Defense Inventory:

Shortages Are Recurring, but Not a Problem

NSIAD-95-137: Published: Aug 7, 1995. Publicly Released: Aug 7, 1995.

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GAO reviewed inventory shortages in the Department of Defense's (DOD) secondary, nonweapon inventory, focusing on: (1) the size of the shortages; (2) inventory managers' actions in response to the shortages; (3) whether funding problems caused managers not to buy needed items; and (4) the need for revising DOD inventory reporting.

GAO found that: (1) the September 1991 DOD secondary inventory shortage was $16.4 billion instead of the $26 billion DOD reported because DOD included some Navy nonsecondary inventory items and standard price surcharges for transportation and inventory losses that increased DOD acquisition costs; (2) between September 1991 and September 1993, the shortage decreased to $8.1 billion due to the removal of Desert Storm requirements, military downsizing, elimination of some war reserve requirements, and reduced levels of operations; (3) reorder point shortages were a normal part of the supply system because of continuing demand, but these shortages were rarely due to a lack of funding; (4) inventory managers decided not to order almost one-half of $1.1 billion in reorder point shortages because of invalid requirements, the availability of substitute items, the transfer to other units of certain items, and items being removed from the inventory; (5) in general, these procurement decisions were valid and probably saved millions of dollars, since the items probably would not have been used; and (6) DOD inventory reporting is not based on the amount of inventory needed to be on hand, but rather on reorder points and economic order quantity which can result in excessive inventory.

Recommendation for Executive Action

  1. Status: Closed - Not Implemented

    Comments: DOD strongly disagreed with the recommendation, stating that it would define required inventory differently for inventory reporting purposes and budgeting purposes. GAO disagrees with DOD's position.

    Recommendation: To provide Congress and DOD management with better oversight of DOD inventory, the Secretary of Defense should direct that the Supply System Inventory Report be revised. Specifically, the inventory report should identify: (1) inventory that is needed to be on hand or on order to satisfy reorder point and economic order quantity requirements; and (2) reasons for holding inventory beyond that amount.

    Agency Affected: Department of Defense


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