Tuesday, September 10, 2013

Inventory Management Innovation in the Marine Corps

This week’s readings were mainly related to the concept of inventory management – utilizing various techniques and strategies to minimize inventory while also maintaining a level of inventory that allows the organization to provide a consistent level of service to customers. Two of the articles, “Building a Supply Chain for Uncertain Times” and “Ten Ways to Improve Inventory Management” discussed the benefits of utilizing a cross functional supply chain management team in order to effectively manage inventory levels.

This innovative solution urged me to look into other supply chain management techniques and tools that organizations have found to be effective. I was able to find information on a mechanism developed by RAND for the purpose of improving the efficiency of the Marine Corps supply chain for naval repair parts. The Marine Corps was finding that critical parts for repairs were often not in stock locally, and that these generally inexpensive parts took 30 percent longer to arrive than locally stocked parts since they were purchased from a wholesaler. This longer arrival time for low cost parts often slowed down important repair processes.

In order to better capture the efficacy of the supply chain from a mechanic’s (the customer) perspective, RAND analysts developed the Equipment Repair Order (ERO) fill rate metric – which measures the percentage of repairs for which all critical parts are available from local supply. The analysts also applied the "bootstrap ROP" and "dollar banding" techniques which are detailed below:
  • “ The bootstrap ROP allows the inventory manager to set stock levels by risk of running out. This approach automatically sizes the inventory to account for variations in demand—variation that is inherent in any parts supply system."(1)
  • "Dollar banding incorporates cost into the stock decision and was adapted to Marine Corps needs from techniques originally developed by RAND to help the Army solve similar problems. It is based on the idea that many more inexpensive items can be stocked for the cost of very few expensive items. Bootstrapping the ROP and dollar banding synergistically combine to produce significant improvements in inventory performance."(1)

Through implementation of these tools, the Marine Corps was able to raise the ERO fill rate while also reducing investment in inventory. In developing a metric that was able to capture how effective the supply chain was performing from the customer's standpoint, the Marine Corps was able to redesign their supply chain so that critical, less expensive parts were locally stocked in order to reduce repair times. Is it possible that other industries could benefit from having a larger portion of inventory comprised of lower cost items in order to reduce investment in inventory - would this technique prove effective in another organization? 

(1) RAND Corporation (2010). Reinventing Marine Corps Inventory Management. Retrieved from http://www.rand.org/natsec_area/products/bootstrap.html

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