Defense Infrastructure:

Inventory Control Point Consolidation Savings Would Be Substantial

NSIAD-97-157: Published: Aug 13, 1997. Publicly Released: Aug 13, 1997.

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GAO reviewed the Office of the Secretary of Defense's (OSD) report on its review of the Defense Logistics Agency's (DLA) management of all Department of Defense (DOD) inventory control points (ICP).

GAO noted that: (1) OSD used conservative assumptions and cost factors in estimating cost savings from consolidating service ICPs under DLA; (2) its projected cost savings of $2.2 billion to $3.8 billion cover a 13-year period, fiscal years 1998 to 2010; (3) GAO believes this approach to be reasonable, given the sensitive nature of the issue, the limited amount of time to perform the review, and the data available; (4) however, the projected cost savings estimates would be at least $1.3 billion to $2.3 billion greater if OSD used base realignment and closure principles, such as estimating steady-state savings over a longer time period and a present value analysis instead of a constant dollar analysis; and (5) the potential savings would likely be greater yet if the analysis included: (a) savings from all business process improvements related to the consolidation; and (b) planned future improvements to DOD's existing material management information systems.

Recommendation for Executive Action

  1. Status: Closed - Implemented

    Comments: DOD agrees that further reductions in ICP costs are required. However, DOD maintains that the consolidation of ICPs would require authorization for a BRAC action that DOD does not have. In lieu of full consolidation, DOD has recommended that it should implement the virtual ICP concept, which would result in some cost savings. DOD believes that this meets the spirit and intent of GAO's recommendation.

    Recommendation: Although substantial savings are possible by consolidating the services' ICPs under DLA, the services have resisted such proposals, citing potential risks that could affect operational effectiveness. Given this situation, the Secretary of Defense should ask the National Defense Panel to examine the savings and risks associated with ICP consolidation under DLA.

    Agency Affected: Department of Defense


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