oversight

Army Inventory: A Single Supply System Would Enhance Inventory Management and Readiness

Published by the Government Accountability Office on 1990-01-25.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

     .


                  United   States   General   Accounting   Office


-GAO              Report to the Chairman, Subcommittee
                  on Readiness, Committee on Armed
                  Services, House of Representatives


January   1990
                  ARMYINVENTORY
                  A Single Supply
                  System Would
                  Enhance Inventory
                  Management and
                  Readiness




GAO/NSIAD-90-53
National Security and
International Affairs Division
B-237804
January 25,19!30

The Honorable Earl Hutto
Chairman, Subcommittee on
  Readiness
Committee on Armed Services
House of Representatives
Dear Mr. Chairman:
This report is in responseto a request by the former Chairman that we determine how
effectively the Army’s retail-level activities were mam@ng their inventories and, more
specifically, how effectively the retail-level activities were identifying and reporting
excessesto the wholesale level so that they could be returned to the supply system.
We are sending copies of this report to the Director, Office of Managementand Budget; the
Chairmen, HouseCommittee on Government Operations, SenateCommittee on Governmental
Affairs, House and SenateCommittees on Appropriations, and the SenateCommittee on
Armed Services;and the Secretariesof Defenseand the Army. Copies will also be made
available to other parties on request.
This report was prepared under the direction of Richard Davis, Director, Army Issues,who
may be reached on (202) 276-4141 if you or your staff have any questions. Other major
contributors are listed in appendix II.
Sincerely yours,




Fhnk C. Conahan
Assistant Comptroller General
Executive Summary


purpose            Concernshave been expressedabout whether the overall growth of the
                   Army’s inventory meansthat it is buying and maintaining more inven-
                   tory than it needsto meet its military requirements. Having too much
                   inventory means that valuable resourcesare not used efficiently or
                   effectively. Having too little may mean that units’ equipment is inoper-
                   able, and readinessmay suffer.
                   The former Chairman of the Subcommittee on Readiness,HouseCom-
                   mittee on Armed Services,asked GAOto determine how effectively the
                   Army’s retail-level activities were managing its inventory and, more
                   specifically, how effectively the retail-level activities were identifying
                   and reporting excessesto the wholesale level so that the excessescould
                   be returned to the supply system.

                   The wholesale and retail supply systems are independent systems. As a
Background         result, once an item is issued from the wholesale system, managers of
                   the wholesale system lose visibility of it. Consequently, managers of the
                   wholesale system are forced to make procurement and stockage deci-
                   sions without knowing whether there are items in the retail system that
                   could be returned to the wholesale system in order to reduce planned
                   procurements or redistributed to other retail-level activities to meet
                   their needs.
                   GAOand others have previously        reported on the need for the Army to
                   improve its inventory managementprocesses.While these studies have
                   covered a myriad of issues,one common theme has been that there is no
                   interface between the wholesale and retail supply systems. This weak-
                   nesshas resulted in the accumulation and retention of excessinvento-
                   ries at certain retail-level activities, corresponding shortages at other
                   retail-level activities, and unnecessaryprocurements at the wholesale
                   level.

                    The 13 retail-level activities (division-sized units) that GAOreviewed had
Results in Brief    over $134 million worth of spare and repair parts that were excessto
                    their needsand had not been reported to the wholesale level. These
                    units had $33 million of shortages, of which $8.4 million was for items
                    that were excessat other locations. At the sametime, managers at the
                   ~three buying commandsGAOreviewed were in the processof procuring
                    $66.9 million for 1,669 of the same items that were excessat the retail
                    level. The inability of the Army to redistribute the excessesimpairs the
                            readinessof the units that need the items and results in unnecessary
                            costs.
                            The alternatives the Army is pursuing to solve many of the problems do
                            not provide for complete vertical integration between the wholesale and
                            retail levels. Thus, these improvements will not fully addressthe excess
                            inventory and redistribution problems identified in this report.

                            Despite the long-standing nature of the excessinventory issue and the
                            lack of linkage between the wholesale and retail levels, the Army has
                            not reported these problems as material wealmessesin its annual assess-
                            ment on internal controls.


Principal FSndings

CommandsResist              Retail-level activities are generally not complying with Army regula-
Reporting Excess            tions that require them to report excessinventory. Their reluctance to
                            identify and report excessinventory to the wholesale level stems from
Inventory                   an ingrained philosophy that if the items are turned in, the units may
                            need them in the future and will have to buy them again. As a result, a
                            mind-set has developed that it is better to have too much than too little.


Inability to Redistribute   The $134 million of excessinventory that GAOidentified at the 13 divi-
Excesses
                            sions it reviewed consisted of about 24,666 line items. The divisions also
                            had shortages totaling $33 million for about 6,366 of these items. How-
                            ever, neither the divisions that had a need for the items nor the whole-
                            sale level item managers were aware that the items were excessat other
                            locations. The reason for this situation is that the wholesale system does
                            not have visibility and control of retail-level inventory. As a result, the
                            excessitems could not be redistributed from where they existed to
                            where the items were needed.
                            Officials at wholesaMeve1 activities told GAO that even if they had visi-
                            bility of the excessesat the retail-level activities, they could do little to
                            redistribute them. The officials said that, becausethe items are consid-
                            ered retail-level assets,they cannot direct a unit to send its excessesto
                            another unit. If they becomeaware of excessesat a particular retail-
                            level activity, they can request that the unit transfer its excessesto
                            other units, but it is up to the unit commander to honor the request.


                            P-3                                 GAO/lWNMOM     lyIIuhv   the An&r   lnventmy
                             GAOfound that     the Army’s inability to redistribute excesseshad
                             adversely affected Army units’ ability to maintain equipment in an
                             operable condition. GAOidentified 6,116 high priority requisitions out-
                             standing at the wholesale level for items that were excessat the retail
                             level. High priority requisitions, by definition, are for items that are
                             causing equipment to be inoperable due to the lack of a part. Because
                             managers at the wholesale level did not have visibility of excessitems at
                             the retail level, they were not able to redistribute the excessesto satisfy
                             the outstanding requisitions.


Managers of the Wholesale    At the three buying commandsresponsible for buying 23 percent of the
System Are Procuring         line items identified as excessat the retail level, GAOfound that these
                             commandshad ongoing procurement actions, valued at $66.9 million, for
Items That Are Excessat      1,669 of the items in an excessposition at the retail level. If managersof
the R&ail Level              the wholesale system had visibility of the retail-level excessesand the
                             authority to direct that excessesbe returned to the wholesale supply
                             system or redistributed to other retail-level activities, many of these
                             procurements could have been avoided.


Army Efforts to Address      The Army is aware of the excessinventory problem at the retail level
the ExcessInventory          and has ongoing and planned initiatives to addressit. The Army’s initia-
                             tives focus primarily on increasing the Mistribution of excesseswithin
Problem                      the retail level. For example, the Standard Army Retail Supply System
                             and the Objective SuppJySystem both attempt to increase redistribution
                             within a corpe or a theater. IIowever, the systems, as currently envi-
                             sioned, will only redistribute assetswithin a corps or among units
                             within a theater. The systems will not redistribute assetsbetween corps
                             in different theaters or among units in different theaters. Consequently,
                             the problems GAOfound with excessesin one corps and shortages in
                             another corps or theater will not be resolved.


Problems With Inventory      GAOand other   audit organizations have repeatedly reported on the
Not Reported as a Material   accumulation of excessinventory at retail-level activities. Despite the
                             size and long-standing nature of the problem, the Army has not included
Weakness                     the excessinventory issue as a material weaknessin its annual report on
                             internal controls to the Secretary of Defense.

                             GAOrecommendsthat      the Secretary of the Army report the accumula-
Recommendations              tion and retention of retail-level excessesas material weaknessesin the


                             p-4                                GAO-           IUuugbg the Army’8 lnvenw
Army’s next annual assessmentof internal controls, as required by the
Federal Managers’ Financial Integrity Act.
Becausethe retail-level activities are not complying with Army regula-
tions that require that excessitems be reported and returned to the
wholesale-level supply system, GAO recommendsthat the Secretary of
the Army establish a single supply system that provides the inventory
supply system manager with systemwide asset visibility and the author-
ity to redistribute excessesfrom locations where they are not neededto
locations where they are.



supply system will improve the efficiency and effectiveness of item
management.The Department stated that (1) such a system will provide
superior responsivenessto the supply system customers at reduced
costs and (2) vertical inventory management-ensuring that the item
manager has visibility of retail assetsand the authority to direct the
redistribution of assetsamong retail activities-is a fundamental goal of
the Department as it moves from item/commodity managementto
weapon systems management.




pyC6                             GAo/IwUDWa     Muughg the Army’s lnventmy
Contents


Executive Summary                                                                                2

Chapter 1                                                                                        8
Introduction             Problems That Result Prom a Lack of Linkage Among the
                             Supply Levels
                                                                                                10
                         Prior Studies Addressed the Need for a Single Supply                   10
                             System
                         Objectives,Scope,and Methodology                                       11

Chapter 2                                                                                       14
Retail-Level Excesses    Magnitude of the ExcessProblem                                         15
                         Inefficiencies Resulting Prom Having Two Separate                      16
Degrade Supply                Supply systems
Support  and Result in   Causesof Retail-Level Excesses                                         19
UMecessary
                         Assessmentof Internal Controls                                         21
Procurements
Chapter 3                                                                                       22
Army Actions to          Efforts to Address the ExcessInventory Problem
                         Efforts to Gain Visibility and Control of ExcessItems in
                                                                                                22
                                                                                                27
ReduceRetail-Level           the European Theater
Excesses
Chapter 4                                                                                       30
Conclusions and          Conclusions                                                            30
                         Recommendations                                                        31
Recommendations          Agency Comments                                                        31

Appendixes               Appendix I: Divisions GAO Visited                                      34
                         Appendix II: Major Contributors to This Report                         35
~
Tables                   Table 2.1: Repair Parts ShortagesThat Could Have Been                  17
                             Pilled by Redistributing ExcessInventory
                         Table 2.2: Number and Value of Line Items That Are                     18
                             Excessat Retail-Level Activities and Are Being
                             Procured by Three NICPs
                         Table 2.3: Exavnplesof Unfilled Requisitions Causing                    19
                             Equipme lt to He Inoperable


                         Page 6                            GAO/NSlAD&M3 MaMglng the Army’s lmmtory
Table 3.1: Diqmition of ExcessItems Receivedby the      29
    ERFFromOctober1968ThroughA~ril1989

Figure 1.1: Illushgtion of the Amy’s Wholesaleand       9
    lwail mPlY wf-=
F@re 2.1: ExcessInventory categoriaed as Authorized     14
    !%ockListExcessatxlNomSinckListExcessforthe
    13 Divisiam as of January 13,1989
Figure 2.2: ExcessInventory Comm      to Authorized     16
    Leveisforthe 13ArmyJXvishsasof        January 13,
     1939




Abbxevbtlons

         Aviationsystemscommand
         amtinental United St&es
         Defe-mw-m
         Depdment of Defense
         Ilirectsupport -        mPlY srstem
         Eum~emRedistribvtionFacility
         GeneralAccountingOffice
         rbiimikcomm8nd
         National Inventory Control Point
         Iaemgde~hint
         ~Anmy=~PPlysystem
         -I-W49tem
         !M!ChdItWIl 7-m-v
         Tank-Autxmmtwe
         U.S. Army, Europe
Chapkr 1

htiuction


            The Army’s supply system consists of two major categories-wholesale
            and retail. The wholesale level is comprised of six National Inventory
            Control Points (MCP)and related depots that are responsible for deter-
            mining requirements; buying the items; storing them at depots; and issu-
            ing the items to Army posts, camps, and stations. As of September30,
            1938, the wholesal~level inventory was valued at about $21 billion for
            several million secondary spare and repair parts.1
            The Army’s retail-level supply system-often referred to as the “instal-
            lation supply level”- is responsible for computing requirements, requi-
            sitioning items from the wholesale system, storing the items, and issuing
            the items ID user units. The value of the retail-level inventory, while
            difficult to determine, is e&mated at several hundred million dollars.

            When an item is issued from the wholesale-level depot to an installation,
            it enters the retail-level system. At that tune, ownership, accountability,
            and control over the item pass from the wholesale-level inventory mana-
            ger to the retail-level inventory manager, and the wholesale-level mana-
            ger generally losesvisibility of it. Pigure 1.1 shows a general description
            of the wholesale and retail-level supply systems.
    Chapter 1
    lntrodnetion




     Wholode
       Lqvel




                                -.   -.   -.   -.
                                -.   -.   -.   -.
                                -.   -.   -.   -.




L




    The lack of linkage between the wholesale and retail supply levels is
    further complicated by the lack of visibility among the various supply
    levels that exist within the retail level. For example, items at the direct-
    support level, which are division-level units, are not visible to the corps-
    level units, and vice versa.
    The corps only obtains visibility of excessitems at the direct-support
    level after the direct-support unit identifies its excessesand physically
    moves the items to the corps. The wholesale system obtains visibility of
    corps-level excesseswhen the corps reports its excessesto the
    wholesale-level inventory manager. However, item managers at all
    levels are generally reluctant to report items as excess.This reluctance


                                           GAO/NSUMMB   lUuu&g   the Army’s hentory
                       stems from the philosophy that if they declare an item excessand turn
                       it in, they might have to requisition it at a later date and pay for it
                       again. Also, retail-level managersgenerally believe that it is better to
                       have too much than too little.


Problems That Result   tion of excessitems at someunits, shortagesof the sameitems at other
From a Lack of         units, and procurement of these items at the wholesale level. This lack
Linkage Among the      of linkage and visibility amongthe various supply levels affects opera-
                       tional readiness.For example, combat equipment is often inoperable due
Supply Levels          to the lack of parts that are excessat other units. However, becausethe
                       unit needing the part and the wholesale-level manager are unaware that
                       the part is excessat someother location, the equipment remains inoper-
                       able until the parts are requisitioned from the wholesale level and the
                       wholesale level fills the requisition from stock or procures the part.


                       long-standing problem. Over the years, we have reported on the need for
Addressed the Need     the Army to implement a supply system that would give managers at
for a Single Supply    the wholesale level increasedvisibility and control over items in the
                       retail system. Most recently, in 1987, we reported that excessitems at
System                 the retail-level activities above division level had increased from
                       $86 million in 1984 to $166 million in 1986, an increase of about
                       83 percent.2Cur analysis of these excessesat selectedinstallations
                       showed that over 70 percent of the excesseswere not being reported to
                       managers of the wholesale supply system for redistribution to other
                       installations where there were corresponding shortages.Furthermore,
                       wholesale-level managers had either procured or were in the processof
                       procuring many of these sameitems to fill shortages at the installation
                       level.
                       The issue of excessitems at the retail level was also the subject of a
                       report issued by Logistics Operations, Incorporated, in March 1988 to
                       the Army Deputy Chief of Staff for Logistics. The report, which dis-
                       cussedthe causesof excessat the retail level, identified several reasons
                       that excessitems accumulate. While the individual reasonsdiffered,
                       there was a common theme to the findings. The report pointed out that


                       21nventmybmgement Army Needsto ReduceRetail Level Ekcesses(GAO/NSIAD-S7-197,
                       Sept.2,1987).


                       Pyre 10                               GAO/NSUDWM Mmuglng the Army’s Inventory
                            units were generally not following Army policies and regulations. In par-
                            ticular, the report noted that many of the unit commanderswere
                            manipulating the system in order to avoid having to report excessitems.
                            This finding supports our current finding that the general attitude of
                            many commandersis that it is better to have too much than not enough.
                            The Department of Defense(DOD) has generally been supportive of our
                            previous recommendation that the Army implement an inventory man-
                            agement system that gives wholesale-level managers increasedvisibility
                            and control of items at the retail level. Also, the higher levels of Army
                            managementhave been receptive to the idea of extending wholesale-
                            level visibility of and control over retail-level inventories. As discussed
                            in chapter 3 of this report, the Army has taken several initiatives
                            toward implementing the concept.


                            The former Chairman of the Subcommitteeon Readiness,House
Objectives, Scope,and       Committee on Armed Services,asked us to determine how effectively
Methodology                 Army retail-level units at the direct-support level were managing excess
                            inventory, including how effectively retail-level units were identifying
                            and reporting excesssecondary repair parts so that these parts could be
                            returned to the wholesale supply system and redistributed to other
                            units. To accomplish this objective, we selected 13 divisions located in
                            the United States and Europe (units under the command of U.S. Army
                            Forces Command and U.S. Army, Europe) (seeapp. I).

                            Using the divisions’ asset balance files as of January 13,1989, we identi-
                            fied the parts that were in excesspositions3 The assetbalance file
                            shows the inventory status for each item maintained by the direct-
                            support unit, including its authorized level and inventory on-hand, due-
                            in, and due-out balances.
                            We compared the excessesat each of the direct-support units to
                            shortagesof the same items at each of the other direct-support units to
                            determine the extent to which shortages at one location could have been
                            filled by the redistribution of excessesfrom other locations. Cur meth-
                            odology for performing this analysis was as follows:

                        l   Shortagesin the European-baseddivisions were matched with excesses
                            at other European divisions.

                            3An i&m ia consideredto beexcenswhen its on-handand due-in balm= exceedita authorizedand
                            duwut   balancea.




                            P8ge 11                                   GAO7              Muuglng   the Army’s   Inventory
                                                                                          -
    -1
    In-




. The remaining shortages in the European-baseddivisions were matched
  with excessesat the continental United States (CONUS)
                                                      based divisions.
l Shortagesin the cowbased divisions were matched with the remaining
  excessesin the coNUs-baseddivisions.
    We did not match CoNus-based  shortages with excessesin the European-
    baseddivisions, becauseit is unlikely that the Army would redistribute
    items from its forward-deployed units to meet shortages at units in the
    United States.
    A unit was consideredto have shortages when the quantity on-hand
    plus the quantity due-in minus the quantity due out was less than the
    authorized level. However, in determining the extent to which shortages
    could be filled by the redistribution of excesses,we considered only on-
    hand assetsas being available for redistribution. Consequently, our
    analysis takes a very conservative approach.

    In order to determine whether the items that were excessat the retail
    level were being procured at the wholesale level, we obtained the pro-
    curement data tapes from three of the NICPS (Aviation Systems
    Command[AVSCOM],Missile Command [MICOM],      and Tank-Automotive
    Command [TAMIMD that had responsibility for procuring items identified
    as excess,We then matched the listing of excessitems to the list of items
    being procured as of January 1989.
    We also compared the list of excessitems to a list of high priority back
    orders4from the units deployed in Europe in order to determine whether
    the lack of redistribution was affecting readiness.
    We held discussionswith Department of the Army officials in the Office
    of the Deputy Chief of Staff for Logistics, the Office of the Secretary of
    Defense,and the Army Materiel Commandto obtain their views on
    implementing a vertical managementsystem and increasing wholesale-
    level managers’ visibility and control over spare and repair parts at the
    retail level. At retail-level activities, we held discussionswith officials
    on the sameissue as well as on the reasonsthat excesseswere being
    generated at their activities.
    We also analyzed studies prepared for the Department of the Army and
    DOD byinternal and external activities on the causesof excessesand the

    qThehiehpriorfty~orderscoMistedofpeiorityOland02requisitions,meaningthattheseltems
    wereneededtorepairequipmentth8twasinaninopmbleamdition.



    Pae 12                                    GAO-              AWl@ng the Army’s Inventory
actions necessaryto reduce the numbers of excessitems at the whole-
sale and retail levels. Additionally, we discussedwith DOD and Army
officials their planned and ongoing actions to remedy the excess
situation.
In order to assure ourselves that the data being generated by the various
automated systems on the levels of excesseswas accurate, we validated
it on a selective basis. For example, we traced the information shown on
the retail-level activities’ assetbalance files to inventory records main-
tained by the activities. We verified the procurement and back order
data shown on the NICPSprocurement files through discussionswith
item managers at the NICPS    and reviewed supply control studies on the
items in question. Although there were somediscrepancies,the level of
accuracy was, in our opinion, sufficient to allow us to rely on the data
used in the automated systems and to evaluate the status of the inven-
tory at the wholesale and retail levels.

Our review was performed from June 1988 to June 1989 in accordance
with generally acceptedgovernment auditing standards.




Page 13                           GAO/NBuD8068 lbb@ng the Army’s Inventory
F&ail-Level ExcessesDegradeSupply Supprt -
and Result in UnnecessaryProcurements

              According to Army policy, divisions are expected to be able to perform
              their missions with spare parts inventories at prescribed authorized
              levels. When the amounts of on-hand and due-in inventory exceed
              authorized levels, the units are to report these excessesto managersof
              the wholesale system so that the items can be used to meet the needsof
              other Army units.
              As of January 1989, the value of authorized inventory levels for the
              13 divisions included in our review totaled about $349 million. However,
              these units had about $184 million of excessitems. As shown in
              fiire 2.1, most of the excessinventory consistedof items for which on-
              hand and due-in quantities exceededthe authorized inventory levels. To
              a lesser extent, the excessesconsisted of items the units were not autho-
              rized to stock.




              Pyre 14                           GAOY          lUmughg   the Army’s   Inventory
                   Retail-level activities had not reported the excesses,and the wholesale-
                   level managers did not have visibility or control over these excesses.As
                   a result, wholesale-level managerscould not redistribute the excessesto
                   locations where the items were needed.Additionally, managersof the
                   retail system lacked the ability to identify situations in which shortages
                   in one division could be filled by excessesat other units-an inventory
                   managementtechnique called “cross-leveling.” As a result, the 13 divi-
                   sions we visited were requisitioning items from the wholesale system
                   when excessesexisted in other divisions.
                   To compound the matter, becausethe wholesale-level managers do not
                   have the authority to direct the redistribution of retail-level excesses,
                   combat equipment can becomeinoperable due to the lack of parts that
                   are excessat other locations.

                   The 13 divisions we reviewed were authorized to have total inventories
Magnitude of the   valued at about $349 million. In fact, they had over $184 million of
Excess Problem     items on hand or on order that were excessto their needs.Of the total
                   excess,$76 million related to items on hand, and $109 million related to
                   items due in. Figure 2.2 illustrates, for each of the divisions, the amount
                   of excessinventory compared to the division’s authorized inventory
                   level.




                   Page 15                            GAO-           Ibhagbg the ARnY’Shentory
     Figum 2.2: Excosa hmntory   Compuod to Au(horirad Lwola for the 13 Amy DMaiona (18of January l&l999
     55 NIolamdDon8N
     50
     40
     40
     sn




                                              Having two separate supply systems can result in inefficient supply
     Inefficiencies                           operations. Our review disclosednumerous instances in which items
     Resulting From                           that were excessto the needsof a division were neededby another divi-
     Having Two Separate                      sion to repair or replace inoperable equipment. At the sametime that
                                              these imbalances existed, the wholesale level was in the processof pro-
     Supply systems                           curing the sameitems.


     Items Excessat Some                       Managersof the Army’s retail logistics system currently do not have the
                                               capability to identify and move items that are excessin one division to
     Divisions Are Neededby                    fill shortages that exist in others. Instead, divisions that have shortages
     Other Divisions                           have but one alternative: to requisition the neededitems from the
                                               wholesale sy3em.




                                               P8ge 16                             GAO/IWADWM      Muuglng the Army’s Inventory


-.
                                  The 13 divisions, with $75 million of on-hand excessitems, also had item
                                  shortages totaling $33 million. For example, one unit neededan M-l tank
                                  engine valued at about $317,000. At the sametime, other units had
                                  excessengineson hand. However, neither the unit that neededthe
                                  engine nor the wholesale-level item manager was aware that the item
                                  was excessat other locations.
                                  About 26 percent, or $8.4 million, of the shortages could have been alle-
                                  viated by redistributing the excessesfrom other divisions. As shown in
                                  table 2.1, over $1.6 million of shortages in European divisions could
                                  have been filled from excessitems held by the samedivisions, and
                                  another $1.8 million of shortages could have been filled from excesses
                                  held by CONUS-baseddivisions. Additionally, $6 million in shortagesin
                                  CONUS-baseddivisions could have been filled by excessitems retained by
                                  other cows-based divisions.
T8bk 2.1: ROp8ir PaIt -8   Thrt
                                  Dollars in millions
                                                                                            Short881      ~~XIJ~     have
                                                                                 Value of
                                  Divlaion locatlon          Niizc              8hOf-O.        Eum                 CONUS       Total
                                  Europe                                4           $19.0          $1.6              $1.8       $2.4
                                  CONUS                                 9            14.0                             5.0        5.0
                                  Total                                13           $93.0         911P               28.8       28.4
                                  T)ur methodoiogy did not include determining which excess items could have been redistributed from
                                  Europe to satisfy shortages at CONU!Mased divisions.



Items Excessat the Retail         Becausethe retail-level excesseshad not been reported to the wholesale
                                  inventory managers and the managerswere not aware of these excesses,
Level Are Being Procured          many of the items were being procured at the wholesale level.
at the Wholesale Level
                                  The $184 million of excessitems identified during our review include at
                                  least 23,993 separate line items. As shown in table 2.2, AVSCC)M,MICOM,
                                  and TACO&Ihad managementand procurement responsibility for 6,668 of
                                  these items and had ongoing or planned procurement actions for 1,669
                                  of them. The value of excessitems related to the 1,669 line items being
                                  procured was $66.9 million. With a few minor exceptions, the quantities
                                  being procured exceededthe quantities in excesspositions. Therefore, if
                                  the item managers had been aware of excessesand had had redistribu-
                                  tion authority, the excessescould have been used to offset the ongoing
                                  and planned procurements.



                                  Pye 17                                        GAO/BSUMM3          Muuglng the Army’s Inventory
Tabh 2.2: Numbw and VW0 of Urn
ltoma That An Exwu a Retall-Lovol                                            Numbor of tine itema               valw of ret8il-M
ActMth8ndAnCkhrgProcurmdby          NICP                                         king procured                           ~XO0W.I
ThmoNlcPs                           AVSCOM                                                     650                       9w86,ocm
                                    MlCOM                                                      289                        12,009,ooo
                                    TACOM                                                        730                     !50,922,0oo
                                    TOM                                                        1.999                    266.2n7.fm

                                    Item managers and managementofficials at the wholesale level
                                    expressedsupport for a single supply system that would enable
                                    wholesale-level managersto have visibility and control over assetsin
                                    the retail system. The officials stated that, with the exception of certain
                                    items managed in the SelectedItem ManagementSystem-Expanded
                                    (SIMSX),wholesale managershave no knowledge of the inventory levels
                                    of retail-level activities. They pointed out that wx data has histori-
                                    cally been so inaccurate and outofdate that they have discontinued
                                    receiving or reviewing it. Furthermore, even if the accuracy and
                                    credibility problems did not exist, the wholesale-level item managersdo
                                    not have the authority to redistribute retail-level assets.


Inability to Redistribute           The wholesalelevel managers’ lack of authority to redistribute retail-
                                    level excessescan result in equipment’s being inoperable due to a lack of
ExcessDegradesReadiness             spare parts that are excessat other units.
                                    Our analysis of unfilled requisitions at the wholesale level showed that
                                    there were 6,116 high priority requisitions1that were on order at the
                                    three NICPSfor items that were excessat the retail-level activities.

                                    The types of equipment that were inoperable due to the lack of parts
                                    included someof the newer major end-items of combat equipment, such
                                    as M-l tanks and Apache helicopters.
                                    Table 2.3 shows selecteditems that were neededfor the M-l tank and
                                    the Apache helicopter and the extent to which these neededitems were
                                    excessat retail-level activities.




                                    ‘The requkitk s were of priority @OUIM01,02, and 03. By definition, theserequisitions are for items
                                    without whlcf equipmentis inoperable.



                                    Page18                                        GAO/MUDW53           Mumglng the Army’8 Inventory
Tabb 2.9: Example* of Unfilled
~oquwtbns Causing Equipment to Be       Nathal stook numkr/                        EndltWl
I-                                      any)                      Unit prlw       SuppoMl      ra&z!z                :zE
                                        1660-01-253-0362              $2,162         Apache                 4                  3
                                        (Support structure)
                                        2835-01-216-8639            316,912            M-l                  1               18
                                        (Turbine engine)
                                        5999-01-083-5741                538            M-l                  7              225
                                        (Circuit card)



                                        Differences in logistics policies and philosophies among the retail-level
Causesof Retail-Level                   activities coupled with basic system weaknessesinhibit efforts to reduce
ExCeSSeS                                the excessesgenerated and maintained at the retail level. More specifi-
                                        cally, we found that excessescontinue to accumulate at the units
                                        because
                                        the logistics philosophy of many units contradicts Army policy for man-
                                        aging retail inventories,
                                        somedivisions are not preparing excessitem reports that identify excess
                                        inventory,
                                        requisitions for certain types of items that are due in to units and are
                                        excessto the units’ needs are not reported to management for cancella-
                                        tion, and
                                    .   someArmy divisions are not using standard systems to managemajor
                                        items.


Unit Philosophy                         Many of the divisional units we visited had two principal reasonsfor not
                                        complying with Army policy, which requires units to report and turn in
Contradicts Army Polities               excessitems. First, the units must use their own funds to purchase
for
- Managing Retail                       repair parts from the Army stock fund system. When these items are
Inventories                             turned in as excess,the units may receive full, partial, or no credits,
                                        depending on the stock status of the item at the next higher level of
                                        supply. Therefore, if they turn in excessitems and receive less than full
                                        credit, they have wasted unit funds. Furthermore, if the sameitem is
                                        reordered in the future, the unit will have to pay full cost. As a result,
                                        many division logistics officials have adopted the philosophy that
                                        excessitems will be retained indefinitely if there is a possibility that
                                        they may be neededin the future.

                                        For example, one division we visited had adopted the policy of retaining
                                        all excessitems for which there might be a future need. The division had



                                        Pye 18                                 GAO-           Aboglng   the Army?3 Inventory
                            also adopted a policy to retain a quantity of non-stock listed* items equal
                            to 1 year’s demands,even though Army policy clearly provides that
                            non-stock listed items are not to be retained. Division officials said that
                            they did not believe it was cost-effective to turn in excessitems for little
                            or no funding credit if they might have to reorder the sameitem in the
                            future. As of January 13,1989, the division had $24 million worth of
                            excessinventory.
                            The secondprincipal reason cited by Army units for retaining excess
                            items was a lack of trust that the Army’s supply system would meet
                            their supply needsin a timely fashion. One division had four excess
                            M-l turbine engines with a total value of $1.3 million. Division officials
                            said that if they neededan engine and it was not readily available, the
                            tank had to be reported as “not mission capable.” Therefore, they had
                            decided to retain the extra enginesrather than turn them in to the sup
                            ply system because of their concern that engineswould not be available
                            from the supply system when needed.As of January 13,1989, the divi-
                            sion had about $12 million of excessinventory.


SomeDivisions Did Not       The Standard Army Retail Supply System (SARSS)      has the capability to
                            assist divisions in monitoring their supply levels and identifying excess
Prepare ExcessItem          on a daily basis.
upon
                            We found that somedivisions were not preparing excessitem reports so
                            that they would not have to identify excessitems. For example, one
                            division had not prepared an excessitem report for almost a year, even
                            though excessitem reports are required monthly. As a result, manage-
                            ment at the division level and higher had no way of knowing whether
                            the units had excessitems and, therefore, could take no action to have
                            the items turned in for redistribution.


Due-Ins for Certain Types   In January 1988, the U.S. Army’s Logistics Center reprogrammed its
of Items Are Excluded       D&-e&Support Standard Supply System (us-4)to accommodatea number
                            of changesto excessitem reporting. In changing the system, however,
From Computed Excesses      the Center overlooked the logic table that dealt with on-order items to be
                            repaired at the direct-support level. Before the system modification,
                            direct-support reparable items with on-order excesseswould have been
                            reported to division managers with recommendationsto cancel the
                                M2
                                ltetau-hl Exm      DegradeSUPPLY
                                supportuldIteRdtln
                                UnnmMuv Procurement8




                                unneeded items. However,after system modification, on-order excesses
                                were not considered as part of the excessitem computation.
                                Our review showed that not all direct-support reparable items with on-
                                order excesseswere being reported to division management.For exam-
                                ple, the 1st Cavalry and the 2nd Armored Divisions had $1.5 million
                                worth of direct-support reparable on-order excessesas of September 16,
                                1988. By February 13,1989, on-order excessesof these types of items
                                had increasedto $1.6 million.


      SomeArmy Divisions Are    The DW system is one of the Army’s standard systems for divisions to
                                managetheir inventories. However, somedivisions have decided to man-
      Not Using Standard        age their major subassembliesmanually rather than through the auto
      Systems
      *.      to Manage Major   mated us-4system. During our review we identified two divisions that
      items                     were managing their major subassembliesinventories manually. These
                                two divisions had inventories of about $9 million, including about
                                $4 million of excessesthat had not been included in the automated sys-
                                tem and had not been reported to management.


      Assessment of Internal    emphasis on the need for effective internal controls. The act requires
      Controls                  agenciesto evaluate internal control systems and periodically report the
                                results. Agencies are to make the evaluations according to Office of
                                Management and Budget guidance and are to assesswhether the sys-
                                tems meet the objectives of internal controls and comply with GAO
                                standards.
                                According to our Standards for Internal Controls in the Federal
                                Government, internal controls help to ensure that the use of resources
                                complies with existing laws and regulations to safeguard against waste,
                                loss, and misuse. Internal controls also provide a reliable database with
                                which to evaluate the use of resources.Good internal controls help to
                                facilitate managementobjectives by serving as checks and balances.
                                The Army did not report excessinventory or the lack of visibility over
                                this inventory by the wholesale or retail-level managers as material
                                weaknessesin its annual assessmentto the Secretary of Defense.Fur-
                                thermore, at many of the locations included in our review, the installa-
                                tions had either not assessedinternal controls over excessmaterial or
                                considered excessmaterial as low risk.



                                P8ge21                             GAO/NSUDWM Muugtng the AmlY’SInventory


-..
Chapter 3

Army Actions to ReduceRetail-LevelExcesses


                         Excessinventory has been a longstanding problem. Over the years, the
                         Department of the Army and commandersat all levels have made vari-
                         ous attempts to gain visibility of excessitems and establish processes
                         for redistributing excessitems from where they are located to where
                         they are needed.While someprogress has been made, excessinventories
                         and the Army’s inability to redistribute them continue.
                         At present, the Army is focusing on developing systems that will result
                         in the more effective identification and redistribution of excessitems
                         among the retail-level activities. The systems being developed and tested
                         will improve the identification and redistribution of excesseswithin a
                         division and among divisions within a corps. However, the systems will
                         not addressthe issue of redistribution between corps or theaters.

                         While the Army’s actions are a step in the right direction, the systems
                         being developed will not provide centralized visibility and redistribution
                         authority. Consequently, the problem of excessesat one location and
                         shortages at another will continue.

                         The Department of Defenseand the Army have long recognizedthat the
Efforts to Address the   Army’s inventory managementsystem did not have the capability to
EkcessInventory          redistribute inventory items among units at the retail level. As a result,
Problem                  units with item shortages had but one option: to requisition the needed
                         items from the wholesale system. Units that neededan item had no sys-
                         tematic way of knowing that it was excessand available at other units.
                         The lack of visibility at the retail level is compoundedwhen the requisi-
                         tions are sent to the wholesale level, becausemanagersof the wholesale
                         system do not have visibility of retail inventories. Thus, the wholesale
                         system manager has but two options to respond to demands from the
                         retail level: to fill the shortage from wholesale inventory stock or to ini-
                         tiate procurement.
                         In recognition of these shortcomings, the Department of Defensetasked
                         the Army, in April 1986, to develop and implement an integrated inven-
                         tory managementsystem to provide wholesale managerswith visibility
                         of and redistribution capability for inventory below the wholesale level.1
                         The April 1986 plan describedthe benefits of enhancedassetvisibility

                         ‘Theteskineswereincludedina~stotementsienedbytheSecretaryofDefenseinApril        1986.
                         The two taadnegwat put of an overall plan for Becondptyitem yt     by weaponsystem
                         ratherthanbycommodityinordertoenhanceweaponsystemreaduw8.



                         P8ge22                                  GAO/NSUWM2 Muuglng the Army’s Inventory
                       and redistribution as enabling wholesalelevel managers to better fore-
                       cast materiel shortfalls on a systemwide basis and to recognizeand deal
                       with materiel maldistribution or bottlenecks in the system.

                       The Army, in responseto the taskings, set out to develop an improved
                       system to increasemanagers’ assetvisibility and the redistribution of
                       inventory assetsbelow the wholesale level. However, the Army’s efforts
                       do not specifically addressthe intent of the Secretary’s tasking in that
                       the initiatives do not provide the wholesale-level manager with asset
                       visibility and redistribution capabilities. Instead, the Army’s efforts are
                       directed at increasing the visibility and redistribution capabilities of the
                       retail-level activities.


Standard Army Retail   In March 1981, the Army began to replace its retail inventory manage-
                       ment systems. The replacement system-the Standard Army Retail
Supply System          Supply System-was designedto provide near-real-time inventory data
                       that would enable a corps to gain visibility and control of inventory in
                       its units.

                       SARSS’  initial implementation plan called for the system to be fielded
                       from the bottom up. First, the direct-support units would receive the
                       initial system (~AIWI) to be fielded by September 1988. Divisions were
                       scheduled to begin receiving SAWS2~ and corps to begin receiving
                       SARSB  2~by June 1999. The current fielding plan shows that the SARSS
                       system will not be totally fielded until the latter part of fiscal year 1993.

                       SARISoffers opportunities for improving the managementof the Army’s
                       retail inventory. For example, when fully implemented, ~ARSS    will allow
                       a corps to have complete visibility and control of inventory items in its
                       divisional units. When excessesoccur in one unit, &UCBwill alert the
                       corps managementteam to the excessesso that they can redistribute
                       them to other corps units that are experiencing shortages.

                       Notwithstanding this improvement, the system has somelimitations
                       that could result in many of the sameproblems that we identified during
                       our review. While improving the capability of the individual corps, SARS
                       does not provide the capability to redistribute these excessesbetween
                       corps, As discussedin chapter 2, $1.6 miIlion worth of excessitems
                       being held by CONUS  divisional activities could have been used to fill
                       shortages in the four European divisions. WRSSwill not remedy this type
                       of situation.
                               Also, becauseSARSSwill not be linked to the wholesale system, the pro-
                               curement of excessitems at the retail level will continue.


     SelectedItem Management   The Army’s efforts to provide wholesale managers with visibility of
                               items in the retail system began with the creation of the SelectedItem
     Systems                   ManagementSystem (SLMS)     in 1971. The SIMSwas designedto provide
                               wholesale managerswith the capability to validate requisitions for
                               selecteditems by providing information regarding an item’s authorized
                               and on-hand quantities as well as the quantities due in and due out.
                               With this data, the item manager would be able to determine whether a
                               requisition for the item was within authorized limits.
                               The SIMS information was prepared manually by retail activities and
                               submitted to wholesale managers.However, the data was often outdated
                               when it was received, and in somecases,it was incomplete. As a result,
                               SIMSwas viewed as ineffective in aiding wholesale system managers to
                               validate requisitions. SIMS was subsequently modified and renamed the
                               SelectedItem ManagementSystem-Expanded(NM&X).The modification
                               included the requirement that retail-level activities report all transac-
                               tions on the selecteditems directly to wholesale managers on a daily
                               basis. However, many of the sametypes of problems continued to plague
                               SIMSX.
                               In 1986, the Army proposed expanding SIMSXto include not only requisi-
                               tion validation but also the identification and redistribution of excess
                               items. However, our discussionswith wholesale-level item managers
                               revealed that SIMSX data is still outdated and inaccurate. Also, the item
                               managers said that they do not have the authority to direct a retail-level
                               activity to redistribute excessitems from one location to another. At
                               best, they can request a retail unit to return its excessitems to the
                               wholesale system. As a general rule, item managers at the three NICPS we
                               visited have discontinued using s~lldsxas a managementtool.


     The Objective Supply      In May 1988, the Commanding General of the U.S. Army Material
     System                    Command established the Objective Supply System Task Force to
                               develop a concept for one supply system that would streamline adminis-
                               trative and financial processesand reduce the amount of time required
                               to fill requisitions.




                               Page 24                           GAO/N8IADgobB   MumgIng   the Army’s   Inventmy



--
The Task Force’s initial position was that the Army’s supply system was
less than responsive to its units. It noted that the Army requires a sol-
dier to submit a request for supplies, wait several days to find out
whether the request can be filled from his or her own support activity,
wait several more days to find out whether the request was sent to the
wholesale system, wait several more days to find out what actions the
wholesale system was taking on the request, and then wait from 12 to
26 days to receive the item.

The Task Force also observed that the Army supply system’s customers
are forced to deal in two separate worlds-retail and wholesale. These
involve separate stockpiles controlled by separate automated systems.
The customer must exhaust all possibilities of receiving support from
the retail level before placing the request at the wholesale level. The
Task Force believed that this level of complexity should not exist.
Instead, the Army should have one system that provides support to all
of its units.

The supply concept developed by the Task Force envisioned the instan-
taneous routing of requisitions directly from the installation to the
wholesale system if assetswere not available at the requester’s installa-
tion. The concept also envisioned providing the requisitioner with
instant knowledge of the actions taken on the supply request, updating
both supply and financial records automatically and simultaneously
without impeding the flow of the requisition, and using guaranteed
freight and overnight delivery direct to the customer’s supply support
activity.

In May 1988, the concept was presented to and approved by the
Commanding General of the U.S. Army Materiel Command.Subse-
quently, the Commanding General of III Corps approved the concept and
the development of a GO-dayproof-of-principle demonstration at Fort
Hood, Texas, using the 2nd Armored Division as the test division. In
June 1988, the Director of the DefenseLogistics Agency (DLA) agreed to
participate in the test.
The test used a mainframe computer located at the Aviation System
Command to capture installation assetinventory data from all divisional
and corps-level supply activities located at Fort Hood, Texas. The inven-
tory data was updated daily through transmWons of each activity’s
asset balance files. Wholesale inventory balancesfrom the Red River
Army Depot, which is the depot responsible for supporting the divisions



P4e es                            GAO-           IUmugbg tbc Army’s Inventory
    at Fort Hood, were provided to the mainframe computer, as were the
    asset balance files from the DLA’S Memphis DefenseDepot.

    The proof-of-principle demonstration began at Fort Hood on
    September30,1988, and ended on November 30,1988.2 The demonstra-
    tion began when the requisitions were received at the mainframe com-
    puter. If the requisition passededits for stock number validity and local
    purchase eligibility, the neededstock number was checked against avail-
    able stocks at all Fort Hood units. If stock was available, the requester
    was notified of the location of the stock.
    If the stock was not available at Fort Hood, the system searchedthe
    inventory files at the Red River Army Depot. If the items were available,
    the system automatically issued a materiel releaseorder, and the
    requester was notified that the item was beiig sent from Red River and
    would arrive in 1 to 3 days. If the item was not available at Red River,
    the requisition was passedto the appropriate NICP with notification to
    the requester that the action had been taken and that requisition status
    would be reported through the normal system.

    For Du-managed items, the system searchedthe inventory balances,
    and if the item was at the Memphis DefenseDepot or at the Red River
    Army Depot, the requester was notified that the item was available and
    would arrive in 1 to 3 days. If the item was not available at either loca-
    tion, the requisition was passedto the source of supply with notification
    to the requester that the action had been taken and that requisition sta-
    tus would be reported through the normal supply system.
    The average elapsed time for transmitting the requisition from the
    requester to the mainframe and receiving item status was 17 seconds.
    According to the Task Force’s report, the proof-of-principle demonstra-
    tion clearly showed the following:
l   The use of automation and communications can significantly reduce the
    time required to fill a request for supplies. As a general rule, the test
    showed that order-ship-time was reduced by 60 percent-from 26 days
    to 12 days. The Task Force estimated that the reduced order-shiptime
    would result in a one-time savings of $43 million in the Army stock
    fund.

    2S~ceNovemberMS, the IV&S of the demm~&M have beenevaluated.It is expectedthat the
    bestpartsofthedemohptration wiubeillcorprat&!din~thesARss.



    Page 26                               GAORyBuD8ods Muuging      the Army’s Inventory
                           . Providing instant status information to the customer created a seamless
                             supply system that allowed the customer to enter requirements on a
                             computer terminal and, within seconds,lmow whether and from where
                             the neededmateriel would be shipped.
                           l Although empirical data was not available to prove that the reduced
                             order-ship-time improved readiness,it was the Task Force’sopinion that
                             if supply parts are received more quickly, more equipment will be mis-
                             sion ready.


                               Various Commanders-in-Chiefof U.S. Army, Europe (UWZEUR), have
Efforts to Gain                explored alternatives to gain visibility and control over excessinvento-
Visibility and Control         ries within the theater. These efforts have focused on identifying the
of Excess Items in the         causesof excess,emphasizing the need for units to identify and turn in
                               excessinventory, and establishing a redistribution processthat links the
European Theater               Army’s wholesale and retail logistics systems.While these efforts have
                               resulted in improvements, excessinventories remain a problem within
                               the theater. Some of the more significant efforts are discussedbelow.


General Officer Steering       In November 1983, USAREURestablished a committee composedof gen-
committee                      eral grade officers to determine the extent of the excessinventory prob-
                               lems and to provide recommendationson how to reduce and redistribute
                               these inventories

                               In March 1984, the committee reported that the theater did not have the
                               ability to identify or redistribute excessitems within the theater and
                               that excesseswere causedby (1) units’ not following Army policies for
                               managing inventories and excess,(2) systemic weaknessesin the Army’s
                               wholesale and retail logistics systems, and (3) a complicated process
                               that inhibited the turning in of excessitems.

                               One of the initial efforts taken to addressthe committee’s findings was
                               to simplify procedures for turning in excessitems to the theater’s cen-
                               tral receiving activity-the Retrograde Processing Point (RPP). The
                               revised procedures provided for units to turn in items (1) without
                               appointments, (2) with a reduction of accompanying paperwork, and
                               (3) with no explanation of where the items had comefrom or why they
                               were excess.
                               As a result of the revised procedures, which easedthe turn-in process,
                               the RPP'S work load soon exceededits ability to processthe materiel.
                               Also, since the RPP did not have the capability to determine whether the



                               Page27                            GAO~          IUmaghg the Army’sInventory
                          Chapter3
                          Army Aaions to Reduceltetd-
                          LevelExu!mea




                          excessitems were neededin theater, a significant number of the items
                          were automatically returned to CONUSwholesale system storage depots.

                          As a result of the theater’s inability to redistribute the excessitems to
                          other USAREURunits, the items that were being returned to CONUS were
                          often being requisitioned by other USAREUR units. For example, between
                          July 1984 and January 1986, USAREURreturned 674 vans of excessmate-
                          riel to a CONUS storage depot. As of January 1986, items valued at
                          $88 million had been processedback into the wholesale supply system.
                          Of this amount, $13.8 million of the items were immediately shipped
                          back to Europe to fill shortages in USARELJRunits.
                          The excessivework load at the RPP,coupled with the theater’s inability
                          to redistribute excesseswithin the theater, provided the catalyst for
                          U~AREUR   to explore other alternatives for receiving and redistributing
                          excessitems.


European Redistribution   In 1986, USAREUR and the U.S. Army Material Commandjointly estab-
Facility                  lished the European Redistribution Facility @RF) as the central turn-in
                          point for excessrepair parts in Europe.
                          When excessitems are turned in to the ERF,the items are screenedto
                          determine whether they are on the theater’s list of 2,899 intensively
                          manageditems. If they are, unserviceable items are sent to the theater
                          repair facility, and serviceable items are returned to the USAREUR
                          inventory.        ,

                          After the screening process,the remaining excessitems are again
                          screenedto determine whether they should be (1) returned to a CONUS
                          depot repair activity, (2) sent to the DefenseReutilization and
                          Marketing Office, or (3) retained at the ERFto fill requisitions from
                          USAREUR units. Ass&s retained at the ERFare reported to the wholesale
                          logistics system’s inventory record and becomepart of the overall
                          wholesale inventory. As a general rule, the wholesale system item mana-
                          ger usesthe items in the ERFinventory to fill requisitions from USAREUR
                          units. However, the items can also be used to fill shortageselsewhere.

                          From October 1988 through April 1989, the ERFreceived and processed
                          196,299 line items of excessparts, valued at $277 million. Table 3.1
                          shows the disposition of these items.




                          Page22                            GAO/N-         Managhg   the Army’s   Inventory
     n4lobl:Dbpowonotexcu8llwnr
     nawhfadbylhoLRpholnoctobulm   minfn#c#jfj
     Rv#cghAprll-@                                                       NanbuofibDmm           Dobrvdw
                                   CONUS storage                                    61,562            $37.5
                                   Theater repair                                   17,452            119.9
                                   USARElJFl inventory                              13,979             96.9
                                   Retained by ERF                                  esa3               16.4
                                   Sent to disposal                                 15,693              4.2
                                   Tocll                                          I=?@@@             927ae


                                   While the ERFdemonstrates the potential for redistributing excessitems,
                                   the newly integrated wholeaale and retail logistics systems will be
                                   tdallydependentontheunitstoidentifyandturninexcessitems.As
                                     .
                                   dlscNs&inchapter2,Annydivisionsare~rdainingsignificant
                                   amounts of excessinventories. As a casein point, the four European-
                                   baseddivision!3inourxwlew had over $70 million of inventory over and
                                   above their authorized levels.




--
Corkhsions and l!tcmmnUons


              Many&aWevelactivitiesareaclxwnulatingandretaininginven~ries
conclusions   ofcqtareaudrepairpartsthatarr?ex~totheirneeds,whileother
              retail-lewhmitsareexperiencingshoxtagesofthesesame!parts.Atthe
              sametime,wholeealesgstemmanagem~tryingtocarryouttheir
              respo&bilityofensmingthatsuffi&ntstockisavailabletomeetthe
              needsofallsupp8yactivitiesbyprocuringmanyof4Wx3ameitemsthat
              areexcesstotheIWedsofretail-levelactivities.

              ConWWhsatthereeaillevelarenot~f~Armyregula-
              tians,whic!hrequirethatexce8sinventorybe~and~to
              tkWlKDb&?~systePn.Their               toidentifyandtumintheex~
              itemsstemsfiumamind+etthathasde5relopedovertheyears.The
              thinkhgseemstobethatitisbettert0havefoomuchthautoolitt&,
              evenifitmeausthatother5haveinope!rabkequ@mentbecausetheydo
              not~vetheneededpruts.Asaresult,excesees~~~to~~.
              Atthsametime,whohale        lluwgemarebuyingtbetheite3nstosat-
              isfyshcdagesatotherunics.
              BothArmy-wideand-        commandeffortstoaddresstheexcess
              inwntory problem have only been margldly successrulbecausetheini-
              tiativeshavebeendes@nedonthepremise th&theWhOk?S&!andretail
              systemsmustoperafeMq+entlyofeachother.

              Thesystenrs8ndthe~~~beingdevelopediUClUdiUgsrrasS
              andtheobjectiveSupplySy&tt?qwillxKMullyannt#lrrtheproblems
              ldentifiedinourlwiew.’   Evenwhensrrpssisfullyimp~,the~
              teluwillstiulackthe~to           -teexce8sspareportsfrom
              oneclKpetofill~that~inotheraDxp6ortheatersofopera-
              tion.hther,srraBswiilu&pxwidewhohakmanagers            WithtkVlSi-
              biliQaramtx79ofitenus~            topiwentthepruammeMofitems
              thatareexces3attheretail-levelactivities.

              TheO@ctiveSupplySystemTaskForceaqNuredtheesaeuceofthe
              re.medyfortheAlmykinventory~                  m-by--!d&
              iugthttheArmymustcreateasin@,inte@&dsupplysystem.How-
              ever,initsdemaWWhtests,theTaskForce           t?XthddtheWhO~
              systembyallowhgthe~levelto~therelerraeofmaterialfrom
              thewhok4aleleveldepot.Thisis~ti~normlllpractice,iu
              whicht.hedepotperfoHusthesupplyfuxWWnofissuingmaterial
              release0rde~tofillrequisitions.
                  chepter 4
                  ckmclusioIMawl ltecm-tlone




                  We believe that the Department of Defense’sinventory managementphi-
                  losophy of creating one integrated supply system deservesfull consider-
                  ation if the problems identified in our review are to be fully addressed.
                  To be effective, the single, integrated system must centralize.visibility
                  and redistribution authority at the integrated inventory management
                  level. Otherwise, each individual installation, command, and activity
                  will continue to determine how much stock should be retained, and man-
                  agers of no one organization will have a complete overview of what the
                  supply system contains.
                  We also believe that the magnitude of the excessproblems and the resul-
                  tant inefficiencies warrant the reporting of these matters as a material
                  weaknessin the Secretary of the Army’s annual assessmentof internal
                  controls under the Federal Managers’ Financial Integrity Act.

                  We recommend that the Secretary of the Army report the accumulation
Recommendations   and retention of retail-level excessesas material weaknessesin the
                  Army’s next annual assessmentof internal controls, as required by the
                  Federal Managers’ Financial Integrity Act.
                  Becausethe retail-level activities are not complying with Army regula-
                  tions that require that excessitems be reported and returned to the
                  wholesale-level supply system, we recommendthat the Secretary of the
                  Army establish a single supply system that provides the inventory sup-
                  ply system manager with systemwide asset visibility and the authority
                  to redistribute excessesfrom locations where they are not neededto
                  locations where they are.

                  DODagreed with our recommendation that the Army report the accumu-
Agency Comments   lation and retention of retail-level excessesas a material weaknessin its
                  next annual assessmentof internal controls under the Federal Managers’
                  Financial Integrity Act. The Army has reported the matter in its most
                  recent statement.
                  DOD also agreed with   our recommendation to establish a single supply
                  system and ensure that the system manager has systemwide assetvisi-
                  bility and redistribution authority.

                  DOD commented that   the Army has three initiatives underway to achieve
                  these objectives. The first initiative focuseson providing war-fighting



                  Pyre 81                           GAoy          lbhugbg the Army% inventory
                                                                                         .
commanderswith the ability to redistribute assetsto enhancetheir com-
bat power. The secondinitiative involves prototype tests to link asset
databaseson a real-time basis from the retail to the wholesale level. The
third initiative, to be completed by fii year 1096, envisions a “seam-
less” supply system that will provide verticai integration of the whole-
sale and retail systems with the end result being one Army supply
system, from top to bottom. This one system will provide total assetvis-
ibility and redistribution capability.
DOD also commented that    a single supply system will improve the effi-
ciency and effectiveness of item managementand will provide superior
responsivenessto the supply system’s customers at reduced costs. Verti-
cal inventory managementquring          that the item manager has visibil-
ity of retail assetsand the authority to direct the redistribution of assets
among retail activities-is a fundamental goal of DODas it moves from
item/commodity managementto weapon systems management.
Appendix I

Divisions GAO Visited


               1st Cavalry Division, Fort Hood, Texas
               2nd Armored Division, Fort Hood, Texas
               1st Infantry Division, Fort Riley, Kansas
               4th Infantry Division, Fort Carson, Colorado
               6th Infantry Lhision, Fort Polk, Lmisiana
               6th Infhn~ Division, Fort Richardson, Alaska
               7th Infantry Division, Fort Ord, California
               10th Mountain Division, Fort Drum, New York
               24th Infantry Division, Fort Stewart, Georgia
               1st Armored Division, berth, Germany
               3rd Arlnod Division, Frankht, -y
               3rd Infantry Division, Kitzlngen, Germany
               8th Infantry Division, Bad Kreuznach, Germany




               Pye 84                         QAO/lWMDWM       Muugln#   tb8 Army% Inventory
Appendix II

Major Contributor to This Report


                             Robert J. Lane, Assistant Director
National Security and
International Affairs
Division, Washington,
DC.

                      Vernon Westbrook, Jr., Evaluator-in-Charge
Dallas RegionalOffiCe Christina
                              NicoloffsiteSenior
                             Merrie C. Nichols,‘Evaluator