Better Investment Decisions Can Save Money at GSA and FAA

Gao ID: PLRD-81-30 June 5, 1981

An effective and efficient logistics system is one which maintains sufficient, but not excessive, stocks on hand to meet users' needs. Logistics managers must decide when to buy and how much to buy. In order to make these decisions, managers need current and valid cost, demand, leadtime, and safety level data. GAO reviewed how the General Services Administration (GSA) and the Federal Aviation Administration (FAA) managers make these purchasing decisions.

GAO found that even though GSA and FAA were generally achieving their fill rate goals and had adequate stock turnover rates, the agencies could improve the effectiveness and efficiency of the supply systems by refining existing operating procedures and employing alternative management strategies. By doing so, the system would be more responsive to user needs and inventory management costs could be reduced. GAO identified several areas where improvements were needed and believes that: using updated data would reduce inventory management costs; recognizing and responding more rapidly to demand trends in the GSA demand forecasting would reduce purchases; using more accurate leadtime data would reduce requirements; and revising the method for computing safety level stocks would reduce the safety level investment without adversely affecting supply responsiveness. If FAA used an economic order quantity model that considered shortage costs and demand variability in addition to carrying and procurement costs, it would save money. GSA demand forecasting does not give more weight to the more recent months' demand data, therefore, it is less responsive to sudden demand changes. Safety level stocks are maintained in addition to operating needs to protect against unanticipated demands; however, safety levels could be reduced if GSA calculated them on a system-wide basis rather than on a depot-by-depot basis. The need for safety levels on many items was questionable given their low demand and replenishment infrequencies.


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