Dod Depot-Level Reparable Supply Chain Management Process Effectiveness and Opportunities for Improvement
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Keating, Evan Saltzman, Daniel Tremblay, Patricia Boren C O R P O R A T I O N NATIONAL DEFENSE RESEARCH INSTITUTE DoD Depot-Level Reparable Supply Chain Management Process Effectiveness and Opportunities for Improvement Eric Peltz, Marygail K. Brauner, Edward G. Keating, Evan Saltzman, Daniel Tremblay, Patricia Boren Prepared for the Office of the Secretary of Defense Approved for public release; distribution unlimited The research described in this report was prepared for the Office of the Secretary of Defense (OSD). The research was conducted within the RAND National Defense Research Institute, a federally funded research and development center sponsored by OSD, the Joint Staff, the Unified Combatant Commands, the Navy, the Marine Corps, the defense agencies, and the defense Intelligence Community under Contract W91WAW-12-C-0030. Library of Congress Cataloging-in-Publication Data is available for this publication. ISBN: 978-0-8330-8495-8 The RAND Corporation is a nonprofit institution that helps improve policy and decisionmaking through research and analysis. RAND’s publications do not necessarily reflect the opinions of its research clients and sponsors. Support RAND—make a tax-deductible charitable contribution at www.rand.org/giving/contribute.html R® is a registered trademark Cover: U.S. Navy photo by Petty Officer 1st Class David McKee © Copyright 2014 RAND Corporation This document and trademark(s) contained herein are protected by law. This representation of RAND intellectual property is provided for noncommercial use only. Unauthorized posting of RAND documents to a non-RAND website is prohibited. RAND documents are protected under copyright law. Permission is given to duplicate this document for personal use only, as long as it is unaltered and complete. Permission is required from RAND to reproduce, or reuse in another form, any of our research documents for commercial use. For information on reprint and linking permissions, please see the RAND permissions page (www.rand.org/pubs/permissions.html). RAND OFFICES SANTA MONICA, CA • WASHINGTON, DC PITTSBURGH, PA • NEW ORLEANS, LA • JACKSON, MS • BOSTON, MA CAMBRIDGE, UK • BRUSSELS, BE www.rand.org Preface The RAND National Defense Research Institute (NDRI) examined Department of Defense (DoD) depot-level reparable (DLR) supply chain management to assess how it could be improved to enhance cus- tomer support and reduce costs. Our research team employed com- plementary approaches, including analysis of DLR flow and inventory data, interviews and site visits, reviews of service documentation, a lit- erature review, and case studies of specific DLRs. From these multiple methods, we distilled the most common reasons for apparent inventory “excess” and customer support shortfalls, and we identified associated process improvement opportunities. We did not find any large, “silver bullet” solutions, concluding that DLRs are managed relatively well by the services. However, we did find a number of modest opportunities for improving DLR supply chain management. The first, and likely largest, is improving parts sup- portability, including taking a total cost perspective that encompasses supply and maintenance when planning inventory in support of depot production. A second opportunity is to shift the Army more toward pull production. A third is to reduce lead times for all types of contracts affecting DLR supply chain management. And a fourth is to better account for all resource lead times in planning DLR production and anticipatable shifts in procurement and repair needs. These enhance- ments would all improve customer support, with better parts support likely reducing maintenance costs and pull production reducing the buildup of inventory. Additional cost-saving opportunities are more limited because what on the surface appears to be substantial inventory iii iv DoD Depot-Level Reparable Supply Chain Management excess and high disposals of assets is actually a reflection of the fact that DLRs are durable assets very much like weapon systems and other end items. We found that most DLRs have very low condemnation rates. So when they are replaced by upgraded versions or weapon systems are phased out, demands disappear but the assets remain, leading first to “excess” inventory and then disposals. This is a cost of doing business. Most DLRs get repaired many times before they become obsolete, with each asset purchased for inventory being used many times. This project was sponsored by the Assistant Secretary of Defense for Logistics and Materiel Readiness. It should be of interest to logisti- cians across the DoD, financial managers, Congress, and other stake- holders interested in understanding DoD inventory management and ensuring it is executed as effectively as possible. The research was con- ducted by the Acquisition and Technology Policy Center of the RAND National Defense Research Institute (NDRI). NDRI is a federally funded research and development center sponsored by the Office of the Secretary of Defense, the Joint Staff, the Unified Combatant Com- mands, the Navy, the Marine Corps, the defense agencies, and the defense Intelligence Community. For more information on the RAND Acquisition and Technology Policy Center, see http://www.rand.org/ nsrd/ndri/centers/atp.html or contact the director (contact information is provided on the web page). Contents Preface ............................................................................. iii Figures ............................................................................. ix Tables .............................................................................. xi Summary .........................................................................xiii Acknowledgments ........................................................... xxxiii Abbreviations .................................................................. xxxv CHaptER ONE Introduction ....................................................................... 1 The Role of Depot-Level Reparables in Sustainment .......................... 1 DLR Investments, Flows, and Customer Support ............................. 2 Project Overview and Objectives ................................................. 7 Approach ............................................................................ 9 Organization of This Report .....................................................10 CHaptER TWO Findings from Item-Level Case Studies .....................................13 Large Disposals of Unserviceable Assets: A Cost of Doing Business Resulting from DLR Phase-Outs and Low Washout Rates .............21 Other Less Common Drivers of Excess DLR Inventory .................... 26 Summary of Case-Study Findings for Shortages ............................. 28 Implications for Measuring Inventory Turns to Monitor Inventory Management Efficiency .................................................... 30 CHaptER THREE Parts Supportability/Taking a Total-Cost Perspective ...................37 v vi DoD Depot-Level Reparable Supply Chain Management Demand History Adjustments ..................................................39 Collaborative Planning ...........................................................39 Accounting for the Maintenance Costs from Parts Shortages ............. 42 Parts Supportability Metrics and Performance-Based Agreements ........ 43 Example Improvement .......................................................... 48 CHaptER FOUR Adoption of Pull Production ..................................................51 Production System Profiles .......................................................51 The Effects of Push Production ................................................. 56 Balancing