a

GAO

United States Government Accountability Office

Report to Congressional Committees

August 2004 DEFENSE 

INVENTORY

Analysis of 

Consumption of 

Inventory Exceeding 

Current Operating 

Requirements Since 

September 30, 2001

GAO-04-689
www.gao.gov/cgi-bin/getrpt?GAO-04-689.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact William M. Solis 

at (202) 512-8365 or solisw@gao.gov. 

Highlights of GAO-04-689, a report to 

Senate and House Committees on Armed 

Services and the Subcommittees on 

Defense, Senate and House Committees 

on Appropriations 

August 2004

DEFENSE INVENTORY

Analysis of Consumption of Inventory 

Exceeding Current Operating 

Requirements Since September 30, 2001 

GAO’s analysis of 1.5 million items with $35.1 billion of inventory on hand 

that exceeded current operating requirements as of September 30, 2001, 

showed that about $4.0 billion was consumed—$2.5 billion was used, 

$0.5 billion was disposed of, and $1.0 billion was condemned—since the 

onset of Operation Enduring Freedom and through the initial phases of 

Operation Iraqi Freedom. GAO found that, once disposals and 

condemnations were accounted for, 539,000 items had inventory that was 

used, 18,000 had inventory gains, and 937,000 had neither inventory usage 

nor gains. Of the 1.5 million items, customers did not make demands for 

923,000 items during the period of review. 

Consumption of Inventory Exceeding September 30, 2001, Current Operating Requirements 

$31.0 billiona of inventory remaining

$4.0 billiona of inventory used, condemned, or disposed of

$0.5 billion of inventory disposed of

$1.0 billion of inventory condemned

$2.5 billion of inventory used

Source: GAO analysis of DOD data.

a

Inventory amounts do not total to $35.1 billion because of rounding. 

GAO also identified three ineffective and inefficient inventory management 

practices that may affect inventory levels, including the inventory exceeding 

current operating requirements. First, although Defense Logistics Agency 

(DLA) has begun to charge its customers for inventory storage based on the 

actual space occupied by items, the military components are not using the 

DLA storage cost data, and instead continue to use estimated storage costs 

in their inventory management decision-making processes. Second, the 

Air Force does not have a systemwide process for correcting the causes of 

discrepancies between the inventory for which item managers are 

accountable and the inventory reported by bases and repair centers. Third, 

Air Force item managers are not required to enter codes into the Air Force 

inventory system for items that are categorized as potential reutilization 

and/or disposal materiel, but that the Air Force wants to retain; thus, the 

items are not properly categorized and are at risk of disposal. 

Since 1990, GAO has identified the 

Department of Defense’s (DOD) 

inventory management as a highrisk area. Ineffective management 

practices—such as the use of 

inaccurate data, lack of inventory 

controls and visibility, and 

information system weaknesses—

have contributed to high levels of 

inventory. DOD has reduced its 

inventory since 1990, from about 

$100 billion to about $67 billion as 

of September 30, 2002. However, at 

the start of Operation Enduring 

Freedom, about half of the 

inventory exceeded current 

operating requirements. 

GAO, under its statutory authority, 

analyzed the extent to which 

inventory that exceeded current 

operating requirements as of 

September 30, 2001, was consumed 

through cutoff dates ranging from 

March through October 2003 and 

identified three ineffective and 

inefficient inventory management 

practices. 

GAO recommends that DOD take 

actions to correct inventory 

management practices related to 

the military components’ use of 

inventory storage cost estimates, 

the lack of an Air Force systemwide process for correcting causes 

of inventory discrepancies, and the 

improper coding of items that the 

Air Force wants to retain. 

In its comments, DOD generally 

concurred with GAO’s report and 

recommendations. 
Page i GAO-04-689 Defense Inventory 

Letter 1

Scope and Methodology 3

Results in Brief 6

Background 9

About $4.0 Billion of the Inventory Exceeding Current Operating 

Requirements Was Consumed Since September 30, 2001 12

Some DOD Practices Contribute to Ineffective and Inefficient 

Inventory Management 16

Conclusions 22

Recommendations for Executive Action 23

Agency Comments and Our Evaluation 23

Appendix I Comments from the Department of Defense 26 

Table 

Table 1: Comparison of Differences between Estimated Storage 

Costs and Storage Costs Charged by DLA for Army, Navy, 

and DLA Items 18

Figures 

Figure 1: Categorization of Inventory for a Navy Power Supply 10

Figure 2: Consumption of Inventory Exceeding September 30, 2001, 

Current Operating Requirements 13

Figure 3: Percent Distribution of Items and Value of Inventory 

Exceeding Current Operating Requirements as of 

September 30, 2001, by Usage Since That Date 14

Contents 
Page ii GAO-04-689 Defense Inventory 

Abbreviations 

DLA Defense Logistics Agency 

DOD Department of Defense 

This is a work of the U.S. government and is not subject to copyright protection in the 

United States. It may be reproduced and distributed in its entirety without further 

permission from GAO. However, because this work may contain copyrighted images or 

other material, permission from the copyright holder may be necessary if you wish to 

reproduce this material separately. 
Page 1 GAO-04-689 Defense Inventory 

August 2, 2004 

Congressional Committees 

The Department of Defense (DOD) maintains a secondary inventory of 

spare and repair parts1

 to support its war- and peace-time missions. The 

effective and efficient management of this inventory is critical to ensure 

that the warfighter is supplied with the right items at the right time, 

especially as the department and the services are called upon for new 

missions in locations such as Afghanistan, Iraq, and the Philippines, as 

well as protecting the homeland. 

DOD’s inventory management comprises several major functions, 

including determining what is needed; buying needed items; and storing, 

maintaining, distributing, and disposing of inventory. DOD retains 

inventory that exceeds items’ requirements objectives2

 for different 

reasons, including: (1) to satisfy projected demands for 2 fiscal years 

beyond the current operating requirements; (2) for economic reasons, 

because it would be less costly to retain rather than dispose of and 

repurchase the items; and (3) for specific contingencies, such as when the 

source of supply for an item—a specific parts manufacturer, for 

example—is no longer available. 

Since 1990, we have identified the department’s management of its 

inventory as a high-risk area and have reported on and made 

recommendations to address issues that contribute to ineffective and 

inefficient inventory management.3

 We have reported on such issues as 

inaccurate data, not canceling orders for inventory that is no longer 

 1

 DOD’s inventory consists of a wide variety of parts that includes communication and 

detection equipment; electrical and electronic equipment components; engines, turbines, 

and their components; aircraft components and accessories; instruments and laboratory 

equipment; aircraft and airframe structural components; fire control equipment; guided 

missiles; electric wire and power and distribution equipment; medical supplies; and 

clothing and textiles. 

2

 DOD refers to the amount of inventory that it needs to have on hand or on order to 

support current operations as the requirements objective. Hereinafter, we refer to an item’s 

requirements objective as its current operating requirements. 

3

 U.S. General Accounting Office, Major Management Challenges and Program Risks: 

Department of Defense, GAO-03-98 (Washington, D.C.: January 2003). 

United States Government Accountability Office

Washington, DC 20548 
Page 2 GAO-04-689 Defense Inventory 

needed, lack of controls and visibility over inventory, and information 

system weaknesses. For example, in May 2001, we reported4

 that the 

military components5

 did not have sound analytical support for 

determining when it is economical to retain or dispose of inventory that 

exceeds current operating requirements. Taken together, these and other 

issues have contributed to the accumulation of high levels of inventory. 

DOD maintains that, while it does not purchase inventory that exceeds 

current operating requirements, much of the inventory, once purchased, 

will eventually be needed. Nevertheless, in response to our work and to 

congressionally mandated inventory-reduction goals, DOD reduced its 

overall inventory levels throughout the 1990s—from over $100 billion in 

1990 to a low of about $61 billion as of September 30, 1998. However, in 

recent years the trend has been reversed, with inventory levels increasing 

to about $67 billion as of September 30, 2002. 

DOD further maintains that seeking inventory-reduction goals leads to 

inefficient management. However, in response to our May 2001 report, and 

because Congress had directed6

 the department to examine its retention 

practices, DOD is reviewing its policies and procedures for retaining 

inventory that exceeds the items’ current operating requirements. 

In May 2003,7

 we reported a snapshot of DOD’s inventory as of 

September 30, 2001. We reported that large imbalances in the department’s 

inventory continued to exist as of that date—523,000 items needed 

additional inventory to satisfy current operating requirements while 

1.7 million items had inventory on hand and on order that exceeded 

current operating requirements. Our work showed that about 

1.6 million items had about $36.0 billion of inventory on hand that 

 4

 U.S. General Accounting Office, Defense Inventory: Approach for Deciding Whether 

to Retain or Dispose of Items Needs Improvement, GAO-01-475 (Washington, D.C.: 

May 25, 2001). 

5

 In this report, we refer to the Army, Navy, and Air Force collectively as the military 

services, and the Army, Navy, Air Force, and the Defense Logistics Agency as the 

military components. 

6

 National Defense Authorization Act for Fiscal Year 2000, Pub. L. No. 106-65, § 362 (1999). 

7

 U.S. General Accounting Office, Defense Inventory: Overall Inventory and Requirements 

Are Increasing, but Some Reductions in Navy Requirements Are Possible, GAO-03-355

(Washington, D.C.: May 8, 2003). 
Page 3 GAO-04-689 Defense Inventory 

exceeded the items’ current operating requirements, which amounted to 

roughly half of DOD’s inventory at that time. 

We prepared this report under our statutory authority and are providing it 

to you because of your oversight responsibilities for defense issues. In this 

report we (1) analyze the extent to which inventory on hand exceeding 

current operating requirements as of September 30, 2001, was consumed 

during subsequent operations; and (2) discuss three practices we 

identified that further contribute to the ineffective and inefficient 

management of inventory. 

To determine how much of the inventory that exceeded current operating 

requirements as of September 30, 2001, was consumed (used, disposed of, 

or condemned) since that date, we obtained and analyzed data from the 

military components for the items that we had identified in our May 2003 

report that had inventory exceeding the items’ current operating 

requirements as of September 30, 2001. We interviewed DOD, Defense 

Logistics Agency (DLA), and service inventory management officials to 

discuss the data needed and our analytical approach. As a result of these 

discussions, we requested the following consumption-related data for each 

item that had inventory exceeding current operating requirements as of 

September 30, 2001: 

• inventory demanded from the supply system (demands); 

• inventory returned to the supply system for repair (returns); 

• inventory condemned because the parts could not be repaired 

(condemnations); and 

• inventory that was otherwise processed for disposal (disposals). 

The data we obtained covers different periods, depending on the military 

component providing the data. Although the period of review for all of the 

military components began on October 1, 2001, the data we obtained had 

different cutoff dates as follows: 

• For the Navy and Air Force, the cutoff date was March 31, 2003. 

• For the Army, the cutoff dates ranged from June 2003 through 

October 2003, depending on the inventory control location that provided 

the data. 

• For DLA, the cutoff date was September 30, 2003. 

Scope and 

Methodology 
Page 4 GAO-04-689 Defense Inventory 

According to the officials providing the data, 119,000 items of the 

1.6 million items that had on-hand inventory exceeding current operating 

requirements as of September 30, 2001, were no longer in the military 

components’ inventory systems as of the data cutoff dates. The 

119,000 items had about $966 million of on-hand inventory that exceeded 

current operating requirements as of September 30, 2001. Therefore, our 

analysis only concerns the remaining 1.5 million items with $35.1 billion of 

on-hand inventory exceeding current operating requirements as of 

September 30, 2001. 

Our analysis to determine how much of the inventory that exceeded 

current operating requirements was consumed since September 30, 2001, 

involved several steps. For each of the 1.5 million items: 

• We first subtracted the quantity that was disposed of from the quantity 

that exceeded current operating requirements. 

• Next, we subtracted the quantity of inventory that was condemned. 

• For each item, we also computed net demands by subtracting the 

inventory returns from inventory demands. 

• To determine how much of the inventory was used, we then compared the 

net demands to the inventory exceeding current operating requirements 

that had not been disposed of or condemned. 

We limited the quantities of inventory that were disposed of, condemned, 

or used to the inventory that exceeded current operating requirements as 

of September 30, 2001. We considered items with more returns than 

inventory disposals, condemnations, and demands to have inventory gains; 

items with returns equal to disposals, condemnations, and demands were 

considered to have neither inventory usage nor gains. We used the above 

methodology to determine how many of the items had their entire 

inventory exceeding current operating requirements consumed. We 

further used the demand data provided to determine how many of 

the items had and did not have demands during the period of our review. 

In our analyses, unless otherwise indicated, inventory values are 

expressed in billions of dollars, and items are rounded to the nearest 

thousand. We did not revalue the inventory that needs to be repaired to 

recognize the repair cost, and we did not value inventory that is to be 

disposed of at salvage prices. Also, our analyses did not include fuel, 

certain inventory held in units, and Marine Corps inventory. Fuel and 

inventories held by units are not stratified by requirement, and the Marine 

Corps inventory represents a small part of the universe. In addition, to 

ascertain some of the reasons why inventory exceeding current operating 

requirements was being retained, we selected non-representative samples 
Page 5 GAO-04-689 Defense Inventory 

of 78 Army items and 118 Air Force items with inventory that exceeded 

current operating requirements as of September 30, 2001, prepared 

detailed questionnaires for item managers, and visited the Army Aviation 

and Missile Command, Huntsville, Alabama, and Warner Robins Air 

Logistics Center, Warner Robins, Georgia, to collect and analyze the 

responses. We selected these inventory control locations based upon the 

value of the inventory they managed that exceeded current operating 

requirements as of September 30, 2001, when compared to other Army and 

Air Force inventory control locations. Because we used non-representative 

samples, we cannot project these observations to the universe. Although 

our work highlights the large amount of inventory exceeding current 

operating requirements that DOD retains, we neither performed detailed 

analyses of DOD’s policies and procedures relating to that inventory, nor 

selected samples of Navy and DLA items, because we have initiated a 

separate review of DOD inventory retention policies. 

To address the inventory management practices that we identified in the 

course of assessing our non-representative samples, we obtained 

information and data from DLA about how it determines what to charge 

the military components for storing secondary inventory, and interviewed 

responsible officials from the military components to determine whether 

they were using this data to make relevant management decisions. We also 

reviewed Air Force policies related to, and interviewed responsible Air 

Force officials about, the reconciliation of inventory discrepancies, and 

the retention of inventory categorized as potential reutilization and/or 

disposal materiel. Through our analysis of the DLA storage cost charges 

and by examining our non-representative sample of Air Force items, we 

identified specific examples of these inefficient and ineffective 

management practices. We also obtained information from the 2001 

Supply System Inventory Report to get a rough estimate of how the 

department revalues inventory held as potential reutilization and/or 

disposal materiel. 

We assessed the reliability of the data used in this report by (1) performing 

electronic testing of required data elements, (2) reviewing existing 

information about the data and the systems that produced them, and 

(3) interviewing officials knowledgeable about the data. We determined 

that the data were sufficiently reliable for the purposes of this report. We 

performed our review from June 2003 through May 2004 in accordance 

with generally accepted government auditing standards. 
Page 6 GAO-04-689 Defense Inventory 

Our analysis of approximately 1.5 million items with inventory on hand 

valued at $35.1 billion that exceeded current operating requirements as 

of September 30, 2001, showed that about $4.0 billion was consumed—

including $2.5 billion that was used, $0.5 billion disposed of, and 

$1.0 billion condemned—since the onset of Operation Enduring Freedom 

and through the initial phases of Operation Iraqi Freedom. Additional 

analyses of the 1.5 million items showed that: 

• After we accounted for parts that were disposed of or condemned, 

(1) about 539,000 items had demands that exceeded the amount of parts 

returned for repair by about $2.5 billion; (2) nearly 18,000 items had 

inventory gains of $0.9 billion, where more broken parts were returned for 

repair than were demanded, condemned, or disposed of; and (3) about 

937,000 items with $24.4 billion of on-hand inventory exceeding current 

operating requirements as of September 30, 2001, had neither inventory 

usage nor inventory gains. 

• About 199,000 items had their entire $1.8 billion of on-hand inventory 

exceeding current operating requirements as of September 30, 2001, used, 

disposed of, or condemned since that date. 

• About 923,000 items with on-hand inventory of $14.8 billion exceeding 

current operating requirements as of September 30, 2001, had no demands 

during the period of review, while the remaining 571,000 items with 

$20.2 billion of on-hand inventory exceeding current operating 

requirements as of September 30, 2001, had demands. 

Our analysis of non-representative samples of Army and Air Force items, 

performed to ascertain some of the reasons why the 1.5 million items with 

on-hand inventory exceeding current operating requirements were being 

retained, showed that the items in the samples supported a variety of 

weapon systems and that most of the items (1) had inventory categorized 

as either economic or contingency retention stock; and (2) had been in the 

inventory system for 15 or more years, including several that had been first 

placed into service during the 1960s. 

While reviewing Air Force and Army items to determine why inventory 

exceeding current operating requirements was being retained, we 

identified three inventory management practices that may affect inventory 

levels, including the inventory exceeding requirements. These 

inefficiencies do not necessarily lead to the accumulation of inventory 

exceeding current operating requirements. Instead, they can lead to having 

critical items in short supply, to persistent difficulties in accurately and 

reliably forecasting the availability of assets, and to the inappropriate 

disposal of inventory. 

Results in Brief 
Page 7 GAO-04-689 Defense Inventory 

• First, the military components use storage cost estimates rather than 

actual storage cost data in making key decisions, such as determining the 

levels of inventory that are needed to be retained or ordered. DLA now 

determines how much to charge the military components for storage on a 

per-item basis and provides this data to the components. Because 

computations based on the actual storage cost data would be more 

accurate, the military components could be purchasing or retaining 

inappropriate amounts of inventory. For example, depending on the item, 

DLA’s actual charges for storage could be either less than or greater than 

the item’s estimated storage costs, which would make it more or less 

economical to retain the same amount of inventory. To assess the 

significance of these differences, we compared the actual storage costs 

charged by DLA to the Army, Navy, and DLA with the components’ storage 

cost estimates for about 1.5 million inventory items and found that, for 

about half of the items reviewed, the estimated storage costs were at least 

10 times greater than the costs charged by DLA. However, because DLA 

has only recently begun to compute the storage charges on a per-item 

basis, the Army, Navy, and DLA have not determined whether it would be 

beneficial to use the DLA storage cost data rather than estimated storage 

costs in their inventory management decision-making processes. 

• Second, the Air Force does not have a systemwide process for correcting 

the causes of discrepancies between the inventory for which item 

managers are accountable and the inventory reported by bases and repair 

centers.8

 Because accurate data is necessary to make accurate decisions, 

item managers—who are responsible for purchasing inventory—must 

persistently deal with inventory discrepancies, cannot accurately 

determine the number of available assets, and cannot reliably forecast the 

availability of assets. Consequently, in some instances the Air Force is at 

risk of buying inventory that it does not need and in other instances of not 

buying enough inventory. At the Warner Robins Air Logistics Center, we 

identified 35 out of 118 items with inventory valued at $135 million that 

was recorded on item managers’ records, but was not accounted for by 

bases and repair centers. 

• Third, Air Force item managers are not required to enter codes into the Air 

Force inventory system for items that are categorized as potential 

reutilization and/or disposal materiel, but that the Air Force wants to 

 8

 We did not identify discrepancies in the Army inventory records based on the review of 

our non-representative sample of Army items. Therefore, this analysis is limited only to the 

Air Force. 
Page 8 GAO-04-689 Defense Inventory 

retain.9 As a result, the items are not properly categorized and the Air 

Force is at risk of disposing inventory that it may need to later repurchase. 

Air Force policy allows item managers to retain inventory categorized as 

potential reutilization and/or disposal materiel when there is a valid reason 

for doing so. Item managers, when justified, are authorized but are not 

required to enter a deferred disposal code that will result in the inventory 

being recategorized as contingency retention stock. We observed at the 

Warner Robins Air Logistics Center that $277 million10 of inventory 

remained categorized as potential reutilization and/or disposal materiel 

even though the Air Force expressed a valid reason for retaining it. For 

example, the center had 50 transmitter drivers used on an electronic 

warfare system for the B-1B aircraft that were categorized as potential 

reutilization and/or disposal materiel. The center was retaining the drivers 

to support the aircraft until the year 2040 when the Air Force expects to 

remove the last of the aircraft from its inventory. However, no code was 

entered into the system. Additionally, DOD reports the value of inventory 

categorized as potential reutilization and/or disposal materiel at a rate of 

approximately 2 percent of its latest acquisition cost and, therefore, is 

significantly understating the amount of inventory it is retaining in a key 

inventory management report. 

Because we have initiated a separate review of DOD’s inventory retention 

policies, we are not making recommendations regarding the retention of 

inventory exceeding current operating requirements that had no demands. 

We are, however, recommending that the Secretary of Defense take 

actions to improve the inventory management practices we identified, 

including the components’ use of inventory storage cost estimates, the 

lack of an Air Force systemwide process for correcting causes of 

inventory discrepancies, and the improper coding of items that the Air 

Force wants to retain. 

In written comments on a draft of this report, DOD generally concurred 

with the report and our recommendations. Our evaluation of DOD’s 

comments is discussed on page 23. 

 9

 While we selected a non-representative sample of Army items, the available Army data did 

not identify items categorized as potential reutilization and/or disposal materiel. Therefore, 

this analysis is limited only to the Air Force. 

10 Inventory valued at latest acquisition cost. 
Page 9 GAO-04-689 Defense Inventory 

DOD defines the requirements objective (current operating requirements) 

as the amount of inventory needed to be on hand or on order to support 

current operations. The current operating requirements includes inventory 

requirements for a reorder point and an economic order quantity.11 The 

reorder point is the point at which inventory replenishment will normally 

prevent out-of-stock situations from occurring and includes: 

• war reserves, requisitions that have not been filled, and a “safety level” 

of stock;12

• stock to satisfy demands while broken items are being repaired; and 

• stock to satisfy demands during the “lead time”—the period between the 

placement of orders and their receipt. 

Because the reorder point provides for inventory to be used during 

the time needed to order and receive inventory and for a safety level, 

item managers are able to place orders so that the orders arrive before 

out-of-stock situations occur. 

Generally, an item manager purchases an amount of inventory needed to 

satisfy the reorder point and an economic order quantity—a quantity that, 

when ordered and received, results in the lowest total cost for ordering 

and holding inventory. 

The approved acquisition objective defines the amount of inventory that 

DOD budgets for and includes inventory needed to satisfy the current 

operating requirements, 2 years of demand above the current operating 

requirements, and, if applicable, additional war reserves. While DOD 

budgets funds to purchase inventory to satisfy the approved acquisition 

objective, item managers do not purchase inventory unless an item’s 

inventory falls to or below its reorder point; therefore, item managers do 

not purchase inventory to satisfy the approved acquisition objective. 

Inventory that exceeds the approved acquisition objective is categorized 

as economic retention, contingency retention, and potential reutilization 

and/or disposal materiel: 

 11 The Air Force requirements computation system does not include an economic 

order quantity. 

12 War reserves are authorized to be purchased to ensure fast mobilization in the event of 

war. A safety level is stock kept on hand in case of minor interruptions in the resupply 

process or unpredictable demand. 

Background 
Page 10 GAO-04-689 Defense Inventory 

• Economic retention inventory exceeds the approved acquisition objective 

and has been determined to be more economical to keep than to dispose 

of because it is likely to be needed in the future. 

• Contingency retention inventory exceeds the economic retention 

inventory and would normally be categorized as potential reutilization 

and/or disposal materiel, but is instead retained for specific contingencies. 

• Potential reutilization and/or disposal materiel exceeds contingency 

retention inventory and has been identified for possible disposal but with 

potential for reutilization. 

A Navy computer power supply used on the radar for the FA-18 aircraft 

demonstrates the above inventory categories. On September 30, 2003, 

the Navy had 147 of the $353,000 power supplies on hand. As shown in 

figure 1, 52 of the power supplies satisfied the item’s current operating 

requirements. Of the remaining 95 power supplies, 56 were designated to 

satisfy the 2 years of additional demand, 11 were held as economic 

retention stock, 2 were held as contingency retention stock, and 26 were 

categorized as potential reutilization and/or disposal materiel. 

Figure 1: Categorization of Inventory for a Navy Power Supply 

Source: GAO analysis of Navy data.

Approved

acquisition

objective

95 power supply

units that exceed 

current operating

requirements

and that would

not be

purchased

52 power supply

units that satisfy

current operating

requirements

and that

would be

purchased

Potential reutilization and/or disposal materiel - 26

Contingency retention stock - 2

Economic retention stock - 11

Two years of demand - 56

Current operating requirements - 52
Page 11 GAO-04-689 Defense Inventory 

Overall, the amount of DOD’s inventory exceeding current operating 

requirements has decreased since 1996. On-hand inventory that exceeded 

current operating requirements decreased from $41.3 billion, or 

59 percent, of the $69.7 billion of on-hand inventory on September 30, 

1996, to $36.0 billion, or 52 percent, of the $69.8 billion inventory on hand 

on September 30, 2001. 

DOD annually summarizes its secondary inventory in its Supply System 

Inventory Report. This report is based on financial inventory and other 

inventory reports prepared by the military components. The report 

summarizes inventories by DOD component and inventory category. DOD 

officials use the report as a management tool to monitor changes in the 

levels of its inventory. These officials include the Under Secretary of 

Defense for Acquisition, Technology, and Logistics, who is responsible for 

developing and ensuring the uniform implementation of DOD inventory 

management policies throughout the department, for monitoring the 

overall effectiveness and efficiency of the DOD logistics system, and for 

continually developing improvements. In addition, the Secretaries of the 

Army, the Navy, and the Air Force, and the Director, DLA, are responsible 

for implementing DOD inventory policies and procedures. 
Page 12 GAO-04-689 Defense Inventory 

Our analysis of approximately 1.5 million items with inventory on hand 

valued at $35.1 billion13 that exceeded current operating requirements as of 

September 30, 2001, showed that about $2.5 billion of the inventory was 

used, $0.5 billion was disposed of, and $1.0 billion was condemned since 

the onset of Operation Enduring Freedom and through the initial phases of 

Operation Iraqi Freedom. As illustrated in figure 2, the inventory 

exceeding current operating requirements that was consumed14 since 

September 30, 2001—that is, the sum of the inventory used, disposed of, 

or condemned—amounted to $4.0 billion. Roughly $31.0 billion15 of the 

on-hand inventory that exceeded current operating requirements as of 

September 30, 2001, was not used, disposed of, or condemned during the 

period of our review. 

 13 While we identified 1.6 million items with $36.0 billion of inventory on hand that 

exceeded current operating requirements as of September 30, 2001, in our prior work, the 

analysis in this report did not include about 119,000 items with about $966 million of 

inventory on hand that exceeded current operating requirement as of September 30, 2001, 

because the items were no longer in the inventory as of the data cutoff dates. 

14 According to a DOD official, DOD considers an item to be consumed when a demand for 

an item occurs, regardless of whether or not a broken part is returned. 

15 The total inventory consumed and the total not consumed do not add to $35.1 billion 

because of rounding. 

About $4.0 Billion 

of the Inventory 

Exceeding Current 

Operating 

Requirements Was 

Consumed Since 

September 30, 2001 
Page 13 GAO-04-689 Defense Inventory 

Figure 2: Consumption of Inventory Exceeding September 30, 2001, Current Operating Requirements 

a

Inventory amounts do not total to $35.1 billion because of rounding. 

Our analysis also identified how many of the 1.5 million items had 

inventory that was used, how many had inventory gains, and how many 

had neither inventory that was used nor inventory gains. As depicted in 

figure 3, our analysis showed: 

• About 539,000 items with $7.2 billion of on-hand inventory that exceeded 

current operating requirements as of September 30, 2001, had $2.5 billion 

of that inventory used since then. That is, once disposals and 

condemnations were accounted for, demands exceeded returns by 

$2.5 billion. For example, the Navy had seven infrared receivers, used on 

FA-18 E/F aircraft, which exceeded current operating requirements as of 

September 30, 2001. Through March 2003, two of the $1,610 receivers were 

disposed of, four were condemned, and one was used as a result of 

demands exceeding returns. The 539,000 items, or 36 percent of the 

1.5 million items reviewed, had 21 percent of the $35.1 billion of on-hand 

inventory that exceeded current operating requirements as of 

September 30, 2001. 

• About 18,000 items with $3.5 billion of on-hand inventory exceeding 

current operating requirements as of September 30, 2001, had $0.9 billion 

in inventory gains as a result of more broken parts returned for repair than 

demands, disposals, or condemnations during the period of review. For 

example, the Army had two AH-64 helicopter capacitor assemblies, each 

$31.0 billiona of inventory remaining

$4.0 billiona

 of inventory used, condemned, or disposed of

$0.5 billion of inventory disposed of

$1.0 billion of inventory condemned

$2.5 billion of inventory used

Source: GAO analysis of DOD data.
Page 14 GAO-04-689 Defense Inventory 

valued at $554, which exceeded current operating requirements as of 

September 30, 2001. Through August 2003, one of the assemblies was 

condemned and the other was demanded. However, four assemblies were 

returned for repair, resulting in a gain of two assemblies to the inventory. 

The 18,000 items, or 1 percent of the 1.5 million items, had 10 percent of 

the $35.1 billion of on-hand inventory that exceeded current operating 

requirements as of September 30, 2001. 

• About 937,000 items with $24.4 billion of on-hand inventory exceeding 

current operating requirements as of September 30, 2001, had neither 

inventory usage nor gains during the period of review—these items had an 

equal amount of inventory returned for repair as was disposed of, 

condemned, and demanded. For example, DLA had 294 men’s overcoats, 

valued at $265 apiece, that exceeded current operating requirements as of 

September 30, 2001. Through September 2003, these overcoats had no 

disposals, no condemnations, and no demands. The 937,000 items, or 

63 percent of the 1.5 million items, had 70 percent of the on-hand 

inventory that exceeded current operating requirements as of 

September 30, 2001. 

Figure 3: Percent Distribution of Items and Value of Inventory Exceeding Current Operating Requirements as of 

September 30, 2001, by Usage Since That Date 

a

Percent total does not add to 100 due to rounding. 

36%

1%

63%

21%

70%

10%

539,000 items, with $7.2 billion of 

inventory, had $2.5 billion in usage

since September 30, 2001, after 

disposals and condemnations are 

accounted for

18,000 items, with $3.5 billion of 

inventory, had $0.9 billion of 

inventory gains since

September 30, 2001

937,000 items, with $24.4 billion of 

inventory, had neither usage nor 

gains since September 30, 2001

Source: GAO analysis of DOD data.

Number of items (1.5 million total) Value of inventorya ($35.1 billion total)
Page 15 GAO-04-689 Defense Inventory 

We also analyzed the 1.5 million items to determine if the entire inventory 

exceeding current operating requirements was consumed for any of 

the items. Our analyses showed that, for about 199,000 of the 

1.5 million items, all inventory that exceeded the items’ September 30, 

2001, current operating requirements was used, condemned, or disposed 

of since that date. The 199,000 items had on-hand inventory valued at 

about $1.8 billion that exceeded current operating requirements. For about 

1.3 million items, either some or none of the inventory exceeding current 

operating requirements was consumed. 

Further, 923,000 of the 1.5 million items had no customer demands. 

These items represented about $14.8 billion of inventory on hand that 

exceeded current operating requirements as of September 30, 2001. The 

remaining 571,000 items had $26.0 billion of demands and $20.7 billion of 

broken parts returned for repair. These items represented about 

$20.2 billion of inventory that exceeded current operating requirements, as 

of September 30, 2001. 

To ascertain some of the reasons why the 1.5 million items with on-hand 

inventory exceeding current operating requirements was being retained, 

we selected non-representative samples of Army and Air Force items. We 

found that most of these sample items had inventory categorized as either 

economic or contingency retention stock and had been in the inventory 

system for 15 or more years. At the Army and Air Force inventory control 

locations that we visited, we observed that 121 out of 190 items, or 

64 percent of the items reviewed, had been placed in service prior to 1989. 

These items had about $1.6 billion of inventory that exceeded the current 

operating requirements as of September 30, 2001. Seventeen of the items, 

with about $107 million of inventory on hand that exceeded current 

operating requirements, were placed in service during the 1960s. 

These items included antennae, aircraft rudders, auxiliary power units, 

propeller blades, and circuit card assemblies that were used on versions of 

the Air Force’s C-130 and F-15 aircraft, the Army’s UH-60 helicopter, and 

other weapon systems. 
Page 16 GAO-04-689 Defense Inventory 

While reviewing Air Force and Army items to determine why inventory 

exceeding current operating requirements was being retained, we 

identified three ineffective and inefficient inventory management practices 

that may affect inventory levels, including the inventory exceeding current 

operating requirements. First, although DLA has begun to charge its 

customers for inventory storage based on the actual space occupied 

by items, the military components are not using the DLA storage cost data, 

and instead continue to use estimated storage costs in their inventory 

management decision-making processes. Second, the Air Force does not 

have a systemwide process for correcting the causes of discrepancies 

between the inventory for which item managers are accountable and the 

inventory reported by bases and repair centers.16 Third, Air Force item 

managers are not required to enter codes into the Air Force inventory 

system for items that are categorized as potential reutilization and/or 

disposal materiel, but that the Air Force wants to retain; thus, the items 

are not properly categorized and are at risk of disposal.17 The inefficiencies 

we identified do not necessarily lead to the accumulation of inventory 

exceeding current operating requirements; however, they can lead to 

having critical items in short supply, to persistent difficulties in accurately 

and reliably forecasting the availability of assets, and to inappropriately 

disposing of inventory. 

Although DLA has begun to charge its customers for inventory storage 

based on the actual space occupied by items, the military components are 

not using the DLA data, and instead continue to use estimated storage 

costs in their inventory management decision-making processes. We noted 

that the estimated storage costs ranged from being over 1,000 times more 

than the actual costs charged to customers, to being up to 10 times less 

than the actual charges. Because using actual storage cost data would 

result in more accurate computations, the military components could be 

purchasing or retaining inappropriate amounts of inventory. However, 

because DLA only recently began to compute the storage charges on a 

per-item basis, the Army, Navy, and DLA have not determined whether it 

would be beneficial to use actual data rather than estimated storage costs 

in their inventory management decision-making processes. 

 16 This analysis is limited only to the Air Force, because our analysis of our Army sample 

did not identify inventory records discrepancies as a problem in the Army. 

17 This analysis is limited only to the Air Force, because the available Army data did not 

identify items categorized as potential reutilization and/or disposal materiel. 

Some DOD Practices 

Contribute to 

Ineffective and 

Inefficient Inventory 

Management 

Military Components Are 

Not Using Actual Storage 

Cost Data in Making 

Inventory Management 

Decisions 
Page 17 GAO-04-689 Defense Inventory 

The Defense Logistics Agency is responsible for storing inventory for the 

military services and for its own defense supply centers. Beginning in 

fiscal year 2003, DLA began charging for inventory stored in its 

warehouses by (1) determining the cubic-feet of space occupied by an 

individual item, (2) multiplying the space occupied by a single item by the 

number of items stored to yield the total space occupied, and 

(3) multiplying the stored items’ total occupied space by a rate charged for 

the type of storage space used (open, covered, or specialized). As a result, 

the DLA computes storage costs charged to its customers on a per-item 

basis. 

According to DLA officials, the agency provides data to the military 

services and the DLA supply centers on a quarterly basis that would allow 

them to take these charges into account when making inventory 

management decisions. Such decisions might include: 

• determining how much inventory to retain for safety level requirements, 

which is the amount of inventory held in case of minor interruptions in the 

resupply process or fluctuations of demand; 

• computing economic order quantities, which are the quantities of an item 

that are purchased that results in the lowest cost for ordering and holding 

inventory; 

• determining when it is more economical to retain extra inventory, as 

opposed to disposing of it and then satisfying future requirements through 

new procurements and/or repairs of broken items; and 

• determining whether orders for inventory that is no longer needed are 

economical to cancel. 

The consideration of storage costs as a factor in making these kinds of 

inventory management decisions varies among the components. For 

example, the Army, Navy, and DLA factor in storage costs when 

computing economic order quantities. The Air Force’s requirements 

computation system does not compute an economic order quantity. The 

Army and Navy models for determining economic retention levels factor in 

storage costs, whereas the Air Force and DLA set economic retention 

levels based on years of supply. And, the Army, Air Force, and DLA factor 

in storage costs when determining whether it is economical to cancel or 

cut back orders for inventory that is no longer needed to satisfy 

requirements. 

When the military components factor in storage costs to make inventory 

management decisions, they use estimated storage costs—as they have 

done historically—rather than the actual, per-item costs now charged by 
Page 18 GAO-04-689 Defense Inventory 

DLA. For example, the Army, Navy, and DLA estimate storage costs to be 

equal to 1 percent of the inventory value. According to an Air Force 

Materiel Command official, the Air Force uses estimated charges from the 

DLA Storage Occupancy Report. However, according to a DLA official, the 

report, which is no longer issued, identifies the space occupied by items, 

but not the cost of storing a specific item. 

Generally, storage costs charged to customers are lower than the 

estimated costs (1 percent of inventory value) currently used by the Army, 

Navy, and DLA. In order to ascertain the significance of using estimated 

costs in lieu of actual charges, we compared the actual storage costs 

charged by DLA to the Army, Navy, and DLA with 1-percent cost estimates 

for about 1.5 million inventory items. We found that for about half of 

the items, the estimated storage costs were at least 10 times greater than 

the costs charged by DLA for storing the inventory. For over 242,000 items, 

about 16 percent of the items in our analysis, the estimated storage costs 

were at least 100 times greater than the costs charged for storing the items 

(see table 1). 

Table 1: Comparison of Differences between Estimated Storage Costs and Storage Costs Charged by DLA for Army, Navy, 

and DLA Items 

Number of items 

Estimated storage cost was: Army Navy DLA Total Percent

1,000 or more times greater than actual charge 1,829 4,247 39,950 46,026 3

100 times up to 1,000 times greater than actual charge 4,094 18,368 173,900 196,362 13

10 times up to 100 times greater than actual charge 13,525 43,101 456,508 513,134 34

0 times up to 10 times greater than actual charge 15,495 32,044 516,160 563,699 37

up to 10 times less than actual charge 6,132 8,183 192,778 207,093 14

Total 41,075 105,943 1,379,296 1,526,314 100a

Source: GAO analysis of DOD data. 

Notes: We used 1 percent of the September 30, 2001, inventory values to determine the estimated 

storage costs, and DLA’s fiscal year 2003 storage rates to determine the actual storage cost charges. 

a

Percent total does not add to 100 due to rounding. 

A change in the storage cost factor used by the components could affect 

inventory management decisions. For example, depending on the item, the 

actual storage cost charged by DLA could be either less than or greater 

than the item’s estimated storage cost, which would make it more or less 

economical to retain the same amount of inventory. Therefore, by not 

using the actual storage costs charged by DLA, the military components 

that take storage costs into account when making inventory management 
Page 19 GAO-04-689 Defense Inventory 

decisions may be recommending the acquisition or retention of an 

inappropriate amount of inventory. 

According to Army and Navy officials, it may not be cost effective to use 

the storage cost data provided by DLA, even if using the data resulted in 

more accurate calculations. Several factors besides storage costs are 

considered in making inventory decisions. Depending on the calculation, 

these other factors can include: the cost of an item; the demand for an 

item; the cost to reduce an order; and other holding cost factors,18 such as 

obsolescence and storage loss rates. According to one Navy official, some 

of these factors have more of an impact on such calculations than do 

storage costs. Although the Navy and Army have recently concluded that 

their 1-percent estimates are sufficiently accurate for some of their 

inventory management decisions, neither service nor DLA has determined 

if it would be beneficial to use the newly available storage cost data 

instead of estimated costs in their inventory management decision-making 

processes. 

The Air Force does not have a systemwide process for correcting the 

causes of discrepancies between the inventory for which item managers 

are accountable and the inventory reported by bases and repair centers. 

Because accurate data is necessary to make accurate decisions, item 

managers—who are responsible for purchasing inventory—must 

persistently deal with inventory discrepancies, cannot accurately 

determine the number of available assets, and cannot reliably forecast the 

availability of assets. Consequently, in some instances the Air Force is at 

risk of buying inventory that it does not need and, in other instances, of 

not buying enough inventory. 

Air Force policy provides for asset reconciliation on a quarterly basis. The 

reconciliation process compares the quantity of inventory for which the 

item manager is responsible to the quantity that bases and repair centers 

report as being on hand, in order to identify any variances between the 

quantities. If there are three consecutive plus or three consecutive minus 

variances, the policy allows item managers to adjust the inventory quantity 

by the smallest of the three variances. According to an Air Force Materiel 

Command official, in instances where an item manager’s records account 

for more inventory than was being reported on hand by bases and repair 

 18 Storage costs are one of the factors used to compute holding costs. 

Air Force Does Not 

Systematically Correct 

the Causes of Inventory 

Discrepancies 
Page 20 GAO-04-689 Defense Inventory 

centers, the variance is recorded on requirement computations and 

inventory stratification reports as “due in other” inventory. 

At Warner Robins Air Logistics Center, we noted that item manager 

inventory records for 35 of 118 items we reviewed showed $135 million of 

“due in other” inventory as of March 31, 2003, that was not accounted for 

by the bases and repair centers. One item, a countermeasure receiver 

subassembly valued at about $58,000, demonstrates the persistent nature 

of inventory variances. From December 2000 through June 2003, the 

reconciliation process consistently showed that the item manager was 

accountable for more assets than were being reported by repair centers 

and bases. According to inventory records, the item manager reduced by 

eight the quantity that the item manager was responsible for. A first 

adjustment, which the item manager performed in September 2002, 

reduced the quantity by six. The adjustment was made because of 

erroneous data reported by the contractor. A second adjustment, 

performed in September 2003, occurred because, at the time of the 

adjustment, the item manager did not have access to all of the 

condemnation data for the item. Another Air Force official entered this 

data into a system that feeds the main Air Force inventory system. Had 

this data been entered before the item manager reviewed the file, there 

would have been no need for the adjustment. 

Because consistent adjustments indicate that there is something wrong 

with the reported information, Air Force policy instructs item managers to 

research historical records whenever variances exist and make every 

effort to identify and correct the underlying problems, when possible. 

According to an Air Force Materiel Command official, some variances are 

to be expected. But items that are continuously in variance, or for which 

particularly large variances exist, are problematic. In such cases, item 

managers cannot accurately determine the number of available assets and 

cannot reliably forecast the availability of assets. Knowledge of the correct 

number of available assets is critical when deciding whether to buy 

inventory, and determining how much to buy. 

According to an Air Force Materiel Command official, the Air Force has 

sought to identify and correct variances that result from systemic reasons, 

such as data interface problems between two inventory systems. However, 

officials from Warner Robins Air Logistics Center and from Air Force 

Materiel Command say that the Air Force has not systemically addressed 

and corrected the causes of variances that item managers identify during 

the reconciliation process. 
Page 21 GAO-04-689 Defense Inventory 

Air Force item managers are not required to enter codes into the Air Force 

inventory system for items that are categorized as potential reutilization 

and/or disposal materiel, but that the Air Force wants to retain. As a result, 

the inventory is not properly categorized, and the Air Force is at risk of 

disposing of inventory that it may need to later repurchase. Additionally, 

because DOD reports the value of inventory categorized as potential 

reutilization and/or disposal materiel at a rate of approximately 2 percent 

of its latest acquisition cost, the amount of inventory it is retaining is 

significantly understated in a key inventory management report. 

Inventory categorized as potential reutilization and/or disposal materiel is 

subject to being sent to the Defense Reutilization and Marketing Service, 

for (1) reutilization by other DOD components or by other federal, state, or 

local government agencies; or (2) disposal through sale to the public. 

However, Air Force policy allows potential reutilization and/or disposal 

materiel to be retained if there are valid reasons for doing so. Item 

managers, when justified, are authorized but are not required to enter a 

deferred disposal code into the Air Force inventory system. The deferred 

disposal code will result in potential reutilization and/or disposal materiel 

being recategorized as contingency retention stock. Although entering 

codes is not mandatory, officials from Warner Robins Air Logistics Center, 

in response to our questions, said that doing so is preferred and that the 

center intended to mandate that item managers use the codes. 

As of March 2003, we found that item managers at the Warner Robins Air 

Logistics Center had not entered deferred disposal codes for 12 of 27 items 

that had potential reutilization and/or disposal materiel—valued at 

$277 million based on the items’ latest acquisition cost—that the Air Force 

wanted to retain. These 12 items thus remained coded as potential 

reutilization and/or disposal materiel. According to letters and memoranda 

justifying the retention of the items, the Air Force wanted to retain 

the items for a variety of reasons, including for potential future use and for 

foreign military sales. The following are examples of the items that the 

center had decided to retain, but were not properly coded: 

• Inventory retained for Air Force use. Warner Robins Air Logistics 

Center had 50 transmitter drivers used on an electronic warfare system for 

the B-1B aircraft that were categorized as potential reutilization and/or 

disposal materiel. The drivers were valued at $644,000 each. Even though 

the fleet of B-1B aircraft is being reduced, the center was retaining the 

drivers because the Oklahoma City Air Logistics Center, responsible for 

management of the B-1B aircraft, had requested that the parts be retained 

to support the aircraft until the year 2040 when the Air Force expects to 

Air Force Item Managers 

Are Not Required to 

Code Items to Prevent 

Their Disposal 
Page 22 GAO-04-689 Defense Inventory 

remove the last of the aircraft from its inventory. However, no code was 

entered into the inventory system that would recategorize the inventory as 

contingency retention stock. 

• Inventory held for foreign military sales. According to the item 

manager responsible for receiver transmitters used on the E-3 aircraft, 

the items were no longer used by the Air Force. The center had 87 receiver 

transmitters, valued at about $410,000 each, that were categorized as 

potential reutilization and/or disposal materiel and were being retained for 

foreign military sales. 

Warner Robins officials explained that it could take up to 3 months for an 

item manager to input the code after receiving the request to retain the 

inventory. Nevertheless, we identified items that had letters justifying their 

retention dating back to 2001 for which no code had been entered. 

Because the Air Force is retaining inventory that it has categorized as 

potential reutilization and/or disposal materiel, the value of this inventory 

is significantly understated in the Supply System Inventory Report, a key 

inventory management report prepared annually. Inventory is reported at 

approximately 2 percent of its latest acquisition cost in these reports, and 

the $277 million inventory that we identified for our analysis is valued in 

the reports at approximately $6 million. 

The large number of items with no demands during Operation Enduring 

Freedom and through the initial phases of Operation Iraqi Freedom 

indicates that further attention to DOD’s inventory retention policies may 

be merited. However, because we have initiated a separate review of these 

policies, we are not at this time making recommendations regarding the 

retention of inventory exceeding current operating requirements that had 

no demands. 

While the ineffective and inefficient inventory management practices we 

identified do not necessarily lead to the accumulation of inventory 

exceeding current operating requirements, they can affect whether the 

warfighter is receiving the right items at the right time. For example, the 

military components are using estimated storage costs to make key 

management decisions even though more accurate storage cost data are 

available from DLA. While Army and Navy officials have said that their 

estimates provide sufficient accuracy, we believe that using more accurate 

data is a better business practice. Until the services and DLA determine 

whether it would be beneficial to use the more accurate storage cost data 

Conclusions 
Page 23 GAO-04-689 Defense Inventory 

in their computations instead of using estimated storage costs and include 

that data in their decision-making models as appropriate, they risk having 

critical items in short supply when they are needed. Similarly, until the Air 

Force implements a systemwide process to correct the causes of inventory 

records discrepancies identified by item managers, the Air Force remains 

at risk of being unable to fill critical needs, and item managers will 

continue to encounter difficulties in their efforts to accurately determine 

the number of available assets and reliably forecast the availability of 

assets. Moreover, by not requiring item managers to code inventory so that 

it is properly categorized, the Air Force is at risk of disposing of inventory 

that it wants to retain. 

To address the inventory management shortcomings that we identified, we 

recommend that the Secretary of Defense take the following three actions: 

• direct the military services and the Defense Logistics Agency to determine 

whether it would be beneficial to use the actual storage cost data provided 

by DLA in their computations, instead of using estimated storage costs, 

and include that data in their systems and models as appropriate; 

• direct the Secretary of the Air Force to establish and implement a 

systemwide process for correcting causes of inventory discrepancies 

between the inventory for which item managers are accountable and the 

inventory reported by bases and repair centers; and 

• direct the Secretary of the Air Force to revise its policy to require item 

managers to code inventory so that the inventory is properly categorized. 

In commenting on a draft of this report, the Acting Deputy Under 

Secretary of Defense for Logistics and Materiel Readiness generally 

concurred with this report and all three of our recommendations. DOD’s 

comments also included compliance dates for each of our 

recommendations. DOD’s comments are included in appendix I of this 

report. 

In concurring with our recommendation to direct the Secretary of the Air 

Force to revise its policy to require item managers to code inventory so 

that the inventory is properly categorized, DOD stated that this policy 

already exists for the Air Force. To ensure the implementation of our 

recommendation, the DOD stated that Air Force Materiel Command would 

report on how the policy is being implemented. However, our review of 

the policy citations provided by DOD indicates that the Air Force policy, 

as stated, does not contain language that would require the use of codes 

Recommendations for 

Executive Action 

Agency Comments 

and Our Evaluation 
Page 24 GAO-04-689 Defense Inventory 

that would properly categorize the inventory. Therefore, even if the Air 

Force ensures compliance with its existing policy, it will remain at risk of 

disposing of inventory that it may need to later repurchase, and the value 

of the improperly categorized inventory will remain significantly 

understated in a key inventory management report. Thus, we continue to 

believe that our recommendation to revise the Air Force policy to require 

item managers to code inventory so that the inventory is properly 

categorized is valid. 

We are sending copies of this report to interested congressional 

committees; the Secretary of Defense; the Secretaries of the Army, the 

Navy, and the Air Force; the Director, Defense Logistics Agency; and the 

Director, Office of Management and Budget. We will also make copies 

available to others on request. In addition, the report will be available at 

no charge on the GAO Web site at http://www.gao.gov. 

If you or your staff have any questions, please call me at (202) 512-8365. 

Key contributors to this report were Lawson Gist, Jr.; Louis Modliszewski; 

Kevin O’Neill; and R.K. Wild. 

William M. Solis, Director 

Defense Capabilities and Management 
Page 25 GAO-04-689 Defense Inventory 

List of Congressional Committees 

The Honorable John W. Warner 

Chairman 

The Honorable Carl Levin 

Ranking Minority Member 

Committee on Armed Services 

United States Senate 

The Honorable Duncan Hunter 

Chairman 

The Honorable Ike Skelton 

Ranking Minority Member 

Committee on Armed Services 

House of Representatives 

The Honorable Ted Stevens 

Chairman 

The Honorable Daniel K. Inouye 

Ranking Minority Member 

Subcommittee on Defense 

Committee on Appropriations 

United States Senate 

The Honorable Jerry Lewis 

Chairman 

The Honorable John P. Murtha 

Ranking Minority Member 

Subcommittee on Defense 

Committee on Appropriations 

House of Representatives 
Appendix I: Comments from the Department 

of Defense 

Page 26 GAO-04-689 Defense Inventory 

Appendix I: Comments from the Department 

of Defense 
Appendix I: Comments from the Department 

of Defense 

Page 27 GAO-04-689 Defense Inventory 

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