Customer-oriented leveling technique: COLT uses a marginal analysis technique to achieve the best possible objective while satisfying constraints - Supply 2003 - Customer-Oriented Leveling Technique

Air Force Journal of Logistics,  Spring, 2003  by Jason Vinson,  Kevin Gaudette

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We have probably all heard it (and maybe even said it once or twice): "I would have been able to produce if only I had the parts" or "It isn't my fault the aircraft isn't on schedule, supply is out of the washers I need, and the supplier is on back order as well." Oftentimes, these types of comments seem like finger pointing, but the numbers indicate they are rooted in truth. In May 2001, there were more than 32,000 consumable units back ordered against end items or higher assemblies in an awaiting parts status. (1) Examples are all too common in which relatively inexpensive consumable parts hold up the repair of an expensive reparable part. The Defense Logistics Agency (DLA) supplies upwards of 90 percent of the consumables used in aircraft programmed depot maintenance (PDM) and component repair, which takes place primarily at Air Force Materiel Command's (AFMC) three air logistics centers (ALC). Under contract by AFMC's Directorate of Logistics, Bearing Point (formerly KPMG Consulting) cited consumable-item support to depot maintenance in its Constraints Analysis Program study as one of the key limiting factors impacting the depots. (2)

The Customer-Oriented Leveling Technique (COLT) was developed by the Management Sciences Division of AFMC's Directorate of Plans and Programs in conjunction with the Supply Division of the AFMC Directorate of Logistics, with the goal of improving availability of consumable parts supplied by DLA. These parts allow maintainers at the air logistics centers to complete PDM on schedule and get reparable assets out to the field. This article outlines the history that led to the development of COLT, walks through the details of the model's algorithms, touches on some key paradigm shifts that had to occur prior to implementation, and highlights performance improvements already realized.

Background

Discussions and studies regarding how to treat consumable parts are nothing new. The article "Management of Air Force Depot Consumables: A Brief History and Taxonomy" goes into a more detailed description of how these parts have been treated over the last 10 years. (3) We, therefore, limit our discussion here to a summary of the major milestones that led to the development of COLT.

A traditional economic order quantity (EOQ) model was used until 1998 to determine the quantity of each part to be stocked at the retail echelon of supply and when orders should be placed to resupply those stocks. This approach took into account such factors as the historical demand rate and unit price for each item, as well as assumed values for ordering and holding costs. A 1998 study by the Air Force Logistics Management Agency (AFLMA) showed that, in some special cases, retail support for consumable parts could be improved by ordering more frequently from DLA than the EOQ approach would dictate. (4)

In response to the AFLMA study, AFMC changed its EOQ ordering approach to a new policy of one-for-one ordering on all DLA-managed consumable parts. This new policy called for the air logistics centers to order stock daily from DLA to resupply their shelves based on the number of assets consumed each day. The policy provided DLA with a more accurate picture of its customers' true demand streams, but it was not in line with the recommendations laid out in the AFLMA study, which defined specific criteria as to when the new policy should and should not be used. An added problem with one-for-one ordering was that, in execution, each of the air logistics centers had its own approach for calculating stock levels. All three used a days of stock approach to set these levels, but their criteria for determining the number of days were drastically different. One air logistics center set the same number of days on all stock numbers, whereas another used a certain number of days for all items under a set dollar value and a different number of days for all other parts. The third had yet another approach that looked at not only the cost of the items but also the number of requisitions each part had experienced. AFMC implemented one-for-one ordering simultaneously across the command, but in practice, there were three very different approaches being used for determining stock levels for consumable parts.

In 2000, an integrated product team (IPT)--led by the AFMC Directorate of Logistics and comprised of members from the AFMC Directorate of Plans and Programs, each of the air logistics centers, and DLA--was formed to improve consumable parts support to the depots. This team examined the effectiveness and shortcomings of each of the current practices and explored alternatives that might yield the desired improvement. Analysis showed each of the current approaches to be suboptimal and led to the development of COLT, a marginal analysis model that ties together funding, customer demand, and DLA supportability when setting stock levels.

COLT Basics

Like Air Force reparable supply systems, COLT uses a marginal analysis technique to achieve the best possible objective while satisfying constraints. In this case, the objective is to minimize customer wait time (CWT) for consumable parts, while the constraint is operating within set funding limits. As long as the model has money to spend, it will increase the stock level of the part that, relative to all other parts, will yield the largest return on investment. Simply put, it maximizes the bang per buck. The buck is simply the cost of the item in question, but the bang piece of the equation deserves a bit more explanation.