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Maritime Logistics Community News : November 2009
35 NAVY SUPPLY NEWSLETTER SPRING 2009 Initial thoughts are that this happens all too regularly! And why is it that the stores I need are not on the shelf? This is a fair question which Navy and the Defence Materiel Organisation (DMO) spend a lot of money and resources in ensuring that the supply system is able to respond appropriately to the demands placed upon it. And yet the recurring response of “NIL STOCK GLOBAL” suggests it is failing. Well, maybe yes and maybe no – let me explain. Logistic Support Agency – Navy (LSA-N) is responsible for determining whether items should be bought for investment purposes and therefore as stock held on the shelf in inventory. The systems used to make these determinations rely on a number of inputs and parameters. The primary considerations are the amount of funds available to procure the items, the likelihood of further demand and the lead times for each item. The frequency of demand for an item is a prime consideration when determining if an item is suitable to be held in inventory. The next consideration is how easily the item is available from commercial sources and with what lead time. Items that are demanded frequently but can be sourced commercially with short lead-times and transported to the customer within the required timeframes provide Defence with an opportunity to minimise large amounts of inventory on the shelves. The decision to store items in warehouses is very complex and requires assessment of competing priorities. LSA -N manages over 600,000 NSNs (products) ranging from commercial-off-the-shelf items such as tools and rags to complex widgets which take two years or more to procure or repair. Currently, there is approximately $1.5B worth of inventory in the system and about $350m of this has not been demanded in over seven years. Whilst some of these items are Life of Type, many are not. Ultimately, these excess items need to be removed from the inventory as they cost a considerable amount in terms of warehousing and stocktaking etc. The decision to procure and stock these items, which have not been used, was, clearly, a very expensive one!! One way of ensuring no further ‘NIL STOCK GLOBALs’ would be to have stock on the shelf for each of those 600,000 items LSA-N manages. That might achieve the desire of those demanding but what would the costs be for such a push? Not only would we need to build much bigger warehouses, the costs of maintaining this level of inventory would be prohibitive and exponentially so against current funding. LSA-N only receives approximately $150m in annual funding and after meeting the normal operational requirements including URDEFs and Refit Government Furnished Equipment (GFE) requirements, there is not a great deal left for investment. Therefore, in such an environment, what is bought for investment needs to be risk managed. There is an increasing and heightened awareness concerning the costs of warehousing, including the cost impact of purchasing some larger and more complex items, (when replacement of some of these items may never be required). Throw into this mix the fact that a number of items can be subject to limited shelf life due to material properties or calibration issues and one can quickly see the cash register running over very quickly. The Commonwealth requirement to muster every item of inventory at least once every two years does not come cheap either. Therefore, in some cases, it makes far more economic sense to purchase an item only when it is actually required (allowing for lead time). This decision can be based on: • Time to supply; • Criticality of the system affected, or the item itself; • Predicted failure rates of the system or the item; • System redundancy onboard the class of ship; • Maintenance schedules requiring the replacement of the item; and • Life of Type/obsolescence considerations. If the item demanded is a consumable item, or an item which can be ordered relatively quickly from a supplier/manufacturer, and this part can be delivered directly from the supplier in an expedient manner.... Is there a reason to be alarmed if this item is perpetually in a Nil Stock Global State? Is it a critical part for a critical system or a system that has proved to be unreliable in the past with a history of breaking down often? In this case it would clearly be sensible to ensure that the item is always in stock. A further consideration would be if the system was known to be affected by obsolescent issues. Items requiring predicted or regular maintenance have triggers in the inventory management system advising purchasing officers that the item should be ordered by a certain date, allowing for lead time to deliver. This purchasing is done within funding constraints and priorities. I would like to leave you with one further thought. Most items of inventory required by ships are included in the unit’s Ship Allowance List (SAL)/ Outfit Allowance List (OAL) and are demanded to replenish in the normal manner vide SLIMS as lower priority demands. If items are not replenished by this means then it is most likely that there is nil stock on the shelves and the procurement officer in LSA-N has not procured it (maybe for a number of good reasons). Therefore those items which attract URDEF/ Priority demand status are those items which have not been replenished in this manner. It is not surprising then that ‘NIL STOCK GLOBAL’ is a more regular response in the first instance to such ‘more sensible’ demands. Unnecessarily raising demand priorities, particularly to URDEF status, only burdens the system and ultimately serves to undermine the ability to process routine demands. This increases the likelihood of further ‘NIL STOCK GLOBALs’. Remember there is only limited funding for inventory and both the customer and LSA-N need to work together to ensure we get the best bang for our buck. Dispelling the Myths of ‘Nil Stock Global’ We have all been there before. A signal priority demand or an Urgent Defect signal (URDEF) is punched out to Moorebank or Joint Logistic Unit – West (JLU-W) and the reply is ‘NIL STOCK GLOBAL’. BY CAPT PHIL WARWICK, RAN