GAO

United States General Accounting Office

Testimony

Before the Subcommittee on Military Readiness, 

Committee on Armed Services, House of Representatives

For Release

Expected at

1:00 p.m., EST

Thursday,

February 25, 1999

DEFENSE INVENTORY

Continuing Challenges in 

Managing Inventories and 

Avoiding Adverse 

Operational Effects

Statement by Henry L. Hinton, Jr., Assistant Comptroller 

General, National Security and International Affairs 

Division

GAO/T-NSIAD-99-83

Page 1 GAO/T-NSIAD-99-83 Defense Inventory

Mr. Chairman and Members of the Subcommittee:

We appreciate the opportunity to testify today on the Department of 

Defense’s (DOD) logistics capabilities and shortfalls. You asked us to look 

at inventory issues as they relate to DOD’s operations and readiness. My 

testimony today will focus on the results of our recent work pertaining to 

(1) the status of DOD’s secondary inventory,1

 (2) difficulties one military 

service continues to have in obtaining repair parts to keep its combat 

aircraft mission capable, (3) the adequacy of DOD’s controls over inventory 

items in transit, (4) implementation of DOD’s efforts to have greater 

visibility over its logistical assets through its Total Asset Visibility Program, 

and (5) the continuing need to apply best private sector management 

practices to Defense inventory management.

Results in Brief Our work continues to show weaknesses in DOD’s inventory management 

practices that are detrimental to the economy and efficiency of operations 

and cause operational problems for DOD. DOD continues to maintain large 

inventories that may be as much as 60 percent in excess of current needs. 

Although DOD has made progress in reducing its inventories, further 

reductions are needed. Additionally, other action is needed to avoid 

unnecessary new purchases. DOD spends approximately $13 billion each 

year on new inventory items. While new purchases may be initiated to 

meet justified requirements, those requirements frequently change after 

items are ordered, but affected orders are not always canceled. We found 

that as of September 30, 1997, DOD did not need about $1.5 billion, or

18 percent, of the inventory it had ordered to meet current requirements. 

Not canceling these orders further exacerbates DOD’s excess inventory 

condition and also prohibits spending on other priority needs.

Despite having inventory items in excess of its current needs, DOD can also 

be faced with situations of inventory shortages and other related supply 

problems that can adversely affect operational requirements. In our review 

of Air Force supply management we found that shortages in aircraft spare 

parts caused a degradation in mission capable rates for key aircraft, 

including the B-1B, C-5, and F-16. Shortages of spare parts occurred 

because of inaccurate forecasting of inventory requirements, and other 

management weaknesses.

1

Secondary inventory is defined as spare and repair parts, clothing, medical supplies, and other items 

needed to support operating forces.
Page 2 GAO/T-NSIAD-99-83 Defense Inventory

The vulnerability of in-transit inventory to waste, fraud, and abuse is 

another area of concern. In February 1998, we reported that DOD did not 

have receipts for about 60 percent of its 21 million shipments to end users 

in fiscal year 1997. Further, in examining in-transit issues in the Navy, we 

found that weaknesses continue to exist in exercising control over 

inventory in transit. Over the last 3 years, the Navy wrote off as lost over 

$3 billion in inventory in transit, including some classified and sensitive 

items such as aircraft guided-missile launchers, military night vision 

devices, and communications equipment.

For many years, DOD has had difficulties in obtaining timely and accurate 

information on the location, movement, status, and identity of units, 

personnel, equipment, and supplies and the capability to better manage 

those assets using that information. To address this problem, DOD gave 

renewed emphasis to its Total Asset Visibility program for tracking 

equipment, supplies, and spare parts as well as requisitions on a continuous 

basis. However, DOD does not expect to fully implement this program until 

2004. Program implementation problems have resulted largely from

long-standing management issues that have hindered other major 

management initiatives. These issues include cultural resistance to change, 

service parochialism, and the lack of outcome-oriented goals, performance 

measures, and management accountability.

DOD must take both a short- and long-term approach to solving its 

inventory management problems, consistent with the requirements of the 

Government Performance and Results Act.2

 In the short term, DOD still 

needs to emphasize the efficient operation of existing inventory systems. 

In the long term, DOD must establish goals, objectives, and milestones for 

changing its culture and adopting new management tools and practices. 

Since 1991 we have issued 11 reports that identified significant 

opportunities, building on best private sector practices, to improve 

logistics operations and lower costs. DOD has introduced some best 

practice initiatives, but progress has been slow.

2

The Results Act requires federal agencies (including DOD) to develop departmentwide strategic and 

performance plans and reports. They must set strategic goals, measure performance, and report on the 

degree to which goals were met. This is expected to provide the Congress and other decision makers 

with objective information on the relative effectiveness and efficiency of federal programs. Annual 

performance plans are included as appendix J to the Secretary of Defense’s Annual Report to the 

President and the Congress.
Page 3 GAO/T-NSIAD-99-83 Defense Inventory

In addition, DOD has recognized the need for improvements in the 

inventory management area and addressed the issue in implementing 

requirements of the Results Act. One performance goal included in DOD’s 

recently issued performance plan for fiscal year 2000 is to streamline the 

DOD infrastructure by redesigning the Department’s support structure and 

pursuing business practice reforms. Among the indicators the plan 

indicated DOD would track were (1) logistics response time, (2) materiel 

asset visibility and accessibility, and (3) reduction of supply system 

inventory of repair parts and finished goods. We encourage DOD to take 

more aggressive actions to correct systemic problems so that its inventory 

management problems will not continue well into the next century. And, 

corrective actions must be built on the strong underpinnings of 

management information systems capable of providing reliable and timely 

information needed for management decision making.

Background DOD has had inventory management problems for decades, but with more 

attention drawn to the problems since the end of the Cold War. In 1990, we 

identified DOD’s management of secondary inventories as a high-risk area 

because levels of inventory were too high and management systems and 

procedures were ineffective.3 We reported that DOD had spent billions of 

dollars on inventory that was not needed to support war reserve or current 

operating requirements and that it was burdened with managing and 

storing this inventory. Much of the inventory that exceeds current 

requirements was acquired because of outdated and inefficient inventory 

management practices.

We reported in 1997 that DOD had made some progress, but significant 

challenges still remained. In an effort to apply industry best practices, 

DOD had implemented, in a limited manner, certain commercial practices 

such as a prime vendor4

 concept that could lead to reduced inventory 

requirements. However, we also reported that the concept had been 

applied only to about 3 percent of the items for which this concept could be 

3In 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 on problems that were costing the government 

billions of dollars. We identified inventory management as high risk in our 1992, 1995, 1997, and 1999 

high-risk reports.

4

Prime vendors are contractors that buy inventory items from a variety of suppliers, store them in 

commercial warehouses, and ship them to customers as needed.
Page 4 GAO/T-NSIAD-99-83 Defense Inventory

used. We also reported that DOD had made progress in reducing its 

inventory levels, but more remained to be done.5 From 1989 through the 

end of fiscal year 1995, DOD reduced its secondary inventory levels from 

$92.5 billion to $69.6 billion. However, virtually all the problems that 

previously had contributed to billions of dollars of inventory that exceeded 

current needs still existed. For example, DOD still lacked adequate 

oversight of its inventory, financial accountability remained weak, and 

requirements continued to be overstated. Improvements were still needed 

in DOD’s information management systems.

The results of our more recent work involving inventory issues show that 

despite additional progress in reducing inventory levels, previously existing 

problems remain a concern. Also, while DOD has continued to emphasize 

the need to move toward an industry best practices approach, more 

remains to be done in that area also.

Excess Inventory 

Levels Continue 

Despite Overall 

Reductions

Our recent work examining inventory issues shows that much of DOD’s 

inventory remains significantly higher than needed to meet current 

requirements, even though DOD continues to make progress in reducing its 

inventory levels. Inventory levels we analyzed were reduced from

$69.7 billion as of September 30, 1996, to $65.8 billion as of September 30, 

1997. Yet, $39.4 billion of the $65.8 billion exceeded current requirements 

shown in DOD’s requirements objective.6 In other words, based on the 

requirements at September 30, 1997, DOD would not have bought

$39.4 billion of the inventory it had on hand. Further, the percentage of 

inventory that exceeded current requirements remained about 60 percent 

for the two periods analyzed and was about the same as of September 30, 

1995. 

We also found that DOD could potentially reduce inventory that exceeded 

current requirements. The Department had no demand for about

$11 billion of the inventory that exceeded current requirements as of 

September 30, 1997, but it did have customer demands for $26 billion. 

However, assuming customer demands remain unchanged, $3.4 billion of 

this inventory would last 20 or more years and $658 million would last more 

5High-Risk Series: Defense Inventory Management (GAO/HR-97-5, Feb. 1997).

6

The requirements objective represents the maximum amount of inventory authorized to sustain 

current operations, including the funded war reserves.
Page 5 GAO/T-NSIAD-99-83 Defense Inventory

than 100 years. Some of this inventory is more economical to retain than to 

dispose of and possibly repurchase. Yet, to the extent it is economical to 

dispose of the inventory, DOD’s cost of operations could be reduced.

In addition to retaining greater inventory levels than required, inventories 

beyond current needs remain high because of new purchases, which total 

about $13 billion annually. While new purchases may be initiated to meet 

justified requirements, those requirements frequently change after items 

are ordered. While some orders may be canceled, others may not, and not 

all of the new purchases may be needed. We found that as of September 30, 

1997, DOD did not need about $1.5 billion, or 18 percent, of the inventory it 

had ordered to meet current requirements. We reported in April 1998 that 

additional opportunities to cancel purchases had been missed because 

appropriate economic analyses were not made, conflicting inventory and 

contracting records were not reconciled, or item managers did not exercise 

their responsibilities to direct cancellations of contracts.7

Inventory Shortages 

Can Also Be a Problem

Although historically, DOD has carried significant amounts of inventory 

items in excess of current needs, it has also been faced with inventory 

shortages and other related supply problems that can adversely affect 

operational requirements. Our recent review examining Air Force supply 

management issues highlighted these problems.

We are now finalizing the results of our review of the supply management 

activity group8

 and its impact on the ability of its customers to obtain 

aircraft spare parts when needed. We found that since the early 1990’s, data 

from the Air Force have shown increased instances of aircraft that were 

not mission capable due to spare parts shortages. Key aircraft that were 

not mission capable due to supply problems increased from an average of 

6.4 percent in fiscal year 1990 to 13.9 percent in fiscal year 1998; for some 

types of aircraft the averages were much higher.

7Navy Inventory Management: Improvements Needed to Prevent Excess Purchases

 (GAO/NSIAD-98-86, Apr. 30, 1998).

8

The supply management activity group supports combat readiness by procuring materiel and making 

repair parts available to Air Force military units and other customers who maintain military weapon 

systems and equipment. This group is part of the Air Force Working Capital Fund, a revolving fund that 

relies on sales revenue, rather than direct appropriations, to finance its operations. Working capital 

funds are expected to (1) generate sufficient revenue to cover the full costs of their operations and

(2) operate on a break-even basis over time—that is, not make a profit nor incur a loss. Customers 

primarily use operations and maintenance appropriations to pay for inventory items.
Page 6 GAO/T-NSIAD-99-83 Defense Inventory

Overall, more aircraft were not mission capable due to supply shortage 

problems in fiscal year 1998, even though Air Force bases have increased 

the removal of inventory items from one aircraft to keep other aircraft 

mission capable. This practice necessitated (1) personnel at individual 

bases intentionally grounding one or more aircraft so they could remove 

good parts from these aircraft to keep other aircraft mission capable, 

(2) maintenance personnel at Air Force wings consistently doubling their 

workload by removing inventory items from grounded aircraft to replace 

broken items on other aircraft, and (3) some Air Force units not always 

being able to perform their peacetime missions, such as required training, 

and others not being able to meet airlift requests.

Financial management, inventory management, and item repair problems 

resulted in parts shortages for 155 inventory items that we reviewed on 

B-1B, C-5, and F-16 aircraft. In fiscal year 1997, the Air Force’s inability to 

determine its inventory requirements and budget for those requirements 

was the primary source of parts shortages.

More specifically, the Air Force’s supply management activity group’s fiscal 

year 1997 budget underestimated funding requirements for the group’s 

wholesale division by about $500 million because (1) all inventory 

requirements were not included in the budget and (2) inventory 

requirements increased after the Air Force had developed its budget. As a 

result, the supply management activity group could finance only 82 percent 

of its fiscal year 1997 inventory requirements. At the same time, supply 

managers exacerbated their fiscal year 1997 support problems by using 

their limited obligation authority to buy items that were excess to their 

current operating requirements. An indication of the magnitude of this 

problem was that, as of September 1997, the Air Force had reported 

$1.7 billion of inventory items on order, of which about $409 million, or 

about 24 percent, was excess to its current needs. 

We found that many of the 155 items reviewed were problems, at least in 

part, because the Air Force did not achieve the reduced pipeline processing 

time goals that are the cornerstone of its Agile Logistics program9

 and that 

were the basis for a $948 million reduction in the supply management 

activity group's budget. This untimely processing of repairable items 

9

The objectives of the Agile Logistics program are to (1) reduce the time it takes to repair components 

and aircraft, (2) reduce the amount and costs of supply inventories, (3) match the repair of items with 

the demand from customers, and (4) prioritize repairs when multiple priorities exist.
Page 7 GAO/T-NSIAD-99-83 Defense Inventory

adversely affected the supply activity group's ability to support its 

customers because it caused the Air Force to have too many items in the 

supply pipeline (items in transit from bases to depots and items in the 

process of being repaired), and not enough useable items available at 

bases. Two major causes of the problem was (1) a lack of accurate data 

and effective procedures for monitoring pipeline processing times and 

taking timely and appropriate corrective action, when necessary and 

(2) that depot maintenance activities ability to repair items was limited by 

shortages of component parts to fix broken repairable items, repair shop 

personnel, and equipment used to test repairable items after being fixed.

In its fiscal year 2000 budget document for the supply group, the Office of 

the Under Secretary of Defense (Comptroller) raised concerns about the 

readiness of all military services and cited a lack of spare parts as a major 

contributor to the decline in the mission capability of aircraft. To help 

improve readiness, $141.4 million in obligation authority was added to the 

Air Force supply group’s fiscal year 2000 budget to buy and repair inventory 

items. However, the budget document raised concerns about the Air 

Force’s ability to use this additional obligation authority to purchase the 

correct inventory items. Accordingly, the Deputy Secretary of Defense 

directed the Air Force Materiel Command to review the process it uses to 

review and revise the inventory requirements of its customers. This review 

is now underway and is to identify the underlying cause of the forecasting 

problems. A report is due to the Office of the Under Secretary of Defense 

by May 15, 1999.

Continuing 

Weaknesses in 

Adhering to 

Procedures for 

Controlling In-Transit 

Items

The vulnerability of in-transit inventory to waste, fraud, and abuse is 

another area of concern. In February 1998, we reported that DOD did not 

have receipts for about 60 percent of its 21 million shipments to end users 

in fiscal year 1997.10 Among the DOD components, the Army accounted for 

about one fourth and the Navy accounted for about half of DOD’s

12.4 million unacknowledged receipts. Later work shows that, over the last 

3 years, the Navy alone wrote off as lost over $3 billion in inventory in 

transit.

Recently, in examining in-transit issues in the Navy, we found that 

weaknesses continue to exist in exercising control over inventory in 

10Department of Defense: In-Transit Inventory (GAO/NSIAD-98-80R, Feb. 27, 1998).
Page 8 GAO/T-NSIAD-99-83 Defense Inventory

transit. As a result, enormous amounts of inventory are at risk of 

undetected theft or misplacement. For fiscal years 1996 through 1998, the 

Navy reported in-transit inventory losses totaling over $3 billion, including 

some classified and sensitive items such as aircraft guided-missile 

launchers, military night vision devices, and communications equipment.

The Navy’s Inventory Control Point (NAVICP) at Philadelphia, which 

manages the largest portion of the Navy’s inventory, reported the largest 

losses, $2.5 billion, or 84 percent of the Navy’s in-transit losses. However, 

our work at NAVICP Philadelphia showed that some of the items reported 

as lost had, in fact, been accounted for in inventory records. We reviewed 

94 shipments and found that 15 had been written off as lost despite the fact 

that their receipts were recorded in the inventory records in advance of the 

date they were written off.

Navy activities involved in issuing and receiving inventory items have not 

routinely followed the Navy’s control procedures to ensure that in-transit 

items are accounted for. Specifically, concerning NAVICP Philadelphia, we 

found that: (1) Navy units have not always reported to the inventory 

control point that they received requested items, (2) ineffective accounting 

systems have been used to monitor receipts of warehoused items, (3) the 

NAVICP and its shipping and receiving activities have not adequately 

investigated unreported receipts of warehoused items, and (4) the NAVICP 

has not monitored receipts of items it purchased from commercial sources.

We also found that oversight of in-transit inventories exercised by the 

Naval Supply Systems Command and NAVICP Philadelphia has not been 

adequate. Systems Command officials acknowledged that, to date, they 

had not actively monitored in-transit inventory receipt and follow-up 

efforts but had recently begun to review both systems and processes to 

correct weaknesses. However, they have not established any performance 

measures, milestones, or a timetable for reducing the vulnerability of

in-transit inventory to theft or loss.

The Strom Thurmond National Defense Authorization Act for Fiscal

Year 1999 requires DOD to develop a comprehensive plan to ensure 

visibility over in-transit items and to submit its plan to the Congress by 

March 1, 1999. For secondary items, DOD must address such issues as the 

vulnerability of in-transit items to loss through fraud, waste, and abuse; 

loss of oversight of in-transit items, including loss when items are being 

transported by commercial carriers; and loss of accountability for in-transit 
Page 9 GAO/T-NSIAD-99-83 Defense Inventory

items due to either a delay of delivery of the items or a lack of notification 

of the delivery.

Continuing Efforts to 

Achieve Total Asset 

Visibility 

For many years, DOD has had difficulties in obtaining timely and accurate 

information on the location, movement, status, and identity of units, 

personnel, equipment, and supplies, and the capability to better manage 

those assets using that information. The continuing lack of adequate 

visibility over operating materials and supplies substantially increases the 

risk that millions of dollars will be spent unnecessarily to acquire more 

items than would be needed if a clearer, more accurate picture existed of 

items in inventory, in-transit, and in theater, and asset managers had the 

ability to access and transfer those items. Asset visibility began to receive 

heightened attention during the Gulf War when logistics pipelines became 

clogged with thousands of duplicate requisitions, and more than half of the 

40,000 large containers of equipment shipped in theater could not be 

readily identified. 

To address this problem, DOD gave renewed emphasis to its Total Asset 

Visibility (TAV) program for tracking equipment, supplies, and spare parts 

as well as requisitions on a continuous basis.11 In 1995, we reported that 

DOD’s strategic plans for logistics called for improving asset visibility over 

in-transit assets, retail level stocks, and automated systems.12 DOD’s goal 

initially was to completely implement its asset visibility plan by 1996. It 

later changed that date to 2001, and subsequently extended it out to 2004. 

Even so, significant issues remain to be resolved if DOD is to achieve its 

goals for this program. 

DOD’s Performance Plan for Fiscal Year 2000, developed in response to the 

Government Performance and Results Act, defines asset visibility as the 

percentage of DOD’s worldwide inventory in storage that is both visible and 

accessible to Integrated Materiel Managers (IMMs). It states that IMMs are 

the DOD organizations assigned wholesale management responsibility for 

specific assets or classes of assets Departmentwide. The plan notes that 94 

percent of DOD’s worldwide inventory is to be visible to military services 

or Defense agency tracking systems but only 80 percent is accessible by the 

appropriate IMMs who have wholesale management responsibilities for 

11Defense Total Asset Visibility Implementation Plan, USD (A&T), May 23, 1996.

12High Risk Series: Defense Inventory Management (GAO/HR-95-5, Feb. 1995).
Page 10 GAO/T-NSIAD-99-83 Defense Inventory

specific assets or classes of assets.13 The plan attributes the lack of 

visibility to data system interoperability problems. It states that the 

Department’s strategy for fiscal year 2000 is to enhance the interface 

among the services and Defense agencies to achieve a TAV level of 90 

percent. It notes that a potential complication in executing the strategy is 

the fact that TAV initiatives must compete with Year 2000 (Y2K) 

requirements for scarce information technology resources but that 

sufficient management attention would be placed on the timing of system 

changes to mitigate the risks of funding shortfalls.

Our recent work found that while some component and theater-specific 

asset tracking capabilities are reported to be operating, DOD-wide 

information on progress in achieving TAV Program goals is minimal. 

Consequently, although implementing improved asset visibility is a high 

priority objective, DOD is uncertain about the extent to which it is 

achieving the objectives of having timely, accurate information on 

requisitions and assets and access to DOD assets.

Along with an unclear picture of the program’s status, planning for TAV has 

been inadequate at the strategic and implementation levels. DOD does not 

have a departmentwide TAV strategic plan to show how the various TAV 

initiatives underway within individual DOD components contribute to 

DOD’s goals for the Program.

While lacking a strategic plan, DOD does have an “implementation plan” for 

TAV, although it has a number of weaknesses. The implementation plan has 

established some broad program goals and areas of emphasis, but it does 

not describe how TAV will be integrated into DOD work processes to 

realize TAV Program goals. The plan also does not state how TAV systems 

will integrate with and/or support other management information systems. 

This is particularly important as it relates to financial management systems 

and reporting. 

TAV implementation problems have resulted largely from long-standing 

management issues that have hindered other major management 

initiatives. These issues include cultural resistance to change, service 

parochialism, and the lack of outcome-oriented goals, performance 

13Our recent work has found that the 94-percent visibility and 80-percent accessibility are against the 

National Performance Review (NPR) goals. These NPR performance measures do not include 

inventories in process or in transit.
Page 11 GAO/T-NSIAD-99-83 Defense Inventory

measures, and management accountability. Resistance to changing from 

reliance on just-in-case inventory approaches to just-in-time inventory 

approaches is a significant challenge for DOD in its approach to inventory 

management. Further, this new way of doing business requires timely and 

accurate information about quantities and locations of items and a 

willingness by item holders to transfer items to meet the priority needs of 

others. Over time, we believe that the Results Act, with its strategic 

planning and reporting requirements, and the Clinger/Cohen Act, which 

emphasizes a performance-based approach to information technology 

investments, could enhance DOD’s efforts to provide an effective 

framework for addressing TAV’s implementation challenges, and achieving 

its program goals.

Continuing Need to 

Expand Use of 

Industry Best Practices

We recently addressed Defense inventory management issues in our 

Performance and Accountability Series dealing with major management 

challenges and program risks.14 We noted that since 1991, we have issued 

11 reports that identify significant opportunities for DOD to test and adopt, 

where feasible, best inventory management practices used in the private 

sector to improve logistics operations and lower costs. The business 

practices we recommended have, for the most part, been used in the 

private sector to enable customers to order supplies as they are needed and 

receive them within hours. 

For example, some commercial airlines have cut costs and improved 

customer service by streamlining their overall logistics operations. The 

most successful improvements took a supply-chain management approach, 

which included using highly accurate information systems to track and 

control inventory; employing various methods to speed the flow of parts 

through the logistics pipeline; shifting certain inventory tasks to suppliers; 

and having third parties handle parts repair, storage, and distribution 

functions.

Improved acquisition and delivery practices can reduce overall supply 

system costs, eliminate large inventories, and enable companies to reduce 

or eliminate the ordering of supplies that may not be needed or become 

obsolete. To achieve similar inventory reductions, infrastructure savings, 

and improved customer service, we have recommended that DOD expand 

14Major Management Challenges and Program Risks, Department of Defense (GAO/OCG-99-4,

Jan. 1999)
Page 12 GAO/T-NSIAD-99-83 Defense Inventory

its current initiatives to their fullest extent and include tasks such as 

ordering, storing, and distributing supplies to the customer.

DOD through its Defense Logistics Agency (DLA) has continued to 

emphasize the use of prime vendors to manage parts, reduce government 

inventories, and improve delivery times. However, limited progress has 

been made in expanding use of prime vendors for all classes of consumable 

items, particularly hardware items. Hardware items represent 97 percent 

of the 4 million items managed by DLA but accounted for only 1 percent of 

prime vendor sales in fiscal year 1997.

Recently, the Congress enacted legislation requiring DLA and the military 

services to develop and submit schedules for implementing best 

commercial practices in its acquisition and distribution of inventory items. 

The legislation calls for the implementation of best practice initiatives to be 

completed within the next 3 years in the case of DLA and 5 years for the 

services. We are currently reviewing the implementation of these 

initiatives.

Conclusion DOD must take both a short- and long-term approach to solving its 

inventory management problems, consistent with the requirements of the 

Government Performance and Results Act. In the short term, DOD still 

needs to emphasize the efficient operation of existing inventory systems. 

In the long term, DOD must establish goals, objectives, and milestones for 

changing its culture and adopting new management tools and practices. 

Since 1991 we have issued 11 reports that identified significant 

opportunities, building on best private sector practices, to improve 

logistics operations and lower costs. DOD has introduced some best 

practice initiatives, but progress has been slow.

In addition, DOD has recognized the need for improvements in the 

inventory management area and addressed the issue in implementing 

requirements of the Results Act. One performance goal included in DOD’s 

recently issued performance plan for fiscal year 2000 is to streamline the 

DOD infrastructure by redesigning the Department’s support structure and 

pursuing business practice reforms. Among the indicators the plan 

indicated DOD would track were (1) logistics response time, (2) materiel 

asset visibility and accessibility, and (3) reduction of supply system 

inventory of repair parts and finished goods. We encourage DOD to take 

more aggressive actions to correct systemic problems so that its inventory 

management problems will not continue well into the next century. And, 
Page 13 GAO/T-NSIAD-99-83 Defense Inventory

corrective actions must be built on the strong underpinnings of 

management information systems capable of providing reliable and timely 

information needed for management decision making.

DOD’s Annual Performance Plan for fiscal year 2000 acknowledged that the 

supply inventory is larger than required to support today’s smaller force 

structure. It reported that the goal is to cut holdings from a fiscal year 1989 

high of $107 billion to $56 billion by fiscal year 2000 and $48 billion by fiscal 

year 2003. It noted, however, that improvements in total asset visibility 

might cause documented inventory levels to increase. It also noted that, 

selective inventory increases are being made in some areas (notably 

aircraft parts) in response to operational requirements. It stated that a new 

model reflecting these factors is expected to produce revised inventory 

goals in late fiscal year 1999. 

DOD’s conceptual framework for the future calls for the military services to 

fuse information, logistics, and transportation technologies in a manner 

that will allow them to (1) provide rapid crisis response; (2) track and shift 

assets, even while enroute; (3) deliver tailored logistics packages when and 

where needed; and (4) ensure the availability of spare parts and other items 

to sustain combat operations. The concept is based, in part, on the premise 

that supply managers will have precise visibility over assets and will be 

able to make rapid and accurate logistics assessments and analyses, when 

necessary. While the concept appears sound, it requires coordination of 

multiple organizations, systems, and processes to be effective. And, it 

requires the strong underpinnings of management information systems 

capable of providing reliable and timely information needed for 

management decision making. 

Mr. Chairman, this concludes my prepared remarks. I would be pleased to 

answer any questions that you or Members of the Subcommittee might 

have. 

709398 Letr
Ordering Information

The first copy of each GAO report and testimony is free.

Additional copies are $2 each. Orders should be sent to the 

following address, accompanied by a check or money order made 

out to the Superintendent of Documents, when necessary, VISA and 

MasterCard credit cards are accepted, also.

Orders for 100 or more copies to be mailed to a single address are 

discounted 25 percent.

Orders by mail:

U.S. General Accounting Office

P.O. Box 37050

Washington, DC 20013

or visit:

Room 1100

700 4th St. NW (corner of 4th and G Sts. NW)

U.S. General Accounting Office

Washington, DC

Orders may also be placed by calling (202) 512-6000

or by using fax number (202) 512-6061, or TDD (202) 512-2537.

Each day, GAO issues a list of newly available reports and 

testimony. To receive facsimile copies of the daily list or any list 

from the past 30 days, please call (202) 512-6000 using a touchtone 

phone. A recorded menu will provide information on how to obtain 

these lists.

For information on how to access GAO reports on the INTERNET, 

send an e-mail message with “info” in the body to:

info@www.gao.gov

or visit GAO’s World Wide Web Home Page at: 

http://www.gao.gov
United States

General Accounting Office

Washington, D.C. 20548-0001

Official Business

Penalty for Private Use $300

Address Correction Requested

Bulk Rate

Postage & Fees Paid

GAO

Permit No. GI00