Evaluation of Collocated Intermediate and Wholesale Inventory Levels
Abstract
This study quantifies the extent of improved customer support provided by intermediate levels of inventory collocated with wholesale levels of inventory. An October 1986 General Accounting Office (GAO) audit (Report NSIAD-87-19) recommended that Naval Supply Systems Command (NAVSUP) eliminate intermediate inventories which are collocated with wholesale inventories. Although the Navy initially concurred with this recommendation, subsequent analyses show that it is cost-beneficial to retain both inventories. This report addresses four major areas: (1) the extent of collocation of intermediate/ wholesale inventories, (2) the impact on intermediate inventory levels resulting from the removal of the collocated intermediate levels, (3) the degradation in Average Customer Wait Time (ACWT) resulting from eliminating collocated inventories, and (4) the cost to maintain the current ACWT given the removal of collocated intermediate levels. Our analysis reveals that the removal of collocated intermediate levels produces a one-time inventory reduction of $5.6M for 1H Cog and $5.8M for 1R Cog, but inflates ACWT by at least 20% (72 hours) for 1H Cog and 5% (14 hours) for 1R Cog. In addition to the one-time costs, annual costs to hold and maintain these additional wholesale inventories will exceed the annual savings in intermediate inventories by this same factor of at least eight to one. Therefore, the elimination of intermediate levels for collocated wholesale material is not considered cost-beneficial.
Document Details
- Document Type
- Technical Report
- Publication Date
- Nov 29, 1989
- Accession Number
- ADA216018
Entities
People
- Cynthia J. Miceli
- Lester E. Gilbert