Navy Supply

Economic Order Quantity and Item Essentiality Need More Consideration Gao ID: NSIAD-88-64 January 6, 1988

GAO evaluated the economic order quantity (EOQ) and safety-level aspects of the Navy's requirements determination process for replenishment materiel for peacetime operating stocks to determine whether the process could lead to inflated procurements and unnecessary costs.

GAO found that the Navy: (1) ordered $133.7 million in materiel in fiscal year 1986 that exceeded EOQ; (2) incurred additional costs of $10.5 million on this materiel because the increased holding costs more than offset the decreases in ordering costs and implied shortage costs; (3) increased overbuying rates by ordering a year's supply of materiel instead of EOQ; (4) lowered the acceptable risk of running out of stock, which increased safety-level requirements by $80.6 million; and (5) provided safety-level requirements of $11.1 million for items that aircraft did not need to perform their missions.

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.

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