Navy Supply:

Improved Material Management Can Reduce Shipyard Costs

NSIAD-94-181: Published: Jul 27, 1994. Publicly Released: Jul 27, 1994.

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GAO reviewed the Navy's management of material costs in naval shipyards, focusing on: (1) whether the Navy's material requirements determination process minimizes waste caused by unused material; (2) shipyard compliance with Navy requirements prohibiting the accumulation of unrecorded material; and (3) the adequacy of controls used to manage materials, limit inventory levels, and safeguard material assets.

GAO found that: (1) the Navy has improved material management at naval shipyards, but further improvements are needed; (2) the shipyards' material requirements determination process is not working as intended and shipyards are ordering more material than they need; (3) the quantity of unused material exceeds the Navy's goal and results in waste that cannot be returned to the supply system or vendor; (4) the quantity of unused material is generally underreported because of limitations in the shipyards' information systems; (5) the Navy has directed the shipyards to revise their material management information systems to improve reporting of unused materials; (6) factors causing excessive material orders include the shipyards' failure to analyze the reasons for unused material, the absence of historical usage data, questionable material ordering decisions, workers' use of unrecorded material to complete repairs, changes in or cancellations of repair orders after the material is ordered, and unanticipated changes in material specifications; (7) the shipyards maintain excessive amounts of unrecorded material; and (8) the shipyards' inventory records are incomplete because of inadequate management controls to ensure compliance with inventory policies and to safeguard material assets.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: All shipyards have been provided the capability to collect historical material usage through the work packaging and control subsystem of the Baseline Advanced Industrial Management system. Material tables have been designed and developed to record material orders and actual usage.

    Recommendation: The Secretary of the Navy should direct the Commander, NAVSEA, to ensure that the planned system to collect historical material usage information is successfully implemented.

    Agency Affected: Department of Defense: Department of the Navy

  2. Status: Closed - Implemented

    Comments: By letter dated May 24, 1994, NAVSEA directed shipyard commanders to comply with restrictive policies on ordering contingency material. The policy does not prohibit the ordering of contingency material, but requires that high-value orders be based on sound judgment and approved at a supervisory level above the material planner.

    Recommendation: The Secretary of the Navy should direct the Commander, NAVSEA, to direct shipyard planners to order contingency material only when there is a sound basis for doing so.

    Agency Affected: Department of Defense: Department of the Navy

  3. Status: Closed - Implemented

    Comments: All shipyards have issued formal local instructions requiring periodic checks of production spaces for unrecorded material. Also, the NAVSEA functional area guide for command inspections was revised to include a review of management compliance with the spot-check requirement.

    Recommendation: The Secretary of the Navy should direct the Commander, NAVSEA, to direct that top management at each shipyard make periodic spot checks for unrecorded material to help prevent the future accumulation of unrecorded inventories.

    Agency Affected: Department of Defense: Department of the Navy

  4. Status: Closed - Implemented

    Comments: The capability for project managers or other officials to review shop stores issues has been provided to all shipyards. This feature has been provided in the automated material planning system for shop stores items ordered in advance by material planners. For walk-up sales, project managers and other officials can review daily transaction reports that list all sales transactions.

    Recommendation: The Secretary of the Navy should direct the Commander, NAVSEA, to require that project managers, or other officials accountable for material budgets, review shop store issues for ship repairs.

    Agency Affected: Department of Defense: Department of the Navy

  5. Status: Closed - Implemented

    Comments: By letter dated June 13, 1994, NAVSEA directed that all shipyards immediately begin recording employee badge numbers for shop stores issues and that issue volume by badge number be reviewed to identify possible abuse.

    Recommendation: The Secretary of the Navy should direct the Commander, NAVSEA, to establish additional controls over issues of items with personal use value.

    Agency Affected: Department of Defense: Department of the Navy

  6. Status: Closed - Implemented

    Comments: The shipyards have intensified efforts to eliminate excess inventories that exceed retention criteria. In addition, excess inventories are being reduced through a combination of reduced replenishment, consumption, and write-offs.

    Recommendation: The Secretary of the Navy should direct the Commander, NAVSEA, to direct the shipyards to eliminate shop store excess inventories that exceed NAVSEA retention criteria.

    Agency Affected: Department of Defense: Department of the Navy

  7. Status: Closed - Implemented

    Comments: NAVSEA is monitoring compliance with physical inventory requirements and requiring headquarters approval for any deviations. The Norfolk shipyard already has conducted two inventories and scheduled four more.

    Recommendation: The Secretary of the Navy should direct the Commander, NAVSEA, to ensure that shipyards comply with requirements for physical inventories of direct material.

    Agency Affected: Department of Defense: Department of the Navy

  8. Status: Closed - Implemented

    Comments: NAVSEA charted a process action team to investigate losses of material. The team found that losses were small and within acceptable guidelines. New procedures implemented at all shipyards will improve material handling and location records through improved material handling discipline.

    Recommendation: The Secretary of the Navy should direct the Commander, NAVSEA, to determine the causes for lost material and develop strategies to reduce the losses.

    Agency Affected: Department of Defense: Department of the Navy

  9. Status: Closed - Implemented

    Comments: An improved version of the material management system has been installed at the shipyards. This version provides reports of unused material at the time of job order closure and allows shipyards to identify and analyze the causes of unused material.

    Recommendation: The Secretary of the Navy should direct the Commander, Naval Sea Systems Command (NAVSEA), to require that each shipyard identify and analyze the causes of unused material as a step toward developing strategies to improve the accuracy of material orders.

    Agency Affected: Department of Defense: Department of the Navy

  10. Status: Closed - Implemented

    Comments: All shipyards are reviewing and critically appraising procedures for control of unrecorded material. Special sweep-ups at the Norfolk and Puget Sound shipyards have been completed. They also are essentially complete at the other shipyards, except for some residual material and catalog/restorage efforts.

    Recommendation: The Secretary of the Navy should direct the Commander, NAVSEA, to direct each shipyard to identify and record all existing unrecorded material, retain only those materials that have a specific shipyard requirement, return all other needed materials to the supply system, and dispose of materials no longer needed.

    Agency Affected: Department of Defense: Department of the Navy

 

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