End-of-Production Adjustments
As production ends, programs typically incur greater costs for recurring and nonrecurring efforts. The recurring cost of end-of-production units is often higher than would have been projected from a program’s historical cost improvement curve. This is referred to as toe-up. The main reasons for toe-ups are:
the transfer of more experienced and productive employees to other programs, resulting in a loss of learning on the production line;
reduced size of the final lot, resulting in rate adjustment penalties;
a decrease in worker productivity from the psychological effect of the imminent shutdown of the production line;
a shift of management attention to more important or financially viable programs, resulting in delayed identification and resolution of production problems;
tooling inefficiency, resulting from tear-down of the tooling facility while the last production lot is still in process;
production process modifications resulting from management attempts to accommodate such factors as reductions in personnel and production floor space; and
similar problems with subcontractors.
No techniques for projecting recurring toe-up costs are broadly accepted. In truth, such costs are often ignored. If, however, the analyst has access to relevant historical cost data, especially contractor-specific data, it is recommended that a factor be developed and applied.
Typically far more extensive than recurring toe-up costs are the nonrecurring close-out costs that account for the numerous nonrecurring activities at the end of a program. Examples of close-out costs are:
the completion of all design or “as built” drawings and files to match the actual “as built” system;
change orders that modify a system need to be reflected in the final data package that is produced;
the completion of all testing instructions to match “as built” production; and
dismantling the production tooling or facility at the end of the production run and, sometimes, the storage of that production tooling.