The cost of production breaks

Disruptions in the production process can have a serious impact on production costs. Most of the previous literature which addresses the cost impact of production breaks attributes the observed increase in costs solely to “loss of learning.” We develop a mathematical model which implies that breaks in the unit learning curve can occur because of a production break, even under the assumption of no forgetting. In such cases, increases in unit cost can be caused by decreasing returns as the amount of time available to meet the delivery schedule decreases due to the production break.     

Landmarks in defense literature

The Brain of an Army: a Popular Account of the German General Staff. By Spenser Wilkinson. Archibald Constable, London (1st edition 1890, 2nd edition 1895)     

UK firms’ experience and perceptions of defence offsets: Survey results 1

Offsets are a growing feature of international trade in defence equipment. This article assesses the economics of offsets and outlines UK offsets policy. There is a lack of empirical work in the field and the article presents the results of a survey of UK firms’ experience of their involvement in offsets against UK imports of defence equipment. There is also a case study of the AWACS offset programme and an evaluation of policy implications.     

Collaborative projects and the number of partner nations

Collaborative defence projects have been a distinctive feature of European defence industrial policy. This article focuses on whether the number of partner nations in international collaborative defence and aerospace programmes is a source of inefficiency. It appears that there is not a simple linear relationship. Two nation collaborations can be efficient, but conventional wisdom assumes that inefficiencies emerge with more than two partner nations. Inevitably, data problems made what appears to be a simple hypothesis difficult to test. The major result is that there is no evidence that efficiency as measured by development times is adversely affected by the number of partner nations. A limited sample regression and a comparison of Airbus vs. Boeing shows a similar conclusion.     

Note: Dual sourcing with nonidentical suppliers

We analyze a dual-sourcing inventory model with exponential lead times and constant unit demand in which the order quantity is split in some proportion between two sources of supply. Unlike earlier studies, we do not require that the two sources be identical in terms of the lead-time parameters or the supply prices. We compare the expected total annual costs for the two-source and the traditional single-source models over a wide range of parameter values. We confirm the findings of earlier studies that, under stochastic lead times, dual sourcing yields savings in holding and shortage costs that could outweigh the incremental ordering costs. With this more general model, we demonstrate that savings from dual sourcing are possible even where the mean or the variability of the second source is higher. © 1993 John Wiley & Sons, Inc.     

Book reviews

Book Review: The Future of the Defence Firm: New Challenges, New Directions. Edited by Andrew Latham and Nicholas Hooper NATO ASI Series, Kluwer Academic Publishers ISBN 0–7923–3268–7

James E. Payne and Anandi P. Sahu (eds.) Defense Spending &; Economic Growth, Boulder, CO: Westview Press, 1993.     

The future of European defence policy: An economic perspective

European defence policy has been dominated by politics. This paper shows how economic principles can be used to derive guidelines for the formulation of European defence policy. The inefficiencies of the EU's existing defence arrangements are identified. It is shown that there is scope for efficiency improvements in the EU's Armed Forces and its defence industries.