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DoD Depot-Level Reparable Supply Chain Management: Process Effectiveness and Opportunities for Improvement

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The Department of Defense DoD has a broad array of weapon systems and other major end items with many expensive components. For many of these components, when they have to be replaced, it costs less to replace them with a repaired, refurbished spare part than to buy a new one. Such items are called reparables within DoD. DoD designates different levels of maintenance to conduct such repairs depending on the skill level, tooling, and facilities needed to execute the repairs, with depot-level repair representing the most sophisticated level. Reparables for which all or some repairs require this level of capability are called depot-level reparables DLRs. Within DoD, the services manage almost all reparables, with the Defense Logistics Agency DLA managing consumable spare parts. DLR inventory comprises the bulk of DoD secondary item inventory in terms of dollar value. There was an average of 100 billion in service-owned secondary item inventory on hand in fiscal year FY 2011, of which we estimate about 90 billion consisted of DLRs. The value of inventory is not a recurring cost, though rather, the costs associated with inventory are called inventory holding costs, and the assets themselves are a sunk cost. Obsolescence is the primary component of DoD inventory holding cost. From 2005 through 2012, the services disposed of an average of 5.1 billion of condition code F unserviceable but economically repairable and 1.4 billion of serviceable DLRs per year valued at standard price. This represents 6.5 billion less the surcharges for supply chain management of assets that were purchased and then later disposed of with useful life remaining. Two questions arise 1 What led to the development of excess inventory culminating in the disposal of useable assets, and 2 could this level of excess inventory buildup be reduced

Subject Categories:

  • Administration and Management
  • Economics and Cost Analysis
  • Logistics, Military Facilities and Supplies

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