HOW MUCH IS ENOUGH?
W
ith the end of operations in Iraq and leaner budgets ahead for DoD, the Army faces a new dilemma: how
to “right-size” all of the inventory procured and maintained during the past decade to support high-intensity operations.
Currently, the U.S. Army Materiel Com- mand (AMC) controls almost $20 billion of DoD’s $96 billion inventory of spare and repair parts. The inventory, primarily Class IX repair parts for weapon systems, is constantly in motion, flowing from manufacturers to storage locations, mili- tary units, and repair facilities, and then finally to disposal activities. This large and expensive network is the Army’s logistics support supply chain, and it is critical to the operational success of the military.
Historically, the U.S government has significantly expanded its military capa- bilities to address global, regional, and
internal conflicts; then it dramatically reduces these investments once the imme- diate threat abates and other demands compete for federal dollars. The Civil War and both World Wars are textbook examples of this phenomenon, as is the dramatic swing in the Army’s inventory between 1989 and 2010 (see Figure 1).
After the buildup during the Cold War, inventories plummeted in the 1990s, reflecting decisions made to yield a “peace dividend.” In the past decade, the inven- tory was increased for operations in Afghanistan and Iraq.
Of particular interest is the Army’s Class IX inventory Requirement Objective in the Army Working Capital Fund. As it rises, new inventory is procured from industry to meet rising demand. As it falls, inventory levels must be constricted by buying less and disposing of unneeded assets. This is the current dilemma facing the Army and all of DoD.
Army Working Capital Fund Figure 1
$10 $15 $20 $25
$5 $0 FY89 ‘91 ‘93 ‘95 ‘97 ‘99 ‘01 ‘03 ‘05 ‘07 ‘09 PEACETIME AND WARTIME
This chart shows the fluctuation in Army Working Capital Fund (AWCF) inventory expenditures, in then-year dollars, as compared with Army requirements since the end of the Cold War in 1989. (SOURCE: HQDA G-4.)
The surge of secondary item inventory procured and maintained to support high-intensity operations in Iraq and Afghanistan must now be right-sized to support the Army as it adjusts to new geopolitical realities. Other key factors are current DoD-led efforts to realize opera- tional efficiencies and the higher-order goal of reducing the government’s annual budget deficit and total debt.
The key to right-sizing the Army’s invest- ment in secondary items is to make smart inventory management decisions. In the years after the Cold War, the Army made arbitrary, shortsighted decisions to reduce inventory that proved expensive to rec- tify. Various inventories were targeted for reductions of x or y percent with little or no analysis.
Also, funding for new procurements, especially for aviation, was curtailed from 1997 to 2003, leading to indiscrimi- nant disposal decisions by the Army to meet the inventory reduction targets. It also led to low stockage levels on many essential items because funding was not adequate to procure needed quantities of new inventory. When Operations Endur- ing Freedom and Iraqi Freedom began, the Army had to expedite procurement and commercial repair orders, at inflated prices, to meet the rising demands of deployed Army units.
INVENTORY REQUIREMENTS
The good news this time around is that DoD has a plan in place to guide the services in making smart inven- tory management decisions. Working collaboratively with each of the DoD com- ponents, the Deputy Assistant Secretary of Defense for Supply Chain Integration has developed a Comprehensive Inven- tory Management Improvement Plan. It is focused on improving secondary item forecasting, preventing the procurement of unneeded inventory, minimizing excess
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Army AL&T Magazine
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