oversight

Defense Infrastructure: Inventory Control Point Consolidation Savings Would Be Substantial

Published by the Government Accountability Office on 1997-08-13.

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

                   United States General Accounting Office

GAO                Report to the Secretary of Defense




August 1997
                   DEFENSE
                   INFRASTRUCTURE
                   Inventory Control
                   Point Consolidation
                   Savings Would Be
                   Substantial




GAO/NSIAD-97-157
                   United States
GAO                General Accounting Office
                   Washington, D.C. 20548

                   National Security and
                   International Affairs Division

                   B-276977

                   August 13, 1997

                   The Honorable William S. Cohen
                   The Secretary of Defense

                   Dear Mr. Secretary:

                   The National Defense Authorization Act for Fiscal Year 1996 directed you
                   to review the Defense Logistics Agency’s (DLA) management of all
                   Department of Defense (DOD) inventory control points (ICP) and to report
                   the results to the congressional defense committees and the Comptroller
                   General of the United States. Your report identified large savings as well as
                   potential risks associated with consolidating ICPs under DLA. We reviewed
                   the report and are providing our observations on the estimated
                   consolidation savings. Your report, along with our observations, may be
                   useful to the National Defense Panel (NDP) and others as they assess
                   matters raised by the Quadrennial Defense Review (QDR) relating to DOD’s
                   logistics infrastructure.


                   The Office of the Secretary of Defense (OSD) used conservative
Results in Brief   assumptions and cost factors in estimating cost savings from consolidating
                   service ICPs under DLA. Its projected cost savings of $2.2 billion to
                   $3.8 billion cover a 13-year period, fiscal years 1998 to 2010. We believe
                   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.
                   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
                   (BRAC) principles, such as estimating steady-state savings over a longer
                   time period and a present value analysis instead of a constant dollar
                   analysis.1 The potential savings would likely be greater yet if the analysis
                   included (1) savings from all business process improvements related to the
                   consolidation and (2) planned future improvements to DOD’s existing
                   material management information systems.


                   ICPsprovide services associated with the acquisition, distribution,
Background         maintenance, and disposal of consumable and reparable parts,2 and

                   1
                    A present value analysis calculates the value of future dollar amounts in terms of present dollars by
                   recognizing the time value of money. In the calculation, the future monetary amounts are “discounted”
                   to the present using the appropriate interest or discount rate.
                   2
                    Consumable parts are generally not cost-effective to repair and are thrown away when worn or
                   broken; reparable parts can be repaired at maintenance activities when worn or broken.



                   Page 1                                                 GAO/NSIAD-97-157 Defense Infrastructure
B-276977




supplies needed to operate weapon systems and components. DLA
manages 5 ICPs at 5 locations, and the services manage 11 ICPs at 13
locations. DLA’s ICPs manage consumable items such as repair parts,
personnel support items, fuel, and other bulk items and material. The
services’ ICPs manage reparable components, subsystems, and assemblies
and selected consumable items. The 16 ICPs employ about 24,000 people
and manage parts valued at approximately $69 billion. The number of ICPs
is expected to be reduced to 11 ICPs at 13 locations by fiscal year 2003.3
(See app. I for a list of service and DLA ICPs by location and by those that
are scheduled for downsizing.)

In past reports, we criticized DOD’s logistics system as being cumbersome,
inefficient, and costly. Likewise, since at least the 1970s, DOD has
recognized and been concerned about overlap and duplication in its
logistics system and other inefficiencies. In 1989, OSD proposed a review to
consolidate ICPs under a single service or agency manager, but the services
strongly opposed the idea because they believed their ability to support
weapon systems effectively would be adversely affected. However, in the
National Defense Authorization Act for Fiscal Year 1996, Congress
required the Secretary of Defense to review the management of all DOD ICPs
by DLA, including service-managed reparable items.4 Thus, in April 1996,
the Deputy Under Secretary of Defense for Logistics tasked the Logistics
Management Institute (LMI) to conduct such a review.

On November 19, 1996, OSD reported the results of its review to Congress
and provided a copy to the Comptroller General of the United States. The
report concluded that cumulative savings during fiscal years 1998 to 2010,
ranging from $2.2 billion to $3.8 billion, might accrue if the management of
all ICPs were transferred to DLA. The report also noted the services’
concerns regarding the transfer, principally the risk of disrupting the
intraservice integration of material and weapon system management. The
report noted, however, that actions could be taken to lessen the risks.
Given the services’ concerns, the report stated that DOD, through its QDR
and other future planning and programming efforts, would examine
alternatives that might provide similar savings at less overall risk.




3
 DLA’s Defense Fuels Supply Center is collocated with DLA’s headquarters at Fort Belvoir, Virginia,
and is not included in these downsizing numbers.
4
  The July 1990 ICP Consolidation Study (Defense Management Report Decision 926) directed the
services to transfer service-managed consumables to DLA. This effort began in August 1991 and is
scheduled to be completed by January 1998.



Page 2                                                 GAO/NSIAD-97-157 Defense Infrastructure
                      B-276977




                      LMI developed a scenario for consolidating the service ICPs under a single
Approach and          manager within DLA and identified the associated potential costs, benefits,
Methodology Used in   and risks. LMI recognized that if the proposed consolidation were to occur,
the Review            the implementation might differ from its scenario, and the major personnel
                      reductions and site consolidations envisioned in the review would likely
                      have to undergo a process similar to that recently used for BRAC actions.
                      Therefore, LMI considered its analysis conceptual in nature because it did
                      not address specifics, such as which ICPs to close and which to retain. The
                      analysis was intended to indicate only whether the consolidation has
                      merit.

                      Under LMI’s scenario, the consolidation would take place during fiscal
                      years 1998-2010, reduce the number of ICPs5 to either six or three,6 and
                      affect at least 12,000 people. Figure 1 is a chronology of LMI’s scenario, the
                      actions projected to occur, and the associated range of savings.




                      5
                       DLA’s Defense Fuels Supply Center was not part of OSD’s review and was therefore not included in
                      LMI’s analysis.
                      6
                       Using these two options, LMI provided a range of the potential savings. The use of six ICP locations
                      represents the low end of LMI’s cost savings and reflects conservative assumptions, and the use of
                      three represents the high end to reflect relatively aggressive assumptions.



                      Page 3                                                  GAO/NSIAD-97-157 Defense Infrastructure
                                         B-276977




Figure 1: LMI’s Consolidation Scenario

                                           Fiscal year

                                            2010                    No actions would be scheduled during this period of steady-state savings;
                                                                    the movement of ICP personnel would be completed by fiscal year 2008.
                                            2009
                                                                    $0.7 billion to $1.2 billion saved

                                            2008                    DLA would reduce the number of ICPs and standardize
                                                                    systems and procedures. Remaining business process
                                                                    improvements would be implemented.

                                                                    $0.9 billion to $1.6 billion saved


                                            2004


                                            2003                    Under DLA management, service ICPs would continue with the same service
                                                                    people, policies, systems, and procedures (i.e., transfer in place). DLA could
                                                                    elect to consolidate support functions regionally or at a single site to reduce
                                                                    the number of personnel required. Some business process improvements
                                                                    would be implemented.

                                                                    $0.6 billion to $1.0 billion saved




                                            1999

                                            1998                    A 1-year period of decision-making and pre-implementation
                                                                    planning.

                                                                    No savings


                                         Note: The total savings from fiscal year 1998 to 2010 is $2.2 billion to $3.8 billion.




                                         To identify the cost savings of its scenario, LMI considered three areas
                                         through which savings were possible: (1) a transfer in place, (2) site
                                         consolidation, and (3) business process improvements. (See app. II for a
                                         list of the business improvements identified by LMI.)

                                         LMIdeveloped the cost savings for the transfer in place and site
                                         consolidations using the services’ and DLA’s ICP and supporting




                                         Page 4                                                   GAO/NSIAD-97-157 Defense Infrastructure
                           B-276977




                           headquarters cost data. For the business process improvements, however,
                           LMI could not obtain complete data from the services for all 16
                           improvements, but was able to price 4 individual initiatives that would
                           result from the transfer. To develop the potential cost savings in these
                           areas, LMI used cost factors and made assumptions that were conservative
                           in nature. According to an LMI official, the team’s conservative approach
                           was designed to avoid overstating the anticipated cost savings.

                           After examining the report on consolidation, we believe OSD’s approach
Savings Estimates          was reasonable, given the sensitive nature of the issue, the limited amount
Associated With            of time to perform the review, and the data available. However, we
Consolidation Would        concluded that the cost savings estimates would have been $1.3 billion to
                           $2.3 billion greater if BRAC principles had been used. Also, indications are
Be Higher Using            that the savings estimates would be even greater if the review included the
BRAC Principles            savings associated with all 16 business process improvements and likely
                           future improvements to the material management information systems.
                           Full achievement of these additional savings is dependent on the
                           consolidation of the ICPs under a single manager.


Adjustments to LMI’s       Given the short time frame LMI had to review the ICP consolidation, it
Methodology Would Result   performed a conceptual analysis to show whether savings were possible. It
in Higher Savings          did not use the cost of base realignment actions (COBRA) model, which was
                           used during the four BRAC rounds since 1988 to evaluate the cost of
Estimates                  stationing alternatives. Although LMI was not required to use the model,
                           COBRA was the proven, standard means for analyzing proposed
                           consolidations.

                           We recognize the difficulty in using the COBRA model because it requires
                           the collection of a large amount of data and numerous assumptions, such
                           as which sites to retain and which to close. Had LMI used some of the BRAC
                           principles that were used in the COBRA model, such as a longer period of
                           steady-state savings and a present value analysis in arriving at its cost
                           savings estimates, the combined effect would have resulted in larger
                           estimated savings.7 More importantly, using these BRAC principles provides
                           a way of showing cost savings estimates that are consistent with how DOD
                           projected costs and savings in previous BRAC rounds.8


                           7
                            In a present value analysis cost savings estimates are decreased, but if the time period is also
                           extended, the net effect is an increase in the cost savings estimates.
                           8
                            We recognize that BRAC legislation expired on December 31, 1995. However, the use of these
                           principles is an approved and established procedure DOD has used in the past to examine closure and
                           realignment actions.



                           Page 5                                                   GAO/NSIAD-97-157 Defense Infrastructure
                                  B-276977




                                  To illustrate, BRAC legislation required that consolidations be completed in
                                  no more than 6 years and that DOD project savings over a 20-year period,
                                  thus ensuring at least 14 years of steady-state savings. BRAC also required
                                  the use of a present value analysis to reflect the value of money over time.
                                  LMI projected cost savings over a 13-year period (i.e., fiscal
                                  years 1998-2010), which included an 11-year implementation period and 2
                                  years of steady-state savings. Its analysis also did not consider the time
                                  value of money. An LMI official told us that, given more time, it would have
                                  considered using a present value analysis and a longer time period.

                                  We adjusted LMI’s cost savings estimates by applying these two BRAC
                                  principles without changing LMI’s scenario or assumptions. Specifically, we
                                  extended LMI’s ending time frame from fiscal year 2010 to 2022 to allow 14
                                  years of steady-state savings and performed a present value analysis on
                                  LMI’s cost savings estimates, using a rate of 4 percent.9 Table 1 shows the
                                  results of our adjustments.

Table 1: Projected Cost Savings
Estimates                         Dollars in billions
                                                           Consolidation            Discount             Years of
                                                           period—fiscal            rate             steady-state        Projected cost
                                  Projected by                     years            (percent)            savings               savings
                                  LMI                        1998 to 2010           None                           2         $2.2 to $3.8
                                  GAO                        1998 to 2022a          4.00                         14          $3.5 to $6.1
                                  a
                                   To ensure 14 years of steady-state savings without changing LMI’s assumptions, we had to
                                  extend the time period.



                                  LMI’s analysis could be adjusted in many ways if the scenario assumptions
                                  were changed. We could have used a 20-year period (fiscal years
                                  1998-2017), which would include 14 years of steady-state savings. Although
                                  we believe this alternative calculation would generate savings similar to or
                                  greater than those from our analysis, we would have had to make
                                  numerous assumptions about LMI’s consolidation scenario. For example,
                                  by achieving consolidation within the first 6 years (i.e., between fiscal
                                  year 1998 and 2003, or sooner), DOD could increase the potential cost




                                  9
                                   Since the costs and savings were in constant dollars (i.e., excluded inflation), we used a real discount
                                  rate of 4 percent (i.e., a nominal interest rate of 6.9 percent minus a projected inflation rate of
                                  2.9 percent) for our present value analysis. For the nominal interest, we used the yield on U.S.
                                  Treasury bonds for the period of our analysis, and for the projected inflation rate, we used the average
                                  of inflation forecasts from two major economic forecasting firms.



                                  Page 6                                                   GAO/NSIAD-97-157 Defense Infrastructure
                         B-276977




                         savings even more. We have previously reported on the effect of
                         implementing BRAC actions sooner and the resulting increase in savings.10


Some Potential Savings   The savings identified in LMI’s analysis do not include potential savings
Are Not Included in      from all 16 business process improvements and a DOD-wide material
Savings Estimates        management information system. We were unable to quantify these
                         associated costs and savings, but we believe their inclusion into LMI’s
                         analysis would increase LMI’s cost savings estimates.

Business Process         Although LMI identified 16 business process improvements from which
Improvements             savings could be anticipated, it estimated costs and savings for only 4.
                         These four, however, account for a significant portion of the overall
                         estimated savings—ranging between $1.5 billion and $2.7 billion.
                         Nevertheless, the additional 12 could also result in savings. According to
                         LMI officials, these business process improvements are a sample of
                         improvements that DLA could make as a single manager for all DOD ICPs, to
                         include improving the contracting methodology and process, deleting
                         inactive parts, and improving material acquisitions and inventory storage.
                         According to an LMI official, LMI estimated savings for only four
                         improvements because of the lack of data, time constraints, and limited
                         resources.

                         Service officials stated that the savings associated with these four process
                         improvements duplicate ongoing service efforts and should not be
                         considered in this analysis. However, they did not provide data to support
                         their statements.11 We believe that even greater savings could be achieved
                         if the business process improvements were implemented by a single
                         manager across service lines for all of DOD’s ICPs.

DOD-wide Material        At the time of LMI’s analysis, DOD was planning to implement the Material
Management Information   Management Standard System to be used at its ICPs.12 In July 1995, DOD
System                   estimated it would spend about $5.3 billion to develop, deploy, and
                         maintain the system at its ICPs, and it expected the effort to produce as
                         much as $15 billion in savings over a 15-year period. According to an LMI
                         official, Material Management Steering Group officials told the LMI team

                         10
                          Military Bases: Closure and Realignment Savings Are Significant, but Not Easily Quantified
                         (GAO/NSIAD-96-67, Apr. 8, 1996).
                         11
                          Only the Navy provided documentation; however, most of its process improvements were conceptual
                         and would be limited to the Navy.
                         12
                           This system was intended to be independent from over 500 existing systems to carry out wholesale
                         logistics operations. The systems cost billions of dollars in maintenance and increasingly result in
                         unnecessary requisitions and excess inventory.



                         Page 7                                                 GAO/NSIAD-97-157 Defense Infrastructure
                       B-276977




                       not to consider using these numbers because of the questionable costs and
                       savings estimates. We later reported that DOD had underestimated the
                       costs and overestimated the savings.13

                       Because of difficulty in developing the system, the strategy to develop and
                       implement a standard material management system was abandoned.
                       According to a former senior official involved in the development of the
                       system, progress was marred by incompatible service goals that could be
                       overcome if the ICPs were consolidated under a single organization such as
                       DLA. DOD officials told us that they did not believe a standard system would
                       work, considering the differences in how each service does business.
                       However, LMI and several military officials said that a standard database
                       that could be shared was needed. Although the costs and savings
                       associated with a standard system are not easily quantifiable, we believe
                       that successful implementation of a standard system or database would be
                       more likely and savings would be achievable under a single organization.


                       The National Defense Authorization Act for Fiscal Year 1997 established
QDR Consideration of   the QDR to examine defense requirements and strategy and develop a
ICP Consolidation      revised defense program through 2005. The act also established an NDP to
                       review the QDR’s work and provide you with recommendations for
                       improvements to the QDR’s review, which it did on May 15, 1997. In
                       addition, the NDP will report to you on additional matters by December 1,
                       1997.

                       DOD  established a QDR Infrastructure Panel Logistics Task Force to
                       examine DOD’s infrastructure issues, including ICP consolidation
                       alternatives. The Logistics Task Force considered six alternatives (see
                       app. III for a list of all six alternatives) and decided against consolidating
                       service ICPs and reparable inventory under DLA, even though the savings
                       estimates were much greater than any other alternative. Instead, the task
                       force recommended establishing one ICP per service with multiple
                       locations. Only the recommended alternative was forwarded to the NDP for
                       its consideration.

                       In the NDP’s May 15, 1997, report, the NDP reported on the QDR’s changes
                       and reductions to DOD’s infrastructure but did not specifically address ICP
                       consolidation. According to an NDP staff member, DOD infrastructure issues



                       13
                        Defense IRM: Critical Risks Facing New Materiel Management Strategy (GAO/AIMD-96-109, Sept. 6,
                       1996).



                       Page 8                                              GAO/NSIAD-97-157 Defense Infrastructure
                     B-276977




                     are still being considered by the Panel, but it is uncertain whether ICP
                     infrastructure will be addressed in the NDP’s December 1, 1997, report.


                     Although substantial savings are possible by consolidating the services’
Recommendation       ICPs under DLA, the services have resisted such proposals, citing potential
                     risks that could affect operational effectiveness. Given this situation, we
                     recommend that you ask the NDP to examine the savings and risks
                     associated with ICP consolidation under DLA.

                     As you know, 31 U.S.C. 720 requires the head of a federal agency to submit
                     a written statement on actions taken on this recommendation to the
                     Senate Committee on Governmental Affairs and the House Committee on
                     Government Reform and Oversight not later than 60 days after the date of
                     the report and to the Senate and House Committees on Appropriations
                     with the agency’s first request for appropriations made more than 60 days
                     after the date of the report.


                     DOD generally concurred with our findings, but stated that without
Agency Comments      addressing the risks associated with the consolidation, our cost savings
and Our Evaluation   projections would not be very meaningful. (See app. IV for a reproduction
                     of DOD’s comments.) We agree with DOD that the risks cannot be ignored.
                     However, as indicated in the OSD report, these potential risks can be
                     mitigated. Given these circumstances, we believe that the NDP should
                     examine both the savings and risks associated with the consolidation of
                     ICPs under DLA. Although this recommendation was not in the draft report
                     DOD reviewed, our subsequent review of the QDR and NDP reports prompted
                     us to add this recommendation.


                     During our review, we evaluated matters related to the cost of the
Scope and            proposed transfer of service-managed ICPs to DLA. We did not address the
Methodology          risks associated with the proposed transfer, nor did we examine any of
                     DOD’s ongoing initiatives in the logistics infrastructure area. However, we
                     did obtain some information on pertinent matters considered by the
                     Logistics Infrastructure Panel of the QDR.

                     To obtain an overall service perspective on the cost aspects of the report,
                     we held discussions with cognizant officials from OSD; the Joint Chiefs of
                     Staff; and headquarters and installations of the Army, Navy, Marine Corps,
                     Air Force, and Defense Logistics Agency, and reviewed documents



                     Page 9                                   GAO/NSIAD-97-157 Defense Infrastructure
B-276977




provided by the services. Locations visited included the Communications
and Electronics Command, Fort Monmouth, New Jersey; the Naval
Inventory Control Point and Naval Supply Systems Command,
Mechanicsburg, Pennsylvania; Naval Sea Systems Command, Washington
D.C.; Air Force Materiel Command, Dayton, Ohio; and Oklahoma City Air
Logistics Center, Oklahoma City, Oklahoma.

To understand the report’s methodology for estimating costs, we talked
with OSD and LMI officials, reviewed LMI-prepared data14 and spreadsheets,
and randomly checked LMI’s calculations. To estimate additional potential
cost savings, we adjusted LMI’s data to include a longer time period of
steady-state savings and a present value analysis.

We conducted our review between December 1996 and June 1997 in
accordance with generally accepted government auditing standards.


We are sending copies of this report to the Chairmen and Ranking
Minority Members of the Senate Committee on Armed Services and the
House Committee on National Security. We will make copies available to
others on request. Please contact me on (202) 512-8412 if you or your staff
have any questions about this report. Major contributors to this report
were George Jahnigen, Kevin Perkins, and David Epstein.

Sincerely yours,




David R. Warren, Director
Defense Management Issues




14
 Most of the information we used had been summarized in an LMI-prepared draft (Consolidation of
DOD Inventory Control Points Under the Defense Logistics Agency: An Analysis of the Risks and
Benefits, Jan. 28, 1997).



Page 10                                             GAO/NSIAD-97-157 Defense Infrastructure
Page 11   GAO/NSIAD-97-157 Defense Infrastructure
Contents



Letter                                                                                              1


Appendix I                                                                                         14

DOD’s Inventory
Control Points
Appendix II                                                                                        15

Business Process
Improvements Under
DLA’s Management of
ICPs
Appendix III                                                                                       16

ICP Consolidation
Alternatives
Considered by the
Quadrennial Defense
Review
Appendix IV                                                                                        17

Comments From the
Department of
Defense
Table                 Table 1: Projected Cost Savings Estimates                                     6


Figure                Figure 1: LMI’s Consolidation Scenario                                        4




                      Page 12                                  GAO/NSIAD-97-157 Defense Infrastructure
Contents




Abbreviations

BRAC       base realignment and closure
COBRA      cost of base realignment actions
DLA        Defense Logistics Agency
DOD        Department of Defense
ICP        inventory control point
LMI        Logistics Management Institute
NDP        National Defense Panel
OSD        Office of the Secretary of Defense
QDR        Quadrennial Defense Review


Page 13                                 GAO/NSIAD-97-157 Defense Infrastructure
Appendix I

DOD’s Inventory Control Points




                                                                                                  9
                                                                                                                            3
                                                                                                                                    8
                              11                                                                                                4
                                                                                       9                 1
         13
                                                                                                                           10
                                                                                                                  10
                                                                                                                            5
                                                                                  7                                    2




                                                                 12

                                                                                              6
                                                                                                             15
                                                                                                      16




                                                            14




1   Defense Supply Center Columbus, Columbus, Ohio NO                 10    Naval Inventory Control Point, Mechanicsburg, Pa. and
2   Defense Supply Center Richmond, Richmond, Va. NO                        Philadelphia, Pa. NO
3   Defense Industrial Supply Center, Philadelphia, Pa. YESa          11    Ogden Air Logistics Center, Ogden, Utah NO
4   Defense Personnel Support Center, Philadelphia, Pa. YESa          12    Oklahoma City Air Logistics Center, Oklahoma City, Okla. NO
5   Defense Fuels Supply Center, Fort Belvoir, Va.b NO                13    Sacramento Air Logistics Center, Sacramento, Calif. YES
6   Army Missile Command, Huntsville, Ala. NO                         14    San Antonio Air Logistics Center, San Antonio, Tex. YES
7   Aviation and Troop Command, St. Louis, Mo. YES                    15    Warner Robins Air Logistics Center, Warner Robins, Ga. NO
8   Communications and Electronics Command,                           16    Marine Corps Logistics Base, Albany, Ga. NO
     Fort Monmouth, N.J. NO
9   Tank and Automotive Command & Armament and
                                                                           Army                   Defense Logistics Agency
     Chemical Acquisition and Logistics Activity,
     Warren, Mich. and Rock Island, Ill. NO                                Air Force              Navy
                                                                           Marine Corps    Slated for BRAC downsizing
                                                                                            YES
                                                                                            NO

                                              a
                                               These two activities are being combined as a result of a 1995 base realignment and closure
                                              (BRAC) action.
                                              b
                                               This activity was not part of the Office of the Secretary of Defense’s (OSD) review.




                                              Page 14                                                      GAO/NSIAD-97-157 Defense Infrastructure
Appendix II

Business Process Improvements Under
DLA’s Management of ICPs


                                                                                                                     Savings estimated in
Business process improvement                                                                                         LMI’s analysis
Improved contracting methodology and process: Improves contracting efficiency by emphasizing                         Yes
corporate contracting and reduced acquisition lead times.
Deletion of inactive items: Deletes from DOD’s catalog items for which no current applications have                  Yes
been identified, thereby reducing item management costs.
Catalog total quality management: Corrects catalog data, which will facilitate correct requirements                  No
computations and decisions to repair or procure.a
Improved demilitarization: Corrects coding errors dealing with demilitarization responsibilities and                 No
facilitates timely disposal of excess material.
Improved stock positioning: Uses better data on requisitioner locations to reposition stock and                      No
decreases shipping and storage costs and response time.
Item reduction and entry control: Reviews items during weapon system design phase to identify all                    No
equivalent items, leading to reductions in items to be managed and inventory investments.
Secondary-item provisioning on end-item contracts: Establishes a DOD program to deal with                            No
provisioning line items with end items, thereby reducing procurements and potentially reducing prices as
administrative costs are reduced.
Source breakout: Strengthens DLA’s program to identify subcontractors and other less costly sources of               No
supply.
Workloading of depot maintenance: Provides maintenance depots with better reparable parts induction                  No
scheduling, resulting in reduced inventories.
Integration of initial and replenishment requirements: Integrates requirements procedures used by                    Yes
program managers to combine computation of initial inventory and replenishment levels.
Single set of ICP policies and procedures: Eliminates current duplication of policies and procedures                 Yes
among the services and DLA for secondary items, thereby generating personnel savings.
Integration of wholesale and retail requirements: Reduces wholesale and retail inventory investment                  No
by using procedures that integrate wholesale and retail responsiveness and inventory costs.
Reduction of service-unique catalog data: Eliminates unique service management codes, thus                           No
reducing costs associated with data management.
Single design activity for materiel management system: Combines into one DLA activity the activities                 No
of service design agencies that develop and maintain service-unique software for managing secondary
items.
Single ICP managing items on a weapon system: Realigns item management along weapon system                           No
lines, eliminating file duplication and facilitating computations using weapon system readiness goals.
Uniform credit policy for returns: Establishes a single policy for giving credit to organizations returning          No
materiel, thereby simplifying budgeting and accounting at customer levels and industrial fund accounting.
                                              a
                                               This process improvement was considered by OSD outside of this review. The decision to
                                              consolidate cataloging functions was announced on March 18, 1997.




                                              Page 15                                             GAO/NSIAD-97-157 Defense Infrastructure
Appendix III

ICP Consolidation Alternatives Considered
by the Quadrennial Defense Review


               Alternative                       Description                      Components involved
               Consolidation of selective        Consolidation of selective       All DOD components
               functions                         ICP functions at a single
                                                 site within a region.
               Global Primary Inventory          One wholesale manager for Military services
               Control Activity                  a common-use reparable
                                                 item (or for similar common
                                                 use reparable items).
               Partnerships                      Electronic networking and    All DOD components
                                                 tasking to link ICPs and
                                                 provide for a mechanism for
                                                 executing partnership
                                                 (intra- or inter-component).
               Intra-component                   Reduction of each DOD            All DOD components
               consolidationa                    component’s ICPs (e.g., 1
                                                 ICP per service and 1 or 2
                                                 ICPs for DLA).
               Single management element         Assignment of ICP            Military services
                                                 management to all services,
                                                 except the Marine Corps,
                                                 along weapon system lines
                                                 (e.g., Air Force - aircraft,
                                                 Navy - ships, and Army -
                                                 ground equipment).
               DLA as single managerb            Management of all DOD            All DOD components
                                                 ICPs under DLA.
               a
                This alternative was selected by the Quadrennial Defense Review and forwarded to the National
               Defense Panel.
               b
                This alternative was reviewed by OSD as required by the National Defense Authorization Act for
               Fiscal Year 1996.




               Page 16                                              GAO/NSIAD-97-157 Defense Infrastructure
Appendix IV

Comments From the Department of Defense




(709232)      Page 17       GAO/NSIAD-97-157 Defense Infrastructure
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