DEFENSE 

INVENTORY

Actions Underway to 

Implement 

Improvement Plan, 

but Steps Needed to 

Enhance Efforts

Report to Congressional Committees

May 2012

GAO-12-493

United States Government Accountability Office

GAO
United States Government Accountability Office

Highlights of GAO-12-493, a report to 

congressional committees

May 2012

DEFENSE INVENTORY

Actions Underway to Implement Improvement Plan, 

but Steps Needed to Enhance Efforts

Why GAO Did This Study

GAO has identified supply chain 

management as a high-risk area due in 

part to ineffective and inefficient 

inventory management practices that 

have caused DOD to accumulate 

billions of dollars worth of unneeded 

inventory. DOD reported that as of 

September 2010 it had $8.4 billion 

worth of on-hand excess inventory, 

categorized for potential reuse or 

disposal, and $940 million worth of onorder excess inventory, already 

purchased but likely to be excess due 

to changes in requirements. Under the 

National Defense Authorization Act for 

Fiscal Year 2010, GAO is required to 

assess DOD’s implementation of the 

Comprehensive Inventory 

Management Improvement Plan (Plan)

DOD submitted to Congress. GAO’s 

objectives were to determine the extent 

to which DOD has (1) established and 

achieved targets for reducing excess 

inventory in the Plan, (2) made 

progress in implementing the overall 

Plan, (3) metrics to track progress in 

improving inventory management, and 

(4) identified and realized any cost 

savings or avoidance. GAO reviewed 

relevant data, assessed DOD’s actions 

through January 1, 2012, and 

interviewed officials implementing the 

Plan. 

What GAO Recommends

GAO recommends that DOD 

periodically re-examine its targets for 

on-hand and on-order excess 

inventory; and develop guidance to 

establish a set of metrics including 

standardized definitions and 

calculations that are then employed to 

monitor its inventory management 

practices. DOD concurs with GAO’s 

recommendations.

What GAO Found

The Department of Defense (DOD) set two goals—reducing on-order and onhand excess inventory—with percentage targets for each based on the best 

available data in fiscal year 2009 as part of its Comprehensive Inventory 

Management Improvement Plan (Plan). Sustained management oversight led to 

reductions in on-order and on-hand excess inventory in fiscal year 2010 prior to 

the Plan’s implementation, and thus DOD may find the current targets are not 

meaningful in guiding improvement. Specifically, at the end of fiscal year 2010, 

DOD had reduced its percentage of on-order excess inventory to 5.5 percent, 

thereby achieving its 2014 target 4 years early. It also revised the definition and 

calculation of on-hand excess inventory, which resulted in DOD being below the 

fiscal year 2012 target of 10 percent. It is DOD policy to conduct periodic 

evaluations of its inventory management, and results-oriented management 

practices emphasize validating performance measures to ensure they remain 

appropriate. Without challenging, yet achievable targets, DOD’s Plan will not be 

effective in guiding further improvement. 

DOD has made progress implementing its Plan since implementation began in 

late fiscal year 2010, but DOD is only 18 months into a 4-year implementation 

effort and many planned activities still remain. Most but not all of the progress to 

date has been in gathering and analyzing data, and reviewing guidance and 

practices. In addition, DOD has made progress in particular areas, such as 

developing tentative sub-categories to further clarify its existing inventory 

categories. Overall implementation is generally on schedule, but some of the 

Plan’s efforts have experienced delays. Moving forward, DOD faces such 

challenges as adjusting demand planning to changing circumstances, and 

enforcing consistent implementation of guidance at the military service level. 

As part of the Plan, DOD is developing metrics to assess the effectiveness and 

efficiency of its inventory management, but it has not determined if it will 

incorporate these metrics into guidance. This may hamper its ability to assess 

inventory management performance and sustain management attention on 

improvement. Materiel managers should evaluate and be capable of reporting on 

the performance of inventory management. Based on previous reporting, GAO 

has found that such metrics should be reportable in a consistent fashion. DOD is 

currently developing a portfolio of metrics that fall under five key areas: 

readiness, responsiveness, reliability, cost, and planning and precision. Some 

metrics that have been identified—such as customer wait time—are currently 

reported by DOD, while others would be new metrics that would require 

establishing a data source and methodology. However, the Plan does not include 

steps to incorporate the metrics, including their methodologies, into DOD 

guidance. Without guidance specifying standardized definitions, methodologies, 

and procedures for data collection procedures, DOD’s efforts to employ metrics 

to monitor and evaluate inventory management performance may be hampered. 

Finally, DOD achieved about $710 million in cost avoidances reducing excess 

inventory in fiscal year 2010, and plans to reduce funding for the purchase of 

items by $365 million between fiscal year 2012 and 2016. Additionally, DOD 

completed about $140 million in lateral redistributions and procurement offsets in 

fiscal years 2010 and 2011, which prevented the acquisition of additional items. 

View GAO-12-493. For more information, 

contact Zina Merritt at (202) 512-5257 or 

merrittz@gao.gov.
Page i GAO-12-493 Defense Inventory

Letter 1 

Background 5

DOD Established Targets for Reducing Excess Inventory Based on 

the Best Data Available, but Its Targets May Not Effectively 

Guide Continued Improvement 12

DOD Has Made Progress in the Early Stages of the Plan’s 

Implementation, but Has Experienced Delays and Challenges 

Remain in Implementation 17

DOD Is Developing a Set of Metrics to Assess Inventory 

Management Effectiveness and Efficiency, but Has Not 

Determined If It Will Incorporate These Metrics into Guidance 24

DOD Has Achieved Cost Avoidances Based on Fiscal Years 2009 

and 2010 Inventory Data and Plans to Reduce Resources 

Available for the Purchase of Secondary Items 28

Conclusions 30

Recommendations for Executive Action 31

Agency Comments and Our Evaluation 31

Appendix I Objectives, Scope, and Methodology 34

Appendix II Implementation Status of Prior GAO Recommendations for DOD 

Inventory Management 37

Appendix III Printer-Friendly Version of Figure 1 - Select DOD Categories of 

Secondary Inventory Items 51

Appendix IV Demand Forecasting Sub-plan 52

Appendix V Total Asset Visibility and Multi-echelon Modeling Sub-plan 56

Appendix VI On-order Excess Inventory Sub-plan 59

Contents
Page ii GAO-12-493 Defense Inventory

Appendix VII Economic Retention Stock Sub-plan 62

Appendix VIII Contingency Retention Stock Sub-plan 65

Appendix IX Storage and Direct Vendor Delivery Sub-plan 68

Appendix X Items with No Demand Sub-plan 72

Appendix XI Disposition of Potential Reutilization Stock Sub-plan 75

Appendix XII Other Inventory Improvement Actions Sub-plan 78

Appendix XIII Comments from the Department of Defense 83

Appendix XIV GAO Contact and Staff Acknowledgments 85

Glossary 86

Related GAO Products 89

Tables

Table 1: The Nine Sub-plans and Corresponding Objectives 9

Table 2: Summary of Implementation Status of Actions as of 

January 1, 2012 20
Page iii GAO-12-493 Defense Inventory

Table 3: Summary of Implementation Status of Milestones as of 

January 1, 2012 21

Table 4: Supply Chain Outcome and Attributes, and Examples of 

Potential Metrics 25

Table 5: Army and DLA Working Capital Fund Reductions in 

Obligation Authority, Fiscal Years 2012 through 2016 30

Table 6: Status of GAO Recommendations on Inventory 

Management Since 2006 37

Table 7: Status of Recommendations from Defense Inventory: 

Defense Logistics Agency Needs to Expand on Efforts to 

More Effectively Manage Spare Parts 39

Table 8: Status of Recommendations from Defense Inventory: 

Army Needs to Evaluate Impact of Recent Actions to 

Improve Demand Forecasts for Spare Parts 41

Table 9: Status of Recommendations from Defense Inventory: 

Management Actions Needed to Improve the Cost 

Efficiency of the Navy’s Spare Parts Inventory 43

Table 10: Status of Recommendations from Defense Inventory: 

Opportunities Exist to Save Billions by Reducing Air 

Force’s Unneeded Spare Parts Inventory 45

Table 11: Status of Recommendations from Defense Inventory: 

Opportunities Exist to Improve the Management of DOD’s 

Acquisition Lead Times for Spare Parts 46

Table 12: Status of Recommendations from Defense Inventory: 

Actions Needed to Improve Inventory Retention 

Management 49

Table 13: Demand Forecasting Sub-plan Actions and Milestones, 

Completion Dates, and GAO Assessment and Comments as 

of January 1, 2012 53

Table 14: Total Asset Visibility and Multi-Echelon Modeling Subplan Actions and Milestones, Completion Dates, and GAO 

Assessment and Comments as of January 1, 2012 57

Table 15: On-Order Excess Inventory Sub-plan Actions and 

Milestones, Completion Dates, and GAO Assessment and 

Comments as of January 1, 2012 60

Table 16: Economic Retention Stock Sub-plan Actions and 

Milestones, Completion Dates, and GAO Assessment and 

Comments as of January 1, 2012 63

Table 17: Contingency Retention Stock Sub-plan Actions and 

Milestones, Completion Dates, and GAO Assessment and 

Comments as of January 1, 2012 66
Page iv GAO-12-493 Defense Inventory

Table 18: Storage and Direct Vendor Delivery Sub-plan Actions and 

Milestones, Completion Dates, and GAO Assessment and 

Comments as of January 1, 2012 69

Table 19: Items with No Demand Sub-plan Actions and Milestones, 

Completion Dates, and GAO Assessment and Comments as 

of January 1, 2012 73

Table 20: Potential Reutilization Stock Sub-plan Actions and 

Milestones, Completion Dates, and GAO Assessment and 

Comments as of January 1, 2012 76

Table 21: Other Inventory Improvement Actions Sub-plan Actions 

and Milestones, Completion Dates, and GAO Assessment 

and Comments as of January 1, 2012 79

Figures

Figure 1: Select DOD Categories of Secondary Inventory Items 7

Figure 2: The Plan’s Implementation Structure 10

Figure 3: Percentage of On-Order Excess Inventory, Fiscal Years 

2008 - 2010 13

Figure 4: Percentage of On-Hand Excess Inventory, Fiscal Years 

2008 - 2010 15

Figure 5: Selected DOD Categories of Secondary Inventory Items 51

Abbreviations

DLA Defense Logistics Agency

DOD Department of Defense

NDAA National Defense Authorization Act

OSD Office of the Secretary of Defense

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Page 1 GAO-12-493 Defense Inventory

United States Government Accountability Office

Washington, DC 20548

May 3, 2012

Congressional Committees

The Department of Defense (DOD) spends billions of dollars to purchase, 

manage, store, track, and deliver spare parts and other supplies needed 

to keep military equipment ready and operating. DOD manages more 

than 4 million secondary items and reported that as of September 2010 

the value of its inventory was $95.6 billion.1 However, DOD reported that 

$8.4 billion (8.3 percent) of its secondary inventory has been identified as 

excess and categorized for potential reuse or disposal (i.e., potential 

reutilization stock or on-hand excess). According to DOD, another $15.6 

billion (15.8 percent) of its secondary inventory exceeds the approved 

acquisition objective2 and is being retained because either it was 

determined to be more economical to retain than to dispose of it or it 

might be needed for a contingency in the future.3 As we have emphasized 

in previous reports, the federal government is facing serious long-term 

fiscal challenges, and DOD may confront increased competition over the 

next decade for federal discretionary funds.4

 

1

DOD defines secondary inventory items to include reparable components, subsystems, 

and assemblies other than major end items (e.g., ships, aircraft, and helicopters), 

consumable repair parts, bulk items and materiel, subsistence, and expendable end items 

(e.g., clothing and other personal gear). We use secondary inventory items and secondary 

inventory interchangeably in this report.

Strategic guidance released 

2

The approved acquisition objective incorporates both materiel needed to meet the 

requirements objective and two years of estimated future demand. The requirements 

objective is the maximum authorized quantity of stock for an item for wholesale 

replenishment. It consists of the sum of stock represented by the economic order quantity, 

the safety level, the repair-cycle level, and the authorized additive levels. While inventory 

held for economical reasons or future use is not part of the approved acquisition objective 

DOD states that retention of this inventory is necessary for the military mission. For further 

definitions see the background section and the glossary.

3

Economic retention stock is materiel that has been deemed more economical to keep 

than to dispose of because it is likely to be needed in the future. Contingency retention 

stock is materiel that is retained to support specific contingencies, such as to support 

foreign military sales, future military operations, disaster relief or civil emergencies, or to 

mitigate risk associated with diminished manufacturing sources or non-procurable stock.

4 GAO, The Federal Government’s Long-Term Fiscal Outlook: January 2010 Update, 

GAO-10-468SP (Washington, D.C.: March 2010); and 21st Century Challenges: 

Reexamining the Base of the Federal Government, GAO-05-325SP (Washington, D.C.: 

February 2005).

 
 

Page 2 GAO-12-493 Defense Inventory

by the President of the United States and the Secretary of Defense in 

January 2012 emphasized that DOD must continue to reduce the cost of 

doing business, in particular finding further efficiencies in overhead, 

business practices, and support activities.5

Since 1990, we have identified DOD supply chain management as a highrisk area due in part to ineffective and inefficient inventory management 

practices and procedures, weaknesses in accurately forecasting the 

demand for spare parts, and challenges in achieving widespread 

implementation of key technologies aimed at improving asset visibility. 

These factors have contributed to the accumulation of billions of dollars in 

spare parts that are excess to current requirements.

Inventory management, a key 

support activity that affects the readiness of the force, must be conducted 

effectively and efficiently to avoid expending resources and accumulating 

wasteful inventory that could prevent the dedication of resources to other 

defense or national priorities.

6

 

5

Secretary of Defense, Department of Defense, Sustaining U.S. Global Leadership: 

Priorities for 21st Century Defense, Jan. 5, 2012.

Moreover, we have 

recently reported on the inventory management practices of the military 

departments and the Defense Logistics Agency (DLA) and recommended 

DOD take steps to improve demand forecasting, ensure proper reviews 

are conducted and documented, validate methodologies for making 

retention decisions, and establish goals and metrics for assessing the 

6

GAO, Opportunities to Reduce Potential Duplication in Government Programs, Save Tax 

Dollars, and Enhance Revenue, GAO-11-318SP (Washington, D.C.: March 1, 2011); 

High-Risk Series: An Update, GAO-11-278 (Washington, D.C.: February 2011); High-Risk 

Series: An Update, GAO-09-271 (Washington, D.C.: January 2009); High-Risk Series: An 

Update, GAO-07-310 (Washington, D.C.: January 2007); and High Risk-Series: An 

Update, GAO-05-207 (Washington, D.C.: January 2005).
 

Page 3 GAO-12-493 Defense Inventory

efficiency of inventory management.7

Section 328 of the National Defense Authorization Act (NDAA) for Fiscal 

Year 2010 required the Secretary of Defense to submit to congressional 

defense committees a comprehensive plan for improving the inventory 

management systems of the military departments and DLA with the 

objective of reducing the acquisition and storage of secondary inventory 

that is excess to requirements.

DOD concurred with 38 of the 39 

recommendations. A list of related products is at the end of this report.

8 For purposes of section 328, the NDAA 

defines inventory that is excess to requirements as inventory that is 

excess to the approved acquisition objective and not needed for 

economic or contingency retention. DOD submitted its Comprehensive 

Inventory Management Improvement Plan (Plan) on November 8, 2010, 

and as also required by Section 328, we reported our assessment of the 

Plan on January 7, 2011.9

Additionally, section 328 requires us to assess the extent to which the 

Plan has been effectively implemented by each military department and 

DLA and report to the congressional defense committees not later than 

18 months after the Plan is submitted. Accordingly, our objectives for this 

report were to determine the extent to which DOD has (1) established and 

achieved targets for reducing excess inventory in the Plan, (2) made 

progress in implementing the overall Plan, (3) established and 

implemented standardized metrics to track their progress in improving 

 

7

See GAO, Defense Inventory: Defense Logistics Agency Needs to Expand on Efforts to 

More Effectively Manage Spare Parts, GAO-10-469 (Washington, D.C.: May 11, 2010); 

Defense Inventory: Army Needs to Evaluate Impact of Recent Actions to Improve Demand 

Forecasts for Spare Parts, GAO-09-199 (Washington, D.C.: Jan. 12, 2009); Defense 

Inventory: Management Actions Needed to Improve the Cost Efficiency of Navy’s Spare 

Parts Inventory, GAO-09-103 (Washington, D.C.: Dec. 12, 2008); Defense Inventory: 

Opportunities Exist to Save Billons by Reducing Air Force’s Unneeded Spare Parts 

Inventory, GAO-07-232 (Washington, D.C.: Apr. 27, 2007); Defense Inventory: 

Opportunities Exist to Improve the Management of DOD’s Acquisition Lead Times for 

Spare Parts, GAO-07-281 (Washington, D.C.: March 2, 2007); and Defense Inventory: 

Actions Needed to Improve Inventory Retention Management, GAO-06-512 (Washington, 

D.C.: May 25, 2006).

8

Pub. L. No. 111-84 § 328 (2009). 

9

GAO, DOD’s Comprehensive Inventory Management Improvement Plan Addressed 

Statutory Requirements, But Faces Implementation Challenges, GAO-11-240R

(Washington, D.C.: Jan. 7, 2011).
 

Page 4 GAO-12-493 Defense Inventory

inventory management, and (4) identified and realized any cost savings 

or cost avoidance from implementing the Plan. 

To assess the extent to which DOD’s Plan has established and its 

implementation has achieved targets for reducing excess inventory, we 

reviewed the targets established by DOD, the process used to establish 

the targets, and DOD’s progress achieving the targets. To determine the 

extent to which DOD has made progress in implementing the Plan, we 

reviewed the Plan’s actions, milestones, and implementation steps and 

evaluated implementation status reports and actions from the Deputy 

Assistant Secretary of Defense for Supply Chain Integration, the services, 

and DLA. To determine the extent to which DOD has established and 

implemented standardized metrics to track their progress in improving 

inventory management across the department, we reviewed DOD’s 

process for developing a comprehensive set of metrics, DOD’s progress 

in identifying metrics to assess the performance of inventory 

management, and DOD’s plans to incorporate the metrics into DOD 

guidance for the services and DLA. To determine the extent to which 

DOD has identified and realized any cost savings or cost avoidance 

associated with implementation, we reviewed the Plan and associated 

documentation to identify any documented cost savings or cost 

avoidance, DOD’s methodology for calculating any cost savings or cost 

avoidance, and DOD’s implementation of any cost savings or cost 

avoidances. We also interviewed Office of the Secretary of Defense 

(OSD), service, and DLA officials to discuss progress in implementing the 

Plan and achieving the established targets, efforts to develop metrics to 

track progress in improving inventory management, and implementation 

of any cost savings or cost avoidance. We examined the reliability of data 

used in this report by reviewing DOD policy and procedures for the 

collection of the data used for inventory reporting and interviewing 

officials about their methods for quality control and found that the data 

were sufficiently reliable to address our objectives. See appendix I for a 

more detailed description of our scope and methodology. In addition, 

appendix II provides the implementation status of recommendations from 

our most recent inventory management reports.

We conducted this performance audit between August 2011 and May 

2012, in accordance with generally accepted government auditing 

standards. Those standards require that we plan and perform the audit to 

obtain sufficient, appropriate evidence to provide a reasonable basis for 

our findings and conclusions based on our audit objectives. We believe 

that the evidence obtained provides a reasonable basis for our findings 

and conclusions based on our audit objectives.
 

Page 5 GAO-12-493 Defense Inventory

DOD guidance requires that the services and DLA report the current and 

projected status of their secondary item inventories to support OSD’s 

oversight responsibilities and for use in its procurement and repair budget 

deliberations.10 To ensure the department has consistent data, the 

services and DLA are required, among other things, to group their 

secondary item inventories into several specific categories, according to 

the purpose for which they are held (see figure 1). The reporting 

categories include the approved acquisition objective and three inventory 

categories that exceed the approved acquisition objective—economic 

retention stock, contingency retention stock, and potential reutilization 

stock (i.e., on-hand excess inventory). The approved acquisition objective 

incorporates both materiel needed to meet the requirements objective 

(i.e., the sum of stock represented by the economic order quantity,11 the 

safety level,12 the repair-cycle level,13 and the authorized additive levels14) 

and 2 years of estimated future demand. DOD purchases inventory to 

meet the approved acquisition objective, according to DOD officials. 

Secondary item inventory that exceeds the approved acquisition objective 

is categorized as retention stock or potential reutilization stock.15

Retention stock includes economic retention stock, which is materiel that 

has been deemed more economical to keep than to dispose of because it 

is likely to be needed in the future, and contingency retention stock, which 

is materiel retained to support specific contingencies.16

 

10DOD 4140.64-M, Secondary Item Stratification Manual (Aug. 24, 2009).

Potential 

11Economic order quantity is the quantity derived from a mathematical technique used to 

determine the lowest total variable costs to order and hold inventory.

12Safety levels are the amount of stock that is to be kept on hand in case of minor 

interruptions in the resupply process or fluctuations in demand.

13Repair-cycle level is the quantity of reparable items required to sustain operations during 

the repair cycle that commences when a maintenance replacement takes place and ends 

when the unserviceable asset is returned to stock in a serviceable condition.

14Authorized additive levels include materiel held as wartime reserve stock and inventory 

for acquisition lead times. 

15Inventory that is in DOD’s possession is considered to be on-hand. 

16The contingencies include, but are not limited to, supporting foreign military sales, future 

military operations, disaster relief or civil emergencies, or mitigating risk associated with 

diminished manufacturing sources or nonprocurable stock. 

Background 

Categories of DOD’s 

Inventory 
 

Page 6 GAO-12-493 Defense Inventory

reutilization stock has been identified for possible disposal but has 

potential for reutilization. Potential reutilization stock is also referred to as 

on-hand excess inventory. Additionally, OSD, the services, and DLA track 

on-order excess inventory, which are items for which a contract has been 

awarded or funds have been obligated, but due to subsequent changes in 

requirements would be categorized as potential reutilization stock upon 

arrival. Figure 1 summarizes how DOD inventory categories are 

aggregated for reporting. Appendix III provides a printer-friendly version 

of figure 1. Additionally, see the glossary for key inventory management 

terms.
Page 7 GAO-12-493 Defense Inventory

Figure 1: Select DOD Categories of Secondary Inventory Items

Source: GAO analysis of DOD guidance and inventory practices.

Requirements 

Objective

2 years of

Forecasted Demand

Approved

Acquistion

Objective

Economic

Retention Stock

Contingency 

Retention Stock

Retention

Stock

Potential

Reutilization Stock

On-Hand Excess 

Inventory

Interactivity instructions

Roll over an inventory item to see the definition. See appendix III for the printer-friendly version. 
 

Page 8 GAO-12-493 Defense Inventory

The objective of DOD’s Plan is to achieve a prudent reduction in current 

inventory excesses as well as a reduction in the potential for future 

excesses without degrading materiel support to the customer. The Plan

has two overarching goals, which are to reduce (1) total on-order excess 

inventory from 8.5 percent of total obligated on-order dollars in fiscal year 

2009 to a target of 6 percent by the end of fiscal year 2014 and 4 percent 

by the end of fiscal year 2016 and (2) on-hand excess inventory from 11.3 

percent of the total value of inventory in fiscal year 2009 to a target of 10 

percent by the end of fiscal year 2012. DOD developed nine sub-plans, 

which are designed to assist in reducing excess inventory and improve 

inventory management practices across DOD. Each of the nine sub-plans 

focuses on a particular inventory management area and includes an 

objective, as identified in table 1. Additionally, see appendix IV through 

XII for detailed information for each sub-plan.

Structure of the Plan
 

Page 9 GAO-12-493 Defense Inventory

Table 1: The Nine Sub-plans and Corresponding Objectives 

Sub-plans Objective of the sub-plan Appendix

1. Demand forecastinga To improve the prediction of future demand so that inventory requirements 

more accurately reflect actual needs.

IV

2. Total asset visibilityb and multiechelon modelingc To minimize the size of purchases by considering all accessible inventories. V 

3. On-order excess inventory To reduce or terminate purchases that result in inventory excesses due to a 

decrease in requirements.

VI 

4. Economic retention stock To ensure economic retention decisions are based on current cost factors and 

economic principles.

VII 

5. Contingency retention stock To ensure the services and DLA justify the retention of contingency stock. VIII

6. Storage and direct vendor deliveryd To use commercial vendors to store items when use of those vendors 

represents the best value to the government.

IX

7. Items with no demande To eliminate items with a history of no recurring demand and a low probability 

of future demand, unless there is sufficient justification for the retention of the 

item.

X 

8. Disposition of potential reutilization 

stock (i.e., on-hand excess inventory)

To ensure timely disposition of items categorized as potential reutilization 

stock.

XI

9. Other inventory improvement 

actions

To accomplish several cross-functional improvements, including revising 

current inventory categories to better reflect the rationale behind retaining the 

inventory, improving acquisition lead times, and establishing departmentwide 

metrics for inventory management.f

XII

Source: DOD’s Plan and its supporting documents.

a

Demand forecasting is predicting future customer demands so inventory managers can develop 

inventory requirements to satisfy demands when they occur. Inaccurate forecasts lead to either 

excess inventory or shortfalls.

b

Total asset visibility is the capability to provide all users with timely and accurate information about 

the location, movement, status, and identity of supplies and the capability to act on this information.

c

Multi-echelon modeling is the use of mathematical models that compute the optimal number and 

type of parts needed at the wholesale and retail levels to achieve readiness and cost goals.

d

Direct vendor delivery is a materiel acquisition and distribution method that requires supplier delivery 

directly to the customer, which can reduce the storage of items by the services and DLA.

e

Items with no recurring demand are items that have not been needed over a specified period. 

Although the services and DLA time periods vary, the Plan intends to implement a DOD-wide 

standard of greater than 5 years.

f

Acquisition lead time, also known as procurement lead time, measures the length of time between 

the identification of a materiel requirement and the receipt of that materiel into the supply system. 

Acquisition lead time is the sum of administrative lead time and production lead time. Administrative 

lead time is the time interval between identifying a need to purchase an item and the award of a 

contract. Production lead time is the time interval between the award of a contract and receiving the 

purchased materiel into the supply system.

Each of these nine sub-plans include actions, milestones, and 

implementation steps. See figure 2 for a depiction of the Plan’s 

implementation structure. OSD, the services, and DLA use a plan of 

action and milestones to manage the Plan’s implementation, which 
 

Page 10 GAO-12-493 Defense Inventory

includes steps for each of the nine sub-plans and tracks the status of the 

implementation.

Figure 2: The Plan’s Implementation Structure

The Plan outlines the roles and responsibilities of key stakeholders, 

including those of the Deputy Assistant Secretary of Defense for Supply 

Chain Integration, the Supply Chain Executive Steering Committee, the 

services, and DLA. The Deputy Assistant Secretary of Defense for Supply 

Chain Integration oversees the Plan’s implementation through progress 

review meetings held about every month. The Supply Chain Executive 

Steering Committee, which is comprised of executive-level members from 

the services and DLA, advises the Deputy Assistant Secretary of Defense 

for Supply Chain Integration on matters related to supply chain 

management, including the implementation of the Plan, and typically 

receives a briefing on the Plan’s implementation every three months.17

 

17According to DOD officials, the Supply Chain Executive Steering Committee is an 

executive-level governance body for oversight of improvement efforts. The Executive 

Steering Committee is chaired by the Deputy Assistant Secretary of Defense for Supply 

Chain Integration.

Also, the Supply Chain Executive Steering Committee is used to resolve 

issues encountered in implementation that cannot be resolved at a lower 

level. Any unresolved issues are discussed and resolved at the Joint 

Logistics Board, which is comprised of senior-level participants from the 

services, combatant commands, and DLA, and is responsible for 

Performance Management 

Structure of the Plan’s 

Implementation 
 

Page 11 GAO-12-493 Defense Inventory

reviewing the status of the logistics portfolio and the effectiveness of the 

defense-wide logistics chain in supporting to the warfighter.18

Three groups—forecasting and demand planning, inventory and 

retention, and supply chain metrics—are responsible for managing the 

day-to-day actions in the Plan. Representatives from OSD, the services, 

and DLA comprise the groups. Each group has responsibility for particular 

sub-plans as follows:

• Forecasting and demand planning group: Responsible for the subplans on demand forecasting and total asset visibility and multiechelon modeling19 and a section of the sub-plan on other inventory 

improvement actions, specifically actions associated with reducing 

acquisition lead times for spare parts.20

• Inventory and retention group: Responsible for the sub-plans on 

on-order excess inventory, economic retention, contingency retention, 

storage and direct vendor delivery, no-demand items, and disposition 

of potential reutilization stock and the section of the sub-plan on other 

inventory improvement actions associated with inventory 

segmentation, inventory systems modernization, and efficiency 

metrics. 

• Supply chain metrics group: Responsible for leading efforts to 

standardize the definitions and computation of metrics across DOD, 

validating the effectiveness of measures as indicators of progress, 

translating metrics to inform future decisions, and integrating the 

 

18The Joint Logistics Board is co-chaired by the Assistant Secretary of Defense for 

Logistics and Materiel Readiness and the Joint Staff Director of Logistics. It meets bimonthly and the discussion topics vary with each meeting and are focused on providing 

overall direction and guidance with respect to supply chain management across DOD.

19Multi-echelon modeling is the use of mathematical models that compute the optimal 

number and type of parts needed at the wholesale and retail levels to achieve readiness 

and cost goals.

20Acquisition lead time, also known as procurement lead time, measures the length of time 

between the identification of a materiel requirement and the receipt of that materiel into 

the supply system. Acquisition lead time is the sum of administrative lead time and 

production lead time. Administrative lead time is the time interval between identifying a 

need to purchase an item and the award of a contract. Production lead time is the time 

interval between the award of a contract and receiving the purchased materiel into the 

supply system.
 

Page 12 GAO-12-493 Defense Inventory

metrics in the Plan into the DOD performance measurement 

framework.

DOD may find that the two targets for reducing on-order and on-hand 

excess inventory that it established when developing the Plan in fiscal 

year 2010 are ineffective in guiding future inventory management 

improvement efforts. DOD set measurable targets for each of its goals 

based on the best data available according to DOD officials, but since 

that time more recent data revealed that the on-order excess inventory 

target was met 4 years early and prior to the Plan’s implementation 

efforts’ beginning. Additionally, the on-hand excess inventory target was 

surpassed because DOD revised the definition and calculation of on-hand 

excess inventory.

DOD’s target for the on-order excess inventory goal is to reduce, 

collectively among the services and DLA, the percentage of total 

obligated on-order dollars to 6 percent by end of fiscal year 2014 and 4 

percent by the end of fiscal year 2016. Reducing the percentage of onorder excess inventory would result in less economic or contingency 

retention stock being held by the department and/or less potential onhand excess inventory that must be disposed of by the department since 

there is not a need for the item. DOD reduced its percentage of on-order 

excess inventory from 8.5 percent, or approximately $1.15 billion, in fiscal 

year 2009 to 5.5 percent, or about $940 million, at the end of fiscal year 

2010, thereby achieving its 2014 target 4 years early. The Air Force and 

Navy (including the Marine Corps), as of fiscal year 2010, were below the 

6 percent on-order excess inventory target for fiscal year 2014, whereas 

the Army and DLA were above the target. (See figure 3 for the 

percentage of on-order excess inventory for fiscal years 2008 to 2010 

across DOD.) DOD achieved its fiscal year 2014 target for on-order 

excess inventory prior to the implementation of the Plan, which began in 

fiscal year 2011.

DOD Established 

Targets for Reducing 

Excess Inventory 

Based on the Best 

Data Available, but Its 

Targets May Not 

Effectively Guide 

Continued 

Improvement 
 

Page 13 GAO-12-493 Defense Inventory

Figure 3: Percentage of On-Order Excess Inventory, Fiscal Years 2008 - 2010

DOD’s target for the on-hand excess inventory goal is to reduce, 

collectively among the services and DLA, the percentage of the total 

value of secondary item inventory designated as excess to 10 percent by 

the end of fiscal year 2012. Reducing the percentage of on-hand excess 

inventory is an indicator of a more effective and efficient inventory 

management system, according to DOD officials. In fiscal year 2011, 

based on further analysis of the inventory data, DOD revised the 

definition of on-hand excess inventory, which resulted in a reduction in its 

percentage of on-hand excess from 9.4 percent, or $8.9 billion, in fiscal 

year 2009 to 8.3 percent, or $8.4 billion, in fiscal year 2010, which is well 

below its fiscal year 2012 target of 10 percent. DOD revised the definition 

of on-hand excess inventory to exclude the projected number of 

condemned items, which are unserviceable assets that are determined to 

be beyond the point of economic repair during the repair process. OSD 

officials stated they, in collaboration with the services and DLA, decided 
 

Page 14 GAO-12-493 Defense Inventory

that the projected number of condemnations would not be included in the 

on-hand excess inventory calculation because the services and DLA have 

no way to dispose of future condemned items, and therefore these items 

should not be counted as on-hand excess inventory. In addition, they 

stated inclusion of the condemned items would inflate the amount of onhand excess inventory, thus DOD plans to report projected condemned 

items as a separate inventory category in the future. The Army, Air Force, 

and DLA are below the 10 percent on-hand excess inventory target for 

fiscal year 2012, whereas the Navy (including the Marine Corps) is 

slightly above the target. (See figure 4 for the percentage of on-hand 

excess inventory for fiscal years 2008 to 2010 across DOD.)
 

Page 15 GAO-12-493 Defense Inventory

Figure 4: Percentage of On-Hand Excess Inventory, Fiscal Years 2008 - 2010

The Standards for Internal Control in the Federal Government21 and 

results-oriented management practices22

 

21

emphasize the importance of 

reviewing and validating performance measures to ensure these 

measures remain appropriate. Specifically, we have reported that without 

GAO/AIMD-00-21.3.1, November 1999.

22See GAO, Results-Oriented Management: Strengthening Key Practices at FEMA and 

Interior Could Promote Greater Use of Performance Information, GAO-09-676

(Washington, D.C.: Aug. 17, 2009); International Food Assistance: USAID Is Taking 

Actions to Improve Monitoring and Evaluation of Nonemergency Food Aid, but 

Weaknesses in Planning Could Impede Efforts, GAO-09-980 (Washington, D.C.: Sept. 28, 

2009); and Managing for Results: Enhancing Agency Use of Performance Information for 

Management Decision Making, GAO-05-927 (Washington, D.C.: Sept. 9, 2005).
 

Page 16 GAO-12-493 Defense Inventory

sufficiently ambitious goals or targets, managers may not have incentives 

to use performance information to identify opportunities for significant 

improvement.23 A critical factor in the success of goal-setting is 

developing ambitious, but realistic “stretch” goals that challenge the 

organization to achieve performance improvements.24 DOD inventory

management guidance states that the Assistant Secretary of Defense for 

Logistics and Materiel Readiness is responsible for monitoring the overall 

effectiveness and efficiency of DOD’s materiel management systems and 

continually developing improvements.25

Officials stated that prior to developing the Plan in fiscal year 2010, DOD 

had not established departmentwide targets for on-hand and on-order 

excess inventory, therefore establishing these targets was a new 

endeavor for DOD. According to DOD officials, establishing optimal 

targets for excess inventory is challenging and must consider on-going 

operational challenges, such as the potential impact of the reset of 

military equipment returning from Iraq and Afghanistan as well as the 

need to meet service readiness rates. DOD’s targets in the Plan were set 

based on an analysis of trends in the inventory data prior to and including 

fiscal year 2009. OSD officials described the process used to establish 

the targets as one in which OSD, service, and DLA senior officials 

reviewed inventory data trends and exercised professional judgment to 

select challenging, yet achievable targets to focus the reduction of excess 

inventory. When developing the Plan DOD did not know that its on-order 

excess inventory target had already been met because departmentwide 

inventory data is not available until approximately 6 months after the end 

of the fiscal year, which meant the fiscal year 2010 data was not available 

until approximately 6 months into the Plan’s implementation. Furthermore, 

additional analysis of the inventory data led DOD officials to make 

adjustments to the definition and calculation of on-hand excess inventory, 

which made the targets for on-hand excess inventory less meaningful.

 It also notes that it is DOD policy 

to periodically conduct performance evaluations of its supply chain 

operations and inventory.

 

23GAO-09-676. 

24GAO, Government Reform: Goal-Setting and Performance, AIMD/GGD-95-130R

(Washington, D.C.: Mar. 27, 1995).

25DOD Instruction 4140.01, DOD Supply Chain Materiel Management Policy (Dec. 14, 

2011).
 

Page 17 GAO-12-493 Defense Inventory

DOD officials attribute the reduction in excess inventory to increased 

management oversight on the part of OSD, the services, and DLA 

leadership, which was prompted by increased congressional oversight 

through GAO reviews and the congressional mandate to develop a 

comprehensive plan to improve inventory management. OSD officials 

stated they intend to review the on-order excess inventory target for fiscal 

year 2014 and the on-hand excess inventory for future years after the 

fiscal year 2011 data is available. Through such a review, DOD may find 

the Plan’s existing targets for its two goals—reducing on-order and onhand excess—are no longer effective in guiding and monitoring 

continuous improvement for the remainder of the Plan’s implementation 

given DOD’s progress in these areas.

In addition to making progress toward achieving the targets discussed 

above, DOD has made progress implementing the Plan’s actions for 

improving inventory management, which began in late fiscal year 2010. 

However, DOD is only 18 months into a 4-year implementation effort and 

has experienced some delays and faces continued challenges during the 

remainder of implementation. Specifically, DOD is implementing a series 

of actions focused at improving policies, procedures, and processes for 

inventory management that require collaboration among OSD, the 

services, and DLA and a coordinated implementation approach. DOD’s 

progress included reviewing department, service, and DLA inventory 

management guidance, and drafting revisions scheduled to be issued by 

the end of fiscal year 2012. The Plan’s overall implementation schedule 

has slipped only 1 month since the effort began; however, as of January 

1, 2012, a number of the Plan’s actions and milestones were delayed 

based on original estimated completion dates. Over the next 3 years of 

implementation efforts, OSD, the services, and DLA will confront several 

key challenges in their efforts to implement the remainder of the Plan, 

such as improving demand forecasting, accelerating multi-echelon 

modeling, and ensuring effective execution of DOD guidance by the 

services and DLA for the management of on-order excess, retention 

stocks, and potential reutilization stocks.

During the initial implementation effort, OSD, the services, and DLA have 

made progress in implementing the actions associated with the Plan. 

Much of the progress thus far has involved OSD, the services, and DLA 

gathering and analyzing data, such as reviewing DOD, service, and DLA 

inventory management guidance and practices and making revisions 

where appropriate. For example, in collaboration with the services and 

DOD Has Made 

Progress in the Early 

Stages of the Plan’s 

Implementation, but 

Has Experienced 

Delays and 

Challenges Remain in 

Implementation 

DOD Has Made Progress 

In the Early Stages of the 

Plan’s Implementation
 

Page 18 GAO-12-493 Defense Inventory

DLA, OSD is in the process of revising DOD guidance to standardize and 

strengthen inventory management practices.26

According to DOD officials, in some areas, the services and DLA already 

have service or agency-specific guidance that addresses some of the 

proposed requirements of the revised departmentwide draft guidance, but 

in other areas work remains for the services and DLA to ensure that the 

draft DOD guidance is reflected, as needed, in organizational guidance 

and implemented consistently. Furthermore, according to service and 

DLA officials, the services and DLA have been proactively updating or 

revising their procedures and practices based on the proposed revisions 

to DOD inventory management guidance in some cases. For example, 

the U.S. Army Materiel Command has implemented changes to its 

automated business system for managing inventory, commonly referred 

to as an enterprise resource planning system, to be able to categorize 

contingency retention stock according to the categories agreed upon by 

OSD, the services, and DLA as part of the contingency retention stock 

sub-plan implementation efforts. The U.S. Army Materiel Command also 

required contingency retention stock to be justified and documented on 

an annual basis. The Navy Supply System Command has developed

guidance for the management of its on-order excess inventory and DLA is 

in the process of making changes to its procedures for on-order excess 

management.

To inform those changes, 

OSD, the services, and DLA have conducted reviews of guidance and 

practices for demand forecasting, on on-order excess inventory, 

economic retention stock, contingency retention stock, potential 

reutilization stock, and storage and direct vendor delivery in the Plan’s 

first 18 months of implementation. According to OSD officials, this 

revision is scheduled to be finalized and issued by the end of fiscal year 

2012. They also stated that once the revised DOD guidance is finalized 

and issued the process of implementing the guidance at the service and 

DLA level will require time and sustained leadership focus.

In addition to revising guidance and procedures, OSD, the services, and 

DLA are also developing and implementing metrics associated with each 

 

26DOD Instruction 4140.01, DOD Supply Chain Materiel Management Policy (Dec. 14, 

2011) is the current policy for supply chain materiel management. DOD is currently 

developing a manual to provide more detailed guidance in support of DOD Instruction 

4140.01. The manual, once issued, will replace DOD 4140.1-R, DOD Supply Chain 

Materiel Management Regulation (May 23, 2003).
 

Page 19 GAO-12-493 Defense Inventory

sub-plan to assist in monitoring the status of DOD’s inventory in 

conjunction with the Plan’s implementation. Many of the metrics are 

established, but a few of the metrics, such as forecasting error, are under 

development and OSD, the services, and DLA are working to agree on 

the methodology for calculating these particular metrics.27

OSD, the services, and DLA have demonstrated progress in other areas 

of the Plan’s implementation as well. These areas include, but are not 

limited to, the following:

See appendix 

IV through XII for detailed information for each sub-plan.

• Automated access to inventory. OSD, the services, and DLA 

determined that 95 percent of DOD’s inventory is accessible by 

automated means to the services and DLA, which exceeded the 

Plan’s goal of achieving automated accessibility to 90 percent of its 

inventory within 5 years.

• DLA’s in-storage visibility program. OSD, the services, and DLA 

have increased participation in the in-storage visibility program, which 

allows services and DLA to obtain consumable items from another 

service or DLA through established business rules. For example, the 

Air Force had 145 sites participating in fiscal year 2010 and increased 

the number to 190 sites. The Army and Navy increased the number of 

sites also. The program conducted $73.8 million lateral redistributions 

and procurement offsets in fiscal year 2010 and $68.3 million in fiscal 

year 2011.

• No demand items. OSD, the services, and DLA have begun 

reviewing their inventories for items that have not had any orders for 5 

or more years to reevaluate the justification for retaining these items, 

even if the items are within the approved acquisition objective. For 

example, the Army has been reviewing no demand items since 2006

and has been successful at reducing storage space and storage costs 

associated with these items.

• Inventory categorization. OSD, the services, and DLA have 

reviewed existing categories of inventory (i.e., the approved 

acquisition objective, economic retention stock, contingency retention 

 

27Demand forecast error is the difference between actual demand and forecasted 

demand, stated in a manner that quantifies any bias towards over or under forecasting. 
 

Page 20 GAO-12-493 Defense Inventory

stock, and potential reutilization stock) and developed tentative subcategories that provide further clarification as to the make-up of each 

category. DOD’s Plan includes steps to incorporate this information 

into its guidance on inventory management, specifically a revision of 

DOD 4140.64-M Secondary Item Stratification Manual (August 24, 

2009).

After 18 months, DOD’s implementation of its Plan is generally on 

schedule, having slipped 1 month, although a number of actions and 

milestones have experienced delays. Each of the nine sub-plans includes 

actions, which are each supported by a number of milestones. OSD, the 

services, and DLA have begun implementing all 29 actions in the Plan

and completed 3 of these actions, as of January 1, 2012. Our analysis 

shows that about half of the remaining actions are on schedule, while half 

are delayed. Our analysis also shows that of the 82 milestones that 

support the actions, OSD, the services, and DLA have completed 28, 

started 39, and have not yet started 15. About a third of the milestones 

are delayed. Implementation of all actions and milestones are scheduled 

to be complete the first month of fiscal year 2015, rather than the end 

fiscal year 2014 as originally scheduled. Tables 2 and 3 provide the 

status, by sub-plan, of actions and milestones, respectively. Additionally, 

see appendix IV through XII, for detailed information on the status of 

individual actions and milestones for each sub-plan.

Table 2: Summary of Implementation Status of Actions as of January 1, 2012

Sub-plan Completed

Started, 

on schedule

Started, 

completion delayed Total

Demand forecasting (appendix IV) 0 0 5 5 

Total asset visibility and multi-echelon modeling 

(appendix V)

0 3 0 3 

On-order excess (appendix VI) 0 0 2 2 

Economic retention stock (appendix VII) 0 3 0 3 

Contingency retention stock (appendix VIII) 1 1 1 3

Storage and direct vendor delivery (appendix IX) 2 1 1 4 

No demand items (appendix X) 0 1 1 2

Potential reutilization stock (appendix XI) 0 3 0 3 

Other inventory improvements (appendix XII) 0 2 2 4 

Total 3 14 12 29

Source: GAO analysis of the Plan and DOD’s periodic status briefings.

Implementation Is 

Generally on Schedule, but 

Some of the Plan’s Actions 

and Milestones Are 

Delayed
 

Page 21 GAO-12-493 Defense Inventory

Table 3: Summary of Implementation Status of Milestones as of January 1, 2012

Sub-plan Completed

Started, on 

schedule

Started, 

completion 

delayed

Not started, on 

schedule

Not started, 

completion 

delayed Total

Demand forecasting (appendix IV) 3 1 6 0 2 12

Total asset visibility and multiechelon modeling (appendix V) 2 1 3 6 0 12

On-order excess (appendix VI) 2 0 2 0 0 4 

Economic retention stock 

(appendix VII) 2 2 1 2 0 7 

Contingency retention stock 

(appendix VIII) 4 1 3 0 0 8 

Storage and direct vendor delivery 

(appendix IX) 7 1 1 0 0 9 

No demand items (appendix X) 4 2 1 0 0 7 

Potential reutilization stock 

(appendix XI) 1 3 1 2 0 7 

Other inventory improvements 

(appendix XII) 3 4 6 0 3 16

Total 28 15 24 10 5 82

Source: GAO analysis of the Plan and DOD’s periodic status briefings.

OSD, the services, and DLA regularly review the status of the actions and 

milestones and make adjustments as needed, and we found the reasons 

for delays in completing the Plan’s actions and milestones are varied and 

do not appear to involve a systemic problem. Several milestones across 

several sub-plans are delayed pending the issuance of revised inventory 

management guidance, which according to OSD officials is now 

scheduled for the end of fiscal year 2012. Other milestones have been 

delayed due to funding and contract issues. For example, one milestone 

was postponed due to delays in awarding a contract to evaluate improved 

demand forecasting methods and techniques for spare parts by taking 

into consideration the life cycle—initial provisioning, sustainment, and 

end-of-life—of a weapon system. In other cases, additional 

implementation steps were added to milestones to better focus and 

address an effort, lengthening the original planned time frame. For 

example, a milestone in the contingency retention stock sub-plan focused 

on assessing results of an independent review of contingency retention 

stock, making necessary policy changes, and implementing those 

changes, but after analyzing the results of the review, OSD, the services 

and DLA determined additional steps were needed to guide the 

implementation of the approved recommendations. Since we believe 
 

Page 22 GAO-12-493 Defense Inventory

these delays do not indicate an underlying issue and DOD is making 

adjustments to the Plan based on its experience to date, we are not 

making recommendations.

Over the next 3 years, OSD, the services, and DLA will confront four key 

challenges in their efforts to implement the remainder of its Plan. First, the 

drawdown of forces and equipment from Afghanistan over the coming 

years as well as the reset of the forces and equipment returning from Iraq 

and Afghanistan will make inventory management more difficult. DOD will 

need to effectively adjust demand planning to reflect changes in 

operational tempo associated with the drawdown as well as account for 

spare part needs associated with the reset of equipment to avoid the 

creation of inventory excesses. Additionally, the return of materiel from 

Afghanistan will require effective planning and may result in excess 

inventory. Second, the services and DLA are in varying stages of 

implementing their respective automated business systems for managing 

inventory, which are referred to as enterprise resource planning systems, 

which may make consistent data collection difficult and pose continuing 

challenges to implementing some areas of the Plan. While DLA has 

completely implemented its system, the services are at varying stages of 

implementing their systems. As part of the Plan, OSD, the services, and 

DLA are working together to monitor potential impacts on the Plan’s 

implementation. Third, several areas of the Plan moving forward present 

considerable implementation challenges due to the complexity of the 

issues. Some examples of complex issues in the Plan that pose 

implementation challenges include:

• Improving demand forecasting. Improving demand forecasting is 

difficult because it involves materiel managers having the most up-todate operational planning information to adequately plan the stocking 

of materiel for the customer. The demand forecasting sub-plan 

focuses on putting in place more automated methods for exchanging 

information that can be used to improve forecasts between inventory 

managers and customers, but these efforts are only in the initial 

stages. 

• Accelerating the use of multi-echelon modeling. DOD set a target 

to use multi-echelon modeling on 90 percent of targeted inventories 

by the end of fiscal year 2015. As part of its analysis, OSD, the 

services, and DLA determined that its targeted inventory is defined as 

that portion of the total inventory that includes inventory levels already 

set using multi-echelon modeling plus opportunities for additional 

DOD Faces Several 

Implementation 

Challenges Going Forward
 

Page 23 GAO-12-493 Defense Inventory

application. The targeted inventory is approximately 65 percent of 

DOD’s inventory, or $61 billion of DOD’s approximately $95 billion in 

inventory for fiscal year 2010. OSD, the services, and DLA are 

currently working to identify criteria and business rules for the targeted 

inventory that currently uses multi-echelon modeling to be able to 

develop opportunities for additional application to accelerate the use 

of multi-echelon modeling.

• Implementing revised DOD guidance on retention management.

OSD, the services, and DLA have reviewed existing DOD and service 

guidance for the management of on-order excess, economic retention 

stock, contingency retention stock, and potential reutilization stock 

and are in the process of finalizing revisions to the guidance to be 

issued by the end of fiscal year 2012. However, the full 

implementation of the revised guidance will occur largely within the 

materiel and logistics commands of the services and at DLA.28 As 

reported in our previous reports, existing policies and procedures to 

justify and review retention decisions were not implemented 

appropriately and consistently within the services and DLA.29

Fourth, sustaining senior OSD, service, and DLA leadership and 

management attention through fiscal year 2015 will be important to 

effectively implement the remainder of the Plan. As we noted above, 

service and DLA officials told us that sustained leadership focus has been 

important thus far in DOD’s implementation efforts. As implementation 

moves forward, addressing complex issues such as improving demand 

forecasting, accelerating multi-echelon modeling, and ensuring consistent 

implementation of DOD inventory management guidance will require 

continued management attention and focus. Furthermore, since 

implementation efforts are in the initial stages, sustaining leadership and 

management focus will be critical to guide improvement efforts for the 

remainder of the Plan’s implementation.

While 

the collaborative review and revision of DOD guidance by OSD, the 

services, and DLA was an important first step, the standardized and 

effective implementation of these revised policies, once issued, in the 

services and DLA will be key to achieving the desired outcomes of the 

Plan. 

 

28These commands include the U.S. Army Materiel Command, Navy Supply Systems 

Command, Air Force Materiel Command, and Marine Corps Logistics Command.

29See GAO-10-469, GAO-09-199, GAO-09-103, and GAO-07-232. 
 

Page 24 GAO-12-493 Defense Inventory

As part of the Plan, DOD is developing a set of metrics to assess the 

effectiveness and efficiency of its inventory management beyond the 

percentage targets for on-order and on-hand excess inventory identified 

in the Plan, but it has not determined if it will incorporate the set of metrics 

into guidance. This may hamper its ability to assess inventory 

management performance and sustain management attention on 

improvement beyond the Plan’s implementation.

OSD is leading the development of a supply chain enterprise metrics 

strategy designed to identify key departmentwide metrics to monitor the 

performance of the supply chain, along with inventory management, and 

serve as a basis for making supply chain guidance and resource 

decisions. However, DOD has not made final decisions and the effort is a 

work in progress. DOD officials told us that a set of comprehensive, 

standardized metrics will allow OSD, the services, and DLA to assess and 

balance the effectiveness and efficiency of inventory management

operations within the broader construct of the supply chain. They added 

that assessing the effectiveness and efficiency of inventory operations in 

isolation from the rest of the supply chain would not be prudent. Rather, 

the DOD officials believe an assessment of the effectiveness and 

efficiency of inventory management must be conducted more broadly and 

take into account additional supply chain metrics, such as the ability of 

the supply chain to support the readiness of the force in a timely manner. 

Thus, OSD, the services, and DLA are working collaboratively to identify 

or develop the appropriate metrics, including the data source and 

methodology for producing the metrics.

OSD, the services, and DLA are currently developing possible 

departmentwide supply chain metrics, including inventory management 

metrics, to monitor the performance of the supply chain. Specifically, the 

development of the departmentwide metrics is based on one outcome—

readiness—and four attributes—responsiveness, reliability, cost, and 

planning and precision—of the supply chain. To support the 

measurement of the outcome and attributes, the supply chain metrics 

group identified potential departmentwide metrics to be collected and 

assessed. The potential metrics include, but are not limited to, metrics 

associated with inventory management. OSD, the services, and DLA 

have not made a final decision on which metrics to monitor. The attributes 

and associated examples of metrics are shown in table 4.

DOD Is Developing a 

Set of Metrics to 

Assess Inventory 

Management 

Effectiveness and 

Efficiency, but Has 

Not Determined If It 

Will Incorporate 

These Metrics into 

Guidance 
 

Page 25 GAO-12-493 Defense Inventory

Table 4: Supply Chain Outcome and Attributes, and Examples of Potential Metrics

Outcome of 

supply chain Definition of outcome

Example of a potential 

metric Definition of potential metric

Readiness The ability of the supply chain to 

support weapon systems in 

undertaking and sustaining their 

assigned missions at planned 

peacetime and wartime 

utilization rates.

Not mission capable rate 

for maintenance or supply

Materiel condition indicating that systems and 

equipment are not capable of performing any of 

their assigned missions because of maintenance 

requirements or a maintenance work stoppage 

due to a supply shortage.

Attributes of 

supply chain

Definition of attribute Examples of a potential 

metric

Definition of potential metric

Responsiveness The ability of the supply chain to 

respond to customer materiel 

requests according to priority by 

providing the right support when 

it is needed and where needed.

Customer wait time A measurement of the total elapsed time between 

the issuance of a customer order from 

organizational maintenance and the satisfaction of 

the customer order.

Acquisition lead time The sum of administrative lead time plus 

production lead time.a

 

Cost The amount of supply chain 

resources required to deliver a 

specific performance outcome.

Total supply chain costs The total cost of the DOD supply chain including 

operating and materiel costs.

Tiered inventory turns The number of times that the inventory cycles or 

turns over in a year. A tiered approach looks at 

specific layers of inventory and their turn cycles.

Inventory dollars with five 

or more years of no 

demand

Inventory dollars for items with five or more years 

of no demand segmented by the approved 

acquisition objective, economic retention stock, 

contingency retention stock, and potential 

reutilization stock.

Reliability The dependability and 

consistency of the supply chain 

providers to deliver required 

materiel support at a time and 

destination specified by the 

customer.

Denial rates The percent of items directed for shipment that 

distribution depots reported a failure to ship all or 

part of the quantity originally directed for shipment.

Wholesale supply 

availability

The percent of demands that are not backordered, 

excluding future materiel obligations.

Planning and 

precision

The ability of the supply chain to 

accurately anticipate customer 

requirements and plan, 

coordinate, and execute 

accordingly.

Demand forecast error The difference between actual demand and 

forecasted demand, stated in a manner that 

quantifies any bias towards over or under 

forecasting.

On-hand excess inventory The dollar amount and the percentage of the total 

value of the inventory considered potential 

reutilization stock (or on-hand excess).

On-order excess inventory The dollar amount and the percentage of total 

obligated on-order dollars above the approved 

acquisition objective.

Source: GAO analysis of DOD documents.

a

Administrative lead time is the time interval between identifying a need to purchase an item and the 

award of a contract. Production lead time is the time interval between the award of a contract and 

receiving the purchased materiel into the supply system.
 

Page 26 GAO-12-493 Defense Inventory

Some of the potential metrics are currently reported by OSD, while others 

would be new metrics that would require establishing a data source and 

methodology. For example, customer wait time, on-order excess 

inventory, and on-hand excess inventory are metrics that are currently 

reported to the DOD Deputy Chief Management Officer by the Deputy 

Assistant Secretary of Defense for Supply Chain Integration.30 Other 

potential metrics, such as the “not mission capable rate for maintenance 

or supply” related to the readiness attribute, are reported within DOD by 

other entities.31 On the other hand, there are metrics, such as the “tiered 

inventory turns” metric related to the cost attribute and “demand forecast 

error”, for which business rules are being established for the computation 

and collection of the data for the metric.32

As we recently reported, DOD has been challenged by developing 

departmentwide performance measures for supply chain management, 

including inventory operations.33 We have also noted that developing sets 

of performance goals and measures could provide a balanced 

perspective of the intended performance of a program’s multiple priorities, 

such as timeliness, service quality, customer satisfaction, and program 

cost.34

 

30Customer wait time is a measure of the number of days from the issuance of a customer 

order to satisfaction of that order. On-order excess inventory is measured by the dollar 

amount and the percentage of total obligated on-order dollars above the approved 

acquisition objective and on-hand excess inventory is measured by the dollar amount and 

the percentage of the total value of the inventory considered potential reutilization stock. 

Thus, the development of metrics to assess inventory 

management performance within the broader construct of supply chain 

management through a set of departmentwide, comprehensive, and 

standardized metrics is appropriate and critical, but the Plan and its 

31The “not mission capable rate for maintenance or supply” is a materiel condition 

indicating that systems and equipment are not capable of performing any of their assigned 

missions because of maintenance requirements or a maintenance work stoppage due to a 

supply shortage. Non-mission capable rates affect a unit’s readiness rating.

32“Tiered inventory turns” are the number of times that the inventory cycles or turns over in 

a year. A tiered approach looks at specific layers of inventory and their turn cycles.

33See GAO, Defense Logistics: DOD Needs to Take Additional Actions to Address 

Challenges in Supply Chain Management, GAO-11-569 (Washington, D.C.: July 28, 

2011).

34See GAO, Agency Performance Plans: Examples of Practices That Can Improve 

Usefulness to Decisionmakers, GAO/GGD/AIMD-99-69 (Washington, D.C.: Feb. 26, 

1999).
 

Page 27 GAO-12-493 Defense Inventory

implementation actions do not include steps to incorporate the inventory 

management metrics, including the methodologies, into DOD guidance. 

When we spoke with DOD officials they told us they agree that the Plan

and its implementation actions do not address implementing the 

comprehensive set of metrics in guidance and added that they agree it 

would be a good idea to do so.

DOD inventory management policy states that performance and cost 

evaluations of supply chain operations and inventory shall be conducted 

periodically.35 The policy also states that the Assistant Secretary of 

Defense for Logistics and Materiel Readiness is responsible for 

monitoring the overall effectiveness and efficiency of its materiel 

management systems and continually developing improvements and that 

materiel managers should evaluate and be capable of reporting on the 

performance of inventory management, and more broadly supply chain 

operations. Based on our previous reporting, we have found that such 

metrics should be reportable in a consistent fashion and used to evaluate 

performance.36 Further, we have found establishing metrics, and 

monitoring and evaluating program performance are key practices in 

results-oriented-management.37

A key part of metrics being reportable in a consistent fashion is ensuring 

that standardized definitions, methodologies, and procedures will be 

used. The services and DLA will be relied upon to generate the data for 

some of the departmentwide inventory management metrics; thus, efforts 

to monitor and evaluate inventory management performance may be 

hampered without standardized definitions, methodologies, and 

procedures for the consistent collection of data for the metrics. In the 

past, DOD has institutionalized supply chain metrics through guidance. 

For example, OSD issued guidance to the services and DLA that 

provided a standardized definition and procedures for measuring and 

 

35DOD Instruction 4140.01, DOD Supply Chain Materiel Management Policy (Dec. 14, 

2011). 

36For information on results-oriented management practices and metrics, see 

GAO-09-676, GAO-09-980, and GAO-05-927. 

37We have previously found that organizations should establish and periodically review 

and validate performance measures so that comparisons can be made relating different 

sets of data to one another to allow for corrective actions if necessary. See GAO, Internal 

Control Management and Evaluation Tool, GAO-01-1008G (Washington, D.C.: August 

2001). 
 

Page 28 GAO-12-493 Defense Inventory

reporting the “customer wait time” metric to OSD.38 This guidance helps 

ensure that the services and DLA collect the data needed on a 

standardized basis for the departmentwide metric so that decision makers 

can evaluate performance across the department. Furthermore, 

incorporating the inventory management metrics into the department’s 

guidance and procedures would result in the institutionalization of the 

metrics and assist in sustaining a results-oriented management 

framework for inventory management beyond the Plan’s implementation. 

Without the institutionalization of the metrics, DOD may be hampered in 

its ability to assess the performance of inventory management and 

sustain management attention on continuously improving its inventory 

management beyond the Plan’s implementation.

DOD officials emphasized that the reductions achieved in the amount of 

on-order and on-hand excess inventory represent about $710 million in 

cost avoidances on the part of the department. Additionally, as part of the 

Plan’s implementation, DOD reduced the resources available to its 

working capital funds to purchase secondary inventory items.39

 

38DOD Instruction 4140.61, Customer Wait Time and Time Definite Delivery (Dec. 14, 

2000). 

Specifically, DOD reduced the departmentwide dollar value of on-order 

excess inventory from fiscal years 2009 to 2010, by approximately $210 

million—a reduction from $1.15 billion, or 8.5 percent of total on-order 

dollars, to $940 million, or 5.5 percent. With respect to on-hand excess 

inventory, DOD reduced the departmentwide dollar value of on-hand 

excess inventory from fiscal years 2009 to 2010, by approximately $500 

million—a reduction from $8.9 billion, or 9.4 percent of the total value of 

the inventory, to $8.4 billion, or 8.3 percent. According to OSD officials, 

reducing the percentage of on-order and on-hand excess inventory from 

fiscal year 2009 to 2010 indicates that the department’s focused 

management efforts have started to yield cost avoidances and more 

effective inventory management operations. Lower levels of on-order 

excess mean that DOD is purchasing items that are needed to meet the 

approved acquisition objective rather than items that will be classified as 

39A working capital fund relies on sales revenue rather than direct appropriations to 

finance its continuing operations and is intended to (1) generate sufficient resources to 

cover the full costs of its operations and (2) operate on a break-even basis over time—that 

is, neither make a gain nor incur a loss. Customers use appropriated funds to finance 

orders placed with the working capital fund. 

DOD Has Achieved 

Cost Avoidances 

Based on Fiscal Years 

2009 and 2010 

Inventory Data and 

Plans to Reduce 

Resources Available 

for the Purchase of 

Secondary Items
 

Page 29 GAO-12-493 Defense Inventory

potential reutilization stock, or on-hand excess, upon arrival. Reducing 

the level of on-hand excess means that DOD is purchasing items that are 

needed, retaining items as economic or contingency retention stock, 

and/or disposing of items more efficiently that are no longer needed by 

the department. Additionally, OSD, the services, and DLA have increased 

participation in the in-storage visibility program, which allows services and 

DLA to obtain consumable items from another service or DLA to prevent 

the procurement of additional items. The program completed $73.8 million 

lateral redistributions and procurement offsets in fiscal year 2010 and 

$68.3 million in fiscal year 2011, which prevented the acquisition of 

additional items.

DOD also plans to reduce the resources available in its working capital 

funds to purchase secondary inventory items by about $365 million over 

fiscal years 2012 to 2016 as part of the Plan’s implementation. As part of 

the fiscal year 2012 budget deliberations, OSD implemented a 

management decision that reduced the obligation authority for the Army 

and DLA working capital funds by $39 million in fiscal year 2012. DOD 

has identified further reductions of obligation authority to the respective 

working capital funds for fiscal years 2013 to 2016, which are displayed in 

table 5. The reductions only impact the Army and DLA because neither 

met the percentage targets established for on-order excess inventory in 

the Plan—6 percent by fiscal year 2014 and 4 percent by fiscal year 

2016.40

 

40In order to calculate the reduction amounts, OSD assumed reductions in the 

departmentwide percentage of on-order excess from 8.5 percent in fiscal year 2009 to 4 

percent in fiscal year 2016 with the largest percentage reductions occurring in fiscal years 

2015 and 2016. OSD multiplied these assumed aggregate wide percentage reductions by 

a ratio of the DOD on-order excess dollar reduction (based on the assumed 

departmentwide percentage reductions) to the Army and DLA’s previous year total onorder excess dollars to determine the yearly reduction amount. The calculations were 

based on fiscal year 2009 stratification reporting data, which was the best available data 

at the time.

According to OSD officials, these reductions in obligation 

authority are intended to heighten management attention on efforts to 

reduce the Army and DLA’s on-order excess inventory. The Navy 

(including the Marine Corps) and Air Force were below these targets; 

thus, no reductions are currently planned for their working capital funds 

as part of this effort.
 

Page 30 GAO-12-493 Defense Inventory

Table 5: Army and DLA Working Capital Fund Reductions in Obligation Authority, Fiscal Years 2012 through 2016 

Dollars in millions

Service 

or Organization

Fiscal Year

2012

Fiscal Year

2013

Fiscal Year

2014

Fiscal Year

2015

Fiscal Year

2016 Total

Army $23 $24 $24 $71 $72 $214 

DLA 16 17 17 50 51 $151

Total $39 $41 $41 $121 $123 $365

Source: Deputy Assistant Secretary of Defense for Supply Chain Integration.

Since the working capital funds generally rely on sales revenue (i.e., a 

military unit purchasing a spare part from the working capital fund with 

appropriated operation and maintenance funds), rather than direct annual 

appropriations to finance the purchase of secondary inventory items, 

these reductions to obligation authority are not directly reducing the 

expenditure of appropriated funds. Rather, the reductions to obligation 

authority mean that the working capital fund has reduced purchase 

authority for additional secondary items for the inventory, resulting in a 

lower inventory replenishment rate. While these reductions will not 

directly result in savings to direct appropriation accounts, OSD, Army, and 

DLA officials told us that the reduction of obligation authority will require 

the Army and DLA to better manage its available resources for 

purchasing new secondary items.

Effective and efficient management of DOD’s inventory is critical to 

supporting the readiness of the force, and requires a balanced approach. 

To be effective DOD must have the correct amount of spare parts onhand at the correct time to support the fighting force, but DOD must also 

manage its inventory efficiently to avoid the unnecessary and wasteful 

accumulation of secondary inventory that could divert resources away 

from defense priorities. With consistent and heightened visibility to 

Congress and committed leadership on the part of OSD, the services, 

and DLA, DOD has made progress improving its inventory management. 

DOD is currently 18 months into a 4-year implementation process, and is 

making progress towards reducing excess inventory, implementing its 

Plan, and establishing a departmentwide set of standardized metrics for 

inventory management. Moving forward, DOD’s inventory management 

improvement efforts would benefit from challenging, but achievable 

targets for reducing its on-order and on-hand excess inventory. OSD’s 

stated intention to review the targets would help ensure that DOD’s 

progress is not hampered because of a lack of meaningful targets to 

Conclusions 
 

Page 31 GAO-12-493 Defense Inventory

guide its efforts. Additionally, while DOD has begun developing a 

departmentwide set of standardized inventory management metrics as 

part of the Plan’s implementation, formalizing the set of metrics in 

guidance would allow DOD, services, and DLA to institutionalize the 

metrics in a results-oriented management framework beyond the Plan’s 

implementation. To continue progress, committed and sustained 

leadership on the part of OSD, the services, and DLA will be key as DOD 

implements the remainder of the Plan and institutionalizes a resultsoriented management framework.

To improve implementation of the Comprehensive Inventory Management 

Improvement Plan and ensure sustained management attention beyond 

the Plan’s implementation consistent with results-oriented management 

practices, we recommend the Secretary of Defense direct the Assistant 

Secretary of Defense for Logistics and Materiel Readiness to take the 

following three actions:

• conduct and document periodic re-examinations of its existing onorder and on-hand excess inventory percentage targets (such as 

those officials say are planned) and update the targets and associated 

timelines, if necessary, to guide continued improvement in its 

inventory management through the Plan’s implementation;

• develop and implement guidance that establishes a comprehensive, 

standardized set of departmentwide inventory management metrics, 

including standardized definitions and procedures for measuring and 

reporting the metrics; and

• employ these metrics in periodically monitoring the effectiveness and 

efficiency of its inventory management practices.

We provided a draft of this report to DOD for comment. In written 

comments, DOD concurred with our recommendations. DOD’s comments 

are reprinted in their entirety in appendix XIII. DOD also provided 

technical comments, which we incorporated into the report as 

appropriate.

DOD concurred with our recommendation to conduct and document 

periodic re-examinations of its existing on-order and on-hand excess 

inventory percentage targets (such as those officials say are planned) 

and update the targets and associated timelines, if necessary, to guide 

continued improvement in its inventory management through the Plan’s 

implementation. DOD stated that it will re-examine the on-order and onRecommendations for 

Executive Action

Agency Comments 

and Our Evaluation
 

Page 32 GAO-12-493 Defense Inventory

hand excess percentage targets as part of its ongoing review of existing 

inventory management metrics. Furthermore, DOD stated that the onhand excess inventory percentage target is currently being revised, taking 

into consideration current performance and anticipated operational 

conditions that may affect this target.

DOD concurred with our recommendation to develop and implement 

guidance that establishes a comprehensive, standardized set of 

department-wide inventory management metrics, including standardized 

definitions and procedures for measuring and reporting the metrics. 

Specifically, DOD stated that it is continuing to identify and develop a set 

of department-wide inventory management metrics. We acknowledge the 

department’s planned actions and want to reiterate the need for 

standardized definitions and procedures for measuring and reporting 

them as a means for supporting a results-oriented management 

framework beyond the Plan’s implementation.

Finally, DOD concurred with our recommendation to employ the metrics 

in periodically monitoring the effectiveness and efficiency of its inventory 

management practices. Specifically, DOD stated they will continue to 

monitor existing inventory management metrics and include additional 

metrics approved for its department-wide assessments of inventory 

management.

We are sending copies of this report to the appropriate congressional 

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

and Air Force, and the Director of DLA. In addition, the report is available 

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

If you or your staff have questions about this report, please contact me at 

merrittz@gao.gov or (202) 512-5257. Contact points for our Offices of 

Congressional Relations and Public Affairs may be found on the last page 

of this report. GAO staff who made key contributions to this report are 

listed in appendix XIV.

Zina D. Merritt

Director

Defense Capabilities and Management
 

Page 33 GAO-12-493 Defense Inventory

List of Committees

The Honorable Carl Levin

Chairman

The Honorable John McCain

Ranking Member

Committee on Armed Services

United States Senate

The Honorable Daniel K. Inouye

Chairman

The Honorable Thad Cochran

Ranking Member

Subcommittee on Defense

Committee on Appropriations

United States Senate

The Honorable Howard P. “Buck” McKeon

Chairman

The Honorable Adam Smith

Ranking Member

Committee on Armed Services

House of Representatives

The Honorable C.W. “Bill” Young

Chairman

The Honorable Norman D. Dicks

Ranking Member

Subcommittee on Defense

Committee on Appropriations

House of Representatives
Appendix I: Objectives, Scope, and 

Methodology

Page 34 GAO-12-493 Defense Inventory

The objectives of our work were to determine the extent to which (1) the 

Department of Defense (DOD) established and achieved targets for 

reducing excess inventory in the Comprehensive Inventory Management 

Improvement Plan (Plan), (2) DOD made progress in implementing the 

Plan, (3) DOD has established and implemented standardized metrics to 

track their progress in improving inventory management, and (4) DOD 

has identified and realized any cost savings or cost avoidance from 

implementing the Plan. To gather information for these objectives, we 

reviewed documentation and interviewed officials from:

• Office of the Under Secretary of Defense (Comptroller);

• Office of the Deputy Assistant Secretary of Defense for Supply Chain 

Integration;

• Office of the Deputy Chief Management Officer;

• Headquarters Army, Office of the Deputy Chief of Staff of the Army, 

Logistics;

• Headquarters Navy, Deputy Assistant Secretary of the Navy, 

Acquisition & Logistics Management;

• Headquarters Air Force, Deputy Chief of Staff for Logistics, 

Installations, and Mission Support, Directorate of Logistics Policy 

Division;

• Marine Corps Headquarters, Installations and Logistics Department;

• U.S. Army Materiel Command;

• Navy Supply Systems Command, Headquarters;

• Air Force Materiel Command, Headquarters;

• Marine Corps Logistics Command, Headquarters; and

• Defense Logistics Agency (DLA).

To assess the extent to which DOD’s Plan has established and its 

implementation has achieved targets for reducing excess inventory, we 

evaluated Office of the Secretary of Defense’s (OSD), the services’, and 

DLA’s progress in reaching the Plan’s two main targets for reducing onorder excess and on-hand excess inventory by comparing OSD’s, the 

services’, and DLA’s reported progress in fiscal year 2009 and fiscal year 

2010 when measured against the targets for these two main goals 

established in the Plan. Fiscal year 2011 data was not available by the 

end of our review to assess the department’s progress in fiscal year 2011, 

the first year of implementing the Plan. We assessed OSD’s, the 

services’, and DLA’s progress in reaching the targets of the Plan and the 

process DOD used to establish the targets by obtaining and reviewing 

OSD progress reports, and reviewing other supporting documentation 

from the services and DLA to corroborate the DOD’s reported progress. 

To provide context, we interviewed OSD, service, and DLA officials to 

Appendix I: Objectives, Scope, and 

Methodology 
Appendix I: Objectives, Scope, and 

Methodology

Page 35 GAO-12-493 Defense Inventory

discuss their interpretation of the data for the two goals. Additionally, we 

examined the reliability of data used for the targets by reviewing DOD 

policy and procedures for the collection of the data used for inventory 

reporting and interviewing officials about their methods for quality control 

and found that the data were sufficiently reliable to address our 

objectives.

To determine the extent to which OSD, the services, and DLA have made 

progress in implementing the Plan, we evaluated DOD’s Plan and the 

plan of action and milestones, which includes actions, milestones, and 

implementation steps for each of the nine sub-plans and tracks the status 

of the implementation. Our analysis of the implementation of the Plan

focused on actions and milestones that were started and underway by 

January 1, 2012 and we rated each action and milestone as either 

“completed,” “started, on schedule,” “started, completion delayed,” “not 

started, on schedule,” or “Not started, completion delayed.” These 

categories were defined as follows:

• Completed: Action or milestone was completed, irrespective of 

whether or not the task was completed on-schedule.

• Started, on schedule: Action or milestone can be verified as 

underway, but is not complete and scheduled completion date has not 

slipped.

• Started, completion delayed: Action or milestone can be verified as 

underway, but is not complete and the team has determined the 

scheduled completion date has slipped.

• Not started, on schedule: Action or milestone planned to begin after 

January 1, 2012, and the expected completion date is unchanged 

from the Plan. 

• Not started, completion delayed: Action or milestone planned to begin 

after January 1, 2012, and the expected completion date has slipped 

from the Plan. 

Specifically, a GAO analyst reviewed and compared the schedule and 

content of the actions and milestones in the plan of actions and 

milestones with the status of implementation efforts as reported in the 

progress reviews conducted by OSD and briefings provided to the Supply 

Chain Executive Steering Committee; assessed the status of each action 

and milestone by the categories above; and recorded the assessment 

and the basis for the assessment. A second analyst then reviewed the 

documentation and assessment and either confirmed the assessment or 

proposed a different assessment. The final assessment reflects the 
Appendix I: Objectives, Scope, and 

Methodology

Page 36 GAO-12-493 Defense Inventory

analysts’ consensus. In addition we interviewed DOD officials as needed 

to clarify the status of any efforts where the documentation was unclear.

To determine the extent to which DOD has established and implemented 

standardized metrics to track the effectiveness and efficiency of inventory 

management, we reviewed all documents related to the Plan, its plan of 

actions and milestones, and the progress reviews conducted by OSD to 

identify any performance metrics associated with the implementation of

the Plan. We reviewed the actions and milestones associated with 

establishing metrics to evaluate the effectiveness and efficiency of 

inventory management across the department. We interviewed OSD, 

service, and DLA officials responsible for implementing the Plan to 

understand the status and maturity of the metrics DOD is considering and 

how the reporting of inventory management measures may change.

To determine the extent to which DOD has identified and realized any 

cost savings or cost avoidance associated with implementation, we 

reviewed the Plan and associated documentation to identify any efforts 

related to cost savings or cost avoidance. We also assessed the nature of 

the potential cost savings or cost avoidances associated with the 

implementation of the Plan’s actions and milestones. Specifically, we 

determined whether the projected cost savings and cost avoidances were 

the result of a reduction in obligations of directly appropriated funds (e.g., 

an operation and maintenance appropriation), changes to the working 

capital fund, or other factors, and determined whether these sources 

impact the validity of attributing these savings or cost avoidances to the 

Plan’s implementation. We also interviewed OSD, service, and DLA 

officials to discuss the rationale, and implementation of any cost savings 

or cost avoidance.

We conducted this performance audit between August 2011 and May 

2012, in accordance with generally accepted government auditing 

standards. Those standards require that we plan and perform the audit to 

obtain sufficient, appropriate evidence to provide a reasonable basis for 

our findings and conclusions based on our audit objectives. We believe 

that the evidence obtained provides a reasonable basis for our findings 

and conclusions based on our audit objectives.
Appendix II: Implementation Status of Prior 

GAO Recommendations for DOD Inventory 

Management

Page 37 GAO-12-493 Defense Inventory

Over the past 6 years, we issued six reports on different aspects of the 

Department of Defense’s (DOD) inventory management. Table 6 

summarizes the status of recommendations made in these six reports, 

which contained a total of 39 recommendations to improve DOD’s 

inventory management. Twenty-nine of the recommendations have been 

implemented by the Offices of the Secretary of Defense (OSD), the 

services, and the Defense Logistics Agency (DLA), five remain open for 

action, and five recommendations, related to improving acquisition lead 

time, were not implemented.1

Table 6: Status of GAO Recommendations on Inventory Management Since 2006

For each of the six reports, the specific 

recommendations, implementation status, and the related sub-plan of the 

Comprehensive Inventory Management Improvement Plan (Plan) are 

summarized in tables 7 through 12.

Product date Product title and number

Number of recommendations 

Open Implemented

Not 

implemented

May 2010 Defense Inventory: Defense Logistics Agency Needs to Expand 

on Efforts to More Effectively Manage Spare Parts (GAO-10-469) 2 6 - 

January 2009 Defense Inventory: Army Needs to Evaluate Impact of Recent 

Actions to Improve Demand Forecasts for Spare Parts 

(GAO-09-199) 2 2 - 

December 2008 Defense Inventory: Management Actions Needed to Improve the 

Cost Efficiency of the Navy’s Spare Parts Inventory (GAO-09-103) 1 4 - 

April 2007 Defense Inventory: Opportunities Exist to Save Billions by 

Reducing Air Force’s Unneeded Spare Parts Inventory 

(GAO-07-232) - 4 - 

March 2007 Defense Inventory: Opportunities Exist to Improve the 

Management of DOD’s Acquisition Lead Times for Spare Parts

(GAO-07-281) - 6 5 

May 2006 Defense Inventory: Actions Needed to Improve Inventory 

Retention Management (GAO-06-512) - 7 - 

Total 5 29 5 

Source: GAO analysis.

 

1

Acquisition lead time, also known as procurement lead time, measures the length of time 

between the identification of a materiel requirement and the receipt of that materiel into 

the supply system. Acquisition lead time is the sum of the administrative lead time and 

production lead time. Administrative lead time is the time interval between identifying a 

need to purchase an item and the award of a contract. Production lead time is the time 

interval between the award of a contract and receiving the purchased materiel into the 

supply system. 

Appendix II: Implementation Status of Prior 

GAO Recommendations for DOD Inventory 

Management
Appendix II: Implementation Status of Prior 

GAO Recommendations for DOD Inventory 

Management

Page 38 GAO-12-493 Defense Inventory

In our report issued in 2010, we found that DLA can enhance its efforts to 

manage spare parts more effectively primarily by focusing on the front 

end of the process when decisions are being made on what and how 

many items to buy in response to requirements. Our analysis of DLA data 

showed the agency had more spare parts secondary inventory than was 

needed to meet current requirements in fiscal years 2006 through 2008. 

Although DOD policy required DLA to minimize investment in inventory 

while also meeting requirements, seven factors were identified as causing 

DLA to order and stock parts that did not align with requirements. These 

seven factors were:

• inaccurate demand forecasting for parts;

• unresolved problems with accurately estimating lead times needed to 

acquire spare parts;

• challenges in meeting the military services’ special requests to DLA 

for future spare parts support for weapon systems;

• closing gaps in providing accurate, timely data to inventory managers 

as input into purchase decisions;

• modifying or canceling planned purchases that may no longer be 

needed to meet currently estimated requirements;

• reducing contingency retention stock that may no longer be needed; 

and

• not tracking the overall cost efficiency of its inventory management

We made eight recommendations and as of January 1, 2012, six have 

been implemented and two remain open. Table 7 summarizes our 

recommendations and their implementation status.

Defense Inventory: 

Defense Logistics Agency 

Needs to Expand on 

Efforts to More Effectively 

Manage Spare Parts 

Recommendations for 

Executive Action
Appendix II: Implementation Status of Prior 

GAO Recommendations for DOD Inventory 

Management

Page 39 GAO-12-493 Defense Inventory

Table 7: Status of Recommendations from Defense Inventory: Defense Logistics Agency Needs to Expand on Efforts to More 

Effectively Manage Spare Parts 

Recommendation #1:

To minimize investment in unneeded spare parts inventory, we 

recommend that the Secretary of Defense direct the Director, DLA, to 

establish an action plan for completing the agency’s evaluation of 

identified demand planning issues, and include goals, objectives, 

resources, and time frames in this action plan.

Status: Implemented

Related sub-plan of the Plan: Demand forecasting

Comments: The demand forecasting sub-plan serves as the 

action plan for the services and DLA for improving demand 

forecasting. The plan includes goals, objectives, time frames, 

and the development of metrics for tracking forecasting error 

and bias.

Recommendation #2:

To minimize investment in unneeded spare parts inventory, we 

recommend that the Secretary of Defense direct the Director, DLA, to 

develop an approach for working with suppliers to assess the root 

causes of inaccurate production lead time estimates and implement 

corrective actions linked to these root causes.

Status: Implemented

Related sub-plan of the Plan: Other inventory improvement 

actions

Comments: As part of the sub-plan focused on other 

inventory improvement actions, OSD, the services, and DLA 

are focusing on acquisition lead times, specifically evaluating 

existing initiatives departmentwide to reduce production and 

administrative lead times, improving lead time accuracy, and 

developing a standardized methodology to track and monitor 

changes to acquisition lead time.

Recommendation #3:

To minimize investment in unneeded spare parts inventory, we 

recommend that the Secretary of Defense direct the Director, DLA, to 

reinforce and reinvigorate effective internal controls aimed at 

evaluating and making adjustments to the military services’ estimated 

additional requirements, including both supply support requests and 

special program requirements.

Status: Implemented

Related sub-plan of the Plan: Demand forecasting

Comments: As part of the demand forecasting sub-plan, 

OSD, the services, and DLA have begun conducting analysis 

to determine needed policy changes for supply support 

requests. 

Recommendation #4:

To minimize investment in unneeded spare parts inventory, we 

recommend that the Secretary of Defense direct the Director, DLA, to 

conduct a program evaluation of the demand data exchange initiative 

to determine what, if any, additional actions should be taken to (1) 

improve communication and data exchange internally and with military 

customers and suppliers and (2) expand the initiative across the 

enterprise (for example, to other customers, items, and processes).

Status: Implemented

Related sub-plan of the Plan: Demand forecasting

Comments: DLA established a headquarters team in 2011 to 

better synchronize demand data exchange efforts. 

Additionally, the services and DLA are addressing the 

demand data exchange initiative during fiscal year 2012 as 

part of the efforts in the demand forecasting sub-plan.
Appendix II: Implementation Status of Prior 

GAO Recommendations for DOD Inventory 

Management

Page 40 GAO-12-493 Defense Inventory

Recommendation #5:

To minimize investment in unneeded spare parts inventory, we 

recommend that the Secretary of Defense direct the Director, DLA, to 

evaluate the effectiveness of the agency’s process for identifying and 

reducing potential over-procurements and determine the feasibility of 

applying the process on a wider scale.

Status: Implemented

Related sub-plan of the Plan: On-order excess inventory

Comments: Based on evaluating the over-procurement 

process, DLA is redesigning its over-procurement process to 

establish certain requirements for review of decisions to 

retain on-order materiel in excess of the approved acquisition 

objective. Additionally, the on-order excess inventory subplan seeks to reduce over-procurements departmentwide by 

reducing the on-order and on-hand excess of the services 

and DLA.

Recommendation #6:

We recommend that the Secretary of Defense direct the Under 

Secretary of Defense for Acquisition, Technology and Logistics, in 

conjunction with the Director, DLA, and the Secretaries of the Army, 

the Navy, and the Air Force, to formally evaluate and report on the 

feasibility of requiring up-front military service funding for a portion of 

their supply support requests.

Status: Implemented

Related sub-plan of the Plan: Demand forecasting

Comments: OSD, the services, and DLA performed analysis 

as part of the demand forecasting sub-plan that showed there 

was not a need for service-DLA risk-sharing because supply 

support requests forecasts are not causing DLA to procure 

excess inventory.

Recommendation #7:

We recommend that the Secretary of Defense direct the Under 

Secretary of Defense for Acquisition, Technology and Logistics, in 

conjunction with the Director, DLA, and the Secretaries of the Army, 

the Navy, and the Air Force, to establish goals and metrics for tracking 

and assessing the cost efficiency of inventory management in 

accordance with DOD’s policy requiring DLA and the services to 

minimize investment in secondary item inventory while providing 

inventory needed; develop and implement an approach for integrating 

these goals and metrics with inventory management improvement 

efforts; and incorporate the goals and metrics into existing 

management and oversight processes.

Status: Open

Related sub-plan of the Plan: Other inventory improvement 

actions

Comments: OSD, the services, and DLA have begun, but 

have not completed efforts to establish departmentwide cost 

efficiency metrics as part of the sub-plan focused on other 

inventory improvement actions.

Recommendation #8:

We recommend that the Secretary of Defense direct the Secretaries of 

the Army, the Navy, and the Air Force to certify to DLA which items 

and what quantities of the contingency retention stock should be 

retained, in response to DLA’s requests that they do so, and direct the 

Under Secretary of Defense for Acquisition, Logistics and Technology 

to provide guidance and oversight of this certification process.

Status: Open

Related sub-plan of the Plan: Contingency retention stock

Comments: OSD, the services, and DLA, as part of the 

contingency retention stock sub-plan, have begun, but have 

not completed efforts to revise policy and procedures for the 

services to certify the quantities of items to be held as 

contingency retention stock given the volume of items 

managed by DLA for the services.

Source: GAO analysis.
Appendix II: Implementation Status of Prior 

GAO Recommendations for DOD Inventory 

Management

Page 41 GAO-12-493 Defense Inventory

In our report issued in 2009, we found the Army had more inventory than 

was needed to support current requirements. At the same time, the Army 

had substantial inventory deficits. Based on Army demand forecasts, 

inventory that exceeded current requirements had enough parts on-hand 

for some items to satisfy several years, or decades, of anticipated supply 

needs. Also, a large proportion of items that exceeded current 

requirements had no projected demand. Army inventory also did not align 

with current requirements over this period because of a lack of costefficiency metrics and goals and inaccurate demand forecasting. We 

made four recommendations and two of these recommendations have 

been implemented and two remain open. Table 8 summarizes our 

recommendations and their implementation status.

Table 8: Status of Recommendations from Defense Inventory: Army Needs to Evaluate Impact of Recent Actions to Improve 

Demand Forecasts for Spare Parts 

Recommendation #1:

To improve the management of the Army’s secondary inventory, we 

recommend that the Secretary of Defense direct the Secretary of the 

Army to establish metrics and goals for tracking and assessing the 

cost efficiency of inventory management and incorporate these into 

existing management and oversight processes.

Status: Open

Related sub-plan of the Plan: Other inventory improvement 

actions

Comments: OSD, the services, and DLA have begun, but 

have not completed efforts to establish departmentwide costefficiency metrics as part of the sub-plan focused on other 

inventory improvement actions.

Recommendation #2:

To improve the management of the Army’s secondary inventory, we 

recommend that the Secretary of Defense direct the Secretary of the 

Army to evaluate the effectiveness of changes to demand forecasting 

procedures that were set forth in the Army’s October 2008 guidance, 

including measuring the impact on reducing inventory that exceeds 

requirements, and based on that evaluation, take additional actions as 

appropriate to identify and correct systemic weaknesses in forecasting 

procedures.

Status: Implemented

Related sub-plan of the Plan: Demand forecasting

Comments: None

Recommendation #3:

To improve the management of the Army’s secondary inventory, we 

recommend that the Secretary of Defense direct the Secretary of the 

Army to monitor the effectiveness of providing item managers with 

operational information in a timely manner so they can adjust modeled 

requirements as necessary.

Status: Implemented

Related sub-plan of the Plan: Demand forecasting

Comments: None

Defense Inventory: Army 

Needs to Evaluate Impact 

of Recent Actions to 

Improve Demand 

Forecasts for Spare Parts 

Recommendations for 

Executive Action
Appendix II: Implementation Status of Prior 

GAO Recommendations for DOD Inventory 

Management

Page 42 GAO-12-493 Defense Inventory

Recommendation #4:

We also recommend that the Secretary of the Army direct the Army’s 

Chief Management Officer to exercise oversight of Army inventory 

management improvements to align improvement efforts with overall 

business transformation and to reduce support costs. This oversight 

role should not replace or eliminate existing operational oversight 

responsibilities for inventory management that are exercised by other 

Army offices, but should ensure that the Army maintains a long-term 

focus for making systemic improvements where needed and for 

strategically aligning such changes with overall transformation efforts.

Status: Open

Related sub-plan of the Plan: None

Comments: DOD non-concurred with this recommendation 

noting that inventory oversight is the operational 

responsibility of the Army’s Life Cycle Management 

Commands and appropriately assigned under the combined 

oversight of the Army G-4; the Assistant Secretary of the 

Army, Financial Management and Comptroller; and the Army 

Materiel Command.

Source: GAO analysis.

In our report issued in 2008, we found the Navy had more inventory than 

was needed to support current requirements and also experienced some 

inventory deficits, though to a far lesser extent. Based on Navy demand 

forecasts, inventory that exceeded current requirements was sufficient to 

satisfy several years, or even decades, of anticipated supply needs. Also, 

a large proportion of the items that exceeded current requirements had no 

projected demand because the Navy had not systematically evaluated the 

effectiveness of its demand forecasting. Navy inventory did not align with 

current requirements because (1) the Navy has not established the cost 

efficiency of its inventory management, (2) its demand forecasting 

effectiveness is limited and requirements for items may change frequently 

after purchase decisions are made, and (3) it has not adjusted certain 

inventory management practices in response to the unpredictability in 

demand. We made five recommendations and the Navy has implemented 

four of them and one remains open. Table 9 summarizes our 

recommendations and their implementation status.

Defense Inventory: 

Management Actions 

Needed to Improve the 

Cost Efficiency of the 

Navy’s Spare Parts 

Inventory 

Recommendations for 

Executive Action
Appendix II: Implementation Status of Prior 

GAO Recommendations for DOD Inventory 

Management

Page 43 GAO-12-493 Defense Inventory

Table 9: Status of Recommendations from Defense Inventory: Management Actions Needed to Improve the Cost Efficiency of 

the Navy’s Spare Parts Inventory 

Recommendation #1:

To improve the management of the Navy’s secondary inventory, we 

recommend that the Secretary of Defense direct the Secretary of the 

Navy, in conjunction with the Commander, Navy Supply Systems 

Command, and the Commander, Naval Inventory Control Point, to 

establish metrics and goals for tracking and assessing the cost 

efficiency of inventory management and incorporate these into existing 

management and oversight processes.

Status: Implemented

Related sub-plan of the Plan: Other inventory improvement 

actions

Comments: The Navy implemented a cost-efficiency metric, 

which is the rate at which obligation authority is being used to 

replenish inventory levels. Additionally, OSD, the services, 

and DLA are working to establish departmentwide costefficiency metrics as part of the sub-plan focused on other 

inventory improvement actions.

Recommendation #2:

To improve the management of the Navy’s secondary inventory, we 

recommend that the Secretary of Defense direct the Secretary of the 

Navy, in conjunction with the Commander, Navy Supply Systems 

Command, and the Commander, Naval Inventory Control Point, to 

evaluate demand forecasting procedures to identify areas where 

forecasts have been consistently inaccurate, correct any systemic 

weaknesses in forecasting procedures, and improve communications 

among stakeholders, to include promptly relaying changes in programs 

and other decisions that affect purchases of spare parts. Further, the 

Commander, Naval Supply Systems Command, and the Commander, 

Naval Inventory Control Point, should develop an evaluation plan and 

interim milestones for assessing the impact of ongoing efforts and take 

additional corrective actions, if warranted, to improve demand 

forecasting for secondary inventory.

Status: Implemented

Related sub-plan of the Plan: Demand forecasting

Comments: The demand forecasting sub-plan serves as the 

action plan for OSD, the services, and DLA for improving 

demand forecasting through fiscal year 2015. The plan 

includes goals, objectives, time frames, and the development 

of metrics for tracking forecasting error and bias. 

Recommendation #3:

To improve the management of the Navy’s secondary inventory, we 

recommend that the Secretary of Defense direct the Secretary of the 

Navy, in conjunction with the Commander, Navy Supply Systems 

Command, and the Commander, Naval Inventory Control Point, to 

revise inventory management practices to incorporate the flexibility 

needed to minimize the impact of demand fluctuations. Specific 

attention should be given to revising practices regarding initial 

provisioning management, on-order management, and retention 

management. Further, the Commander, Naval Supply Systems 

Command, and the Commander, Naval Inventory Control Point, should 

develop an evaluation plan and interim milestones for assessing the 

impact of ongoing efforts and take additional corrective actions, if 

warranted, to incorporate flexibility into inventory management 

practices.

Status: Implemented

Related sub-plan of the Plan: Demand forecasting, onorder excess inventory, economic retention stock, 

contingency retention stock, and disposition of potential 

reutilization stock

Comments: OSD, the services, and DLA are working to 

revise inventory management practices in demand 

forecasting, on-order excess inventory, economic retention, 

and contingency retention through fiscal year 2015 as part of

the Plan’s implementation. 
Appendix II: Implementation Status of Prior 

GAO Recommendations for DOD Inventory 

Management

Page 44 GAO-12-493 Defense Inventory

Recommendation #4:

To improve the management of the Navy’s secondary inventory, we 

recommend that the Secretary of Defense direct the Secretary of the 

Navy, in conjunction with the Commander, Navy Supply Systems 

Command, and the Commander, Naval Inventory Control Point, to 

ensure that required annual reviews validating methodologies used for 

making retention decisions are performed and documented.

Status: Implemented

Related sub-plan of the Plan: Economic retention stock and 

contingency retention stock

Comments: The Navy Supply Systems Command in May 

2009, issued guidance requiring annual reviews to validate 

methodologies used for making retention decisions and the 

Commander, Naval Inventory Control Point, certified the 

reviews were completed for the July 2009-June 2010 period. 

Recommendation #5:

We also recommend that the Secretary of the Navy direct that the 

Navy’s Chief Management Officer and Deputy Chief Management 

Officer exercise appropriate oversight of Navy inventory management 

improvement to align improvement efforts with overall business 

transformation and to reduce support costs.

Status: Open

Related sub-plan of the Plan: None

Comments: None

Source: GAO analysis.

In our report issued in 2007, we found that the Air Force purchased 

unneeded inventory because its policies do not provide incentives to 

reduce the amount of inventory on order that is not needed to support 

requirements. Additionally, the Air Force continued to retain unneeded 

inventory with no recurring demands because it had not performed a 

comprehensive assessment to revalidate the need to continue to retain 

these items. Inventory not needed to support required inventory levels 

can be attributed to many long-standing problems, such as decreasing 

demands, retaining items used to support aging weapon systems that 

have diminishing sources of supply or are being phased out of service, 

and not terminating contracts for on-order items. We made four 

recommendations and the Air Force implemented all four of the 

recommendations. Table 10 summarizes our recommendations and their 

implementation status.

Defense Inventory: 

Opportunities Exist to 

Save Billions by Reducing 

Air Force’s Unneeded 

Spare Parts Inventory 

Recommendations for 

Executive Action
Appendix II: Implementation Status of Prior 

GAO Recommendations for DOD Inventory 

Management

Page 45 GAO-12-493 Defense Inventory

Table 10: Status of Recommendations from Defense Inventory: Opportunities Exist to Save Billions by Reducing Air Force’s 

Unneeded Spare Parts Inventory 

Recommendation #1:

To meet customer expectations while minimizing inventory and to 

reduce the Air Force’s inventory not needed to support requirements, 

we are recommending that the Secretary of Defense direct the 

Secretary of the Air Force to modify its policies to provide incentives to 

reduce purchases of on-order inventory that are not needed to support 

requirements, such as requiring contract termination review for all 

unneeded on-order inventory or reducing the funding available for the 

Air Force Materiel Command by an amount up to the value of the Air 

Force’s on-order inventory that is not needed to support requirements.

Status: Implemented

Related sub-plan of the Plan: On-order excess inventory

Comments: None

Recommendation #2:

To meet customer expectations while minimizing inventory and to 

reduce the Air Force’s inventory not needed to support requirements, 

we are recommending that the Secretary of Defense direct the 

Secretary of the Air Force to conduct a comprehensive assessment of 

the inventory items on hand that are not needed to support 

requirements and that have no recurring demands and revalidate the 

need to continue to retain these items, and, as part of this assessment, 

consider establishing ongoing requirements for items supporting 

weapon systems that have lengthy projected life spans.

Status: Implemented

Related sub-plan of the Plan: Economic retention stock, 

contingency retention stock, items with no demand, and 

disposition of potential reutilization stock

Comments: None

Recommendation #3:

To meet customer expectations while minimizing inventory and to 

reduce the Air Force’s inventory not needed to support requirements, 

we are recommending that the Secretary of Defense direct the 

Secretary of the Air Force to evaluate the reasons why the Air Force 

continually experiences decreases in demands which have contributed 

to having more than half of its inventory on hand not needed to support 

requirements.

Status: Implemented

Related sub-plan of the Plan: Demand forecasting

Comments: None

Recommendation #4:

To meet customer expectations while minimizing inventory and to 

reduce the Air Force’s inventory not needed to support requirements, 

we are recommending that the Secretary of Defense direct the 

Secretary of the Air Force to determine what actions are needed to 

address the reasons for the decreases in demand and then take steps 

to implement these actions.

Status: Implemented

Related sub-plan of the Plan: Demand forecasting

Comments: None

Source: GAO analysis.
Appendix II: Implementation Status of Prior 

GAO Recommendations for DOD Inventory 

Management

Page 46 GAO-12-493 Defense Inventory

In our report issued in 2007, we found that the military components’ 

estimated lead times to acquire spare parts varied considerably from the 

actual lead times experienced. The effect of the lead time underestimates 

was almost $12 billion in spare parts arriving more than 90 days later than 

anticipated, which could negatively affect readiness rates because units 

may not have needed inventory. DOD and the components strive to meet 

customer based materiel requirements while minimizing the investment in 

inventories, and accurate lead time estimates are critically important in 

enabling the military components to have the proper amount of inventory 

on-hand. DOD’s acquisition lead time estimates varied greatly from the 

actual lead times and contributed to inefficient use of funds and inventory 

shortages and excesses. To improve the accuracy in setting acquisition 

lead time values, we made 11 recommendations. Six of the 

recommendations have been implemented and five were not 

implemented. Table 11 summarizes our recommendations and their 

implementation status.

Table 11: Status of Recommendations from Defense Inventory: Opportunities Exist to Improve the Management of DOD’s 

Acquisition Lead Times for Spare Parts 

Recommendation #1:

To improve the military components’ accuracy in setting acquisition 

lead time values, we recommend that the Secretary of Defense direct 

the Secretary of the Army to have the Commanding General, Army 

Materiel Command, direct the Aviation and Missile Life Cycle 

Management Command to establish clear guidelines for item 

managers to know when to review and how to determine whether 

deliveries should be considered representative and thus used to 

update lead times.

Status: Implemented

Related sub-plan of the Plan: Other inventory improvement 

actions

Comments: None

Recommendation #2:

To improve the military components’ accuracy in setting acquisition 

lead time values, we recommend that the Secretary of Defense direct 

the Secretary of the Army to have the Commanding General, Army 

Materiel Command, direct the Life Cycle Management Commands to 

reemphasize the importance of periodically reviewing and validating 

their recorded lead time data to detect and correct data input errors 

and other inaccurate information.

Status: Implemented

Related sub-plan of the Plan: Other inventory improvement 

actions

Comments: None

Recommendation #3:

To improve the military components’ accuracy in setting acquisition 

lead time values, we recommend that the Secretary of Defense direct 

the Secretary of the Army to have the Commanding General, Army 

Materiel Command, direct Communications-Electronics Life Cycle 

Management Command to maintain and update automated lead time 

data within its Logistics Modernization Program computer system. 

Status: Implemented

Related sub-plan of the Plan: Other inventory improvement 

actions

Comments: None

Defense Inventory: 

Opportunities Exist to 

Improve the Management 

of DOD’s Acquisition Lead 

Times for Spare Parts 

Recommendations for 

Executive Action
Appendix II: Implementation Status of Prior 

GAO Recommendations for DOD Inventory 

Management

Page 47 GAO-12-493 Defense Inventory

Recommendation #4:

To improve the military components’ accuracy in setting acquisition 

lead time values, we recommend that the Secretary of Defense direct 

the Director of DLA to have its supply centers review the methodology 

and inputs used to compute its lead time estimates and revise them to 

incorporate recent improvements in DLA actual lead times.

Status: Not implemented

Related sub-plan of the Plan: Other inventory improvement 

actions

Comments: None

Recommendation #5:

To improve the military components’ accuracy in setting acquisition 

lead time values, we recommend that the Secretary of Defense direct 

the Secretary of the Air Force to have the Commander, Air Force 

Materiel Command, direct its air logistics centers to use better sources 

of lead time information, such as supplier estimates, if available, rather 

than default values for items that have not been ordered in the last five 

years.

Status: Implemented

Related sub-plan of the Plan: Other inventory improvement 

actions

Comments: None

Recommendation #6:

To improve the military components’ accuracy in setting acquisition 

lead time values, we recommend that the Secretary of Defense direct 

the Secretary of the Navy to direct the Commander, Naval Inventory 

Control Point, to reemphasize the importance of having its inventory 

control points periodically review and validate their recorded lead time 

data to detect and correct data input errors or other inaccurate 

information.

Status: Implemented

Related sub-plan of the Plan: Other inventory improvement 

actions

Comments: None

Recommendation #7:

To strengthen DOD’s and the military components’ management of 

acquisition lead times, we recommend that the Secretary of Defense 

direct the Under Secretary of Defense for Acquisition, Technology, and 

Logistics to establish component lead time reduction goals over a 5-

year period from October 2007-2012.

Status: Not implemented

Related sub-plan of the Plan: Other inventory improvement 

actions

Comments: As part of the sub-plan focused on other 

inventory improvement actions, DOD is in the process of 

reviewing efforts for reducing acquisition lead time and 

developing a methodology to track and monitor acquisition 

lead time.

Recommendation #8:

To strengthen DOD’s and the military components’ management of 

acquisition lead times, we recommend that the Secretary of Defense 

direct the Under Secretary of Defense for Acquisition, Technology, and 

Logistics to develop metrics to measure components’ progress toward 

meeting lead time reduction goals and require the periodic reporting of 

these metrics.

Status: Implemented

Related sub-plan of the Plan: Other inventory improvement 

actions

Comments: None

Recommendation #9:

To strengthen DOD’s and the military components’ management of 

acquisition lead times, we recommend that the Secretary of Defense 

direct the Under Secretary of Defense for Acquisition, Technology, and 

Logistics to develop a general estimate of the financial impact of lead 

time reductions, and use that as a metric to help components weigh 

the importance of lead time reductions.

Status: Not implemented

Related sub-plan of the Plan: Other inventory improvement 

actions

Comments: As part of the sub-plan focused on other 

inventory improvement actions, DOD is in the process of 

developing a methodology to track and monitor acquisition 

lead time resulting in savings and cost avoidance.
Appendix II: Implementation Status of Prior 

GAO Recommendations for DOD Inventory 

Management

Page 48 GAO-12-493 Defense Inventory

Recommendation #10:

To strengthen DOD’s and the military components’ management of 

acquisition lead times, we recommend that the Secretary of Defense 

direct the Under Secretary of Defense for Acquisition, Technology, and 

Logistics to direct the components to collect data, establish metrics, 

and measure and report the impact of individual lead time reduction 

initiatives, to include the cost of each initiative and its estimated cost 

savings.

Status: Not implemented

Related sub-plan of the Plan: Other inventory improvement 

actions

Comments: None

Recommendation #11:

To strengthen DOD’s and the military components’ management of 

acquisition lead times, we recommend that the Secretary of Defense 

direct the Under Secretary of Defense for Acquisition, Technology, and 

Logistics to work closely with the Army and Navy to develop joint 

strategic relationships with suppliers that would be beneficial in 

reducing lead times.

Status: Not implemented

Related sub-plan of the Plan: Other inventory improvement 

actions

Comments: None

Source: GAO analysis.

In our report issued in 2006, we found some DOD inventory management 

centers had not followed DOD-wide policies and procedures for making 

contingency retention decisions. Some centers were not annually 

reviewing their contingency retention decisions potentially resulting in the 

retention of unneeded items. DOD had provided insufficient oversight of 

inventory retention management across the components and could not be 

certain that the components had the correct amount or type of items in 

contingency retention inventory. At the time of this 2006 report, DOD had 

also not made progress implementing our 2001 recommendations 

requiring the components to (1) establish milestones for reviewing their 

approaches for making economic retention inventory decisions, and (2) 

conduct annual reviews of these approaches, as required by DOD policy.

We made seven recommendations and all of the recommendations were 

implemented. Table 12 summarizes our recommendations and their 

implementation status.

Defense Inventory: Actions 

Needed to Improve 

Inventory Retention 

Management 

Recommendations for 

Executive Action
Appendix II: Implementation Status of Prior 

GAO Recommendations for DOD Inventory 

Management

Page 49 GAO-12-493 Defense Inventory

Table 12: Status of Recommendations from Defense Inventory: Actions Needed to Improve Inventory Retention Management 

Recommendation #1:

To ensure DOD inventory management centers properly assign codes to 

categorize the reasons to retain items in contingency retention inventory, 

the Secretary of Defense should direct the Under Secretary of Defense 

for Acquisition, Technology, and Logistics to direct the Secretary of the 

Army to instruct the Army Materiel Command to modify the Commodity 

Command Standard System so it will properly categorize the reasons for 

holding items in contingency retention inventory.

Status: Implemented

Related sub-plan of the Plan: Contingency retention 

stock

Comments: None

Recommendation #2:

To ensure DOD inventory management centers properly assign codes to 

categorize the reasons to retain items in contingency retention inventory, 

the Secretary of Defense should direct the Under Secretary of Defense 

for Acquisition, Technology, and Logistics to direct the Secretary of the Air 

Force to instruct the Air Force Materiel Command to correct the 

Application Programs, Indenture system’s deficiency to ensure it properly 

categorizes the reasons for holding items in contingency retention 

inventory.

Status: Implemented

Related sub-plan of the Plan: Contingency retention 

stock

Comments: None

Recommendation #3:

To ensure that the DOD inventory management centers retain 

contingency retention inventory that will meet current and future 

operational requirements, the Secretary of Defense should direct the 

Under Secretary of Defense for Acquisition, Technology, and Logistics to 

direct the Secretary of the Army to instruct the Army Materiel Command 

to require the Aviation and Missile Command to identify items that no 

longer support operational needs and determine whether the items need 

to be removed from the inventory. The Army Materiel Command should 

also determine whether its other two inventory commands, the 

Communications-Electronics Command and Tank-automotive and 

Armaments Command, are also holding obsolete items, and if so, direct 

those commands to determine whether the disposal of those items is 

warranted.

Status: Implemented

Related sub-plan of the Plan: Contingency retention 

stock

Comments: None

Recommendation #4:

To ensure that DOD inventory management centers conduct annual 

reviews of contingency retention inventory as required by DOD’s Supply 

Chain Materiel Management Regulation, the Secretary of Defense should 

direct the Under Secretary of Defense for Acquisition, Technology, and 

Logistics to direct the Director of DLA to require the Defense Supply 

Center Richmond to conduct annual reviews of contingency retention 

inventory. DLA should also determine whether its other two centers, the 

Defense Supply Center Columbus and the Defense Supply Center 

Philadelphia, are conducting annual reviews, and if not, direct them to 

conduct the reviews so they can ensure the reasons for retaining the 

contingency retention inventory are valid.

Status: Implemented

Related sub-plan of the Plan: Contingency retention 

stock

Comments: None
Appendix II: Implementation Status of Prior 

GAO Recommendations for DOD Inventory 

Management

Page 50 GAO-12-493 Defense Inventory

Recommendation #5:

To ensure that DOD inventory management centers conduct annual 

reviews of contingency retention inventory as required by DOD’s Supply 

Chain Materiel Management Regulation, the Secretary of Defense should 

direct the Under Secretary of Defense for Acquisition, Technology, and 

Logistics to direct the Secretary of the Navy to instruct the Naval 

Inventory Control Point Mechanicsburg to conduct annual reviews of 

contingency retention inventory. The Naval Inventory Control Point should 

also determine if its other organization, Naval Inventory Control Point 

Philadelphia, is conducting annual reviews and if not, direct the activity to 

conduct the reviews so it can ensure the reasons for retaining the 

contingency retention inventory are valid.

Status: Implemented

Related sub-plan of the Plan: Contingency retention 

stock

Comments: None

Recommendation #6:

To ensure that DOD inventory management centers conduct annual 

reviews of contingency retention inventory as required by DOD’s Supply 

Chain Materiel Management Regulation, the Secretary of Defense should 

direct the Under Secretary of Defense for Acquisition, Technology, and 

Logistics to direct the Secretary of the Army to instruct the Army Materiel 

Command to require the Aviation and Missile Command to conduct 

annual reviews of contingency retention inventory. The Army Materiel 

Command should also determine if its other two inventory commands, the 

Communications-Electronics Command and Tank-automotive and 

Armaments Command, are conducting annual reviews and if not, direct 

the commands to conduct the reviews so they can ensure the reasons for 

retaining the contingency retention inventory are valid.

Status: Implemented

Related sub-plan of the Plan: Contingency retention 

stock

Comments: None

Recommendation #7:

To ensure that DOD inventory management centers implement 

departmentwide policies and procedures for conducting annual reviews of 

contingency retention inventories, the Secretary of Defense should direct 

the Office of the Deputy Under Secretary of Defense for Logistics and 

Materiel Readiness to revise the DOD’s Supply Chain Materiel 

Management Regulation to make clear who is responsible for providing 

recurring oversight to ensure the inventory management centers conduct 

the annual reviews of contingency retention inventory.

Status: Implemented

Related sub-plan of the Plan: Contingency retention 

stock

Comments: None

Source: GAO analysis.
Appendix III: Printer-Friendly Version of Figure 

1 - Select DOD Categories of Secondary 

Inventory Items

Page 51 GAO-12-493 Defense Inventory

Figure 5: Selected DOD Categories of Secondary Inventory Items

Appendix III: Printer-Friendly Version of 

Figure 1 - Select DOD Categories of 

Secondary Inventory Items
Appendix IV: Demand Forecasting Sub-plan

Page 52 GAO-12-493 Defense Inventory

Objective: Improve the prediction of future demand so that inventory 

requirements more accurately reflect actual needs.1

Actions and milestones: The sub-plan includes 5 actions, which are 

supported by 12 milestones. See table 13 below for a description of the 

actions and milestones, the original expected completion date, the actual 

or planned completion date, and our assessment and comments.

Metrics: As part of the sub-plan, the Department of Defense (DOD) is in 

the process developing two metrics to measure forecasting bias accuracy 

and bias. The metrics are scheduled to be complete by the end of fiscal 

year 2012.

Progress to date: The Office of the Secretary of Defense (OSD), the 

services, and the Defense Logistics Agency (DLA) have made progress 

by (1) completing a review of demand forecasting methods for one of 

three life cycle phases—the initial provisioning—of a weapon system, and 

(2) developing metrics for forecasting error and bias, and are on-schedule 

to implement the metrics by September 2012. Additionally, OSD, the 

services, and DLA determined through an analysis of several years of 

supply data that supply support requests forecasts were not causing DLA 

to procure excess inventory, which demonstrated that risk-sharing 

between a service and DLA would not be effective. However, the analysis 

did identify issues with the supply support request process, which OSD, 

the services, and DLA are reviewing to identify improvements.

Key work remaining: Over the remaining years of implementation, DOD 

has a considerable amount of work remaining to improve demand 

forecasting. First, OSD, the services, and DLA need to review and 

analyze improved demand forecasting methods and techniques for the 

other two life cycle phases—sustainment and end-of-life—of a weapon 

system. Once improved demand forecasting methods and techniques are 

identified for all three life cycle phases, changes may need to be made to 

inventory management policy and practices. Second, work remains for 

DOD to implement the forecasting error and bias metrics. Third, OSD, the

services, and DLA are working to establish a departmentwide structure 

for collaborative forecasting. As part of this effort, the services and DLA 

 

1

Demand forecasting is predicting future customer demands so inventory managers can 

develop inventory requirements to satisfy demands when they occur. Inaccurate forecasts 

lead to either excess inventory or shortfalls.

Appendix IV: Demand Forecasting Sub-plan
Appendix IV: Demand Forecasting Sub-plan

Page 53 GAO-12-493 Defense Inventory

are in the process of validating their sales and operations planning 

processes and then will have to identify gaps and current constraints in 

existing processes, which may require changes in inventory management 

guidance and practices. Fourth, DOD is in the early stages of completing 

its plan to develop new approaches for setting inventory levels for lowdemand consumable items and will also need to address forecasting 

methods for low-demand. Lastly, OSD, the services, and DLA plan to 

work on improving the supply support request process to prevent 

unnecessary accumulation of excess inventory.

Table 13: Demand Forecasting Sub-plan Actions and Milestones, Completion Dates, and GAO Assessment and Comments as 

of January 1, 2012

Actions and milestones

Original 

expected 

completion date

Actual or 

planned 

completion date GAO assessment and comments

Action 1: Identify improved 

methods and techniques for 

demand forecasting that consider 

an item’s life cycle.

March 2013 October 2014 • Assessment: Started, on schedule.

• Comments: OSD, the services, and DLA expect to 

identify a forecasting process that captures best 

practices and minimizes systemic weaknesses 

throughout an item’s life cycle.

Milestone 1.1: Identify improved 

demand forecasting methods and 

techniques and complete the ongoing 

review for item introduction.

September 2010 September 2010 • Assessment: Completed.

• Comments: To identify improved demand 

forecasting methods and techniques, OSD 

commissioned the Logistics Management Institute 

to conduct an independent review of demand 

forecasting for the initial provisioning phase of a 

weapon system.

Milestone 1.2: Assess results and 

develop policy and implementation 

plans as required.

March 2011 March 2011 • Assessment: Completed.

• Comments: OSD, the services, and DLA 

assessed the results of the independent review 

and determined that for the initial provisioning life 

cycle phase there would be no changes required to 

guidance or business processes at this time. 

Changes may be made after completing a review 

of the other two life cycle phases—sustainment 

and end-of-life. 

Milestone 1.3: Identify improved 

demand forecasting methods and

techniques for remaining two item life 

cycles.

June 2012 January 2014 • Assessment: Started, completion delayed.

• Comments: To identify improved demand 

forecasting methods and techniques for the other 

two life cycle phases—sustainment and end-oflife—OSD is in the process of contracting with a 

third-party. The contracting process was delayed; 

therefore, the milestone is behind schedule.
Appendix IV: Demand Forecasting Sub-plan

Page 54 GAO-12-493 Defense Inventory

Actions and milestones

Original 

expected 

completion date

Actual or 

planned 

completion date GAO assessment and comments

Milestone 1.4: Evaluate results and 

develop policy guidance.

March 2013 October 2014 • Assessment: Not started, completion delayed.

• Comments: Since the contracting process was 

delayed for the studies on the other two life cycle 

phases—sustainment and end-of-life—this 

milestone will start later than expected.

Action 2: Implement standard 

metrics to assess forecasting 

accuracy and bias.

September 2012 December 2012 • Assessment: Started, on schedule.

• Comments: OSD, the services, and DLA have 

identified two departmentwide metrics—forecast 

error and forecast bias—and are developing 

business rules and determining the appropriate 

data elements to employ them.

Milestone 2.1: Identify 

departmentwide metrics on forecast 

accuracy and error that capture 

forecast bias.

September 2011 December 2012 • Assessment: Started, completion delayed.

• Comments: OSD, the services, and DLA have 

identified two departmentwide metrics—forecast 

error and forecast bias—and are developing 

business rules to employ them. OSD, the services, 

and DLA plan to test the data and implement the 

metrics by the end of September 2012.

Milestone 2.2: Establish processes 

within the services and DLA to 

produce measurements and set 

quantitative targets for improving 

demand forecasting accuracy and 

reducing bias.

September 2012 September 2012 • Assessment: Started, on schedule.

• Comments: OSD, the services, and DLA started 

this milestone in late 2011 and have developed 

some initial data elements that the services and 

DLA will need to collect to support the metrics.

Action 3: Expand and refine a 

departmentwide structure for 

collaborative forecasting.

December 2011 April 2013 • Assessment: Started, completion delayed.

• Comments: DLA has piloted an events database 

to improve collaborative forecasting and is working 

to improve the sales and operations planning 

process across the department.

Milestone 3.1: Pilot a collaborative 

process between service and DLA 

demand planners for distributing and 

using program and maintenance 

data.

September 2011 March 2012 • Assessment: Started, completion delayed.

• Comments: OSD, DLA, and the services have 

determined the events to be included in a 

forecasting pilot, but are behind schedule in 

populating the event database and analyzing the 

results. 

Milestone 3.2: Conduct a concept 

demonstration of a departmentwide, 

OSD led, sales and operations 

planning process to enhance the 

demand and supply planning process 

across the department.

December 2011 April 2013 • Assessment: Started, completion delayed.

• Comments: OSD, the services, and DLA are 

working to establish a departmentwide structure for 

collaborative forecasting. As part of this effort, the 

services and DLA are in the process of validating 

their sales and operations planning processes and 

then plan to identify gaps and current constraints in 

existing processes. 
Appendix IV: Demand Forecasting Sub-plan

Page 55 GAO-12-493 Defense Inventory

Actions and milestones

Original 

expected 

completion date

Actual or 

planned 

completion date GAO assessment and comments

Action 4: Implement approaches 

for improving setting inventory 

levels for low-demand items.

March 2012 February 2013 • Assessment: Started, completion delayed.

• Comments: OSD, the service, and DLA are 

working to more accurately set inventory levels for 

low-demand items.

Milestone 4.1: Complete 

implementation of alternative forecast 

methodologies (e.g., peak policy) for 

low-demand consumable items.

September 2011 October 2012 • Assessment: Started, completion delayed.

• Comments: OSD and DLA are collaborating to 

analyze the results of a simulation aimed at 

improving the forecastability of low-demand 

consumable items with the goal of identifying a 

more optimal forecasting strategy for these items. 

Milestone 4.2: Determine 

forecastability of low-demand items 

and how alternative forecast methods 

could be implemented for reparable 

items managed by each service.

March 2012 February 2013 • Assessment: Not started, completion delayed.

• Comments: None.

Action 5: Examine how investment 

risk for new consumable items can 

be reduced between DLA and the 

services and suppliers.

September 2011 September 2012 • Assessment: Started, completion delayed.

• Comments: OSD, the services, and DLA are 

focusing on improving the supply support request 

process based on information learned from the 

risk-sharing study.

Milestone 5.1: Execute a pilot 

program for potential provisioning risk 

sharing alternatives.

March 2011 March 2011 • Assessment: Completed.

• Comments: The Navy and DLA conducted an 

initial study, which found that risk-sharing between 

a service and DLA would not be needed.

Milestone 5.2: Evaluate results for 

potential wider application.

September 2011 September 2012 • Assessment: Started, completion delayed.

• Comments: The Navy and DLA expanded the 

study in milestone 5.1, which showed that there 

was no need for service-DLA risk-sharing because 

supply support requests forecasts were not 

causing DLA to procure excess inventory. Rather, 

OSD, the services, and DLA are focusing on 

improving the supply support request process.

Source: GAO analysis of the Plan and DOD’s periodic status briefings.
Appendix V: Total Asset Visibility and Multiechelon Modeling Sub-plan

Page 56 GAO-12-493 Defense Inventory

Objective: Minimize the size of purchases by considering all accessible 

inventories.

Actions and milestones: The sub-plan includes three actions, which are 

supported by 12 milestones. See table 14 for a description of the actions 

and milestones, the original expected completion date, the actual or 

planned completion date, and our assessment and comments.

Metrics: As part of the sub-plan, the Department of Defense (DOD) is 

tracking (1) the percentage of inventory dollars visible and accessible in 

an automated manner and (2) the total percentage of inventory dollars 

associated with items using multi-echelon modeling.1

Progress to date: The Office of the Secretary of Defense (OSD), the 

services, and the Defense Logistics Agency (DLA) have made progress 

by (1) determining that 95 percent of DOD’s inventory is accessible by 

automated means to the services and DLA, which exceeded the Plan’s 

goal of achieving automated accessibility to 90 percent of its inventory 

within 5 years and (2) increasing the in-storage visibility program, which 

allows services and DLA to obtain consumable items from another 

service or DLA. With respect to the in-storage visibility program, the Air 

Force for example had 145 sites participating in fiscal year 2010 and 

increased the number to 190 sites.

With respect to the 

first metric, DOD set a target of 90 percent of the total value of its 

secondary inventory being visible and accessible in an automated 

manner. With respect to the second metric, DOD set a target for using 

multi-echelon modeling on 90 percent of targeted inventories by the end 

of fiscal year 2015, up from 47 percent in fiscal year 2009.

Key work remaining: DOD set a target to use multi-echelon modeling on 

90 percent of targeted inventories by the end of fiscal year 2015, which 

may be challenging to achieve. OSD, the services, and DLA have 

identified that approximately 65 percent of DOD’s inventory, or $61 billion 

of DOD’s approximately $95 billion in inventory for fiscal year 2010, 

should be targeted for multi-echelon modeling. OSD, the services, and 

DLA are currently working to identify the portion of the targeted inventory 

 

1

Multi-echelon modeling is the use of mathematical models that compute the optimal 

number and type of parts needed at the wholesale and retail levels to achieve readiness 

and cost goals.

Appendix V: Total Asset Visibility and Multiechelon Modeling Sub-plan
Appendix V: Total Asset Visibility and Multiechelon Modeling Sub-plan

Page 57 GAO-12-493 Defense Inventory

that currently uses multi-echelon modeling in order to be able to develop 

efforts to accelerate its use within the department.

Table 14: Total Asset Visibility and Multi-Echelon Modeling Sub-plan Actions and Milestones, Completion Dates, and GAO 

Assessment and Comments as of January 1, 2012

Actions and milestones

Original 

expected 

completion date

Actual or 

planned 

completion date GAO assessment and comments

Action 1: Expand total asset 

visibility capabilities to improve 

access to targeted inventories.a

September 2014 August 2014 • Assessment: Started, on schedule.

• Comments: OSD, the services, and DLA plan on 

refining and defining business rules to increase 

inventory accessibility and determining ways to 

decrease redundant inventory across the services 

and DLA.

Milestone 1.1: Identify targeted 

inventories for improved accessibility.

June 2012 June 2012 • Assessment: Started, on schedule.

• Comments: The Army, Navy, and Air Force have 

increased the number of secondary inventory sites 

that participate in DLA’s in-storage visibility 

program. The Marine Corps was not participating, 

but is studying the possibility of participating.

Milestone 1.2: Fully implement 

recommendations related to 

expanding automated system 

capabilities to fill customer demands 

and offset inventory buys across the 

services and DLA.

September 2014 August 2014 • Assessment: Not started, on schedule.

• Comments: The services and DLA plan to submit 

their implementation plans for the recommended 

process improvements to improve automated 

accessibility.

Action 2: Accelerate existing and 

emerging multi-echelon 

improvement efforts.

September 2013 August 2013 • Assessment: Started, on schedule.

• Comments: None.

Milestone 2.1: OSD provides funding 

of approved fiscal year 2011 multiechelon projects.

March 2011 August 2011 • Assessment: Completed.

• Comments: Funding was delayed and projects 

were started late. The Navy, Air Force, Marine 

Corps, and DLA are conducting projects, but the 

Army is not conducting any projects. 

Milestone 2.2: Complete fiscal year 

2010 multi-echelon projects.

December 2011 January 2012 • Assessment: Started, completion delayed.

• Comments: Interim reports were provided to OSD 

by the services and DLA in July 2011, but as of 

January 1, 2012, the Army, Air Force, Marine 

Corps, and DLA had not provided their final 

reports.

Milestone 2.3: Services and DLA 

evaluate fiscal year 2010 multiechelon project results for potential 

departmentwide implementation.

June 2012 June 2012 • Assessment: Not started, on schedule.

• Comments: None.
Appendix V: Total Asset Visibility and Multiechelon Modeling Sub-plan

Page 58 GAO-12-493 Defense Inventory

Actions and milestones

Original 

expected 

completion date

Actual or 

planned 

completion date GAO assessment and comments

Milestone 2.4: Develop 

departmentwide processes, policies, 

and goals.

September 2013 August 2013 • Assessment: Not started, on schedule.

• Comments: OSD, the services, and DLA plan on 

using the results from the prior multi-echelon 

projects to improve departmentwide processes and 

policies.

Action 3: Expand automated 

system capabilities to fill customer 

demands and offset inventory 

buys across the services and DLA.

September 2013 September 2013 • Assessment: Started, on schedule.

• Comments: OSD, the services, and DLA are 

working to increase participation in the in-storage 

visibility program and are in the process of 

including the in-storage visibility program into the 

revision of DOD inventory management guidance.

Milestone 3.1: Establish measures of 

accessibility for the targeted 

inventories.

December 2011 August 2012 • Assessment: Started, completion delayed.

• Comments: OSD, the services, and DLA are 

monitoring the performance of the in-storage 

visibility program. The program conducted $73.8 

million in lateral redistributions and procurement 

offsets in fiscal year 2010 and $68.3 million in fiscal 

year 2011. Additionally, OSD, the services, and 

DLA have established a projection for fiscal year 

2012.

Milestone 3.2: Refine business and 

financial rules and system interfaces 

that would support an automated 

capability to fill backorders and offset 

procurements across the services 

and DLA.

December 2012 April 2013 • Assessment: Started, completion delayed.

• Comments: None.

Milestone 3.3: Examine expansion of 

automated recoupment capability of 

assets in disposal.

September 2011 January 2012 • Assessment: Completed.

• Comments: OSD, the services, and DLA have 

recommended that no further action be taken on 

this milestone because the services and DLA 

documented their existing recoupment capability 

and confirmed that these existing processes work 

in recouping assets in disposal.

Milestone 3.4: Implement results of 

examination of automated 

recoupment capability of assets in 

disposal.

September 2013 September 2013 • Assessment: Not started, on schedule.

• Comments: None.

Milestone 3.5: Expand the visibility of 

the retrograde pipeline.

September 2013 September 2013 • Assessment: Not started, on schedule.

• Comments: None.

Milestone 3.6: Ensure consistent 

approach to assess automated 

capability performance and/or 

develop metrics.

September 2013 September 2013 • Assessment: Not started, on schedule.

• Comments: None.

Source: GAO analysis of the Plan and DOD’s periodic status briefings.

a

Total asset visibility is the capability to provide all users with timely and accurate information about 

the location, movement, status, and identity of supplies and the capability to act on this information.
Appendix VI: On-order Excess Inventory Subplan

Page 59 GAO-12-493 Defense Inventory

Objective: Reduce or terminate purchases that result in inventory 

excesses due to a decrease in requirements.

Actions and milestones: The sub-plan includes two actions, which are 

supported by four milestones. See table 15 for a description of the actions 

and milestones, the original expected completion date, the actual or 

planned completion date, and our assessment and comments.

Metrics: As part of the sub-plan, the Department of Defense (DOD) is 

tracking (1) the percentage of on-order dollars above the approved 

acquisition objective, and (2) the total on-order dollars above the 

approved acquisition objective.1

Progress to date: The Office of Secretary of Defense (OSD), the services, 

and the Defense Logistics Agency (DLA) have made progress by 

reviewing existing on-order excess inventory guidance and working to 

make revisions to ensure consistency among the services and DLA. 

Additionally, the services and DLA are making improvements to their onorder excess inventory guidance and practices.2

Key work remaining: The actions and milestones in the sub-plan will be 

complete with the issuance of the inventory management guidance 

scheduled for September 2012. To achieve continued reductions in onorder excess inventory, the services, and DLA will need to continue 

monitoring their progress.

For example, the Navy 

Supply System Command has developed guidance for the management 

of its on-order excess inventory and DLA is in the process of making 

changes to its procedures for on-order excess management.

 

1

Inventory that is not in DOD’s possession but for which a contract has been awarded or 

funds have been obligated is considered to be on-order. 

2

On-order excess inventory are items for which a contract has been awarded or funds 

have been obligated, but due to subsequent changes in requirements would be classified 

as potential reutilization stock upon arrival.

Appendix VI: On-order Excess Inventory Subplan
Appendix VI: On-order Excess Inventory Subplan

Page 60 GAO-12-493 Defense Inventory

Table 15: On-Order Excess Inventory Sub-plan Actions and Milestones, Completion Dates, and GAO Assessment and 

Comments as of January 1, 2012

Actions and milestones

Original 

expected 

completion 

date 

Actual or planned 

completion date GAO assessment and comments

Action 1: Establish an 

economically optimal point in the 

procurement cycle to terminate an 

order, considering the different life 

cycle phases.

June 2011 September 2012 • Assessment: Started, completion delayed.

• Comments: This action is complete, except for 

publishing the guidance revisions, which is 

estimated to occur in September 2012 with the 

issuance of the new guidance. 

Milestone 1.1: Establish the optimal 

point for reviewing if a contract 

should be terminated.

March 2011 September 2012 • Assessment: Started, completion delayed.

• Comments: OSD, the services, and DLA reviewed 

existing review methodologies for termination and 

recommended revisions to current DOD guidance. 

Specifically, OSD, the services, and DLA 

established the factors that must be considered 

when reviewing a contract for termination. DOD is 

in the process of incorporating the revisions into 

guidance, which is expected to be published in 

September 2012, according to DOD officials.

Milestone 1.2: Implement 

departmentwide.

June 2011 September 2011 • Assessment: Completed.

• Comments: The services and DLA have been 

working to update their respective policies and 

procedures based on the draft guidance revisions. 

OSD determined that the Air Force did not need to 

update its policies and procedures, while others, 

such as DLA, are making improvements to their 

on-order excess inventory processes.

Action 2: Strengthen the approval 

and reporting procedures for onorder excess inventory.

March 2011 September 2012 • Assessment: Started, completion delayed.

• Comments: This action is complete, except for 

publishing the guidance revision, which is 

estimated to occur in September 2012 with the 

issuance of the new guidance.

Milestone 2.1: Establish the required 

level of authority to retain materiel onorder in excess of the approved 

acquisition objective.

March 2011 September 2012 • Assessment: Started, completion delayed.

• Comments: OSD, the services, and DLA reviewed 

existing levels of authority to retain materiel onorder in excess of the approved acquisition 

objective and recommended some revisions to 

current DOD guidance. Specifically, OSD, the 

services, and DLA have agreed on a consistent 

approach for reviewing on-order excess and 

termination decisions. DOD is in the process of 

incorporating the revisions into guidance, which is 

expected to be published in September 2012, 

according to DOD officials.
Appendix VI: On-order Excess Inventory Subplan

Page 61 GAO-12-493 Defense Inventory

Actions and milestones

Original 

expected 

completion 

date 

Actual or planned 

completion date GAO assessment and comments

Milestone 2.2: Ensure consistent 

approach to assess performance 

and/or develop metrics.

March 2011 February 2011 • Assessment: Completed.

• Comments: OSD, the services, and DLA reviewed 

current metrics used in assessing performance and 

decided that the most appropriate metrics are the 

percentage of on-order dollars above the approved 

acquisition objective and the total on-order dollars 

above the approved acquisition objective.

Source: GAO analysis of the Plan and DOD’s periodic status briefings.
Appendix VII: Economic Retention Stock Subplan

Page 62 GAO-12-493 Defense Inventory

Objective: Ensure economic retention decisions are based on current cost 

factors and economic principles.1

Actions and milestones: The sub-plan includes three actions, which are 

supported by seven milestones. See table 16 for a description of the 

actions and milestones, the original expected completion date, the actual 

or planned completion date, and our assessment and comments.

Metrics: As part of the sub-plan, the Department of Defense (DOD) is 

tracking (1) the percentage of inventory dollars representing economic 

retention stock and (2) the percentage of inventory dollars representing 

economic retention stock by service and the Defense Logistics Agency 

(DLA).

Progress to date: The Office of the Secretary of Defense (OSD), the 

services, and DLA have made progress by (1) developing metrics to 

assess the status of economic retention stock, (2) documenting the 

services’ and DLA’s current methods for calculating economic retention 

stock against current DOD inventory management policy, and (3) 

conducting the first annual review of economic retention stock.

Key work remaining: OSD, the services and DLA are in the process of 

identifying enhancements to the methodology used in determining the 

allowable amount of economic retention stock for an item and may have 

to revise DOD inventory management guidance.

 

1

Economic retention stock is materiel that has been deemed more economical to keep 

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

Appendix VII: Economic Retention Stock 

Sub-plan
Appendix VII: Economic Retention Stock Subplan

Page 63 GAO-12-493 Defense Inventory

Table 16: Economic Retention Stock Sub-plan Actions and Milestones, Completion Dates, and GAO Assessment and 

Comments as of January 1, 2012

Actions and milestones

Original 

expected 

completion 

date 

Actual or 

planned 

completion 

date GAO assessment and comments

Action 1: Review and validate 

current economic retention 

methods. 

March 2012 March 2012 • Assessment: Started, on schedule.

• Comments: OSD, the services, and DLA are in the 

process of reviewing economic retention methods 

and are unsure if any guidance changes will be 

necessary.

Milestone 1.1: Assess current 

methods against policy for computing 

economic retention.

March 2011 March 2011 • Assessment: Completed.

• Comments: OSD, the services, and DLA reviewed 

the current economic retention methods and 

identified the variances in methods that need to be 

addressed by process improvements.

Milestone 1.2: Make 

recommendations for process 

improvements to services’ systems.

March 2012 March 2012 • Assessment: Started, on schedule.

• Comments: OSD, the services, and DLA are working 

collaboratively to test enhancements to economic 

retention models in conjunction with action 2.

Action 2: Review and evaluate 

enhancements to current 

economic retention methods.

December 2012 December 2012 • Assessment: Started, on schedule.

• Comments: None.

Milestone 2.1: Identify enhancements 

to the economic basis for retention.

December 2011 March 2012 • Assessment: Started, completion delayed.

• Comments: OSD, the services, and DLA are 

validating factors and testing enhancements to the 

economic retention models that the services and DLA 

are using. Due to the complexity of the issue and 

personnel availability, the milestone is delayed.

Milestone 2.2: Implement the 

enhancements and incorporate in 

policy as required.

December 2012 December 2012 • Assessment: Not started, on schedule.

• Comments: None.

Milestone 2.3: Ensure consistent 

approach to assess performance 

and/or develop metrics.

December 2012 December 2012 • Assessment: Started, on schedule.

• Comments: OSD, the services, and DLA plan on 

using (1) the percentage of inventory dollars 

representing economic retention stock and (2) the 

percentage of inventory dollars representing 

economic retention stock by service and DLA as the 

metrics to track economic retention stock.
Appendix VII: Economic Retention Stock Subplan

Page 64 GAO-12-493 Defense Inventory

Actions and milestones

Original 

expected 

completion 

date 

Actual or 

planned 

completion 

date GAO assessment and comments

Action 3: Ensure annual reviews of 

the services’ and DLA’s economic 

retention procedures.

June 2013 June 2013 • Assessment: Started, on schedule.

• Comments: The first annual review of economic 

retention stock was conducted.

Milestone 3.1: Conduct first annual 

review of the top items driving fiscal 

year 2010 economic retention to 

examine the sources of economic 

retention stocks and identify 

continuous improvement in economic 

retention procedures.

June 2011 June 2011 • Assessment: Completed.

• Comments: No systemic problems were found 

based on the first annual review of top items driving 

economic retention levels, according to OSD officials.

Milestone 3.2: Conduct first triennial 

validation of cost and demand factors 

for economic retention.

June 2013 June 2013 • Assessment: Not started, on schedule.

• Comments: None.

Source: GAO analysis of the Plan and DOD’s periodic status briefings.
Appendix VIII: Contingency Retention Stock 

Sub-plan

Page 65 GAO-12-493 Defense Inventory

Objective: Ensure the services and the Defense Logistics Agency (DLA) 

justify the retention of contingency stock.1

Actions and milestones: The sub-plan includes three actions, which are 

supported by eight milestones. One action was canceled. See table 17 for 

a description of the actions and milestones, the original expected 

completion date, the actual or planned completion date, and our 

assessment and comments.

Metrics: As part of the sub-plan, the Department of Defense (DOD) is 

tracking (1) the percentage of inventory dollars representing contingency 

retention stock, and (2) the dollar value of contingency retention stock 

divided into six justification categories.

Progress to date: The Office of the Secretary of Defense (OSD), the 

services, and DLA have made progress by (1) completing an independent 

review of contingency retention stock, (2) assessing the results of the 

independent review and making changes to existing practices, such as 

the coding of contingency retention stock to more precisely and 

consistently classify the stock, and (3) agreeing that all items held as 

contingency retention stock will be annually reviewed and validated.

Key work remaining: OSD, the services, and DLA are incorporating 

changes to inventory management guidance for contingency retention 

stock, such as requiring all items held as contingency retention stock be 

reviewed and validated annually. Additionally, OSD, the services and DLA 

are also in the process of developing procedures for the documentation 

and review and approval of contingency retention stock decisions.

 

1

Contingency retention stock is materiel that is retained to support specific contingencies, 

such as to support foreign military sales, future military operations, disaster relief or civil 

emergencies, or to mitigate risk associated with diminished manufacturing sources or 

nonprocurable stock.

Appendix VIII: Contingency Retention Stock 

Sub-plan
Appendix VIII: Contingency Retention Stock 

Sub-plan

Page 66 GAO-12-493 Defense Inventory

Table 17: Contingency Retention Stock Sub-plan Actions and Milestones, Completion Dates, and GAO Assessment and 

Comments as of January 1, 2012

Actions and milestones

Original 

expected 

completion date

Actual or 

planned 

completion date GAO assessment and comments

Action 1: Complete an independent 

review that examines the services’ 

and DLA’s processes and develop 

a more effective categorization of 

inventory designated as 

contingency retention, as directed 

by Congress.

September 2011 March 2012 • Assessment: Started, on schedule.

• Comments: OSD, the services, and DLA have 

conducted an independent review of contingency 

retention stock and have agreed to classify 

contingency retention stock with new category 

codes.

Milestone 1.1: Complete independent 

review.

March 2011 March 2011 • Assessment: Completed.

• Comments: To identify improved methods and 

techniques for retaining contingency stock, OSD 

commissioned the Logistics Management Institute 

to conduct an independent review, which was 

completed in March 2011.

Milestone 1.2: Assess results, make 

necessary policy changes relative to 

the categorization of contingency 

retention stock, and implement those 

changes.

September 2011 March 2012 • Assessment: Started, completion delayed.

• Comments: OSD, the services, and DLA 

assessed the results of the independent review 

and determined some changes needed to be made 

to the coding of contingency retention stock to 

more precisely and consistently classify the stock. 

OSD, the services, and DLA have drafted guidance 

changes, but these are not finalized.

Action 2: Ensure annual reviews of 

service and DLA contingency 

retention stock.

September 2011 August 2011 • Assessment: Completed.

• Comments: OSD, the services, and DLA have 

agreed to review and validate all contingency 

retention stock annually using a consistent 

approach.

Milestone 2.1: Complete the fiscal 

year 2010 annual review of the top 

dollar value and cube of items driving 

contingency retention stock to 

examine the sources of contingency 

retention stock and scrutinize 

continuing justifications.

March 2011 March 2011 • Assessment: Completed.

• Comments: The services and DLA identified their 

top 25 items of contingency retention stock and 

then analyzed the reasons that generated the 

contingency retention stock for those items.

Milestone 2.2: Revise criteria for 

timely contingency retention stock 

reviews, based upon the independent 

review.

June 2011 June 2011 • Assessment: Completed.

• Comments: OSD, the services, and DLA reviewed 

various criteria for contingency retention stock 

reviews focusing on requiring senior managers to 

use a consistent approach in approving and 

justifying contingency retention stock.
Appendix VIII: Contingency Retention Stock 

Sub-plan

Page 67 GAO-12-493 Defense Inventory

Actions and milestones

Original 

expected 

completion date

Actual or 

planned 

completion date GAO assessment and comments

Milestone 2.3: Refine targets for 

contingency retention.

September 2011 August 2011 • Assessment: Completed.

• Comments: OSD, the services, and DLA agreed 

that all items held as contingency retention stock 

will be reviewed and validated annually. This 

requirement is currently being incorporated into 

guidance.

Action 3: Consistent approach for 

approval of decisions to retain 

contingency retention stock.

March 2012 September 2012 • Assessment: Started, on schedule.

• Comments: OSD, the services, and DLA are 

developing standardized procedures for 

documenting and reviewing and approving 

contingency retention stock decisions.

Milestone 3.1: Develop and publish 

procedures for inventory manager 

documentation of contingency 

retention stock decisions.

December 2011 September 2012 • Assessment: Started, completion delayed.

• Comments: Based on the assessment of 

independent review of contingency retention stock, 

OSD, the services, and DLA are developing 

procedures governing the documentation of 

contingency retention decisions.

Milestone 3.2: Establish criteria and 

steps to obtain and record senior 

management approval of contingency 

retention stock decisions.

December 2011 September 2012 • Assessment: Started, completion delayed.

• Comments: Based on the independent review of 

contingency retention stock, OSD, the services, 

and DLA are developing procedures for the review 

and approval of contingency retention stock 

decisions.

Milestone 3.3: Implement this 

approval process across the services 

and DLA.

March 2012 March 2012 • Assessment: Started, on schedule.

• Comments: None.

Action 4: Establish 

departmentwide metric to monitor 

sales against contingency 

retention stock.

Canceled Canceled • Assessment: Canceled.

• Comments: According to DOD officials, the metric 

considered for monitoring sales against 

contingency retention stock could not be 

established because the inventory management 

systems capture the sales of items against the 

approved acquisition objective rather than against 

retention stock. This prevents DOD from being able 

to track sales against contingency retention stock.

Source: GAO analysis of the Plan and DOD’s periodic status briefings.
Appendix IX: Storage and Direct Vendor 

Delivery Sub-plan

Page 68 GAO-12-493 Defense Inventory

Objective: Use commercial vendors to store items when use of those 

vendors represents the best value to the government.

Actions and milestones: The sub-plan includes four actions, which are 

supported by nine milestones. See table 18 for a description of the 

actions and milestones, the original expected completion date, the actual 

or planned completion date, and our assessment and comments.

Metrics: As part of the sub-plan, the Office of the Secretary of Defense 

(OSD), the services, and the Defense Logistics Agency (DLA) set out to 

develop a standard departmentwide metric to monitor storage reduction, 

but in the course of the analysis decided that a metric would not be 

necessary. Additionally, the Department of Defense (DOD) tracks the 

total storage footprint and total storage costs across the department at 

distribution depots. Also, DOD was tracking certain reductions of storage 

space related to the 2005 Base Realignment and Closure Act round. As 

part of its implementation of the Base Realignment and Closure Act 

round, DOD planned to reduce storage space by 15.1 million gross 

square feet and exceeded the planned amount by 0.3 million gross 

square feet.

Progress to date: OSD, the services, and DLA have made progress by (1) 

examining high storage items for the potential of direct vendor delivery 

management resulting in few potential candidates for direct vendor 

delivery and determining that future reviews were not needed and existing 

guidance was sufficient, (2) reviewing existing factors used in business 

case analyses for the selection of alternative sourcing strategies, such as 

direct vendor delivery, and determining that storage space is used as a 

factor by the Army, Navy, Air Force, and DLA, and (3) reviewing 

departmentwide policies and procedures on shifting items to alternative 

sourcing strategies and determining to update DOD inventory 

management guidance to ensure that any inventory owned by DOD will 

be used prior to procuring additional inventory through an alternative 

sourcing strategy.1

 

1

Direct vendor delivery is a materiel acquisition and distribution method that requires 

supplier delivery directly to the customer, which can reduce the storage of items by the 

services and DLA.

OSD officials told us that they believe DOD’s efforts 

have sufficiently addressed storage and direct vendor delivery. According 

to the Deputy Assistant Secretary of Defense for Supply Chain 

Management, DOD will continue to pursue storage consolidation and 

Appendix IX: Storage and Direct Vendor 

Delivery Sub-plan
Appendix IX: Storage and Direct Vendor 

Delivery Sub-plan

Page 69 GAO-12-493 Defense Inventory

optimization through a separate initiative outside the implementation of 

the Plan. 

Key work remaining: OSD, the services, and DLA still need to update 

inventory management guidance to ensure storage cost is considered as 

a factor in business case analyses for alternative sourcing strategies and 

existing on-hand inventory is used prior to procuring inventory through an 

alternative sourcing strategy.

Table 18: Storage and Direct Vendor Delivery Sub-plan Actions and Milestones, Completion Dates, and GAO Assessment and 

Comments as of January 1, 2012

Actions and milestones

Original 

expected 

completion 

date 

Actual or 

planned 

completion

date GAO assessment and comments

Action 1: Examine items with high 

storage requirements for potential 

management as direct vendor 

delivery.

June 2011 June 2011 • Assessment: Completed.

• Comment: OSD, the services, and DLA examined 

high storage items for the potential of direct vendor 

delivery management, and determined that future 

reviews were not needed and existing guidance was 

sufficient.

Milestone 1.1: Initial identification of 

top 25 items for each service and 

DLA.

November 

2010a November 

2010a

• Assessment: Completed.

• Comment: None.

Milestone 1.2: Evaluation of their 

potential for direct vendor delivery 

contracts.

June 2011 June 2011 • Assessment: Completed.

• Comment: OSD, the services, and DLA reviewed the 

items’ potential for direct vendor delivery contract; 

however, few items that reviewed were appropriate 

candidates for direct vendor delivery, according to the 

services and DLA.

Milestone 1.3: Establishment of a 

process for doing periodic high 

storage direct vendor delivery 

reviews.

June 2011 June 2011 • Assessment: Completed.

• Comment: Based on the review of items, OSD, the 

services, and DLA determined that future reviews of 

top high storage items are not needed and existing 

DOD guidance is sufficient.
Appendix IX: Storage and Direct Vendor 

Delivery Sub-plan

Page 70 GAO-12-493 Defense Inventory

Actions and milestones

Original 

expected 

completion 

date 

Actual or 

planned 

completion

date GAO assessment and comments

Action 2: Track reduction of depot 

storage space that can be 

attributed to alternative sourcing 

strategies (direct vendor delivery, 

performance-based logistics, etc.).

December 2011 December 2011 • Assessment: Completed.

• Comment: OSD, the services, and DLA decided that 

storage reduction efforts would be implemented 

through a separate DOD initiative to reduce materiel 

distribution costs and optimize warehouse storage 

space.

Milestone 2.1: Establishment of a 

data collection capability for tracking 

space reduction in depot storage 

attributed to alternative contract 

sources.

September 2011 September 2011 • Assessment: Completed.

• Comment: DLA presented its procedures for tracking 

space reduction attributable to alternative source 

contracts, but OSD, the services, and DLA decided 

that storage reduction efforts would be implemented 

through a separate DOD initiative to reduce materiel 

distribution costs and optimize warehouse storage 

space.

Milestone 2.2: Identify standard 

departmentwide metric to monitor 

storage reduction.

December 2011 December 2011 • Assessment: Completed.

• Comment: OSD, the services, and DLA decided that 

establishing a departmentwide metric to monitor 

storage reduction was not prudent at this time and 

that storage reduction efforts would be implemented 

through a separate DOD initiative to reduce materiel

distribution costs and optimize warehouse storage 

space.

Action 3: Identify methodology and 

criteria for including depot storage 

space as a cost factor in the 

business case analyses for 

selection of alternative sourcing 

strategies (direct vendor delivery, 

performance-based logistics, etc.).

December 2011 September 

2012

• Assessment: Started, completion delayed.

• Comment: The Army, Navy, Air Force, and DLA 

include storage space as a factor in business case 

analyses for the selection of alternative sourcing 

strategies. OSD, the services, and DLA are in the 

process of developing revised guidance, which is 

estimated to be published in September 2012.

Milestone 3.1: Identify applicable 

business case analysis methodology 

and criteria for assessment of depot 

storage space as an element of 

business case analysis decisions for 

selecting materiel support providers.

September 2011 September 2011 • Assessment: Completed.

• Comment: The services and DLA presented their 

existing business case analysis procedures for 

selecting materiel support providers. The Army, Navy, 

Air Force, and DLA include storage cost as a variable 

in each of their procedures.

Milestone 3.2: Document the 

applicable methodology and criteria in 

appropriate DOD policy issuances.

December 2011 September 2012 • Assessment: Started, completion delayed.

• Comment: DOD is working on updating its guidance, 

which is estimated to be published in September 

2012.
Appendix IX: Storage and Direct Vendor 

Delivery Sub-plan

Page 71 GAO-12-493 Defense Inventory

Actions and milestones

Original 

expected 

completion 

date 

Actual or 

planned 

completion

date GAO assessment and comments

Action 4: Review departmentwide 

policies and procedures on 

shifting items to direct vendor 

delivery arrangements to ensure 

that they do not cause excess 

inventories to be acquired.

March 2012 March 2012 • Assessment: Started, on schedule.

• Comment: This action is complete, except for 

publishing the guidance revisions.

Milestone 4.1: Review DOD, service, 

and DLA policies and procedures for 

shifting items to direct vendor delivery 

arrangements.

March 2011 March 2011 • Assessment: Completed.

• Comment: OSD, the services, and DLA reviewed 

existing policies and procedures.

Milestone 4.2: Revise policies and 

procedures that might cause 

inventory excesses.

March 2012 March 2012 • Assessment: Started, on schedule.

• Comment: Based on the review, OSD, the services, 

and DLA collaboratively proposed revised guidance 

language.

Source: GAO analysis of the Plan and DOD’s periodic status briefings.

a

This milestone was completed prior to the release of the Plan and reported as complete in the Plan. 
Appendix X: Items with No Demand Sub-plan

Page 72 GAO-12-493 Defense Inventory

Objective: Eliminate items with a history of no recurring demand and a 

low probability of future demand, unless there is sufficient justification for 

the retention of the item.1

Actions and milestones: The sub-plan includes two actions, which are 

each supported by seven milestones. See table 19 for a description of the 

actions and milestones, the original expected completion date, the actual 

or planned completion date, and our assessment and comments.

Metrics: As part of the sub-plan, the Department of Defense (DOD) is 

tracking (1) inventory value by number of years of no demand, (2) value 

of inventory with 5 or more years of no demand by the category of 

inventory, and (3) the value of no demand stock retained and disposed.

Progress to date: The Office of the Secretary of Defense (OSD), the 

services, and the Defense Logistics Agency (DLA) have made progress 

by (1) identifying and tracking key metrics for items with no demand and 

(2) establishing rules and procedures for managing items with no 

demand.

Key work remaining: OSD, the services, and DLA are in the process of 

drafting guidance for items with no demand and identifying the processes 

to ensure items with no demand are reviewed each year and valid 

justification is provided for the retention of the item.

 

1

Items with no recurring demand have not been needed over a specified period. Although 

the services and DLA time periods vary, the Plan intends to implement a DOD-wide 

standard of greater than 5 years. 

Appendix X: Items with No Demand Sub-plan
Appendix X: Items with No Demand Sub-plan

Page 73 GAO-12-493 Defense Inventory

Table 19: Items with No Demand Sub-plan Actions and Milestones, Completion Dates, and GAO Assessment and Comments 

as of January 1, 2012

Actions and milestones

Original expected 

completion date

Actual or 

planned 

completion date GAO assessment and comments

Action 1: Examine service and DLA 

definitions, methodologies, and 

rationale for retaining or disposing 

of items with no recurring demand, 

and the potential applicability of a 

life cycle approach.

December 2012 December 2012 • Assessment: Started, on schedule.

• Comments: OSD, the services, and DLA are 

working to improve inventory management 

practices for items with no recurring demand.

Milestone 1.1: Complete the 

development of metrics for 

categorizing and tracking inventory 

for no demand items.

September 2011 February 2011 • Assessment: Completed.

• Comments: Three enterprise-level metrics were 

identified: (1) inventory value by number of years 

of no demand, (2) value of inventory with five or 

more years of no demand by the category of 

inventory, and (3) the value of no demand stock 

retained and disposed.

Milestone 1.2: Review rules and 

identify best practices for stocking 

and disposing of items with no 

demand.

September 2011 October 2011 • Assessment: Completed.

• Comments: A taxonomy of rules and practices 

was compiled for stocking and disposing of items 

with no demand.

Milestone 1.3: Revise policy for 

stocking and disposing of items with 

no demand.

December 2012 December 2012 • Assessment: Started, on schedule.

• Comments: None.

Milestone 1.4: Implement 

improvements within the services and 

DLA.

December 2012 December 2012 • Assessment: Started, on schedule.

• Comments: None.
Appendix X: Items with No Demand Sub-plan

Page 74 GAO-12-493 Defense Inventory

Actions and milestones

Original expected 

completion date

Actual or 

planned 

completion date GAO assessment and comments

Action 2: Develop an annual review 

and reporting process for no 

demand items, based on dollar 

thresholds.

September 2011 September 2012 • Assessment: Started, completion delayed.

• Comments: None.

Milestone 2.1: Establish plan for no 

demand item metrics.

March 2011 March 2011 • Assessment: Completed.

• Comments: The services and DLA have 

established implementation plans for the metrics 

for items with no demand.

Milestone 2.2: Establish a service 

and DLA process for conducting 

annual reviews of no demand items 

including metrics that measure the 

disposition of items reviewed and 

required level of authority.

September 2011 December 2011 • Assessment: Completed.

• Comments: OSD, the services, and DLA 

established a set of rules for reviewing no 

demand items and the frequency of review is 

based on the inventory category.

Milestone 2.3: Establish a process for 

annually reviewing the services’ and 

DLA’s top no demand items based on 

dollar value at the DOD level to 

ensure that the rules for stocking and 

disposing of no demand items are 

adequate.

September 2011 September 2012 • Assessment: Started, completion delayed.

• Comments: OSD, the services, and DLA 

continue to work on developing the appropriate 

review process for no demand items and plan on 

incorporating it into guidance by September 2012.

Source: GAO analysis of the Plan and DOD’s periodic status briefings.
Appendix XI: Disposition of Potential 

Reutilization Stock Sub-plan

Page 75 GAO-12-493 Defense Inventory

Objective: Ensure timely disposition of items categorized as potential 

reutilization stock.1

Actions and milestones: The sub-plan includes three actions, which are 

supported by seven milestones. See table 20 for a description of the 

actions and milestones, the original expected completion date, the actual 

or planned completion date, and our assessment and comments.

Metrics: As part of the sub-plan, the Department of Defense (DOD) has 

identified three departmentwide metrics: (1) the total dollar value of 

disposals for repairable and consumable items, (2) the portion of disposal 

dollars that are associated with condemned or unserviceable assets, (3) 

the percentage of items (and their associated dollar value) reviewed and 

released to disposal by inventory managers.

Progress to date: The Office of the Secretary of Defense (OSD), the 

services, and the Defense Logistics Agency (DLA) have made progress 

by (1) identifying three departmentwide metrics to track potential 

reutilization stock, and (2) changing time standards for reviewing potential 

reutilization stock from 12 months to 3 months and disposing of potential 

reutilization stock from 6 months to 1 month.

Key work remaining: OSD, the services, and DLA still need to incorporate 

the time standards for the review and disposal of potential reutilization 

stock into guidance, assess pre-screening procedures for items identified 

for disposal, and identify a best practice for the department. In addition, 

OSD, the services and DLA need to identify and develop standardized 

metrics to measure the time to conduct potential reutilization stock 

reviews and disposal actions.

 

1

Potential reutilization stock is materiel that exceeds the approved acquisition objective, is 

not being retained as economic or contingency retention stock, and has been identified for 

possible disposal but has potential for reutilization. Potential reutilization stock is also 

referred to as on-hand excess inventory.

Appendix XI: Disposition of Potential 

Reutilization Stock Sub-plan
Appendix XI: Disposition of Potential 

Reutilization Stock Sub-plan

Page 76 GAO-12-493 Defense Inventory

Table 20: Potential Reutilization Stock Sub-plan Actions and Milestones, Completion Dates, and GAO Assessment and 

Comments as of January 1, 2012

Actions and milestones

Original 

expected 

completion 

date 

Actual or 

planned 

completion 

date GAO assessment and comments

Action 1: Review and validate the 

service and DLA methodologies 

and frequency for the timely review 

of potential reutilization stock 

assets and timely execution of 

disposal releases.

December 2012 December 2012 • Assessment: Started, on schedule.

• Comments: OSD, the services, and DLA have 

agreed on new time standards for reviewing and 

disposing of potential reutilization stock and are in the 

process of incorporating these standards into 

guidance.

Milestone 1.1: Evaluate the 

timeliness and effectiveness of 

current disposal processes.

September 2011 August 2011 • Assessment: Completed.

• Comments: OSD, the services, and DLA have 

decided that the time standards will change from 12 

months to 3 months for reviewing potential 

reutilization stock and 6 months to 1 month for 

disposing of potential reutilization stock.

Milestone 1.2: Revise policy guidance 

as required.

June 2012 June 2012 • Assessment: Started, on schedule.

• Comments: OSD is finalizing the revisions to the 

guidance, which are estimated to be published in 

September 2012.

Milestone 1.3: Incorporate revised 

guidance in service and DLA 

processes for potential reutilization 

stock reviews and execution of 

disposal releases.

December 2012 December 2012 • Assessment: Not started, on schedule.

• Comments: None.

Action 2: Establish a process for 

the services and DLA to prescreen retail materiel returns for 

disposal prior to returns being 

shipped to a distribution depot.

March 2012 March 2012 • Assessment: Started, on schedule.

• Comments: OSD, the services, and DLA are in the 

process of reviewing existing pre-screening 

processes.

Milestone 2.1: Examine potential prescreening alternatives to expedite 

disposal actions on excess returns.

December 2011 December 2011 • Assessment: Started, completion delayed.

• Comments: Some of the services and DLA have 

presented disposal pre-screening procedures they 

employ prior to returning material to a distribution 

depot, but OSD, the services, and DLA have not yet 

assessed the results. This milestone was not 

complete as of December 2011, the planned 

completion date.

Milestone 2.2: Select and implement 

best alternative departmentwide.

March 2012 March 2012 • Assessment: Not started, on schedule.

• Comments: None.
Appendix XI: Disposition of Potential 

Reutilization Stock Sub-plan

Page 77 GAO-12-493 Defense Inventory

Actions and milestones

Original 

expected 

completion 

date 

Actual or 

planned 

completion 

date GAO assessment and comments

Action 3: Develop new reporting 

requirements on inventory being 

reviewed and disposed of as a 

means of evaluating the 

disposition process.

March 2012 March 2012 • Assessment: Started, on schedule.

• Comments: OSD, the services, and DLA have 

identified three departmentwide metrics and are in 

the process of identifying and developing additional 

metrics to measure the time to conduct potential 

reutilization stock reviews and disposal actions.

Milestone 3.1: Develop new reporting 

requirements on inventory being 

disposed of as a means of evaluating 

the disposal process.

March 2012 March 2012 • Assessment: Started, on schedule.

• Comments: OSD, the services, and DLA have 

identified three departmentwide metrics for potential 

reutilization stock: (1) the total dollar value of 

disposals for repairable and consumable items, (2) 

the portion of disposal dollars that are associated with 

condemned or unserviceable assets, (3) the 

percentage of items (and their associated dollar 

value) reviewed and released to disposal by inventory 

managers. OSD, the services, and DLA continue to 

work on identifying and developing metrics for the 

time to conduct potential reutilization stock reviews 

and time to move the materiel to disposal.

Milestone 3.2: Ensure consistent 

approach to assess performance 

and/or develop metrics.

March 2012 March 2012 • Assessment: Started, on schedule.

• Comments: As noted above in milestone 3.1, OSD, 

the services, and DLA have identified three 

departmentwide metrics for potential reutilization and 

are currently working on identifying and developing 

standardized metrics to measure the time to conduct 

potential reutilization stock reviews and disposal 

actions.

Source: GAO analysis of the Plan and DOD’s periodic status briefings.
Appendix XII: Other Inventory Improvement 

Actions Sub-plan

Page 78 GAO-12-493 Defense Inventory

Objective: To accomplish several cross-functional improvements, 

including revising current inventory categories to better reflect the 

rationale behind retaining the inventory, improving acquisition lead times, 

and establishing departmentwide metrics for inventory management.

Actions and milestones: The sub-plan includes 4 actions, which are 

supported by a total of 16 milestones. See table 21 for a description of the 

actions and milestones, the original expected completion date, the actual 

or planned completion date, and our assessment and comments.

Metrics: As part of the sub-plan, the Department of Defense (DOD) is 

tracking (1) the percentage of the total value of inventory that is on-hand 

excess inventory,1 and (2) a metric to evaluate the improvement of 

acquisition lead time,2

Progress to date: The Office of the Secretary of Defense (OSD), the 

services, and the Defense Logistics Agency (DLA) have made progress 

by reviewing existing categories of inventory (i.e., the approved 

acquisition objective, economic retention stock, contingency retention 

stock, and potential reutilization stock) and developing tentative subcategories that provide further clarification on the make-up of each 

category. Additionally, OSD, the services, and DLA have begun the 

process of developing departmentwide metrics to evaluate inventory 

management.

which is currently under development.

Key work remaining: Over the next several years, OSD, the services, and 

DLA plan on revising inventory management guidance to reflect newly 

developed sub-categories of inventory established, work on improving 

acquisition lead times, and monitor potential changes necessary to 

inventory management systems to implement the Plan. Most importantly, 

 

1

On-hand excess inventory is inventory that is excess to the approved acquisition 

objective and is not being retained as economic or contingency retention stock. On-hand 

excess inventory is also referred to as potential reutilization stock.

2

Acquisition lead time, also known as procurement lead time, measures the length of time 

between the identification of a materiel requirement and the receipt of that materiel into 

the supply system. Acquisition lead time is the sum of the administrative lead time and 

production lead time. Administrative lead time is the time interval between identifying a 

need to purchase an item and the award of a contract. Production lead time is the time 

interval between the award of a contract and receiving the purchased materiel into the 

supply system.

Appendix XII: Other Inventory Improvement 

Actions Sub-plan
Appendix XII: Other Inventory Improvement 

Actions Sub-plan

Page 79 GAO-12-493 Defense Inventory

OSD, the services, and DLA will need to agree on and implement 

departmentwide metrics to evaluate inventory management.

Table 21: Other Inventory Improvement Actions Sub-plan Actions and Milestones, Completion Dates, and GAO Assessment 

and Comments as of January 1, 2012

Actions and milestones

Original 

expected 

completion date

Actual or 

planned 

completion date GAO assessment and comments

Action 1: Define and establish a 

new categorization of DOD 

inventory.

September 2013 December 2013 • Assessment: Started, completion delayed.

• Comment: OSD, the services, and DLA are 

defining and establishing a new categorization of 

DOD inventory to better capture the rationale 

behind inventory decisions through improved 

reporting.

Milestone 1.1: Identify the new 

categorization of inventory.

June 2011 September 2011 • Assessment: Completed.

• Comment: OSD, the services, and DLA have 

reviewed existing categories of inventory (i.e., the 

approved acquisition objective, economic retention 

stock, contingency retention stock, and potential 

reutilization stock) and developed tentative subcategories that provide further clarification on the 

make-up of each category.

Milestone 1.2: Complete 

requirements analysis for updating 

the stratification process.a

March 2012 June 2012 • Assessment: Started, completion delayed.

• Comment: Based on the proposed new 

categorization of inventory, OSD, the services, and 

DLA plan to incorporate this information into its 

guidance on inventory management, specifically a 

revision of DOD 4140.64-M Secondary Item 

Stratification Manual (Aug. 24, 2009).

Milestone 1.3: Conduct requirements 

analysis for updating the Supply 

System Inventory Report process.b

March 2013 June 2013 • Assessment: Not started, completion delayed.

• Comment: Based on the proposed new 

categorization of inventory and the update to the 

stratification manual, OSD, the services, and DLA 

plan to revise the process for the Supply System 

Inventory Report.

Milestone 1.4: Develop plans for the 

implementation of the updated 

stratification and Supply System 

Inventory Report processes.

September 2013 December 2013 • Assessment: Not started, completion delayed.

• Comment: None.
Appendix XII: Other Inventory Improvement 

Actions Sub-plan

Page 80 GAO-12-493 Defense Inventory

Actions and milestones

Original 

expected 

completion date

Actual or 

planned 

completion date GAO assessment and comments

Action 2: Establish 

departmentwide procedures for 

reducing acquisition lead times.

June 2012 September 2012 • Assessment: Started, completion delayed.

• Comment: OSD, the services, and DLA aim to 

reduce acquisition lead times and improve the 

accuracy of acquisition lead times.

Milestone 2.1: Review service and 

DLA efforts for reducing 

procurement lead time.

June 2011 May 2011 • Assessment: Completed.

• Comment: The services and DLA each identified 

and presented unique acquisition lead time 

initiatives.

Milestone 2.2: Evaluate individual 

service and DLA efforts for 

departmentwide application.

December 2011 November 2011 • Assessment: Completed.

• Comment: OSD, the services, and DLA 

determined that strategic materiel sourcing was the 

only initiative that is a viable candidate for 

departmentwide application. Strategic materiel 

sourcing is the focus of milestone 2.5 for this subplan.c

Milestone 2.3: Develop methodology 

to sustain lead time accuracy.

June 2012 June 2012 • Assessment: Started, on schedule.

• Comment: The services and DLA are identifying 

differences between the estimated and actual lead 

time values to improve the accuracy of lead times.

Milestone 2.4: Develop a 

methodology to track and monitor 

changes to lead time resulting in 

savings and cost avoidance.

March 2012 May 2012 • Assessment: Started, completion delayed.

• Comment: OSD, the services, and DLA are 

evaluating potential metrics for measuring 

improvements in administrative and production 

lead time accuracy as well as how to quantify any 

cost savings or cost avoidance achieved due to 

improvements.

Milestone 2.5: Establish annual 

process for reviewing new 

approaches to supplier management 

targeted at reducing lead times.

March 2012 September 2012 • Assessment: Not started, completion delayed.

• Comment: OSD, the services, and DLA plan on 

reviewing and improving the strategic materiel 

sourcing initiative.
Appendix XII: Other Inventory Improvement 

Actions Sub-plan

Page 81 GAO-12-493 Defense Inventory

Actions and milestones

Original 

expected 

completion date

Actual or 

planned 

completion date GAO assessment and comments

Action 3: Through system 

modernization provide for 

improved data accuracy and a 

better systems platform for 

improving inventory management 

practices.

March 2014 March 2014 • Assessment: Started, on schedule.

• Comment: OSD, the services, and DLA are 

monitoring potential changes necessary to 

inventory management systems to implement the 

Plan. 

Milestone 3.1: Develop a 

comprehensive list of required 

system functionality for modernized 

inventory management systems 

(e.g., enterprise resource planning 

systems) to successfully execute all 

elements of the DOD’s Plan. 

March 2011 March 2014 • Assessment: Started, completion delayed.

• Comment: Every six months, the services and 

DLA are submitting potential changes to inventory 

management systems to implement the Plan. OSD, 

the services, and DLA are working collaboratively 

to prevent any major system changes. This 

milestone was extended to cover almost the entire 

Plan in order to monitor potential system changes.

Milestone 3.2: Assess functionality 

requirements list against each 

modernized system and identify 

capability gaps.

September 2011 March 2014 • Assessment: Started, completion delayed.

• Comment: OSD, the services, and DLA are 

identifying any capability gaps in the inventory 

management systems and potential impact on the 

Plan’s implementation. This milestone was also 

extended to cover almost the entire Plan. 

Milestone 3.3: Identify and 

implement system and process 

improvements necessary for each 

modernized systems to meet overall 

requirements of the Plan. 

March 2014 March 2014 • Assessment: Started, on schedule.

• Comment: None.

Action 4: Establish 

departmentwide metrics to 

monitor the efficiency of DOD 

inventory operations.

May 2012 May 2012 • Assessment: Started, on schedule.

• Comment: OSD, the services, and DLA are 

developing a set of departmentwide metrics; 

however, these metrics are still underdevelopment 

and no final decisions have been made on the 

metrics.

Milestone 4.1: Identify standard 

departmentwide key inventory 

management indicators.

December 2010 December 2011 • Assessment: Started, completion delayed.

• Comment: OSD, the services, and DLA are 

developing a set of departmentwide metrics; 

however, these metrics are still underdevelopment 

and no final decisions have been made on the 

metrics. This milestone was not complete as of 

December 2011, the planned completion date.

Milestone 4.2: Establish procedures 

for collecting and reporting approved 

metrics.

June 2011 June 2011 • Assessment: Started, completion delayed.

• Comment: OSD, the services, and DLA are 

developing a set of departmentwide metrics; 

however, these metrics are still underdevelopment 

and no final decisions have been made on the 

metrics. OSD, the services, and DLA have 

identified initial procedures for collecting and 

reporting some inventory management metrics, but 

as of January 1, 2012, this milestone was not 

complete.
Appendix XII: Other Inventory Improvement 

Actions Sub-plan

Page 82 GAO-12-493 Defense Inventory

Actions and milestones

Original 

expected 

completion date

Actual or 

planned 

completion date GAO assessment and comments

Milestone 4.3: Ensure consistent 

approach to assess readiness and 

risk against efficiency and/or develop 

metrics.

March 2012 January 2012 • Assessment: Started, on schedule.

• Comment: OSD, the services, and DLA are 

developing a set of departmentwide metrics; 

however, these metrics are still underdevelopment 

and no final decisions have been made on the 

metrics.

Milestone 4.4: Develop a metric to 

assess Weapon System Support 

Program file maintenance and 

effectiveness.

May 2012 May 2012 • Assessment: Started, on schedule.

• Comment: OSD, the services, and DLA are 

working to improve DLA’s Weapon System Support 

Program, which provides a method of applying 

enhance management to items critical to the 

mission of the services’ weapon systems, 

according to the criticality of the weapon system 

and the essentiality of the individual items to the 

mission of that weapon system. 

Source: GAO analysis of the Plan and DOD’s periodic status briefings.

a

The stratification process is a uniform portrayal of requirements and assets that is a computergenerated, time-phased simulation of actions causing changes in the supply position; e.g., 

procurement, repair, receipt, issue, terminations, and disposal of materiel.

b

The Supply System Inventory Report is an annual publication that provides summary statistics on the 

status of DOD supply system inventories—both wholesale and retail inventory.

c

Strategic materiel sourcing is the concept of procuring items needed by applying commercial best 

practices. Examples include developing agreements between suppliers and DLA to arrange long-term 

contracts for sole-source items using best commercial practices such as partner-driven, integrated 

supply chain management whereby the buyer and seller cooperate to maximize their mutual benefit, 

or forming long-term contracts with manufacturers for low-demand, high-dollar items by stipulating 

that DLA will also purchase other low-priced, higher-demand items from those same manufacturers.
Appendix XIII: Comments from the Department 

of Defense

Page 83 GAO-12-493 Defense Inventory

Appendix XIII: Comments from the 

Department of Defense
Appendix XIII: Comments from the Department 

of Defense

Page 84 GAO-12-493 Defense Inventory
Appendix XIV: GAO Contact and Staff 

Acknowledgments

Page 85 GAO-12-493 Defense Inventory

Zina D. Merritt, (202) 512-5257 or merrittz@gao.gov

In addition to the individual named above, key contributors to this report 

were Suzanne Wren (Assistant Director); Edward W. Anderson, Jr.; John 

Bumgarner; Elizabeth Curda; Dave Hubbell; Charlie Perdue; Greg 

Pugnetti; Michael Silver; Michael Willems; and Erik Wilkins-McKee.

Appendix XIV: GAO Contact and Staff 

Acknowledgments 

GAO Contact

Staff 

Acknowledgments 
Glossary

Page 86 GAO-12-493 Defense Inventory

This glossary is provided for reader convenience. It is not intended as a 

definitive, comprehensive glossary of inventory management terms.

Acquisition lead time, also known as procurement lead time, measures 

the length of time between the identification of a materiel requirement and 

the receipt of that materiel into the supply system. Acquisition lead time is 

the sum of the administrative lead time and production lead time.

The time interval between identifying a need to purchase an item and the 

award of a contract.

The materiel needed to meet the requirements objective and 2 years of 

estimated future demand.

Contains additional materiel, such as wartime reserve stock and inventory 

for acquisition lead times, included in the requirements objective.

Unserviceable assets that are determined to be beyond the point of 

economic repair during the repair process.

Materiel that is retained to support specific contingencies, such as to 

support foreign military sales, future military operations, disaster relief or 

civil emergencies, or to mitigate risk associated with diminished 

manufacturing sources or nonprocurable stock.

Predicting future customer demands so inventory managers can develop 

inventory requirements to satisfy demands when they occur. Inaccurate 

forecasts lead to either excess inventory or shortfalls.

A materiel acquisition and distribution method that requires supplier 

delivery directly to the customer, which can reduce the storage of items 

by the services and the Defense Logistics Agency.

Glossary

acquisition lead time

administrative lead time

approved acquisition 

objective 

authorized additive levels

condemned items

contingency retention 

stock 

demand forecasting

direct vendor delivery
Glossary

Page 87 GAO-12-493 Defense Inventory

The quantity derived from a mathematical technique used to determine 

the lowest total variable costs to order and hold inventory.

Materiel that has been deemed more economical to keep than to dispose 

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

The use of mathematical models that compute the optimal number and 

type of parts needed at the wholesale and retail levels to achieve 

readiness and cost goals.

Inventory that is excess to the approved acquisition objective and is not 

being retained as economic or contingency retention stock. On-hand 

excess inventory is also referred to as potential reutilization stock.

Inventory that is in the Department of Defense’s (DOD) possession.

Items for which a contract has been awarded or funds have been 

obligated, but due to subsequent changes in requirements would be 

classified as potential reutilization stock upon arrival.

Inventory that is not in DOD’s possession but for which a contract has 

been awarded or funds have been obligated is considered to be on-order.

Materiel exceeding the approved acquisition objective and not being 

retained as economic or contingency retention stock, that has been 

identified for possible disposal but has potential for reutilization. Potential 

reutilization stock is also referred to as on-hand excess inventory.

The time interval between the award of a contract and receiving the 

purchased materiel into the supply system.

economic order quantity

economic retention stock

multi-echelon modeling

on-hand excess inventory

on-hand inventory

on-order excess inventory

on-order inventory

potential reutilization 

stock 

production lead time
Glossary

Page 88 GAO-12-493 Defense Inventory

The quantity of reparable items required to sustain operations during the 

repair cycle that commences when a maintenance replacement takes 

place and ends when the unserviceable asset is returned to stock in a 

serviceable condition.

The maximum authorized quantity of stock for an item (for wholesale 

inventory replenishment), which consists of the sum of stock represented 

by the economic order quantity, the safety level, the repair-cycle level, 

and the authorized additive levels.

Economic and contingency retention stock, which DOD states is 

necessary for the military mission.

The amount of stock that is to be kept on hand in case of minor 

interruptions in the resupply process or fluctuations in demand.

Items that include reparable components, subsystems, and assemblies 

other than major end items (e.g., ships, aircraft, and helicopters), 

consumable repair parts, bulk items and materiel, subsistence, and 

expendable end items (e.g., clothing and other personal gear).

The capability to provide all users with timely and accurate information 

about the location, movement, status, and identity of supplies and the 

capability to act on this information.

repair-cycle level

requirements objective 

retention stock

safety levels

secondary inventory items 

total asset visibility
Related GAO Products

Page 89 GAO-12-493 Defense Inventory

Defense Logistics: DOD Needs to Take Additional Actions to Address 

Challenges in Supply Chain Management. GAO-11-569. 

Washington, D.C.: July 28, 2011.

Opportunities to Reduce Potential Duplication in Government Programs, 

Save Tax Dollars, and Enhance Revenue. GAO-11-318SP. 

Washington, D.C.: March 1, 2011.

High-Risk Series: An Update. GAO-11-278. Washington, D.C.: 

February 2011.

DOD’s 2010 Comprehensive Inventory Management Improvement Plan 

Addressed Statutory Requirements, But Faces Implementation 

Challenges. GAO-11-240R. Washington, D.C.: January 7, 2011.

DOD’s High-Risk Areas: Observations on DOD’s Progress and 

Challenges in Strategic Planning for Supply Chain Management. 

GAO-10-929T. Washington, D.C.: July 27, 2010.

Defense Inventory: Defense Logistics Agency Needs to Expand on Efforts 

to More Effectively Manage Spare Parts. GAO-10-469. Washington, D.C.: 

May 11, 2010.

High-Risk Series: An Update. GAO-09-271. Washington, D.C.: 

January 2009.

Defense Inventory: Army Needs to Evaluate Impact of Recent Actions to 

Improve Demand Forecasts for Spare Parts. GAO-09-199. 

Washington, D.C.: January 12, 2009.

Defense Logistics: Lack of Key Information May Impede DOD’s Ability to 

Improve Supply Chain Management. GAO-09-150. Washington D.C.: 

January 12, 2009.

Defense Inventory: Management Actions Needed to Improve the Cost 

Efficiency of the Navy’s Spare Parts Inventory. GAO-09-103. 

Washington, D.C.: December 12, 2008.

DOD’s High-Risk Areas: Efforts to Improve Supply Chain Can Be 

Enhanced by Linkage to Outcomes, Progress in Transforming Business 

Operations, and Reexamination of Logistics Governance and Strategy. 

GAO-07-1064T. Washington, D.C.: July 10, 2007.

Related GAO Products
Related GAO Products

Page 90 GAO-12-493 Defense Inventory

High-Risk Series: An Update. GAO-07-310. Washington, D.C.: 

January 2007.

Defense Inventory: Opportunities Exist to Improve the Management of 

DOD’s Acquisition Lead Times for Spare Parts. GAO-07-281. 

Washington, D.C.: March 2, 2007.

DOD’s High-Risk Areas: Progress Made Implementing Supply Chain 

Management Recommendations, but Full Extent of Improvement 

Unknown. GAO-07-234. Washington, D.C.: January 17, 2007.

Defense Inventory: Opportunities Exist to Save Billions by Reducing Air 

Force’s Unneeded Spare Parts Inventory. GAO-07-232. Washington, 

D.C.: April 27, 2007.

Defense Inventory: Actions Needed to Improve Inventory Retention 

Management. GAO-06-512. Washington, D.C.: May 25, 2006.

(351639)
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