Right Price, Fair Credit: Criteria to Improve Financial Incentives for Army Logistics Decisions

Abstract : This report discusses how prices and credits for spare parts affect the behavior of logistics customers and suppliers and the performance of the Army logistics system as a whole. It describes a set of systemwide criteria for evaluating price and credit policies and applies them to current and proposed policies. It then uses the criteria as a basis to develop the characteristics of an optimal price and credit policy that would support the needs of logistics customers at a lower total cost to the Army. This analysis is an outgrowth of previous research that evaluated the Army's Integrated Sustainment Maintenance program and proposed price and credit policies for Single Stock Fund (SSF), and that applied Velocity Management's (VM's) "Define-Measure-Improve" (D-M-I) methodology to the Army's logistics financial management system. It should be of interest to financial managers and logistics customers and suppliers in the Army and the Department of Defense (DoD), as well as to business organizations that use transfer pricing mechanisms to promote efficient internal allocation of resources.