The Army's Use of Serviceable Returns in Requirements Computations

NSIAD-85-59: Published: Apr 9, 1985. Publicly Released: Apr 9, 1985.

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Henry W. Connor
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GAO surveyed the Army's serviceable returns to the wholesale supply level to determine the degree of compliance with the recommendations in a previous report. The Department of Defense (DOD) had concurred with that report's recommendation that the Army reduce projected requirements for materiel by the full amount of forecasted returns of serviceable materiel. DOD directed the Army to review the procedures that establish an offset to demands through serviceable returns at the inventory control points (ICP) and ensure that the policy was followed.

GAO found that, as a result of forecasted serviceable returns, the rate of offset demands remained low. The Army's excess serviceable materiel is either returned to the wholesale supply level or disposed of locally. The Army Materiel Command (AMC) established limits on the serviceable return rate that ICP's could use to offset the demand history by directing that any ICP that used a maximum rate exceeding 20 percent was to furnish its rationale for doing so. An AMC study concluded that: (1) using the returns to offsets demand history did not improve the forecast of future net demands; and (2) a forecast which offsets returns would cost less but would result in a lower supply performance. However, the GAO study did not show either of these results. GAO found that nearly 50 percent of the reported serviceable materiel is accepted by the wholesale supply activities; however, these returns are recorded as assets on hand and receive limited consideration in forecasting requirements which results in unnecessary procurements.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: The Army supply policy is being revised to require each supply command to establish a serviceable return rate that is most appropriate to its operation.

    Recommendation: The Commander, AMC, should encourage the ICP's to use as high a maximum serviceable return rate as possible to forecast invalid demands in their requirements computations rather than encouraging the ICP's to limit the rate to no more that 20 percent.

    Agency Affected: Department of Defense: Department of the Army: U.S. Army Materiel Command

  2. Status: Closed - Implemented

    Comments: The new Army supply policy on serviceable return rates will require supply commands to yearly justify the rate being used and demonstrate its impact on performance and funding.

    Recommendation: The Commander, AMC, to determine the appropriate serviceable return rate, should monitor demand rates for individual items experiencing significant returns to determine if the demand increased, decreased, or remained the same for the review cycles following the reports of excess.

    Agency Affected: Department of Defense: Department of the Army: U.S. Army Materiel Command


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