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DLA forward stocking: an economic analysis
Air Force Journal of Logistics, Fall, 2007 by John A. Flory, Douglas A. Blazer, Gale Bowman
Introduction
The Defense Logistics Agency (DLA) supplies Air Force units in the area of responsibility (AOR) with relatively inexpensive, consumable items. The DLA-managed items originate in the continental United States (CONUS), where they are stored and shipped directly to the forward bases in the AOR. DLA recently proposed forward stocking, in which items are stored centrally in-theater and then shipped to the AOR bases. Theoretically, forward stocking items should reduce transportation times from the DLA (forward) depot to the forward units. Additionally, forward stocking utilizes less expensive modes of transportation from CONUS to the forward DLA depot.
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Previous research has investigated the feasibility of forward stocking relatively expensive, Air Force-managed parts and concluded that forward stocking was not economical. (l) Currently, DLA only forward stocks an item if it has four-or-more demands in a year. (2) The criteria's intent is to ensure only high-use items are stored in-theater. This research extends previous efforts by considering the feasibility to forward stock inexpensive, DLA-managed parts according to current DLA criteria, and additional criteria developed through the research. A general methodology is presented to model and evaluate the performance of forward stocking. Although the methodology is applicable to any potential theater, only United States Air Force Central Command (USCENTAF) with storage at Defense Distribution Depot Kuwait (DDKS), is considered in detail.
Research Methodology
A mathematical model was constructed for direct shipping from CONUS to the base, and for shipping to a forward stocking location, and then to the base. Figure 1 depicts the structure of this model.
The model, implemented in Visual Basic, computes the inventory pipeline and transportation costs for each item from CONUS either direct to the air base, or to forward storage and then to the forward base. Inputs to the model are the transportation costs and times of each route, along with the item's cost and daily demand rate. It is important to note the characteristics of direct shipping versus forward stocking. Items traveling directly use faster modes of transportation, such as airlift or commercial carriers; therefore, the pipeline time is shorter, and there is less inventory in the pipeline. On the other hand, items forward stored will travel to the forward storage location via less expensive transportation modes (such as cargo ships), and from forward storage to the base via ground convoys or intratheater airlift. These slower but less expensive modes of transportation increase ship time and therefore may require more pipeline inventory. (See Table 1)
Given ample lead time, any item can be economical to forward stock, since the accumulated savings from lower annual costs will eventually break even with and then exceed the one-time investment costs. Forward stocking is considered cost beneficial if the breakeven occurs in less than 5 years (in accordance with Air Force Manual 23-110). Therefore, the model evaluates economic feasibility by computing the breakeven time and the resulting savings or cost over a 5-year period.
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Definite data was not available for the shipping costs and times; therefore, they were estimated for each leg of the direct and forward route. The pipeline times from CONUS to the base (days) were extracted from the AOR bases' SBSS routing identifier record. The CONUS to forward storage times estimated were derived from analysis of United States Transportation Command (USTRANSCOM) data. The forward storage to base times were derived from USTRANSCOM-provided pipeline performance based on shipment time from the US Army Material Command. Sensitivity analysis was also conducted with varied pipeline times. Transportation costs were based on AFMAN 23-110, chapter 19. Transportation costs and times are shown in Table 2.
The model optimally decides if an item is feasible to forward stock and computes the associated 5-year cost or savings. The optimal model, in turn, enables the development of easier-to-use rules of thumb to select what items to forward stock given a measure to evaluate performance.
Measuring the Performance of a Stockage Criteria
The objective is to develop criteria that identify items that are economical to forward stock. More specifically, the rule should not be one that stocks the highest percentage of items correctly, but one that selects items resulting in the greatest cost benefit. A set of criteria could potentially classify more items correctly than another, but ultimately result in more expense because the mistakes it makes are more expensive. Savings result when an economic item is forward stocked. Savings are the amount of money saved beyond the break-even point over a 5-year period. Likewise, extra expense is incurred when an uneconomical item is forward stocked. The expense is the amount of money by which the savings fall short of the break-even point over a 5-year period.
