Military Logistics:

Buying Army Spares Too Soon Creates Excess Stocks and Increases Costs

NSIAD-89-196: Published: Aug 28, 1989. Publicly Released: Aug 28, 1989.

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GAO reviewed the Department of the Army's internal inventory control practices, focusing on: (1) whether they allowed premature spare parts purchases; (2) the extent to which they contributed to excessive stock levels, premature deliveries, and increased holding costs; and (3) whether they supported item management decisions and precluded unnecessary purchases.

GAO found that: (1) one Army command prematurely invested more than $87 million in spare and repair parts between 1987 and 1988, but did not need about $30 million because the projected requirements did not materialize; (2) another command initiated procurement of three items about 12 months in advance of reorder points, purchased quantities exceeding authorized requirements, which resulted in more than $4.6 million being spent prematurely, and did not need about $448,000 because its projected requirements did not materialize; (3) the Army could have deferred some purchases by as much as 1 year if the commands had followed Army policy and ordered items needed to meet requirements; (4) the two commands stated that they followed 1987 guidance to obligate funds early in the year, even though the 1988 guidance changed that advice; (5) one command would spend an estimated additional $6 million to hold its extra items in its inventories until needed; (6) the commands did not follow Army policy for cancelling or reducing excess orders, producing required documentation to support item management decisions, documenting item procurements, or conducting supervisory reviews; and (7) neither command identified material weaknesses in internal controls for purchasing spares and repair parts in their 1986, 1987, and 1988 financial assessments.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: GAO is satisfied that AMC has made its intentions clear to buying commands that premature buys are unauthorized. It has issued guidance to the commands reinforcing its policy. For these reasons, this recommendation is being closed out. An accomplishment for $102.2 million has been processed and approved.

    Recommendation: The Secretary of the Army should direct the Commander, Army Materiel Command (AMC), to reinforce guidance to buying commands instructing them to adhere to Army Regulation 710-1, which does not provide for routinely initiating the procurement of spares in advance of the computed reorder points or purchasing quantities that exceed levels unless such action is economically justified.

    Agency Affected: Department of Defense: Department of the Army

  2. Status: Closed - Implemented

    Comments: A DOD Inspector General official stated that AMC is no longer doing compliance reviews due to the lack of personnel and funding. The official added, however, that database management advisory groups established at the buying commands are doing the compliance review function and reporting their results to AMC quarterly. No further follow up is required.

    Recommendation: The Secretary of the Army should direct the Commander, Army Material Command (AMC), to perform routine, periodic management reviews of buying commands to confirm that: (1) established procedures for cancelling or reducing unnecessary on-order item quantities are being followed; (2) guidance for documenting repair, procurement, and cutback transactions has been consolidated and the importance of understanding this guidance has been adequately emphasized to the involved staff as they carry out their daily duties; and (3) all transactions are reviewed and approved at the levels established by AMC.

    Agency Affected: Department of Defense: Department of the Army

  3. Status: Closed - Implemented

    Comments: The Army's DCSLOG reported this area as a weakness in March 1990. It stated Army policy was not followed for reducing quantities of items procured, an issue GAO presented in this report. For this reason, this recommendation should be closed out.

    Recommendation: The Secretary of the Army should require that the next annual Financial Integrity Act assessment include a review of the internal control weaknesses discussed in this report.

    Agency Affected: Department of Defense: Department of the Army


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