Combined Procurement of Spare Parts and Production Components Will Reduce Defense Weapon System Costs

PLRD-83-17: Published: Dec 15, 1982. Publicly Released: Dec 15, 1982.

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Pursuant to a congressional request, GAO reviewed Department of Defense plans to buy spare parts concurrently with production components and the cost savings of doing so, with particular respect to the combined procurement procedure in the F/A-18 aircraft program and its effect on the budget.

The combined procurement procedure is a technique whereby orders for spare parts are consolidated with orders for production components so that the contractor achieves one overall production schedule. Consolidation of orders is a practice followed by industry to reduce unit production costs. Savings are achieved through economy of scale, which avoids costs associated with separate orders and manufacturing actions. GAO found that the Navy did not fully implement the combined procurement procedure on the F/A-18 in fiscal year (FY) 1982 and did not achieve the $30 million savings estimate provided to Congress. Full implementation of the procedure on the F/A-18 is planned to start in FY 1983. Navy officials estimate that using the combined procurement procedure could reduce the cost of production components and spare parts by 10 to 20 percent. At these rates, the savings could range from $600 million to $1.2 billion over the life of the program. Neither the FY 1983 budget request nor the 5-year defense program submission reflect the savings that might result from using the combined procurement procedure in the F/A-18 program. Use of the procedure will be limited during FY 1983. GAO believes that, by closely monitoring the Navy's use of the procedure during FY 1983, the Secretary of Defense should be in a position to firmly quantify its benefits and direct its use on other weapon systems.

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