Defense Inventory Management:

Expanding Use of Best Practices for Hardware Items Can Reduce Logistics Costs

NSIAD-98-47: Published: Jan 20, 1998. Publicly Released: Jan 20, 1998.

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Pursuant to a congressional request, GAO reviewed the Department of Defense's (DOD) progress in adopting inventory management practices for hardware items, focusing on: (1) DOD and private-sector practices for managing hardware items; (2) whether DOD has adopted best practices for these items; and (3) opportunities that DOD can take advantage of to improve its management of hardware items.

GAO noted that: (1) while DOD has implemented some innovative management practices, more opportunities exist to better manage its reported $5.7-billion hardware inventory and achieve substantial savings; (2) DOD continues to manage its hardware inventory using outdated and inefficient business practices that create unnecessary inventory levels, provide poor customer service, generate excess and obsolete inventory, and cost approximately $1 billion per year to manage and distribute; (3) DOD buys hardware inventory years in advance of when the items are actually used; (4) for example, based on GAO's analysis of DOD records, 62 percent of DOD's hardware items did not have a demand from September 1995 to August 1996, and an additional 21 percent of the items had enough inventory to last for more than 2 years; (5) these items account for about $4.4 billion, or 77 percent, of DOD's $5.7-billion hardware inventory; (6) despite DOD's substantial investment in inventory, in many cases, hardware inventory is not available when needed by DOD customers; (7) when this happens, the repair of weapon systems and components is often delayed; (8) the Navy has estimated that the lack of parts increases the repair time for aviation parts by as much as 74 percent; (9) DOD's overall progress in adopting best management practices for hardware items has been limited; (10) in February 1997, DOD began testing, on a limited basis, the prime vendor concept for hardware items--one of the concepts GAO recommended; (11) these tests will potentially affect about 2 percent of DOD's $3.1-billion annual sales of these items; (12) these tests do not, however, fully optimize the services available in the private sector, such as ordering, storing, and distributing supplies to the customer; (13) the business practices GAO recommended in its past reports have, for the most part, been used in the private sector to provide customers with a capability to order supplies as they are needed; (14) ordering supplies as they are needed, combined with quick logistics response times, reduces overall supply system costs, eliminates large inventories, and enables companies to reduce or eliminate the possibility of ordering supplies that may not be needed or become obsolete; and (15) to achieve similar inventory reductions, infrastructure savings, and improved customer service, DOD could expand its prime vendor programs to include tasks such as ordering, storing, and distributing supplies to the customer, and fully use the services offered under these programs.

Status Legend:

More Info
  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    Recommendation: To encourage the Defense Logistics Agency (DLA) and the services to more aggressively apply best practices to its operations, the Secretary of Defense should identify a "Champion of Change" within the Office of the Secretary of Defense that would be responsible for coordinating and overseeing improvement initiatives throughout DOD's operations and ensuring the prime vendor and integrated supplier concepts: (1) encompass a broader part of DOD's operations; (2) fully use the services offered in the private sector; and (3) are used by all military services whenever it is cost-effective to do so.

    Agency Affected: Department of Defense

    Status: Closed - Implemented

    Comments: The Office of the Deputy Under Secretary of Defense (Logistics) has been delegated the responsibility for coordinating and overseeing improvement initiatives throughout DOD's operations. According to OSD, this office will be responsible for ensuring the prime vendor and integrated suppliers are used to the maximum extent feasible.

    Recommendation: To encourage DLA and the services to more aggressively apply best practices to its operations, the Secretary of Defense should direct: (1) the Secretary of the Army to identify at least one repair depot location that will join the other services in testing the prime vendor concept; and (2) the secretaries of the military services to identify repair activities at operating bases as test sites.

    Agency Affected: Department of Defense

    Status: Closed - Implemented

    Comments: On December 15, 1997, the Acting Deputy Under Secretary of Defense (Logistics) requested that the Army identify a maintenance depot to test the prime vendor and integrated supplier concept. At that time, the Secretary also requested that the Army, Navy, and Air Force identify operating bases to test the prime vendor concept. In response to the Secretary's request, the Army identified Anniston Army Depot and Fort Riley as sites to test the prime vendor and integrated supplier concepts. The Navy identified Naval Aviation Depot North Island, Naval Aviation Depot Cherry Point, and Naval Aviation Depot Jacksonville as test sites. The Air Force identified Warner Robins Air Logistics Center as its test site for the concepts. GAO's next recommendation, to conduct a test at these sites, may result in significant savings.

    Recommendation: To encourage DLA and the services to more aggressively apply best practices to its operations, the Secretary of Defense should direct the Director, DLA, and the secretaries of each military service to establish a test of the integrated supplier concept at one or more repair depots. DLA and the military services should: (1) establish aggressive milestones for testing and implementing the prime vendor and integrated supplier programs so as not to delay implementing such programs if the tests find them to be feasible; and (2) develop the means to expeditiously measure the total costs and benefits under the prime vendor and integrated supplier programs to compare them to the total costs and benefits incurred under the traditional system.

    Agency Affected: Department of Defense

    Status: Closed - Implemented

    Comments: In response to the Secretary's request, the Army identified Anniston Army Depot and Fort Riley as sites to test the prime vendor and integrated supplier concepts. The Navy identified Naval Aviation Depot North Island, Naval Aviation Depot Cherry Point, and Naval Aviation Depot Jacksonville as test sites. The Air Force identified Warner Robins Air Logistics Center as its test site for the concepts. The military services are establishing milestones and plans for testing the concepts. Several contracts have been awarded to prospective prime vendors and GAO is preparing an accomplishment report on this initiative. Other accomplishments will be prepared when integrated supplier concepts are fully implemented at these locations. This action satisfies the intent of this recommendation and therefore GAO is closing it out.

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