Army Inventory:

Need to Improve Process for Establishing Economic Retention Requirements

NSIAD-92-84: Published: Feb 27, 1992. Publicly Released: Feb 27, 1992.

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Pursuant to a congressional request, GAO reviewed how the Army determines its economic retention requirements for inventory items, focusing on: (1) the methodology of the computer model the Army uses for calculating the economic retention requirements; (2) how the Army uses the computer model and the quality of the model's cost factors and rates inputs; and (3) the impact of model or data inaccuracies or inadequacies on supply operations.

GAO found that: (1) although the Army developed an analytical model in 1969, which may provide a sound basis for determining its retention requirements, the Army has made numerous modifications to the computer programs supporting the model, which now contains several errors and non-model-based computations; (2) the Army's use of the computer programs has resulted in many economic retention decisions that are not based on the model, decisions to retain items that do not meet the retention criteria, decisions based on passed or invalid support review dates, and decisions based on inappropriate manual computation rates; (3) the Army's new model for addressing programming problems will not resolve problems related to bypassing the model to compute retention requirements, passed or arbitrary support review dates, and non-stocked and no-demand items; (4) the quality of the data input by inventory control points into the model has also adversely affected retention calculations, since inventory control points did not uniformly calculate costs factors and rates inputs; and (5) neither the Department of Defense nor the Army provided clear guidance on how to determine the various rates and factors for the model. GAO believes that, unless economic retention requirements are correctly calculated, the Army has no assurance that it is economically retaining items, and may be incurring unnecessary holding costs for overstated requirements and prematurely disposing of items if requirements are understated, leading to costly reprocurement.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: The agency agreed with the report recommendation and advised that the rates and factors have been updated as part of the new economic retention model.

    Recommendation: The Secretary of the Army should direct the Commander, AMC, to issue guidance to the national inventory control points that clearly defines the data to be considered and the methodology for calculating the cost factors and rates to be used in the model.

    Agency Affected: Department of Defense: Department of the Army

  2. Status: Closed - Not Implemented

    Comments: The agency agreed with the report recommendations and advised that AR 710-1 provided that such items would be categorized as contingency retention or potential excess.

    Recommendation: The Secretary of the Army should direct the Commander, AMC, to require that, when an item does not qualify for economic retention but there is a valid need to retain it, its retention be justified on another basis.

    Agency Affected: Department of Defense: Department of the Army

  3. Status: Closed - Implemented

    Comments: The agency agreed with the report recommendations and advised that the new economic retention model will be used for making all economic retention decisions.

    Recommendation: The Secretary of the Army should direct the Commander, AMC, to require that the national inventory control points use the newly developed model for determining all economic retention inventory requirements.

    Agency Affected: Department of Defense: Department of the Army

  4. Status: Closed - Implemented

    Comments: The agency agreed with the report recommendations and advised that a new economic retention model was released to the ICP in August 1992. The logic flaws and programming errors that were in the old model have been eliminated.

    Recommendation: The Secretary of the Army should direct the Commander, Army Materiel Command (AMC), to require that the economic retention program the Army is now developing be validated as methodologically sound.

    Agency Affected: Department of Defense: Department of the Army

  5. Status: Closed - Implemented

    Comments: The agency agreed with the report recommendations and advised that the rates and factors have been standardized as part of the new model. Therefore, all ICP will uniformly compute retention levels.

    Recommendation: The Secretary of the Army should direct the Commander, AMC, to require that the cost factors and rates related to obsolescence, inventory losses, and disposal revenue be uniformly calculated by the inventory control points.

    Agency Affected: Department of Defense: Department of the Army

 

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