Navy Supply: Economic Order Quantity and Item Essentiality Need More Consideration
NSIAD-88-64
Published: Jan 06, 1988. Publicly Released: Jan 06, 1988.
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Highlights
GAO evaluated the economic order quantity (EOQ) and safety-level aspects of the Navy's requirements determination process for replenishment materiel for peacetime operating stocks to determine whether the process could lead to inflated procurements and unnecessary costs.
Recommendations
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Department of the Navy | The Secretary of the Navy should direct the Commander, Naval Supply Systems Command, not to routinely buy more than EOQ under the overall Defense order parameters of the 3-month minimum and the 3-year maximum, unless it can be shown that larger procurements will result in quantity discounts that more than offset the additional holding costs. |
The Department of Defense (DOD) did not agree that EOQ normally should be used in ordering material in lieu of ordering a 1-year supply. DOD stated that GAO did not consider all of the relevant costs and benefits of the 1-year policy. After reevaluating the matter, GAO still believes that the Navy should rescind its policy of routinely buying more than EOQ.
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| Department of the Navy | The Secretary of the Navy should direct the Commander, Naval Supply Systems Command, to base safety-level requirements on the relative importance of the items, rather than constrain acceptable stockout risks for certain items. The Secretary should also direct the Commander to use mission essentiality in safety-level requirement determinations when this information is available. |
NAVAIR has completed its evaluation of essentiality codes and will issue new instructions by June 1991. Implementation of these instructions will be covered by GAO in future supply management reviews.
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Inventory controlMilitary cost controlMilitary inventoriesNaval procurementNaval suppliesProcurement practicesProperty and supply managementMilitary forcesProcurementInventories