Navy Inventory Management

This is one in a series of GAO reports on the military's management of secondary inventory--spare and repair parts and other items that support the Defense Department's (DOD) operating forces on land, at sea, and in the air. During the past several years, GAO has repeatedly cited the management of defense inventory as a high-risk area. This report focuses on excess inventory that the Navy had on order. GAO discusses whether the Navy (1) had valid requirements to support inventory purchases, (2) had purchased items that exceeded needs and the causes of this condition, and (3) was canceling purchases that exceeded needs.

GAO noted that: (1) it identified several problems that affect the decisionmaking process for billions of dollars of inventory; (2) however, GAO cannot precisely quantify the overall extent of the problems; (3) specifically, its work shows that in some cases purchases: (a) were not based on valid needs; (b) were excess to needs because the requirements changed after orders were placed; and (c) occurred even though contracts could have been cancelled; (4) the Navy did not always have valid requirements to support inventory purchases; (5) GAO previously recommended that the Department of Defense (DOD) revise policies and procedures to eliminate this duplication of requirements; (6) while DOD has acted on many of GAO's past recommendations, it has not taken corrective action on this one; (7) several factors contributed to the excess inventory on contract; (8) recurring demands for certain items had decreased, engineering estimates for requirements had not materialized, nonrecurring demands were delayed or were not needed, and parts had become obsolete; (9) although some of these factors could not have been anticipated, in other cases better management could have eliminated or minimized the accumulation of inventory that exceeded needs; (10) the Navy did not know if planned program requirements accurately reflected needs; (11) also, broken parts to be returned for repair were not adequately considered when making purchase decisions; (12) the Navy cancelled some contracts for excess inventory but could have cancelled more; (13) a major reason for not cancelling more purchases was that the Navy adds protection levels, representing as much as 2 years of usage, to requirements before considering cancellation and cancels only the amount of the purchases that exceeds the protection levels; (14) the 2-year usage represented nearly four times the amount of inventory that the Navy would normally buy; (15) the Navy missed additional opportunities to cancel purchases because item managers did not exercise their responsibility to direct the cancellation of contracts, economic analyses were not made, and inventory and contracting records did not agree; and (16) collectively, these problems contribute to the Navy having inventory in excess of needs.

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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