Defense Inventory

This is one in a series of GAO reports on the Defense Department's management of inventory--spare and repair parts and other items that support the military's operations on land, at sea, and in the air. GAO has included DOD's management of inventory on its list of government areas at high risk for waste, fraud, abuse, and mismanagement. As of September 1999, DOD reported that it has about $8.1 billion of inventory on order, $1.6 billion of which exceeded requirements--the amount of inventory that the military indicated it needed to prevent out-of-stock situations. This report reviews inventory on order that exceeded requirements. GAO (1) determines that extent to which orders exceeded requirements when the orders were placed and (2) assesses the processes for canceling orders that exceeded requirements.

GAO noted that: (1) for the 490 items reviewed, GAO found no evidence that inventory orders exceeded requirements when the orders were first placed; (2) managers had placed orders after ensuring that they were supported by requirements, consistent with DOD's policies; (3) however, requirements for the items often changed after the orders were placed, which caused the items to exceed requirements; (4) because of the large number of inaccurate records, neither DOD nor the military components know whether managers are efficiently focusing their efforts to cancel excess inventory on order, and DOD does not have an accurate view of the total value of its excess inventory on order; (5) each component's process for cancelling orders that exceeded requirements differs and cannot be relied on to consistently identify orders to be considered for cancellation or to terminate orders when economical; (6) the components use different criteria for the amount of excess inventory on order they consider for cancellation; (7) the Army and the Defense Logistics Agency (DLA) consider orders for cancellation when the inventory ordered exceeds requirements; (8) the Navy and Air Force consider canceling orders when the inventory is at higher levels; (9) the Army and the DLA consider more of their excess inventory on order for cancellation than the Navy and Air Force do; (10) only the DLA consistently uses its computer model to determine whether it is more economical to cancel orders or not; (11) however, of the $696 million its model referred for consideration during a 3-month period in 1999, less than $11 million in orders were cancelled; (12) the Army and Air Force infrequently use their models, and the Navy has not used its model since 1993 because it overestimated contract termination costs, thus eliminating contracts for consideration; (13) the lack of use of the models and cancellation of items referred for consideration raises questions about their effectiveness; (14) the military components' frequency in reviewing orders of excess inventory for cancellation ranges from monthly to quarterly; (15) the longer components wait to consider an item for cancellation, the less likely cancellation will be cost-effective because they have to pay the contractor for costs incurred until the order is cancelled; (16) the components' goals for reducing excess inventory on order vary and are not comparable; and (17) thus, DOD cannot evaluate the components' progress in reducing excess inventory on order in a consistent way.

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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