Defense Inventory:

Defense Logistics Agency's Materiel Returns Program

NSIAD-93-124: Published: Mar 30, 1993. Publicly Released: Apr 30, 1993.

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Pursuant to a congressional request, GAO examined the cost-effectiveness of the Defense Logistics Agency's (DLA) materiel returns program and the related policies and procedures that govern it.

GAO found that: (1) DLA could save millions of dollars by eliminating returns of materiel valued at less than the cost to return it to a depot, applying a minimum limit on all returns regardless of the amount of stock on hand, and applying realistic values to returned materiel based on the item's acquisition price; (2) in fiscal year 1991, 46 percent of returned materiel required additional work before DLA could store or reissue the materiel; (3) DLA should consider noneconomic factors when determining whether to approve a return; and (4) DLA inclusion of surcharges in the value of returned materiel can significantly increase the acquisition price and overvalue the materiel.

Recommendation for Executive Action

  1. Status: Closed - Implemented

    Comments: DLA is: (1) reviewing the Acquisition Objective for items that it manages with the goal of reducing requirements; (2) establishing a minimum dollar value for materiel returns; and (3) changing the regulations to require the acquisition cost to be used as a criterion for valuing returns. A system change request was developed and implemented on May 12, 1994. The change included a dollar minimum for customer returns and a reduction in the approved acquisition objective and also valued return items at their latest acquisition cost.

    Recommendation: The Secretary of Defense should require the Director, DLA, to: (1) establish annually a minimum return limit based on the total cost to process a return; (2) apply that limit to all returns except when there are valid exceptions, such as when an item is unavailable in current inventories or is only available from a diminishing number of manufacturing sources; and (3) use acquisition price as the criterion for valuing returns.

    Agency Affected: Department of Defense


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