AMSAA 1 / 13 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 2 / 13 ERQ CONCEPT Economic ORDER QuantityEconomic REPAIR 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 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:  MSC/IOC/Depot Admin costs associated with authorizing repair funds/scheduling/etc.  DLA Issue & Receipt Charges  Repair Shop Set Up costs ERQ Holding Induction Cost

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

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

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

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

AMSAA 7 / 13 Don’t want to induct Too Soon:  Incur unnecessary additional Holding Cost Don’t want to induct Too Late:  Incur Backorders 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 WHOLESALE: REPAIR RETAIL: OVERVIEW OF REPAIR ACTION POINT

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

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

AMSAA 10 / 13 Q1: Is the Repair Safety Level always larger than the Procurement Safety Level ? A1: No Q2: Doesn’t more Safety Level always mean more Inventory ? A2: No TWO COMMON QUESTIONS

AMSAA 11 / 13 SAFETY LEVEL vs. REPAIR COST

AMSAA 12 / 13 Assets Due-In Service. Unserv. Due-In Service. Unserv. Larger SL repair Due-In Service. Unserv. Smaller SL repair Reorder Point Due-In Service. SL repair = Million 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 Single Item REPAIR-SL vs. ASSETS

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