DLA forward stocking: an economic analysis

Air Force Journal of Logistics, Fall, 2007 by John A. Flory, Douglas A. Blazer, Gale Bowman

Now consider the addition of a cost criterion to DLA's demand criterion (Table 4). The best cost criterion was a cost of less than $50.

Adding a cost criterion prevents an excessive pipeline inventory of expensive items, eliminating virtually all the beta-error. This resulted in a net savings of $679K over a 5-year period. Additional savings is generated by lowering the demand criterion to two-or-more demands in a year (see Table 5).

Lowering the demand significantly lowered the alpha-error, capturing additional savings. The beta-error only slightly increased, and the total net savings was $955K over a 5-year period. This rule would stock 20 percent of the items demanded in the AOR, as compared to the 10 percent of items stocked under current DLA criteria.

Items Not Stocked Because of Insufficient Storage Space

Next, the modified cost and demand criterions are applied to the set of items not forward stocked because of insufficient storage space. A total of 15,819 items met the criteria for a demand level at the using air base, but were unable to be forward stocked at the base because of insufficient storage space. Items that are economical to forward stock should be stored at the Defense Distribution Depot Kuwait (DDKS), Southwest Asia until storage space is available at the forward bases. Items that are not economical should not be stored at DDKS but should remain in CONUS.

Applying the modified cost and demand criterions to the items yields a potential savings of $747K (see Table 6). A total of 3,026 items (19 percent) met the criteria to forward stock, of which 2,780 are economical. A total net savings of $747K results over a 5-year period. Savings can be increased if pipeline times are reduced. Table 7 shows the performance if the time from DDKS to the forward base is lowered to 5 days.

Although the same amount of items is forward stocked, more items are economical with a shorter pipeline from DDKS. Savings are increased by approximately $85K ($832K-$747K) over a 5-year period. Furthermore, stocking at DDKS is beneficial for all items not stocked at the using base, if the total pipeline time is less than the pipeline time direct from CONUS to the base. Since these items are not stocked at the using base, any pipeline time less than CONUS will reduce back order time. As space becomes available, economical items can be selected for storage at the using base.

Standard Base Supply System (SBSS) demand levels must be adjusted if forward stocked items have different order and ship times (O&ST) than items from CONUS. In the event of reduced forward pipeline times, the reorder point (ROP) can be lowered for forward stocked items yielding a one-time savings. The resulting savings or costs associated with different forward pipeline times were computed assuming all 15,819 items were forward stocked. The results are listed in Table 8.

Therefore, if the forward pipeline is reduced to 5 days, there will be a one-time savings of $1.5M in reduced supply levels at using bases, in addition to the $832K saved over a 5-year period under the proposed cost and demand criteria.