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Extended Warranties in Army's Acquisition Contracts

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MBA Professional rept.

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With the current fiscal constrains placed on the Army to help combat the national debt, the acquisition community must find cost savings avenues without sacrificing mission readiness. During the acquisition process in the DoD, extended warranties are often made available by a supplier, a third party, or through self-insurance. The cost impact of extended warranties can be significant. Furthermore, the ability to service and maintain equipment, either at sea or on land, has a critical impact on the Armys and the DoDs mission capability. I will do a review of warranty planning system in the Army and provide a case study on the purchase of 55 Hewlett Packard Laser Printers in Afghanistan to illustrate the potential cost savings by electing to use extended warranties based on a formal model and simulations in order to bridge the gap between the academic literature and the professional experiences of the service members in order to help solve the difficult task of determining the terms of extended warranty contracts and its value to the Army. While warranty planning is not required, it can potentially save the Army millions of dollars in day to day commercial products acquisitions. The result of the model and simulation show that by making a large upfront purchase of an extended for 3 years versus the free standard warranty of one year, the unit can save on average 11.16. Due to the budget constraints, Contracting Officers with the assistance of everyone in the acquisition process should emphasis extended warranty purchase in commercial products to reduce risk and lengthen the life-cycle replacement cost to the government. The Army has a regulation emplace for the warranty management program in AR 700-139, but I believe more guidance is needed from the Armys key leadership in order to fully realize the cost savings from extended warranties.

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  • Economics and Cost Analysis

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