This is the accessible text file for GAO report number GAO-12-493 
entitled 'Defense Inventory: Actions Underway to Implement Improvement 
Plan, but Steps Needed to Enhance Efforts' which was released on May 
3, 2012. 

This text file was formatted by the U.S. Government Accountability 
Office (GAO) to be accessible to users with visual impairments, as 
part of a longer term project to improve GAO products' accessibility. 
Every attempt has been made to maintain the structural and data 
integrity of the original printed product. Accessibility features, 
such as text descriptions of tables, consecutively numbered footnotes 
placed at the end of the file, and the text of agency comment letters, 
are provided but may not exactly duplicate the presentation or format 
of the printed version. The portable document format (PDF) file is an 
exact electronic replica of the printed version. We welcome your 
feedback. Please E-mail your comments regarding the contents or 
accessibility features of this document to Webmaster@gao.gov. 

This is a work of the U.S. government and is not subject to copyright 
protection in the United States. It may be reproduced and distributed 
in its entirety without further permission from GAO. Because this work 
may contain copyrighted images or other material, permission from the 
copyright holder may be necessary if you wish to reproduce this 
material separately. 

United States Government Accountability Office: 
GAO: 

Report to Congressional Committees: 
May 2012: 

Defense Inventory: 

Actions Underway to Implement Improvement Plan, but Steps Needed to 
Enhance Efforts: 

GAO-12-493: 

GAO Highlights: 

Highlights of GAO-12-493, a report to congressional committees. 

Why GAO Did This Study: 

GAO has identified supply chain management as a high-risk area due in 
part to ineffective and inefficient inventory management practices 
that have caused DOD to accumulate billions of dollars worth of 
unneeded inventory. DOD reported that as of September 2010 it had $8.4 
billion worth of on-hand excess inventory, categorized for potential 
reuse or disposal, and $940 million worth of on-order excess 
inventory, already purchased but likely to be excess due to changes in 
requirements. Under the National Defense Authorization Act for Fiscal 
Year 2010, GAO is required to assess DOD’s implementation of the 
Comprehensive Inventory Management Improvement Plan (Plan) DOD 
submitted to Congress. GAO’s objectives were to determine the extent 
to which DOD has (1) established and achieved targets for reducing 
excess inventory in the Plan, (2) made progress in implementing the 
overall Plan, (3) metrics to track progress in improving inventory 
management, and (4) identified and realized any cost savings or 
avoidance. GAO reviewed relevant data, assessed DOD’s actions through 
January 1, 2012, and interviewed officials implementing the Plan. 

What GAO Found: 

The Department of Defense (DOD) set two goals-—reducing on-order and 
on-hand excess inventory-—with percentage targets for each based on 
the best available data in fiscal year 2009 as part of its 
Comprehensive Inventory Management Improvement Plan (Plan). Sustained 
management oversight led to reductions in on-order and on-hand excess 
inventory in fiscal year 2010 prior to the Plan’s implementation, and 
thus DOD may find the current targets are not meaningful in guiding 
improvement. Specifically, at the end of fiscal year 2010, DOD had 
reduced its percentage of on-order excess inventory to 5.5 percent, 
thereby achieving its 2014 target 4 years early. It also revised the 
definition and calculation of on-hand excess inventory, which resulted 
in DOD being below the fiscal year 2012 target of 10 percent. It is 
DOD policy to conduct periodic evaluations of its inventory 
management, and results-oriented management practices emphasize 
validating performance measures to ensure they remain appropriate. 
Without challenging, yet achievable targets, DOD’s Plan will not be 
effective in guiding further improvement. 

DOD has made progress implementing its Plan since implementation began 
in late fiscal year 2010, but DOD is only 18 months into a 4-year 
implementation effort and many planned activities still remain. Most 
but not all of the progress to date has been in gathering and 
analyzing data, and reviewing guidance and practices. In addition, DOD 
has made progress in particular areas, such as developing tentative 
sub-categories to further clarify its existing inventory categories. 
Overall implementation is generally on schedule, but some of the Plan’
s efforts have experienced delays. Moving forward, DOD faces such 
challenges as adjusting demand planning to changing circumstances, and 
enforcing consistent implementation of guidance at the military 
service level. 

As part of the Plan, DOD is developing metrics to assess the 
effectiveness and efficiency of its inventory management, but it has 
not determined if it will incorporate these metrics into guidance. 
This may hamper its ability to assess inventory management performance 
and sustain management attention on improvement. Materiel managers 
should evaluate and be capable of reporting on the performance of 
inventory management. Based on previous reporting, GAO has found that 
such metrics should be reportable in a consistent fashion. DOD is 
currently developing a portfolio of metrics that fall under five key 
areas: readiness, responsiveness, reliability, cost, and planning and 
precision. Some metrics that have been identified—-such as customer 
wait time—-are currently reported by DOD, while others would be new 
metrics that would require establishing a data source and methodology. 
However, the Plan does not include steps to incorporate the metrics, 
including their methodologies, into DOD guidance. Without guidance 
specifying standardized definitions, methodologies, and procedures for 
data collection procedures, DOD’s efforts to employ metrics to monitor 
and evaluate inventory management performance may be hampered. 
Finally, DOD achieved about $710 million in cost avoidances reducing 
excess inventory in fiscal year 2010, and plans to reduce funding for 
the purchase of items by $365 million between fiscal year 2012 and 
2016. Additionally, DOD completed about $140 million in lateral 
redistributions and procurement offsets in fiscal years 2010 and 2011, 
which prevented the acquisition of additional items. 

What GAO Recommends: 

GAO recommends that DOD periodically re-examine its targets for on-
hand and on-order excess inventory; and develop guidance to establish 
a set of metrics including standardized definitions and calculations 
that are then employed to monitor its inventory management practices. 
DOD concurs with GAO’s recommendations. 

View [hyperlink, http://www.gao.gov/products/GAO-12-493]. For more 
information, contact Zina Merritt at (202) 512-5257 or 
merrittz@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

DOD Established Targets for Reducing Excess Inventory Based on the 
Best Data Available, but Its Targets May Not Effectively Guide 
Continued Improvement: 

DOD Has Made Progress in the Early Stages of the Plan's 
Implementation, but Has Experienced Delays and Challenges Remain in 
Implementation: 

DOD Is Developing a Set of Metrics to Assess Inventory Management 
Effectiveness and Efficiency, but Has Not Determined If It Will 
Incorporate These Metrics into Guidance: 

DOD Has Achieved Cost Avoidances Based on Fiscal Years 2009 and 2010 
Inventory Data and Plans to Reduce Resources Available for the 
Purchase of Secondary Items: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendix I: Objectives, Scope, and Methodology: 

Appendix II: Implementation Status of Prior GAO Recommendations for 
DOD Inventory Management: 

Appendix III: Printer-Friendly Version of Figure 1 - Select DOD 
Categories of Secondary Inventory Items: 

Appendix IV: Demand Forecasting Sub-plan: 

Appendix V: Total Asset Visibility and Multi-echelon Modeling Sub-plan: 

Appendix VI: On-order Excess Inventory Sub-plan: 

Appendix VII: Economic Retention Stock Sub-plan: 

Appendix VIII: Contingency Retention Stock Sub-plan: 

Appendix IX: Storage and Direct Vendor Delivery Sub-plan: 

Appendix X: Items with No Demand Sub-plan: 

Appendix XI: Disposition of Potential Reutilization Stock Sub-plan: 

Appendix XII: Other Inventory Improvement Actions Sub-plan: 

Appendix XIII: Comments from the Department of Defense: 

Appendix XIV: GAO Contact and Staff Acknowledgments: 

Glossary: 

Related GAO Products: 

Tables: 

Table 1: The Nine Sub-plans and Corresponding Objectives: 

Table 2: Summary of Implementation Status of Actions as of January 1, 
2012: 

Table 3: Summary of Implementation Status of Milestones as of January 
1, 2012: 

Table 4: Supply Chain Outcome and Attributes, and Examples of 
Potential Metrics: 

Table 5: Army and DLA Working Capital Fund Reductions in Obligation 
Authority, Fiscal Years 2012 through 2016: 

Table 6: Status of GAO Recommendations on Inventory Management Since 
2006: 

Table 7: Status of Recommendations from Defense Inventory: Defense 
Logistics Agency Needs to Expand on Efforts to More Effectively Manage 
Spare Parts: 

Table 8: Status of Recommendations from Defense Inventory: Army Needs 
to Evaluate Impact of Recent Actions to Improve Demand Forecasts for 
Spare Parts: 

Table 9: Status of Recommendations from Defense Inventory: Management 
Actions Needed to Improve the Cost Efficiency of the Navy's Spare 
Parts Inventory: 

Table 10: Status of Recommendations from Defense Inventory: 
Opportunities Exist to Save Billions by Reducing Air Force's Unneeded 
Spare Parts Inventory: 

Table 11: Status of Recommendations from Defense Inventory: 
Opportunities Exist to Improve the Management of DOD's Acquisition 
Lead Times for Spare Parts: 

Table 12: Status of Recommendations from Defense Inventory: Actions 
Needed to Improve Inventory Retention Management: 

Table 13: Demand Forecasting Sub-plan Actions and Milestones, 
Completion Dates, and GAO Assessment and Comments as of January 1, 
2012: 

Table 14: Total Asset Visibility and Multi-Echelon Modeling Sub-plan 
Actions and Milestones, Completion Dates, and GAO Assessment and 
Comments as of January 1, 2012: 

Table 15: On-Order Excess Inventory Sub-plan Actions and Milestones, 
Completion Dates, and GAO Assessment and Comments as of January 1, 
2012: 

Table 16: Economic Retention Stock Sub-plan Actions and Milestones, 
Completion Dates, and GAO Assessment and Comments as of January 1, 
2012: 

Table 17: Contingency Retention Stock Sub-plan Actions and Milestones, 
Completion Dates, and GAO Assessment and Comments as of January 1, 
2012: 

Table 18: Storage and Direct Vendor Delivery Sub-plan Actions and 
Milestones, Completion Dates, and GAO Assessment and Comments as of 
January 1, 2012: 

Table 19: Items with No Demand Sub-plan Actions and Milestones, 
Completion Dates, and GAO Assessment and Comments as of January 1, 
2012: 

Table 20: Potential Reutilization Stock Sub-plan Actions and 
Milestones, Completion Dates, and GAO Assessment and Comments as of 
January 1, 2012: 

Table 21: Other Inventory Improvement Actions Sub-plan Actions and 
Milestones, Completion Dates, and GAO Assessment and Comments as of 
January 1, 2012: 

Figures: 

Figure 1: Select DOD Categories of Secondary Inventory Items: 

Figure 2: The Plan's Implementation Structure: 

Figure 3: Percentage of On-Order Excess Inventory, Fiscal Years 2008 - 
2010: 

Figure 4: Percentage of On-Hand Excess Inventory, Fiscal Years 2008 - 
2010: 

Figure 5: Selected DOD Categories of Secondary Inventory Items: 

Abbreviations: 

DLA: Defense Logistics Agency: 

DOD: Department of Defense: 

NDAA: National Defense Authorization Act: 

OSD: Office of the Secretary of Defense: 

[End of section] 

United States Government Accountability Office: 
Washington, DC 20548: 

May 3, 2012: 

Congressional Committees: 

The Department of Defense (DOD) spends billions of dollars to 
purchase, manage, store, track, and deliver spare parts and other 
supplies needed to keep military equipment ready and operating. DOD 
manages more than 4 million secondary items and reported that as of 
September 2010 the value of its inventory was $95.6 billion.[Footnote 
1] However, DOD reported that $8.4 billion (8.3 percent) of its 
secondary inventory has been identified as excess and categorized for 
potential reuse or disposal (i.e., potential reutilization stock or on-
hand excess). According to DOD, another $15.6 billion (15.8 percent) 
of its secondary inventory exceeds the approved acquisition objective 
[Footnote 2] and is being retained because either it was determined to 
be more economical to retain than to dispose of it or it might be 
needed for a contingency in the future.[Footnote 3] As we have 
emphasized in previous reports, the federal government is facing 
serious long-term fiscal challenges, and DOD may confront increased 
competition over the next decade for federal discretionary funds. 
[Footnote 4] Strategic guidance released by the President of the 
United States and the Secretary of Defense in January 2012 emphasized 
that DOD must continue to reduce the cost of doing business, in 
particular finding further efficiencies in overhead, business 
practices, and support activities.[Footnote 5] Inventory management, a 
key support activity that affects the readiness of the force, must be 
conducted effectively and efficiently to avoid expending resources and 
accumulating wasteful inventory that could prevent the dedication of 
resources to other defense or national priorities. 

Since 1990, we have identified DOD supply chain management as a high-
risk area due in part to ineffective and inefficient inventory 
management practices and procedures, weaknesses in accurately 
forecasting the demand for spare parts, and challenges in achieving 
widespread implementation of key technologies aimed at improving asset 
visibility. These factors have contributed to the accumulation of 
billions of dollars in spare parts that are excess to current 
requirements.[Footnote 6] Moreover, we have recently reported on the 
inventory management practices of the military departments and the 
Defense Logistics Agency (DLA) and recommended DOD take steps to 
improve demand forecasting, ensure proper reviews are conducted and 
documented, validate methodologies for making retention decisions, and 
establish goals and metrics for assessing the efficiency of inventory 
management.[Footnote 7] DOD concurred with 38 of the 39 
recommendations. A list of related products is at the end of this 
report. 

Section 328 of the National Defense Authorization Act (NDAA) for 
Fiscal Year 2010 required the Secretary of Defense to submit to 
congressional defense committees a comprehensive plan for improving 
the inventory management systems of the military departments and DLA 
with the objective of reducing the acquisition and storage of 
secondary inventory that is excess to requirements.[Footnote 8] For 
purposes of section 328, the NDAA defines inventory that is excess to 
requirements as inventory that is excess to the approved acquisition 
objective and not needed for economic or contingency retention. DOD 
submitted its Comprehensive Inventory Management Improvement Plan 
(Plan) on November 8, 2010, and as also required by Section 328, we 
reported our assessment of the Plan on January 7, 2011.[Footnote 9] 

Additionally, section 328 requires us to assess the extent to which 
the Plan has been effectively implemented by each military department 
and DLA and report to the congressional defense committees not later 
than 18 months after the Plan is submitted. Accordingly, our 
objectives for this report were to determine the extent to which DOD 
has (1) established and achieved targets for reducing excess inventory 
in the Plan, (2) made progress in implementing the overall Plan, (3) 
established and implemented standardized metrics to track their 
progress in improving inventory management, and (4) identified and 
realized any cost savings or cost avoidance from implementing the Plan. 

To assess the extent to which DOD's Plan has established and its 
implementation has achieved targets for reducing excess inventory, we 
reviewed the targets established by DOD, the process used to establish 
the targets, and DOD's progress achieving the targets. To determine 
the extent to which DOD has made progress in implementing the Plan, we 
reviewed the Plan's actions, milestones, and implementation steps and 
evaluated implementation status reports and actions from the Deputy 
Assistant Secretary of Defense for Supply Chain Integration, the 
services, and DLA. To determine the extent to which DOD has 
established and implemented standardized metrics to track their 
progress in improving inventory management across the department, we 
reviewed DOD's process for developing a comprehensive set of metrics, 
DOD's progress in identifying metrics to assess the performance of 
inventory management, and DOD's plans to incorporate the metrics into 
DOD guidance for the services and DLA. To determine the extent to 
which DOD has identified and realized any cost savings or cost 
avoidance associated with implementation, we reviewed the Plan and 
associated documentation to identify any documented cost savings or 
cost avoidance, DOD's methodology for calculating any cost savings or 
cost avoidance, and DOD's implementation of any cost savings or cost 
avoidances. We also interviewed Office of the Secretary of Defense 
(OSD), service, and DLA officials to discuss progress in implementing 
the Plan and achieving the established targets, efforts to develop 
metrics to track progress in improving inventory management, and 
implementation of any cost savings or cost avoidance. We examined the 
reliability of data used in this report by reviewing DOD policy and 
procedures for the collection of the data used for inventory reporting 
and interviewing officials about their methods for quality control and 
found that the data were sufficiently reliable to address our 
objectives. See appendix I for a more detailed description of our 
scope and methodology. In addition, appendix II provides the 
implementation status of recommendations from our most recent 
inventory management reports. 

We conducted this performance audit between August 2011 and May 2012, 
in accordance with generally accepted government auditing standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe 
that the evidence obtained provides a reasonable basis for our 
findings and conclusions based on our audit objectives. 

Background: 

Categories of DOD's Inventory: 

DOD guidance requires that the services and DLA report the current and 
projected status of their secondary item inventories to support OSD's 
oversight responsibilities and for use in its procurement and repair 
budget deliberations.[Footnote 10] To ensure the department has 
consistent data, the services and DLA are required, among other 
things, to group their secondary item inventories into several 
specific categories, according to the purpose for which they are held 
(see figure 1). The reporting categories include the approved 
acquisition objective and three inventory categories that exceed the 
approved acquisition objective--economic retention stock, contingency 
retention stock, and potential reutilization stock (i.e., on-hand 
excess inventory). The approved acquisition objective incorporates 
both materiel needed to meet the requirements objective (i.e., the sum 
of stock represented by the economic order quantity,[Footnote 11] the 
safety level,[Footnote 12] the repair-cycle level,[Footnote 13] and 
the authorized additive levels[Footnote 14]) and 2 years of estimated 
future demand. DOD purchases inventory to meet the approved 
acquisition objective, according to DOD officials. Secondary item 
inventory that exceeds the approved acquisition objective is 
categorized as retention stock or potential reutilization stock. 
[Footnote 15] Retention stock includes economic retention stock, which 
is materiel that has been deemed more economical to keep than to 
dispose of because it is likely to be needed in the future, and 
contingency retention stock, which is materiel retained to support 
specific contingencies.[Footnote 16] Potential reutilization stock has 
been identified for possible disposal but has potential for 
reutilization. Potential reutilization stock is also referred to as on-
hand excess inventory. Additionally, OSD, the services, and DLA track 
on-order excess inventory, which are items for which a contract has 
been awarded or funds have been obligated, but due to subsequent 
changes in requirements would be categorized as potential 
reutilization stock upon arrival. Figure 1 summarizes how DOD 
inventory categories are aggregated for reporting. Appendix III 
provides a printer-friendly version of figure 1. Additionally, see the 
glossary for key inventory management terms. 

Figure 1: Select DOD Categories of Secondary Inventory Items: 

[Refer to PDF for image: interactive illustration] 

Interactivity instructions: 
Roll over an inventory item to see the definition. See appendix III 
for the printer-friendly version. 

Approved Acquisition Objective: 
Requirements Objective; 
2 years of Forecasted Demand. 

Retention Stock: 
Economic Retention Stock; 
Contingency Retention Stock. 
  
On-Hand Excess Inventory: 
Potential Reutilization Stock.  
  
Source: GAO analysis of DOD guidance and inventory practices.   

[End of figure] 

Structure of the Plan: 

The objective of DOD's Plan is to achieve a prudent reduction in 
current inventory excesses as well as a reduction in the potential for 
future excesses without degrading materiel support to the customer. 
The Plan has two overarching goals, which are to reduce (1) total on-
order excess inventory from 8.5 percent of total obligated on-order 
dollars in fiscal year 2009 to a target of 6 percent by the end of 
fiscal year 2014 and 4 percent by the end of fiscal year 2016 and (2) 
on-hand excess inventory from 11.3 percent of the total value of 
inventory in fiscal year 2009 to a target of 10 percent by the end of 
fiscal year 2012. DOD developed nine sub-plans, which are designed to 
assist in reducing excess inventory and improve inventory management 
practices across DOD. Each of the nine sub-plans focuses on a 
particular inventory management area and includes an objective, as 
identified in table 1. Additionally, see appendix IV through XII for 
detailed information for each sub-plan. 

Table 1: The Nine Sub-plans and Corresponding Objectives: 

Sub-plans: 1. Demand forecasting[A]; 
Objective of the sub-plan: To improve the prediction of future demand 
so that inventory requirements more accurately reflect actual needs; 
Appendix: IV. 

Sub-plans: 2. Total asset visibility[B] and multi-echelon modeling[C]; 
Objective of the sub-plan: To minimize the size of purchases by 
considering all accessible inventories; 
Appendix: V. 

Sub-plans: 3. On-order excess inventory; 
Objective of the sub-plan: To reduce or terminate purchases that 
result in inventory excesses due to a decrease in requirements; 
Appendix: VI. 

Sub-plans: 4. Economic retention stock; 
Objective of the sub-plan: To ensure economic retention decisions are 
based on current cost factors and economic principles; 
Appendix: VII. 

Sub-plans: 5. Contingency retention stock; 
Objective of the sub-plan: To ensure the services and DLA justify the 
retention of contingency stock; 
Appendix: VIII. 

Sub-plans: 6. Storage and direct vendor delivery[D]; 
Objective of the sub-plan: To use commercial vendors to store items 
when use of those vendors represents the best value to the government; 
Appendix: IX. 

Sub-plans: 7. Items with no demand[E]; 
Objective of the sub-plan: To eliminate items with a history of no 
recurring demand and a low probability of future demand, unless there 
is sufficient justification for the retention of the item; 
Appendix: X. 

Sub-plans: 8. Disposition of potential reutilization stock (i.e., on-
hand excess inventory); 
Objective of the sub-plan: To ensure timely disposition of items 
categorized as potential reutilization stock; 
Appendix: XI. 

Sub-plans: 9. Other inventory improvement actions; 
Objective of the sub-plan: To accomplish several cross-functional 
improvements, including revising current inventory categories to 
better reflect the rationale behind retaining the inventory, improving 
acquisition lead times, and establishing departmentwide metrics for 
inventory management.[F]; 
Appendix: XII. 

Source: DOD's Plan and its supporting documents. 

[A] Demand forecasting is predicting future customer demands so 
inventory managers can develop inventory requirements to satisfy 
demands when they occur. Inaccurate forecasts lead to either excess 
inventory or shortfalls. 

[B] Total asset visibility is the capability to provide all users with 
timely and accurate information about the location, movement, status, 
and identity of supplies and the capability to act on this information. 

[C] Multi-echelon modeling is the use of mathematical models that 
compute the optimal number and type of parts needed at the wholesale 
and retail levels to achieve readiness and cost goals. 

[D] Direct vendor delivery is a materiel acquisition and distribution 
method that requires supplier delivery directly to the customer, which 
can reduce the storage of items by the services and DLA. 

[E] Items with no recurring demand are items that have not been needed 
over a specified period. Although the services and DLA time periods 
vary, the Plan intends to implement a DOD-wide standard of greater 
than 5 years. 

[F] Acquisition lead time, also known as procurement lead time, 
measures the length of time between the identification of a materiel 
requirement and the receipt of that materiel into the supply system. 
Acquisition lead time is the sum of administrative lead time and 
production lead time. Administrative lead time is the time interval 
between identifying a need to purchase an item and the award of a 
contract. Production lead time is the time interval between the award 
of a contract and receiving the purchased materiel into the supply 
system. 

[End of table] 

Each of these nine sub-plans include actions, milestones, and 
implementation steps. See figure 2 for a depiction of the Plan's 
implementation structure. OSD, the services, and DLA use a plan of 
action and milestones to manage the Plan's implementation, which 
includes steps for each of the nine sub-plans and tracks the status of 
the implementation. 

Figure 2: The Plan's Implementation Structure: 

[Refer to PDF for image: illustration] 

307 Implementation Steps; 
82 Milestones; 
29 Actions; 
9 Sub-Plans; 
The Plan. 

Source: GAO analysis of the Plan and its supporting documents. 

[End of figure] 

Performance Management Structure of the Plan's Implementation: 

The Plan outlines the roles and responsibilities of key stakeholders, 
including those of the Deputy Assistant Secretary of Defense for 
Supply Chain Integration, the Supply Chain Executive Steering 
Committee, the services, and DLA. The Deputy Assistant Secretary of 
Defense for Supply Chain Integration oversees the Plan's 
implementation through progress review meetings held about every 
month. The Supply Chain Executive Steering Committee, which is 
comprised of executive-level members from the services and DLA, 
advises the Deputy Assistant Secretary of Defense for Supply Chain 
Integration on matters related to supply chain management, including 
the implementation of the Plan, and typically receives a briefing on 
the Plan's implementation every three months.[Footnote 17] Also, the 
Supply Chain Executive Steering Committee is used to resolve issues 
encountered in implementation that cannot be resolved at a lower 
level. Any unresolved issues are discussed and resolved at the Joint 
Logistics Board, which is comprised of senior-level participants from 
the services, combatant commands, and DLA, and is responsible for 
reviewing the status of the logistics portfolio and the effectiveness 
of the defense-wide logistics chain in supporting to the warfighter. 
[Footnote 18] 

Three groups--forecasting and demand planning, inventory and 
retention, and supply chain metrics--are responsible for managing the 
day-to-day actions in the Plan. Representatives from OSD, the 
services, and DLA comprise the groups. Each group has responsibility 
for particular sub-plans as follows: 

* Forecasting and demand planning group: Responsible for the sub-plans 
on demand forecasting and total asset visibility and multi-echelon 
modeling[Footnote 19] and a section of the sub-plan on other inventory 
improvement actions, specifically actions associated with reducing 
acquisition lead times for spare parts.[Footnote 20] 

* Inventory and retention group: Responsible for the sub-plans on on-
order excess inventory, economic retention, contingency retention, 
storage and direct vendor delivery, no-demand items, and disposition 
of potential reutilization stock and the section of the sub-plan on 
other inventory improvement actions associated with inventory 
segmentation, inventory systems modernization, and efficiency metrics. 

* Supply chain metrics group: Responsible for leading efforts to 
standardize the definitions and computation of metrics across DOD, 
validating the effectiveness of measures as indicators of progress, 
translating metrics to inform future decisions, and integrating the 
metrics in the Plan into the DOD performance measurement framework. 

DOD Established Targets for Reducing Excess Inventory Based on the 
Best Data Available, but Its Targets May Not Effectively Guide 
Continued Improvement: 

DOD may find that the two targets for reducing on-order and on-hand 
excess inventory that it established when developing the Plan in 
fiscal year 2010 are ineffective in guiding future inventory 
management improvement efforts. DOD set measurable targets for each of 
its goals based on the best data available according to DOD officials, 
but since that time more recent data revealed that the on-order excess 
inventory target was met 4 years early and prior to the Plan's 
implementation efforts' beginning. Additionally, the on-hand excess 
inventory target was surpassed because DOD revised the definition and 
calculation of on-hand excess inventory. 

DOD's target for the on-order excess inventory goal is to reduce, 
collectively among the services and DLA, the percentage of total 
obligated on-order dollars to 6 percent by end of fiscal year 2014 and 
4 percent by the end of fiscal year 2016. Reducing the percentage of 
on-order excess inventory would result in less economic or contingency 
retention stock being held by the department and/or less potential on-
hand excess inventory that must be disposed of by the department since 
there is not a need for the item. DOD reduced its percentage of on-
order excess inventory from 8.5 percent, or approximately $1.15 
billion, in fiscal year 2009 to 5.5 percent, or about $940 million, at 
the end of fiscal year 2010, thereby achieving its 2014 target 4 years 
early. The Air Force and Navy (including the Marine Corps), as of 
fiscal year 2010, were below the 6 percent on-order excess inventory 
target for fiscal year 2014, whereas the Army and DLA were above the 
target. (See figure 3 for the percentage of on-order excess inventory 
for fiscal years 2008 to 2010 across DOD.) DOD achieved its fiscal 
year 2014 target for on-order excess inventory prior to the 
implementation of the Plan, which began in fiscal year 2011. 

Figure 3: Percentage of On-Order Excess Inventory, Fiscal Years 2008 - 
2010: 

[Refer to PDF for image: vertical bar graph] 

Percent On-Order Excess: 

Fiscal year: 2008; 
Defense Logistics Agency: 12.5%; 
Army: 6.1%; 
Navy: 3.4%; 
Air Force: 0.8%; 
Department of Defense: 6.9%. 

Fiscal year: 2009; 
Defense Logistics Agency: 8.2%; 
Army: 12.6%; 
Navy: 3.6%; 
Air Force: 1.9%; 
Department of Defense: 8.5%. 

Fiscal year: 2010; 
Defense Logistics Agency: 6.9%; 
Army: 11.4%; 
Navy: 2.4%; 
Air Force: 1.7%; 
Department of Defense: 5.5%. 

Fiscal year 2014 target: 6%. 

Fiscal year 2016 target: 4%. 

Source: DOD's inventory reporting data. 

[End of figure] 

DOD's target for the on-hand excess inventory goal is to reduce, 
collectively among the services and DLA, the percentage of the total 
value of secondary item inventory designated as excess to 10 percent 
by the end of fiscal year 2012. Reducing the percentage of on-hand 
excess inventory is an indicator of a more effective and efficient 
inventory management system, according to DOD officials. In fiscal 
year 2011, based on further analysis of the inventory data, DOD 
revised the definition of on-hand excess inventory, which resulted in 
a reduction in its percentage of on-hand excess from 9.4 percent, or 
$8.9 billion, in fiscal year 2009 to 8.3 percent, or $8.4 billion, in 
fiscal year 2010, which is well below its fiscal year 2012 target of 
10 percent. DOD revised the definition of on-hand excess inventory to 
exclude the projected number of condemned items, which are 
unserviceable assets that are determined to be beyond the point of 
economic repair during the repair process. OSD officials stated they, 
in collaboration with the services and DLA, decided that the projected 
number of condemnations would not be included in the on-hand excess 
inventory calculation because the services and DLA have no way to 
dispose of future condemned items, and therefore these items should 
not be counted as on-hand excess inventory. In addition, they stated 
inclusion of the condemned items would inflate the amount of on-hand 
excess inventory, thus DOD plans to report projected condemned items 
as a separate inventory category in the future. The Army, Air Force, 
and DLA are below the 10 percent on-hand excess inventory target for 
fiscal year 2012, whereas the Navy (including the Marine Corps) is 
slightly above the target. (See figure 4 for the percentage of on-hand 
excess inventory for fiscal years 2008 to 2010 across DOD.) 

Figure 4: Percentage of On-Hand Excess Inventory, Fiscal Years 2008 - 
2010: 

[Refer to PDF for image: vertical bar graph] 

Percent On-Hand Excess: 

Fiscal year: 2008; 
Defense Logistics Agency: 7.3%; 
Army: 10.7%; 
Navy: 24.4%; 
Air Force: 10.9%; 
Department of Defense: 14.1%. 

Fiscal year: 2009; 
Defense Logistics Agency: 2.7%; 
Army: 8.8%; 
Navy: 12.5%; 
Air Force: 10%; 
Department of Defense: 9.4%. 

Fiscal year: 2010; 
Defense Logistics Agency: 2.3%; 
Army: 6.9%; 
Navy: 10.6%; 
Air Force: 9.7%; 
Department of Defense: 8.3%. 

Fiscal year 2012 target: 10%. 

Source: DOD's inventory reporting data. 

[End of figure] 

The Standards for Internal Control in the Federal Government[Footnote 
21] and results-oriented management practices[Footnote 22] emphasize 
the importance of reviewing and validating performance measures to 
ensure these measures remain appropriate. Specifically, we have 
reported that without sufficiently ambitious goals or targets, 
managers may not have incentives to use performance information to 
identify opportunities for significant improvement.[Footnote 23] A 
critical factor in the success of goal-setting is developing 
ambitious, but realistic "stretch" goals that challenge the 
organization to achieve performance improvements.[Footnote 24] DOD 
inventory management guidance states that the Assistant Secretary of 
Defense for Logistics and Materiel Readiness is responsible for 
monitoring the overall effectiveness and efficiency of DOD's materiel 
management systems and continually developing improvements.[Footnote 
25] It also notes that it is DOD policy to periodically conduct 
performance evaluations of its supply chain operations and inventory. 

Officials stated that prior to developing the Plan in fiscal year 
2010, DOD had not established departmentwide targets for on-hand and 
on-order excess inventory, therefore establishing these targets was a 
new endeavor for DOD. According to DOD officials, establishing optimal 
targets for excess inventory is challenging and must consider on-going 
operational challenges, such as the potential impact of the reset of 
military equipment returning from Iraq and Afghanistan as well as the 
need to meet service readiness rates. DOD's targets in the Plan were 
set based on an analysis of trends in the inventory data prior to and 
including fiscal year 2009. OSD officials described the process used 
to establish the targets as one in which OSD, service, and DLA senior 
officials reviewed inventory data trends and exercised professional 
judgment to select challenging, yet achievable targets to focus the 
reduction of excess inventory. When developing the Plan DOD did not 
know that its on-order excess inventory target had already been met 
because departmentwide inventory data is not available until 
approximately 6 months after the end of the fiscal year, which meant 
the fiscal year 2010 data was not available until approximately 6 
months into the Plan's implementation. Furthermore, additional 
analysis of the inventory data led DOD officials to make adjustments 
to the definition and calculation of on-hand excess inventory, which 
made the targets for on-hand excess inventory less meaningful. 

DOD officials attribute the reduction in excess inventory to increased 
management oversight on the part of OSD, the services, and DLA 
leadership, which was prompted by increased congressional oversight 
through GAO reviews and the congressional mandate to develop a 
comprehensive plan to improve inventory management. OSD officials 
stated they intend to review the on-order excess inventory target for 
fiscal year 2014 and the on-hand excess inventory for future years 
after the fiscal year 2011 data is available. Through such a review, 
DOD may find the Plan's existing targets for its two goals--reducing 
on-order and on-hand excess--are no longer effective in guiding and 
monitoring continuous improvement for the remainder of the Plan's 
implementation given DOD's progress in these areas. 

DOD Has Made Progress in the Early Stages of the Plan's 
Implementation, but Has Experienced Delays and Challenges Remain in 
Implementation: 

In addition to making progress toward achieving the targets discussed 
above, DOD has made progress implementing the Plan's actions for 
improving inventory management, which began in late fiscal year 2010. 
However, DOD is only 18 months into a 4-year implementation effort and 
has experienced some delays and faces continued challenges during the 
remainder of implementation. Specifically, DOD is implementing a 
series of actions focused at improving policies, procedures, and 
processes for inventory management that require collaboration among 
OSD, the services, and DLA and a coordinated implementation approach. 
DOD's progress included reviewing department, service, and DLA 
inventory management guidance, and drafting revisions scheduled to be 
issued by the end of fiscal year 2012. The Plan's overall 
implementation schedule has slipped only 1 month since the effort 
began; however, as of January 1, 2012, a number of the Plan's actions 
and milestones were delayed based on original estimated completion 
dates. Over the next 3 years of implementation efforts, OSD, the 
services, and DLA will confront several key challenges in their 
efforts to implement the remainder of the Plan, such as improving 
demand forecasting, accelerating multi-echelon modeling, and ensuring 
effective execution of DOD guidance by the services and DLA for the 
management of on-order excess, retention stocks, and potential 
reutilization stocks. 

DOD Has Made Progress In the Early Stages of the Plan's Implementation: 

During the initial implementation effort, OSD, the services, and DLA 
have made progress in implementing the actions associated with the 
Plan. Much of the progress thus far has involved OSD, the services, 
and DLA gathering and analyzing data, such as reviewing DOD, service, 
and DLA inventory management guidance and practices and making 
revisions where appropriate. For example, in collaboration with the 
services and DLA, OSD is in the process of revising DOD guidance to 
standardize and strengthen inventory management practices.[Footnote 
26] To inform those changes, OSD, the services, and DLA have conducted 
reviews of guidance and practices for demand forecasting, on on-order 
excess inventory, economic retention stock, contingency retention 
stock, potential reutilization stock, and storage and direct vendor 
delivery in the Plan's first 18 months of implementation. According to 
OSD officials, this revision is scheduled to be finalized and issued 
by the end of fiscal year 2012. They also stated that once the revised 
DOD guidance is finalized and issued the process of implementing the 
guidance at the service and DLA level will require time and sustained 
leadership focus. 

According to DOD officials, in some areas, the services and DLA 
already have service or agency-specific guidance that addresses some 
of the proposed requirements of the revised departmentwide draft 
guidance, but in other areas work remains for the services and DLA to 
ensure that the draft DOD guidance is reflected, as needed, in 
organizational guidance and implemented consistently. Furthermore, 
according to service and DLA officials, the services and DLA have been 
proactively updating or revising their procedures and practices based 
on the proposed revisions to DOD inventory management guidance in some 
cases. For example, the U.S. Army Materiel Command has implemented 
changes to its automated business system for managing inventory, 
commonly referred to as an enterprise resource planning system, to be 
able to categorize contingency retention stock according to the 
categories agreed upon by OSD, the services, and DLA as part of the 
contingency retention stock sub-plan implementation efforts. The U.S. 
Army Materiel Command also required contingency retention stock to be 
justified and documented on an annual basis. The Navy Supply System 
Command has developed guidance for the management of its on-order 
excess inventory and DLA is in the process of making changes to its 
procedures for on-order excess management. 

In addition to revising guidance and procedures, OSD, the services, 
and DLA are also developing and implementing metrics associated with 
each sub-plan to assist in monitoring the status of DOD's inventory in 
conjunction with the Plan's implementation. Many of the metrics are 
established, but a few of the metrics, such as forecasting error, are 
under development and OSD, the services, and DLA are working to agree 
on the methodology for calculating these particular metrics.[Footnote 
27] See appendix IV through XII for detailed information for each sub-
plan. 

OSD, the services, and DLA have demonstrated progress in other areas 
of the Plan's implementation as well. These areas include, but are not 
limited to, the following: 

* Automated access to inventory. OSD, the services, and DLA determined 
that 95 percent of DOD's inventory is accessible by automated means to 
the services and DLA, which exceeded the Plan's goal of achieving 
automated accessibility to 90 percent of its inventory within 5 years. 

* DLA's in-storage visibility program. OSD, the services, and DLA have 
increased participation in the in-storage visibility program, which 
allows services and DLA to obtain consumable items from another 
service or DLA through established business rules. For example, the 
Air Force had 145 sites participating in fiscal year 2010 and 
increased the number to 190 sites. The Army and Navy increased the 
number of sites also. The program conducted $73.8 million lateral 
redistributions and procurement offsets in fiscal year 2010 and $68.3 
million in fiscal year 2011. 

* No demand items. OSD, the services, and DLA have begun reviewing 
their inventories for items that have not had any orders for 5 or more 
years to reevaluate the justification for retaining these items, even 
if the items are within the approved acquisition objective. For 
example, the Army has been reviewing no demand items since 2006 and 
has been successful at reducing storage space and storage costs 
associated with these items. 

* Inventory categorization. OSD, the services, and DLA have reviewed 
existing categories of inventory (i.e., the approved acquisition 
objective, economic retention stock, contingency retention stock, and 
potential reutilization stock) and developed tentative sub-categories 
that provide further clarification as to the make-up of each category. 
DOD's Plan includes steps to incorporate this information into its 
guidance on inventory management, specifically a revision of DOD 
4140.64-M Secondary Item Stratification Manual (August 24, 2009). 

Implementation Is Generally on Schedule, but Some of the Plan's 
Actions and Milestones Are Delayed: 

After 18 months, DOD's implementation of its Plan is generally on 
schedule, having slipped 1 month, although a number of actions and 
milestones have experienced delays. Each of the nine sub-plans 
includes actions, which are each supported by a number of milestones. 
OSD, the services, and DLA have begun implementing all 29 actions in 
the Plan and completed 3 of these actions, as of January 1, 2012. Our 
analysis shows that about half of the remaining actions are on 
schedule, while half are delayed. Our analysis also shows that of the 
82 milestones that support the actions, OSD, the services, and DLA 
have completed 28, started 39, and have not yet started 15. About a 
third of the milestones are delayed. Implementation of all actions and 
milestones are scheduled to be complete the first month of fiscal year 
2015, rather than the end fiscal year 2014 as originally scheduled. 
Tables 2 and 3 provide the status, by sub-plan, of actions and 
milestones, respectively. Additionally, see appendix IV through XII, 
for detailed information on the status of individual actions and 
milestones for each sub-plan. 

Table 2: Summary of Implementation Status of Actions as of January 1, 
2012: 

Sub-plan: Demand forecasting (appendix IV); 
Completed: 0; 
Started, on schedule: 0; 
Started, completion delayed: 5; 
Total: 5. 

Sub-plan: Total asset visibility and multi-echelon modeling (appendix 
V); 
Completed: 0; 
Started, on schedule: 3; 
Started, completion delayed: 0; 
Total: 3. 

Sub-plan: On-order excess (appendix VI); 
Completed: 0; 
Started, on schedule: 0; 
Started, completion delayed: 2; 
Total: 2. 

Sub-plan: Economic retention stock (appendix VII); 
Completed: 0; 
Started, on schedule: 3; 
Started, completion delayed: 0; 
Total: 3. 

Sub-plan: Contingency retention stock (appendix VIII); 
Completed: 1; 
Started, on schedule: 1; 
Started, completion delayed: 1; 
Total: 3. 

Sub-plan: Storage and direct vendor delivery (appendix IX); 
Completed: 2; 
Started, on schedule: 1; 
Started, completion delayed: 1; 
Total: 4. 

Sub-plan: No demand items (appendix X); 
Completed: 0; 
Started, on schedule: 1; 
Started, completion delayed: 1; 
Total: 2. 

Sub-plan: Potential reutilization stock (appendix XI); 
Completed: 0; 
Started, on schedule: 3; 
Started, completion delayed: 0; 
Total: 3. 

Sub-plan: Other inventory improvements (appendix XII); 
Completed: 0; 
Started, on schedule: 2; 
Started, completion delayed: 2; 
Total: 4. 

Sub-plan: Total; 
Completed: 3; 
Started, on schedule: 14; 
Started, completion delayed: 12; 
Total: 29. 

Source: GAO analysis of the Plan and DOD's periodic status briefings. 

[End of table] 

Table 3: Summary of Implementation Status of Milestones as of January 
1, 2012: 

Sub-plan: Demand forecasting (appendix IV); 
Completed: 3; 
Started, on schedule: 1; 
Started, completion delayed: 6; 
Not started, on schedule: 0; 
Not started, completion delayed: 2; 
Total: 12. 

Sub-plan: Total asset visibility and multi-echelon modeling (appendix 
V); 
Completed: 2; 
Started, on schedule: 1; 
Started, completion delayed: 3; 
Not started, on schedule: 6; 
Not started, completion delayed: 0; 
Total: 12. 

Sub-plan: On-order excess (appendix VI); 
Completed: 2; 
Started, on schedule: 0; 
Started, completion delayed: 2; 
Not started, on schedule: 0; 
Not started, completion delayed: 0; 
Total: 4. 

Sub-plan: Economic retention stock (appendix VII); 
Completed: 2; 
Started, on schedule: 2; 
Started, completion delayed: 1; 
Not started, on schedule: 2; 
Not started, completion delayed: 0; 
Total: 7. 

Sub-plan: Contingency retention stock (appendix VIII); 
Completed: 4; 
Started, on schedule: 1; 
Started, completion delayed: 3; 
Not started, on schedule: 0; 
Not started, completion delayed: 0; 
Total: 8. 

Sub-plan: Storage and direct vendor delivery (appendix IX); 
Completed: 7; 
Started, on schedule: 1; 
Started, completion delayed: 1; 
Not started, on schedule: 0; 
Not started, completion delayed: 0; 
Total: 9. 

Sub-plan: No demand items (appendix X); 
Completed: 4; 
Started, on schedule: 2; 
Started, completion delayed: 1; 
Not started, on schedule: 0; 
Not started, completion delayed: 0; 
Total: 7. 

Sub-plan: Potential reutilization stock (appendix XI); 
Completed: 1; 
Started, on schedule: 3; 
Started, completion delayed: 1; 
Not started, on schedule: 2; 
Not started, completion delayed: 0; 
Total: 7. 

Sub-plan: Other inventory improvements (appendix XII); 
Completed: 3; 
Started, on schedule: 4; 
Started, completion delayed: 6; 
Not started, on schedule: 0; 
Not started, completion delayed: 3; 
Total: 16. 

Sub-plan: Total; 
Completed: 28; 
Started, on schedule: 15; 
Started, completion delayed: 24; 
Not started, on schedule: 10; 
Not started, completion delayed: 5; 
Total: 82. 

Source: GAO analysis of the Plan and DOD's periodic status briefings. 

[End of table] 

OSD, the services, and DLA regularly review the status of the actions 
and milestones and make adjustments as needed, and we found the 
reasons for delays in completing the Plan's actions and milestones are 
varied and do not appear to involve a systemic problem. Several 
milestones across several sub-plans are delayed pending the issuance 
of revised inventory management guidance, which according to OSD 
officials is now scheduled for the end of fiscal year 2012. Other 
milestones have been delayed due to funding and contract issues. For 
example, one milestone was postponed due to delays in awarding a 
contract to evaluate improved demand forecasting methods and 
techniques for spare parts by taking into consideration the life 
cycle--initial provisioning, sustainment, and end-of-life--of a weapon 
system. In other cases, additional implementation steps were added to 
milestones to better focus and address an effort, lengthening the 
original planned time frame. For example, a milestone in the 
contingency retention stock sub-plan focused on assessing results of 
an independent review of contingency retention stock, making necessary 
policy changes, and implementing those changes, but after analyzing 
the results of the review, OSD, the services and DLA determined 
additional steps were needed to guide the implementation of the 
approved recommendations. Since we believe these delays do not 
indicate an underlying issue and DOD is making adjustments to the Plan 
based on its experience to date, we are not making recommendations. 

DOD Faces Several Implementation Challenges Going Forward: 

Over the next 3 years, OSD, the services, and DLA will confront four 
key challenges in their efforts to implement the remainder of its 
Plan. First, the drawdown of forces and equipment from Afghanistan 
over the coming years as well as the reset of the forces and equipment 
returning from Iraq and Afghanistan will make inventory management 
more difficult. DOD will need to effectively adjust demand planning to 
reflect changes in operational tempo associated with the drawdown as 
well as account for spare part needs associated with the reset of 
equipment to avoid the creation of inventory excesses. Additionally, 
the return of materiel from Afghanistan will require effective 
planning and may result in excess inventory. Second, the services and 
DLA are in varying stages of implementing their respective automated 
business systems for managing inventory, which are referred to as 
enterprise resource planning systems, which may make consistent data 
collection difficult and pose continuing challenges to implementing 
some areas of the Plan. While DLA has completely implemented its 
system, the services are at varying stages of implementing their 
systems. As part of the Plan, OSD, the services, and DLA are working 
together to monitor potential impacts on the Plan's implementation. 
Third, several areas of the Plan moving forward present considerable 
implementation challenges due to the complexity of the issues. Some 
examples of complex issues in the Plan that pose implementation 
challenges include: 

* Improving demand forecasting. Improving demand forecasting is 
difficult because it involves materiel managers having the most up-to-
date operational planning information to adequately plan the stocking 
of materiel for the customer. The demand forecasting sub-plan focuses 
on putting in place more automated methods for exchanging information 
that can be used to improve forecasts between inventory managers and 
customers, but these efforts are only in the initial stages. 

* Accelerating the use of multi-echelon modeling. DOD set a target to 
use multi-echelon modeling on 90 percent of targeted inventories by 
the end of fiscal year 2015. As part of its analysis, OSD, the 
services, and DLA determined that its targeted inventory is defined as 
that portion of the total inventory that includes inventory levels 
already set using multi-echelon modeling plus opportunities for 
additional application. The targeted inventory is approximately 65 
percent of DOD's inventory, or $61 billion of DOD's approximately $95 
billion in inventory for fiscal year 2010. OSD, the services, and DLA 
are currently working to identify criteria and business rules for the 
targeted inventory that currently uses multi-echelon modeling to be 
able to develop opportunities for additional application to accelerate 
the use of multi-echelon modeling. 

* Implementing revised DOD guidance on retention management. OSD, the 
services, and DLA have reviewed existing DOD and service guidance for 
the management of on-order excess, economic retention stock, 
contingency retention stock, and potential reutilization stock and are 
in the process of finalizing revisions to the guidance to be issued by 
the end of fiscal year 2012. However, the full implementation of the 
revised guidance will occur largely within the materiel and logistics 
commands of the services and at DLA.[Footnote 28] As reported in our 
previous reports, existing policies and procedures to justify and 
review retention decisions were not implemented appropriately and 
consistently within the services and DLA.[Footnote 29] While the 
collaborative review and revision of DOD guidance by OSD, the 
services, and DLA was an important first step, the standardized and 
effective implementation of these revised policies, once issued, in 
the services and DLA will be key to achieving the desired outcomes of 
the Plan. 

Fourth, sustaining senior OSD, service, and DLA leadership and 
management attention through fiscal year 2015 will be important to 
effectively implement the remainder of the Plan. As we noted above, 
service and DLA officials told us that sustained leadership focus has 
been important thus far in DOD's implementation efforts. As 
implementation moves forward, addressing complex issues such as 
improving demand forecasting, accelerating multi-echelon modeling, and 
ensuring consistent implementation of DOD inventory management 
guidance will require continued management attention and focus. 
Furthermore, since implementation efforts are in the initial stages, 
sustaining leadership and management focus will be critical to guide 
improvement efforts for the remainder of the Plan's implementation. 

DOD Is Developing a Set of Metrics to Assess Inventory Management 
Effectiveness and Efficiency, but Has Not Determined If It Will 
Incorporate These Metrics into Guidance: 

As part of the Plan, DOD is developing a set of metrics to assess the 
effectiveness and efficiency of its inventory management beyond the 
percentage targets for on-order and on-hand excess inventory 
identified in the Plan, but it has not determined if it will 
incorporate the set of metrics into guidance. This may hamper its 
ability to assess inventory management performance and sustain 
management attention on improvement beyond the Plan's implementation. 

OSD is leading the development of a supply chain enterprise metrics 
strategy designed to identify key departmentwide metrics to monitor 
the performance of the supply chain, along with inventory management, 
and serve as a basis for making supply chain guidance and resource 
decisions. However, DOD has not made final decisions and the effort is 
a work in progress. DOD officials told us that a set of comprehensive, 
standardized metrics will allow OSD, the services, and DLA to assess 
and balance the effectiveness and efficiency of inventory management 
operations within the broader construct of the supply chain. They 
added that assessing the effectiveness and efficiency of inventory 
operations in isolation from the rest of the supply chain would not be 
prudent. Rather, the DOD officials believe an assessment of the 
effectiveness and efficiency of inventory management must be conducted 
more broadly and take into account additional supply chain metrics, 
such as the ability of the supply chain to support the readiness of 
the force in a timely manner. Thus, OSD, the services, and DLA are 
working collaboratively to identify or develop the appropriate 
metrics, including the data source and methodology for producing the 
metrics. 

OSD, the services, and DLA are currently developing possible 
departmentwide supply chain metrics, including inventory management 
metrics, to monitor the performance of the supply chain. Specifically, 
the development of the departmentwide metrics is based on one outcome--
readiness--and four attributes--responsiveness, reliability, cost, and 
planning and precision--of the supply chain. To support the 
measurement of the outcome and attributes, the supply chain metrics 
group identified potential departmentwide metrics to be collected and 
assessed. The potential metrics include, but are not limited to, 
metrics associated with inventory management. OSD, the services, and 
DLA have not made a final decision on which metrics to monitor. The 
attributes and associated examples of metrics are shown in table 4. 

Table 4: Supply Chain Outcome and Attributes, and Examples of 
Potential Metrics: 

Outcome of supply chain: Readiness; 
Definition of outcome: The ability of the supply chain to support 
weapon systems in undertaking and sustaining their assigned missions 
at planned peacetime and wartime utilization rates; 
Example of a potential metric: Not mission capable rate for 
maintenance or supply; 
Definition of potential metric: Materiel condition indicating that 
systems and equipment are not capable of performing any of their 
assigned missions because of maintenance requirements or a maintenance 
work stoppage due to a supply shortage. 

Attributes of supply chain: Responsiveness; 
Definition of attribute: The ability of the supply chain to respond to 
customer materiel requests according to priority by providing the 
right support when it is needed and where needed; 
Example of a potential metric: Customer wait time; 
Definition of potential metric: A measurement of the total elapsed 
time between the issuance of a customer order from organizational 
maintenance and the satisfaction of the customer order. 

Example of a potential metric: Acquisition lead time; 
Definition of potential metric: The sum of administrative lead time 
plus production lead time.[A] 

Attributes of supply chain: Cost; 
Definition of attribute: The amount of supply chain resources required 
to deliver a specific performance outcome; 
Example of a potential metric: Total supply chain costs; 
Definition of potential metric: The total cost of the DOD supply chain 
including operating and materiel costs. 

Example of a potential metric: Tiered inventory turns; 
Definition of potential metric: The number of times that the inventory 
cycles or turns over in a year. A tiered approach looks at specific 
layers of inventory and their turn cycles. 

Example of a potential metric: Inventory dollars with five or more 
years of no demand; 
Definition of potential metric: Inventory dollars for items with five 
or more years of no demand segmented by the approved acquisition 
objective, economic retention stock, contingency retention stock, and 
potential reutilization stock. 

Attributes of supply chain: Reliability; 
Definition of attribute: The dependability and consistency of the 
supply chain providers to deliver required materiel support at a time 
and destination specified by the customer; 
Example of a potential metric: Denial rates; 
Definition of potential metric: The percent of items directed for 
shipment that distribution depots reported a failure to ship all or 
part of the quantity originally directed for shipment. 

Example of a potential metric: Wholesale supply availability; 
Definition of potential metric: The percent of demands that are not 
backordered, excluding future materiel obligations. 

Attributes of supply chain: Planning and precision; 
Definition of attribute: The ability of the supply chain to accurately 
anticipate customer requirements and plan, coordinate, and execute 
accordingly; 
Example of a potential metric: Demand forecast error; 
Definition of potential metric: The difference between actual demand 
and forecasted demand, stated in a manner that quantifies any bias 
towards over or under forecasting. 

Example of a potential metric: On-hand excess inventory; 
Definition of potential metric: The dollar amount and the percentage 
of the total value of the inventory considered potential reutilization 
stock (or on-hand excess). 

Example of a potential metric: On-order excess inventory; 
Definition of potential metric: The dollar amount and the percentage 
of total obligated on-order dollars above the approved acquisition 
objective. 

Source: GAO analysis of DOD documents. 

[A] Administrative lead time is the time interval between identifying 
a need to purchase an item and the award of a contract. Production 
lead time is the time interval between the award of a contract and 
receiving the purchased materiel into the supply system. 

[End of table] 

Some of the potential metrics are currently reported by OSD, while 
others would be new metrics that would require establishing a data 
source and methodology. For example, customer wait time, on-order 
excess inventory, and on-hand excess inventory are metrics that are 
currently reported to the DOD Deputy Chief Management Officer by the 
Deputy Assistant Secretary of Defense for Supply Chain Integration. 
[Footnote 30] Other potential metrics, such as the "not mission 
capable rate for maintenance or supply" related to the readiness 
attribute, are reported within DOD by other entities.[Footnote 31] On 
the other hand, there are metrics, such as the "tiered inventory 
turns" metric related to the cost attribute and "demand forecast 
error", for which business rules are being established for the 
computation and collection of the data for the metric.[Footnote 32] 

As we recently reported, DOD has been challenged by developing 
departmentwide performance measures for supply chain management, 
including inventory operations.[Footnote 33] We have also noted that 
developing sets of performance goals and measures could provide a 
balanced perspective of the intended performance of a program's 
multiple priorities, such as timeliness, service quality, customer 
satisfaction, and program cost.[Footnote 34] Thus, the development of 
metrics to assess inventory management performance within the broader 
construct of supply chain management through a set of departmentwide, 
comprehensive, and standardized metrics is appropriate and critical, 
but the Plan and its implementation actions do not include steps to 
incorporate the inventory management metrics, including the 
methodologies, into DOD guidance. When we spoke with DOD officials 
they told us they agree that the Plan and its implementation actions 
do not address implementing the comprehensive set of metrics in 
guidance and added that they agree it would be a good idea to do so. 

DOD inventory management policy states that performance and cost 
evaluations of supply chain operations and inventory shall be 
conducted periodically.[Footnote 35] The policy also states that the 
Assistant Secretary of Defense for Logistics and Materiel Readiness is 
responsible for monitoring the overall effectiveness and efficiency of 
its materiel management systems and continually developing 
improvements and that materiel managers should evaluate and be capable 
of reporting on the performance of inventory management, and more 
broadly supply chain operations. Based on our previous reporting, we 
have found that such metrics should be reportable in a consistent 
fashion and used to evaluate performance.[Footnote 36] Further, we 
have found establishing metrics, and monitoring and evaluating program 
performance are key practices in results-oriented-management.[Footnote 
37] 

A key part of metrics being reportable in a consistent fashion is 
ensuring that standardized definitions, methodologies, and procedures 
will be used. The services and DLA will be relied upon to generate the 
data for some of the departmentwide inventory management metrics; 
thus, efforts to monitor and evaluate inventory management performance 
may be hampered without standardized definitions, methodologies, and 
procedures for the consistent collection of data for the metrics. In 
the past, DOD has institutionalized supply chain metrics through 
guidance. For example, OSD issued guidance to the services and DLA 
that provided a standardized definition and procedures for measuring 
and reporting the "customer wait time" metric to OSD.[Footnote 38] 
This guidance helps ensure that the services and DLA collect the data 
needed on a standardized basis for the departmentwide metric so that 
decision makers can evaluate performance across the department. 
Furthermore, incorporating the inventory management metrics into the 
department's guidance and procedures would result in the 
institutionalization of the metrics and assist in sustaining a results-
oriented management framework for inventory management beyond the 
Plan's implementation. Without the institutionalization of the 
metrics, DOD may be hampered in its ability to assess the performance 
of inventory management and sustain management attention on 
continuously improving its inventory management beyond the Plan's 
implementation. 

DOD Has Achieved Cost Avoidances Based on Fiscal Years 2009 and 2010 
Inventory Data and Plans to Reduce Resources Available for the 
Purchase of Secondary Items: 

DOD officials emphasized that the reductions achieved in the amount of 
on-order and on-hand excess inventory represent about $710 million in 
cost avoidances on the part of the department. Additionally, as part 
of the Plan's implementation, DOD reduced the resources available to 
its working capital funds to purchase secondary inventory items. 
[Footnote 39] Specifically, DOD reduced the departmentwide dollar 
value of on-order excess inventory from fiscal years 2009 to 2010, by 
approximately $210 million--a reduction from $1.15 billion, or 8.5 
percent of total on-order dollars, to $940 million, or 5.5 percent. 
With respect to on-hand excess inventory, DOD reduced the 
departmentwide dollar value of on-hand excess inventory from fiscal 
years 2009 to 2010, by approximately $500 million--a reduction from 
$8.9 billion, or 9.4 percent of the total value of the inventory, to 
$8.4 billion, or 8.3 percent. According to OSD officials, reducing the 
percentage of on-order and on-hand excess inventory from fiscal year 
2009 to 2010 indicates that the department's focused management 
efforts have started to yield cost avoidances and more effective 
inventory management operations. Lower levels of on-order excess mean 
that DOD is purchasing items that are needed to meet the approved 
acquisition objective rather than items that will be classified as 
potential reutilization stock, or on-hand excess, upon arrival. 
Reducing the level of on-hand excess means that DOD is purchasing 
items that are needed, retaining items as economic or contingency 
retention stock, and/or disposing of items more efficiently that are 
no longer needed by the department. Additionally, OSD, the services, 
and DLA have increased participation in the in-storage visibility 
program, which allows services and DLA to obtain consumable items from 
another service or DLA to prevent the procurement of additional items. 
The program completed $73.8 million lateral redistributions and 
procurement offsets in fiscal year 2010 and $68.3 million in fiscal 
year 2011, which prevented the acquisition of additional items. 

DOD also plans to reduce the resources available in its working 
capital funds to purchase secondary inventory items by about $365 
million over fiscal years 2012 to 2016 as part of the Plan's 
implementation. As part of the fiscal year 2012 budget deliberations, 
OSD implemented a management decision that reduced the obligation 
authority for the Army and DLA working capital funds by $39 million in 
fiscal year 2012. DOD has identified further reductions of obligation 
authority to the respective working capital funds for fiscal years 
2013 to 2016, which are displayed in table 5. The reductions only 
impact the Army and DLA because neither met the percentage targets 
established for on-order excess inventory in the Plan--6 percent by 
fiscal year 2014 and 4 percent by fiscal year 2016.[Footnote 40] 
According to OSD officials, these reductions in obligation authority 
are intended to heighten management attention on efforts to reduce the 
Army and DLA's on-order excess inventory. The Navy (including the 
Marine Corps) and Air Force were below these targets; thus, no 
reductions are currently planned for their working capital funds as 
part of this effort. 

Table 5: Army and DLA Working Capital Fund Reductions in Obligation 
Authority, Fiscal Years 2012 through 2016: 

Service or organization: Army; 
Fiscal Year 2012: $23 million; 
Fiscal Year 2013: $24 million; 
Fiscal Year 2014: $24 million; 
Fiscal Year 2015: $71 million; 
Fiscal Year 2016: $72 million; 
Total: $214 million. 

Service or organization: DLA; 
Fiscal Year 2012: $16 million; 
Fiscal Year 2013: $17 million; 
Fiscal Year 2014: $17 million; 
Fiscal Year 2015: $50 million; 
Fiscal Year 2016: $51 million; 
Total: $151 million. 

Service or organization: Total; 
Fiscal Year 2012: $39 million; 
Fiscal Year 2013: $41 million; 
Fiscal Year 2014: $41 million; 
Fiscal Year 2015: $121 million; 
Fiscal Year 2016: $123 million; 
Total: $365 million. 

Source: Deputy Assistant Secretary of Defense for Supply Chain 
Integration. 

[End of table] 

Since the working capital funds generally rely on sales revenue (i.e., 
a military unit purchasing a spare part from the working capital fund 
with appropriated operation and maintenance funds), rather than direct 
annual appropriations to finance the purchase of secondary inventory 
items, these reductions to obligation authority are not directly 
reducing the expenditure of appropriated funds. Rather, the reductions 
to obligation authority mean that the working capital fund has reduced 
purchase authority for additional secondary items for the inventory, 
resulting in a lower inventory replenishment rate. While these 
reductions will not directly result in savings to direct appropriation 
accounts, OSD, Army, and DLA officials told us that the reduction of 
obligation authority will require the Army and DLA to better manage 
its available resources for purchasing new secondary items. 

Conclusions: 

Effective and efficient management of DOD's inventory is critical to 
supporting the readiness of the force, and requires a balanced 
approach. To be effective DOD must have the correct amount of spare 
parts on-hand at the correct time to support the fighting force, but 
DOD must also manage its inventory efficiently to avoid the 
unnecessary and wasteful accumulation of secondary inventory that 
could divert resources away from defense priorities. With consistent 
and heightened visibility to Congress and committed leadership on the 
part of OSD, the services, and DLA, DOD has made progress improving 
its inventory management. DOD is currently 18 months into a 4-year 
implementation process, and is making progress towards reducing excess 
inventory, implementing its Plan, and establishing a departmentwide 
set of standardized metrics for inventory management. Moving forward, 
DOD's inventory management improvement efforts would benefit from 
challenging, but achievable targets for reducing its on-order and on-
hand excess inventory. OSD's stated intention to review the targets 
would help ensure that DOD's progress is not hampered because of a 
lack of meaningful targets to guide its efforts. Additionally, while 
DOD has begun developing a departmentwide set of standardized 
inventory management metrics as part of the Plan's implementation, 
formalizing the set of metrics in guidance would allow DOD, services, 
and DLA to institutionalize the metrics in a results-oriented 
management framework beyond the Plan's implementation. To continue 
progress, committed and sustained leadership on the part of OSD, the 
services, and DLA will be key as DOD implements the remainder of the 
Plan and institutionalizes a results-oriented management framework. 

Recommendations for Executive Action: 

To improve implementation of the Comprehensive Inventory Management 
Improvement Plan and ensure sustained management attention beyond the 
Plan's implementation consistent with results-oriented management 
practices, we recommend the Secretary of Defense direct the Assistant 
Secretary of Defense for Logistics and Materiel Readiness to take the 
following three actions: 

* conduct and document periodic re-examinations of its existing on-
order and on-hand excess inventory percentage targets (such as those 
officials say are planned) and update the targets and associated 
timelines, if necessary, to guide continued improvement in its 
inventory management through the Plan's implementation; 

* develop and implement guidance that establishes a comprehensive, 
standardized set of departmentwide inventory management metrics, 
including standardized definitions and procedures for measuring and 
reporting the metrics; and: 

* employ these metrics in periodically monitoring the effectiveness 
and efficiency of its inventory management practices. 

Agency Comments and Our Evaluation: 

We provided a draft of this report to DOD for comment. In written 
comments, DOD concurred with our recommendations. DOD's comments are 
reprinted in their entirety in appendix XIII. DOD also provided 
technical comments, which we incorporated into the report as 
appropriate. 

DOD concurred with our recommendation to conduct and document periodic 
re-examinations of its existing on-order and on-hand excess inventory 
percentage targets (such as those officials say are planned) and 
update the targets and associated timelines, if necessary, to guide 
continued improvement in its inventory management through the Plan's 
implementation. DOD stated that it will re-examine the on-order and on-
hand excess percentage targets as part of its ongoing review of 
existing inventory management metrics. Furthermore, DOD stated that 
the on-hand excess inventory percentage target is currently being 
revised, taking into consideration current performance and anticipated 
operational conditions that may affect this target. 

DOD concurred with our recommendation to develop and implement 
guidance that establishes a comprehensive, standardized set of 
department-wide inventory management metrics, including standardized 
definitions and procedures for measuring and reporting the metrics. 
Specifically, DOD stated that it is continuing to identify and develop 
a set of department-wide inventory management metrics. We acknowledge 
the department's planned actions and want to reiterate the need for 
standardized definitions and procedures for measuring and reporting 
them as a means for supporting a results-oriented management framework 
beyond the Plan's implementation. 

Finally, DOD concurred with our recommendation to employ the metrics 
in periodically monitoring the effectiveness and efficiency of its 
inventory management practices. Specifically, DOD stated they will 
continue to monitor existing inventory management metrics and include 
additional metrics approved for its department-wide assessments of 
inventory management. 

We are sending copies of this report to the appropriate congressional 
committees, the Secretary of Defense, the Secretaries of the Army, 
Navy, and Air Force, and the Director of DLA. In addition, the report 
is available at no charge on the GAO website at [hyperlink, 
http://www.gao.gov]. 

If you or your staff have questions about this report, please contact 
me at merrittz@gao.gov or (202) 512-5257. Contact points for our 
Offices of Congressional Relations and Public Affairs may be found on 
the last page of this report. GAO staff who made key contributions to 
this report are listed in appendix XIV. 

Signed by: 

Zina D. Merritt: 
Director: 
Defense Capabilities and Management: 

List of Committees: 

The Honorable Carl Levin:
Chairman:
The Honorable John McCain:
Ranking Member:
Committee on Armed Services:
United States Senate: 

The Honorable Daniel K. Inouye:
Chairman:
The Honorable Thad Cochran:
Ranking Member:
Subcommittee on Defense:
Committee on Appropriations:
United States Senate: 

The Honorable Howard P. "Buck" McKeon:
Chairman:
The Honorable Adam Smith:
Ranking Member:
Committee on Armed Services:
House of Representatives: 

The Honorable C.W. "Bill" Young:
Chairman:
The Honorable Norman D. Dicks:
Ranking Member:
Subcommittee on Defense:
Committee on Appropriations:
House of Representatives: 

[End of section] 

Appendix I: Objectives, Scope, and Methodology: 

The objectives of our work were to determine the extent to which (1) 
the Department of Defense (DOD) established and achieved targets for 
reducing excess inventory in the Comprehensive Inventory Management 
Improvement Plan (Plan), (2) DOD made progress in implementing the 
Plan, (3) DOD has established and implemented standardized metrics to 
track their progress in improving inventory management, and (4) DOD 
has identified and realized any cost savings or cost avoidance from 
implementing the Plan. To gather information for these objectives, we 
reviewed documentation and interviewed officials from: 

* Office of the Under Secretary of Defense (Comptroller); 

* Office of the Deputy Assistant Secretary of Defense for Supply Chain 
Integration; 

* Office of the Deputy Chief Management Officer; 

* Headquarters Army, Office of the Deputy Chief of Staff of the Army, 
Logistics; 

* Headquarters Navy, Deputy Assistant Secretary of the Navy, 
Acquisition & Logistics Management; 

* Headquarters Air Force, Deputy Chief of Staff for Logistics, 
Installations, and Mission Support, Directorate of Logistics Policy 
Division; 

* Marine Corps Headquarters, Installations and Logistics Department; 

* U.S. Army Materiel Command; 

* Navy Supply Systems Command, Headquarters; 

* Air Force Materiel Command, Headquarters; 

* Marine Corps Logistics Command, Headquarters; and: 

* Defense Logistics Agency (DLA). 

To assess the extent to which DOD's Plan has established and its 
implementation has achieved targets for reducing excess inventory, we 
evaluated Office of the Secretary of Defense's (OSD), the services', 
and DLA's progress in reaching the Plan's two main targets for 
reducing on-order excess and on-hand excess inventory by comparing 
OSD's, the services', and DLA's reported progress in fiscal year 2009 
and fiscal year 2010 when measured against the targets for these two 
main goals established in the Plan. Fiscal year 2011 data was not 
available by the end of our review to assess the department's progress 
in fiscal year 2011, the first year of implementing the Plan. We 
assessed OSD's, the services', and DLA's progress in reaching the 
targets of the Plan and the process DOD used to establish the targets 
by obtaining and reviewing OSD progress reports, and reviewing other 
supporting documentation from the services and DLA to corroborate the 
DOD's reported progress. To provide context, we interviewed OSD, 
service, and DLA officials to discuss their interpretation of the data 
for the two goals. Additionally, we examined the reliability of data 
used for the targets by reviewing DOD policy and procedures for the 
collection of the data used for inventory reporting and interviewing 
officials about their methods for quality control and found that the 
data were sufficiently reliable to address our objectives. 

To determine the extent to which OSD, the services, and DLA have made 
progress in implementing the Plan, we evaluated DOD's Plan and the 
plan of action and milestones, which includes actions, milestones, and 
implementation steps for each of the nine sub-plans and tracks the 
status of the implementation. Our analysis of the implementation of 
the Plan focused on actions and milestones that were started and 
underway by January 1, 2012 and we rated each action and milestone as 
either "completed," "started, on schedule," "started, completion 
delayed," "not started, on schedule," or "Not started, completion 
delayed." These categories were defined as follows: 

* Completed: Action or milestone was completed, irrespective of 
whether or not the task was completed on-schedule. 

* Started, on schedule: Action or milestone can be verified as 
underway, but is not complete and scheduled completion date has not 
slipped. 

* Started, completion delayed: Action or milestone can be verified as 
underway, but is not complete and the team has determined the 
scheduled completion date has slipped. 

* Not started, on schedule: Action or milestone planned to begin after 
January 1, 2012, and the expected completion date is unchanged from 
the Plan. 

* Not started, completion delayed: Action or milestone planned to 
begin after January 1, 2012, and the expected completion date has 
slipped from the Plan. 

Specifically, a GAO analyst reviewed and compared the schedule and 
content of the actions and milestones in the plan of actions and 
milestones with the status of implementation efforts as reported in 
the progress reviews conducted by OSD and briefings provided to the 
Supply Chain Executive Steering Committee; assessed the status of each 
action and milestone by the categories above; and recorded the 
assessment and the basis for the assessment. A second analyst then 
reviewed the documentation and assessment and either confirmed the 
assessment or proposed a different assessment. The final assessment 
reflects the analysts' consensus. In addition we interviewed DOD 
officials as needed to clarify the status of any efforts where the 
documentation was unclear. 

To determine the extent to which DOD has established and implemented 
standardized metrics to track the effectiveness and efficiency of 
inventory management, we reviewed all documents related to the Plan, 
its plan of actions and milestones, and the progress reviews conducted 
by OSD to identify any performance metrics associated with the 
implementation of the Plan. We reviewed the actions and milestones 
associated with establishing metrics to evaluate the effectiveness and 
efficiency of inventory management across the department. We 
interviewed OSD, service, and DLA officials responsible for 
implementing the Plan to understand the status and maturity of the 
metrics DOD is considering and how the reporting of inventory 
management measures may change. 

To determine the extent to which DOD has identified and realized any 
cost savings or cost avoidance associated with implementation, we 
reviewed the Plan and associated documentation to identify any efforts 
related to cost savings or cost avoidance. We also assessed the nature 
of the potential cost savings or cost avoidances associated with the 
implementation of the Plan's actions and milestones. Specifically, we 
determined whether the projected cost savings and cost avoidances were 
the result of a reduction in obligations of directly appropriated 
funds (e.g., an operation and maintenance appropriation), changes to 
the working capital fund, or other factors, and determined whether 
these sources impact the validity of attributing these savings or cost 
avoidances to the Plan's implementation. We also interviewed OSD, 
service, and DLA officials to discuss the rationale, and 
implementation of any cost savings or cost avoidance. 

We conducted this performance audit between August 2011 and May 2012, 
in accordance with generally accepted government auditing standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe 
that the evidence obtained provides a reasonable basis for our 
findings and conclusions based on our audit objectives. 

[End of section] 

Appendix II: Implementation Status of Prior GAO Recommendations for 
DOD Inventory Management: 

Over the past 6 years, we issued six reports on different aspects of 
the Department of Defense's (DOD) inventory management. Table 6 
summarizes the status of recommendations made in these six reports, 
which contained a total of 39 recommendations to improve DOD's 
inventory management. Twenty-nine of the recommendations have been 
implemented by the Offices of the Secretary of Defense (OSD), the 
services, and the Defense Logistics Agency (DLA), five remain open for 
action, and five recommendations, related to improving acquisition 
lead time, were not implemented.[Footnote 41] For each of the six 
reports, the specific recommendations, implementation status, and the 
related sub-plan of the Comprehensive Inventory Management Improvement 
Plan (Plan) are summarized in tables 7 through 12. 

Table 6: Status of GAO Recommendations on Inventory Management Since 
2006: 

Product date: May 2010; 
Product title and number: Defense Inventory: Defense Logistics Agency 
Needs to Expand on Efforts to More Effectively Manage Spare Parts (GAO-
10-469); 
Number of recommendations: 
Open: 2; 
Implemented: 6; 
Not implemented: [Empty]. 

Product date: January 2009; 
Product title and number: Defense Inventory: Army Needs to Evaluate 
Impact of Recent Actions to Improve Demand Forecasts for Spare Parts 
(GAO-09-199); 
Number of recommendations: 
Open: 2; 
Implemented: 2; 
Not implemented: [Empty]. 

Product date: December 2008; 
Product title and number: Defense Inventory: Management Actions Needed 
to Improve the Cost Efficiency of the Navy's Spare Parts Inventory 
(GAO-09-103); 
Number of recommendations: 
Open: 1; 
Implemented: 4; 
Not implemented: [Empty]. 

Product date: April 2007; 
Product title and number: Defense Inventory: Opportunities Exist to 
Save Billions by Reducing Air Force's Unneeded Spare Parts Inventory 
(GAO-07-232); 
Number of recommendations: 
Open: [Empty]; 
Implemented: 4; 
Not implemented: [Empty]. 

Product date: March 2007; 
Product title and number: Defense Inventory: Opportunities Exist to 
Improve the Management of DOD's Acquisition Lead Times for Spare Parts 
(GAO-07-281); 
Number of recommendations: 
Open: [Empty]; 
Implemented: 6; 
Not implemented: 5. 

Product date: May 2006; 
Product title and number: Defense Inventory: Actions Needed to Improve 
Inventory Retention Management (GAO-06-512); 
Number of recommendations: 
Open: [Empty]; 
Implemented: 7; 
Not implemented: [Empty]. 

Product date: Total; 
Product title and number: [Empty]; 
Number of recommendations: 
Open: 5; 
Implemented: 29; 
Not implemented: 5. 

Source: GAO analysis. 

[End of table] 

Defense Inventory: Defense Logistics Agency Needs to Expand on Efforts 
to More Effectively Manage Spare Parts Recommendations for Executive 
Action: 

In our report issued in 2010, we found that DLA can enhance its 
efforts to manage spare parts more effectively primarily by focusing 
on the front end of the process when decisions are being made on what 
and how many items to buy in response to requirements. Our analysis of 
DLA data showed the agency had more spare parts secondary inventory 
than was needed to meet current requirements in fiscal years 2006 
through 2008. Although DOD policy required DLA to minimize investment 
in inventory while also meeting requirements, seven factors were 
identified as causing DLA to order and stock parts that did not align 
with requirements. These seven factors were: 

* inaccurate demand forecasting for parts; 

* unresolved problems with accurately estimating lead times needed to 
acquire spare parts; 

* challenges in meeting the military services' special requests to DLA 
for future spare parts support for weapon systems; 

* closing gaps in providing accurate, timely data to inventory 
managers as input into purchase decisions; 

* modifying or canceling planned purchases that may no longer be 
needed to meet currently estimated requirements; 

* reducing contingency retention stock that may no longer be needed; 
and: 

* not tracking the overall cost efficiency of its inventory management: 

We made eight recommendations and as of January 1, 2012, six have been 
implemented and two remain open. Table 7 summarizes our 
recommendations and their implementation status. 

Table 7: Status of Recommendations from Defense Inventory: Defense 
Logistics Agency Needs to Expand on Efforts to More Effectively Manage 
Spare Parts: 

Recommendation #1: To minimize investment in unneeded spare parts 
inventory, we recommend that the Secretary of Defense direct the 
Director, DLA, to establish an action plan for completing the agency's 
evaluation of identified demand planning issues, and include goals, 
objectives, resources, and time frames in this action plan; 
Status: Implemented.
Related sub-plan of the Plan: Demand forecasting; 
Comments: The demand forecasting sub-plan serves as the action plan 
for the services and DLA for improving demand forecasting. The plan 
includes goals, objectives, time frames, and the development of 
metrics for tracking forecasting error and bias. 

Recommendation #2: To minimize investment in unneeded spare parts 
inventory, we recommend that the Secretary of Defense direct the 
Director, DLA, to develop an approach for working with suppliers to 
assess the root causes of inaccurate production lead time estimates 
and implement corrective actions linked to these root causes; 
Status: Implemented; 
Related sub-plan of the Plan: Other inventory improvement actions; 
Comments: As part of the sub-plan focused on other inventory 
improvement actions, OSD, the services, and DLA are focusing on 
acquisition lead times, specifically evaluating existing initiatives 
departmentwide to reduce production and administrative lead times, 
improving lead time accuracy, and developing a standardized 
methodology to track and monitor changes to acquisition lead time. 

Recommendation #3: To minimize investment in unneeded spare parts 
inventory, we recommend that the Secretary of Defense direct the 
Director, DLA, to reinforce and reinvigorate effective internal 
controls aimed at evaluating and making adjustments to the military 
services' estimated additional requirements, including both supply 
support requests and special program requirements; 
Status: Implemented; 
Related sub-plan of the Plan: Demand forecasting; 
Comments: As part of the demand forecasting sub-plan, OSD, the 
services, and DLA have begun conducting analysis to determine needed 
policy changes for supply support requests. 

Recommendation #4: To minimize investment in unneeded spare parts 
inventory, we recommend that the Secretary of Defense direct the 
Director, DLA, to conduct a program evaluation of the demand data 
exchange initiative to determine what, if any, additional actions 
should be taken to (1) improve communication and data exchange 
internally and with military customers and suppliers and (2) expand 
the initiative across the enterprise (for example, to other customers, 
items, and processes); 
Status: Implemented; 
Related sub-plan of the Plan: Demand forecasting; 
Comments: DLA established a headquarters team in 2011 to better 
synchronize demand data exchange efforts. Additionally, the services 
and DLA are addressing the demand data exchange initiative during 
fiscal year 2012 as part of the efforts in the demand forecasting sub-
plan. 

Recommendation #5: To minimize investment in unneeded spare parts 
inventory, we recommend that the Secretary of Defense direct the 
Director, DLA, to evaluate the effectiveness of the agency's process 
for identifying and reducing potential over-procurements and determine 
the feasibility of applying the process on a wider scale; 
Status: Implemented; 
Related sub-plan of the Plan: On-order excess inventory; 
Comments: Based on evaluating the over-procurement process, DLA is 
redesigning its over-procurement process to establish certain 
requirements for review of decisions to retain on-order materiel in 
excess of the approved acquisition objective. Additionally, the on-
order excess inventory sub-plan seeks to reduce over-procurements 
departmentwide by reducing the on-order and on-hand excess of the 
services and DLA. 

Recommendation #6: We recommend that the Secretary of Defense direct 
the Under Secretary of Defense for Acquisition, Technology and 
Logistics, in conjunction with the Director, DLA, and the Secretaries 
of the Army, the Navy, and the Air Force, to formally evaluate and 
report on the feasibility of requiring up-front military service 
funding for a portion of their supply support requests; 
Status: Implemented; 
Related sub-plan of the Plan: Demand forecasting; 
Comments: OSD, the services, and DLA performed analysis as part of the 
demand forecasting sub-plan that showed there was not a need for 
service-DLA risk-sharing because supply support requests forecasts are 
not causing DLA to procure excess inventory. 

Recommendation #7: We recommend that the Secretary of Defense direct 
the Under Secretary of Defense for Acquisition, Technology and 
Logistics, in conjunction with the Director, DLA, and the Secretaries 
of the Army, the Navy, and the Air Force, to establish goals and 
metrics for tracking and assessing the cost efficiency of inventory 
management in accordance with DOD's policy requiring DLA and the 
services to minimize investment in secondary item inventory while 
providing inventory needed; develop and implement an approach for 
integrating these goals and metrics with inventory management 
improvement efforts; and incorporate the goals and metrics into 
existing management and oversight processes; 
Status: Open; 
Related sub-plan of the Plan: Other inventory improvement actions; 
Comments: OSD, the services, and DLA have begun, but have not 
completed efforts to establish departmentwide cost efficiency metrics 
as part of the sub-plan focused on other inventory improvement actions. 

Recommendation #8: We recommend that the Secretary of Defense direct 
the Secretaries of the Army, the Navy, and the Air Force to certify to 
DLA which items and what quantities of the contingency retention stock 
should be retained, in response to DLA's requests that they do so, and 
direct the Under Secretary of Defense for Acquisition, Logistics and 
Technology to provide guidance and oversight of this certification 
process; 
Status: Open; 
Related sub-plan of the Plan: Contingency retention stock; 
Comments: OSD, the services, and DLA, as part of the contingency 
retention stock sub-plan, have begun, but have not completed efforts 
to revise policy and procedures for the services to certify the 
quantities of items to be held as contingency retention stock given 
the volume of items managed by DLA for the services. 

Source: GAO analysis. 

[End of table] 

Defense Inventory: Army Needs to Evaluate Impact of Recent Actions to 
Improve Demand Forecasts for Spare Parts Recommendations for Executive 
Action: 

In our report issued in 2009, we found the Army had more inventory 
than was needed to support current requirements. At the same time, the 
Army had substantial inventory deficits. Based on Army demand 
forecasts, inventory that exceeded current requirements had enough 
parts on-hand for some items to satisfy several years, or decades, of 
anticipated supply needs. Also, a large proportion of items that 
exceeded current requirements had no projected demand. Army inventory 
also did not align with current requirements over this period because 
of a lack of cost-efficiency metrics and goals and inaccurate demand 
forecasting. We made four recommendations and two of these 
recommendations have been implemented and two remain open. Table 8 
summarizes our recommendations and their implementation status. 

Table 8: Status of Recommendations from Defense Inventory: Army Needs 
to Evaluate Impact of Recent Actions to Improve Demand Forecasts for 
Spare Parts: 

Recommendation #1: To improve the management of the Army's secondary 
inventory, we recommend that the Secretary of Defense direct the 
Secretary of the Army to establish metrics and goals for tracking and 
assessing the cost efficiency of inventory management and incorporate 
these into existing management and oversight processes; 
Status: Open; 
Related sub-plan of the Plan: Other inventory improvement actions; 
Comments: OSD, the services, and DLA have begun, but have not 
completed efforts to establish departmentwide cost-efficiency metrics 
as part of the sub-plan focused on other inventory improvement actions. 

Recommendation #2: To improve the management of the Army's secondary 
inventory, we recommend that the Secretary of Defense direct the 
Secretary of the Army to evaluate the effectiveness of changes to 
demand forecasting procedures that were set forth in the Army's 
October 2008 guidance, including measuring the impact on reducing 
inventory that exceeds requirements, and based on that evaluation, 
take additional actions as appropriate to identify and correct 
systemic weaknesses in forecasting procedures; 
Status: Implemented; 
Related sub-plan of the Plan: Demand forecasting; 
Comments: None. 

Recommendation #3: To improve the management of the Army's secondary 
inventory, we recommend that the Secretary of Defense direct the 
Secretary of the Army to monitor the effectiveness of providing item 
managers with operational information in a timely manner so they can 
adjust modeled requirements as necessary; 
Status: Implemented; 
Related sub-plan of the Plan: Demand forecasting; 
Comments: None. 

Recommendation #4: We also recommend that the Secretary of the Army 
direct the Army's Chief Management Officer to exercise oversight of 
Army inventory management improvements to align improvement efforts 
with overall business transformation and to reduce support costs. This 
oversight role should not replace or eliminate existing operational 
oversight responsibilities for inventory management that are exercised 
by other Army offices, but should ensure that the Army maintains a 
long-term focus for making systemic improvements where needed and for 
strategically aligning such changes with overall transformation 
efforts; 
Status: Open; 
Related sub-plan of the Plan: None; 
Comments: DOD non-concurred with this recommendation noting that 
inventory oversight is the operational responsibility of the Army's 
Life Cycle Management Commands and appropriately assigned under the 
combined oversight of the Army G-4; the Assistant Secretary of the 
Army, Financial Management and Comptroller; and the Army Materiel 
Command. 

Source: GAO analysis. 

[End of table] 

Defense Inventory: Management Actions Needed to Improve the Cost 
Efficiency of the Navy's Spare Parts Inventory Recommendations for 
Executive Action: 

In our report issued in 2008, we found the Navy had more inventory 
than was needed to support current requirements and also experienced 
some inventory deficits, though to a far lesser extent. Based on Navy 
demand forecasts, inventory that exceeded current requirements was 
sufficient to satisfy several years, or even decades, of anticipated 
supply needs. Also, a large proportion of the items that exceeded 
current requirements had no projected demand because the Navy had not 
systematically evaluated the effectiveness of its demand forecasting. 
Navy inventory did not align with current requirements because (1) the 
Navy has not established the cost efficiency of its inventory 
management, (2) its demand forecasting effectiveness is limited and 
requirements for items may change frequently after purchase decisions 
are made, and (3) it has not adjusted certain inventory management 
practices in response to the unpredictability in demand. We made five 
recommendations and the Navy has implemented four of them and one 
remains open. Table 9 summarizes our recommendations and their 
implementation status. 

Table 9: Status of Recommendations from Defense Inventory: Management 
Actions Needed to Improve the Cost Efficiency of the Navy's Spare 
Parts Inventory: 

Recommendation #1: To improve the management of the Navy's secondary 
inventory, we recommend that the Secretary of Defense direct the 
Secretary of the Navy, in conjunction with the Commander, Navy Supply 
Systems Command, and the Commander, Naval Inventory Control Point, to 
establish metrics and goals for tracking and assessing the cost 
efficiency of inventory management and incorporate these into existing 
management and oversight processes; 
Status: Implemented; 
Related sub-plan of the Plan: Other inventory improvement actions; 
Comments: The Navy implemented a cost-efficiency metric, which is the 
rate at which obligation authority is being used to replenish 
inventory levels. Additionally, OSD, the services, and DLA are working 
to establish departmentwide cost-efficiency metrics as part of the sub-
plan focused on other inventory improvement actions. 

Recommendation #2: To improve the management of the Navy's secondary 
inventory, we recommend that the Secretary of Defense direct the 
Secretary of the Navy, in conjunction with the Commander, Navy Supply 
Systems Command, and the Commander, Naval Inventory Control Point, to 
evaluate demand forecasting procedures to identify areas where 
forecasts have been consistently inaccurate, correct any systemic 
weaknesses in forecasting procedures, and improve communications among 
stakeholders, to include promptly relaying changes in programs and 
other decisions that affect purchases of spare parts. Further, the 
Commander, Naval Supply Systems Command, and the Commander, Naval 
Inventory Control Point, should develop an evaluation plan and interim 
milestones for assessing the impact of ongoing efforts and take 
additional corrective actions, if warranted, to improve demand 
forecasting for secondary inventory; 
Status: Implemented; 
Related sub-plan of the Plan: Demand forecasting; 
Comments: The demand forecasting sub-plan serves as the action plan 
for OSD, the services, and DLA for improving demand forecasting 
through fiscal year 2015. The plan includes goals, objectives, time 
frames, and the development of metrics for tracking forecasting error 
and bias. 

Recommendation #3: To improve the management of the Navy's secondary 
inventory, we recommend that the Secretary of Defense direct the 
Secretary of the Navy, in conjunction with the Commander, Navy Supply 
Systems Command, and the Commander, Naval Inventory Control Point, to 
revise inventory management practices to incorporate the flexibility 
needed to minimize the impact of demand fluctuations. Specific 
attention should be given to revising practices regarding initial 
provisioning management, on-order management, and retention 
management. Further, the Commander, Naval Supply Systems Command, and 
the Commander, Naval Inventory Control Point, should develop an 
evaluation plan and interim milestones for assessing the impact of 
ongoing efforts and take additional corrective actions, if warranted, 
to incorporate flexibility into inventory management practices; 
Status: Implemented; 
Related sub-plan of the Plan: Demand forecasting, on-order excess 
inventory, economic retention stock, contingency retention stock, and 
disposition of potential reutilization stock; 
Comments: OSD, the services, and DLA are working to revise inventory 
management practices in demand forecasting, on-order excess inventory, 
economic retention, and contingency retention through fiscal year 2015 
as part of the Plan's implementation. 

Recommendation #4: To improve the management of the Navy's secondary 
inventory, we recommend that the Secretary of Defense direct the 
Secretary of the Navy, in conjunction with the Commander, Navy Supply 
Systems Command, and the Commander, Naval Inventory Control Point, to 
ensure that required annual reviews validating methodologies used for 
making retention decisions are performed and documented; 
Status: Implemented; 
Related sub-plan of the Plan: Economic retention stock and contingency 
retention stock; 
Comments: The Navy Supply Systems Command in May 2009, issued guidance 
requiring annual reviews to validate methodologies used for making 
retention decisions and the Commander, Naval Inventory Control Point, 
certified the reviews were completed for the July 2009-June 2010 
period. 

Recommendation #5: We also recommend that the Secretary of the Navy 
direct that the Navy's Chief Management Officer and Deputy Chief 
Management Officer exercise appropriate oversight of Navy inventory 
management improvement to align improvement efforts with overall 
business transformation and to reduce support costs; 
Status: Open; 
Related sub-plan of the Plan: None; 
Comments: None. 

Source: GAO analysis. 

[End of table] 

Defense Inventory: Opportunities Exist to Save Billions by Reducing 
Air Force's Unneeded Spare Parts Inventory Recommendations for 
Executive Action: 

In our report issued in 2007, we found that the Air Force purchased 
unneeded inventory because its policies do not provide incentives to 
reduce the amount of inventory on order that is not needed to support 
requirements. Additionally, the Air Force continued to retain unneeded 
inventory with no recurring demands because it had not performed a 
comprehensive assessment to revalidate the need to continue to retain 
these items. Inventory not needed to support required inventory levels 
can be attributed to many long-standing problems, such as decreasing 
demands, retaining items used to support aging weapon systems that 
have diminishing sources of supply or are being phased out of service, 
and not terminating contracts for on-order items. We made four 
recommendations and the Air Force implemented all four of the 
recommendations. Table 10 summarizes our recommendations and their 
implementation status. 

Table 10: Status of Recommendations from Defense Inventory: 
Opportunities Exist to Save Billions by Reducing Air Force's Unneeded 
Spare Parts Inventory: 

Recommendation #1: To meet customer expectations while minimizing 
inventory and to reduce the Air Force's inventory not needed to 
support requirements, we are recommending that the Secretary of 
Defense direct the Secretary of the Air Force to modify its policies 
to provide incentives to reduce purchases of on-order inventory that 
are not needed to support requirements, such as requiring contract 
termination review for all unneeded on-order inventory or reducing the 
funding available for the Air Force Materiel Command by an amount up 
to the value of the Air Force's on-order inventory that is not needed 
to support requirements; 
Status: Implemented; 
Related sub-plan of the Plan: On-order excess inventory; 
Comments: None. 

Recommendation #2: To meet customer expectations while minimizing 
inventory and to reduce the Air Force's inventory not needed to 
support requirements, we are recommending that the Secretary of 
Defense direct the Secretary of the Air Force to conduct a 
comprehensive assessment of the inventory items on hand that are not 
needed to support requirements and that have no recurring demands and 
revalidate the need to continue to retain these items, and, as part of 
this assessment, consider establishing ongoing requirements for items 
supporting weapon systems that have lengthy projected life spans; 
Status: Implemented; 
Related sub-plan of the Plan: Economic retention stock, contingency 
retention stock, items with no demand, and disposition of potential 
reutilization stock; 
Comments: None. 

Recommendation #3: To meet customer expectations while minimizing 
inventory and to reduce the Air Force's inventory not needed to 
support requirements, we are recommending that the Secretary of 
Defense direct the Secretary of the Air Force to evaluate the reasons 
why the Air Force continually experiences decreases in demands which 
have contributed to having more than half of its inventory on hand not 
needed to support requirements; 
Status: Implemented; 
Related sub-plan of the Plan: Demand forecasting; 
Comments: None. 

Recommendation #4: To meet customer expectations while minimizing 
inventory and to reduce the Air Force's inventory not needed to 
support requirements, we are recommending that the Secretary of 
Defense direct the Secretary of the Air Force to determine what 
actions are needed to address the reasons for the decreases in demand 
and then take steps to implement these actions; 
Status: Implemented; 
Related sub-plan of the Plan: Demand forecasting; 
Comments: None. 

Source: GAO analysis. 

[End of table] 

Defense Inventory: Opportunities Exist to Improve the Management of 
DOD's Acquisition Lead Times for Spare Parts Recommendations for 
Executive Action: 

In our report issued in 2007, we found that the military components' 
estimated lead times to acquire spare parts varied considerably from 
the actual lead times experienced. The effect of the lead time 
underestimates was almost $12 billion in spare parts arriving more 
than 90 days later than anticipated, which could negatively affect 
readiness rates because units may not have needed inventory. DOD and 
the components strive to meet customer based materiel requirements 
while minimizing the investment in inventories, and accurate lead time 
estimates are critically important in enabling the military components 
to have the proper amount of inventory on-hand. DOD's acquisition lead 
time estimates varied greatly from the actual lead times and 
contributed to inefficient use of funds and inventory shortages and 
excesses. To improve the accuracy in setting acquisition lead time 
values, we made 11 recommendations. Six of the recommendations have 
been implemented and five were not implemented. Table 11 summarizes 
our recommendations and their implementation status. 

Table 11: Status of Recommendations from Defense Inventory: 
Opportunities Exist to Improve the Management of DOD's Acquisition 
Lead Times for Spare Parts: 

Recommendation #1: To improve the military components' accuracy in 
setting acquisition lead time values, we recommend that the Secretary 
of Defense direct the Secretary of the Army to have the Commanding 
General, Army Materiel Command, direct the Aviation and Missile Life 
Cycle Management Command to establish clear guidelines for item 
managers to know when to review and how to determine whether 
deliveries should be considered representative and thus used to update 
lead times; 
Status: Implemented; 
Related sub-plan of the Plan: Other inventory improvement actions; 
Comments: None. 

Recommendation #2: To improve the military components' accuracy in 
setting acquisition lead time values, we recommend that the Secretary 
of Defense direct the Secretary of the Army to have the Commanding 
General, Army Materiel Command, direct the Life Cycle Management 
Commands to reemphasize the importance of periodically reviewing and 
validating their recorded lead time data to detect and correct data 
input errors and other inaccurate information; 
Status: Implemented; 
Related sub-plan of the Plan: Other inventory improvement actions; 
Comments: None. 

Recommendation #3: To improve the military components' accuracy in 
setting acquisition lead time values, we recommend that the Secretary 
of Defense direct the Secretary of the Army to have the Commanding 
General, Army Materiel Command, direct Communications-Electronics Life 
Cycle Management Command to maintain and update automated lead time 
data within its Logistics Modernization Program computer system; 
Status: Implemented; 
Related sub-plan of the Plan: Other inventory improvement actions; 
Comments: None. 

Recommendation #4: To improve the military components' accuracy in 
setting acquisition lead time values, we recommend that the Secretary 
of Defense direct the Director of DLA to have its supply centers 
review the methodology and inputs used to compute its lead time 
estimates and revise them to incorporate recent improvements in DLA 
actual lead times; 
Status: Not implemented; 
Related sub-plan of the Plan: Other inventory improvement actions; 
Comments: None. 

Recommendation #5: To improve the military components' accuracy in 
setting acquisition lead time values, we recommend that the Secretary 
of Defense direct the Secretary of the Air Force to have the 
Commander, Air Force Materiel Command, direct its air logistics 
centers to use better sources of lead time information, such as 
supplier estimates, if available, rather than default values for items 
that have not been ordered in the last five years; 
Status: Implemented; 
Related sub-plan of the Plan: Other inventory improvement actions; 
Comments: None. 

Recommendation #6: To improve the military components' accuracy in 
setting acquisition lead time values, we recommend that the Secretary 
of Defense direct the Secretary of the Navy to direct the Commander, 
Naval Inventory Control Point, to reemphasize the importance of having 
its inventory control points periodically review and validate their 
recorded lead time data to detect and correct data input errors or 
other inaccurate information; 
Status: Implemented; 
Related sub-plan of the Plan: Other inventory improvement actions; 
Comments: None. 

Recommendation #7: To strengthen DOD's and the military components' 
management of acquisition lead times, we recommend that the Secretary 
of Defense direct the Under Secretary of Defense for Acquisition, 
Technology, and Logistics to establish component lead time reduction 
goals over a 5-year period from October 2007-2012; 
Status: Not implemented; 
Related sub-plan of the Plan: Other inventory improvement actions; 
Comments: As part of the sub-plan focused on other inventory 
improvement actions, DOD is in the process of reviewing efforts for 
reducing acquisition lead time and developing a methodology to track 
and monitor acquisition lead time. 

Recommendation #8: To strengthen DOD's and the military components' 
management of acquisition lead times, we recommend that the Secretary 
of Defense direct the Under Secretary of Defense for Acquisition, 
Technology, and Logistics to develop metrics to measure components' 
progress toward meeting lead time reduction goals and require the 
periodic reporting of these metrics; 
Status: Implemented; 
Related sub-plan of the Plan: Other inventory improvement actions; 
Comments: None. 

Recommendation #9: To strengthen DOD's and the military components' 
management of acquisition lead times, we recommend that the Secretary 
of Defense direct the Under Secretary of Defense for Acquisition, 
Technology, and Logistics to develop a general estimate of the 
financial impact of lead time reductions, and use that as a metric to 
help components weigh the importance of lead time reductions; 
Status: Not implemented; 
Related sub-plan of the Plan: Other inventory improvement actions; 
Comments: As part of the sub-plan focused on other inventory 
improvement actions, DOD is in the process of developing a methodology 
to track and monitor acquisition lead time resulting in savings and 
cost avoidance. 

Recommendation #10: To strengthen DOD's and the military components' 
management of acquisition lead times, we recommend that the Secretary 
of Defense direct the Under Secretary of Defense for Acquisition, 
Technology, and Logistics to direct the components to collect data, 
establish metrics, and measure and report the impact of individual 
lead time reduction initiatives, to include the cost of each 
initiative and its estimated cost savings; 
Status: Not implemented; 
Related sub-plan of the Plan: Other inventory improvement actions; 
Comments: None. 

Recommendation #11: To strengthen DOD's and the military components' 
management of acquisition lead times, we recommend that the Secretary 
of Defense direct the Under Secretary of Defense for Acquisition, 
Technology, and Logistics to work closely with the Army and Navy to 
develop joint strategic relationships with suppliers that would be 
beneficial in reducing lead times; 
Status: Not implemented; 
Related sub-plan of the Plan: Other inventory improvement actions; 
Comments: None. 

Source: GAO analysis. 

[End of table] 

Defense Inventory: Actions Needed to Improve Inventory Retention 
Management Recommendations for Executive Action: 

In our report issued in 2006, we found some DOD inventory management 
centers had not followed DOD-wide policies and procedures for making 
contingency retention decisions. Some centers were not annually 
reviewing their contingency retention decisions potentially resulting 
in the retention of unneeded items. DOD had provided insufficient 
oversight of inventory retention management across the components and 
could not be certain that the components had the correct amount or 
type of items in contingency retention inventory. At the time of this 
2006 report, DOD had also not made progress implementing our 2001 
recommendations requiring the components to (1) establish milestones 
for reviewing their approaches for making economic retention inventory 
decisions, and (2) conduct annual reviews of these approaches, as 
required by DOD policy. We made seven recommendations and all of the 
recommendations were implemented. Table 12 summarizes our 
recommendations and their implementation status. 

Table 12: Status of Recommendations from Defense Inventory: Actions 
Needed to Improve Inventory Retention Management: 

Recommendation #1: To ensure DOD inventory management centers properly 
assign codes to categorize the reasons to retain items in contingency 
retention inventory, the Secretary of Defense should direct the Under 
Secretary of Defense for Acquisition, Technology, and Logistics to 
direct the Secretary of the Army to instruct the Army Materiel Command 
to modify the Commodity Command Standard System so it will properly 
categorize the reasons for holding items in contingency retention 
inventory; 
Status: Implemented; 
Related sub-plan of the Plan: Contingency retention stock; 
Comments: None. 

Recommendation #2: To ensure DOD inventory management centers properly 
assign codes to categorize the reasons to retain items in contingency 
retention inventory, the Secretary of Defense should direct the Under 
Secretary of Defense for Acquisition, Technology, and Logistics to 
direct the Secretary of the Air Force to instruct the Air Force 
Materiel Command to correct the Application Programs, Indenture 
system's deficiency to ensure it properly categorizes the reasons for 
holding items in contingency retention inventory; 
Status: Implemented; 
Related sub-plan of the Plan: Contingency retention stock; 
Comments: None. 

Recommendation #3: To ensure that the DOD inventory management centers 
retain contingency retention inventory that will meet current and 
future operational requirements, the Secretary of Defense should 
direct the Under Secretary of Defense for Acquisition, Technology, and 
Logistics to direct the Secretary of the Army to instruct the Army 
Materiel Command to require the Aviation and Missile Command to 
identify items that no longer support operational needs and determine 
whether the items need to be removed from the inventory. The Army 
Materiel Command should also determine whether its other two inventory 
commands, the Communications-Electronics Command and Tank-automotive 
and Armaments Command, are also holding obsolete items, and if so, 
direct those commands to determine whether the disposal of those items 
is warranted; 
Status: Implemented; 
Related sub-plan of the Plan: Contingency retention stock; 
Comments: None. 

Recommendation #4: To ensure that DOD inventory management centers 
conduct annual reviews of contingency retention inventory as required 
by DOD's Supply Chain Materiel Management Regulation, the Secretary of 
Defense should direct the Under Secretary of Defense for Acquisition, 
Technology, and Logistics to direct the Director of DLA to require the 
Defense Supply Center Richmond to conduct annual reviews of 
contingency retention inventory. DLA should also determine whether its 
other two centers, the Defense Supply Center Columbus and the Defense 
Supply Center Philadelphia, are conducting annual reviews, and if not, 
direct them to conduct the reviews so they can ensure the reasons for 
retaining the contingency retention inventory are valid; 
Status: Implemented; 
Related sub-plan of the Plan: Contingency retention stock; 
Comments: None. 

Recommendation #5: To ensure that DOD inventory management centers 
conduct annual reviews of contingency retention inventory as required 
by DOD's Supply Chain Materiel Management Regulation, the Secretary of 
Defense should direct the Under Secretary of Defense for Acquisition, 
Technology, and Logistics to direct the Secretary of the Navy to 
instruct the Naval Inventory Control Point Mechanicsburg to conduct 
annual reviews of contingency retention inventory. The Naval Inventory 
Control Point should also determine if its other organization, Naval 
Inventory Control Point Philadelphia, is conducting annual reviews and 
if not, direct the activity to conduct the reviews so it can ensure 
the reasons for retaining the contingency retention inventory are 
valid; 
Status: Implemented; 
Related sub-plan of the Plan: Contingency retention stock; 
Comments: None. 

Recommendation #6: To ensure that DOD inventory management centers 
conduct annual reviews of contingency retention inventory as required 
by DOD's Supply Chain Materiel Management Regulation, the Secretary of 
Defense should direct the Under Secretary of Defense for Acquisition, 
Technology, and Logistics to direct the Secretary of the Army to 
instruct the Army Materiel Command to require the Aviation and Missile 
Command to conduct annual reviews of contingency retention inventory. 
The Army Materiel Command should also determine if its other two 
inventory commands, the Communications-Electronics Command and Tank-
automotive and Armaments Command, are conducting annual reviews and if 
not, direct the commands to conduct the reviews so they can ensure the 
reasons for retaining the contingency retention inventory are valid; 
Status: Implemented; 
Related sub-plan of the Plan: Contingency retention stock; 
Comments: None. 

Recommendation #7: To ensure that DOD inventory management centers 
implement departmentwide policies and procedures for conducting annual 
reviews of contingency retention inventories, the Secretary of Defense 
should direct the Office of the Deputy Under Secretary of Defense for 
Logistics and Materiel Readiness to revise the DOD's Supply Chain 
Materiel Management Regulation to make clear who is responsible for 
providing recurring oversight to ensure the inventory management 
centers conduct the annual reviews of contingency retention inventory; 
Status: Implemented; 
Related sub-plan of the Plan: Contingency retention stock; 
Comments: None. 

Source: GAO analysis. 

[End of table] 

[End of section] 

Appendix III: Printer-Friendly Version of Figure 1 - Select DOD 
Categories of Secondary Inventory Items: 

Figure 5: Selected DOD Categories of Secondary Inventory Items: 

[Refer to PDF for image: illustration] 

Approved Acquisition Objective: Materiel needed to meet the 
requirements objective and 2 years of estimated future demand; 
* Requirements Objective: The maximum authorized quantity of stock for 
an item (for wholesale inventory replenishment), which consists of the 
sum of stock represented by the economic order quantity, the safety 
level, the repair-cycle level, and the authorized additive levels; 
* 2 years of Forecasted Demand: The projected amount of consumption of 
an item for the next two years. 

Retention Stock: Economic and contingency retention stock, which DOD 
states is necessary for the military mission; 
* Economic Retention Stock: of because it is likely to be needed in 
the future; 
* Contingency Retention Stock: Materiel that is retained to support 
specific contingencies, such as to support foreign military sales, 
future military operations, disaster relief or civil emergencies, or 
to mitigate risk associated with diminished manufacturing sources or 
non-procurable stock. 
  
On-Hand Excess Inventory: Inventory that is excess to the 
approved acquisition objective and not retained as economic or 
contingency retention stock. On-hand excess inventory is also referred 
to as potential reutilization stock; 
* Potential Reutilization Stock: Materiel exceeding the approved 
acquisition objective and not being retained as economic or 
contingency retention stock, that has been identified for possible 
disposal but has potential for reutilization. Potential reutilization 
stock is also referred to as on-hand excess inventory.  

Source: GAO analysis of DOD guidance and inventory practices.   

[End of figure] 

[End of section] 

Appendix IV: Demand Forecasting Sub-plan: 

Objective: Improve the prediction of future demand so that inventory 
requirements more accurately reflect actual needs.[Footnote 42] 

Actions and milestones: The sub-plan includes 5 actions, which are 
supported by 12 milestones. See table 13 below for a description of 
the actions and milestones, the original expected completion date, the 
actual or planned completion date, and our assessment and comments. 

Metrics: As part of the sub-plan, the Department of Defense (DOD) is 
in the process developing two metrics to measure forecasting bias 
accuracy and bias. The metrics are scheduled to be complete by the end 
of fiscal year 2012. 

Progress to date: The Office of the Secretary of Defense (OSD), the 
services, and the Defense Logistics Agency (DLA) have made progress by 
(1) completing a review of demand forecasting methods for one of three 
life cycle phases--the initial provisioning--of a weapon system, and 
(2) developing metrics for forecasting error and bias, and are on-
schedule to implement the metrics by September 2012. Additionally, 
OSD, the services, and DLA determined through an analysis of several 
years of supply data that supply support requests forecasts were not 
causing DLA to procure excess inventory, which demonstrated that risk-
sharing between a service and DLA would not be effective. However, the 
analysis did identify issues with the supply support request process, 
which OSD, the services, and DLA are reviewing to identify 
improvements. 

Key work remaining: Over the remaining years of implementation, DOD 
has a considerable amount of work remaining to improve demand 
forecasting. First, OSD, the services, and DLA need to review and 
analyze improved demand forecasting methods and techniques for the 
other two life cycle phases--sustainment and end-of-life--of a weapon 
system. Once improved demand forecasting methods and techniques are 
identified for all three life cycle phases, changes may need to be 
made to inventory management policy and practices. Second, work 
remains for DOD to implement the forecasting error and bias metrics. 
Third, OSD, the services, and DLA are working to establish a 
departmentwide structure for collaborative forecasting. As part of 
this effort, the services and DLA are in the process of validating 
their sales and operations planning processes and then will have to 
identify gaps and current constraints in existing processes, which may 
require changes in inventory management guidance and practices. 
Fourth, DOD is in the early stages of completing its plan to develop 
new approaches for setting inventory levels for low-demand consumable 
items and will also need to address forecasting methods for low-
demand. Lastly, OSD, the services, and DLA plan to work on improving 
the supply support request process to prevent unnecessary accumulation 
of excess inventory. 

Table 13: Demand Forecasting Sub-plan Actions and Milestones, 
Completion Dates, and GAO Assessment and Comments as of January 1, 
2012: 

Actions and milestones: Action 1: Identify improved methods and 
techniques for demand forecasting that consider an item's life cycle; 
Original expected completion date: March 2013; 
Actual or planned completion date: October 2014; 
GAO assessment and comments: 
Assessment: Started, on schedule; 
Comments: OSD, the services, and DLA expect to identify a forecasting 
process that captures best practices and minimizes systemic weaknesses 
throughout an item's life cycle. 

Actions and milestones: Milestone 1.1: Identify improved demand 
forecasting methods and techniques and complete the ongoing review for 
item introduction; 
Original expected completion date: September 2010; 
Actual or planned completion date: September 2010; 
GAO assessment and comments: 
Assessment: Completed; 
Comments: To identify improved demand forecasting methods and 
techniques, OSD commissioned the Logistics Management Institute to 
conduct an independent review of demand forecasting for the initial 
provisioning phase of a weapon system. 

Actions and milestones: Milestone 1.2: Assess results and develop 
policy and implementation plans as required; 
Original expected completion date: March 2011; 
Actual or planned completion date: March 2011; 
GAO assessment and comments: 
Assessment: Completed; 
Comments: OSD, the services, and DLA assessed the results of the 
independent review and determined that for the initial provisioning 
life cycle phase there would be no changes required to guidance or 
business processes at this time. Changes may be made after completing 
a review of the other two life cycle phases--sustainment and end-of-
life. 

Actions and milestones: Milestone 1.3: Identify improved demand 
forecasting methods and techniques for remaining two item life cycles; 
Original expected completion date: June 2012; 
Actual or planned completion date: January 2014; 
GAO assessment and comments: 
Assessment: Started, completion delayed; 
Comments: To identify improved demand forecasting methods and 
techniques for the other two life cycle phases--sustainment and end-of-
life--OSD is in the process of contracting with a third-party. The 
contracting process was delayed; 
therefore, the milestone is behind schedule. 

Actions and milestones: Milestone 1.4: Evaluate results and develop 
policy guidance; 
Original expected completion date: March 2013; 
Actual or planned completion date: October 2014; 
GAO assessment and comments: 
Assessment: Not started, completion delayed; 
Comments: Since the contracting process was delayed for the studies on 
the other two life cycle phases--sustainment and end-of-life--this 
milestone will start later than expected. 

Actions and milestones: Action 2: Implement standard metrics to assess 
forecasting accuracy and bias; 
Original expected completion date: September 2012; 
Actual or planned completion date: December 2012; 
GAO assessment and comments: 
Assessment: Started, on schedule; 
Comments: OSD, the services, and DLA have identified two 
departmentwide metrics--forecast error and forecast bias--and are 
developing business rules and determining the appropriate data 
elements to employ them. 

Actions and milestones: Milestone 2.1: Identify departmentwide metrics 
on forecast accuracy and error that capture forecast bias; 
Original expected completion date: September 2011; 
Actual or planned completion date: December 2012; 
GAO assessment and comments: 
Assessment: Started, completion delayed; 
Comments: OSD, the services, and DLA have identified two 
departmentwide metrics--forecast error and forecast bias--and are 
developing business rules to employ them. OSD, the services, and DLA 
plan to test the data and implement the metrics by the end of 
September 2012. 

Actions and milestones: Milestone 2.2: Establish processes within the 
services and DLA to produce measurements and set quantitative targets 
for improving demand forecasting accuracy and reducing bias; 
Original expected completion date: September 2012; 
Actual or planned completion date: September 2012; 
GAO assessment and comments: 
Assessment: Started, on schedule; 
Comments: OSD, the services, and DLA started this milestone in late 
2011 and have developed some initial data elements that the services 
and DLA will need to collect to support the metrics. 

Actions and milestones: Action 3: Expand and refine a departmentwide 
structure for collaborative forecasting; 
Original expected completion date: December 2011; 
Actual or planned completion date: April 2013; 
GAO assessment and comments: 
Assessment: Started, completion delayed; 
Comments: DLA has piloted an events database to improve collaborative 
forecasting and is working to improve the sales and operations 
planning process across the department. 

Actions and milestones: Milestone 3.1: Pilot a collaborative process 
between service and DLA demand planners for distributing and using 
program and maintenance data; 
Original expected completion date: September 2011; 
Actual or planned completion date: March 2012; 
GAO assessment and comments: 
Assessment: Started, completion delayed; 
Comments: OSD, DLA, and the services have determined the events to be 
included in a forecasting pilot, but are behind schedule in populating 
the event database and analyzing the results. 

Actions and milestones: Milestone 3.2: Conduct a concept demonstration 
of a departmentwide, OSD led, sales and operations planning process to 
enhance the demand and supply planning process across the department; 
Original expected completion date: December 2011; 
Actual or planned completion date: April 2013; 
GAO assessment and comments: 
Assessment: Started, completion delayed; 
Comments: OSD, the services, and DLA are working to establish a 
departmentwide structure for collaborative forecasting. As part of 
this effort, the services and DLA are in the process of validating 
their sales and operations planning processes and then plan to 
identify gaps and current constraints in existing processes. 

Actions and milestones: Action 4: Implement approaches for improving 
setting inventory levels for low-demand items; 
Original expected completion date: March 2012; 
Actual or planned completion date: February 2013; 
GAO assessment and comments: 
Assessment: Started, completion delayed; 
Comments: OSD, the service, and DLA are working to more accurately set 
inventory levels for low-demand items. 

Actions and milestones: Milestone 4.1: Complete implementation of 
alternative forecast methodologies (e.g., peak policy) for low-demand 
consumable items; 
Original expected completion date: September 2011; 
Actual or planned completion date: October 2012; 
GAO assessment and comments: 
Assessment: Started, completion delayed; 
Comments: OSD and DLA are collaborating to analyze the results of a 
simulation aimed at improving the forecastability of low-demand 
consumable items with the goal of identifying a more optimal 
forecasting strategy for these items. 

Actions and milestones: Milestone 4.2: Determine forecastability of 
low-demand items and how alternative forecast methods could be 
implemented for reparable items managed by each service; 
Original expected completion date: March 2012; 
Actual or planned completion date: February 2013; 
GAO assessment and comments: 
Assessment: Not started, completion delayed; 
Comments: None. 

Actions and milestones: Action 5: Examine how investment risk for new 
consumable items can be reduced between DLA and the services and 
suppliers; 
Original expected completion date: September 2011; 
Actual or planned completion date: September 2012; 
GAO assessment and comments: 
Assessment: Started, completion delayed; 
Comments: OSD, the services, and DLA are focusing on improving the 
supply support request process based on information learned from the 
risk-sharing study. 

Actions and milestones: Milestone 5.1: Execute a pilot program for 
potential provisioning risk sharing alternatives; 
Original expected completion date: March 2011; 
Actual or planned completion date: March 2011; 
GAO assessment and comments: 
Assessment: Completed; 
Comments: The Navy and DLA conducted an initial study, which found 
that risk-sharing between a service and DLA would not be needed. 

Actions and milestones: Milestone 5.2: Evaluate results for potential 
wider application; 
Original expected completion date: September 2011; 
Actual or planned completion date: September 2012; 
GAO assessment and comments: 
Assessment: Started, completion delayed; 
Comments: The Navy and DLA expanded the study in milestone 5.1, which 
showed that there was no need for service-DLA risk-sharing because 
supply support requests forecasts were not causing DLA to procure 
excess inventory. Rather, OSD, the services, and DLA are focusing on 
improving the supply support request process. 

Source: GAO analysis of the Plan and DOD's periodic status briefings. 

[End of table] 

[End of section] 

Appendix V: Total Asset Visibility and Multi-echelon Modeling Sub-plan: 

Objective: Minimize the size of purchases by considering all 
accessible inventories. 

Actions and milestones: The sub-plan includes three actions, which are 
supported by 12 milestones. See table 14 for a description of the 
actions and milestones, the original expected completion date, the 
actual or planned completion date, and our assessment and comments. 

Metrics: As part of the sub-plan, the Department of Defense (DOD) is 
tracking (1) the percentage of inventory dollars visible and 
accessible in an automated manner and (2) the total percentage of 
inventory dollars associated with items using multi-echelon modeling. 
[Footnote 43] With respect to the first metric, DOD set a target of 90 
percent of the total value of its secondary inventory being visible 
and accessible in an automated manner. With respect to the second 
metric, DOD set a target for using multi-echelon modeling on 90 
percent of targeted inventories by the end of fiscal year 2015, up 
from 47 percent in fiscal year 2009. 

Progress to date: The Office of the Secretary of Defense (OSD), the 
services, and the Defense Logistics Agency (DLA) have made progress by 
(1) determining that 95 percent of DOD's inventory is accessible by 
automated means to the services and DLA, which exceeded the Plan's 
goal of achieving automated accessibility to 90 percent of its 
inventory within 5 years and (2) increasing the in-storage visibility 
program, which allows services and DLA to obtain consumable items from 
another service or DLA. With respect to the in-storage visibility 
program, the Air Force for example had 145 sites participating in 
fiscal year 2010 and increased the number to 190 sites. 

Key work remaining: DOD set a target to use multi-echelon modeling on 
90 percent of targeted inventories by the end of fiscal year 2015, 
which may be challenging to achieve. OSD, the services, and DLA have 
identified that approximately 65 percent of DOD's inventory, or $61 
billion of DOD's approximately $95 billion in inventory for fiscal 
year 2010, should be targeted for multi-echelon modeling. OSD, the 
services, and DLA are currently working to identify the portion of the 
targeted inventory that currently uses multi-echelon modeling in order 
to be able to develop efforts to accelerate its use within the 
department. 

Table 14: Total Asset Visibility and Multi-Echelon Modeling Sub-plan 
Actions and Milestones, Completion Dates, and GAO Assessment and 
Comments as of January 1, 2012: 

Actions and milestones: Action 1: Expand total asset visibility 
capabilities to improve access to targeted inventories.[A]; 
Original expected completion date: September 2014; 
Actual or planned completion date: August 2014; 
GAO assessment and comments: 
Assessment: Started, on schedule; 
Comments: OSD, the services, and DLA plan on refining and defining 
business rules to increase inventory accessibility and determining 
ways to decrease redundant inventory across the services and DLA. 

Actions and milestones: Milestone 1.1: Identify targeted inventories 
for improved accessibility; 
Original expected completion date: June 2012; 
Actual or planned completion date: June 2012; 
GAO assessment and comments: 
Assessment: Started, on schedule; 
Comments: The Army, Navy, and Air Force have increased the number of 
secondary inventory sites that participate in DLA's in-storage 
visibility program. The Marine Corps was not participating, but is 
studying the possibility of participating. 

Actions and milestones: Milestone 1.2: Fully implement recommendations 
related to expanding automated system capabilities to fill customer 
demands and offset inventory buys across the services and DLA; 
Original expected completion date: September 2014; 
Actual or planned completion date: August 2014; 
GAO assessment and comments: 
Assessment: Not started, on schedule; 
Comments: The services and DLA plan to submit their implementation 
plans for the recommended process improvements to improve automated 
accessibility. 

Actions and milestones: Action 2: Accelerate existing and emerging 
multi-echelon improvement efforts; 
Original expected completion date: September 2013; 
Actual or planned completion date: August 2013; 
GAO assessment and comments: 
Assessment: Started, on schedule; 
Comments: None. 

Actions and milestones: Milestone 2.1: OSD provides funding of 
approved fiscal year 2011 multi-echelon projects; 
Original expected completion date: March 2011; 
Actual or planned completion date: August 2011; 
GAO assessment and comments: 
Assessment: Completed; 
Comments: Funding was delayed and projects were started late. The 
Navy, Air Force, Marine Corps, and DLA are conducting projects, but 
the Army is not conducting any projects. 

Actions and milestones: Milestone 2.2: Complete fiscal year 2010 multi-
echelon projects; 
Original expected completion date: December 2011; 
Actual or planned completion date: January 2012; 
GAO assessment and comments: 
Assessment: Started, completion delayed; 
Comments: Interim reports were provided to OSD by the services and DLA 
in July 2011, but as of January 1, 2012, the Army, Air Force, Marine 
Corps, and DLA had not provided their final reports. 

Actions and milestones: Milestone 2.3: Services and DLA evaluate 
fiscal year 2010 multi-echelon project results for potential 
departmentwide implementation; 
Original expected completion date: June 2012; 
Actual or planned completion date: June 2012; 
GAO assessment and comments: 
Assessment: Not started, on schedule; 
Comments: None. 

Actions and milestones: Milestone 2.4: Develop departmentwide 
processes, policies, and goals; 
Original expected completion date: September 2013; 
Actual or planned completion date: August 2013; 
GAO assessment and comments: 
Assessment: Not started, on schedule; 
Comments: OSD, the services, and DLA plan on using the results from 
the prior multi-echelon projects to improve departmentwide processes 
and policies. 

Actions and milestones: Action 3: Expand automated system capabilities 
to fill customer demands and offset inventory buys across the services 
and DLA; 
Original expected completion date: September 2013; 
Actual or planned completion date: September 2013; 
GAO assessment and comments: 
Assessment: Started, on schedule; 
Comments: OSD, the services, and DLA are working to increase 
participation in the in-storage visibility program and are in the 
process of including the in-storage visibility program into the 
revision of DOD inventory management guidance. 

Actions and milestones: Milestone 3.1: Establish measures of 
accessibility for the targeted inventories; 
Original expected completion date: December 2011; 
Actual or planned completion date: August 2012; 
GAO assessment and comments: 
Assessment: Started, completion delayed; 
Comments: OSD, the services, and DLA are monitoring the performance of 
the in-storage visibility program. The program conducted $73.8 million 
in lateral redistributions and procurement offsets in fiscal year 2010 
and $68.3 million in fiscal year 2011. Additionally, OSD, the 
services, and DLA have established a projection for fiscal year 2012. 

Actions and milestones: Milestone 3.2: Refine business and financial 
rules and system interfaces that would support an automated capability 
to fill backorders and offset procurements across the services and DLA; 
Original expected completion date: December 2012; 
Actual or planned completion date: April 2013; 
GAO assessment and comments: 
Assessment: Started, completion delayed; 
Comments: None. 

Actions and milestones: Milestone 3.3: Examine expansion of automated 
recoupment capability of assets in disposal; 
Original expected completion date: September 2011; 
Actual or planned completion date: January 2012; 
GAO assessment and comments: 
Assessment: Completed; 
Comments: OSD, the services, and DLA have recommended that no further 
action be taken on this milestone because the services and DLA 
documented their existing recoupment capability and confirmed that 
these existing processes work in recouping assets in disposal. 

Actions and milestones: Milestone 3.4: Implement results of 
examination of automated recoupment capability of assets in disposal; 
Original expected completion date: September 2013; 
Actual or planned completion date: September 2013; 
GAO assessment and comments: 
Assessment: Not started, on schedule; 
Comments: None. 

Actions and milestones: Milestone 3.5: Expand the visibility of the 
retrograde pipeline; 
Original expected completion date: September 2013; 
Actual or planned completion date: September 2013; 
GAO assessment and comments: 
Assessment: Not started, on schedule; 
Comments: None. 

Actions and milestones: Milestone 3.6: Ensure consistent approach to 
assess automated capability performance and/or develop metrics; 
Original expected completion date: September 2013; 
Actual or planned completion date: September 2013; 
GAO assessment and comments: 
Assessment: Not started, on schedule; 
Comments: None. 

Source: GAO analysis of the Plan and DOD's periodic status briefings. 

[A] Total asset visibility is the capability to provide all users with 
timely and accurate information about the location, movement, status, 
and identity of supplies and the capability to act on this information. 

[End of table] 

[End of section] 

Appendix VI: On-order Excess Inventory Sub-plan: 

Objective: Reduce or terminate purchases that result in inventory 
excesses due to a decrease in requirements. 

Actions and milestones: The sub-plan includes two actions, which are 
supported by four milestones. See table 15 for a description of the 
actions and milestones, the original expected completion date, the 
actual or planned completion date, and our assessment and comments. 

Metrics: As part of the sub-plan, the Department of Defense (DOD) is 
tracking (1) the percentage of on-order dollars above the approved 
acquisition objective, and (2) the total on-order dollars above the 
approved acquisition objective.[Footnote 44] 

Progress to date: The Office of Secretary of Defense (OSD), the 
services, and the Defense Logistics Agency (DLA) have made progress by 
reviewing existing on-order excess inventory guidance and working to 
make revisions to ensure consistency among the services and DLA. 
Additionally, the services and DLA are making improvements to their on-
order excess inventory guidance and practices.[Footnote 45] For 
example, the Navy Supply System Command has developed guidance for the 
management of its on-order excess inventory and DLA is in the process 
of making changes to its procedures for on-order excess management. 

Key work remaining: The actions and milestones in the sub-plan will be 
complete with the issuance of the inventory management guidance 
scheduled for September 2012. To achieve continued reductions in on-
order excess inventory, the services, and DLA will need to continue 
monitoring their progress. 

Table 15: On-Order Excess Inventory Sub-plan Actions and Milestones, 
Completion Dates, and GAO Assessment and Comments as of January 1, 
2012: 

Actions and milestones: Action 1: Establish an economically optimal 
point in the procurement cycle to terminate an order, considering the 
different life cycle phases; 
Original expected completion date: June 2011; 
Actual or planned completion date: September 2012; 
GAO assessment and comments: 
Assessment: Started, completion delayed; 
Comments: This action is complete, except for publishing the guidance 
revisions, which is estimated to occur in September 2012 with the 
issuance of the new guidance. 

Actions and milestones: Milestone 1.1: Establish the optimal point for 
reviewing if a contract should be terminated; 
Original expected completion date: March 2011; 
Actual or planned completion date: September 2012; 
GAO assessment and comments: 
Assessment: Started, completion delayed; 
Comments: OSD, the services, and DLA reviewed existing review 
methodologies for termination and recommended revisions to current DOD 
guidance. Specifically, OSD, the services, and DLA established the 
factors that must be considered when reviewing a contract for 
termination. DOD is in the process of incorporating the revisions into 
guidance, which is expected to be published in September 2012, 
according to DOD officials. 

Actions and milestones: Milestone 1.2: Implement departmentwide; 
Original expected completion date: June 2011; 
Actual or planned completion date: September 2011; 
GAO assessment and comments: 
Assessment: Completed; 
Comments: The services and DLA have been working to update their 
respective policies and procedures based on the draft guidance 
revisions. OSD determined that the Air Force did not need to update 
its policies and procedures, while others, such as DLA, are making 
improvements to their on-order excess inventory processes. 

Actions and milestones: Action 2: Strengthen the approval and 
reporting procedures for on-order excess inventory; 
Original expected completion date: March 2011; 
Actual or planned completion date: September 2012; 
GAO assessment and comments: 
Assessment: Started, completion delayed; 
Comments: This action is complete, except for publishing the guidance 
revision, which is estimated to occur in September 2012 with the 
issuance of the new guidance. 

Actions and milestones: Milestone 2.1: Establish the required level of 
authority to retain materiel on-order in excess of the approved 
acquisition objective; 
Original expected completion date: March 2011; 
Actual or planned completion date: September 2012; 
GAO assessment and comments: 
Assessment: Started, completion delayed; 
Comments: OSD, the services, and DLA reviewed existing levels of 
authority to retain materiel on-order in excess of the approved 
acquisition objective and recommended some revisions to current DOD 
guidance. Specifically, OSD, the services, and DLA have agreed on a 
consistent approach for reviewing on-order excess and termination 
decisions. DOD is in the process of incorporating the revisions into 
guidance, which is expected to be published in September 2012, 
according to DOD officials. 

Actions and milestones: Milestone 2.2: Ensure consistent approach to 
assess performance and/or develop metrics; 
Original expected completion date: March 2011; 
Actual or planned completion date: February 2011; 
GAO assessment and comments: 
Assessment: Completed; 
Comments: OSD, the services, and DLA reviewed current metrics used in 
assessing performance and decided that the most appropriate metrics 
are the percentage of on-order dollars above the approved acquisition 
objective and the total on-order dollars above the approved 
acquisition objective. 

Source: GAO analysis of the Plan and DOD's periodic status briefings. 

[End of table] 

[End of section] 

Appendix VII: Economic Retention Stock Sub-plan: 

Objective: Ensure economic retention decisions are based on current 
cost factors and economic principles.[Footnote 46] 

Actions and milestones: The sub-plan includes three actions, which are 
supported by seven milestones. See table 16 for a description of the 
actions and milestones, the original expected completion date, the 
actual or planned completion date, and our assessment and comments. 

Metrics: As part of the sub-plan, the Department of Defense (DOD) is 
tracking (1) the percentage of inventory dollars representing economic 
retention stock and (2) the percentage of inventory dollars 
representing economic retention stock by service and the Defense 
Logistics Agency (DLA). 

Progress to date: The Office of the Secretary of Defense (OSD), the 
services, and DLA have made progress by (1) developing metrics to 
assess the status of economic retention stock, (2) documenting the 
services' and DLA's current methods for calculating economic retention 
stock against current DOD inventory management policy, and (3) 
conducting the first annual review of economic retention stock. 

Key work remaining: OSD, the services and DLA are in the process of 
identifying enhancements to the methodology used in determining the 
allowable amount of economic retention stock for an item and may have 
to revise DOD inventory management guidance. 

Table 16: Economic Retention Stock Sub-plan Actions and Milestones, 
Completion Dates, and GAO Assessment and Comments as of January 1, 
2012: 

Actions and milestones: Action 1: Review and validate current economic 
retention methods; 
Original expected completion date: March 2012; 
Actual or planned completion date: March 2012; 
GAO assessment and comments: 
Assessment: Started, on schedule; 
Comments: OSD, the services, and DLA are in the process of reviewing 
economic retention methods and are unsure if any guidance changes will 
be necessary. 

Actions and milestones: Milestone 1.1: Assess current methods against 
policy for computing economic retention; 
Original expected completion date: March 2011; 
Actual or planned completion date: March 2011; 
GAO assessment and comments: 
Assessment: Completed; 
Comments: OSD, the services, and DLA reviewed the current economic 
retention methods and identified the variances in methods that need to 
be addressed by process improvements. 

Actions and milestones: Milestone 1.2: Make recommendations for 
process improvements to services' systems; 
Original expected completion date: March 2012; 
Actual or planned completion date: March 2012; 
GAO assessment and comments: 
Assessment: Started, on schedule; 
Comments: OSD, the services, and DLA are working collaboratively to 
test enhancements to economic retention models in conjunction with 
action 2. 

Actions and milestones: Action 2: Review and evaluate enhancements to 
current economic retention methods; 
Original expected completion date: December 2012; 
Actual or planned completion date: December 2012; 
GAO assessment and comments: 
Assessment: Started, on schedule; 
Comments: None. 

Actions and milestones: Milestone 2.1: Identify enhancements to the 
economic basis for retention; 
Original expected completion date: December 2011; 
Actual or planned completion date: March 2012; 
GAO assessment and comments: 
Assessment: Started, completion delayed; 
Comments: OSD, the services, and DLA are validating factors and 
testing enhancements to the economic retention models that the 
services and DLA are using. Due to the complexity of the issue and 
personnel availability, the milestone is delayed. 

Actions and milestones: Milestone 2.2: Implement the enhancements and 
incorporate in policy as required; 
Original expected completion date: December 2012; 
Actual or planned completion date: December 2012; 
GAO assessment and comments: 
Assessment: Not started, on schedule; 
Comments: None. 

Actions and milestones: Milestone 2.3: Ensure consistent approach to 
assess performance and/or develop metrics; 
Original expected completion date: December 2012; 
Actual or planned completion date: December 2012; 
GAO assessment and comments: 
Assessment: Started, on schedule; 
Comments: OSD, the services, and DLA plan on using (1) the percentage 
of inventory dollars representing economic retention stock and (2) the 
percentage of inventory dollars representing economic retention stock 
by service and DLA as the metrics to track economic retention stock. 

Actions and milestones: Action 3: Ensure annual reviews of the 
services' and DLA's economic retention procedures; 
Original expected completion date: June 2013; 
Actual or planned completion date: June 2013; 
GAO assessment and comments: 
Assessment: Started, on schedule; 
Comments: The first annual review of economic retention stock was 
conducted. 

Actions and milestones: Milestone 3.1: Conduct first annual review of 
the top items driving fiscal year 2010 economic retention to examine 
the sources of economic retention stocks and identify continuous 
improvement in economic retention procedures; 
Original expected completion date: June 2011; 
Actual or planned completion date: June 2011; 
GAO assessment and comments: 
Assessment: Completed; 
Comments: No systemic problems were found based on the first annual 
review of top items driving economic retention levels, according to 
OSD officials. 

Actions and milestones: Milestone 3.2: Conduct first triennial 
validation of cost and demand factors for economic retention; 
Original expected completion date: June 2013; 
Actual or planned completion date: June 2013; 
GAO assessment and comments: 
Assessment: Not started, on schedule; 
Comments: None. 

Source: GAO analysis of the Plan and DOD's periodic status briefings. 

[End of table] 

[End of section] 

Appendix VIII: Contingency Retention Stock Sub-plan: 

Objective: Ensure the services and the Defense Logistics Agency (DLA) 
justify the retention of contingency stock.[Footnote 47] 

Actions and milestones: The sub-plan includes three actions, which are 
supported by eight milestones. One action was canceled. See table 17 
for a description of the actions and milestones, the original expected 
completion date, the actual or planned completion date, and our 
assessment and comments. 

Metrics: As part of the sub-plan, the Department of Defense (DOD) is 
tracking (1) the percentage of inventory dollars representing 
contingency retention stock, and (2) the dollar value of contingency 
retention stock divided into six justification categories. 

Progress to date: The Office of the Secretary of Defense (OSD), the 
services, and DLA have made progress by (1) completing an independent 
review of contingency retention stock, (2) assessing the results of 
the independent review and making changes to existing practices, such 
as the coding of contingency retention stock to more precisely and 
consistently classify the stock, and (3) agreeing that all items held 
as contingency retention stock will be annually reviewed and validated. 

Key work remaining: OSD, the services, and DLA are incorporating 
changes to inventory management guidance for contingency retention 
stock, such as requiring all items held as contingency retention stock 
be reviewed and validated annually. Additionally, OSD, the services 
and DLA are also in the process of developing procedures for the 
documentation and review and approval of contingency retention stock 
decisions. 

Table 17: Contingency Retention Stock Sub-plan Actions and Milestones, 
Completion Dates, and GAO Assessment and Comments as of January 1, 
2012: 

Actions and milestones: Action 1: Complete an independent review that 
examines the services' and DLA's processes and develop a more 
effective categorization of inventory designated as contingency 
retention, as directed by Congress; 
Original expected completion date: September 2011; 
Actual or planned completion date: March 2012; 
GAO assessment and comments: 
Assessment: Started, on schedule; 
Comments: OSD, the services, and DLA have conducted an independent 
review of contingency retention stock and have agreed to classify 
contingency retention stock with new category codes. 

Actions and milestones: Milestone 1.1: Complete independent review; 
Original expected completion date: March 2011; 
Actual or planned completion date: March 2011; 
GAO assessment and comments: 
Assessment: Completed; 
Comments: To identify improved methods and techniques for retaining 
contingency stock, OSD commissioned the Logistics Management Institute 
to conduct an independent review, which was completed in March 2011. 

Actions and milestones: Milestone 1.2: Assess results, make necessary 
policy changes relative to the categorization of contingency retention 
stock, and implement those changes; 
Original expected completion date: September 2011; 
Actual or planned completion date: March 2012; 
GAO assessment and comments: 
Assessment: Started, completion delayed; 
Comments: OSD, the services, and DLA assessed the results of the 
independent review and determined some changes needed to be made to 
the coding of contingency retention stock to more precisely and 
consistently classify the stock. OSD, the services, and DLA have 
drafted guidance changes, but these are not finalized. 

Actions and milestones: Action 2: Ensure annual reviews of service and 
DLA contingency retention stock; 
Original expected completion date: September 2011; 
Actual or planned completion date: August 2011; 
GAO assessment and comments: 
Assessment: Completed; 
Comments: OSD, the services, and DLA have agreed to review and 
validate all contingency retention stock annually using a consistent 
approach. 

Actions and milestones: Milestone 2.1: Complete the fiscal year 2010 
annual review of the top dollar value and cube of items driving 
contingency retention stock to examine the sources of contingency 
retention stock and scrutinize continuing justifications; 
Original expected completion date: March 2011; 
Actual or planned completion date: March 2011; 
GAO assessment and comments: 
Assessment: Completed; 
Comments: The services and DLA identified their top 25 items of 
contingency retention stock and then analyzed the reasons that 
generated the contingency retention stock for those items. 

Actions and milestones: Milestone 2.2: Revise criteria for timely 
contingency retention stock reviews, based upon the independent review; 
Original expected completion date: June 2011; 
Actual or planned completion date: June 2011; 
GAO assessment and comments: 
Assessment: Completed; 
Comments: OSD, the services, and DLA reviewed various criteria for 
contingency retention stock reviews focusing on requiring senior 
managers to use a consistent approach in approving and justifying 
contingency retention stock. 

Actions and milestones: Milestone 2.3: Refine targets for contingency 
retention; 
Original expected completion date: September 2011; 
Actual or planned completion date: August 2011; 
GAO assessment and comments: 
Assessment: Completed; 
Comments: OSD, the services, and DLA agreed that all items held as 
contingency retention stock will be reviewed and validated annually. 
This requirement is currently being incorporated into guidance. 

Actions and milestones: Action 3: Consistent approach for approval of 
decisions to retain contingency retention stock; 
Original expected completion date: March 2012; 
Actual or planned completion date: September 2012; 
GAO assessment and comments: 
Assessment: Started, on schedule; 
Comments: OSD, the services, and DLA are developing standardized 
procedures for documenting and reviewing and approving contingency 
retention stock decisions. 

Actions and milestones: Milestone 3.1: Develop and publish procedures 
for inventory manager documentation of contingency retention stock 
decisions; 
Original expected completion date: December 2011; 
Actual or planned completion date: September 2012; 
GAO assessment and comments: 
Assessment: Started, completion delayed; 
Comments: Based on the assessment of independent review of contingency 
retention stock, OSD, the services, and DLA are developing procedures 
governing the documentation of contingency retention decisions. 

Actions and milestones: Milestone 3.2: Establish criteria and steps to 
obtain and record senior management approval of contingency retention 
stock decisions; 
Original expected completion date: December 2011; 
Actual or planned completion date: September 2012; 
GAO assessment and comments: 
Assessment: Started, completion delayed; 
Comments: Based on the independent review of contingency retention 
stock, OSD, the services, and DLA are developing procedures for the 
review and approval of contingency retention stock decisions. 

Actions and milestones: Milestone 3.3: Implement this approval process 
across the services and DLA; 
Original expected completion date: March 2012; 
Actual or planned completion date: March 2012; 
GAO assessment and comments: 
Assessment: Started, on schedule; 
Comments: None. 

Actions and milestones: Action 4: Establish departmentwide metric to 
monitor sales against contingency retention stock; 
Original expected completion date: Canceled; 
Actual or planned completion date: Canceled; 
GAO assessment and comments: 
Assessment: Canceled; 
Comments: According to DOD officials, the metric considered for 
monitoring sales against contingency retention stock could not be 
established because the inventory management systems capture the sales 
of items against the approved acquisition objective rather than 
against retention stock. This prevents DOD from being able to track 
sales against contingency retention stock. 

Source: GAO analysis of the Plan and DOD's periodic status briefings. 

[End of table] 

[End of section] 

Appendix IX: Storage and Direct Vendor Delivery Sub-plan: 

Objective: Use commercial vendors to store items when use of those 
vendors represents the best value to the government. 

Actions and milestones: The sub-plan includes four actions, which are 
supported by nine milestones. See table 18 for a description of the 
actions and milestones, the original expected completion date, the 
actual or planned completion date, and our assessment and comments. 

Metrics: As part of the sub-plan, the Office of the Secretary of 
Defense (OSD), the services, and the Defense Logistics Agency (DLA) 
set out to develop a standard departmentwide metric to monitor storage 
reduction, but in the course of the analysis decided that a metric 
would not be necessary. Additionally, the Department of Defense (DOD) 
tracks the total storage footprint and total storage costs across the 
department at distribution depots. Also, DOD was tracking certain 
reductions of storage space related to the 2005 Base Realignment and 
Closure Act round. As part of its implementation of the Base 
Realignment and Closure Act round, DOD planned to reduce storage space 
by 15.1 million gross square feet and exceeded the planned amount by 
0.3 million gross square feet. 

Progress to date: OSD, the services, and DLA have made progress by (1) 
examining high storage items for the potential of direct vendor 
delivery management resulting in few potential candidates for direct 
vendor delivery and determining that future reviews were not needed 
and existing guidance was sufficient, (2) reviewing existing factors 
used in business case analyses for the selection of alternative 
sourcing strategies, such as direct vendor delivery, and determining 
that storage space is used as a factor by the Army, Navy, Air Force, 
and DLA, and (3) reviewing departmentwide policies and procedures on 
shifting items to alternative sourcing strategies and determining to 
update DOD inventory management guidance to ensure that any inventory 
owned by DOD will be used prior to procuring additional inventory 
through an alternative sourcing strategy.[Footnote 48] OSD officials 
told us that they believe DOD's efforts have sufficiently addressed 
storage and direct vendor delivery. According to the Deputy Assistant 
Secretary of Defense for Supply Chain Management, DOD will continue to 
pursue storage consolidation and optimization through a separate 
initiative outside the implementation of the Plan. 

Key work remaining: OSD, the services, and DLA still need to update 
inventory management guidance to ensure storage cost is considered as 
a factor in business case analyses for alternative sourcing strategies 
and existing on-hand inventory is used prior to procuring inventory 
through an alternative sourcing strategy. 

Table 18: Storage and Direct Vendor Delivery Sub-plan Actions and 
Milestones, Completion Dates, and GAO Assessment and Comments as of 
January 1, 2012: 

Actions and milestones: Action 1: Examine items with high storage 
requirements for potential management as direct vendor delivery; 
Original expected completion date: June 2011; 
Actual or planned completion date: June 2011; 
GAO assessment and comments: 
Assessment: Completed; 
Comment: OSD, the services, and DLA examined high storage items for 
the potential of direct vendor delivery management, and determined 
that future reviews were not needed and existing guidance was 
sufficient. 

Actions and milestones: Milestone 1.1: Initial identification of top 
25 items for each service and DLA; 
Original expected completion date: November 2010[A]; 
Actual or planned completion date: November 2010[A]; 
GAO assessment and comments: 
Assessment: Completed; 
Comment: None. 

Actions and milestones: Milestone 1.2: Evaluation of their potential 
for direct vendor delivery contracts; 
Original expected completion date: June 2011; 
Actual or planned completion date: June 2011; 
GAO assessment and comments: 
Assessment: Completed; 
Comment: OSD, the services, and DLA reviewed the items' potential for 
direct vendor delivery contract; 
however, few items that reviewed were appropriate candidates for 
direct vendor delivery, according to the services and DLA. 

Actions and milestones: Milestone 1.3: Establishment of a process for 
doing periodic high storage direct vendor delivery reviews; 
Original expected completion date: June 2011; 
Actual or planned completion date: June 2011; 
GAO assessment and comments: 
Assessment: Completed; 
Comment: Based on the review of items, OSD, the services, and DLA 
determined that future reviews of top high storage items are not 
needed and existing DOD guidance is sufficient. 

Actions and milestones: Action 2: Track reduction of depot storage 
space that can be attributed to alternative sourcing strategies 
(direct vendor delivery, performance-based logistics, etc.); 
Original expected completion date: December 2011; 
Actual or planned completion date: December 2011; 
GAO assessment and comments: 
Assessment: Completed; 
Comment: OSD, the services, and DLA decided that storage reduction 
efforts would be implemented through a separate DOD initiative to 
reduce materiel distribution costs and optimize warehouse storage 
space. 

Actions and milestones: Milestone 2.1: Establishment of a data 
collection capability for tracking space reduction in depot storage 
attributed to alternative contract sources; 
Original expected completion date: September 2011; 
Actual or planned completion date: September 2011; 
GAO assessment and comments: 
Assessment: Completed; 
Comment: DLA presented its procedures for tracking space reduction 
attributable to alternative source contracts, but OSD, the services, 
and DLA decided that storage reduction efforts would be implemented 
through a separate DOD initiative to reduce materiel distribution 
costs and optimize warehouse storage space. 

Actions and milestones: Milestone 2.2: Identify standard 
departmentwide metric to monitor storage reduction; 
Original expected completion date: December 2011; 
Actual or planned completion date: December 2011; 
GAO assessment and comments: 
Assessment: Completed; 
Comment: OSD, the services, and DLA decided that establishing a 
departmentwide metric to monitor storage reduction was not prudent at 
this time and that storage reduction efforts would be implemented 
through a separate DOD initiative to reduce materiel distribution 
costs and optimize warehouse storage space. 

Actions and milestones: Action 3: Identify methodology and criteria 
for including depot storage space as a cost factor in the business 
case analyses for selection of alternative sourcing strategies (direct 
vendor delivery, performance-based logistics, etc.); 
Original expected completion date: December 2011; 
Actual or planned completion date: September 2012; 
GAO assessment and comments: 
Assessment: Started, completion delayed; 
Comment: The Army, Navy, Air Force, and DLA include storage space as a 
factor in business case analyses for the selection of alternative 
sourcing strategies. OSD, the services, and DLA are in the process of 
developing revised guidance, which is estimated to be published in 
September 2012. 

Actions and milestones: Milestone 3.1: Identify applicable business 
case analysis methodology and criteria for assessment of depot storage 
space as an element of business case analysis decisions for selecting 
materiel support providers; 
Original expected completion date: September 2011; 
Actual or planned completion date: September 2011; 
GAO assessment and comments: 
Assessment: Completed; 
Comment: The services and DLA presented their existing business case 
analysis procedures for selecting materiel support providers. The 
Army, Navy, Air Force, and DLA include storage cost as a variable in 
each of their procedures. 

Actions and milestones: Milestone 3.2: Document the applicable 
methodology and criteria in appropriate DOD policy issuances; 
Original expected completion date: December 2011; 
Actual or planned completion date: September 2012; 
GAO assessment and comments: 
Assessment: Started, completion delayed; 
Comment: DOD is working on updating its guidance, which is estimated 
to be published in September 2012. 

Actions and milestones: Action 4: Review departmentwide policies and 
procedures on shifting items to direct vendor delivery arrangements to 
ensure that they do not cause excess inventories to be acquired; 
Original expected completion date: March 2012; 
Actual or planned completion date: March 2012; 
GAO assessment and comments: 
Assessment: Started, on schedule; 
Comment: This action is complete, except for publishing the guidance 
revisions. 

Actions and milestones: Milestone 4.1: Review DOD, service, and DLA 
policies and procedures for shifting items to direct vendor delivery 
arrangements; 
Original expected completion date: March 2011; 
Actual or planned completion date: March 2011; 
GAO assessment and comments: 
Assessment: Completed; 
Comment: OSD, the services, and DLA reviewed existing policies and 
procedures. 

Actions and milestones: Milestone 4.2: Revise policies and procedures 
that might cause inventory excesses; 
Original expected completion date: March 2012; 
Actual or planned completion date: March 2012; 
GAO assessment and comments: 
Assessment: Started, on schedule; 
Comment: Based on the review, OSD, the services, and DLA 
collaboratively proposed revised guidance language. 

Source: GAO analysis of the Plan and DOD's periodic status briefings. 

[A] This milestone was completed prior to the release of the Plan and 
reported as complete in the Plan. 

[End of table] 
[End of section] 

Appendix X: Items with No Demand Sub-plan: 

Objective: Eliminate items with a history of no recurring demand and a 
low probability of future demand, unless there is sufficient 
justification for the retention of the item.[Footnote 49] 

Actions and milestones: The sub-plan includes two actions, which are 
each supported by seven milestones. See table 19 for a description of 
the actions and milestones, the original expected completion date, the 
actual or planned completion date, and our assessment and comments. 

Metrics: As part of the sub-plan, the Department of Defense (DOD) is 
tracking (1) inventory value by number of years of no demand, (2) 
value of inventory with 5 or more years of no demand by the category 
of inventory, and (3) the value of no demand stock retained and 
disposed. 

Progress to date: The Office of the Secretary of Defense (OSD), the 
services, and the Defense Logistics Agency (DLA) have made progress by 
(1) identifying and tracking key metrics for items with no demand and 
(2) establishing rules and procedures for managing items with no 
demand. 

Key work remaining: OSD, the services, and DLA are in the process of 
drafting guidance for items with no demand and identifying the 
processes to ensure items with no demand are reviewed each year and 
valid justification is provided for the retention of the item. 

Table 19: Items with No Demand Sub-plan Actions and Milestones, 
Completion Dates, and GAO Assessment and Comments as of January 1, 
2012: 

Actions and milestones: Action 1: Examine service and DLA definitions, 
methodologies, and rationale for retaining or disposing of items with 
no recurring demand, and the potential applicability of a life cycle 
approach; 
Original expected completion date: December 2012; 
Actual or planned completion date: December 2012; 
GAO assessment and comments: 
Assessment: Started, on schedule; 
Comments: OSD, the services, and DLA are working to improve inventory 
management practices for items with no recurring demand. 

Actions and milestones: Milestone 1.1: Complete the development of 
metrics for categorizing and tracking inventory for no demand items; 
Original expected completion date: September 2011; 
Actual or planned completion date: February 2011; 
GAO assessment and comments: 
Assessment: Completed; 
Comments: Three enterprise-level metrics were identified: (1) 
inventory value by number of years of no demand, (2) value of 
inventory with five or more years of no demand by the category of 
inventory, and (3) the value of no demand stock retained and disposed. 

Actions and milestones: Milestone 1.2: Review rules and identify best 
practices for stocking and disposing of items with no demand; 
Original expected completion date: September 2011; 
Actual or planned completion date: October 2011; 
GAO assessment and comments: 
Assessment: Completed; 
Comments: A taxonomy of rules and practices was compiled for stocking 
and disposing of items with no demand. 

Actions and milestones: Milestone 1.3: Revise policy for stocking and 
disposing of items with no demand; 
Original expected completion date: December 2012; 
Actual or planned completion date: December 2012; 
GAO assessment and comments: 
Assessment: Started, on schedule; 
Comments: None. 

Actions and milestones: Milestone 1.4: Implement improvements within 
the services and DLA; 
Original expected completion date: December 2012; 
Actual or planned completion date: December 2012; 
GAO assessment and comments: 
Assessment: Started, on schedule; 
Comments: None. 

Actions and milestones: Action 2: Develop an annual review and 
reporting process for no demand items, based on dollar thresholds; 
Original expected completion date: September 2011; 
Actual or planned completion date: September 2012; 
GAO assessment and comments: 
Assessment: Started, completion delayed; 
Comments: None. 

Actions and milestones: Milestone 2.1: Establish plan for no demand 
item metrics; 
Original expected completion date: March 2011; 
Actual or planned completion date: March 2011; 
GAO assessment and comments: 
Assessment: Completed; 
Comments: The services and DLA have established implementation plans 
for the metrics for items with no demand. 

Actions and milestones: Milestone 2.2: Establish a service and DLA 
process for conducting annual reviews of no demand items including 
metrics that measure the disposition of items reviewed and required 
level of authority; 
Original expected completion date: September 2011; 
Actual or planned completion date: December 2011; 
GAO assessment and comments: 
Assessment: Completed; 
Comments: OSD, the services, and DLA established a set of rules for 
reviewing no demand items and the frequency of review is based on the 
inventory category. 

Actions and milestones: Milestone 2.3: Establish a process for 
annually reviewing the services' and DLA's top no demand items based 
on dollar value at the DOD level to ensure that the rules for stocking 
and disposing of no demand items are adequate; 
Original expected completion date: September 2011; 
Actual or planned completion date: September 2012; 
GAO assessment and comments: 
Assessment: Started, completion delayed; 
Comments: OSD, the services, and DLA continue to work on developing 
the appropriate review process for no demand items and plan on 
incorporating it into guidance by September 2012. 

Source: GAO analysis of the Plan and DOD's periodic status briefings. 

[End of table] 

[End of section] 

Appendix XI: Disposition of Potential Reutilization Stock Sub-plan: 

Objective: Ensure timely disposition of items categorized as potential 
reutilization stock.[Footnote 50] 

Actions and milestones: The sub-plan includes three actions, which are 
supported by seven milestones. See table 20 for a description of the 
actions and milestones, the original expected completion date, the 
actual or planned completion date, and our assessment and comments. 

Metrics: As part of the sub-plan, the Department of Defense (DOD) has 
identified three departmentwide metrics: (1) the total dollar value of 
disposals for repairable and consumable items, (2) the portion of 
disposal dollars that are associated with condemned or unserviceable 
assets, (3) the percentage of items (and their associated dollar 
value) reviewed and released to disposal by inventory managers. 

Progress to date: The Office of the Secretary of Defense (OSD), the 
services, and the Defense Logistics Agency (DLA) have made progress by 
(1) identifying three departmentwide metrics to track potential 
reutilization stock, and (2) changing time standards for reviewing 
potential reutilization stock from 12 months to 3 months and disposing 
of potential reutilization stock from 6 months to 1 month. 

Key work remaining: OSD, the services, and DLA still need to 
incorporate the time standards for the review and disposal of 
potential reutilization stock into guidance, assess pre-screening 
procedures for items identified for disposal, and identify a best 
practice for the department. In addition, OSD, the services and DLA 
need to identify and develop standardized metrics to measure the time 
to conduct potential reutilization stock reviews and disposal actions. 

Table 20: Potential Reutilization Stock Sub-plan Actions and 
Milestones, Completion Dates, and GAO Assessment and Comments as of 
January 1, 2012: 

Actions and milestones: Action 1: Review and validate the service and 
DLA methodologies and frequency for the timely review of potential 
reutilization stock assets and timely execution of disposal releases; 
Original expected completion date: December 2012; 
Actual or planned completion date: December 2012; 
GAO assessment and comments: Assessment: Started, on schedule; 
Comments: OSD, the services, and DLA have agreed on new time standards 
for reviewing and disposing of potential reutilization stock and are 
in the process of incorporating these standards into guidance. 

Actions and milestones: Milestone 1.1: Evaluate the timeliness and 
effectiveness of current disposal processes; 
Original expected completion date: September 2011; 
Actual or planned completion date: August 2011; 
GAO assessment and comments: 
Assessment: Completed; 
Comments: OSD, the services, and DLA have decided that the time 
standards will change from 12 months to 3 months for reviewing 
potential reutilization stock and 6 months to 1 month for disposing of 
potential reutilization stock. 

Actions and milestones: Milestone 1.2: Revise policy guidance as 
required; 
Original expected completion date: June 2012; 
Actual or planned completion date: June 2012; 
GAO assessment and comments: 
Assessment: Started, on schedule; 
Comments: OSD is finalizing the revisions to the guidance, which are 
estimated to be published in September 2012. 

Actions and milestones: Milestone 1.3: Incorporate revised guidance in 
service and DLA processes for potential reutilization stock reviews 
and execution of disposal releases; 
Original expected completion date: December 2012; 
Actual or planned completion date: December 2012; 
GAO assessment and comments: 
Assessment: Not started, on schedule; 
Comments: None. 

Actions and milestones: Action 2: Establish a process for the services 
and DLA to pre-screen retail materiel returns for disposal prior to 
returns being shipped to a distribution depot; 
Original expected completion date: March 2012; 
Actual or planned completion date: March 2012; 
GAO assessment and comments: 
Assessment: Started, on schedule; 
Comments: OSD, the services, and DLA are in the process of reviewing 
existing pre-screening processes. 

Actions and milestones: Milestone 2.1: Examine potential pre-screening 
alternatives to expedite disposal actions on excess returns; 
Original expected completion date: December 2011; 
Actual or planned completion date: December 2011; 
GAO assessment and comments: 
Assessment: Started, completion delayed; 
Comments: Some of the services and DLA have presented disposal pre-
screening procedures they employ prior to returning material to a 
distribution depot, but OSD, the services, and DLA have not yet 
assessed the results. This milestone was not complete as of December 
2011, the planned completion date. 

Actions and milestones: Milestone 2.2: Select and implement best 
alternative departmentwide; 
Original expected completion date: March 2012; 
Actual or planned completion date: March 2012; 
GAO assessment and comments: 
Assessment: Not started, on schedule; 
Comments: None. 

Actions and milestones: Action 3: Develop new reporting requirements 
on inventory being reviewed and disposed of as a means of evaluating 
the disposition process; 
Original expected completion date: March 2012; 
Actual or planned completion date: March 2012; 
GAO assessment and comments: 
Assessment: Started, on schedule; 
Comments: OSD, the services, and DLA have identified three 
departmentwide metrics and are in the process of identifying and 
developing additional metrics to measure the time to conduct potential 
reutilization stock reviews and disposal actions. 

Actions and milestones: Milestone 3.1: Develop new reporting 
requirements on inventory being disposed of as a means of evaluating 
the disposal process; 
Original expected completion date: March 2012; 
Actual or planned completion date: March 2012; 
GAO assessment and comments: 
Assessment: Started, on schedule; 
Comments: OSD, the services, and DLA have identified three 
departmentwide metrics for potential reutilization stock: (1) the 
total dollar value of disposals for repairable and consumable items, 
(2) the portion of disposal dollars that are associated with condemned 
or unserviceable assets, (3) the percentage of items (and their 
associated dollar value) reviewed and released to disposal by 
inventory managers. OSD, the services, and DLA continue to work on 
identifying and developing metrics for the time to conduct potential 
reutilization stock reviews and time to move the materiel to disposal. 

Actions and milestones: Milestone 3.2: Ensure consistent approach to 
assess performance and/or develop metrics; 
Original expected completion date: March 2012; 
Actual or planned completion date: March 2012; 
GAO assessment and comments: 
Assessment: Started, on schedule; 
Comments: As noted above in milestone 3.1, OSD, the services, and DLA 
have identified three departmentwide metrics for potential 
reutilization and are currently working on identifying and developing 
standardized metrics to measure the time to conduct potential 
reutilization stock reviews and disposal actions. 

Source: GAO analysis of the Plan and DOD's periodic status briefings. 

[End of table] 

[End of section] 

Appendix XII: Other Inventory Improvement Actions Sub-plan: 

Objective: To accomplish several cross-functional improvements, 
including revising current inventory categories to better reflect the 
rationale behind retaining the inventory, improving acquisition lead 
times, and establishing departmentwide metrics for inventory 
management. 

Actions and milestones: The sub-plan includes 4 actions, which are 
supported by a total of 16 milestones. See table 21 for a description 
of the actions and milestones, the original expected completion date, 
the actual or planned completion date, and our assessment and comments. 

Metrics: As part of the sub-plan, the Department of Defense (DOD) is 
tracking (1) the percentage of the total value of inventory that is on-
hand excess inventory,[Footnote 51] and (2) a metric to evaluate the 
improvement of acquisition lead time,[Footnote 52] which is currently 
under development. 

Progress to date: The Office of the Secretary of Defense (OSD), the 
services, and the Defense Logistics Agency (DLA) have made progress by 
reviewing existing categories of inventory (i.e., the approved 
acquisition objective, economic retention stock, contingency retention 
stock, and potential reutilization stock) and developing tentative sub-
categories that provide further clarification on the make-up of each 
category. Additionally, OSD, the services, and DLA have begun the 
process of developing departmentwide metrics to evaluate inventory 
management. 

Key work remaining: Over the next several years, OSD, the services, 
and DLA plan on revising inventory management guidance to reflect 
newly developed sub-categories of inventory established, work on 
improving acquisition lead times, and monitor potential changes 
necessary to inventory management systems to implement the Plan. Most 
importantly, OSD, the services, and DLA will need to agree on and 
implement departmentwide metrics to evaluate inventory management. 

Table 21: Other Inventory Improvement Actions Sub-plan Actions and 
Milestones, Completion Dates, and GAO Assessment and Comments as of 
January 1, 2012: 

Actions and milestones: Action 1: Define and establish a new 
categorization of DOD inventory; 
Original expected completion date: September 2013; 
Actual or planned completion date: December 2013; 
GAO assessment and comments: 
Assessment: Started, completion delayed; 
Comment: OSD, the services, and DLA are defining and establishing a 
new categorization of DOD inventory to better capture the rationale 
behind inventory decisions through improved reporting. 

Actions and milestones: Milestone 1.1: Identify the new categorization 
of inventory; 
Original expected completion date: June 2011; 
Actual or planned completion date: September 2011; 
GAO assessment and comments: 
Assessment: Completed; 
Comment: OSD, the services, and DLA have reviewed existing categories 
of inventory (i.e., the approved acquisition objective, economic 
retention stock, contingency retention stock, and potential 
reutilization stock) and developed tentative sub-categories that 
provide further clarification on the make-up of each category. 

Actions and milestones: Milestone 1.2: Complete requirements analysis 
for updating the stratification process.[A]; 
Original expected completion date: March 2012; 
Actual or planned completion date: June 2012; 
GAO assessment and comments: 
Assessment: Started, completion delayed; 
Comment: Based on the proposed new categorization of inventory, OSD, 
the services, and DLA plan to incorporate this information into its 
guidance on inventory management, specifically a revision of DOD 
4140.64-M Secondary Item Stratification Manual (Aug. 24, 2009). 

Actions and milestones: Milestone 1.3: Conduct requirements analysis 
for updating the Supply System Inventory Report process.[B]; 
Original expected completion date: March 2013; 
Actual or planned completion date: June 2013; 
GAO assessment and comments: 
Assessment: Not started, completion delayed; 
Comment: Based on the proposed new categorization of inventory and the 
update to the stratification manual, OSD, the services, and DLA plan 
to revise the process for the Supply System Inventory Report. 

Actions and milestones: Milestone 1.4: Develop plans for the 
implementation of the updated stratification and Supply System 
Inventory Report processes; 
Original expected completion date: September 2013; 
Actual or planned completion date: December 2013; 
GAO assessment and comments: 
Assessment: Not started, completion delayed; 
Comment: None. 

Actions and milestones: Action 2: Establish departmentwide procedures 
for reducing acquisition lead times; 
Original expected completion date: June 2012; 
Actual or planned completion date: September 2012; 
GAO assessment and comments: 
Assessment: Started, completion delayed; 
Comment: OSD, the services, and DLA aim to reduce acquisition lead 
times and improve the accuracy of acquisition lead times. 

Actions and milestones: Milestone 2.1: Review service and DLA efforts 
for reducing procurement lead time; 
Original expected completion date: June 2011; 
Actual or planned completion date: May 2011; 
GAO assessment and comments: 
Assessment: Completed; 
Comment: The services and DLA each identified and presented unique 
acquisition lead time initiatives. 

Actions and milestones: Milestone 2.2: Evaluate individual service and 
DLA efforts for departmentwide application; 
Original expected completion date: December 2011; 
Actual or planned completion date: November 2011; 
GAO assessment and comments: 
Assessment: Completed; 
Comment: OSD, the services, and DLA determined that strategic materiel 
sourcing was the only initiative that is a viable candidate for 
departmentwide application. Strategic materiel sourcing is the focus 
of milestone 2.5 for this sub-plan.[C]. 

Actions and milestones: Milestone 2.3: Develop methodology to sustain 
lead time accuracy; 
Original expected completion date: June 2012; 
Actual or planned completion date: June 2012; 
GAO assessment and comments: 
Assessment: Started, on schedule; 
Comment: The services and DLA are identifying differences between the 
estimated and actual lead time values to improve the accuracy of lead 
times. 

Actions and milestones: Milestone 2.4: Develop a methodology to track 
and monitor changes to lead time resulting in savings and cost 
avoidance; 
Original expected completion date: March 2012; 
Actual or planned completion date: May 2012; 
GAO assessment and comments: 
Assessment: Started, completion delayed; 
Comment: OSD, the services, and DLA are evaluating potential metrics 
for measuring improvements in administrative and production lead time 
accuracy as well as how to quantify any cost savings or cost avoidance 
achieved due to improvements. 

Actions and milestones: Milestone 2.5: Establish annual process for 
reviewing new approaches to supplier management targeted at reducing 
lead times; 
Original expected completion date: March 2012; 
Actual or planned completion date: September 2012; 
GAO assessment and comments: 
Assessment: Not started, completion delayed; 
Comment: OSD, the services, and DLA plan on reviewing and improving 
the strategic materiel sourcing initiative. 

Actions and milestones: Action 3: Through system modernization provide 
for improved data accuracy and a better systems platform for improving 
inventory management practices; 
Original expected completion date: March 2014; 
Actual or planned completion date: March 2014; 
GAO assessment and comments: 
Assessment: Started, on schedule; 
Comment: OSD, the services, and DLA are monitoring potential changes 
necessary to inventory management systems to implement the Plan. 

Actions and milestones: Milestone 3.1: Develop a comprehensive list of 
required system functionality for modernized inventory management 
systems (e.g., enterprise resource planning systems) to successfully 
execute all elements of the DOD's Plan; 
Original expected completion date: March 2011; 
Actual or planned completion date: March 2014; 
GAO assessment and comments: 
Assessment: Started, completion delayed; 
Comment: Every six months, the services and DLA are submitting 
potential changes to inventory management systems to implement the 
Plan. OSD, the services, and DLA are working collaboratively to 
prevent any major system changes. This milestone was extended to cover 
almost the entire Plan in order to monitor potential system changes. 

Actions and milestones: Milestone 3.2: Assess functionality 
requirements list against each modernized system and identify 
capability gaps; 
Original expected completion date: September 2011; 
Actual or planned completion date: March 2014; 
GAO assessment and comments: 
Assessment: Started, completion delayed; 
Comment: OSD, the services, and DLA are identifying any capability 
gaps in the inventory management systems and potential impact on the 
Plan's implementation. This milestone was also extended to cover 
almost the entire Plan. 

Actions and milestones: Milestone 3.3: Identify and implement system 
and process improvements necessary for each modernized systems to meet 
overall requirements of the Plan; 
Original expected completion date: March 2014; 
Actual or planned completion date: March 2014; 
GAO assessment and comments: 
Assessment: Started, on schedule; 
Comment: None. 

Actions and milestones: Action 4: Establish departmentwide metrics to 
monitor the efficiency of DOD inventory operations; 
Original expected completion date: May 2012; 
Actual or planned completion date: May 2012; 
GAO assessment and comments: 
Assessment: Started, on schedule; 
Comment: OSD, the services, and DLA are developing a set of 
departmentwide metrics; however, these metrics are still 
underdevelopment and no final decisions have been made on the metrics. 

Actions and milestones: Milestone 4.1: Identify standard 
departmentwide key inventory management indicators; 
Original expected completion date: December 2010; 
Actual or planned completion date: December 2011; 
GAO assessment and comments: 
Assessment: Started, completion delayed; 
Comment: OSD, the services, and DLA are developing a set of 
departmentwide metrics; however, these metrics are still 
underdevelopment and no final decisions have been made on the metrics. 
This milestone was not complete as of December 2011, the planned 
completion date. 

Actions and milestones: Milestone 4.2: Establish procedures for 
collecting and reporting approved metrics; 
Original expected completion date: June 2011; 
Actual or planned completion date: June 2011; 
GAO assessment and comments: 
Assessment: Started, completion delayed; 
Comment: OSD, the services, and DLA are developing a set of 
departmentwide metrics; however, these metrics are still 
underdevelopment and no final decisions have been made on the metrics. 
OSD, the services, and DLA have identified initial procedures for 
collecting and reporting some inventory management metrics, but as of 
January 1, 2012, this milestone was not complete. 

Actions and milestones: Milestone 4.3: Ensure consistent approach to 
assess readiness and risk against efficiency and/or develop metrics; 
Original expected completion date: March 2012; 
Actual or planned completion date: January 2012; 
GAO assessment and comments: 
Assessment: Started, on schedule; 
Comment: OSD, the services, and DLA are developing a set of 
departmentwide metrics; however, these metrics are still 
underdevelopment and no final decisions have been made on the metrics. 

Actions and milestones: Milestone 4.4: Develop a metric to assess 
Weapon System Support Program file maintenance and effectiveness; 
Original expected completion date: May 2012; 
Actual or planned completion date: May 2012; 
GAO assessment and comments: 
Assessment: Started, on schedule; 
Comment: OSD, the services, and DLA are working to improve DLA's 
Weapon System Support Program, which provides a method of applying 
enhance management to items critical to the mission of the services' 
weapon systems, according to the criticality of the weapon system and 
the essentiality of the individual items to the mission of that weapon 
system. 

Source: GAO analysis of the Plan and DOD's periodic status briefings. 

[A] The stratification process is a uniform portrayal of requirements 
and assets that is a computer-generated, time-phased simulation of 
actions causing changes in the supply position; e.g., procurement, 
repair, receipt, issue, terminations, and disposal of materiel. 

[B] The Supply System Inventory Report is an annual publication that 
provides summary statistics on the status of DOD supply system 
inventories--both wholesale and retail inventory. 

[C] Strategic materiel sourcing is the concept of procuring items 
needed by applying commercial best practices. Examples include 
developing agreements between suppliers and DLA to arrange long-term 
contracts for sole-source items using best commercial practices such 
as partner-driven, integrated supply chain management whereby the 
buyer and seller cooperate to maximize their mutual benefit, or 
forming long-term contracts with manufacturers for low-demand, high-
dollar items by stipulating that DLA will also purchase other low-
priced, higher-demand items from those same manufacturers. 

[End of table] 

[End of section] 

Appendix XIII: Comments from the Department of Defense: 

Assistant Secretary of Defense: 
Logistics and Materiel Readiness: 
3500 Defense Pentagon: 
Washington, DC 20301-3500: 

April 23, 2012: 

Ms. Zina D. Merritt: 
Director, Defense Capabilities and Management: 
U.S. Government Accountability Office: 
441 G Street NW: 
Washington, DC 20548: 

Dear Ms. Merritt: 

This is the Department of Defense response to the GAO draft report, 
GAO Draft Report, GAO-12-493, "Defense Logistics: Actions Underway to 
Implement Improvement Plan, but Steps Needed to Enhance Efforts," 
dated March 28, 2012 (GAO Code 351639). 

The Department concurs with the report. Detailed responses to the 
three recommendations in the report are enclosed We appreciate the 
opportunity to respond to this report. 

Sincerely, 

Signed by: 

Alan F. Estevez: 

Enclosure: As stated. 

[End of letter] 

GAO Draft Report Dated March 28, 2012: 
GAO-12-493 (GAO Code 351639): 

"Defense Logistics: Actions Underway To Implement Improvement Plan, 
But Steps Needed To Enhance Efforts" 

Department Of Defense Comments To The GAO Recommendations: 

Recommendation 1: The GAO recommends that the Secretary of Defense 
direct the Assistant Secretary of Defense for Logistics & Materiel 
Readiness [ASD(L&MR)] to conduct and document periodic re-examinations 
of its existing on-order and on-hand excess inventory percentage 
targets (such as those officials say are planned) and update the 
targets and associated timelines, if necessary, to guide continued 
improvement in its inventory management through the plan's 
implementation. 

DoD Response: Concur. The Department will re-examine the on-order and 
on-hand excess goals as part of the ongoing review of the metrics. On-
hand excess inventory goals are currently being revised, taking into 
consideration current performance and anticipated operational 
conditions that may impact those goals. 

Recommendation 2: The GAO recommends that the Secretary of Defense 
direct the Assistant Secretary of Defense for Logistics & Materiel 
Readiness [ASD(L&MR)] to develop and implement guidance that 
establishes a comprehensive, standardized set of department-wide
inventory management metrics, including standardized and procedures 
for measuring and reporting the metrics. 

DoD Response: Concur. The Department continues to identify and develop 
enterprise inventory management metrics. 

Recommendation 3: The GAO recommends that the Secretary of Defense 
direct the Assistant Secretary of Defense for Logistics & Materiel 
Readiness [ASD(L&MR)] employ those metrics in periodically monitoring 
the effectiveness and efficiency of its inventory management practices. 

DoD Response: Concur. The Department will continue to monitor the 
existing inventory management metrics as part of the Comprehensive 
Inventory Management Improvement Plan. Additional metrics approved for 
Department-wide assessment of inventory management will be included in 
these reviews. 

[End of section] 

Appendix XIV: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Zina D. Merritt, (202) 512-5257 or merrittz@gao.gov: 

Staff Acknowledgments: 

In addition to the individual named above, key contributors to this 
report were Suzanne Wren (Assistant Director); Edward W. Anderson, 
Jr.; John Bumgarner; Elizabeth Curda; Dave Hubbell; Charlie Perdue; 
Greg Pugnetti; Michael Silver; Michael Willems; and Erik Wilkins-McKee. 

[End of section] 

Glossary: 

This glossary is provided for reader convenience. It is not intended 
as a definitive, comprehensive glossary of inventory management terms. 

acquisition lead time:
Acquisition lead time, also known as procurement lead time, measures 
the length of time between the identification of a materiel 
requirement and the receipt of that materiel into the supply system. 
Acquisition lead time is the sum of the administrative lead time and 
production lead time. 

administrative lead time:
The time interval between identifying a need to purchase an item and 
the award of a contract. 

approved acquisition objective:
The materiel needed to meet the requirements objective and 2 years of 
estimated future demand. 

authorized additive levels:
Contains additional materiel, such as wartime reserve stock and 
inventory for acquisition lead times, included in the requirements 
objective. 

condemned items:
Unserviceable assets that are determined to be beyond the point of 
economic repair during the repair process. 

contingency retention stock:
Materiel that is retained to support specific contingencies, such as 
to support foreign military sales, future military operations, 
disaster relief or civil emergencies, or to mitigate risk associated 
with diminished manufacturing sources or nonprocurable stock. 

demand forecasting:
Predicting future customer demands so inventory managers can develop 
inventory requirements to satisfy demands when they occur. Inaccurate 
forecasts lead to either excess inventory or shortfalls. 

direct vendor delivery:
A materiel acquisition and distribution method that requires supplier 
delivery directly to the customer, which can reduce the storage of 
items by the services and the Defense Logistics Agency. 

economic order quantity:
The quantity derived from a mathematical technique used to determine 
the lowest total variable costs to order and hold inventory. 

economic retention stock:
Materiel that has been deemed more economical to keep than to dispose 
of because it is likely to be needed in the future. 

multi-echelon modeling:
The use of mathematical models that compute the optimal number and 
type of parts needed at the wholesale and retail levels to achieve 
readiness and cost goals. 

on-hand excess inventory:
Inventory that is excess to the approved acquisition objective and is 
not being retained as economic or contingency retention stock. On-hand 
excess inventory is also referred to as potential reutilization stock. 

on-hand inventory:
Inventory that is in the Department of Defense's (DOD) possession. 

on-order excess inventory:
Items for which a contract has been awarded or funds have been 
obligated, but due to subsequent changes in requirements would be 
classified as potential reutilization stock upon arrival. 

on-order inventory:
Inventory that is not in DOD's possession but for which a contract has 
been awarded or funds have been obligated is considered to be on-order. 

potential reutilization stock:
Materiel exceeding the approved acquisition objective and not being 
retained as economic or contingency retention stock, that has been 
identified for possible disposal but has potential for reutilization. 
Potential reutilization stock is also referred to as on-hand excess 
inventory. 

production lead time:
The time interval between the award of a contract and receiving the 
purchased materiel into the supply system. 

repair-cycle level:
The quantity of reparable items required to sustain operations during 
the repair cycle that commences when a maintenance replacement takes 
place and ends when the unserviceable asset is returned to stock in a 
serviceable condition. 

requirements objective:
The maximum authorized quantity of stock for an item (for wholesale 
inventory replenishment), which consists of the sum of stock 
represented by the economic order quantity, the safety level, the 
repair-cycle level, and the authorized additive levels. 

retention stock:
Economic and contingency retention stock, which DOD states is 
necessary for the military mission. 

safety levels:
The amount of stock that is to be kept on hand in case of minor 
interruptions in the resupply process or fluctuations in demand. 

secondary inventory items:
Items that include reparable components, subsystems, and assemblies 
other than major end items (e.g., ships, aircraft, and helicopters), 
consumable repair parts, bulk items and materiel, subsistence, and 
expendable end items (e.g., clothing and other personal gear). 

total asset visibility:
The capability to provide all users with timely and accurate 
information about the location, movement, status, and identity of 
supplies and the capability to act on this information. 

[End of section] 

Related GAO Products: 

Defense Logistics: DOD Needs to Take Additional Actions to Address 
Challenges in Supply Chain Management. [hyperlink, 
http://www.gao.gov/products/GAO-11-569]. Washington, D.C.: July 28, 
2011. 

Opportunities to Reduce Potential Duplication in Government Programs, 
Save Tax Dollars, and Enhance Revenue. [hyperlink, 
http://www.gao.gov/products/GAO-11-318SP]. Washington, D.C.: March 1, 
2011. 

High-Risk Series: An Update. [hyperlink, 
http://www.gao.gov/products/GAO-11-278]. Washington, D.C.: February 
2011. 

DOD's 2010 Comprehensive Inventory Management Improvement Plan 
Addressed Statutory Requirements, But Faces Implementation Challenges. 
[hyperlink, http://www.gao.gov/products/GAO-11-240R]. Washington, 
D.C.: January 7, 2011. 

DOD's High-Risk Areas: Observations on DOD's Progress and Challenges 
in Strategic Planning for Supply Chain Management. [hyperlink, 
http://www.gao.gov/products/GAO-10-929T]. Washington, D.C.: July 27, 
2010. 

Defense Inventory: Defense Logistics Agency Needs to Expand on Efforts 
to More Effectively Manage Spare Parts. [hyperlink, 
http://www.gao.gov/products/GAO-10-469]. Washington, D.C.: May 11, 
2010. 

High-Risk Series: An Update. [hyperlink, 
http://www.gao.gov/products/GAO-09-271]. Washington, D.C.: January 
2009. 

Defense Inventory: Army Needs to Evaluate Impact of Recent Actions to 
Improve Demand Forecasts for Spare Parts. [hyperlink, 
http://www.gao.gov/products/GAO-09-199]. Washington, D.C.: January 12, 
2009. 

Defense Logistics: Lack of Key Information May Impede DOD's Ability to 
Improve Supply Chain Management. [hyperlink, 
http://www.gao.gov/products/GAO-09-150]. Washington D.C.: January 12, 
2009. 

Defense Inventory: Management Actions Needed to Improve the Cost 
Efficiency of the Navy's Spare Parts Inventory. [hyperlink, 
http://www.gao.gov/products/GAO-09-103]. Washington, D.C.: December 
12, 2008. 

DOD's High-Risk Areas: Efforts to Improve Supply Chain Can Be Enhanced 
by Linkage to Outcomes, Progress in Transforming Business Operations, 
and Reexamination of Logistics Governance and Strategy. [hyperlink, 
http://www.gao.gov/products/GAO-07-1064T]. Washington, D.C.: July 10, 
2007. 

High-Risk Series: An Update. [hyperlink, 
http://www.gao.gov/products/GAO-07-310]. Washington, D.C.: January 
2007. 

Defense Inventory: Opportunities Exist to Improve the Management of 
DOD's Acquisition Lead Times for Spare Parts. [hyperlink, 
http://www.gao.gov/products/GAO-07-281]. Washington, D.C.: March 2, 
2007. 

DOD's High-Risk Areas: Progress Made Implementing Supply Chain 
Management Recommendations, but Full Extent of Improvement Unknown. 
[hyperlink, http://www.gao.gov/products/GAO-07-234]. Washington, D.C.: 
January 17, 2007. 

Defense Inventory: Opportunities Exist to Save Billions by Reducing 
Air Force's Unneeded Spare Parts Inventory. [hyperlink, 
http://www.gao.gov/products/GAO-07-232]. Washington, D.C.: April 27, 
2007. 

Defense Inventory: Actions Needed to Improve Inventory Retention 
Management. [hyperlink, http://www.gao.gov/products/GAO-06-512]. 
Washington, D.C.: May 25, 2006. 

[End of section] 

Footnotes: 

[1] DOD defines secondary inventory items to include reparable 
components, subsystems, and assemblies other than major end items 
(e.g., ships, aircraft, and helicopters), consumable repair parts, 
bulk items and materiel, subsistence, and expendable end items (e.g., 
clothing and other personal gear). We use secondary inventory items 
and secondary inventory interchangeably in this report. 

[2] The approved acquisition objective incorporates both materiel 
needed to meet the requirements objective and two years of estimated 
future demand. The requirements objective is the maximum authorized 
quantity of stock for an item for wholesale replenishment. It consists 
of the sum of stock represented by the economic order quantity, the 
safety level, the repair-cycle level, and the authorized additive 
levels. While inventory held for economical reasons or future use is 
not part of the approved acquisition objective DOD states that 
retention of this inventory is necessary for the military mission. For 
further definitions see the background section and the glossary. 

[3] Economic retention stock is materiel that has been deemed more 
economical to keep than to dispose of because it is likely to be 
needed in the future. Contingency retention stock is materiel that is 
retained to support specific contingencies, such as to support foreign 
military sales, future military operations, disaster relief or civil 
emergencies, or to mitigate risk associated with diminished 
manufacturing sources or non-procurable stock. 

[4] GAO, The Federal Government's Long-Term Fiscal Outlook: January 
2010 Update, [hyperlink, http://www.gao.gov/products/GAO-10-468SP] 
(Washington, D.C.: March 2010); and 21st Century Challenges: 
Reexamining the Base of the Federal Government, [hyperlink, 
http://www.gao.gov/products/GAO-05-325SP] (Washington, D.C.: February 
2005). 

[5] Secretary of Defense, Department of Defense, Sustaining U.S. 
Global Leadership: Priorities for 21st Century Defense, Jan. 5, 2012. 

[6] GAO, Opportunities to Reduce Potential Duplication in Government 
Programs, Save Tax Dollars, and Enhance Revenue, [hyperlink, 
http://www.gao.gov/products/GAO-11-318SP] (Washington, D.C.: March 1, 
2011); High-Risk Series: An Update, [hyperlink, 
http://www.gao.gov/products/GAO-11-278] (Washington, D.C.: February 
2011); High-Risk Series: An Update, [hyperlink, 
http://www.gao.gov/products/GAO-09-271] (Washington, D.C.: January 
2009); High-Risk Series: An Update, [hyperlink, 
http://www.gao.gov/products/GAO-07-310] (Washington, D.C.: January 
2007); and High Risk-Series: An Update, [hyperlink, 
http://www.gao.gov/products/GAO-05-207] (Washington, D.C.: January 
2005). 

[7] See GAO, Defense Inventory: Defense Logistics Agency Needs to 
Expand on Efforts to More Effectively Manage Spare Parts, [hyperlink, 
http://www.gao.gov/products/GAO-10-469] (Washington, D.C.: May 11, 
2010); Defense Inventory: Army Needs to Evaluate Impact of Recent 
Actions to Improve Demand Forecasts for Spare Parts, [hyperlink, 
http://www.gao.gov/products/GAO-09-199] (Washington, D.C.: Jan. 12, 
2009); Defense Inventory: Management Actions Needed to Improve the 
Cost Efficiency of Navy's Spare Parts Inventory, [hyperlink, 
http://www.gao.gov/products/GAO-09-103] (Washington, D.C.: Dec. 12, 
2008); Defense Inventory: Opportunities Exist to Save Billons by 
Reducing Air Force's Unneeded Spare Parts Inventory, [hyperlink, 
http://www.gao.gov/products/GAO-07-232] (Washington, D.C.: Apr. 27, 
2007); Defense Inventory: Opportunities Exist to Improve the 
Management of DOD's Acquisition Lead Times for Spare Parts, 
[hyperlink, http://www.gao.gov/products/GAO-07-281] (Washington, D.C.: 
March 2, 2007); and Defense Inventory: Actions Needed to Improve 
Inventory Retention Management, [hyperlink, 
http://www.gao.gov/products/GAO-06-512] (Washington, D.C.: May 25, 
2006). 

[8] Pub. L. No. 111-84 § 328 (2009). 

[9] GAO, DOD's Comprehensive Inventory Management Improvement Plan 
Addressed Statutory Requirements, But Faces Implementation Challenges, 
[hyperlink, http://www.gao.gov/products/GAO-11-240R] (Washington, 
D.C.: Jan. 7, 2011). 

[10] DOD 4140.64-M, Secondary Item Stratification Manual (Aug. 24, 
2009). 

[11] Economic order quantity is the quantity derived from a 
mathematical technique used to determine the lowest total variable 
costs to order and hold inventory. 

[12] Safety levels are the amount of stock that is to be kept on hand 
in case of minor interruptions in the resupply process or fluctuations 
in demand. 

[13] Repair-cycle level is the quantity of reparable items required to 
sustain operations during the repair cycle that commences when a 
maintenance replacement takes place and ends when the unserviceable 
asset is returned to stock in a serviceable condition. 

[14] Authorized additive levels include materiel held as wartime 
reserve stock and inventory for acquisition lead times. 

[15] Inventory that is in DOD's possession is considered to be on-hand. 

[16] The contingencies include, but are not limited to, supporting 
foreign military sales, future military operations, disaster relief or 
civil emergencies, or mitigating risk associated with diminished 
manufacturing sources or nonprocurable stock. 

[17] According to DOD officials, the Supply Chain Executive Steering 
Committee is an executive-level governance body for oversight of 
improvement efforts. The Executive Steering Committee is chaired by 
the Deputy Assistant Secretary of Defense for Supply Chain Integration. 

[18] The Joint Logistics Board is co-chaired by the Assistant 
Secretary of Defense for Logistics and Materiel Readiness and the 
Joint Staff Director of Logistics. It meets bi-monthly and the 
discussion topics vary with each meeting and are focused on providing 
overall direction and guidance with respect to supply chain management 
across DOD. 

[19] Multi-echelon modeling is the use of mathematical models that 
compute the optimal number and type of parts needed at the wholesale 
and retail levels to achieve readiness and cost goals. 

[20] Acquisition lead time, also known as procurement lead 
time,measures the length of time between the identification of a 
materiel requirement and the receipt of that materiel into the supply 
system. Acquisition lead time is the sum of administrative lead time 
and production lead time. Administrative lead time is the time 
interval between identifying a need to purchase an item and the award 
of a contract. Production lead time is the time interval between the 
award of a contract and receiving the purchased materiel into the 
supply system. 

[21] [hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1], 
November 1999. 

[22] See GAO, Results-Oriented Management: Strengthening Key Practices 
at FEMA and Interior Could Promote Greater Use of Performance 
Information, [hyperlink, http://www.gao.gov/products/GAO-09-676] 
(Washington, D.C.: Aug. 17, 2009); International Food Assistance: 
USAID Is Taking Actions to Improve Monitoring and Evaluation of 
Nonemergency Food Aid, but Weaknesses in Planning Could Impede 
Efforts, [hyperlink, http://www.gao.gov/products/GAO-09-980] 
(Washington, D.C.: Sept. 28, 2009); and Managing for Results: 
Enhancing Agency Use of Performance Information for Management 
Decision Making, [hyperlink, http://www.gao.gov/products/GAO-05-927] 
(Washington, D.C.: Sept. 9, 2005). 

[23] [hyperlink, http://www.gao.gov/products/GAO-09-676]. 

[24] GAO, Government Reform: Goal-Setting and Performance, [hyperlink, 
http://www.gao.gov/products/AIMD/GGD-95-130R] (Washington, D.C.: Mar. 
27, 1995). 

[25] DOD Instruction 4140.01, DOD Supply Chain Materiel Management 
Policy (Dec. 14, 2011). 

[26] DOD Instruction 4140.01, DOD Supply Chain Materiel Management 
Policy (Dec. 14, 2011) is the current policy for supply chain materiel 
management. DOD is currently developing a manual to provide more 
detailed guidance in support of DOD Instruction 4140.01. The manual, 
once issued, will replace DOD 4140.1-R, DOD Supply Chain Materiel 
Management Regulation (May 23, 2003). 

[27] Demand forecast error is the difference between actual demand and 
forecasted demand, stated in a manner that quantifies any bias towards 
over or under forecasting. 

[28] These commands include the U.S. Army Materiel Command, Navy 
Supply Systems Command, Air Force Materiel Command, and Marine Corps 
Logistics Command. 

[29] See [hyperlink, http://www.gao.gov/products/GAO-10-469], 
[hyperlink, http://www.gao.gov/products/GAO-09-199], [hyperlink, 
http://www.gao.gov/products/GAO-09-103], and [hyperlink, 
http://www.gao.gov/products/GAO-07-232]. 

[30] Customer wait time is a measure of the number of days from the 
issuance of a customer order to satisfaction of that order. On-order 
excess inventory is measured by the dollar amount and the percentage 
of total obligated on-order dollars above the approved acquisition 
objective and on-hand excess inventory is measured by the dollar 
amount and the percentage of the total value of the inventory 
considered potential reutilization stock. 

[31] The "not mission capable rate for maintenance or supply" is a 
materiel condition indicating that systems and equipment are not 
capable of performing any of their assigned missions because of 
maintenance requirements or a maintenance work stoppage due to a 
supply shortage. Non-mission capable rates affect a unit's readiness 
rating. 

[32] "Tiered inventory turns" are the number of times that the 
inventory cycles or turns over in a year. A tiered approach looks at 
specific layers of inventory and their turn cycles. 

[33] See GAO, Defense Logistics: DOD Needs to Take Additional Actions 
to Address Challenges in Supply Chain Management, [hyperlink, 
http://www.gao.gov/products/GAO-11-569] (Washington, D.C.: July 28, 
2011). 

[34] See GAO, Agency Performance Plans: Examples of Practices That Can 
Improve Usefulness to Decisionmakers, [hyperlink, 
http://www.gao.gov/products/GAO/GGD/AIMD-99-69] (Washington, D.C.: 
Feb. 26, 1999). 

[35] DOD Instruction 4140.01, DOD Supply Chain Materiel Management 
Policy (Dec. 14, 2011). 

[36] For information on results-oriented management practices and 
metrics, see [hyperlink, http://www.gao.gov/products/GAO-09-676], 
[hyperlink, http://www.gao.gov/products/GAO-09-980], and [hyperlink, 
http://www.gao.gov/products/GAO-05-927]. 

[37] We have previously found that organizations should establish and 
periodically review and validate performance measures so that 
comparisons can be made relating different sets of data to one another 
to allow for corrective actions if necessary. See GAO, Internal 
Control Management and Evaluation Tool, [hyperlink, 
http://www.gao.gov/products/GAO-01-1008G] (Washington, D.C.: August 
2001). 

[38] DOD Instruction 4140.61, Customer Wait Time and Time Definite 
Delivery (Dec. 14, 2000). 

[39] A working capital fund relies on sales revenue rather than direct 
appropriations to finance its continuing operations and is intended to 
(1) generate sufficient resources to cover the full costs of its 
operations and (2) operate on a break-even basis over time--that is, 
neither make a gain nor incur a loss. Customers use appropriated funds 
to finance orders placed with the working capital fund. 

[40] In order to calculate the reduction amounts, OSD assumed 
reductions in the departmentwide percentage of on-order excess from 
8.5 percent in fiscal year 2009 to 4 percent in fiscal year 2016 with 
the largest percentage reductions occurring in fiscal years 2015 and 
2016. OSD multiplied these assumed aggregate wide percentage 
reductions by a ratio of the DOD on-order excess dollar reduction 
(based on the assumed departmentwide percentage reductions) to the 
Army and DLA's previous year total on-order excess dollars to 
determine the yearly reduction amount. The calculations were based on 
fiscal year 2009 stratification reporting data, which was the best 
available data at the time. 

[41] Acquisition lead time, also known as procurement lead 
time,measures the length of time between the identification of a 
materiel requirement and the receipt of that materiel into the supply 
system. Acquisition lead time is the sum of the administrative lead 
time and production lead time. Administrative lead time is the time 
interval between identifying a need to purchase an item and the award 
of a contract. Production lead time is the time interval between the 
award of a contract and receiving the purchased materiel into the 
supply system. 

[42] Demand forecasting is predicting future customer demands so 
inventory managers can develop inventory requirements to satisfy 
demands when they occur. Inaccurate forecasts lead to either excess 
inventory or shortfalls. 

[43] Multi-echelon modeling is the use of mathematical models that 
compute the optimal number and type of parts needed at the wholesale 
and retail levels to achieve readiness and cost goals. 

[44] Inventory that is not in DOD's possession but for which a 
contract has been awarded or funds have been obligated is considered 
to be on-order. 

[45] On-order excess inventory are items for which a contract has been 
awarded or funds have been obligated, but due to subsequent changes in 
requirements would be classified as potential reutilization stock upon 
arrival. 

[46] Economic retention stock is materiel that has been deemed more 
economical to keep than to dispose of because it is likely to be 
needed in the future. 

[47] Contingency retention stock is materiel that is retained to 
support specific contingencies, such as to support foreign military 
sales, future military operations, disaster relief or civil 
emergencies, or to mitigate risk associated with diminished 
manufacturing sources or nonprocurable stock. 

[48] Direct vendor delivery is a materiel acquisition and distribution 
method that requires supplier delivery directly to the customer, which 
can reduce the storage of items by the services and DLA. 

[49] Items with no recurring demand have not been needed over a 
specified period. Although the services and DLA time periods vary, the 
Plan intends to implement a DOD-wide standard of greater than 5 years. 

[50] Potential reutilization stock is materiel that exceeds the 
approved acquisition objective, is not being retained as economic or 
contingency retention stock, and has been identified for possible 
disposal but has potential for reutilization. Potential reutilization 
stock is also referred to as on-hand excess inventory. 

[51] On-hand excess inventory is inventory that is excess to the 
approved acquisition objective and is not being retained as economic 
or contingency retention stock. On-hand excess inventory is also 
referred to as potential reutilization stock. 

[52] Acquisition lead time, also known as procurement lead 
time,measures the length of time between the identification of a 
materiel requirement and the receipt of that materiel into the supply 
system. Acquisition lead time is the sum of the administrative lead 
time and production lead time. Administrative lead time is the time 
interval between identifying a need to purchase an item and the award 
of a contract. Production lead time is the time interval between the 
award of a contract and receiving the purchased materiel into the 
supply system. 

[End of section] 

GAO’s Mission: 

The Government Accountability Office, the audit, evaluation, and 
investigative arm of Congress, exists to support Congress in meeting 
its constitutional responsibilities and to help improve the 
performance and accountability of the federal government for the 
American people. GAO examines the use of public funds; evaluates 
federal programs and policies; and provides analyses, recommendations, 
and other assistance to help Congress make informed oversight, policy, 
and funding decisions. GAO’s commitment to good government is 
reflected in its core values of accountability, integrity, and 
reliability. 

Obtaining Copies of GAO Reports and Testimony: 

The fastest and easiest way to obtain copies of GAO documents at no 
cost is through GAO’s website [hyperlink, http://www.gao.gov]. Each 
weekday afternoon, GAO posts on its website newly released reports, 
testimony, and correspondence. To have GAO e-mail you a list of newly 
posted products, go to [hyperlink, http://www.gao.gov] and select “E-
mail Updates.” 

Order by Phone: 

The price of each GAO publication reflects GAO’s actual cost of 
production and distribution and depends on the number of pages in the 
publication and whether the publication is printed in color or black 
and white. Pricing and ordering information is posted on GAO’s 
website, [hyperlink, http://www.gao.gov/ordering.htm]. 

Place orders by calling (202) 512-6000, toll free (866) 801-7077, or 
TDD (202) 512-2537. 

Orders may be paid for using American Express, Discover Card, 
MasterCard, Visa, check, or money order. Call for additional 
information. 

Connect with GAO: 

Connect with GAO on facebook, flickr, twitter, and YouTube.
Subscribe to our RSS Feeds or E mail Updates. Listen to our Podcasts.
Visit GAO on the web at [hyperlink, http://www.gao.gov]. 

To Report Fraud, Waste, and Abuse in Federal Programs: 

Contact: 
Website: [hyperlink, http://www.gao.gov/fraudnet/fraudnet.htm]; 
E-mail: fraudnet@gao.gov; 
Automated answering system: (800) 424-5454 or (202) 512-7470. 

Congressional Relations: 

Katherine Siggerud, Managing Director, siggerudk@gao.gov, (202) 512-4400
U.S. Government Accountability Office, 441 G Street NW, Room 7125
Washington, DC 20548. 

Public Affairs: 
Chuck Young, Managing Director, youngc1@gao.gov, (202) 512-4800
U.S. Government Accountability Office, 441 G Street NW, Room 7149 
Washington, DC 20548.