Defense Inventory Management

This is the 11th in a series of GAO reports comparing the Defense Department's (DOD) logistics practices with those of the private sector. GAO focuses on DOD's progress in adopting best inventory management practices for hardware, such as bearings, valves, and bolts. GAO discusses (1) DOD and private sector practices for managing hardware, (2) whether DOD has adopted the best practices for these items, and (3) opportunities that DOD can take advantage of to improve its management of hardware.

GAO noted that: (1) while DOD has implemented some innovative management practices, more opportunities exist to better manage its reported $5.7-billion hardware inventory and achieve substantial savings; (2) DOD continues to manage its hardware inventory using outdated and inefficient business practices that create unnecessary inventory levels, provide poor customer service, generate excess and obsolete inventory, and cost approximately $1 billion per year to manage and distribute; (3) DOD buys hardware inventory years in advance of when the items are actually used; (4) for example, based on GAO's analysis of DOD records, 62 percent of DOD's hardware items did not have a demand from September 1995 to August 1996, and an additional 21 percent of the items had enough inventory to last for more than 2 years; (5) these items account for about $4.4 billion, or 77 percent, of DOD's $5.7-billion hardware inventory; (6) despite DOD's substantial investment in inventory, in many cases, hardware inventory is not available when needed by DOD customers; (7) when this happens, the repair of weapon systems and components is often delayed; (8) the Navy has estimated that the lack of parts increases the repair time for aviation parts by as much as 74 percent; (9) DOD's overall progress in adopting best management practices for hardware items has been limited; (10) in February 1997, DOD began testing, on a limited basis, the prime vendor concept for hardware items--one of the concepts GAO recommended; (11) these tests will potentially affect about 2 percent of DOD's $3.1-billion annual sales of these items; (12) these tests do not, however, fully optimize the services available in the private sector, such as ordering, storing, and distributing supplies to the customer; (13) the business practices GAO recommended in its past reports have, for the most part, been used in the private sector to provide customers with a capability to order supplies as they are needed; (14) ordering supplies as they are needed, combined with quick logistics response times, reduces overall supply system costs, eliminates large inventories, and enables companies to reduce or eliminate the possibility of ordering supplies that may not be needed or become obsolete; and (15) to achieve similar inventory reductions, infrastructure savings, and improved customer service, DOD could expand its prime vendor programs to include tasks such as ordering, storing, and distributing supplies to the customer, and fully use the services offered under these programs.

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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