

CONCURRENT ENGTHEERTNG STRATEGY FORUM

John Alber, Section HeadILS Systems EngineeringGrumman Aircraft SystemsBethpage, NY

W. B. Anderson, Jr., DirectorSupport Requirements & SystemsGeneral Dynamics, Fort Worth DivisionFort Worth, TX

Ruth M. Davis, PresidentThe Pymatuning Group, Inc.Arlington, VA

James J. Duhig, Chief EngineerSupportabilityLockheed Aeronautical Systems CompanyMarietta, GA

Mike Elem, DirectorSystems EngineeringGrumman Aircraft SystemsBethpage, NY

D. Travis Engen, Senior Vice President, ITTPresident & Chief Executive OfficerITT Defense Technology CorporationArlington, VA

Robert Estrada, Program Manager, VHSICIBM, Federal Systems DivisionManassas, VA

Wayne D. Fegely, Executive DirectorSystems DevelopmentWestinghouse Electric CorporationBaltimore, MD

Dr. Istvan Gorog, DirectorManufacturing Technology Research LaboratoryDavid Sarnoff Research Center, SRIPrinceton, NJ

Edwin Istvan, Senior AssociateThe Pymatuning Group, Inc.Arlington, VA

Dick Jamison, Program ManagerRadar Systems GroupHughes Aircraft CompanyLos Angeles, CA

Clinton Kelly, Corporate Vice PresidentAdvanced Technology ProgramsScience Applications International CorporationMcLean, VA

Loren Lammerman, Chief EngineerSystems EngineeringLockheed Aeronautical Systems CompanyBurbank, CA

Paul R. Lange, Vice PresidentIntegrated Logistics SupportNorthrop CorporationHawthorne, CA

Larry Lemke, Vice PresidentGeneral Manager, MD-80 ProgramMcDonnell Aircraft CompanyLong Beach, CA

C. Dale Little, Engineer Program ManagerGeneral DynamicsFt. Worth, TX

R. Noel Longuemare, Vice President & General ManagerDevelopment and Operations DivisionsWestinghouse Electric CorporationElectric Systems GroupBaltimore, MD

Donald P. McConnell, Senior Vice PresidentEngineering and Manufacturing TechnologyColumbus Division, BATELLEColumbus, OH

Keith McKee, DirectorIITRI Manufacturing Productivity CenterChicago, IL

J. L. Nevins, Division LeaderRobotics and Assembly Systems DivisionC. Stark Draper LaboratoriesCambridge, MA

Herb W. Nidenberg, Vice PresidentManufacturing Systems & TechnologyColumbus Division, BATELLEColumbus, OH

Troy E. Pfannkuche, Assistant Program ManagerF-15 Program DivisionRadar Systems GroupLos Angeles, CA

John R. Potter, Executive Vice PresidentOperationsBoeing Military Airplane CompanyWichita, KS

Jim Rupp, ManagerTechnology Systems Integration DivisionIBMBethesda, MD

Dr. Robert Schell, Executive Vice PresidentAerojet Ordnance CorporationTustin, CA

Donald D. Snyder, Vice PresidentAircraft EngineeringMcDonnell Aircraft CompanySt. Louis, MO -

Michael WattsNorthropProduct Definition Development CenterHawthorne, CA

Robert Winner, Deputy DirectorComputer & Software Engineering DivisionInstitute for Defense AnalysesAlexandria, VA

Attachment 3

ETNANCTAL DTALOCUE

B1ETWERN

GOVRRNMRNT AND TNDUSTRY

N. B.

Figures VI.5 and VI.6 are not includedin this Attachment

April, 1988

The Pymatuning Group, Inc.2000 N. 15th Street, Suite 707

Arlington, VA 22201(703) 243-3993

VI. TNVOkTNG FINANCTAL DTALOCUES FORtCOOPERATIVE ALLTANCES

/

The spectrum of activities on which this paper hasconcentrated starts with basic research and invention.From that beginning stage, the action moves intodevelopment and testing, followed by innovation intoproduct development, then transitions via manufacturingtechnology and manufacturing processes through theproduction cycle, and finally enters the marketplacewhere operational testing and acceptance occurs afteracquisition by consumers and users.

This spectrum subsumes a number of highlyinteractive processes and entities all of which have, inthe past, generally been treated as independent of oneanother with each having its own separate governingbodies-of law, regulation, and financial mechanisms.Familiar instances of these entities would include:

1. The research and development cycle

2. The manufacturing process

3. The domestic marketplace, and the foreignmarketplace

4. The public sector, and the private sector

5. The production industry

6. The financial industry

7. Public regulation

8. Government financing

9. University research

10. Export and import policies

11. Small vs large business

Cooperation has more often been discouraged thanencouraged by law and by tradition. Mismatchesfrequently exist between allowable financial supportmechanisms and required financial needs. Dialogues,

0 Our old and our new manufacturing processes,which in turn help explain our comparativecompetitive position in the world mar~et,

e The vigor of our national technological strengthand leadership,

a The structure and responsiveness of our defenseindustrial base,

e The set of available and popular financialmechanisms for supporting our domestictechnology innovation and manufacturing base;this serves as the current best indicator ofthe roles ascribed to government ingovernment-industry interactions, and

o The potential utility of the many currentlyproposed cooperative arrangements amongindustrial enterprises and between industry andgovernment.

Two of the more obvious observations to be drawnfrom the portrayal of what can be labelled the Product-Innovation Manufacturing Financial Support Spectrum areas follows:

e No single financial mechanism is useful in anacross-the-board manner for the entire productinnovation or manufacturing life cycle, nor, isa single financial mechanism useful across largisegments of either spectrum; and

* Financial mechanisms must be custom-fitted tomatch the life cycle phases in which the problerin question is occurring.

Figure VI.5 illustrates these observations throughdepiction of some well-documented applications ofspecific funding mechanisms.

The matrix of activity depicted in Figure VI.6 isintended to provide the reader with the means ofassessing those direct and indirect instruments offinancial assistance available for stimulatingtechnological innovation. In addition, the matrix

some institutional obstacles that appear inherent tothose circumstances surrounding the establishment of theconsortia. Effective incentives to overcome bOth typesof obstacles might include:

9 Tax credits,

e Accelerated depreciation, and

0 Price guarantees.

On the other hand, large capital exposure to such aconsortium effort, (and to any typical company's size asa member) plus the traditional uncertainties associatedwith regulations might suggest incentives such as:

* Tariffs,

*- Loan guarantees, and

• Regulatory relief through the removal ofprocedural inconsistencies.

The creation of a "level playing field" made up ofthe appropriate combination of support mechanismsrequires infinite patience and imagination on behalf ofthe initiator.

A number of important policy issues will surfacefor consideration whenever a financial dialogue isproposed regarding prospective government-industrycooperative efforts. Several of the key issues involvedhave already been described in earlier portions of thispaper. As noted, it is clear that government-industrycooperative policy options rarely can be expected totake identical form in every instance, nor is itprobable that their results will be optimized on everyoccasion. In sum, therefore, difficult choices willhave to be made. Some of the major ramifications ofsuch choices are illustrated in Figure VI.6, and havebeen narrowed down to those expected to accomplish oneor all of the following:

9 Provision of most economic efficiency

e Provision of greatest breadth of participation

FIGURE VI.l - THE PRODUCT TNNOVATOl SPrCTRIJMOF AC'PTVITIES

/

1. Basic Research and/or Invention

...Proof of Concept

**.Theory

...Physical Limits

2. Applied Research and Development

...Component or Device-oriented

...HQT Product Specific

3. Product or System Design (Generic)

4. Prototype Development and Testing

5. Customized (Proprietary) Product DesignDevelopment, Test and Engineering

6. Product/System Production

7. Product/System Documentation

... Operational

... Maintenance, etc.

8. Marketplace Activities

...Promotion

.. Sales

9. Product/System Maintenance

FIGURE VI.3 - PTNANCTAL SUPPORT MrCITANTSMS

A. Direct Financial Tnstruments

1. Contracts

2. Payments

3. Endowments

4. Loans

5. Grants -- ResearchConstruction

B. Tndirect Financial Assistance

1. Guaranteed Loans

2. Facility and Equipment Leasing (Govt.owned)

3. Patent Ownership and Licensing Rights

4. Trademark Rights and Copyrights

5. Government Furnished Equipment andFacilities, e.g., GO-COs (Government-owned, Company-operated)

6. Technology Transfer

7. Personnel Exchange/Liaison

8. Export Subsidies

9. Import Tariffs

10. Guaranteed Pricing...Price Floors...

11. Voluntary Restraint Agreement (VRA)on Imports

...Sec. 232, Trade Act

FIGURE VI.3 - Financial Support Mechanisms (continued)

E. Non-economic Tncentives, i e., donstraintRemoval

Regulatory Relief/Reform

... Removal of procedural inconsistencies

...Reduce conflicts over standards

...Eliminate data duplication

...Minimize impact of future changes

- V -

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