United States General Accounting Office

GAO Report to the Ranking Minority Member,

Committee on Armed Services, U.S.

Senate

September 1998 INVENTORY

MANAGEMENT

More Information

Needed to Assess

DLA’s Best Practice

Initiatives

GAO/NSIAD-98-218

GAO United States

General Accounting Office

Washington, D.C. 20548

National Security and

International Affairs Division

B-280241 

September 2, 1998

The Honorable Carl Levin

Ranking Minority Member

Committee on Armed Services

United States Senate

Dear Senator Levin:

As requested, we reviewed and assessed the Defense Logistics Agency’s

(DLA) schedule for implementing best commercial practices for inventory

management. Section 395 of the National Defense Authorization Act for

Fiscal Year 1998 required the Director of DLA to develop and submit to

Congress a schedule for implementing best commercial practices for the

acquisition and distribution of nine categories of consumable-type

supplies. The act defined “best practices” as including the prime vendor

concept and other techniques the DLA Director determines will reduce

inventory levels and costs and improve the responsiveness of the logistics

system to user needs. The act also requires that the schedule provide for

the implementation of such practices to be completed within 3 years of

enactment, or by November 2000. The Under Secretary of Defense for

Acquisition and Technology submitted this schedule on May 19, 1998.

This report assesses the extent to which DLA’s schedule effectively

provides for the implementation of best practices within the time frame

specified in the act. Specifically, we assessed whether the schedule

(1) described the extent to which the initiatives cover each supply

category, (2) established key performance indicators to measure the

overall impact the initiatives will have on logistics costs and efficiency of

operations, and (3) provided criteria and plans for expanding or fully

implementing the initiatives to cover the entire supply category.

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

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

manages 4.3 million types of consumable items (e.g., food, clothing, and

hardware), of which about 4 million are managed by DLA.

1

 Traditionally,

DLA buys consumable items in large quantities, stores them in wholesale

distribution depots until they are requested by the military services, and

then ships them to the service facility where the items are used. Each year,

DLA spends billions of dollars to provide these services. For example, in

1

Consumable items are discarded after use rather than repaired.

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fiscal year 1997, DLA estimated that its supply costs were $12.4 billion and

that its inventory on hand was valued at $9.8 billion.2

Over the last 20 years, we have reported that DOD’s inventory management

practices are costly, create unnecessary inventory levels, provide poor

customer service, and generate excess and obsolete inventory. For these

reasons, we identified DOD inventory management as a high-risk area for

fraud, waste, and abuse.3

 On past occasions, to help address these

problems, we have issued several reports at your request on leading-edge

business practices used by the private sector to achieve savings and

improve operations.4

 Our reports show that certain leading-edge concepts

provide inventory users with a capability to order supplies as they are

needed and then deliver those items directly to the customer within hours

after the order is placed. Ordering supplies only as they are needed,

combined with quick logistics response times, enables companies to

reduce or eliminate inventory levels, buy only the items that are currently

needed, and reduce overall supply system costs. Because we believe these

practices have direct applicability to DOD’s operations, our reports

recommended that DOD test these concepts and expand them where

feasible.

DOD agrees with the need to adopt best practices and has begun to improve

its business operations. In November 1997, the Secretary of Defense issued

the Defense Reform Initiative report, which called for a revolution in DOD’s

business affairs and identified a number of reengineering initiatives aimed

at adopting modern business practices to achieve world-class standards of

performance.

Results in Brief DLA’s schedule provides information on 73 initiatives it identified as best

practices for improving the acquisition and distribution of certain

categories of consumable supplies. Although we are encouraged that DLA

has established these initiatives, the schedule does not provide adequate

2

The $12.4 billion supply costs include the cost of items purchased from suppliers and the costs

associated with managing, storing, and distributing inventory.

3

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

high risk because of vulnerabilities to fraud, waste, abuse, and mismanagement. This effort, which was

supported by the Senate Committee on Government Affairs and the House Committee on Government

Reform and Oversight, brought a much-needed focus on problems that were costing the government

billions of dollars. We identified DOD’s inventory management as a high-risk area at that time because

levels of unneeded inventory were too high and systems for determining requirements were

inadequate.

4

See Related GAO Products for a listing of reports that discuss DOD’s logistics systems and our best

practices analyses.

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information to assess whether it effectively provides for the

implementation of these practices to be completed by November 2000, as

required by the fiscal year 1998 Defense Authorization Act. Specifically,

the schedule does not contain information on the percentage of a supply

category that will be affected by the initiatives. Consequently, users of the

schedule are unable to determine the magnitude of impact the initiatives

are intended to have. Also, the schedule does not present metrics or

indicators that will be used to determine whether the initiatives are

achieving the desired results. This information is critical to determine

whether readiness and sustainability goals are being met and cost goals

are being achieved. In addition, the schedule does not provide milestones

necessary to measure progress toward covering the entire supply category

by the implementation date.

Schedule Does Not

Provide Sufficient

Information to Assess

Best Practices

Initiatives

The schedule contains one or more initiatives for each of the nine supply

categories listed in the act, except for commercially available electronics,

which had no initiatives. The schedule also contains initiatives for six

other categories of supplies not listed in the act. In total, the schedule

contains 73 initiatives aimed at improving DLA’s inventory management

operations. Many of the initiatives seek to increase DLA’s reliance on the

private sector to purchase, store, and distribute supplies. The initiatives

contain schedule milestones that generally consist of contract award

dates. For some initiatives, the schedule provides additional information

such as location, geographic region, or types of items covered.

The schedule, however, does not (1) contain information on the extent to

which the initiatives cover each supply category, (2) establish key

performance indicators to measure the overall impact the initiatives will

have on logistics costs and efficiency of operations, and (3) provide

criteria and plans for expanding or fully implementing the initiatives to

cover the entire supply category. Without plans that include milestones

and details for when, where, and how the initiatives will be tested,

evaluated, and expanded, there is no baseline for determining or

measuring the significance of these initiatives or the progress that should

be expected in completing the implementation of best practices within the

time frame specified in the act. DLA officials stated that planning

information was not provided for the initiatives because of the uncertain

nature of the initiatives.

DLA’s Schedule Contains

Four Types of Initiatives

The 73 initiatives in DLA’s schedule can be grouped into 4 categories: 44

contracting initiatives, 15 prime vendor programs, 5 electronic commerce

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initiatives, and 9 “other” types of initiatives. The contracting initiatives

include long-term contracting, corporate contracting, and direct vendor

delivery contracts. Under a long-term contract agreement, DLA agrees to

purchase items from a vendor for 1 or more years. Corporate contracting

initiatives involve the consolidation of a number of different DLA

requirements with the same vendor into one contract. Direct vendor

delivery contracts require the vendor to deliver items directly to base-level

locations, bypassing the traditional DLA warehouse and distribution

operations. In some cases, these concepts are combined in one initiative.

For example, one initiative for aviation items is a long-term corporate

contract that includes a provision for direct delivery of items to the DOD

customer.

The 15 prime vendor initiatives are designed to transfer a portion of the

traditional DOD inventory management responsibilities to suppliers. Under

this concept, a single vendor (known as a prime vendor) buys inventory

from a variety of suppliers and stores the inventory in its warehouse. The

DOD customer orders supplies from the prime vendor using electronic

ordering systems, and the prime vendor then retrieves the items from its

warehouse and delivers them to the customer.

The five electronic commerce initiatives involve the use of the Internet

and electronic catalogs to provide DOD customers an improved system for

ordering supplies. These initiatives provide the capability for a customer

to search the numerous items available in DLA’s and vendors’ catalogs for

the item that best suits their needs. The customers can compare similar

products and prices and then place their orders directly from the catalogs.

The nine other initiatives consist of three medical and pharmaceutical, two

food, and four fuels initiatives that did not fall into the three categories

discussed above. For example, one initiative deals with the purchase of

electricity to support DOD facilities, another initiative provides a mail order

pharmaceutical service to DOD eligible customers.

Schedule Information Is

Inadequate

Table 1 summarizes the initiatives in DLA’s schedule, including whether the

schedule provided an estimate of the initiative coverage, key performance

metrics, and expansion plans for each supply category. The sections that

follow the table contain our assessment of the schedule information

provided for each supply category. These sections briefly describe the DLA

initiatives, the nature and extent of specific schedule information

contained in the plan, and our observations on this information. In no case

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did the schedule contain information on the percentage of a supply

category that will be affected by an initiative, key indicators that could be

used to determine if the initiatives are achieving the desired results, or

milestones necessary to measure progress toward covering the entire

supply category by the implementation date.

Table 1: Our Assessment of DLA’s Schedule

Supply category

Number of

initiatives

Did the schedule

contain an estimate of

supply category

coverage?

Did the schedule

contain key

performance indicators

for the supply category?

Did the schedule

contain expansion

plans to cover the

supply category?

Listed in the acta

Medical and

pharmaceutical

8 No No No

Food 6 No No No

Clothing and textiles 2 No No No

Commercially available

electronics

0 Not applicable Not applicable Not applicable

Construction 1 No No No

Industrial 2 No No No

Automotive 5 No No No

Fuels 4 No No No

Facility maintenance 1 No No No

Not listed in the acta

Aviation 15 No No No

Batteries 3 No No No

Material handling

equipment

2 No No No

Land-based systems 3 No No No

Maritime systems 5 No No No

Other 16 No No No

aSection 395 of the National Defense Authorization Act for Fiscal Year 1998.

Medical and Pharmaceutical

Supplies

The schedule contained two prime vendor, three electronic catalog, and

three other initiatives for medical and pharmaceutical supplies. The two

prime vendor programs were fully implemented between January 1993 and

November 1996. Our past work found that these two initiatives were some

of the most successful DLA initiatives to date. To implement these

programs, DLA established a schedule to test and evaluate the prime

vendor concept and a specific schedule to expand this program to other

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DOD locations. These milestones provided a basis to measure DLA’s

progress toward full implementation. According to other information,

DOD’s use of prime vendors at over 200 medical facilities saved over

$700 million and covered 77 percent of DLA’s sales of medical supplies in

fiscal year 1997.

The three electronic catalog initiatives were for dental, optical, and

laboratory supplies. Under these programs, catalogs listing inventory items

available from certain suppliers will be accessible electronically by DOD

customers. The schedule information for these programs consisted of

estimated contract award dates for the fourth quarter of fiscal year 1998.

The three other initiatives involve the establishment of a national

mail-order and retail pharmacy network. The schedule information for

these initiatives consisted primarily of contract award dates.

Food Supplies The schedule contained one prime vendor, three contracting, and two

other initiatives for food items. The prime vendor program is designed for

a vendor to buy, store, and distribute food items to military dining

facilities nationwide and overseas. The schedule indicated that this

initiative has been fully implemented in the continental United States, and

provided regional contract award dates for the Europe and Pacific regions

and estimated award dates for four other overseas regions. The schedule,

however, did not indicate the extent to which the prime vendor would

actually be used by DOD facilities within each region, a planned activation

date for those locations, or a projected date when the prime vendor would

be in place at all applicable locations. The three contracting initiatives

involve long-term and direct delivery concepts. The contracts cover food

service equipment, certain rations, and ultrahigh temperature milk. For

these initiatives, the schedule provided actual or planned contract award

dates and other contract information as well as some limited schedule

information related to concept testing and evaluation.

The two other initiatives are related to the handling and delivery of fresh

fruits and vegetables. The schedule identifies potential customers and

contract information.

Clothing and Textiles The schedule contained two prime vendor initiatives for clothing and

textiles. The first prime vendor program, established in November 1995,

was designed for the prime vendor to buy, store, and distribute recruit

clothing items to the Air Force’s recruit induction center at Lackland Air

Force Base, Texas. Air Force and DLA officials stated that this program is

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considered to be a successful demonstration of the prime vendor concept

but that DLA does not plan on expanding it to other DOD facilities.

According to DLA officials, the second prime vendor program is being

designed differently. Under this program, DLA plans to buy the inventory

and contract for the prime vendor to store and distribute the items. The

extent of the schedule information provided for this initiative was an

estimated June 1998 contract award date for a prime vendor to support 

12 states in the Southeast region of the United States and a contract award

date no later than June 1999 for two additional states. The schedule,

however, did not indicate the extent to which the prime vendor would

actually be used, a planned activation date for locations, or a projected

date when the prime vendor would be in place at all applicable locations.

Also, the schedule did not identify the percentage of future clothing and

textiles sales or the percentage of items that DLA expects will be covered

by these initiatives. Our review of DLA sales records indicated that only

2 percent of DLA’s 1997 clothing and textiles sales were conducted through

prime vendors, and DLA projects that these sales will increase to only

11 percent by fiscal year 2001.

Commercially Available

Electronics

The schedule did not describe any initiatives for commercially available

electronics supplies. According to the schedule, DLA canceled a prime

vendor program during contract negotiations because the Air Force had

changed the scope of the contract. DLA officials stated they were

considering other alternatives in this area, but no specific initiatives had

been defined as of June 1998.

Construction Supplies The schedule contained one prime vendor initiative for construction

supplies. Under this program, DLA plans to have a prime vendor provide

bulk lumber and plywood to military bases. The extent of the schedule

information consisted of a May 1998 planned contract award date for the

first two regions, an October 1998 estimated award date for the remaining

regions within the continental United States, and a planned award date of

December 1998 for overseas locations. The schedule did not indicate the

extent to which the prime vendor would actually be used within each

region, a planned activation date for those locations, or a projected date

when the prime vendor would be in place at all applicable locations.

Industrial Supplies The schedule contained two prime vendor initiatives for industrial

supplies. One prime vendor program is designed to provide most of the

consumable items needed to support the C-130 propeller repair shop at the

Warner Robins Air Logistics Center. The extent of the schedule

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information was the contract award date of October 1996. The second

prime vendor program is designed to provide common-type items used in

the overhaul, repair, and maintenance of weapon systems, such as bolts,

screws, and rivets. The extent of the schedule information was a contract

award date of May 1998 for one location and June 1998 for three other

locations.

The schedule did not contain an implementation plan for either prime

vendor initiative in this category. Specifically, the schedule did not identify

all the locations where the prime vendor could be expanded, time frames

for future locations to begin using the vendor, or a projected date when

the prime vendor would be fully implemented.

Automotive Supplies The schedule contained two prime vendor and three contracting initiatives

for automotive supplies. The first prime vendor contract, awarded in

April 1998, is for automotive parts used overseas. The second prime

vendor program, called the fleet automotive support initiative, is currently

designed to cover 2,100 different types of parts. DLA planned to award this

contract in April 1998. Under this program, the schedule identified

11 potential geographic regions to be serviced by a prime vendor but only

2 DOD facilities within these regions that will initially use the concept.

The schedule did not contain an implementation plan for either prime

vendor program in this category. Specifically, the schedule did not identify

milestones for a concept test and evaluation phase, all locations where the

prime vendor could be used, time frames for when future locations would

begin using the vendor, or a projected date when the prime vendor would

be fully used by all applicable DOD locations.

The schedule contained three contracting initiatives for automotive

supplies. These initiatives involve a combination of corporate contracting,

long-term contracting, and direct vendor delivery concepts. The schedule

provided a range of actual and estimated contract award dates for these

initiatives.

Fuels The schedule contained four other initiatives for demonstration projects to

improve energy management. The schedule information for these

initiatives consisted of contract-related dates for two of the initiatives but

no schedule information for the other two initiatives.

Facility Maintenance Supplies The schedule contained one prime vendor initiative for facilities

maintenance supplies. This program, called the maintenance, repair, and

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operations prime vendor program, was characterized by DLA as a major

program contributing to achievement of several of DLA’s strategic

objectives. Under this program, a supplier is expected to provide total

material support to operating locations for items such as small tools, paint,

and hardware supplies. This program was also highlighted in the Defense

Reform Initiative report as one that captures the “best of class” in industry

standards for delivery, returns for excess material, surge capabilities, and

customer service. The schedule included two contract award dates 

(Dec. 1997 and Jan. 1998) for seven states in the Southeast region of the

United States. DLA estimated potential sales of $200 million a year if all 73

installations in the Southeast region used the program. Also, the schedule

calls for a contract award date of July 1998 for prime vendor contracts

nationwide and December 1998 for the Europe and Pacific regions.

Even though the schedule contained expected regional contract award

dates, it did not contain an implementation plan. Specifically, the schedule

did not include milestones for a concept test and evaluation phase,

indicate the extent to which the prime vendor would actually be used

within each region, identify a planned activation date for applicable

locations, or project a date when the prime vendor would be fully

implemented. Additional DLA records indicated that the absence of this

type of information could be misleading. For example, the schedule states

that regional prime vendor contracts will be established nationwide by

July 1998, but DLA records indicate that only 40 of a potential 243

installations nationwide are scheduled at this time to use the program.

Aviation Supplies DLA’s schedule contained 1 prime vendor and 14 contracting initiatives for

aviation supplies. DLA is designing the prime vendor program to provide

consumable items to maintenance depots that repair engines and weapon

systems. The schedule identified six potential repair depots to use this

program but did not provide any implementation dates. Also, the schedule

did not include milestones for a concept test and evaluation phase,

indicate the extent to which the prime vendor would actually be used,

identify a planned activation date for applicable locations, or project a

date when the prime vendor would be in all locations.

The 14 contracting initiatives include a combination of corporate,

long-term, and direct delivery contracts for a variety of aviation parts, such

as fasteners, engine parts, and cleaning compounds. The schedule

provided actual or planned contract award dates for most of the

initiatives.

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Batteries The schedule contained three contracting initiatives for batteries. These

programs include long-term and direct delivery contracts. The schedule

information for these initiatives consisted of the year that each contract

was awarded and other contract information.

Material Handling Equipment DLA’s schedule contained one prime vendor and one contracting initiative

for material handling equipment supplies. The prime vendor program is

designed to provide material handling supplies and pallets used at

distribution depot in two regions; the schedule indicated that there were at

least 13 potential customers in one region, but did not identify any

potential customers for the second region. The schedule information

consisted of a June 1998 planned contract award for one region but did not

include milestones for a concept test and evaluation phase, indicate the

extent to which the prime vendor would actually be used within each

region, identify a planned activation date for applicable locations, or

project a date when the prime vendor would be in place at all locations.

The one contracting initiative is a long-term contract for parts used to

support the 463L cargo handling system. DLA indicated 13 U.S. locations, as

well as overseas locations, that use these parts but plans to award a

contract that covers only 2 of these locations. The schedule information

consisted of a planned contract award date of September 1998.

Land-Based Vehicles DLA’s schedule contained two prime vendor and one contracting initiative

for parts supporting land-based vehicles, such as trucks and aircraft

towing tractors. The first prime vendor is designed to provide over 2,000

items needed to support the M9 Armored Combat Earthmover. The second

prime vendor program is designed to provide supply support for the M939

series 5-ton truck. The schedule indicated an estimated award date of

August 1998 for the first initiative, but there was no schedule information

provided for the second initiative.

The schedule did not contain an implementation plan for either prime

vendor program. Specifically, the schedule did not include milestones for a

concept test and evaluation phase, indicate the extent to which the prime

vendor will actually be used by DOD operating locations, a planned

activation date for those locations, or a projected date when the prime

vendor would be fully implemented.

The one contracting initiative is a long-term contract covering parts for

cranes and aircraft towing tractors. The schedule information consisted of

a planned contract award date and other contract information.

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Maritime Systems The schedule contained five contracting initiatives for maritime system

supplies. These five initiatives involve a combination of corporate

contracting, long-term contracting, and direct delivery concepts. The

contracts cover a range of items, including valves, filters, and pumps used

on Navy vessels. The schedule provided planned contract award dates for

these initiatives.

Other Categories of Supplies The schedule contained 14 contracting initiatives for other categories of

supplies and 2 electronic commerce initiatives. Other categories of

supplies include industrial gases, fire fighting equipment, metals, and

water purification systems. The contracting initiatives include a

combination of corporate contracting, long-term contracting, and direct

delivery concepts. The schedule generally consisted of actual or estimated

contract award dates and other contract information.

The first electronic commerce initiative, called the Electronic Commerce

Mall, is designed to allow DOD customers to order supplies using the

Internet. It also provides the customer with the capability to search for,

find, and select items. The schedule information consisted of the date that

the latest version of the initiative was fielded to DOD customers. The

second electronic commerce initiative is to place suppliers’ catalogs on

electronic ordering systems that are accessible to DOD customers. The

schedule information consisted of the fiscal year that contracts were

awarded for seven electronic catalogs.

DLA Believes Schedule

Initiatives Are Uncertain

DLA officials stated that planning information was not provided for the

initiatives because of the uncertain nature of the initiatives. The officials

stated that many initiatives listed in the schedule are tests that may not

become full-scale programs if they do not meet the criteria of (1) providing

consistently high quality materials to the warfighter at the time and

location they are needed and (2) overall savings to DOD. In addition, DLA

does not have the authority to require the military services to participate in

these programs. Therefore, DLA’s schedule did not predict the extent to

which each military installation would use these initiatives.

DLA, however, has been able to develop such implementation plans for

other initiatives, including its most successful ones to date. For example,

when DLA implemented the prime vendor program for food and medical

supplies, it developed schedules with specific dates for concept testing

and evaluation, expansion to other sites, and full implementation. This

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information provided a basis for measuring the progress DOD was making

in adopting these concepts.

Conclusions Although DLA’s best practices implementation schedule identifies a variety

of initiatives, it does not contain the information necessary to assess

implementation progress, the initiatives’ use in any particular supply

category, or the results of the initiatives as measured in terms of cost,

service, and readiness. Such information is essential for oversight by

Congress and DOD managers as they seek to determine whether the

initiatives are being implemented in a timely manner over the desired

scope of operations and are achieving the intended results.

Recommendations To develop a more effective implementation schedule, we recommend that

the Secretary of Defense direct the Director of DLA to revise its schedule.

For each supply category, the schedule should identify the percentage of

future sales or percentage of the items managed that DLA projects will be

covered by the initiatives, key performance indicators to measure the

overall impact the initiatives will have on logistics costs and efficiencies of

operations, and plans for expanding or fully implementing the initiatives.

For prime vendor initiatives the schedule should provide specific

information on (1) milestones for testing and evaluating each concept,

(2) potential implementation sites, (3) planned dates for implementing the

practices at the potential sites, and (4) the projected date that

implementation will be completed.

Matter for

Congressional

Consideration

In commenting on a draft of this report, DOD indicated that it does not plan

to revise the schedule in a manner suggested in our recommendation. If

Congress decides it wants more information regarding DOD’s plan to

implement best practices over the next 3 years, it may wish to consider

requiring DOD to supplement the information in each supply category with

the type of information listed in our recommendation.

Agency Comments

and Our Evaluation

In commenting on a draft of this report, DOD agreed that more information

is needed to fully assess DLA’s best practice initiatives, but disagreed with

our recommendation that DLA’s schedule should be revised to provide that

information for each supply category. DOD stated that the information

contained in the schedule is the best available at this time and that the

specific items that will be covered by the initiatives and specific

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performance measures are subject to negotiations with potential

contractors.

DOD also disagreed with our recommendation that DLA provide key

implementation information for prime vendor initiatives. DOD stated that

the pharmaceutical, medical, and subsistence prime vendor initiatives

were already completed, one of the clothing and textile prime vendor

programs was tested and would not be expanded, and three other prime

vendor initiatives discussed in the schedule were evolving, and expansion

depended on successful testing and customer commitment to use the

program. Rather than revise the schedule to provide the information we

recommended, DOD suggested that DLA provide annual updates for each of

the next 2 years detailing progress in expanding the initiatives listed in the

schedule.

Although we agree that the identification of specific items to be included

in the prime vendor initiatives and performance metrics are subject to

negotiations with potential contractors, these issues are separate and

distinct from specific goals, objectives, milestones, and key performance

indicators that should be a part of DLA’s strategy to adopt best practices

within the 3-year time frame specified in Section 395 of the National

Defense Authorization Act for Fiscal Year 1998. We also agree that the

prime vendor programs are evolving, and that they depend on success at

test sites and customer commitment to work effectively. While we

recognize these uncertainties exist, we believe that should not preclude

DOD from establishing target goals, objectives and milestones that can be

measured and tracked. Without such information, Congress and DOD

managers would have limited oversight in assessing the progress and

impact of best practices on improving DOD’s management of consumable

items. Since DOD disagreed with our recommendation to revise DLA’s

schedule, we added a Matter for Congressional Consideration concerning

whether Congress may want DOD to supplement the schedule information

it has provided.

Scope and

Methodology

Our analysis of DLA’s schedule was based on our prior work comparing DOD

and private sector logistics practices, the information contained in DLA’s

schedule, and discussions with DOD officials. We examined each category

of supply to determine if it contained initiative coverage information,

detailed expansion plans, and key performance metrics we have found in

other successful best practice strategies.

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We interviewed officials at DLA Headquarters, Fort Belvoir, Virginia, and

obtained detailed information about ongoing and planned initiatives from

the Defense Supply Center Columbus, Ohio; Defense Supply Center

Richmond, Virginia; Defense Supply Center Philadelphia, Pennsylvania;

and Defense Energy Support Center, Fort Belvoir, Virginia. We also

obtained and analyzed information from these organizations on inventory

levels, response times, operating costs, and other related performance

measures. In addition, we used information from our related reports that

have been issued since 1991.

To obtain additional details on DLA’s initiatives, we visited Marine Corps

Headquarters, Arlington, Virginia; Camp Lejeune Marine Corps Base,

Jacksonville, North Carolina; Parris Island Marine Corps Recruit Depot,

Beaufort, South Carolina; and Lackland Air Force Base and Wilford Hall

Medical Center, San Antonio, Texas. We discussed with logistics personnel

and end users at these locations the results of DLA’s initiatives, the impacts

on supply operations, customer satisfaction, and the approach used for

adopting best practices at their facilities. We also visited a company that is

as a prime vendor for DOD, and discussed with officials the impact of the

initiative on its operations and the feasibility for adopting the concept to

encompass a greater part of DOD’s operations.

We conducted our review from March to June 1998 in accordance with

generally accepted government auditing standards.

We are sending copies of this report to the appropriate congressional

committees; the Secretaries of Defense, the Army, the Air Force, and the

Navy; the Directors of DLA and the Office of Management and Budget; and

other interested parties. We will make copies available to others upon

request.

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

questions concerning this report. Major contributors to this report are

listed in appendix II.

Sincerely yours,

David R. Warren, Director

Defense Management Issues

Page 15 GAO/NSIAD-98-218 Inventory Management
Contents

Letter 1

Appendix I 

Comments From the

Department of

Defense

18

Appendix II 

Major Contributors to

This Report

21

Related GAO Products 24

Table Table 1: Our Assessment of DLA’s Schedule 5

Abbreviations

DLA Defense Logistics Agency

DOD Department of Defense

Page 16 GAO/NSIAD-98-218 Inventory Management
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Appendix I 

Comments From the Department of Defense

Page 18 GAO/NSIAD-98-218 Inventory Management
Appendix I 

Comments From the Department of Defense

Now on p. 12

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Appendix I 

Comments From the Department of Defense

Page 20 GAO/NSIAD-98-218 Inventory Management
Appendix II 

Major Contributors to This Report

National Security and

International Affairs

Division, Washington,

D.C.

James F. Wiggins

Robert L. Repasky

Barbara L. Wooten

Karen S. Blum

Chicago Field Office Matthew B. Lea

Dallas Field Office Robert D. Malpass

Page 21 GAO/NSIAD-98-218 Inventory Management
Page 22 GAO/NSIAD-98-218 Inventory Management
Page 23 GAO/NSIAD-98-218 Inventory Management
Related GAO Products

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).

Defense Inventory Management: Problems, Progress, and Additional

Actions Needed (GAO/T-NSIAD-97-109, Mar. 20, 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).

(709332) Page 24 GAO/NSIAD-98-218 Inventory Management
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