Dynamic Order Quantity: An Alternative to Economic Order Quantity

摘要

Overpricing by DoD vendors and the Competition in Contracting Act forced the Military Services and the Defense Logistics Agency (DLA) to reexamine their basic inventory management and procurement methods for spares and repair parts. To take advantage of price reductions associated with purchasing larger quantities and to offset growing procurement workload and administrative leadtimes, they increased their minimum order quantities from 3-months supply to 12-months' supply. That policy shift brought both costs and benefits. On the positive side, it brought about price breaks on selected items and reduced overall procurement replenishment workload by about 20 percent. On the negative side, order quantity requirements have doubled since FY83, annual costs to the DoD to hold that additional inventory have increased by more than $600 million, and inapplicable assets have grown by over $4 billion - an 86 percent increase. On balance, the DoD order quantity strategy has proved extremely costly and should be reversed because more effective avenues exist to deal with both price/quantity discounts and procurement workload without incurring significant investment costs. (KR)