Win-Win Supply Support: Distribution Network Alternatives for the Department of Veterans Affairs

To support its 172 medical centers and outpatient clinics, the Department of Veterans Affairs spent nearly $1.3 billion in FY91 on drugs and pharmaceuticals, medical supplies, and nonperishable subsistence. In that year, the distribution cost the VA $138 million, nearly $11 out of every $100 spent for medical material. Much of the expense of the VA's material support system is caused by its large inventories, especially in the medical centers. Recent improvements by the VA (use of Prime Vendor distributors and faster service from the supply depots) have begun to reduce those inventories, but more can be done to reduce the system's costs and improve its responsiveness. This report describes the current VA material distribution system and explains our approach, based on the identification of customer needs, for developing network alternatives. We define a composite measure of customer service, called average system response time (ASRT), and present six alternative material support strategies - each designed to satisfy ASRT - ranging from a consolidated 'Super Depot' with regional distribution centers to total reliance on commercial sources. We then model four of those alternatives (and several variations of them) to determine their costs. We recommend that the VA rely more on direct support, not inventories, to satisfy its medical material needs. To permit it to close the medical center warehouses, it should establish more direct support contracts and, in the short run, expedite all requisitions from its supply depots... Medical material distribution, Depot, Medical centers, Direct support, Prime vendor, Regional depots, Regional distribution centers, Responsive supply support.