Logistics Managers Need To Consider Operational Readiness in Setting Safety Level Stocks

PLRD-81-52: Published: Aug 10, 1981. Publicly Released: Aug 10, 1981.

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GAO reviewed the services' management of safety level stocks to determine whether the extent of the services' activities investment in safety level stocks is a prudent investment and whether other alternatives exist that could serve the same purpose as a safety level.

Since safety levels serve as insurance against unknown events, every effort should be made to limit such protection to those items essential to mission accomplishment. When determining safety levels, the services do not consider item essentiality in terms of necessity for mission accomplishment. The Air Force has made inroads in this area by establishing an essentiality coding system for identifying and defining wartime versus peacetime needs, setting priorities for repair parts program resources, and determining war reserve material requirements. The objectives of those who manage the inventory may not be compatible with the objectives of those who are responsible for maintaining an operationally ready force. The effectiveness of inventory management activities is based on fill rates, and the effectiveness of users is based on readiness rates. Inventory management activities enhance their effectiveness by ensuring that, within the constraints of available funds, sufficient safety levels of low-cost, high-demand items are available to meet demands. However, GAO found that these are not necessarily the types of items that are the major causes of degraded readiness. As a result, inventory management activities often achieve a high degree of effectiveness at the expense of readiness. More intensive management of stocked items could reduce the services' safety level requirements. While the services have the same safety level objectives they have different philosophies on how to achieve these objectives.

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Comments: Actions planned by DOD will not occur for at least another year. This results in a 3-year lag from the time corrective action was initially promised. In view of the logistic philosophies, which have no doubt changed over this period, GAO plans to close this case and consider a future review of this area at a later date.

    Recommendation: The Secretary of Defense should issue to the service Secretaries policy guidance which: (1) emphasizes the importance of operational readiness as a basis for stockage decisions; and (2) directs that the need for safety levels be related to those demand-based essential items which will increase readiness and not fill rates.

    Agency Affected: Department of Defense

  2. Status: Closed - Not Implemented

    Comments: Actions planned by DOD will not occur for at least another year. This results in a 3-year lag from the time corrective action was initially promised. In view of the logistics philosophies, which no doubt have changes over this period, GAO plans to close this case and consider a future review of this area at a later date.

    Recommendation: The Secretary of Defense should direct the Secretaries of the Army and Navy to develop an item essentiality coding system which ranks the weapon systems in order of importance to mission accomplishment and relates the essentiality of each support item to the system. The essentiality rankings should then be used to identify those items requiring safety levels and to compute safety level amounts.

    Agency Affected: Department of Defense

  3. Status: Closed - Not Implemented

    Comments: DOD stated that the recommendation alternative was not practical because of the manpower constraints placed on the inventory control points.

    Recommendation: The Secretary of Defense should direct the service Secretaries to emphasize intensive management of essential items as an alternative to safety levels.

    Agency Affected: Department of Defense

  4. Status: Closed - Not Implemented

    Comments: Actions planned by DOD will not occur for at least another year. This results in a 3-year lag from the time corrective action was initially promised. In view of the logistics philosophies, which no doubt have changed over this period, GAO plans to close this case and consider a future review of this area at a later date.

    Recommendation: The Secretary of Defense should issue to the services policy guidance which identified the extent that item cost, demand frequency, and fill rate objectives should be considered in determining the safety level amount for essential items.

    Agency Affected: Department of Defense

 

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