Performance Implications of Product Life Cycle Extension: The Case of the A‐10 Aircraft

Abstract

INTRODUCTIONIn the case of capital equipment, the initial acquisition cost is often a small percentage of the total ownership cost faced by firms. Many manufacturing companies forecast that more than 50 percent of the total life cycle cost of a product occurs after it is operational (Jackson and Ostrom 1980). In the aviation industry, this percentage is closer to 70 percent (Galloway 1996). In addition to economic cost, capital equipment has unique considerations impacting the health of the owning organization such as production loss, maintenance costs, idle time of operators when the equipment is not in use, overhead costs, and disposal of the asset at the end of its useful life (Ellram 1993). In order to produce an accurate forecast of life cycle costs, it is reasonable to state the product must have a designed service life identified. However, in a world filled with tight budget constraints, shrinking research and development dollars, and evolving technologies to better determine the service life remaining in products, businesses are faced with challenging decisions when a product reaches its originally designed life expectancy (Bruno 2005;Galloway 1996). Consequently, companies must make several important decisions. If the item continues to function and appears to require no additional investment beyond routine operations and maintenance inputs, why invest substantial capital in purchasing a replacement? Who outside of the owning organization should be involved with the decision to prolong the life of the product? A thorough research of business and manufacturing literature does not produce an answer to these questions.The purpose of this study is to examine the performance and cost effects associated with prolonging the life of capital assets beyond the initial forecast. A secondary purpose is to propose supply JONES & ZSIDISINchain practices that should be considered during the acquisition decision phase for successfully extending the life of capital assets while minimizing cost increases. As very little published research exists about the topic, this article is exploratory in nature. To further clarify the discussion and highlight the impacts of supply chain failures from lifecycle extension decisions, the United States Air Force's A-10 Thunderbolt II aircraft is examined. The example evaluates data showing performance and cost impacts realized when capital asset lifecycles are extended without a supporting supply base. This case is of particular significance as an example of a nearly worst-case scenario. At the time when replacement was feasible, the equipment showed no significant signs of deterioration. However, as the fleet passed the original design life, structural failures, maintenance requirements, and spare part demands skyrocketed and the supply base was unprepared to support the increased workload.This paper begins with a background of the research on capital assets and the A-10 aircraft, building on the theoretical framework of Transaction Cost Economics (TCE) as it pertains to capital equipmen...

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