Logistics Managers Need To Consider Operational Readiness in Setting Safety Level Stocks

GAO reviewed the services' management of safety level stocks to determine whether the extent of the services' activities investment in safety level stocks is a prudent investment and whether other alternatives exist that could serve the same purpose as a safety level.

Since safety levels serve as insurance against unknown events, every effort should be made to limit such protection to those items essential to mission accomplishment. When determining safety levels, the services do not consider item essentiality in terms of necessity for mission accomplishment. The Air Force has made inroads in this area by establishing an essentiality coding system for identifying and defining wartime versus peacetime needs, setting priorities for repair parts program resources, and determining war reserve material requirements. The objectives of those who manage the inventory may not be compatible with the objectives of those who are responsible for maintaining an operationally ready force. The effectiveness of inventory management activities is based on fill rates, and the effectiveness of users is based on readiness rates. Inventory management activities enhance their effectiveness by ensuring that, within the constraints of available funds, sufficient safety levels of low-cost, high-demand items are available to meet demands. However, GAO found that these are not necessarily the types of items that are the major causes of degraded readiness. As a result, inventory management activities often achieve a high degree of effectiveness at the expense of readiness. More intensive management of stocked items could reduce the services' safety level requirements. While the services have the same safety level objectives they have different philosophies on how to achieve these objectives.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

Director: Henry W. Connor Team: General Accounting Office: Procurement, Logistics, and Readiness Division Phone: (202) 275-4141