Commercial Practices

At a time when private sector companies are cutting costs by minimizing inventories, the Pentagon continues to store redundant levels of clothing and textile inventories. Much of this material is aged and obsolete--for about 26 percent of the items, the Defense Department (DOD) had 10 years of supplies on hand. DOD is incurring unnecessary inventory storage and handling costs because of the large supply operations infrastructure required to maintain these stocks. DOD's inventory practices stand in significant contrast to those used in the best managed private sector firms. Competition has forced private sector firms to cut costs by moving to "just-in-time" inventory concepts that help keep inventories low, turn stock frequently, and fill orders quickly while maintaining good customer service. For example, leading private sector uniform providers have 60 to 90 days worth of wholesale supplies on hand while the Defense Logistics Agency (DLA) has 2 to 10 years of supply. Many private sector firms and some federal agencies with uniformed employees are relying on prime vendors to manage their clothing inventories. DOD recently began to increase its use of innovative concepts, such as "quick response," but progress has been slow. In particular, DLA has yet to explore the possibility of using prime vendors to supply high volume clothing and textile items, even though they appear particularly well suited to the operations of the induction centers for recruits.

GAO found that: (1) DOD maintains aging and overstocked C&T inventories and incurs excessive and unnecessary storage and handling costs; (2) DOD has a total C&T inventory value of over $1.8 billion of which about 26 percent represents a 10-year supply; (3) the large DOD C&T inventory is due to the multiple layers of the DLA supply system, the need to maintain war reserves, the low turnover of stock, the nonvisibility of retail level assets, excessive lead times, liberal retention policies, short-term contracts, and the failure to deplete phase-out items before issuing new clothing; (4) the holding costs for the C&T inventory have exceeded the items' original purchase prices; (5) leading private-sector companies use just-in-time inventory practices and centralized distribution points to keep inventories low and fill orders quickly; (6) many private-sector firms and some federal agencies use prime vendors to manage their clothing inventories; (7) prime vendors minimize inventories and holding costs by providing timely and direct delivery between customers and suppliers and ordering additional stock from manufacturers on short notice; (8) although DOD has begun to use innovative commercial inventory practices, its progress has been slow; (9) DLA needs to enhance its computer capabilities to implement commercial inventory practices and overcome government procurement requirements that inhibit the use of commercial practices; and (10) DLA has not explored the use of prime vendors for high volume C&T items which would benefit recruit induction centers' operations.

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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