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Evaluating Five Proposed Price and Credit Policies for the Army

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To streamline its financial management system for spare parts, the Army is planning to implement a major initiative called Single Stock Fund SSF. As part of this implementation, important decisions must be made on the adoption of new price and credit policies for spare parts. The purpose of stock funding is to set up a buyer-supplier relationship between operating units and the Armys wholesale supply system. Logistics customers in operating units receive an Operations and Maintenance Army OMA budget to buy spare parts from the wholesale supply system, and they receive credits when they return parts to the wholesale supply system for repair andor restocking. The Armys wholesale supply system is financed by the Army Working Capital Fund AWCF. It must cover the cost of maintaining wholesale inventories with the income it receives from sales of parts to logistics customers and maintain a positive cash balance. Thus, price and credit policies affect the supply and repair decisions of logistics customers, as well as the financial health of the wholesale supply system. In the spring of 1998, the Army established a CreditPricing Integrated Product Team CPIPT to recommend several alternative pricing and credit policies and a set of criteria by which to assess how these alternatives would affect key Army processes. RAND Arroyo Center was asked to conduct the assessment of these alternatives. This documented briefing presents the results of RANDs analysis of the CPIPT price and credit policy alternatives. We focus on two quantitative criteria. First, the new price and credit policy should enable logistics customers to maintain their current operating tempo OPTEMPO without significantly increasing their OMA budget for spare parts. Second, the new policy should not significantly increase the AWCFs costs to replenish wholesale inventories through repair and procurement.

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  • Administration and Management
  • Economics and Cost Analysis

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