Defense Inventory Management

Inventory management problems have plagued the Defense Department for decades. Despite efforts by the Pentagon to correct these shortcomings, GAO has included inventory management as part of its list of government areas most prone to fraud, waste, and abuse. (See GAO/HR-97-5, Feb. 1997.) GAO recently reported that half of DOD's $69.6 billion inventory of spare parts, medical supplies, hardware, food, and clothing is either obsolete or rarely used. (See GAO/NSIAD-97-71, Feb. 1997.) The underlying causes of this unneeded inventory include outdated and inefficient inventory management practices that often fail to meet customer demands, inadequate inventory oversight, weak financial accountability, and overstated requirements. Because of these problems, GAO's annual outlay of $15 billion for additional inventory is vulnerable to waste and trouble. In the short term, DOD must continue to stress the efficient operations of its existing logistics systems. This includes disposing of unneeded inventory, implementing efficient and effective inventory management practices, training personnel and rewarding the right behavior, improving data accuracy, and enforcing existing policies to minimize the acquisition of unneeded inventory. In the longer term, DOD must establish goals, objectives, and milestones for changing its culture and adopting new management tools and practices. Key to changing DOD's management culture will be an aggressive approach using best practices from the private sector.

GAO noted that: (1) inventory management problems have plagued DOD for decades; (2) despite numerous efforts on DOD's part to correct these problems, GAO continues to consider inventory management a high-risk area because it is vulnerable to fraud, waste, and abuse; (3) as of September 30, 1995, about $34 billion, or about half of DOD's $69.6 billion secondary inventory, was not needed to support war reserve or current operating requirements; (4) most of the problems that contributed to the accumulation of this unneeded inventory still exist, such as outdated and inefficient inventory management practices that frequently do not meet customer demands, inadequate oversight, weak financial accountability, and overstated requirements; (5) DOD recognizes that it needs to make substantial improvements to its logistics system; (6) DOD has made little overall progress in correcting systemic problems that have traditionally resulted in large unneeded inventories; (7) DOD top management needs to continue its commitment to changing its inventory management culture so that it provides its forces with necessary supplies in a timely manner while avoiding the accumulation of unnecessary materials; (8) to effectively address its inventory management problems, DOD must adopt a strategy that includes both short- and long-term actions; (9) in the short term, DOD must continue to emphasize the efficient operation of its existing logistics systems; (10) this includes reducing and disposing of unneeded inventory, implementing efficient and effective inventory management practices, training personnel in these practices and rewarding the right behavior, improving requirements data accuracy, and enforcing existing policies and procedures to minimize the acquisition and accumulation of unnecessary inventory; (11) in the long term, DOD must establish goals, objectives, and milestones for changing its culture and adopting new management tools and practices; (12) a key part to changing DOD's management culture will be an aggressive approach to using best practices from the private sector which, if applied in an integrated manner, could help streamline DOD's logistics operations, potentially save billions of dollars, and improve support to the military customer; (13) in GAO's opinion, DOD has not been aggressive enough in pursuing these practices; and (14) recent DOD reengineering efforts have not incorporated some of the most advanced practices found in the private sector for reparable parts, and they have been slow to adopt best practices for hardware items.