Defense Inventory:

Approach for Deciding Whether to Retain or Dispose of Items Needs Improvement

GAO-01-475: Published: May 25, 2001. Publicly Released: May 25, 2001.

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As of September 1999, the Department of Defense (DOD) reported that it owned secondary inventory worth about $64 billion and that $9.4 billion of that inventory is more economical to retain than to dispose of and possibly repurchase later. This report focuses on whether DOD's economic retention decisions are sound. GAO found that military components (other than the Air Force) have developed models to help make economic retention decisions on secondary inventory. However, none of the components now use their economic retention models. Instead, they and the Air Force use ceilings to limit the amount of economic retention inventory they hold. Components have not properly documented their approaches to economic retention decisions. For example, common model factors vary and assumptions are inconsistent and out of date. In addition, DOD lacked sound analytical support for the maximum levels it now uses. As a result, the components cannot depend on their models or ceilings to determine retention inventory levels without review and improvement. They also have not reviewed their approaches annually. As a result, the Department does not have a sound basis for its approach to manage items held in economic retention status. Consequently, the Department cannot guarantee that inventories held in economic retention are the right amount.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: DOD concurred with the recommendation that the services and DLA should annually review the appropriateness of their economic retention inventory levels, and is taking action to implement the reviews.

    Recommendation: The Secretary of Defense should direct the Secretaries of the Army, Navy, and Air Force and the Director of the Defense Logistics Agency, in consultation with the Under Secretary of Defense for Acquisition, Technology, and Logistics, to review current and recently used approaches for making decisions on whether to hold or dispose of economic retention inventory and establish milestones on an expedited basis for developing and implementing appropriate approaches to economic retention decisions.

    Agency Affected: Department of Defense

  2. Status: Closed - Implemented

    Comments: DOD partially concurred with the recommendation. DOD will determine the need for the services and DLA to review their approaches to determining their economic retention levels following the completion of a study of secondary parts shortages in August 2001.

    Recommendation: The Secretary of Defense should direct the Secretaries of the Army, Navy, and Air Force and the Director of the Defense Logistics Agency, in consultation with the Under Secretary of Defense for Acquisition, Technology, and Logistics, to annually review their approaches to meet Department regulations to ensure that they have a sound basis to determine economic retention inventory levels.

    Agency Affected: Department of Defense

 

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