GAO

United States General Accounting Office

Report to the Chairman, Subcommittee 

on National Security, Veterans Affairs, 

and International Relations, Committee 

on Government Reform, House of 

Representatives

April 1999 DEFENSE 

INVENTORY

Status of Inventory 

and Purchases and 

Their Relationship to 

Current Needs

GAO/NSIAD-99-60

United States

General Accounting Office

Washington, D.C. 20548 Letr

Page 1 GAO/NSIAD-99-60 Defense Inventory

GAO

National Security and

International Affairs Division

B-279506 Letter

April 16, 1999

The Honorable Christopher Shays

Chairman, Subcommittee on National Security,

 Veterans Affairs, and International Relations

Committee on Government Reform

House of Representatives

As part of our ongoing analysis of the Department of Defense’s (DOD) 

secondary inventory, we have updated our prior analyses of DOD’s 

reported on-hand and on-order inventory.1

 As requested, we determined 

whether DOD (1) had on-hand inventory exceeding current requirements 

as of September 30, 1996, and 1997, and (2) was buying inventory for which 

it had no current requirement as of those same dates. Our analyses are 

based on reported secondary inventory data relating to spare and repair 

parts, clothing, medical supplies, and other items to support DOD’s 

operating forces. The scope and methodology of our work are described in 

appendix I.

Results in Brief DOD reported reducing the secondary inventory we analyzed from about 

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

1997. About $39.4 billion of this inventory exceeded DOD’s requirements 

and represented about 60 percent of DOD’s total on-hand inventory. The 

percentage of inventory that exceeded current requirements remained 

about the same for the two periods we analyzed and was about the same as 

of September 30, 1995.2

DOD could potentially reduce inventory that exceeded current 

requirements where economical to do so. The Department had no demand 

for about $11 billion, or 29 percent, of $37 billion of the inventory that 

exceeded current requirements as of September 30, 1997, but did have 

customer demands for the remaining $26 billion. Assuming customer 

demands remain unchanged, $3.4 billion of this inventory would last 20 or 

1Defense Logistics: Much of the Inventory Exceeds Current Needs (GAO/NSIAD-97-71, Feb. 28, 1997) 

and 1998 DOD Budget: Operation and Maintenance Program (GAO/NSIAD-97-239R, Aug. 21, 1997).

2

In commenting on our past reports, DOD disagreed with our definition of current requirements. We 

believe that the inventory DOD needs to prevent out-of-stock situations and to meet funded war 

reserves represents current requirements. DOD adds inventory to cover unfunded war reserves and 

demand for the time frame covered by the budget--2 years from the end of the fiscal year. About

$22.7 billion, or 34 percent, of on-hand inventory exceeded DOD’s measure as of September 1997.
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more years and $658 million would last more than 100 years. Some portion 

of this inventory is more economical to retain than to dispose of and 

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

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

DOD must continue to purchase additional inventory to replenish supply 

shortages. However, DOD also ordered inventory that, if received, would 

add to the amount that exceeded current requirements as defined by DOD 

and us. 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. 

The requirements for these inventories frequently change after the items 

are ordered. However, while the services cancel some of the on-order 

inventory that is not needed, they miss many opportunities to cancel 

additional orders.

We have made a number of recommendations in the past that DOD take 

actions to improve its inventory management processes and to adopt 

leading edge business practices. Therefore, we are making no additional 

recommendations in this report.

Background In 1990, we identified DOD’s management of secondary inventory as a

high-risk area because levels of inventory were too high and management 

systems and procedures were ineffective. While some improvements have 

been made, we reported in 19993

 that these conditions still exist. Our 

August 1997 report stated that DOD had $8.6 billion of inventory on 

contract or on purchase requests as of September 30, 1996, of which

$1.6 billion, or 18.8 percent, exceeded current requirements. Our prior 

work shows that in some cases purchases (1) were not based on valid 

needs, (2) were excess to needs because the requirements changed after 

orders were placed, and (3) occurred even though contracts could have 

been canceled.4

 Notwithstanding these conditions, DOD must continue to 

purchase other inventory items to support the needs of its customers 

because some items are in short supply. 

3High-Risk Series: An Update (GAO/HR-99-1, Jan. 1999).

4

Navy Inventory Management: Improvements Needed to Prevent Excess Purchases

(GAO/NSIAD-98-86, Apr. 30, 1998) and Defense Logistics (GAO/NSIAD-97-71, Feb. 28, 1997).
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We have previously recommended that DOD adopt leading-edge practices, 

such as prompt repair of items, supplier partnerships, and third-party 

logistics, to improve its logistics operations. In our prior work, we found 

that DOD recognized that it must improve its inventory management and 

had initiated some pilot projects. To further this goal, DOD set out 

objectives for continued inventory improvements in the 1998 Logistics 

Strategic Plan. The plan includes objectives to reengineer business 

practices to increase efficiency and reduce logistics resource requirements 

and minimize levels of inventory, consistent with readiness objectives.

We reported in February 1997 that DOD had achieved some inventory 

reductions; however, about 60 percent of the on-hand inventory exceeded 

current requirements as defined by us. In that report, we recognized that 

DOD is always going to have inventory that exceeds current requirements 

and that some should be retained for economic or contingency reasons. 

However, our data showed that DOD had potential for further reductions. 

The inventory that we refer to as current requirements in this report and 

our previous reports represents the maximum authorized amount of 

inventory required to prevent out-of-stock situations. DOD defines this 

amount as its requirements objective. The major components of the 

requirements objective are

• war reserves that are authorized to be purchased to ensure fast 

mobilization in the event of war, 

• customer requisitions that have not been filled,

• a safety level to be on hand in case of minor interruptions in the 

resupply process or unpredictable fluctuations in demand,

• items to be issued during the period between when a need to buy an 

item is identified and when it is received (lead time),

• minimum quantities for designated items (insurance items), 

• items to be issued during the repair period for repairable items, and

• an economic order quantity to ensure the quantity ordered results in the 

lowest total costs to order and hold inventory.

DOD matches on-hand and on-order inventory by individual item to their 

requirements objective to determine if there is an excess or shortage of 

inventory. In this report, we present summaries of our analyses of the

item-level and summary-level budget stratification reports that the military 

services and Defense Logistics Agency (DLA) use to prepare budget 
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requests and to review funding.5 We address the on-hand and on-order 

inventory items that exceed the requirements. This report does not address 

DOD’s shortages of items that it uses to support its budget request. We did 

not independently determine the reliability of the data; however, our prior 

evaluations show that some of the data used by DOD and the services were 

not entirely accurate and reliable. Notwithstanding the concerns we have 

about the data reliability, we believe that the records and reports can be 

used to monitor the status of on-hand and on-order inventory at the macro 

level. 

Much of DOD’s 

Inventory Is Above 

Current Requirements

DOD reported reducing the secondary inventory we analyzed by

$3.9 billion, from $69.7 billion as of September 30, 1996, to $65.8 billion as 

of September 30, 1997. However, $39.4 billion of the $65.8 billion in 

secondary inventory for September 30, 1997, exceeded the current 

requirements shown in DOD’s requirements objective. In other words, 

based on the requirements at September 30, 1997, DOD would not have 

bought $39.4 billion, or about 60 percent, of the inventory it had on hand. 

The percentage of inventory that exceeded current requirements was about 

the same as of September 30, 1995. 

Although the requirements objective represents the maximum amount of 

inventory authorized to sustain current operations, including the funded 

war reserves, DOD officials prefer to use the approved acquisition 

objective as the measure of requirements for on-hand inventory. The 

approved acquisition objective is generally the requirements objective plus 

inventory to cover unfunded war reserves and to meet demand for the time 

period that DOD is budgeting--2 years from the end of a fiscal year. Using 

DOD’s calculation of approved acquisition objective, we calculated that 

$22.7 billion, or 34 percent, of the $65.8 billion in inventory exceeded 

DOD's requirements as of September 1997. The following table compares 

the on-hand inventory with both the requirements objective and the 

approved acquisition objective.

5

We use DOD’s budget stratification reports to make our analyses because item-level information is 

available from each service and DLA. DOD also reports summary statistics on the status of its on-hand 

inventory in the Supply System Inventory Report. See appendix III for summary statistics and methods 

of valuing inventory.
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Table 1: DOD Inventory That Exceeded Current Requirements as of September 30, 

1996, and 1997

aWe reviewed most of the inventory in the budget stratification records for the Army, the Navy, the Air 

Force, and DLA but not for the Marine Corps. We did not analyze data for in-transit stock, some retail 

inventory, and some consumable inventory, including fuel, because the inventory either was not 

stratified or represented a small portion of the total inventory. The items are priced at latest acquisition 

cost. 

The detail by DOD component is shown in tables II.1 and II.2 of

appendix II.

We previously reported6

 that DOD’s on-hand inventory exceeded current 

requirements for many reasons. Some of the reasons were demands 

decreased, fluctuated, or did not materialize; items became obsolete when 

weapon systems became obsolete or were phased out of service; and some 

of the initial requirements and demand forecasts were not accurate.

DOD officials told us that once the inventory exceeds current 

requirements, they must decide whether to keep it or dispose of it. To 

make this decision, DOD uses models to determine how much of the 

inventory will be needed beyond the 2 years of demand shown in the 

approved acquisition objective. On the bases of these models, DOD divides 

its inventory into groupings that (1) are more economical to retain than 

dispose of and possibly repurchase, (2) are held to support specific 

contingencies, and (3) have potential for reutilization or disposal. While it 

may need to retain some of this inventory, DOD has the potential for 

further inventory reductions, as the following sections indicate. 

Dollars in billions

On-hand inventory exceeding

On-hand

inventory

analyzeda Requirements

objective

Approved acquisition

objective

Year ending Value Value Percent Value Percent

Sept. 30, 1996 $69.7 $41.3 59 $25.4 36

Sept. 30, 1997 65.8 39.4 60 22.7 34

Change ($3.9) ($1.9) ($2.7)

6

See Related GAO Products at the end of this report.
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Some Items Have No 

Projected Demands

DOD reported reducing the amount of inventory that exceeded current 

requirements and did not have demands from $12.5 billion as of

September 30, 1996, to $10.9 billion as of September 30, 1997. However, the 

amount that had no projected demand still represented about 30 percent of 

DOD’s inventory that exceeded the current requirements. (See table 2.) 

Table 2: Comparison of Items Without Projected Demand and the Value of Inventory 

Exceeding Current Requirements

aThe amounts in this table differ from table 1 primarily because we excluded inventory called numeric 

stockage objective items that DLA manages based on criteria other than demand. In addition, data 

were not available to make the analysis for the approved acquisition objective for all services.

We further analyzed this inventory by service (see tables II.3 and II.4 of

app. II) and found that the Navy and the Air Force held about $11.8 billion 

of the $12.5 billion in inventory with no projected demand as of September 

1996 and $10.4 billion of the $10.9 billion in inventory as of September 1997. 

While this macro measure shows that all of this inventory has no projected 

customer demand, it does not show the extent that DOD has determined it 

is more economical to keep the inventory rather than dispose of and 

possibly repurchase. We provided, however, in our February 1997 report, 

several examples where items with no demand may never be used. 

We excluded about $3 billion of DLA’s inventory that exceeded the 

requirements objective from each year of this analysis because DLA does 

not manage these items based on demand. Although these items are not 

managed based on demand, they are similar to items with no demand and 

have potential for inventory reductions. According to a DLA official, the 

services transferred about 60 percent of this inventory to DLA. He said that 

these items have infrequent and erratic demands, making forecasting 

extremely difficult and disposal somewhat problematic. 

Dollars in billions

On-hand inventory

exceeding

requirements

objectivea Inventory exceeding requirementsobjective that had no demand

Date Value Value Percentage

Sept. 30, 1996 $39.8 $12.5 31

Sept. 30, 1997 37.0 10.9 29

Change ($2.8) ($1.6)
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Inventory Exceeding 

Current Requirements 

Represents Many Years 

of Projected Supply 

Needs

Of the $37 billion in secondary inventory that exceeded current 

requirements as of September 30, 1997, $26 billion had projected customer 

demands. Using the projected demand data, we grouped the $26 billion to 

show years of supply based on current demand data (see fig. 1). This 

analysis assumes demand patterns across the summary of items will 

remain unchanged. Increases or decreases in actual demand by item do 

occur; consequently, this data is only an indicator of potential excess 

inventory held by DOD.

Figure 1: Value of Items With Inventory Exceeding the Requirements Objective 

Shown by Years of Supply for September 30, 1996, and 1997

Note: The amounts in this figure also exclude the DLA inventory items that are not managed based on 

demand.

The detail by DOD component is shown in tables II.7 and II.8 of

appendix II.

0

1

2

3

4

5

6

7

8

9

10

Less than 2

years

2 to 5 years 5 to 10 years 10 to 20 years 20 to 50 years 50 to 100 years 100 or more

years

September 30, 1996 September 30, 1997

Dollars in billions

Years of supply
B-279506

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These data show

• about $9.3 billion (36 percent of $26 billion) represented the first 2 years 

of demand that exceeded the requirements objective but would 

generally be included in the approved acquisition objective,

• the remaining items represented about $16.7 billion (64 percent of

$26 billion) that would last more than 2 years after the requirements 

objective was met, and

• about $3.4 billion would last 20 or more years and $658 million would 

last 100 or more years after the requirements objective was met. 

Some Inventory on 

Order Exceeds Current 

Requirements

DOD must order inventory on a routine basis to meet supply shortages. To 

do this, DOD orders inventory based on the requirements objective. We 

found that as of September 30, 1996, and September 30, 1997, some of the 

on-order inventory was no longer needed. We previously reported in 

February 1997, August 1997, and April 1998 that ordering inventory that 

was beyond requirements was a continuing problem. For example, our 

work showed that in some cases purchases (1) were not based on valid 

needs, (2) were excess to needs because the requirements changed after 

orders were placed, or (3) were for weapon systems that had not been 

activated. We reported that some of the changes could not have been 

anticipated, but DOD could have done a better job of canceling those 

purchases that exceeded requirements. 

A DOD official told us that while the services cancel some orders that 

exceed current requirements, sometimes it is more economical to receive 

the orders than to cancel them. However, we reported in April 1998 that 

ineffective and inefficient inventory management practices result in 

purchasing resources being applied to items where there is already 

sufficient inventory to support needs. Furthermore, to the extent that DOD 

receives these orders, it increases the on-hand inventory that exceeds 

current requirements and DOD must determine whether it is more 

economical to keep or dispose of.

As of September 30, 1997, the services and DLA had $8 billion of inventory 

on order, of which $1.5 billion would not have been ordered based on 

current requirements. This is slightly better than September 30, 1996, when 

the amount was $8.9 billion of inventory on order or on purchase request, 

of which $1.7 billion would not have been ordered based on current 

requirements. In both cases, the portion that exceeded current 

requirements stayed at about 18 percent. Using DOD’s approved 
B-279506

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acquisition objective, $609 million, or 8 percent, of its purchases exceeded 

current requirements as of September 30, 1997. (See table 3.)

Table 3: Inventory on Order That Exceeded Current Requirements as of

September 30, 1996, and 1997

aEighty percent of the $1.5 billion as of September 1997, was "on-order: contract," which is due in from 

procurement for which funds have been obligated, and 20 percent was "on-order: commitment," for 

which a procurement request had been initiated but a contract had not been awarded.

Tables II.5 and II.6 of appendix II detail our analysis for each of the military 

services and DLA. 

This analysis does not show how much of the on-order inventory could 

economically be canceled. In our April 1998 report on the Navy’s 

purchases, we provided reasons that on-order inventory became excess to 

current requirements. 

• Some requirements to purchase items were not valid. 

• Customer demands decreased or did not materialize after the order was 

placed.

• Engineering estimates for requirements had not materialized.

• The item or system on which the item was used became obsolete.

We reported that in some cases, the changes could not have been 

anticipated. However, in other cases, better management could have 

eliminated or reduced the accumulation of inventory that exceeded 

requirements. For example, we reported that while the Navy canceled 

some orders, it missed many opportunities to cancel additional orders for 

inventory that was no longer needed. 

Dollars in millions

On-order inventory exceeding

On-order

inventory

analyzed

Requirements

 objective

Approved acquisition

objective

Date Value Value Percent Value Percent

Sept. 30, 1996 $8,852.2 $1,711.6 19 $708.4 8

Sept. 30, 1997 8,002.7 1,470.6a 18 608.9 8

Change ($849.5) ($241.0) ($99.5)
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Conclusions The data indicate that DOD has made some progress in reducing its total 

inventory; however, it still has substantial on-hand inventory that exceeds 

current requirements. The portion that exceeded current requirements 

stayed at about 60 percent of total inventory for the time periods we 

analyzed. In addition, about $11 billion of on-hand inventory that exceeded 

current requirements had no demand, and more than $3 billion of on-hand 

inventory would last 20 or more years after current requirements were met. 

DOD uses models to evaluate this inventory to determine if it should be 

kept for economic reasons, for contingencies, or disposed of. However, 

our data indicate the potential for further reductions.

DOD must continue to routinely order inventory to meet supply shortages. 

However, DOD ordered some inventory that, if received, would add to the 

amount that exceeded current requirements. Our April 1998 report 

indicates there are opportunities to improve DOD’s buying practices to 

avoid buying items that may not be used.

We have previously recommended that DOD take actions to improve the 

effectiveness and efficiency of its inventory activities and to adopt new 

leading-edge business practices. DOD has identified various initiatives in 

response to these recommendations. Therefore, we are making no 

recommendations in this report. We will continue to review DOD’s 

inventory management practices to identify further actions to improve the 

inventory management systems. 

Agency Comments and 

Our Evaluation

DOD provided comments to clarify its position on the contents of our draft 

report. (See app. IV for DOD’s complete comments.) DOD’s comments 

focused on our approach to considering inventory requirements when 

measuring inventory levels and an explanation of the just released Supply 

System Inventory Report (SSIR) for the end of fiscal year 1998.

DOD expressed disagreement with our approach to measuring inventory 

against requirements. DOD noted that to discuss the budget stratification 

reports used to determine purchase requirements and the SSIR used to 

report inventory on hand is not an accurate comparison. Also, DOD stated 

that the draft report refers to overages in budget stratification reports but 

does not address the shortages in those same reports. According to DOD, 

ignoring the shortages, while citing the overages, does not give a balanced 

picture of what the stratification reports actually show. 
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DOD also stated that the SSIR should be the only source for inventory data. 

However, we noted that DOD uses both the budget stratification and the 

SSIR reports to make management decisions. Our report recognizes the 

differences in the two reports. Item-level analysis is needed to identify the 

characteristics of inventory that exceeds current requirements, such as

(1) inventory that has no projected customer demand, (2) years of supply 

that exceeds current requirements, and (3) inventory on order that is no 

longer needed to meet current requirements. To do that analysis, we used 

the item-level records that are the basis for both the budget stratification 

and the SSIR reports. The analyses in our report cannot be made from the 

SSIR, which is a summary level report.

Our report was revised to more clearly recognize that DOD has supply 

shortages. Although we concentrated on inventory that exceeds current 

needs, we realize that DOD must continue to purchase other inventory 

items to support the needs of its customers because some items are in 

short supply. Replenishing inventory is a normal part of the supply system 

process and DOD uses analyses of these needs to support budget requests.

Additionally, DOD stated that the SSIR is its official report on inventory and 

provided just released statistics showing $61.2 billion of secondary 

inventory in current dollars for the end of fiscal year 1998--$3.6 billion 

better than DOD’s National Performance Review goal. Our review focused 

on the 1997 inventory because that was the most recent data available at 

the time of our work. Appendix III shows the SSIR statistics for the end of 

fiscal year 1997.

We are sending copies of this report to the appropriate congressional 

committees; to the Honorable William S. 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, Acting 

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

DLA; and the Honorable Jacob J. Lew, Director, Office of Management and 

Budget. 
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Please contact me at (202) 512-8412 if you have any questions. The major 

contributors to this report are listed in appendix V.

Sincerely yours,

David R. Warren, Director

Defense Management Issues
Page 13 GAO/NSIAD-99-60 Defense Inventory
Page 14 GAO/NSIAD-99-60 Defense Inventory

Contents

Letter 1

Appendix I

Scope and 

Methodology

17

Appendix II

Inventory Analyses by 

Service and DLA for 

September 30, 1996, 

and 1997

20

Appendix III

DOD Secondary 

Inventory Reports

24

Appendix IV

Comments From the 

Department of Defense

28

Appendix V

Major Contributors to 

This Report

30

Related GAO Products 32

Tables Table 1: DOD Inventory That Exceeded Current Requirements as of 

September 30, 1996, and 1997 5

Table 2: Comparison of Items Without Projected Demand and the

Value of Inventory Exceeding Current Requirements 6

Table 3: Inventory on Order That Exceeded Current Requirements

as of September 30, 1996, and 1997 9
Contents

Page 15 GAO/NSIAD-99-60 Defense Inventory

Table II.1: DOD Inventory That Exceeded Current Requirements by

Component as of September 30, 1996 20

Table II.2: DOD Inventory That Exceeded Current Requirements by

Component as of September 30, 1997 20

Table II.3: Items Without Projected Demand and the Value of

Inventory Exceeding Current Requirements by Component as of 

September 30, 1996 21

Table II.4: Items Without Projected Demand and the Value of

Inventory Exceeding Current Requirements by Component as

of September 30, 1997 21

Table II.5: Inventory on Order That Exceeded Current Requirements 

by DOD Component as of September 30, 1996 22

Table II.6: Inventory on Order That Exceeded Current Requirements 

by DOD Component as of September 30, 1997 22

Table II.7: Years of Supply That Exceeded Current Requirements

as of September 30, 1996 23

Table II.8: Years of Supply That Exceeded Current Requirements

as of September 30, 1997 23

Table III.1: DOD Reduces Secondary Inventory—Fiscal Year 1995

Constant Dollars 26

Table III.2: DOD Reduces Secondary Inventory—Current-Year

Dollars 27

Figures Figure 1: Value of Items With Inventory Exceeding the

Requirements Objective Shown by Years of Supply for

September 30, 1996, and 1997 7

Figure III.1: Relationship of the SSIR to the Budget Stratification

Records Provided to Us as of September 30, 1997 25

Abbreviations

DLA Defense Logistics Agency

DOD Department of Defense

SSIR Supply System Inventory Report
Page 16 GAO/NSIAD-99-60 Defense Inventory
Page 17 GAO/NSIAD-99-60 Defense Inventory

Appendix I

Scope and Methodology ApenIxdi

We analyzed September 30, 1996, and September 30, 1997, inventory 

stratification reports for the Army, the Air Force, the Navy, and the Defense 

Logistics Agency (DLA) to determine whether the Department of Defense 

(DOD) bought and retained more inventory than it needed to meet current 

requirements. We used analyses that we had developed in two prior 

reviews to determine the extent that DOD’s inventory exceeded its current 

requirements as defined by the requirements objective and the approved 

acquisition objective. We determined the percentage of each category to 

overall inventory and measured the change between the two time periods. 

We analyzed records of inventory valued at $69.7 billion for September 30, 

1996, and $65.8 billion for September 30, 1997. Appendix III explains how 

this inventory is valued and the relation between the two reports that DOD 

uses to manage secondary inventory. 

We reviewed $65.8 billion of secondary inventory stratified by the Army, the 

Navy, the Air Force, and DLA for September 30, 1997. We did not analyze 

about $17.3 billion of the secondary inventory, including (1) the Marine 

Corps’ secondary inventory; (2) in-transit stock; (3) retail inventory; and

(4) DLA’s fuel supply, subsistence, and base operating support inventory. 

The Marine Corps’ inventory represented a small part of the universe and 

the retail inventory, in-transit stock, and fuel are not stratified. All of the 

inventory items were priced at latest acquisition cost.

Generally, we used computerized individual item records and summary 

stratification reports for the two time periods. However, to make a detailed 

analysis of demand rates, DLA provided us computerized data that were as 

of August 31, 1996, and June 30, 1998, rather than the September dates 

requested. The information represents the requirements, demand rates, 

and asset positions of the inventory as of these specific points in time. 

Although the information can change daily for individual items, our 

analyses over more than one time period indicate that the position of the 

total inventory is relatively stable. We revalued Army and Navy inventory 

to the latest acquisition cost by removing surcharges prescribed by the 

Defense Finance Accounting Service to cover the costs to operate the 

supply system. Air Force and DLA inventory were already priced at latest 

acquisition cost. 

To make our analysis, we did the following.

• Compared requirements reported for individual items with on-hand 

assets to identify inventory in excess of requirements. We used both the 

requirements objective and the approved acquisition objective 
Appendix I

Scope and Methodology

Page 18 GAO/NSIAD-99-60 Defense Inventory

whenever possible. The Army and DLA did not provide us sufficient 

information to make some of the analyses for the approved acquisition 

objective.

• Determined whether the reported on-hand inventory that exceeded the 

requirements objective had projected demand in the automated item 

records. We reported the value of the items without demand; however, 

we excluded DLA’s inventory items that have intermittent demands but 

it considered essential to stock (numerical stock objective). To 

determine the years of supply for the items with demand, we divided the 

total inventory on hand by the annual demand.

• Determined how much of the inventory on-order contract and on-order 

commitment exceeded the requirements objective and approved 

acquisition objective.

We discussed inventory requirements and procurement issues and 

inventory reduction initiatives with inventory management officials at the 

Office of the Assistant Deputy Under Secretary of Defense (Materiel and 

Distribution Management), and the Army, the Navy, the Air Force, and the 

DLA headquarters. 

We did not validate the accuracy of the inventory items, requirements, or 

asset quantities and values DOD reported in the computerized records or 

summary stratification reports. While neither we nor DOD made a 

comprehensive assessment of the databases underlying the stratification 

reports, we knew from this review, and our previous reviews of DOD 

inventory management, that the stratification reports contained some 

inaccurate data. Our previous evaluations show that DOD has a history of 

some data accuracy problems with its inventory and requirements 

information.1 Thus, while the data DOD and the services use in the

day-to-day management of secondary inventory are not entirely accurate 

and reliable, it is the basis for DOD’s budget requests for all of the services, 

and the reports were the best source of data available to us at the time of 

our review. Notwithstanding these concerns about data reliability, the 

records and reports can be used to monitor the status of on-hand and onorder inventory at the macro level.

1

We reviewed 46 of our reports and found that we questioned some aspect of the accuracy of 

information in over 50 percent of the reports. The information was either directly from the inventory 

stratification database or from other inventory records that directly or indirectly provided input to the 

inventory stratification. 
Appendix I

Scope and Methodology

Page 19 GAO/NSIAD-99-60 Defense Inventory

We performed our review between January 1998 and December 1998 in 

accordance with generally accepted government auditing standards.
Page 20 GAO/NSIAD-99-60 Defense Inventory

Appendix II

Inventory Analyses by Service and DLA for 

September 30, 1996, and 1997 ApenxIdi

Table II.1: DOD Inventory That Exceeded Current Requirements by Component as of 

September 30, 1996 

Table II.2: DOD Inventory That Exceeded Current Requirements by Component as of 

September 30, 1997 

Dollars in billions

On-hand inventory exceeding

On-hand

inventory

analyzed

Requirements

objective

Approved acquisition

objective

Component Value Value Percent Value Percent

Army $8.1 $3.9 48 $2.3 28

Navy 18.2 11.1 61 7.3 40

Air Force 35.0 22.0 63 12.9 37

DLA 8.4 4.3 51 2.9 35

Total $69.7 $41.3 59 $25.4 36

Dollars in billions

On-hand inventory exceeding

On-hand inventory

analyzed

Requirements

objective

Approved acquisition

objective

Component Value Value Percent Value Percent

Army $7.5 $3.5 47 $1.6 21

Navy 16.6 9.7 58 6.1 37

Air Force 32.7 21.3 65 11.8 36

DLA 9.0 4.9 54 3.2 36

Total $65.8 $39.4 60 $22.7 35
Appendix II

Inventory Analyses by Service and DLA for 

September 30, 1996, and 1997

Page 21 GAO/NSIAD-99-60 Defense Inventory

Table II.3: Items Without Projected Demand and the Value of Inventory Exceeding 

Current Requirements by Component as of September 30, 1996

aDLA’s data exclude inventory called numeric stockage objective items that are managed based on 

criteria other than demand.

Table II.4: Items Without Projected Demand and the Value of Inventory Exceeding 

Current Requirements by Component as of September 30, 1997

aDLA’s data exclude inventory called numeric stockage objective items that are managed based on 

criteria other than demand. 

Dollars in billions

On-hand inventory

exceeding

requirements

objectivea Inventory exceeding requirements

objective that had no demand

Date Value Value Percentage

Army $3.9 $0.6 15

Navy 11.1 4.0 36

Air Force 22.0 7.8 35

DLAa 2.8 0.1 4

Total $39.8 $12.5 31

Dollars in billions

On-hand inventory

exceeding

requirements

objectivea Inventory exceeding requirements

objective that had no demand

Date Value Value Percentage

Army $3.5 $0.3 9

Navy 9.7 2.9 30

Air Force 21.3 7.5 35

DLAa 2.5 0.2 8

Total $37.0 $10.9 29
Appendix II

Inventory Analyses by Service and DLA for 

September 30, 1996, and 1997

Page 22 GAO/NSIAD-99-60 Defense Inventory

Table II.5: Inventory on Order That Exceeded Current Requirements by DOD 

Component as of September 30, 1996

aDLA did not provide us records for on-order inventory that is held to meet numeric stock objectives.

Table II.6: Inventory on Order That Exceeded Current Requirements by DOD 

Component as of September 30, 1997

aDLA did not provide us records for on-order inventory that is held to meet numeric stock objectives.

Dollars in millions

On-order inventory exceeding

On-order

inventory

analyzed

Requirements

 objective

Approved acquisition

objective

Component Value Value Percent Value Percent

Army $1,443.9 $78.3 5 $52.9 4

Navy 1,647.6 120.6 7 45.7 3

Air Force 2,435.5 843.6 35 359.2 15

DLAa 3,325.2 669.1 20 250.6 8

Total $8,852.2 $1,711.6 19 $708.4 8

Dollars in millions

On-order inventory exceeding

On-order

inventory

analyzed

Requirements

 objective

Approved acquisition

objective

Component Value Value Percent Value Percent

Army $1,300.2 $171.8 13 $124.8 10

Navy 1,322.9 76.7 6 34.5 3

Air Force 1,732.9 408.9 24 136.8 8

DLAa 3,646.7 813.2 22 312.8 9

Total $8,002.7 $1,470.6 18 $608.9 8
Appendix II

Inventory Analyses by Service and DLA for 

September 30, 1996, and 1997

Page 23 GAO/NSIAD-99-60 Defense Inventory

Table II.7: Years of Supply That Exceeded Current Requirements as of

September 30, 1996

Table II.8: Years of Supply That Exceeded Current Requirements as of

September 30, 1997

Dollars in millions

Years of supply Army Navy Air Force DLA Total

Less than 2 $595.4 $2,016.5 $5,556.5 $517.9 $8,686.3

2 to 5 1,239.6 2,196.4 3,144.9 687.0 7,267.9

5 to 10 780.6 1,375.5 1,890.7 372.9 4,419.7

10 to 20 316.1 702.4 1,476.5 426.5 2,921.5

20 to 50 247.1 507.9 1,309.8 325.7 2,390.5

50 to 100 44.3 174.7 444.9 143.6 807.5

100 or more 70.4 143.0 376.1 211.4 800.9

Total $3,293.5 $7,116.4 $14,199.4 $2,685.0 $27,294.3

Dollars in millions

Years of supply Army Navy Air Force DLA Total

Less than 2 $827.2 $1,918.7 $6,119.4 $478.5 $9,343.8

2 to 5 1,195.7 2,268.5 3,137.5 497.1 7,098.8

5 to 10 703.2 1,256.3 1,487.3 443.4 3,890.2

10 to 20 199.0 650.9 1,063.1 373.4 2,286.4

20 to 50 138.7 406.6 1,080.2 282.7 1,908.2

50 to 100 27.7 145.9 570.6 91.2 835.4

100 or more 36.9 150.8 328.6 141.8 658.1

Total $3,128.4 $6,797.7 $13,786.7 $2,308.1 $26,020.9
Page 24 GAO/NSIAD-99-60 Defense Inventory

Appendix III

DOD Secondary Inventory Reports ApenIxdi

DOD uses the Supply System Inventory Report (SSIR) to monitor on-hand 

inventory and the budget stratification report to support its secondary item 

inventory budget and to perform reporting and funding reviews. Although 

both are developed from the same source records, the items are valued 

differently and not all items in the SSIR are stratified. The following 

sections show (1) the relationship of the value of items in the two reports 

and (2) the dollar value of DOD’s inventory reduction goals and actual 

reductions as shown in the SSIR for September 30, 1996, and 1997.

Relationship of SSIR 

and Budget 

Stratification Reports

In the SSIR, DOD values serviceable inventory that is ready for issue at 

latest acquisition cost; repairable inventory that is not ready for issue at the 

latest acquisition cost less the expected repair cost; and inventory that can 

be disposed of at an annual salvage rate, which was 2.7 percent of latest 

acquisition cost in 1997. On the other hand, the value of items we reviewed 

in the stratification reports (also called Central Secondary Item 

Stratification Report), including those needing repair and potential 

disposal, was at latest acquisition cost. 

The data that the services and DLA provided to us did not include all the 

items in the SSIR. (See additional detail in scope and methodology 

section.) Figure III.1 shows the comparison of the value of the inventory 

reported in the SSIR to the inventory reported in the stratification reports 

that we used for our analysis. We determined that the full latest acquisition 

cost of the $64.8 billion in the SSIR as of September 30, 1997, was about 

$83.1 billion. The services and DLA provided us budget stratification 

records for $65.8 billion of the $83.1 billion of items at latest acquisition 

cost.
Appendix III

DOD Secondary Inventory Reports

Page 25 GAO/NSIAD-99-60 Defense Inventory

Figure III.1: Relationship of the SSIR to the Budget Stratification Records Provided 

to Us as of September 30, 1997

Legend

Bar 1: SSIR inventory with latest acquisition cost values discounted for repair costs and potential 

excess. We analyzed about $52 billion of the $64.8 billion of inventory in the SSIR.

Bar 2: SSIR inventory valued at full latest acquisition cost was about $83.1 billion. We analyzed about 

$65.8 billion of the inventory reported in the SSIR at full value.

Bar 3: $65.8 billion of inventory in the budget stratification reports provided to us at full value.

DOD Inventory 

Reductions as 

Measured in SSIR

DOD uses the SSIR to measure the extent it meets its logistics goals for

on-hand inventory. In its 1998 Logistics Strategic Plan, DOD set objectives 

across a broad range of areas to reduce the total cost of logistics. One of 

the guiding principles is that inventories and inventory costs at all echelons 

will be established at the minimal levels that are required to meet customerdriven support objectives. Specifically, it set a goal to reduce secondary 

0

10

20

30

40

50

60

70

80

90

Inventory analyzed Inventory not analyzed

64.8

83.1

65.8

Dollars in billions

SSIR Revalued SSIR Stratification

12.8

52

17.3

65.8
Appendix III

DOD Secondary Inventory Reports

Page 26 GAO/NSIAD-99-60 Defense Inventory

inventory by $3 billion per year from September 1996 to September 1997. 

DOD set this goal in fiscal year 1995 constant dollars to remove the impact 

of inflation. 

The SSIR showed that DOD exceeded its goal by reducing its secondary 

item inventory by $4.7 billion in fiscal year 1995 constant dollars

($3.7 billion in current-year dollars) from September 30, 1996, to

September 30, 1997. DOD reported that (1) some inventory reductions 

were made using a number of better business practices, such as direct 

vendor deliveries; (2) demand for items decreased as the force structure 

was reduced; (3) inventory was held for shorter periods in retention 

categories before being transferred to disposal; and (4) less inventory was 

bought with smaller budgets. A DOD official also told us that much of the 

reductions prior to fiscal year 1996 were based on reduced demands from a 

smaller force structure. However, starting in fiscal year 1996, the 

reductions must be made by changing the criteria for buying or retaining 

stock or through reduced budgets.

About 60 percent of DOD’s inventory value exceeds current requirements 

(requirements objective) using the latest acquisition cost. About

50 percent exceeds current requirements, assuming the reduced costs 

shown in the SSIR.

The following table shows the change in inventory value by service for 

September 1996 and September 1997 in fiscal year 1995 constant dollars.

Table III.1: DOD Reduces Secondary Inventory—Fiscal Year 1995 Constant Dollars

According to the accomplishments section of the DOD 1998 Logistics 

Strategic Plan, the Navy reduced its inventory by $1.7 billion by decreasing 

safety levels and retention levels, transferring some consumable items to 

Values in billions

Component Sept. 1996 Sept. 1997 Change

Army $10.6 $10.1 ($.5)

Navy 18.0 16.3 (1.7)

Air Force 28.8 26.3 (2.5)

DLA 9.4 9.5 0.1

Marine Corps 0.5 0.4 (0.1)

Total $67.3 $62.6 ($4.7)
Appendix III

DOD Secondary Inventory Reports

Page 27 GAO/NSIAD-99-60 Defense Inventory

DLA for management, implementing management improvements such as 

direct vendor deliveries, and taking other budget reductions. The Air Force 

made a significant reduction of $2.5 billion by changing its inventory 

retention criteria in calculating the amount of inventory it considers more 

economic to retain than surplus from 13 years to 8 years and by reducing 

war reserves and other changes. The other services did not make 

significant reductions. DLA officials said they made $1.2 billion in 

reductions that were offset by $1.3 billion in transfers from the military 

services.

The SSIR is published with values in current-year dollars. The following 

table, as shown in the September 30, 1997, report, shows a $3.7-billion 

reduction in current-year dollars.

Table III.2: DOD Reduces Secondary Inventory—Current-Year Dollars

aNumbers do not add due to rounding.

Values in billions

Component Sept. 1996 Sept. 1997 Change

Army $10.8 $10.5 ($.3)

Navy 18.3 16.8 (1.5)

Air Force 29.3 27.2 (2.1)

DLA 9.5 9.8 0.3

Marine Corps 0.5 0.4 (0.1)

Total $68.5a $64.8a ($3.7)
Page 28 GAO/NSIAD-99-60 Defense Inventory

Appendix IV

Comments From the Department of Defense ApeVnxIdi
Appendix IV

Comments From the Department of Defense

Page 29 GAO/NSIAD-99-60 Defense Inventory
Page 30 GAO/NSIAD-99-60 Defense Inventory

Appendix V

Major Contributors to This Report ApenVxdi

National Security and 

International Affairs 

Division, Washington, 

D.C.

Charles Patton

James Murphy

Kansas City Field 

Office

Gary Billen

Leonard Hill

Robert Sommer

Michael Buell
Page 31 GAO/NSIAD-99-60 Defense Inventory
Page 32 GAO/NSIAD-99-60 Defense Inventory

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(709307) Letr
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