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The Nuts and Bolts of DOD Inventory Management

Posted on June 25, 2015
The Department of Defense (DOD) manages more than 5 million inventory items—such as nuts, bolts, and tires—that are valued at about $98 billion. Given budget pressures across the federal government, it’s essential that DOD make effective and thoughtful decisions about how it buys, stores, distributes, and disposes of the variety of items it needs. Yet, DOD’s vast inventory management program faces a variety of problems, such as weaknesses in accurately forecasting the demand for items and the accumulation of billions of dollars in extra spare parts. Today, we take a closer look at inventory management—1 of 3 areas of weakness that make up the DOD High Risk Area of Supply Chain Management—and what the department has done to get off our list. Making moves to leave the list High RiskWe have 5 criteria for removal from our High Risk list and, since 2010, DOD has made considerable progress in these areas for inventory management, meeting 4 criteria and partially meeting the 5th. This progress is in large part due to DOD implementing its Comprehensive Inventory Management Improvement Plan in 2010. The goal of this mandated plan was to reduce the acquisition and storage of certain excess inventory, and it seems to be working. For example, the Defense Logistics Agency (DLA) reduced certain excess inventory by about $1.6 billion between fiscal years 2012 and 2013, as shown below.

GAO-14-495(Excerpted from GAO-14-495)

DLA and the services also started a number of initiatives aimed at improving demand forecasting accuracy, and management of acquisition lead times, among others. Some of these initiatives are promising enough that other defense supply chain organizations are considering using them. But there’s still work to be done Although DOD has made improvements in inventory management, we found problems with some of the analyses the department used (or did not use) to support key decisions. For instance,
  • DLA disposed of over $855 million in inventory that was more cost-effective to keep since it may be needed later. Why did it do this? DLA was trying to meet an internal goal that was not supported by economic analyses.
  • The Air Force has retained over $2.6 billion in inventory without proper justification and without following DOD guidance. Although this could cost the Air Force in unnecessary storage expenses, it currently has no plans to review this inventory until the end of fiscal year 2016.
  • The Army, Navy, and DLA don’t fully monitor inventory orders to prevent purchasing and storing unneeded items. For example, Navy management didn’t adequately review retention decisions, potentially resulting in the storage of excess inventory, and DLA wasn’t tracking and reviewing the reasons why excess orders weren’t cancelled, limiting its understanding of those orders.
We made a number of recommendations to DLA and the services to address these and other concerns, which DOD has begun taking steps to address. Interested in learning more? Listen to our podcast with Zina Merritt, a director in GAO’s Defense Capabilities and Management team:
Transcript
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