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Dollars and Sense: A Process Improvement Approach to Logistics Financial Management

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In 1992, the Department of Defense began requiring the services to procure and repair all depot-level reparables DLRs through their stock funds. As a result, customers of the Army stock fund began paying for DLRs, which were previously financed through procurement appropriations and issued free to customers, based on their stated need. Customers also began receiving credits for DLRs returned to the stock fund. On a DoD-wide basis, implementing the requirement that DLRs be stock funded reduced the demand for DLRs and increased the return of unserviceable assets for repair. From the DoDArmy perspective, working capital funding has resulted in significant reductions in materiel costs and civilian personnel. While expenditures by logistics customers have been reduced, senior Army logistics managers have become concerned that the current implementation may not be cost-effective when evaluated from an Army-wide perspective. A wide range of behaviors have changed as a result of the incentives created by the implementation policies. As a result, there is a need to examine logistics financial management in a more rigorous, analytical manner. To this end, the Army decided to apply its Velocity Management VMapproach to the logistics financial management system. Begun in 1995, VM has achieved impressive success in improving the performance of key Army logistics processes. As a result, the Army established a Financial Management Process Improvement Team FM PIT. The initial focus of the FM PIT has been on financial management processes that occur on the Armys active-component installations, from the company level through the interface between the operating units or activities, which are funded by Operations and Maintenance Army OMA appropriations and the supporting installations Retail Stock Fund RSF component of the Army Working Capital Fund AWCF.

Subject Categories:

  • Economics and Cost Analysis
  • Defense Systems

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