No abstract

To assist the Air Force in developing a strategic sourcing policy, we have examined the economics and business management literatures to find theories and evidence regarding the "insourcing vs. outsourcing" or "make vs. buy" decision; and, given the decision to outsource, how best to conduct source selection, contracting, and post-contract management. This report, originally prepared as a briefing, synthesizes the results of our literature review and discusses implications for Air Force outsourcing policy.

The RAND Corporation is a nonprofit research organization providing objective analysis and effective solutions that address the challenges facing the public and private sectors around the world. RAND's publications do not necessarily reflect the opinions of its research clients and sponsors. R ® is a registered trademark.

This document and trademark(s) contained herein are protected by law. This representation of RAND intellectual property is provided for noncommercial use only. Unauthorized posting of this publication online is prohibited. Permission is given to duplicate this document for personal use only, as long as it is unaltered and complete. Permission is required from RAND to reproduce, or reuse in another form, any of its research documents for commercial use. For information on reprint and linking permissions, please visit www.rand.org/pubs/permissions. The RAND Corporation is a research organization that develops solutions to public policy challenges to help make communities throughout the world safer and more secure, healthier and more prosperous. RAND is nonprofit, nonpartisan, and committed to the public interest.RAND's publications do not necessarily reflect the opinions of its research clients and sponsors. Support RANDMake a tax-deductible charitable contribution at www.rand.org/giving/contribute www.rand.org For more information on this publication, visit www.rand.org/t/RR2438Published by the RAND Corporation, Santa Monica, Calif.

• Case studies of the KC-135R/T and C-130H fleets identified four categories of operating and support (O&S) cost growth: Fuel costs drove 31 percent of overall O&S cost growth, unit-level personnel costs 30 percent, weapon system sustainment costs 27 percent, and modifications and other costs 12 percent. • The Air Force can affect some but not all drivers of O&S cost growth. • Unit personnel costs might be reduced by consolidating many maintenance activities within a global network of maintenance facilities and by increasing the size of operation squadrons. • Various fuel-efficiency initiatives can help reduce fuel costs, as can efforts to reduce total flying hours. • The root causes of weapon system sustainment costs are war-related effects and aging effects; while the former will diminish with the end of overseas contingency operations, the latter are more difficult to mitigate.