Defense Inventory

GAO is required to evaluate the extent to which the Defense Logistics Agency has implemented best commercial inventory practices in a schedule sent to Congress in May 1998. A best commercial inventory practice is a practice that enables the agency to reduce inventory levels and hold down costs while improving the responsiveness of the supply system to users' needs. This report evaluates (1) the agency's progress in implementing the initiatives and (2) the opportunities to build on and expand existing efforts.

GAO noted that: (1) DLA has made significant progress in implementing the initiatives listed in the schedule; (2) of the 75 initiatives listed in the schedule, 43 are considered by DLA as completed and 15 have been awarded contracts; (3) two initiatives were cancelled, 1 was incorporated into another initiative, and the remaining 14 were still in the contract negotiation phase or had an otherwise uncertain status; (4) sales related to these initiatives were estimated to be $2.2 billion, or about 27 percent of DLA's projected fiscal year (FY) 1999 sales of secondary inventory items, excluding fuels; (5) of this amount, over $1.8 billion of sales is associated with four initiatives that relate to medical, pharmaceutical, and food items while almost $400 million is associated with the remaining implemented initiatives; (6) the most effective initiatives to date have been the medical and food prime vendor initiatives, which have transferred inventory management functions from DLA to key suppliers; (7) these initiatives enabled DLA to reduce inventory levels and related costs and improve service to military customers; (8) initiatives related to hardware and clothing items have had only a limited impact on business operations, but recent initiatives may provide a foundation for future improvements because they also transfer inventory management functions to key suppliers; (9) DLA is attempting to build on the success of its implemented initiatives and expand the use of best practices, but significant implementation obstacles must be overcome; (10) over 90 percent of DLA's estimated FY 1999 sales of hardware items were not covered by the initiatives in the schedule; (11) to expand the use of best practices, DLA is developing a strategy that focuses on using commercial distributors to support military customers for hardware items that are used frequently and regularly and creating alternative methods for items that are more unpredictable and difficult to support; (12) in its efforts to adopt best practices, DLA and the military departments have faced a variety of implementation issues; (13) many issues are related to concerns over whether the new practices can adequately meet military supply needs and how the new practices will affect employees' jobs; and (14) though these obstacles were overcome in some cases, they are significant because they can slow or stop implementation efforts or deter the military departments' full participation in the initiatives.

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.

Director: Team: Phone: