The private sector, driven by today’s globally competitive business environment, is faced with the challenge of improving its service while lowering costs. As a result, many companies have adopted innovative business practices to meet customer needs and retain profitability. Since DOD is facing a similar challenge of providing better service at a lower cost, it has begun to reexamine its business practices. With the end of the Cold War, the DOD logistics system must support a smaller, highly mobile, high technology force with fewer resources. Also, due to the pressures of budgetary limits and base closures, DOD must seek new and innovative ways to make logistics processes as efficient and effective as possible. To supply reparable parts for its approximately 4,900 aircraft, the Navy uses an extensive logistics system based on management concepts largely developed decades ago. The Navy’s system, commonly called a “pipeline,” consists of many activities that play a key role in providing aircraft parts to end-users when and where needed. This pipeline encompasses several functions, including the purchase, storage, distribution, and repair of parts. Another important function of this pipeline is to provide consumable parts (e.g., nuts, bearings, and fuses) that are used extensively to fix reparable parts and aircraft. The Defense Logistics Agency (DLA) provides most of the consumable parts that Navy repair activities need and handles a large part of the warehousing and distribution of reparable parts. Although not as large as the Navy, commercial airlines have similar operating characteristics to the Navy. They maintain fleets of aircraft that use reparable parts and operate logistics pipelines whose activities are similar. For both the Navy and commercial airlines, time plays a crucial role in the responsiveness of logistics operations and the amount of inventory needed. Pipeline complexity also adds to logistics costs by increasing overhead and adding to pipeline times. Condensing and simplifying pipeline operations, therefore, simultaneously improves responsiveness and decreases costs by reducing inventory requirements and eliminating infrastructure (warehouses, people, etc.) needed to manage unnecessary material. The Navy’s overall inventory management philosophy is one of maintaining large inventory levels at many different locations to ensure parts are readily available to meet customers’ needs. As of September 1995, the Navy had reparable inventory valued at $10.4 billion. However, a portion of this inventory is not needed to support daily operations and war reserves. Of the $10.4 billion inventory, the Navy classifies $1.9 billion (18 percent) as long supply—a term denoting that more stock is on hand than is needed to meet daily operations and war reserve requirements.The $10.4-billion and the $1.9-billion inventories were valued using DOD’s standard valuation methodology—reparables requiring repair were reduced by the estimated cost of repair and excess inventory was valued at salvage prices (2.5 percent of latest acquisition cost). Figure 1 details the Navy’s allocation of its inventory to daily operations, war reserves, and long supply. The inventory turnover rate is a measure of how efficiently a business uses its inventory investment and can be expressed as the ratio of the dollar value of repairs to the average inventory value. One commercial airline we visited calculated that, using this ratio, it would turn its reparable inventory over once every 5 months. In comparison, we calculate that, based on fiscal year 1995 repairs, the Navy’s wholesale-level inventory of reparable parts would turn over once every 2 years. The Navy incurs significant costs to manage this large inventory investment. At the wholesale level alone, the Navy estimates it spent almost $1.8 billion to repair, buy, and manage reparable parts during fiscal year 1995 (see table 1). This amount does not include the costs to store and maintain parts at operating locations, such as bases and aircraft carriers. Despite the billions of dollars invested in inventory, the Navy’s logistics system is still often unable to provide spare parts when and where needed. During fiscal year 1995, Navy aircraft were not mission capable 11.9 percent of the time because spare parts were not available to repair the aircraft (see fig. 2). One reason parts were not available was that the Navy’s system often does not provide timely deliveries of parts. The Navy reported that, between October 1994 and June 1995, parts were not immediately available to mechanics at operating locations 25 percent of the time for reparable parts and 43 percent for consumable parts. When a part is not available, an end-user requisitions the part from the wholesale supply system. According to the Navy’s data, the length of time from requisition to delivery of a part takes, on average, 16 days to operating bases and 32 days to aircraft carriers. If the Navy’s wholesale system does not have the item in stock (32 percent of the time for reparable parts), the Navy places the item on backorder. According to the Navy’s data, customers wait over 2.5 months, on average, to receive backordered items. The Navy reported that, as of June 1995, it had more than 31,000 backorders for reparable parts, worth about $831 million. The delay in receiving parts often forces mechanics to cannibalize parts (removing parts from one aircraft to make repairs on another). Between July 1994 and June 1995, the Navy reported that its mechanics at operating bases and on aircraft carriers cannibalized parts at least 70,500 times. This practice is inefficient because the mechanics have to remove a working part from one aircraft and then install the part on a different aircraft. According to Navy guidance, cannibalization is a symptom of a failure somewhere in the logistics system, but, in some instances, can be a viable management tool in keeping aircraft operational. Aircraft squadron officials at several locations we visited, however, told us that cannibalizing parts is a routine practice because the Navy’s system does not consistently provide replacement parts on a dependable basis. The Navy’s large inventory costs and slow customer service are the result of several factors, but the largest contributor is a slow and complex repair pipeline. According to Navy officials, about 75 percent of component repairs are relatively minor in nature and can be done by maintenance personnel at the operating bases. They also stated that, when a part requires more complex and extensive repair (about 25 percent of the time), the process can create as many as 16 time-consuming steps as parts move through the repair pipeline (see fig. 3). Component parts can accumulate at each step in the process, which increases the total number of parts that are needed to meet customer demands and to ensure a continuous flow of parts. Tracking parts through each of the 16 steps listed in figure 3, we estimate, using the Navy’s flow time data, that it can take about 4 months, on average, from the time a broken part is removed from an aircraft until the time it is ready for reissue. Flightline As figure 3 illustrates, a broken part can pass through a number of base- and wholesale-level steps. At the base level, after a mechanic removes a broken part from an aircraft, the item is routed through base maintenance. If the part cannot be repaired at the base, it is then sent to a wholesale storage location, where it sits until scheduled for repair. Once scheduled, it is inducted into repair workshops and fixed, then sent to storage or used to fill a customer’s order. The Navy reported that over 190,000 parts were fixed through this process during fiscal year 1995 at a cost of about $957 million. While the repair pipeline time can take as long as 4 months, on average, it could be significantly longer because it does not include the time parts sit in wholesale storage awaiting repair. The Navy does not measure this step in the process; however, this time could be substantial. For example, the Navy does not promptly forward items to repair workshops after they break. Also, because the Navy schedules most repairs quarterly, many broken items could sit in storage for several months before being repaired. Parts may also sit in storage because many broken items in the Navy’s system are not needed to support daily operations or war reserves. Of the portions of the pipeline that are measured, the time spent receiving and repairing items at repair facilities accounts for the largest amount of pipeline time. Shown in figure 3 as “repair facility receiving” and “repair workshops,” these activities take an average of 73 days to complete. In examining the repair process at two repair facilities, we found that parts can be routed through several different workshops, thereby increasing the time to complete repairs. Functions such as testing, cleaning, machining, and final assembly are sometimes done at different locations at the repair facility. As a result, parts could be handled, packaged, and transported several times throughout the repair process. According to Navy officials, this is a common practice at the Navy’s repair facilities. At one repair facility, we examined 10 frequently repaired pneumatic and hydraulic components and found that about 85 percent of the repair time needed for these parts involved activities such as unpacking, handling, and routing the part to different workshops. The remaining 15 percent of the time was spent on the actual repair of the items. One item we examined had a repair time of 232 hours. However, only 20 hours was needed to actually repair the item; the remaining 212 hours involved time to handle and move the part to different locations. In addition to delays caused by routing parts to different locations, mechanics often do not have the necessary consumable parts (nuts, bolts, bearings, fuses, etc.) that are used in large quantities to repair parts. According to Navy officials, having the necessary consumable parts is another important factor affecting the timely repair of components. The Navy calculates that the lack of parts adds as much as 4 weeks to the average repair time. As of February 1996, the Navy had 11,753 reparable aircraft parts, valued at $486 million, in storage because parts were not available during the repair process to complete repairs.