Defense Inventory: DOD's Efforts to Improve Management and Reduce Stocks Need to Continue

GAO discussed: (1) inventory management issues in the Department of Defense (DOD); and (2) its conclusion that the amount for DOD secondary items in fiscal year (FY) 1993 should be at least $5 billion less than the amount appropriated in FY 1992. GAO noted that: (1) between 1980 and 1990, the DOD reported secondary income inventory grew from $43.4 billion to $101.9 billion; (2) DOD classified $8.1 billion for the $101.9 billion as potential excess; (3) problems with the DOD requirements determination process include inaccurate or unsupported data, management personnel overriding computational models used to determine inventory requirements, item managers failing to cancel unnecessary or excess on-order material, and ineffective management controls; (4) wholesale level activities sometimes buy items that retail level activities have in excess stock; (5) DOD could save millions by adopting commercial inventory management and distribution practices; (6) DOD estimates that it will obligate $3.6 billion to operate its supply system for FY 1992, which includes an investment cost of 10 percent per dollar per year, a storage cost of 1 percent per dollar per year, a variable obsolescence cost percent per dollar per year, and a variable percent per dollar per year for other losses; and (7) DOD has established an inventory reduction plan to minimize the quantity of new items entering the supply system, reduce the number of items currently in the system, reduce the quantities of material stocked, pursue commercial alternatives to material stockage, and improve material control and asset visibility.