Defence Contractor Eliminates Cost Variance in Major Programme, Improving Margin and Improving Competitiveness

Defense Contractor Reduces Systems Costs and Improves Process Accountability

A leading manufacturer of electronic warfare systems faced increasing pressure to meet stringent cost and delivery expectations on complex government programs.

As on-time shipments slipped and actual production hours drifted away from the budgets established during development, the organisation risked losing competitiveness on future bids. To protect its position in this highly demanding market, the company set out to reduce hours per unit, align production costs with budget, and improve customer delivery performance through a focused, data-driven improvement effort.

Challenge

A leading electronic warfare systems manufacturer was missing on-time delivery targets and struggling to align actual production costs with budgeted hours per unit.

The company was struggling to meet on-time shipment commitments and align actual production costs with the budget set during development. To remain competitive for future government bids, the organisation needed to reduce ship-set hours per unit (HPU) and bring them in line with the budget while simultaneously improving customer delivery performance.

Solution

The team conducted detailed production analysis and implemented focused management tools to identify, prioritise, and reduce hours per unit while sustaining improvements.

We began by conducting data analysis, interviews, and floor observations to thoroughly dissect each production step. Using an impact/difficulty assessment, timelines, and RACI and SPI indexes, they identified and prioritised the processes driving HPU variances. Management tools were then implemented to focus attention on and track HPUs for the critical few steps, while a dedicated war-room was created to track project deliverables. This approach enabled the implementation of both quick wins and longer-term sustainment opportunities.

Results

The initiative unlocked 180% of the targeted HPU opportunity, identified over $1M in cost reduction, and strengthened on-time delivery and budget performance.

The effort delivered substantial performance gains, achieving:

  • 180% improvement in hours per unit opportunity achieved; the goal was to identify at least 195 hours/unit, and the team achieved 342 hours/unit.​
  • $1MM + in cost reduction opportunity identified.​
  • Embedded an improved variance-to-target tracking system to better identify, prioritise, and sustain improvements.​
  • Improved ability to satisfy on-time delivery and meet​ budgetary commitments.

 

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Frequently Asked Questions

How do manufacturers eliminate cost variance in complex defence programs?
Cost variance in defence manufacturing is rarely a budgeting problem — it's a production visibility problem. The most effective approach is to isolate the critical few production steps driving overruns through structured data analysis, floor observation, and process prioritisation, then build a variance-to-target tracking system that makes deviations visible in real time. When TBM applied this with a leading electronic warfare systems manufacturer, the team uncovered 342 hours/unit in improvement opportunity against a goal of 195 — a 180% overachievement — and more than $1 million in cost reduction. Manufacturers that embed this kind of governance see compounding results: lower unit costs, better delivery performance, and stronger positioning for future bids.
What is the best way to reduce hours per unit (HPU) in aerospace and defence manufacturing?
Most programmes have a long tail of production activities, but a small number of steps account for the majority of HPU overruns. Identifying those through impact and difficulty assessments — then building focused accountability structures around them — consistently outperforms broad efficiency initiatives. When TBM worked with a defence contractor using RACI and SPI indexes to prioritise improvement areas, the team achieved 342 hours/unit in identified improvement against a 195-hour target. The goal isn't a one-time reduction — it's a management system that continuously pulls HPU toward target.
How can defence contractors protect margins and stay competitive on government programme bids?
Contractors that win on price but can't execute at bid cost erode margin programme after programme — and eventually lose competitiveness on future awards. The answer is operational discipline: step-level cost analysis, clear variance accountability, and a governance structure that sustains improvement over time. TBM worked with an electronic warfare systems manufacturer facing this exact pressure, helping them identify more than $1 million in cost reduction opportunity and meaningfully improve on-time delivery performance. Contractors that build this capability don't just recover margin — they generate more accurate cost data that sharpens future bids.

Topics in this Case Study

Performance Improvement

At a Glance

Client

Leading manufacturer of electronic warfare systems

Results

  • 180% improvement in hours per unit
  • $1MM + in cost reduction opportunity identified
  • Embedded improved variance-to-target tracking system
  • Improved ability to satisfy on-time delivery and meet budgetary commitments.
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