```
Organizational Culture: Use of Training to Help Change DOD Inventory
Management Culture (Letter Report, 08/30/94, GAO/NSIAD-94-193).

The Pentagon's excess inventories of unneeded items have long resulted
from a culture that reflects the belief that it is better to overbuy
items and have more than enough on hand than to try to manage with just
the amount of stock needed.  Training has been shown to be a key vehicle
for helping organizations change their cultures.  GAO reviewed the
inventory management and Total Quality Management training that the
Defense Department (DOD) provides to its 150,000 civilian and military
personnel managing its inventory.  This report discusses (1) how DOD
plans to use training to change its inventory management culture, (2)
the extent to which training courses encourage or reflect cultural
change, and (3) the amount of training that inventory managers receive
to help effect cultural change.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  NSIAD-94-193
     TITLE:  Organizational Culture: Use of Training to Help Change DOD 
             Inventory Management Culture
      DATE:  08/30/94
   SUBJECT:  Total quality management
             Inventory control systems
             Human resources training
             Military cost control
             Military inventories
             Training utilization
             Education program evaluation
             Military personnel
             Logistics
             Defense procurement
IDENTIFIER:  TQM
             DOD Logistics Strategic Plan
             
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Cover
================================================================ COVER

Report to the Chairman, Committee on Governmental Affairs, U.S. 
Senate

August 1994

ORGANIZATIONAL CULTURE - USE OF
TRAINING TO HELP CHANGE DOD
INVENTORY MANAGEMENT CULTURE

GAO/NSIAD-94-193

Organizational Culture

Abbreviations
=============================================================== ABBREV

  DLA - Defense Logistics Agency
  DOD - Department of Defense
  TQM - Total Quality Management

Letter
=============================================================== LETTER

B-247299

August 30, 1994

The Honorable John Glenn
Chairman, Committee on
 Governmental Affairs
United States Senate

Dear Mr.  Chairman: 

The Department of Defense's (DOD) excessive inventories of unneeded
items have long resulted from a culture\1 that reflects the belief
that it is better to overbuy items and have more than enough on hand
than to try to manage with just the amount of stock needed.  Training
has been shown to be a key vehicle for helping organizations change
their cultures.  In response to your request, we reviewed the
inventory management and Total Quality Management\2 (TQM) training
that DOD provides to its approximately 150,000 civilian and military
personnel involved in inventory management activities.\3
Specifically, we examined (1) how DOD plans to use training to help
change its inventory management culture, (2) the extent to which
training courses encourage or reflect cultural change, and (3) the
amount of training inventory management personnel receive to help
effect cultural change. 

--------------------
\1 An organization's culture is the underlying assumptions, beliefs,
values, attitudes, and expectations shared by its members, which
affect their behavior and the behavior of the organization as a
whole. 

\2 TQM is an organizational leadership philosophy and management
approach that strives to create and perpetuate an organizational
culture that values and strives to continually improve the
organization's products and services; the methods, processes,
economy, and efficiency with which the products and services are
produced; the quality, value, and satisfaction provided to the
organization's customers; and the interpersonal relationships that
are at the heart of the methods and processes the organization uses. 

\3 Inventory management is the process of determining how much stock,
or materials, parts, and supplies, to order or requisition; of
placing orders or requisitions; of receiving, storing, and caring for
stock; of determining unneeded stock and making it available for
disposal; and of issuing or shipping stock to requisitioners. 

   BACKGROUND
------------------------------------------------------------ Letter :1

Following the large growth of unrequired inventories during the
1980s, DOD is now faced with the challenge of reducing inventory
without sacrificing responsiveness.  The inventory management
challenge is not necessarily directed at the inventory of primary
items, such as tanks, ships, and aircraft, which is more closely tied
to force structure decisions.  Rather, the challenge is directed at
the management of secondary items, such as weapon system components,
medical and dental supplies, food, and clothing.  DOD's inventory of
such items grew from $43 billion in 1980 to $109 billion in 1989. 
Even though this inventory had decreased to $77.5 billion as of
September 1993, most of the decrease resulted from revaluing rather
than reducing the inventory. 

We have issued a series of reports on specific types of secondary
items\4 that identified problems, such as supplies on hand that
exceed demand by several years; slow inventory turnover rates; a
large portion of excess or obsolete items on hand; and the
significant costs of storing, handling, and tying up funds in
inventory.  Our work includes analyses of how leading-edge private
sector firms approached comparable inventory management problems. 
These firms found that a cultural change in their philosophy of
inventory management was critical to making inroads against such
problems.  Recognized experts in the field of organizational change
informed us at the time that an organization's decision to change its
culture is generally triggered by a specific event or situation. 
They also agreed that such change takes 5 to 10 years or longer to
complete. 

The contrast between DOD's large inventories and sharply declining
budgets comprise the right circumstances for cultural change. 
However, the difficulties DOD faces in such an undertaking must be
recognized.  DOD operates a worldwide logistics system to buy, store,
and distribute inventory items.  The enormity and complexity of this
system is underscored by the tens of thousands of people and hundreds
of facilities needed to operate it--a network that exists on a much
broader scale than in most private sector companies.  Moreover,
because DOD's system is decentralized and involves people and
facilities that perform more than just inventory management
functions, it is difficult to precisely identify the people and
organizations that should be involved in a cultural change. 

--------------------
\4 See Related GAO Products. 

   RESULTS IN BRIEF
------------------------------------------------------------ Letter :2

DOD has recognized that it must reduce the size and huge cost of its
inventories because of current budget constraints.  To its credit,
DOD has acknowledged that it must accomplish this goal by changing
its inventory management culture.  Although DOD sees training as a
key tool that can help it achieve cultural change, it has yet to take
steps that are essential to most effectively use training to foster
the desired change.  Specifically: 

  DOD has not developed and promulgated written plans and guidance on
     how to use training to effect its desired cultural change. 

  DOD's training courses lack the content and emphasis necessary to
     foster a new way of thinking about inventory management. 
     Although a few inventory management courses teach TQM and modern
     logistics concepts, most do not.  Most courses emphasize the
     traditional values of economy and efficiency without integrating
     these with modern logistics practices.  As a result, DOD has not
     yet developed the tools it needs to effect cultural change. 

  Most inventory management personnel are not receiving the training
     they need to effect cultural change.  Most personnel at the 17
     inventory management activities we visited have not received
     recent inventory management or TQM training, and the percentages
     who had varied widely among activities.  Further, less than 30
     percent of military inventory management personnel are even
     required to take training.  Also, some activities maintain poor
     training records, impeding DOD's ability to track how many
     people have received the needed training. 

   DOD SEEKS CULTURAL CHANGE
   THROUGH TRAINING, BUT DOES NOT
   YET HAVE PLANS IN PLACE
------------------------------------------------------------ Letter :3

DOD's continuing inventory management problems reflect a long-held
belief that overbuying and holding large numbers of items is better
than being caught short when a customer requests an item.  For the
most part, DOD has been held captive to ineffective and inefficient
inventory management practices and systems that were developed years
ago.  In contrast, an intensely competitive business environment has
forced private sector firms to adopt new technologies and new
business concepts to cut costs while competing to provide superior
customer service.  Consequently, more companies have begun to adopt
modern inventory management strategies, such as just-in-time and
quick response philosophies,\5 that enable them to fill orders faster
while lowering capital investment and reducing inventory levels.  In
many cases, to do this successfully, companies have had to change the
way they think. 

To better understand what DOD needed to do to change its inventory
management culture, we obtained views from experts in the academic
field and officials from nine large private sector companies who were
concerned about inventory management.\6 They indicated that a
combination of many techniques are needed to bring about successful
cultural change, but two are of prime importance.  These techniques
are (1) top management's commitment and support for desired values
and beliefs and (2) employee training to convey desired values and
beliefs and develop the skills needed to implement them.  When an
organization strives to change its culture, it is crucial that top
management communicate to organizational members the beliefs and
values essential to the desired culture and the means that will be
used to instill them. 

DOD officials as high as the Deputy Secretary of Defense have
recognized during hearings held in March 1990 the need for a culture
that places more emphasis on economy and efficiency.  Despite this
acknowledgement, DOD has not yet developed and promulgated policies
and plans that clearly and effectively communicate how training is to
be used to help make the change.  Consequently, the schools and
activities we visited had not received written guidance that
describes how training is to be used to achieve a cultural change in
inventory management.  The absence of delineated policies and plans
dim the prospects for training to serve as a useful change agent. 

--------------------
\5 The just-in-time concept was introduced in the manufacturing
field, where supplier delivery to assembly lines replaced inventory,
and on-time delivery was essential to production.  Supplies are
delivered just as they are needed and not before.  The quick response
concept originated as a link between manufacturers and the retail
sector, where stores wanted to stock their shelves with just enough
of the right item, in the right quantity.  Quick response relies
heavily on the efficiency resulting from electronic communication
between retailers, wholesalers, and suppliers. 

\6 Organizational Culture:  Techniques Companies Use to Perpetuate or
Change Beliefs and Values (GAO/NSIAD-92-105, Feb.  27, 1992). 

   TRAINING DOES NOT YET GENERALLY
   REFLECT NEW INVENTORY CONCEPTS
------------------------------------------------------------ Letter :4

Input we obtained from several logistics experts and academics shows
that to help change DOD's inventory management culture, DOD should
have mandatory entry-level and continuing education training
requirements for all inventory management personnel.  Further, the
input shows that this training should emphasize the (1) modern
logistics concepts, such as just-in-time and direct shipment, that
leading-edge companies embrace as a means to maximize economy and
efficiency without sacrificing responsiveness; (2) TQM concepts and
skills that are needed to continually improve inventory management
processes and practices; (3) importance of economy and efficiency as
a DOD cultural value; and (4) technical aspects or systems and
regulations inventory management personnel need to perform their
jobs.  Overall, the DOD schools we visited did not strongly emphasize
the new concepts or thinking--modern logistics and TQM concepts--and
the importance of economy and efficiency as a DOD cultural value. 
They did emphasize established systems and regulations. 

Of the nine major DOD inventory management schools included in our
review, only one indicated that it strongly emphasized modern
logistics concepts; three indicated they had added at least some
discussion of TQM concepts; and one said it planned to add TQM
concepts to inventory management training.  Several of the schools
also indicated that they emphasized economy and efficiency in other
ways, such as by stressing the importance of using judgment before
ordering inventory stocks.  As the following comments show, however,
much of the inventory management training exudes a traditional
emphasis on systems and regulations. 

  Army Quartermaster School instructors emphasized adherence to
     regulations, which they equated with economy and efficiency in
     inventory management. 

  Navy Fleet Material Support Office instructors taught students how
     to use computerized inventory management systems that they
     believed were designed to increase economy and efficiency, but
     in doing so focused on (1) the importance of using judgment
     before personnel act on computer recommendations to buy stocks
     and (2) any changes in policies and procedures that are intended
     to increase economy and efficiency.  They said that the basic
     content of their training has not changed in the last
     10 years because inventory management functions have not changed
     substantially. 

  Air Force Technical Training Center instructors at Lowry Air Force
     Base taught students topics, such as stockage policy, Stock Fund
     concepts, inventory analysis, and problem analysis, that they
     believed stress the importance of economy and efficiency in
     inventory management.  Following direction from Air Force
     officials, instructors were planning to insert TQM concepts into
     their inventory management training. 

  Defense Logistics Agency (DLA) Civilian Personnel Support Office
     instructors believed they emphasized economy and efficiency in
     teaching computerized inventory management systems and stressing
     that students should question computer commands.  In addition,
     they added instruction on the Defense Business Operations Fund\7
     and TQM concepts to their inventory management training. 

Comments made by recently trained inventory management personnel we
interviewed at 17 activities also indicate that training placed
little emphasis on concepts that will promote new thinking and
strongly emphasized systems and regulations.  For example: 

  Army instructors of the "Basic Noncommissioned Officer Course"
     taught verbatim from the regulations book and did not mention
     economy and efficiency, although they did stress making sure
     actual inventory balances on hand match the balances in the
     computer system. 

  Army instructors of the "Defense Inventory Management Course"
     taught an overview of how each major DOD component's inventory
     management system works and stressed not wasting paper and
     supplies at work. 

  Navy instructors of the "Uniform Automated Data Processing System -
     Stock Points" course taught how to use the computer system,
     noting that money would be saved by using it correctly. 

  DLA instructors of the "Introduction to DLA Logistics" course
     stressed how to order inventory items and how to dispose of
     them.  They taught that the system is set up to ensure DLA has
     enough, but not too much, stock on hand. 

  DLA instructors of the "DLA Supply Management Course" and
     "Introduction to DLA Logistics" courses taught the "best way to
     do the job," how to fill requisitions, and to place priority on
     supplying the customer. 

Overall, of the 127 inventory management personnel we interviewed at
the 17 activities, 107 had received inventory management training in
the previous 2 years.  We grouped students' comments about how
economy and efficiency were emphasized in their courses. 

  77 students indicated that (1)economy and efficiency concepts were
     emphasized in terms of systems and regulations or conserving
     resources, such as packing materials or paper, or were not
     emphasized or (2)they could not recall how economy and
     efficiency were addressed or emphasized;

  26 students said they were addressed through an emphasis on
     avoiding overbuying and excess inventories or on a general need
     to "do more with less" because of budget constraints;

  3 students said economy and efficiency were discussed in relation
     to modern logistics concepts; and

  1 student said they were discussed in relation to TQM. 

The grouping of students' comments further illustrates that little
emphasis is placed on concepts that will promote new thinking.  Even
the emphasis noted by 26 interviewees on conserving resources and
avoiding overbuying, although compatible with changing culture, alone
is unlikely to produce the desired change.  Rather, the results of
our interviews with both students and school instructors reflect the
absence of a training plan that is clearly linked to a new inventory
management policy.  Under these circumstances, new inventory
management concepts are emphasized only on the initiative of an
individual school, activity, or instructor. 

--------------------
\7 The Defense Business Operations Fund is a consolidation of several
DOD funds and provides higher level oversight and control.  Some
primary goals are to encourage support organizations, such as
distribution depots, to provide customers quality goods and services
at the lowest cost; to operate support organizations more like
businesses by charging customers for the full cost of their products
and services and operating primarily from sales revenues; and,
ultimately, to link support costs with customer funding. 

   MOST INVENTORY MANAGEMENT
   PERSONNEL HAVE NOT RECEIVED
   RECENT TRAINING
------------------------------------------------------------ Letter :5

Most personnel at the 17 inventory management activities we visited
have not received recent inventory management or TQM training, and
the percentages who had varied widely among activities.  Overall, of
the nearly 5,000 personnel, shown in table 1, for whom we were able
to analyze data, about 17 percent had received recent inventory
management training, and about 20 percent had received recent TQM
training.\8

Most personnel had not received recent training partly because the
Office of the Secretary of Defense, DLA, and the services have not
established mandatory training requirements for most inventory
management personnel.  DOD does not require any of its nearly 89,000
civilian inventory management personnel to have training, although it
is recommended for some.  Further, less than 27 percent of its almost
61,000 military inventory management personnel are required to have
training.  However, the logistics experts and academics we contacted
indicated that to effectively use training to help change its
culture, DOD needs to have requirements for mandatory entry-level and
continuous education training for all of its approximately 150,000
inventory management personnel and to train them all in the elements
important to the desired culture. 

As shown in table 1, about 6 percent of the 1,311 inventory
management personnel at one depot had taken classroom training on
inventory management during the 17 months before our visit, and 1.4
percent had taken TQM training courses.  In contrast, a sample of the
931 inventory management personnel at another activity showed that
about 30 percent had taken classroom training on inventory management
during the
18 months before our visit and about 42 percent had taken TQM
training courses.  Local activity training programs provided most of
the TQM training. 

                                     Table 1
                     
                     Inventory Management Personnel Receiving
                        Recent Inventory Management or TQM
                                     Training

                                  Number of
                                  inventory
                                 management  Records           Inventory
Activity                          personnel  analyzed         management     TQM
------------------------------  -----------  --------------  -----------  ------
Naval Aviation Depot Norfolk            249  All                       0     7.2
Naval Aviation Depot Pensacola           55  All                     1.8     3.6
Naval Supply Center Norfolk             369  All                     5.4    18.7
Directorate of Logistics and            125  All                     5.6       0
 Medical Activity Logistics
 Division, Ft. Stewart
Defense Distribution Depot            1,311  All                     5.9     1.4
 Susquehanna Pennsylvania
 (17 mo.)
Naval Supply Center Pensacola,           48  All                    14.6    54.2
 Inventory Control Division
 (25 mo.)
Naval Air Station Norfolk,              130  All                    14.7    30.0
 Supply Department
Defense Electronics Supply              328  All                    15.5    77.1
 Center, Supply Operations
 Directorate
USS Dwight D. Eisenhower                103  All                    33.0     1.0
Directorate of Logistics,               114  Sample of 30           20.0    53.3
 Installation Supply and
 Services Division, Ft. Bragg
Defense General Supply Center,          141  Sample of 88           27.3    13.6
 Supply Operations Division
U.S. Army Tank Automotive               959  Sample of 192          27.6     8.8
 Command
U.S. Army Missile Command               931  Sample of 93           30.1    41.9
24th Mechanized Infantry                 65  Sample of 20           40.0       0
 Division, Division Support
 Command (15 mo.)
Naval Air Station Pensacola              34  The 25                  4.0     4.0
                                              available
--------------------------------------------------------------------------------
Note:  Figures in table 1 are only an estimate of the percentage of
personnel who have taken recent inventory management and TQM
training.  This is because (1) we did not factor work starting dates
into the analysis and some personnel had been working in inventory
management at their activity for less than the 1-1/2 years before our
visit, the time period we used for developing the table, (2) in
interviewing 127 personnel at the activities, we discovered some
errors in the training information activities had provided, and (3)
some activity officials cautioned us that their training records and
information might not be accurate. 

Local training programs supplement the schools' training and increase
the overall amount of training available to inventory management
personnel.  For example, most of the activities we visited have begun
TQM training programs, and many of the people who had taken TQM
training courses received them through these programs.  Still, as
previously noted, only about 20 percent had received recent TQM
training, although some activities said that all their personnel
would eventually receive it.  Less than half the activities we
visited provided local inventory management training. 

Overall, the extent of inventory management and TQM training
available through local training programs varied widely. 

  The Army Missile Command's Integrated Materiel Management Center
     uses local instructors to teach four different inventory
     management courses, which last from 20 hours to 32 hours.  The
     Command also has a Quality Institute, which has taught over 300
     personnel to be TQM consultants in offices throughout the
     Command.  One of the first TQM consultants trained is now the
     Director of TQM for the Center and has managed an extensive TQM
     training program for the Center.  In addition, the Command
     organized a logistics university, which is a consortium of local
     universities,\9 that teaches university courses on site and
     encourages Command personnel to earn college degrees in
     logistics. 

  The Defense Electronics Supply Center at Columbus, Ohio, relies on
     instructors from DLA's Civilian Personnel Support Office, which
     is also located in Columbus, to provide local inventory
     management training.  It provides TQM training to all its
     inventory management and other personnel at the Wright-Patterson
     Center for Quality Education, which is located close by in
     Dayton, Ohio. 

  The Defense Distribution Depot Susquehanna Pennsylvania's local
     instructors do not teach any inventory management courses that
     last 8 or more hours, and its TQM specialists have no scheduled
     TQM training courses.  The TQM specialists provide training only
     when managers request it for their personnel. 

  Fort Stewart has no local inventory management training courses
     lasting
     8 or more hours for inventory management personnel, and it has
     no local TQM training program. 

Some activities have not adequately tracked their personnel's
training or did not provide us with sufficient data to determine how
many personnel had received recent training.  For these reasons, only
15 of the 17 activities we visited are included in table 1, and 3 of
those included are for time periods other than the 1-1/2 years before
our visit.  The Defense Distribution Depot Richmond Virginia was not
included because it did not keep individual records at the time of
our visit.  The 18th Airborne Corps' 1st Corps Support Command was
not included because it provided records for only 24 of its over
1,100 inventory management personnel.  One activity only had records
going back 17 months before our visit, and two activities only
provided the year or other time period in which personnel received
training rather than the actual dates. 

--------------------
\8 Our figures are based on a 95-percent confidence level, with a
precision of plus or minus 2 percent. 

\9 The Logistics University's undergraduate program is comprised of a
consortium of the University of Alabama at Huntsville, Alabama;
Alabama A&M University; and Athens State College.  Its graduate
program is comprised of a consortium of the University of Alabama at
Huntsville, Alabama; Alabama A&M University; and the Florida
Institute of Technology. 

   RECOMMENDATIONS
------------------------------------------------------------ Letter :6

Clear and effectively communicated plans and guidance for using
training to help change inventory management culture must exist
before training can most effectively serve as a change agent. 
Accordingly, we recommend that the Secretary of Defense direct the
Secretaries of the Army, the Navy, and the Air Force, as well as the
Director of the Defense Logistics Agency, to

  Develop training plans and provide guidance to ensure that DOD
     schools and inventory management activities provide training
     that can help bring about the desired cultural change.  Against
     the general backdrop of economy and efficiency and its
     importance as a DOD inventory management cultural value, such
     plans and guidance should emphasize modern logistics concepts
     and TQM concepts and tools as key training vehicles. 

  Establish mandatory entry-level and continuing education training
     requirements for all DOD inventory management personnel, along
     with requirements and procedures that ensure each employee's
     progress in completing required training is accurately recorded
     and tracked. 

   AGENCY COMMENTS AND OUR
   EVALUATION
------------------------------------------------------------ Letter :7

DOD generally agreed with the findings and recommendations in this
report and stated that it currently has actions underway or planned
that will use training to bring about the desired change in its
inventory management culture.  Specifically, DOD stated that by the
second quarter of fiscal year 1995, it will provide the Secretaries
of the Army, the Navy, and the Air Force, and the Director of the
Defense Logistics Agency guidance to review, update, and maintain
training plans and ensure that its schools and activities provide
training that is in line with current policies.  DOD also stated that
it will determine which training courses are most appropriate for
entry-level inventory management personnel and direct the services
and DLA to require that these personnel complete them.  Additionally,
DOD stated that it will communicate to the services and DLA the need
for continuing education training and for tracking this training. 

In a draft of this report, we recommended that DOD develop and
promulgate a written statement of its desired cultural values and
beliefs in inventory management.  In commenting on the draft, DOD
stated that its Materiel Management Regulation 4140.1-R, dated
January 1993, reflects modern approaches to inventory management, and
that its Logistics Strategic Plan, issued in June 1994, articulates a
vision of its desired inventory management culture.  Although the
regulation is consistent with using modern inventory management
practices, it does not, in our opinion, clearly articulate a vision
of DOD's desired new inventory management culture.  However, DOD's
Logistics Strategic Plan, issued after the completion of our review
work, includes a vision that states the DOD logistics system will
achieve a lean infrastructure and provide reliable, flexible,
cost-effective, and prompt logistics support, information, and
services.  Because DOD has taken actions that are responsive to the
intent of the recommendation included in our draft report, we have
deleted this recommendation from our final report. 

---------------------------------------------------------- Letter :7.1

Details on our scope and methodology are in appendix I. 

We are sending copies of this report to appropriate congressional
committees; the Secretaries of Defense, the Army, the Navy, and the
Air Force; the Director of the Defense Logistics Agency; the Director
of the Office of Management and Budget; and other interested parties. 
We will also make copies available to others on request. 

Please contact me on (202) 512-8412 if you or your staff have any
questions concerning this report.  Other major contributors to this
report are listed in appendix III. 

Sincerely yours,

Donna M.  Heivilin
Director, Defense Management and
 NASA Issues

SCOPE AND METHODOLOGY
=========================================================== Appendix I

We reviewed how the Department of Defense (DOD) used classroom
training courses in inventory management and Total Quality Management
(TQM) lasting 8 hours or more to help change its inventory management
culture.  To limit the size of our review, we did not evaluate other
types of training used by DOD, such as classroom training lasting
less than 8 hours, classroom training in inventory management taken
from non-DOD institutions, on-the-job training, correspondence
courses, satellite television courses, and computer-based courses. 

In gathering information for this report, we reviewed documents and
discussed training, including training plans and requirements, with
DOD officials.  We discussed the inventory management and TQM
training they provide with most of the major schools DOD identified
as providing inventory management training.  These included the
Defense Logistics Agency Civilian Personnel Support Office, the Army
Logistics Management College, the Army Quartermaster School, the Army
Materiel Command's School of Engineering and Logistics, the Navy
Supply Corps School, the Naval Postgraduate School, the Navy Fleet
Material Support Office, the Air Force Institute of Technology, and
the Air Force's Lowry Technical Training Center. 

We visited 17 activities that represent a cross-section of DOD's
major types of inventory management activities, including 4 inventory
control points or supply centers, 2 wholesale distribution depots, 2
major maintenance depots, and 9 supply support activities.  At the
time we selected activities to visit in mid- to late 1992, DOD said
it had 20 inventory control points, 26 wholesale distribution depots,
38 major organic maintenance depots, and hundreds of supply support
activities, although officials said they had no complete count or
list of the supply support activities.  Several of these activities
are now planned to be closed, realigned, or relocated as a result of
decisions made under the Defense Base Closure and Realignment Act of
1990 (P.L.  101-510). 

The activities we visited included the Defense General Supply Center,
the Defense Electronics Supply Center, the Defense Distribution Depot
Richmond Virginia, the Defense Distribution Depot Susquehanna
Pennsylvania, the Army Missile Command, the Army Tank Automotive
Command, the Fort Bragg Directorate of Logistics, the 18th Airborne
Corps' 1st Corps Support Command, the Fort Stewart Directorate of
Logistics, the 24th Mechanized Infantry Division Support Command, the
USS Dwight D.  Eisenhower, the Naval Air Station Pensacola, the Naval
Aviation Depot Pensacola, the Naval Supply Center Pensacola, the
Naval Air Station Norfolk, the Naval Aviation Depot Norfolk, and the
Naval Supply Center Norfolk. 

We examined over 3,000 training records or information for inventory
management personnel at all 17 of the activities we visited and
discussed local inventory management and TQM classroom training at
most of them.  We also individually interviewed 127 inventory
management personnel who had recently received inventory management
and/or TQM training about their views of economy and efficiency in
inventory management and their perception of the emphasis placed on
economy and efficiency in training.  The 127 interviewees were from a
variety of civilian and military inventory management job
classifications and job levels at the 17 activities and had recently
received a variety of inventory management and TQM training courses. 

Due to the relatively small number of Marine Corps personnel involved
in inventory management, we did not visit Marine Corps schools or
inventory management activities.  Therefore, the results of our
review may not reflect the Marine Corps use of training as a
technique in changing organizational culture.  Also, although we
discussed training with Air Force officials and visited Air Force
schools, we did not visit any Air Force inventory management
activities because we felt we had sufficient coverage at other
services' activities.  Additionally, we did not visit ordnance or
fuel supply activities.  Further, we did not include in our review
personnel in activities closely related to inventory management or
those whom some might consider a part of inventory management, such
as procurement and contracting workers, transportation workers, and
quality assurance workers, nor did we include them in the 150,000
estimate of inventory management personnel. 

We conducted our visits to schools and activities from March 1992
through April 1993.  We continued our analysis of data collected at
the sites through October 1993.  Our audit work was conducted in
accordance with generally accepted government auditing standards. 

(See figure in printed edition.)Appendix II
COMMENTS FROM THE DEPARTMENT OF
DEFENSE
=========================================================== Appendix I

(See figure in printed edition.)

(See figure in printed edition.)

(See figure in printed edition.)

(See figure in printed edition.)

(See figure in printed edition.)

(See figure in printed edition.)

(See figure in printed edition.)

(See figure in printed edition.)

(See figure in printed edition.)

The following are GAO's comments on the Department of Defense's (DOD)
letter dated July 28, 1994. 

GAO COMMENTS

1.  We believe that selecting activities to visit based on DOD's view
of which activities' personnel have received the most training would
have biased our results.  Also, realizing that inventory control
points play an important role in the inventory management process, we
visited a greater percentage of them than of other types of inventory
management activities.  To have visited even more inventory control
points would have skewed our results.  As noted in appendix I, we
believe the inventory management activities we visited were
representative of DOD's major types of inventory management
activities. 

2.  Several of the activities we visited provided training data for
their inventory management personnel that went back 5 years or
longer; the percentage who had received TQM training still varied
widely from activity to activity.  Also, the percentage of personnel
who received TQM training in the 1-1/2 years before our visit and the
percentage who received it in the
5 or more years before our visit varied significantly at only a few
of these activities.  Thus, we believe our data on TQM training to be
representative of DOD's inventory management personnel.  We also note
that TQM training is only one form of training that has potential for
changing inventory management culture. 

3.  We used a definition of inventory management for this review that
includes what DOD normally refers to as the wholesale and retail
levels because both levels are important to achieving a change in
DOD's inventory management culture.  Army Logistics Management
College officials describe what DOD refers to as the wholesale level
of its inventory management system as including the inventory control
points, which determine how much stock to order and subsequently
order it; the wholesale distribution depots, which store and care for
the stock and send it wherever asked to by the inventory control
points; and the communications system, which allows communication
among the various wholesale and retail inventory management
activities.  The officials describe what DOD calls the retail level
(DOD referred to this in its letter as the consumer level) of the
inventory management system as including the supply support
activities.  They noted that supply support activities carry various
quantities of as many as 20,000 different kinds of items in stock for
issuance as needed at consumer activities, and that many supply
support activities have warehouses to store and care for the stock. 
Major maintenance depots are considered wholesale-level repair
activities, but retail-level parts managers.  We agree that the
training needs on the technical aspects of doing the job are
different for inventory management personnel working in the various
parts of DOD's inventory management system.  However, both the
wholesale and retail levels are important in economically and
efficiently managing DOD's huge inventories.  Therefore, we believe
the definition we used is appropriate and that DOD needs plans and
guidance for required entry-level and continuing education training
for all these personnel. 

4.  Although the services and DLA may have some inventory management
courses that include TQM and other modern logistics concepts, this is
not synonymous with developing and promulgating policies and plans
that clearly and effectively communicate how training is to be used
to help effect cultural change.  To the contrary, the schools and
activities we visited had not received written guidance that
describes how training is to be used.  Thus, DOD schools and local
activity instructors are left on their own to decide whether and how
to use their training to help change the culture. 

5.  Regardless of DOD's vision and policy for managing and sizing its
inventory for the future, DOD's current excessive inventories have
resulted from a long-held belief that holding large inventories is
better than being caught short when a customer requests an item. 
Most of the decrease to the current $77.5-billion inventory level
resulted from revaluing rather than reducing inventory.  We recognize
that DOD is trying to change that culture and that its recent
policies and the vision it published in June 1994 are a part of this
effort.  However, cultural changes require the use of a combination
of many techniques and can take 5 to 10 years or longer to complete. 

MAJOR CONTRIBUTORS TO THIS REPORT
========================================================= Appendix III

NATIONAL SECURITY AND
INTERNATIONAL AFFAIRS DIVISION,
WASHINGTON, D.C. 

David R.  Warren, Associate Director
Kenneth R.  Knouse, Jr., Assistant Director
F.  Earl Morrison, Evaluator-in-Charge
Claude T.  Adrien, Evaluator
Ken Miyamoto, Evaluator
Carolyn S.  Blocker, Reports Analyst

RELATED GAO PRODUCTS

Commercial Practices:  Opportunities Exist to Reduce Aircraft Engine
Support Costs (GAO/NSIAD-91-240, June 28, 1991). 

DOD Medical Inventory:  Reductions Can Be Made Through the Use of
Commercial Practices (GAO/NSIAD-92-58, Dec.  5, 1991). 

DOD Food Inventory:  Using Private Sector Practices Can Reduce Costs
and Eliminate Problems (GAO/NSIAD-93-110, June 4, 1993). 

Commercial Practices:  DOD Could Save Millions by Reducing
Maintenance and Repair Inventories (GAO/NSIAD-93-155, June 7, 1993). 

Defense Inventory:  Applying Commercial Purchasing Practices Should
Help Reduce Supply Costs (GAO/NSIAD-93-112, Aug.  6, 1993). 

Defense Transportation:  Commercial Practices Offer Improvement
Opportunities (GAO/NSIAD-94-26, Nov.  26, 1993). 

Commercial Practices:  Leading-Edge Practices Can Help DOD Better
Manage Clothing and Textile Stocks (GAO/NSIAD-94-64, Apr.  13, 1994). 

Commercial Practices:  DOD Could Reduce Electronics Inventories by
Using Private Sector Techniques (GAO/NSIAD-94-110, June 29, 1994). 

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