Theory and Feasibility of Implementing Economic Input/Output Analysis of Department of Defense to Support Acquisition Decision Analysis and Cost Estimation

Abstract

In this project, Economic Input/Output analysis was used as the inspiration for a new approach to accounting for the supply-chain burden in estimating the fully burdened cost of fuel in the U.S. Department of Defense. A general model for the fully burdened cost of fuel was developed to demonstrate the multiplier effect by which the total amount of fuel required to supply a single gallon to the warfighter is greater than one gallon, due to fuel consumption in the supply chain. Using data on costs for the Defense Logistics Agency''Energy''s bulk fuels supply chain, a spreadsheet model was constructed and used to estimate the delivery costs for fuel to all consumption points in that supply chain. They ranged from less than a penny to over 70''/gal. Using information provided on the U.S. Marine Corps'' supply chain in Afghanistan, a model for fuel consumption at each location and in both transportation and force protection was constructed to estimate the fuel multipliers for each location. Several excursions from the baseline scenario illustrated the effect of potential changes in the supply chain. This work demonstrated the applicability of an Input/Output-based approach to estimating the supply-chain burden of fuel and other supplies in the Department of Defense, and highlighted data challenges in populating such a model.