Dollar Cost Banding

When Army equipment fails, the speed with which maintenance technicians can restore it to mission-ready condition depends critically on the availability of needed spare parts. The Army wished to improve the algorithm used to compute the proper levels of inventory to stock in its repair facilities. This monograph describes how the Army’s Distribution Management initiative (formerly known as Velocity Management) has been used to develop and implement a new algorithm for computing spare parts inventories maintained by Army supply support activities (SSAs). The algorithm, known as dollar cost banding (DCB), has made it possible to expand the breadth of deployable inventories by adjusting the criteria for determining whether an item should be added or retained according to the item’s cost, size, and the criticality of the demands. When setting the depth of inventory, DCB accounts for surges and variations in demand, thus making it more likely that a part will be available in SSA inventories when demands occur. The DCB algorithm has produced immediate and significant gains in performance at little or no additional inventory cost and without sacrificing mobility. DCB has been successfully used in divisional SSAs, nondivisional tactical SSAs, and nontactical SSAs.