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Limited Electronic Distribution Rights This PDF document was made available from www.rand.org as a public service of the RAND Corporation. 6 Jump down to document THE ARTS CHILD POLICY CIVIL JUSTICE EDUCATION ENERGY AND ENVIRONMENT HEALTH AND HEALTH CARE INTERNATIONAL AFFAIRS NATIONAL SECURITY POPULATION AND AGING PUBLIC SAFETY SCIENCE AND TECHNOLOGY SUBSTANCE ABUSE TERRORISM AND HOMELAND SECURITY TRANSPORTATION AND INFRASTRUCTURE WORKFORCE AND WORKPLACE The RAND Corporation is a nonprofit research organization providing objective analysis and effective solutions that address the challenges facing the public and private sectors around the world. Visit RAND at www.rand.org Explore RAND Arroyo Center View document details For More Information Purchase this document Browse Books & Publications Make a charitable contribution Support RAND This product is part of the RAND Corporation technical report series. Reports may include research findings on a specific topic that is limited in scope; present discus- sions of the methodology employed in research; provide literature reviews, survey instruments, modeling exercises, guidelines for practitioners and research profes- sionals, and supporting documentation; or deliver preliminary findings. All RAND reports undergo rigorous peer review to ensure that they meet high standards for re- search quality and objectivity. The Effects of Equipment Age on Spare Part Costs A Study of M1 Tanks Carol E. Fan, Eric Peltz, Lisa Colabella Prepared for the United States Army Approved for public release; distribution unlimited The RAND Corporation is a nonprofit research organization providing objective analysis and effective solutions that address the challenges facing the public and private sectors around the world. RAND’s publications do not necessarily reflect the opinions of its research clients and sponsors. R ® is a registered trademark. © Copyright 2005 RAND Corporation All rights reserved. No part of this book may be reproduced in any form by any electronic or mechanical means (including photocopying, recording, or information storage and retrieval) without permission in writing from RAND. Published 2005 by the RAND Corporation 1776 Main Street, P.O. Box 2138, Santa Monica, CA 90407-2138 1200 South Hayes Street, Arlington, VA 22202-5050 201 North Craig Street, Suite 202, Pittsburgh, PA 15213-1516 RAND URL: http://www.rand.org/ To order RAND documents or to obtain additional information, contact Distribution Services: Telephone: (310) 451-7002; Fax: (310) 451-6915; Email: order@rand.org The research described in this report was sponsored by the United States Army under Contract No. DASW01-01-C-0003. ISBN: 0-8330-3869-9 iii Preface During its transition to the Future Force, the Army will continue to utilize its existing weapon systems for an extended period. Army personnel have argued that repair costs are increasing as equipment ages, putting a strain on mainte- nance budgets. However, quantitative relationships have not been established between equipment age and maintenance costs, making associated budget re- quests difficult to justify. This report focuses on M1 Abrams tanks and discusses some of the miti- gating factors that likely dampen any age-cost relationship and other limitations that hinder the quantification of a potential age-cost relationship. Given these factors, it examines what the available data show about the effects of equipment age on spare part costs. This research was conducted for an ongoing project titled “Equipment Readiness Measurement and Drivers.” This research is a companion piece to the RAND Arroyo Center report by Eric Peltz et al., The Effects of Equipment Age on Mission Critical Failure Rates: A Study of M1 Tanks (www.rand.org/- publications/MR/MR1789), that investigated the effects of age on mission criti- cal failures, a key component of readiness. Both reports should be of interest to resource planners and logistics analysts. This project was sponsored by the Deputy Chief of Staff, G-4, Head- quarters, Department of the Army, and it was carried out in RAND Arroyo Center’s Military Logistics Program. RAND Arroyo Center, part of the RAND Corporation, is a federally funded research and development center sponsored by the United States Army. iv The Effects of Equipment Age on Spare Part Costs: A Study of M1 Tanks For more information on RAND Arroyo Center, contact the Director of Operations (telephone 310-393-0411, extension 6419; FAX 310-451-6952; email Marcy_Agmon@rand.org), or visit Arroyo’s web site at http://www.rand.org/ard/. v Contents Preface iii Figures vii Tables ix Summary xi Acknowledgments xvii Glossary xix CHAPTER ONE Introduction 1 M1 Abrams Tank Fleet Is Aging 1 RAND Study Showed Link Between Tank Age and Mission Critical Failures 1 Studies Have Not Shown a Quantitative Age-Cost Link 2 Organization of this Document 3 CHAPTER TWO Mitigating Factors in Studies of the Effects of Equipment Age on Maintenance Costs 5 Maintenance Costs Within the Army Budget 5 OMA OPTEMPO Budget Process 6 Determination of Turn-in Credit 6 Lack of Trend Component Dampens Spending 7 Various Unit Behaviors May Hide the Effects of Aging 8 Units May Adapt Part Requests and Shift Resources 8 Units May Selectively Reduce Part Requests 9 Other Mitigating Factors and Data Limitations 10 vi The Effects of Equipment Age on Spare Part Costs: A Study of M1 Tanks CHAPTER THREE Analysis of Unit Turn-In Behavior 13 Valuation of Spare Part Demands 13 Actual Expenditures 13 Exchange Price-Based Valuation 14 Data Sources and Methodology 15 Analysis Shows that Turn-ins Affect Spare Part Spending 17 CHAPTER FOUR Analysis of the Effects of Equipment Age on Spare Part Costs 21 Methodology 21 Average Brigade Tank Age 21 Sample Characteristics 22 Final Regression Models 22 Regression Analyses Do Not Show a Positive Age Effect on Spare Part Costs 23 No Evidence of a Positive Age Effect on the Exchange Price Estimate 23 No Evidence of a Positive Age Effect on the Actual Expenditures 25 Available Spare Part Cost Data Do Not Show an Age-Cost Relationship 27 CHAPTER FIVE Implications and Recommendations 29 More Refined Data Are Needed to Accurately Analyze Any Age-Cost Relationship 29 More Refined Data May Permit Improved OMA OPTEMPO Budget Process 30 APPENDIX A. Summary of Data Characteristics 33 B. Pre-SSF Turn-In Credit Determination 39 C. Expensive Items Requested and Turned in to Produce Negative Actual Expenditures 41 D. Additional Statistical Information on Regression Analyses 45 Bibliography 61 vii Figures S.1. Unit Turn-in Behavior Affects Spare Part Spending xiv S.2. Average Age Does Not Positively Affect M1A1 Exchange Price Estimate When Adjusted for Total Usage xv 3.1. Unit Turn-in Behavior Affects Spare Part Spending (by Location) 18 3.2. Unit Turn-in Behavior Affects Spare Part Spending (by Fiscal Year) 19 4.1. Average Age Does Not Positively Affect M1A1 Exchange Price Estimate When Adjusted for Total Usage 24 4.2. Average Age Does Not Positively Affect M1A2 Exchange Price Estimate When Adjusted for Total Usage 25 4.3. Average Age Does Not Positively Affect M1A1 Actual Expenditures When Adjusted for Total Usage 26 4.4. Average Age Does Not Positively Affect M1A2 Actual Expenditures When Adjusted for Total Usage 26 A.1. Average Usage per Tank Varies Greatly by Brigade and Over Time 36 A.2. Total Usage Varies Greatly by Brigade and Over Time 37 D.1. Average Age Has a Negative Relationship with M1A1 Actual Expenditures in This Sample 49 D.2. Predicted M1A1 Actual Expenditures Versus Average Age, by Location-Total Usage (No Confidence Intervals) 49 D.3a. Predicted M1A1 Actual Expenditures Versus Average Age, by Location-Total Usage 50 D.3b. Predicted M1A1 Actual Expenditures Versus Average Age, by Location-Total Usage 50 D.4. Total Usage Is a Significant Predictor of the M1A1 Exchange Price Valuation of Spare Part Costs 53 D.5. Predicted M1A1 Exchange Price Estimate Versus Total Usage, by Location 53 viii The Effects of Equipment Age on Spare Part Costs: A Study of M1 Tanks D.6. Total Usage Is a Significant Predictor of M1A1 Actual Expenditures of Spare Part Costs 54 D.7. Predicted M1A1 Actual Expenditures Versus Total Usage, by Location-Average Age (No Confidence Intervals) 54 D.8a. Predicted M1A1 Actual Expenditures Versus Total Usage, by Location-Average Age 55 D.8b. Predicted M1A1 Actual Expenditures Versus Total Usage, by Location-Average Age 55 D.9. Total Usage Is a Significant Predictor of the M1A2 Exchange Price Valuation of Spare Part Costs (Two “Warranty” Data Points Displayed But Not Included in the Regression) 56 D.10. Predicted M1A2 Exchange Price Estimate Versus Total Usage (Excludes Two “Warranty” Data Points) 57 D.11. Total Usage Is a Significant Predictor of M1A2 Actual Expenditures of Spare Part Costs (Two “Warranty” Data Points Displayed But Not Included in the Regression) 57 D.12. Predicted M1A2 Actual Expenditures Versus Total Usage (Excludes Two “Warranty” Data Points) 58 [...]... RAND Corporation, MR-1789 -A, 2004, p 27 (age- failure relationship) and p 48 (high-cost parts) 2 Congressional Budget Office, The Effects of Aging on the Costs of Operating and Maintaining Military Equipment, August 2001, p 17 xi xii The Effects of Equipment Age on Spare Part Costs: A Study of M1 Tanks of age on maintenance costs Then we examine what the available data show about M1 age and spare part. .. or hamper a comprehensive analysis of the effects of equipment age on maintenance costs, including a discussion of the spare part budget process Chapter Three focuses on the potential effect of one mitigating factor—turn-in of serviceable parts to alleviate budgetary constraints on spare part spending Chapter Four uses the available data to perform an analysis of the effects of age on spare part costs, ... requisition and turn-in data and tank mileage and age data to study the effects of equipment age on spare part costs at the brigade level It discusses the data limitations and mitigating factors that hinder conclusive studies on age and M1 maintenance costs, analyzes the available data, and pinpoints gaps in the Army’s data capture and business processes that need to be filled in order to conduct thorough analyses... SAMS Standard Army Maintenance System SARSS Standard Army Retail Supply System SMA Supply Management Army SSA Supply Support Activity SSF Single Stock Fund TAMMS The Army Maintenance Management System TEDB TAMMS Equipment Database TIM Transformation of Installation Management TOE Table of Organization and Equipment xxi xxii The Effects of Equipment Age on Spare Part Costs: A Study of M1 Tanks ULLS-G... Stockage List AVN Aviation Brigade AWCF Army Working Capital Fund BCT Brigade Combat Team CAV Cavalry Division CBO Congressional Budget Office CSA Chief of Staff, Army CTASC Corps/Theater Automated Data Processing Service Center DLA Defense Logistics Agency xix xx The Effects of Equipment Age on Spare Part Costs: A Study of M1 Tanks DLR Depot-Level Reparable DoD Department of Defense DODAAC Department of. .. of Equipment Age on Spare Part Costs: A Study of M1 Tanks the “exchange price estimate” and “actual expenditures,” and whether they have different relationships to tank age The exchange price valuation ignores variations in turn-in behavior and is an estimate of the economic value of a unit’s part requests The exchange price estimate assumes that whenever a unit submits a request for a reparable part, ... turn-in practices are not sufficient to obscure an age- cost relationship Figure S.2 shows the relationship between spare part costs per kilometer and average age of M 1A1 s for units at six locations Each point in the graph represents the average age of M 1A1 tanks in a brigade and the exchange price estimate of spare part costs adjusted for total usage for the brigade over one fiscal year between 1999 and... Logistics Analysis Program IMA Installation Management Agency LAC Latest Acquisition Cost LOGSA Logistics Support Agency MACOM Major Command MATCAT Materiel Category MR Maintenance Repair MSB Main Support Battalion NET New Equipment Training Glossary NIIN National Item Identification Number NTC National Training Center O&M Operation and Maintenance OMA Operation and Maintenance, Army OMAR Operation and Maintenance,... part costs, and we also analyze whether part turn-in practices might obscure the effects of age on costs We conclude with recommendations for improving the Army’s data capture and business processes to enable better fleet analysis and management Mitigating Factors Can Hamper Studies of an Age- Cost Relationship Cost Data Are Lacking in Key Areas A critical factor hampering studies of an age- cost relationship... information 10 Ibid., p 22 4 The Effects of Equipment Age on Spare Part Costs: A Study of M1 Tanks turn-in credit was determined prior to the implementation of Single Stock Fund (SSF) Appendix C contains request and turn-in data for two brigade-year observations with negative actual expenditures Appendix D provides additional statistical information about the age and spare part cost analyses CHAPTER . The Effects of Equipment Age on Spare Part Costs: A Study of M1 Tanks of age on maintenance costs. Then we examine what the available data show about M1. Age- Cost Relationship Our analyses of the available data found no statistical evidence of an age effect on M1 spare part costs, for either M 1A1 s or M 1A2 s,