Defense Inventory
Actions Needed to Improve Inventory Retention Management Gao ID: GAO-06-512 May 25, 2006Maintaining the right amount and types of items in its inventory--a key aspect of supply chain management--has been a long-standing challenge for the Department of Defense (DOD) and has been on GAO's list of high-risk areas since 1990. DOD retains inventory above its normal operating requirements for various reasons including for contingency purposes or because it is more economical to keep items than dispose and repurchase them later. DOD's inventory levels have grown in recent years to almost $80 billion in fiscal year 2005. GAO was asked to assess the management of contingency retention inventory to determine whether (1) the Army, Air Force, Navy, and Defense Logistics Agency have followed inventory guidance and (2) DOD is providing oversight of inventory across these components. Also, GAO provided an update on the progress DOD has made in implementing GAO's past recommendations on the components' management of economic retention inventory.
Some DOD inventory management centers have not followed DOD-wide and individual policies and procedures to ensure they are retaining the right amount of contingency retention inventory. While policies require the centers to (1) use category codes to describe why they are retaining items in contingency inventory, (2) hold only those items needed to meet current and future needs, and (3) perform annual reviews of their contingency inventory decisions, one or more centers has not followed these policies. For example, the Army's Aviation and Missile Command is not properly assigning category codes that describe the reasons they are holding items in contingency inventory because the inventory system is not programmed to use the codes. GAO found that items valued at $193 million did not have codes to identify the reasons why they were being held, and therefore GAO was unable to determine the items' contingency retention category. GAO also found that some inventory centers have held items such as gears, motors, and electronic switches, even though there have been no requests for some of them by the services in over 10 years. Moreover, some centers are not annually reviewing their contingency retention decisions. Navy Inventory Control Point Mechanicsburg's officials, for example, were unaware that program managers had not conducted the required reviews until GAO brought this to their attention. Since GAO's work only focused on the centers it reviewed, it is unknown if these issues are occurring at other DOD inventory centers. By not following policies for managing contingency inventory, DOD's centers may be retaining items that are needlessly consuming warehouse space, and they are unable to know if their inventories most appropriately support current and future operational needs. DOD has provided insufficient oversight of inventory retention management across the components. DOD's Supply System Inventory Report, which DOD uses to oversee the components' inventory management, only requires the components to report to DOD financial information about their inventories and does not capture if the components are following management policies. Without sufficient oversight of the components' inventory retention practices, DOD cannot be certain that the components have the correct amount or type of items in contingency retention inventory. Lastly, DOD has made no progress to implement GAO's 2001 recommendations requiring the components to (1) establish milestones for reviewing their approaches for making economic retention inventory decisions, and (2) conduct annual reviews of these approaches, as required by DOD policy. At the time GAO issued its report, DOD agreed with the recommendations but stated that further review was necessary before it implemented changes. While subsequent studies reaffirmed the recommendations, DOD has still not taken action. GAO continues to believe that DOD should implement the recommendations to make meaningful improvements to its economic retention management practices.
RecommendationsOur 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:GAO-06-512, Defense Inventory: Actions Needed to Improve Inventory Retention Management
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Report to the Subcommittee on Readiness and Management Support,
Committee on Armed Services, U.S. Senate:
United States Government Accountability Office:
GAO:
May 2006:
Defense Inventory:
Actions Needed to Improve Inventory Retention Management:
GAO-06-512:
GAO Highlights:
Highlights of GAO-06-512, a report to the Subcommittee on Readiness and
Management Support, Committee on Armed Services, U.S. Senate.
Why GAO Did This Study:
Maintaining the right amount and types of items in its inventory–a key
aspect of supply chain management–has been a long-standing challenge
for the Department of Defense (DOD) and has been on GAO‘s list of high-
risk areas since 1990. DOD retains inventory above its normal operating
requirements for various reasons including for contingency purposes or
because it is more economical to keep items than dispose and repurchase
them later. DOD‘s inventory levels have grown in recent years to almost
$80 billion in fiscal year 2005. GAO was asked to assess the management
of contingency retention inventory to determine whether (1) the Army,
Air Force, Navy, and Defense Logistics Agency have followed inventory
guidance and (2) DOD is providing oversight of inventory across these
components. Also, GAO provided an update on the progress DOD has made
in implementing GAO‘s past recommendations on the components‘
management of economic retention inventory.
What GAO Found:
Some DOD inventory management centers have not followed DOD-wide and
individual policies and procedures to ensure they are retaining the
right amount of contingency retention inventory. While policies require
the centers to (1) use category codes to describe why they are
retaining items in contingency inventory, (2) hold only those items
needed to meet current and future needs, and (3) perform annual reviews
of their contingency inventory decisions, one or more centers has not
followed these policies. For example, the Army‘s Aviation and Missile
Command is not properly assigning category codes that describe the
reasons they are holding items in contingency inventory because the
inventory system is not programmed to use the codes. GAO found that
items valued at $193 million did not have codes to identify the reasons
why they were being held, and therefore GAO was unable to determine the
items‘ contingency retention category. GAO also found that some
inventory centers have held items such as gears, motors, and electronic
switches, even though there have been no requests for some of them by
the services in over 10 years. Moreover, some centers are not annually
reviewing their contingency retention decisions. Navy Inventory Control
Point Mechanicsburg‘s officials, for example, were unaware that program
managers had not conducted the required reviews until GAO brought this
to their attention. Since GAO‘s work only focused on the centers it
reviewed, it is unknown if these issues are occurring at other DOD
inventory centers. By not following policies for managing contingency
inventory, DOD‘s centers may be retaining items that are needlessly
consuming warehouse space, and they are unable to know if their
inventories most appropriately support current and future operational
needs.
DOD has provided insufficient oversight of inventory retention
management across the components. DOD‘s Supply System Inventory Report,
which DOD uses to oversee the components‘ inventory management, only
requires the components to report to DOD financial information about
their inventories and does not capture if the components are following
management policies. Without sufficient oversight of the components‘
inventory retention practices, DOD cannot be certain that the
components have the correct amount or type of items in contingency
retention inventory.
Lastly, DOD has made no progress to implement GAO‘s 2001
recommendations requiring the components to (1) establish milestones
for reviewing their approaches for making economic retention inventory
decisions, and (2) conduct annual reviews of these approaches, as
required by DOD policy. At the time GAO issued its report, DOD agreed
with the recommendations but stated that further review was necessary
before it implemented changes. While subsequent studies reaffirmed the
recommendations, DOD has still not taken action. GAO continues to
believe that DOD should implement the recommendations to make
meaningful improvements to its economic retention management practices.
What GAO Recommends:
GAO recommends that DOD direct the inventory centers to take the steps
necessary to follow existing inventory management policies and
procedures and provide oversight to ensure the components‘ compliance.
In reviewing a draft of this report, DOD generally agreed with GAO‘s
recommendations.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-512].
To view the full product, including the scope and methodology, click on
the link above. For more information, contact William M. Solis at (202)
512-8365 or solisw@gao.gov.
[End of Section]
Contents:
Letter:
Results in Brief:
Background:
Some DOD Inventory Management Centers Are Not Following Policies and
Procedures in Managing Their Contingency Retention Inventories:
DOD Is Not Providing Sufficient Oversight To Ensure That Components are
Conducting Annual Reviews of Contingency Retention Inventory:
DOD Has Made No Progress in Implementing Our 2001 Recommendations on
Economic Retention Inventory Management:
Conclusions:
Recommendations:
Agency Comments and Our Evaluation:
Appendix I: Scope and Methodology:
Appendix II: Comments from the Department of Defense:
Appendix III: GAO Contact and Staff Acknowledgments:
Tables:
Table 1: Primary Logistics Agency and Its Inventory Management Centers:
Table 2: Examples Illustrating When DOD's Items Were Placed into
Inventory and the Last Reported Demand Date Through January 2006:
Table 3: Component Ceilings on Economic Retention Inventories:
Figure:
Figure 1: Categorization of Inventory for an Air Force Circuit Card
Assembly:
Abbreviations:
DLA: Defense Logistics Agency:
DOD: Department of Defense:
LMI: Logistics Management Institute:
OUSDAT&L: Under Secretary of Defense for Acquisition, Technology, and
Logistics:
United States Government Accountability Office:
Washington, DC 20548:
May 25, 2006:
The Honorable John Ensign:
Chairman:
The Honorable Daniel K. Akaka:
Ranking Minority Member:
Subcommittee on Readiness and Management Support:
Committee on Armed Services:
United States Senate:
The Department of Defense (DOD) maintains a military force with
unparalleled capabilities but continues to confront a pervasive,
decades-old supply chain management[Footnote 1] problem that relates to
retaining the appropriate amount of inventory. At a time when our
forces are expected to perform missions in the homeland and abroad, it
is necessary for DOD to retain those inventory items that are needed to
sustain current military operations and dispose of those items that
will no longer support current and future operations. DOD reported
that, as of September 2005, it owned about $80 billion of secondary
inventory.[Footnote 2] This represents a $17 billion, or 27 percent,
increase since fiscal year 2001, when the department had about $63
billion in inventory. Because DOD is challenged to compete for
available resources in an increasingly fiscally constrained environment
and conduct high-level military operations, it is imperative that it
has good stewardship over the hundreds of billions of dollars invested
in its inventory. To ensure the sustainment of its missions, the Army,
Navy, Air Force, and the Defense Logistics Agency (DLA)[Footnote 3]
each maintains separate inventories of spare and repair parts above and
beyond normal operating requirements.[Footnote 4]
Inventory that exceeds the normal operating requirements is divided
into three categories:
* economic retention: excess inventory determined more economical to
keep than to dispose of because it is likely to be needed in the future;
* contingency retention: inventory exceeding the economic retention
level but retained for specific contingencies such as military (items
needed to meet military contingencies), potential security assistance
(items held for foreign military sales), and general contingency (items
held based on potential usefulness, extreme reprocurement problems, or
nonmilitary contingencies, such as civil emergencies or natural
disaster relief); and:
* potential reutilization and/or disposal materiel: inventory exceeding
the contingency retention level but identified as either potentially
reusable or disposable--typically through public sale.
While DOD's components each have their own policies and procedures for
managing their secondary inventories, DOD has an overarching policy--
the DOD Supply Chain Materiel Management Regulation[Footnote 5]--that
provides the components with overall guidance.
In 2001, we reported[Footnote 6] that the components did not have sound
analytical support for determining which items should be kept in
economic retention inventory. We also reported that the components were
not conducting annual reviews of the methodologies they used to make
economic retention inventory decisions, as required by the DOD
regulation.[Footnote 7] At that time, we recommended that the
components establish milestones for reviewing their economic retention
approaches and that they conduct annual reviews of their approaches.
As requested, this report focuses on DOD's inventory retention policies
and procedures. Our objectives were to assess the management of
contingency retention inventory to (1) determine the extent to which
DOD components have followed departmentwide and individual components'
policies and procedures to ensure they are retaining the appropriate
amount of inventory, and (2) assess the extent to which DOD is
providing oversight of inventory across the components. In addition, we
are providing information on the progress that DOD has made in
implementing our 2001 recommendations on the components' management of
economic retention inventory.
To determine the extent to which DOD components have followed policies
and procedures for retaining the appropriate amount of contingency
retention inventory, we (1) reviewed the components' regulations and
interviewed officials to determine how they implement these
regulations; (2) obtained and analyzed secondary inventory (spare
parts) retention records; and (3) visited four components' inventory
management centers to assess their policies, procedures, and practices
for managing contingency retention inventory. The results of our review
cannot be generalized to the total contingency retention inventory
population, due to the use of a nonprobability sample of 205 cases
(national stock numbers) valued at $890 million. We assessed the
reliability of DOD's automated inventory management system data by (1)
obtaining information from the components' management on their data
reliability procedures and (2) interviewing components' officials
knowledgeable about the data. We determined the data were sufficiently
reliable for the purposes of this report. Further, to assess the extent
to which DOD is providing oversight of contingency retention inventory
management across the components, we reviewed DOD regulations and
directives and interviewed officials from the Office of the Deputy
Under Secretary of Defense for Supply Chain Integration on their roles
and responsibilities for supply chain materiel management. Also, to
assess the progress that DOD has made in implementing our 2001
recommendations on the components' management of economic retention
inventory, we reviewed related policies and procedures and interviewed
officials from the Deputy Under Secretary of Defense for Supply Chain
Integration. We conducted our review from May 2005 through May 2006 in
accordance with generally accepted government auditing standards.
Further details on our scope and methodology are described in appendix
I.
Results in Brief:
Some DOD inventory management centers have not followed departmentwide
and individual components' policies and procedures to ensure they are
retaining the appropriate amount of contingency retention inventory. To
ensure DOD inventory management centers are retaining the appropriate
amount and types of items, inventory retention policies require the
components to (1) use category codes that describe reasons to retain
items in contingency retention inventory,[Footnote 8] (2) hold items
that correspond to current and future force level
requirements,[Footnote 9] and (3) perform annual reviews of their
contingency inventory decisions.[Footnote 10] It is also an objective
of DOD's policy that items from the inventory that no longer support
DOD's mission be removed. According to DOD policy, DOD places serious
emphasis on purging from its inventory items which no longer support
the mission and needlessly consume warehouse space.[Footnote 11]
However, several inventory management centers are not following policy.
For example, we identified that:
* The Army's Aviation and Missile Command is not properly assigning
category codes that describe the reasons they are holding items in
contingency retention inventory. While the Army inventory retention
policy requires the use of codes to identify the reasons to hold items
in contingency retention inventory, we found that the Aviation and
Missile Command does not consistently assign these codes to categorize
the reasons for holding items in contingency retention inventory. We
identified items valued at $193 million that did not have codes to
identify the reasons why they were being held, and therefore we were
unable to determine the contingency retention category for the items.
Furthermore, according to Command officials, the Army's current
inventory management system is not programmed to categorize some
contingency retention inventory items. However, we identified that the
system does have codes that designate the reasons items are held in
contingency retention inventory, but the Army is not currently using
these codes.
* Some inventory management centers are retaining items in contingency
retention inventory that have experienced little or no recent demands.
For example, the Aviation and Missile Command is retaining items in
contingency retention inventory that (1) have experienced no demands
since the mid 1990s and (2) no longer meet operational needs. For
example, we found that the Command continued to retain items to support
an early warning sensor that was phased out by the Army in June 2003.
Command officials told us that they retained these items in contingency
retention because they did not receive direction from the Army to
remove them from the inventory.
* Some inventory management centers are not conducting annual reviews
as required to verify reasons for retaining contingency retention
inventory. For example, the Defense Supply Center Richmond had not
conducted annual reviews since 2000 to verify the reasons for retaining
some items in contingency retention inventory. We identified from the
Center's entire population of contingency retention items that
approximately 2,200 items had not been reviewed since 2000. According
to Center officials, the reviews were not conducted because the items
had no stock on hand or had experienced no recent demands or requests
from customers. As a result of our review, the Defense Supply Center
Richmond initiated disposal actions to potentially remove 40 stock
numbers--a total quantity of about 26,000 items valued at over $742,500.
Since some DOD inventory management centers are not following policies
and procedures for managing their contingency inventories, they may be
retaining unnecessary inventory, which results in the needless
consumption of warehouse space. Moreover, while our work only focused
on a limited number of inventory management centers, it is unknown
whether these issues are occurring at other DOD inventory management
centers. However, every inventory management center where we conducted
audit work was not following policies. Furthermore, by not conducting
annual reviews of their inventory retention decisions, the inventory
management centers cannot be certain that they are retaining the
appropriate spare parts to support military operations and readiness.
Also, without complying with inventory retention policies and
procedures, the DOD inventory management centers can accumulate high
levels of inventory without knowing whether they meet warfighter
requirements in the most efficient manner.
DOD is not providing sufficient oversight to ensure that components are
conducting annual reviews of their contingency retention inventory.
According to the DOD Supply Chain Materiel Management Regulation issued
by the Office of the Deputy Under Secretary of Defense for Logistics
and Materiel Readiness, components are required to annually review the
contingency retention decisions. The regulation does not state,
however, who is responsible for ensuring the components conduct these
reviews. Another policy, the DOD's Supply Chain Materiel Management
Policy[Footnote 12] requires that the Under Secretary of Defense for
Acquisition, Technology, and Logistics (OUSD AT&L) ensure that DOD
materiel management policies are implemented in a uniform manner
throughout the department. OUSD AT&L officials said they rely on DOD's
Supply System Inventory Report[Footnote 13] as their oversight
mechanism to review DOD components' reported inventory retention levels
and ensure the components are conducting the annual reviews. However,
while the annual Supply System Inventory Report provides DOD with
financial inventory information, it does not provide the department
with the information it needs to ensure that all of the components are
conducting annual reviews of contingency retention inventory decisions.
For example, DOD's failure to recognize the inventory management
centers' noncompliance with DOD's regulation requiring them to conduct
annual reviews of their contingency retention decisions illustrates
DOD's insufficient oversight. By not ensuring that the components are
conducting annual reviews of their contingency retention decisions, DOD
cannot be certain that all components are retaining the right amount of
contingency retention inventory to meet the military's operating
requirements in the most effective and efficient manner.
DOD had made no progress in implementing our 2001 recommendations
concerning the components' management of economic retention
inventory.[Footnote 14] We reported then that (1) components were not
properly documenting their approaches in making economic retention
decisions, (2) they lacked sound analytical support for the maximum
levels of economic inventory they used in calculating how much
inventory should be retained, and (3) they had not annually reviewed
their approaches as required by DOD policy.[Footnote 15] After we
issued our report, DOD determined that further review was necessary to
determine appropriate approaches to economic retention inventory
decisions and subsequently tasked the Logistics Management Institute
(LMI) in 2001 and again in 2003 to examine whether current economic
retention policy requirements and procedures could be improved. While
LMI's review yielded similar recommendations to ours, DOD's components
are still not conducting annual reviews of economic retention
decisions. According to some DOD component officials, they have not
been conducting annual reviews of their economic retention decisions
because of either the cost to conduct these reviews, manpower
limitations, or other competing priorities. We continue to believe that
DOD should implement the recommendations to make meaningful
improvements to its economic retention management practices.
We are recommending that the Secretary of Defense direct the Under
Secretary of Defense for Acquisition, Technology, and Logistics to
ensure the DOD inventory management centers properly categorize the
reasons for holding items in contingency retention inventory, determine
whether items no longer needed should be disposed, and conduct annual
reviews of contingency retention inventory as required by DOD's Supply
Chain Materiel Management Regulation and the components' policies. In
addition, we are recommending that the Under Secretary revise DOD's
Supply Chain Materiel Management Regulation to make clear who is
responsible for providing recurring oversight to ensure that the
inventory management centers are performing annual reviews of their
contingency retention inventory decisions. In reviewing a draft of this
report, DOD concurred with six of our recommendations and partially
concurred with one. The Department's responses are reprinted in
appendix II and our evaluation of them appears later in the report.
Background:
DOD divides secondary inventory into two categories: active inventory
and inactive inventory. Active inventory is materiel that DOD budgets
for and consists of the approved acquisition objective: items needed to
meet current operating requirements, items that are expected to be used
within the budget period (2 years), and items purchased to meet
specific war reserve requirements. Items that exceed the approved
acquisition objective are referred to as inactive inventory. Inactive
inventory is materiel that is not expected to be consumed within the
budget period but is likely to be utilized in future years.[Footnote
16] These items preclude future procurement and repairs and do not
impact components' budgets because the costs were incurred when the
items were initially procured. Inactive inventory levels are
categorized as economic retention, contingency retention, and potential
reutilization and/or disposal materiel.
An Air Force circuit card assembly used on the 968H Air Early Warning
System, for example, illustrates DOD's inventory categories. On March
31, 2005, the Air Force had 18 of these circuit card assemblies on
hand, each valued at $2,172. As shown in figure 1, 4 of the circuit
card assemblies satisfied the item's approved acquisition objective. Of
the remaining 14 circuit card assemblies, 3 were held as economic
retention stock, 1 was held as contingency retention stock, and 10 were
categorized as potential reutilization and/or disposal materiel.
Figure 1: Categorization of Inventory for an Air Force Circuit Card
Assembly:
[See PDF for image]
[End of figure]
DOD Inventory Management Policies and Procedures Pertaining to
Contingency Retention Inventory:
The DOD Supply Chain Materiel Management Regulation provides the
components with overarching guidance on how to manage contingency
retention inventory. The DOD regulation requires that (1) components be
able to provide the rationale for holding items in contingency
inventory, (2) items are retained in accordance with current and future
force level requirements, and (3) the methodology for making decisions
to hold items in contingency retention be reviewed and validated
annually.[Footnote 17] In addition, the regulation says that components
should categorize the contingency retention items as (1) military
contingency if the assets are retained to meet military contingencies
for U.S. forces; (2) general contingency if the assets are retained due
to their potential usefulness, for extreme procurement problems or for
other special considerations involving nonmilitary contingencies, such
as civil emergencies or natural disaster relief; or (3) potential
security assistance (also referred to as foreign military sales) if the
assets are held in expectation of foreign military demand.[Footnote 18]
Each component has policies and procedures that describe how their
respective personnel should manage contingency retention inventory.
While DOD components follow DOD's overarching guidance that defines
contingency retention inventory, each of the components has its own
policies and procedures for determining what items to retain for
potential contingencies. Most DOD components categorize contingency
retention inventory in one of these categories: military, foreign
military, or general contingency. Also, they retain contingency
retention inventory for additional reasons. For example, DLA[Footnote
19] retains items with application to specific weapon systems to
preclude them from disposal at the request of the military services.
Military services use some of the following reasons for excluding items
with application to specific weapons systems from disposal: aging
weapon system not planned for phase-out in the near future; parts that
have very infrequent use, but with expected demand; and out-of-
production, sole source items. Additionally, the Air Force
policy[Footnote 20] allows for retention of assets in contingency
retention inventory when a one-time buy has been made for an explicit
reason or when the decision to retain was made by Headquarters Air
Force Materiel Command. In addition to the three contingency categories
described in the DOD policy, the Army's secondary item retention
policy[Footnote 21] authorizes item managers to retain chemical,
biological, nuclear, or serviceable or unserviceable hazardous materiel
based on the Department of the Army or DOD-level directives in
contingency retention inventory. The Navy[Footnote 22] uses several
categories to retain and protect inventory from disposal. A few of the
reasons include: retention of assets for cannibalization for lower
assembly; retention of assets to support a weapon system throughout its
expected life cycle (life of system buy); and retention of excess
assets for nuclear reactor plans. In addition, the DOD components have
policies and procedures to conduct annual reviews to ensure the
decisions to hold items in contingency retention inventory are valid.
The components also require justification for the retention decision to
be maintained on file.
Unlike other categories of inventory such as economic retention, there
are no prescribed methodologies to determine contingency retention
inventory levels.[Footnote 23] Instead, DOD component officials rely on
subjective reasoning to determine and justify retaining items in
contingency retention inventories in support of their missions. While
there is no established DOD process for identifying and reviewing
contingency requirements and decisions, the components follow similar
processes. Typically an item manager will make the decision to retain
assets in contingency, although in some cases, the decision may be made
by a component's headquarters or another component. For example, a
component's materiel commands or another service may request that
certain assets be retained in contingency retention inventory to meet
future needs. Upon identifying assets on hand that exceed an item's
approved acquisition objective and economic retention requirement, the
item manager determines if some or all of the assets need to be
retained in contingency retention inventory for a specific reason. If
so, the item manager will then determine the level of assets needed to
be retained in contingency and establish a requirement. Some of the
common criteria item managers use to determine the retention of items
in contingency retention inventory include: the expected life span or
age of the weapon system the asset supports; the wear-out rate of the
item; the nonrecurring or unpredictable demand of an item; the
potential sale or transfer of items to a foreign country; or
diminishing manufacturing sources for an item.
Once a contingency requirement has been established for an item, the
requirement is supposed to be reviewed at least once a year during each
component's contingency retention review process. When conducting
contingency retention reviews, the item manager reevaluates the item
and determines if there is a continued need to retain all or some of
the assets in contingency retention. If the item manager makes the
decision to retain assets in contingency retention, the item manager's
rationale for the current retention decision must be available upon
request and is maintained in the item file or inventory management
system. If it is determined there is no longer a need for an item's
contingency retention requirement, the assets that exceed the approved
acquisition objective and economic retention requirement will be
allocated as potential reutilization and/or disposal materiel.
DOD Inventory Management Policies and Procedures Pertaining to Economic
Retention Inventory:
According to the DOD guidance, an economic analysis used to calculate
whether to retain an inventory item or dispose of it should be based on
an analysis that balances the cost of retention and the cost of
disposal. In addition, the regulation states that the components should
consider in their economic analysis the cost of retaining items, the
potential long-term demand for the items, potential repurchase costs,
and for items essential to the operation of a weapon system, the
expected life of the weapon system, and the number of systems in use.
As the amount of inactive stock increases, the cost of retention
increases (more items cost more to hold) and the cost of disposal
decreases (with greater amounts of an item on hand, the likelihood of
having to repurchase the items becomes less). Equilibrium is reached
when the additional cost of retention equals that of disposal. This
equilibrium level of inventory is the economic retention level---the
largest amount of an item that can be justified by economic
analysis.[Footnote 24]
DOD's Inventory Management Agencies:
DOD relies on a number of individual processes and activities, known
collectively as supply chain management, to purchase, produce, and
deliver items and services to the warfighter. The primary inventory
agencies that provide this support to the warfighters are (1) the U.S.
Army Materiel Command, (2) the U.S. Air Force Materiel Command, (3) the
Defense Logistics Agency, and (4) the Naval Inventory Control Point.
Table 1 shows each primary logistics agency and its inventory
management centers.
Table 1: Primary Logistics Agency and Its Inventory Management Centers:
Primary logistics inventory management centers agency: Air Force
Materiel Command;
Ogden Air Logistics Center;
Oklahoma City Air Logistics Center;
Warner Robins Air Logistics Center.
Primary logistics inventory management centers agency: Army Materiel
Command[A];
Aviation and Missile Life Cycle Management Command;
Communications-Electronics Life Cycle Management Command;
Tank- automotive and Armaments Life Cycle Management Command.
Primary logistics inventory management centers agency: Defense
Logistics Agency;
Defense Supply Center Columbus;
Defense Supply Center Philadelphia;
Defense Supply Center Richmond.
Primary logistics inventory management centers agency: Naval Inventory
Control Point[B];
Naval Inventory Control Point Mechanicsburg;
Naval Inventory Control Point Philadelphia.
Source: GAO analysis of DOD data.
[A] Sometimes these commands are referred to as the Aviation and
Missile Command, the Communications-Electronics Command, and the Tank-
automotive and Armaments Command.
[B] The Naval Inventory Control Point is carried out by a single
command organization operating in two locations.
[End of table]
Some DOD Inventory Management Centers Are Not Following Policies and
Procedures in Managing Their Contingency Retention Inventories:
Some DOD components' inventory management centers are not following
policies and procedures in managing their contingency retention
inventories. For example, we found some inventory centers do not
properly categorize the reasons items are kept for contingency
retention purposes, as required by DOD policy. Also, some inventory
centers are retaining items that have not experienced any recent
demands and no longer meet operational needs. In addition, some DOD
inventory management centers have not complied with DOD's policy as
well as their own policies, which require them to conduct annual
reviews of contingency retention inventory to ensure the reasons for
retaining inventory are valid. As a result, there is the likelihood for
them to retain inventory for a number of years and accumulate high
levels of inventory that may not be needed to meet current and future
operational needs. Moreover, while our work only focused on the
inventory management centers we reviewed, it is unknown whether these
issues are occurring at other DOD inventory management centers.
Army's Aviation and Missile Command and Air Force's Ogden Air Logistics
Center Are Not Properly Categorizing the Reasons to Hold Items in
Contingency Retention Inventory:
The Army's Aviation and Missile Command and Air Force's Ogden Air
Logistics Center are not properly assigning category codes that
describe the reasons they are holding items in contingency retention
inventory. DOD policy requires DOD components to identify the reasons
for retaining items for contingencies purposes and if requested,
provide the rationale that identifies why contingency retention
inventory should be in the military, foreign military sales, and
general category.[Footnote 25] Some DOD components use codes in their
inventory management systems to identify the reasons to hold items in
contingency retention inventory. The codes are reviewed to validate the
contingency retention decisions.
We found, however, that the Army's Aviation and Missile Command does
not consistently assign codes to categorize the reasons for holding
items in contingency retention inventory. Of the 55 Army Aviation and
Missile Command items we selected for review, 50 of the items valued at
$193 million did not have a code to identify the reasons for holding
the items, and therefore we were unable to determine the contingency
retention category for the items. Furthermore, according to Command
officials, the Army's current inventory management system, the
Commodity Command Standard System, is not programmed to categorize some
contingency retention inventory.[Footnote 26] However, according to
Army Materiel Command officials, the contingency retention code was
added to the Commodity Command Standard System[Footnote 27] in the mid-
1990s but the functionality to use the code in the system was not
completed because of the planned replacement of the Commodity Command
Standard System with the Logistics Modernization Program in 1999. Army
officials stated that it is unlikely any updates or modifications to
the current system to ensure the functionality of the coding feature
will be approved to properly categorize contingency retention
inventory. While the new system is expected to have contingency
retention codes, the Army is not currently planning to complete
fielding the Logistics Modernization Program until 2009, which means
that it will not be using codes at least until then. As an interim
solution, Army Material Command officials have indicated that they will
reemphasize that item managers use the manual contingency retention
approval forms that will include the codes. However, without the use of
the codes in the inventory management system, the Army's Aviation and
Missile Command will not be able to (1) readily identify the reasons
for holding items in contingency retention inventory and know whether
the items they are retaining are useful for current and future
operations and (2) analyze trends in contingency levels that may
require management scrutiny and attention.
Also, at the Army's Aviation and Missile Command, we identified 30
items that were retained for anticipated foreign military sales. Of the
30 items valued at $134 million, only 5 had the proper coding. At the
time of our review, several item managers responsible for managing
foreign military items stated they were not aware of the Army policy
which directs such items to be identified with a specific code. We
informed Command inventory materiel management officials that some item
managers were unaware of this policy. The officials identified this as
a training issue and plan to develop a training module for item
managers that will address this matter. However, at the time we
completed our audit work in January 2006, the Command had not developed
the training.
We also found that the Air Force's Ogden Air Logistics Center had some
contingency retention inventory items that were not properly
categorized and, as a result, the items had been inappropriately
retained in contingency retention inventory. Specifically, we
identified 3 out of 57 items we reviewed at the Ogden Air Logistics
Center that the Air Force Materiel Command directed the Center to
retain in contingency retention inventory that were not properly
categorized. When we brought this to the attention of the Air Force
Materiel Command, officials discovered that these 3 items were among a
larger population of 974 items that had been improperly coded. Upon
investigation, officials found that in 2001 the contingency retention
codes were removed from the weapon systems that these items supported,
but not from the items themselves. According to the Air Force Materiel
Command, the 974 items are managed at the Ogden Air Logistics Center,
as well as the Warner Robins and Oklahoma City Air Logistics Centers.
The Command officials explained that due to a system deficiency in the
Air Force's Application Programs, Indenture system, it did not remove
the items' codes when the weapon systems' codes were removed and, as a
result, the items continued to be categorized as contingency retention
inventory. As a result of these items being inappropriately retained in
contingency retention inventory, the contingency retention inventory
level has been overstated. We estimated in 2006 that the Air Force's
contingency retention inventory value included $138 million worth of
items, the value of the 974 contingency retention items that should not
have been included. As a result of our review, the Air Force Materiel
Command system programming activity corrected the deficiency in March
2006 by removing the codes from the system.
According to Command officials, the items support some weapon systems
that are still used in the Air Force, but some items support the F-111
aircraft that the Air Force retired in the mid-1990s. When the codes
are removed for this aircraft, some of the 974 items that are no longer
needed will be candidates for disposal unless the Air Force item
managers decide to retain these items for foreign military sales. Air
Force policy indicates that the failure to remove items from
contingency retention inventory that are no longer needed can cause too
much inactive inventory to negatively affect warehouse costs and
spaces. Also, by not properly categorizing the reasons for holding
items in contingency retention inventory, some DOD components are
unable to determine the rationale for holding the items and do not
readily know the potential usefulness of their contingency retention
inventories and whether the items could meet components' operational
needs.
Some Inventory Management Centers Are Retaining Items in Contingency
Retention Inventory that Have Experienced Little or No Recent Demands:
Some DOD inventory management centers are retaining items in
contingency retention inventory that have experienced little or no
recent demands. For example, we identified some items categorized as
contingency retention inventory that had been in the inventory system
for 50 or more years---some of which had not experienced any requests
from customers in over 10 years. There is the likelihood for the
inventory management centers to retain items that no longer meet
operational needs. Table 2 shows for each inventory management center
we reviewed examples of when items were placed into the inventory and
the last reported demand through January 2006.
Table 2: Examples Illustrating When DOD's Items Were Placed into
Inventory and the Last Reported Demand Date Through January 2006:
Inventory management center: Air Force's Ogden Air Logistics Center;
Name of item: Electronic switch;
Name of weapon system: Missile Warning and Defense Division System;
Year item entered into inventory system: 1968;
Number of years in inventory system: 38;
Year of last demand: 1984;
Number of years from last demand: 22.
Inventory management center: Army's Aviation and Missile Command;
Name of item: Spur gear;
Name of weapon system: Target Acquisition Designation Sight and Pilot
Night Vision Sensor;
Year item entered into inventory system: 1990;
Number of years in inventory system: 16;
Year of last demand: 1995;
Number of years from last demand: 11.
Inventory management center: Navy Inventory Control Point
Mechanicsburg[A];
Name of item: Rod assembly;
Name of weapon system: Battleship Guns;
Year item entered into inventory system: 1953;
Number of years in inventory system: 53;
Year of last demand: 1999;
Number of years from last demand: N/A.
Inventory management center: Defense Supply Center Richmond;
Name of item: Direct current motor;
Name of weapon system: Airlifter Aircraft;
Year item entered into inventory system: 1971[B];
Number of years in inventory system: 35;
Year of last demand: 2002;
Number of years from last demand: 4.
Source: GAO analysis of DOD data.
[A] The Navy's inventory management system does not retain demand
(request) information beyond 5 years, and therefore, we were unable to
determine when these items were actually last requested.
[B] Indicates the year Defense Logistics Agency assumed management of
the item from a DOD component.
[End of table]
We also reported[Footnote 28] in 2004 that some items had inventory
categorized as either economic or contingency retention stock and had
been in the inventory system for 15 or more years. Some of the items
had been placed in service prior to 1989 and some placed during the
1960s. These items included antennae, aircraft rudders, auxiliary power
units, propeller blades, and circuit card assemblies that were used on
versions of the Air Force's C-130 and F-15 aircraft, the Army's UH-60
helicopter, and other weapon systems.
In addition, we found that the Aviation and Missile Command is
retaining items in contingency retention inventory, which further
demonstrates how components can retain items that have experienced (1)
no recent demands and (2) no longer meet operational needs. DOD
policies require that items held in contingency retention should
correspond to current and future force levels.[Footnote 29] It is also
an objective of DOD's policy that items from the inventory system that
no longer support DOD's mission should be removed.[Footnote 30] During
our review, we identified 4 out of 55 contingency retention items that
support an obsolete early warning sensor that was phased out by the
Army in June 2003. According to Command officials these items were
retained in contingency retention because officials did not receive
direction from the Army to remove the obsolete items from the
inventory. Also, Command officials stated that they are considering
offering the weapon system and support items to the foreign military
sales program. If the foreign military sales program does not assume
management of the items, the Command officials said they will initiate
the disposal process. While we do not know the extent to which this is
a predominant condition at the Command because we only identified 4
items which the Command is retaining that do not support a current
requirement and have not experienced any recent demands, it is possible
that the Army may be retaining several other contingency retention
items that no longer meet operational needs. According to DOD policy,
items that no longer support DOD's mission needlessly consume warehouse
space that will impact total supply operations and DOD places serious
emphasis on the purging of unneeded items from the inventory[Footnote
31].
Some DOD Inventory Management Centers Are Not Conducting Annual Reviews
to Verify Reasons for Retaining Contingency Retention Inventory:
The Defense Supply Center Richmond, the Naval Inventory Control Point
Mechanicsburg, and the Army's Aviation and Missile Command are not
conducting annual reviews to verify the reasons for retaining items in
contingency retention inventory. DOD's and the components' policies
require the components to conduct annual reviews so that the components
can validate their reasons for retaining items in this inventory
category. Additionally, we found that one of the Defense Logistics
Agency's centers, the Defense Supply Center Richmond, had not conducted
reviews since 2000 on some contingency retention items. We found that
no annual reviews had been conducted for 35 of the 48 items we reviewed
from the Center's 2004 total population of contingency retention
inventory. We later identified from the Center's total population of
contingency retention inventory that approximately 2,200 items had not
been reviewed since 2000. According to Center officials, the reviews
were not conducted because the items had no stock on hand or they had
experienced no recent demands from customers. Based on our review, the
Defense Supply Center Richmond initiated actions to (1) review the
stock numbers, (2) remove their contingency retention levels if
required, and (3) establish a review cycle that would identify these
types of items in the future. After the Center reviewed the items, it
proposed disposal actions to remove 40 stock numbers: a total quantity
of about 26,000 items valued at over $742,500.
Also, the Naval Inventory Control Point Mechanicsburg had not conducted
annual reviews for some contingency retention inventory established by
the weapon system program manager. Like the other components, Navy
policy requires an annual review of the reasons for retaining an item
in contingency inventory. However, we identified 4 out of 45 items in
our review for which weapon system program managers had not conducted
annual reviews for the contingency retention inventory. At the time of
our review, these items had not been reviewed since 2000. For example,
one Navy program manager had not conducted annual reviews for 3 items
in our review since 2000 because the date to conduct the reviews in the
inventory management system was not set for every year. Navy inventory
management officials were unaware that some weapon system program
managers were not conducting annual reviews of contingency retention
inventory. As a result of our review, the Naval Inventory Control
Mechanicsburg revised the policy for weapon system program managers to
conduct annual reviews.
Furthermore, we found that the Army Materiel Command has not conducted
reviews of some items in contingency retention inventory specifically
retained for foreign military sales. For example, we identified 10 out
of the 55 selected Army Aviation and Missile Command contingency items
(valued at $10.1 million) that had not been reviewed annually by the
component to verify the reasons for retaining the items in contingency
retention. Army policy requires an annual review of contingency
requirement decisions for all items including items retained for
foreign military sales. These 10 items support the Hawk and Chaparral
Missile Systems and are retained for the foreign military sales
program. A 2003 memorandum of agreement between the Army's Aviation and
Missile Command's Missile System Directorate and the Security
Assistance Management Directorate directs the Army to retain management
of the items until the quantities on hand have been depleted. Once this
occurs, the Security Assistance Management Directorate assumes
inventory accountability for the items. According to the Army Aviation
and Missile Command officials, these items are managed by the Army
because the Security Assistance Management Directorate is not
authorized to procure assets from the Command in anticipation of
foreign military sales demands. Also, Command officials indicated that
annual reviews were not conducted because the missile systems' items
were retained due to direction of the memorandum of agreement. The
purpose of these annual reviews would be to identify whether these
items are still needed to support the weapon systems in the foreign
military sales program. By not conducting annual reviews, the Command
is not in compliance with DOD and Army policies and procedures.
DOD Is Not Providing Sufficient Oversight to Ensure That Components Are
Conducting Annual Reviews of Contingency Retention Inventory:
DOD is not providing sufficient oversight to ensure that components are
conducting annual reviews of contingency retention inventory across the
components. According to the DOD Supply Chain Materiel Management
Regulation issued by the Office of the Deputy Under Secretary of
Defense for Logistics and Materiel Readiness, the DOD components are
required to annually review and validate the contingency retention
inventory. However, the regulation does not state who bears
responsibility for ensuring the components conduct these annual
reviews. The DOD's Supply Chain Materiel Management Policy requires the
Under Secretary of Defense for Acquisition, Technology, and Logistics
(OUSD AT&L) to ensure that DOD materiel management policies are
implemented in a uniform manner throughout the department. This policy
applies to all phases of materiel management, from an item's
introduction into the supply system to operational requirements through
the weapon system phase-out and retirement. Also, the OUSD AT&L is
responsible for monitoring the overall effectiveness and efficiency of
the DOD logistics system, and for continually developing improvements.
In addition, the Standards for Internal Control in the Federal
Government recommend that ongoing monitoring occur in the course of
normal operations to ensure policies and procedures are enforced. OUSD
AT&L officials said that they rely on the DOD's Supply System Inventory
Report as their oversight mechanism to ensure DOD components conduct
annual reviews. While the annual Supply System Inventory Report
provides DOD with financial inventory information, it does not
specifically provide the information DOD needs to determine whether the
components are conducting annual reviews of contingency retention
inventory. OUSD AT&L officials said that if the report identifies
noticeable changes in the components' contingency retention inventory
levels, they would ask the components to explain those changes.
Also, OUSD AT&L officials said that several additional measures could
be taken to determine why the components' contingency retention
inventory levels have increased. For example, DOD officials said they
may request assistance from the Department of Defense Inspector
General's Office, establish a joint process review team, or request
contractor support to examine noticeable changes in the components'
inventory levels. We found that the Department of Defense Inspector
General's Office has not conducted any recent reviews on contingency
retention inventory. According to DOD officials, they are currently
using a contractor to determine why DOD components' inventory levels
have increased. However, DOD's failure to recognize the inventory
management centers' noncompliance with DOD's regulation requiring them
to conduct annual reviews of their contingency retention decisions
illustrates DOD's insufficient oversight of inventory management at the
departmentwide level. There is no requirement for the components to
report the results of their annual reviews to DOD, and the Supply
System Inventory Report does not address the annual reviews. Because
DOD does not provide the oversight to ensure that components are
conducting annual reviews of their contingency retention decisions, DOD
cannot be certain that components are retaining the right amount of
contingency retention inventory to meet the military's operating
requirements.
DOD Has Made No Progress in Implementing Our 2001 Recommendations on
Economic Retention Inventory Management:
DOD has made no progress in implementing our 2001
recommendations[Footnote 32] on economic retention inventory
management. We recommended that DOD (1) establish milestones for
reviewing their approaches for making economic retention decisions, and
(2) conduct annual reviews of their approaches, as directed by the DOD
regulation,[Footnote 33] to ensure they have sound support for
determining economic retention inventory levels. In 2001, we reported
that components had not properly documented the approaches they have
taken in making economic retention decisions, lacked sound analytical
support for the maximum levels they used, and had not annually reviewed
their approaches. We also reported that while DOD components, with the
exception of the Air Force, developed individual economic models
designed to place inactive inventory in economic status as early as
1969, they had not used the models since 1994. Instead, components
lowered maximum levels of inventory--known as ceilings--to make
economic retention determinations that would help achieve agency
inventory reduction goals. We also reported that the components
judgmentally developed their ceilings for economic retention inventory,
which differed and had yielded lower levels of economic retention
inventory than the levels calculated by the economic retention models.
In addition, we reported that while components' ceilings varied in the
span of years of demand, they also varied in the total years of
inventory covered.
During 1994-96, the components established different ceilings for items
in economic retention. A ceiling imposes an upper constraint on years
of demand--the quantity needed on an annual basis to meet requirements-
-and how much inactive inventory can be retained. For example, the Army
ceiling is applied to inventories above active inventory requirements.
The Air Force, Navy, and Defense Logistics Agency ceilings apply to
their entire inventory requirements, including active inventory. The
ceilings currently used by the components are summarized in table 3.
Table 3: Component Ceilings on Economic Retention Inventories:
Component: Air Force;
Ceilings levels used to retain inventory: 13 years of total maximum
demand for all items.
Component: Army (By Life Cycle Management Commands)[A];
Ceilings levels used to retain inventory: CECOM, 7 years of demand
above requirements for serviceable reparables, 6 years for
unserviceable reparables, 5 years of demand above requirements for all
other items AMCOM and TACOM, 83.25 years of demand above requirements
for serviceable and unserviceable reparables.
Component: Navy;
Ceilings levels used to retain inventory: 12 years of total attrition
demand for new weapons systems;
8 years of total attrition demand for "steady" weapon systems;
4 years of total attrition demand for weapons systems approaching
obsolescence.
Component: Defense Logistics Agency;
Ceilings levels used to retain inventory: 6 years of total demand.
Source: GAO analysis of DOD data.
[A] Army has three major subordinate commands that manage spare parts
for major weapon systems. They include the Aviation and Missile Life
Cycle Management Command (AMCOM), Communications- Electronics Life
Cycle Management Command (CECOM), and the Tank- automotive and
Armaments Life Cycle Management Command.
[End of table]
DOD partially concurred with our 2001 recommendations, agreeing that
its components needed to annually review the appropriateness of their
economic retention inventory levels. In response to a 2001
congressionally mandated study, the Logistics Management Institute
(LMI) examined whether the current economic retention policy
requirements and procedures could be improved.[Footnote 34]
Specifically, the study concluded that DOD could possibly achieve
additional cost savings by determining economic retention levels using
heuristics[Footnote 35] based on years of no demand when determining
economic retention levels rather than using economic retention models
and years of supply. LMI attributed the problems of using a generalized
economic retention model to the uncertainty of long-term demand, the
negligible marginal cost of storage, and the small return from
disposal. In addition, the LMI study suggested DOD employ a new
standard of 7 years of inactivity to determine economic retention
levels. DOD determined that further review was necessary to determine
appropriate approaches to economic retention inventory decisions and
subsequently tasked LMI to examine whether current economic retention
policy requirements and procedures could be improved. LMI conducted a
follow-up study on economic retention in 2003 and found that even
though the economic retention models used by DOD components allow for
demand variability, they assume the average demand for items is
relatively stable from year to year. The study also stated that if the
average demand is not stable, future demand cannot be predicted and
retention limits will not be accurate.
Based on its 2003 independent study, LMI recommended that DOD
procedural guidance for setting economic retention limits should call
for the use of minimum-retention limits as a viable means of dealing
with the uncertainty in forecasting long-term demand. In addition, LMI
recommended that in accordance with the DOD regulation, the DOD
components should review their retention methodologies at least
annually and adapt the general models and options in the study's
analysis to their specific items.[Footnote 36] DOD did not advise the
components to adopt recommendations from the 2003 LMI study because,
according to an official with the Office of the Assistant Deputy Under
Secretary of Defense, they were designed to show components how best to
determine economic retention. A program director with LMI said DOD
indicated that they were still looking at ways to implement
recommendations from the 2003 study, but competing demands from
Operation Iraqi Freedom, the Base Realignment and Closure Act for 2005,
the Quadrennial Defense Review, and other activities have taken
priority. Furthermore, while DOD agreed with our 2001 recommendations
to comply with DOD policy and perform annual reviews of the economic
retention methodologies, we found that some of the components were not
complying with the DOD regulation to review and validate their
methodologies for economic retention decisions. For example, at the
time of our review, the Army and Defense Logistics Agency had not
reviewed and validated their methodologies for economic retention
decisions within the last year, nor were they able to provide
documentation illustrating when the last review had been conducted. A
Defense Logistics Agency official stated that other competing
priorities and a focus on the agency's new inventory management system
have prevented them from conducting annual reviews. However, according
to an official with the Defense Logistics Agency, a plan to revise
their economic retention model and ceilings will begin in late 2006. We
also found that the Air Force had not conducted annual reviews and
validated its methodologies for economic retention decisions since
1991. According to Air Force officials, annual reviews of economic
retention decisions are not conducted because it is an expensive
undertaking and because of manpower limitations. The Air Force is
currently conducting a study of its economic retention model. In
addition, in 2005, the Navy conducted a review of its economic
retention model and recommended the following actions: (1) find methods
to improve cost estimates in retention decisions, and (2) explore
reductions in minimum retention limits.
Conclusions:
DOD's inventory management centers are using subjective reasons to
justify which items they retain in their contingency retention
inventories in support of their missions. While each center has
policies and procedures to review and validate their inventory
retention decisions, they are not complying with these policies and
therefore cannot ensure that they are retaining the appropriate amount
of contingency retention inventory for current and future operations.
For example, since some inventory management centers do not properly
assign reasons for holding the contingency retention inventory, they do
not know whether the justifications to hold items are consistent with
the reasons prescribed in their existing policies and procedures.
Similarly, until some DOD inventory management centers determine
whether retained items support their operational needs, they could be
retaining inventory that needlessly consumes valuable warehouse space
for many years. Without periodic reviews that verify the reasons for
holding items in contingency retention inventory, there is the
potential for the DOD centers to use this inventory category to justify
accumulating high levels of inventory without knowing whether the items
they are retaining are potentially useful for current and future force
operating requirements. The components' inventory retention policies
and procedures are in place to help meet the needs of the warfighter.
Until the components comply with these policies and procedures, they
will be unable to take meaningful steps to improve their inventory
management processes to support the warfighter. Moreover, while our
work only focused on the inventory management centers we reviewed, it
is unknown whether these issues are occurring at other DOD inventory
management centers.
DOD's insufficient oversight to ensure the inventory management centers
are conducting annual reviews of contingency retention inventory shows
the lack of DOD accountability to ensure materiel management polices
and procedures are implemented in a uniform manner throughout the
department. The lack of DOD's accountability stems from DOD's Supply
Chain Materiel Management Regulation, which does not clearly assign
responsibility for ensuring the inventory management centers conduct
the annual reviews. Although DOD has several measures to monitor
contingency retention inventory levels, they do not provide assurance
that the reviews of contingency retention decisions are conducted.
Without sufficient oversight, DOD does not have the information it
needs to understand why components may not be following certain
inventory retention policies or procedures. Furthermore, the department
cannot be assured that it has a complete and accurate picture of its
inventory retention management and may be unable to identify areas that
need attention to improve the department's supply chain management.
Recommendations:
We are recommending that the Secretary of Defense take the following
seven actions:
To ensure DOD inventory management centers properly assign codes to
categorize the reasons to retain items in contingency retention
inventory, direct the Under Secretary of Defense for Acquisition,
Technology, and Logistics to:
* Direct the Secretary of the Army to instruct the Army Materiel
Command to modify the Commodity Command Standard System so it will
properly categorize the reasons for holding items in contingency
retention inventory.
* Direct the Secretary of the Air Force to instruct the Air Force
Materiel Command to correct the Application Programs, Indenture
system's deficiency to ensure it properly categorizes the reasons for
holding items in contingency retention inventory.
To ensure that the DOD inventory management centers retain contingency
retention inventory that will meet current and future operational
requirements, direct the Under Secretary of Defense for Acquisition,
Technology, and Logistics to:
* Direct the Secretary of the Army to instruct the Army Materiel
Command to require the Aviation and Missile Command to identify items
that no longer support operational needs and determine whether the
items need to be removed from the inventory. The Army Materiel Command
should also determine whether its other two inventory commands, the
Communications-Electronics Command and Tank-automotive and Armaments
Command, are also holding obsolete items, and if so, direct those
commands to determine whether the disposal of those items is warranted.
To ensure that DOD inventory management centers conduct annual reviews
of contingency retention inventory as required by DOD's Supply Chain
Materiel Management Regulation, direct the Under Secretary of Defense
for Acquisition, Technology, and Logistics to:
* Direct the Director of the Defense Logistics Agency to require the
Defense Supply Center Richmond to conduct annual reviews of contingency
retention inventory. The Defense Logistics Agency should also determine
whether its other two centers, the Defense Supply Center Columbus and
the Defense Supply Center Philadelphia, are conducting annual reviews,
and if not, direct them to conduct the reviews so they can ensure the
reasons for retaining the contingency retention inventory are valid.
* Direct the Secretary of the Navy to instruct the Naval Inventory
Control Point Mechanicsburg to conduct annual reviews of contingency
retention inventory. The Naval Inventory Control Point should also
determine if its other organization, Naval Inventory Control Point
Philadelphia, is conducting annual reviews and if not, direct the
activity to conduct the reviews so it can ensure the reasons for
retaining the contingency retention inventory are valid.
* Direct the Secretary of the Army to instruct the Army Materiel
Command to require the Aviation and Missile Command to conduct annual
reviews of contingency retention inventory. The Army Materiel Command
should also determine if its other two inventory commands, the
Communications-Electronics Command and Tank-automotive and Armaments
Command, are conducting annual reviews and if not, direct the commands
to conduct the reviews so they can ensure the reasons for retaining the
contingency retention inventory are valid.
To ensure that DOD inventory management centers implement
departmentwide policies and procedures for conducting annual reviews of
contingency retention inventories, direct the Office of the Deputy
Under Secretary of Defense for Logistics and Materiel Readiness to take
the following action:
* Revise the DOD's Supply Chain Materiel Management Regulation to make
clear who is responsible for providing recurring oversight to ensure
the inventory management centers conduct the annual reviews of
contingency retention inventory.
Agency Comments and Our Evaluation:
In written comments on a draft of this report, DOD concurred with six
of our recommendations and partially concurred with one. Also, DOD
cited specific actions it plans to take to implement the six
recommendations. Specifically, DOD indicated that the Air Force has
corrected the system deficiency in the Applications Program, Indenture,
by removing all remaining system-deferred disposal codes from the
system. Also, DOD stated that the Army will review contingency
retention inventory for items that no longer support operational needs.
Furthermore, DOD noted that the Army, the Navy, and the Defense
Logistics Agency plan to conduct annual reviews of contingency
retention inventories to ensure the reasons for retaining the items are
valid.
DOD partially concurred with our recommendation to instruct the Army
Materiel Command to modify the Commodity Command Standard System so it
will properly categorize the reasons for holding items in contingency
retention inventory. The department said that it does not plan to
modify the current legacy system to include the contingency retention
codes. Instead, the department prefers to devote its resources to
implementing the Army's Logistics Modernization Program that will
include the category contingency retention codes. However, we reported
that the department does not plan to implement the new system until
2009, and as an interim remedy, it plans to have item managers use
manual contingency retention approval forms that will include the
codes. We do not believe this remedy will allow the Army to readily (1)
identify the reasons for holding items in contingency retention
inventory and (2) know whether they are retaining items that are useful
for current and future operations. Therefore, we continue to believe
that the Army should modify the current system to properly categorize
the reasons for holding items in contingency retention inventory.
While DOD concurred with our recommendation to revise DOD's Supply
Chain Materiel Management Regulation to clarify who is responsible for
providing recurring oversight to ensure the inventory management
centers conduct the annual reviews of contingency retention inventory,
its response focused on updating the regulation to rely on the military
services and Defense Logistics Agency headquarters to ensure the
reviews are conducted. The intent of our recommendation, however, was
to clarify who bears responsibility for ensuring the components conduct
annual reviews. We continue to believe that DOD (Under Secretary of
Defense for Acquisition, Technology, and Logistics) should perform this
oversight responsibility to obtain a complete and accurate picture of
inventory retention management in the department.
DOD also provided a technical comment for our consideration in the
final report and we incorporated changes as appropriate. DOD's formal
comments appear in appendix II.
We are sending copies of this report to the Secretary of Defense;
Secretaries of the Air Force, Army, and Navy; and the Director, Defense
Logistics Agency. We will also provide copies to others upon request.
In addition, this report will be available at no charge on the GAO Web
site at http://www.gao.gov.
If you or your staff have any questions about this report, please
contact me at (202) 512-8365 or solisw@gao.gov. Contact points for our
Offices of Congressional Relations and Public Affairs may be found on
the last page:
of this report. GAO staff who made major contributions to this report
are listed in appendix III.
Signed by:
William M. Solis:
Director:
Defense Capabilities and Management:
[End of section]
Appendix I: Scope and Methodology:
The objectives of our audit were to (1) determine the extent to which
Department of Defense (DOD) inventory components have followed
departmentwide and individual component policies and procedures to
ensure they are retaining the appropriate amount of contingency
retention inventory, and (2) assess the extent to which DOD is
providing oversight of contingency retention inventory management
across the components. We also provided updated information on the
progress that DOD has made in implementing our 2001 recommendations on
the components' management of economic retention inventory. We obtained
current DOD and component guidance on retaining inventory that exceed
operating requirements. Also, we interviewed officials from Office of
the Secretary of Defense (OSD) for Acquisition, Technology, and
Logistics, Arlington, Virginia; Air Force Materiel Command, Wright-
Patterson Air Force Base, Ohio; Defense Logistics Agency, Ft. Belvoir,
Virginia; Defense Supply Center Richmond, Virginia; U.S. Army Materiel
Command, Ft. Belvoir, Virginia; Naval Inventory Control Point
Mechanicsburg, Pennsylvania; and Ogden Air Logistics Center, Hill Air
Force Base, Utah, and the U.S. Army Aviation and Missile Command,
Huntsville, Alabama, to discuss their roles and responsibilities, as
well as the criteria and guidance they used in performing their duties
for managing, reviewing and validating reasons for retaining
contingency retention inventory.
To evaluate whether the components have followed departmentwide and
individual component policies and procedures with respect to
contingency retention inventory, we obtained secondary inventory (spare
parts) retention inventory records from the following DOD components'
automated inventory management systems:
* Defense Logistics Agency's Standard Automated Materiel Management
System;
* Navy's Uniform Inventory Control Point;
* Air Force's Central Secondary Item Requirement System; and:
* Army's Commodity Command Standard System.
For each of the DOD component systems used in our work, we assessed the
reliability of the data by (1) obtaining information from the component
management on their data reliability procedures, (2) reviewing system
documentation, (3) reviewing related audit agency reports, and (4)
performing electronic testing of the contingency retention inventory
data to identify obvious errors in accuracy and completeness. We
verified database control totals, where appropriate. Based on these
procedures, we determined that the DOD data were sufficiently reliable
for purposes of our analysis and findings. The contingency retention
inventory data we obtained covered different periods, depending on the
DOD component providing the data. Although the period for the
components' data was from the years 2004 and 2005, the data we obtained
had different cutoff dates as follows:
* For Defense Logistics Agency, the cutoff date was October 1, 2004.
* For the Army, the cutoff date was November 14, 2005.
* For the Navy, the cutoff date July 19, 2005.
* For the Air Force, the cutoff date was March 31, 2005.
To illustrate how inventory management centers establish and review
contingency retention inventory, we conducted case studies of a
nonprobability sample of inventory management centers including the
Defense Supply Center Richmond, Virginia; Naval Inventory Control Point
Mechanicsburg, Pennsylvania; Ogden Air Logistics Center, Hill Air Force
Base, Utah; and U.S. Army Aviation and Missile Command, Huntsville,
Alabama. We selected these centers for review based on the number of
items and value of contingency retention inventory. At each center, we
reviewed the population of inventory retention data, and developed a
nonprobability sample of inventory retention items (spare parts) at
each center for further review, based on the number, types, and costs
of inventory at each location. For example, we selected for review
spare parts with (1) highest and lowest dollar value, (2) date of
earliest and latest request date, (3) earliest and latest date items
placed into inventory record, and (4) highest and lowest quantity. The
selection resulted in a review of 205 cases (national stock numbers)
for the centers we visited, and equates to 1.6 million spare parts
valued at $890 million. Also, we used a data collection instrument to
assist the team in gathering information and interviewing officials at
the four locations. The purpose of the data collection instrument was
to help the team ensure consistent, accurate, and complete recording of
information at each location. Although the case study approach does not
enable us to generalize findings to all centers, it does provide in-
depth information about problems at selected centers, which may provide
insight into problems with contingency retention inventory management
in general.
To determine DOD's oversight responsibility for ensuring the DOD
inventory management centers implement the contingency retention
policies and procedures, we reviewed DOD regulations and directives and
interviewed officials from the Office of the Deputy Under Secretary of
Defense for Supply Chain Integration on their roles and
responsibilities for supply chain materiel management. Also, we
reviewed GAO's Standards for Internal Control in the Federal
Government, which provides the overall framework for establishing and
maintaining internal control and for identifying and addressing major
performance and management challenges.
To assess the progress that DOD has made in implementing the
recommendations from our 2001 report on the components' management of
economic retention inventory, we obtained copies of DOD's and the
components' policies and procedures for retaining economic retention
inventories and discussed this with DOD officials. We also analyzed
DOD's and its components policies and procedures to determine their
internal controls/oversight functions and responsibilities for
validating and annually reviewing their methodologies for making
economic retention decisions. Also, we reviewed reports from GAO and
the Logistics Management Institute on economic retention inventory. In
addition, we conducted interviews with component officials from each of
the following offices: the Office of Secretary of Defense Acquisition,
Technology, and Logistics, Arlington, Virginia; the Army Materiel
Command, Fort Belvoir, Virginia; the Army's Aviation and Missile
Command, Huntsville, Alabama; the Air Force Materiel Command, Wright-
Patterson Air Force Base, Ohio; the Air Force's Ogden Air Logistics
Center, Hill Air Force Base, Utah; Defense Logistics Agency
Headquarters, Fort Belvoir, Virginia; Defense Supply Center Richmond,
Virginia; and, the Naval Inventory Control Point Mechanicsburg,
Pennsylvania.
We performed our review from May 2005 through May 2006 in accordance
with generally accepted government auditing standards.
[End of section]
Appendix II: Comments from the Department of Defense:
Deputy Under Secretary Of Defense For Logistics And Materiel Readiness:
3500 Defense Pentagon:
Washington, DC 20301-3500:
May 11, 2006:
Mr. William Solis:
Director, Defense Capabilities and Management:
U.S. Government Accountability Office:
Washington, DC 20548:
Dear Mr. Solis:
This is the Department of Defense (DoD) response to the GAO draft GAO-
06-512, "DEFENSE INVENTORY: Actions Needed to Improve Inventory
Retention Management," dated April 11, 2006 (GAO Code 350656). The GAO
draft report highlights that the DLA, Army, and Navy have not completed
annual reviews of its contingency retention methodology and levels, the
Army and Air Force were not properly coding inventory being retained in
contingency retention, and the DoD 4140.1 R needs to clearly define who
is responsible for performing oversight of policy implementation within
the Military Services and DLA. The DoD concurs with the recommendations
in the report and has already taken actions as needed to eliminate
these deficiencies.
Detailed comments on the draft report recommendations are included in
the enclosure. The DoD appreciates the opportunity to comment on the
draft report.
Signed by:
Jack Bell:
Enclosure: As stated:
GAO DRAFT REPORT - DATED APRIL 11, 2006 GAO CODE 350656/GAO-06-512:
"DEFENSE INVENTORY: Actions Needed to Improve Inventory Retention
Management"
DEPARTMENT OF DEFENSE COMMENTS TO THE RECOMMENDATIONS:
RECOMMENDATION 1: The GAO recommended that the Secretary of Defense
direct the Under Secretary of Defense for Acquisition, Technology, and
Logistics to direct the Secretary of the Army to instruct the Army
Material Command to modify the Commodity Command Standard System so it
will properly categorize the reasons for holding items in contingency
retention inventory. (p. 27/GAO Draft Report):
DOD RESPONSE: Partially Concur. The Commodity Command Standard System
(CCSS) is a legacy system. Currently no systems changes are being made
to the legacy system, so that resources may be applied to implementing
the Logistics Modernization Program (LMP). The recommended change will
be included in LMP when it is implemented. In the interim, AMC Life
Cycle Management Centers (LCMCs) will manually record the appropriate
and standardized contingency retention code for each item with a valid
contingency retention requirement as part of their management processes
for each item. No further direction is required.
RECOMMENDATION 2: The GAO recommended that the Secretary of Defense
direct the Under Secretary of Defense for Acquisition, Technology, and
Logistics to direct the Secretary of the Air Force to instruct the Air
Force Material Command to correct the Application Programs, Indenture
system's deficiency to ensure it properly categorizes the reasons for
holding items in contingency retention inventory. (p. 27/GAO Draft
Report):
DOD RESPONSE: Concur. The HQ AFMC/A4 submitted an Information Systems
Request on January 10, 2006 to correct the system's deficiency by
removing all remaining system deferred disposal codes from the D200F
application tables. This action was completed on March 31, 2006. A
query of the system on April 17, 2006 confirmed that all of the
erroneous system deferred disposal codes were removed from the
database. No further direction is required.
RECOMMENDATION 3: The GAO recommended that the Secretary of Defense
direct the Under Secretary of Defense for Acquisition, Technology, and
Logistics to direct the Secretary of the Army to instruct the Army
Material Command to require the Aviation and Missile Command to
identify items that are no longer supporting operational needs and
determine whether the items need to be removed from the inventory. The
Army Material Command should also determine whether its other two
inventory commands, the Communications-Electronics Command and Tank-
automotive and Armaments Command, are also holding obsolete items, and
if so, direct those commands to determine whether the disposal of those
items is warranted. (p. 27-28/GAO Draft Report):
DOD RESPONSE: Concur. Retention levels, by United States Army Materiel
Command (USAMC) command guidance, are deleted and re-approval is
required annually. If re-approval is not obtained, the items will be
stratified to DoD potential excess. Coordination with other Services is
required prior to actual disposal. USAMC re-emphasizes this guidance as
part of its fourth quarter budget stratification guidance each fiscal
year, and the LCMCs review assets stratifying to potential DoD excess
for disposal. Additionally, the dollar value of retention and potential
DoD excess levels are monitored quarterly on applicable weapon systems
at the LCMC and Command level. Unusual upward trends in these levels
are reviewed and traced to the weapon system contributing to the
aberration. AMCOM, as well as Communications-Electronics Command and
Tank-automotive and Armaments Command will delete current retention
levels. All contingency retention inventory loaded on any item will be
approved and justified, according to the applicable reasons for
retaining assets beyond the requirements objective, and the inventory
will be properly coded in accordance with current guidance. This review
will be conducted in Jun 2006 and annually after that at all three
LCMCs. No further direction is required.
Specifically referring to page 20 of the draft GAO report: Currently,
AMCOM is retaining CHAPARRAL, HAWK and TSQ-73 contingency retention
items for (1) projected Foreign Military Sales (FMS) which will be
reimbursed for Army Working Capital Funds (AWCF) and (2) the Security
Assistance Management Directorate because they are not authorized to
procure assets from AMCOM in anticipation of future FMS demands. Upon
reimbursement for these items, funds will be utilized for future
procurements on other systems. In addition, within the past two years
AMCOM has experienced demands from other than FMS customers.
RECOMMENDATION 4: The GAO recommended that the Secretary of Defense
direct the Under Secretary of Defense for Acquisition, Technology, and
Logistics to direct the Director of the Defense Logistics Agency to
require the Defense Supply Center Richmond to conduct annual reviews of
contingency retention inventory. The Defense Logistics Agency should
also determine whether its other two centers, the Defense Supply Center
Columbus and the Defense Supply Center Philadelphia, are conducting
annual reviews, and if not, direct them to conduct the reviews so they
can ensure the reasons for retaining the contingency retention
inventory are valid. (p. 28/GAO Draft Report):
DOD RESPONSE: Concur. The DLA will be performing an annual review
beginning September 2006 and annually thereafter as required by policy.
This review will be completed across all DLA Defense Supply Centers. No
further direction is required.
RECOMMENDATION 5: The GAO recommended that the Secretary of Defense
direct the Under Secretary of Defense for Acquisition, Technology, and
Logistics to direct the Secretary of the Navy to instruct the Naval
Inventory Control Point Mechanicsburg to conduct annual reviews of
contingency retention inventory. The Naval Inventory Control Point
should also determine if its other organization, Naval Inventory
Control Point Philadelphia, is conducting annual reviews and if not,
direct the activity to conduct the reviews so it can ensure the reasons
for retaining the contingency retention inventory are valid. (p. 28/GAO
Draft Report):
DOD RESPONSE: Concur. NAVICP Mechanicsburg revised their policy for
NAVICP weapon system program managers to conduct annual reviews of
contingency retention inventory. The NAVICP Mechanicsburg policy
revision was implemented in September 2005, as a result of the GAO
review. The NAVICP Philadelphia site is currently conducting semi-
annual reviews for all of their contingency retention inventory. No
further direction is required.
RECOMMENDATION 6: The GAO recommended that the Secretary of Defense
direct the Under Secretary of Defense for Acquisition, Technology, and
Logistics to direct the Secretary of the Army to instruct the Army
Material Command to require the Aviation and Missile Command to conduct
annual reviews of contingency retention inventory. The Army Material
Command should also determine if its other two inventory commands, the
Communications-Electronics Command and Tank-automotive and Armaments
Command, are conducting annual reviews and if not, direct the commands
to conduct the reviews so they can ensure the reasons for retaining the
contingency retention inventory are valid. (p. 28/GAO Draft Report):
DOD RESPONSE: Concur. The Office of the Deputy Under Secretary for
Defense for Logistics and Materiel Readiness, on behalf of Under
Secretary of Defense for Acquisition, Technology and Logistics, will,
by May 30, 2006, direct the Army Deputy Chief of Staff, G-4, to conduct
annual reviews of contingency retention inventory, including its two
inventory commands, Communications-Electronics Command and Tank-
automotive and Armaments Command, so it can ensure reasons for
retaining the contingency retention inventory are valid. No further
direction is required.
RECOMMENDATION 7: The GAO recommended that the Secretary of Defense
direct the Office of the Deputy Under Secretary of Defense for
Logistics and Material Readiness to revise the DoD's Supply Chain
Material Management Regulation to make clear who is responsible for
providing recurring oversight to ensure the inventory management
centers conduct the annual reviews of contingency retention inventory.
(p. 29/GAO Draft Report):
DOD RESPONSE: Concur. The Military Services and DLA Headquarters are
responsible for ensuring that the inventory management centers conduct
reviews, as identified in policy, of contingency retention inventory.
The next update of the DoD 4140.1R will clarify this responsibility.
Estimated completion date of the policy update is May 2007. No further
direction is required.
[End of section]
Appendix III: GAO Contact and Staff Acknowledgments:
GAO Contacts:
William M. Solis, (202) 512-8365 or solisw@gao.gov:
Acknowledgments:
In addition to the contact named above, David Schmitt, Assistant
Director; Sarah Baker; Carleen Bennett; Alissa Czyz; Curtis Groves; K.
Nicole Harms; Latrealle Lee; Rebecca Shea; and Darby Smith made key
contributions to this report.
FOOTNOTES
[1] DOD's supply chain management comprises several major functions,
including determining requirements; purchasing needed items; and
storing, maintaining, distributing, and disposing of inventory.
[2] Secondary inventory includes reparable components, subsystems, and
assemblies, consumable repair parts, bulk items and material,
subsistence, and expendable end items, including clothing and other
personal gear.
[3] Hereafter referred to as DOD's components.
[4] Operating requirements consist of the approved acquisition
objective: items needed to meet current needs, items expected to be
used within 2 years, and items to meet war requirements.
[5] Office of the Deputy Under Secretary of Logistics and Materiel
Readiness, Department of Defense Supply Chain Materiel Management
Regulation, DOD 4140.1-R (May 2003).
[6] GAO, Defense Inventory: Approach for Deciding Whether to Retain or
Dispose of Items Needs Improvement, GAO-01-475 (Washington, D.C.: May
2001).
[7] DOD 4140.1-R, Section C2.8.1.1.2.
[8] DOD 4140.1-R, Section C2.8.1.2.4. and C2.8.1.2.6.
[9] DOD 4140.1-R, Section C2.8.1.1.2.
[10] DOD 4140.1-R, Section C2.8.1.2.6.
[11] DLA, Department of Defense, Defense Inactive Item Program, DOD
4140.32-M, Foreword (Aug. 13, 1992).
[12] Department of Defense Directive 4140.1, Supply Chain Materiel
Management Policy (April 22, 2004).
[13] This annual financial report summarizes DOD secondary inventory by
component and inventory category and is used as a management tool to
monitor changes in inventory levels.
[14] GAO, Defense Inventory: Approach for Deciding Whether to Retain or
Dispose of Items Needs Improvement, GAO-01-475 (Washington, D.C.: May
2001).
[15] GAO-01-475.
[16] Office of the Deputy Under Secretary of Defense for Logistics and
Materiel Readiness, Department of Defense Materiel Supply Chain
Management Regulation, DOD 4140.1-R, appendix 1 (May 2003).
[17] DOD 4140.1-R, Section C2.8.1.1.1.3 and C2.8.1.1.2.
[18] DOD 4140.1-R, Section C2.8.1.2.4.
[19] The Defense Logistics Agency Inventory One Book (DLAD 5025.30)
(Aug. 22, 2003) provides the guidance for the agency's contingency
retention activities.
[20] The Air Force Materiel Command Manual 23-1, Requirements for
Secondary Items, (Mar. 16, 2005), and the Air Force Manual 23-110,
Volume 3, Part 1 (Jan. 1, 2006), provide the guidance for the Air
Force's contingency retention activities.
[21] Inventory Management: Centralized Inventory Management of the Army
Supply System, Army Regulation 710-1 (Sept. 6, 2005) and the
Memorandum, Headquarters U.S. Army Materiel Command, subject: Revised
Secondary Item Retention Policy (Oct. 28, 2005), provide the guidance
for the Army's contingency retention activities.
[22] Ship Parts Control Center Instruction 4400.47D, 27 (May 1994),
provides the guidance for the Navy's contingency retention activities.
[23] According to the DOD regulation, DOD 4140.1-R, Section C2.8.1.2.1,
the methodology used to calculate economic retention levels should be
based on an economic analysis that balances the cost of retention and
the cost of disposal.
[24] Logistics Management Institute and Center for Naval Analysis,
Independent Study of Secondary Inventory and Parts Shortages, LG009R1
(McLean, Va.: July 2001), and Logistics Management Institute: Economic
Retention Within the Department of Defense, LG301T1 (McLean, Va.:
December 2003).
[25] DOD 4140.1-R, Sections C2.8.1.1.1.3 and C2.8.1.2.6.
[26] While the inventory management system does not allow the Command
to use codes to categorize military and general contingency retention
inventory, it does provide a code to identify items designated for
foreign military sales.
[27] The Commodity Command Standard System is also used at the Tank-
automotive and Armaments Command.
[28] GAO, Defense Inventory: Analysis of Consumption of Inventory
Exceeding Current Operating Requirements Since September 30, 2001, GAO-
04-689 (Washington, D.C.: Aug. 2, 2004).
[29] DOD 4140.1-R, Section C2.8.1.1.2.
[30] DOD 4140.32-M, Foreword.
[31] DOD 4140.32-M, Foreword.
[32] GAO, Defense Inventory: Approach for Deciding Whether to Retain or
Dispose of Items Needs Improvement, GAO-01-475 (Washington, D.C.: May
2001).
[33] DOD 4140.1-R, Section C2.8.1.1.2.
[34] National Defense Authorization Act for Fiscal Year 2000, Pub. L.
No. 106-65, § 362 (1999) directed the Department of Defense to sponsor
an independent study on secondary inventory and spare parts.
[35] Heuristics is a rule of thumb, simplification, or educated guess
that is offered as a decision-making tool.
[36] Logistics Management Institute, Economic Retention Within the
Department of Defense, LG301T1 (McLean, Va.: December 2003).
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