Ways of Working
Back when I was in college I had an argument with a professor over a question he asked on a test. The question was “What is the number one factor affecting the cost of parts.”
I answered “Labor,” but he thought the answer should be “Quantity.” I tried to explain to him that while it is (almost always) true that the cost per part decreases as the quantity of parts fabricated increases, the reason the cost goes down is that less labor is consumed in making each part.
This not only applies to the labor the fabricator puts into making the parts, but it also applies to the labor expended at every step in the entire process. The time it took the engineer to design the part, the time the procurement person spent procuring the raw material, the time the stock room personnel spent stocking the material and delivering it to the floor and so on. As I explained in my post $500 Hammers, when you only make a single part, the material cost for the part is dwarfed by the labor cost, which is why a hammer could easily end up costing $500 if you only order one.
Fabricating a larger quantity of parts allows you to automate a large portion of the production process, thus decreasing the cost per part. Even the cost of the machine used to automate the process is driven by labor costs. A machine that takes less time to design, fabricate and maintain, or in other words has a lower labor cost per hour of operation, will decrease the cost per part versus using a machine that is poorly designed/built and thus more expensive. Makes me wish sometimes that I was just Working From Home.
A perfect example of this can be seen in the automotive industry. You can currently go out and buy a well built automobile for around $20,000. However if that same car was one of a kind, it would probably cost at least 10 times that amount to have it built, and the vast majority of that would be labor costs.
The next two drivers affecting the cost of parts are overhead and the cost of any fixed infrastructure required.
Overhead consists of any personnel not directly involved in the process of making parts, like secretaries, human resource personnel, accountants, lawyers, etc. and any equipment not directly used in making parts like copiers, printers, phones, office furniture, office space, etc. and fixed infrastructure is any item that is directly involved in making parts, like fabrication shops, machine tools, stock rooms, assembly lines, etc.
So the way to reduce the cost of an individual part is to minimize the amount of labor required, minimize overhead and minimize the amount of fixed infrastructure required. There are of course other things that affect costs like material, the amount of power required to make each part, etc. but unless the labor/overhead/fixed infrastructure cost per part is extremely low, they generally are not the significant drivers in the cost per part.
There are of course numerous exceptions to these general guidelines, but they hold true in most instances. In fact, anybody familiar with the business world already knows everything I have just described, and that term for the summation of labor, overhead and fixed infrastructure costs is called the Fully Loaded Labor Cost.
The reason I have provided this (extremely) short business primer is because all of the above discussion applies to processes as well as to parts. For example, some people have a hard time understanding why it costs so much money to launch the Space Shuttle. Well, if you divide the Fully Loaded Labor Cost of everybody working on the Shuttle program by the number of Shuttle launches per year, you will pretty much get the cost of each launch.
In short, the reason the Space Shuttle is so expensive to operate is because NASA has an enormous amount of people assigned to the program, their overhead is outrageous and they have a large amount of expensive fixed infrastructure to maintain. Consequently, even though NASA does not have to build a new vehicle for every launch like Lockheed Martin, Boeing, Arian, etc do with their expendable vehicles; having a reusable launch vehicle has not brought the cost of space access down because the total cost of operating the vehicle is so expensive.
So what would it take to reduce the cost of operating a reusable launch vehicle? The answer is to minimize operational costs (or OPS costs) by minimizing the number of people it takes to service the vehicle between flights, having a company organization with low overhead costs and minimizing the amount of fixed infrastructure required to launch and service the vehicle.
That is where the name of my new company comes in.
For those of you who don’t know, I recently went to work as the Lead Propulsion Engineer for TGV Rockets in Norman, Oklahoma. TGV stands for Two Guys and a Van, and it embodies the philosophy we are trying to design our vehicle to.
One day, Earl Renaud and Pat Bahn (The COO and CEO of TGV Rockets respectively) were talking about why the Shuttle was so expensive to operate, and (if I remember the story correctly) Pat made the statement that if they could operate a vehicle with two guys and a van, the cost per flight could be reduced significantly and the name stuck.
We sometimes joke that TGV could stand for Two Guys and a Van, or Twelve Guys and a Van or Thirty Guys and a Van, but the goal is the same: Design, fabricate and operate a vehicle so that the OPS cost per flight is as low as we can safely make it.
For the vehicle we are working on, the biggest cost per flight will be insurance (more on that in a future post), then OPS cost and then far below that will be the cost of fuel. Until we get a large number of flights under our belt the insurance costs will be something we won’t have a large amount of control over, but by minimizing the operational cost of the vehicle we feel that we can design, build and fly a fully reusable vehicle that will have a total price per flight of around $1 million excluding insurance.
In future posts I plan on discussing in more detail exactly what our design philosophy is, what we are currently working on and exactly how our design is progressing, but I will also continue to write about general space related issues.
I hope I can provide an entertaining and informative record of the process over the next couple of years, so if you have ever been interested in the process involved in taking a launch vehicle from conceptual design to first flight, stick around.
P.S. According to the ground rules I worked out with Pat and Earl, the things I cannot discuss are only limited to who our customers are, where and how we get our funding and who our contractors and subcontractors are. Everything else is open for discussion.