Management of Logistic Support Costs in the Equipment Acquisition Phase

In recent years, a management concept known as design-to-cost has been implemented with considerable success by the US Department of Defense (DoD). Under this concept, a variety of system and equipment acquisition programs have incorporated an average unit production cost target in the development/production contract early in the development phase to control program costs throughout the development and production phases. Moreover, there has developed a widespread awareness of the need for broadening the design-to-cost concept to encompass operating and support (O&S) costs. The DoD and other government agencies have begun to use several contractual procedures for transmitting O&S cost goals to the contractor. One of these is called the ``logistic support cost (LSC) commitment''. The LSC commitment uses a LSC model as a basis for a cost target and subsequently a field cost measurement. This paper describes the management control objectives of the LSC commitment, considerations in implementing its strategy, and its statistical risks. Examples are presented and conclusions are drawn regarding the strengths and limitations of the LSC commitment as a life-cycle cost control device.