11.1 INTRODUCTION

11.1.1 Criteria. When the Criteria are applied to a manufacturing or production contract, it is not the intent to cause contractors to revise their internal control systems if these systems are adequate for planning and control purposes. Defence recognises that, in general, production contracts are better defined and performed in a different manner than their predecessor contracts in the development phase. Consequently, in a manufacturing or production phase application of the Criteria, certain latitudes are allowable in the interpretation of the Criteria in this environment. This CHAPTER is devoted to the special considerations necessary for proper Criteria interpretations in the production phase and it is focused on the manufacturing/production cost accounts and work packages.

11.2 COST ACCOUNTS FOR MANUFACTURING

11.2.1 Care should be taken to allow the contractor the flexibility to structure a production CWBS which is compatible with the manufacturing breakdown of the production hardware and accommodates any differences between the management required for the development phase and the management required for the production phase. This same need for compatibility with the manufacturing process and recognition of differences in the management of development and production, applies to the point of interface between the CWBS and the organisation levels of the contractor which are selected to be the cost account and performance measurement baseline levels for production work.

11.2.2 In general, it is more economical and effective to establish cost accounts for production at higher levels of both the CWBS and the organisational structure than would be the case for comparable development effort. During the production phase, it is important to allow the contractor flexibility in the points of interface between the CWBS and the manufacturing organisation levels. Cost accounts should not be established at such a low level of the CWBS that repetitive reporting of detailed performance data would be of questionable utility.

11.2.3 The lowest echelons of production management are primarily concerned with sustaining the required manufacturing throughput as defined by work orders and schedules issued to them. Cost and schedule management by contract or product is normally the responsibility of higher echelons of management within the contractor's production organisations. Management is typically supported by one or more production planning and control organisations which develop integrated schedules for the performance of all production work and prepare appropriate work orders. The planning and control of production typically is in terms of the major functional organisations responsible for material procurement and handling, component fabrications, and product assembly. Tooling, production engineering, quality, inspection and testing are assigned appropriate supporting roles. Within the major functional organisations, work orders usually cover a manufacturing lot of like items and are likely to cross the boundaries of lower level organisations as the manufacturing lot is moved through the various manufacturing processes.

11.2.4 The management of cost account work in a research and development or low-rate production environment should be assigned to a single responsible organisational element. Because of the characteristics of the manufacturing process, the management planning and control of cost account work in a continuing manufacturing environment may not always be performed by a single individual. However, the cost account management function must always be fulfilled within the responsible manufacturing organisation, and a single responsible individual must always be assigned from that organisation to coordinate the management for each cost account. The procedures used for assigning responsibility and for the performance of the planning and control of cost account work must be documented.

11.2.5 The selection of too low an organisational level for the assignment of cost and schedule management and analysis responsibilities can cause problems in two areas. First, it will be below the level at which cost and management capability and responsibility actually exist in the organisation. Second, it is likely to result in the generation of a substantial number of additional plans, documents and performance reports without significantly improving management control. A similar condition can arise if cost accounts are established at very low levels of the CWBS. If the two are combined (cost accounts located at low levels of both CWBS and organisation), the result may be increased costs for control system operation without additional benefits. Tracing of cost and schedule data to very low levels of detail (that is, part number and performing organisation) is normally not a problem in production. A satisfactory production planning and control system should have this capability, but cost accounts need not be established at that level. The establishment of cost accounts at the level of major functional departments (or comparable organisations) within the overall manufacturing organisation usually results in the proper level of management.

11.2.6 The levels of the work breakdown structure which define appropriate production cost accounts in conjunction with the organisation breakdown level are related to the hardware involved. The level of CWBS appropriate for cost accounts in an electronics production contract is unlikely to be suited to an aircraft production contract. The contractor typically will have a breakdown of the hardware by assembly, sub-assembly, component and part number. This breakdown normally will be aligned with the sequence of manufacturing operations followed in building the hardware. It can be of considerable use in determining the appropriate level for establishing cost accounts for production contracts. However, the lowest level of a hardware manufacturing breakdown, the individual part, is almost never the appropriate level for the cost account. Typically, the hardware sub-system, sub-sub-system or major assembly may be suitable levels for the cost accounts, depending on the product being produced.

11.3 MANUFACTURING WORK PACKAGES

11.3.1 Composition. A manufacturing work package is derived from the relationship between the work breakdown structure and the manufacturing organisational structure and represents a logical sub-division of this relationship. Manufacturing work packages may take a variety of forms, including:

a. a combination of several part numbers (that is, all parts going into one assembly may be a logical grouping for a work package of this type);

b. a single part number consisting of one or more shop releases, with each shop release, or combination thereof, being considered as a work package milestone;

c. a shop release, with each sequence, or combination of sequences, being considered as work package milestones;

d. an individual sequence;

e. a pre-determined combination of sequences;

f. a combination of purchase orders (that is, several related purchase orders issued to a single vendor being grouped), with each purchase order, purchase order item number, part number or delivery date, or combination thereof, being considered as work package milestones;

g. a purchase order consisting of one or more part numbers, with each purchase order item number, part number or delivery date, or combination thereof, being considered as work package milestones;

h. a purchase order item number, with each part number or delivery date, or combination thereof, being considered as work package milestones;

i. a part number (purchased), with the delivery date being considered as a work package milestone;

j. a sub-division or grouping of purchase order elements such as "purchase order-part number-delivery date"; or,

k. other logical product structure/manufacturing sub-divisions.

11.4 CONSIDERATIONS

11.4.1 General. In the definition and establishment of manufacturing work packages, proper recognition should be given to the characteristics of the production process as opposed to those of design and development. The most significant of these is the relative ease of measurement of most manufacturing work. Manufacturing typically produces a finite output in accordance with a detailed schedule. There are many reasonably accurate and objective techniques for measuring manufacturing performance. The normal production planning and control system usually includes several sub-divisions of the manufacturing work which provide a basis for acceptable performance measurement. The objective is to select as the "work package" the work sub-division which best satisfies the requirement for performance measurement. Following are some work package considerations in the manufacturing environment.

11.4.2 Selection of Smallest Sub-division. Since accurate measurement of manufacturing work-in-progress is not usually a problem, the most compelling reason for the selection of the smallest (shortest duration, least value) work sub-division as the production work packages is to minimise the need to make changes to the schedules or budgets of open (in-progress) work packages or packages scheduled to be started in the current accounting period, both of which are restricted by the Criteria in the interests of preserving a stable near-term planning and measurement baseline. However, the smallest formally-defined sub-divisions of manufacturing work are, in many production control systems, scheduled with definite dates only a short time before their start, which creates problems in satisfying the normal Criteria requirement for advance work package planning.

11.4.3 Schedule Windows. In many production control systems, longer term planning of the lowest work levels is done only in terms of "schedule windows", that is, time periods of a month or more in which the actual work performance of the "package" will consume only a fraction of the total time, or of "complete by" dates. In some control systems, the formal scheduling of the lowest level of work sub-division may not exceed this degree of precision at any point. Where systems do provide for the establishment of start and completion dates for smaller sub-divisions of manufacturing work, these dates are frequently subject to in-progress revision to achieve efficient day-to-day work-loading of the performing organisations, and to reflect current schedule priorities.

11.4.4 Large Work Sub-divisions. The use of large work sub-divisions to satisfy the Criteria work package requirement does not avoid this problem, since the type of schedule changes described are still internal changes to the package when it is in process. Further, the cancellation (closing) and reissue of a new work package for each change generally does not constitute a practical or economical approach in manufacturing, particularly for contractors who have automated their production scheduling and manpower planning (and in some cases also work order preparation and issue).

11.4.5 Rescheduling of Open Manufacturing Work Packages. Under these conditions, a certain amount of rescheduling of open manufacturing work packages is appropriate and acceptable, providing procedures are in existence which prevent the inadvertent invalidation of baseline schedules and budgets through these detail-level changes. The substance of such procedures should be to limit the range of rescheduling so as to maintain consistency with key production schedule dates. Key production schedule dates which define the required completion dates for key elements of the manufacturing plan, are normally found on internal production schedules, and normally should not be more than three months apart. This flexibility for rescheduling applies only to manufacturing work packages. No changes may be made to BCWS in open, non-manufacturing work packages.

11.4.6 Use of Objective Indicators. It is emphasised that the term "work packages" is generic and is used to identify discrete effort tasks. In some production control systems involving repetitive manufacturing operations, objective indicators reflecting groups of tasks may be used and viewed as work packages. For example, when objective indicators are used, values should be established each month based on the tasks in the group. The monthly value established for the group of tasks becomes BCWS for the month.

11.4.7 Anticipated Learning. A contractor must utilise anticipated learning when developing time-phased BCWS. Any method used to apply learning is acceptable as long as the BCWS is established to represent as closely as possible the expected ACWP that will be charged to the cost account/work package.

11.4.8 Detailed Planning and Control. It must be stressed that the measurement of performance of manufacturing work through the use of objective indicators does not eliminate the requirement for detailed planning and control of manufacturing work. The breakdown of manufacturing work into work/shop orders which specify the processes or assembly steps, materials and organisations necessary to fabricate or assemble a manufacturing lot, and which have assigned schedules and budgets or values, is an accepted general practice in the management of manufacturing effort. This is essential if schedules and efficient performance are to be maintained.

11.4.9 Objective Indicator Examples. Examples of the use of objective indicators for measuring accomplishment of repetitive manufacturing operations may include:

a. the use of milestones with assigned or readily determinable budget values;

b. direct measurement of accomplishment in terms of units of work; that is, some form of an earned or equivalent unit measurement system; or

c. an input-output measurement system which compares planned levels and actual performance.

These indicate the principal types of manufacturing measurement systems and reflect the fact that a contractor, who already has an effective means of measuring manufacturing performance, should be able to satisfy the Criteria, providing that the means of measurement is integrated with the contractor's baseline plan for the performance of the manufacturing work.

11.4.10 Baseline Plan. The contractor must still have a baseline plan for manufacturing work which includes time-phased budgets that are consistent with the schedules for the performance of the work. The performance measurement indicators (milestones, earned units, scheduled output, etc.) must be clearly identified and directly related to cost accounts. They must be scheduled in a sequence that supports the achievement of higher level schedules including those specified for cost accounts. They must clearly represent the accomplishment of an identifiable quantity of work within the cost account and be assigned a value reflecting the planned cost of that work, and values must reconcile to the total budget for the cost account. The use of a measurement base which is only generally indicative of some progress (for example, equal value milestones not related to specific work) is not acceptable.

11.4.11 Scheduling Frequency. The performance measurement indicators (milestones, etc.) must be scheduled with sufficient frequency to provide a basis for accurate performance measurement. This entails provision for measurement which supports monthly reports of cost and schedule performance status at the cost account level. To do this, it is normally necessary to measure performance of tasks below the cost account in a way which accurately indicates the performance in each report period. For example, this can be done by scheduling performance measurement indicators at least bi monthly (every two months) or by providing for a means of accurately assessing work-in-progress when indicators are scheduled at greater than bi-monthly intervals.

11.4.12 Maintenance of Baseline Stability. The restrictions on changes to schedules for manufacturing performance measurement indicators are equivalent to those regarding changes to manufacturing work packages specified in paragraph 11.4.5 above. Rescheduling must be constrained so as to maintain consistency with key production schedule dates. Procedures should be established which provide the necessary constraints. There should not be changes to the budgets or values assigned to performance measurement indicators which are scheduled to occur in the current monthly accounting period. This is required in order to maintain baseline stability.