Defense Inventory

As part of its ongoing evaluation of the Defense Department's (DOD) secondary inventory, GAO reviewed issues relating to inventory shortages. This report analyzes inventory shortages to determine the (1) size of the shortage, (2) steps that inventory managers were taking in response to the shortage and if funding problems caused managers not to buy needed items, and (3) need for revising DOD's inventory reporting.

GAO found that: (1) the September 1991 DOD secondary inventory shortage was $16.4 billion instead of the $26 billion DOD reported because DOD included some Navy nonsecondary inventory items and standard price surcharges for transportation and inventory losses that increased DOD acquisition costs; (2) between September 1991 and September 1993, the shortage decreased to $8.1 billion due to the removal of Desert Storm requirements, military downsizing, elimination of some war reserve requirements, and reduced levels of operations; (3) reorder point shortages were a normal part of the supply system because of continuing demand, but these shortages were rarely due to a lack of funding; (4) inventory managers decided not to order almost one-half of $1.1 billion in reorder point shortages because of invalid requirements, the availability of substitute items, the transfer to other units of certain items, and items being removed from the inventory; (5) in general, these procurement decisions were valid and probably saved millions of dollars, since the items probably would not have been used; and (6) DOD inventory reporting is not based on the amount of inventory needed to be on hand, but rather on reorder points and economic order quantity which can result in excessive inventory.

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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