Army Inventory

About $4.7 billion of the Army's $24.9 billion total wholesale inventory is not needed to support current operating and warehouse reserve requirements. Of this $4.7 billion inventory, items worth about $1.8 billion--about 38 percent--are being retained because it is thought more economical to keep them than to dispose of them. An economic model the Army developed in 1969 to determine economic retention requirements may provide a sound basis for making economic retention decisions. However, the computer programs that implement the original model have been modified many times over the years and now include errors and several nonmodel-based computations. As a result, economic retention requirements have been established (1) for items that do not meet the criteria for economic retention, (2) for items that the Army no longer intends to support, and (3) at levels higher than those that would have been set by the model.

GAO found that: (1) although the Army developed an analytical model in 1969, which may provide a sound basis for determining its retention requirements, the Army has made numerous modifications to the computer programs supporting the model, which now contains several errors and non-model-based computations; (2) the Army's use of the computer programs has resulted in many economic retention decisions that are not based on the model, decisions to retain items that do not meet the retention criteria, decisions based on passed or invalid support review dates, and decisions based on inappropriate manual computation rates; (3) the Army's new model for addressing programming problems will not resolve problems related to bypassing the model to compute retention requirements, passed or arbitrary support review dates, and non-stocked and no-demand items; (4) the quality of the data input by inventory control points into the model has also adversely affected retention calculations, since inventory control points did not uniformly calculate costs factors and rates inputs; and (5) neither the Department of Defense nor the Army provided clear guidance on how to determine the various rates and factors for the model. GAO believes that, unless economic retention requirements are correctly calculated, the Army has no assurance that it is economically retaining items, and may be incurring unnecessary holding costs for overstated requirements and prematurely disposing of items if requirements are understated, leading to costly reprocurement.

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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