Commercial Practices:

Opportunities Exist to Enhance DOD's Sales of Surplus Aircraft Parts

NSIAD-94-189: Published: Sep 23, 1994. Publicly Released: Oct 25, 1994.

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Pursuant to a congressional request, GAO reviewed how the Department of Defense (DOD) markets and sells its surplus and scrap aircraft parts to the public, focusing on: (1) how DOD sales practices compare with those of the private sector; and (2) DOD ability to maximize sales and minimize improper use of scrap parts after they are sold.

GAO found that: (1) although DOD proceeds from the sale of commercial-type surplus aircraft parts average less than 1 percent of what DOD paid for them, commercial airline proceeds average between 40 to 50 percent from the sale of comparable parts; (2) the difference in proceeds reflects the different incentives and marketing practices within DOD and the private sector; (3) DOD sales practices emphasize the quick disposal of surplus aircraft parts rather than maximizing proceeds; (4) DOD disposal staff lack sufficient monetary incentives and training to effectively market and optimize the prices received for the parts; (5) commercial airlines emphasize the profit incentive, expect to obtain reasonable rates of return on the surplus aircraft parts they sell, and are less concerned with how quickly surplus property is disposed of; (6) progressive commercial airlines provide their staff with the training and resources necessary to maximize surplus property sales; (7) commercial airlines use marketing techniques that substantially enhance the visibility and marketability of their surplus parts; (8) although DOD may not be able to duplicate commercial marketing techniques, DOD could substantially increase its proceeds by adopting some basic commercial marketing practices; (9) DOD lacks procedures that prevent the improper use of scrap that is sold; and (10) DOD could minimize the improper use and sale of scrap parts by adopting private-sector practices.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: DLA recently adopted and implemented progressive private-sector practices, such as reengineering business processes to take full advantage of private-sector capabilities and assessing commodities' market or revenue potential. By applying these practices to DRMS' operations, DLA has, over last year, increased revenues by 13 percent, improved sales by 42 percent, and increased surplus property reuse by 3 percent. DLA also indicated that its performance was directly related to adopting best practices, such as focusing on commodity-oriented sales and using the World Wide Web to advertise the availability of surplus property. As a result of GAO's and DLA's efforts in encouraging private-sector practices for DRMS' disposal function, DLA reported that its improved business practices saved DOD more than $300 million over the last 2 fiscal years.

    Recommendation: The Secretary of Defense should explore ways of providing greater financial incentives to enhance proceeds from the sale of usable surplus parts. One alternative would be to return a portion of the proceeds, generated from the sale of such parts, to both the Defense Reutilization and Marketing Office (DRMO) and the National Sales Office to help them carry out the operation of disposal activities more effectively. The additional funds could be used to enhance the expertise of disposal staff and familiarize them with all aspects of the surplus aircraft parts market that commercial airlines have found to be successful.

    Agency Affected: Department of Defense

  2. Status: Closed - Implemented

    Comments: The actions described above meet the intent of this recommendation.

    Recommendation: The Secretary of Defense should direct the Director of the Defense Logistics Agency (DLA), in conjunction with the military services, to conduct a program to determine how: (1) commercial-type aircraft parts and their civil applications can best be identified for DOD disposal staff; and (2) parts that conform to an existing Federal Aviation Administration (FAA) certification or have potential to be FAA certified can be identified for DOD disposal staff and relevant information forwarded with the part. DOD could take a phased approach by initially testing these practices at a few DRMO before determining their applicability to the entire DOD disposal system.

    Agency Affected: Department of Defense

  3. Status: Closed - Implemented

    Comments: The intent of this recommendation was satisfied based on the initiatives and related successes reported by DRMS, as summarized above in status on the first recommendation.

    Recommendation: The Director, DLA, should conduct a program to test commercial marketing practices that could enhance sales of surplus aircraft parts. Among the practices that DLA should include in its test are: (1) separating commercial-type parts into sales lots that do not mix unlike conditions and manufacturers; (2) actively marketing these parts to a wide spectrum of potential customers; and (3) providing the technical training necessary for staff so they will know the parts they are selling and the markets they are selling to.

    Agency Affected: Department of Defense: Defense Logistics Agency

  4. Status: Closed - Implemented

    Comments: DRMS has developed and implemented warranty language for scrap and usable aircraft components. Its policy now requires all useable property, whether received as scrap, or downgraded to scrap, to be destroyed prior to removal from government premises, or by the buyer as a condition of sale, prior to the transfer of title. This action meets the intent of the recommendation.

    Recommendation: With respect to DOD scrap parts, the Director, DLA, should: (1) secure from buyers a warranty that stipulates DOD parts sold as scrap will be used only as such and not resold as usable; and (2) assess the cost-effectiveness of mutilating scrap parts in-house, especially those most vulnerable to being reused in the civil aviation market.

    Agency Affected: Department of Defense: Defense Logistics Agency

 

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