Defense Infrastructure

Inventory Control Point Consolidation Savings Would Be Substantial Gao ID: NSIAD-97-157 August 13, 1997

The Defense Department (DOD) used conservative assumptions and cost factors in estimating the savings from consolidating inventory control points under the Defense Logistics Agency. It projects cost savings of $2.2 billion to $3.8 billion over fiscal years 1998 to 2010. GAO believes that this approach is reasonable, given the sensitive nature of the issue, the limited amount of time to perform the review, and the data available. However, the projected cost savings would be at least $1.3 billion to $2.3 billion greater if DOD used base realignment and closure principles, such as estimating steady-state savings over a longer time period and using a present value analysis instead of a constant dollar analysis. The potential savings would likely be greater still if the analysis included (1) savings from all business process improvements related to the consolidation and (2) planned future improvements to DOD's existing material management information systems.

GAO noted that: (1) OSD used conservative assumptions and cost factors in estimating cost savings from consolidating service ICPs under DLA; (2) its projected cost savings of $2.2 billion to $3.8 billion cover a 13-year period, fiscal years 1998 to 2010; (3) GAO believes this approach to be reasonable, given the sensitive nature of the issue, the limited amount of time to perform the review, and the data available; (4) however, the projected cost savings estimates would be at least $1.3 billion to $2.3 billion greater if OSD used base realignment and closure principles, such as estimating steady-state savings over a longer time period and a present value analysis instead of a constant dollar analysis; and (5) the potential savings would likely be greater yet if the analysis included: (a) savings from all business process improvements related to the consolidation; and (b) planned future improvements to DOD's existing material management information systems.

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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