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This report, part of a broader study examining the economic implications of establishing a second production source for the Advanced Cruise Missile (ACM), draws on the experience in the Tomahawk cruise missile program to determine (1) whether savings were indeed realized by bringing a second producer into the Tomahawk program, and (2) what conditions are necessary to achieve savings. The authors provide background on the Tomahawk program and its competitive strategies; examine estimates made at different times by different organizations and actual experience to date; and discuss single-source experience, comparing Tomahawk with the air-launched cruise missile, Harpoon, and other missile systems. Bringing a second producer into a program implies incremental non-recurring costs for additional tooling and special test equipment, a technical data package, licensing arrangements, qualification of a second producer, etc. Also, because of the loss of learning-curve benefits, lower production rates for both companies, and smaller quantities over which to spread fixed and semifixed costs, recurring costs may increase when a small production quantity is divided between two companies. It is not self-evident, therefore, that second-sourcing will save money for the government in every major system procurement.

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