Commercial Practices

The Defense Department's (DOD) secondary inventories, which include spare parts for weapons and consumable items, such as nuts and bolts, increased by $60 billion between 1980 and 1988. GAO examined DOD's logistics practices involving supplies and compared them with commercial practices that DOD could adopt to reduce inventory costs. At DOD wholesale and retail locations, current supply management practices have led to excess inventories and inventories of obsolete or old items; also, management and storage of years' worth of supplies cost DOD millions of dollars each year. Private companies have demonstrated the cost savings potential of some modern inventory management practices, such as the use of "supplier parks" centrally located near industrial centers where the supplies are used and the use of direct delivery programs with suppliers. GAO recommends that DOD test the applicability of such practices to military industrial centers and quantify the costs and benefits of adopting the practices.

GAO found that: (1) DOD retains large quantities of excess inventories because of duplicative purchasing and inventory retention practices among the military services, the Defense Logistics Agency (DLA), and DOD maintenance personnel; (2) DLA contract administration, technical support, material handling and packing, and inventory maintenance increase DOD inventory management costs; (3) DOD is developing new inventory management practices to balance suppliers' and users' needs, use vendors as intermediaries, and increase delivery and service; (4) private-industry management practices to reduce inventory and storage costs include consolidating supplier activities, establishing programs to reduce obsolete inventories, using new computer software to better monitor inventories, standardizing inventories, and using electronic systems to link users with vendors; (5) DLA has had limited success in implementing commercial inventory management practices; (6) DOD initiatives to improve logistics operations include establishing long-term contracts, implementing direct delivery systems, using prime vendors for supplies, and developing electronic ordering systems; and (7) although the military services have incorporated commercial inventory management practices at some installations, the programs have not been implemented on a servicewide basis.

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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