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Factor and Organizational Substitutions to Minimize Costs in the Navy

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Technical Report

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Royal Military College of Canada Kingston, Ontario Canada

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This report focuses on potential input substitutions in a navy. The first part introduces elements of economic analysis of input substitutions in production theory, incorporating such critical issues as risk, time and transaction costs as well as widening the scope of substitutions beyond the simple labour for capital framework as consistent with global practice. The second part is divided into four sections. The first two sections cover substitutions within the navy itself and its fleet followed by substitutions at a more general level within the government. The next two sections cover the ship design at a technical level and affecting procurement and eventually the operations and maintenance costs and, finally,beyond the government, outsourcing seen as organizational substitution. Each section contains examples from various navies. Although automation arises in such major cases as modularity, innovative substitutions introduced at the design stage and hitherto unconsidered outsourcing practices emerge aspart of menus available to defence planners. Two major questions arise for future research. One is the nature and extent of interaction between substitutions. The other is about the menu of substitutions available to smaller navies.

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