oversight

Defense Logistics: Much of the Inventory Exceeds Current Needs

Published by the Government Accountability Office on 1997-02-28.

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

                  United States General Accounting Office

GAO               Report to Congressional Requesters




February 1997
                  DEFENSE LOGISTICS
                  Much of the Inventory
                  Exceeds Current
                  Needs




GAO/NSIAD-97-71
             United States
GAO          General Accounting Office
             Washington, D.C. 20548

             National Security and
             International Affairs Division

             B-272664

             February 28, 1997

             The Honorable Richard Durbin
             The Honorable Tom Harkin
             United States Senate

             The Honorable Peter DeFazio
             The Honorable Carolyn Maloney
             House of Representatives

             The Department of Defense (DOD) uses its secondary inventory—spare and
             repair parts, clothing, medical supplies, and other support items—to
             support its operating forces. As requested, we analyzed DOD’s secondary
             inventory. Our specific objectives were to provide information on the
             (1) number of inventory items with inventory that was not needed to
             satisfy war reserve and current operating requirements and their dollar
             value (hereafter referred to as unneeded inventory), (2) reasons why DOD
             held 100 years or more of unneeded inventory for some items, and
             (3) reasons why DOD had 20 years or more of unneeded inventory on hand
             and had additional inventory on order.

             Overall data on the number and value of DOD’s unneeded inventory were
             based on analyses of computerized inventory files. To determine the
             reasons for having 100 years or more of unneeded inventory on hand and
             for having additional inventory on order for items with 20 years or more of
             unneeded inventory on hand, we gathered and analyzed information from
             responsible inventory managers on judgmentally selected items.


             Inventory management represents a significant responsibility within DOD
Background   involving annual purchases of $14.5 billion and the storage and
             distribution of inventory valued at $69.6 billion. In 1990, we identified
             DOD’s secondary inventory management as a high-risk area because of the
             high levels of unneeded inventory and inadequate systems for determining
             inventory requirements. This report is one in a series of reports that
             address management issues in this area. A list of related products can be
             found at the end of this report.

             DOD annually summarizes its secondary inventory in its Supply System
             Inventory Report. The report is based on financial inventory and other
             inventory reports prepared by the military services and the Defense




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    Logistics Agency (DLA). DOD uses the report as a management tool to
    monitor changes in the level of inventory.

    DOD holds inventory to meet the operational requirements of the military
    services. When the total of on-hand and due-in inventory falls to or below
    a certain level—called the reorder point—inventory managers place
    orders for additional inventory. Depending on the item, the reorder point
    may include requirements for one or more of the following:

•   war reserves that are authorized to be purchased,
•   customer-requisitioned material that has not been shipped,
•   a safety level to be on hand in case of minor interruptions in the resupply
    process or unpredictable fluctuations in demand,
•   stock to satisfy demands during the period between when a need to buy an
    item is identified and when it is received,
•   minimum quantities for designated items (insurance items), and
•   stock to satisfy demands during the repair period for repairable items.

    Because the reorder point provides for inventory to be used during the
    time needed to order and receive inventory and for a safety level,
    inventory managers can place orders so that the orders arrive before
    out-of-stock situations occur. Generally, inventory managers order an
    amount of inventory called an economic order quantity, which is the
    quantity of inventory that will result in the lowest total costs for ordering
    and holding inventory. Inventory needed to satisfy reorder point and
    economic order quantity requirements is the maximum quantity of
    material to be maintained on hand or on order to sustain current
    operations and war reserves. Inventory used to satisfy these requirements
    is referred to as needed inventory in this report. Most of the inventory that
    exceeds reorder point and economic order quantity requirements is held
    for economic or contingency purposes or for potential
    reutilization/disposal.

    In commenting on our past reports,1 DOD disagreed with our definition of
    needed inventory because it differs from the definition that DOD uses for
    budgeting purposes. As we previously reported, the DOD definition covers a
    longer period of time and includes inventory in excess of reorder point
    and economic order quantity requirements. This overstates by billions of
    dollars the amount of inventory needed to be on hand.


    1
      Defense Inventory: More Accurate Reporting Categories Are Needed (GAO/NSIAD-93-31, Aug. 12,
    1993) and Defense Inventory: Shortages Are Recurring, but Not a Problem (GAO/NSIAD-95-137, Aug. 7,
    1995).



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                   Although DOD has made progress in reducing the value of its secondary
Results in Brief   inventory, our analysis of inventory valued at $67 billion showed that
                   $41.2 billion of the inventory was not needed. The unneeded inventory
                   represents many years of supply. About $14.6 billion of the unneeded
                   inventory did not have projected demands and will likely never be used. Of
                   the $26.6 billion with projected demands, unneeded inventory valued at
                   $1.1 billion represented 100 years or more of supply.

                   DOD representatives and supporting documents gave many reasons for
                   having 100 years or more of unneeded inventory on hand. Officials cited
                   changed requirements as a contributing factor for most items. The
                   requirement changes involved recurring or nonrecurring demands that
                   decreased, fluctuated, or did not materialize; parts or the systems on
                   which the parts were used were obsolete; and weapon system programs
                   were being reduced. Other reasons included purchases to cover the
                   expected life of weapon systems and adherence to minimum buy policies.
                   DOD representatives could not give reasons for 24 percent of the 328 items
                   reviewed because necessary supporting records were not available or the
                   representatives had recently assumed responsibility for the items and
                   were not sufficiently familiar with their histories.

                   Army, Navy, and Air Force records indicated that unneeded inventory
                   items valued at $28.4 million had 20 years or more of inventory on hand
                   and another $11.3 million of inventory on order. However, because the
                   records for almost 40 percent of the reviewed items were in error
                   (generally on-order quantities had been delivered but not recorded), these
                   items, in fact, did not have additional stock on order. In cases where
                   inventory was actually on order, the reasons included requirement
                   changes, buys to cover the life of weapon systems, and adherence to
                   minimum buy policies.


                   Our analysis of DOD’s September 30, 1995, Supply System Inventory Report
Much of DOD’s      and inventory stratification reports indicated that $34 billion of the
Inventory Is       $69.6 billion secondary inventory that DOD reported exceeded war reserve
Unneeded           and current operating requirements. Although DOD had reduced its
                   inventory from $77.5 billion since September 30, 1993, about half of the
                   inventory continued to be unneeded.

                   On the basis of our analysis of computer data tapes for 3.3 million items,
                   representing inventory valued at $67 billion, we identified 1.9 million items




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                                      that had $41.2 billion of unneeded inventory on hand.2 Table 1 summarizes
                                      the data by DOD component.

Table 1: Summary of Items and Value
of Unneeded Secondary Inventory by    Dollars in billions
DOD Component                                                        Inventory analyzed                      Unneeded inventorya
                                      Component                          Items              Value               Items                Value
                                      Army                            117,610                 $9.0              63,362                $4.8
                                      Navy                            334,337                 17.6             172,325                11.2
                                      Air Force                       289,438                 31.1             140,220                19.1
                                      DLA                           2,515,231                  9.3           1,548,545                  6.1
                                      Total                         3,256,616               $67.0            1,924,452               $41.2
                                      a
                                          Most items with unneeded inventory also have needed inventory on hand.




Some Items Have No                    No projected demands existed for 1.5 million of the 1.9 million items with
Projected Demands                     unneeded inventory. The 1.5 million items had unneeded inventory valued
                                      at $14.6 billion. Without demands, it is unlikely that this inventory will ever
                                      be used. Table 2 shows the number of items with unneeded inventory that
                                      had no projected demands and the value of the unneeded inventory by DOD
                                      component.

Table 2: Items Without Projected
Demands and the Value of the          Dollars in billions
Unneeded Secondary Inventory          Component                                                      Items                           Value
                                      Army                                                        29,005                              $0.7
                                      Navy                                                      124,632                                 4.0
                                      Air Force                                                 111,982                                 6.5
                                      DLA                                                     1,281,052                                 3.4
                                      Total                                                   1,546,671                              $14.6

                                      Examples of items with no projected demands can be found in appendix I.


Other Items Have                      Of the 1.9 million items with unneeded inventory, 378,000 items with
Projected Demands                     unneeded inventory valued at $26.6 billion had projected demands. Using
                                      the projected demand data, we computed the years of unneeded supply for
                                      those items and found that some items had many years of supply. Figure 1


                                      2
                                       The $67 billion inventory that we analyzed differed from the $69.6 billion reported in DOD’s Supply
                                      System Inventory Report because of differences in time frames, valuation methods used, and specific
                                      items included. See the scope and methodology section for more details on our analysis.



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                                    shows the 378,000 items with unneeded secondary inventory stratified by
                                    years of supply, and figure 2 shows the corresponding values. See
                                    appendix II for a breakdown of the data by DOD component.


Figure 1: Items With Unneeded
Secondary Inventory Stratified by   Items
Years of Supply                     140000


                                    120000


                                    100000


                                     80000


                                     60000


                                     40000


                                     20000


                                            0

                                                Less     1 to 2   2 to 10   10 to 20   20 to 50   50 to   100 or
                                                than 1   years    years     years      years      100     more
                                                year                                              years   years
                                                Years of supply




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                                          B-272664




Figure 2: Unneeded Secondary
Inventory Values Stratified by Years of   Millions of dollars
Supply                                    12000



                                          10000



                                           8000



                                           6000



                                           4000



                                           2000



                                              0

                                                     Less       1 to 2   2 to 10   10 to 20   20 to 50   50 to   100 or
                                                     than 1     years    years     years      years      100     more
                                                     year                                                years   years
                                                     Years of supply




                                          Further analysis of the 3.3 million items identified 11,646 items that had
Unneeded Inventory                        100 or more years of unneeded inventory valued at $1.1 billion. We
Represents Many                           judgmentally selected 328 of these items with unneeded inventory valued
Years of Supply                           at $354 million for review to determine why the unneeded inventory was
                                          on hand.

                                          Through discussions with item managers and review of supporting
                                          documents, we identified a variety of reasons for having 100 or more years
                                          of unneeded inventory on hand. Most reasons related to changed
                                          requirements. For 81 items with unneeded inventory valued at
                                          $279 million, requirements had changed because parts were obsolete or
                                          were for use on weapon systems that were no longer in service or were
                                          being phased out of service. Additional requirement-related changes
                                          involved items for which recurring or nonrecurring demands decreased,
                                          fluctuated, or did not materialize and items were purchased before the
                                          weapon systems to be supported were activated.

                                          Other reasons included purchases to cover the life of a weapon system,
                                          minimum purchases required by procurement policy, and parts added
                                          through disassembly of modification kits. We were not able to determine



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                                        the reasons for 78 items (24 percent) with $28.9 million of unneeded
                                        inventory because records were not available and the item managers did
                                        not have detailed knowledge of the items. In most cases, responsibility for
                                        the items had transferred to or from another DOD activity. Responsibility
                                        for a large number of these items was transferred from the military
                                        services to DLA under the consumable item transfer program.

                                        We found that the records for 5 of the 328 items reviewed were in error
                                        and incorrectly showed $364,000 of unneeded inventory. Table 3
                                        summarizes the reasons for the remaining 323 items having 100 years or
                                        more of unneeded inventory on hand.

Table 3: Reasons for Items Having 100
Years or More of Unneeded Secondary     Dollars in millions
Inventory on Hand                       Reason                                              Items     Unneeded value
                                        Demands decreased, fluctuated, or did not             126                $37.2
                                        materialize
                                        Item or system on which the item was used              64                261.8
                                        was, or would be, obsolete
                                        Weapon system program was reduced or                   17                 16.7
                                        weapon was retired from service
                                        Buy was considered economical (minimum                 15                   0.3
                                        buy)
                                        Life of system buy                                      5                   2.8
                                        Item was purchased before the system it                 4                   0.3
                                        supported was activated
                                        Modification kits were disassembled                     2                   1.2
                                        Other (decreased failure rates, etc.)                  12                   4.7
                                        Unable to determine reason                             78                 28.9
                                        Total                                                 323               $353.9

                                        Examples of items with 100 years or more of unneeded inventory on hand
                                        can be found in appendix I.


                                        We identified 145 Army, Navy, and Air Force items with unneeded
Additional Unneeded                     inventory valued at $28.4 million that represented 20 or more years of
Inventory Is on Order                   supply on hand and that had an additional $11.3 million on order. We did
                                        not make a similar analysis for DLA items because data provided by DLA did
                                        not include the amount of inventory on order.




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                                         We judgmentally selected 57 items for review to determine why additional
                                         inventory was being ordered. These items had $24.9 million of unneeded
                                         inventory on hand that represented 20 or more years of supply and that
                                         had an additional $2 million on order. We found that the records for 23
                                         items were in error and incorrectly showed $553,000 of unneeded
                                         inventory was on order. Generally, the on-order inventory already had
                                         been delivered. Of the 34 remaining items, 11 had 100 or more years of
                                         unneeded inventory on hand and $796,000 of additional inventory on
                                         order. Reasons we identified for having unneeded inventory on order
                                         included demands decreased or did not materialize, purchases were for
                                         weapon systems that had not been activated, and purchases were to cover
                                         the expected life of weapon systems. Table 4 summarizes the reasons for
                                         having additional inventory on order for the 34 items.

Table 4: Reasons for Having Additional
Secondary Inventory on Order             Dollars in thousands
                                         Reason                                               Items             On order
                                         Demand decreased or did not materialize                 15               $356.5
                                         after the buy
                                         Item was purchased before the weapon                     6                282.1
                                         system it supported was activated
                                         Life of system or long-term buys                         4                235.9
                                         Buy was considered economical (minimum                   1                 10.2
                                         buy)
                                         DLA purchased the item to satisfy mission                1                547.4
                                         critical requirements of the services
                                         The Air Force transferred assets to the Navy             1                   6.2
                                         after the Navy placed the order
                                         All assets were not considered when the buy              1                   0.6
                                         was made
                                         Unable to determine reason                               5                 51.0
                                         Total                                                   34             $1,489.9

                                         Examples of items with 20 or more years of unneeded inventory on hand
                                         and additional inventory on order can be found in appendix I.


                                         DOD  generally agreed with the factual data in this report but did not agree
Agency Comments                          with our definitions of needed and unneeded inventory. (See app. III for
and Our Evaluation                       DOD’s complete comments.) According to DOD, the terms do not reflect
                                         accurately how the Department determines inventory requirements or
                                         decides how much inventory to hold once it has been stocked. DOD stated
                                         that it has consistently defined required inventory as inventory that is



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              projected to be used through the end of the budget year and noted that our
              definition implies that all unneeded inventory should be disposed of. DOD
              also stated that dealing with the requirements determination system and
              on-hand inventory in the same report is confusing.

              DOD has consistently disagreed with our definition of needed inventory
              because it differs from the definition that DOD uses for budgeting purposes.
              We continue to believe that our characterization of DOD’s inventory is
              reasonable. Our definition of needed inventory represents inventory that is
              required to prevent out-of-stock situations. DOD’s definition includes
              requirements that are projected to be used through the end of the budget
              year and can represent as much as 2 years of potential requirements. As a
              result, the DOD definition includes inventory in excess of current operating
              and war reserve requirements. In fact, our review showed that much of the
              inventory even exceeds DOD’s definition of required inventory. No
              demands were projected for unneeded inventory valued at $14.6 billion
              and an additional $20.6 billion of unneeded inventory was not expected to
              be needed in the next 2 years. Lastly, notwithstanding DOD’s comments, it
              is important to note that DOD stated that it has reduced and plans to
              continue reducing the inventory.

              With regard to DOD’s comment on inventory retention, we are not
              suggesting that all unneeded inventory should be disposed of. We
              recognize that some of this inventory should be retained for economic or
              contingency reasons. Nevertheless, DOD has a tremendous potential for
              further inventory reductions because much of the inventory has no
              projected demands and it is unlikely that this inventory will ever be used.
              Other inventories may not be needed because many years of supply are on
              hand.

              We do not agree with DOD’s comment that dealing with the requirements
              determination system and on-hand inventory in the same report is
              confusing. Discussing the inventory that is required and the inventory that
              is on hand is entirely appropriate and must be discussed together to
              determine whether there is unneeded inventory.


              For overall inventory data, we analyzed March 31, 1996, computerized
Scope and     inventory stratification reports for items managed by the military services
Methodology   and August 1996 inventory data for those managed by DLA. Stratification
              reports match on-hand and due-in inventory to requirements and are used
              for budgeting and reporting purposes. Because our fieldwork at the Navy



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and the Air Force inventory control points was completed before
March 31, 1996, data were available, we used their September 30, 1995,
inventory stratification reports as the basis for selecting our sample items
at those locations.

We used the data to identify items with unneeded inventory, compute
years of supply, and identify items with unneeded inventory on hand and
additional inventory on order. We used projected demand data to compute
years of supply. Because demand data were not projected for 1.5 million
items with unneeded inventory, we could not estimate years of supply for
those items. Also, because DLA did not provide contract data, we were not
able to determine the number and value of DLA items with additional
inventory on order.

We judgmentally selected and reviewed 328 items with 100 or more years
of supply and 57 items with 20 or more years of unneeded inventory on
hand and additional inventory on order. For items with 100 or more years
of unneeded inventory, we selected items to review that had the highest
value and quantity of unneeded inventory and a cross section of the
remaining items. For items with 20 or more years of unneeded inventory
and additional inventory on order, we used a similar methodology to select
items for review. Because we did not look at items with 20 or more years
of unneeded inventory and additional inventory on order in prior reviews,
we did not make any comparisons with past performance.

To learn why unneeded inventory was accumulated or was on order, we
held discussions and collected information from item managers and
analyzed inventory records at the Army’s Aviation and Troop Support
Command, St. Louis, Missouri; the Naval Inventory Control Point,
Philadelphia, Pennsylvania; the Air Force’s Warner Robins Air Logistics
Center, Georgia; and the DLA’s Defense Supply Center, Richmond, Virginia.
We also obtained inventory records and photographed items at Defense
Distribution Depots in Warner Robins, Georgia; Norfolk and Richmond,
Virginia; and New Cumberland (Susquehanna), Pennsylvania. At the Army
and DLA inventory control points, we reviewed a limited number of items
that had no projected demands on which we could compute years of
supply to identify the nature of those items.

We did not include such items as petroleum, oil, and lubricants or those in
Marine Corps and retail level inventories in our analysis because they
represented a small part of DOD’s overall inventory or reorder point and
economic order quantity requirements were not available for these items.



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By removing surcharges covering the costs to operate the supply system,
we revalued the inventory at the latest acquisition cost. We did not revalue
items needing repair to reflect their repair costs nor did we revalue
potential reutilization/disposal stocks to their scrap value. We did not
validate DOD’s inventory requirements.

We performed our review between April 1996 and January 1997 in
accordance with generally accepted government auditing standards.


We are sending copies of this report to the appropriate congressional
committees; the Secretaries of Defense, the Army, the Navy, and the Air
Force; the Director, DLA; and the Director, Office of Management and
Budget.

Please contact me at (202) 512-8412 if you have any questions. The major
contributors to this report are listed in appendix IV.




David R. Warren
Director, Defense Management Issues




Page 11                                       GAO/NSIAD-97-71 Defense Logistics
Contents



Letter                                                                                              1


Appendix I                                                                                         14
                         Items With No Projected Demands                                           14
Examples of Specific     Items With 100 or More Years of Inventory                                 15
Inventory Items          Items With 20 Years or More of Unneeded Inventory on Hand and             22
                            Additional Inventory on Order

Appendix II                                                                                        26

Unneeded Inventory
Stratified by Years of
Supply and DOD
Component
Appendix III                                                                                       27

Comments From the
Department of
Defense
Appendix IV                                                                                        30

Major Contributors to
This Report
Related GAO Products                                                                               32


Tables                   Table 1: Summary of Items and Value of Unneeded Secondary                  4
                           Inventory by DOD Component
                         Table 2: Items Without Projected Demands and the Value of the              4
                           Unneeded Secondary Inventory
                         Table 3: Reasons For Items Having 100 Years or More of                     7
                           Unneeded Secondary Inventory On Hand
                         Table 4: Reasons for Having Additional Secondary Inventory On              8
                           Order
                         Table II.1: Number of Items With Unneeded Inventory Stratified            26
                           by Years of Supply and DOD Component




                         Page 12                                     GAO/NSIAD-97-71 Defense Logistics
          Contents




          Table II.2: Value of Unneeded Inventory Stratified by Years of              26
            Supply and DOD Component

Figures   Figure 1: Items With Unneeded Secondary Inventory Stratified by              5
            Years of Supply
          Figure 2: Unneeded Secondary Inventory Values Stratified by                  6
            Years of Supply
          Figure I.1: Comparator Stored in Airtight Container at the                  14
            Susquehanna Depot
          Figure I.2: Insulator Insert Stored at the Richmond Depot                   15
          Figure I.3: Camouflage Screen System Stored at the Susquehanna              16
            Depot
          Figure I.4: Constant Speed Drive Stored at the Norfolk Depot                17
          Figure I.5: Frequency Indicator Stored at the Norfolk Depot                 18
          Figure I.6: Wiring Harness Stored at the Warner Robins Depot                19
          Figure I.7: AP1 Central Computer Stored at the Warner Robins                20
            Depot
          Figure I.8: Contact Thermocouple Stored at the Norfolk Depot                21
          Figure I.9: Circuit Card Assembly Stored at the Norfolk Depot               22
          Figure I.10: Direct Linear Valve Stored at the Norfolk Depot                23
          Figure I.11: Combining Glass Stored at the Warner Robins Depot              24
          Figure I.12: Identification Marker Stored at the Norfolk Depot              25




          Abbreviations

          DLA        Defense Logistics Agency
          DOD        Department of Defense


          Page 13                                       GAO/NSIAD-97-71 Defense Logistics
Appendix I

Examples of Specific Inventory Items


                                        The Army had 14 electronic signal comparators (see fig. I.1) on hand as of
Items With No                           March 1996, of which 2 were needed for war reserve and current operating
Projected Demands                       requirements. The comparators, valued at $90,000 each, are used on a test
                                        set. Inventory records show that the Army has issued one comparator
                                        since January 1994. According to the item manager, the test set overhaul
                                        program was canceled in fiscal year 1996, but the comparators will be
                                        retained in the inventory until the test set is phased out in 2005.


Figure I.1: Comparator Stored in
Airtight Container at the Susquehanna
Depot




                                        Page 14                                      GAO/NSIAD-97-71 Defense Logistics
                                         Appendix I
                                         Examples of Specific Inventory Items




                                         The Defense Logistics Agency (DLA) had 2,576 insulator inserts (see
                                         fig. I.2) on hand as of August 1996, of which 5 were needed for war reserve
                                         and current operating requirements. The inserts, valued at $11 each, are
                                         used on a submarine. Inventory records showed that the item was last
                                         purchased in 1987 and that the last demand was in October 1994. The item
                                         manager was not able to provide information on why so many of the
                                         inserts were on hand, and in October 1996, initiated action to dispose of
                                         1,551 of the inserts.

Figure I.2: Insulator Insert Stored at
the Richmond Depot




                                         As of March 1996, the Army had 424 spacer sleeves on hand for use on
Items With 100 or                        engines such as the T-53-L-701A. Only 3 of the 424 sleeves were needed to
More Years of                            satisfy war reserve and current operating requirements. According to the
Inventory                                item manager at the Aviation and Troop Support Command, the sleeves,
                                         valued at $2 each, were last purchased in November 1994 under a
                                         minimum buy policy. Army Materiel Command procurement policy does
                                         not permit item managers to place orders valued at less than $2,350. The
                                         manager stated that if unneeded sleeves were disposed of, a future
                                         demand could result in another purchase of the minimum dollar amount.




                                         Page 15                                       GAO/NSIAD-97-71 Defense Logistics
                                       Appendix I
                                       Examples of Specific Inventory Items




                                       The Army had 6,599 camouflage screen systems (see fig. I.3) on hand as of
                                       March 1996. Inventory records showed that only 712 of the screen
                                       systems, valued at $379 each, were needed. The unneeded screens
                                       represented a 159-year supply. According to the item manager, the screen
                                       system was purchased in 1990 and developed for use during Operation
                                       Desert Storm. The manager said that demands for the screens have
                                       decreased since then and that the screen will remain in the Army supply
                                       system until 2003 when it is expected to be replaced.

Figure I.3: Camouflage Screen System
Stored at the Susquehanna Depot




                                       Page 16                                      GAO/NSIAD-97-71 Defense Logistics
                                   Appendix I
                                   Examples of Specific Inventory Items




                                   As of September 1995, the Navy had 361 constant speed drives (see
                                   fig. I.4), valued at $32,880 each, on hand. Only one of the drives, used on
                                   the TA-4J aircraft, was categorized as needed. According to the item
                                   manager, the drives were accumulated as they were replaced by a newer
                                   part. Because of the high failure rate of the replacement part, the original
                                   drives are being retained in case they need to be reinstalled on the aircraft
                                   through the year 2000. In that year, the TA-4J will be out of the inventory.

Figure I.4: Constant Speed Drive
Stored at the Norfolk Depot




                                   Page 17                                        GAO/NSIAD-97-71 Defense Logistics
                                         Appendix I
                                         Examples of Specific Inventory Items




                                         Navy records showed that only 2 of the 364 frequency indicators (see
                                         fig. I.5) on hand were needed as of September 1995. According to the item
                                         manager, requirements for the indicators, valued at $2,542 each, decreased
                                         when aircraft such as the A-6 and the F-4 were being taken out of service.
                                         The manager stated that 357 of the indicators were disposed of in
                                         February 1996.

Figure I.5: Frequency Indicator Stored
at the Norfolk Depot




                                         Page 18                                      GAO/NSIAD-97-71 Defense Logistics
                                       Appendix I
                                       Examples of Specific Inventory Items




                                       As of September 1995, the Air Force had 4,177 wiring harnesses, valued at
                                       $113 each (see fig. I.6), for the airborne radio communication system. Of
                                       these, 4,152 were not needed to satisfy war reserve and current operating
                                       requirements. On the basis of projected demand data, we determined that
                                       the unneeded harnesses represented 277 years of supply. According to the
                                       item manager, demand for the harnesses decreased as modifications to the
                                       radio system were made. However, some of the harnesses are being
                                       retained to support the military services, the Coast Guard, and foreign
                                       military sales and to reconfigure other radios. The item manager informed
                                       us that 3,822 harnesses have been recommended for disposal.

Figure I.6: Wiring Harness Stored at
the Warner Robins Depot




                                       Page 19                                     GAO/NSIAD-97-71 Defense Logistics
                                    Appendix I
                                    Examples of Specific Inventory Items




                                    The Air Force had 335 AP1 central computers (see fig. I.7) for the F-15
                                    aircraft on hand as of September 1995. Of these, 326 computers, valued at
                                    $71,673 each, were obsolete and not needed. The unneeded computers
                                    represented 109 years of supply. According to the item manager at the
                                    Warner Robins Air Logistics Center, the obsolete computers are turned in
                                    to the supply system as modifications to the F-15 aircraft are
                                    accomplished. The item manager stated that the computers are eligible for
                                    disposal, but funds are not available to demilitarize them.

Figure I.7: AP1 Central Computer
Stored at the Warner Robins Depot




                                    As of August 1996, DLA had 127 motor blower brakes on hand. The brakes
                                    are used on the B-1B aircraft. Inventory records showed that 101 brakes,
                                    valued at $4,110 each, were unneeded and represented 101 years of supply.
                                    According to the item manager, 100 brakes were expected to be needed
                                    for fiscal year 1996. However, September 1996 records showed that only
                                    one had been used in the past year. The item manager believed that the
                                    demands for the brakes are cyclic because the contractor repairing the
                                    B-1B periodically orders the parts in bulk.




                                    Page 20                                     GAO/NSIAD-97-71 Defense Logistics
                                   Appendix I
                                   Examples of Specific Inventory Items




                                   DLA also had 2,152 contact thermocouples (see fig. I.8) for the T-56 aircraft
                                   engine on hand as of August 1996. Of these, 2,113 thermocouples, valued at
                                   $227 each, were unneeded and represented 141 years of supply. According
                                   to the item manager, in March 1996 responsibility for the thermocouple
                                   was transferred from the Navy to DLA. The item manager stated that no
                                   disposal actions were taken because demand was unknown for this newly
                                   transferred item.

Figure I.8: Contact Thermocouple
Stored at the Norfolk Depot




                                   Page 21                                        GAO/NSIAD-97-71 Defense Logistics
                                    Appendix I
                                    Examples of Specific Inventory Items




                                    As of September 1995, the Navy had 27 circuit card assemblies on hand
Items With 20 Years or              (see fig. I.9). They are used on the P-3C and S-3B aircraft and the SH-60B
More of Unneeded                    helicopter. Although 25 of the assemblies (valued at $1,156 each) were not
Inventory on Hand                   needed to satisfy war reserve and current operating requirements, another
                                    10 were on order. According to the item manager, demands for the
and Additional                      assemblies decreased after the item was ordered in December 1994. The
Inventory on Order                  manager stated that the Navy supply system automatically ordered the
                                    item (automatic ordering is limited to purchases under $25,000) when the
                                    reorder point was reached and the purchase was not reviewed by an item
                                    manager. The 10 assemblies were delivered in May 1996, and the manager
                                    said that all unneeded assemblies, including the 10 delivered, have been
                                    recommended for disposal.


Figure I.9: Circuit Card Assembly
Stored at the Norfolk Depot




                                    Page 22                                      GAO/NSIAD-97-71 Defense Logistics
                                          Appendix I
                                          Examples of Specific Inventory Items




                                          As of September 1995, the Navy had 67 direct linear valves (see
                                          fig. I.10) on hand. They are used on a hydraulic pump for an aircraft
                                          catapult system. Fifty-nine of the valves, valued at $69 each, were
                                          unneeded and an additional 66 valves were on order. The item manager
                                          said that demands for the valves decreased after the last order was placed
                                          in May 1994. The item manager stated that the order was not canceled
                                          because termination was not cost-effective for any purchase costing less
                                          than $10,000.

Figure I.10: Direct Linear Valve Stored
at the Norfolk Depot




                                          Page 23                                      GAO/NSIAD-97-71 Defense Logistics
                                         Appendix I
                                         Examples of Specific Inventory Items




                                         The Air Force had 32 combining glasses (see fig. I.11), valued at $17,057
                                         each, on hand as of September 1995. Only one of the glasses was needed to
                                         satisfy war reserve and current operating requirements; however, four
                                         additional glasses were on order. According to the item manager, the
                                         glasses were ordered in July 1993 to support the F-15E aircraft because the
                                         contractor was discontinuing production of the glass.

Figure I.11: Combining Glass Stored at
the Warner Robins Depot




                                         As of September 1995, the Air Force also had 710 band-II backward-wave
                                         oscillators on hand. Although 682 of the oscillators, valued at $8,261 each,
                                         were unneeded, another 20 oscillators were on order. According to the
                                         item manager, the oscillators were ordered in September 1993 because the
                                         manufacturer was shutting down production and the purchase would
                                         cover all Air Force requirements through 2040.




                                         Page 24                                       GAO/NSIAD-97-71 Defense Logistics
                                     Appendix I
                                     Examples of Specific Inventory Items




                                     In reviewing the supporting documents for DLA items with 100 or more
                                     years of inventory on hand, we noted that DLA also had additional stock on
                                     order for some items. For example, DLA had 618 identification markers,
                                     valued at $0.65 each, on hand as of August 1996. The markers (see
                                     fig. I.12) are used on aircraft such as the C-130F and the P-3. Although only
                                     103 of the markers on hand were needed to satisfy war reserve and current
                                     operating requirements, an additional 100 markers were on order.
                                     According to the item manager, the markers were ordered in
                                     November 1995 and demands have been fluctuating. The manager said that
                                     the order should be canceled and that excess markers would be processed
                                     for disposal.

Figure I.12: Identification Marker
Stored at the Norfolk Depot




                                     Page 25                                        GAO/NSIAD-97-71 Defense Logistics
Appendix II

Unneeded Inventory Stratified by Years of
Supply and DOD Component

Table II.1: Number of Items With
Unneeded Inventory Stratified by          Years of supply       Army      Navy    Air Force        DLA        Total
Years of Supply and DOD Component         Less than 1            4,273    5,005      4,332       76,250      89,860
                                          1 to 2                 4,557    5,505      3,410       40,205      53,677
                                          2 to 10               15,170   20,275     10,242       90,952     136,639
                                          10 to 20               4,552    6,963      4,534       25,213      41,262
                                          20 to 50               3,426    5,669      3,582       19,815      32,492
                                          50 to 100              1,229    2,256      1,255        7,465      12,205
                                          100 or more            1,150    2,020        883        7,593      11,646
                                          Total                 34,357   47,693     28,238     267,493      377,781

Table II.2: Value of Unneeded
Inventory Stratified by Years of Supply   Dollars in millions
and DOD Component                         Years of supply       Army      Navy    Air Force        DLA        Total
                                          Less than 1            $275     $844      $1,133        $246       $2,498
                                          1 to 2                  585     1,141      1,531         272        3,529
                                          2 to 10                2,310    3,375      5,009        1,060      11,754
                                          10 to 20                430      884       2,045         427        3,786
                                          20 to 50                212      608       1,633         326        2,779
                                          50 to 100               137      238         619         144        1,138
                                          100 or more              80      172         665         211        1,128
                                          Total                 $4,029   $7,262    $12,635       $2,686     $26,612




                                          Page 26                                  GAO/NSIAD-97-71 Defense Logistics
Appendix III

Comments From the Department of Defense


Note: GAO comment
supplementing those in
the report text appears at
the end of this appendix.




                             Page 27   GAO/NSIAD-97-71 Defense Logistics
                 Appendix III
                 Comments From the Department of Defense




See comment 1.




                 Page 28                                   GAO/NSIAD-97-71 Defense Logistics
              Appendix III
              Comments From the Department of Defense




              The following is GAO’s comment on the Department of Defense’s (DOD)
              letter dated February 4, 1997.


              1. DOD did not agree that acquisition lead time contributes to the amount of
GAO Comment   stock purchased, but did agree that it is one of the determinants of when
              the reorder point is reached.

              Lead time is an important element in the requirements determination
              process. In addition, lead time is a major factor in deciding the quantity of
              inventory to purchase when an item is initially introduced into the supply
              system. Further, as DOD states, lead time also is a consideration as item
              managers decide how far in advance of actual needs a resupply order
              should be placed.




              Page 29                                        GAO/NSIAD-97-71 Defense Logistics
Appendix IV

Major Contributors to This Report


                        Charles Patton
National Security and   James Murphy
International Affairs   Louis Modliszewski
Division, Washington,   David Keefer

D.C.
                        Sandra Bell
Norfolk Field Office    Dawn Godfrey


                        Robert Sommer
Kansas City Field
Office




                        Page 30              GAO/NSIAD-97-71 Defense Logistics
Page 31   GAO/NSIAD-97-71 Defense Logistics
Related GAO Products


              Defense Logistics: Requirement Determinations for Aviation Spare Parts
              Need to Be Improved (GAO/NSIAD-96-70, Mar. 19, 1996).

              Army Inventory: Budget Requests for Spare and Repair Parts Are Not
              Reliable (GAO/NSIAD-96-3, Dec. 29, 1995).

              Defense Inventory: Opportunities to Reduce Warehouse Space
              (GAO/NSIAD-95-64, May 24, 1995).

              Defense Supply: Inventories Contain Nonessential and Excessive
              Insurance Stocks (GAO/NSIAD-95-1, Jan. 20, 1995).

              Defense Supply: Acquisition Leadtime Requirements Can Be Significantly
              Reduced (GAO/NSIAD-95-2, Dec. 20 1994).

              Army Inventory: Unfilled War Reserve Requirements Could Be Met With
              Items From Other Inventory (GAO/NSIAD-94-207, Aug. 25, 1994).

              Navy Supply: Improved Material Management Can Reduce Shipyard Costs
              (GAO/NSIAD-94-181, July 27, 1994).

              Army Inventory: Opportunities Exist for Additional Reductions to Retail
              Level Inventories (GAO/NSIAD-94-129, June 6, 1994).

              Army Inventory: More Effective Review of Proposed Inventory Buys Could
              Reduce Unneeded Procurement (GAO/NSIAD-94-130, June 2, 1994).

              Air Force Logistics: Improved Backorder Validation Procedures Will Save
              Millions (GAO/NSIAD-94-103, Apr. 20, 1994).

              Defense Inventory: Changes in DOD’s Inventory Reporting, 1989-1992
              (GAO/NSIAD-94-112, Feb. 10, 1994).

              Air Force Logistics: Some Progress, but Further Efforts Needed to
              Terminate Excess Orders (GAO/NSIAD-94-3, Oct. 13, 1993).




(709190)      Page 32                                      GAO/NSIAD-97-71 Defense Logistics
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