CALCULATING THE RETURN ON INVESTMENT FOR SUPPLY CHAIN IMPROVEMENTS United States Coast Guard Aviation Logistics Center (ALC) LCDR Chad Long, Ph.D. Chengbin Zhu, Ph.D. Distribution Statement A : Approved for public release; distribution is unlimited. Forecasting Best Practices Conference October 26, 2010
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CALCULATING THE RETURN ON INVESTMENT FOR SUPPLY CHAIN IMPROVEMENTS United States Coast Guard Aviation Logistics Center (ALC) LCDR Chad Long, Ph.D. Chengbin.
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CALCULATING THE RETURN ON INVESTMENT FOR SUPPLY CHAIN IMPROVEMENTSUnited States Coast Guard Aviation Logistics Center (ALC)
LCDR Chad Long, Ph.D.
Chengbin Zhu, Ph.D.
Distribution Statement A: Approved for public release; distribution is unlimited.
Supply Chain Planning & Forecasting
Best Practices ConferenceOctober 26, 2010
Distribution Statement A: Approved for public release; distribution is unlimited.
Agenda
Coast Guard Background ALC Supply Chain Background Return on Investment Study
Background Methodology Final Metric Costs
Conclusion
Distribution Statement A: Approved for public release; distribution is unlimited.
Coast Guard Background
Commissioned 10 cutters in 1790 Department of Treasury
Revenue Cutter Service Life Saving Service Lighthouse Service Bureau of Marine Inspection and Navigation
Department of Transportation Department of Homeland Security
Distribution Statement A: Approved for public release; distribution is unlimited.
Distribution Statement A: Approved for public release; distribution is unlimited.
Coast Guard Background
Maritime Safety Maritime Security Maritime Mobility National Defense Protection of Natural Resources
Distribution Statement A: Approved for public release; distribution is unlimited.
Distribution Statement A: Approved for public release; distribution is unlimited.
SCMS Project: Better Inventory Control Decision Contribution to ALC Object:
Less Excessive Inventory Less Inventory Deficiency
Distribution Statement A: Approved for public release; distribution is unlimited.
ROI Method- Evaluate Plan
Data Items: Reduction of Excessive Inventory in Dollar
Value Reduction of Inventory Deficiency in Dollar
Value Comparison between FY07 (before) and
FY09 (after) Requirement for Isolating Project Effect
Assuming the benefit will remain the same level during the whole project life time.
No Long Term Consideration Reduction of Inventory Deficiency in Dollar
Value Independent of Budget, Initial Inventory
and Demand
Distribution Statement A: Approved for public release; distribution is unlimited.
ROI Method- Collecting Data
Source of Data Demand Data (FY07-FY09) Purchase Data (FY07-FY09) Inventory Position Data (end of years:
FY06-FY09) Lead Time Data (FY07- FY09) Demand Forecasting Data (FY07- FY09) Part Price Table (include repair & new buy) Dollar Value Adjusted to FY09 (with inflation
rate of 5.1%)
Distribution Statement A: Approved for public release; distribution is unlimited.
ROI Method- Isolating Effect
Excessive Inventory Initial Idea: Compare the Change in
Excessive Inventory Definition of Excessive Inventory:
EIL = 2 Year Demand Forecasting+ Lead Time Demand +1
Lead Time Demand =Annual Demand Forecasting* Lead Time/365
EI = MAX(0, Inventory Position – EIL) * Unit Price (Repair Cost)
Result:
End of Year:
FY06 FY07 FY08 FY09
Excessive Inventory $95M $99M $106M $110MNote: Cost are based on FY09 with an inflation rate of 5.1%.
Distribution Statement A: Approved for public release; distribution is unlimited.
ROI Method- Isolating Effect
Excessive Inventory Why Excessive Inventory Increase Four Source of Increase in Excessive