Examines Department of Defense depot-level reparable (DLR) supply chain management to identify the most common reasons for apparent inventory excess and customer support shortfalls and assess how DLR supply chain management could be improved to enhance customer support and reduce costs.

DoD Depot-Level Reparable Supply Chain Management

Process Effectiveness and Opportunities for Improvement

Eric Peltz, Marygail K. Brauner, Edward G. Keating, Evan Saltzman, Daniel Tremblay, Patricia Boren

ResearchPublished Jun 9, 2014

The RAND National Defense Research Institute examined Department of Defense depot-level reparable (DLR) supply chain management to assess how it could be improved to enhance customer support and reduce costs. This report concludes that DLR supply chain management appears to be done relatively effectively across the services. What on the surface appears to be substantial inventory excess and high disposals of assets is instead a reflection of the fact that DLRs are durable assets very much like weapon systems and other end items. Most DLRs have very low condemnation rates, with depot maintenance economically repairing them time and again through the life of the supported end item. So when they are replaced by upgraded versions or weapon systems are phased out, demand disappears but the assets remain, leading first to "excess" inventory and then to disposals. This is a cost of doing business. As a result, no large, "silver bullet" solutions were found. Still, a number of modest opportunities for improving DLR supply chain management were identified. The first is improving parts supportability, including taking a total cost perspective that encompasses supply and maintenance costs when planning inventory in support of depot production. The second is to shift the Army more toward pull production. The third is to reduce lead times for all types of contracts affecting DLR supply chain management. And the fourth is to better account for all resource lead times in planning DLR production and for anticipatable shifts in procurement and repair needs. All of these enhancements would improve customer support, with better parts support likely reducing maintenance costs and pull production reducing the buildup of inventory.

Key Takeaways

Depot-Level Reparables (DLRs) Are Managed Relatively Well by the Services

  • It is difficult to find DLRs with significant excess inventory due to avoidable situations or poor supply chain management decisions or processes.
  • The buildup of excess inventory and resulting disposals stems primarily from DLR phase-outs due to upgrades, reductions in fleet sizes, and complete end item phase-outs, combined with very low condemnation rates.
  • However, the data indicate that in most cases of excess leading to disposals, there is a multi-year delay between when DLRs are no longer needed and when disposals occur.

But Some Opportunities for Improving DLR Supply Chain Management Exist

  • The broadest issue affecting DLR supply chain management effectiveness is parts supportability, with shortfalls degrading customer support.
  • The Army's use of a push-like production planning system increases the risk of customer support degradation and the risk of producing serviceable excess when demand shifts.
  • Long lead times for contracts affecting DLR supply chain management increase the risk of inventory excess and customer support shortfalls from unplanned changes in demand.
  • Service repair planning systems do not always account for all resource lead times and do not account for all anticipatable demand shifts for new and lifetime repair-limited items.
  • Having the right metrics in performance-based agreements between the services and the Defense Logistics Agency and using them as a communications tool would help align inter-organizational priorities, driving more-effective execution of collaborative and intra-organizational planning processes.

Recommendations

  • The Department of Defense (DoD) should better explain the item phase-out impact on depot-level reparable (DLR) inventory to improve understanding by external stakeholders and should isolate excess DLR inventory and disposals to make them visible and distinct within overall inventory management performance and disposal reports.
  • When items are replaced or end-item fleets are phased out, the plans should include long-term disposal plans for the associated DLRs, and the DLRs should be disposed of more quickly when they and their supported end items are phased out to reduce storage costs and improve perceptions of DoD inventory management.
  • The Army should take steps to move toward a more pull-like production paradigm to improve support and reduce the risk of serviceable inventory excess. In general, the services should seek to employ workload planning horizons that minimize total costs to meet customer needs, balancing inventory risk and maintenance productivity.
  • When planning depot production parts support, DoD should take a total cost perspective that encompasses supply and maintenance costs. To support this, the services should quantitatively estimate the costs of parts shortages for DLA to incorporate the trade-off between shortage and inventory holding costs in safety stock planning.
  • The services and the Defense Logistics Agency (DLA) should build on existing efforts and identify new approaches to further improve DLR supply planning collaboration.
  • The Assistant Secretary of Defense for Logistics and Materiel Readiness should establish a base template for performance-based agreements between the services and DLA for depot maintenance support.

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Peltz, Eric, Marygail K. Brauner, Edward G. Keating, Evan Saltzman, Daniel Tremblay, and Patricia Boren, DoD Depot-Level Reparable Supply Chain Management: Process Effectiveness and Opportunities for Improvement. Santa Monica, CA: RAND Corporation, 2014. https://www.rand.org/pubs/research_reports/RR398.html.
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The research described in this report was prepared for the Office of the Secretary of Defense (OSD). The research was conducted within the RAND National Defense Research Institute, a federally funded research and development center sponsored by OSD, the Joint Staff, the Unified Combatant Commands, the Navy, the Marine Corps, the defense agencies, and the defense Intelligence Community.

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