Cost-benefit analysis of the Enhanced Transportation Service Program.

120 Pages·1.9 MB·en_US

by  Atcheson, Michael J.

NPS ARCHIVE
1997. 0(6
ATCHESON, M.
NAVAL POSTGRADUATE SCHOOL
Monterey, California
THESIS
COST-BENEFIT ANALYSIS OF THE ENHANCED
TRANSPORTATION SERVICE PROGRAM
by
Michael Atcheson
J.
June 1997
Thesis Co-Advisors: Gordon Louvau
Paul Fields
Approved for public release; distribution is unlimited.
Thesis
A848
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Master's Thesis
June 1997
L TITLEAND SUBTITLE COST-BENEFITANALYSIS OFTHEENHANCED 5. FUNDINGNUMBERS
TRANSPORTATION SERVICEPROGRAM
AUTHOR(S)
6.
Atcheson, Michael J.
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MontereyCA 93943-5000
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13. ABSTRACT (maximum 200words)Thisthesisisacost-benefitanalysisoftheEnhancedTransportation Service(ETS)Program,
which isaproposed initiative undertheMarineCorps' "PrecisionLogistics" concept. Thegeneral focusof"PrecisionLogistics" isto
providethewarfighterwiththerightthing,attherightplace, attherighttime, withthe leastamountofeffortandcost. (Hamilton,
1996) Thespecific focusoftheETS Programistoutilizepremiumtransportation service(i.e.,nextdayair)toreduceordership
time(OST),whichwill resultin lowerstockage levels. The intentofthis studywastodetermine ifthebenefitderived fromreduced
stockage levelsoutweighstheadditional costofairshipment. Thisisintendedtobethe first inaseriesofstudiesoftheETS
Program. The studywasbasedontherequisitioningobjective(RO) stockage level. Acomputerspreadsheetmodel ofthe RO
formulawasbuiltandtwoMonteCarlosimulationrunsconductedtodetermineiftheETS Programiscosteffective. Resultsofthe
analysis suggestthatthecostofpremiumtransportation service issignificantlylessthanthe costofadditional inventorythatwould
havetobecarriedifpremiumtransportationwerenotutilized. Therefore, furtherresearchoftheETS Program iswarranted.
Recommendationsonthedirectionoffuture studiesareprovided.
14. SUBJECTTERMS Inventorymanagement, Requisitioningobjective stockage level, Simulation 15. NUMBER OF PAGES
model, Premiumtransportationservice, Variablecostofcarryinginventory 115
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Approved for public release; distribution is unlimited.
COST-BENEFIT ANALYSIS OF THE ENHANCED TRANSPORTATION SERVICE
PROGRAM
Michael Atcheson
J.
Captain, United States Marine Corps
B.S., Pennsylvania State University, 1991
Submitted in partial fulfillment
ofthe requirements for the degree of
MASTER OF SCIENCE IN MANAGEMENT
from the
NAVAL POSTGRADUATE SCHOOL
June 1997

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ABSTRACT oTmSSiw"
This thesis is a cost-benefit analysis ofthe Enhanced Transportation Service
(ETS) Program, which is a proposed initiative under the Marine Corps' "Precision
Logistics" concept. The general focus of"Precision Logistics" is to provide the
warfighter with the right thing, at the right place, at the right time, with the least amount
ofeffort and cost. (Hamilton, 1996) The specific focus ofthe ETS Program is to utilize
premium transportation service (i.e., next day air) to reduce order ship time (OST), which
will result in lower stockage levels.
The intent ofthis study was to determine ifthe benefit derived from reduced
stockage levels outweighs the additional cost ofair shipment. This is intended to be the
first in a series ofstudies ofthe ETS Program. The study was based on the requisitioning
objective (RO) stockage level. A computer spreadsheet model ofthe RO formula was
built and two Monte Carlo simulation runs conducted to determine ifthe ETS Program is
cost effective.
Results ofthe analysis suggest that the cost ofpremium transportation service is
significantly less than the cost ofadditional inventory that would have to be carried if
premium transportation were not utilized. Therefore, further research ofthe ETS
Program is warranted. Recommendations on the direction offuture studies are provided.
VI
TABLE OF CONTENTS
INTRODUCTION
I. 1
BACKGROUND
A.
1
B WHAT IS PRECISION LOGISTICS? 2
1. Definition 2
2. Why^ 2
How?
3. 3
4. Goals (Hamilton, 1996) 3
C. WHAT IS ORDER SHIP TIME? 4
1. Retail Level Supply 4
2. Wholesale Level Supply 8
D. THE ENHANCED TRANSPORTATION SERVICE PROGRAM 11
RESEARCH QUESTIONS
E. 12
1. Primary 12
2. Secondary 13
OUTLINE
F. 13
II. LITERATURE REVIEW 17
INTRODUCTION
A. 17
B FUNCTIONAL CLASSIFICATIONS OF INVENTORY 18
C. TRANSIT INVENTORY AND BUFFER INVENTORY EXAMPLES 21
D TRANSPORTATION OVERVIEW 23
E TRANSPORTATION AS A COMPETITIVE ADVANTAGE 25
F. CONCLUSION 27
HI. REQUISITIONING OBJECTIVE 29
A. INTRODUCTION 29
B. ORDER AND SHIP REQUIREMENT 30
vn
REPAIR CYCLE REQUIREMENT
C. 31
SAFETY LEVEL
D. (SL) 32
SUMMARY
E. 34
SIMULATION MODEL
IV. 35
INTRODUCTION
A. 35
B. WHAT IS A SIMULATION? 35
METHODOLOGY
C. 36
D EXPLAINING THE DATA 38
1. Classifying the Variables 38
2. Supply Data 38
3. Maintenance Data 40
E RUNNING THE SIMULATION 41
1. Assumptions 41
2. Limitations 41
3. Step-By-Step Procedures 42
4. Simulation Summary 44
SUMMARY
F. 44
V. ANALYSIS 47
A INTRODUCTION 47
B COST OF INVENTORY 47
Assumptions 47
1.
2. Limitations 49
C COST OF TRANSPORTATION 49
1. Assumptions 50
2. Limitations 51
D. ANALYSIS 51
1. Scenario #1 51
2. Scenario #2 52
3. Final Analysis 52
E. CONCLUSION 52
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