ECONOMIC REPAIR QUANTITY Similar to the Concept

ECONOMIC REPAIR QUANTITY • Similar to the Concept of an Economic Order Quantity: § Due to the costs incurred each time we induct, it may be more economical to induct a monthly quantity of repairs at one time § Existence of an Economic Repair Quantity (ERQ) makes it possible to compute a Repair Requirement Objective (RO) § Repair-RO can be used to improve our repair metrics and authorization policy AMSAA 1 / 13

ERQ CONCEPT Economic ORDER Quantity • Quantity economical to Procure at the Reorder Point • Used to provide an economical tradeoff between Holding Cost and Admin Procurement Cost § Larger EOQ = Increased Holding Cost § Smaller EOQ = Increased Admin Cost Economic REPAIR Quantity • Quantity economical to Repair at the RAP • Used to provide an economical tradeoff between Holding Cost and Repair Induction Costs § Larger ERQ = Increased Holding Cost § Smaller ERQ = Increased Induction Cost • Repair induction costs may include: ing old H Cost Ind uc ERQ AMSAA tio n § MSC/IOC/Depot Admin costs associated with authorizing repair funds/scheduling/etc. § DLA Issue & Receipt Charges § Repair Shop Set Up costs 2 / 13

ERQ COMPUTATION Induction cost AMD Washout rate Repair cost Holding cost 2 * Induction Cost * AMD * (1 -Replacement Rate) Cost to Repair * Holding Cost Rate ERQ Months AMD * (1 -Replacement Rate) Larger ERQ for smaller $ Value repair programs Larger ERQ for smaller Holding Cost Rate AMSAA 3 / 13

ASSETS vs. REORDER POINT • Reorder Point used to decide when to Buy • Buy when Assets ≤ Reorder Point Assets Due-in from Repair & Procurement Serviceables On-Hand Unserviceables On-Hand Reorder Point Protected War Reserves Net Procurement Lead Time Demand Safety Level Empirical Safety Level = [(EOQ/2) +SL] x [Procurement Lead Time / 60 months] AMSAA 4 / 13

ASSETS vs. REPAIR ACTION POINT • Repair when Applicable Assets ≤ Repair Action Point Applicable Assets Applicable Due-in from Repair & Procurement Serviceables On-Hand AMSAA Repair Action Point Protected War Reserves 1 month Gross Demand Gross Repair Lead Time Demand Safety Level 5 / 13

TWO SAFETY LEVELS Acquisition Price Procurement Leadtime Replacement Demand Rate EOQ (Order Qty) SLprocurement Reorder Point Repair Price Repair Leadtime Repair Demand Rate AMSAA ERQ (Repair Qty) SLrepair Repair Action Point 6 / 13

OVERVIEW OF REPAIR ACTION POINT • Don’t want to induct Too Soon: § Incur unnecessary additional Holding Cost WHOLESALE: REPAIR • Don’t want to induct Too Late: § Incur Backorders RETAIL: • So what’s the latest we can wait to repair without incurring backorders ? ? § In a Perfect World: 4 Wait until we have just enough units left to fill demand during RLT 4 Repair Action Point = RLT * AMD RLT = Repair Lead Time in months AMD = Average Monthly Demand § In the Real World: 4 Add a Safety Level to protect against uncertainty in RLT and AMD 4 Repair Action Point = ( RLT * AMD ) + SL • Repair-SL considers just repair variability / repair costs AMSAA 7 / 13

THEORETICAL INVENTORY MANAGEMENT PROCUREMENT DECISIONS: Assets Economic Order Quantity BUY Jan Feb Reorder Point = SL + Mar Net Leadtime Demand Time REPAIR DECISIONS: Applicable Assets REPAIR Repair Action Gross Leadtime = SL + Demand Point REPAIR AMSAA Jan Feb Mar Time 8 / 13

Single Item PROCUREMENT-SL vs. ASSETS • The Procurement-Safety Level is used to calculate the Reorder Point • The Reorder Point + EOQ is the level we Buy up to Due-In • Therefore, a larger Procurement-SL means more Assets Reorder Point SL Net PLT Demand Due-In Assets SL Due-In Service. Unserv. Service. SL Net PLT Demand Service. SL Service. Unserv. Smaller SLprocure AMSAA Net PLT Demand Unserv. Larger SLprocure Unserv. Net PLT Demand SLprocure = Million 9 / 13

TWO COMMON QUESTIONS Q 1: Is the Repair Safety Level always larger than the Procurement Safety Level ? A 1: No Q 2: Doesn’t more Safety Level always mean more Inventory ? A 2: No AMSAA 10 / 13

SAFETY LEVEL vs. REPAIR COST AMSAA 11 / 13

Single Item REPAIR-SL vs. ASSETS • The Repair-Safety Level is used to calculate the RAP • The RAP is used to decide when to Repair • A larger Repair-SL just means we induct more quickly § A different mix of Serviceables and Unserviceables § But the same Reorder Point, and the same average Assets Assets Due-In Service. Unserv. Service. Unserv. AMSAA Smaller SLrepair Larger SLrepair = Million 12 / 13 Reorder Point

Repair-Requirement Objective Repair-RO Economic Repair Qty RAP 1 Mon Dem 35 73 RLT Demand 108 Repair-SL 106 War Reserv. 50 AMSAA 13 / 13