Defense Inventory:

Process for Canceling Inventory Orders Needs Improvement

NSIAD-00-160: Published: Jun 30, 2000. Publicly Released: Jun 30, 2000.

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Pursuant to a congressional request, GAO provided information on the Department of Defense's (DOD) inventory management, focusing on the: (1) extent to which orders exceeded requirements when the orders were placed; and (2) processes for cancelling orders that exceeded requirements.

GAO noted that: (1) for the 490 items reviewed, GAO found no evidence that inventory orders exceeded requirements when the orders were first placed; (2) managers had placed orders after ensuring that they were supported by requirements, consistent with DOD's policies; (3) however, requirements for the items often changed after the orders were placed, which caused the items to exceed requirements; (4) because of the large number of inaccurate records, neither DOD nor the military components know whether managers are efficiently focusing their efforts to cancel excess inventory on order, and DOD does not have an accurate view of the total value of its excess inventory on order; (5) each component's process for cancelling orders that exceeded requirements differs and cannot be relied on to consistently identify orders to be considered for cancellation or to terminate orders when economical; (6) the components use different criteria for the amount of excess inventory on order they consider for cancellation; (7) the Army and the Defense Logistics Agency (DLA) consider orders for cancellation when the inventory ordered exceeds requirements; (8) the Navy and Air Force consider canceling orders when the inventory is at higher levels; (9) the Army and the DLA consider more of their excess inventory on order for cancellation than the Navy and Air Force do; (10) only the DLA consistently uses its computer model to determine whether it is more economical to cancel orders or not; (11) however, of the $696 million its model referred for consideration during a 3-month period in 1999, less than $11 million in orders were cancelled; (12) the Army and Air Force infrequently use their models, and the Navy has not used its model since 1993 because it overestimated contract termination costs, thus eliminating contracts for consideration; (13) the lack of use of the models and cancellation of items referred for consideration raises questions about their effectiveness; (14) the military components' frequency in reviewing orders of excess inventory for cancellation ranges from monthly to quarterly; (15) the longer components wait to consider an item for cancellation, the less likely cancellation will be cost-effective because they have to pay the contractor for costs incurred until the order is cancelled; (16) the components' goals for reducing excess inventory on order vary and are not comparable; and (17) thus, DOD cannot evaluate the components' progress in reducing excess inventory on order in a consistent way.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: The Deputy Under Secretary of Defense (Logistics) requested on June 26, 2000, that the Military Departments and Defense Logistics Agency review their processes for identifying and reducing or canceling orders when requirements for secondary items decrease, and implement improvements where appropriate. Responses were received from each of the services. The military components all took some corrective actions; however, the components are in the process of implementing new inventory management systems that will further improve data accuracy. The systems will be operational in the 2005 through 2009 timeframe.

    Recommendation: Because of the difficulties the services and DLA face in identifying and cancelling excess inventory on order, the Secretary of Defense, in conjunction with the Secretaries of the Army, Navy, and Air Force, and the Director, DLA, should review and improve their processes, focusing on areas such as the accuracy of inventory management records.

    Agency Affected: Department of Defense: Defense Logistics Agency

  2. Status: Closed - Implemented

    Comments: The Deputy Under Secretary of Defense (Logistics) requested on June 26, 2000, that the Military Departments and Defense Logistics Agency review their processes for identifying and reducing or canceling orders when requirements for secondary items decrease, and implement improvements where appropriate. The Army reported to DOD on March 6, 2001, that it had completed its review of processes for canceling excess orders and made improvements where appropriate. The Army is in the process of implementing a new inventory management system which would further affect this recommendation.

    Recommendation: Because of the difficulties the services and DLA face in identifying and cancelling excess inventory on order, the Secretary of Defense, in conjunction with the Secretaries of the Army, Navy, and Air Force, and the Director, DLA, should review and improve their processes, focusing on areas such as the accuracy of inventory management records.

    Agency Affected: Department of Defense: Department of the Navy

  3. Status: Closed - Implemented

    Comments: The Deputy Under Secretary of Defense (Logistics) requested on June 26, 2000, that the Military Departments and Defense Logistics Agency review their processes for identifying and reducing or canceling orders when requirements for secondary items decrease, and implement improvements where appropriate. The Navy responded to DOD that it had reviewed its system and established monitoring goals for accuracy.

    Recommendation: Because of the difficulties the services and DLA face in identifying and cancelling excess inventory on order, the Secretary of Defense, in conjunction with the Secretaries of the Army, Navy, and Air Force, and the Director, DLA, should review and improve their processes, focusing on areas such as the accuracy of inventory management records.

    Agency Affected: Department of Defense: Department of the Army

  4. Status: Closed - Implemented

    Comments: The Deputy Under Secretary of Defense (Logistics) requested on June 26, 2000, that the Military Departments and Defense Logistics Agency review their processes for identifying and reducing or canceling orders when requirements for secondary items decrease, and implement improvements where appropriate. DLA's response did not specifically address inventory record accuracy; however, DLA is fielding a new inventory management system that will further improve record accuracy.

    Recommendation: Because of the difficulties the services and DLA face in identifying and cancelling excess inventory on order, the Secretary of Defense, in conjunction with the Secretaries of the Army, Navy, and Air Force, and the Director, DLA, should review and improve their processes, focusing on areas such as the accuracy of inventory management records.

    Agency Affected: Department of Defense: Department of the Air Force

  5. Status: Closed - Not Implemented

    Comments: The Deputy Under Secretary of Defense (Logistics) requested on June 26, 2000, that the Military Departments and Defense Logistics Agency review their processes for identifying and reducing or canceling orders when requirements for secondary items decrease, and implement improvements where appropriate. The Navy's response on its corrective actions did not address this recommendation. Followup work showed that the Navy had not changed it process for identifying orders for cancellation.

    Recommendation: Because of the difficulties the services and DLA face in identifying and cancelling excess inventory on order, the Secretary of Defense, in conjunction with the Secretaries of the Army, Navy, and Air Force, and the Director, DLA, should review and improve their processes, focusing on areas such as the level at which the services and DLA identify excess inventory on order that is subject to cancellation review, including low-dollar excess inventory on order that is excluded from cancellation review.

    Agency Affected: Department of Defense: Department of the Air Force

  6. Status: Closed - Implemented

    Comments: The Deputy Under Secretary of Defense (Logistics) requested on June 26, 2000, that the Military Departments and Defense Logistics Agency review their processes for identifying and reducing or canceling orders when requirements for secondary items decrease, and implement improvements where appropriate.

    Recommendation: Because of the difficulties the services and DLA face in identifying and cancelling excess inventory on order, the Secretary of Defense, in conjunction with the Secretaries of the Army, Navy, and Air Force, and the Director, DLA, should review and improve their processes, focusing on areas such as the level at which the services and DLA identify excess inventory on order that is subject to cancellation review, including low-dollar excess inventory on order that is excluded from cancellation review.

    Agency Affected: Department of Defense: Department of the Navy

  7. Status: Closed - Implemented

    Comments: The Deputy Under Secretary of Defense (Logistics) requested on June 26, 2000, that the Military Departments and Defense Logistics Agency review their processes for identifying and reducing or canceling orders when requirements for secondary items decrease, and implement improvements where appropriate. DLA reviewed its thresholds to ensure that they were appropriately set.

    Recommendation: Because of the difficulties the services and DLA face in identifying and cancelling excess inventory on order, the Secretary of Defense, in conjunction with the Secretaries of the Army, Navy, and Air Force, and the Director, DLA, should review and improve their processes, focusing on areas such as the level at which the services and DLA identify excess inventory on order that is subject to cancellation review, including low-dollar excess inventory on order that is excluded from cancellation review.

    Agency Affected: Department of Defense

  8. Status: Closed - Implemented

    Comments: The Deputy Under Secretary of Defense (Logistics) requested on June 26, 2000, that the Military Departments and Defense Logistics Agency review their processes for identifying and reducing or canceling orders when requirements for secondary items decrease, and implement improvements where appropriate. The Air Force reviewed its processes and took actions to make improvements.

    Recommendation: Because of the difficulties the services and DLA face in identifying and cancelling excess inventory on order, the Secretary of Defense, in conjunction with the Secretaries of the Army, Navy, and Air Force, and the Director, DLA, should review and improve their processes, focusing on areas such as the level at which the services and DLA identify excess inventory on order that is subject to cancellation review, including low-dollar excess inventory on order that is excluded from cancellation review.

    Agency Affected: Department of Defense: Defense Logistics Agency

  9. Status: Closed - Implemented

    Comments: The Deputy Under Secretary of Defense (Logistics) requested on June 26, 2000, that the Military Departments and Defense Logistics Agency review their processes for identifying and reducing or canceling orders when requirements for secondary items decrease, and implement improvements where appropriate. Some of the services have actions in process. The Army, for example, did make major subordinate commands responsible for determining the frequency of review.

    Recommendation: Because of the difficulties the services and DLA face in identifying and cancelling excess inventory on order, the Secretary of Defense, in conjunction with the Secretaries of the Army, Navy, and the Air Force, and the Director, DLA, should review and improve their processes, focusing on areas such as the timeliness and frequency of reviews for identifying excess items on order.

    Agency Affected: Department of Defense: Department of the Army

  10. Status: Closed - Implemented

    Comments: The Deputy Under Secretary of Defense (Logistics) requested on June 26, 2000, that the Military Departments and Defense Logistics Agency review their processes for identifying and reducing or canceling orders when requirements for secondary items decrease, and implement improvements where appropriate. The Air Force reviewed its processes and took actions where it felt appropriate.

    Recommendation: Because of the difficulties the services and DLA face in identifying and cancelling excess inventory on order, the Secretary of Defense, in conjunction with the Secretaries of the Army, Navy, and the Air Force, and the Director, DLA, should review and improve their processes, focusing on areas such as the timeliness and frequency of reviews for identifying excess items on order.

    Agency Affected: Department of Defense

  11. Status: Closed - Implemented

    Comments: The Deputy Under Secretary of Defense (Logistics) requested on June 26, 2000, that the Military Departments and Defense Logistics Agency review their processes for identifying and reducing or canceling orders when requirements for secondary items decrease, and implement improvements where appropriate. DLA reviewed its processes and responded that it reviews its excess on order semi-annually, which GAO identified as part of the problem.

    Recommendation: Because of the difficulties the services and DLA face in identifying and cancelling excess inventory on order, the Secretary of Defense, in conjunction with the Secretaries of the Army, Navy, and the Air Force, and the Director, DLA, should review and improve their processes, focusing on areas such as the timeliness and frequency of reviews for identifying excess items on order.

    Agency Affected: Department of Defense: Department of the Navy

  12. Status: Closed - Implemented

    Comments: The Deputy Under Secretary of Defense (Logistics) requested on June 26, 2000, that the Military Departments and Defense Logistics Agency review their processes for identifying and reducing or canceling orders when requirements for secondary items decrease, and implement improvements where appropriate. The Army responded that it reviewed its processes and took corrective actions where appropriate. Followup work determined that the Army made major subordinate commands responsible for determining the frequency of review. No work was done to assess the impact of this action.

    Recommendation: Because of the difficulties the services and DLA face in identifying and cancelling excess inventory on order, the Secretary of Defense, in conjunction with the Secretaries of the Army, Navy, and the Air Force, and the Director, DLA, should review and improve their processes, focusing on areas such as the timeliness and frequency of reviews for identifying excess items on order.

    Agency Affected: Department of Defense: Defense Logistics Agency

  13. Status: Closed - Implemented

    Comments: The Deputy Under Secretary of Defense (Logistics) requested on June 26, 2000, that the Military Departments and Defense Logistics Agency take action to identify inventory on orders that exceed both the requirements objective and the approved acquisition objective. The Air Force reviewed its processes and responded that the Air Force Audit Agency will review the termination model. The Air Force Audit Agency was in the process of reviewing the termination model at the time of GAO's followup work in 2001. No further follow up was conducted.

    Recommendation: Because of the difficulties the services and DLA face in identifying and cancelling excess inventory on order, the Secretary of Defense, in conjunction with the Secretaries of the Army, Navy, and Air Force, and the Director, DLA, should review and improve their processes, focusing on areas such as the validity and use of the military components' termination models in making economic analyses.

    Agency Affected: Department of Defense: Department of the Navy

  14. Status: Closed - Not Implemented

    Comments: The Deputy Under Secretary of Defense (Logistics) requested on June 26, 2000, that the Military Departments and Defense Logistics Agency take action to identify inventory on orders that exceed both the requirements objective and the approved acquisition objective. Followup work showed that the Army made no changes to its termination model.

    Recommendation: Because of the difficulties the services and DLA face in identifying and cancelling excess inventory on order, the Secretary of Defense, in conjunction with the Secretaries of the Army, Navy, and Air Force, and the Director, DLA, should review and improve their processes, focusing on areas such as the validity and use of the military components' termination models in making economic analyses.

    Agency Affected: Department of Defense

  15. Status: Closed - Implemented

    Comments: The Deputy Under Secretary of Defense (Logistics) requested on June 26, 2000, that the Military Departments and Defense Logistics Agency take action to identify inventory on orders that exceed both the requirements objective and the approved acquisition objective. DLA reviewed its processes and followup work showed that DLA had updated the factors used in its model. The followup work did not assess the impact of this change.

    Recommendation: Because of the difficulties the services and DLA face in identifying and cancelling excess inventory on order, the Secretary of Defense, in conjunction with the Secretaries of the Army, Navy, and Air Force, and the Director, DLA, should review and improve their processes, focusing on areas such as the validity and use of the military components' termination models in making economic analyses.

    Agency Affected: Department of Defense: Defense Logistics Agency

  16. Status: Closed - Implemented

    Comments: The Office of the Secretary of Defense requested on June 30, 2000, that the Military Departments and Defense Logistics Agency review their processes for identifying and reducing or canceling orders when requirements for secondary items decrease, and implement improvements where appropriate. The military components reviewed their processes and took some corrective actions.

    Recommendation: Because of the difficulties the services and DLA face in identifying and cancelling excess inventory on order, the Secretary of Defense, in conjunction with the Secretaries of the Army, Navy, and Air Force, and the Director, DLA, should review and improve their processes, focusing on areas such as the validity and use of the military components' termination models in making economic analyses.

    Agency Affected: Department of Defense: Department of the Air Force

  17. Status: Closed - Implemented

    Comments: The Deputy Under Secretary of Defense (Logistics) requested on June 26, 2000, that the Military Departments and Defense Logistics Agency take action to identify inventory on orders that exceed both the requirements objective and the approved acquisition objective. DOD's response showed that Army is reporting by requirements objective and approved acquisition objective. It is silent on other services. Followup work showed that the services and DLA were collecting the data as recommended, but that the data was not being provided to DOD for program oversight.

    Recommendation: In addition, to improve DOD's oversight of excess inventory on order, the Secretary of Defense should require the services and DLA to report on the amount of all excess inventory on order, identifying inventory on order that exceeds both the requirements objective and the approved acquisition objective.

    Agency Affected: Department of Defense

 

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