Logistics Inventory Management

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FIELD MANUAL

y ± LOGISTICS INVENTORY MANAGEMENT

RETURN TO THEMMY LIBRARY ROOM 1A518 PENTAGON W ASHINGTON, D. C\20310

HEADQUARTERS, DEPARIMENT\OF THE ARMY ^ . ■

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3LD MANUAL HEADQUARTERS DEPARTMENT OF THE ARMY No. 71C WASHINGTON, DC, 1 January 1980 Paragraph Page PART ONE. lîKmODUCTION 1-1 CHAPTER 1. GENERAL 1-1, 1-2 1-1 CHAPTER 2. THE ROLE OF INVENTORY CONTROL. 2-1 Section I. General. 2-1-2-5 2-1 II. Complexity oï\Inventory Control. 2-6-2-S 2-3 III. Problems. 2-9-2-13 2-5 IV. Description of Inventory Control Functions. 2-14 2- 7 PART TWO. FUNCTIONS OF INVENTORY CONTROL. 3- 1 CHAPTER 3. CATALOGING. 3-1 Section I. The Significance of Catàloging. 3-1-3-4 3-1 II. Introduction of New Equrpment/Items. 3-5-3-S 3- 10 CHAPTER 4. MAJOR ITEM MANAGEMENT. 4- 1 Section I. General.. 4-1 4-1 Identification 4-2-4-S 4-1 Management at the National LeO^l 4-6-4-S 4-3 The Army Acquisition Objective (ASAO) and the Army Materiel Plan 4-9-4-13 4-5 Section Distribution Requirements and Distribution Planning 4-14—4 17 4-7 The Assets Position _A_ 4-18-4 20 4- 9 SECONDARY ITEM MANAGEMEN 5- 1 General. 5-1, 5-2 5-1 Management Methods for Secondary Items 5-3-5-S 5-1 Supply Management Techniques X- 5-9-5-14 5-7 Requirements Determination Y 5-15-5-18 5-14 Inventory Systems Costs X- 5-19-5-29 5-22 The Economic Order Quantity Concept Y 5-30-5-37 5-32 Probabilistic Inventory Models \ 5-38-5-42 .5-39 Demand Forecasting \ 5-43-5-47 5-43 Mobilization Requirements Y. 5-48-5-50 5-53 Security Assistance \ 5-51, 5-52 5- 55 ACQUISITION DIRECTION 6- 1 Section I. Functions of Acquisition X 6-1-6-4 6-1 II. Organization for Acquisition 6- \ 6-5-6-10 3 CHAPTER 7. DISTRIBUTION MANAGEMENT 7- 1 Section I. Objective and Contents V. 7-1-7-7 7-1 II. The Military Standard Logistics Data Systems 7-5 \ 7-8, 7-9 III. Requisitioning Storage \ 7-10-7-13 7-8 IV. Distribution of All Classes of Supply V. 7-14-7-22 7-12 V. The Direct Support System/Air Line of Communication7- \ 7-23-7-25 15 CHAPTER 8. DEPOT MAINTENANCE MANAGEMENT 8- 1 Section I. Introduction to the Army Maintenance System Y 8-1-8-4 8-1 II. Responsibilities for Army Maintenance Management X S-5-8-9 8- 4 III. Plans, Programs, Budgets, and Funds for Depot Maintenance X 8-10-8-12 8-6 IV. Development and Executing the Depot Maintenance Program X 8-13-8-17 8-6 V. Reporting Depot Maintenance Accomplishment 8-10 X 8-18, 8-19 DISPOSAL 9- 1 The Defense Materiel Utilization Program I 9-1-9-6 9-1 Screening of Excess Property A 9-7-9-9 9-4 Transfer of Excess Property V- 9-10-9-12 9-5 Sale, Abandonment, and Destruction of Foreign Excess Personal Property \ 9-13-9-19 9-6

I > PART ONE INTRODUCTION CHAPTER 1 GENERAL

1-1. Purpose results in the formulation of management decisions a. This manual presents Department of the Army concerning the entry, retention, consumption, or dis- doctrine pertaining to inventory management by posal of materiel in the system. Corollary functions prescribing the principles, policies, organizations, that stem from requirements planning are : program- and techniques necessary to attain an efficient inven- ing, budgeting, cataloging, acquisition, distribution, tory management system as a part of total logistics maintenance, and materiel utilization and disposal. management. It furnishes guidance to commanders, b. This manual is primarily concerned with the staff officers, and logistics personnel who are con- comprehensive coverage of the six functions of inven- cerned directly or indirectly with the various func- toTy management performed at the national inven- tions of inventory management. It also provides tory control points in the Continental United States, material for use in appropriate courses of instruction namely cataloging, requirements determination, ac- in the Army school system. quisition direction, distribution direction, mainte- b. Users of this manual are encouraged to submit nance direction, and materiel utilization and recommended changes or comments to improve the disposal. manual. Comments should be keyed to the specific c. The subject is developed in two parts: page, paragraph, and line of the text in which the (1) Part One: General—Outlines the purpose change is recommended. Reasons will be provided for and scope of the manual. Provides a general back- each comment to insure understanding and complete ground discussion of the functions of inventory man- evaluation. Comments should be prepared using DA agement performed at the national inventory control Form 2028 (Recommended Changes to Publications points. and Blank Forms) and forwarded direct to the Com- (2) Part Two : Function of Inmentcn/ Control— mandant, United States Army Logistics Management Provides a comprehensive description and analysis of Center, ATTN: DRXMC-MR-I, Fort Lee, VA the concepts, programs, and techniques employed in 23801 (see AR 310-3 for format on corrections and the performance of each of the basic functions of in- changes). ventory control. A separate chapter is devoted to each c. The word “he,” when used in this publication, of these areas : represents both the masculine and feminine genders (а) Cataloging. unless otherwise specifically stated. (б) Major Item Management. (e) Secondary Item Management. 1-2. Scope (d) Acquisition Direction. a. Basic management task of( e ) theDistribution Army logistics Management. system requires that the interlocking activities of (/) Depot Maintenance Direction. that system provide a flexible yet adequate control of {g) Stock Control Management. the total inventory. Requirements planning is the (h) Materiel Utilization and Disposal Man- fundamental function of inventory management that agement.

1-1

CHAPTER 2 THE ROLE OF INVENTORY CONTROL

Section 1. GENERAL 2-1. Introduction to Inventory Control 2-3. Inventory Control and the Life Cycle The subject of inventory control is prevalent of Materiel throughout all aspects of the military logistics sys- In addition to determining the relationship of inven- tem. Attaining the most effective and efficient inventory control to overall Army logistics, it is also neces- tory control is a primary objective in the materiel sary to understand the position of inventory control support mission of the Army. To fully understand in the life cycle of materiel. The life cycle of a sys- the inventory control relationship to the overall tem or an item of materiel begins with its concep- logistics mission, a review of the total logistics man- tion, progressing through research and development, agement responsibilities is necessary. Army logistics continuing through its production, deployment, and (AR 310-25) is the science of planning and carrying use, and ending with reutilization or disposal when out the movement and maintenance of forces. In its the item becomes excess, uneconomically reparable, most comprehensive sense, these aspects of military or obsolete. The major functions of inventory con- operations deal with : trol that occur during the different phases of the life a. Design and development, acquisition, storage, cycle are : movement, distribution, maintenance, evaluation, a. Exploration of Alternative Systems Concepts and disposition of materiel. Phase. b. Acquisition or furnishing of services. (1) Development/acquisition strategy. (2) Distribution/deployment variables. 2-2. The Objective of Inventory Control (3) Qualitative requirements planning. The objective of inventory control is effective, effi- b. Demonstration and Validation Phase. cient, and economical supply to the military forces (1) Cataloging. in their assigned missions. With the many compro- (2) Quantitative requirements planning. mises and trade-offs that are necessary in the opera- (3) Acquisition direction/planning. tion of Army logistics, this ultimate objective can (4) Distribution planning. become obscure, for at all levels of the supply system (5) Basis of issue determination. there are limitations or restrictions in availability of (6) Maintenance planning. moneys, transportation, facilities and labor, as well (7) Facility requirement planning. as materiel. Logisticians specify standards for mate- c. Full-Scale Engineering Development Phase. riel support that will insure an acceptable level of service to supported units, and inventory managers ( 1 ) Quantitative requirement planning. continually examine every function in the system in (2) Acquisition direction. an attempt to balance available resources to reach or (3) Distribution planning. surpass the defined standards of performance. How- (4) Maintenance package requirement. ever, even with the best possible management prac- (5) Cataloging finalized. tices, emergency supply actions are necessary to meet (6) Provisioning plan. unpredictable contingencies. The standards set for (7) BOIP revised/finalized. any function serve as guidelines for operating per- (8) Facility requirement update/deployed. sonnel and control indicators for management. The (9) Provisioning plan implemented. ultimate criteria for evaluating the inventory man- d. Production and Deployment Phase. agement system is success in supporting the soldier (1) Quantitative requirement computation. in the field with what is needed, when, where, and (2) Acquisition direction. in the condition and quantity required at minimum (3) Distribution management. expenditure of resources. (4) Maintenance management.

2-1 (5) Stock control. (4) Classes of supply. (6) Reutilization and disposal. 6. The first approach to viewing the supply system (Although an inventory manager may become in- is by degree of criticality of the materiel being man- volved in any of the foregoing functions, his managed. Ammunition, for example, is managed inten- agement effort is mainly expended in the Production sively at all levels because of its essentiality. Bulk and Deployment Phase of the life cycle of materiel.) petroleum is another combat-essential item, and, be- 2—4. Inventory Control and the Materiel cause of its unique movement and storage characteristics, it requires special management techniques Pipeline to insure adequacy of supply. In addition to such a. To perform with maximum effectiveness, the critical materiel, specific combat situations or en- inventory manager must understand the scope and vironments may dictate the need for intensive man- complexity of the total materiel pipeline. This ma- agement or special control for specified categories of teriel pipeline exists for one purpose—the effective materiel. For example, where air mobility of per- movement of supplies from the producer to the user sonnel and equipment is essential to mission accom- in an economical manner, in as nearly a straight line plishment, it is of critical importance that aircraft be as possible, with a minimum number of intermediate kept in a flying status. In these instances, a decision stops. Two major responsibilities to be considered in may be made to establish special control measures pipeline management are: (1) the determination of for support of critical equipment. when and what quantities of items are to be placed c. The second approach to analyzing the supply into the system; and (2) control of these items while system is by location and activity of the user. To in the system. It should be recognized, however, that illustrate, compare the supply of installations in separate methods operate simultaneously (e.g., gen- the United States with those of Asia-. The interval eral supplies, ammunition, medical supplies), and between placing an order and receiving supplies that echelons of stockage may be increased or de- (order and shipping time) for example, may be 30 creased to conform with needs of the commands, days in the United States and 82 days in Asia. Con- proximity of user to support complexes, and other sequently, unpredicted increases in materiel con- operational factors. sumption may have little impact in the United States &. Because of the extended length of the total pipe- whereas in Asia they can cause serious emergencies. line and the different echelons involved in its opera- All the problems of operating on foreign' soil, in tion, control of the flow of materiel is regulated by a number of different units or activities. Each of these underdeveloped, regions, and in combat of varying intensity, combine to necessitate the tailoring of the activities is, therefore, “in charge” of a particular standard supply system and the addition of special segment of the pipeline and must fulfill the following basic requirements : management features not needed in the United States. Plans for training and combat must be anticipated in (1) To keep his assigned segment of the pipe- planning oversea stock levels. Air shipment, over-the- line “full.” That is, to insure that there are sufficient shore unloading of ships, and contractual mainte- assets in movement or in storage at all times so that supply will not be interrupted ; and nance are examples of techniques which may require (2) To order sufficient supplies at the proper emphasis. For the supply system to meet this target,. intervals to meet anticipated future demands upon command emphasis must be brought to bear on all his echelon of supply. aspects of the order/ship time cycle. d. The third approach to viewing the supply sys- 2-5. Approaches to Analyzing Inventory tem is by its capability to generate demand data. In Control stable operations, the demand for supplies can be pre- a. To understand Army inventory control, it is dicted by projecting past demand rates. It is the helpful to analyze the factors that produce manage- Army policy that “push shipments” will not be au- ment distinctions in the supply system. These dis- thorized. However, when experience in a particular tinctions sometimes resemble separate systems and environment is limited, shipments for initial support can cause confusion unless the controlling factors of forces and equipment, through the demand based are thoroughly understood. Four approaches to view- development period, may be preplanned, but will be ing the supply system are discussed by : made only when the recipient has participated in the ( 1 ) Criticality of materiel. item selection, has full knowledge of the shipment (2) The environment in which supplies are to content, and has called it forward. This approach be used (including the distance from the supply must be carefully controlled to insure that units resource). ceive what they require and that excesses are not (3) The capability of the system to generate generated because of oversupply. demand data (e.g., the ability of the user to prepare e. The fourth approach to viewing the supply sys- formal requisitions). tem is by class of supply. There are 10 classes of

2-2 supply that group all items by major commodity (10) Class X. Materiel to Support Nonmilitary characteristics. These are— Programs; e.g., Agricultural and Economic Devel- (1) Glass /. Subsistence, including gratuitous opment, not included in Classes I through IX. Each health and welfare items. of these classes of supply presents certain distinctive (2) Class II. Clothing, individual equipment, patterns for inventory and distribution manage- tentage, tool sets and tool kits, handtools, administra- ment. To an extent, viewing supply in terms of tive, and housekeeping supplies and equipment. In- classes of supply overlaps some of the other ap- cludes items of equipment other than principal items proaches (e.g., bulk petroleum and ammunition are prescribed in authorization/allowance tables, and examples used also in the first and second ap- items of supply (not including repair parts). proaches). Nevertheless, the classes of supply were (3) Class III. POL: Petroleum fuels, lubricants, designed to group items of supply which have similar hydraulic and insulating oils, preservatives, liquid management charactertistics. Therefore, the classes and compressed gases, chemical products, coolants, of supply provide an especially useful vehicle for deicing and antifreeze compounds, together with analyzing major supply system deviations. components and additives of such products, and coal. f. One or more of the above approaches to viewing (4) Class IV. Construction: Construction ma- the supply system may be useful in the analysis and terials to include installed equipment, and all fortifi- solution of supply problems. For whom or what is cation/barrier materials. the materiel managed? Considerations involved in calculating requirements for supporting personnel (5) Class V. Ammunition: Ammunition of all differ from those for supporting equipment. What is types (including chemical, radiological, and special weapons), bombs, explosives, mines, fuzes, detona- the capability of the system (or segment of the system) to generate useful demand data? A mathemati- tors, pyrotechnics, missile, rockets, propellants, and other associated items. cal technique that is highly effective for stable demand in peacetime may be worthless during the (6) Class VI. Personal Demand Items (Nonmili- first month after an invasion. What is the class of tary Sales Items). supply? The division of materiel into classes of (7) Class VII. Major End Items: A final com- supply helps in identification of unique materiel bination of end products which is ready for its in- characteristics to be considered. Logistics managers tended use (principal items) ; e.g., launchers, tanks, must continuously evaluate the effectiveness of the mobile machine shops, and vehicles. supply system. In searching for means to improve (8) Class VIII. Medical Materiel including the system, stockage points may be consolidated or Medical Peculiar Repair Parts. eliminated, central data banks established, or new (9) Class IX. Repair Parts (Less Medical management controls imposed : but all changes must Peculiar Repair) : All repair parts and components be considered in the light of every related aspect of to include kits, assemblies, and subassemblies, repa- the system. Viewing each problem or proposed sys- rable and nonreparable, required for maintenance tem improvement from several points of view will support of all equipment. help insure a coordinated solution.

Section II. COMPLEXITY ’ INVENTORY CONTROL 2-6. The Challenge T). The Army’s inventory system must be continually modernized and ever-increasing emphasis must CL The primary purpose of inventory control, as a be placed on the speed and efficiency of supply op- part of total logistics, is the provision of needed erations, particularly in the area of accurate and supplies to support troop operations. As the nature timely requirements computations. Increasing auto- of warfare changes, logistics—if it is to be success- mation permits faster and more sophisticated manip- ful—must adapt itself to these changes. During pe- ulation and analysis of huge masses of data. riods when means and methods of combat are Decisionmaking is becoming even more demanding relatively stable, moderate adjustments in logistics and a premium is placed upon trained inventory concepts may suffice. When revolutionary changes are occurring in combat capabilities and techniques, managers who can quickly separate vital facts from it behooves the logisticians to intensify their anal- trivial details and make accurate decisions on a basis ysis of logistics methodology to insure that logistics of logical deduction. management is keeping pace. Inventory managers, c. Predictions within the Army are influenced by at all levels, must be alert to any new product, con- such intangibles as the ever-changing national poli- cept, or technique developed by industry or the cies relating to international politics, national budg- Government itself which can be used to improve the etary limitations or restrictions, steady advancement effectiveness or economy of Army inventories. of military technology, and current research and 2-3 development of new combat concepts that require (1) By materiel readiness organization. The changes in force structure which dictates the logistics operating commands of the US Army Materiel De- concepts and equipment allowance necessary. Also, velopment and Readiness Command (DARCOM) because of the remoteness of prospective combat are essentially commodity organizations charged areas, the U.S. Army must plan for longer, more vul- with the management of items peculiar to their re- nerable materiel pipelines. What is actually needed spective missions. is an optimum wartime supply system in being at all (2) By materiel readiness. Within DARCOM times. However, pressures for economy prevail in there are commodity management centers—national peacetime and, as a result, the Army must accept a inventory control points—at which the national level supply system which represents a compromise be- management of inventories of assigned commodities tween what it needs and what it can afford. These is carried out. The inventory manager at a national overriding considerations place emphasis on both ef- inventory control point is responsible for the fectiveness and cost of supply. It is the task of inven- management of specific items within the commod- tory managers to appraise and control the cost of ities assigned to him. This responsibility includes supplying needed materiel on time and in required cataloging, requirements computation, acquisition, quantities without impairing the ability to supply. distribution, overhaul and rebuild, materiel reutili- This is indeed a difficult task necessitating the high- zation, and disposal. As a result, all the wholesale est degree of management competence. functions of inventory management for any given 2-7. The Response group of items are centralized in one individual at one place. а. The Army constantly strives to increase and improve its combat capability to meet the ever-chang- (3) By funding categories. The inventory is ing challenge of potential adversaries. In this divided into categories which are distinguished by the type of procurement appropriations used to ob- endeavor it strives for qualitative superiority in com- tain items. These categories are— munications, firepower, mobility, and materiel support in depth rather than attempting to match poten- (a) Major items. Procurement Appropriation (PA) ; five separate Army appropriations for air- tial enemy forces man for man. Fast, efficient means craft, missiles, weapons and tracked vehicles, am- of communications are being developed to provide munition, and other procurement. information on a timely basis. Emphasis is being (&) Secondary items. placed on air transportability of weapons, equip- 1 Procurement appropriation. ment, and backup support to bolster combat effec- 2 Stock fund. tiveness. Through the use of measured moderniza- (c) Medical secondary items and re fair parts, tion, it is promoting a more orderly flow of new items stoch fund. into the inventory. It is using its assets fully by aim- (4) Project management. While not a specific ing at a goal of peak efficiency at the lowest possible segmentation process by itself, project management cost. is a specialized method of handling a particular б. To speed the decisionmaking process on higher weapon or equipment system by a single individual levels and to reinforce control of funds and pro- assigned as the project manager. This method programs, improved and selective management tech- vides for various techniques of planning, controlling, niques have been adopted. Automatic data processing progress reporting, and decisionmaking. It estab- programs are being used to bring under control lishes a basis which allows for a single authority to the mass of management data the Army collects on plan, direct, and control a weapon or equipment sys- its varied and far-flung activities. Use of mathemati- tem. It includes all phases of research and develop- cal models has been increased to provide optimum ment, acquisition, production, distribution, and lo- and timely solutions to inventory problems. gistics support to maintain a balanced program for the acquisition of operational systems and equipment 2-8. Management Concepts from its inception to its disposal. Project manage- a. In view of the size, variety, and changing char- ment of selected critical or complex items involves acteristics of the Army inventory, it is apparent that interrelationship with a number of major and sec- it can be managed effectively only if the task is ondary item managers. The designated project man- broken down into manageable segments. The basic ager for a given item is responsible for coordinating philosophy in approaching this task is generally the management of the item among and between the one of management by exception, and selectivity of material readiness commands. In a sense, the project management time and effort based upon the impor- manager “cuts across” organizational lines to expe- tance and dollar value of items. The inventory is dite the development, acquisition, and control of the broken out into segments : item. 2-4 b. Because of strategic, economic,(b) Criteria and B. inventory The unit value is $1,000 or control necessity and similarity of characteristics, the more, and/or the total inventory and/or programed categories mentioned above are further grouped into acquisition is greater than $500,000 and/or a budget two broad areas; major items and secondary items line is required for this item. Each unit of this item (including repair parts). This segregation is a valid is individually justified, authorized, and budgeted at and desirable management technique to differentiate DA level. between the methodologies applicable to the acquisi- (c) Críteria C. The worldwide requirements tion requirements planning, and distribution policies for this item are individually specified, computed, established for these items. These categorizations rep- and programed in accordance with The Army Au- resent two entirely divergent management systems. thorization Documents Systems (TAADS) and/or (1) The first grouping is major items. These TOE’s. items are included in requirements and authoriza- (2) The second grouping, secondary items, can tion documents (Tables of Organization and Equip- be identified as being repair parts, major components, ment (TOE), Modified Tables of Organization and and minor type complete end items both consumable Equipment (MTOE), Tables of Distribution and and reparable. Future requirements for these items Allowances (TDA), Common Tables of Allowances, are computed on the basis of past demands adjusted and Joint Tables of Allowances) which serve as the basis for requirements and distribution planning. by plans and programs for the future. Some are ex- For an item to be managed as a major item it must ceedingly high-cost, critical items requiring compre- meet all of these three criteria : hensive management attention while others are low (a) Ccost,riteria have aA. short To insureleadtime, the are operational easier to procure, readiness of the Army, this item requires centralized and need less management emphasis. Some secondary management and control of requirements determina- items (PA) are included in authorization documents, tion, acquisition, maintenance, disposal, and world- and are also essential to combat. It is in this grouping wide assets and distribution at all support levels that the application of selective management is most down to and including direct support unit levels. profitable.

Section III. PROBLEMS 2-9. General c. Reduction of repair parts is a function of main- Although the Army had developed logical and work- tenance policy and practice. The greater extent of able solutions to the intricacies of inventory control, repairs permitted at forward echelon results in a there are still a number of problem areas which make higher requirement for a broader range of repair it difficult to accomplish, the task with optimum ef- parts and larger inventories. ficiency and accuracy. For example— d. Accumulation of asset data to be used in com- a. Modernization is one of the most perplexing puting net requirements poses a continuing problem problems facing the Army today. To maintain an for the inventory manager. It is essential that the acceptable combat readiness posture in relation to required asset reporting be accomplished accurately rapid technological change with its attendant high and timely. The number of makes and models, torate of obsolescence, and to do it with limited funds, gether with their worldwide distribution, further poses the questions as to what to buy, when to buy, aggravates the problem. Experience in the past has and how much to buy. In addition to being faced indicated that accurate data are difficult to obtain. with the problems generated by introducing a new e. Demand analysis is, as it implies, an analysis of item into the inventory, the manager' is also faced demands placed on the inventory manager at the with the problem of what to do with the item "that national inventory control point. This analysis is nec- is being replaced and to.be phased-outof the system. essary to determine the relationhip between recurring b. Reduction of items in the inventory commen- demands and nonrecurring demands as identified surate with adequate support to troops is essential. by the requisitioner. Demands must be screened to Through Department of Defense standardization identify the one-time initial issue, program or project and utilization programs, the Army must maintain demand, and the abnormal requisition. These must constant vigilance to insure that— be analyzed as to whether they represent unusual (1) All items of supply are items for which a demands caused by a particular event or circum- real need exists, eliminating those which fall into stance that should not occur again or are a true nor- the nice-to-have category. mal demand which can be used in projecting future (2) Maximum use of interchangeability to pro- demands. vide optimum utilization of assets and reduce expen- /. Many of the inventory manager’s problems actu- ditures for new acquisition. ally stem from limitations in funds and resources. It

2-5 is recognized that unlimited funding and resources 2-12. Modernization are not practical possibilities. This problem must Technological change is a constant and desirable fac- be faced since it causes the inventory manager to tor but poses the problems of what items to procure, provide the most accurate and efficient manage- how many, and how long they should be retained in ment to support the total Army materiel require- the inventory. Improvements in weapons and their ment at minimum cost. When funds are limited, employment have always been a necessary adjunct to managers may have to delay procurement or over- military responsibility; however, the introduction of haul on some items in order to use available funds to new weapons and equipment poses complex problems purchase or maintain items which are more urgently for inventory managers. Planning and procuring for needed. war reserve requirements are difficult when moderni- 2-10. Magnitude of the Inventory zation is necessary. Army policies on the introduction a. There are few management responsibilities in of new equipment as well as product improvement the world today which parallel, in scope and com- through the introduction of new models is contained plexity, that of managing the Army’s inventory. in AR 11-8. Some of these problems arise from its size and di- 2-Ï3. Absence of- Profit Motive and versity; others are due solely to the many echelons Competition through which an extended materiel pipeline must a. Competition is closely related to the profit and reach out to support combat forces located through- loss basis on which commercial industry conducts its out the world. operations. The pressure of competition acts as an b. Of foremost concern is the size and value of the incentive to better performance, resulting in higher inventory itself ; if it is larger than necessary to meet profit-taking versus lower inventory investment. A, current and anticipated needs, the cost of maintain- commercial firm that permits poor management toe. ing the system is substantially increased. Excessive lead to stagnant inventories will soon be bankrupt. inventories also raise costs associated with obso- The continuing pressure of competition on business- lescence and eventual disposal. As the cost of manag- men probably accounts for much of the progress and ing the Army supply system varies with the size of increasing efficiency which characterizes the Ameri- the inventory, continued emphasis is placed on the can economy. V;:; assessment of supply performance in terms of— b. The Army inventory control system, on the ( 1 ) What is being done. other hand, has competition or profitmaking desires (2) How efficiently is it being done. when supplying customer demands. If supplies are 2-11. Diversity of Items not available, the customer must usually wait or do without. When foreign customers are involved, US a. The management of a multibillion dollar inven- Government and US Army prestige may be tory is a monumental undertaking. The task becomes adversely affected. In addition, third-country pur- even more complex when items within the inventory chases of major end items may result to the detri- range from those— ment of US standardization objectives. The US (1) Which are low cost and easily obtainable, to Army customer cannot take his business elsewhere as those that are high cost, difficult to procure items his civilian counterpart might do. He has no alter- with exceptionally long production leadtime. nate source of supply. Consequently, the Army has a (2) With readily identifiable demand and distri- far greater responsibility to its customers and must bution patterns to those which are difficult to forecast be prepared to meet legitimatexdemands. because of erratic demand and eccentric distribution. c. The Army inventory control system exists to serve a military need, not an economic end. Certain (3) Specialized items of equipment which are supplies cannot be supplied economically; however, distributed on a geographical basis due to a multi- this does not relieve the Army of the responsibility plicity of makes and models, to items distributed on of furnishing them. From the viewpoint of the in- a special basis to selected units and organizations. ventory manager, the competition for limited re- b. Further, support of these end items with com- sources requires efficient planning, programing, and ponents, assemblies, subassemblies, and repair parts management by professional logisticians to provide presents an even more complex problem to the in- logistics support that is consistent with tactical re- ventory manager. quirements and within national economic constraints.

2-6 Section IV. DESCRIPTION OF INVENTORY CONTROL FUNCTIONS 2-14. Integrated Functions system on both a quantitative and monetary basis a. Within a national inventory control point, in- with the exception of Selected Item Management dividual inventory managers are assigned a given System-Expand (SIMS-X) items. For SIMS-X number of items for support of specified end items, or items this control extends to CONUS installation and Federal supply classification groups or classes within oversea theater depots and/or direct support units. a category for integrated inventory management. This distribution management function involves the Each of the functions of integrated inventory control control of inventories to insure that they are ade- will be discussed in detail in subsequent chapters and quate, but not excessive, and that they are strategical- can generally be described as follows : ly located so as to be most responsive to customer (1) Cataloging. The inventory manager must demands. It also insures that redistribution actions insure that the items are properly cataloged and re- are taken in lieu of acquisition action particularly for corded in appropriate working file sections of the SIMS-X items. Army Master Data File (AMDF) so that the world- (5) Maintenance direction. The inventory man- wide customers will know what the item is, what the ager has the authority to require that items be over- item does, what stock number to use, what the unit hauled. In computing requirements, all assets (serv- cost is, and where to submit his request for the item. iceable and economically reparable unserviceable) Although the Defense Logistics Agency has responsi- must be considered. Close coordination between the bility for maintaining the Federal Catalog System inventory manager, equipment specialists, and main- files at the Defense Logistics Services Center, the in- tenance personnel is necessary to consider overhaul/ dividual inventory managers have responsibility for rebuild capacities versus related quantities and time initiation of cataloging actions into the catalog sys- schedules desired by the inventory manager. The tem for items they manage and for changes thereto. users must be brought into the planning process to (2) Requirements determination. The inventory insure the timely return of unserviceable assets. manager is responsible for the planning and comput- (6) Materiel utilization and disposal. The in- ing of peacetime and mobilization requirements for ventory manager must insure that excess or obsolete assigned items. He is also responsible for computing stocks are removed from the system. He is responsible Military Assistance Grant Aid requirements based for the declaration of excesses and, when the item upon demand history and maintaining stockage has been declared excess to the Federal Government, levels in support of Cooperative Logistics Supply takes further action to effect disposal. He must con- Support Arrangements. The degree of authority in- scientiously participate in the DOD materiel utiliza- vested in the manager and the amount of review tion program to insure proper utilization of excess for approval by higher authority are related closely stocks prior to disposal. to the type of item involved, category of funds to be b. The efficiency of the total logistics system is expended, and dollar value of projected inventories. contingent upon an effective interrelationship among (3) Acquisition direction. The inventory man- all function divisions of the system. This principle ager has the authority to direct acquisition to be ac- relates to the five major functional divisions of the complished, subject to limitations of approved pro- logistics system (supply, maintenance, transporta- grams and direction from higher authority. Close tion, services, and faciilties) and their related sub- coordination between the inventory manager and functions. It emphasizes that effective and efficient procurement personnel is essential. logistics operations depend on the degree to which (4) Distribution direction. The inventory man- the function within the operating system either can ager controls stocks which are in storage, due in, or be coordinated (i.e., properly interfaced) or, where due out for the entire CONUS depot distribution feasible, integrated.

2-7

PART TWO FUNCTIONS OF INVENTORY CONTROL CHAPTER 3 CATALOGING

Section 1. THE SIGNIFICANCE OF CATALOGING 3-1. The Problems of Identification and which are necessary to maintain reliable data in cata- Classification logs, and, finally, the deletion process by which items a. The identification and classification of things, are taken out of the catalog system. whether they be insects, plants, or material items of d. The term “cataloging” as used in this manual supply, has always been one of the fundamental con- has a much broader connotation than is usually at- cerns of scientists and managers. The efficient and ef- tributed to the word. In defining the words “catalog” fective manager has to know what he is managing; and “cataloging,” these words mean much more than he must catalog, classify, and identify all elements “the naming and numbering” of items. A standard of his operation. Similarly, the classification of items dictionary states that a catalog is “a list of names, of supply in a useful, orderly, and responsive system titles, or articles arranged methodically, often alpha- is basic to the inventory management effort. betically, usually with descriptive details, number Z>. The concept of inventory or item management and price accompanying each item ; a book or pam- has existed in a military environment since the phlet containing such a list.” Collectively, the cata- earliest days of group warfare. Consequently, the loging function is referred to as the Federal Catalog problem of inventory control, along with the basic System. The purpose of this system, which will be necessity to identify and classify items, has also discussed throughout this chapter, can be summar- existed since the beginning of organized military es- ized as follows— tablishments. As will be seen, the earlier efforts at The system was established to improve supply op- establishing a system for the cataloging of materiel erations and to permit greater efficiency in the man- were decentralized and, in many cases, redundant. agerial control of items within and between the sup- The logistics function of today, however, requires a ply systems of the Army, Navy, Air Force, Marine unified cataloging operation which is centralized in Corps, other Federal agencies, NATO, and friendly terms of management control but decentralized in foreign countries. It is an information-providing most operations. service whose mission is to obtain, verify, record, and to provide to management certain item information c. The inherent complexities of the present logis- not otherwise obtainable. The system, in the form of a tics system with its worldwide commitments and a “catalog” : materiel budget of 40 to 60 billion dollars a year, along with the rapid infusion of new and improved ( 1 ) Establishes a single supply language of item weapons systems, demand that the system of identi- identification. fication and control of these items be continually (2) Provides accurate information as to the monitored and maintained. Within this framework, identity of an item of supply. this portion of the manual will provide a comprehen- (3) Records the source of supply of items. sive coverage of the concept of the cataloging effort, (4) Records the governmental activities (in- the systems established to insure continuing ef- cluding NATO and friendly foreign countries) ficiency, and the operations involved in producing which manage or have an interest in each item of usable data for the inventory manager. In addition, supply. the chapter will cover the problems and operations (5) Provides such other item management data involved in the introduction of new items into the as the user may require. This listing of what the supply system, the screening and revising processes catalog system provides is helpful in defining the

3-1 word cataloging. Within the Army, the term catalog- ber and description. This was not only costly dupli- ing encompases both the action taken to make or cation, but it interfered with strategic supply plan- change an entry in a catalog and the production of a ning and was an actual danger to the national catalog; i.e., the physical compilation of the data to economy and security. This failure of communication be used either in the form of a “book,” magnetic tape, and identification was not confined to the Army sup- printout, or memory unit in a computer. ply system ; it also included all other services and 3-2. The Federal Catalog System Federal agencies. (3) Various study commissions during and after a. The Federal Catalog System is, first of all, a World War II revealed one fundamental need—the Federal system—it is Government-wide in its opera- establishment and use of a common, understandable tion ; it applies to all stocked items of supply in the system for the effective, efficient, and economical Department of Defense (DOD), as well as the civil management of the materiel resources of the DOD. agencies of the Government, which are repetitively Recommendations and corrective actions taken from acquired, stocked, controlled, and subject to centra] the later years of World War II through the postwar inventory management. All cataloging activity in the period gave impetus to the cataloging effort. The Government operates within the framework of the National Security Act of 1947, for example, estab- Federal Catalog System, which is designed to develop lished requirements for single agencies to procure a single uniform method of cataloging and maintain certain commodities for all other services. In 1949, it thereafter for use as an effective tool in all logistics however, a major step was taken to centralize the functions. The system also serves as a control or mon- cataloging functions of the services. Public Law 152 itoring agency to prevent duplication in procurement of the 81st Congress, as amended, required the Gen- and distribution of new support items. Cataloging eral Services Administration to establish a uniform serves the various supply, functions and management Federal Supply Catalog System in coordination with concepts, whatever their state of uniformity. The sys- the Secretary of Defense. The act further required tem is flexible and can adapt its cataloging processes that each Federal agency utilize the uniform Federal to differences in supply systems. It serves as a man- Catalog System. Subsequently, Public Law 436, “The agerial tool to influence uniformity and to establish Defense Cataloging and Standardization Act,” was standardization programs. passed by the 82d Congress in 1952, and assigned &. The unified system was developed relatively responsibility to the Secretary of Defense to pre- recently,; however, it essentially was, and still is, an scribe a single catalog system for the Department of evolutionary process. During both World Wars I Defense. Today the responsibility for the overall and II, the supply of all the Armed Forces was supervision of the Federal Cataloging Program rests hampered by the lack of an adequate and unified with the Assistant Secretary of Defense (Manpower, system of item identification. There were few criti- Reserve Affairs, and Logistics (MRA&L)) who has cal shortages of supplies, but there were hundreds of final approval authority for all of its policies and thousands of incidents where the wrong kinds of programs. The programs are coordinated with the supply items were ordered, procured, and distributed. Administrator of General Services, who is desig- (1) Essentially, the problem was caused by dif- nated by public law as being responsible for carrying ferent stock numbers for items used by the various out the program for civil agencies of the Federal. branches of the Army. Control of military operations Government. The Director of the Defense Logistics became centralized in the Joint Chiefs of Staff dur- Agency (DLA) administers the operation of the ing World War II, but supply management was not Federal Catalog System governed by the policies, centralized partly because such a task could not be plans, programs, and guidance provided by the As- undertaken in wartime, and partly because of the sistant Secretary of Defense (MRA&L). The Secre- way in which the Army supply system was organized. taries of the Army, Navy, and the Air Force are Despite the centralization of command, the Army charged with seeing that the provisions of the pro- still had technical services which continued to operate gram are adhered to and carried out by the operating separately. Each had different names, numbers, and elements of their respective services. These responsi- specifications for exactly the same item, describing it bilities have been delegated to the Assistant Secre- in several ways. Even within a technical service, taries for MRA&L, who, in turn, establish points of there were cases where an item was carried under 26 liaison, designated as the departmental headquarters different stock numbers. catalog office. Responsibility for the central process- (2) As a result of these various supply systems ing of cataloging actions and the maintenance of the in the Army, a critical shortage of an item at one central repository and automatic data processing location might not be a true shortage at all because (ADP) files is assigned to the Defense Logistics precisely the same item might be right in the same Services Center (DLSC). Although operations of warehouse, packed and coded under a different num- the catalog system are conducted in the DOD on a

3-2 decentralized basis, there is a centralized control of it is necessary to research and agree on the selected management policies. This is in keeping with the names and definitions, when required, so that all general policy within the DOD of centralized man- activities in DOD can speak the same language. In- agement—decentralized operations. dustrial and commercial names are used where uni- c. It is essentially the individual supply manager, form names exist in industry or where industry has however, who initiates the item of supply concept for agreed to uniformity. These are called Approved this item of supply. The item identification for this Item Names and are published, together with their item of supply is prepared by the cataloging sub- necessary definitions, in the Federal Item Name Di- division of the cognizant supply center, departmental rectory for Supply Cataloging, Cataloging Hand- inventory manager, or by another activity serving as book H-6 (SB 708-6). This handbook also incorpo- the cataloging agent, and is submitted to DLSC rates other names, including the names applied to the for review, screening, approval, stock numbering, items by industry, which are referenced to the Ap- and publication in microfiche or card form. DLSC proved Item Names. This handbook is the most com- exercises overall control of the centralized operations prehensive dictionary of supply item names in the of the system by development and publication of the military supply system ; it bridges a gap in item name rules, procedures, and tools governing the prepara- language between Government and industry and pro- tion of catalog data, by the approval or disapproval vides the basis for greater uniformity of understand- of data prepared by activities and by field visits to ing in contractual relationships. For those specialized the preparing activities. The central review, ap- or proprietary items, where the name is governed proval, and stock numbering of item identifications by the design or function of the part, the name has been, and is today, an essential element in the established by the manufacturer or designer is ■establishment and maintenance of a truly uniform normally used. In those cases, however, where more •catalog system. than one name exists for the same item, a single name is selected for use in the Federal Catalog System. 3-3. Elements of the System 5. The second element in establishing the charac- There are certain basic considerations of the catalog- teristics of an item of supply is the identification ing system. They are item identification, classifica- data which, when the item can be described, is stated tion, stock numbering, and the publication of data. directly by using words to describe the essential a. The first and most important element of any characteristics, including physical, mechanical, elec- cataloging system is the positive establishment of trical, chemical, material, dimensional, and perform- a unique identification for an item of supply. Under ance data (descriptive method) ; or which, when the the Federal Catalog System, the concept (the under- item cannot be described, is stated indirectly by cita- standing of mental impression) of an item of supply tion of reference (s) to the item identifying num- is expressed in, and fixed by an item identification. ber (s) and the supporting technical data, such as The item identification consists of the minimum data blueprints, specification, of one or more manufac- adequate to establish clearly the essential charac- turer’s (reference method) number. The descriptive teristics of the item, which gives the item its unique method of item identification requires the use of Ap- character, and make it what it is, and differentiate proved Item Names and Federal Item Identification it from every other item of supply used in the Federal Guides (FIIG’s). Each item name approved for use Government. Each item identification is applicable to in the descriptive method is referenced to a specific one and only one item of supply and, conversely, FUG which contains a series of requirements (ques- each item of supply has only one item identification. tions) regarding the technical characteristics of the The identification and differentiation of an item of item of supply covered by the item name. Replies to supply rest on the characteristics inherent in the these requirements result in a statement in a pre- concept of the item. The characteristics of an item of scribed sequence of the characteristics of the item of supply are basically of two kinds : physical charac- supply. This is the item identification. As an addi- teristics and performance characteristics. Generally, tional tool for the descriptive method of item identi- the characteristics of an item can only be disclosed fication, the Federal Catalog System utilizes illustra- by technical research which is the foundation for the tions and drawings to represent pictorially those process of item identification. The first element in characteristics of items of supply that cannot be establishing the characteristics of an item of supply presented directly in words such as specific shape, is the name, which answers the question, “What is it ?” angle, size, type and method of measurement. These Under the Federal Catalog System, a single name are called reference drawings. The descriptive method is established for each item of supply and regardless is supported by the manufacture’s data (name, ad- of how many different activities use the item, they dress, and manufacturer’s number (s) ) for item being will call the same item of supply by the same name. identified. The reference method of item identifica- This means that, under the Federal Catalog System, tion is an indirect process of identifying items of sup- 3-3 ply, not through words, but by reference to the item- Classification, with its present structure of groups identifying number (s) and the supporting technical and classes, represents those groupings and relation- data of one or more manufacturers. The reference ships which are dictated by current management method is used to identify items when the descriptive needs as well as those of the possible future. As the method is not practical. Airframe structural parts, needs of management change, additional groups and engine parts, and technical repair parts are examples. classes will be developed, the definition of others will Many of these items are designed for a single appli- change, and the techniques of classification will also cation and often are proprietary to a single manu- follow the needs of management. The classification facturer. The reference method of item identification system is an internal management tool used by DOD, is based upon reference to, and is supported by, the GSA, and civil agencies and is governed by daily manufacturer’s data which includes the name of the management requirements. The uniform Federal manufacturer, his address, and his identifying num- Supply Classification provides uniform management ber or numbers for the item being identified. The categories throughout military organizations, func- manufacturer’s number for the item is supported by tions, operations, and supply pipelines. It permits his blueprints, specifications, and methods of manu- greater uniformity within and between the functions, facture and is considered to be the most authoritative operations, and supply pipelines. It permits greater identification available. uniformity within and between the military services c. The Federal Supply Classification is the basic in the operations of reporting, accounting, financial classification system used by the DOD and the Fed- management, inventory control, and budgeting. The eral Government. It was developed by joint repre- next basic element is on the National Stock Number sentation from OSD and the Departments of the (NSN). Having established the uniqueness of an Army, Navy, and Air Force, with the General Serv- item of supply through a Federal Item Identification, ices Administration. The Federal Supply Classifica- the identity of that item is fixed and its relation to tion (FSC) allows 99 major segments called FSC other items established through the assignment of an groups. Each of these groups is assigned a two-digit code. While the two-digit structure permits 99 NSN. groups, spaces have been left so that anticipated ex- d. As of 1 October 1974, a 13-digit stock number pansion would not disturb groups already estab- consisting entirely of numerals is being assigned to lished. As a further subdivision for management pur- items of supply. The term NSN is to be used for iden- poses, each two-digit FSC group is divided into tification of the US 13-digit stock number in all ma- classes. Each class is designated by an additional two teriel management functions. In logistics matters in- digits, thus making a four-digit code classification. volving the NATO Headquarters or individual For example, FSC Group 31, Bearings, is divided NATO countries, the abbreviation NSN shall be in- into the following three classes : terpreted to mean NATO stock number. The NSN 3110—Bearings, Antifriction, Unmounted is composed of two groups of numbers. The first four 3120—Bearings, Plain, Unmounted digits are the Federal Supply Classification (FSC) 3130—Bearings, Mounted code assigned to the item. The last nine digits are the National Item Identification Number (NUN) of Each item in a supply system which is identified un- which the first two digits (reading left to right) are der the Federal Catalog System will have assigned to the National Codification Bureau (NCB) code. The it one four-digit class code. An item is classified NCB is used to identify the central cataloging office either by “what it is” (bolts in the bolt class, electron of the NATO or other friendly foreign country which tubes in the electron tube class) or “where it fits” (the pedestal in the same class as the ventilating fan, the assigned the item identification number (e.g., United platen in the same class as the typewriter). The term States, 00 or 01 ; Canada, 21 etc.). These numbers are “application coding” refers to the classifying of an assigned as an item identification is approved, and item according to “where it fits.” This takes place there is no relationship between one NUN and the primarily in the machinery and equipment areas. As next in sequence numerically. The random assign- a rule, an application-coded item must be designed ment of NIIN’s has certain advantages. For example, especially for the object with which it is used. A bear- it permits assignment during routine processing ing or a gear is application-coded when it is espe- without the necessity for insuring that the number is cially designed for one application, but when it has in a particular class or group. Furthermore, when applications on two or more kinds of equipment, it is the status of an item changes, as in the case of trans- classified in the bearing class or gear class. Other fer to a different class, there is no need to change the kinds of items, treated in the same way as bearings NIIN. The NUN remains with the item as long as and gears, are gaskets, various power transmission this item exists in a supply system, although the components, pumps, and valves. The Federal Supply NSN will change if the item is changed from one

3-4 FSC class to another. The NSN system provides im- are distributed to Federal and other selected activi- portant advantages, such as— ties as required to meet varying operational needs Uniformity—In structure, composition, length, and logistics interest. A general description of each and use. publication is as follows : Stability—The National Item Identification ( 1 ) The introduction to the Federal Supply Cat- Number lives with the item forever. alog, C-l(A), is an Army publication that provides Adaptability—The NSN fits differing needs of an official source for information applicable to Fed- supply management and operations and is eral Supply Catalogs for customers within the De- compatible with existing and advanced me- partment of the Army (DA) requiring data perti- chanical, electrical, electronic data processing, nent to the preparation of requisitions, financial in- and microfilm equipment. ventory accounting records, and related supply docu- Simplicity—It is applicable without modifica- ments. In addition, it provides instructions for the tion to all items, easily maintained, and easily use and maintenance of the Federal Supply Catalogs, recognized. Change Bulletins, and Change Notices. This publica- e. The final basic element of the Federal Catalog tion is comprised of four sections as follows : System is the publication of the Federal Item Identi- (а) Section I—Introduction. fication, related NSN, and corresponding logistics (б) Section II—Identification List. management and reference data for each item of sup- (c) Section III—Management Data List. ply, in order that this information may be made (d) Section IV—Master Cross-Reference List. available to using and interested military activities This catalog, disseminated in hard copy form, will and civil agencies. The governing directive, DOD be revised annually and will be maintained by cumu- 4130.2, specifies that standard microfiche, reduction lative change bulletins, as required. ratio of 4:8x, shall be employed through the DOD, (2) The IL is published in basic editions and unless otherwise justified, to minimize printing and related change bulletins for the purpose of providing distribution costs associated with publication of the timely item identification data for use by DOD, Federal Supply Catalog. The Federal Item Identifi- GSA, and civil agencies. The identification section cation characteristics data are published ánd distrib- of the IL contains characteristically described uted by the DLSC on microfiche in the Federal Item and/or reference number described items as appli- Logistics Data Record ( FILDR). The related logis- cable in FSC sequence and within FSC by item tics and reference data are distributed to Federal name. Beneath each item name, characteristically cataloging participants, including Army national described items are listed first followed by reference inventory control points (NICP’s). DLSC also pub- number described items. Reference number described lishes the Defense Integrated Data System (DIDS) items are listed in NUN sequence and presented in Procedures Manual (DOD 4100.39-M) which con- NUN to manufacturers’ reference and manufac- tains operating procedures for the Federal Catalog turers’ code number style. Reference Method Item System, as well as maintaining and publishing cata- Identifications reflect a maximum of three manufac- loging tools such as Federal Item Identification turers’ reference numbers. Security classified items Guides (FIIG’s) and the Cataloging Handbooks. will not be published in the IL. Also excluded from The Defense Logistics Agency (DLA) maintains the publication are medical, Defense Nuclear Agency, and publishes the Federal Catalog System Policy subsistence, and National Security Agency managed Manual (DOD 4130.2-M). items. The IL is published in basic editions and related change bulletins for the purpose of providing 3-4. The Federal Supply Catalog timely item identification data for use by the mili- a. The Federal Supply Catalog is not a single tary services and DOD agencies. Basic IL editions printed book or a bound catalog. Rather, it is a and related change bulletins shall be distributed to vast array of master computer records stored in reach all users at least 30 days prior to the publica- computers, one for each item in the supply system, tion effective date. Basic editions and related change which are maintained in one central location. Dup- bulletins are contained on microfiche. licate records are provided from this central loca- (3) Master Cross-Reference List (MCRL) is a tion to various activities, but each organization is publication that contains a master list of NSN and furnished only those records that apply to items Logistics Reference Numbers cross-referenced to for which they have recorded a managing, cata- each other. loging, or user interest. (а) The MCRL, Part 1 and Part 2, is com- b. Federal catalog data are distributed worldwide prised of all reference numbers and NSN’s registered through the following publications maintained by in the DOD DLSC master cataloging file. the electronic data processing method to provide the (б) MCRL, Part 1 (manufacturer’s code and greatest flexibility and control in operations. They reference number to NSN), is designed primarily to 3-5

316-276 0 - BO 2 aid in identifying an item to an NSN when only a name and each being functionally interchangeable manufacturer and reference number are known. (and are, therefore, treated collectively in normal (c) MCRL, Partsupply 2 (NSN operations) to manufacturer’s are listed beneath the common code and NSN to reference number), is designed item name. primarily for use by acquisition and technical re- (S) Part 2. An alphanumeric list by search activities. FSC class, of the last four characters of the Ammuni- Four basic elements of data are provided in the tion Codes contained in Part 1. MCRL: reference number, logistics; assigned NSN; c. The sets, kits, and outfits Components List Federal Supply Code for Manufacturers (FSCM) ; (CL’s) is an Army publication that lists the items and Reference Number Variation Code (RNVC). which comprise a set, kit, or outfit. The CL’s are Another data element, Service/Agency Designator published by the Army activity having the predomi- Code, is sometimes shown in the RNVC column to nant interest in the set, kit, or outfit. explain a particular cross relationship of numbers. d. The publication published by the DLA through The MCRL also shows a cross-reference from super- the DLSC are the basic operating manuals of the seded, transferred, and canceled-replaced stock num- Federal Catalog System and contain the operating bers to current stock numbers and vice versa. The rules and procedures covering the development and MCRL is produced and issued on DOD standard maintenance of a uniform catalog system. The CL’s microfiche (48.1) in January and July of each year are compiled by the Army activity having the pre- as basic editions. No intervening change bulletins dominant interest in the set, kit, or outfit and pub- will be used. lished from ACL’s publications data bank. (4) The Management Data List (ML) (1) Defense Integrated Data Systems Proce- (C-ML-A) is a publication containing military serv- dures Manual, DOD U100.39-M. This is the basic ice management data necessary for requisitioning and operating manual of the entire cataloging system the accounting for items of supply. The ML provides ele- volumes and titles are listed below. ments of management data required by a military (а) Volume 1. General and Administrative service in managing, procuring, stocking, and issuing Information. items of supply within the Federal Cataloging Sys- (б) Volume 2. Multiple Application Proce- tem. The publication is arranged in NUN sequence, dures. preceded by the Federal Supply Class, and includes (c) Volume 3. Development and Maintenance management data such as sources of supply, unit of of Item Logistics Data Tools. issue, unit price, interchangeability and substituta- (d) Volume 4. Item Identification. bility, etc., and is produced in military service (e) Volume 5. Data Bank Interrogations/ tailored versions, composed of NSN’s against which Search. a specific military service is recorded as a user. Basic (/) Volume 6. Supply Management. editions and change bulletins will be cumulative in (g) Volume 7. Establish/Maintenance of Or- that each will contain all changes, additions, dele- ganizational Entity and Provisioning Screening tions, or reinstatements that have occurred since the Master Address Table. publication of the preceding basic edition. The ML is (A.) Volume 8. Document Identifier Codes produced on standard microfiche at a reduction ratio (fixed length). of 48.1. Basic editions are produced quarterly with (i) Volume 9. Document Identifier Codes monthly cumulative change bulletins between basic (variable length). editions, unless otherwise directed by the program (j) Volume 10. Multiple Application Refer- manager. A new basic C-ML-A is produced and dis- ences/Instructions/Tables and Grids. tributed monthly by DLSC. (k) Volume 11. Edit/Validation Criteria. (5) The DOD Ammunition Code Publication (l) Volume 12. Data Element Dictionary and (SB 708-30) contains the DOD Ammunition Code Glossary of Terms/Acronyms. (DODAC) numbers that are assigned by DLSC to (m) Volume 13. Materiel Management Deci- generic descriptions submitted by activities within sion Rule Tables. the DOD. The DOD Ammunition Codes are pub- (n) Volume 14. Reports and Statistics. lisheded in basic editions only on standard 48.1 micro- (o) Volume 15. Publications. fiche on a quarterly basis. The publication is divided (2) Federal Supply Classification {H2 series). into two parts as follows : The FSC is a commodity classification system that (a) Part 1. An alphabetic list of ap- utilizes a four-digit coding structure designed to proved item names that pertain to ammunition and serve the multiple functions of supply. The FSC sys- guided missiles, except repair parts and industrial tem, and its published indexes, have been developed components, to which DODAC’s have been assigned. for use in grouping related items of supply in the Several items of supply, each having the same item Federal Catalog System. The four-digit FSC class

3-6 also appears in the first four positions of each NSN. dress outside of the United States and Canada, con- It is published in three parts. sists of three sections : (a) P1 Section A. artAn 1, alphabetic Groups and listing Classes of {Cata-the loging Handbook H2-1) {SB 708-21). A numeric names of manufacturers, with each name referenced listing of the FSC structure plus the title and gen- to the applicable five-digit numeric and/or five-sym- eral coverage of each group and class in the four- bol North Atlantic Treaty Organization (NATO) digit FSC code numbering system. Main inclusions, codes. and exclusions, which delimit the coverage of a par- 2 Section B. A numeric listing of the five- ticular class, are shown. Basic editions are published digit codes, with each code referenced to the manu- on microfiche and issued on a quarterly basis facturer to whom it has been assigned, and to its intervals. related five-symbol (NATO) code,if any. (&) Part 2, Numeric Index of Glasses 3 Section C. An alphanumeric listing of the {Cataloging Handbook H2-2) {SB 708-22). A five-symbol (NATO) codes, with each code refer- numeric listing of all FSC classes, with the name of enced to the manufacturer to whom it has been as- items and commodities arranged alphabetically signed, and to its related five-digit code, if any. Pub- within each FSC class. Basic editions are published lished as a basic volume and maintained by quarterly on microfiche and issued on a quarterly basis. The cumulative supplements. Revised and reprinted at FIND contains approved item names (AIN’s) and approximately 2-year intervals. general item names with appropriate cross-reference. (4) Feder cd Item Name Directory (FIND) (H6 {c) Parts, Alphabetic Index {Catalog- series). The FIND for supply cataloging contains ing Handbook H2-3) {SB 708-23). An alphabetic item of supply names with definitions, item name listing of all the names of items and commodities in- codes, and other related data required to prepare item cluded in Part 2, with each name referenced to the identifications for inclusion in the Federal Catalog applicable four-digit FSC class code number. Basic System. Published in three sections. editions are published on microfiche and issued on a (a) Section A, Alphabetic Index Names quarterly basis. (SB 708-6A). Basically, this index is used as a dic- (3) Federaltionary Supply of itemCode namesfor Manufacturers and includes definitions, item {HI-series). The Federal Supply Code for Manufac- name codes, etc. Published as a basic edition only on turers (FSCM) is a comprehensive listing of the a quarterly basis. name and address of manufacturers which have sup- (b) Section B, Federal Item Name Di- plied or are currently supplying items of supply used rectory of Supply Cataloging (SB 708-6B). This by the Federal Çovernment, and the applicable five- publication consists of two subsections : digit code assigned to each. The FSCM is used in 1 Subsection 1. Numeric Index of Item supply management, automatic data processing, and Name Codes to Federal Item Identification Num- other functions within the Government where a uni- bers and Federal I tern Identification Guides. This in- form length, numerical code for the complete name dex is used as a cross-reference list to determine the and address of manufacturers is required. Published item name and FUG to use when the item name code in three parts. is known. (a) Part 1, Name to Code {United 2 Subsection 2. Alphanumeric Indece of States and Canada) {Cataloging Handbook Hl-1) Federal Item Identification Guides to Item Name {SB 708-11). An alphabetic listing of names of Codes. This index is used as a cross-reference list to manufacturers in the United States or Canada, with determine the item name codes included in the cov- each name referenced to the assigned five-digit code. erage of each FUG. Published as a basic edition only Related historical and affiliation data are shown. Pub- on a quarterly basis. lished as a basic edition only on a bimonthly basis. (c) Section C. Abbreviations and Symbols (&) Part 2, Code to Name {United (SB 708-6C). This index contains three subsections : States and Canada) {Cataloging Handbook Hlf.-2) Subsection 1, Terms Referenced to Authorized Ab- (SB 708-42). A numeric listing of the five-digit breviations ; Subsection 2, Authorized Abbreviations "odes, with each code referenced to the manufacturer Referenced to Terms; and Subsection 3, Symbols. in the United States or Canada to whom it has been (5) Manufacturers Part and Drawing assigned. Related historical and affiliation data have Numbering Systems (H-7) (SB 708-70). This hand- been omitted. Published as a basic edition only on a book is designated “For Official Use Only.” This des- bimonthly basis. ignation limits distribution to Government civil agen- (c) Part 3, FSCM (excluding the cies and military activities only. United States and Canada) (Cataloging Handbook (6) Federal Supply Code for Non-Govemment H4.-3) (SB 708-43). This publication, which only Organizations (H8 series). The Federal Supply Code includes codes assigned to manufacturers with ad- for non-Government organizations is a five-position

3-7 numeric or alphanumeric coding structure assigned A product is deemed to be standardized when it con- to business establishments which are not manufac- forms to specifications .having the same technical turers or are manufacturers that do not meet the cri- requirements. teria for inclusion in the FSCM Handbooks (H4 (6) The purpose of the standardization pro- series). These non-Govemment organization codes gram is to reduce the number and types of items that serve as a standard contractor identification system the military services supply to their forces. Activity for distributors, service organizations, wholesalers, in attaining the objective of standardization is car- which is required for participation in Military ried out during the research and development proc- Standard Contract Administration Procedures ess and is performed continuously while items are (MILSCAP) and ADP systems. Published in two in the supply system. The term thus applies to the parts with each part divided into two sections : Sec- duties performed and the end result of such actions. tion A, includes Cancel and/or Replacement entries; In the broadest sense materiel standardization re- Section B, Includes Current and/or Obsolete entries. duces unnecessary varieties of similar things that (a) Part 1, Name to Code {United States and serve a specific purpose. Canada) {Cataloging Handbook, H8-1) {SB 708- (

3-8 gram is controlled by the DLSC and monitors, spe- (c) The fact that rapid advancements in tech- cifically, the entrance of items into high-growth FSC nology require changes in components of end items classes. even during the development stages also received (2) The provisioningSecretarial program.attention. Investigation resulted in directions that phased provisioning would be applied to (а) Provisioning, like standardization, has a selected high-cost items that were either new to the great impact on all of the managerial functions. It DOD inventory or were undergoing major modifica- is neither a new technique nor method of operation. tion. This refinement of the initial provisioning The Army’s equipment will only travel so far or process permits an arrangement with manufacturers operate just so Iona: before a repair will be needed. for an increased production inventory to be held by If the principles of initial provisioning are followed, them as a buffer stock to satisfy demands on the sup- tools, repair parts, and necessary equipment to do ply system. the job will be on hand. If not, materiel readiness, g. Through the use of the Total Item Record so far as the particular item is concerned, is mean- (TIR) and its attendant System Support Record ingless. Basic planning for provision of sufficient materiel to supnort an end item during an initial (SSR), which is maintained by the DLSIE in Battle Creek, Michigan, and the computer process- period of operation is performed during the research ing techniques now available at most inventory con- and development phase of supply management, prior trol points, an inventory manager has access to to introduction of the item into the system. The co- management data on any of the more than 4,500,000 ordination between developing and cataloging ac- NSN’s in the catalog. Manufacturer’s part numbers tivities to insure timely repair parts support is of and codes can be matched to the appropriate NSN. utmost importance. Due to the wide variety and com- If, in the buying process, a part number or manu- plexity of equipment entering the supply system, it became increasingly apparent that an improper bal- facturer’s code is available, it is possible to submit ance of tools and parts could impair maintenance, this information to DLSC in card format as pre- supply, or mobility. A certain amount of repair parts scribed in DIDS procedures manual by mail or of support of these sophisticated weapons should be AUTODIN to determine if an NSN is available. If it is available, additional management data can be immediatelv available, but the question was “how provided. This information, which is maintained much?” today’s Army must be mobile. Two little might mean excessive deadlining of equipment; too and updated in the computerized Master Catalog much would require transportation of burdensome File, includes for each item— stock. (1) Federal supply class. (2) Manufacturer’s number and code. (б) In recognition of the impact of these significant factors, the Secretary of Defense directed, in (3) Item name and code. (4) Standardization status code. 1956, that even greater emphasis be given to improving the effectiveness and economy of maintenance (5) Acquisition status (acquisition method). (6) Activity with inventory management operations within each military department. A review of provisioning methods was ordered, data on responsibility. failure rates and the system for reporting such data (7) Specification and standards data. were modified as necessary, maintenance facilities (8) Acquisition sources. were consolidated, and uniform criteria and stand- (9) Kind of match code. (10) Acquisition method code. ards were established for repair, overhaul, and re- ( 11 ) Acquisition method suffix code. build as a basis for efficient provisioning. AR 700-120 (12) NUN status code. established the Secretary’s “Policy and Principles This process of “matching” and “cross-referencing” Governing Provisioning of End Items of Materiel” is essentially a screening process which prevents in accordance with the objectives of earlier mainte- duplication of cataloged items and facilitates the nance engineering directives and formally related control of the number of NSN’s assigned. provisioning and maintenance engineering to elimi- h. All catalogs, both the Federal and DA, contain nate unnecessary varieties of equipments, com- item intelligence utilized for effective materiel man- ponents, and parts.Whenever an item is to be given agement and related functions including the requisi- an NSN, the NICP provides necessary information tioning of items. They list items that are centrally for cataloging to the DLSC. This type information, managed and which may be stocked or nonstocked available on items in the system, is later used in the and centrally or locally procured. Management deci- central provisioning screening process whereby items sions which create changes in the item intelligence to be procured are first matched with existing stand- published in the catalogs result in changes being ard items to preclude duplication. published as supplements to the basic catalog.

3-9 Section II. INTRODUCTION OF NEW EQUIPMENT/ITEMS 3-5. Entry of New Items with the military services to match proposed new a. Materiel Suitability items against existing standard items already in the system. (1) The research and development commands, the materiel readiness commands, and the Test and (2) When a new end item of equipment is being Evaluation Command of DARCOM are engaged in developed and tested, the components or special tools the development and testing of advanced equipment. required to support an end item, as well as the end Each materiel readiness command is responsible for item itself, receive screening for related cataloging research and development of materiel in the groups actions. The procuring activity requires that the con- it manages and all of these commands are required tractor who is producing the item submit a list of all to coordinate with each other and with other DOD components and tools needed for support. The list- agencies in the development of materiel to insure ing provides the manufacturer’s part number, a de- each new item is suitable for issue. The inclusion of scription, and any other management data that may quality and performance characteristics is an es- assist in screening against existing Federal standard sential element of the wholesale materiel manage- items as explained in paragraph 3-4. From this list ment mission of DARCOM. The entry of new items the readiness command personnel select those items into the system is generally the result of research and that they agree to be necessary, decide on quantities development effort in devising newer or better ma- required, and make determinations to catalog those teriel in support of combat needs. items not curently in the supply system. Descriptions (2) The term “new item” for the purpose of are written and NSN’s are secured as required. The this discussion, covers all principal Procurement requirement for early publication of catalogs and Appropriation Army items and all secondary (Op- technical manuals is often the basis for erroneous eration and Maintenance, Army (OMA) ) and Stock entry of duplicate items. If a short deadline is im- Fund (SF) items that are newly type classified and posed and insufficient time is allotted for a systematic search, the cataloging activity may perform are— only a local review of known items without refer- (a) Being produced and introduced ring the item to DLSC for screening. Long after the into the Army supply system for the first time; or item is cataloged and stocked, a program to reduce (b) Are being produced by a new pro- the overall inventory may reveal a duplication which ducer for the first time. occurred because the cataloger was not allowed to per- Procurement Appropriation funds are used pri- form his function efficiently due to time restrictions. marily to procure major items, and stock fund monies Each cataloging activity is furnished microform generally procure secondary items. By DARCOM records and/or magnetic tapes by the DLSC of items regulation, suitability must be insured on either type in the classes that are managed by their agency. The item that is subject to engineer or service testing portion of the catalog available within the agency is during the development cycle. All test and evalua- usually checked first, followed by screening against tion effort must be expanded and all deficiencies must the master data at DLSC prior to actual cataloging be corrected (or planned for correction by modifica- action. Matching of part numbers to NSN’s during tion or post-issue action). The Test and Evaluation screening against central files prevents preparation Command concurs in the adequacy of the testing of unnecessary item identifications and eliminates the program ; the readiness command states that the ma- possibility of multiple NSN assignment. teriel has no known deficiencies that will not be cor- <:. Provisioning. rected, and only then is authority requested of DAR- (1 ) The purpose of provisioning is to insure the COM to issue materiel. timely availability of minimum initial stocks of sup- b. Screening. port items and associated technical documentation (1) Before a new item can be entered into the at using units and support units to sustain the pro- Federal Catalog, provisioning planning, documenta- gramed operation of systems and end items for an ton, and compliance with standardization and item initial period of time, until the demand support sys- entry principles insure, by a comprehensive screon- tem can take over supply responsibility. ing, that each item being entered differs significantly (2) Whenever possible, provisioning is begun from every other cataloged item. Item control, there- prior to the production contract because of the need fore, begins with effective identification and catalog- for identifying and selecting those parts, tools, and ing under the Federal Supply Cataloging System. equipment needed to support service testing and The DEA has established the DLSC which manages troop testing, long before maintenance programs or the complete mechanized Federal Catalog. The DLSC even design configurations are firm. When prelimi- has developed a screening program in collaboration nary selection of tools or parts is made, source, main-

3-10 tenance, and recoverability coding is frequently ac- requirement for an item before a request for an NSN complished which, after necessary modification, be- is made. The fact that it is believed an item should be comes firm data for publication in catalogs and in the system is not enough. technical manuals. The selection and coding of items e. Personnel engaged in a provisioning activity is accomplished during an initial provisioning con- during the development process are beset by prob- ference attended by personnel of the developing lems within problems. While attempting to save agency and the manufacturer, using the listing sup- money, get quality equipment, manuals, and parts plied by the producer, referred to above, in screening produced and distributed as quickly as possible, they proposed materiel against already cataloged items. arc subjected to sudden shifts that disrupt the entire (3) During the provisioning conferences, the pattern of progress. Funds may be curtailed; pro- maintenance engineering activity of a materiel readi- grams may be compressed to secure earlier delivery of ness command specifies which items require NSN’s. an urgent item. One point, however, should not be Concurrently, the contractor is advised as to those overlooked. While R&D personnel are engaged in items for which the Government will obtain item forging better weapons and equipment they are, at identifications. This is accomplished in accordance the same time, forging the tools and materiel man- with AR 700-18, “Provisioning Requirements for US agement. All of the documentation submitted by con- Army Equipment.” tractors, whether it be provided on electric account- d. Coiivmercial Items. So far we have considered ing machine cards, a provisioning list, or tapes will, 'item entry as occurring through the research and when refined, be incorporated into technical manu- development (R&D) process. It often happens, how- als or catalogs used in continuing management of ever, that a commercial item is found that meets a the item. military need. In such a case an item description is 3-6. Technical Committee Action written, a stock number is secured, and steps are taken to enter the item into the catalog, into authori- a. The technical committee can be described as the zation documents, and into technical manuals. In formal point of contact between the people who fact, the DOD policy of this subject states that develop or introduce items into the Army system and e “whenever feasible, military operational require- those who manage it thereafter. Major events or ments 'for materiel shall be satisfied through the use milestones are recorded during the development proc- of existing military designs or commercial products.” ess and coordinations that influence later manage- Each major agency having development control of ment of an item of supply and arranged between materiel takes classification action on every item en- engineering, maintenance, and future managers. The tering the system, recording its status from the ultimate decision of the technical committee to enter standpoint of development and suitability for service an item into the supply system constitutes formal us.e. Those major items which are available from Army Materiel Development and Readiness Com- commercial sources and do not require R&D action ments of the Army concerned with the item must con- are type classified and formally entered into the sys- cur in decisions that become the basis for entry into tem by action of a technical committee. When entry catalogs, manuals, and bulletins. The actions of a is the result of R&D action, type classification is proc- technical committee result in expeditious coordina- essed by the agency having development responsibil- tion, in approval, and in recording of actions and ity. WTien a commercial item is type classified, the decisions. A technical committee is established and agency having or proposing logistics responsibility maintained by the chief of each developing agency takes the action. Type classification has an impact on to effect the necessary coordination among developing future management of an item, which is examined in and using agencies during research, development, “Impact of Cataloging.” As one example, however, test, and type classification phases. the majority of materiel bought by the Army is type Z>. Overall supervision of the technical committee classified, and restrictions are stringently applied as system within the Army is exercised by the Chief of to the type and amount of funds which can be utilized Research and Development who develops the Army in such buying. Any activity requesting that an item General Staff position on all formal actions placed be assigned an NSN is, in reality, expecting that the before technical committees and takes Army General item will be stocked in and supplied from the Army Staff action to resolve any nonconcurrences. He ap- supply system. It is impossible to stock, maintain, proves actions and proceedings of technical commit- and issue every item that the Army needs; AR 71-1 tees contained in the minutes of meetings. The US ^specifies that type classification is not required for Army Materiel Development and Readiness Com- commercially available items whose sole basis of mand (DARCOM), the Office of the Chief of Engi- issue is a Table of Allowance or a special require- neers, the Office of the Surgeon General, and the US ment if there is no significant quantitative Army re- Army Electronics Materiel Readiness Activity quirement for the item. There must first be a positive (EMRA) sponsor technical committees and are

3-11 known as parent agencies. Technical committee meet- d. The technical committee takes either a formal ings are held at least once per fiscal quarter on dates or a read-for-record action, dependent on the extent mutually acceptable to the parent agency and the of coordination or approval required. A formal tech- Army General Staff (except for the EMRA Techni- nical committee action is taken on project initiations, cal Committee, which meets at least once per fiscal approval of technical characteristics, changes in DA year). The committee chairman must notify all com- priorities, etc., which require concurrence of all inter- mittee members, observers, and other interested agen- ested members of the technical committee or rquire cies of the dates and agenda of meetings. Each parent approval of higher authority. A read-for-record ac- agency is authorized to establish and maintain a tion is a recording of staff decisions taken on those technical committee with such subelements as neces- matters that warrant recording but do not require sary to meet the requirements of the command. Parent the concurrence of all interested agencies nor agencies prescribe operating procedures for their own approval of higher authority. The technical commit- technical committees, designate representative« on tee meets and makes decisions which are recorded. technical committees established by other parent Minutes of the meeting, giving disposition of each agencies, establish records which furnish a compre- agenda item, are furnished to all interested agencies hensive history of each R&D project and item of ma- for necessary action. teriel, review the results and publish and distribute technical committee minutes within 30 days after a e. Technical committee decisions influence manage- meeting. ment of an item of supply all during its life cycle. c. Technical committees are composedThe ofapproved the chair- technical characteristics of an item man and the other representatives of the parent under development may well determine ease of main- agency, the representative of the Secretary of the tenance. Changes in dates of type classification may Army and the Army General Staff (provided by the result in another procurement of an already exist- Chief of Research and Development), representa- ing item (scheduled for replacement) to insure con- tives of the Combat Developments Command, other tinued materiel readiness until the new item is finally Army developing agencies, and a representative of accepted and becomes available. Actions of technical the US Army Communications Security Logistics committees can, and often do, mean that stock num- Activity if items are included on the agenda that are bers or nomenclatures will change. They may mean of interest to that command. The manager of the bulk that logistics transfers will occur from one class to of Army materiel, DARCOM, is the Army major another or even from Army to DLA for manage- parent agency. It has one technical committee located ment. When these actions take place, all changes in in its Washington headquarters with technical sub- manuals must be coordinated, for they are authority committees having assigned responsibilities relating for— to specific items, groups of items, or systems. The (1) Entry of a new item into catalogs. DARCOM Technical Committee (DARCOMTC) is composed of one voting member each from— (2) Changes to cataloging data of existing related items. (1) US Army Materiel Development and Readi- ness Command. (3) Entry of the new item in SB 700-20 (Anny (2) Office of the Chief of Research and Develop- Adopted Items of Materiel and List of Reportable ment, DA (representing the Secretary of the Army Items). and the Army General Staff). (4) Entry in authorization documents so that (3) Forces Command. those having a requirement may requisition or pro- (4) Office of the Chief of Engineers. cure the item. (5) The Surgeon General. (5) Entry into technical manuals (if the item type classified has application to many end items the Technical committees receive requests for action number of technical manuals requiring change may from using, developing, and supporting agencies. be numerous). The majority of submissions, are generated by developing agencies, though any agency can propose /. Cataloging information can only be provided by that an item be entered into the system (as for in- the service that generates equipment. This informa- stance a commercial item). All proposed technical tion is furnished to the technical committee and, committee actions are completely coordinated within after approval, action to enter an item into catalogs the preparing agency. Items to be included in the and manuals is taken by managers at Army NICP’s. agenda of the DARCOMTC must be transmitted Army class managers in Army support commands through, and be approved by, the technical subcom- take similar action for items of Army interest that mittee. Upon approval the agenda item is entered are the integrated management responsibility of the on the DARCOMTC agenda. DLA.

3-12 3-7. Army Cataloging CONUS. An Item Data Segment record must exist at a. The procedures governing operation of the CDA before a freight record can be established. Army Master Data File (AMDF) are contained in (7) VII—Interchangeable and Substitute Army Kegulation 708-1. The AMDF is an automated (I<&S) Segment. Provides a means for recording and system which encompasses management data author- distributing approved I&S data for identifying items ized for use by the Army. This file is the source for and for identifying those NSN’s in FSC group 13 as- extraction of data to provide selected item data ele- signed a DODAC. For recipients of the data it serves ments most commonly used and required by field to satisfy requirements, defer requisitioning, and re- activities. The data are disseminated through micro- duce unnecessary purchase by utilizing available form products such as the Army Master Data File assets. Retrieval Microform System (ARMS), the Supple- (8) VIII—Reference and History Segment mental Interchangeable and Substitute Items List {REPRIS). This segment is comprised of three sec- (SISIL), and the Master Data Record (MDR). The tions : Item Data History, Interchangeable and Sub- US Army DARCOM Cataloging Activity (CDA) stitute History, and Component History. It shows all is designated as the single distribution point of cur- current and/or former identifying numbers ever as- rent catalog and related logistical data to CONUS signed to an item of supply. and oversea activities. The CDA maintains a com- (9) IX—Component Segment. Provides a posite AMDF from data submitted monthly on items means for recording, maintaining, and distributing managed by NICP’s, Army class managing activities data for NSN’s to which Phrase Code M or Q has for DLA/GSA items, US Army Communications been assigned. Security Logistics Activity, Electronics Materiel (10) X—Equivalent Item Segment. Identifies Readiness Activity, and US Army Medical Materiel equivalent items, assigned Phrase Code Y, that can Agency. The CDA disseminates an AMDF change be used to meet demands if required item is not on notice worldwide to authorized recipients by mag- hand, and to furnish information on items with iden- netic take or EAM cards once a month. tical physical and performance characteristics but ft. The AMDF is adaptable to ADP equipment and differing in unit quantity and/or unit of issue. Defers it provides data on all principal items, major items, requisitioning when an equivalent item can be used secondary items, and repair parts that are the logis- in lieu of a required item. tics responsibility of each command. It is described (11 ) XI—Code Data. Specifies codes used in the in Chapter 7, AR 708-1, which contains the 12 sec- AMDF such as, error, phrase, price signal, acquisitions listed below with a summary of their purposes. tion advice, etc. (1) I—Procedures. (12) XII—Automated Inquiry]Reply System. (2) II—Special Instructions. Provides a uniform method for securing manage- (3) III—Item Data Segment. One data record ment data information from the AMDF at USA by NSN prepared by the item manager which pro- CDA. Provides a record image of the various seg- vides and disseminates current and related logistics ment (s) of the AMDF, provides for querying the data required at various levels of supply management, AMDF for a specific range of data elements ex- financial accounting, acquisition, and preparation and tracted from a combination of AMDF segments fur- routing of requisitions. nished. by NSN only, or provides the inquirer the '(4) IV—Item Identification Segment. A rec- capability of validating a selected range of supply ord prepared and maintained for all NSN’s recorded data pertinent to this system by NSN only.. in the Item Data Segment. The purpose is to provide nomenclature (abbreviated or extended) for use in 3-8. Impact of the Cataloging Function the preparation of Army stockage lists ( ASL’s), DA a. Magnitude of Cataloging Services. supply catalogs, supply bulletins, and adopted items (1) The Federal Catalog System currently list. serves the catalog needs of six Defense Supply Cen- (5) V—Packaging Segment. Provides details of ters, 54 departmental inventory managers, and nu- cleaning, preserving, and packaging an item or it will merous other DOD managers, including the Na- refer to the packaging data sheet, specification, or in- tional Security Agency, the Defense Atomic structions which contain the needed data. This is Support Agency, and the US Coast Guard, for a prepared by the item manager and the data are main- total of 60 wholesale and retail materiel managers tained for an NSN recorded in the Item Data Seg- in the DOD. ment. (2) The system also serves 79 inventory man- (6) VI—Freight Segment. Freight classifica- agers among the civil agencies. In addition, DLSC tion records are prepared by the item manager and is responsible for coordinating NATO and friendly used for CONUS activities to determine rates and foreign nation participation in cataloging opera- modes of routing for materiel shipments within tions. This participation is increasing steadily. The

3-13 NATO nations have adopted the US system of sup- values provide a manual or mechanized means for ply classification and manufacturers’ codes as the determination of item identity or interchangeability NATO Supply Classification and the NATO Sup- and substitutability relationships based on technical, ply Code for Manufacturers. There are currently 11 functional, or physical characteristics. Data group- NATO countries, five other friendly nations, and ings, tables, measurements, tolerances, etc., may be two NATO agencies being furnished cataloging provided to assist in determining selection of the services. reply to requirements in Section I. (3) As of 1 June 1978,(5) there Section were III 4,765,300 is designed to contain supple- NSN’s representing active items of supply recorded mentary technical data and management data which in cataloging files at DDSC. The files also contained do not affect the assignment of NSN’s, but which are 514,372 item identifications in an inactive status necessary to support specific logistics functions. (without recorded managers). Item identification (6) There are appendixes to each FIIG as re- requests from participating activities are screened in quired to make it a self-contained document. These a single processing cycle against both active and in- appendixes are composed of MILSTICCS reply active identifications in the total file of 5,279,672 tables, reference drawings, and a functional and op- items. The matching of incoming new submittals erational index. An integral part of the Federal Item (requests for NSN assignment) against inactive Identification Guides is a system for coding the data identifications makes possible the reactivation of shown in a FIIG. It is called “MILSTICCS,” a some inactive numbers thus avoiding the assignment short title for Military Standard Item Characteris- of new NSN’s. Of the 4.4 million items recorded in tics Coding Structure. It was developed as a uniform the files, 3.7 million items are managed by the DOD. coding structure to solve the problems of increasing There are over 300,000 items used only by the civil the responsiveness of the catalog system both in agencies and 400,000 used only by NATO. speed and volume, to prevent the entry of unneces- b. Federal Items Identificationsary Guides items, {FIIG).and to facilitate the mechanization of (1) The Federal Item Identification Guide is logistics data. designed to give the catalog system increased infor- (7) FIIG’s and MILSTICCS are the tools used mation, more accurate data in a more expeditious to collect the massive quantity of characteristics data inanner. This increased amount of descriptive infor- to achieve the objectives of mechanization which has mation will do much toward preventing the assign- long been the goal of the Federal Catalog System. ment of several stock numbers to the same item of c. Item Manager's Responsibility. Item managers supply. (Primary Inventory Control Activity (PICA) and Secondary Inventory Control Activity (SICA) ) are (2) A “FIIG” is a document which contains a responsible for the assignment and correctness of the list of questions, plus rules and guides, that are individual data management information/codes in necessary to establish adequate descriptive and sup- the AMDF. The file is broadcast at the rate of one ply management data for each item of supply. It change per month effective the first day of the month. is designed to collect information required for mul- d. US Army DARCOM Catalog Bata Activity tiple logistics purposes such as cataloging, packag- (CDA). The CDA is the proponent agency for the ing, provisioning, procurement, transportation, ma- AMDF and is responsible for the control, interface teriel utilization, and disposal. The FIIG was devel- of the AMDF with DOD/DA standard systems, and oped to include additional requirements recom- dissemination of logistics data changes to all levels mended by engineers, procurement, cataloging, of the Army wholesale and retail supply activities. standardization, and supply specialists to satisfy The CDA Central Logistics Data Bank has the capa- their particular technical needs. A FIIG is a com- bility to provide AMDF data in one of the following prehensive, self-contained document consisting of modes : general item information, three sections of data re- (1) Data set. quirements, and appendixes as required. Simply (2) Segmented data. stated, the use of a FIIG provides a complete pack- (3) Management data distribution. age of data for each item of supply. (4) Automated inquiry/reply data. (3) Section I is designed to contain item char- (5) File extracts/special requests. acteristics data which are required to differentiate e. Utilization of Bata. Army activities will utilize items of supply for purposes of NSN assignment. the data provided in the AMDF change notices to (4) Section II is designed to contain data range facilitate logistics functions and provide the data to values for the elements listed in Section I. These supported logistics operations.

3-14 CHAPTER 4 MAJOR ITEM MANAGEMENT

Section I. GENERAL 4-1. Introduction tant secondary items, and truck engines on hand in All military services give primary management at- direct support units (DSU’s) are compared to the tention to equipment and weapon systems such as needs of the DSU’s for replacement engines for the aircraft, ships, combat tanks, and armament. The operating fleet. However, every truck (major item) final decisions concerning such items normally are in the fleet is assumed to contain a serviceable engine made at departmental or higher levels. In the Army (secondary item), and the installed engines are these items are referred to as major items. never included in materiel studies of truck engines. a. Major item rrumagementb. Funding. vs. secondaryMajor items item cannot be procured from management. For most major items, requirements industry until funds from congressional appropria- and authorizations documents are approved by de- tions become available. The Office of Management partmental headquarters. For secondary items, this and Budget (OMB) apportions these defense funds ; is rarely the case. In this manner, a much higher the Office of the Secretary of Defense (OSD) re- level of control is exercised over the needs for the leases the programs and funds; the Comptroller of major items. Most materiel management consists of the Army allocates the funds to the US Army Ma- attempting to match assets (or materiel) to needs for teriel Development and Readiness Command (DAR COM) ; and this command suballocates the funds the assets, and, in the case of major items, all assets to its materiel readiness commands, which are re- including those in the hands of using units are sponsible for the acquisition actions necessary to ob- matched to total worldwide needs. For secondary tain major items. items, stock levels are matched to requirements for c. Control and visibility. Major items are issued stock levels. For example, trucks are major items only to fulfill approved authorizations. Reports are and, in materiel plans, total truck needs worldwide made of worldwide assets, including those assets in are compared to total trucks on hand in Army units the hands of troop units and held for maintenance and in depots worldwide. Truck engines are impor- float, operational projects, and war reserves.

Section II. IDENTIFICATION

4-2. Introduction c. The worldwide requirements for the initial is- Within the context of this manual, an item is deter- sue quantities of the item are individually specified, mined to be a major item if it meets the following computed, and programed by matching specific criteria : planned, programed, or current force structures with a. The item requires centralized management and documents in the files of The Army Authorization control of requirements determination, acquisition, Document System (TAADS) or with Tables of Or- overhaul, and disposal. To insure operational readi- ganization and Equipment (TOE). The item is as- ness, the Army needs centralized knowledge of dis- signed class of supply code 4, 5, or 7 in Supply Bul- tribution planned for each support level and of assets letin 700-20. in the hands of claimants. d. The following selected items are designated b. The unit value of the item is $1,000 or more, or major items (without regard for the preceding the total inventory plus programed acquisition ex- criteria) : ceeds $900,000, or a budget line is required for the (1) All motorized wheeled and towed vehicles item. Each unit of this item is individually justified, for use on either highway or rough terrain. authorized, and included in the budget at the depart- (2) All weapon and missile end items. mental level. (3) All aircraft end items. 4-1 (4) All boats or ships with inboard power or all all body types (which include truck-mounted missile boats with a unit value of $1,000 or more, whether launchers and other items mounted on 5-ton truck with or without inboard power. chassis). In addition, the SSN system contain a large (5) All ammunition assigned class and supply data base consisting of the factors used in major item codes will be managed under the major item manage- management, as well as other information listed in ment system. the subparagraphs below. (6) Selected class of supply of items, such as a. LIN. The six-character alphanumeric identifica- certain types of construction materiel, like shelters, tion of generic nomenclature which is cross-refer- are managed under the major item management enced to equipment makes or models in Supply Bul- system. letin 700-20. e. Any item not meeting the preceding criteria may b. Department of Defense Amnmnition Code be designated a major item on an exception basis. {DODAC). An eight-character alphanumeric iden- This action may be approved by DAK.COM if the tification of ammunition items as listed in Supply requestor is able to demonstrate convincingly that Bulletin 708-30. major item management procedures will result in c. SSN. An 11-character identification number used better overall management than secondary item to indicate either a single LIN/DODAC or group of procedures. LIN’s/DODAC’s for which a materiel plan or distribution plan must be prepared. 4-3. National Stock Number (NSN) d. NSN. A 13-digit number consisting of the ap- Assignment plicable four-digit Federal Supply Classification The NSN is a unique number used to identify one (FSC) and a nine-digit National Item Identification specific make or model of major item. It is assigned Number ( NUN ). The NSN is cross-referenced to the by the Defense Logistics Services Center at the re- appropriate LIN by both the SSN system and Supply quest of the managing command, which furnishes Bulletin 700-20. the necessary descriptive data. e. Ratio. A five-position number used to indicate 4-4. Line Item Number (LIN) the number- of major items which are included within another major item. For example, one truck is in- The LIN is a code number used to identify the ge- cluded in the NSN for a truck-mounted missile neric nomenclature which is used in requirements or launcher. authorization documents. This generic nomenclature identifies a need rather than a specific make or model, /. Type item. A “primary” type item is an item as does the NSN. Since requirements and authoriza- which normally appears in requirements and author- tions are identified by LIN, and assets are identified ization documents, such as the truck-mounted missile by NSN, cross-reference data is needed to determine launcher. A “generating” type item is an item that which makes or models of major item can be issued creates or generates a requirement for a quantity of to satisfy the generic nomenclature found in the au- a primary item. The truck-mounted missile launcher thorization documents. The needed data is published is also a generating item in that a requirement for in Supply Bulletin 700-29, Army Adopted/Other such a launcher also creates a requirement for a 5-ton Items Selected for Authorization/List of Reportable truck, which itself is an item frequently listed in au- Items. NSN’s may be matched to LIN’s on a one-to- thorization documents. Assemblages and sets will not one basis; or, more than one NSN may be matched include major end items as components unless their to only one LIN. In other words, several different installation/removal is so complex that it must be makes or models of a major item may be suitable for performed at depot maintenance level. Those major isssue to satisfy the generic nomenclature found in end items already included in assemblages and sets as authorization documents. components which do not meet this criterion will be authorized separately. 4-5. Standard Study Number (SSN) System g. Reportable item control code {RICO). A one- digit numeric code assigned to selected items for Since there are about 8,000 different LIN’s used in au- readiness and asset reporting purposes. thorization documents, it is impractical for higher h. Appropriation and budget activity account code. level managers to review each of them. As a result, A one-position alpha or numeric code used to relate the SSN system has been designed to provide a means of summarizing data pertaining to similar LIN’s. items to the applicable appropriations. The system contains a computer program which is i. Type classification code. A one-digit alpha code used to consolidate the data for items such as 5-ton indicating the type classification assigned the item trucks with winch and 5-ton trucks without winch (AR 710-61). for study purposes. The system can also be used to j. Logistics control code. A one-position alpha code summarize to the budget line level ; e.g., 5-ton trucks, used to provide a basis for logistical support deci-

4-2 sions, i.e., procurement, overhaul, repair parts provi- planning purposes as it does produce a total unserv- sioning, requisitioning, distributing, etc. iceable generation figure available for overhaul/re- k. Responsible Routing Identifier Code (RES pair consideration. RIG). A three-position alpha or alphanumeric code p. Peacetime replacement factor (PIRF). The identifying the managing command. PIRF indicates the fractional quantity of the in-use L. SSN nomenclature. For any SSN with only one equipment which will become uneconomically repara- LIN/DODAC or with one primary type item, a max- ble in 1 month. imum of 59 positions of the nomenclature appearing q. Wartime active replacement factor (WARF). in Supply Bulletin’s 700-20 or 708-30 is used as the The WARF indicates that fractional quantity of in- SSN nomenclature. When two or more primary type combat-use equipment which will require replacement items are to be summarized, a common nomenclature because of projected intense wartime losses. Various descriptive of the summary is selected. rates are used for each 15- or 30-day period; 1-15 m. Operational readiness float (ORF) factor. The days, 16-30,31-60, and so on. ORF factor indicates the fractional quantity of the r. Overhaul condemnation factor ( 0 CF). The OCF in-use mission-essential equipment needing or under- indicates that fractional quantity of the in-overhaul going repair at the general or direct support level at inventory which will be determined to be noneco- any point in time. nomically reparable. n. Repair cycle float (RCF) factor. The RCF factor indicates the fractional quantity of the in-use s. Life expectancy. This is the estimated useful life mission-essential equipment needing or undergoing of an item. It is determined by experience with simi- depot overhaul at any point in time. lar items, and considers both present conditions and o. Unserviceable generation factor (UGF). The probable future developments. UGF indicates the monthly fractional quantity of the t. Indicator codes. These codes provide direction in-use equipment which will require depot overhaul. as to which items should be included in materiel or The UGF is actually an unserviceable return factor. distribution plans, and the degree of summarization It cannot be used to forecast total unserviceable gen- needed. erations, because data concerning major items which u. Other codes. A complete and more detailed list- are placed directly into property disposal channels ing of the codes used in the SSN system may be is not captured for purposes of UGF development. found in Supply Bulletin 710-1-1, Standard Study The UGF can, however, be used for maintenance Number (SSN) Master File Cross-Reference Index. Section III. MANAGEMENT AT THE NATIONAL LEVEL 4-6. General taken at the national level with respect to the deter- Intensive management of major items at the na- mination of requirements for major items. It is issued tional level is necessary because of their high-dollar by OSD to the Secretaries of the military depart- value and combat essentiality. It is also necessary be- ments, the Joint Chiefs of Staff, and the defense cause of the impact that actions taken for major agencies. It contains guidance for force planning items have on related secondary end items and repair levels, fiscal levels, and materiel support planning. parts. The level of review given major items will b. Joint Program Assessment Memorand/um. The differ depending upon criticality and total inventory Joint Chiefs of Staff prepare the Joint Program dollar value. The most important items receive a Assessment Memorandum based upon the fiscal and final review by the OSD. Other items receive their force guidance of the Consolidated Guidance. The final review at the Department of the Army (DA) Joint Program Assessment Memorandum, showing a Staff Level, particularly, the Deputy Chief of Staff summary of recommended forces and stating the im- for Research, Development, and Acquisition, the pact of funds constraints, is then forwarded to OSD Deputy Chief of Staff for Operations and Plans, and for their consideration. the Deputy Chief of Staff for Logistics. Items of c. Army Program Objective Memorandum. The lesser importance are reviewed by Headquarters, Consolidated Guidance is also used by the military DAR COM. Those of least importance are reviewed departments and defense agencies to prepare their by the managing materiel readiness command. The Program Objective Memorandums. The Army’s Pro- funds for procurement of all major items are re- gram Objective Memorandum expresses total Army viewed by the Comptroller of the Army. program requirements, providing force levels, manpower costs, and materiel recommendations for the 4-7. Office of the Secretary of Defense budget year and the following 5 years. (OSD) d. Program Decision Memorandum. After OSD a. Consolidated Guida/ace.review The ofpreparation the Joint of Forces the Memorandum and the annual Consolidated Guidance is the initial action Program Objective Memorandums, the Secretary of 4-3 Defense issues to the services a tentative Program termined by matching the standard requirements Decision Memorandum for their comments. After code of the unit contemplated for activation with the receipt and review of these comments, a final Pro- appropriate (unmodified) TOE, as recorded in a gram Decision Memorandum is issued by OSD to the computational file maintained by Headquarters, De- military services and defense agencies. It provides partment of the Army. This is the third step of the general program guidance in the development of the SACS processing. Army Force Program. After appropriate modifica- (4) There are many new equipment items pro- tion to conform with this guidance and with a presi- gramed for introduction into the Army. However, dential dollar target, the first year of the Program the LIN’s have not yet been incorporated into TOE’s, Objective Memorandum actually becomes the basis TDA’s, or MTOE’s. Under these circumstances, a for the annual budget. Basis of Issue Plan (BOIP) is developed and in- e. Army Force Program. This program is used to corporated into the BOIP file. This file is simply a aid in updating the 5-year defense program, develop- list of current LIN’s and the LIN’s of developmental ing the Procurement Appropriation Policy and items programed as their replacements. By match- Guidance, and preparing the Structure and Composi- ing the LIN’s of the requirements and authorization System (SACS) data. tions which have been recorded through the third 4-8. Department of the Army step of the SACS processing with the BOIP file, the undesired LIN’s are overlaid with developmental a. Deputy Chief of Staff for OperationsLIN’s. This and Plans.is step four of the SACS processing. This staff element is the proponent for the SACS. (5) In every automated system, there must be a The SACS is an automated process which matches means of including exception data. This is done Army units to their requirements and authorizations, through the shorthand notes file. It is useful for in- thereby deriving the initial issue quantities needed corporation of last minute changes to the force list by these units during mobilization and during peace. and the related requirements or authorizations, for (1) The force accounting system lists by unit input of data for new items when BOIP informa- identification code all of the Army Forces at the tion is not acceptable or available, and for programed parent unit level (battalion or separate company). future revisions to MTOE. Included are actual units, programed units, and (6) The final product of the SACS processing is planned units, which are, respectively, units currently the initial issue quantity (HQ) needed by Army in existence, units which are programed for future Forces for war (requirements) or during peace (au- existence, and units which are not programed for thorizations). The data may be displayed by unit, future existence, but which are needed when larger in which case it becomes useful to commanders, or size forces are being studied. There are about 100 dif- it may be displayed by LIN, in which case it is useful ferent data elements of management information for national level management of requirements, au- associated with each unit—higher headquarters, loca- thorizations, and assets. tion, readiness condition, etc.—but equipment re- b. Deputy Chief of Staff for Research. Develop- quirements or authorizations by line item number are ment, and Acquisition. The Deputy Chief of Staff not included. The initial step in SACS processing is for Research, Development, and Acquisition uses the the extraction of those units in the Army Force Pro- Program Objective Memorandum, the Army Force gram, together with related management data, from Program, and the OSD Consolidated Guidance to the force accounting system. The SACS is the only develop or revise its Plans and Policy Guidance, source providing the approved Army Force structure which applies to the Army’s Procurement Appro- with allowances and changes necessary to progress from the current through the budget and POM years. priations and to the development of the Army Ma- This force is restricted according to policy and ceil- teriel Plan (AMP). The budget estimates, and the ing limitations. requests for apportionment of the congressional appropriations. This planning guidance includes such (2) The Army Authorization Document System lists, by unit identification code, all the equipment things as program cost breakdowns; production base requirements and authorizations found in MTOE and data ; and rules to apply in requirements computa- in TDA. The second step in SACS processing is to tions. The Plans and Policy Guidance perpetuates match the units in the selected force with their re- the necessary portions of the OSD Consolidated quirements and authorizations, as stated in the docu- Guidance. ments under which they are organized. c. Deputy Chief of Staff foi' Logistics. The Deputy (3) When future activation of Army units is Chief of Staff for Logistics uses the Program Ob- programed, existing authorization documents may jective Memorandum and the Army Force Program be unsuitable for a requirements projection. If this to develop or revise its Distribution Policy and occurs, requirements and authorizations are de- Guidance Directive. 4-4 Section IV. THE ARMY ACQUISITION OBJECTIVE (AAO) AND THE ARMY MATERIEL PLAN 4-9. Introduction be made in response to direction from higher head- The AAO is the target for peacetime acquisition of quarters or to locally recognized needs. When changes major items. It is that quantity of an item authorized are approved by Headquarters, Department of the ' for peacetime acquisition to equip the US Army-ap- Army, the latest data is incorporated into their files proved force in peacetime, and to sustain this force for use in SACS processing. The MTOE displays a and specified allied forces from the start of a war required quantity which is normally identical to the through the period and at the level of suport pre- level 1 quantity of an unmodified TOE and expresses scribed by the latest OSD Consolidated Guidance. wartime needs. It also displays an authorized quantity, which represents the major items which the 4-10. Gross Requirements unit should currently have on hand or on order. Determination of gross requirements is an inter- (3) Another authorization document, the TDA, mediate step in the development of the AAO. Follow- states requirements and authorizations for Army or- ing is a list of the individual elements whi'clrj when ganizations which hire civilians and which are not added together, constitute gross requirements. The deployable during wartime. Examples are schools, calculation of gross requirements is made for a given depots, materiel readiness commands, etc. This docu- force structure without regard to the asset position. ment is very similar in concept to the MTOE. It is This means that gross requirements developed in this created by its designers in the organization, but there process do not represent the acquisition requirements, is no “pattern” TDA available for guidance during but rather they represent the total requirement for a the design process. Datafrom TDA’s are also incor- major item to satisfy the needs of a given force level. porated into the files of TAADS at HQDA for use It is necessary to consider the current assets plus the in SACS processing. ■ * ' ‘ ‘ projected gains and loses in order to determine the h. OyeratÄdri/ärreadiness float' ( ORF). The ORF acquisition needs. is a mission-essential major item needed for direct a. Initial issue quantity. This is the sum of the exchange purposes. It is maintained and stored ih; quantities required by the units of the US Army- a serviceable, ready-to-issue condition by the support- approved force to carry out their missions contin- ing company and is available for unplanned and un- uously in a wartime environment. The actual compu- T-programed exchange with the using unit. When a tation is made during the SACS processing, as 'Tunit experiences an equipment failure which cannot described in paragraph 4-8«. be diagnosed and repaired within prescribed time (1) A requirements document, the TOE, is de- limits, the unit exchanges the unserviceable item for veloped for every different type of Army unit. Tt'rv- the serviceable ORF, so that a good operational readU states mission, personnel, and the minimum essen- ness posture is maintained. ORF factors are deter- tial equipment which military planners deem neces- mined by maintenance personnel and are entered into sary for successful mission completion. The TOE the files of the SSN system. The IIQ required for serves as a pattern document to aid each unit in stat- wartime, multiplied by the ORF factor, yields the ing its own unique needs, by way of the modification number of major items needed for ORF during TOE. The TOE is not the authority by which major wartime. items are issued. It is a planning document and is c. Repair cycle float (RCF). The purpose of depot not used for authorizations. Proponent agencies are ,'»'’.overhaul is to extend the useful life of equipment. responsible for TOE design, change, and redesign. 1 The Army has equipment which must-be overhauled!*! The TOE states equipment requirements at level 1, periodically, based upon number of rounds fired,' level 2, and level 3. The level 1 quantities represent number of miles driven, number of flying hours in- the equipment needed by a unit to carry out its mis- curred, or number of years in use. RCF provides sion continuously in a wartime environment. Level Army units with new or overhauled equipment, so 2 is approximately 90 percent of level 1, while level that the items needing overhaul can be returned to 3 is approximately 80 percent of level 1. The latest the supply system, can receive the necessary main- TOE data is incorporated into a computational TOE tenance, and can then be used again as RCF. Major file maintained by headquarters, Department of the items used as RCF are normally stored where a depot Army, for use in SACS processing. overhaul capability exists; are made serviceable prior (2) An authorization document, the MTOE, is to exchange ; and are used for planned or programed fashioned by each Army unit using the basic or un- exchanges. The IIQ required for wartime, multiplied modified TOE as a pattern. It becomes a part of by the RCF factor, yields the number of major items TAADS, and it is the authority for issue of major needed for RCF during wartime. The RCF factors items. Changes are initiated by the unit, and may are determined by maintenance personnel and are en- 4-5 tered into the files of the SSN system. The establish- dergo mobilization training and only for the period ment and use of RCF will be controlled by HQDA of time during which the training will last. The and will be governed by funded and item depot main- mobilization training losses are then added to the tenance programs. combat consumption in order to determine total Post d. Operational projects {OP). OP’s are assign- D-day consumption. The peacetime replacement fac- ments to support specific logistical or contingency tor is determined by the major item managers in the plans. If the HQ’s required by Army units contain materiel readiness commands and entered into the insufficient equipment to adequately support the as- files of the SSN system. Note, however, that mobili- signed OP, Headquarters, Department of the Army, zation training losses are a part of the requirements. incorporates a bill of materiel into the OP, thereby, Major items are also bought to offset peacetime approving the necessary materiel requirements. These losses. Should war come, items purchased both for requirements are then entered into an OP file main- requirements and for normal peacetime losses would tained by the Logistics Systems Support Activity, or be available for the increased training losses. DARCOM organization located at Letterkenny Army Depot. However, not all OP’s are authorized 4-11. Gross Requirements Computation for inclusion into the gross requirements computa- Process tion. Those which can be included are identified by The Research, Development, and Acquisition Infor- the Deputy Chief of Staff for Research, Develop- mation Systems Agency (RDAISA), an organiza- ment, and Acquisition in the Plans and Policy Guid- tion under the operational control of the Deputy ance, and are called “additive” operational projects. Chief of Staff for Research, Development, and Ac- e. Special contingencies. Specified quantities of quisition, has been assigned responsibility for com- equipment needed for supporting contingencies of puting gross requirements for Army-used major allies. items. The sum of the required HQ, the ORF, the /. Post D-day conswmption. The quantity of major RCF, additive OP’s, special contingencies, and Post items anticipated to be lost in combat or worn out D-day consumption equals the total gross require- after the onset of war is identified as Post D-day con- ments. To make these computations, three things are sumption. These quantities represent requirements needed : which must be included in the gross requirements a. Forces and equipment needs. These are the HQ’s computations, so that equipment will be available to which are the output product of the SACS process- replace those losses. ing, and are furnished to the Research, Development, (1) Combat conswmption. This is the quantity of and Acquisition Information Systems Agency by equipment forecast to be lost under combat condi- DCSOPS. It indicates, by LIN and by unit identi- tions. It is determined by multiplying a wartime loss fication code, the quantities required and the quanti- factor by the number, in theater days, of major items ties authorized, as well as other data related to the planned to be engaged in war operations. The vari- forces. ous rates provide for the intensity computation, and b. Guidance. This is furnished by DCSRDA’s there is a rate for each 15-/30-day period; i.e., 1-15, Plans and Policy Guidance, which provides instruc- 16—30, 31-60, 61—90, 91—120, 121—150, and 151-180, in tions for relating Army units to the proper force order to adjust the forecast combat losses to the rates strata, etc. It also furnishes the instructions to use specified in the OSD Consolidated Guidance. Last, in computation of Post D-day consumption, so that the computation is repeated for every month during the computations will be in consonance with OSD’s which the war is forecast to endure, using guidance Consolidated Guidance. from the OSD Planning and Programing Guidance c. A data base. The HQ, Depot System Command Memorandum as perpetuated in Plans and Policy (DESCOM) is the proponent for the SSN system Guidance. The. wartime loss factors are developed by J and its files which provide the latest factors for use Concepts Analysis Agency and entered into thé' files in the gross requirements computation. The Logistics of the SSN system. Concepts Analysis Agency, an Systems Support Activity furnishes data on OP’s. element of the Army Staff, is under the operational control of the Deputy Chief of Staff for Research, 4-12. The Army Acquisition Objective Development, and Acquisition. After the gross requirements computations are com- (2) Mobilization training losses. This is the pleted by Research, Development, and Acquisition quantity of equipment forecast to be worn out after Information Systems Agency, the figures are for- the onset of war by Army units as they undergo in- warded to the materiel readiness commands and tensive training prior to deployment. The HQ re- other agencies which prepare Army Materiel Plans. quired for wartime, multiplied by the peacetime re- Simultaneously, acquisition personnel at MRC’s de- placement factor, provides the requirements. This termine the quantities of major items that can be computation is made only for units which will un- obtained from industry during the period of time—

4-6 D-day to full wartime production. The gross re- d. Here the budget year data is extracted from quirements are reduced by the amount of this offset the AMP for use in the worksheets. Additionally, so that the Army does not procure during peacetime similar AMP sheets are summarized for the display. any quantity of equipment whose purchase could be For example, if missile system ground support delayed until after the onset of war. Therefore, gross equipment consists of a launcher and three ancillary requirements less the production offset equals the major items, the RDAC worksheet will show only the AAO, which is that quantity authorized for peace- quantities of the launcher, it being the most impor- time acquisition. tant item. However, the costs for all four major items will be consolidated in the launcher display pages. 4-13. The Army Materiel Plan (AMP) Costs for the current year and the past year are also a. The materiel readiness commands receive the displayed. gross requirements computations from the Research, e. When the RDAC worksheets are received by Development, and Acquisition Information Systems DA, they are further summarized into a P-1 Budget Agency and, using a computer program called SAM Display, which consists of those lines which the PAM, for “System for Automating Materiel Plans Army wants included in the Presidential budget. for Army Materiel,” complete the AMP. The con- P-1 lines are very broad categories such as “ground cept of SAMP AM is that all data necessary for AMP support equipment for surface-to-surface missiles.” preparation, except gross requirements, is main- The P-1 and the RDAC worksheets go through OSD tained in a current status in the computer data and the Office of Management and Budget to the Of- files—asset positions, age of assets, dues-in, future fice of the President. The AMP is NOT forwarded, acquisition, levels of research and development, pro- but remains available for references as the appropri- duction offsets, production base support, etc. Upon ation process continues. receipt of the gross requirements magnetic tape, it is f. After sufficient time for study of budget re- put online in the SAMP AM program and a com- quests, the Congress makes the defense appropria- pleted AMP is produced within a very short time. tions ; but, during this time frame, requirements are b. The AMP displays for the budget year and subject to both quantitative and qualitative change. subsequent 5 years all the data necessary to make Consequently, the AMP process repeats itself in 6. acquisition decisions concerning a major item, there- months, except that the final documentation goes to by, providing supporting details to justify the the Office of Management and Budget to assist in request for Procurement Appropriations. apportioning the appropriations. The Office of Man- c. The managing commands forward the completed agement and Budget sends the funds down through AMP sheets to DA for review and a magnetic tape of Comptroller channels at the proper time. These are the AMP to the Research, Development, and Acqui- then used by the materiel readiness commands to fi-. sition Information Systems Agency for summariza- nance new acquisition of major items. After delivery tion into a Research, Development, and Acquisition to Army control, these new items are distributed to Committee (RDAC) worksheets. claimants on a “free-issue” basis.

Section V. DISTRIBUTION REQUIREM ÍTS AND DISTRIBUTION PLANNING 4-14. Introduction planned for activation or reorganization during the Distribution requirements are the allowance needed period of distribution planning. These allowances am by approved force to accomplish each unit’s peace- extracted from the SACS File described in para- time mission. The Army goal is to obtain the best graph 4—8a. defensive posture with equipment on hand or due in 6. Operational readiness float. Major Army com- within a short period. Distribution requirements are mands are authorized to stock ORF based on De- different from mobilization needs or wartime needs partment of the Army-approved ORF factors, times in that they apply to forces which are presently in the density of equipment in the authorization docu- being or which are planned for activation during ments of the units they support. ORF for oversea peacetime. The calculation of distribution require- units is computed using the required quantities ments is made for a given force without regard to found in the authorization documents of the units the asset position. The availability of assets is then being supported, excluding prepositioned oversea determined and distribution plans prepared. materiel configured into unit sets. ORF for units in the Continental United States is computed using the 4-15. Elements of Distribution authorized quantities found in the authorization Requirements documents. The Reserve components are not author- a. The initial issue quantity. This is the allowance ized ORF support until mobilized except for aircraft authorized for current US Army units for units and aircraft-related items. ORF for aircraft and 4-7

316-276 0-80 3 aircraft-related items is computed using the re- by the quantities specified in the project. For exam- quired quantities found in the authorization docu- ple, some portions of POMCUS are additive. ments for both active and Reserve components of the 2 Nonadditive projects. Although these total Army Force. projects require approval by DA, they do not in- c. Repair cycle -ßoat. RCF is an additional quantity crease the AAO. For example, most of the POMCUS of mission-essential, maintenance-significant items projects are included in this category, Certain non- of equipment specified by the materiel readiness POMCUS projects may also be designated as non- commands for stockage at depot level. The RCF is additive projects based on special considerations. based on the density of equipment authorized in the These authorizations, although not increasing the documents of units being supported and is put into AAO, do represent a claim on the equipment avail- use as replacement for equipment awaiting depot able to fulfill the overall distribution requirements. overhaul, in the depot overhaul process, or in transit (4) CONUS war reserves {CONUS PPWL & to and from depot overhaul. RCF is computed on CM). This is that portion of the total mobilization many items; however, asset stockage is based on war reserves which are held in CONUS depots under HQDA approved maintenance policy. the control of the materiel readiness commands, the d. War reserves {P/CD). These are stocks of ma- US Army Forces Command, or the US Army Train- teriel amassed in peacetime to meet increased mate- ing and Doctrine Command. They include : riel requirements upon an outbreak of war. We {a) Obligated war reserves {CONUS PPWR). reserves provide the interim support essential to This portion of the total war reserves is located in sustain operations until normal resupply can be the CONUS and is held for a specific force or area. effected. Types of war reserves include : Included in obligated war reserves are: (1) Decremented stocks reserve. That quantity 1 Contingency support stocks. These are war of equipment necessary to bring the forward de- reserve stocks held for support of Post D-day combat ployed Army units from their current authorized consumption needs of the approved forces based in level of organization (ALO) to full strength. CONUS, but which may be deployed worldwide in case certain contingency plans are implemented. (2) Theater war reserves (TWR) (PJGS). Stocks of mission-essential items (expressed in days 2 Residual theater war reserves. That por- of supply) authorized each theater to support Post tion of the Post D-day combat consumption quanti- D-daj' combat consumption until resupply from ties authorized to support deployed forces. These stocks consist of equipment not authorized for pre- CONUS can be accomplished. These stocks are required to be pre-positioned in the appropriate positioning in an oversea theater and equipment theater. remaining in CONUS until after deployment of units designated to receive POMCUS stocks. (3) Operational project stocks {P/CC). These 3 Special contingency stocks. These are war are authorizations which have been approved by reserve stocks designated for support of the con- HQDA, for major Army commands to acquire ma- tingencies of allies. teriel for CONUS or theater stockage to support spe- {b) Early mission Reserve component mobili- cific operations, contingencies, or war plans. These sation reserves. These are the stocks necessary for types of war reserves include additive and nonaddi- issue to support the mobilization and deployment of tive operational project stocks, as defined below : the Reserve component units which have been (a) Pre-positioned materiel configured into scheduled for early deployment. Issue will bring the unit sets {POMCUS) projects {P/CT). Materiel to equippage level of these units and any needed opera- re-equip specific units with the equipment listed in tional readiness float to that level required to carry their authorization documents upon deployment to out their mission continuously in a wartime environ- the theater in which the materiel is stored. ment. These stocks should be on hand in the CONUS {b) Non-POMOUS projects {P/CT). Re- depot system. quirements in addition to the equipment listed in (

4-8 (4) Computation of war reserve quantities. operational project authorizations furnished by the These are computed in accordance with the levels Logistics System Support Activity, and exception specified by Army Kegulation 11-11, the planned type information furnished by the managing mate- unit deployment schedules, the requirements set forth riel readiness commands. •in the applicable contingency or mobilization plans, and tlie special policy and- guidance furnished by the 4-17. Distribution Planning Deputy Chief of Staff for Operations and Plans. Using highly specialized computer programs, DESCOM matches programed production of major ( 5 ) Restrictions on peacetime use of war reserves. items, which is obtained from the SAMPAM data Major items of equipment in theater war reserves, base at the materiel readiness commands, to unful- CONUS war reserves, or operational project stocks filled distribution requirements, thereby developing are not to be issued for peacetime use without the the distribution program (DAMPL). The priorities prior approval of HQDA. used may be those of the DA Master Priority List 4-16. Distribution Requirements (DAMPL) (for the near tenu) and the DA Planned Computation Process Priority List (DAPPL) (for future years), or as an exception to AR 11-12 the distribution priorities may The DESCOM has been assigned responsibility for relate to force packages. The distribution programs the computation of distribution requirements and the start at the current date and extend through the years development of distribution plans. The Deputy jQhief covered in the latest Program Objective Memoran- of Staff for Operations and Plans furnishes SACS dum. They are useful in advising the field command- data indicating forces, required quantities, and au- ers and higher headquarters of planned future thorized quantities. Guidance is furnished by the distribution of the major items. However, the distri- Deputy Chief of Staff for Logistics. The SSN sys- bution programs are also used to display the impact tem and its files are maintained by the DESCOM of inadequate funds in the programing and budget- and are available for computations. Other sources of ing process, and to study the feasibility of alternative data used by DESCOM during the process include force structures. Section VI. THE ASSETS POSITION 4-18. Continuing Balance System The type classification code indicates the suitability The accountable records of almost all wholesale and of major item for issue, while the logistics control retail supply organizations in the US Army are code indicates the support actions and other consider- maintained with data“ processing equipment and ations accorded to a major item by the wholesale seg- standardized computer programs. Programs have ment of the supply system. For example, reclassifica- been designed and incorporated so that data on major tion of a major item from “standard” to “contin- items is identified and transmitted to the DESCOM gency” is an action which may impact heavily upon in a format acceptable to the data processing equip- the budget for Procurement Appropriations, because ment in use there. This command maintains for each “contingency” type items are unsuitable for applica- major item a history of receipts from production, tion to requirements. Type classification is covered in shipments to major commands, receipts by customers, Army Regulation 71-6. losses by customer^, and returns of unserviceable or 4-20. Reportable Item Control Code 'excess. This transaction tracking systèmes 'called the (RICO “continuing balance system,” and it is currently The RICO is assigned to major items based upon being expanded to track asset transactions through the importance of obtaining reports for specified the battalion and separate company level. Asset posi- usage. RICO 1 items are so classified by HQDA, and tions developed through this system are used in the are used in readiness reporting. RICO 2 is assigned AMP, in related budgetary documentation, and in by the managing command-to items of such impor- distribution plans for major items. tance that data must be collected for preparation of 4-19. Type Classification and Logistics a worldwide asset position. Only data from RICO 1 and RICC 2 item transactions are transmitted to Control Codes DESCOM for incorporation into their continuing Each major item which is to be supported with re- balance system. RICC 3 is assigned to major items pair parts by the Army supply system is assigned a which are authorized to Reserve components, but not type classification code and a logistics control code. authorized to the Active Army.

4-9 v.*

.T 'U

V CHAPTER 5 SECONDARY ITEM MANAGEMENT

Section I. GENERAL 5-1. Introduction in program and demand forecasts, and other factors a. Although major items are precisely defined and which may affect future demand. For items where specific criteria are established for their selection, such data are available, extensive supply control the same is not true for secondary items. Secondary computations are performed manually or by com- items are currently defined as “end items, replace- puter, including calculation of “program factors” ment assemblies, parts, and consumables, other than which may affect future demand, repair schedules, principal items.” and the worldwide system of “pipeline” require- b. Many items in the secondary items category ments. For other items, less information is made have an annual turnover of $50,000 or more, and available and the computations are greatly some selected items in this category are just as criti- simplified. cal to military effectiveness and materiel readiness (3) Finally, the principle of selective and eco- as are principal items. Secondary items account for nomic management dictates the frequent procure- the great majority of supply management effort with ment of very high and high management intensity the Army national inventory control points (NI- items. This is accomplished by balancing the admin- CP’s) controlling the stocks of these items under AH istrative cost of review and procurement.in relation- 710-1. ship to the total inventory investment. b. The measures taken in establishing the Army’s 5-2. Aspects of Secondary Item inventory management system apply mainly to the Management determination of economic inventory levels and pro- a. There are three principal aspects of manage- curement frequencies, and to the regulation of work- ment of secondary items which vary according to the load in data reporting and computation. The Army significance of the item. recognizes that the principle of selective management (1) The management system requires extensive must be measured against supply effectiveness. Cost item-by-item reporting of present assets and past de- is an important factor, but it is subsidiary to keep- mand history in order to make projections of future ing troop units in maximum readiness to perform requirements. their assigned missions. The contribution of selective (2) Additional data are required to support de- inventory control of supply effectiveness must, there- tailed requirements computation of high manage- fore, involve the prediction of demand patterns and ment intensity items. These include item applica- the establishment of commensurate safety stocks in tions, projections of an end item populations (for the supply system to provide effective supply under repair parts), rebuild programs, dues out included variable demand conditions. Section II. MANAGEMENT METHODS FOR SECONDARY ITEMS 5-3. Selective Management teriel. It is a dynamic and positive way to improve a. One of the most widely used philosophies of good the Army requirements management of secondary items. The cost of management has a direct relation- inventory management in use today is that of selec- ship to the importance and the cost of the item. Selec- tive management (Figure 5-1). It is philosophy tive management policy identifies all secondary items which provides concise control over items selected for as reparables and consumable and then arranges them close attention because of their high dollar value, and further into four categories by value of next year’s ex- for elimination of all but the most necessary details pected demand for the application of varying degrees in the management of low dollar or low volume ma- of management. These are—

5-1 SELECTIVE MANAGEMENT OF SECONDARY ITEMS CATEGORY - $ DEGREE OF MANAG MENT VERY HIGH MOST MIENSE

OVER >500 000 IMP using world wide demand,return and asset data (SIMS data). m n INTENSE IMP using wholesale level data with HIGH consideration given to overseas OVER S50 000 BUT NOT V and available world wide data, i MORE THAN >500 000

MEDIUM LESS INTENSE

OVER 5000 BUT NOT IMP using wholesale MORE THAN 50 000 level data 14% n LOW SIMPLIFIED Routine Supply 5000 ^.Control Study/ A using 7 '\wholesale/ BELOW VL level / 'Adata. / 9% 90% NUMBER OF ITEMS

Figure 5-1. Selective management of secondary items.

(1) Very high dollar value. The dollar value of c. The guidance furnished in AR 710-1 is based on the gross annual demand for the item. this principle for selective management of secondary (2) High dollar value. The dollar value of the items. Items change category as demands fluctuate; gross annual demand for the item is over $50,000 but however, to prevent overmanagement, the behavior not more than $500,000. of any given article should receive detailed analysis ( 3 ) Medium, dollar value. The dollar value of the of all influencing factors to insure that the change gross annual demand for the item is over $5,000 but is permanent before a shift is made. not more than $50,000. d. The elements of selective management indicate (4) Low dollar value. The dollar value of the a most intense degree of management for items of gross annual demand for the item is $5,000 or less or very high dollar value based on combat essentiality, total procurements are under $5,000. cost, and criticality, an intense degree for materials &. Items will move, from one dollar value grouping of high dollar value and a lesser degree of manage- to another only when the annual demand or procurement for the less costly items. Simplified management value varies from the previous boundary value ment of the low dollar value materiel lends itself to almost complete mechanization. by 10 percent or more. However, once an item has become very high dollar value, it will remain in that 5-4. Management by Exception grouping until the gross annual demand or procure- a. The principle of management by exception is ment value falls to $500,000 or below for two consecu- applicable at all levels of supply but is ideally suited tive fiscal years. to the wholesale management of secondary items

5-2 because of the categorization of materiel from low criteria. The overall objective of the wholesale stock- to very high management intensity. The principle is age criteria is to identify those items that must be exercised whenever an item, or items, creates a spe- stocked to support readiness goals within funding cial problem which warrants management by excep- and probable demand limitations. tion. One technique is to shift a critical item into b. AR 710-2 establishes retail stockage criteria another category for closer management control. For based upon demand frequency or essentiality. This example, a low management intensity item may be selective stockage plan results in the selection of shifted to the medium or high management intensity secondary items for stockage which gives the greatest category and thus automatically receive more fre- possible return in terms of filling the need of the quent and more thorough analysis. In other cases, echelon concerned. The plan applies the principle groups of items may be placed under control of an that a small portion of secondary items accounts for individual manager for closer management until such a large percentage of the requirement for secondary time as the items no longer need the higher degree of items at the user level. Figure 5-2 illustrates that management intensity. from 15 to 20 percent of all secondary items account i. At the inventory control point level, computer for approximately 85 percent of the demand by the control has been effectively utilized in both selective user. By identifying items having the highest utility management and management by exception. All value, the plan insures that items most frequently items are reviewed biweekly (may be monthly) by used at forward echelons are stocked at, or as close the computer to determine whether the item inven- to, that level as possible. tories have passed a reorder point or reached a maximum level (retention level). Item management 5-7. Special Management Systems plans are prepared by the computer when they reach a. Selected Item Management System—Expanded their reorder point or there is an imbalance in the (SIMS-X). system. The computers are programed to reject those (1) Background. studies that exceed programed parameters, thus (a) The generation of the SIMS-X concept automatically bringing exception to the attention of has resulted from a series of factors. On 12 June the manager. 1968, DOD published DODI 4140.33, “Grouping of Secondary Items for Supply Management Purposes.” 5-5. Automated Requirements This instruction established uniform DOD criteria Computations for the grouping of secondary items to be accorded a. The Requirements Determination and Execu- varying degrees of management control in the supply tion System (RD/ES) is a fully automated system management process. On 7 August 1969, DOD pub- for secondary items that computes requirements, lished DODI 4140.37, “Asset Knowledge and Con- compares assets to requirements, determines imme- trol of Secondary Items.” The purpose of this in- diate supply management actions, and simulates struction was to establish the authority and respon- future supply actions for 5 years. sibility of the TCP’s to extend asset knowledge and b. Two routines are used in RD/ES to compute control over selected items to the supply and operat- requirements. ing echelons beyond their current wholesale distribu- (1) An intensive supply management review tion activities. This knowledge was to be used by the routine produces an Item Management Plan (IMP) ; ICP to determine materiel requirements, position as- all very high, high, and medium management inten- sets, initiate repositioning actions, and control of ex- sity items (all nonconsumable items) are processed cesses for the purpose of achieving maximum support through this routine. Items processed through this within a given level of investment. intensive routine use wholesale level data with con- (&) The Army implementation of DODI sideration given to overseas and available worldwide 4140.37 was contained in TAG letter, 2 June 1970, data. “Selected Item Management System (SIMS)”; (2) The routine supply management review pro- SIMS is a comprehensive system addressing require- duces a supply control study for all low management ments distribution, storage policies, and procedures intensity items (consumable items). This routine is for approximately 7,000 items through the DSU similar to the intensive supply management review level. Visibility for major commands and NICP ac- except computations are streamlined. tions was provided by the Availability Balance File 5-6. Selective Stockage (ABF) and the Demand History File/Retum His- a. AR 710-1 establishes variable wholesale stock- tory File (DHF/RHF) reporting systems. The lack age criteria that is based on demand data (frequency of data credibility at the NICP and the retail level and quantity), desired operational readiness goals for and supply policy system limitations which pre- supported weapon systems/end items, and cost-effec- cluded central visibility of supply and system per- tiveness (cost to stock versus cost to not stock) formance, resulted in a very limited implementation 5-3 SELECTIVE STOCKAGE PLAN STOCK - DEMAND 100%

85%

0 E M h 50% N 0 S

15% 50% 100% STOCK REQUIREMENT TO SATISFY DEMANDS

Figure 5-2. Selective stockage plan. of SIMS. The selected secondary items covered under 4140.33) and MILSTANDARD codes and proce- SIMS represented 90 percent of the Army’s dollar dures are prescribed to enable interservice applicabil- value of annual demands for all secondary items. ity of the concept (in accordance with DODI 4140.37, However, due to a multitude of command-unique in- MILSTRAP and MIDSTRIP). SIMS-X is information systems and the proliferation of non- tended to form the nucleus for a single, standard as- standard data elements, the information available to set information and control system for all secondary the item manager was considerably out of date before and major items within the Army. any management usage of the data could be realized. (b) In SIMS-X, Army (and other service) The Army published in December 1970, Change 1 to wholesale managers are required to: AR 710.1, “Centralized Inventory Management of 1 Group secondary items for management the Army Supply System.” This regulation provides purposes and report groupings in the AMDF (Army policy and procedural guidance for centralized in- only). ventory management of the Army Supply System. 2 Distribute report requirements, via DAAS (2) General descri'ption of functional area. and each service “Reporting Request Distribution (a) SIMS-X is a concept of supply manage- Activity,” to customer activities. Report specifica- ment which seeks to provide more prompt, cost effective field support through vertical visibility and tions are coded and include variable i-eport data, fre- control of supplies at multiple levels. The basic quency, and type (status or transactions) for each thrust is an extension of the DSS philosophy for item (XSN). " minimizing pipeline and intermediate level staffing 3 Maintain worldwide stock record account requirements. In SIMS-X, the concepts of variable and intransit visibility through nonaccountable bal- intensity of management (i.e., “selected items” re- ance and/or transaction files based upon these reports. quire more intensive management), and single DOD (This .does not preclude a “central accountability” manager (Integrated Item Management) are applied. option within another service.) Hence, secondary items are grouped for supply man- / Incorporate selected secondary require- agement purposes (in accordance with DODI ments and asset data into supply control studies.

5-4 5 Redistribute retail stocks as necessary to tended to provide the general functional description meet worldwide requirements. (Policies to support requiring further detail development. this capability will be established based upon the 2 The proposed system requires worldwide wholesale stock position, transportation costs, issue input of asset status and selected transaction data to priority designator, and projected leadtimes.) The the appropriate inventory control point (ICP) for NICP is responsible for the filing of each requisition. consolidation and processing to provide increased (c) Retail supply managers will : visibility, accuracy, and verification capability of the ^Retain item and financial accountability. data base which will yield : 2 Compute requisitioning objectives for and a Improved operational readiness. maintain limited stocks as prescribed by DA policy, b Improved materiel distribution and reposition- and requisition replenishment requirements. ing. 3 Issue stocks and supply status for assigned c Improved worldwide supply management. customers and upon ICP referral, and cross-level d Improved worldwide maintenance management. intratheater in accordance with DA policies. e Reduced cost through reduced pipeline quanti- ^ Provide asset and/or transaction reports ties, lower net stockage levels, and reduced procure- to the applicable NICP in accordance with specifica- ment. tions on fchç report request form for each item. {h) The above benefits have the overall effect (d) Major command headquarters will be of an improved logistical support system which has given responsibility and visibility for : the ultimate objective of improved support for the / Monitoring the supply management per- soldier in the field. formance by botli subordinate and supporting b. /ntransit Asset Visibility System. (NICP) elements. (1) The purpose of the Intransit Asset Visibil- 2 Influencing the distribution of critical ity System is to provide NICP item managers with items to and among subordinate elements. ' knowledge of selected Army materiel while that ma- (e) National level responsibilities and visi- teriel is intransit and is not otherwise carried on the bility requirements for SIMS-X include : accountable records of any Army activity. 1 Performance measurement of worldwide (2) The intransit system is designed as a com- inventory management of selected items. puterized management information system which 2 Monitorship of visibility elements of the embraces the Army’s logistic network from the system. wholesale level down to the lowest logistic support (/) Materiel readiness is an essential element unit that maintains a stock record account, the di- of force readiness and national security. Responsive rect support unit. The system utilizes the Logistics materiel support is essential to the maintenance of the . Intelligence File (LIF) and a data bank and calls Army’s overall readiness position. The materiel man- - for an intermediate level inventory control center agement system must respond to requirements in a (ICC) intransit data bank for each theater. These data banks will collect specific documents relating manner commensurate with the designated urgency to the shipment of selected items of materiel from of need. one Army account to another or direct vendor ship- (g) Within the Army, secondary items ment to an Army accounb.fA monthly status report amount to approximately 80 percent of all Army- of selected items intransit will be furnished by the managed items and about 47 percent of all items used data banks to each NICP. ' ‘r by the Army. About 3 percent of the approximate 300,000 secondary items qualify for centralized con->- 5-8. Provisioning trol at the national/wholesale level under uniform a. Provisioning is defined in AR 310-25 and AR criteria established by the Department of Defense. 700-18 as, “a management process for determining This small percentage of items accounts for more and acquiring the range and quantity of support than 75 percent of the total annual Army secondary items necessary to operate and maintain an end item item budget expenditures. Given this disproportion- of materiel for an initial period of service.” DOD ate situation, systems support for the small percent- Directive 4140.40 provides further explanation by age of items referred to cannot be determined by stating that, “Provisioning is a series of actions ex- normal standards. The high value and criticality tending over a wide range of functions including de- placed on these items requires a high level of man- sign, maintenance planning, supply, requirements agement. determination, item entry control, procurement, cat- 1 The guidance provided herein is intended aloging, and contract administration.” The principal to provide the basis for the development of detailed objective of provisioning is to insure the timely functional systems requirements (DFSR) forSIMS- availability oP minimum initial stocks of support X. It should be recognized that this document is in- items at using organizations and at maintenance 5-5 and supply activities to sustain the programed option pertinent to determining initial support eration of end items until normal replenishment can requirements. be effected, and to provide this support at the least e. A complete discussion of provisioning data ele- initial investment cost. The Integrated Logistics ments and documentation is best left to TM 38-715-1 Support Plan, as developed in accordance with DOD and Commodity Command Standard System Operat- Directive 4100.35, is the foundation upon which pro- ing Instructions (CCSSOI). For the purposes of this visioning planning is developed. manual, those principal data elements used in the &. There are three specific types of provisioning : requirements computation process will be examined. Initial provisioning, the first time provisioning for These are : a new end item ; follow-on provisioning, a subsequent (1) Maintenance factor. A factor used to indi- provisioning of the same end item from the same con- cate the number of expected failures of the item ex- tractor; and reprovisioning, a subsequent provision- pressed in failures per 100 end items for 1 year. ing of the same end item from a different contractor. (2) Source, maintenance, ami recoverability From these types of provisioning, it can be seen that codes. Uniform SMR codes for use throughout the provisioning is not always a one-time occurrence. AR DOD and DLA are reflected in a joint regulation 700-120 lists the following situations that may occa- for which the Army Regulation number is 700-82. sion a form of provisioning. These are: equipment The following definitions apply to these codes: distribution to a command for the first time; in- (а) Source code. A two-position alpha code creases of 25 percent or more in equipment density assigned to support items to indicate the maimer of within a command ; redistribution of equipment and acquiring items for the maintenance, repair, or over- related support items between commands ; and prod- haul of end items. uct improvement of materiel located in a command. (б) Maintenance code. A two-position alpha When these actions take place and provisioning is code assigned to support items to indicate the required, the range and quantity discussed in the maintenance levels authorized to perform the re- basic definition can be described in terms of both quired maintenance functions. The first digit, or Use hardware and software. This aggregation of wares Code, identifies the lowest maintenance level author- includes: repair parts; special tools; test, measure- ized to remove and replace the support item. The ment, and diagnostic equipment (TMDE), and main- second digit, or Repair Code, identifies whether or tenance literature, calibration standards equipment, not the item is reparable, and if so, the lowest and materiel required for onsite and offsite organi- maintenance level authorized complete repair zation maintenance, direct support maintenance, and responsibility. general support maintenance. (c) Recoverability code. A one-position code c. In its most formal sense, provisioning begins assigned to support items to indicate the disposition with the signing of the production contract for the action of unserviceable support items. end item. In reality, the forces that influence provi- (3) Replacement rates. Failures expressed in sioning begin with a required operational capability percentages which will result in the discard of a and the development of reliability and maintainabil- reparable item. ity requirements. The development of provisioning (4) Order ship time. The time elapsing between technical logistics data itself is principally accom- the initiating of stock replenishment action for a plished during full-scale development in accordance specific activity and the receipt of that activity of with requirements imposed on the contractor by such the material resulting from such action as expressed in days. Each level of supply is individually programs as logistics support analysis (LSA) or represented. maintenance engineering analysis (MEA). Addi- (5) Turn around time. The number of days from tional data in the form of data elements may be ob- receipt of a failed item at a repair unit until the item tained by a “Statement of Provisioning Require- is repaired and ready for reissue. Each level of repair ments.” is individually represented. d. Generally, the first provisioning event after ( 6 ) Density. The total number of the item being award of the production contract is the provisioning provisioned that will be deployed worldwide. Density planning conference. The principal purpose of the is considered as a total, a total for a particular geo- provisioning planning conference is clarification graphic area, a total at the end of reorder point of provisioning contractual requirements. Following (ROP), and as a monthly average during ROP sep- the provisioning planning conference, a provisioning arate geographical areas. conference is held for the purpose of selecting repair (7) Maintenance task distribution percentage. parts, assigning or validating source, maintenance, Percentage of failures received at the various levels and recoverability (SMR) codes, essentiality codes, of maintenance (organization, direct support, and maintenance factors, and other data of informa- general support) within CONUS and overseas that

5-6 are repaired at these'levels rather than being evac- plies to all data elements. For this reason validated uated to the next higher level. and accurate engineering estimations are required (8) Requirements objective 'period. The sum in throughout. Detailed guidance on provisioning re- months of the procurement leadtime and review quirements computation from both the viewpoint of cycle time. The ROP indicates the maximum quantity policy and procedure is found in AR 700-18,VTM 38TT. of stock to be on hand and on order to sustain .cur- 715-1, TM 38-715, and DODI 4140.42. rent operations and objectives at any one time. h. DODI 4140.42'was .written to promulgate guid- (9) Initial issue indicator. The number of days ance in these areas. This instruction formally ties pro- for initial issue quantity which is the quantity of an visioning into DODI 4140.24 for developing program item required to provide support during the initial data for the purpose of budget or apportionment re- deployment of a weapon system or end item. This- . quests. In establishing Department of Defense policy quantity is a nonrecurring demand. for the determination of initial requirements for /. In normal replenishment, demand data are re- secondary item repair parts, the DODI has formally corded at various levels according to the importance introduced several new techniques which are intended of the item. In provisioning, this demand must be to both reduce provisioning risk and provide opti- forecast. The requirements computation model used mum repair part availability at lower costs. In the in provisioning is a development..ofrthe formula selection and stockage area, a technique is introduced which states that quantity is the product of a rate to compare the costs of being back ordered versus the and time.twhile recognizing thatr.thei.quantity will cost of stockage. AVhen applied, this technique be- vary directly with density. The term modeling is well comes a stockage criteria. Additionally DODI 4140.42 chosen since the provisioning requirements computa- introduces a weighting technique for combining both tion process must model the wholesale and retail the maintenance factor and actual demand data. logistic structure. Essentially the computation proc- Army implementation of this instruction is discussed ess starts with the retail levels and computes require- in AR 700-18. ments for initial issue, order and ship times, and turn i. The requirements computation process is used around times requirements by maintenance category to determine procurement quantities of the range of and by separate geographical area. Wholesale re- repair parts selected. The gaining command (user) quirements are then computed and the sum of both is offered a quantity and range of support items to retail and wholesale quantities minus available assets support operations in accordance with the number of if any, are the net buy. g. Because the basicend indicatoritems that of will failure be received is the in accordance with the maintenance factor, provisioning computations can Major Item Distribution Plan. It is this gaining com- have an immediacy that demand trends lack. To em- mand’s responsibility to decide the range and quan- phasize accuracy, the maintenance factor can be tity of support items required. This decision is based modified for environmental, wartime, and usage upon a review of the Master Support List prepared, factors. Since the computation is basically a multipli- by the issuing activity. The distribution of support cation process, the law of direct proportionality ap- items is covered in AR 700-120 and AR 710-2.

Section III. SUPPLY MANAGEMENT TECHNIQUES 5-9. Introduction ogy currently in use in the Departanent of the Army a. This chapter is intended to give those engaged or expected to come into use in the foreseeable futurc.'irb in the practice of supply management an apprecia- This will lead to lighter treatment of some topics^ - tion of the concepts underlying modern inventory that, perhaps, are quite commonly given emphasis in control and an overview of some of the quantitative texts slanted towards industrial applications. Where techniques that are being more and more applied in this is done, those features or characteristics of the supply management in the Department of Defense military supply system that restrict their applicabil- and industry. The intent is to provide ah apprecia- ity will be discussed. Further, terminology familiar tion of the topics covered. Thus, the reader with an1- to Army personnel will be used throughout. But, interest in learning techniques will have to supple- terms that are perhaps new to some will appear, par- ment his reading for that purpose. Standard texts ticularly in the discussions of probabilistic systems ; in inventory theory, probability, and related topics these are extremely important and it is hoped that are cited in the appropriate chapters. Mathematics this materiel will help bring them into the vocabulary has been avoided wherever possible but some does of Army supply managers. appear essential to the material being presented. c. The principles described in this section apply to b. In selecting materiel to be presented, an attempt all levels of the Army supply system. Differences in has been made to emphasize concepts and methodol- terminology at the wholesale and retail levels some- 5-7 times tend to obscure the fact that the principles and organization that is represented as a terminal node often even the methodology are the same ; thus, care in the system “tree.” What happens beneath that will be taken to define terms for universal applica- node is generally not known to the Army and thus, tion. Finally, most of the materiel will be slanted stocks issued to this class of customer must normally towards the supply management of repair parts. The be considered as consumed once they leave the Army concepts described will for the most part be applica- system. ble to other classes of supply, but it is in the manage- d. This leads to the consideration of the types of ment of repair parts that some of the most formidable items of supply. In the Army, these are divided into complexities arise, and it is in the management of two general types : consumables and reparables. The these items that the more advanced concepts find distinction seems quite natural. Food, once issued to major application. a consumer, is eaten ; gasoline, once issued to a consumer, is burned away. An aircraft engine, on the 5-10. Behavior of an Inventory System other hand, once issued to an aviation company and a. In referring to the Army’s supply system, it is installed on a plane, is not consumed unless, of common practice to speak of a wholesale system, com- course, it is lost in combat or so badly damaged that prising the national inventory control points and it cannot be returned to useful service ; when it fails, depots of the US DAK.COM, and a retail system, it can be repaired and used time after time. which is viewed as its customers. In reality, of course, e. The rates at which consumable items are con- many of these customers are themselves wholesalers sumed and reparable items fail can be considered as in that they lay in supplies in anticipation of de- the events that trigger the supply system. The in- mands from their customers. The system is thus fre- fantryman asks for a new pair of combat boots when quently rei3resented as a “tree” with the wholesale his old ones wear out. The Electronic technician asks system indicated as a node at the top supporting a for a new diode to replace one that has failed or for set of nodes one level down each of which supports its a new amplifier assembly when the installed one has set of nodes one level further down and so on until to be removed for repair. These requests from the the bottom level is reached, where the ultimate user consumer to the appropriate supplier cause an item of the material is located. to be issued if it is in stock or causes the supplier to b. This, however, is perhaps too simple a view of ask his supplier for the item if he doesn’t have it. the Army supply system. First, many of these so- /. Yet, it is not these requests that drive the supply called retail organizations such as the oversea thea- system. The driving force is really the anticipation ters and some of the large CONUS activities perform of these events, for it is the function of the supplier supply functions that are exactly analogous to those at every level in the supply system to foretell when performed by the DARGON activities and are them- these events will happen, where they will happen, selves so large that it may be misleading to conceive and how often they will happen. And it is these fore- of them as retail establishments. Second, among or- casts of what the supply manager expects to happen ganizations at all levels in the system are frequently in the future that cause him to set up requirements both suppliers and consumers. At the DARCOM objectives, reorder points, reorder cycles, etc., and to level, for example, the depots issue supplies to cus- initiate supply actions to have the items available tomers but, at the same time, operate rebuild shops for the consumer before the consumption or failure which are themselves large consumers of parts. Simi- events actually take pace. This is the heart of the larly, the direct support units in the retail system item manager’s function, his major responsibility, serve as supply points to maneuver battalions but at and the single most important activity he performs. the same time carry out repair functions that cause parts and other supplies to be consumed. Even within 5-11. The Failure Process maneuver battalions, one sees both supply and repair CL. Many items used by the Army are consumed on activities and associated organizational entities that a regular basis or are issued to meet programs that supply and consume, respectively. are well known in advance. As a consequence, their c. On the other hand, there are large customers of requirements can be forecasted rather well. This is the DARCOM that are known to function like not the case, however, on the overwhelming majority wholesalers to lower level supply and maintenance of items. The consumption rates of consumable re- organizations but which, for all practical purposes, pair parts and the failure rates of reparable compo- appear to DARCOM as if they are only consumers. nents, assemblies, and equipments are particularly Mutual Security Pact countries are like this; they troublesome and it is to these items that most atten- manage their own logistics systems and everything tion will be directed. issued to them by the Army is, for all intents and b. It has been the practice in some circles to con- purposes, immediately consumed. Thus, conceptual- sider items that fail as belonging to one of two gen- ly, they behave in the very same way as any other eral classes, those that wear out and those that are 5-8 subject to random failure. In truth, however, all the ages of the installed fuel pumps will not all be items that fail do so because they wear out and the the same. As a matter of fact, after a period of time wear-out process is in all cases a random one. Con- (which, incidentally, turns out to be a lot shorter than sider an automobile tire. It definitely wears out with intuition would lead one to expect), the age distribu- use. However, the exact number of miles a particular tion of the installed pumps will be so mixed up that, tire can go before requiring replacement is a random even though most of them are failing at about 10,000 variable. Take a group of tires from the same manu- miles of usage, the failure process in calendar time facturing lot rated to last for 25,000 miles. Some will of the pump population will also look very much like need to be replaced at 24,000 miles, some at 26,000 ; a random process. some may even blow out at lower mileage or sustain e. Still another situation that is encountered is fatal road damage in their very first miles of use. this : one frequently hears of the “bathtub curve” as But, in any event, one would expect most of them representing the failure pattern that one should ex- to last for somewhere around 25,000 miles, given pect to see over an item’s life cycle. Failures can be equivalent operating environment. Their mean-time- expected to be frequent during the item’s early life, to-failure could be expressed in terms of this ex- settling down to a relatively low but essentially con- pected tire life and expected replacement require- stant level with random fluctuations during the mid- ments could be determined using this rated life and dle year of life, and finally increasing rapidly to- expected vehicle usage. For example, if we equip a wards the end of the item’s life as it begins to fleet of 100 trucks with new tires (four tires per approach its wear-out period. One frequently sees this truck) on a particular date and conceptual process diagramed in this way : Expected tire life =25,000 miles Break-in” Expected usage per truck =12,500 miles per year Failures "Wear-out” we would expect to need 400 new tires in about 2 Î Failures years. But, this doesn’t mean that we won’t need Failures some tires during the first year. Some trucks may per experience blowouts or some may travel 30,000 miles unit in the first year while some travel hardly at all. So there should be no surprise if some requirements pop Constant failure up at random due either to random fluctuations in rate the quality of the tires or random fluctuations in the conditions of operation. c. A similar situation exists with, for example, aircraft engines. Here it is customary for a requirement to exist requiring all engines to be removed for mandatory overhaul after they have logged, say, 1,000 Time hours of operation. Because of this, one might think Figure 5-8. Conceptual process. that a regular pattern of removals for overhaul would be experienced. Quite the contrary is true. Now, this may in fact be what the failure rate of an First, many engines experience failures and require individual piece of equipment looks like over its life overhaul before their mandatory time between over- cycle. Your own automobile may, in fact, show this haul (MTBO) is reached. Also, the number of hours pattern if you keep it long enough. But, few weapon flown by individual aircraft turns out to be quite system populations or fleets of military vehicles will variable. As a result, the removal patterns of air- be found on which this pattern shows up clearly; craft engines generally turn out to look very much first, because entire populations are seldom deployed like random processes. all at once ; second, because of the mixture of com- d. Another condition is frequently experienced ponent ages due to replacement; and, third, because that causes the demand patterns of items normally of overhaul and rebuild programs. So the “bathtub thought of as wear-out items to look just like a ran- curve” as a predictive device is not of much practical dom process. Take the case of fuel pumps installed in use. a fleet of trucks that have a rated life of 10,000 miles. f. Finally, what about electronic items ? These are When the trucks are first put into service, all fuel frequently cited as items that experience only random pumps are new and only early failure should be ex- failures. In one sense, this is true but, actually, they perienced, with the number of failures increasing as fail because they wear out just as mechanical items the number of trucks approaching 10,000 miles of use do. The major difference is that electronic compon- increases. But, each fuel pump that fails will be re- ents generally have very long expected lives, so long, placed by a new one, so that after a period of time, in fact, that many of them never approach the ends

5-9 of their expected lives during the entire time they nature, not expected to be experienced again in the are in service. All that one ever experiences on these future, or demand that is directly associated with a items are the random failures that one sees during particular program which is presumably not ex- the early days of a tire’s life or a fuel pump’s life. pected to occur again in the future in exactly the g. All this discussion was given for one purpose; same way. Note that either type of demand may be that is, to declare that the failure or consumption either for direct consumption or for stocking the bins process on most military items will be found to be a of another supplier who anticipates demands from random process, whether the item is thought of as a his customers. random failure item or a wear-out item. This does c. From the standpoint of an item manager, the not mean that the expected failures in a particular importance of these demand classifications is to en- time period cannot be forecasted. They can—and so able him to identify those demands that are associ- can the expected variability. But it must be expected ated with particular events or programs that are not that these forecasts of failures or consumption rates expected to occur again in the future. Demands for will be subject to error, probably quite large error. oscilloscopes, meters, etc., needed to outfit a newly How to make use of knowledge of the item’s charac- activated maintenance battalion, for example, have teristics, its expected use, environment, and other to be identified as such, for the item manager ob- factors to reduce the prediction error and to protect viously doesn’t want to reorder these items unless he the system from consequences of prediction error will knows that another battalion of the same type is to be a major concern of subsequent chapters. be activated. Similarly, parts needed to support a 5-12. Types of Demand rebuild program for a particular armored personnel carrier (ABC) would not have to be ordered again а. As said before, while the need for an item by a unless the item manager is informed that another consumer serves as the initial trigger to activate the rebuild program for the same APC is being planned. supply system, it is the anticipation of this need by Presumably, then, all demands of this type are iden- the suppliers that drives the system. For it is this tified by the requisitioner as nonrecurring and are anticipation of need that causes suppliers, from the deleted from the body of demand data that will be lowest level in the system to the highest, to set re- used in the projection of future anticipated demand. quirements levels and to place requisitions on their All other types of demand are identified by the req- supporting suppliers to insure the presence of stocks uisitioner as recurring, implying that the need is when their customers come to them. The higher one considered to be of a repetitive type and expected to goes in the supply system, the less these requisitions arise again and again in the future. Spark plugs, for tend to represent actual consumption. Unless they example, can be expected to be needed so long as the happen to be requisitions from an actual consumer vehicles in which they are installed keep travelling. that have been passed up the line because of the items This does not mean, of course, that recurring de- not being available, the requisitions most frequently mand is not program related. It frequently is. It is seen by suppliers that are at least one level away from not unreasonable, for example, to expect that the the consumer are requisitions submitted to stock the anticipation of need for spark plugs is related to the bins of a lower level supplier who is anticipating number of vehicles in the field and the number of some need on the part of his customers. miles they are expected to travel. The main point is б. These requisitions placed on suppliers are com- that it is'expected to occur again and again in the monly referred to as demands. In addition to their future exactly as it occurred in the past, except as function as supply action triggers, they also consti- modified by extraneous factors such as changes in tute the data source that is most commonly used in level of field activity, aging of equipment, etc. military supply systems for the prediction of custom- d. The requirement in All 725-50 that the requisi- ers’ future needs. For suppliers who are directly tioner specify in his requisition whether his demand servicing consumers, the demands are used as a basis is a recurring or nonrecurring one raises a trouble- for anticipating future consumption. For higher some problem. It is quite possible that the requisi- level suppliers, they are used as a basis for predicting tioner from his vantage point sees a demand as a what their customers are anticipating their needs to nonrecurring one, and quite properly so, when in be. What causes these demands to arise is an impor- fact, a collection of nonrecurring demands from a tant consideration since knowledge of the cause of number of customers arriving at a higher level sup- demand previously experienced is frequently an aid plier may appear to be of a recurring nature. An in predicting future need. Basically two types of assembly cracked in a landing accident may seem like demand are defined—recurring and nonrecurring. àn event not likely to occur again in the future to a The former is defined to be demand that can be ex- mechanic on the flight line and he may, therefore, be pected to occur again and again in the future; the completely justified in coding his requisition as non- latter is defined as demand that is of a one-time recurring. To an item manager at an NICP, however,

5-10 who may be receiving similarly coded requisitions ments inferred from past data may not be too useful. for the same part from all over the world, and who Thus, past demand history was not too useful in has seen these same requisitions come in year after predicting customer demand in the early stages of year, the need seems very much like a recurring one the Vietnam war. and he would be completely justified in treating these c. It is important to recognize that supply manage- as recurring requisitions and in anticipating continu- ment policies (aside from those dealing specifically ing future need for the part. Thus, the 6655 system with mobilization reserves and contingency plan- allows a system manager at the NICP level to change ning) are designed mainly to deal with situations of a fraction of the nonrecurring requisitions to recur- risk rather than uncertainty—that is, policies on how ring in cases where his experience indicates to him to project and provide for future need are based on that this sort of thing is happening. The fraction he the assumption that meaningful probability state- changes is dictated by his experience. ments can be made about the future based upon observations of the past. So, one’s projections about 5-13. Risk and Uncertainty future deliveries of an item do not take into account a. One will find in some texts on decision theory a the possibility that the plant might be wiped out in distinction made between decisions made in the face a fire or a flood. Nor do projections of requirements of risk and decisions made under uncertainty. In this during the midst of a war take into account the pos- contest, risk is associated with the situation where sibility that the opponent might surrender next the possible outcomes of the decision and the proba- month. Events like these lie in the realm of uncer- bilities that each will occur are known to the de- tainty. The supply manager must react, and prompt- cision maker. Uncertainty refers to the situation ly, to such events when they do occur, but policies where the decision maker may know the possible out- formulated at the supply management level are not comes but not their probabilities of occurrence or designed to take them into account in advance. where he doesn’t know the possible outcomes at all. Recognition of this distinction in a formal sense is 5-14. Substitutability of Resources not too important in the supply management con- а. When the future is not deterministic, one can cept. For one thing, it is almost never possible really usually mitigate the consequences of an unfavorable to know the probabilities that certain outcomes will outcome by investment of additional resources. In a occur. The best one can do is estimate them based on situation where the probabilities of the outcomes can past experience and hope that the experience on be estimated, the degree of mitigation afforded by which the estimate was based will be appropriate for the investment of a given amount of resource can application in the future. Nevertheless, there is some also be estimated. Thus, if it is known that the prob- benefit in recognizing that in some situations the ability that the demand for an item during its re- future is truly uncertain and that one may have to plenishment lead time will be greater than a certain discard past experience in formulating a decision for amount, the number of backorders to be experienced the future. This is now illustrated. with a given inventory investment can be estimated ; b. Experience and past data are widely used to moreover, the reduction in expected backorders that estimate the probabilities of what will happen in the will be achieved for each unit of increase in the future. This, in fact, is the subject of much of this inventory investment can be estimated. chapter. Analysis of past demand and program data б. If this can be done, why are backorders experi- enables us to estimate that a given customer’s demand enced at all ? This is not an idle question. Frequently will be so much over a given period of time in the inventory managers are admonished to achieve “100 future. Now, we know that this estimate is subject percent supply performance on this group of items” to error but this same analysis can tell us how to or “don’t ever go out of stock on this group ; they’re estimate the amount of forecast error to expect. too important ! ” Unfortunately, a principle everyone Knowing this, we can say that if a particular safety is familiar with, the “law of diminishing returns,” is level is provided we can expect so many backorders ; at work in most situations and this ideal cannot be increase the safety level by so much and the expected achieved. What one usually finds is that, after a cer- backorders will decrease by so much. With this tain point is reached, each additional unit of resource knowledge, the decision maker is better equipped to added brings a smaller and smaller return. In our face the question of how much money to allow for inventory context, a situation like this exists. inventory investment. Attaching probability state- One can come closer and closer to the 100 percent ments to future events presupposes, however, that line-indeed, while we can’t actually reach it, we can what happened in the past is representative of what come as close as we want (99.9999 ... if we wish) is going to happen in the future. Unfortunately, if but every little bit of improvement requires more and the future turns out to be completely different in more resource. And, as every inventory manager important ways from the past, the probability state- knows, resources are always limited, frequently 5-11 severely constrained, so there are definite limits to can be applied to reduce the amount of inventory in- what one can achieve. vestment needed. Or, conversely, a shortage of the G. When one thinks of resources, it is usually maintenance resource can make large increases in money that is thought of. For our purposes, however, inventory necessary. For example, a shortage of it is more useful to think not of money itself but of skilled mechanics in an aircraft engine repair facility what money can buy. Thus, when we discuss resources means more time required to get engines repaired; and their application in a logistic system, we think of more repair time means that more engines are re- such things as inventory (the major items, assemblies, quired to keep the same level of flying program components, repair parts) maintenance facilities, going. transportation and the like. And, of course, people. (3) Transportation. An obvious resource for the Since all these things can be procured, within limits, inventory manager. The faster the supplies can get by money, it is possible to think of them as being in- the item to the point of need, the less inventory the terchangeable or substitutable for one another, again system requires. The same applies to the return of within limits. And, indeed, this is the central concern unserviceables to the repair facility. Until recently, of modern logistical planning—what type of re- however, most Army logisticians have tended to source, if added to the system, will bring the greatest think of premium transportation (e.g., airlift) as return in terms of performance improvement, for justified only for emergency needs. The notion of each dollar spent? Or, put another way, if there is a deliberately paying a premium charge to move a low fixed amount of dollars to be spent, on what resources priority shipment was thought of as heresy. Yet it should these dollars be spent in order to get the best can be shown that there are many items where this possible system performance ? additional transportation cost can be more than offset by the reductions that can be made in the inven- 100% tory investment, simply because the customer’s resupply time is shorter. S P (4) Reliability. This is a resource whose sub- 0 E stitution for inventory is perhaps not so obvious. But this is frequently the avenue that may offer the P R / most potential for inventory investment reduction. P F / We think of it as a resource because improved L 0 / reliability can be bought by investing in engineering effort, by manufacturing with better components, by Y * / providing redundant circuits, etc. Consider tank M / track, aircraft engines, for example. Think of the A / amount of inventory investment that can be saved N / for every 100 miles added to its expected life. Large C ¡L savings in spare engine requirements and in E Inventory Investment maintenance and transportation costs, too, can be had by increasing the engine’s mandatory-time- Figure 5-4- Supply performance. bet ween-overhaul. All to often the solution to a poor supply performance situation is not to buy more in- d. The types of resources one usually thinks of as ventory but to fix the design so the item doesn’t fail offering performance improvement potential for an as frequently. inventory system are as follows : (5) Production. The resources represented by (1) Inventory. This is obvious. What is perhaps production facilities are another type of resource not so obvious is that there are all kinds of trade-offs that can be considered within the inventory itself. that can be used to substitute for inventories. A good For example, one can consider the relative worth of example is dry batteries. Extremely high variability buying a few extra aircraft instead of a lot of spare in the demand for these items would ordinarily engines or buying assemblies instead of repair parts. necessitate enormous safety levels to keep supply Questions of this kind are of great importance when performance at desired levels. But it is possible by a new system is being designed and when de- spending somewhat more money in the procurement ployment schemes are being developed, for it is process to induce manufacturers to agree to require- sometimes possible to achieve large dollar savings or ments-type contracts under which they guarantee to better performance of both if the right mix is chosen. provide a flexible production base that enables them (2) Maintenance. This is a corollary to in- to respond to monthly delivery calls of varying ventory yet all too often the closeness of the in- amounts, all within agreed upon upper and lower terdependence of these two resources is given in- limits, of course, but sufficiently broad that safety sufficient attention. Most directly, maintenance effort level reductions far in excess of the increased pro-

5-12 curement cost can be achieved. There are perhaps too these engines to and from the field. Suppose this many items on which this kind of trade-off can be would reduce the shipping time each way to 5 days. made but, where it is possible, the savings can often Then the total number of engines required would be tremendous. be— (6) Management intensity. This is a resource (IX.8) (5 + 5 + 5) = 12 that includes a variety of aspects. The principle is (IX-2) (5+30 + 5)= 8 well understood : if the items don’t cost much, get good supply performance by investing in inventory ; 20 engines if they are costly, substitute intensity of manage- Only 20 engines will be required in the pipeline using ment rather than tie up large sums of money in in- air transportation. If these engines cost $25,000 each, ventory. Increasing the intensity of management a 50 X $25,000 = $1,250,000 reduction in inventory in- can be done in a number of ways, such as assigning vestment would thus be possible. If it costs $200 more more people or people with higher skills to the man- to ship an engine by air each way, the annual added agement of the more expensive items, increase the shipping cost would be— amount of information available to the manager (e.g., field reporting of assets and maintenance pro- 2 shipments a day (one to one from) X 365 X grams, more specific program data etc.), increase the $200 = $146,000 opportunities for communication between supplier Now, if these engines have not yet been bought, it and user. Intensity of management is not reserved, of obviously appears desirable to use air shipment be- course, for expensive items. The importance of the cause one can pay for many, many years of air ship- item to the military mission is always of paramount ment as can be seen, for the cost of 50 engines worth concern and, for essential items, the application of $25,000 each. more intensive management is often more desirable (3) Suppose, however, another course of action than inventory investment. were to be considered—namely to move the person- e. The ways in which these different types of re- nel, tools, and equipment needed for field repairs out sources are related one to the other are usually quite T of the central facilit3 and into the field. If, by estab- complicated. The decisions as to how much of one lishing the field repair facility close to the point of type ought to be substituted for another in order to failure, it is possible to reduce the shipment time lower costs or to achieve better performance without each way from 30 days to 5 days, the number of en- additional cost are quite difficult to make. Yet the gines required to be in the pipeline would be (leaving principle is simple. It is illustrated in the following overhaul as is) — example : Overseas Repair (1) Suppose a particular type of aircraft engine is subject to field failures that take, on the average, 5 (1X-8) (5+5+5) = 12 days to repair. Suppose also that these engines have CONUS overhaul—surface transportation to be removed periodically for overhaul which takes, (1 X.2) (30+30 + 30) = 18 on the .average, 30 days. Now, assume that these 30 engines engines are being removed at the rate of one a day and that, of these removals, 80 percent are field The increase in investment between this support failures with the remaining 20 percent requiring plan and the one involving air shipment to the cen- overhaul. Suppose, now, that the repair and overhaul tral facility is— facility is a centralized one and that it takes 30 days (30 engines—20) X $25,000 = $250,000 to ship an unserviceable engine from the field to this facility and 30 days for the return shipment of serv- in favor of the air shipment plan. But, if it costs $250 iceables back to the field. The number of engines re- less per shipment to move engines to and from the quired to be in the pipeline (safety level omitted to field repair facility than it does to air ship them to keep the example simple) is— and from the central facility, the transportation cost saving is— (1 removal/day for field failures X.8) = 52 (30 days+5+ 30) ( 1 removal a day X. 8 ) + (1 removal/day for overhaul X.2) = 18 X 2 shipments per re- (30 days + 30+30) moval X $250X365 =$146,000 a year

70 engines In addition the following savings are generated by Therefore 70 engines will be required in the pipeline eliminating air returns for overhaul of engines in using surface transportation. CONUS. (2) A logistician interested in reducing the (1 removal a dayX.2)X2X$200X365= 29,200 number of engines in the pipeline might decide to fly $175,200

5-13

316-276 0 80 4 Therefore the total savings would be— other factors would enter into the decision, such as the feasibility of separating the repair function from $146,000 + $29,200 = $175,200 the overhaul function without incurring additional Now the larger inventory investment reduction that costs for personnel, tools, and test equipment, the cost of building a field repair facility, etc. Also the actual is possible under air shipment doesn’t look as ad- economic analysis is really more complicated than vantageous because the difference would be offset by indicated in the example because of the need to take the higher transportation cost within 2 years. In all likelihood, the decentralized repair facility support the present value of future expenditures into account. plan would be chosen. This example, of course, is (This will he discussed later in the section on long intended only as an illustration of the principle of and short range costs.) Nevertheless, the example the substitutability of resources—the ability one has suffices to illustrate the principle. The succeeding sec- within the logistics system to trade-off one type of tions of this chapter will include discussions of tech- resource for another and thereby attain cost savings niques that can be applied to evaluate these trade-off or improve performance or both. In actuality, many possibilities in the inventory area.

Section IV. REQUIREMENTS DETERMINATION 5-15. The Requirements Forecast (2) Rate with a start and stop date. This can be used to express a special requirement such as a a. The discussion in this section on the projection special troop exercise when it is expected that the of future requirements is intended to be introductory items will be consumed or used at a given rate only since it is limited to requirements projection in a de- while the exercise is in progress. terministic world—a world in which all forecasts turn out to be true. Later, in the sections on probabi- (3) Schedule such as is used to express the requirements for parts to support depot overhaul or listic inventory models and forecasting, we will see that the forecasts of a deterministic world are, for the a set assembly program. Here the nature of the program, both as to timing and quantity of end most part, only expected values in a probabilistic world. But, for the moment, we will credit ourselves items to be rebuilt or sets to be assembled in each with omniscience. When we say that our demand future time period are known, as are the expected rate is 100 per year, we expect to have exactly 100 parts usage per unit rebuilt or set assembled. The requirements schedule usually quarterly, is - then demanded next year ; when we say that the procurement leadtime is 9 months, we expect that a Procure- obtained by a parts explosion, each quantitative ment Work Dh-ective issued on 1 July will result in a requirement being placed in its propertime slot. delivery next 1 April. Each quarter’s requirement is then deleted as its b. In general, the minimum information a require- time passes. ments forecast must contain is the time period in (4) Draw-down quantity. In this case, a which the demand is expected to occur and the quan- requirement may exist for a particular quantity but tity. Additionally, it is often necessary to know the the exact time when the demand will occur is not expected customer’s identity and location so that in- known. An example might be the expected initial coming stocks may be reserved for his use when au- issue of an item to a newly fielded organization. thorized and so that the stocks may be geographically Here, the document identifier or a project code on located so as to avoid uneconomical shipments. In the the incoming requisitions can be used to identify the deterministic world, all these are assumed to be customer so that this requirement can be known. Often, however, it is necessary to express the decremented as the stock is issued. Usually a drop- expected future demand in distinctly different ways, off date is also provided so that the remaining even in the deterministic world. For example, the requirement may be automatically deleted after a Commodity Command Standard System (CCSS) given terminal date. provides for expressing future requirements as a— (5) Quantity with a drop-off date. This can be (1) Rate. This is theused normal to express way ain requirement which that is expected to recurring demand (see AR, 710-1) is expressed. It can disappear after a certain date. An emergency be expressed as an average monthly demand (AMD), requirement for flood relief might be an example of average quarterly demand (AQD), or an average such a requirement; any requirement remaining on yearly demand (AYD). To get the expected demand the books after the termination of the emergency over a future time period, this rate is merely condition would be automatically wiped out. multiplied by the appropriate time period. This rate c. Requirements may exist for any one of these need not remain constant over all future time, in different types of needs. When the requirements are fact, it is frequently modified by consideration of expressed in time-phased fashion, it is a simple program data. More will be said about this later. enough matter to slot each requirement in its proper

5-14 time period; the total requirement forecast for any concerned, the rate at which demand will occur in the period is simply the sum of the individual future is exactly the same as it was in the past. By requirements expected to occur in that period. this we mean the following : However, in making requirements forecasts for If the AMD for a part was 20 per month during supply control studies, it is necessary for purposes of the past when 100 end items were deployed, and the levels computations (e.g., safety level, procurement end item deployment in the future is going up to 150, cycle quantity, economic retention quantity, etc.) to then the expected future demand will be 30, since—■ express a composite requirement as a demand rate. This has to be done even though the requirement 20 = .2 end item per month may vary from time period to time period. Before we 100 decide how to do this, however, we have to digress 150X.2 = 30 per month (AMD) momentarily to discuss program data and program change factors. In supply control studies, of course, the same calcu- d. In our perfect deterministic world, it is lation is done by means of the program change factor assumed that, in so far as recurring demand is (PCF).

150 ends items in future period = 1.5 which is claled the PCF 100 end items in base period PCF No. 1=25 =1.25X1 6-month period =1.25 20 PCF No. 2=30 = 1.50X2 6-month periods=3.00 20 PCF No. 3 =40 20 Avg PCF = 8.25 5 periods The average demand rate over the entire period is, in the average consumption in the past, per unit then— rebuilt. Thus, if 10 of a part were consumed per 100 end items rebuilt in past rebuild programs, the parts 10 demands per month X 1.65 = 16.5 demands per consumption rate is expected to continue as 10 per month 100 end items in the future. Thus, if the quarterly Expected future demand = 20 per month X 1.5 program over the next 24 months calls for end item = 30 per month rebuild to be schedules as follows : Now, suppose we are in the middle of Fiscal Year No. 1 and that the flying hour program (which here 100 110 110 120 60 80 80 will be used as the program factor instead of the end item density) calls for the plane on which the the requirements forecast for each' quarter would part is used to fly 25 hours per month during the be— balance of FY No. 1. Suppose the flying hour pro- ’10 + 11 + 11 + 12 + 6+6 + 8+8=72 gram in the next fiscal year (FY No. 2) is expected to be 30 hours per month and in FY No. 3, 40 hours and, for low dollar value items, CCSS would calcu- per month. If, in the past, this part experienced 10 late an average monthly requirement to support the demands per month and the flying hour program rebuild program of— during this base period was 20 hours per month, how 72 would we develop a requirements forecast for the _i_ month = 3 per month. item expressed as a demand rate? 24 &. For low dollar value items, when an economic order quantity may represent more than a year’s g. ' Somewhat more complicated rebuild situations worth of stock, the Commodity Command Standard can also be handled in the CCSS. Parts consumption System (CCSS) develops an average demand rate data are maintained separately for the different that is assumed to remain constant over the three theaters and for different types of rebuild actions fiscal years. First an average program change factor such as normal repair of battle.or crash damage, etc. is calculated— If knowledge exists as to whose items are going to f. The forecast of the demand in support of re- be rebuilt and how many are going to be normal build is handled in much the same way. Here, the rebuild, battle damage, etc., a weighted-average re- assumption in our deterministic world is that the quirement forecast can be projected, as in the fol- future parts consumption will be exactly the same as lowing example :

5-15 Suppose we have the following quarterly rebuild are time-phased, as in medium, high, and very high schedule : dollar value items under CCSS, except that separate rates are developed for each individual time period CONUS Normal 100 150 200 100 100 100 100 100 in the forecast horizon as called for in the supply Europe Normal 100 100 100 100 100 50 50 50 control procedure. When demand rates are needed in Europe Crash Damage.. 50 50 50 50 50 50 50 50 requirements computations for calculation of safety and suppose the parts consumption rates, separately levels; for example, a composite average rate is ar- maintained, are— rived at over the appropriate forecast horizon, as in the case of LDV items. For other purposes, how- CONUS Normal, 1 per 100 units rebuilt ever, the requirements projections can be considered Europe Normal, 1 per 100 units rebuilt period by period and compared to the assets pro- Europe Crash Damage, 2 per 100 units rebuilt jected to be available during the period to determine The expected usage rate per quarter would be— whether supply action is required. Nonrecurring requirements expected to occur at particular points in CONUS Normal 1.0 1.5 2.0 1.0 1.0 1.0 1.0 1.0 time are added to the recurring demand rate for the Europe Normal 1.0 1.0 1.0 1.0 1.0 .5 .5 .5 appropriate period to give a composite requirement Europe Crash Damage.. 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 for each period. This technique is also followed in the 3.0 3.5 4.0 3.0 3.0 2.5 2.5 2.5 DODI 4140.24, Budget Stratifications, to develop requirements by month for the simulations-of-buy and the composite average monthly requirement to through the budget years. support this planned rebuild program would be— 5-16. Review Policies 24.0 a. There are two basic reasons why reviews are 2^ = 1 per month made in supply management. (1) To see whether future requirements have h. Other types of requirements exist which tend changed. for the most part to continue to occur even though (2) To see whether a supply action has to be their volume may change from period to period be- taken. cause of changes in level of activity or program. These two types of review may be done at the same When these can be separately identified and where point in time or with the same frequency, but not their volume justifies it, separate requirements fore- necessarily. Indeed, the policies that are followed casts can be made for them as well. Demands associ- with respect to the way in which each is triggered ated with Supply Support Arrangements (SSA’s) and the frequency of triggering can have an import- with foreign countries may fall in this category and, ant bearing on the effectiveness of the system, from if so, would be treated separately. Those require- both the cost and supply performance viewpoints. ments forecasts which are expected to recur, even b. It is customary to think of the first type of re- though a varying volumes, are rolled up to form a view as always done on a fixed frequency basis, called single rate for supply control study purposes. Thus, the review cycle. The frequency generally depends if we have the following individual dates, projected on the importance of the item or the dollar value of as described above : its demands or both. Review cycles, however, gen- Recurring Demand—10 per month erally represent the maximum time that may elapse (Nonrecurring Demand) Rebuild Demand—5 between successive requirements reviews. Most per month modern inventory management systems provide for SSA Demand—1 per month more frequent triggering of a requirements review. Thus, requisitions, returns, inventory adjustments, The composite demand rate is 16 per month. In rout- etc., are transactions of the first kind that would ing supply management review, this rate is assumed trigger a requirements review; changes in program to be constant over the forecast horizon of interest. data, changes in special requirements, etc., are trans- Thus, for the rebuild requirement, expected require- actions of the second kind that would also trigger a ments over a 2-year horizon are included in the rate requirements review. for reorder point purposes, only requirements ex- c. The second kind of review provided for it is the pected in the safety level and procurement leadtime check of the ROP supply position. This is done to and procurement cycle period need be considered in see whether any supply action has to be taken and the construction of the composite (recurring) de- involves the comparison of assets to predetermined mand rate. action points. Most inventory management systems i. Demand rates can be built up in much the same require that the supply position be checked immedi- way for items in. which the requirements forecasts ately after a requirements review. However, it is fre-

5-16 quently the case in modern inventory management systems that the supply position check may be done FUNDEO WAR RESERVE REQUIREMENT more frequently than the requirements review. In one kind of system, this check is done continuously— that is, one or more supply action trigger points may SUPPLY SUPPORT AGREEMENT be checked each time a transaction is processed. These are termed continuous review inventory sys- 1 tems. A second kind of system is the periodic review VARIABLE SAFETY LEVEL inventory system in which, as the name suggests, the supply position check is done on a fixed frequency REQUIREMENTS DETERMINATION TIME REQUIREMENT such as once a week, once a month, etc. The CCSS J is-to be a periodic review type of system, although its frequency of review is such (at least biweekly) REPAIR CYCLE REQUIREMENT that it can be thought of something close to a continuous review system. The difference does have to be taken into account, however, as will be shown PROCUREMENT LEAD TIME REQUIREMENT below. d. The supply actions that can be triggered when a supply position check is made are of various types. PROCUREMENT CYCLE REQUIREMENT Generally speaking, they fall into the following categories : (1) Procurement. BALANCE PEACETIME SUPPORT PERIOD (2) Excess determination. BALANCE. WAR RESERVE REQUIREMENT (3) Recall of excess. (4) Cutback of procurement and/or repair. (5) Expedite. Figure 5-5. Requirements level. (6) Redistribute—either between geographic locations or between stock reservation (e.g., purpose vanee and, moreover, that they are known sufficiently code) accounts. in advance so that replenishment actions may be The basis for such actions is the comparison of assets, initiated in time to prevent stockouts. Since this is either on hand or on order or both, against prede- the case, we need not consider safety levels. Further, termined requirements levels, which are the subject we can, without distorting any conclusion to be of the following section. drawn, represent the future requirements as taking place at a known and constant rate. We can now 5-17. Requirements Levels plot the system behavior in sawtooth diagrams. But, a. The requirements forecast is subdivided into in order to insure fundamental understanding of the separate requirements levels for supply management process, we will do so for the three situations that purposes. Quite a few separate levels must be ob- can exist—that is, when demand in the lead time is— served by the item manager, as can be seen from (1) Equal to the replenish quantity ; Figure 5-5. However, for our purposes here, which (2) Less than the replenishment quantity; and is the description of mathematical models that are (3) More than the replenishment quantity. used in the management of NICP inventory, we can A continuous review process is assumed. limit our attention to only those levels whose values ' i are generally computed with the aid of these models. Demand in lead time= Replenishment These are— Quantity "Q" ,(l) Funded war reserve requirements. IV f R+Q I \ IN (2) Supply support agreements. N I v (3) Safety level. Q N \ i (4) Repair cycle level. Reorder N (5) Procurement leadtime level. Point (R) (6) Procurement cycle level. (7) Requirements objective. b. It is customary to represent the behavior of an inventory system by means of a sawtooth diagram l l and, indeed, it is a convenient way to demonstrate 1 2 3 the most important relationships that exist. In a deterministic system, it is assumed, you will I- Lead Time=L —f recall, that future requirements are known in ad- Figure 5-6. Gase I review process. 5-17 In this diagram, we represent on-hand inventory the assets are also equal to Q. The process continues by a solid line. The sum of on-hand and on-order until time tz when assets (which are still equal to on- inventory is represented as a dotted line. The sum hand inventory) reach R. Then a new order Q is ini- of on-hand and on-order inventory is usually referred tiated and the process repeats itself. Now, we can see to as assets in inventory models. This convention is that the fundamental relationships observed in Case I also observed in the Department of the Army, so it still hold even though Z> X Z is less than Q. namely— will be followed in all subsequent material. Here we see the assets are depleted as demands arrive until Demand in the lead time, D'XL = R the reorder point R is reached at time Now a replenishment order Q is initiated bringing the assets Average on-hand inventory=/0=^-^-^=Q/2 up to R + Q. At the same time, the replenishment quantity Q from the previous order arrives, raising J the on-hand inventory back to R. The on-hand inven- Average assets =/A=^^-=H rQ¡2 tory is again depleted until time t2 when assets again reach R and on-hand inventory again reaches zero, and the amount of stock issued between successive at which time the order Q that had been placed at replenishments is still Q. time arrives. If we define a demand rate: D = quantity de- Q > R/Demand in lead time < Q manded per year, and Z = replenishment lead time R+Q I V in years, then we can see the followinng simple relationships—Z>XZ = demand in lead time=/? and in Q this instance, DY.L = Q by definition, so that R=Q. We also observe that on-hand inventory is always \ r moving between Q and zero, and that assets (on-hand plus on-order), between R and R + Q. This leads H to the following important relationships : O+Q Q Average on-hand inventory=7 t t . t 0 2 2 2 3 4 5

Figure 5-7. Case II review process. Q Average assets=/>! fi+(iZ-t-Q)_ß i 2 2

The term average assets is often referred to as aver- QLR/DEMAND IN LEAD TIME age inventory investment since it represents funds R+Q r*; — !Q !Q that are tied up not only in on-hand inventory but R also in pipeline inventory that has not yet arrived. One other observation can be made, and that is with respect to the frequency of replenishment. If the stock is being depleted at a rate of D units per year and we replenish in Q units each time R is reached, then the replenishment frequency is—

D/Q times a year. One last observation is made—and this is important—the amount of stock issued between successive Figure 5-8. Case III review process. replenishments is Q. c. Now, we can move ahead to the case where the d. We can now take up Case III, in which the replenishment quantity Q is larger than the demand demand in the lead time {DXL) is greater than Q. in the lead time. Everything is the same as before but note, now, that

Here we see that we replenish at time tx when the the order placed at time does not arrive until one on-hand inventory drops to R. This raises our assets to lead time later at ¿5. In the meantime the assets (on-

R + Q. From Z to i2, which is the lead time Z, assets hand plus on-order) have reached R at times t2, t3, and on-hand inventory are depleted respectively at ¿4, so that when time t5 is reached, and just before

the same rate D, until time t2 when the order initiated the order placed at time t¡ arrives, we find ourselves at time Z arrives, raising the on-hand inventory back with four orders outstanding. Still the same relation- to Q. Since there is no order outstanding at this time ships can be observed—

5-18 to be made. The most important ones for our purposes Average on-hand inventory=/ =^Y^=Q/2 0 are— (1) It costs less to repair unserviceable items (65

Average assets=/A=—-^^-^=VZ+Q/2 percent of the requisition cost) than to buy new ones. (2) It takes less time to repair unserviceables and the amount of stock issued during successive re- than it does to buy and get new ones delivered. plenishment is still Q. There is one other obvious ob- (3) Repaired items are just as good as new ones. servation we could have made before but have de- (4) Repair actions are scheduled periodically ferred until now in order to highlight its importance, and all on hand at the time are scheduled for repair, and that is the average amount of stock due in, which except that the quantity scheduled for repair shall is defined as— not cause the total assets to exceed the requirements objective...

1 D = 1 A~Io= R + Q/^~ Q/% = R 0p= Procurement cycle quantity = 30 e. One further point : we can now define the quan- (5) Repair actions are done in batches; the time tity called the requirements objective, which we will required to restore a batch of unserviceables to serv- refer to hereafter as the RO. iceable condition is called the repair lead time. These are not the only assumptions that could have been RO=R+Q made. They happen to be the ones underlying the policies contained in AR 710-1 and the computa- This is the maximum amount of on-hand and on- tioriaL. procedures embodied in the DA Form 1974 order assets. In our deterministic world, when R = supply control study. Other assumptions would lead DxL, this is merely the sum of the leadtime re- to other policies and computational procedures but quirement and the replenishment quantity. When a we shall confine our attention to these. safety level is provided, it is added to R. If we de- g. These assumptions lead to certain relationships. note the safety level by S, then— First, when we state that repairs are to be initiated RO={D X L)+S+Q periodically and that all unserviceables on hand at that time are to be repaired, this established the re- ■ amw-j*" We can also introduce another widely used term, the pair cycle quantity. For, if we call the time between stockage objective, which is defined as— initiation of successive repair actions TIt, then QR, the repair cycle quantity is—

SO = Q when no safety level is involved = SO=S + Q when there is a safety level QR TKXDR where the DR is defined as the net output of the re- In deterministic systems on-hand would never ex- pair process; it represents, in other words, the un- ceed the stockage objective. Note that we have omitted serviceables that are returned from the field less special on-hand requirements, such as mobilization those that wash out or are otherwise lost in the NICP reserves, from this discussion. When these exist, they repair process. are added to SO in the same manner as S. h. Before stating the important reorder point and f. Up to this point, we have been dealing with con- requirements objective formulas for reparable items, sumable items. These items, once issued, are gone we must define the assets that should be considered ( returns are omitted from consideration for the time in determining the supply actions to be taken. These being). Now we wish to extend the discussion to are— reparable items. A certain fraction of these items, ( 1 ) Serviceables on hand. once issued, are expected to return to the NICP as (2) Serviceables due in. unserviceables. These can be repaired and returned (3) Unserviceables on hand but not yet sched- to serviceable inventory. The kind of system we are uled for repair. dealing with thus has two sources of replenishment: (4) Unserviceables already scheduled for repair. procurement and repair, and this complicates matters ( 5 ) Unserviceables expected to be returned with- to some extent. The term “repair” used throughout in the procurement lead time that will arrive in time this discussion refers to the restoration of unservice- to be repaired before the end of the procurement ables to serviceable condition when the process is un- lead time. der NICP control (i.e., subject to NICP scheduling). Now comes a difficult point. In the case of consum- As we are using it here, the term embraces overhaul ables, we defined the procurement lead time require- and rebuild also. Before we can go to a sawtooth dia- ment as the PUT multiplied by the demand rate dur- gram, some assumptions about reparable items and ing that period. For reparables, however, the effect the policies under which they are managed will have of unserviceables not yet on hand complicates mat-

5-19 ters considerably. The reorder point formula we have just concluded a repair cycle, we initiate becomes another repair order for a quantity of 15. This raises R^ZVZi.+DW* our due in from repair to 15 and drops unserviceable

or, since DRTR=QR on hand (but not scheduled) to zero. These actions

RP=Da-LI> + QR now raise our total assets to

The requirements objective can now be stated in the On hand serviceables ■== 45 expected way On hand unserviceables = 0

RO=RP+QP Due in from procurement = 30

= DS-LP+QR + QP Due in from repair = 15 Expected gains from returns with LP = 15 (6) The replenishment rule we will follow states that we : Total assets = 105 {a) Initiate repair at a fixed frequency for a quantity QR, taking care, however, not to allow and we are now back at the #(9. the total assets to exceed RO. ( 1 ) After 1 month, the on-hand serviceables de- (b) Initiate a procurement action for a crease by 10 to 35, the on-hand unserviceables in- quantity QP when total assets reach RP, where total crease to 5 and the net change in total assets is a assets are defined as the sum of serviceables on hand, decrease of 5 to 100. After 2 months, the on-hand unserviceables on hand, due in from procurement, serviceables decrease by another 10 to 25, the on-hand due in from repair, and expected returns of unserv- unserviceables increase by another 5 to 10 and the iceables that will arrive in time to be repaired be- total assets drop to 95. Then at the end of the third fore the end of the procurement lead time. month, after serviceable on-hand has dropped to 15, i. This is a rather complicated statement and, in- the dues-in from repair arrive ; after the new unserv- deed, the management of reparables is a complicated iceables arrive, the total assets are— process. Its application can perhaps be most easily demonstrated by doing a simple example on a saw- On hand serviceables = 30 tooth diagram. Suppose we have the following item : On hand unserviceables = 15 Due in from procurement = 30 I?s= Gross demand for serviceables=10/month Due in from repair = 0 DÄ=Net unserviceable return rate=5/month Expected gain from returns in LP = 15 LP=Procurement lead time=6 months LB=Repair lead time=3 months 90 Q =Procurement cycle quantity=30 r Since we have just finished a repair cycle, we initiate T's= Repair cycle time=3 months Q«= Repair cycle quantity =15 another repair action for a quantity of 15. note that this doesn’t change total assets; all we have done is Using these data and referring to figure 3-9 we see move the unserviceables from on-hand to due-in from that repair. RP =(10X6)+15 = 75 (2) What happens in Months 4 and 5 is obvious. #<9 = 75 + 30=105 Finally, at the end of Month 6, the procurement due If we start at the beginning of Month 1 and assume in arrives as does an outstanding repair order. Our that a procurement has just arrived, reducing the total assets at that time are— procurement due in to zero, that a repair action has just been finished, reducing due in from repair to On hand serviceables = 30+15=45 zero, and that we have just finished accumulating a On hand unserviceables = 15 repair cycle’s worth of unserviceables, we see that Due in from procurement = 0 Due in from repair = 0 On hand serviceables = 30+15 = 45 Expected gain from return in LP = 15 On hand unserviceables =15 75 Expected unserviceables that can be repaired within We are again at the reorder point and so place Lp= (Lp — LR) DR another procurement order for a quantity of 30. Hav- - (6-3)5=15 Total assets=45 + 15 +15 = 75 ing just completed a repair cycle, we also initiate a new repair order for 15. These actions raise our total Since total assets are at the reorder point, we initiate assets to 105 (the RO) and the process is ready to a procurement action for a quantity of 30. Also, since repeat itself.

5-20 j. It is sometimes found that the reorder point is (months). If you want it interpreted as a quantity, expressed in terms of the attrition demand—that is, append accordingly; e.g., repair cycle quantity, pro- the net “leakage” from the system that has to be curement cycle quantity. replenished from procurement. If this is done, the (3) Time—often, a period of time also denotes formulas for RP and RO become a requirements level as well, such as procurement lead time or repair lead time. To avoid confusion, Rp= (D s~ Dit)Lp'¥ QK always append quantity when you intend to use this RO = RP-\-Qp + LRDR + QR term as a quantitative requirement level ; e.g., procurement lead time quantity. Avoid the use of terms Inspection '«'ill show that these formulas give the such as procurement lead time level or repair lead same sawtooth diagram if procurement is initiated time requirement unless you append either quantity when serviceable on-hand plus due-in from procure- or months to specify what you mean. ment drops to R,.. c. Now for a few important general concepts : A 5-18. Levels, Cycles, Times, Rates, rate means a quantity per unit time ; e.g., 10 requisi- Quantities and Frequencies tions received per month, 100 gallons per minute. A i-ate is converted to a quantity by multiplying by a. The parlance of supply management can get a time; e.g., 60 requisitions per monthX6 months pretty confusing at times because things can be ex- = 360 requisitions. 100 gallons per minute X 2 hours pressed in different ways. However, a few simple X60 minutes/hour= 12,000 gallons. Conversely, a rules, if always kept in mind, will help keep rela- quantity can be made into a rate by dividing by time tionships straight. or into a time by dividing by a rate ; e.g., 360 requi- (1) A requirement can always be thought of as sitions-^6 months = 60 requisitions per month, 12,000 a level. gallons-^100 gallons per minute =120 minutes. This (2) A level can always be expressed either as a latter manipulation will be encountered later in this quantity or in time units; e.g., a procurement lead chapter in a very important context when measures time requirement level may be expressed as a quan- of performance are discussed. For example, if we tity—say 100 units, or as a time—5 months of supply. know the average number of requisitions on back- (3) A cycle should always be thought of as a order (which is a quantity) and we know the rate period of time; e.g., a repair cycle is the time to at which inquisitions are received, we can determine repair an item, from the time it is entered on ac- a customer’s average wait, which is a time; e.g. countable supply records until the repair is completed. Now it can get a little confusing. For ex- 60 requisitions on backorder „ . ., ——-1 :—r—. = = 6 days average wait. ample, what is meant by procurement cycle? To be 10 requisitions per day J precise, this is the period of time between the initiation of successive procurement actions. When we d. It often helps to check what one is doing in mean to refer to a requirement, we should say pro- calculations involving quantities, rates, times, etc., curement cycle level. Then we should further define by means of what scientists and engineers call di- whether we mean this procurement cycle level to be mensional analysis. This means merely doing the expressed as a quantity or as a period of time. Un- operations of elementary algebra on the dimensional fortunately, usage over the years has dulled our pre- units of the terms you are working with. For ex- cision of language and we tend to use the term pro- ample, take the gallons per minute illustration that curement cycle to mean either, leaving it to the we used above : listener or reader to glean from the way the term is used, whether a quantity or time period is meant. 100 gallons/minutes X 2 hours X 60 minutes/hour The same kind of thing is done with the term level, = 12,000 gallons as in safety level or economic retention level, where Which is the same as either a quantity or a time period may be meant. 100 gallons X 2 X 60 = 12,000 gallons b. The following rules are, therefore proposed: (1) Level—if a requirement is expressed this Observe what we’ve done. To find the dimensions of way, always insist that the appendage be added to the answer, we have used algebraic operations on specify whether a time period or a quantity is meant ; the dimensions of each element in the computation. e.g., safety level quantity, safety level months, eco- Thus, “minutes” in the denominator of the first nomic retention level quantity, economic retention element cancel “minutes” in the numeration of the level months. last element ; “hours” in the numerator of the second (2) Cycle—if you intend to have this inter- element cancels “hours” in the denominator of the preted as a time period, always append time; e.g., last element—leaving only gallons which becomes repair cycle time (months), procurement cycle time the dimension of the answer.

5-21 e. Some terms that will be of interest to us are weeks=.192 (a ratio) and .192X100=19.2% of the dimensionless. For example, the variance of an item’s time out of stock. demand is a quantity expressed in units; the item’s /. Finally, we want to touch on the term fre- average or mean demand is also a quantity expressed quency, which is a number expressing how often a in units. So, the variance-to-mean ratio of an item’s given event takes place. From this definition, we can see that frequency is a rate. One important fre- demand is dimensionless. quency we will be dealing with in the next section is the procurement frequency. We can see how this is Variance of Demand (in units) = VMR (dimension- found by resorting to dimensional analysis ; e.g., if Mean Demand (in units) less) the demand rate is D units per year and if we procure Q units each time we buy, then As a matter of fact, it is easy to see now that a ratio, which compares like things, is always dimensionless. Procurement Frequency =D Units per year So is a percentage, which is merely a ratio multi- Q units per procurement action plied by 100. For example 10 weeks out of stock/52 =D/Q procurement actions per year Section V. INVENTORY SYSTEMS COSTS 5-19. General them and, when we do, how much should we buy а. In recent years, there has been increasing em- and/or repair? phasis within the Department of Defense on the (3) Which items should we keep and for how management of activities on a cost-effective basis. long? Objectives are framed so as to call for the achieve- (4) How should we transport them ? ment of a particular performance goal at minimum (5) How should we control them (e.g., record cost—or, alternatively, to maximize the performance keeping, physical inventory, issue controls, etc.) ? achieved for a given amount of expenditure. This d. In deciding which costs to consider in reaching emphasis is expected to carry over into the manage- decisions on these matters, there are two basic ques- ment of the inventory system and those who are re- tions involved : sponsible for policy and operation decisions affecting ( 1 ) Do the costs in question change when the de- the Army’s inventory are expected to act with these cision or policy is changed ? cost-effectiveness goals in mind. In order to do so, (2) Is the change or lack of change different in both sides of the cost-effectiveness expression must the short run from what it would be in the long run ? be taken into account, and to do it well, they must There are questions of some consequence in the ap- be taken into account quantitatively. This section plication of mathematical techniques in the field of deals with the cost side—what the relevant costs are inventory management and are discussed in some in the management of an inventory system and how detail in the following paragraphs. they enter into policy and operating decisions. б. This is anything but a straightforward matter. 5-20. Fixed, Variable, and Semi-Fixed Robert N. Anthony, in his text “Management Ac- Costs counting Text and Cases” says . . . “There are his- a. In deriving the costs to be used in making de- torical costs, standard costs, original costs, net costs, cisions, our objective is to find the cost of one unit residual costs, variable costs, differential costs, in- of the activity subject to control. Thus, if we are con- cremental costs, marginal costs, opportunity costs, cerned with the question of how frequently to buy, direct costs, estimated costs, and full costs. Some we must know how much it costs to process one proof these terms are synonymous ; others are almost but curement action ; if we are trying to decide whether not quite synonymous at all; still others, although to ship an item by sea or by air, we must know the not synonymous are used by some as if they were sy- cost of shipping one unit of the item a given distance nonymous.” And he goes on later to caution that the by each mode. However, we have to be extremely purpose for which the costs are going to be used is careful when determining these unit costs, to exclude the most important consideration in the choice of all elements of cost that do not vary with the level the type of cost and the manner of its application to of activity—the costs that would remain the same, the decision process. for example, whether we bought 1,000 or 5,000 times c. The major questions to be faced in the manage- a year, or if we shipped 10,000 pounds or 50,000 ment of an inventory system can be boiled down to pounds from CONUS to Europe. Thus, we must try the following : to isolate the fixed from the variable costs. (1) What items should we stock? b. It is, perhaps, easiest to convey the concepts in- (2) How often should we buy and/or repair volved here by example. Suppose we consider the

5-22 typists who type contractual documents associated longer run, the number of buildings is adapted to the with the procurement of replenishment supplies. number of people, so any decision affecting per- Clearly, the number of documents they have to type sonnel force size, including frequency of procurement is going to depend directly on the number of pro- actions, contributes to the required investment in curement actions to be processed. If a decision is buildings. For decisions having longer run impacts, made to procure more frequently, more documents building cost should be charged based on floor space will have to be typed and, unless the organization utilized per person. was overstaffed to begin with, either overtime will b. In the next section, we will discuss the practical have to be used or more typists will have to be hired. techniques available for estimating quantitatively If, on the other hand, a decision is made to procure variable costs. Before we do, let us go back to the less frequently, fewer documents will have to be supervisor’s salary as the final illustration of the typed, and, assuming rational staffing practices, some judgmental, even controversial, conceptual decisions typists can be released or assigned to other productive which must first be made. It can be argued that even work that has to be done. Thus, we would be justi- if the number of higher level supervisors will not fied in considering the cost of having the contractual change within projected workload changes, part of documents typed as a variable cost. their salary still should be treated as variable cost. c. Now, let’s consider the technical data packages The rationale is that most supervisors act in part as that a re used to define what it is that is to be bought— senior task, oriented personnel, working on par- the engineering drawings, the specifications, the ticularly difficult problems. As the number of people packaging instructions, etc. Suppose the operating supervised increased, the amount of time that can be policies of the organization require that these data devoted to task oriented rather than administrative be kept up to date at all times so that no delay en- problems decreases, and there is more of a workload sues when an item has to be bought. Then, while the placed on the supervisors. Under this viewpoint, technical data packages are an essential element of many organizational consolidations, which, by the procurement documentation, and while it cer- eliminating supervisors appear to eliminate fixed tainly costs money to develop these packages and overhead type costs, are not saving as much money keep them current, this cost must not be considered as might be claimed. at all in our decision on how often to procure under the assumptions made above. So, since this cost re- 5-22. Methods of Estimating Costs mains unchanged whether we buy an item once a a. From this discussion, we know that we cannot year or 10 times a year, we are justified in consider- for decisionmaking purposes calculate the unit cost ing this is a fixed cost in this particular context and of an activity simply by dividing the total cost of its thus exclude it from our procurement frequency operation by the amount of activity handled. If the decision. cost of running a procurement office is $1,000,000 a d. In between the clearly fixed and clearly variable year and the office processes 10,000 buys a year, we costs, there are many elements of cost of any activity cannot say that it costs $100 for procurement action whose character is partially fixed and partially if the decision under consideration is how often to variable. These are usually called semi-fixed costs. buy. Nor, if the cost of operating a MAC channel is An example might be the salaries of the attorneys $20,000,000 a year and they fly 50,000,000 ton miles, in a procurement office—generally one must be on we cannot say that their operating cost is $.40 per hand even if very few items are bought but the num- ton mile if we want to decide how much airlift ber required does not increase proportionally with capacity to provide. In both instances, we must first the number of procurement actions. A classic exam- separate the fixed costs and the fixed elements of the ple, illustrating the same principle, is a supervisor’s semi-fixed costs from the total cost of the activity. salary. There may need to be a very sizable change b. This is not^very easy to do. Generally, however, in workload before the number of supervisors, par- there are three approaches that can be taken. ticularly higher level supervisors, is changed. A su- (1) Graphical method. If there are sufficient pervisor’s salary, then, might be considered fixed if data points covering a wide enough spread of the the decision is not likely to change workload dras- activity in question, we can sometimes infer from a tically, but variable if it is. graph of the data points what the fixed costs are. For example, if we had data points of the Military Airlift 5-21. Costs in the Short and Long Run Command total costs for different levels of airlift a. Actually, many overhead type costs which may activity as shown in figure 5-10 we would probably be considered fixed in the short run, are variable in be justified in surmising, by extending the data the longer run. Consider the costs of office buildings. points back to the Y-axis that about $15,000,000 of There are few decisions which will affect the number the total MAC costs are fixed. If this is the case, of buildings used in the short run. But over the then 100,000,000 ton miles have been flown at a

5-23 variable cost of only $10,000,000 (or, looking at breaking down the operation into its elemental tasks, another data point) 150,000,000 ton miles at a determining which tasks must be performed and variable cost of $15,000,000. So, if we are interested which materials and services must be used, in propor- in what it really costs to fly military cargo for the tionally greater amount, and those that do not, as the purpose of determining how much cargo to send by level of activity increases. The costs of those tasks air, the cost we should use in this example is $.10 per that are activity related are counted, the others ex- ton mile. It often happens, even when sufficient data cluded. Quite a few tasks will be found to be only points are available for graphic analysis, that the partially activity related (these fall in the semi-fixed relationship between total cost and the level of category) and only the activity related fraction is activity is not nearly as regular as depicted. Sup- counted. The total costs of the activity related tasks pose, for example, we graph the following data. are then divided by the activity level to find the variable unit cost. An example of this technique will Number of Number of Number of vouchers voucher clerks supervisors be found in the paragraph below on replenishment processedfyear © $8,000/vear © 810'OOOIyear Total eost/year costs. 500 0 1 $10, 000 (3) Time analysis. Still another method of find- 1, 000 0 1 10, 000 1, 500 1 1 18, 000 ing variable personnel costs, which frequently com- 2, 000 1 1 18, 000 prise the major portion of the total variable costs, is 2, 500 2 1 26, 000 the actual timing of personnel in the tasks they have 3, 000 3 1 34, 000 to perform. Only those tasks that contribute directly 3, 500 4 1 42, 000 4, 000 4 2 52, 000 to the output being measured (e.g., requisitions per- 4, 500 5 2 60, 000 year) are counted. The variable costs of materials 5, 000 6 2 68, 000 and services used are then determined as in (2) 5, 500 6 2 68, 000 above. 6, 000 7 2 76, 000 6, 500 7 2 76, 000 c. One very important point must be mentioned 7, 000 7 2 76, 000 before going into the discussion of costs used inventory models and that is that costs determined by We cannot draw a smooth curve through these analysis of data covering a given range of activity points because the costs jump by discrete increments levels should not be extrapolated beyond that range every time a new employee is added to the rolls. This without a great deal of thought being given to the is called a step function, for obvious reasons. What applicability of the data beyond that range. This is a we can do, however, is approximate the true situation by a straight line to the steps in what can be a general principle of management analysis and it is justified as a reasonable fashion. In this instance, of great importance here. One would be very remiss we see that a supervisor appears to be needed no in assuming in the voucher processing example used matter how few vouchers are processed so we would above that the variable cost per voucher would still be justified in considering his salary as a fixed cost. be $10.00 if 50,000 vouchers a year had to be proc- However, a point is ultimately reached where a essed. A principle called economy of scale often second supervisor is needed. This is what now causes comes into play when an activity level crosses certain the supervisors to be considered semi variable. We thresholds. What generally happens is that partition- get around the dilemma of trying to determine how ing of tasks, introduction of labor saving devices, much of the supervisors’ salaries are fixed and how and operating efficiencies generally are resorted to much variable by fitting the dotted straight line when these thresholds are exceeded and the variable through the data starting at $10,000, as shown in the unit costs can suddenly change by very large figure. From this we see that we can process 2,00i amounts. The same kind of thing can, of course, vouchers for a variable cost of $20,000 a year, 3,000 happen in the other direction too. Thus, one has to be vouchers for $30,000 a year, so we would be justified very careful in making inferences about what these in inferring that the variable cost for processing variable costs might be beyond the range of actual these vouchers is about $10.00 each. observation. (2) Activity analyses. Very often the data available for determination of variable costs do not 5-23. Marginal Costs contain readings over a wide enough range of activities to allow us to tell how the total costs really a. A technique that is finding more and more ap- change as the level of activity changes. If, for ex- plication in inventory management is a tool of eco- ample, the data show costs only over the range 10,000 nomics called marginal analysis. We will make use through 12,000 procurements a year, it is not likely of this technique in explaining the concepts underly- that these data will be very helpful in the determina- ing some of the more advanced inventory models tion of variable costs. A technique that can often be later in the chapter. We start with the concept of useful in its place is activity analysis. This involves marginal cost. This is defined as the additional or

5-24 / J / / 60 V ¿J 50 / / 40 / / 30 /

/ 20 / /

10 « ■» " <

0 J—I—I—I—I—I—I I I I « « I I 1000 2000 3000 4000 5000 6000 7000 Vouchers processed per year

Figure 5-9. Cost of voucher processing activity.

5-25 extra cost involved in producing one more item, in If we graph the marginal cost and marginal revenue using one more unit of a resource, in holding one and superimpose a plot the “profit” (defined as reve- more item in inventory, etc. The concept can nue minus cost), an interesting fact turns up. It can be most simply illustrated by looking at the table be shown mathematically that “profit” is maximized below, which represents, say, the cost data of a at the level of output where marginal revenue equals manufacturer. marginali.eost. This is demonstrated omthe graph. One can reason, without the aid of mathematics, that1:' 50 this is so by recognizing that so long as marginal rev- 45 enue is greater than marginal cost, it pays to continue to increase output; when the marginal revenue be- 40 0 comes less than marginal -cost,' then we have passed 0 the point where increasing' output is of increasing T S benefit. Thus, the point where “profit” is maximized A I L must occur where marginal cost and marginal revenue are in balance. (Millions) c. This kind of analysis can be used in making de- of $ 20 X cisions in the management of an inventory. For example, in a subsequent section we will develop the concept of the economic order quantity. This will first be explained graphically, then the EOQ formula will be derived mathematically. Alternatively, we could have done this by applying the principles of marginal analysis. In this situation, as the procure- 25 50 75 100 125 150 175 200 225 ment cycle quantity is increased a unit at a time, the inventory holding cost increases. Conversely, as the Ton-miles flown (millions) procurement cycle quantity increases a unit at a time, the administrative cost of procurement decreases Figure 5-10. Military airlift command costs. since there are fewer procurements needed each year.

Quantity of Total Marginal If we view this decrease in procurement cost as a output cost cost “revenue,” we can plot, this marginal “revenue” 0 against the marginal inventory holding cost for each 1 $4, 000 $4, 000 2 7, 000 3, 000 unit increase in the procurement cycle quantity. The 3 9, 000 2, 000 point of their intersection is the economic order quan- 4 10, 500 1, 500 tity—that quantity which, when purchased, will pro- 5 11, 500 1, 000 vide the optimal level of operation. 12, 000 500 6 d. We would like now to return for a moment to 7 13, 000 1, 000 . 8 14, 200 1, 200 the marginal cost table. You will note that the mar- 9 15, 500 1, 300 ginal cost is shown as decreasing as the units pro- 10 16, 850 1, 350 duced increases but that it begins to increase after a while. This illustrates another economic phenomenon The marginal cost can be seen to be the increase in that is often encountered—what popularly goes by total cost required to produce one additional unit of the name of the law of diminishing returns. In the output. context of costs, it reflects the fact that fixed costs are b. A similar concept exists for marginal revenue. present and that, by increasing the quantity pro- It is simply the increase in gross income obtained by duced, we are able to spread, or amortize, the fixed selling an additional unit of product. This is illus- cost : over a larger number of units ; each additional trated in the next table. unit can thus be produced for a cost less than its predecessor. However, this cannot be continued without l/nits sold Total revenue Marginal revenue end because, after a while,' the point is reached where 0 0 ■ 1 4, 200 4, 200 the resources provided for production become more 2 8, 000 3, 800 and more inefficient for the quantities produced. We 3 11, 000 3, 000 eventually reach the point, in other words, where it 4 13, 500 2, 500 5 15, 300 1, 800 takes more variable cost to produce the next unit 6 16, 400 1, 100 than was needed to produce its predecessor. 7 17, 200 800 e. The point at which the law of diminishing re- 8 17, 900 700 turns begins to take over—the so-called “knee of the 9 18, 500 600 10 19, 000 500 curve”—is of great importance to economic planners

5-26 and other decision makers who use the tools of eco- a savings account earning, say, 5 percent interest so nomic analysis, for it tells them that it might be ad- that after a year you could pay off the obligation vantageous to look for other means of production and have $5.00 left over. If the obligation doesn’t that would be more efficient for the quantities pro- have to be paid until 2 years from now, you could duced. Thus, in factories, “soft” tooling replaces have at the end of the 2 years $105+($105X.05) handmade operations; “hard” jigs, dies, and fixtures = $110.25. This you can recognize as compound inter- supplant “soft” tooling; production line techniques est, the formula for which is become more and more specialized as various production quantity thresholds are reached. In office activi- Vt = V{l + iy ties, functional task specialization, office machines, where and computers provide the means by which the pro- F¡ = sum after t years duction output per unit of variable resource applied F = starting value is increased. This process is generally referred to as i = interest rate taking advantage of economy of scale or of increas- t = number of years ing returns to scale. In our context, this tells us that an expenditure that can be deferred until some time in the future can be made at the expenditure of fewer dollars today. $5,000 . Thus, if our debt of $100 is not due until 1 year from now, we could meet this obligation by depositing t about $95 today, because, if Fí=F(l+¿) then $4,000 . V 100 $95.23 (l+t),: (1+.05)' $3,000 . % The process of deciding how much a future invest- * ment will cost us in terms of today’s dollars is called discounting to present value. $2,000 . \ b. In what was said above, we related' the present ;A value of a future expenditure"^or revenue, for that matter, since the discounting principle applies $1,000 . \ equally as well to the income stream except, of course, that a dollar of income a year from today is *—x worth less than a dollar of income today) to the rate of interest we could earn by investing the money in a savings institution. It would have been possible, 1 2 3 4 5 6 7 8 9 10 however, to invest the money in some other way and Figure 5-11. Quantity of output. earn more than, say a 5 percent interest rate. A favorite example of economists is the entrepreneur 5-24. Discounting of Costs to Present who buys $1.00 worth of grape juice, lets it ferment, Value and sells it as wine for $1.50 a year later. Many a. The next economic principlecommercial of importance enterprises that take the point of view, in must be considered is that which has to do with the deciding on the present value of a future expenditure time preference of money or discounting to present or income, that the income from another source that value. In order to achieve a reduction in the cost of they forego by choosing a particular investment operating an activity by introducing economy of today should govern their decision. Thus, before scale, we nearly always have to make some invest- investing an additional dollar in inventory, they look ment of capital now in order to achieve cost benefits at what this dollar might earn if put to another use. later. If the benefits are achieved quickly, there is no This value of a foregone opportunity, then, is what problem but, more often than not, the economy of they would use as the discount rate in lieu of the scale improvement may not begin to pay for itself interest rate. until a considerable period of time in the future. c. This latter point of view, interestingly enough, When tliis is the case, it is important that we con- has been adopted by the Department of Defense. In sider the value of a dollar now compared to a dollar DODI 7041.3, Economic Analysis of Proposed DOD sometime later. The simplest way to think of it is Investments, it is stated that no DOD investment this : Suppose you have an obligation to pay $100 a should be- undertaken without considering the year from now. It would be foolish to meet this alternative use of the funds which it absorbs or obligation now, because you could put the dollar in displaces and that the way to do this is to use an

5-27 interest rate that reflects the private sector in- (2) Direct labor/ADP cost per item adminis- vestment opportunities foregone. The DODI then tered at a Defense Contract Administration Services goes on to refer to analyses that led to the adoption Region (DCASR). of a rate of 10 percent and directs that this value be (a) Initial file establishment. used in determining the discounted financial benefits (b) Pre-award survey. and costs that are expected to result from DOI> (c) Price/cost analysis. investments. (d) Production follow-up. (3) Labor benefit costs (per DODI 7041.3). 5-25. Inventory Replenishmènt Costs (a) Personnel benefits (health insurance, a. The costs of procuring new items to replenish life insurance, retirement, etc.) computed at 8 percent the inventory fall into two classes, materiel and of direct labor cost. administrative costs. The materiel cost is the (b) Leave entitlements computed at 21 purchase cost of the item itself. It is necessary, of percent of direct labor cost. course, to know or have .an estimate of this, cost to (4) Other indirect labor/support cost (both at determine the amount of inventory investment IOP and DCASR). Includes costs of communica- required if a certain quantity of the item is bought. tions, reproduction, materials and supplies, mail, Further, the cost of the item will entep. into ¿the etc., and costs of personnel support (e.g., Civilian determination of the economic order quantity. In Personnel Office support, etc. ). determining an item’s purchase price, we must c. The DODI also states that a minimum of three always keep in mind that we are nearly always in- administrative costs of procurement must be deter- terested in knowing what the item will cost the next mined, as follows : time we buy. Thus, we must be careful not to use (1) For items likely to be procured using the unthinkingly what we paid for the item in the past. small purchase technique '■ontracts of $10,000 or Only prices paid when the item was bought in less). ' replenishment quantities and under conditions that (2) For purchases where a call-type contract is are likely to obtain when the future replenishment action is initiated should be considered. In pro- employed. curement actions involving large investments, the (3) For purchases where the contract value is advice and assistance of a price analyst should be likely to be greater than $10,000 and where negoti- sought for this purpose. ated, advertised, or other procurement methods are b. The administrative cost of procurement is used. needed in many types of inventory models. This type d. In subsequent sections, the administrative cost of of cost is defined in DODI 4140.39, Procurement procurement will be used in inventory models, where Cycles and Safety Levels of Supply for Secondary it plays a direct part in the deterihination of the Item, as including “. . . those variable direct labor optimal level of inventory investment. In this use, and support costs which began with the output of the cost is assumed to be linear with the number of the requirement notice through the mailing of the procurement actions processed, so that the more fre- contract or order and will also include processing the quently we procure the more administrative cost we physical asset into the proper warehouse location incur and where doubling the number of procurement after receipt from the contractor. Average contract actions means doubling this cost. While this is not administration cost will also be a part of the cost to always true, we will see that this kind of assumption order an item of inventory.” The DODI goes on to is justifiable in many situations. state that the cost desired is the variable cost per *j, -i ■ item (NSN) as opposed to the variable cost per 5-26. Cost to Hold Inventory contract (one contract may be for several NSN’s) and a. General. This type of cost is also defined in stipulates that the following elements of costs must DODI 4140.39 and the DODI also stipulates how its be determined : value should be determined. The DODI defines it as (1) Direct labor/ADP“... costs the monetaryper item penaltyprocured attached to keeping inven- at ICP level. tory in anticipation of future use.” The DODI then (a) Processing purchase request to pro- says that this cost is assumed to be linear to the curement including preparation of documents, item average dollar value of on-hand inventory and that manager review, accounting effort, establishment and its main elements are investment cost, cost of losses maintenance of due-in records, technical coordina- due to obsolescence other losses, and storage costs. tion, etc. These are now defined and their manner of deter- (b) Purchase, including determination of mination specified. procurement method, obtaining source lists, drafting b. In/crestment Cost. There are two schools of and obtaining solicitation, price analysis, selection of thought about this element of cost : one thinks of it as contractor, legal review, preparation of contracts, etc. the interest the Government has to pay when it bor-

5-28 rows money in the short term to invest in inventory; shrinkage, inventory adjustments, etc. It is an ex- the other view is that the Government investment in pected rate of loss expressed as the percent of aver- inventory is paid for by withdrawing money from the age onhand inventory that is expected to be lost per private sector where it could be earning money and year due to causes of the kind given above. DODI that the Government, therefore, should charge itself 4140.39 expects eacli NICP to forecast this expected for the loss of this opportunity at the rate these funds percent of loss based on past experience. Smoothing, could earn if invested in the private sector. Economic again, is recommended in estimating this rate to Analysis of Proposed DOD Investments, takes this avoid undue influence by unusual circumstances. Ex- latter view and DODI 4140.39 states, in turn, that perience within the DARCOM indicates that this this is the manner in which inventory investment loss rate is quite low, being on the order of 1 percent costs will be treated in inventory models. Both DODI or less of the average onhand inventory. cite the cost as 10 percent per year of the dollar value e. Storage Costs. These, as the name suggests, are of the average investment as the cost that should be the costs involved in keeping items in inventory. used. DODI 4140.39 closes this section by stating DODI 4140.39 defines this cost element as including “. . . Since most order quantity decisions are of a not only the out-of-pocket costs incurred in keeping relatively short range nature, this cost need not be the inventory (warehousing, taking of physical in- discounted.” This is a very important statement in ventories, maintenance in storage, etc.) but also the recognition of the fact that costs in the short and in amortized cost of the storage facilities themselves. the long run have to be treated very differently. This Nevertheless, all of the military services and the De- is especially important in the case of holding costs fense Logistics Agency have found this cost element and will be discussed in more detail in a later para- to be quite low, again in the neighborhood of 1 per- graph. cent of the average value of the onhand inventory. c. Costs of Losses Due toThe Obsolescence. DODI prescribes Losses that due a 1-percent figure should to obsolescence of materiel come about mainly for two be used. To recapitulate, the elements of holding cost reasons : technological advances that make the inven- and their values are as follows :

tory useless and overforecasting of requirements that Pretcribed by DARCOM results in materiel that is superfluous to needs. When DODI 4140.89 Values either of these occurs, the materiel is ultimately dis- Investment Cost 10 percent 10 percent. Obsolescence Cost Variable (10%) Variable. posed of at a small fraction of its acquisition cost and Storage Cost 1 percent 1 percent. a loss is thus incurred. DODI 4140.39 takes the view Other Losses Variable Variable. that both types of situations must be covered in determining what we should charge ourselves for inven- a. In many inventory models, it suffices to consider tory being held because of the expectation that some costs as being incurred in a linear manner over the of it will became superfluous to needs before it is used. entire decision horizon—for example, that if holding The obsolescence loss rate is defined as— costs per year are expressed as—

t (Q/2xux CH) where Q = procurement cycle quantity u = unit price ¿=dollar value of transfers to property disposal ¿7//=holding cost per dollar of inventory per officers (world-wide) year a = applicable stratified on-hand and on-order assets, as defined in DODI 4140.24, Bequire- then holding costs can be calculated by means of that ments Priority and Asset Application for expression for each year; then multiplied by the Secondary Items. number of years in the decision horizon to get the total holding costs. However, if the decision horizon Details of this computation will not be covered here is going to extend over more than a few (say, 3) except to note that a smoothing of the rate is recom- years, this assumption is no longer legitimate. This mended because of the tendency of disposal programs is particularly the case in models where benefits and to fluctuate from year to year. Further, the DODI costs can occur in different time periods and where it authorizes computation of different rates for differ- is necessary, then, to discount the benefits and cost ent classes of commodities in recognition of the fact streams to present value, as previously described. that some may be subject to much higher rates of Moreover, in models for treating decision with long- technological obsolescence than others. term cost implications, special treatment of the obso- d. Costs Due to Other lescence,Losses. This deterioration, element ofrthe loss, etc., elements of the holding cost represents losses due to pilferage, holding cost term is necessary. Examples of such

5-29

316-276 0 80 5 models are those dealing with economic retention, complications. In treating the loss rate, we assumed procurement termination or cutback and economic that it remained constant year after year. In many airlift; in these models a one-time benefit that can instances, however, we would not want to make the be obtained now (e.g., deobligating contract funds, same assumption about the obsolescence risk or disposing of stock not needed now, reducing current probability. It seems more natural to think of the inventory investment) has to be traded off against probability of obsolescence as being relatively small costs that would then be incurred year after year into in the immediate future and increasing as we think the indefinite future.- The modifications that then further ahead. We would graph it thus: have to be made to the holding cost term and the reasons for them are now discussed. b. Think, first, of inventory losses. In short term decisions or in situations where the inventory is constantly being replenished, it suffices to consider that losses will take place at some estimated rate per year. Prob. However, in a case where the inventory is not to be of replenished, such as in the determination of an eco- Obsolescence nomic retention quantity, it is obvious that if we start with, say, 1,000 units and the loss rate is 5 percent a year, the losses we would incur each year would be:

Inventory at tdime beyinning Loss during Year of year year Figure 5-lt. Probability of obsolescence. 1 $1, 000 $50 2 950 48 3 902 45 Note that the curve after increasing for a time 4 857 43 must finally change direction and flatten out. This ñ 814 41 is because the. probability of obsolescence becomes 1 as time goes to infinity (every item must ultimately Tota' $227 become obsolete so this is a certain event far enough Thus, it can be seen that our losses canno. v>e calcu- in the future). The obsolescence probability curve lated by the formula must therefore approach 1 asymptotically in the t • e • V limit. Every item would be expected, under these where number of years assumptions, to have its own curve, although all

5-30 rate per year. However, if the item is lost or disposed t H(t) of, no storage costs are incurred and the expected 2 years 38 percent value of the storage costs through the tth year 4 years 63 percent 6 years 80 percent g,S,=s.F(l-e)'(l-¿0) (3) 8 years 90 percent j = 0 10 years 97 percent The summation from 0 to t-\ implies that if the item Contrast this with the H(t) =230 percent that would is not lost or disposed of by the beginning of the be obtained if we had erroneously projected the hold- year, storage costs will be incurred for the entire ing cost as a straight line cost over the 10-year period. year. This is a simplifying assumption but has little Use will 'be made of this formulation in subsequent effect on the final answer. sections where costs and benefits of a decision have to /. Finally, we turn to the investment cost com- be compared over a long period of time. ponent of the holding cost. As indicated earlier, we are going to treat this as an opportunity foregone in 5-28. Backorder Costs the private sector and will thus use the value a. Backorder costs fall into two categories. Those stipulated in DODI 7041.3 (10 percent). However, of an administrative nature (extra correspondence because we are considering the effect of holding cost with customers, data research, expediting, etc.) and on our decision over a longer run, we must apply the those that are performance related. The administra- principle of discounting all costs to present value, as tive type of cost presents no special problems since it described above. Thus, each term in the holding cost É can be estimated in accordance with the precepts de- equation will be multiplied by 1/(1 + ¿) to accom- scribed earlier. The performance related costs, how- plish that purpose. ever, are a different matter for they involve intangi- g. Now, we can develop the long term holding cost bles that are extremely difficult to evaluate in a quan- equation— titative sense. In the commercial world, for example, the performance related cost of a backorder lies in Holding cost for t years=V yt lost sales. Customers are likely to become impatient (i+i)« if they are unable to get what they want right away ; more important, there is always the chance that a +s (4) y=i (i-B)' customer whose order is backordered may cease to be where a customer in the future. Thus, in commercial life, it is not only the revenue that is potentially lost on a F=current value of the inventory given backorder but also the potential loss of future F = expected value of the inventory after it is ( revenue that concerns the profit center. This latter held for t years, allowing for deteriora- aspect of the backorder cost is, of course, extremely tion and the possibility of loss or difficult to foretell although there are instances where obsolescence commercial firms have worked out schemes to do so. If this can be done in a realistic way, then one can We can find F( by applying equations (1) and (2) to the starting value of the inventory, treat the backorder cost in an explicit fashion and use inventory models of the kind described in the fol- Vt-Vil-e)* (l-te)(l-dt) (5) lowing section to find the optimum decision rules under which to operate. and adding the storage costs gives us— b. In the military services, however, the intangible Holding cost over t years= portion of the backorder cost is even more difficult to deal with. We must face the “for the want of a nail” T7 possibility—the possibility that a repair part on back- a+iy order may deadline a tank, that the lack of the tank - J-syy ' 2 (6) may affect the course of a battle, and so on. Even so, j-o “' (1+i)’ some attempts have been made in the military to link if we have the following values of the elements of the the cost of a backorder to the consequences felt be- holding cost cause of the backorder. The Navy, for example, has used a model in connection with initial provisioning e=2 percent d = 5 percent i = 10 percent of the Polaris Fleet Ballistic Missile System that 0=5 percent s=l percent (total=23 took the daily backorder cost of a part to be the cost percent) of the next higher assembly rendered inoperable be- Then the holding cost rate over t years comes out as cause of the part backorder, the cost being amortized follows over the assembly’s expected useful life. The rationale

5-31 here was that the way to avoid the consequences of a ured in somewhat different ways. The most commonly part backorder was. to buy an extra next higher as- encountered distinctions are— sembly—the size of that cost penalty, then, served as Backorder cost per unit backordered the mechanism for offsetting investment cost in the Backorder cost per requisition backordered inventory model that was used to determine part Backorder cost per unit backordered per unit stockage levels. time c. For the most part, however, military specifica- Backorder cost per requisition backordered per tions of inventory models seek to avoid having to deal unit time with the backorder cost explicitly. First, the assump- The method of counting backorder costs has a signifi- tion is made that the-performance related portion of cant effect on requirements levels computed by means the backorder cost far outweighs the administrative of optimizing inventory models. This will be dis- portion, so that if we deal with the former, we can cussed in the section on probabilistic inventory ignore the latter. Second, and more important, it is models. possible to bypass the need to quantify the backorder 5-29. Other Inventory System Costs cost if one is willing to specify what kind of supply performance he wants to achieve. When this is done Costs to replenish and hold inventory and the cost of in inventory models, it then becomes possible, by ap- backorders, real and/or implied, are extensively used plication of appropriate optimizing techniques, to in inventory management models applied particu- achieve this performance at minimum operating cost. larly to decisions on what items to buy, when, and in what quantities. These, of course, are not the only d. Even though backorder costs may be imputed rather than explicit, we may want to distinguish one decisions an inventory manager has to make. Others involving questions of which items to stock or not to kind of backorder from another. Thus, in DODI 4140.39, imputed backorder costs for an NSN may be stock, which items to repair, when and in what weighted by the NSN’s essentiality. When this is quantities, which items to keep in which depots, which items to ration, and many others, are fre- done, NSN’s of a higher essentiality are assessed a quently complex, and are equally amendable to quan- higher penalty cost for backorders incurred, the pen- titative analysis in many cases provided the most alty being proportional to the difference in the essentiality rating. pertinent costs can be identified and estimated. Some of these decision models will be described in subse- c,. The need to distinguish between different back- quent sections of this chapter and in each case the orders also arises in another context. Take the case types of cost needed for rational decision-making will of requisitions coming into the NICP bearing differ- be mentioned. The same principles as were just ent priority designation. Even on the same NSN, we described apply in each case. All will contain fixed, would like to distinguish between backorders for high semifixed, and variable elements ; all will be found to priority requisitions and backorders for low priority behave in accordance with the law of diminishing re- requisitions. This can be done by assuming that a turns and to lend themselves to economy of scale ; and higher penalty cost prevails for high priority requisi- all will require discounting to present value when tions that are backordered. This manner of weighting used in decision models having long run consequences. backorder costs forms the basis for the stock ration- Those who use these models should bear these facts ing model described in Section VII by which stock is in mind and consider, as well, the precision to which reserved after it is depleted to a certain point in these costs can be estimated. Although it will fre- anticipation of future high priority demand even quently be found that fairly sizable amounts of error though the requisitions for low {Priority customers in estimation of costs can be tolerated in many deci- may have to be backordered. sion models, it is well for the manager to know how /. Finally, backorders costs, even though imputed much error the costs he is using contain and what and whether or not they are weighted, may be meas- effects these errors can have on his final decision.

Section VI. THE ECONOMIC ÍDER QUANTITY CONCEPT 5-30. Equivalence of Costs Jar’s worth of inventory holding costs, even though procurement activity costs, which are largely per- The notion of equivalence of cost is fundamental to sonnel-related, are paid for by OMA funds and in- all that follows. By equivalence of costs, we mean ventory holding costs, which depend on the dollar that one dollar’s worth of cost is worth one dollar, value of the inventory, entail the use of Army Stock no matter which activity incurs the cost. This may Fund or Procurement Appropriation funds. While seem like a self-evident statement but, in fact, it is it is not within the purview of an item manager to not. It means, for example, that one dollar’s worth of make use of more or less of one kind of money in procurement activity has the same value as one dol- place of the other, the inventory models we are about

5-32 to discuss make the assumption that this can be free- CV = Inventory Holding Cost=20% per year of ly done. In fact, all these models look at the potential the dollar value of the on-hand inventory cost savings that might be achieved by changing the Z>=Demand Rate=100 units per year amount of one kind of resource used versus another. We want to find the economic order quantity to If the amount of resource usage can be expressed in purchase; that is, the quantity we should buy in terms of dollar costs, then the models, under the order to incur the minimum total variable cost per cost equivalence assumption, can examine the sum year. The total variable cost per year (we will denote of the costs of all the resources that are being varied this as TVG) is defined as follows: to find that set of resource costs whose sum is a minimum. This process of varying the amounts of re- TV G = Cost of the item-(-administrative cost source usage to see how the total costs change is gen- of procurement-!-cost of holding the erally called trade-off analysis. When the search for inventory (1) the set of resource utilization values that minimizes total costs is done by formal mathematical manip- If we call the purchase or order quantity Q, we can ulation, the process is generally called optimization. particularize equation It is important to observe that both processes depend TVG/year=Unit cost of the item x demand rate on the notion of cost equivalence, for without this per year there is no basis for comparing the relative worth -I-cost per procurement action x no. of each type of resource whose use is under con- of actions per year sideration. This holds true not only for those activi- + cost to hold x dollar value of ties whose costs can be estimated, but also for those average on-hand inventory components of the total costs (such as backorder or costs, for example) whose values may only be inputed. In other words, a dollar’s worth of inputed TVC/ye&T=(D x u)+(| z¿%)+§ costs in these models is worth exactly the same amount of a dollar’s worth of any other kind of xux CH (2) cost. Now we observe that the first term of equation (2) does not have a Q in it; in other words, the dollar 5-31. The Economic Order Quantity Model value of the total inventory used per year does not a. We are now ready to develop the first of our depend on how frequently we buy. This being the inventory models, the economic order quantity case, we may ignore this cost in finding the optimum'. (EOQ) model. Remember that we are still in our 6. Before going into any mathematical develop- deterministic world where everything that is to hap- ment, let us first tabulate the TVG if we were to buy pen in the future is known. Among the things known in lots of 50, 75,100,125, 150, and 200, and graph the about the future are the costs of managing our in- results (fig 5-13). ventory system and how these costs change as we 300 vary our decisions. The assumptions we must make in order to develop the simplest EOQ model (in ad- ^ Total Variable Cost 250 dition to the one about our knowledge of the future) X are— I ' j/r/ V xr (1) The variable administrative cost of procure- C 200 ment is linear in the number of procurement actions s' processed (i.e., the variable administrative cost is the Y product of the number actions processed and the cost A 150 per action). R Holding Cost (2) The cost of holding inventory is proportional to the dollar value of the average on-hand 100 Administrative inventory. Procurement Cost (3) The costs we are concerned with are stationary; that is, they remain at a constant level in 50 / the future. Let us assume the following values of our parameters of interest : O' 1 1 1 1 1 1 1 1 1 h- ii=Unit Cost of the item=$10 each 50 75 100 125 150 175 200 225 250 Cp=Administrative Cost of Procurement=$100 Procurement Quantity [in units) per action Figure 5-13. Procurement quantity (in units). 5-38 Q Admin, procurement cost Holding cost TVC 50 2 X $100 = $200 25 X $10 X .20= $50 $250 Procurement frequency=^=y|jjj=once a year 75 1.33 X $100 = $133 37.50X$10X.20 = $75 $208 100 1X$100 = $100 50 X $10 X .20 = $100 $200 If we call the Q in units our Procurement Cycle 125 ,8X$100 = $80 62.50 X $ 10 X.20 = $125 $205 Quantity,, the Procurement Cycle Time is— 150 .67X$100 = $67 75X $10X .20 = $150 $217 200 .50X$100 = $50 100X$10X.20=$200 $250 Quantity 100 units = 1 year (of supply) Note that tlie TVC curve is formed by adding the Demand Rate 100 units/year administrative procurement cost per year to the inventory holding cost per year. We can see that the 5-32. Upper and Lower Limits on the EOQ procurement quantity Q that causes the TVC per a. So far, so good. Now, however, we must begin year to be a minimum is in the vicinity of 100. Note to introduce complications that are present in the that the TVC is a minimum when the inventory real inventory system which, unfortunately, com- holding cost equals the procurement cost; this is plicate the simple EOQ formula we have just always the case for our simple EOQ model as we will derived. First, let us suppose that the item for which see from its mathematical derivation. we want the EOQ costs only $.10 instead of $10.00 c. The differential calculus is used to find the then point on the TVC curve where TVC is a minimum. This is the point on the TVC curve where the first (2 0) 1000 units derivative of the TVC equation is equal to zero. Re- V ( h?)?20) =^1000000= stating equation (2) This is fine, except that when one translates this quanity into years of supply, we see that 1,000 units TVCIyr=D • Cp+f CH ■ u (2) represents 10 years of supply. This should give us pause, for 10 years is a long time. Remember the We will now differentiate TVC with respect to Q assumptions that underlie the simple EOQ model ; do (what we are doing here is finding that point on the we expect the demand to remain unchanged, do we TVC curve where its tangent is zero, this being the expect the procurement costs, the holding cost, the point where the curve changes direction—its point item’s unit price to remain stationary over such a of inflexion—and where its value is therefore a long period of time ? Prudence says perhaps not, but minimum). as will be seen later in this section, arbitrary reductions of EOQ can lead to surprising results. d(TVC) D u b. There is another reason, however, that could -0U LCp+ (3) dQ Q* 2 cause us to buy less than the EOQ and this is an Setting item’s shelf life. One way to handle this situation is d(TVC) -0, to increase the item’s obsolescence risk, which would dQ we get cause the EOQ to decrease. A simpler way is to 0 _]2. n c„ u merely constrain the EOQ so that the months of U- L>p (4) supply does not exceed the shelf life limitation. If, for example, and item’s demand rate is 100 units per Q2 _ year and its shelf life is 6 months, we would never u (5) D Cp CH • want to buy more than 50 units. We must be careful, however, that we understand what the shelf life 2DCP Q2 (6) limitation really means. If the item is going to be CH'U issued by the NICP to a customer who is going to 2DCP keep it on his shelf, then the expected time on his Q u (7) shelf must be considered. c. Next, let us look at an example which takes us This is the classic economic order quantity formula, in the other direction. Suppose tire item we are in- which is also called the economic lot size or Wilson terested in has an annual demand rate of 10,000 formula. Now, going back to our original parameter units and that its unit price is $1,000. (CP and C„) values, we can solve directly for the procurement unchanged ; quantity that minimizes our TVC. Using equation (7) — units Now, however, 100 units represent only 1/100 or a * Going back to paragraphs 8-15 through 8-18 we year’s supply of 3.65 days. Do we want to buy any see that— item that frequently ? Probably not. Again, it is com- 5-34 mon practice in industry and Government to place a is straightforward. One has to first compute the EOQ constraint on the low side of the EOQ as well. DODI using the lowest Cp, then see whether the contract 4140.39 says, for example, that the minimum EOQ value for the quantity is less than the lowest bound, shall be 3 months of supply. in this case $2,500. If it is, this is the EOQ and our d. It is interesting at this point to disgress for a calculation is finished. However, if the EOQ dollar moment to comment on the procurement frequency value is greater than the $2,500 bound, this is an in- and what it depends on when the EOQ principle is feasible solution since we cannot buy that quantity applied. Recall that the procurement frequency is de- for a t7/> of $125. So, we calculate a new EOQ, using fined as D/Q. Starting with equation (7), it is easy to now the second value of CP in this case $450. If the show (we leave the algebra to the reader) that— EOQ dollar value is less than $10,000, we have a feasible solution but we are not yet sure whether it is optimal for it is possible that a lower total variable (8) cost per year might be obtained if we were to buy exactly $2,500 worth. Therefore, it is necessary for Note that u ■ D is the dollar value of demand per us to calculate the TVG for the calculated feasible year so that as u ■ D goes up, procurement frequency EOQ and for a buy quantity worth $2,500. We do this increases and &s u: D goes down, procurement fre- by means of the TVC formula given in equation (2). quency decreases. Thus, we see that the items with (The first term can, of course, be omitted for this large EOQ’s in terms of months of supply are the calculation.) The quantity whose TVC is lower then low dollar value demand items; those with small becomes our EOQ. If we found no feasible EOQ EOQ’s in terms of months of supply are the high using the second Cp value ($450), then we repeat this dollar value demand items. Note also that EOQ and procedure using the highest CP value ($745). Again, “big buy” are not synonymous. We sometimes hear even though we find a feasible EOQ within this cost item managers assert that EOQ principles cannot be region, we must check the TVC of this EOQ against applied on their items because they “cannot afford the TVC obtained if we were to order exactly $10,000 it.” In actual fact, the procurement cycle investment worth. for a given catalog of items may be less when EOQ b. AVhile the procedure is straightforward, it is also principles are applied than when fixed procurement cumbersome. Thus, it is generally entrusted to the cycles are used. How individual items will fare can computer. In order to illustrate the procedure, how- easily be found out by applying equation (8). ever, we give the following example. We will restrict e. Now let us return to the item whose EOQ calls ourselves to two values ot Cp since this is sufficient to for a procurement every 3.65 days. There is another illustrate the principle. To keep the arithmetic point to be made here. While it seems obviously wrong to buy this item so often, the lower limit of 3 simple, we will use months called for in DODI 4140.39 may not always OM =$100 for procurement quantity worth be the best course of action either. Since items $2,500 or less affected by this lower constraint are the high dollar O>2=$400 for procurement quantity greater items, it is possible that many of these items might than $2,500 lend themselves to “requirements type” contracts,- under which variable delivery quantities could be We can start with a previous example where called for monthly, geared to the month’s requirements. Since contractual obligations need cover only unit price=% =$10 the immediate future, the inventory investment and demand rate=D =100 units per-year on-hand inventory can be kept low, and the frequent holding cost=i7ff=.20 incidence of administrative procurement cost can be avoided. As a general rule, every item whose EOQ Starting with the lower procurement cost GPx, we see calculation results in the 3-month minimum con- that the EOQ is straint being reached should be considered a prime candidate for special contractual action. /(2)(100)(100) = 100 units (10) (.20) 5-33. Effects of Multiple Administrative Costs of Procurement on EOQ The cost of 100 units is $1,000. Since the dollar value Calculation of the order quantity is less than $2,500, this is a a. In paragraphs 8-3 throughfeasible 8-8,optimal it was solution. indicated This would be our EOQ, that the administrative cost of procurement, Cp, and we need go no farther. varies with the dollar value of the contract. But the c. Of course, this won’t always happen. Suppose EOQ formula of equation (7) provides for only one the item costs $100 rather than $10. value of Cp. How do we handle this? The procedure First, find the EOQ at ¿7z>=$100

5-35 /(2) (100) (1000) must use all the cost components in equation (2) 100 units V (100)(.2) since the unit cost of the item times demand rate per year now depends on Q. It must be now considered Value of contract= 100X 100=$10,000 so that this as well as holding costs and administration costs of EOQ is infeasible. procurement. Next, find the EOQ at Cp=$400 TVCv=DXU+DIQXCP+QI2 XU XCH /(2) (400) (1000) H =200 units V (100)(.2) TFC$10=100X$10+(j|jjjxiOo) + Now, find the TVC for the EOQ of 200 units and a buy of 25 units, which is the largest quantity we +(~l~"X10X.2o)=$1200.00 a year could buy at (7P=$100.

TVC2M=(^X4OO)+(^X.20x100) rF<7$9.50=100X9.50+(j^X100) +

= $2000+$2000=$4000 a year +(^X9'50X '20)=$115917 ayear

TF<72s=0§rXlOo)+(^X.2OX 100) c. It may happen that the manufacturer’s price schedule is expressed in a somewhat more complicated = $4000+ $250 = $4250 a year way. He may, for example, cite different unit prices for different quantity ranges, as in the following So our decision should be to buy the EOQ of 200 example : units. Quantity : Unit price 5-34. Quantity Discounts Less than 100 $10.00 a. Sometimes a manufacturer will sell an item at a 101-500 9.95 lower price if a large quantity is bought. This usually 501-1,000 9.60 reflects the fact that there is some amount of fixed Over 1,000 9.00 cost incurred by the manufacturer; the larger the quantity he sells, the lower the fixed cost per unit In this situation, we would have to compute the sold and thus the lower his selling price can be. The EOQ for each unit price starting with the lowest, fact that he is willing to offer a price discount if we discarding those that are infeasible, remembering increase our purchase quantity has to be taken into that they may be infeasible either because they violate account in our EOQ calculation when this fact is the quantity discount condition or the procurement known. Let us go back to our $10 item with the cost condition. The TVC then has to be calculated for demand rate of 100 units a year. Let G¡, = .20 and each remaining feasible EOQ and for the quantities 6V>,=$100 for contract value less than or equal to at the procurement cost boundaries or price discount $10,000 CPI=$4:00 for contract value greater than boundaries (i.e., 101, 501, 1,001). Procurements of $10,000 as before. Suppose, however, that the con- some commodities like subsistence, clothing, and tractor tells us that he’ll give a 10 percent discount if petroleum may involve complications like these multi- we buy 150 or more. How much should we buy ? plied many times over. There may be dozens of bid- b. We know from our previous example that the ders, each with known quantity discount schedule, EOQ was— most with restrictions on the quantities they can furnish, etc. Eequirements may be time-phased and _ /(2)(100)(100) V0 100 units \ (10) (.20) multiple depot destinations may also be involved, so the location of the manufacturer with respect to des- when the unit price is $10. We now must repeat the tination location becomes an important factor in bid computation with a unit price of $9.50 evaluation because of the transportation costs. In such cases, the problem of how much to order from n= /(2) (100) (100) V = 108 units which manufacturer to ship to which depot during V (9.50X.20) which time period become so large computationally But this is infeasible, because the unit price for that the special techniques of mathematical program- anything less than 150 units is $10. To determine ing have to be used. The Defense Logistics Agency, in whether to take advantage of the manufacturer’s particular, devotes a lot of attention to development offer, we therefore compare the TVC for our buy of of efficient computer programs for this purpose. 100 units at $10 versus the alternative of buying 150 d. Consideration of quantity discounts can involve units at $9.50 each. In making this comparison we a lot of extra computational work. Moreover, there

5-36 is no standard way in which manufacturers present _ 1X1 their price schedules. r*~*xi 2 then 5-35. Effects of Suspect Data on EOQ TVC1 _2+\=\.M Results TVC~ 2+V2 a. From earlier sections, we see that the estimation of the costs used in EOQ calculations is not an exact So, again, the consequences are slight. The increase science and that it is possible that the costs we use in TVC over what they should have been again may be erroneous. If this is the case, we have reason amounts to only 6 percent. to be concerned about the effects of usine: erroneous d. The effect of errors in forecasting the demand cost data in the TVC incurred when we buy under - rate on the EOQ is a much more difficult topic. If we EOQ policies. Also, the fact that our estimates of are concerned with EOQ’s that would last for a demand rates may be erroneous is a further cause for relatively short period of time we could apply the concern. There is a very useful formula for examin- previously used error effect formula with confidence. ing the consequences of error which is as follows: The fact of the matter, however, is that EOQ may represent 3, 4, or more years of demand and item ryc^+i managers justifiably are concerned about their ability to project a demand rate that far into the future, not where so much because the forecast error may be large but because the item may become completely obsolete TVC is the optimal TX^C when correct data are used before the EOQ is used up. The problem with the TVC1 is the TVC value when incorrect data are EOQ formula is that it assumes repetitive procure- used ments into the indefinite future. We could help matters, perhaps, by applying the long-term holding and r„ is cost concept in calculating the EOQ but the fact still C% IT remains that, if there is a strong possibility that the C ' D P item may not be procured again, we are probably C1 H yl better off to place an arbitrary upper limit on the CH tí procurement quantity. where-:the primed variables are the incorrect ones. 5-36. Inventory Turnover Rates &. Suppose, then, we use a value of CP that is twice as great as it should be (e.g., our true cost of a. An inventory turnover rate is defined as the procuring for a contract value of less than $2,500 is number of times a year the inventory is sold. More really $50 instead of $100). How does this affect the precisely, we define it as the average on-hand inven- TVC assuming all other parameter values are tory divided into the annual sales, or correct ? Turnover rate=^ when ™ s&fety ievel is l Q/2 used or CH=CH and TJ =C D when a safety level is _ 50 X1 S+Q/2 present T9 Now we are faced with an anomaly. We often hear of CH^CU business men and military logisticians striving for then high turnover or rapid turnover of their inventory. 71F6I1=2+1 = 1.06 Is this goal consistent with our EOQ objectives? The answer, of course, is frequently no! Take the case of TVC = 2+V2 our $1.00 item with a demand rate of 100 units a

This means that using an incorrect Cv of $100 in- year. Our-EOQ assuming the same procurement and stead of the correct value of $50 results in only a 6 holding costs as before, is percent increase in TVC over what TVC should be. /(2) (100) (100) c. Let’s look at an error in the other direction. V =316 units Item managers frequently express concern about V (1) (.20) buying EOQ because of possible obsolescence. The The turnover rate for this item would be EOQ does, of course, provide for obsolescence in the holding cost but suppose we have made an error in 100 .63 estimating this factor and that the holding cost we 316/2 use is only 14 of what it should have been. Applying which means that we would expect our inventory the same formula, we see that to turn over once every 1/.63 = 1.6 years. Note that

5-37 this is our optimum turnover rate for this item; or, in words, its disposal value is less than or equal to that is, it is the turnover rate that reduces our var- the stock’s discounted value t years from now, less iable operating costs to a minimum. So, if we are what it cost us to store it for that length of time. If following rational inventory policies, the turnover we call the holding cost rate over t years H(t), then rates we seek to achieve should be dictated by our the value of the holding cost in dollars will be EOQ’s. Anything different from that would involve H{t) • V. From equation (4) of paragraph 8-27 we operating at a higher cost. know that &. This raises another interesting point—the question of whether a standard inventory turnover rate V, « S, ■ should be set as a target for all NICP or for large H(t).V=V «+2 J (2) classes of commodities. The answer is clearly no un- (i+O i—í (i+o less the items are homogeneous ; a catalog with a high We can approximate V by the value of today’s pur- proportion of low dollar value demand items will chase cost G, and by transposing terms, express equa- have lower turnover rates than one with more high dollar value items, and rightly so. Turnover rates, tion (2) as if used as performance targets, must then be tailored to the characteristics of the catalog being managed. c. Care must also be exercised in using inventory (3) turnover rates as performance targets to distinguish what can be attained in the short versus the long Substituting (3) back into (1), we get run. A catalog with a high proportion of items in a D

5+39 g. A is really a control knob. From equation 13 it (Equation 14) Minimize (withoutconstraints) is clear that by increasing A, all the a¡ are increased 2iC PFP + C 1 + TWRSX A* (if A were 1 million all aj would be approximately HX a equal to 1, i.e., 100 percent). The higher the A then, i.e., minimize total cost, without regard to constraints, the higher the a<, and the lower the time weighted where total cost is the sum of both operating costs requisitions short for each NSN and therefore in and backorder cost, the last equal to number of time total for all NSN’s. To implement DODI 4140.39 a weighted requisitions short (TWRS) Xcost per special program is used to find that value of A which requisitions (A*). will result in the performance constraint ß being l. It turns out that whether equation 14 is used, or satisfied. Note that if A is set too high, performance the original objective function with the constraint would be good, but we would be spending too much which led to A * is used, the safety level and pro- money, since safety levels for each item would be curement quantities found for each item will be high in order to achieve the unnecessarily high a¿. exactly the same ! In this sense, then, the A associ- A. Equation 13 has a number of implications as ated with a constraint is an implied cost, for it is depicted below. what the backorder cost would have to be if we were to arrive at the same safety levels and procurement VARIABLE IMPACT ON TARGET quantities (and a¡) we do arrive at based on a pure PERFORMANCE cost model without constraints imposed. (if variable is increased) m. Equation 14 highlights the fact that under the N increase DODI 4140.39 objective function, one requisition is $D decrease treated as being equally important, or equally costly to backorder, as another, regardless of item, size of The reader can verify the truth of the above by requisition, etc. This is intended as a useful sim- making up values for A, H, $D, N and plugging plification. Provision is made in the DODI to weight them into equation 13. the A used for different items by an item essentiality i. Now, for any given item it is true that N and $1) factor. However, there are no generally acceptable are likely to change together, and their effects may schemes for developing such factors and they there- cancel. But in comparing the performance which will fore cannot be used at the present time. The Army, be achieved by different items under DODI 4140.39, with DOD concurrence, does plan to use different the figure above indicates which item characteristics values of A for different weapon systems, so that will dominate the performance differentials. Note items used on more critical systems can be given that if unit price is high, the same demand will mean higher protection (high a). a higher $D, hence lower availabilities. j. While DOD may set a constraint (ß) on time- 5-39. Insurance Item Model weighted units short, or equivalently an average days а. Insurance items are defined by these charac- wait, it is equally likely that at some stage in the teristics : budget and management process that available funds (1) No maintenance factor is computed. This will be the constraining factor, not performance. In means that the design and maintenance engineers this case, A is again used as a control knob, but it is through testing and previous experience come to the set so that total dollars invested in safety levels is conclusion that this particular item will have no less than some value we will call y. By constraining expected failures due to wearout. funds invested in safety level, total obligational (2) It is highly essential to end item perform- authority can be constrained. The same program ance. which can find a A to match a ß constraint on per- (3) Typically, procurement lead times are long. formance, can be used to find a A to match a y con- Although insurance items have no expected failures straint in dollars. Again, A determines the a¡ and the due to wearout, spares are desired for emergencies. ai determine the safety levels calculated and there- Even though the usual failure reasons do not apply fore funds invested in safety levels as well as to insurance items, accidents do occur. It also hap- performance. pens on occasion that a maintenance factor which k. While A is used as a control knob to satisfy a is small but not zero is incorrectly estimated to be constraint, once the appropriate value of A is found— zero. Since the loss of one of these items will make call this A*—it is sometimes interpreted as the “im- the end item inoperative, it is very desirable to have plied cost” of a backorder. To understand the basis a spare available before a demand occurs rather than for this interpretation, suppose for a moment that to buy as needed, as we might for other low demand the true cost of a backorder were known, and that it items. really was A*. Then a logical objective function б. The insurance item model is in a sense a special would be case of the MIT model. The objective function and

5-40 much of the mathematics is the same. The differ- this case is based on the observed differences in ences lie in the nature of the demand forecast used average demands for the various NSN’s in the in- and the way in which standard deviation of demand surance item catalog. is estimated, and the (archetypal) probability distribution selected as being most appropriate to in- 5-40. Stockage Criteria Models surance items. All these changes are based on the a. The cost differential model determines the mini- low demand rates for insurance items, and the mum expected requisition rate (number of requisi- difficulty in forecasting demand. tions received per year) an item should have before G. Demand forecasting for “normal” items is de- it can be stocked. This is the decision variable. For scribed in chapter 4, AR 710-1. Unique to insurance example, if the minimum is 6, and an item is expected items is use of the “catalog” approach. Under this to have only 5 demands a year, it would be purchased approach, the average demand experienced is com- on demand and direct shipped from manufacturer to puted for all items which have previously been the customer, rather than kept in stock at the whole- classified as insurance, these items constituting the sale level. “catalog.” If there were 1,000 insurance items, and b. The objective function of the DOD stockage if over a period of 2 years the sum of the demand criteria model is similar to that of DODI 4140.39, in for all these items were 2,000, then a catalog demand the form of equation 14. The idea is basically to rate of 1 per year would be computed ; i.e., minimize the sum of holding cost, procurement cost, and backorder cost. If the item is not stocked, there l=('22^0^iooo are no holding costs, but procurement costs are higher, because you have to buy more often (each time there is a demand). In addition, every time d. For a new insurance item, the demand forecast is set equal to the catalog demand rate. Once there is a demand, the customer’s requisition must demand history has accumulated for a particular be backordered for a procurement lead time. Thus, insurance item, the demand forecast is computed as: as the expected requisition rate increases, the cost comparison begins to favor stocking an item versus buying on demand. The stockage criteria is the ( Equation 15 ) F orecast=/a?Z>c + (\-f)æD{ minimum requisition rate at which the cost com- where parison turns favorable to stockage. c. To cost our backorders, a value of A/365 per Dc^is the catalog demand rate day on backorder is used. The A is the A found in Z)¿=is the demand rate experienced for the using DODI 4140.39 so that the cost attributed to a particular item (possibly 0) backorder, at least implicitly, is consistent whether /=is a fraction between 0 and 1. the decision, is how much to stock, or whether to In other words, since demand history is particularly stock at all. unreliable as a means of forecasting future demand d. The DOD model is probabilistic because it for insurance items, the forecast is based on a takes account of the fact that the true requisition weighted average of catalog rate and item historical rate for an item may be unequal to that forecasted. rate f is the weight. Initially / is 1, so forecast Since the model will be applied to slow moving equals catalog rate. As history accumulates, f is items, and initially in a provisioning context only, reduced so that the forecast is more influenced by this is a particular problem. The impact on the what happened for the particular item, than by stockage criteria found is to make them higher than experience with insurance items in general. In if a deterministic model were used; i.e., the DOD, general, the mathematics are such that the forecast model leads to fewer items being stocked than a will not be dominated by only one time surge in deterministic model would. The DOD model would demand. If demand is consistently larger than would not be used where there is a good alternative to be expected for an insurance type item, the model either stockage or buying on demand—such as contains criteria for reclassifying the item as not cannibalization. Also, insurance items could be insurance, so that the demand forecast is no longer stocked regardless of their low expected demand influenced by the catalog demand rate. rate. e. The Negative Binomial probability (archetyp- e. The Army is using a stockage criteria model at al) distribution is used for demand. The Negative the retail level, but this model does not directly at- Binomial is a member of the Compound Poisson tempt to minimize costs. Rather it attempts to achieve family of archetypal distributions, and one way it specified demand accommodation levels with as few arises is when demand is Poisson, but there is a stocked items and as litle turbulence as possible. probability distribution for possible values of the Demand accommodation is defined as the percent of mean demand rate. The probability distribution in all demands received which are for items being

5-41

316-276 0-80 6 stocked. Turbulence relates to how often an item is better to backorder low priority requisitions in order placed on a stockage list, only to be removed when to keep stock (the high priority reserve) available for expected demands do not materialize. high priority requisitions. /. A sophisticated economic stockage criteria model Define has been developed for retail level stockage, but while B = (time weighted) low priority backorders it minimizes cost, the criteria it produces are suspect l in terms of their potential impact on operational Bx+ = (time weighted) high priority backorders readiness. IF = a weight, to be discussed 5-41. Stock Distribution Models The objective function is a. Three models will be discussed which were devel- (Equation 16) Minimize the expected value of oped to aid in decision making in the area of stock control. Their current status varies from routine use, W xB n.-\- BL- to authorized for use, to implementation deferred. b. The MRQ (Maximum Release Quantity) model The weight IF is a number greater than 1 which computes maximum release quantities for an NSN. measures the relative importance of a higher priority If a requisition is received requesting more than the versus a low priority requisition. Only crude esti- MRQ, only an amount equal to the MRQ is shipped. mates of IF are available, but the solutions of the The idea is that a few large requisitions can cause model are quite “robust” relative to the exact value; demand variability much larger than is allowed for e.g., a solution can be based on a IF of 3, and not be in the determination of the safety level. At the same that bad even if IF turns out to be 10. time, at least some of these unusually large requisi- e. The stock rationing model was first developed tions may be simple errors. The MRQ model deter- as an optimizing analytic model, but then simple mines what is a reasonable requisiton quantity for an “Heuristic” procedures for computing the reserve NSN based on its demand and price characteristics. level were developed and shown by simulation to be c. The “inter-depot transfer model” computes when almost as good as the more complex analytic solu- an inter-depot transfer can be economically made by tions. In addition to IF, the size of the reserve de- the national inventory control point, and how much pends on the high priority demand rate, and length to transfer. For example, suppose there are a group of the protection horizon. The protection horizon is of items with significant demand activity expected the period until new stock is due in, at which time all both in the Pacific and in Europe. Such items would demands can be satisfied. Since the reserve level be stocked in both West Coast and East Coast depots. depends on the protection horizon, it is changed However, it sometimes happens that all the assets at dynamically as time passes. a given time are at one depot, the West Coast depot for example. Possibly the European demand was new, 5-42. Physical Inventory Scheduling Model or the assets represent retrograde from Vietnam. A a. A physical inventory is a process for finding and transfer of some West Coast assets to the East Coast correcting errors in the assets balance records of the can save transportation money and give better cus- inventory control point. Uncorrected errors lead to tomer support. Transportation money is saved be- what are termed penalty costs; extra holding and cause inter-depot transfer can ofteh take advantage backorder costs incurred by the supply system of bulk movement freight rates. In computing how because of decisions based on incorrect asset much to transfer, the expected value of savings is information. maximized. Suppose the transfer is from West to b. More frequent scheduling of inventories reduces East. The model computes and takes into account the errors and hence penalty costs, but the inventory probability that the transferred assets may actually have to be backshipped to satisfy West Coast cus- process itself is costly. The scheduling model attempts tomers as well as the probability that the transfer to minimize the sum of the costs of taking inventories will save money. Back shipment can happen if de- and the penalty costs. Alternatively, if the number of mand forecasts are greatly in error. In other words, inventories is fixed, the model determines for which savings is a random variable because it depends on items an inventory will produce the biggest decrease how the transferred assets are used, and this depends in penalty cost on an expected value basis. It thus on future demand which is a random variable. The directs the inventory taking resources where they will inter-depot transfer model does not apply to trans- do more good. fers made to consolidated storage. G. The estimates of penalty costs to be saved are d. The stock rationing model computes the size of based on— a reserve for high priority requistions. The concept (1) An empirical submodel which estimates the is that if on-hand stocks are running low, it may be probability of having an error and the expected size,

5-42 if one exists, as a function of such item character- mand, quantity of demand, and frequency of demand. istics as number of demands received since the last The frequencies are modified by special considera- inventory was taken. tions. Pilferable, sensitive, and classified items are (2) An analytic submodel which determines for inventoried at least once a year. Items in long supply any given asset record error, the expected value of (items with assets greater than short to midrange the increase in holding and backorder costs due to requirements) are inventoried only once every 3 this error. years. It turns out that even if items in long supply d. The model is implemented by tables. These have asset record errors, these will not lead to penalty tables specify inventory frequencies and priorities as costs. This conclusion followed from a review of the a function of an item’s annual dollar value of de- dynamics of how error leads to penalty cost. Section VIII. DEMAND FORECASTING 5-43. Introduction (1) Constant. This pattern is illustrated in а. Basic to most aspects of logistics management figure 5-14. Its characteristic is the tendency of de- is the demand forecast. At the same time, many of mand to remain at a given level. Demand for any the concepts and techniques used in forecasting other given month may deviate quite a bit from this con- random variables have their analogues in demand stant level, but the deviation is random and does not forecasting, so that a discussion of this one topic has change the basic pattern. more general implications. б. Ideally, we would like to base our demand forecast on a model of the demand process, using our knowledge of why demand is generated as part of the forecast technique.-A successful application of this principle—the actuarial forecasting model—is discussed in paragraph 5-47. Failing this, we may at least identify one or more variables on which demand depends, such as projected aircraft flying hours, and utilize statistical methods to take advantage of this insight. c. The simplest approach is to treat demand as a pure “time dependent” random variable. Demand is M0N1HS plotted against time; i.e., a time series is constructed as in Equations 17 through 25. Using statistical methods a forecast is made, and this forecast depends Figure 5-14- Constant demand pattern. solely on the numbers plotted and the statistical (2) Step. This pattern is a composite of two con- method chosen. stant patterns. In this pattern, demand has a tendency d. In paragraph 5—44 various characterizations of to remain at a given level and then suddenly step demand as a time dependent process are discussed, up or down to a new level and remain at the level. and in paragraph 5-45 the most common statistical The step represents an increase or decrease in the techniques for dealing with such a process are pre- demand volume caused by a corresponding increase sented. Choice of technique is based in part on which or decrease in activity that precipitates demand. An characterization one accepts—is the demand cyclic, upward step pattern is illustrated in figure 5-15. does it have a trend, etc. e. Increasingly, choice of statistical technique is determined by simulation experiments. Real demand history is used ; forecasts are made based on a part of this history, while another part is used to verify how good the forecast was. This is repeated using alternative forecasting techniques, and the technique which works best over a large sample of items is chosen and built into computer systems for logistics management. 5^44. Demand as a Time Dependent Process a. Classical Demand Patterns. Demand patterns frequently discussed in the literature on forecasting MONTHS techniques are— Figure 5-15. Demand pattern with a step.

5-43 (3) Ramp (linear trend). Two ramp patterns any data. The question then becomes, “do we really are illustrated in figure 5-16. In this pattern, the have a trend at all?” “Trend” can be an ambiguous tendency of demand is to continuously change its word, hut one way to rephrase the question is: Is de- level in the same direction : i.e., up or down. As is il- mand changing level as time passes in accordance lustrated in the figure, the incremental change may with some predictable pattern? be very small or quite large, but it can be plotted by a (5) Cyclical. This pattem is characterized by a straight diagonal line as in the figure, hence the name number of peaks and valleys that tend to occur at “linear trend.” regular intervals as in figure 5-18. If the same pat- (4) Nonlinear trend. Two nonlinear trends are tern occurs from year to year, the pattem is called illustrated in figure 5-17. The lower one is more com- seasonal. Anti-freeze is an example of an item that plex than the upper and still more complex patterns would have a seasonal pattern. are possible. Give a mathematician enough rope, and (6) Impulse. Figure 5-19, shows a pattern with he can come up with a nonlinear trend to fit almost an impidse. A better known term for impulse is “out-

1 D MOU « X M0NTN y E M — A -3 A N D

Q MONTH Y U A MONTH X /V N T I T Y

MONTHS ► Figure 5-16. Ramp pattern (linear trend).

5-44 •t D E M - A #• N D Q U A N •;T Y

MONTHS

PEAKS EVERY 4 MONTHS

EBB EVERY 4 MONTHS

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 MONTH MONTHS

Figure 5-18. Cyclical pattern. Figure 5-19. Impulse pattern. 5-45 lier.” This pattern is characterized by a tendency of course, even the question of which approach is sim- demand to remain at a constant level, usually very pler is a subject of dispute. low, except for occasional periods in which demand b. There are various forms of least squares or ex- is extremely large. This might be due to special ma- ponential smoothing which can be used depending neuvers, special inspections, irregular ordering, or it on which of the classic demand patterns you think might be due to a requisitioner’s error. best fits your data. We will discuss least squares and b. Army Demand Patterns. Fewexponential repair parts smoothing in for constant and ramp (linear the Army have demand patterns as simple as those trend) patterns, and then discuss some refinements discussed above. Most of the patterns are composites to handle other patterns. of step, ramp, and impulse patterns that are further c. For a constant pattern, the least squares ap- disguised by a large amount of noise; i.e., random proach reduces to the familiar moving average. fluctuations. One reason sometimes proposed for the amount of noise in repair part demand patterns is Define the multi-echelon nature of the supply system. Ac- D, AC7,= Actual demand in month t cording to this hypothesis, as you move upward in n = number of months in base period the supply system, toward echelons further removed = summation over the most recent n from the user, demand variability increases, so that — months a reasonably smooth pattern at the user level trans- F = forecasted monthly demand rate lates into such patterns as those of figures 5-20, 5-21, Then, by moving averages and 5-22 at the wholesale level. To appreciate the argument, suppose that there is l n a user with— -s Requirements Objective = 2 Months of Supply (Equation 17) F=n t=\ Du—i+1 Average Monthly Use = 5 Units Ordering Frequency = Once a Month For example, if n=12, and total demand over the last 12 months was 96, the demand forecast would be Now suppose he uses 10 units in a month. This may 96/12 or 8 per month. The demand equals the cause him to increase his estimate of average monthly “average” historical demand over a base period use to 6 units. His requirements objective then in- which “moves” every month, so that it always increases from 10 units (2 months of supply x average cludes the latest months. Of course, Moving monthly use of 5) to 12 units (2x6). He orders 10 averages can just as easily be defined in terms of units to cover his actual usage plus 2 units to cover quarters or some other period as in months. the increase in his requirements objective. The next d. Choice of a base period (should it be 6 months? higher echelon sees a total demand of 12. In other 12 months?) may be limited by how much data can words, when there was a 1-month change in usage be kept. Otherwise, it is currently chosen by (from 5 to 10) the change is magnified at the next simulation experiments of the type described in the echelon (from 5 to 12). Changes are magnified er- introduction to this chapter : moving averages using roneously at each echelon. To date there has been no different base periods are simulated and the one empirical proof that most wholesale level noise is which works best is chosen. The tradeoff is this: if caused by the type process just described, and in demand really does have a constant pattern, the fact, some studies found just as much noise at lower larger the base the better ; e.g., 24-36 months ; with a echelons. This is a subject which will get more study. long base the moving average will focus in on the 5-45. Forecasting for Pure Time true mean and not be sensitive to noise. On the other hand, if a step or ramp may occur, a moving average Dependent Processes with a long base will be slow to react to the change in a. There are two basic approaches to forecasting general demand level, since it includes in the base pure time dependent process; “least squares” and period old data, many months in the past. “exponential smoothing.” Many studies have been e. If demand is believed to definitely have a linear expended on the subject of which approach gives trend, the least square approach leads to a technique more accurate forecasts. The results of these studies called “linear regression.” In figure 5-23 a solid indicate that there is little if any difference in ac- linear trend line is drawn through some data which curacy. As a matter of fact, exponential smoothing, does appear to have a linear trend. The dotted which was introduced after least squares, was not extension of the line represents what the demand developed to make forecasts more accurate, but to forecast is (e.g., forecast for month 15 is 49, Linear achieve the same accuracy in a simpler manner. It is regression forecasting is simply an algebraic such secondary consideration as simplicity which may technique equivalent to drawing a line through data reasonably dictate the choice between approaches. Of and then extending it.

5-46 QTY MANO 5 2800

2600

2400

2200

2000

1800

1600

1400

1200

1000

800

600

400

200

O 15 20 25 30 35 40 45 50 MONTH

Figure 5-20. Actual demand pattern for automotive part. 5-47 5-48 Demand (in dollars] DEMANDED (id thOUS3l)dS Of DolldFS] 40 30 A Figure 5-21.Actualdemandforupperreceiver(M-16rifle). Figure 5-22. Actualdemand fortake-down pin(M-16 rifle). 13 MONTH 17 21 25 100 90

70 60 50 40 30 20

10 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 MONTH

Figure 5-23. Fixed linear trend.

f. Algebraically, any line can be represented by where the general equation n — summation over the most recent n (Equation 18) Y t—a+bxt months ŸI-ACT is actual demand in month t where in our case Y, point on line for month t By equation 18 Yt = a + bt, hence the sum of equa- Yt — demand corresponding to the trend line tion 18 depends on the a.b chosen. What is being i is the month (1,2,3, . . .) minimized is the sum of squares of the difference a, b are “coefficients,” or numbers which define between actual data points, and the line through what the line looks like them; hence, “least squares.” It turns out the solu- The line plotted in the figure has tion of the minimization process is to set (Equation 20) ( S F, - ACT) (Si2) - (St ) (S i F, - ACT) b=S a~ n(Zt2)-Ç2t)2 and Thus, for month 5 (t = 5) the point 4 + 3X5 or b=n(2tYt-ACT)-(2t)Ç2Yt-ACT) 19 falls on the line. 7l(St2)-(St)2 g. If two different people were to plot a line h. A moving average forecast corresponds to a through the same data, they might not plot exactly linear least squares regression in which b is set to 0, the same line. In figure 5-24 possible lines through not calculated. Ideally, if there were truly no trend the same data are shown. Each line corresponds to a in data to which you tried to fit a linear regression different (a,6') coefficient pair. Least square line, you would find from equation 20 that b was 0. regression uses the “least squares” criteria which In fact, because of noise, you would calculate a b determines what a, b, will be : other than 0, and would erroneously project a trend. i. Exponential Smoothing. Under (single) expo- (Equation 19) Find a, b which minimizes nential smoothing, the forecast of monthly demand rate at the end of month n is

2 £ (Yt—Yt.ACT) (Equation 21) T’ =a¿>„_ . +(1-a) TVi <=] n ACT 5-49 70T

60-

50*-

/ /

40- ■

30-

20- ■

10 -

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 H V H 1 > -H 1 I I" > I ■■ MONTH

Figure 5-21/. Alternative plot lines.

where In other words, although, F2 is not explicitly based F «-i—forecast which was made at the end of on ZI^ACT, its value is dependent indirectly on what month fi-l. Z?I-ACT is, as derived in equation 24. ^n-ACT—demand experienced in month n j. In general, although exponential smoothing ex- a—a “smoothing constant,” some numbers be- plicitly uses very little data—and this is one of its tween 0 and 1. advantages—it can be shown that repeated use of exponential smoothing is equal to setting In other words, the new forecast is based on the old

forecast, tempered by what happened last month. If D AC 1 we have— (Equation 25) F*=±, ^ ^ a FD -ACT n In words, Fn is equal to a weighted average of past .2 10 20 observations, where the oldest gets least weight and then, the new forecast is .8X10 + .2X20=12 the newest the most weight. For a=.2 and n=\2, To start use of exponential smoothing you set F the most recent month (t=n) gets a weight of equal to your best estimate of the demand rate. Then ax(l—a)"'‘ = a:x(l—a)° = c>: = .2 (Equation 22) E1 = ax.D1-AC7’+(1 —a) xF0 The oldest (t= 1) sets a weight of (Equation 23) E2=Q:xZ)2-Acr+(1 —a) x-F, 1 n t Substituting the expression for F given in equation 22 ax(l—a)' -‘==ax(l—a)°=a ' .2x(.8)11 = .2x.086=.0172 into the right hand side of equation 23, we get

(Equation 24) F2=ax Z)f.Acr+ (1 —a)x &. What value of a to use in exponential smoothing [ax û^XFO] is analogous to what length base period to use for a

=ax Z?,.AC7.+x(l —a) moving average ? Higher values of a give more weight - 2 x ö/.Acr+il ■a) xF0 to the most recent observations, hence permit better 5-50 adaptation to changes in demand levels, but more fact, however, most program data are at least to some sensitivity to noise. It is sometimes recommended that extent controllable variables rather than random a low value of a be used, and then if there is reason to variables ; i.e., number of fielded trucks or flying hours believe a change in demand level is occurring, switch flown are DA/DOD planning variables, with effort to higher values of a. Statistical schemes have been being made to live up to plan. devised for automatically changing a, or the base b. The basic program—demand relationship is— period length in moving average forecasting, but (Equation 26) Dt=a+&XP recent experimentation by the Air Force showed nega- ( tive results for any scheme tested. where 1. Exponential smoothing of the kind described D — demand in period (é.g. month)¿ (equation 21), is sometimes referred to as “single” ex- t Pt — program value for period t ponential smoothing. Single exponential smoothing a,b — are coefficients to be found does no better in forecasting if there is an underlying linear trend than does moving average. However, c. The program factor approach is the predomi- there is “double” exponential smoothing which is com- nant method by which the Army has imple- parable to linear regression. In fact, just as there is mented use of program data in the past. It may be non-linear or polynomial regression, there is triple thought of as a special case of equation 30 where a is exponential smoothing, etc. Details will not be dis- set to Ö, so cussed here. (Equation 27) Dt — bPt TO. There are quite sophisticated computer programs around, used by such organizations as the De- However, the method described in Section IV is not partment of Commerce, to develop seasonal correction exactly equivalent to the least squares approach, but factors. Suppose, based on historical analysis, we be- is simpler. lieve auto sales tend to be 10 percent higher in March d. Lagged variable models are currently being con- than for the yearly average. Then we may multiply sidered. The simplest such model is all our March sales figures by 100/110 to get adjusted (Equation 28) D a+bxPt-i sales before inputting them to our statistical forecast- t ing procedures. This prevents treating a seasonal in- In other words, equation 28 states that demand in crease as indications of a new trend. Then when we any period depends on what the program was the have determined in average monthly demand rate, we period before (in period i-1). There is a lag projected multiply by 110/100 to get our estimate for March. between changes in program, and their impact on n. Studies have not found seasonality in most Army repair parts consumption. Equation 28 can be parts. Moreover, if a 12- or 24-month moving average generalized : is used, the base period always has all seasons equally (Equation 29) D,=a-\-bxPt+cxP,., represented, so there is little need for seasonally ad- -MXP,-2 justed input for forecasting. (This is not true of ex- +exP,.2 ponential smoothing which weights each month in the base period differently. ) It is likely that in the future The coefficients a, b, c, d, e . . . can be determined some use will be made of seasonal indices—for higher by at least squares regression type approach. Al- dollar value, seasonally demanded items where the ternatively, a relationship can be hypothesized be- procurement cycle time is only a few months, so what tween the coefficients, leading to an equation such as they buy should depend on the season. (Equation 30) D,=a+bxP(bxa) o. The MRQ model is designed to filter out outliers 2 to the extent that they exceed reasonable limits on xP^+ibxa ) order sizes. xP,-2 “a” is a number between 0 and 1 showing the “decay” 5-46. Demand as a Program Dependent in impact of program on future demand as time Process passes. For example, if b = l, « = .1, and the program a. Program data refersis number to usage of flyingdata such hours, as theair- implication would be craft flying hours, or tank miles traveled ; to density that each 1,000 flying hours flown leads an average data such as number of fielded trucks; to workload to: data (such as number of overhauls scheduled). In (i) a demand for 1,000 X 1 part in the current using program data, we are usually relating future period demand to future program. If our estimates of future (ii) a demand of 1,000X1X.1 parts in the program are poor, there is little value in doing this next period because we are trading in one problem, forecasting de- (iii) a demand of l,000xix.01 parts in the mand ; for another problem1, forecasting program. In period after that, etc. 5-51 Figure 5-25. Demand versus program.

e. It often happens that one part has several ap- may be based on quantity per system, so if 6 spark plications. For example, a spark plug may be used on plugs are used on one truck and 8 on another (a ratio several kinds of trucks. Demand data do not indi- of 4/3), the density of the first truck type is given a cate which part of the demand was due to each weight of 1, density of the second is given a weight of truck, so we cannot make separate forecasts for each 4/3. The third approach to deriving weights for part truck type. One approach is to set up an equation consumption of different weapon systems is to use such as engineering estimates. For every weapon system on which a part is used, there is an engineering estimate (Equation 31) Dt=a-\-bxPlt-\-cyiP2t of use. These estimates are developed prior to + provisioning, and in fact serve as the only basis for where P refers to fielded density of one kind of demand forecasting before demand experience ac- lt cumulates. Now suppose the engineering estimated truck and PQt to density of another kind of truck. Alternatively, the approach currently taken is to rates of usage for a part in truck type 1 are 10 per take a weighted sum of densities (or flying hours or 100 trucks per year and on truck type 2, 5 per 100 other program data) setting trucks per year. This suggests a weight of 2 (i.e., 10/5) for truck type 1, and a weight of 1 for truck (Equation 32) Pt = W,Plt + WitP!lt+ .... type 2. Even though the values furnished by the engineers (10, 5) are usually not used directly once a where forecast can be based on actual demand experience, they can still have some merit as relative weights of TFj, W . . . are weights to be explained 2 consumption on different type end items. g. It is quite possible that the program/demand Pt is the single derived number used to represent program either in calculating program factor’s or in relationship will depend on geographical area or such equations as 27 and 29. mission (e.g., combat versus noncombat versus Re- /. There are three main approaches to getting the serve Forces). The current method for dealing with weights. First, they may all be set to 1, so densities this is to make separate forecasts by area or by cus- or flying hours, or whatever, are summed equally tomer (i.e., Reserve Forces might constitute one regardless of weapon system. Second, the weights Customer).

5-52 h. If the correct program/demand relationship depends on the present age. The probability of a works like equation 29 for example, it is easy to un- 20-year old man living to age 21 is ob'vfously much derstand why the program factor approach might different from the probability of an 80-year old man do more harm than good in some cases by overstating living to age 81. So, in forecasting how many deaths the short term effects of program changes. With to expect next year, the insurance companies have to more complex forecasting equations, there is increas- know not only the probability of an individual’s sur- ing danger that noise can cause poor estimates of the vival from one age to the next but also how many per- equation coefficients and lead to bad forecasts. There sons there presently are in each age group. is always the problem of correctly projecting pro- d. The same principle can be used in forecasting gram data. For all these reasons, use of program/ the expected number of failures of aircraft engines demand relationship must be done with care. And during a given period. From engineering analysis or indeed a number of empirical studies indicate that from study of failure data, we can estimate the the relationships may be quite difficult to find. probability that a brand new engine will survive without failure in its first 50 hours of use, the 5^£7. Actuarial Forecasting probability that an engine that has logged 50 hours a. For some types of items, particularly those that of use will survive without failure until 100 hours of are very expensive, we are willing to venture into use, etc. Then if we know the age of each installed even more expensive and sophisticated methods of engine and the number of hours expected to be flown forecasting because of the large benefits that can be by the aircraft during the forecast period, the ex- obtained from increased forecasting precision. Air- pected number of failures during that period can be craft engines are a good example of such an item. readily calculated. The calculation itself is somewhat The reduction in investment for spare aircraft en- tedious for each failure results in the replacement of gines that can be obtained even for relatively modest the aged engine with a new one so that the improvement in the forecasts of failure rates justi- distribution of ages of the installed engine with a fies the use of more exotic procedures such as the new one so that the distribution of ages of the in- actuarial procedure now to be described. stalled engines is constantly changing. The calcula- b. Suppose we are asked to estimate the mean- tion is something like a simulation in that the aircraft time-to-failure for a given type of aircraft engine by are “flown,” hours of use are logged on the installed observing the flight hours logged on each engine that engines, a certain fraction of the engines’ “die” and has failed. Would we obtain an accurate estimate by we “fly” from one age interval to the next and are averaging these observed times? The answer might replaced by new engines, and so on until we reach well be no, because in doing so, we have ignored the the end of the forecast horizon. engines that are still in service and that have not yet e. The actuarial procedure can be adapted to failed. Tliis is a mistake that is often made in the handle a variety of special situations encountered in early years of an aircraft’s deployment when the military logistics just as it is applied to all sorts of times to failure of those engines that have failed are special insurance situations. One can, for example, used to estimate the mean-time-to-failure, leading forecast separately the expected removals requiring frequently to overestimates of the number of failures minor repair as distinguished from those requiring to be expected during future time periods. major overhaul, or one can adjust survival probabili- c. The actuarial method, which is analogous to that ties to maintenance policies that are changing over used by insurance companies, can be used to advan- time. The procedure has been in use in the U.S. Air tage in forecasting the expected number of failures Force for engine management for many years and of items whose failure process is age dependent. A has been successfully applied in the Army and Navy failure process is said to be age dependent if the in the management of certain of their most expensive probability of surviving from one age to the next aircraft engines.

Section IX. MOBILIZATION REQUIREMENTS 5-48. Introduction 5-49. Computation of Mobilization The basic objective of the Department of Defense is Requirements to be prepared to support national policies and to a. War reserve quantities are computed in ac- successfully defend the Nation. A primary element cordance with the levels contained in AR. 11-11, of military readiness is the sound and careful planned unit deployment schedules to a combat area, establishment and management of adequate war the requirements set forth in applicable contingency reserves. Accordingly, the Army has established and or mobilization plans, and special guidance and maintains a positive and continuing War Reserve policy provided by HQ DA. Materiel Program. b. The War Reserve Materiel Requirement 5-53 ( WRMR) is that portion of the war reserve materiel (5) Items which are specially managed for (WRM) required to be on hand on D-Day. This security classification reasons, to include items con- represents the stocks of equipment that must be trolled by the Department of Energy (DOE) or acquired in peacetime to meet the increased military National Security Agency. consumption which would result from an outbreak of (6) Items required for survival and protection war. These stocks are intended to sustain combat of personnel. operations until resupply to the combat area can be (7) Items designated as operational rations. established. The War Reserve Materiel Requirement (8) Items necessary for the maintenance of can be further categorized as follows : personal hygiene or health. (1) Theater %oar reserves. c. Criteria for selection of war reserve materiel is (a) Theater war reserves and those quantities contained in AR 710-1. of combat essential equipment (war reserve stockage (1 ) Items contained in the WARSL will be rec- list (WARSL) SB 70(M:0) which are authorized ommended by MACOM’s as essential for operational each theater in days of supply as prescribed in AR 11-11 to support post D-day combat consumption effectiveness of combat, combat support, and/or combat service support forces. All Reportable Item Con- until resupply from CONUS can be established. For tactical, logistical, and economical reasons, the trol Code 1 (RICC 1) items (contained in SB 700- quantity of equipment in the theater war reserve 20), selection of strategic communications items and stocks should be maintained at a minimum level con- associated communications security materiel to be sistent with the combat mission and CONUS resup- maintained in the war reserve are based on recom- ply capability. mendations made by the Commander, US Army (b) Approved DA operational project stocks Communications Command, subject to approval by which are stored by overseas commands, DARCOM, HQDA. Selection of tactical communication security and FORSCOM. This includes pre-positioned ma- materiel to be maintained in war reserve is based on teriel configured to unit sets (POMCUS) to reequip recommendations made by the Commander, US ACC, specific TOE type units upon initial deployment. in coordination with the Commander, FORSCOM, POMCUS will be based on approved pre-positioning and oversea commander subject to HQDA approval. requirements. This materiel will be authorized, and The Surgeon General reviews and approves medical accounted for as an approved DA operational project items contained in all war reserves. HQ DARCOM additional to the theater war reserves discussed performs the necessary review and editing of the above. WARSL and submits the WARSL to HQDA for (2) CONOS toar reserves. These include that approval. portion of the War Reserve Materiel Requirement (2) Temporary use of war reserves to include held in CONUS depots. CONUS war reserves were operational project stocks is as follows: Release of categorized and explained in Chapter 7. fixed and COMSEC telecommunications equipment will be made only by the Deputy Chief of Staff for 5-50. Composition of the War Reserve Logistics. Requests should indicate the date items will Stockage List (WARSL) be replaced. Principal items contained in purpose a. . The WARSL is a listing of principalcodes C,and D, sec- E, S, and T (AR 725-50) will not be ondary end items, POL, operational rations, clothing issued permanently or temporarily for peacetime use and expendable items authorized for stockage in war without prior approval of DCSLOG. Requests for reserves for use by U.S. Forces. Although not listed, temporary use should indicate the date the item is functional components, repair parts, etc., necessary expected to be replaced. The FORSCOM and oversea for mobilization support of WARSL end items, are commanders may use Class II secondary items, Class also authorized for stockage. III packaged POL, Class IY and Class VIII ma- b. The following criteria are used for the selection teriel, and Class IX repair parts from theater PW of items for the WARSL : RMS, less pre-positioned materiel configured to unit (1) Items essential for combat forces. sets, in their respective commands to meet peacetime (2) Items essential for the operational effective- operational requirements provided that the stocks ness of combat support and combat service support can be replaced within sufficient time to meet the forces in support of combat forces. requirement for which the stocks were intended, and (3) Items the lack of which would render in- in no case longer than 90 days from the date of with- operative or seriously impair the operational effec- drawal for FORSCOM, and no longer than 120 days tiveness of essential equipment or weapon systems. from date of withdrawal for oversea commanders. (4) Items essential for the sudden expansion of However, oversea commanders may use such assets, forces, including the callup of Reserve component without assurance of timely replacement, for high forces. priority units whose equipment is deadlined for

5-54 parts. Replacement action will be initiated im

Section X. SECURITY ASSISTANCE 5-51. General the President the general authority for providing a. Within the Department of Defense and the De- military assistance. It authorized him to acquire department of the Army, the provision of logistics sup- fense articles and services from any source and to pro- port to friendly foreign nations under the Foreign vide this support by grant, loan, exchange, sale, lease, Assistance Act of 1961 and the Foreign Military Sales or any other means. Whatever the method, there is Act of 1968 is called Security Assistance (SA) sup- an impact on the Army logistics systems. All pending port. A variety of means are employed in planning, commitments must be evaluated to be sure that they developing, and administering SA support to eligible have been carefully coordinated with US require- countries. Current legislation continues to grant to ments and can be met within the proposed time.

5-55 b. In matters of SA, the DA, like other military implementation of SA programs. The USASAC pro- departments, participates in the development, nego- vides control for all requisitions prepared in support tiation, and execution of agreements with foreign of the SA customer. Detailed procedures are con- governments. The degree of direct participation of tained in the AR 795-series. The dominant role of the various activities of the Army depends upon the the center in the preparation and submission of particular nature and circumstances of the program requisitions to the CONUS supply agencies facili- being developed. tates the integration of the respective SA program requirements with those of US Forces. Thus, through 5-52. Responsibilities this activity, the execution of the programs for the a. The Director of Security Assistance, Office, support of friendly foreign forces is centrally moni- Deputy Chief of Staff for Logistics, Department of tored and the necessary elements of supply and the Army provides policy direction and monitors IL financial data may be accumulated and prepared for materiel and supply activities within the Army. The analysis and reviewed by the responsible division of DARCOM, The Surgeon General, the Chief of Engi- the DARCOM Directorate for USASAC, Head- neers, and The Adjutant General are responsible for quarters, Department of the Army ; and the Office achieving SA objectives and fulfilling specific lo- of the Assistant Secretary of Defense (I&L). gistics requirements established by Headquarters, c. Within each of the DARCOM materiel readi- Department of the Army, and Office of the Secretary ness commands, as well as other Army activities, of Defense. there is an element charged with specific interna- Z>. The US Army Security Assistance Center tional logistics responsibilities. This element plans, (US AS AC) is the operating activity, under the administers, and coordinates SA activities within Directorate of Security Assistance, DARCOM, re- the respective materiel readiness command or na- sponsible for all operational matters regarding the tional inventory control point. CHAPTER 6 ACQUISITION DIRECTIONS

Section I. FUNCTIONS OF ACQUISITION DIRECTION 6-1. Delivery Schedules (5) The Government risks marginal or delin- a. Army acquisition is a function that fulfills a need quent performance. for equipment or to replenish stocks. The amount of (c) Regulations provide that the Government materiel to be acquired is based on studies performed is entitled to receive adequate consideration from the by inventory managers working for the commodity contractor for unexcused failure to meet the delivery commander. These studies result in the issuance of date. Inventory managers must furnish the contract- directives to purchase materiel and are called acquisi- ing officers with a sound basis for justifying sole- tion requests or directives. The basic mission of those source or urgent purchases. Such reasons must be engaged in contracting is to timely acquire materiel convincing and detailed ; a statement such as, “In my or services in the open market at fair prices from professional opinion it-is necessary to procure from responsible sources. The inventory manager is the co- a sole source,” is neither adequate nor valid. ordinator of all supply management data relating to (2) fíate of delivery. Reasonable demands in proposed acquisitions. The decision to buy and the the delivery schedule will often help the contracting issuance of the acquisition directive is his respon- officer to secure a lower price while concurrently in- sibility. creasing competition. Both the number of orders and the quantity of materiel stocked may be reduced by 5. The contracting officer first learns what is re- ordering a large quantity of stock to be delivered in quired when he receives and reviews an acquisition increments. The contracting officer, with his knowl- directive. Discussion of contracting problems and in- edge of the production capabilities of manufacturers, terchange of information between personnel of the can divide a proposed acquisition into economic pro- requiring activity and purchasing activity prior to duction runs, meanwhile inviting the participation that time will contribute to an efficient contracting of small business concerns by means of setting aside operation. Planning and coordination for contract a portion of the requirements for exclusive participa- action, therefore, should begin far in advance of pre- tion by small businesses and economic and socially paring an acquisition directive as timely, prompt co- disadvantaged individuals. Regular replenishments ordination can help identify contracting problems at can be effected within short periods by requiring de- an early stage and lead to timely solutions. livery in increments, eliminating the necessity for (1) Time of maintenancedelivery. Time of ofa large delivery operating depends stock. on the time required to process the documents, pro- (3) Other factors. In addition to urgency of duce the materiel, and secure delivery. A considerable need, other factors to be considered in establishing portion of acquisition time is consumed in administra- delivery schedules are as follows : tion and production, and a, long leadtime means that \d) The production leadtime considering stocks must be ordered well in advance of expected quantities, complexity of design, and prior experi- receipt and that greater amounts of stock must be on ence with similar articles. hand to provide support during the acquisition pe- (5) The acquisition administration lead time riod. The desired time of delivery governs the date including the time necessary to issue solicitations, on which an acquisition directive should be issued. preparation of bids or proposals by indensity evaluation, and selective for awards. Inventory and acquisition managers must work to- (c) The time the contractor needs to comply gether to establish a realistic leadtime for proposed with any other conditions of performance; i.e., sub- acquisition. An unrealistically short leadtime places mitting design data or preproduction models. the contracting officer in a difficult position. {d) The capabilities of small business con- (a) If leadtime is unrealistically short, the cerns and the effect the stipulated delivery rate will contractor may be able to command a premium price. have on their participation in the procurement.

6-1

0 7: (e) The time the Government needs to per- be used, when the ultimate destination is not known form its obligations under the contract; i.e., ap- or is likely to be changed or when supplies are des- proving plans or preprodnction models, furnishing tined for ultimate delivery outside the United States. Government property, and performing tests and When acceptance must be at destination, the solicita- inspection. tion shall be on an f.o.b. destination only basis. (/) Industry practices. c. There are other ways of keeping transportation costs low. These include the following : (g) Market conditions and current capability of known suppliers. ( 1 ) Consolidating small shipments to the same destination into carload or truckload lots. (h) Transportation time and whether slight (2) Consolidating deliveries to different desti- delivery adjustments will permit shipments to be nations en route under single applicable tariffs and consolidated to decrease costs. obtaining stop-off privileges for partial unloading or 6-2. Destination processing. a. The points to which supplies are to be delivered (3) Avoiding crosshauling and backhauling. are generally stated in the acquisition directive and ( Crosshauling is transporting the same types of items become part of the resultant contract. Effective man- in opposite directions between areas ; backhauling is agement requires that stocks be positioned in storage transporting the same items back and forth.) depots in such a way as to conserve transportation (4) Shipping goods in a manner consistent with funds, be responsive to contingency plan actions, and the physical characteristics of the materiel. allow prompt supply to users. The destination has (5) Reviewing packaging specifications to see an important bearing on the contracting officer’s if they allow choice of less costly packaging or selection of suppliers because he must select a re- shipping methods. Thus, inventory managers should sponsive, responsible source whose price, including insure that packaging and delivery point require- shipment to the destination cited, will be the lowest ments do not exceed the standards necessary to secure consistent with the requirement. The experience and prompt delivery of the items. Extra distance, unusual packaging requirements, and nonstandard lots in- knowledge of the transportation specialist, acting as a member of the contracting officer’s team, contributes crease the cost of procurements. to the selection of contractors. Alterations in desti- 6-3. Storage Requirements nations may be required because of fluctuations in It is Army policy that maximum use be made of demand so that a proper stock position may be main- depot facilities. At any given time some depots may tained. It is possible for the contracting officer to be overstocked and some depots may be understocked. solicit bids or proposals on a free on board (f.o.b.) Stockage at depots is normally based on an estab- origin or an f.o.b. destination basis. For example, if lished stock distribution pattern. National inventory an item has been bought f.o.b. and the cost of trans- control points prepare and forward storage space portation from the contractor’s plant to a new desti- forecasts to higher headquarters and receive alloca- nation is less than to the old destination, a change tion of depot storage space. The storage capability order may be issued and the price reduced. If the of a depot being considered for a diverted shipment cost of transportation to the new destination is higher must first be taken into account before shipment than to the old, it may be better to continue with because it may already be overstocked. In addition, delivery as scheduled while meeting the demand at consideration must be given to the physical char- the new destination from another source of supply. acteristics of the supplies, the distance from a Knowledge of the cost of rescheduling shipments terminal of stock pre-positioned in support of con- permits the inventory manager and the contracting tingency plans and the availability of transportation officer to select the most economical course of action. to that point. Contracting officers must consider the &. Full carload or truckload lots are often less geographic location of the point of production in costly when shipped on a Government bill of lading, relation to the point of consumption and the cost of since special rates may be available to the Govern- transportation. Whenever it is possible and economi- ment that are not available to contractors. To deter- cally feasible, maximum use is made of direct mine whether use of a Government bill of lading is delivery from contractor to customer. more economical, solicitations should generally request prices for both origin and destination delivery. 6-4. Fund Availability When received, the contracting officer compares the a. The availability of funds is a basic consideration transportation costs which the offerors submit with in every decision to buy. In the area of principal the cost of shipment on a Government bill of lading. items the manager concentrates his studies on the Origin delivery is then specified if Government provision of materiel in support of plans. Congres- transportation is cheaper ; otherwise, destination de- sional appropriation acts provide the necessary livery is normally required. Origin delivery will also financial resources. When secondary items and repair

6-2 parts are purchased, the manager must constantly tion rather than an expenditure basis. By statute, the consider the balancing of stocks, adjustments in funds provided in the annual appropriation acts are safety levels^ and the ratio of sales to inventory, as 1-year appropriations unless the act specifically pro- money in a stock fund is limited to obligation au- vides otherwise. Thus, funds appropriated for 1 year thority available. Every acquisition directive must cannot be obligated for expenditure in another fiscal cite the funds from which the purchase will be made. year unless a multiple-year or continuing appropria- b. The difference between the commitment and tion is involved. The Anti-Deficiency Act (31 U.S.C. obligation of funds should be understood. A commit- 665) provides that no Government officer or employee shall authorize or create any obligation, or ment is an administrative reservation of funds. An make any expediture, in excess of an apportionment obligation is a legal reservation or a governmental or administrative subdivision of appropriated funds. liability resulting from an agreement to require It requires the executive agencies to prescribe regula- supplies or services under a contract, purchase tions that make it possible to fix responsibility for order, or other document. creating such overobligations or overexpenditures. c. Appropriations ordinarily are categorized as To enforce this prohibition, the act requires adminis- either 1-year, multiple-year, or continuing. These trative disciplinary action for those who inadvert- time limits define only the period for which the ap- ently exceed their authority. It requires criminal propriations are available for obligation; the Gov- penalties for those who do so knowingly and will- ernment’s appropriation structure rests on an obliga- fully.

Section II. ORGANIZE 3N FOR ACQUISITION

6-5. Organizations and Agencies Involved the Secretary of Defense and the Secretaries of the in Acquisition Army, Navy, and the Air Force in deciding disputes a. Department of Army Basic Acquisition. The arising under Government contracts. It is composed Army receives its basic acquisition direction from of qualified attorneys, appointed jointly by the Un- the Secretary of Defense. He has delegated acquisi- der Secretary of Defense (R&D) and the Assistant tion authority to the Under Secretary of Defense Secretaries of the military departments responsible (Research and Engineering (USD (R&E) ) ), who de- for procurement. velops broad policies and procedures for the entire (4) The Defense Contract Audit Agency per- Department of Defense. One major concern is the forms contract and internal audits, some of which elimination of duplicative effort and expense; there- are required by law and others are discretionary. fore, one responsibility of the USD (R&E) is to rec- Cost-reimbursement contracts must be audited while ommend assignment of acquisition responsibility contracts containing price redetermination clauses among the services and the Defense Logistics Agen- may be audited. Pre-award audits shall be performed cy (DLA). He is assisted by a Deputy Under Sec- prior to the negotiation of noncompetitive contracts retary of Defense Research and Engineering (Ac- in excess of $100,000 and may be audited for propo- quisition Policy). sals of a lesser amount. Likewise, the Government has b. Department of Defense Organizations. the right to a post-award audit up to 3 years from (1) The Defense Acquisition Regulatory Coun- the completion of the contract. cil is the (successor body to the ASPR Committee). c. Department of the Arm/y Organizations. The Defense Acquisition Regulation (to replace the (1) Certain Army Staff officers, such as the Armed Services Procurement Regulation) is the Chief of Engineers, The Surgeon General, major regulation with which all DOD acquisition must con- commands of the Army, oversea command, and US form. The responsibility for development and main- Army Materiel Development and Readiness Com- tenance of the Defense Acquisition Regulation is mand (DARCOM) are granted delegated acquisi- vested in the Deputy Under Secretary of Defense tion authority. The DARCOM, as wholesale mate- Research, and Engineering. riel manager, has this authority in order to perform (2) The Defense Acquisition Regulatory Coun- its integrated materiel management mission. The Sec- cil is comprised of one member from each of the retary of the Army, in addition to guiding the ef- services and the DLA plus a legal advisor. Its func- forts of agencies actually engaged in contracting for tion is to develop and implement new and revised materiel, has the assistance of specialists to insure policy and procedures for the effective and efficient that all acquisitions comply with the law and are management of the DOD’s business and contractual in accord with the best interests of the Government. activities. (2) The Assistant Secretary of the Army, In- (3) The Armed Services Board of Contract Ap- stallations and Logistics (ASA(I&L)), is delegated pleals (ASBCA) is the authorized representative of the Army’s acquisition authority by the Secretary 6-3 of the Army. He, in turn, has a Deputy ASA(I&L) eral agencies are concerned with the placement and who acts for him in discharging his acquisition re- management of contracts by GSA, DLA, and the sponsibilities, and a Director for Acquisition that is Army, such as the General Accounting Office (GAO) responsible for those activities of the ASA(I&L) re- is an agency directly responsible to Congress. GAO lated to worldwide direction and supervision of con- evaluates Army acquisition procedure and recom- tracting. mends to Congress any changes that appear to be re- (3) The Judge Advocate General of the Army quired in existing legislation. The GAO determines provides legal counsel to the Secretary of the Army for Congress whether public funds are being spent on matters relating to the legality of action in the in accordance with appropriations. The Comptroller acquisition program, legislative affairs, and incident General is the head of the General Accounting Office thereto publishes opinions relating to acquisition and has statutory authority to settle and adjust all contracting. claims for and against the Government. (4) The Inspector General studies contract e. Contracting Authority. Authority for acquisi- awards, performance, administration, and termination contracting flows from the Secretaries of the tions to insure compliance with the Army directives. Defense through the Military Departments to the (5) The Army Contract Adjustment Board is heads of contracting activities. The contracting of- charged with the administration of Public Law 85- ficer is appointed by the Secretary or the head of the 804, Extraordinary Contractual Actions to Facili- contracting activity. The contracting officer role is tate the National Defense. Where contract perform- separate from supply and disbursing functions so ance is essential to the national defense, the board that he may exercise independent judgment in con- can grant an amendment without consideration to a tracting actions. He is the single point of contact contractor in order to make performance possible. with industry in the business of contracting for sup- Where Government action has caused the contrac- plies and services at a fair and reasonable price. The tor’s loss, the board can grant an amendment with- contractor looks to him for all decisions affecting the out consideration even without Government action acquisition. if such action will facilitate the national defense. Likewise, the board has authority to grant formali- 6-6. Types of Acquisition zation of informal commitments and correction of a.. The Army contracts for its supplies and services mutual mistakes in contracts in order to facilitate by either departmental, interdepartmental, or coordi- the national defense. Heads of procuring activities nated acquisition, and the type of contract established may have this authority delegated to them for ac- for any item determines the agency that will procure tions involving less than $50,000. However, authority the materiel. Departmental acquisition is the action to approve any amendment without consideration taken by the Department of the Army to procure ma- which increases the stated contract price or unit teriel that is intended primarily for Army use. This price may not be delegated below the secretarial level is the materiel developed for and used by the Army, except in extraordinary cases or classes of cases as not by other services. Interdepartmental acquisition to which the Secretary involved finds that there are is the acquisition of supplies from or through Gov- circumstances clearly justifying delegation to a lower ernment departments and agencies outside the De- level. partment of Defense. Supplies used by other services (6) The Secretary of the Army designates those and nonmilitary agencies, in addition to those used agencies that shall act for him in the field of acquisi- by the Army, are procured from the General Services tion contracting as purchasing activities. DARCOM Administration, the National Industries for the and its subordinate commands are the major com- Blind, and the Federal Prison Industries. Coordi- mands most involved in wholesale contracting. The nated acquisition is the acquisition of supplies and contracting officer is required to refer many proposed services from another service or agency within the actions, and findings to the head of the contracting Department of Defense. It includes single depart- activity for approval. ment acquisition whereby one department procures d. Other Federal Agencies. The Defense Supply supplies to satisfy the needs of other military services Centers, the Office of the Deputy Director for Con- for a particular commodity, and plant cognizance tract Administration Services, and the Office of the acquisition whereby one department procures certain Executive Director, Acquisition and Production, supplies from a particular plant to satisfy the needs DLA, and the General Services Administration of other services. In single type acquisition the buy- (GSA) are all designated as heads of contracting ing department is responsible, in general, for opera- activities and are involved in acquisition functions tional phases of acquisition planning. Personnel ana- for the Army. The President and Congress maintain lyze the market, consolidate or divide requirements, close surveillance over defense spending and evaluate and determine patterns for placement of orders in the impact it generates on the national economy. Sev- phases or at specific times in order to avoid high and

6-4 low periods in production and, thereby, secure the cluded in the Federal Supply Classes assigned to it, lowest possible price while fulfilling the needs of the with certain exceptions. The Army may still contract requiring department. For instance, under cognizance for items that are in a research and development acquisition, all propellers of a certain manufacturer stage, atomic ordnance materiel, specialized supplies, are procured by the Navy for use on aircraft of all or those that are still subject to rapid design changes, services. Commodity commands of DARCOM must and it may make emergency acquisition, classified ac- submit their acquisition requests to agencies that have quisition, or purchases of Army-managed or noncata- been assigned such acquisition responsibility. loged items not in excess of $10,000. It may also make b. The Director, Defense Logistics Agency, is re- one-time purchases of noncataloged items not con- sponsible for administering the DOD Coordinated templated as an item of supply in the supply system. Acquisition Progress Program. Inclusion of com- Even though items are classed as exceptions by a mili- modities in this program requires that the group or tary department, DLA will contract them at the class are— request of a service. The General Services Adminis- (1) In common use by two or more military tration is a participant in the DOD Coordinated Ac- departments. quisition Program as it acts as the acquisition source (2) Generally identifiable by acceptable specifi- for certain items in many classes for the Department cations, plans, drawings, or purchase descriptions. of Defense. These are items which are used by all (3) Purchased in sufficient quantity ón a repeti- Government agencies and that are not used only in tive basis to warrant conclusion that coordinated ac- the Department of Defense. Where an item is on a quisition will result in overall savings to the mandatory Federal Supply Schedule, acquisition Government. must be made through GSA. c. Such assignments must include both peacetime e. The DOD Coordinated Acquisition Program has and mobilization requirements. These assignments as its objectives eliminating duplication of acquisi- are made by Federal Supply Class whenever possible tion operations between the military departments, or by items or homogeneous groups of items to the improvement of efficiency and economy, centraliza- military departments or DLA as appropriate. The tion of control, continuing consideration of opera- Director, DLA, administers and supervises the DOD tions, and the benefits of large volume purchasing. Coordinated Acquisition Program. He develops and maintains criteria and procedures for acquisition as- 6-7. Methods of Acquisition signments, recommends new assignments or changes a. The basic and preferred method of contracting to existing assignments, and continually reviews and supplies and services in the Department of Defense evaluates the operation of the program. Contracting is through formal advertising. Any other method of activities are responsible for providing prompt serv- acquisition is an exception to this rule. Formal adver- ice to the requiring departments and, in turn, the tising has often been described as being time consum- requiring departments, by mutual agreement, furnish ing, rigid, or mechanical. There is an element of truth advance planning data to the acquisition department to this statement because the procedures are estab- on request. lished by law and regulation. Formal advertising is d. The assignment of Federal Supply Agency was intended to insure that all qualified sources are given originally made by the Secretary of Defense. It was the opportunity to bid competitively. Likewise, the apparent, however, that many items within Federal Government gains the benefits of full and free com- classes were required only for the use of the services petition. Formal advertising requires that there be— and, for some, the advantages of integrated manage- (1) Sufficient time to follow the inflexible for- ment would be substantial while with others the ad- malities of established procedures. The urgency of a vantages would be minor and the problems would be requirement may be such that the negotiated method serious. This variance in the effect of integration led of acquisition outlined in the Defense Acquisition to item management coding as a means of segregating Regulation must be used. If, however, a part of the out of integrated classes the items on which integra- purchase will satisfy the immediate need, the con- tion was not advantageous. Thus, while an overall tracting officer should fill the urgent portion of the class might be managed by DLA, specific items in purchase directive by negotiation and still formally that class might be retained for integrated materiel advertise the remaining quantity. management by Army or other services. This determi- (2) Competition from at least two responsible nation was made after an interchange of coding data sources. If only one firm has the capability to pro- resulted in agreement within the Department of De- duce, or if one of two firms is so fully occupied as to fense. Although the computation of requirements and be unable to participate, acquisition from one source management of such materiel after it physically by negotiation may be the only method of securing entered the system was retained by Army, the DLA a reasonable price. In this situation reasonableness retained the purchase responsibility for all items in- of price would be insured by analysis of costs and 6-5 comparison of previous prices during the negotiation 6-8. Types of Contracts session. a. Two general types of contracts are used in (3) Precise specifications so as to determine ex- Government acquisition—cost-reimbursement and actly what is required. A clear specification is help- fixed-price. Under a fixed-price contract the con- ful to both the contracting officer and potential contractor guarantees performance in exchange for a tractors. Bidders then know the requirement and certain price. All risks are borne by the contractor. do not make erroneous assumptions, and the contract- Under a cost-reimbursement contract, the contractor ing officer is then able to evaluate bids on a common promises, in effect, that he will try to meet the per- basis. formance requirements of the contract. In return, he 5. A basis for selection by price is necessary before is entitled to the reimbursement of allowable, al- formal advertising is practical. Normally, the re- locable, and reasonable costs of performance in ac- sponsive bidder who submits the lowest price gets the cordance with Section XV of DAR. He may also award. Factors other than price that are equally receive a fee. important usually cannot be considered unless spelled b. The Government varies the terms of these two out in the invitation for bids. basic types to fit the wide range of defense acquisi- c. The contracting officer must exercise judgment tion. If a cost-reimbursement contract offers the con- in determining whether formal advertising is to be tractor benefits beyond the immediate contract, for used. If any of the above factors are missing, for- example, new ideas for commercial products, he may mally advertised procurement will not be fully effec- be willing to accept the work without a fee or even tive. If formal advertising is practicable and feas- absorb a portion of the cost. Conversely, the Govern- ible, it must be used as it is the preferred method of ment may want to provide an incentive fee to en- acquisition and it is, therefore, incumbent upon the courage the contractor to special effort on some as- inventory manager to provide the contracting officer pects of the work, such as cost or delivery time or certain standards of performance. The fixed-price with the basic ingredients for formal advertising; contract may be varied also. If the risk is too great i.e., time, a basis for competition, and clear specifica- for a contractor to accept a firm fixed-price contract, tions. but reason exists to expect reductions in cost or im- d. The Defense Acquisition Regulation lists the provements in performance, a fixed-price incentive exceptions to the requirement for formal advertis- contract may be used. Fixed-price incentive differs ing. The determination as to which method of con- from the cost plus incentive fee contract in that the tracting to use, formal advertising or negotiation, is contractor is responsible for all costs in excess of a not too difficult if the nature of the article, the time ceiling price established in the contract. If acquisi- available, or the existence or lack of existence of com- tion costs are uncertain at first, but production expe- petition strongly indicate or demand the use of one rience may subsequently make a firm price possible, a method over the other. Circumstances alter cases, fixed-price incentive successive targets contract may however, and neither formal advertising nor nego- be used. In still another fixed-price situation, market tiation is the preferable method of acquisition under conditions may make materiel prices and labor rates uncertain. Here, economic price adjustment pro- all conditions. The fact that acquisition seems to fall visions may be used to adjust the contract price for within an exception does not necessarily justify nego- materiel and labor cost changes as they occur. tiation. Likewise formal advertising should not pre- c. The Government, like any other buyer, wants its vail if advertising is impractical or negotiation is suppliers to assume as much risk as is fair. Therefore, clearly the best choice. In the final analysis the de- it prefers to use firm fixed-price contracts whenever cision to use either formal advertising or negotia- practicable. The Government also recognizes that tion is based on a determination of which method unusual risks are involved in filling some of its needs. will best serve the Government’s interest. The use of The goal is timely delivery of a quality product at a formal advertising offers Government contracts im- reasonable price. A close relationship exists between partially among suppliers, and obtains for the the type of contract used and the final price. Thus, Government the benefits of free competition. Formal use of the appropriate contract type for each acquisi- advertising will be used when— tion is of primary importance in obtaining fair and (1) Precise and nonrestrictive specifications are reasonable pricing. The choice of contract type in- available. volves a delicate balancing of the contractor’s risks against his expected reward. Some of the cost varia- (2) There is adequate competition. bles which may influence the estimate are the— (3) There is sufficient time. (1) Type and complexity of item being pro- When one or more of the above conditions is lacking, cured. negotiation is preferable. (2) Urgency of the requirement.

6-6 (3) Period of contract performance. data are lacking at the outset to allow long range, (4) Stability of the design. accurate cost computation. Under a prospective re- (5) Experience with the contractor. determination contract, the price is adjusted at spe- (6) Extent and nature of subcontracting. cific time during performance. This type of contract (7) Financial responsibility. eliminates contingencies from the contractor’s esti- (8) Administrative cost. mate. Conversely, it requires a considerable amount (9) Adequacy of the contractor’s accounting of accounting, is administratively burdensome, and system. part of the risk is transferred to the Government. The (10) Amount of research and development. retroactive variant of redeterminable contracts pro- cl. The fixed-price contract is the preferred basic vides for a retroactive price redetermination after type, variations of which are— completion of the contract and use of a price ceiling (1) Fii^m fixed-price. Under this arrangement, is mandatory. This type of contract cannot be used the contractor is required to furnish acceptable sup- for anything but research and development contracts with value of less than $100,000 and its use requires plies or services at a specified price which is not sub- written approval by the head of the contracting ject to adjustment regardless of the actual costs of activity. performance:'Since the contractor bears all the risk, (4) Fixed-price incentive. The objective of this this is the preferred pricing arrangement. However, pricing arrangement is to harness the profit motive in the absence of price competition, or when cost or to obtain greater economy and efficiency. The Govern- pricing data or performance uncertainties preclude ment offers a proportionately higher profit for out- attainment of a realistic cost estimate, another ar- standing effort and economical performance, modest rangement may be better. A firm fixed-price contract r. profit for mediocre performance, and low profit or would be used when reasonably definitive specificá-^ even loss for inferior performance. The fixed-price tions are available and where the impact of identifi- ■ „.incentive (firm target) contract is usable whenever a able. cost variants can be reasonably estimated. How- U firm target and formula for establishing a final price ever, there are several disadvantages inhèféht in the which insure a reasonable incentive can be negotiated firm fixed-price contract; i.e., it lacks pricing flexi- at the outset. The parties agree on a possible range bility in an unstable market and it is inappropriate of costs and initially negotiate: target cost—target if the specifications are rtot clear and complete. profit—and price ceiling. An incentive share formula (2) Fixed-price with economic price adjustment. establishes the final price in accordance with the This arrangement is useful .'where there is reason to relationship which final cost bears to 'target cost. If question the stability of the market or the labor con- the parties agree to a 60/40 sharing arrangement, the ditions which will prevail over the period of contract Government would pay 60 cents and the contractor performance. It provides for upward or downward would pay’40 cents for every dollar by which the price adjustment on the occurrence of the events final costs exceeded' target- cost up to the ceiling stipulated in the contract. Any costs exceeding the price, or limit of Government obligation. Costs in- agreed upon adjustment limit are absorbed by the curred which exceed the ceiling price are borne by contractor. Cost decreases' are without limitation. the contractor alone. Conversely, for every dollar by Price adjustment contingencies should be limited to which final cost is below target cost, the Government factors beyond the normal control of the contractor, would receive a 60-cent reduction from the target such as increases or decreases in the cost of materiel. cost, while the contractor would increase his profits Amounts of labor or materiel required should not be by 401cents above target profit. The fixed-price in- the basis for price adjustment. Usually, these con- centive (successive target) contract is used when the tracts contain a “trigger mechanism”; that is, a pro- ..havailable pricing data, though adequate for estab- vision that the Government will defer repricing lishing an initial target price, are not sufficient for the action until the increase or decrease equals plus or negotiation of firm target price. In this situation, the minus 3 percent of the original total contract price. Government may establish an initial target cost and (3) Fixed-price redetermindble. This type of profit, a price ceiling, a formula for fixing the firm contract can be used where adequate estimates of target profit, and a specified production point in- total materiel and labor needs are not initially known cident to the contract. When that production point or existing specifications are not sufficiently firm and accurate, or where sound initial estimates of the is reached, either a firm target cost is negotiated and total cost of performance cannot be made. Two types the formula is applied to determine the firm target of redetermination provisions are now in use—pro- profit or the" initial pricing arrangement is con- spective and retroactive. The prospective type is ap- verted to a firm fixed price if further cost reduction propriate for long-term production contracts in is considered improbable. The danger in any fixed- which a firm fixed-price can be agreed upon for only price incentive arrangement is that an unrealistic part of the contract period and where adequate cost target price may be negotiated. In that event, a cost

6-7 overrun may not reflect a lack of cost control by the arrangement is not feasible. The cost plus fixed-fee contractor and a cost underrun may not reflect out- arrangement provides minimum incentive and is standing cost control. In addition to cost incentive, costly to administer. The Government has all the incentive may also, and as an addition to cost, be risk of inefficient performance and the contractor has based on performance or delivery. none. e. In general, cost-reimbursement contracts pro- (4) Cost. Thé contractor is reimbursed only to vide that the contractor shall be reimbursed for al- the extent of allowable costs. He receives no fee. This lowable costs incurred in the performance of the type of contract is applicable when the cost is un- contract. Variations of the cost reimbursement are— certain and the use of a fixed-price type contract is (1) Cost plus incentive fee. This pricing ar- precluded. It is also used for research and develop- rangement is used when the cost uncertainties and ment work with educational and nonprofit institu- magnitude of possible overruns or underruns are tions. A private contractor may accept this arrange- too great to indicate use of a fixed-price incentive ment in order to gain production experience or to contract. It is often used for the development and keep a plant operating. The cost contract is expen- testing of major weapons systems when the opera- sive to administer and provides little incentive to tional success of the development is probable, and for the contractor to keep costs down. initial product development of major weapons where (5) Cost sharing. The contractor receives no fee desired performance objectives are known. The con- and is reimbursed only for an agreed portion of his tract provides for target cost, target fee, maximum allowable costs. A cost-sharing contract is used when fee, minimum fee, and share formula. Thus, if we the item to be procured has, or can reasonably be have a development contract with a $100,000 target expected to have, substantial commercial value to cost, an $8,000 target fee, a $14,000 maximum fee, the contractor. It is appropriate for research and a $2,000 minimum fee, and an 80/20 share ratio, the development work only when there is high probabil- contractor’s incentive for efficient performance is as ity that the contractor will gain substantial com- follows : If costs are $100,000, the contractor receives mercial benefits. The use of a cost-sharing contract an $8,000 fee ; if costs are reduced to $85,000, the con- requires approval from the head of the contracting tractor will be allowed to retain $3,000 of the saving activity. thus increasing his final fee to $11,000. On the other hand if costs are increased to $112,000, the contractor 6-9. Other Policies on Selection of absorbs 20 percent of the $12,000 cost overrun and Contractors his fee is reduced to $5,600. The contractor’s gains a. The Small Business Act of 1958 states that the and losses, however, can only vary within the maxi- Government should aid, assist, and protect, as far as mum and minimum fee limits. possible, the interest of small business in order to (2) Cost plus award fee. In this type of contract preserve free competitive enterprise and insure that the fee consists of two parts, a fixed amount and an a fair proportion of Government contracts are placed award. The amount of the award fee is based on an with small business. Contracting officers are guided evaluation by the Government of the contractor’s by Public Law 95-507, and the DAE, in their deter- performance. This type of contract is suitable for mination of what percentage of a total purchase level of effort contracts when the measure of per- should be set aside or reserved for award to small formance must be by subjective evaluation. business concerns or minority business. If the con- (3) Cost plus fixed fee. In this type of contract tracting officer questions the status of a small busi- the contractor is reimbursed for all allowable and ness or its ability to timely perform, he must submit a allocable costs and, in addition, is paid a fixed fee, written notice to the Small Business Administration which mav not exceed the statutory limitations set (SBA). Acquisition action is suspended until either forth in 10 U.S.C. 2306 (d). For research and develop- SBA makes its determination, i.e., agreeing with or ment contracts the limit is 15 percent of the estimated overruling the contracting officer, or a specific wait- cost for performance; for supply and service'con- ing period (15 working days) has passed. Small busi- tracts the limit is 10 percent. In cost plus fixed-fee ness specialists are appointed in acquisition offices to contracts for architectural and engineering services, advise, the contracting officer in this area. The con- the fee may not exceed 6 percent of the estimated tracting officer and an SBA representative jointly de- cost of the project, exclusive of fees, as determined termine whether a procurement shall be set aside for by the Secretary concerned at the time of entering the exclusive participation of small business. Some- the contract. It is used in contracts for research, times the contracting officer knows from experience preliminary exploration, or studies to determine the that sufficient bids will be received to permit award feasibility of development, and where the level of to small business concerns at reasonable prices. In effort required is unknown. It may be used for devel- this case he will restrict the advertising for bids to opment and testing where a cost plus incentive fee such firms. Acquisition directives should allow the

6-8 contracting officer as much time as practicable for (3) The cost of repetitive testing would be administering small business setasides as they re- excessive. quire, and allow ample time for bid preparation and (4) The interest of the Government requires submission. Moreover, questioning of a bidder’s small that, prior to contract award, the product is satis- business status may delay award and possibly de- factory for its intended use. livery of materiel. e. Qualified products lists (QPL) identify the b. The Labor Surplus Area Program has goals specification, the manufacturer, the item by part, similar to those of the Small Business Program. Both model, or trade name. The qualified products lists are are part of the larger goal of providing an effective identified with the applicable class of the Federal mobilization base. It is DOD policy that concerns, Supply Classification to which the qualified product both large and small, located in labor surplus areas, belongs. This list is established and maintained by as determined by the Department of Labor, be con- the activity that develops the specification. sidered for award of contracts, consistent with requirement needs. A labor surplus area, by definition, 6-10. Contract Administration is where the percent of the available work force that a. During the performance of a contract, the con- is unemployed is at least 120 percent of the national tracting officer can initiate actions which affect price, average. The goals of the Labor Surplus Area Pro- time of performance, and other terms and conditions gram are to foster the placing of contracts and fa- of the contract. Most of these actions are authorized cilities in labor surplus area and to assist such areas under specific clauses of the contract. These are uni- in making the best use of their available resources. lateral actions. Examples are change orders, inspec- c. The Buy American Act restricts the acquisition tion, terminations, and stop work orders. In these of foreign-made goods by the United States Govern- cases the Government includes the clauses in the con- ment. In supply contracts such goods cannot be pur- tract for the specific purpose of being able to take chased unless they are for use overseas, they are not such actions. In a Changes Clause, the contractor has available in the United States, or the cost of do- a right to file for an equitable adjustment in the con- mestic goods would be unreasonable. The Depart- tract price and/or in the delivery schedule. ment of Defense lists those items which have been b. The Changes Clause is the most frequently in- determined to be unavailable within the United voked clause in a Government contract. It serves the States. Items which are not on this list require a vital purpose of enabling the Government to make separate determination of unavailability by various necessary changes during performance to insure that staff officers within the military department, depend- the end result will be fully in accord with the needs ing on the dollar volume of the purchase. Likewise, of the Government. The Government has the right to the DAR sets forth guidelines for the determina- make changes in drawings, designs, or specifications tion of whether the cost of buying domestic prod- if an item is being specially manufactured for the Government and the change is within the general ucts is reasonable. Essentially, bids offering foreign products are increased ( for bid evaluation purposes scope of the contract. In addition, the Government may unilaterally change the method of shipment or only) by adding varying percentages to the bid packing or the place of delivery in the contract. prices. If the lowest “foreign” bid is then still lower c. The majority of performance problems which than the lowest bidder offering a domestic product, the Government encounters is either the technical re- the award is normally made to the foreign bidder. quirements of the contract or the time of perform- Generally speaking, Canadian products are consid- ance. Much of the difficulty in the technical area is in ered domestic products for the purposes of the Buy the interpretation of specifications. To insure that American Act. the Government receives a quality product for a fair d. Where it is necessary to test a product prior to price, it conducts testing and inspection of the sup- purchase in order to insure required quality, mate- plies against the requirements as prescribed in the riel is subjected to a qualification test. Those items drawings and specifications. The inspection or test found to satisfy the requirements of an applicable will vary from relatively simple methods to complex specification are considered as qualified. products. procedures. Specifications that require products to be tested and d. If the contractor unexcusably fails to perform qualified are identified in the Defense Standardiza- in the maner specified in the contract, the Govern- tion Manual (M200). A qualification requirement is ment, by contract clause, has the right to terminate included in a specification where one or more of the for default the whole or any portion of the contract. following conditions exist: In such cases, the contractor1 may be responsible for (1) The time required for testing in connec- excess costs of recontracting. Likewise, if all or a portion with the production would delay delivery. tion of the materiel is no longer required, the Gov- (2) Tests would require special equipment not ernment has the right to terminate for convenience. commonly available. In such cases, the contractor must be paid for items 6-9 already accepted and for work in progress on the cision on the dispute. The contractor, of course, may terminated portion of the contract. He also may be appeal this decision within the subsequent 90 days to allowed reasonable profit. the Armed Services Board of Contract Appeals, or e. A very important area in contract administration within the following 12 months, directly to the Court is the settlement of disputes which arise between the of Claims. Government and the contractor. The standard Dis- /. The Defense Contract Administration Services putes Clause states in part “except as otherwise pro- (DCAS) administers over 90 percent of all awarded vided in this contract, any dispute concerning a ques- contracts in excess of $10,000. To accomplish its basic tion of fact arising under this contract which is not mission, which is generally defined as “technical and disposed of by agreement shall be decided by the administrative services in support of buying orga- contracting officer. . . .” Some examples of contro- nizations performed at or near contractor establish- versies which come under the Disputes Clause are: ments ; to facilitate contract performance and insure The amount of equitable adjustments under the compliance with the terms and conditions of Govern- Changes Clause or the Government-Furnished ment contracts,” DCAS has been organized with a Property Clause ; the amount of a termination settle- headquarters and a field organization comprised of ment; whether a contract was properly terminated for default or whether the costs assessed were reason- nine geographic regions which, in turn, are divided able, and almost any other matter involving the in- into districts and offices. The purpose of DCAS is to terpretation of contract requirements. In such centralize contract administration activities of the situations the duty of the contracting officer is similar Department of Defense, achieve efficiencies, and im- to that of a judge deciding questions of fact. He prove management and operations, by implementing provides, in writing to the contractor, his final de- uniform policies, procedures, and organization. CHAPTER 7 DISTRIBUTION MANAGEMENT

Section I. OBJECTIVES AND CONCEPTS 7-1. General ditions, to be economical in terms of use of physical This chapter will be devoted to a discussion of dis- and manpower resources, and to be resistant to distribution management. As the title implies, distribu- ruption by either the forces of nature or enemy action. tion management is concerned with the physical 7-3. Systems Concept of Materiel movement of items through the various Department of Defense supply and distribution systems. While Distribution primarily concerned with physical distribution, this . a. As previously stated, the purpose of the distribu- chapter will also discuss, in broad terms, flow of tion system is to move supplies from the producer requisitioning documents and the standard systems to the consumer in as straight a line as possible. The used to control, regulate, and evaluate the distribu- ideal system would have an item of supply placed on tion system. This chapter will also address the func- a transportation mode at origin and shipped directly tions of storage as an element of the distribution to the ultimate consumer. This system would elimi- system and will also discuss the distribution of each nate all intermediate distribution echelons, thereby of the 10 classes of supply. saving valuable resources for application elsewhere in the military system. 7-2. Objectives of Distribution b. In reality, however, sophisticated systems have Management not yet been developed to support the ideal system. а. Once quantitative materiel requirements have The forecasting of requirements, supply rates, and been determined, and supplies have been procured, consumer locations is still an imprecise science as is supplies are the responsibility of the distribution sys- the forecasting of production rates and raw material tem until issued to the ultimate user. The functions availability. This all necessitates stockpiling of sup- of the distribution system are : plies at some intermediate point to compensate for (1) Receipt. The process of accepting supplies fluctuation of production or demand and to allow for into the military supply system. the procurement of economical order quantities. (2) Storage. The process of holding and caring c. The benefits of intermediate stockpiling points for supplies prior to the issue. have been briefly discussed. This benefit is not with- (3) Transportation. The movement of supplies out cost as each point where supplies are diverted within the distribution system. causes an expenditure of resources. It, therefore, fol- (4) Issue. The releasing of supplies to consum- lows that the minimization of resource expenditures ing or using activities. can be accomplished by maximizing the throughput б. Supplies ordinarily remain in the hands of users of supplies. This is the basic premise for the Direct until they are consumed, become unserviceable, or Support System (DSS) and the Airline of Commu- become obsolete. Unserviceable supplies may be nication (ALOC) Subsystem, both of which will be restored to serviceable condition by maintenance discussed later in this chapter. activities and returned either to the user or to the d. Depots in the Continental United States are distribution system. established primarily to collect supplies from manu- c. The purpose of the distribution system is to facturers. However, materiel may be delivered by a move supplies from the grower, producer, fabricator, manufacturer directly to a user or to any other point or manufacturer to the user. This should be accom- in the distribution system where it is needed. If this plished in as nearly a straight line as possible with a were always feasible, depots in the United States minimum number of stops. The goals of the distribu- would be needed only for reserves and would not tion system are to be responsive to the user, to be enter into the normal distribution process. This is, sufficiently flexible to adapt to rapidly changing con- in fact, the case for distribution of most bulk petro- 7-1 leum products. The Army maintains insignificant furnish specific real estate or facilities, as one exam- bulk petroleum storage in the United States. How- ple ; or it may be determined that, for short-duration ever, for most other materiel, the Army finds that, operations, offshore stockage will give our forces in order to overcome the uncertainties of production greater flexibility. Other considerations are security, time, to compensate for fluctuations in demand, to suitable storage areas, transportation networks, and permit procurement of economical order quantities, the possibility of long-range offensive operations. and to develop reserves for contingencies, depots in /i. Another major consideration is the need for pro- the United States are necessary. Nevertheless, when- viding well-trained combat service support troops. ever feasible, materiel is shipped directly from pro- To insure adequate training of combat service direct ducer to requisitioner. Although some oversea and general support troops, it is frequently necessary stockage is retained (war reserve, safety level, and to authorize these support units stationed at installa- operational project stocks) most supply requirements tions in the Continental United States to stock sup- for direct support units are met by direct delivery plies and repair parts, and to furnish this support from CONUS depots, bypassing CONUS installa- to other units dependent on the installation for sup- tions or oversea general support units and break bulk port. This concept provides an assurance that points when possible. well-trained units are immediately available for e. For oversea theaters, shipping time becomes the deployment. major factor in determining the need for stockage ■i. A final consideration is that organizations for points. When air shipment is used, supplies may be - combat service support units are kept viable by using delivered to an oversea theater in a matter of a few a building block principle. Basic tables of organiza- days. On the other hand, shipment by sea may require tion and equipment units can be combined in a a month or more, including loading and unloading variety of organizational patterns to meet the spe- time. If the requirements for items are not predict- cific need of the theater. able over a long term and if the consequences of j. The preceding discussion suggests a flexible and shortages are serious, a fast mode of delivery must highly adaptable conceptual model of the distribu- be employed or stockage points must be established tion system in which the source of supply and the in which sufficient quantities are maintained to give user are the only constants. Yet, even the source of commanders a reasonable assurance that items will supply may vary; it may be a Continental US pro- be available when needed. If the requirements for ducer or an oversea US national or foreign producer. items are predictable or shortages are not of great The source may also be rebuild operations or the consequence, minimum or zero stockage, together cannibalization of unserviceable equipment. None- with sea delivery, might be acceptable. theless, the logistician’s attention should focus on the f. Each combat unit carries its basic load and pre- objectives of the distribution system, rather than on scribed load list, which consists of enough supplies a stylized organization for achieving these objectives. and repair parts to enable a unit to sustain itself for In this way, the logistician can concentrate on the a limited time until it can be resupplied. Combat advances in management techniques, the increases in units normally draw their supplies from direct sup- numbers and complexity of items in the system, and port units that maintain stocks of items most essen- the rapidly changing patterns and conditions of tial to continue operations of the combat units. These warfare. stocks are kept to a minimum, according to authorized stockage lists, to enable direct, support units to 7-4. The “Pipeline” Concept of Materiel maintain the same level of mobility as the units Distribution which they support. Since direct support units can- a. The administrative and physical structure not carry all items required by combat units, another through which demands for materiel are expressed source, called general support, may be established. and goods flow to the point of ultimate use is known They will maintain a somewhat lesser degree of mo- as the distribution pipeline of supply. bility but will respond rapidly to requisitions for &. The magnitude of the oversea pipelines may be items not stocked by (or out of stock in) direct sup- envisioned from the fact that one quarter to one port units. third of the stocks committed for specific oversea g. A number of other considerations govern estab- areas of operations are generally contained in the lishment of sources of supply, one or more of which pipeline. Pipeline stocks for oversea operations have, may take precedence over the others. Some of these at times, amounted to over $10 billion; thus, the im- considerations are associated with US relationships portance of accelerating the flow of goods to reduce with the country in which (or from which) opera- investment, obsolescence, and administrative costs is tions are conducted. It may be neither desirable nor readily understandable. feasible to maintain large stocks of supplies in a c. Some provision for storage is necessary to insure friendly country. The host country may refuse to dependable supply. Along a military supply route,

7-2 there must be reservoirs where quantities of goods are ply is the system by which the supplier calculates temporarily held. The accumulation at each of these quantities of supplies for using organizations and way-stations may be considered insurance against ships them forward without requisitions on schedules failures in prompt and adequate transmission of sup- agreeable to the user. Note : Paragraph 4-4'a, AR plies from points in the rear. These reservoirs and 11-8, indicates that it is Army policy that shipments carriers (Ships, barges, trains, motor vehicles, planes, of supplies for initial support for deploying forces of or oil pipelines) loaded with cargo constitute the a contingency operation will not be accomplished by logistics pipeline. Interpreted in a broader sense, the “push shipments.” The support shipments must be word pipeline might be considered as including all preplanned with the recipient participating in item depots and depot operations worldwide. In this sense, selection, fully knowledgeable of shipment contend the pipeline would include the stocks held as reserves and will be called forward. The speed of computation for future contingencies, such as mobilization reserves and communication inherent in automated processes or stocks accumulated for future military exercises, makes it feasible to adapt principles of scheduled as well as materiel stored for early or immediate supply to subsistence, petroleum, and general supplies issue in support of the current activities of the mili- having uniform recurring demand or to those for tary services at home and abroad. which requirements are predictable with reasonable d. The pipeline is both physical ( with storage loca- accuracy. In addition to unitization and scheduled tions and transportation facilities) and administra- supply, a responsive system should also be adaptable tive (requiring processing of documents). The physi- to direct delivery (throughput). Generally speaking, cal structure of the pipeline makes possible the flow the communications zone transportation brings sup- of materiel through the military distribution system plies into the combat zone and, wherever possible, into from the point of receipt from procurement of pro- the areas where the supplies will be consumed. It can duction to the point of final use. Every physical be anticipated that, as an attainable objective, a large element of the pipeline has a corresponding adminis- percentage of all supply shipments will bypass the trative element, because every movement of supplies next lower echelon. requires processing of documents. Document processing time may exceed the time for the physical 7-6. Environment of Support movement of supplies; thus, is an area for constant Operations management attention. a. The tactical and physical environments in which combat service support operations are performed are 7-5. Mobile and Responsive Support important considerations in the analysis of the ma- a. Supply organizations must be sufficiently mobile teriel distribution system. The tactical environment to insure continuity of support, regai'dless of the ranges from peacetime training to major warfare. speed with which the supported units are moving or The physical environment includes the configuration the intensity of combat. The rapid movement of com- and conditions of the terrain, the weather, and the bat troops to achieve surprise or to concentrate power influence of the economic and technological develop- can only be effective if troops have sufficient supplies ment of the people native to the theater of operations. to achieve and hold their objectives. In addition, the b. In limited warfare, many of the difficulties of ultimate measure of the effectiveness of such a maneu- peacetime operations prevail in the face of a con- ver may be determined by the capability to exploit tinuing responsibility to provide maximum support the initial success. This again depends on the ability to tactical units engaging the enemy; however, in a of supporting units to resupply and maintain the major war, whether nuclear or nonnuclear, quantities combat units. The capability of mobile and responsive of supplies are moved by every available means of support is the product of careful planning and disci- transportation. Many uncertainties are introduced plined training. ranging from interdiction of supply lines to extensive b. In order to develop and maintain a capability for mobile support, combat service support units must radiological, biological, and chemical contamination be trained to operate with minimum inventories. The of food and materiel. key to success in this objective lies in substituting c. For contingency planning purposes, it must be responsive supply action for stockage. Among the assumed that the United States could some day be techniques under continuing development to increase in a nuclear war. In view of this assumption, logis- the responsiveness of supply action are unitization ticians managing the distribution system have an of supplies and scheduled supply, together with im- important responsibility. Survival and eventual vic- proved transportation. Unitization of supply is the tory after a nuclear holocaust may depend upon assembling of a number of items so that they can be foresight in storing in protected facilities the mate- handled as a unit. These units may range in size from riel essential to survival, including the basic weapons pallets to standard 40-foot containers. Scheduled sup- of war. 7-3 d. The characteristics of the terrain strongly af- clothing and individual equipment when needed, fect the configuration of the distribution system. while equipment and facilities may be idled for lack Major supporting stocks for an island campaign of repairs for a period of time without equivalent may be placed on ships or on other islands ; whereas, consequences. Even a shortage of supplies required in a campaign conducted deep into enemy territory, for operations (e.g., gasoline and ammunition), a succession of stockage points and a complex trans- while serious, is not usually as catastrophic as starv- portation system may be required. Some other pos- ing troops. Therefore, food will normally be dis- sible environments are : tributed by scheduled supply, that is, without requi- (1) Operations on the North American conti- sition; but repair parts are normally supplied on nent with overland distribution capabilities from the presentation of a requisition. Stockage lists are based supply to the combat troops. on the frequency of requests and essentiality, while (2) Operations in long but narrow terrain (e.g., stock levels are a function of the quantity requested. Vietnam). Materiel distributed in support of operations, how- (3) Operations well within the perimeter of a ever, must be delivered at times and in quantities large land mass (e.g., Central Africa). The distri- dictated by the activities of the operations. There- bution system in mountainous terrain will vary sig- fore, timing and density of deliveries will vary, but nificantly from a system on flat terrain. Distribution delivery as needed is essential. Consequently, these in subarctic regions in the winter is vastly more com- supplies, like food, are often distributed automati- plicated than in temperate areas, and each involves cally rather than by requisition. The fourth category, a set of problems different from those encountered materiel for development and support of facilities, in desert regions. poses special distribution problems. This materiel is e. Finally, the level of technological development usually bulky and required in large quantities. Ex- within the area of operations plays a vital role in tensive amounts of construction materiel are redesign of the distribution system. A country replete quired in the early stages of an operation, the time with high-speed rail and highway routes, pipelines, when distribution resources are taxed to the break- and having numerous heavy duty landing fields poses ing point. For that matter, throughout the conduct far fewer distribution problems, assuming tactical of an operation, construction materials must com- air superiority, than an underdeveloped nation. Fur- pete for distribution resources with supplies destined thermore, the skilled people of a highly developed for combat troops. nation may often be recruited to supplement mili- c. The second approach to viewing the distribution tary personnel in performing the technical functions system is by degree of criticality of the materiel be- of the distribution system, whereas the local na- ing distributed. If difficulty is experienced in main- tionals of an underdeveloped country require inten- taining specific combat-essential equipment (e.g., sive training and closer supervision. helicopters), management emphasis may be placed on this aspect of the distribution system. This man- 7-7. Distribution Management Analysis agement emphasis may go so far as to separate the a. Specific approaches, using techniques similar management of repair parts for the critical items to those developed for inventory systems analysis, into an essentially separate distribution system. In can be developed for the analysis of the distribution such a special system, transportation might be dedi- system by : cated specifically to delivery of the materiel, ware- (1) The activity for which materiel is being house space segregated for storage, and specialists managed. organized to control issue of the materiel. Several (2) Criticality of materiel. types of materiel are always critical in combat opera- (3) The environment in which supplies are tions and, therefore, their distribution may also have being used (including the distance from the supply unique characteristics. All materiel considered essen- source). tial to moving, shooting, and communicating comes (4) Classes of supply. under this category. &. In the first approach, the distribution system d. The third approach to viewing the distribution is viewed in terms of the use of the materiel. Mate- system (by the environment in which supplies are be- riel is used for the : ing used) was discussed in paragraph 7-6. The dis- ( 1 ) Support of personnel. tance of the supported activity from the source of (2) Repair of equipment. supply and the environment in which support must (3) Support of operations. be accomplished are among the factors which ac- (4) Development and support of facilities. count for the unique characteristics of distribution The timing of distribution of materiel for the use systems within each theater of operations. In plan- of personnel is usually more critical than for the ning for establishing supply systems in new areas of other elements. Personnel must have food daily and operations and for subsequent réévaluation of these

7-4 supply systems, each system may be considered, in a where it is procured, must undergo veterinarian in- sense, a separate subsystem of the worldwide supply spections before it is finally served. Another example system, with as many aspects as practical designed to is bulk petroleum products which are distributed conform to a generalized model of the worldwide whenever practicable by pipeline. They are purchased supply system. from commercial storage facilities and delivered by e. In the fourth approach to viewing the distribu- commercial carriers to installations in the United tion system, the 10 classes of supply are each viewed States, or shipped overseas to commercial or military as subsystems. Each class has certain peculiarities tank farms. While the classes of supply are often which, in turn, influence its distribution pattern. managed by the same activities, stored in the same Some perishable items, for example, may generally general areas, and delivered by the same transporta- be procured overseas from the best available sources tion, there are enough significant differences to make without concern for the procurement constraints in- their separate consideration a useful analytical tool flicted on most other materiel. Meat, regardless of for understanding the distribution system. Section II. THE MILITARY STANDARD LOGISTICS DATA SYSTEMS 7-8. Introduction identical data in the columnar sequence of the punch The ever-expanding use of automatic data process- cards are transmitted to permit rapid transcription ing equipment and digital communications networks to a punch card. Although the form and format are requires a common language of machine-sensible fixed, certain of the data may be manipulated and codes and formats. Such a common language must other data added to produce a variety of card docu- be recognizable not only to the machine and comments essential to processing. Some common docu- munications equipment but also to the human opera- ments thus produced are requisitions, cancellations, tor. Standardization and integration of data systems passing orders, referral orders, supply status, follow- permit the output of one data system to be communi- up, followup answers, materiel release orders, ship- .i cated and used as the input to other related data ment status, materiel release confirmation, materiel sj'stems. A prime example of this standardization release denials, notice of availability, requisition and integration of data systems is to be found in the modifiers, and reconciliation requests. The imple- Militarj' Standard Logistics Systems (MILS). Cur- menting publication is AR 725-50. rently, there are 10 standard systems or MILS that 5. The Military Supply Transaction Reporting cover nearly all of the functional areas of the mate- and Accounting Procedures (MILSTRAP) pre- riel life cycle. Each system was designed to standard- scribes and standardizes machine sensible codes, ize and automate the paper processes concerned with formats, uniform procedures and time standards for its area of responsibility, viz, requisitioning and issue recording inventory management data passed be- of supplies, accounting for inventory, transportation tween elements of a single distribution system or and movement of inventory, performance reporting transmitted between various î)OD distribution of, supply and transportation phases and others. As systems, i.e., inventory control and stock control the need for increased communication continues and activities, depot storage sites and post, camp, base, or as new systems are developed, new languages will be station. MILSTRAP documentation is utilized to required and new MILS will be established. The cur- record demand data for the establishment of require- rent MILS are described below. ment levels, accounting for receipt and issue of DOD a. The Military Standard Requisitioning and Issue assets, performing inventories and processing of Procedures (MILSTRIP) was the first MILS and adj ustments to accountable records, effecting logistics led to the growth of the remaining standard logistics reassignments, and processing of special program systems. MILSTRIP prescribes uniform procedures requirements. MILSTRAP also provides for the for requisitioning and issue of materiel commodities small arms serial number registration and reporting between requisitioners and supply control/distribu- between the DOD Central Registry and the Military tion systems and utilizes standard single line item Departments/Defense Logistics Agency Component format documentation. The requisition documents Registries. The implementing publication is AR consist of conventional 80-column punch cards. The 725-50, Chapter 5. cards may be punched and transmitted by transceiver ~~c. The Military Standard Transportation and communications or may be completed manually and Movement Procedures (MILSTAMP) provides mailed. The manner in which the form is completed standard transportation movement procedures, codes, and submitted is dictated by the punch card format and formats which control the movement of cargo and communications capability of the requisitioner. into and through all segments of the Defense Trans- Teletype and telephone communications also are au- portation System. In doing so it interfaces with the thorized for high-priority requisitions, in which case supply procedures in MILSTRIP. MILSTAMP also 7-5 prescribes the preparation of intransit data cards standard automated procedures and formats for bill- (IDC’s) at the shipping activity and their subse- ing and collecting for direct delivery from con- quent completion by the receiving activity, plus port tractors, for reimbursable sales of DOD stock fund receipt and lift data for export shipments. These materiel, for appropriation financed materiel and data are essential to measure actual performance reimbursable sales from the General Services Ad- against transportation time segments prescribed in ministration. The implementing publication is AR the Uniform Materiel Movement and Issue Priority 37-12. System (UMMIPS) and to support the performance A. The Department of Defense Activity Address evaluation requirements of the Military Supply Directory (DODAAD) is the standard system de- and Transportation Evaluation Procedures signed to provide identification codes, clear text ad- (MILSTEP). The implementing publication is dresses, and selected data characteristics of organi- DODR 4500.32-R. zational activities needed for materiel requisitioning, d. The Military Supply and Transportation marking, shipping document preparation, billing and Evaluation Procedures is the system that evaluates similar applications. This system is used by the mili- the MILSTRIP supply requisitioning performance tary down to unit level and by General Services Ad- data and the MILSTAMP transportation perform- ministration and other civil agencies. The Directory, ance data against the time standards of UMMIPS. DOD 4000.25-D, is maintained at the Defense Auto- These input data are mechanically manipulated to matic Addressing System (DAASO), at Dayton, produce standard output reports by military depart- Ohio and is published on microfiche in two parts: ment and by distribution system to reflect, by issue code to clear text address and Zip Code sequence. The priority, the elapsed time for requisition submission, implementing publication is AR 725-50, Chapter 9. supply source processing, cargo handling time, and i. The Military Assistance Program Address Di- intransit time by each segment of the transportation rectory (MAPAD) is a standard system designed to pipeline by point-to-point and carrier performance. provide the addresses of country representatives, MILSTEP also assists in the evaluation and main- freight forwarders, and customers-within-country re- tenance of UMMIP’s time standards, as well as quired for releasing Foreign Military Sales (FMS) determining supply systems workload and materiel and Military Assistance Program (MAP) and grant availability. The implementing publication is AR. aid shipments. The addresses are also required for 725-50, Chapter 13. distribution of related documentation. The MAPAD e. The Standard Contract Administration Pro- addresses are provided by representatives of foreign cedures (MILSCAP) provides the standardized governments for use in receipt of materiel purchased uniform procedures, record formats, data elements, under the FMS Program and by US military assist- and response times utilized in the interchange of ance advisory groups for receipt of materiel under automated contractual data between contract admin- the MAP Grant Aid Program. The master auto- istration activities, buying offices, contractors, in- mated file is maintained by the Defense Automatic ventory control points, and other user activities. It is Addressing System Office (DAASO), Dayton, Ohio. essentially a procedure to automate the various The implementing publication is the MAPAD Di- phases of contract administration to include contract rectory DOD 5105.38-D. abstracting, contract payment notification, shipment •j. The Defense Automatic Addressing System performance notification, destination acceptance re- (DAAS) is a real time, random access digital com- porting, plus other segments for future implementa- puter system linked to the automatic digital network tion into the 1980’s. The implementing publication is (AUTODIN). Its basic purpose is to automatically DODM 4105.63-M. route or pass supply transactions to the correct re- f. The Military Standard Petroleum System cipients. This system embodies the integration of (MILSPETS) has been established to provide auto- logistics and telecommunications into a single data mated standard procedures, forms, formats, data processing system. The DAAS is operated by the elements, codes and methods for interservice/agency DAASO and has two automatic switching centers, use relative to the management of petroleum prod- one each at Dayton, OH and Defense Depot, Tracy, ucts. Unlike the other MILS, MILSPETS is com- CA. Each is capable of full operation when the other modity rather than functionally oriented. To the is down. The system is in continuous operation 24 maximum extent practical, standard data elements, hours per day 7 days per week. The implementing codes, and formats of other MILS will be used in publication is AR 725-50 Chapter 14. MILSPETS procedures. This includes the applicable h. The Uniform Materiel Movement and Issue provisions of UMMIPS. The implementing publica- Priority System (UMMIPS) is that system estab- tion is DOD 4140.25-M. lished for use in the requisitioning and movement of g. The Military Standard Billing System materiel from and within the DOD distribution sys- (MILSBILLS) is the system that prescribes tem. In itself the UMMIPS is not a separate MILS.

7-6 It is the DOD time accounting or measuring system UMMIPS provides a ready basis for expressing the that establishes common or uniform time standards, relative importance on requisitions and other ma- priorities, and language for use in those MILS such teriel movement transactions through a series of two- as MILSTRIP, MILSTRAP, MILSTAMP, digit codes known as priority designators. The in- MILSTEP, and MILSPETS. As a time measuring creasing use of automatic data processing systems in procedure it is an integral part of each of these sys- handling supply and transportation documents tems, measuring and evaluating each segment of the makes this concise codification of precedents essential order-ship time. The overall objective of the to the operation of the Department of Defense dis- UMMIPS time standards is to provide guidance tribution system. Placed in the proper data field of in satisfying a customers demand within the cumu- the supply and transportation documents, the prior- lative time prescribed for the assigned designator. It ity designator insures appropriate hañdling of com- tells the customer within his urgency of need when peting demands. he can expect to receive the requisitioned item. At the &. In the requisitioning and issuing of materiel, same time it tells the supplying logistician how fast the priority designator is based upon a combination his response must be. An understanding of the MILS of factors which relate the mission of the requisi- requires an understanding of UMMIPS, the “rule tioner (force/activity designator) and the urgency book” for all segments of the order and ship time of need or the end use (as indicated by the urgency that are subject to time frame measurements or of need designator). The force/activity designator evaluation. (a roman numeral) is assigned by the Joint Chiefs of Staff or by each military service. The urgency of 7-9. Establishing Priorities for Process- need designator (an alphabetical letter) is deter- ing Requisitions and Shipping Ma- mined by the requisitioning activity. With certain ex- teriel Under UMMIPS ceptions, these two factors will enable the requisi- a. The Uniform Materiel Movement and Issue tioning activity to determine the priorty designator Priority System is applicable to the requisitioning (arabic numeral). In addition to using the priority and issue processing of all items under the manage- designator for the requisitioning and issuing of ma- - ment of military departments, defense agencies, and, teriel, it may also be used for retrograde movement by agreement the General Services Administration, of reparables, the return of excess, and other special for items in their depot program. The time standards circumstances. The 15 priority designators provided prescribed cover interservice supply support opera- in the Uniform Materiel Movement and Issue Prior- tions for items normally stocked. Standards pre- ity System have been placed into three priority scribed assume that the items required are in stock groups. Each priority group qualifies for different and available for issue; consequently, the standards processing time standards as shown in Figure 7—2 do not reflect procurement lead time. In the move- These priority groups are compatible with the trans- ment and issue of materiel, it is necessary to identify portation priorities described in the Military Stand- the relative importance of competing demands for ard Transportation and Movement Procedures. the logistics system resources, i.e., transportation, c. A priority designator of 03 may be used by all warehousing, paperwork processing, and inventories. activities regardless of force activity designator for STAUDARD DELIVERY DATES

PRIORITY PRIORITY CONUS OR* GROUP DESIGNATOR INTRATHEATER OVERSEA*

ONE 01 THRU 03 7 DAYS 11-12 DAYS Two 0A THRU 08 11 DAYS 15-16 DAYS

THREE 09 THRU 15 28 DAYS 66-81 DAYS

*FROM DATE OF REQUISITION TO RECEIPT OF MATERIEL.

Figure 7-1. Standard Delivery Dates 7-7 316-276 0-80-8 medical or disaster supplies or equipment required /. Requisition documents indicating priority des- immediately for prolonging life, relieving suffering, ignators 01 to 08 will be transmitted under priority or expediting recovery in case of injury, illness or communications precedence. Documents with prior- disease, or avoiding or reducing the impact of epi- ity designators 01 through 03 will be transmitted demics or similar potential mass illness or diseases. under communications precedence “operational im- A priority designator of OB may also be used by all mediate” if the commander on the scene determines activities regardless of force activity designator for that the situation so warrants. Documents indicating emergency supplies or equipment required imme- priority designators 09 through 15 may be trans- diately for controlling civil disturbances, disorder, or mitted by transceiver, courier (when appropriate), rioting. A priority designator of 06 may be used by all or US mail, consistent with military service policy, activities regardless of force activity designator for geographical considerations, priority designators, emergency supplies of individual and organization and required delivery date. To evaluate the total per- clothing to active duty military personnel who are formance under this priority system, the date placed actually without the clothing required. on the requisition is the date of transmittal from the d. The commander or, in his absence, the acting requisitioning activity concerned to the appropriate commanding officer will authenticate the assignment supply source. of priorities by placing his signature in column d of g. Conditions will exist in which available assets DA Form 2064 (Document Register for Supply Ac- cannot satisfy all current demands and due-outs for tions) for each request submitted containing priority a specific item. A due-out, as applied to supplying in- designators 01 through 08. stallation, is that quantity of materiel.requisitioned e. The required delivery date is the calendar date by ordering activities which is not immediately avail- when materiel is required by the requisitioner. De- able for issue, but which is recorded as a stock com- livery data standards are established based on prior- mitment for future issue. Inventory managers estab- ity designators. Requisitioning activities determine lish procedures for release of assets in short supply if the priority delivery date standards will meet their in accordance with the following criteria : requirements. If so, no required delivery date is ( 1 ) Automatic procedures will sequence demand placed on the requisition. The requisitioner can as- by priority designator, and by requisition document sume, unless requisition status information indicates plumber date within equal priority designators. otherwise, that delivery will be made not later than (2) Manual review will-be made when release of the priority delivery date established. However, dates assets may result in failure to satisfy a firm com- other than those established by the priority delivery mitment for delivery of materiel to a military assist- date may sometimes be used under certain specified ance recipient or failure to satisfy a requisition re- conditions. In the case of Foreign Military Sales, flecting a Joint Chiefs of Staff assigned project code. where the US commitment requires delivery to the Decisions on the selection of demands to be satisfied customer at point of origin, a required availability will be based on schedule due-in signficance of Joint date, which does not include a transportation ele- Chiefs of Staff assigned project codes, and accepta- ment, is used. bility of substitute items.

Section III. REQUI TONING STORAGE 7-10. The Flow of Requisitioning of supplies between storage sites and between users, and the notification of action taken in response to a CL. The operation of the distribution system is normally initiated by the submission of requests by directive to ship from a storage point. using units or supply points. A Department of the h. The frequency of submitting requisitions is the Army Form 2765 (Request for Issue or Turn-In) is prerogative of the requisitioner; except for subsist- the request prepared by using units at the supply ence items, the distribution system does not normally points. Department of Defense Form 1348 (DOD prescribe scheduling of submission. Requisitions are Single Line Item Requisition System Document) is submitted when required to meet stockage objectives the manually prepared requisition and 1348M the one or to meet specific priority requirements other than for automatic data processing. DD Form 1348 con- stockage. Requisitions for subsistence items, however, sists of four copies. This form is used as a manual are submitted in accordance with schedules estab- requisition, manual followup, and manual cancella- lished by the Defense Personnel Support Center in tion. It may be prepared by typewriter, pencil, or the Continental United States. Overseas, the Ma- ballpoint pen. DD Form 1348M is used for the teriel Management Centers (MMC’s) of the applica- followup answer, supply status, notice of shipment ble support activities submit schedules for Class I in from supplier to customer, rerouting the requisition, accordance with existing and anticipated strength direction of a shipment to a customer, redistribution requirements. The supporting depot or inventory

7-8 control point within CONUS is required to maintain stant concern, and protection from contamination by liaison with the installations they actively support. chemical, radiological, and biological agents may be- Overseas, the MMC and general support storage ac- come an important consideration. There are two tivities maintain customer assistance officers to pro- general classifications of storage space—covered and vide this-con tact. Under normal circumstances, the open. supporU'd'epot or inventory control point’maintains c. Covered storage space is storage space within any a contact folder for each activity or installation it roofed structure. This includes a variety of general- supports. Overseas, this folder is maintained at the and special-purpose structures. The general-purpose MMC and general support storage activity. Problems warehouse, constructed with roof, sidewalls, and end- arising between visits are usually filed in this folder walls, provides excellent storage for many kinds of if they can be suspended until the next visit. items. The single-story warehouse with a floor at rail- c. Requisitions usually move back through the dis- road car floor and truckbed level has become the tribution system from the direct support unit toward standard type of warehouse because of its low operat- the inventory control point. The first stockage point ing cost. Truckloading platforms may be on one side which the requisition reaches that is authorized to of the general-purpose warehouse and carloading carry the materiel in stock should be able to fill the platforms may be the length of the other side. The requisition. At each stockage point not authorized to dimensions of the platforms and the aisles of the carry the materiel, the requisition is recorded as a de- warehouse should afford maximum convenience for mand (a prescribed number of demands in a given use of mechanical handling equipment commensurate time period authorizes the stockage point to stock the with efficient use of storage space. Refrigerated ware- item of materiel) and a new requisition is automati- houses usually are divided into two distinct areas: cally punched duplicating most of the information on chill space in which the temperature can be controlled the requisition. However, when the materiel requisi- between 32 degrees and 50 degrees F. and freeze space tioned is not in stock but should be, then the supply in which the temperature can be controlled below 32 point will either establish a due-out (meaning that degrees F. Flammable storage warehouses are used the requisition will be held on file until a shipment is for storing highly combustible materials such as paint received at a stockage point) and so notify the requisi- and oils. The unique feature of these structures is that tioner ; or it will refer the requisition to another source they are normally separated into compartments di- by preparing a new requisition (referral order) du- vided by firewalls. Explosives are generally stored in plicating most of the information on the requisition it above-ground magazines or in igloos. The igloo is a received except for the address. The requisitioner will type of magazine that is generally constructed of be notified of the referral of the passed requisition so masonry with an arch-type of roof covered with dirt. that followup actions can be taken with the proper All ammunition storage facilities require detailed source. attention in construction and maintenance to the explosives-safety regulations which govern their use. 7-Uv Storage d. Other types of closed storage are controlled- a. An essential element of national defense is the humidity warehouses, transit sheds, dry tanks, and ability to apply military power-iwhere and when sheds. The controlled-humidity warehouse is needed. Supply is an integral part of that ability and normally a sealed general-purpose warehouse with storage is a vital link in the chain of supply from pro- devices for controlling humidity. Transit sheds are ducer to consumer. Storage is the instrument by which basically roofed sheds placed beside or immediately the fluctuating rate of consumption 's kept in balance adjacent to docking facilities to protect supplies from -re 1 V.lll with the more uniform rate of production. It cushions the weather during loading and unloading. Actually, the effect of interruption,jn production upon the most transit sheds are not open-sided as the name availability of materiel, and by‘proper timing and implies but are buildings with closed sides and ends placement, insures effective logistical support of the and are generally used on wharves and piers. Dry military force. tanks are used for long-term storage and are con- b. Supplies in storage must be cared for and pro- structed entirely of steel except for a concrete floor. tected to insure that they will be available in service- Such items as automotive parts that are not intended able condition when needed. Storage should be for use for a number of years are kept in dry tanks. planned so that supplies are always accessible, even A shed is a roofed structure without complete side- during rapid expansion and contraction, and that walls and endwalls. A shed is used for storage of space is used efficiently. Storage should be designed materials that require maximum ventilation or ma- for efficient receiving, storing, care in storage, issu- terials that do not require complete protection from ing, and accounting for supplies. Physical security the weather. This type of building is a compromise from theft, sabotage, and overt enemy attack are also between open storage and warehouse storage. Tarpau- considerations. In addition, fire protection is a con- lins may be used as sidewalls for the protection of 7-9 supplies. Tarpaulins, however, make identification stock item. Record cards contain the stock number, and care of stocks more difficult. the unit of issue, nomenclature, and location of the e. Improved open storage space is an open area lot for each item stocked. Since storage areas are laid that has been graded and hardsurfaced or prepared out and marked in rows, stacks, and levels, a floor with a topping of some suitable material to permit plan enables the stock picker to match the location effective materials handling operations. In addition shown on the location card with the floor plan and to the hard surface, the open storage space must have then proceed directly to stored item. When stock in adequate drainage to afford protection from wet any one location is exhausted, that listing is lined out ground conditions. Hard surfaces are often impro- on the locator card.. Normally, only one location vised from steel mats or from pallets or timber. It should be maintained -in bin storage. Proper selection may sometimes become necessary to use unimproved of locations for issues and consolidations of receipts open storage space. This practice often results in the aid materially in keeping the.number of locations to waste'of many man-hours when stocks have to be a minimum. Periodic location surveys verify recorded moved and sorted when earth surfaces erode or be- locations against actual locations. Also, stock loca- come muddy. When operational conditions make the tions are verified at the time normal stock inventories use of unimproved open storage necessary, care are taken as a part of the regular inventory pro- should be taken to provide drainage, to mark aisles cedure. Maximum^r-utilization of-o-,storage space clearly, and to block up and maintain stacks of sup- (especially the covered storage which-.is always at a plies frequently. premium) takes, precedence over the minimizing of /. The Department of Defense specifies certain the number of locations. Inefficiencies in use of stor- policies regarding uniformity in the development of age space may result from an attempt to minimize storage layout plans. Aisle widths are limited to the numbers of locations for items by such practices as size required for the operation of materials handling specifying warehouse locations for one item and only equipment needed to handle the unit loads in stor- one, thus producing wasted space when the particular age. In general, items are stored by Federal supply items are in short supply. A better practice is to con- class (the first four digits of the National Stock centrate on maximum use of storage space, depeiidirig Number). Relative activity or turnover is a primary on lociitor cards for efficient" selection of neede'dTtems consideration in determining storage locatons for ma- for shipment. Consolidation of locations'; ■whilefvery teriel. Stock moving daily and retail bin stock should helpfulr' becomes secondaryfbttpoî'effîeientii/spacc be stacked near the shipping or breakout area. The utilization. y>- ' to-f- size of an individual item affects not only the amount i. One of the most important functions of the of storage space allocated to a Federal supply class storage operations is receiving. Receiving operations but it is also considered in the location of that class concern the manner in which supplies are brought within the storage area. into the storage operation. Prompt and accurate proc- g. Most items of general supply do not require ^essirfg of receipts is, therefore, a prime requisite of special handling or storage methods, although C-an eflective^torage operation. The details of receiv- similarity, popularity, and size of the item must be ing-operations are, for the most part, dependent upon 1 considered. Others, however, require special handling. types of supplies to be handled, distance supplies For instance, some materials are handled in bulk; ■ must be moved, types of materiels handling equip- hard fuels require special storage areas and handling ment available, and physical characteristics of the equipment; and liquids handled in bulk require storage installation. Planning is necessary in all pumps, pipelines, and special storage tanks. Con- receiving operations. Certain preconceived plans or sideration is given to the special handling and stor- ideas must be followed by the personnel unloading age of all such materials in planning the storage supplies.-Planning'begins when the first information areas. When the materials have a limited storage life, is receivecj-fihad'r-idehtifies,'a-shipment. The central care must be taken to insure that the oldest stock is control officemf^storage? operations establishes overall issued first. Many foods must be kept in refrigerated priorities based on receiving workload as indicated areas or in temperature-controlled areas. Many items by shipment arrival notices, initiates action to obtain have a high resale value and are subject to pilferage. unusual equipment and labor requirements, assigns This materiel is located in buildings or areas where available vacant space to meet demand brought about security control can be established and the entire by incoming stocks, and insures the dissemination of storage operaton rigidly controlled. advance receiving information to warehouse person- h. The rapid selection of stocks for shipment, nel and other personnel concerned. Because of many efficient handling of receipts, and the maximum use factors over which storage officials have little con- of storage space depend upon the effective use of an trol, day-to-day receiving operations fluctuate more adequate stock locator system. The basic element of than any other activity. As a consequence, a high a good locator system is the record card for each degree of coordination among the separate receiving

7-10 operations is necessary. Incoming shipments also (3) Each piece of equipment should do a variety must be checked carefully to include the tallying of of jobs. However, with the many sizes, weights, and incoming supplies, the inspection of the supplies, and types of packaging, there must be a number of types the checking of documents. The transportation officer of equipment available in each installation. Conse- must be notified of all over, short, or damaged ship- quently, careful management is required to optimize ments which are received. The unloading, checking, their use. Materiels handling must be planned and and storing of security or sensitive items, such as organized so that the most efficient piece of equipment alcohol, narcotics, and strategic and critical materiel, is available for each moving or stacking operation. require special handling and, in most cases, special For example, a forklift might be appropriate to move methods of documentation. pallets a short distance, but a tractor-trailer train j. The issue process of the storage operation is would be far more efficient for movements over longer heavily dependent upon the efficiency in which the distances. receiving function is accomplished. Issue operations (4) Advance planning of materiels handling deal with the selecting of stocks in storage and ready- methods and equipment is performed concurrently ing them for shipment. The accuracy and timeliness with other planning activities and undertakings. in which the supplies are received and placed in Some of the factors requiring advance planning in- storage determine the ease with which the issue func- clude the need for protection against weather and tion can be performed. As was the case in receiving, breakage, the possibility of using unitized loads, the planning plays an all-important role. Beginning with opportunities for standardizing equipment and meth- the receipt of notification for issue, commonly called ods, and the possibility of combining materials han- a materiel release order, through the selection of dling methods. Safety is always a prime planning stocks and the physical packaging and packing to consideration. final marking and unitizing, priorities are established &. The use of physical labor in the handling of by the production control element. Outgoing ship- materials in storage must be kept to a minimum. ments must also be checked cautiously to insure While a certain amount of troop labor is necessary, proper selection, accurate documentation, adequate this labor is by no means free ; in fact, the long-term packaging, and correct labeling. It is through the cost to the Army of using troops for labor makes it issue fuction that we insure delivery in good condition imperative that logistics managers exhaust other al- to the ultimate consumer. ternatives before turning to troop labor. One of the intangible costs of troop labor is the disruption of 7-12. Materiels Handling unit training; and in wartime, when manpower is a. Materiels handling involves the movement of always short, the use of large numbers of troops to materiels and supplies from one place of operation handle supplies manually in storage installations to another without affecting their value and without must be avoided. Consequently, the planning for pro- performing any productive operation. The basic prin- curement, operation, and maintenance of materiels ciples of materiels handling require that : handling equipment is important. (1) Packing techniques such as palletization and c. The automation of warehouse operations is not containerization must be standardized and coordi- often practicable in the Army except in major depots. nated with the design and procurement of materiels Nevertheless, a brief review of some of the principles handling equipment so equipment at a storage loca- of automation of warehouses will be useful since most tion can handle all supplies delivered. Furthermore, of these principles govern any type of system and the design of aisles and stacks in all types of storage are, therefore, useful in analyzing and improving facilities must be coordinated with types to be pro- manual and mechanical as well as automated ware- cured. Platforms, ramps, and intransit storage facili- house operations. The automated warehouse employs ties must be compatible with both the materiels mechanical devices to supply the power and control handling equipment and the unloading characteris- of movement of goods under general (often remote) tics of the transportation media. human guidance. These categories of equipment are (2) The flow patterns of movement of supplies employed: Materiels handling equipment such as should be designed and periodically reevaluated to belts, towlines, tractors, and skate wheel and roller allow for maximum utilization of materiels handling conveyors; mechanized storage and dispensing sys- equipment. Idle equipment is often an indication of tems, or static storage combined with retrieval equip- inefficient flow patterns. A straight line between pick- ment; and information processing equipment to up and delivery points is the shortest distance between the points, a consideration which is sometimes maintain status records on item location and inven- overlooked. Loading, unloading, and turnaround tory levels, to process orders, and to issue picking, space is required. One of the basic objectives of marshalling, and dispatching instructions. Gates and materiels handling is to organize handling so that the switches are used to control the movement of goods number and distances of moves are minimized on conveyors and other materiels handling equip- 7-11 ment. Neither mechanization nor automation need humidity affords the greater degree of protection. be applied totally and uniformly to a warehouse. The When warehouse space is unavailable, items may be state-of-the-art is still sufficiently limited so that placed in shed storage, and, as a last priority, in open complete automation must be confined within fairly storage. tight limits of item or container size and weight. The c. Modem storage aids (platforms, pallets, bin principles of automation which can be applied to storage and materiels handling equipment) should both mechanized and manual systems require : be employed to insure optimum use of storage space. (1) Location of fast-moving items near the All supplies shall be properly identified, classified by control center and marshalling and shipping condition code, and properly marked for storage. operations. Good housekeeping practices are essential to morale (2) Arrangement of belts, skate wheel conveyors, and safety, and all storage areas should be closed, and other devices so that items or crates can be moved and tears and ruptures in stacked or boxed sub- directly and in one continuous operation from the sistence should be closed with a patch or recovered. receiving point to the storage location, or from the d. All supplies, materiel, and equipment entering storage location to the shipping point. or in the Department of Defense supply system, in- (3) Control devices to signal when a decision is cluding movement in or between oversea theaters, needed. When one element of the system has reached must be afforded the degree of preservation, pack- full capacity, a decision is needed to shift operations aging, and packing required to prevent deterioration to another element of the system. When there is a and damage during shipment, handling, and storage, malfunction in the system, that portion of the sys- If possible, preservation, packaging, packing, and tem affected must be stopped until the malfunction marking, including minor repair, are performed can be corrected. during inspection of mission stocks. e. Unserviceable stock is recorded in appropriate 7-13. Care of Supplies in Storage accounts and held at the activity until disposition (COSTS) or Materiel Readiness instructions are received ; or it is shipped to an ac- a. Any program for the care of supplies in storage tivity having a maintenance facility. The disposition is an important responsibility of the storage and instructions may be : quality control managers. The program is concerned (1) Recondition and repair at the reporting with determining through a systematic quality con- depot, or ship to a depot having a depot maintenance trol procedure the type of storage best suited to the facility. item, the methods of inspecting the stock’s condition, (2) Obtain repair by commercial contract. and the application of all required preservation, (3) Release the stock to the property disposal packaging, packing, and marking to insure that the officer, after it has been declared surplus. item is maintained in a ready-for-use condition. The /. Modernization of storage and materials han- degree of activity involved in each phase of the pro- dling operations must be accomplished where im- gram depends upon the type of item, type of storage, proved supply response and/or reduced operating the military level of packaging and packing afforded, costs are possible. Processes recommended in TM anticipated length of storage, probable end use, and 743-200-2 were conceived with the objective‘of mini- other governing factors. mizing manual handling in favor of maximum mech- &. Serviceable and economically reparable unserv- anized handling. The ultimate objective is the mech- iceable supplies and equipment will be stored in ware- anized movement of materiel from time of receipt houses as space is available. Controlled humidity until it reaches the shipment consolidation point, space will be utilized to the maximum practicable ex- over the most direct route possible, and with the tent, giving priority to items for which controlled fewest practicable en route handlings.

Section IV. DISTRIBUTION OF ALL CLASSES OF SUPPLY

7-14. Pattern of Distribution of General agement significance. This section and Section Y deal Supplies with the bulk of supplies for which the distribution patterns are similar. Sections VI and VII discuss the a. The previous sections of this chapter have covered the principles of distribution which are appli- distribution of petroleum products and ammunition. cable to all classes of supply. In this section and the They are discussed in separate sections because each following three sections, each class of supply will be is highly critical to combat operations, is fast mov- discussed in order to illustrate the peculiarities in the ing, and has peculiarities which necessitate a distinct distribution of the classes of supply which have man- distribution subsystem. The distribution of medical

7-12 supplies is discussed along with general supplies prising the American civilian diet, as well as special because, although a separate system has been estab- or operational-type rations required for military use. lished for medical supply, its mechanics are essen- The center also provides survival-type food for the tially the same as for other classes of supply. Civil Defense Program and has initiated Direct Sup- b. Except for items authorized for local or offshore ply Support to commissaries overseas. DLA is the procurement, general supplies are centrally procured proponent for this system. It is much like the Army and stored in Continental US depots. Items which Direct Support System in concept but is a separate have been coded for central management by the De- system under DLA. The center procures food through fense Logistics Agency are procured by that agency four regional headquarters and 21 permanent or sea- and stored in depot space allocated in the agency. sonally operated field buying offices. Each region Army-managed items are also procured and stored in operates storage and distribution facilities for per- allocated space in Continental US depots. Installa- ishable foods. Each region procures nonperishable tions in the United States requisition these centrally subsistence for delivery to depots or installations. managed supplies from the depots for delivery to b. For installations in the United States, nonper- installation storage points or directly to using units. ishable food items are stored at designated distribu- When possible, general supplies are shipped from the tion points. Perishable subsistence supplies are usu- wholesale CONUS depot system to the requisitioner. ally obtained from regional marketing centers oper- The process of shipping directly from the CONUS ated by the Defense Personnel Support Center. Local depot to the requisitioner, thus bypassing the procurement is authorized in emergencies. The dis- CONUS installation, is referred to as the Direct tribution activities at installations include ware- Support System (DSS) and is explained in detail houses for nonperishable subsistence, cold-storage fa- in Section V. cilities (including freezers, chill rooms, and vege- c. For overseas theaters, materiel is shipped from table storage), ration distribution activities, issue Continental US depots to major overseas stockage commissaries, and commissary storage. The chief of points or directly to the general support or direct the veterinary activity is responsible for procure- support unit. The process of bypassing the interme- ment and surveillance inspection services for subsis- diate upply echelons is again referred to as the Direct tence, encompassing acceptability for quality and Support System and is being utilized to provide wholesomeness, and for determining potential as- classes of supply II; III (Packaged) ; IV, Selected; pects of chemical, biological, and radiological haz- V (Missile System Components only) VII; and IX, ards pertaining to subsistence items and household Materiel. supplies for sale to authorized customers. d. For those items which are authorized for local c. Class I supply in the theater of operations is pri- or offshore procurement (“local” is the term used for marily a problem of bulk and tonnage. It is also a re- procurement by posts, camps, or stations in the frigeration problem for some items. Class I supplies United States, its possessions, and Canada; “off- move through supply channels at a fairly uniform shore” is the term used for procurement of military rate. To minimize supply administration and physi- needs anywhere other than the United States, its pos- cal handling of supplies, the system uses as few inter- sessions, and Canada), action is accomplished by the mediate echelons as possible. Experience data at each local procurement agency. The materiel so purchased supply echelon permit virtually automatic issue of is normally delivered directly to the requiring rations based on unit strength. Related items, such as organizations. salt tablets, soap, insecticides, and toilet tissue are e. Depending on the urgency of a requirement, the also issued through Class I channels. most economical mode of shipment available is se- d. Perishable subsistence may be obtained overseas lected. However, to meet the processing time stand- from local sources through offshore procurement ards, which are based on priorities, modes of trans- techniques. Whenever practicable, these supplies are portation other than the most economical are often procured by bartering techniques, using surplus agri- selected. cultural commodities from the United States as a medium. The use of offshore procurement of perishables 7-15. Distribution of Class I Supplies— adds to the menus offered to troops, but it increases Subsistence the health hazard. As a result, the functions of the a. The Defense PersonnelMilitary Support Veterinary Center Services of the in inspecting foodstuffs Defense Logistics Agency procures food, clothing, becomes particularly significant. When feasible, per- textiles, footwear, individual equipment, and medical ishables are delivered directly to organizational and dental supplies for the Army. The center man- breakdown points. Nonperishables are distributed ages about 1,200 food items cataloged for use by the through the normal general support-direct support military services. These cover the range of foods com- system. 7-13 7-16. Distribution of Class II Supplies— propriated funds. Distribution overseas, however, in- Secondary Items of Equipment volves the distribution system and poses a major problem of pilferage. The items are easily converted Authorized in Allowance Tables to cash, making them an attractive target for thieves. and Items of Supply Including Therefore, security measures are intensive through- Expendable and Consumable out the distribution process. Locked and guarded a. As mentioned in paragraph /(2)(a), the De- containers and warehouses are provided at terminals fense Personnel Support Center procures and man- and major oversea storage points. Personal demand ages most clothing and individual equipment used items are usually controlled separately within major by the Army. This materiel is stored in Continental oversea depots and distributed to sales points (e.g., US depots. post exchanges) directly from the distribution 5. Personal clothing in the Continental United centers. States is usually distributed through clothing sales 7-19. Distribution of Class VII Supplies— stores and issue points. The clothing sales store provides an economical method of issuing and selling Major End Items of Equipment personal clothing to military personnel. Personal Authorized in Allowance Tables clothing includes dress uniforms, fatigues, boots, and The significant difference between distribution of headgear which must be in serviceable condition and major end items and secondary items is that major in the possession of enlisted personnel. The clothing end items are controlled by line item and distributed sales stores are direct support system customers; in accordance with carefully developed distribution therefore, they requisition directly on the wholesale plans, whereas secondary items are, in general, dis- depot system. tributed on demand. Certain major end items are c. Clothing is distributed overseas through the selected for stockage as an operational readiness float DSS to the general support stockage point and the used for replacement of lost, destroyed, or uneco- direct support unit, except that oversea installations nomically reparable items on one hand, or for im- may establish and operate clothing sales stores in ac- mediate replacement of items to be repaired (repair cordance with the same regulations used in the Con- cycle float ) on the other. The physical distribution of tinental United States. these items both in CONUS and overseas is through d. In the case of Class II items other than clothing, the DSS. they will be provided both in CONUS and overseas through either the self-service sales stores ( source of 7-20. Distribution of Class VIII Sup- expendable items) or the supporting direct support plies—Medical Materiel and Re- unit (nonexpendable TOE items) both of which are pair Parts DSS customers. a. The Defense Personnel Support Center procures 7-17. Distribution of Class IV Supplies— and manages medical, dental, and veterinary supplies and equipment that are common to the three military Construction Materials departments. In CONUS, deliveries of medical ma- Construction materials present a special problem be- teriel are made directly from Defense Logistics cause of their intrinsic weight, large quantities re- Agency depots to medical units, usually hospitals, quired, the extraordinarily wide variety of hardware, located at CONUS installations. In oversea areas, and the vulnerability to pilferage. Most construction medical materiel is shipped to installation medical supplies are procured by the Defense Logistics Agen- supply activities and medical supply, optical, and cy’s Defense Construction Supply Center. Since com- maintenance (MEDSOM) units for further distribu- mercial-type construction materials are readily avail- tion to medical units. able, the need for storage of these supplies is not ex- b. The medical supply system operates separately tensive in the United States. However, the require- from the rest of the Army logistics system, though ment for the storage and shipment of Class IV items the distribution patterns are similar. The reasons for to oversea areas is extensive. Distribution both over- separating medical logistics from Army logistics seas and in CONUS of this class of supply is through generally revolve around the criticality of the mission the DSS. of the Army Medical Department, the catastrophic 7-18. Distribution of Class VI Supplies— effects of shortages of medical supplies, and the fact that medical supplies are used almost exclusively by Personal Support Items (Ex- professional personnel of the Army Medical Depart- change and Shipstore Type) ment. The Army Medical Department plays an im- Distribution of personal demand items (e.g., cam- portant role in maintaining the combat effectiveness eras, watches) in the Continental United States is of units. The value of a combat-hardened soldier can- managed outside the logistics system using nonap- not be equated to a given number of raw replace-

7-14 merits ; therefore, the medical treatment of wounded (e.g., helicopters for air assault units), the entire soldiers and those incapacitated by disease to return repair parts system is intensively managed. them to combat duties takes on great significance. It is the goal of the Army Medical Department never 7-22. Distribution of Class X Supplies— to permit an individual to die or be permanently lost Nonmilitary Support Materiel for duty for lack of medical supplies. These important The distribution system for items of supply to sup- and humane considerations account for the separa- port nonmilitary programs (e.g., agricultural and tion of medical supply from normal Army supply. economic development) depends on agreement with the foreign countries supported and with elements of 7-21. Distribution of Class IX Supplies— the other departments of the Government (primarily Repair Parts (Less Medical) In- the State Department). Usually, delivery of these cluding Expendables and Consum- items follows the same channels as general supplies ables for the Army except that they are normally dis- Repair parts are provided through the DSS and the tributed to the foreign government directly from a Airline of Communication (ALOC). The users draw terminal or major oversea depot. The significance of their supplies from direct support maintenance units. Class X supplies is that they use resources that would ^ Frequently, repair parts for combat-essential equip- otherwise be available for the distribution of Army ment are urgently required to return deadlined requirements. Nevertheless, the supply of these items equipment to operation. The expedient supply of re- is often important enough to take precedence over pair parts to meet these requirements has often re- some of the less essential Army items. When the sulted in special support systems. Highly expedited Army undertakes to cooperate in international pro- administrative techniques and rapid transportation grams, it thereby commits itself to supplying the are employed to insure the shortest possible response agreed-upon materiel even at the expense of its own time to requisitions for urgently needed parts. For distribution system, provided that critical operations some items of equipment which must stay operational are not seriously impaired.

Section V. THE DIRECT SUPPORT SYSTEM/AIR LINE OF COMMUNICATION 7-23. Introduction at designated depots to best support geographically a. The Direct Support System facilitates the move- oriented customers. ment of supplies from the Continental United States (5) Improved customer support by reducing wholesale supply base directly to the consumer’^ e.g., order ship time for PD 09—15 requisitions (Figures direct support unit, bypassing the oversea storage 7-2). activities or the CONUS installation supply division (6) Interface of supply and transportation (ISD). documentation. b. An integral part of the system is a logistics (7) The elimination of intermediate level oper- intelligence file (LIF) which provides in transit visi- ating stocks. bility of pipeline assets. The LIF effectively inter- 7-24. Concept faces supply and transportation documentation to provide top level logistics managers an independent a. DSS is a concept of supplying classes of supply source of performance data and a cómpiete overview II) HI J) IV, selected V (missile system compo- of the total logistics pipeline. This integrated tech- nents only), VII, and IX materiel direct to supply nique permits managers to precisely identify prob- support activities (SSA’s from CONUS area- lem areas and to determine the most effective meth- oriented distribution depots. To accommodate re- ods and procedures to support the Army in the field. duced response time to customer requirements, stock c. The Direct Support System has resulted in distribution policies must insure availability from major improvements to the supply distribution/ the distribution depot for those items applicable to transportation system by providing : the appropriate theater/geographic area being sup- (1) Visibility of the supply/transportation ported. Classified/protected/sensitive items requiring pipeline. signature service (see All 55-355, and Appendix K (2) Intransit data reporting to accommodate of AR 740-26) and materiel requiring refrigeration source to user containerized shipments. will be shipped in accordance with current directives. (3) Physical distribution system that maxi- The Eastern United States and the European theater mizes source to user containerization techniques. of operations will be supported by the secondary item (4) National distribution of stocks positioned distribution depot at New Cumberland. Red River

7-15 DSS OST OBJECTIVES

(Priority Designators 09-15)

CYCLE SEGMENT EUROPE* CANAL ZONE KOREA OKINAWA JAPAN HAWAII ALASKA CONUS

REQUISITIONING AND PASSING (3) 7 7 5 4 ACTIONS

3 NICP PROCESSING (2) 3 3 3 3 3 3 3

DEPOT PROCESSING (3) 5 5 5 5 5 5 5 5

NA INTRANSIT TO CCP (1) 2 2 2 2 2 2 2

INTRANSIT TO CRP NA NA NA NA NA NA° NA NA 2

CCP PROCESSING, INTRANSIT (5) 10 18 14 14 16 11 13 NA TO POE, POE PROCESSING

INTRANSIT POE TO POD (1) 10 4 15 18 12 5 2 NA

POD PROCESSING (1) 2 2 3 1 1 1 2 NA

INTRANSIT TO SEA 1 1 1 1 1 ' 3 NA

CRP RECEIPT TO DELIVERY NA NA NA NA NA NA NA NA 1 (CONUS)

SSA PROCESSING (3) 5 5 5 5 5 5 5 5

TOTAL OST (20) 45 45 55 56 52 40 40 20 (CALENDAR DAYS)

NOTE: PD 01 THRU 08 WILL BE MEASURED AGAINST UNIFORM MATERIEL MOVEMENT AND ISSUE PRIORITY SYSTEM (UMMIPS STANDARDS) (CH. 2, AR 725-50).

*ALOC standards for Europe are identified in parenthesis.

Figure 7-2. DSS Order ship time for oversea commands priority designator OB through 15.

Army Depot is the distribution depot supporting tional Inventory Control Point (NTCP) level as de- Central United States and Central and South termined in supply control studies. America. Sharpe Army Depot will be the distribu- b. Figure 7-3 & 7-i graphic depiction of the man- tion depot supporting Western United States, ner by which DSS requisitions and materiel flow in Alaska, and the Pacific theater of operations. The CONUS. CONUS requisitions flow from the supply CONUS support concept follows state line bound- support activity to the installation supply division aries. This will facilitate distribution of stock based for editing the validity of supply data, funding, and on actual demands as accumulated under the requisi- fill in accordance with prescribed fill/pass logic. The tion activity address code. The distribution pattern requisitions are then transceived to the Defense for DSS is shown in Figure 7-3 & 7-4. Materiel Activity Address System (DAAS) for routing and stored and stockage levels maintained at the distribu- gathering of logistics intelligence file information. tion depot will be managed by the national level item Upon arriving at the activity managing the item, manager. The method used to determine the range of (Army, OSA, DLA inventory control point) release items and the stockage quantities for the distribution will be directed from a depot or depots. The materiel depot will be based on customer demands at the Na- release orders will be passed through the DAAS

7-16 DSS ADD SUPPORT AREAS

nbl

AOD AOD 0« NEW CUMBERLAND AOD ARMY DEPOT, PA. (EASTERN U.S., MIDDLE EAST AND EUROPE SHARP ARMY DEPOT, ACTIVITIES) CALIFORNIA (WESTERN U.S., ALASKA, HAWAII & PACIFIC RED RIVER ARMY DEPOT ACTIVITIES] TEXAS (CENTRAL U.S. & PANAMA]

Figure 7-8. Dss - CONUS

FLOW OF REQUISITIONS AND MATERIEL •*)

ISO LEA

(LIF) VALIDITY RUN FUNDING DAAS SCREENING

GSAr.'tlli DLA/6SA DEPOT NICP

SUPPLY CENTRAL SUPPORT RECEIVING ACTIVITY POINT NRO SSA (CRPJ m DAAS AOD

Figure 7-4. 7-17 where image copies of all transactions will again go a. Figure 7-5 is a schematic diagram showing the to the LIF. Shipments to CONUS customers from requisition and supply flow for oversea areas under the distribution depot/DLA/GSA will be forwarded the DSS. Oversea requisitions will flow from the to the installation central receiving point (CRP) SSA to the in-country installation supply activity/ and will not be directed through the consolidation/ materiel management agency (ISA/MMA) for edit- containerization point (CCP). The CRP will receive ing the validity of supply data, funding, fill in ac- all shipments of DSS materiel from commercial cordance with the prescribed DSS fill/pass logic. sources (vendors), parcel post, mixed cargo ship- Requisitions will flow in the manner explained in the ments of DSS and the non-DSS materiel and mixed preceding paragraph for CONUS requisitions. To cargo shipments for DSS participating and nonpar- provide maximum container utilization and through- ticipating units. In those cases where all of the sup- container service, east, west, and gulf coast consoli- plies on a particular truck (most CONUS shipments dation/containerization points located at the distri- will be by commercial truck) are for one or a few bution depots are used to support oversea customers. customers, the truck will deliver the supplies directly Materiel destined for oversea shipment will be con- to the customer after being checked through the solidated in YAN or 463L pallet loads. The CCP for CRP: the east coast is located at New Cumberland Army OVERSEA DSS SYSTEM CONUS

VALIDITY LCA OVERSEA FUNDING [LIF] MMC SCREENING DAAS ísi. ’i IN COUNTRY ASSETS DLA NICP OVERSEA \ STORAGE SSA MHO ACTIVITY

DAAS DLA/GSA 5«SV « s; DEPOT AOD «

ATLANTIC/ CONSOLIDATION PACIFIC CONTAINERIZATION POINT AT POD THE AOD í^ífjp/f POE < MATEREL FULL CONTAINER

Figure 7-5.

7-18 Depot. The CCP for the west coast is Sharpe Army CONUS the installation supply division’s (Figure Depot. The CCP for the gulf coast is Red River 7-6) stockage will be limited to contingency stocks Army Depot. Oversea shipments (less than VAN/ and those required to support non-DSS customers 463L pallet loads will be forwarded to the appropri- satellited on the ISD for support. Peacetime operate CCP for consolidation/containerization). Non- ating stocks for installations are authorized only to distribution depot shippers may ship full VAN/464L support non-DSS customers. pallet loads direct to one consignee provided sufficient cargo is accumulated in 1 day to justify a shipment at 7-25. Airline of Communications (ALOC) point of origin. Less than full VAN/463L pallet a. ALOC capitalizes on and is a further refinement loads of DLA/GSA materiel for oversea shipment in Direct Support procedures designed for Class IX will be directed to the CCP for consolidation with repair parts. The goal of the ALOC is to provide Army-managed materiel. The containerized ship- repair parts, in a 20-day order ship time (OST) ments will bypass the break bulk points/oversea stor- cycle, regardless of the priority designator on the age activities and move directly to DSU’s/drop requisition. The LSOC OST goal for the various points (exception : ISA MMA safety level replenish- segments of the distribution system are as follows : ment requisitions). Shipment unit integrity by con- NG Goals signee will be maintained throughout the process. Goal Not all units will have sufficient volume for economi- Segment cal utilization of direct container shipments. To pro- In-Theater Processing 3 vide the benefits of DSS to these units and attain NICP Processing 2 maximum through-container service, logistics sup- Depot Processing 3 port plans will be designed to take advantage of Intransit Containerization/Consoli- clustering units for delivery service. Full-container dation Point 1 loads may continue to be shipped to single consign- CCP Processing—Cargo Accumula- ees; however, to achieve full-container utilization, tion 2 sequential loading or drop-point loading of a single Intransit POE 1 container for delivery to multiple consignees will be POE Processing 2 used. The integrity of each SSA’s shipment and as- Intransit POE/POD 1 sociated documentation will be maintained in the DOD Processing 1 containerized shipments. The container will be Intransit to DSU 1 delivered in accordance with the in-country DSS DSU Processing 3 distribution plan. High-priority requisitions PD OI- OS for air shipments will be loaded on minipallets Total 20 ,/ (standard 40 x 48" wood pallets with plastic shrink &. The flow of requisitions and material under film securing materiel to the pallet) when materiel ALOC is basically the same as under DSS. ALOC is forwarded to a single supply support activity or cargo is consolidated by unit at selected distribu- drop point. Materiel for more than one SSA or drop tion depots on Air Force cargo pallets and moved point is loaded on an Air Force 463L pallet with a by Military Airlift Command aircraft to the oversea divider between each SSA’s or drop point’s materiel. Aerial Port of Debarkation (APOD). The APOD is d. The Logistics Control Activity is responsible for given 1 day to clear the cargo and the oversea com- maintaining the logistics intelligence file for all Army mander has 1 day to deliver to the general/direct sup- requisitions. This file provides the management infor- port level. This system is designed to operate on a mation necessary to monitor system performance and 7-day a week delivery cycle. gain intransit visibility of supplies in the pipeline. c. Transportation Priority 4 (TP 4), the use of Additional information relative to the data available airspace available transportation, reimbursed at sur- in the file and the method of gaining access to this face rates becomes an integral part of the ALOC information may be obtained from the Logistics Con- concept. The increased use of airlift will result in an trol Activity, or FM 38-704. increased allocation of airspace available transpor- e. Stockage at the oversea storage activities (Fig- tation for retrograde cargo to CONUS. Priority on ure 7-5) is limited to war reserve and project stocks the use of retrograde air is to be given reparable or an. essentiality based safety level for those items items being returned to CONUS for overhaul/re- not included in the reserve or project stocks that pair. Second priority is to be given excess reparables qualify for storage. The essentiality based safety being returned to CONUS stock. level or war reserve and project stocks provide a d. Employing ALOC will make the repair parts surge tank to meet PD 01-03 and NORS or to accom- distribution system much more responsive, thereby, modate pipeline interruptions caused by acts of God, enhancing the combat readiness of US Army ele- labor disputes, or interdiction in time of war. In ments overseas.

7'-19

CHAPTER 8 DEPOT MAINTENANCE MANAGEMENT

Section I. INTRODUCTION TO THE ARMY MAINTENANCE SYSTEM 8-1. Significance of Depot Maintenance able to perform his assigned mission effectively. An Management in the Logistics inventory management system that is responsive to System customer requirements must include a well-managed maintenance program. a. The maintenance function within the DA consists of servicing, repairing, overhauling, and modi- 8-2. Relationship of Maintenance Manage- fying weapons and equipment. It is the largest of ment to Inventory Management the functions embraced by the general term “logis- a. Inventory management, as explained in chapter tics,” and it is the largest consumer of resources. 2, encompasses all areas of logistics. One of the goals Shop facilities in which maintenance functions are of effective inventory management is to provide re- performed range in size from as little as 1,000 square quired customer support services at a minimal cost feet to more than 3,000,000 square feet. Maintenance to the Government. In conjunction with this goal the activities are found wherever the forces of the United inventory manager is responsible for insuring that States are located—from ships at sea to land instal- the interrelated functional responsibilities of the lations located in all types of terrain and climatic various logistical areas are properly coordinated and conditions. controlled. These interfaces and relationships are &. Within the Department of the Army, the US prominently evident between the various logistics Army Materiel Development and Readiness Com- areas ; but the relationships with which the inventory mand (DARCOM) is assigned the responsibility for manager is most concerned, insofar as his supplying Budget Program (P7M), Depot Materiel Mainte- required assets to customers, are those involving the nance and Support Activities. Nearly 38,000 persons logistics areas of maintenance and procurement. are presently engaged in P7M activities, worldwide. b. One of the mission elements of inventory man- The depot maintenance program is often referred to agement is to determine materiel requirements for as the “wholesale level” of maintenance logistics and Army Forces and to obtain the serviceable assets re- is the area to which ensuing discussions apply. quired. These assets are acquired in two ways—by c. If for no other reason, the magnitude of the new procurement and by the depot maintenance pro- maintenance program, when viewed in terms of the gram. Maintenance management, like procurement, amount of funds and the number of personnel in- is a mission element of inventory management; and volved in its function, is reason enough to justify the the status of the depot maintenance program is emphasis placed upon the management aspects of it. greatly affected by the decision of the inventory man- The contributions of the maintenance program, how- ager as to whether he will procure new equipment ever, relative to supporting a desired level of unit or perform depot maintenance on existing equip- and materiel readiness, is the prime reason why this ment. Several factors are considered in the decision- area of logistics is significant and important. The making process. Among these factors are the fundamental purpose of logistics is to increase the following : combat effectiveness of the Army in the field. In this (1) Procurement leadtime requirements as com- respect, the absence of a maintenance program or the pared with overhaul in-process time. existence of one that is ineffective, would result in (2) Original purchase price as compared with an excess amount of inoperable equipment; an in- overhaul costs (including considerations such as crease in equipment downtime ; and the loss of essen- projected life expectancy of both the new and the tial firepower, transportation, and communications overhauled item). capabilities. When these conditions exist, the combat (3) Urgency-of-need considerations and the effectiveness of the item, the unit, or the organiza- most logical and economical means of satisfying these tion is lost; and the responsible commander is un- needs.

8-1 (4) Availability of funds as they relate to total materiel readiness program are made on a timely materiel requirements. basis. (5) Economic repair policies. (3) Ordinarily, Table of Organization and (6) Current Army Master Data File (AMDF) Equipment (TOE) units will not be designated to catalog price as compared with overhaul cost. perform as a primary mission more than one category c. When factors such as limited funds, urgency-of- of maintenance—direct support maintenance, for ex- need, and reduced procurement leadtime are prime ample. Specific exceptions, however, may be author- considerations in the acquisition of assets, the inven- ized by Headquarters, DA. These exceptions might tory manager relies heavily upon the depot mainte- involve special assignment, low-density equipment, nance program to furnish the items required. In ad- and complex weapons systems; and they may require dition, the depot maintenance program is one of the that a TOE unit perform more than one category of principal means by which the inventory manager maintenance—direct support and general support, maintains a required stockage level; and in many for example. instances, it is the most effective means of insuring (4) Normally, Table of Distribution—Allow- that materiel is available on a timely basis. By means ances (TDA) fixed maintenance facilities at instal- of the maintenance program, leadtimes are reduced, lations are assigned combined direct and general funding requirements are lowered, and program co- support (DS/GS) maintenance missions in support ordination and control as required by inventory man- of units permanently located on the installation or agers are enhanced. satellited thereon. Items repaired may be either returned to the user or returned to the local supply 8-3. Maintenance Principles and Concepts system. Maintenance principles and concepts delineate in (5) Maintenance is accomplished in accordance broad terms the policies by which maintenance op- with the applicable Maintenance Allocation Chart erations are governed. They designate who is to per- that is designed for each item of equipment. This form maintenance and how, when and where it will chart prescribes the specific scope of maintenance be performed ; and they apply throughout item life- authorized to be performed at each category of main- cycle management—from the earliest design phases tenance and engineered performance standards estab- of development through the disposal phase. Except lished for each maintenance task. for the function of requirements determination, the b. Maintenance Concepts. Basic maintenance con- inventory manager is not directly engaged in the cepts which are of interest to the inventory manager maintenance process. Because of his overall responsi- are as follows: bility for managing the logistics program, however— ( 1 ) Repair parts supply. Repair parts allowances being certain that the right item is at the right place and initial guide quantities to support maintenance at the right time—it is essential that inventory man- missions are shown in appropriate technical manuals agers possess a general understanding of the concepts entitled “Repair Parts and Special Tool Lists” and principles that govern maintenance operations. (RPSTL). Direct support TOE maintenance activi- This knowledge is necessary to the performance of a ties furnish repair parts to units they support; but thorough analysis of the overall logistics function, normally, general support TOE maintenance units an understanding as to where resnonsibilities for are not assigned a repair parts distribution mission. materiel maintenance management lie, a determina- Repair parts are assigned to general support units tion of the capabilities and limitations of mainte- primarily to support the assigned maintenance mis- nance logistical support, and an understanding of sion. In all maintenance categories, controlled can- required interrelationships with the Army in the nibalization, when authorized, is used as a source of field. supply for specific repair parts and accessories. a. Maintenance Principles. The basic principles of (2) Equipment records. Accurate, required rec- maintenance which are of interest to the inventory ords of data generated by The Army Maintenance manager are : Management System (TAMMS) (TM 38-758) must (1) When maintenance is accomplished or be kept by commanders at each appropriate com- planned, due consideration must be given to economy mand level. as it applies to pertinent resources. (3) Maintenance Assistance and Instruction Team {MAIT). The MAIT program augments the (2) Continuous command emphasis must be commanders capability for providing maintenance placed on the prompt evacuation of reparable, un- and associated logistics assistance and instruction serviceable end items and components to direct (A&I) to organic, attached, and supported units. support, general support, and depot maintenance This program is designed to promote maintenance facilities as appropriate. This emphasis is necessary awareness at all levels and provides a means whereby to be certain that maintenance contributions to the technical expertise, not otherwise available within

8-2 the organic resources of a unit or a supporting direct it consists of authentic and uniform instructions for support unit, could be furnished individual unit com- the alteration of materiel. manders. This assistance helps commanders identify (10) Reporting. Each level of command, as ap- and solve problems which contribute to the inability propriate, is required to report maintenance ac- of their units to meet readiness standards. Assistance complishments and to submit these reports in accord- and instruction teams stress the importance of proper ance with TAMMS and other established policies and care and operation of Army equipment and empha- criteria. size practical application of maintenance techniques (11) Maintenance management. Managing the and procedures for the individual soldier. maintenance function, using approved management (4) Contract maintenance. Contract maintenance techniques, is a responsibility of commanders at all supplements the in-house maintenance capability of levels. It includes the task of determining the scope the Army. Its principal application is in support of of resource requirements and the judicious use of nontactical activities. Contract maintenance is not resources to accomplish maintenance objectives. used when it precludes or jeopardizes the Army’s attaining and sustaining the military organic capability 8-4. Maintenance Categories necessary to support mission-essential equipment. a. Effective management and operation of the (5) Maintenance float. A maintenance float con- Army maintenance system depends upon a well-knit, sisting of end items or major components of mission- smoothly functioning organization that ranges from essential, maintenance-significant equipment is au- depots, where the highest level of complex repair thorized for stockage by direct support, general sup- and overhaul operations are performed, to units and port, and depot maintenance activities as applicable. organizations, where relatively simple preventive Float items are used to replace unserviceable, mission- maintenance operations are performed. Mission re- essential equipment (discussed in more detail in chap- sponsibilities, mobility requirements, and organic ter 7). capabilities are considerations involved in desig- (6) Equipment serviceability criteria. Equip- nating the type of organization to which specific ment serviceability criteria are the means by which maintenance functions are assigned. commanders at all levels evaluate the serviceability b. To facilitate the assignment of maintenance status of equipment authorized and issued to units functions, the Department of the Army has classified under their command. These criteria use a color code maintenance functions into four categories—orga- to categorize equipment into one of three conditions nization, direct support, general support, and depot. of combat serviceability : green, for operational with The maintenance support planner uses these main- full reliability; amber, for operational with limited tenance categories as aids in relating maintenance reliability ; and red, for nonoperational or unaccept- operations to other military operations; providing able reliability. Recently, system and equipment rat- bases for identifying organizations that perform ings have been changed to “Ready”—formerly green specific maintenance operations; defining the degree and amber, “Reduced Materiel Condition (RMC)” of maintenance which can be performed by a unit, for specific end items and “Not Read}7” formerly red. an organization, or a maintenance facility; and dis- (7) Maintenance standards. Maintenance stand- tribution resources in accordance with requirements. ards must be established for each major item of The specific mission responsibilities assigned to each equipment. These standards specify the minimum specific category of maintenance are as follows : condition to which an item must be restored to insure (1) Organizational maintenance. Organizational satisfactory performance for a specified period of maintenance is the responsibility of the unit com- service. Repair, overhaul, rebuild, or some other mander. It is the means by which equipment is main- maintenance function are the means by which the tained at the required level of operational readiness. restoration is effected. It includes both preventive maintenance services and (8) Maintenance expenditure limits. Mainte- the organizational level repairs authorized in appro- nance or repair expenditure limits are the means by priate technical publications. which the economical reparability status of Army (2) Direct Support (DS) maintenance. DS materiel is determined. Initially they are included in maintenance pertains to the maintenance support the maintenance support plan for the items; and they which TOE and TDA maintenance activities pro- are predicated upon maximum one-time repair costs vide to designated units within a specified area. and the projected or established life expectency of Maintenance is performed on a repair-and-retum- the item. to-user basis, and organizational maintenance repair (9) Modifications. Item modifications must be parts are supplied by TOE, DS maintenance units authorized by DA Modification Work Orders (DAM to using units. In addition, DA maintenance activi- WO). The DAMWO is initiated by the agency as- ties are assigned maintenance float, mission-essential, signed the logistical responsibility for an item, and maintenance-significant items (for supported orga-

8-3

? - 5 _ o 7 r «, nizations) which are exchanged for unserviceable ignated TDA industrial-type organic activities or parts, assemblies, components, or end items. commercial contractors. The primary purpose of (3) General Support (GS) maintenance. Gen- depot maintenance is to augment stocks of serviceable eral support maintenance is, normally, assigned to assets by repairing, overhauling, and rebuilding un- and performed by designated TOE and TDA main- serviceable ones which require maintenance that is tenance units or activities in support of the Army beyond the capability of general support mainte- area supply system. Except when assigned a direct nance activities. In some instances, however, items support mission, GS maintenance does not have a undergoing depot maintenance are returned to the repair parts distribution function. General support user—as is the case when certain types of vessels maintenance units receive equipment for repair and undergo cyclical overhaul. Depot maintenance is overhaul from direct support units, collection points, usually accomplished in fixed shops and facilities supply units, and other activities for which they are that are Government owned and operated, Govern- assigned maintenance support responsibilities. It ment owned and contractor operated, or contractor constitutes the principal maintenance overhaul capa- owned and operated. Depot maintenance normally bility available to the field Army commander. encompasses one or more of the following work ac- (4) Depot maintenance. Normally, depot main- complishment functions : fabrication/manufacture tenance is assigned to and performed by either des- and reclamation/disassemble.

Section II. RESPONSIBILITIES FOR ARMY MAINTENANCE MANAGEMENT 8-5. Major Command Relationships nent communications media must be established and a. Within the Department of Army, staff responsi- facilities must be made available. In the area of bility for the logistics function and, therefore, in- maintenance management, these command functions ventory management and maintenance function, is are interrelated and interdependent. To plan and to assigned to the Deputy Chief of Staff for Logistics coordinate a maintenance system which culminates (DCSLOG). The missions of other staff elements, in the effective performance of required operations however, have a great amount of influence on the necessitates that these interrelated functions be maintenance effort. For a clear perspective of the formed into a well-organized, integrated system maintenance management function and the respon- which insures the timely availability of resources sibilities involved in its accomplishment, it is neces- and their maximum utilization. sary to recognize these influences and the intrinsic 8-6. Department of the Army Responsi- command relationships which they generate. bilities for Maintenance Manage- &. The term “maintenance management” is often envisioned as pertaining solely to the performance of ment a work operation. This viewpoint, however, is re- The objectives and operations of the Army main- strictive in nature and is not considered to be com- tenance management program are profoundly af- pletely valid. Maintenance is one of the many actions fected by national policy-level decisions made by the involved in item life-cycle management. Before main- President and Congress and transmitted through tenance can actually be performed, determinations channels to the Department of Defense and then to are made as to the type of warfare to be waged, the the Department of the Army. Specific maintenance kind of equipment and materiel required to support policies for the Department of the Army, however, the combat effort, ways and means of acquiring ma- are formulated under the direction of the Secretary teriel, and both the types of skills and the qualifica- of the Army. These policies are discussed in detail in tions of personnel required to operate and to main- EM 750-80. A brief review of those of primary contain materiel assets. Three major commands and the cern to the inventory manager follows. Military Personnel Center are responsible for mak- 8-7. Deputy Chief of Staff for Logistics ing these determinations. The Military Personnel Center is responsible for providing both the officers (DCSLOG) and the enlisted men required for Army operations: a. Within the Office of the DCSLOG, the Direc- the US Army Training and Doctrine Command torate for Supply and Maintenance acts for the (TRADOC), for establishing doctrine as to how the DCSLOG in matters pertaining to the Army world- Army will fight and what kind of equipment is wide supply and maintenance system. Specific func- required; the US Army Materiel Development and tions of this responsibility are assigned to the Supply Readiness Command (DARCOM), for providing Division and Maintenance Division within the Di- and maintaining the materiel required to support rectorate of Supply and Maintenance. Army operations ; and TRADOC, for accomplishing 5. The Maintenance Division is responsible for de- the training mission of the Army. In addition, perti- veloping and promulgating Department of Army 8-4 policy applicable to the maintenance and to readiness sistance requirements; national maintenance con- of Army materiel. In conjunction with this respon- tracting; requirements computation; and depot sibility the director coordinates and exercises General maintenance program direction. Staff supervision over the Army Maintenance System. b. In addition to an NTCP, a national maintenance This staff supervision includes coordinating and point (NMP) is established within each materiel supervision materiel readiness functions related to readiness command. The NMP (or Director of Main- programs which support international logistics, pro- tenance) functions as a coequal entity with the NICP. graming and budgeting actions, mobilization plan- Actually, the NMP is the key to the success of the ning for maintenance, and career field programs maintenance management program of DARCOM. pertinent to maintenance management. Even though its activities are influenced to a con- c. The Supply Division exercises General Staff su- siderable degree by the requirements of the NICP, pervision over policies and procedures which govern the NMP has both maintenance and technical re- the supply distribution system and requirements de- sponsibility, worldwide, for a specific commodity or termination for major items, secondary items, and group of commodities. In addition, it is responsible repair parts. for providing to the Army depots specific working- level direction relative to the maintenance support 8-8. US Army Materiel Development and required for the commodity group. The major func- Readiness Command (DARCOM) tions of the NMP are in the areas of maintenance The DAECOM has overall responsibility for man- engineering, support planning, publications, and aging the materiel and related services required by technical assistance ; therefore, the responsibilities of the Army. This responsibility includes maintenance the NMP for a particular item or commodity con- management as it applies to P7M (Depot Materiel tinue throughout the life cycle of the item. The NMP Maintenance Support Activities) ; and in executing and the NICP, because of the interrelationship of this responsibility, the Commander of DARCOM re- their missions, must closely coordinate their main- ports to and receives instructions from the Chief of tenance functions. This coordination is necessary to Staff, US Army. Because of the interdependent rela- be certain that the technical and administrative re- tionships which exists between logistics elements, sources required to meet the needs of the equipment each directorate within DARCOM has an interest in user are available and programed properly. the management of the maintenance function. How- c. Currently, there are 19 depots and depot activi- ever, the Director for Materiel Management is the ties within the DARCOM complex, including 2 de- most directly involved. Its primary missions are : pots in Germany. These depots function under the (1) To direct and control budget programs for control of the Commanding General, US Army De- Operations and Maintenance, Army (OMA) Pro- pot System Command (DESCOM), one of the major gram 7, P7M (Maintenance) and P7S (Supply). subordinate commands of DARCOM. Generally, the (2) To establish policy and provide guidance for maintenance missions assigned to these depots en- materiel requirements determination for acquisition, compass the following functions : fabrication/manu- overhaul, retention, replacement, and disposal. facture and reclamation/disassemble. A depot may (3) Preparation of the OPS Form Exhibits. be assigned maintenance workloads relative to one (4) Establishing maintenance float and repair or more commodities. The present trend for work- parts replacement factors. loading, however, is based upon the “Prime Depot (5) Establish policy and provide guidance for Concept.” Under this concept, each National Stock depot maintenance mobilization planning. Numbered item programed for depot maintenance is 8-9. DARCOM Major Subordinate assigned to a prime depot which will usually handle Commands all of the depot maintenance on that item until its a. Within the DARCOMcapability complex is arereached. five majorIf the depot maintenance re- subordinate commands responsible for materiel quirements exceed the prime depot’s capability, a readiness. These materiel readiness commands secondary and possibly a tertiary depot may be as- (MRC’s) are responsible for either the total or the signed to handle the program. The Army depots integrated management of specific commodities or assigned a depot maintenance mission are as follows : materiel groupings. This responsibility includes de- (1) Anniston Army Depot. pot maintenance management. Among the mainte- (2) Corpus Christi Army Depot. nance responsibilities assigned to these commands are (3) Letterkenny Army Depot. the following: maintenance support planning, to in- (4) Lexington-Blue Grass Army Depot clude the provisioning of initial repair parts, test Activity. equipment, and materials handing equipment; the (5) Mainz Army Depot. preparation of equipment publications ; technical as- (6) New Cumberland Army Depot (AOD).

8-5 (7) Ober Ramstad Army Depot. e. Command and control authority over the (8) Pueblo Army Depot Activity. DARCOM depots has been assigned to HQ (9) Red River Army Depot ( AOD). DESCOM. When DESCOM was created, it absorbed (10) Sacramento Army Depot. the mission and resources of the Major Item Data (11) Seneca Army Depot. Agency (MIDA). The mission includes responsibil- (12) Sierre Army Depot. ity for managing and executing the Worldwide As- (13) Tobyhanna Army Depot. set Data Evaluation Program and performing recon- (14) Tooele Army Depot. ciliation and evaluation for Army Workload Assets ; d. In addition to depots, other activities such as assisting in managing Procurement Appropriation arsenals and plants are assigned depot maintenance (PA) major items and selected secondary items by missions. A considerable portion of the maintenance operating and maintaining the Army logistics data mission at these activities pertains to demilitarization base for PA items; managing, allocating, and con- and surveillance functions. Among the activities of trolling funds to operate and maintain the depot this category are Rock Island Arsenal, Joliet Army system. HQ DESCOM is responsible for depot main- Ammunition Plant, Iowa Army Ammunition Plant, tenance mobilization planning and workload dis- Pine Bluff Arsenal, and Rocky Mountain Arsenal. tribution. Section III. PLANS, PROGRAMS, BUDGETS, AND FUNDS FOR DEPOT MAINTENANCE 8-10. Relationship of Plans, Programs, the maintenance management application and the and Budgets funding concepts applicable to them. Plans, programs, budgets, and funds provide the 8-11. Army Five-Year Defense Program framework by which concepts and mission functions Within the Army Program System, the Army evolve into operations. They are inextricably linked ; Five-Year Defense Program (FYDP) has the great- and together they provide the means by which stra- est significance to the depot maintenance program. tegic, tactical, and organizational concepts; techno- The FYDP forecasts for each year of the 5-year pe- logical forecasts; and intelligence estimates are de- riod the description, the quantity, and the cost of veloped, examined, and adopted. Plans are broad, and items required to support the Army Force structure. generally they project objectives up to 20 years into Initial reqiiests and justifications for program oper- the future. Programs evolve from plans, and usually ating funds are based on this program. they provide detailed data for the first 5 years of the planning cycle and general data for the succeed- 8-12. Exhibit OPS 25 Forms ing 3 years. Budgets, normally, are prepared in de- The Exhibit OPS 25 Forms are major documents tail and reflect the resources required to support the used in developing the depot maintenance portion of program during the budget year. A detailed discus- the Army FYDP. The US Army Depot System Com- sion of DOD and DA plans and programs is given mand is responsible for their development. The OPS in chapter 4. The application of these programs to 25 Forms cover a period of 5 years and show the maintenance management is presented in detail in present supply status of major items of materiel and FM 750-80, Logistics, Maintenance Management. It the proposed use of P7M funds and other resources is essential that the inventory manager understand to satisfy requirements. Section IV. DEVELOPING AND EXECUTING THE DEPOT MAINTENANCE PROGRAM 8-13. Determining Requirement termination is accomplished periodically by means a. As discussed in Chapter 5 one of the primary of— mission responsibilities of the inventory manager is (1) The Army Materiel Plan for major items. to determine what portion of a total asset require- (2) Item Management Plan (Supply Control ment will be satisfied by means of the depot mainte- Studies). nance program. These studies include an analysis of stock status re- 5. To determine asset requirements for the depot ports submitted by depots, overseas commanders, maintenance program, the inventory manager must major Army CONUS commanders, and other re- ascertain the number of standard assets available, porting agencies. In conjunction with the review and worldwide, for each item and must relate this num- analysis of these studies, the NICP considers factors ber to the gross requirements for the item. This de- such as combat losses, real or anticipated ; losses in-

8-6 curred during training routines ; prescribed stockage c. In conjunction with this review, depot markups levels ; materiel in transit from one place to another ; of the Master Plan are analyzed, maintenance re- availability of substitute items; Class IV (special quirements are updated, and workload projects are project) requirements; recurring and nonrecurring adjusted. As a result of the actions, a firm depot demands for components and accessories as re- maintenance program is established and provided flected on depot maintenance parts requirements list to NICP representatives—both supply and mainte- (DMPRL) ; and float requirements. Included in the nance. Based on this firm program, inventory man- data contained in the Army Materiel Plan and Sup- agers amend the initial PWD’s and submit them to ply Control Studies are the total number of assets DESCOM. These PWD’s constitute the basic asset in dhe inventory. In addition, these assets are iden- requirements to be provided through BP 7N. These tified as being serviceable or unserviceable but eco- requirements are adjusted continuously as dictated nomically reparable. Assets considered as prime can- by changes in program elements such as funding didates for the depot maintenance program are the guidance, force requirements, asset availability, and unserviceable ones classified under condition reserva- performance capabilities. tion codes “F” or “M.” Code “F” pertains to un- d. Work Authorizations (WA’s) are prepared by r-Jf serviceable but economically reparable materiel DESCOM and are based on data shown on the which is in the possession of the using activity. Code amended PWD. They contain specific program infor- “M” pertains to unserviceable but economically rep- mation such as the work to be performed, the au- arable materiel which has been submitted to a depot thority to perform it, the applicable technical stand- maintenance facility for processing and identified as ards, the number of assets on hand, and the support such on the inventory control records of the using materiel required to accomplish the program. For activity. Army Industrial Funded activities, the WA is also a funding document. Actually, a WA is an agreement 8-14. Planning the Target-Year Workload by one. party to perform work for another in accord- a. The planning cycle as it pertains to the target- ance with stated specifications. In this sense, it is very year workload for P7J)Iiactually begins 14 months much like a contract. DESCOM issues work authori- prior to the year the program is to be executed. The zations to the performing maintenance activities. first stage in this planning cycle is the designation of These activities either accept the program as it is requirements to be satisfied by the depot maintenance shown or mark up the WA to show adjustments re- program. Generally, worksheets are used to transmit quired to bring the program within the capability requirements data from the NICP to the NMP. These limits of the activity. Depot maintenance activities worksheets identify by nomenclature and National are allowed to accomplish only those programs for Stock Number those economically reparable assets which Work Authorizations authenticated and issued which comprise the depot maintenance program. In by DESCOM are received. addition, the worksheet contains overhaul costs, economic repair limitations in terms of years and dollar 8-15. Programing and Scheduling Depot percentages, customers, priorities, and any other in- Maintenance formation required to initiate programing and a. Development of Depot Maintenance Require- schedulings actions for Budget Program P7M. Also, ments. these data and information are used to complete (1) The process for developing depot mainte- Prbcurement/Work Directives (PWD). A Procure- nance requirements is presented in FM 750-80. The ment/Work Directive is prepared for each item for materiel readiness command develops the gross AMP, which an overhaul program for a specific depot is reviews the gross maintenance requirements with re- planned. gard to their supportability, and forwards the requirements to DESCOM for further analysis, DES Z>. National maintenance points are responsible for COM evaluates the organic depot maintenance re- furnishing PWD’s to DESCOM where data from quirements. The appropriate materiel readiness com- the 'PWD is developed into individual Depot Master ■ mand also performs economic analyses to determine Plans which are forwarded to the applicable depot the means of accomplishing the maintenance work- or maintenance activity. The plans also show pro- load by making comparisons and trade-offs among gram delivery dates recommended by the item man- alternative sources considering cost, schedule, and ager. Depot maintenance facilities analyze the plan, performance. annotate it to reflect acceptance or recommended (2) The DA level depot maintenance Budget adjustments to program requirements, and return the Manpower Guidance (BMG) utilized in the prepara- marked up plan to DESCOM. From the marked up tion of the depot maintenance requirements is pro- plans, DESCOM prepares a tentative Depot Mainte- mulgated by DA DCSLOG to HQ DARCOM. DAR nance Plan. COM utilizes this guidance to develop the net depot 8-7 maintenance requirements, which are forwarded then facility and “secondary” refers to the next most cost- to the appropriate materiel readiness command for effective depot facility. These designations are made finalization of the requirements data portion of the on the basis of lowest time/overhaul cost for the sys- AMP. tem and other significant factors. b. Detailed Information Floto of the Major Item (3) DESCOM, using the depot maintenance re- Depot Maintenance Process. quirements, the priorities, the designations of the primary and secondary depots, and known constraints (1) As indicated in the previous section, the on manpower and funding, prepares the depot work- planning process for depot maintenance begins with loads that are used as input to the Exhibit OPS 25 the input of the gross requirements from the AMP. Forms. The materiel readiness commands develop program (4) Depot workloading for planning years is ac- requirements from the gross materiel requirements complished by using the constraints of the manpower, within the existing funding constraints, and transmit equipment, and facility limitations. There is an im- the planned program via BT cards (automated main- plicit cost constraint, since the only programs used to tenance data transmission information) to DES develop the workloads are those which are in accord- COM which develops the depot capacity and capabil- ance with the funding constraints of the BMG. The ity. The BT-series cards present detailed statements primary depot is loaded first and then the secondary of depot requirements for the coming fiscal year. depot. DESCOM assumes acceptance of planning (2) DESCOM runs the input from the materiel workloads. readiness commands against the depot capacity and (5) For the execution year, the workload is gen- capability data and workloads the depot for both the erated by DESCOM. Each February, prior to the planning out years (magnetic tape) and the execu- execution year, DESCOM will transmit the execution year (BT-series cards). The depots then accept, tion year workload on BT-series cards for initial reject, or mark up the cards (programs) and return action. Once the depot workloads for execution year them to DESCOM. The materiel readiness commands are generated, the depots can accept, reject, or mark are notified by DESCOM of the latest depot work- up. If a depot accepts the program, DESCOM is so load. DESLOG and DARCOM representatives meet notified. When a depot rejects its portion of a pro- to review/revise maintenance plans. The basic input gram, DESCOM is informed of the rejection and the to this meeting is the set of initial planning estimates reason for it. DESCOM also informs the materiel of materiel requirements to be satisfied by depot readiness command of programs which cannot be maintenance. At this meeting, representatives meas- completed, (e.g., rejects) so the command can reevalu- ure the tentative depot maintenance plans against ate its requirements. original materiel requirements; changes to those re- (6) A third possible result of the depot’s review quirements, financial guidelines, and procurement of the execution maintenance program is a markup. plans. The result of these reviews is a refinement of The only portion of the plan the depot is permitted the 5-year depot maintenance planning base. to modify is the unit maintenance funded cost. The c. The Depot Workloading Process. proposed cost is submitted to DESCOM. Once a price (1) The detailed procedures represent the depot has been agreed upon by the depot and DESCOM, workloading process performed in the maintenance the price is “fixed” and cannot be changed for the life planning phase. The preparation by the materiel of that program, unless the customer changes the readiness commands of the BT-series cards which are maintenance specifications or compresses the produc- forwarded to DESCOM, generates workloads for the tion quantity 3 or more months. If either of these depots. As indicated in the discussion of the detailed exceptions occur, the depot may negotiate a “new” flow chart, both the materiel readiness commands fixed price with DESCOM. and DESCOM receive the BMG financial guidance d. Budgeting. that is generated as a result of the DOD/DA budget- (1) At the DA level, the depot maintenance ary planning process. The materiel readiness com- plans are combined with the procurement plans mands prepare their maintenance programs to be in (AMP) as a part of the total Army budget prepa- agreement with this financial guidance. In addition, ration process. At the same time the DOD/DA re- DESCOM also reviews the programs to see that they are in agreement with the BMG. If any deviations are view of the depot maintenance program plans for found, the BT cards are returned to the materiel the budget execution year is occurring, these plans readiness commands for correction. are undergoing detailed refinement within DAR (2) As a part of the planning process for depot COM. maintenance, prime and secondary depots will be (2) Once Congress approves the budget, DA re- designated by DESCOM and DARCOM. As used views the budget and manpower guidance, forwards here, “primary” refers to the most cost-effective depot the guidance to DARCOM who, in turn, notifies

8-8 the materiel readiness commands and DESCOM of initiated during the current year. These requirements changes in the planned program. are based upon the funded part of the BP7M Pro- (a) With the refined program input from the gram. Procurement is initiated far enough in advance MRC’s, DESCOM reworkloads the depots and sends of the program year to allow for procurement lead- a magnetic tape of planned program to the depots time and other related time-consuming actions; and and the materiel readiness commands. The depots to insure that parts are delivered to the performing refine their programs in the DESCOM Depot Main- activity at least 90 days before the repair or overhaul tenance Data Bank. program is scheduled into the shop. As a minimum, (b) The DOD/DA path of the apportionment quantities delivered must be large enough to support planning cycle begins when the Congress approves the DOD budget. Based on the congressional appro- maintenance schedules for at least one quarter. Pro- priations, DOD makes apportionment decisions and curement action is the responsibility of the item forwards them to DA. DA and DARCOM, in turn, manager and includes all repair parts required, make more detailed apportionment decisions which regardless of which NTCP or DOD management result in the allocation of the Army budget to the activity has inventory control of the required repair various programs. The maintenance programs are part. Repair parts procured or acquired for world- refined by the materiel readiness commands in ac- wide maintenance programs are pre-positioned, in- cordance with the funding constraints. sofar as practical, at a storage location close to the (c) A final review of the depot maintenance depot maintenance facility at which maintenance plans for the coming year is made by DA and will be performed. Should the supply manager be DARCOM. Any changes needed in the plans to bring unable to obtain the number of repair parts required, them into line with the apportionment decisions are the planned overhaul quantity of end items reflected made, and the materiel readiness commands are informed of the changes. The materiel readiness com- on the PWD is reduced proportionately. DESCOM mands, in turn, update the DMDB to reflect the accepts P WD’s with the assumption that repair parts latest program revisions. Once again DESCOM will be available when required. This assumption is workloads the depots, and the depots reschedule their based upon the DA policy which states that mainte- work in light of these changes. nance will not be programed unless parts are either on hand or ordered in time to be certain that they are 8-16. Parts Forecasting available at depot shops or contractor plants in time a. Parts forecasting is one of the most important to satisfy production schedules. functions of the depot maintenance management ef- 8-17. Generating Assets fort. Determining end item overhaul requirements is relatively predictable ; but accurately forecasting re- a. Comparable to the value of repair parts to an pair parts requirements is difficult and often impos- overhaul program is the availability of unservice- sible. unless a complete teardown and inspection of able assets. Without either repair parts or unservice- the item to be overhauled is performed. The age of ables, the program cannot be accomplished. In recog- an item, the environment in which it is used, its nition of this requirement, unserviceable asset turn-in operator, and a number of other variables combined schedules are established. These schedules, or turn-in to make unique the usage history of each item enter- forecasts as they are sometimes called, are reviewed ing the depot maintenance shops. by item managers, DESCOM, and DARCOM 90 b. The estimated number of repair parts, compo- days prior to the start of the execution quarter. As a nents, and accessories required for an overhaul pro- .result of this review, Procurement/Work Directives J gram is based on recurring and nonrecurringj, and Work Authorizations are updated. demands. The demands are established as Depot A When it appears that unserviceable assets will Maintenance Requirements Levels (DMRL). The not generate in accordance with unserviceable dis- NMP of each materiel readiness command is respon- tribution schedules, the commander of the applicable sible for consolidating specific item levels reported depot maintenance activity is responsible for making by the individual depot or overhaul facility and this status known to the item manager. The item transposing resulting totals into consumption rates. manager, in turn, is responsible for taking whatever These rates are transmitted to the inventory manager actions are necessary to expedite the turn-in of un- who, by applying them to the applicable end item, serviceable repairable assets. When the user fails to computes worldwide repair parts requirements. react to the expediting actions, the item manager . c. Procurement action for repair parts required to refers the problem to Headquarters, DARCOM for support maintenance programs for a budget year is disposition. 8-9 c. The NICP’s, under the direction of DARCOM, fied as unserviceable but economically reparable. have established automatic-return time standards for Instructions for the automatic return of these items intensively managed items and some others that to designated depot maintenance facilities in CONUS either require cyclical overhaul or have been classi- are published in the ARIL provided by CDA.

Section V. REPORTING DEPOT MAINTENANCE ACCOMPLISHMENT 8-18. Management Data with the time frame within which it can be made a. The term “management data” as used in this dis- available. On the basis of this analysis, he determines cussion pertains to the information which a system whether new procurement or depot maintenance is generates during day-to-day operations. This in- needed to satisfy requirements on a timely basis. formation is reflected in reports of various types and Other factors, such as the capabilities of organic fa- is used by inventory managers and maintenance cilities, are also considered. In addition to the EIR managers to determine program performance levels. and the MWO, other reports such as the Program b. Management data serve many purposes. When Status Report, Capability Study, and the Army made available on a timely basis, they are indispen- Equipment Distribution Plan play prominent roles 4 sable to effective life-cycle management of systems in the mission functions of the inventory manager and equipment. These data are required to conceive, and the maintenance manager. How these reports in- define, develop, test, and acquire materiel; and, in fluence mission functions is explained in the para- addition, to maintain and support it properly. Too, graphs that follow. they provide inventory managers and maintenance 8-19. Program Status Report managers with the information required to evaluate the readiness-availability status of equipment, the A program status report (PSR) is a current ac- adequacy of resources, and the cost-effectiveness of count of the transactions and status of the depot maintenance operations. By carefully analyzing maintenance programs assigned to a performing ac- management data, managers are able to isolate prob- tivity. Each maintenance activity to which work au- lem areas and to make adjustments necessary for thorizations have been issued is required to furnish improvement. to DESCOM each day, or as events of significance c. The Army Maintenance Management System happen, a report on official authorized programs. (TAMMS) (TM 38-750, Cl and C2), which is dis- Cost information, except that pertaining to national cussed in detail in FM 750-80, Logistics Mainte- contracts, is reported as of the 15th day and the last nance Management, is the prime source of data used day of each month. National contract cost informa- in maintenance management operations. Two of the tion is reported only on the last day of each month. principal reports generated by TAMMS, the Equip- The report is by line item and contains production ment Improvement Recommendation (EIR) and the data and cost data as appropriate. The production Modification Work Order (MWO), influence the re- data reflects the asset position of the item in terms quirements computations of the inventory manager of authorized quantities, planned quantities, comple- and help to determine the workload of depot mainte- tions, schedule information, and the number of direct nance facilities. In many instances, depending upon labor man-hours expended. The cost data reflects to- the urgency-of-need, units may not be able to use tal planned program cost, costs incurred to date by equipment until required improvements or modifica- cost element, work-in-process costs, acquisition value tions have been made. When these conditions exist, the of completed quantities, funded costs of onhand and item manager must ascertain whether the time frame scheduled turn-in quantities, and direct labor man- within which equipment is required is compatible hour costs. ?

8-10 CHAPTER 9 MANAGEMENT OF EXCESS AND SURPLUS PROPERTY

Section I. THE DEFENSE MATERIEL UTILIZATION PROGRAM 9-1. General a. As a general policy, property once advertised a. Logistics managers must constantly face the for sale will not be withdrawn. Exceptions to this task of balancing supply and demand. This task general statement will be permitted only when prop- becomes more critical in times of war as enemy actions erty involved is required in support of approved affect requirements for most items of supply in ways Government programs, and the action determined to that are difficult to predict. Even if it were possible be in the best interest of the Government. Heads of to predict the precise time a war would end, there DOD components will insure that withdrawal au- would probably be excesses of some items of supply thority is stringently controlled and applied. (This due to such factors as obsolescence, miscalculations, policy is predicated upon the workload and adverse and overly conservative safety levels. Despite the in- public relations, up to and includng court cases, evitability of excesses, good management practices which result unless careful control of withdrawals is can reduce the magnitude and increase the economic effected.) return through utilization or disposal actions. A To achieve these objectives, disposal programs &. A clear understanding of the distinction between should be integrated with other logistics programs. excess and surplus property is essential to this dis- Research and development, inventory management, cussion. Excess property is the quantity of property distribution management, maintenance management, in possession of any component of the Department and procurement and production management all of Defense (DOD) which exceeds the quantity re- have a direct relationship to disposal programs. In quired or authorized for retention by that com- most instances, introduction of new principal items ponent. Surplus property is any excess property not of materiel will result in similar items being de- required for the needs and for the discharge of the clared obsolete. Planning for the gradual phaseout of responsibilities of all Federal agencies, including the materiel being replaced is essential to preclude large DOD, as determined by the General Services Ad- quantities of excess. ministration (GSA). 9-3. Authority and Responsibilities 9-2. Objectives a. The Federal Property and Administrative Serv- Personal property (including scrap) will be disposed ices Act of 1949, as amended, (Act of 30 June 1949. of in a manner which will insure maximum Federal 63 Stat. 388, 40 U.S.C. 471) assigned responsibility utilization through withdrawal or transfer; permit for the overall supervision and direction over the authorized donation to satisfy valid requirements; disposition of excess and surplus property to the Ad- obtain optimum monetary return to the Government ministrator of General Services. The act further for property sold ; and minimize the need for assigned the responsibility for supervision and direc- abandonment or destruction. The procedures, codes, tion over the disposition of DOD foreign excess and uniform formats of the Military Standard Data property to the Secretary of Defense. The Adminis- Systems, Military Standard Requisitioning and Issue trator of General Services has delegated to the Secre- tary of Defense the responsibility for the disposition Procedures (MILSTRIP), Military Standard Transaction Reporting and Accounting Procedures of excess and surplus property generated by DOD. (MILSTRAP), etc., will be used to the maximum b. The Secretary of Defense has assigned responsi- extent possible in all property disposal transactions. bility to the Director of the Defense Logistics Precious metals bearing scrap and end items con- Agency (DLA) for the overall worldwide manage- taining precious metals will be disposed of in a man- ment of the Defense Personal Property Disposal Pro- ner which will insure cost-effective disposition and gram in the role of integrated program manager. recovery of precious metals when economically feasi- Accordingly, HQ DLA, is responsible for the de- ble under the Precious Metals Recovery Program. velopment of policies relating to this program and 9-1 the development of systems, techniques, and pro- complishment of the realinement of the disposal sup- cedures as may be appropriate. In its role of inte- port which will occur as a result of disestablishment. grated program manager, DLA will : (4) Exercise authority in consonance with exist- ( 1 ) Promote maximum utilization of excess, sur- ing DOD policies to designate items as exchange/sale plus, and foreign excess personal property. property to be conveyed to property disposal (2) Establish/disestablish defense personal accounts. property disposal organizations under the control of (5) Identify items requiring demilitarization DLA and coordinate such action with the appropri- and, as applicable, accomplish demilitarization of ate military services and other DOD components those items which cannot be physically accepted by when it will affect the disposal support currently be- a DPDO in accordance with DOD policy. ing provided their activities. Except when diplo- d. To carry out its responsibilities in relation to matic considerations do not permit it in overseas excess and surplus personal property, DLA estab- areas, this formal coordination will be accomplished lished the Defense Property Disposal Service in sufficient time for the military Service or other (DPDS) as its primary field activity to perform pro- DOD components affected to properly program and gram management and staff supervision of the De- require resources in accordance with prescribed pro- fense Personal Property Disposal Program, con- cedures. Coordinate such establishment/disestablish- sisting of five Defense Property Disposal Regions ment with the Assistant Secretary of Defense (DPDR’s) and assigned the DPDR’s the DPDO’s (Manpower Reserve, Affairs, and Logistics). worldwide. (3) Administer the Defense Donable Surplus e. DOD generating precious metals bearing prop- Personal Property Program as it applies to approved erty and scrap and waste materiel will normally turn service educational activities. This includes such ac- in all excess to their servicing DPDO. There may be tions as prescribing procedures, development of do- times, however, when a generating activity desires nation agreements, and processing requests to higher and will be authorized by DLA to ship recovered authority for deviation from formal agreements. precious metals, such as electrolytic of lake, spent (4) Insure maximum compatibility between recovery cartridges or sludge, etc., direct to a com- documentation procedures, codes, and formats used mercial contractor or to the DPDM-R. in property disposal systems and the military standard systems. 9-4. Excess Declaration and Reporting (5) For sales involving reimbursement to own- a. The logistics manager constantly faces the task ing activities and programs (e.g., Military Assistance of purging the inventory of stocks that are excess to Program (MAP), Coast Guard, exchange/sale, in- current needs or foreseeable requirements. Realizing dustrial fund scrap), review the relationship of sales proceeds to disposal expenses for the purpose of that it is costly to maintain an inventory larger than recommending to the Office of Assistant Secretary of needed to support using units, supply managers at all Defense (OASD) (Comptroller) the percentage of levels must determine what portions of stock in long proceeds to be used or other method to be used in supply (that is, in excess of the quantity authorized establishing estimated expenses that will be deposited or required to be on hand) can be economically re- to the Deposit Fund Account in conjunction with tained for future use or, conversely, reported as ex- processing this type of disposal property. cess. It should be emphasized that the supply man- c. The Secretary of Defense hasager assigned is concerned the mili- with materiel in the possession of tary services responsibility for the following : using units as well as stocks on hand in supply in- (1) Provide assistance to the Director, DLA, stallations, particularly materiel that must be re- upon request, in the resolution of mutual problems ported to the appropriate materiel management cen- within the Defense Personal Property Disposal ( Program. ter overseas or national level inventory control point (2) Promote maximum utilization of excess, sur- (ICP) within COHUS for disposition instructions plus, and foreign excess personal property. when no longer needed by the user. (3) Provide support to tenated Defense Prop- b. Management tools are available to the supply erty Disposal Regional Offices and Defense Property manager to assist in predicting excesses. For certain Disposal Offices (DPDO) ; and their offsite branch, classes of supply, excesses can be predicted by an in consonance with applicable interservice support economic retention formula which shows at what pe- agreements. Except where diplomatic considerations riod the cost of retaining an item is equal to the cost do not permit it in an overseas area, the disestablish- of disposing of it and reprocuring it at a later date. ment of the host of one of these disposal elements Retention costs include such elements as cost of stor- will be formally coordinated with DLA in sufficient age space, care and preservation, cost of issue, trans- time for DLA to properly plan and program the ac- portation, deterioration, and obsolescence. In addi-

9-2 tion to cost factors, consideration should be given to 9-6. Reporting Channels in Overseas future utility and essentiality of the item, the effect Theaters of retention on procurement of more modern materiel, a. In the oversea theaters, it is important that ex- and the capability of procurement and procurement cess and disposal operations be closely tied to both leadtimes. Although the same elements are considered maintenance and supply operations. A large amount to varying degrees, a formalized economic retention of excess property overseas is generated through formula is seldom used with high-value items but is maintenance operations and, conversely, proper man- normally associated with low-value items of materiel. agement of excess property will reduce the mainte- The capital investment takes on added importance as nance workload. Since the primary objective of any the unit value of the item increases. disposal program is maximum utilization, oversea c. The excess declaration and reporting of auto- supply managers must have knowledge of disposal matic data processing equipment is governed by DOD programs at all levels, since they can serve as a source 4160.19M, Defense ADPE Reutilization Manual. of supply. Hence, each reviewing echelon in the op- 9-5. Reporting Channels in the erating chain compares excess listings with known Continental United States and anticipated requirements to preclude unnecessary a. As a rule, excess property in the hands of units backhaul or new procurements. of CONUS installations is reported to the account- b. Using units in the forward areas of active thea- able officer serving that activity. Excess property of ters normally turn in excess property to supporting CONUS installations will be reported by the account- direct support or general support units as prescribed able officer to the appropriate ICP for disposition by theater regulations. Maximum utilization will be instructions. Excess property will be reported in ac- enhanced by prescribing that excess property be re- cordance with procedures outlined in AR 725-50. The turned through the supplying unit prior to actual rationale for reporting through accountable officers movement whenever the tactical situation will permit. and ICP’s is sound in that it permits maximum This increases the probability of lateral utilization utilization at the local level and lateral redistribution while decreasing expensive backhaul and multiple as opposed to backhaul. handling. Property that is excess to the needs of the b. Upon receipt of reports of excess, the ICP screens direct support and general units is reported to the items to determine if the excesses can be used to fill appropriate theater materiel management center. outstanding requisitions or are needed for depot c. In the rear areas of oversea theaters, collection stocks. Appropriate disposition instructions should be and classification companies generate large amounts of potential excess property through their recovery provided the reporting installation as expeditiously and cannibalization programs. Such property is re- as possible, as retention cost could soon exceed poten- ported through the materiel management centers for tial savings from utilization of some items of mate- disposition instructions. riel. When it is determined that reported excess prop- d. As a general rule, excess property with line item erty is needed for depot stocks, an effort should be value of $50 or more located in oversea theaters will made to determine if the property can be stored at be reported by oversea inventory control centers to the reporting installation to preclude unnecessary the appropriate national inventory control point handling and transportation cost, since this cost could (NICP) for disposition instructions. Experience has shown that the cost incurred in reporting excess prop- ft. also equal or exceed potential savings where significant distances are involved. erty of lower value generally will exceed the return. c. When the ICP determines that the reported As an exception, an NICP may require reporting a specific item with a line item value of less than $50. » property is excess to the needs of the Army, the reporting accountable officer will be instructed to trans- NICP screening of excess reports from oversea thea- fer the property to the Defense Property Disposal ters is similar to that described above for CONUS installation excess reports. However, since potential Officer. Major commands should promptly review savings in transportation cost are quite significant, listings of excesses that are to be transferred to the more emphasis is given to lateral redistribution property disposal officer to determine if utilization among theaters. Once the NICP manager determines within the command is warranted. Delay of such re- the property is excess to his requirements, the overview could lead to excessive administrative work and sea command is directed to transfer the property to unnecessary physical movement. the appropriate disposal officer.

9-3 Section IL SCREENING OF EXCESS PROPERTY 9-7. Reportability Criteria the DPDS for appropriate utilization screening a. After property has been transferred to the within the DOD and/or the GSA. DPDO, it is DOD policy to encourage all Govern- 9-8. Screening of Nonreportable Property ment agencies to use the materiel in lieu of new pro- or DPDO Account curements, all property becoming excess is not centrally screened for utilization. To assist the logistics Excess property not reportable for centralized screen- manager in the field, criteria for determining what ing will be given local area screening prior to dona- property is reportable for centralized utilization tion or sale. The type and extent of local screening screening have been developed. Generally, these cri- is determined by the DPDO. teria are based on the amount of utilization accom- 9-9. Screening of Reportable Property or S plished within each Federal supply class or group of DPDO Account property that has been subjected to screening, with due consideration being given to the cost involved а. Types of Screening. Reportable property is sub- in effecting the screening. The criteria referred to jected to either DOD and/or GSA screening. above stratify excess property as follows : б. Excess Property Listings. Excess reports re- (1) Declared service or agency excess property ceived by the DPDS are used to prepare DOD listing reportable DOD or GSA utilization screening (re- of excess property. Each listing published by the portable property). DPDS categories reported excess property by the (2) DOD excess property reportable to GSA for two-digit Federal supply group. In addition to the utilization screening (reportable property). detailed descriptive Federal Supply Catalog data, the (3) Excess property nonreportable and subject listings include the following information pertinent only to local area screening (nonreportable prop- to screening actions and subsequent request for ef- erty). fecting transfer : Reportability criteria are developed by DLA in (1) Listing serial number ; e.g., 75/EPPL—41. coordination with the military services and GSA. De- (2) The issue date of the excess listing. tail procedures, including Federal supply class strati- (3) The military priority date. fication, are published in DOD 4160.21-M and AR (4) Instructions for obtaining the excess prop- 725-50. erty listed. c. Because of the constantly changing inventory (5) Utilization System Control Number within the Federal supply system, some flexibility in (USCN) for reportable non-NTSN items. reportability criteria is desirable. PDO’s are encour- c. Distribution of Excess Listings. aged to report excess property for centralized screen- (1) The DPDS distributes excess listings to ing whenever it appears to have some reasonable other military activities and commands specifically prospect of utilization, regardless of its stratification. designated by the military services, to GSA approved d. Most nonreportable property falls into one of civilian agencies, to authorized foreign governments, the following categories: and to approved service educational activities. The (1) Property determined by competent author- military Services periodically review the distribution ity to be classified for reasons of national security. of excess listings to military activities and authorize (2) Property dangerous to public health or such changes thereto as may be considered necessary .t safety. or desirable. Other means may also be used to pub- (3) Property used by a single military service, licize excess property information when considered or which has a use potential solely within a single appropriate by the DPDS. When means other than < military service; e.g., peculiar arms, ammunition, excess listings are used, such as direct communica- and implements of war ; unit insignia ; blank forms. tions with designated screening activities, adequate (4) Perishable property. screening will be accomplished in a manner consistent (5) Scrap and waste property. with the intent of the Department of Defense Utili- (6) Items manufactured by foreign firms and zation Program. procured offshore. (2) GSA regional offices distribute or otherwise (7) Property that does not meet both the mini- publicize to military activities excess property infor- mum line item value and minimum condition criteria mation on property that was reported to GSA of the applicable Federal group or classes published regions. in DOD 4160.21-M will be processed by the DPDO d. Screening Period. The length of the screening as nonreportable. period is controlled by establishing an automatic re- e. All other property that meets the minimum line lease date by which a request for excess property must item value and reportability criteria is reported to be received. Property not requested prior to this date

9-4 will be released for donation. This date is established items will be assigned an automatic release date by the DPDS and the GSA as appropriate. (ARD) and placed in the Excess Personal Property e. Screening Priorities. List (EPPL) or forwarded to GSA for screening, as (1) DOD screening only. Requests from military appropriate. activities of the owning military service are given (4) Final asset screening (FAS). Subsequent to priority during the screening period. Requests re- the DOD/Federal agencies and donation screening ceived from military activities are normally allocated prior to preparation of surplus sales catalogs, DPDS on a first-come-first-served basis. Following the auto- will generate a notification of surplus assets to the re- ■. matic release data, there is a donation screening corded manager of the National Stock Number period. Requests from service educational activities (NSN). This is a final screening of available assets^ are given priority during the 21-day donation period. prior to sale as Government surplus. ICP’s will sub-. (2) Consecutive screening. Requests from activ- mit requisitions for required items to the DPDO ‘ ities of the owning military service are given priority holding the asset. It must be recognized that these during the DOD screening period on a first-come- items are being processed for sale ; therefore, it is in first-served basis. Residue items released to GSA by the best interest of the requiring activity to submit the DPDS are screened by civilian Federal agencies. the requisition (s) as soon as possible. The GSA regional offices allocate and approve trans- /. Interrogation of Assets. fer of the materiel to civilian Federal agencies ( 1 ) Interrogation procedures have been designed normally on a first-come-first-served basis. Follow- to promote utilization by providing customers with ing the automatic release date, 21 days are allowed the capability to selectively interrogate, item asset as the donation screening period. data for all items identified by an NSN in either re- (3) Frort end screening (FES). All declared ex- portable or nonreportable status from the DPDS. cess assets reported by the DPDO’s are screened to (2) Asset availability can be interrogated to determine if they are integrated materiel manager select assets in a specific condition or a specific geo- (IMM) controlled or single-service-user items. Assets graphical location. Interrogations are submitted by meeting predetermined criteria are-referred to the NSN’s. Want Lists and purge dates can be handled IMM/ICP for possible utilization. FES procedures within the Interrogation Requirements Information are applied prior to any other screening techniques. ICP/IMM’s desiring to requisition reportable assets System (IRIS) (Chapter VIII, DOD 4160.21-M). may do so by submitting their requisition to DPDS. (3) Organizations or elements authorized to Requisitions for nonreportable assets should be sub- effect interrogations include, in addition to DPDS mitted to the holding DPDO. All requisitions will organizational levels, Headquarters, DLA, other contain the FES document number and the applicable DOD components ; GSA ; IMM’s ; and friendly fund citation (s) in the remarks section. Reportable foreign governments. si

Section III. TRANSFER OF EXCESS PROPERTY 9-10. Transfer Among Military and gories of property that are authorized by ^appropri- Civilian Federal Agencies ate documents. * • ¡ a. For reasons of economy, administrative proce- c. Upon receipt of the request, the DPDS either dures for transferring excess property should be issues authority to requisition, advises-the requesting^. Ä _ streamlined as much as possible. However, property activity that the materiel is no longer available, or accountability must be maintained throughout the advises that availability must be established with the screening and transfer process. To preclude uneco- GSA regional office holding redistribution control. d. Military screening activities should make every nomical transfers of excess property, requests for items valued at less than $50 per line item (regard- effort to submit requests for materiel undergoing consecutive screening prior to the military priority,, less of unit cost) are normally not honored. Excep- tions are made when the property concerned is the date to obviate the necessity for subsequently with-*. 'ó> . only immediate source of supply. drawing the materiel from the GSA regional office. b. When an Army activity determines that prop- e. When Army activities have requirements for erty on a DPDS excess listing is required, it submits excess property that has been reported through the a request to the DPDS by telephone, message, or DPDS to a GSA regional office for screening and letter. The DPDS has a central computer file of is under the redistribution control of GSA, they sub- excess property and acts similar to a broker; conse- mit requisitions to the appropriate GSA regional quently, requisition forms are not used for this pur- office. pose. It is the responsibility of the requesting agency f. Army activities may also acquire excess civilian to insure that requests are restricted to those cate- Federal agency property offered by the GSA re- 9-5 gional offices. Requests for transfer of civilian Fed- posal account. In the absence of reimbursement data eral agency excess property are submitted to the on transfer (of accountability) documents, property GSA regional office having redistribution control of disposal officers will consider such property as non- the property and are restricted to those categories reimbursable. Transfer of property by property of property that the requesting activity is authorized disposal officers to DOD users is on a nonreimburs- to acquire. able basis except where the transferee is prohibited by law from acquiring property without reimburse- 9-11. Transfer to Foreign Governments ment. Transfers of DOD excess property to civilian a. Transfers of DOD excess property may be made Federal agencies will be without reimbursement ex- to foreign governments designated by the Depart- cept when the transferee is prohibited by law from ment of State as eligible to purchase property under acquiring property without reimbursement or the the Foreign Military Sales Act, PL 90-629. As part GSA directs that transfer will be with reimbursement of the central screeniiig operation, the DPDS distrib- at fair value. ! utes listings of available excess property to these eli- (2) Transfers to eligible foreign governments gible foreign governments based on information fur- as a result of DPDS screening operations are made nished by each government as to type of property only with reimbursement. Reimbursement for other C- they desire to screen against requirements. This types of excess property will be no less than the gross screening is accomplished concurrently with screen- '' - 'y cost incurred by the US Government in repairing, ing by US Department of Defense activities; how-">> rehabilitating, or modifying such articles to the ex- ever, it cannot be released fori sale until screening is'"' tent required by the receiving government, plus the completed. scrap value or the market value, if ascertainable, A Requests for availability are submitted by eli- whichever is the greater. gible foreign governments directly to the DPDS for b. Transportation and Accessorial Costs. Costs of the necessary approval ( including State Department transportation of excess property together with ac- clearance, if required), for firm determination of cessorial costs, when appropriate, are borne by the re- availability of property involved and for action to ceiving agency. Charges for accessorial costs may be establish or verify the transfer price. waived, however, where these charges are relatively 9-12. Financial Aspects of Transfer insignificant. This exception includes parcel post a. Reimbursements. shipments. In addition, these charges are waived for ( 1 ) The inventory manager or other, accountable transactions of less than $50 (DPDS-H 4160.3, Vol. officer informs the DPDO of any designated reim- I, Chapter 11J") value for services, work, and sup- bursement requirements at the time accountability for 1 plies, for a receiving activity for any calendar excess property is transferred to the property dis- quarter.

Section IV. SALE, ABANDONMENT, AND DESTRUCTION OF FOREIGN EXCESS PERSONAL PROPERTY 9-13. General 9-14. Statutory Authority a. This section pertains to the salé, abandonment, These instructions are based on the authority for the and destruction of foreign excess personal property. disposal of foreign excess property as contained in The term foreign excess includes disposal MAP prop- the Federal Property and Administrative Services 4 erty for the purpose of this section. The standard Act of 1949, as amended (40 U.S.C. 511-514) and merchandising policies and practices relating to sur- other pertinent statutes as are referred to herein. plus property will be equally applied to foreign ex- 9-15. US Foreign Policy 'f cess sales, subject to the specific provisions of this ffl. US foreign policy will govern the disposition of section. foreign excess property whether by sale, donation, b. This section applies only to property located out- abandonment, or destruction. In order that the for- side the Zone of Interior (ZI), American Samoa, eign policies of the United States may be effectively Guam, and TTPI. For property located in Canada, served in foreign countries, foreign excess disposal only that portion that prescribes the procedures for programs will be developed and conducted with the the determination of property as foreign excess is coordination and approval of the US diplomatic mis- applicable. In order to conform to an existing agree- sion in the country concerned. Accordingly, DPDR’s ment between the United States and Canada, the dis- or their representatives will maintain close liaison position of such property will be in accordance with and cooperate with the US diplomatic representatives that specific agreement. and consular offices in the country concerned in order

9-6 to receive necessary approvals, recommendations, and located will be provided expeditiously a copy of that suggestions from the local US Department of State IFB. representative. c. The U.S. diplomatic mission will be advised of b. Requests for deviations to established policy and Munitions List Items (MLI) and MAP excess prop- procedure determined necessary by DPDR’s, other erty that are included in the IFB. DPDR’s will con- than those covered in subparagraph c below, will be sult with U.S. mission personnel before entering into processed as appropriate to DPDS. negotiations with friendly foreign governments for c. In conjunction with assigned responsibilities, the sale of United States MLI’s. U.S. mission per- DPDR’s may deviate from prescribed disposal policy sonnel, for this purpose, means American diplomatic which is in conflict with country-to-country agree- or consular representatives in the country whose gov- ments. Copies of oversea command implementations ernment wishes to negotiate the purchase of MLI’s of bilaterial agreements will be provided DLA and as designated in the Department of State’s Interna- the headquarters of the military departments tional Traffic in Arms Regulations. This requirement concerned. also applies to MLI scrap regardless of the purchaser. d. Foreign excess and exchange/sale property will not be sold directly or indirectly to denied areas. 9-18. Abandonment or Destruction a. Foreign excess property to be abandoned or 9-16. Liaison With US Department of destroyed, or donated in lieu thereof, will be processed State in accordance with Chapter XIV, DOD 4160.21-M. a. Sales Plans and Program. In deference to the significant distances between ' ' ( 1 ) To preclude delays of proposed sales and to DPDR Pacific and its subordinate activities, the com- afford appropriate Department of State representa- mander of that region is authorized to delegate his tives ample opportunity for consideration of possible authority to approve abandonment or destruction foreign policy aspects, sales plans or programs should actions. Such delegations will not be effected to be developed as far in advance of scheduled sale as PDO’s or DPDO’s. possible and processed for coordination and approval. b. The following subparagraphs deal with dona- (2) The Sales Contracting Officer (SCO) will tion in lieu of abandonment destruction. request assistance of the U.S. diplomatic mission, (1) With the exception of property, dangerous when appropriate, to make an Integrity and Re- to public health and safety, foreign excess property liability (I&R) Check on every successful bidder may be donated to organizations specified below, prior to award, including named purchaser (s) and upon proper findings that the property is donable. subreceiver (s), and to make an “End Use Check” to Assistance in obtaining information on the activities verify that property reached the acceptable destina- or organizations unknown or not familiar to the in- tion designated by the purchaser (s). stallation concerned should be requested from the b. Donation,, Abandonment, or Destruction of local representative of the Department of State. Foreign Excess Property. The donation, abandon- Preference will be given to eligible donees in the or- ment, or destruction of foreign excess property is also der listed below. Donations may be effected without governed by the foreign policy of the United States. cost to any : Therefore, these actions will be coordinated with the (a) Organization, institution, or agency of the U.S. diplomatic mission and advice obtained on how United States Government. donation, abandonment, or destruction of foreign (&) Organization, institution, or agency of excess property can best be accomplished to further any friendly foreign government or local subdivision U.S. policy. thereof. (c) Nonprofit scientific, literary, educational, 9-17. Procedures for Coordination With public health, public welfare, charitable institution, U.S. Department of State hospital or similar institution, organization or asso- a. The Federal Property and Administrative Serv- ciation in a friendly country, provided its activities ices Act of 1949, as amended, requires that disposi- are not adverse to the interests of the United States. tion of foreign excess and exchange/sale property Written request from a donee will include, as a minimum, a brief statement of its activities, general in- conform to the foreign policy of the United States. formation as to the use to be made of the requested To fulfill this requirement, the following procedures property, and a statement that the property is needed for processing sales of foreign excess and exchange/ and is being acquired for such purposes and will not ?. sale property have been coordinated with the Depart- be resold or put to any other use. Donations may be ment of State. made to foreign nonprofit institutions, but prefer- b. The U.S. diplomatic mission of each country ence shall be given to those organized under the laws where property for an invitation for bid (IFB) is of the United States or any territory, State, or pos- 9-7 session thereof, and supported in whole or in part 725-50 Reporting, Utilization, and Redistribu- through use of funds raised chiefly from sources in tion of Installation, US Army Ma- the United States, its territories, or possessions. teriel Command, and Oversea Com- (2) The advice of the local representative of the mand Excess Personal Property. Department of State will be obtained as to how do- 755-4 Exchange or Sale of Nonexcess Per- nation of foreign excess property will be made so as sonal Property. to serve the United States foreign policy interests 755-15 Disposal of Unwanted Radioactive and objectives in the area. Local arrangements be- Materiel. tween representatives of the Department of State h. Department of Defense Publications. and the DPDO should be sufficiently flexible to per- 4000.19-M Basic Policies and Principles of mit advice covering donation of foreign excess prop- Interservice, Interdepartment- erty on a continuing basis, subject to periodic review, al, and Interagency Support. as necessary, rather than on a case-by-case review. 4140.34-M Department of Defense Utiliza- The advice of the.representative of the Department tion Manual. of State will be given consideration in reaching a 4160.21 Department of Defense Disposal decision as to the receipt of the property to be Program. donated. „ ¡ ..v 4160.21- Defense Disposal Manual. M (3) The American National Red Cross should 4160.21- Defense Demilitarization Manual. M-l be advised and offered, before donating to other c. Department of Defense Instruction. agencies, property which can be readily identified as originally processed, produced, or donated by the 4160.1 Nonexcess Personal Property to American National Red Cross. be Sold or Exchanged for Re- placement Purposes. 9-19. References 4160.21-M Interrogation Requirements In- a. Army Regulations (AA). formation System. 710-2 Materiel Management for Using Units, d. Defense Logistics Agency Handbook. Support Units, and Installation. 4160.1 Defense Scrap Yard Handbook.

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By Order of the Secretary of the Army :

E. C. MEYER General, United States Army Official : Chief of Staff J. C. PENNINGTON 3000031526 Major General, United States Army The Adjutant General

Distribution : Active Army, ARNG, USAR: To be distributed in accordance with DA Form 12-11B requirements for logistics Inventory Management. 9-8

U.S. GOVERNMENT PRINTING OFFICE- 1900 m o

PENTAGON LIBRARY 00 O O o o 00

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