Reinventing Marine Corps Inventory Management

Applying a Bootstrap Approach for Setting Reorder Points in Military Supply Systems

Marine Corps logistics has one overarching goal: to provide effective and efficient support to the Marine warfighter. In support of these efforts, RAND has developed new ways to define repair parts inventories and to measure their performance. These innovative inventory management techniques can result in both cost savings and greater customer satisfaction. In a recent article in Naval Research Logistics, RAND statistician Ronald D. Fricker, Jr., and co-author Captain Christopher A. Goodhart, USMC, described some of these new techniques. Illustrating the RAND methodology using actual Marine Corps data, they demonstrate via simulations that these new tools can lead to dramatically improved supply system performance. Their findings have direct application to any organization, military or civilian, that seeks to improve the performance of its supply inventory.

RAND Develops Customer-Focused Metric of Inventory Effectiveness

Traditionally, Marine Corps inventory practices have been measured in terms of “fill rate”—the percentage of retail demands satisfied from local stock. However, this metric fails to capture how well Marine inventory actually meets customer needs. Since the majority of repairs require a number of parts to complete, even with fill rates of 60 or 70 percent for some parts, most jobs are delayed waiting for parts from non-local sources. Some 75 percent of major subassembly repairs, for example, require parts not locally stocked. Most significantly, repairs that require a part from the wholesale supply system take 30 percent longer, on average, to complete. And often the critical wholesale part is inexpensive.

The lack of a dollar part can hold down a deadlined weapon system even as other parts—worth thousands of dollars—are immediately available. To quantify supply’s impact on repairs, RAND analysts Marc Robbins and Ron Fricker developed a new metric—the Equipment Repair Order (ERO) fill rate. The ERO fill rate measures inventory effectiveness from the perspective of the mechanic. It tallies the percentage of critical repairs for which all high-priority parts are immediately available from local supply.

RAND Inventory Management Techniques Offer Significant Performance Benefits

Inventory managers must be able to answer three important questions: what to stock, how much to stock, and when to reorder stock. The determination of what to stock is based on a variety of considerations, such as past demand history and the importance of the item. How much to stock and when to reorder is based on an assessment of risk. In particular, what risk of running out of stock is the inventory manager willing to assume when it’s time to submit a replenishment order? The higher the re-order point (the ROP, or the level of items on the shelf that triggers a replenishment order) is set, the lower is the risk of running out of stock during the replenishment time, but the more capital is tied up in safety stock.

To help Marine Corps managers answer these questions, RAND applied two new techniques: the “bootstrap ROP” and “dollar banding”. The bootstrap ROP allows the inventory manager to set stock levels by risk of running out. This approach automatically sizes the inventory to account for variations in demand—variation that is inherent in any parts supply system. Dollar banding incorporates cost into the stock decision and was adapted to Marine Corps needs from techniques originally developed by RAND to help the Army solve similar problems. It is based on the idea that many more inexpensive items can be stocked for the cost of very few expensive items. Bootstrapping the ROP and dollar banding synergistically combine to produce significant improvements in inventory performance.

As described in Naval Research Logistics, applying these techniques to existing Marine inventories through advanced simulation, and using data from a Marine Expeditionary Force, demonstrates that potentially large performance benefits can result from using the bootstrap ROP and dollar banding techniques.

	Projected Inventory Performance Under:
	Actual Marine Corps Guidelines	New Techniques
ERO fill rate	54%	75%
Fill rate	72%	87%
Inventory value at RO	$24M	$17M
Number of lines stocked	13,159	32,537

As the above table highlights, both the fill rate and the ERO fill rate are much higher, while the investment in inventory is noticeably reduced. In addition, the variety of stock held almost triples, with the number of “lines” (specific types of items) increasing from 13,159 to 32,537.

While more recent Marine Corps initiatives such as the ILC plan to use information technology in order to reduce the logistics “iron mountain,” some part of that mountain will always remain. Thus, cutting-edge inventory techniques, such as the bootstrap ROP and dollar banding, will be required to effectively manage even an “iron molehill.” Indeed, from a warfighter’s perspective, the smaller the mountain becomes, the more critical managing it effectively will be.