GAO

United States General Accounting Office

Report to Congressional Committees

January 2000 DEFENSE 

INVENTORY

Opportunities Exist to 

Expand the Use of 

Defense Logistics 

Agency Best Practices

GAO/NSIAD-00-30

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Contents

Letter 3

Appendixes Appendix I: Status and Sales Data for Defense Logistics Agency’s Best 

Practice Initiatives (as of August 1999) 22

Appendix II: Comments From the Department of Defense 27

Appendix III: GAO Contacts and Staff Acknowledgments 29

Related GAO Products 30

Tables Table 1: DLA Hardware Inventory Characteristics 13

Table 2: Implementation Obstacles and Techniques Applied

to Overcome Them 15

Figures Figure 1: DLA Sales Covered by Best Practice Initiatives 8

Figure 2: DOD Supply Functions Eliminated by Using Integrated

Suppliers 10

Figure 3: DLA Sales Covered by Best Practice Initiatives by Type

of Supply 12

Abbreviations

DLA Defense Logistics Agency

DOD Department of Defense 
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United States General Accounting Office

Washington, D.C. 20548

National Security and

International Affairs Division

B-281461 Letr

January 26, 2000

Congressional Committees:

Section 347 of the Strom Thurmond National Defense Authorization Act for 

Fiscal Year 1999 requires us to evaluate the extent to which the Defense 

Logistics Agency has implemented best commercial inventory practice 

initiatives contained in a schedule submitted to Congress on May 19, 1998. 

The National Defense Authorization Act for Fiscal Year 1998 required that 

the Agency develop and submit the schedule and that implementation of 

the initiatives be completed by November 2000. A best commercial 

inventory practice is defined in the 1998 act as a practice that enables the 

Agency to reduce inventory levels and holding costs1

 while improving the 

responsiveness of the supply system to user needs.

Many of the initiatives in the schedule are long-term contracts in which the 

Agency agrees to purchase items from a vendor for 1 or more years or 

corporate contracts in which multiple requirements with the same vendor 

are consolidated under one contract. These initiatives reduce or eliminate 

processing individual purchase orders and leverage the Agency’s buying 

power to obtain lower prices. Other initiatives use techniques such as 

prime vendors under which a portion of the inventory management 

responsibilities are transferred to a single vendor, allowing military 

customers to order supplies only as they are needed and receive supplies 

on a timely basis. The schedule also includes electronic commerce 

initiatives that enable Department of Defense customers to search for and 

order supplies electronically.

We assessed the extent to which the Agency has implemented best 

commercial practices included in the schedule. Specifically, we evaluated 

(1) the Agency’s progress in implementing the initiatives and

(2) opportunities to build on and expand existing efforts.

1

 Holding costs include the cost of having funds tied up in inventory, the cost of storing 

items, material obsolescence cost, and inventory losses.
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Results in Brief The Defense Logistics Agency has made significant progress in 

implementing the initiatives listed in the schedule. Of the 75 initiatives 

listed in the schedule, 43 are considered by the Agency as completed and 15 

have been awarded contracts. Two initiatives were canceled, 1 was 

incorporated into another initiative, and the remaining 14 were still in the 

contract negotiation phase or had an otherwise uncertain status. Sales 

related to these initiatives were estimated to be $2.2 billion, or about 

27 percent of the Agency’s projected fiscal year 1999 sales of secondary 

inventory items,2

 excluding fuels. Of this amount, over $1.8 billion of sales 

is associated with four initiatives that relate to medical, pharmaceutical, 

and food items while almost $400 million is associated with the remaining 

implemented initiatives. The most effective initiatives to date have been the 

medical and food prime vendor initiatives, which have transferred 

inventory management functions from the Agency to key suppliers. These 

initiatives enabled the Agency to reduce inventory levels and related costs 

and improve service to military customers. Initiatives related to hardware 

and clothing items have had only a limited impact on business operations, 

but recent initiatives may provide a foundation for future improvements 

because they also transfer inventory management functions to key 

suppliers.

The Agency is attempting to build on the success of its implemented 

initiatives and expand the use of best practices, but significant 

implementation obstacles must be overcome. Over 90 percent of the 

Agency’s estimated fiscal year 1999 sales of hardware items were not 

covered by the initiatives in the schedule. To expand the use of best 

practices, the Agency is developing a strategy that focuses on using 

commercial distributors to support military customers for hardware items 

that are used frequently and regularly and creating alternative methods for 

items that are more unpredictable and difficult to support. In its efforts to 

adopt best practices, the Agency and the military departments have faced a 

variety of implementation issues. Many issues are related to concerns over 

whether the new practices can adequately meet military supply needs and 

how the new practices will affect employees’ jobs. Though these obstacles 

were overcome in some cases, they are significant because they can slow 

2

 Secondary inventory includes reparable components, subsystems, and assemblies; 

consumable repair parts; bulk items and material; food; and expendable end items, 

including clothing and other personal gear.
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or stop implementation efforts or deter the military departments’ full 

participation in the initiatives.

To build on the Agency’s progress in implementing the initiatives and 

encourage participation across the Department of Defense, we are 

recommending that the Secretary of Defense direct the military 

departments and the Defense Logistics Agency to develop a 

Department-wide approach to promote the services’ use of the Agency’s 

initiatives and resolve implementation obstacles.

Background The Department of Defense (DOD) operates a worldwide supply system to 

buy, store, and distribute inventory items. Through this system, DOD 

manages 4.3 million types of consumable items, of which about 4 million 

are managed by the Defense Logistics Agency (DLA).3

 About 3.8 million 

items that DLA manages are considered hardware items such as spare 

parts, bolts, and fuses, many of which are needed to support weapon 

systems and equipment, and the remaining items include a combination of 

medical, pharmaceutical, food, clothing, and fuel items. Traditionally, DLA 

buys consumable items in large quantities, stores them in distribution 

depots until they are requested by the military services, and then ships 

them to a service facility where they are used. Each year, DLA spends 

billions of dollars to provide these services. According to fiscal year 1998 

financial statements, DLA reported that its supply management costs, 

which include inventory purchases, distribution, and material 

management, totaled $12.7 billion, and inventory on hand was $9.8 billion, 

including fuels. DLA’s customers are primarily the military services.

3

 Consumable items are discarded after use rather than repaired.
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Since 1990, we have identified DOD inventory management as a high-risk 

area because levels of inventory were too high and management systems 

and procedures were ineffective.4

 In addition, our financial statement 

audits have identified continuing significant problems with the integrity of 

DOD’s inventory data. For example, we reported that inaccurate inventory 

data resulted from weaknesses in DOD’s procedures, which are relied on to 

maintain visibility over, and conduct physical counts of, on-hand 

inventories. Until these problems are effectively resolved, DOD’s ability to 

reliably measure and assess performance will continue to be impaired. 

While DOD has made some improvements, these general conditions still 

exist, and this area remains on our high-risk list.5

 We have reported that 

adopting best business practices in inventory management and improving 

the reliability of financial management information are key steps toward 

solving these problems.

Congress has taken specific actions to encourage DOD to adopt best 

commercial practices to improve inventory management. Collectively, the 

defense authorization acts for fiscal years 1998 and 1999 have required DLA 

and the services to develop and submit to Congress schedules for 

implementing best commercial practices. The Department of Defense is 

working to adopt best practices in its operations. Its performance plan for 

fiscal year 2000 notes that the inventory supply system is larger than 

required to support today’s smaller force structure and outlined goals to 

reduce inventory levels through improved business practices and 

streamline infrastructure. 

DLA Has Made 

Progress Adopting Best 

Practices

DLA has made significant progress in its efforts to adopt commercial best 

practices for inventory management by implementing the initiatives 

identified in the schedule provided to Congress. The Agency has 

implemented or awarded contracts for a majority of the initiatives, and 

sales related to these initiatives were estimated to be about $2.2 billion, or 

27 percent of DLA’s estimated fiscal year 1999 sales of $8 billion for 

4

 In 1990, we began a special effort to review and report on the federal program areas that 

we identified as high risk because of vulnerabilities to waste, fraud, abuse, and 

mismanagement. This effort, which was supported by the Senate Committee on 

Government Affairs and the House Committee on Government Reform, brought a 

much-needed focus to problems that were costing the government billions of dollars.

5 Major Management Challenges and Program Risks: Department of Defense

(GAO/OCG-99-4, Jan. 1999).
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secondary inventory items, excluding fuels. Though most of DLA’s progress 

implementing best practices relates to medical and food items, it has also 

taken significant steps to improve the management of clothing and 

hardware items.

DLA Has Made Progress 

Implementing the Schedule 

Initiatives

The Agency considers 43 of the 75 initiatives listed in the schedule as 

completed and has awarded contracts for 15 others. Two other initiatives 

were canceled, 1 was incorporated into another initiative, and the 

remaining 14 initiatives were still in the contract negotiation phase or had 

an otherwise uncertain status.6

 Because the contract negotiation process is 

unpredictable and contract award dates often shift, we could not determine 

whether implementation of the remaining 14 initiatives is likely to be 

completed by November 2000. Appendix I summarizes the status of DLA’s 

initiatives and the amount of sales the initiatives produced in fiscal year 

1998 and estimated for fiscal year 1999.

As shown in figure 1, DLA estimated that the implemented initiatives would 

cover about $2.2 billion or 27 percent of fiscal year 1999 sales of secondary 

inventory items, excluding fuels.7

 Of that amount, over $1.8 billion of sales 

related to medical, pharmaceutical, and food items that related to 4 

initiatives, and the remaining 50 initiatives accounted for nearly 

$400 million in sales.

6

 Initiative status is as of August 1999, which was the most current information available at 

the time of our review.

7

 We did not collect or analyze data on the fuel initiatives because they covered energy 

management issues rather than the management of secondary inventory items. 
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Figure 1: DLA Sales Covered by Best Practice Initiatives

Note: Estimated fiscal year 1999 sales.

Source: GAO analysis.

The prime vendor initiatives for pharmaceuticals and medical items were 

implemented by DLA from 1993 through 1996. Under these initiatives, the 

customer places orders with a prime vendor and most products are 

delivered within 24 hours after receipt of an order. Therefore, DLA no 

longer has to purchase, store, and distribute these items. According to DLA, 

these initiatives have resulted in reductions in the number of items that are 

stocked in its distribution depots, and wholesale medical inventory 

reductions were estimated to be $177 million from fiscal year 1993 through 

fiscal year 1997. Other savings realized at DOD hospitals include lower 

stock levels, holding costs, and prices that DOD estimated saved 

approximately $167 million in 1995 through 1996. Also, officials from Camp 

Lejeune, North Carolina, and Lackland Air Force Base, Texas, told us that 

by now relying on the medical and pharmaceutical prime vendors, they 

were able to reduce on-hand inventories and warehouse storage space. 

They also said they were pleased with the variety of the products available 

and the timely delivery of orders.

DLA has successfully implemented two initiatives for food items. In one 

initiative, the Agency contracted for prime vendors to distribute food items 

to troop dining facilities within 48 hours of ordering. According to officials 
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at Camp Lejeune and Lackland Air Force Base, this initiative has reduced 

or eliminated the need for DOD-owned dry and cold storage facilities and 

associated inventories. Also, according to DLA, this initiative has resulted 

in about a $39-million reduction in wholesale inventories for these items 

from fiscal year 1995 through fiscal year 1997 and an estimated $78 million 

savings at customer locations during the same time period. Under an 

initiative for fruits and vegetables, the vendor provides full service 

distribution support for an assigned geographic area and produce is usually 

shipped within 24 hours.

New Clothing and Hardware 

Initiatives Are Significant 

First Steps 

DLA has made less progress implementing best practices for clothing and 

hardware items, but initiatives begun in 1998 and 1999 provide a good 

foundation for future improvements. Using the results and lessons learned 

from an earlier prime vendor initiative for clothing items, DLA awarded a 

contract in August 1999 for prime vendor support for about 2,500 

customers in the southeastern United States. Under this contract, DLA will 

negotiate with suppliers to purchase uniform items at a discounted price, 

and the prime vendor will distribute these items to military customers 

within 1 to 4 days. This approach will transfer all inventory distribution 

responsibilities from DLA to a prime vendor.

The Industrial Prime Vendor initiative is designed to improve the 

management of hardware items weapon system maintenance activities use 

and is being tested at six Navy and Marine Corps locations and at Army, 

Navy and Air Force locations in Okinawa, Japan. The first contract was 

awarded for the Naval Aviation Depot North Island, San Diego, California, 

in 1998. Through this initiative, DLA contracts with a prime vendor to 

perform inventory management functions, such as ordering items as they 

are needed and replenishing item bins in the maintenance facility, for 

selected items that the services need to repair various weapon systems. 

The vendor places its personnel within the DOD maintenance facility to 

perform all of the required functions, and it can purchase inventory from a 

variety of supply sources, including DLA. Transferring inventory 

management responsibilities to a supplier operating within the customer’s 

facility integrates the supplier into the customer’s business operations. The 

prime vendor approach could eliminate parts of DOD’s traditional supply 

process at a DOD repair facility, as shown in figure 2.
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Figure 2: DOD Supply Functions Eliminated by Using Integrated Suppliers 

Source: GAO analysis of DOD and private sector practices.

Under the Industrial Prime Vendor initiative, the vendor is contractually 

required to meet 100 percent of customer needs and deliver items within

24 hours of receiving an order to fill an empty bin, which will eliminate 

back orders for items that have been unavailable−at a reduced total cost to 

the government. For example, at Camp Lejeune and Camp Pendleton, the 

prime vendor is expected to increase availability of about 1,500 items from 

70 percent to 100 percent of the time and improve the order-ship time from 

30 days to 1 day. In addition, DLA estimates that its inventory could be 

reduced by at least $98 million after implementing the initiative at the initial 

test sites.

Also, the prime vendor approach has been well received by the military 

customers. For example, an official at the Naval Aviation Depot, Cherry 

Point, North Carolina, said that the industrial prime vendor approach 

encourages a partnership in which a repair depot works directly with the 

vendor to ensure that it understands and meets the depot’s supply 
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requirements. By providing on-site assistance and support, the vendor can 

react sooner to potential supply problems than the customer can using the 

traditional process. This official believes that the vendor can help the 

Cherry Point depot reduce its inventory levels and obtain items currently 

on back order.

Opportunities and 

Obstacles Exist to 

Expanding Best 

Practices

DLA has a significant opportunity to build on and expand the success of its 

implemented initiatives and expand best practices, especially to improve 

the management of hardware items, but some implementation obstacles 

must be overcome. Over 90 percent of the sales for hardware and clothing 

items are not covered by the initiatives in the schedule. To expand the use 

of best practices, DLA is developing a strategy that focuses on using 

commercial distributors to support military customers for hardware items 

that are used frequently and regularly and creating alternative methods for 

items that are more unpredictable and difficult to support. As it expands 

best practices, DLA will continue to face obstacles that have limited the 

services’ participation in some initiatives and that require a 

Department-wide approach to overcome. These obstacles include the 

customer’s lack of confidence in the new practices and the need for various 

DOD organizations to work together to implement each initiative.

Hardware and Clothing 

Initiatives Cover a Small 

Portion of Sales

Although hardware items represented 3.8 million of the 4 million items DLA 

manages and about 57 percent of the Agency’s sales, as shown in figure 3, 

schedule initiatives covered only 8 percent of the estimated $4.7 billion 

hardware sales for fiscal year 1999. In addition, clothing initiatives covered 

only 2 percent ($22 million) of the estimated $1.1 billion fiscal year 1999 

sales of those items.
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Figure 3: DLA Sales Covered by Best Practice Initiatives by Type of Supply

Note: Sales data do not include sales through DLA’s electronic commerce mall (Emall).

Source: GAO analysis.

Strategy to Expand Best 

Practices

DLA is developing a strategy to expand best practices for hardware items 

that initially focuses on items that are used frequently by military 

customers. These items are more easily adapted to commercial distribution 

networks that provide goods and services to private sector companies and 

represent the majority of DLA’s business operations related to hardware 

items. As shown in table 1, frequently used items represent 7 percent of the 

hardware items managed, but 73 percent of DLA’s annual hardware sales.
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Table 1: DLA Hardware Inventory Characteristics

a

Nonstocked items are included in the number of inventory items and annual sales for infrequent 

customer demands.

b

Sales figures based on fiscal year 1998 data include back ordered items that may not be actually paid 

for in the same year that they are ordered. Therefore, cited fiscal year 1999 sales data for hardware 

items in other areas of the report are not comparable to these figures.

c

Inventory valued at latest acquisition cost as of January 13, 1999.

Source: Defense Logistics Agency.

For hardware items that are infrequently requested, such as aircraft parts 

not expected to fail through normal usage, DLA faces a more difficult 

challenge when adopting best practices. In many cases, these items are 

unique to the military, and commercial distribution networks do not exist 

to support these military requirements. Therefore, DLA stocks many of 

these items for an extended period of time because the services have 

indicated the items are mission-critical and may be needed in the future. 

Currently, DLA holds inventory valued at $4.1 billion to meet these 

requirements.

For these more difficult to manage items, DLA initiated a strategy in fiscal 

year 1998 that involves working with customers, manufacturers, and 

distributors to create new supply networks. As a part of this strategy, DLA 

is grouping items that have common manufacturing characteristics, such as 

hydraulics and mechanical systems, to streamline the production of these 

items and attract manufacturers and suppliers that can develop a support 

system similar to established commercial distribution networks. In other 

cases, DLA plans to group frequently and infrequently requested items, and 

contract with a vendor to support both. Some items, however, may not be 

suitable for commercial support and DLA will continue to buy and store 

such items to meet military requirements.

Frequency of item use 

Number of inventory

items Percent

Annual salesb

(thousands) Percent

Inventory

valuec

(billions)

Frequent customer demands 264,000 7 $3,239,000 73 $1.6

Infrequent customer demandsa 3,343,000 87 910,000 21 4.1

Overstocked (no anticipated DLA 

purchases) 166,000 4 283,000 6 2.1

No anticipated customer demands 68,000 2 0 0 0.2

Total 3,841,000 100 $4,432,000 100 $8.0
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As discussed earlier, DLA is testing a prime vendor initiative for clothing 

items in the southeastern United States that if successful, may be expanded 

nationwide. In this regional test, which covers 12 states, DLA has identified 

about 2,500 customer locations and annual clothing sales of approximately 

$160 million. In fiscal year 1999, DLA expected this initiative would cover 

about $10 million of these sales. DLA plans to expand this initiative to 

additional states within 12 months of the initial award. According to DLA 

officials, when fully implemented, this initiative could cover about 

$465 million of DLA’s annual sales for clothing items.

As part of its strategy to expand best practices, DLA is also taking actions 

to more effectively manage initiative implementation. For example, DLA is 

identifying performance measures the private sector uses that may be 

applicable to DLA operations. Also, the Agency is defining more specific 

milestones to complete implementation of the initiatives. DLA did not 

specify when these measures and milestones would be established.

Lessons Learned From 

Implementing Best 

Practices 

From our discussions with DLA and military officials and our review of 

documents related to implementing the initiatives, we identified more than 

100 citations of obstacles involving various DOD organizations that 

canceled, delayed, or could have delayed, initiative implementation. From 

these citations, we identified seven obstacles that repeatedly surfaced and 

examples of techniques DLA and the services used to overcome them (see 

table 2). 
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Table 2: Implementation Obstacles and Techniques Applied to Overcome Them

Though DLA and the services were able to overcome these obstacles in 

some cases, the obstacles are significant because they can slow or stop 

DLA’s implementation efforts. For example, in 1998, DLA attempted to 

implement a prime vendor program for avionics equipment that never 

progressed beyond the contract negotiation phase. According to DLA 

officials, this initiative failed because the Air Force customer and the 

potential prime vendor did not agree to the scope of services the vendor 

would provide. Another prime vendor initiative to support the M9 Armored 

Combat Earthmover was delayed, and a contract award is uncertain due to 

concerns raised during contract negotiations over item prices and the 

scope of the vendor’s responsibilities.

According to DLA officials, concerns over item price increases are major 

obstacles when best practices are first introduced to potential military 

customers. In some cases, using a best practice may increase the unit price 

of an item, but this increase can be offset by a larger, but less visible, 

reduction in total DOD costs, better product quality, and improved 

customer service such as a greater availability of parts and faster delivery.

Obstacle Technique applied

Customers lack confidence in a new process to meet their supply 

needs.

Assured customers that DLA maintains enough supplies for 

worldwide support to support the customer’s needs if the new 

process fails.

Customers focus on item price rather than the total cost of the 

supply system.

Conducted baseline studies of the total cost of delivering inventory 

under the current system at specific locations and used this to 

compare to the total cost of the new system. 

Employees fear job loss. Reassigned displaced employees to other parts of the organization. 

Changing a DOD business practice requires the participation of 

different services, DLA and the private sector.

Developed an effective working relationship between each 

organization. 

DOD information systems do not always produce accurate data on 

item use.

Negotiated with vendors for a phase-in period where accurate 

usage data can be accumulated.

Commercial distribution networks cannot always support DOD’s 

needs.

Encouraged new alliances between manufacturers and distributors. 

Vendors resist accepting new risks. Negotiated with vendors to share the risks associated with the new 

business practices. 
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This shift from a unit price to a “best value” focus is difficult to accomplish. 

One DLA approach has been to conduct baseline cost comparisons at 

specific implementation sites to demonstrate to the customer how the cost 

under the new process is lower than the total cost under the traditional 

supply system. However, it may be difficult, if not impossible, to develop 

similar baseline cost comparisons on a broader scale because of significant 

weaknesses in the reliability of reported DOD inventory data and cost 

information.8

Another obstacle is the need for various DOD organizations to work 

together to implement each initiative. Once DLA awards a contract for an 

initiative, the services decide the extent to which each installation will use 

the initiative in its operations. For example, DLA has awarded contracts 

nationwide for prime vendors to provide military customers and other 

organizations with items to support facilities maintenance. As of October 

1999, however, only 110 of 278 potential customers identified by DLA were 

actually using the prime vendor. DLA officials stated that using outcome 

measures illustrating Department-wide benefits of best practices is a 

technique that may encourage the services to more actively participate in 

this and other initiatives.

DLA’s efforts to implement the Industrial Prime Vendor initiative provide an 

example of how these obstacles arose and the techniques DLA used to 

overcome them. DLA and service officials emphasized that the basic 

foundation to their success was developing an effective working 

relationship among the vendor, military customers, and DLA. Achieving 

this success was difficult, requiring detailed negotiations with the 

customers, vendors, and suppliers. The obstacles encountered and 

techniques applied to overcome them included:

• Employees at maintenance facilities believed the initiative would 

replace their jobs but instead employees affected by the initiative were 

reassigned to work in other locations or hired by the prime vendor.

• Some military service officials were concerned that if the prime vendor 

could not provide support and DLA would no longer supply the items 

then they would be worse off. DLA assured its customers that the stock 

it maintains for worldwide support would be sufficient to satisfy 

8

DOD Financial Management: More Reliable Information Key to Assuring Accountability 

and Managing Defense Operations More Efficiently (GAO/T-AIMD/NSIAD-99-145, Apr. 14, 

1999).
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customer demands if the prime vendor contracts failed or were 

terminated.

• According to officials representing the prime vendor, one of the biggest 

obstacles was getting the numerous suppliers of the wide range of items 

covered by the contract to work with an integrated supplier. Some 

suppliers were concerned about providing pricing data and other 

information to another supplier who could be a competitor. In this case, 

the prime vendor had to develop partnership relationships with multiple 

suppliers. Other prime vendor concerns were about meeting tough 

military requirements and having to hold inventory to make sure the 

parts were available. Instead of just passing on inventory risk to the 

supplier, DLA developed a shared risk approach in which it would buy 

back a portion of the investment in inventory if the prime vendor 

contract was canceled by the government.

• To address customer concerns over potential increased prices or costs, 

DLA conducted baseline studies at each implementation site to 

demonstrate to the customer how total costs would be lowered using 

the prime vendor approach.

• To ensure that the prime vendor has accurate data to support the 

customer’s requirements, the contract allows for a 2-year base period 

that will provide sufficient time for the contractor to collect and validate 

item usage data.

Conclusions The Defense Logistics Agency has made significant progress implementing 

the best practice initiatives contained in the schedule, but opportunities 

exist to expand these efforts. Recognizing this opportunity, the Agency is 

taking steps to develop a strategy to expand the use of best practices for 

hardware items, which, if successful, could lead to further supply system 

improvements and cost reductions. Department-wide obstacles that can 

prevent and have prevented full implementation of the initiatives include a 

lack of confidence in the new practices and a focus on item price instead of 

the total cost of operations. Until these obstacles are resolved and the 

services maximize their participation in each of the initiatives, supply 

system improvements and cost reduction opportunities will be lost.

Recommendations To build on and expand the Agency’s efforts to adopt best practices, we 

recommend that the Secretary of Defense direct the Director, Defense 

Logistics Agency, and the secretary of each military department to develop 

a Department-wide approach to address implementation obstacles and 
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promote the active support and participation by each service in the 

Agency’s initiatives. This approach should include providing a forum for

(1) highlighting the benefits of participating in the initiatives,

(2) determining appropriate outcome measures for assessing DOD-wide 

progress and results, and (3) resolving obstacles and sharing lessons 

learned from implementing best practices.

Agency Comments and 

Our Evaluation

In commenting on a draft of this report, DOD concurred with our 

recommendation and stated it will utilize the Logistics Reform Senior 

Steering Group as the forum to address obstacles to implementing DLA 

best practice initiatives. According to DOD, this group will promote 

participation by DOD activities in those initiatives to the extent they 

provide the combination of quality, timeliness, and cost that best meet 

DOD’s requirements. The group will also highlight the benefits of 

participating in the initiatives, consider appropriate outcome measures, 

and share lessons learned. DOD further stated that DLA will take the lead 

in presenting these issues to the group and that completion is expected by 

September 2000. DOD’s comments are included in their entirety as 

appendix II.

Scope and 

Methodology

To assess DLA’s progress in implementing best practices and to obtain 

detailed information about initiatives listed in the schedule submitted to 

Congress in 1998, we met with DLA officials from the Defense Supply 

Center, Columbus, Ohio; Defense Supply Center, Richmond, Virginia; and 

Defense Industrial Supply Center and Defense Supply Center, Philadelphia, 

Pennsylvania. Specifically, we obtained and analyzed information from 

these organizations on (1) the status of implementation, (2) the number of 

items and level of sales covered by the initiatives to assess the extent to 

which the initiatives cover DLA’s business operations, and (3) the effects 

the initiatives had on DOD’s supply system if data was available. We did not 

verify the accuracy of the inventory and sales data provided by DLA 

officials.

To determine the status of the initiatives under the fuel supply category, we 

talked with an official from the Defense Energy Support Center, Fort 

Belvoir,Virginia. We did not collect or analyze data on the fuel initiatives 

because they covered energy management issues rather than the 

management of secondary inventory items.
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To assess DLA’s progress in implementing the initiatives and their effects on 

supply operations at military installations, we asked DLA officials to 

identify locations where initiatives were being implemented and then 

selected locations where the initiatives were more likely to change the 

customers’ operations. We also chose sites that had experience with more 

mature initiatives, such as the medical prime vendor. As a result of these 

criteria, we examined installations under the Navy and the Marine Corps 

because they were the first implementation sites for the Industrial Prime 

Vendor initiative, a key initiative for hardware items and were also 

locations for mature initiatives, including medical and food prime vendors. 

We met with logistics personnel and end users involved with the initiatives 

at their installation. When possible, we also met with vendor 

representatives of these initiatives. We met with officials at Naval Aviation 

Depot North Island, San Diego, California; Explosive Ordnance Disposal 

Unit One, San Diego, California; Camp Lejeune Marine Corps Base, 

Jacksonville, North Carolina; and Naval Aviation Depot, Cherry Point, 

North Carolina. For additional information on the implementation progress 

of DLA’s initiatives, we relied on information collected in May 1998 at 

Lackland Air Force Base, Texas. Collected information discussed the 

supply operations, customer satisfaction, the techniques used for 

implementing best practices at their facilities, and lessons learned from 

their experiences with DLA’s best practices. We did not verify the accuracy 

of logistics costs and performance data provided by installation officials.

To obtain information on opportunities to expand best practices, we 

interviewed officials at DLA Headquarters, Fort Belvoir, Virginia, on DLA’s 

strategy for implementing best practices and any other efforts DLA officials 

had taken to increase and improve the implementation of best practices. 

Specifically, we collected information on how DLA selected candidate 

items for future best practice efforts and assessed the appropriateness and 

implications of that approach. We also obtained information on 

implementation experiences and lessons learned from implementing best 

practices from each of the supply centers and military installations cited 

above. From interviews and documents, we identified common 

implementation obstacles and examples of how those obstacles were 

overcome by DLA and the services.

We conducted our review from November 1998 through August 1999 in 

accordance with generally accepted government auditing standards.
B-281461

Page 20 GAO/NSIAD-00-30 Defense Inventory

We are sending copies of this report to the appropriate congressional 

committees; the Honorable William Cohen, Secretary of Defense; the 

Honorable Louis Caldera, Secretary of the Army; the Honorable Richard 

Danzig, Secretary of the Navy; the Honorable F. Whitten Peters, Secretary 

of the Air Force; Lieutenant General Henry T. Glisson, Director, Defense 

Logistics Agency; and the Honorable Jacob Lew, Director, Office of 

Management and Budget. We will also make copies available to others 

upon request.

Please contact me on (202) 512-8412 if you or your staff have any questions 

concerning this report. Key contributors are listed in appendix III.

David R. Warren, Director

Defense Management Issues
B-281461

Page 21 GAO/NSIAD-00-30 Defense Inventory

List of Congressional Committees

The Honorable John Warner

Chairman

The Honorable Carl Levin

Ranking Minority Member

Committee on Armed Services

United States Senate

The Honorable Ted Stevens

Chairman

The Honorable Daniel K. Inouye

Ranking Minority Member

Subcommittee on Defense

Committee on Appropriations

United States Senate

The Honorable Floyd Spence

Chairman

The Honorable Ike Skelton

Ranking Minority Member

Committee on Armed Services

House of Representatives

The Honorable Jerry Lewis

Chairman

The Honorable John P. Murtha

Ranking Minority Member

Subcommittee on Defense

Committee on Appropriations

House of Representatives
Page 22 GAO/NSIAD-00-30 Defense Inventory

Appendix I

Status and Sales Data for Defense Logistics 

Agency’s Best Practice Initiatives

(as of August 1999) ApendxiI

Dollars in thousands

Type of supply Initiative

Type of 

initiative Status

Fiscal year

1998 sales

Estimated

fiscal year

1999 sales

Medical and

pharmaceutical

Pharmaceutical prime vendor PV Contract awarded - 

complete

$773,700 $800,000

Medical/surgical prime vendor PV Contract awarded -

complete

96,100 115,000

National mail order pharmacy C Contract awarded - 

complete

28,400 70,000

National pharmaceutical wholesaler (contractor 

supporting National mail order pharmacy)a

C Contract awarded - 

complete

National retail pharmacy network C Uncertain b b

Dental electronic catalog EC Contract awarded - in 

process

b 2,500

Optical electronic catalog EC Contract awarded - in 

process 

b 500

Laboratory integrated delivery system EC Contract awarded - in 

process

b 1,000

Subtotal $898,200 $989,000

Subsistence 

(food)

Subsistence prime vendor PV Contract awarded - 

complete

410,000 599,000

Ultrahigh temperature milk long term contract C Contract awarded - 

complete

b 3,800

Unitized group rations - A C Contract awarded - 

complete

4,900 15,400

Direct market logistics BPA Contract awarded - 

complete

340,000 340,000

Controlled atmosphere refrigerated transport BPA Contract awarded - 

complete

40,000 40,000

Food service equipment prime vendor PV Contract awarded - 

complete

b 2,000

Subtotal $794,900 $1,000,200

Clothing and 

textiles

Clothing and textiles prime vendor PV Contract awarded - 

complete

16,600 12,000

Virtual prime vendor - uniforms VPV Contract awarded - in 

process

b 10,000

Subtotal $16,600 $22,000

Commercially 

available 

electronics

Support method for avionics/electronics VPV Canceled b b

Subtotal b b

Continued
Appendix I

Status and Sales Data for Defense Logistics 

Agency’s Best Practice Initiatives (as of 

August 1999)

Page 23 GAO/NSIAD-00-30 Defense Inventory

Construction Wood products prime vendor PV Contract awarded - in 

process

1,080 9,500

Subtotal $1,080 $9,500

Industrial C-130 virtual prime vendor VPV Contract awarded - 

complete

20,500 22,000

Industrial prime vendor PV Contract awarded - in 

process

1,500 28,500

Subtotal $22,000 $50,500

Automotive Automotive corporate contracts C Contract awarded - 

complete

 17,809 17,809

Meritor heavy vehicle systems corporate contract C Contract awarded - 

complete

1,412 1,604

Circle seal corporate contract C Precontract award b b

Automotive prime vendor overseas PV Contract awarded - 

complete

b 2,800

Fleet automotive support initiative VPV Precontract award b b

Subtotal $19,221 $22,213

Fuelsc Regional demonstration of total energy 

management

D Demonstration complete c c

Energy savings performance contracting 

demonstration

D Demonstration complete c c

California centralized electricity procurement 

demonstration

D Demonstration complete c c

Privatization of utility infrastructure demonstration D Demonstration ongoing c c

Subtotal c c

Facilities 

maintenance

Maintenance repair operations prime vendor PV Contract awarded - in 

process

7,492 42,670

Subtotal $7,492 $42,670

Aviation Grimes Aerospace corporate contract C Contract awarded - 

complete

60,800 4,700

Bell Helicopter Textron corporate contract C Contract awarded - 

complete

10,207 17,955

Boeing Helicopter corporate contract C Contract awarded - 

complete

2,432 4,373

Boeing Seattle corporate contract C Contract awarded - 

complete

158 325

McDonnell Douglas Aircraft corporate contract C Contract awarded - 

complete

1,819 2,600

C-5 logistics support VPV Precontract award b b

Dollars in thousands

Type of supply Initiative

Type of 

initiative Status

Fiscal year

1998 sales

Estimated

fiscal year

1999 sales

Continued from Previous Page
Appendix I

Status and Sales Data for Defense Logistics 

Agency’s Best Practice Initiatives (as of 

August 1999)

Page 24 GAO/NSIAD-00-30 Defense Inventory

C-141 spoiler contract C Contract awarded - 

complete

b 1,614

F-15 fuel tank long-term contract C Incorporated into 

McDonnell Douglas 

corporate contract

Aircraft surface cleaning compound long-term 

contract

C Contract awarded - 

complete

37 88

Virtual prime vendor for program depot 

maintenance

VPV Precontract award b b

KC135 service life extension program C Contract awarded - 

complete

228 1,707

F/A18 top degrader long-term contract C Contract awarded - 

complete

889 613

Aerospace applications corporate contracts C Contract awarded - in 

process

b 1,902

Western Design Howden corporate contract C Contract awarded - 

complete

b 3,710

GE F110 engine parts corporate contract C Contract awarded - in 

process

b 321

Subtotal $76,570 $39,908

Batteries Battery long-term contracts C Contract awarded - 

complete

8,756 7,827

Eastern Carolina Vocational Center C Contract awarded - 

complete

187 173

Vehicular battery consignment program C Contract awarded - 

complete

9,700 10,000

Subtotal $18,643 $18,000

Electronic 

commerce

DLA electronic commerce mall (Emall) EC Contract awarded - in 

process

335 747

Electronic catalog contracts EC Contract awarded - in 

process

263 Unable to

forecast

Subtotal $598 $747

Material handling 

equipment

Material handling equipment initiative PV Precontract award b b

Global mobility material handling equipment PV Precontract award b 50

Subtotal b $50

Land-based 

systems

M9 armored combat earthmover virtual prime 

vendor

VPV Award uncertain b b

M939 five-ton truck virtual prime vendor VPV Canceled b b

Dollars in thousands

Type of supply Initiative

Type of 

initiative Status

Fiscal year

1998 sales

Estimated

fiscal year

1999 sales

Continued from Previous Page
Appendix I

Status and Sales Data for Defense Logistics 

Agency’s Best Practice Initiatives (as of 

August 1999)

Page 25 GAO/NSIAD-00-30 Defense Inventory

Grove North America corporate contract C Contract awarded - 

complete

b 913

Subtotal b $913

Maritime systems Warren Pump corporate contract (composite 

material pumps)

C Precontract award b b

Warren Pump corporate contract (metallic 

pumps)

C Precontract award b b

J.A. Moody corporate contract C Contract awarded -

complete

1,221 1,221

Milwaukee Valve corporate contract C Contract awarded - 

complete

b 1,798

Air Dry Corporation of America C Precontract award b 90

Dante Valve Company C Contract awarded - 

complete

b 125

Subtotal $1,221 $3,234

Other initiatives Closed loop re-refined oil program C Contract awarded - 

complete

30 588

Industrial gases PV Contract awarded - 

complete

396 350

Lubricating oils long-term contracts C Contract awarded - 

complete

5,545 8,481

Fire-fighting equipment logistics support PV Contract awarded - in 

process

b 1,400

Marine lifesaving and diving equipment logistics 

support

PV Contract awarded - in 

process

b 1,013

Photographic industry contracts C Contract awarded - 

complete

10,000 8,040

Modern burner unit C Contract awarded - 

complete

b 12,100

Rekeyable lock project C Contract awarded - 

complete

b 6

Regional integrated suppliers for metals, metal 

products, and services

PV Contract awarded - 

complete

1,200 5,700

Aqua Chem corporate contract C Contract awarded - 

complete

b 2,340

Filter elements corporate contracts C Contract awarded - in 

process

b 8,730

Blackmer Pump corporate contract C Precontract award b b

Components for diesel engines corporate 

contract

C Precontract award b b

Dollars in thousands

Type of supply Initiative

Type of 

initiative Status

Fiscal year

1998 sales

Estimated

fiscal year

1999 sales

Continued from Previous Page
Appendix I

Status and Sales Data for Defense Logistics 

Agency’s Best Practice Initiatives (as of 

August 1999)

Page 26 GAO/NSIAD-00-30 Defense Inventory

Legend

PV = Prime vendor

C = Contract

EC = Electronic commerce

BPA = Blanket purchase agreement

VPV = Virtual prime vendor

D = Demonstration

a

Sales data for the national pharmaceutical wholesaler are included in the sales data for the national 

mail order pharmacy.

b

Not applicable, either because there is no contract in place or the contract was awarded too recently 

for it to have generated any sales in fiscal year 1998.

c

While the original schedule listed four energy demonstrations, studying them was not within our scope 

of the review.

Gears, gear boxes, and repair kits corporate 

contracts

C Precontract award b b

Subtotal $17,171 $48,748

All supply types Total $1,873,696 $2,247,683

Dollars in thousands

Type of supply Initiative

Type of 

initiative Status

Fiscal year

1998 sales

Estimated

fiscal year

1999 sales

Continued from Previous Page
Page 27 GAO/NSIAD-00-30 Defense Inventory

Appendix II

Comments From the Department of Defense ApendxiI
Appendix II

Comments From the Department of Defense

Page 28 GAO/NSIAD-00-30 Defense Inventory
Page 29 GAO/NSIAD-00-30 Defense Inventory

Appendix III

GAO Contacts and Staff Acknowledgments ApendxiI

GAO Contacts Charles Patton (202) 512-4412

Robert Repasky (202) 512-9868

Acknowledgments In addition to those named above, Kay Kuhlman, Nancy Lively, Tracy 

Whitaker, Lindsay Musser, and Bill Woods made key contributions to this 

report.
Page 30 GAO/NSIAD-00-30 Defense Inventory

Related GAO Products

Inventory Management: More Information Needed to Assess DLA’s Best 

Practice Initiatives (GAO/NSIAD-98-218, Sept. 2, 1998).

Inventory Management: DOD Can Build on Progress by Using Best 

Practices for Reparable Parts (GAO/NSIAD-98-97, Feb. 27, 1998).

Defense Inventory Management: Expanding Use of Best Practices for 

Hardware Items Can Reduce Logistics Costs (GAO/NSIAD-98-47, 

Jan. 20, 1998).

Inventory Management: Greater Use of Best Practices Could Reduce DOD’s 

Logistics Costs (GAO/T-NSIAD-97-214, July 24, 1997).

Inventory Management: The Army Could Reduce Logistics Costs for 

Aviation Parts by Adopting Best Practices (GAO/NSIAD-97-82, Apr.15, 

1997).

Inventory Management: Adopting Best Practices Could Enhance Navy 

Efforts to Achieve Efficiencies and Savings (GAO/NSIAD-96-156, July 12, 

1996).

Best Management Practices: Reengineering the Air Force’s Logistics 

System Can Yield Substantial Savings (GAO/NSIAD-96-5, Feb. 21, 1996).

Inventory Management: DOD Can Build on Progress in Using Best 

Practices to Achieve Substantial Savings (GAO/NSIAD-95-142, Aug. 4, 

1995).

Commercial Practices: DOD Could Reduce Electronics Inventories by 

Using Private Sector Techniques (GAO/NSIAD-94-110, June 29, 1994).

Commercial Practices: Leading-Edge Practices Can Help DOD Better 

Manage Clothing and Textile Stocks (GAO/NSIAD-94-64, Apr. 13, 1994).

Commercial Practices: DOD Could Save Millions by Reducing Maintenance 

and Repair Inventories (GAO/NSIAD-93-155, June 7, 1993).

DOD Food Inventory: Using Private Sector Practices Can Reduce Costs and 

Eliminate Problems (GAO/NSIAD-93-110, June 4, 1993).

DOD Medical Inventory: Reductions Can Be Made Through the Use of 

Commercial Practices (GAO/NSIAD-92-58, Dec. 5, 1991).

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