Capacity Management and Changing Requirements

157 Pages·2013·3.08 MB·English

by  Haralambos Theologis

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Capacity Management and
Changing Requirements
Cost Effective Decision Making in an
Uncertain World
Haralambos Theologis
PARDEE RAND GRADUATE SCHOOL
Capacity Management and
Changing Requirements
Cost Effective Decision Making in an
Uncertain World
Haralambos Theologis
This document was submitted as a dissertation in September 2013 in partial
fulfillment of the requirements of the doctoral degree in public policy analysis at
the Pardee RAND Graduate School. The faculty committee that supervised and
approved the dissertation consisted of Chris Mouton (Chair), Michael Kennedy,
and Thomas Light.
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‐iii‐ 

Abstract
Throughout the history of Air Force strategic airlift,
changing national security needs have shaped the required amount
of capacity the fleet must be able to provide combatant
commanders. As the requirement has varied, force planners have
acted to meet it through acquisition or divestment of aircraft.
Currently, the Air Force faces a problem of excess capacity with
the fleet able to provide more airlift than needed under the
requirement provided by MCRS-16. In response to the excess
capability, policy makers have decided to retire C-5As with
remaining service life. In a static world, this makes sense but
uncertainty about the future means that a requirement increase
at some point is almost a certainty. Given the likelihood of a
requirement change, it may be rational to hold on to some or all
of the excess. Then, if the requirement were to increase in the
future, available aircraft may be used rather than procuring
additional capacity.
This dissertation explores other options for dealing with
excess capacity and their relative cost effectiveness. It does
so by modeling future requirements with geometric Brownian
motion and considering alternatives like keeping aircraft in an
inviolate storage state or maintaining them in the active
inventory. It further assesses how near term decisions by
policy makers, like keeping the C-17 line open or closed, affect
long term costs. Results show that in almost every case
considered, keeping excess does not increase long term costs in
a dynamic environment and in many cases reduces them. However,
these results are sensitive to a variety of factors, most
important among them the cost effectiveness of aircraft
currently in the fleet and the projected cost effectiveness of
replacement models.
‐iv‐ 

Disclaimer
The views expressed in this document are those of the author and
do not reflect the official policy or position of the United
States Air Force, Department of Defense, or the U.S. Government
‐v‐ 

Table of Contents
Chapter 1 Introduction .................................................................................................................. 1 
Excess Capacity ............................................................................................................................... 1 
Excess Capacity and Strategic Airlift .......................................................................... 3 
Research Goal ................................................................................................................................... 4 
Research Questions ....................................................................................................................... 5 
Research Approach .......................................................................................................................... 5 
Organization ...................................................................................................................................... 6 
Chapter 2 Background ....................................................................................................................... 8 
Strategic Airlift .......................................................................................................................... 8 
Requirements .................................................................................................................................... 16 
Costs .................................................................................................................................................... 20 
Retirement and Alternatives ................................................................................................ 20 
Stakeholders .................................................................................................................................... 23 
Capacity Conundrums ................................................................................................................... 25 
Chapter 3 Literature Review .................................................................................................... 27 
Chapter 4 Methods ............................................................................................................................ 36 
Simulation Set Up ........................................................................................................................ 36 
Sources of Data/Data Assumptions .................................................................................... 40 
Geometric Brownian Motion ..................................................................................................... 44 
Monte Carlo Simulation ............................................................................................................ 47 
Analysis of Different Policy Options .......................................................................... 48 
Limitations ...................................................................................................................................... 54 
Notional Example .......................................................................................................................... 55 
Chapter 5 Results ............................................................................................................................ 62 
Hypothetical Cases ..................................................................................................................... 62 
Infinitely Lived Production Line ................................................................................ 63 
Excess or Storage; Open or Closed line .................................................................. 65 
Hypothetical Case Analysis .............................................................................................. 70 
Sensitivity Cases .................................................................................................................... 73 
Real World Cases .......................................................................................................................... 78
‐vi‐ 

Base Cases ..................................................................................................................................... 79 
Base Case Analysis ................................................................................................................. 83 
Excess at Beginning ............................................................................................................... 94 
Alternative Retirement ........................................................................................................ 96 
MCRS Cases ................................................................................................................................... 101 
Comparing the Results ............................................................................................................ 107 
Chapter 6 Conclusions, Policy Recommendations, & Further Research ....... 109 
Analytical Conclusions .......................................................................................................... 109 
Policy Recommendations .......................................................................................................... 111 
Future Research ........................................................................................................................... 114 
Concluding Remarks ................................................................................................................... 116 
Appendix A: Model Flow Chart ............................................................................................... 121 
Appendix B: Example Code ......................................................................................................... 122 
Appendix C: Example Fleet Used in Code (C-17 Only) ........................................... 136
‐vii‐ 

List of Figures
Figure 1‐1 DoD Budget Since World War II ................................................................................................... 2 
Figure 2‐1 An‐124 Missions ........................................................................................................................... 8 
Figure 2‐2 C‐5A Galaxy .................................................................................................................................. 9 
Figure 2‐4 An‐124 ........................................................................................................................................ 10 
Figure 2‐5 C‐17A Globemaster III ................................................................................................................ 13 
Figure 2‐6 Organic Strategic Airlift Requirement ........................................................................................ 16 
Figure 4‐1 Mouton et al Retirement Profile ............................................................................................... 39 
Figure 4‐2 Geometric Brownian Motion by Standard Deviation ................................................................ 47 
Figure 4‐3 Notional Requirement Profile .................................................................................................... 56 
Figure 4‐4 Keeping 0% Excess ..................................................................................................................... 57 
Figure 4‐5 Keeping 20% Excess ................................................................................................................... 57 
Figure 4‐6 Keeping 40% Excess ................................................................................................................... 58 
Figure 4‐7 Keeping 60% Excess ................................................................................................................... 58 
Figure 4‐8 Keeping 80% Excess ................................................................................................................... 59 
Figure 4‐9 Keeping 100% Excess ................................................................................................................. 59 
Figure 4‐10 Costs of Notional Examples ..................................................................................................... 60 
Figure 4‐11 Notional Average Costs Over Multiple Runs............................................................................ 61 
Figure 5‐1 Reference #1 .............................................................................................................................. 64 
Figure 5‐2 Reference #2 .............................................................................................................................. 65 
Figure 5‐3 Reference #3 .............................................................................................................................. 67 
Figure 5‐4 Reference #4 .............................................................................................................................. 68 
Figure 5‐5 Reference #5 .............................................................................................................................. 69 
Figure 5‐6 Reference #6 .............................................................................................................................. 70 
Figure 5‐7 Probability of Reaching Next Production line by Excess ............................................................ 72 
Figure 5‐8  Probability of Reaching Next Production line by Excess ........................................................... 73 
Figure 5‐9 Reference #7 .............................................................................................................................. 75 
Figure 5‐10 Reference #8 ............................................................................................................................ 76 
Figure 5‐11 Reference #9 ............................................................................................................................ 76 
Figure 5‐12 Reference #10 .......................................................................................................................... 77 
Figure 5‐13 Reference #11 .......................................................................................................................... 78 
Figure 5‐14 Reference #12 .......................................................................................................................... 78 
Figure 5‐15 Reference #13 .......................................................................................................................... 80 
Figure 5‐16 Reference #14 .......................................................................................................................... 81 
Figure 5‐17 Reference #15 .......................................................................................................................... 82 
Figure 5‐18 Reference #16 .......................................................................................................................... 83 
Figure 5‐19 C‐5A in Active Fleet by Case..................................................................................................... 84 
Figure 5‐20 C‐5M in Active Fleet by Case ................................................................................................... 85 
Figure 5‐21 C‐17 TAI Base Case 1 ................................................................................................................ 86