Inefficiently low production rates in defense procurement: An economic analysis

A number of different studies by Congress, the military, and outside sources have documented the fact that production rates in plants producing major weapons systems tend to be very low relative to the capacity of the plants. The most often cited study is by the Congressional Budget Office (CBO [1987]). It examined production rates for 40 weapons systems over the time period 1983-1987. This was the peak period of the Reagan defense buildup. Thus evidence of under-utilization during this period would be particularly compelling. The study concluded that 20 of the 40 systems were being produced at unacceptably low rates.2 Only 18 of the 40 systems were being produced at more than 50% of the maximum production rate for the existing production facility. It was estimated that a 50% increase in the production rate for the 20 systems identified as being produced at unacceptably low rates would have decreased average cost by 10% to 15%.3 In a different study Rand researchers have summed up the situation as follows.