United States General Accounting Office

GAO Report to the Ranking Minority Member,

Committee on Armed Services, U.S.

Senate

April 1997 INVENTORY

MANAGEMENT

The Army Could

Reduce Logistics Costs

for Aviation Parts by

Adopting Best

Practices

GAO/NSIAD-97-82

GAO United States

General Accounting Office

Washington, D.C. 20548

National Security and

International Affairs Division

B-272662 

April 15, 1997

The Honorable Carl Levin

Ranking Minority Member

Committee on Armed Services

United States Senate

Dear Senator Levin:

This report is the 10th in a series of reports comparing the Department of

Defense’s (DOD) logistics practices with those of the private sector.1

 As you

requested, we are continuously examining DOD’s inventory management

practices to identify areas where costs can be reduced and problems can

be avoided if DOD adopts leading-edge practices that have been applied

successfully by the private sector.

This report focuses on the Army’s logistics system for aviation parts. It

discusses the potential application of best practices to the Army’s

operations. The objectives of this review were to (1) examine the current

performance of the Army’s logistics system, (2) review the Army’s efforts

to improve the logistics system and reduce costs, and (3) identify

opportunities where best practices could be incorporated into the Army’s

logistics operations.

Background The private sector, driven by a global competitive environment, faces the

challenge of improving services while lowering costs. As a result, many

companies have adopted innovative business practices to meet customer

needs and retain profitability. DOD faces a similar challenge of providing

better service at a lower cost. With the end of the Cold War, DOD’s logistics

systems must support a smaller, highly mobile, high-technology force. Due

to the pressures of budgetary constraints, DOD also must seek ways to

make logistics processes as efficient as possible.

To provide reparable parts for its approximately 7,300 aircraft (primarily

helicopters),2

 the Army uses an extensive logistics system that is based on

a management process, procedures, and concepts that have evolved over

time but are largely outdated. Reparable parts are expensive items that can

be fixed and used again, such as hydraulic pumps, navigational computers,

and landing gear. The Army’s logistics system, often referred to as a

1

See Related GAO Products.

2

The Army also provides helicopter and component repair services to the Air Force and the Navy.

Page 1 GAO/NSIAD-97-82 Inventory Management
B-272662 

logistics pipeline, consists of a number of activities that play a role in

providing aircraft parts where and when they are needed. These activities

include the purchase, storage, distribution, and repair of parts, which

together require billions of dollars of investments in personnel, equipment,

facilities, and inventory. The Army’s depot repair location for helicopters

and aviation parts is the Corpus Christi Army Depot (CCAD), Texas.

The Army also relies on this pipeline for consumable parts (e.g., nuts,

bearings, and fuses) that are used extensively to fix reparable parts and

aircraft. The Defense Logistics Agency (DLA) provides most of the

consumable parts that Army repair activities need and handles a large part

of the warehousing and distribution of reparable parts.

Although not as large as the Army, commercial airlines have similar

operating characteristics to the Army. They maintain fleets of aircraft that

use reparable parts and operate logistics pipelines having similar activities.

For both the Army and commercial airlines, time plays a crucial role in the

responsiveness of logistics operations and the amount of inventory

needed. Pipeline complexity also adds to logistics costs by increasing

overhead and adding to pipeline times. Condensing and simplifying

pipeline operations, therefore, will simultaneously improve

responsiveness and decrease costs by reducing inventory requirements

and eliminating the infrastructure (warehouses, people, etc.) that is

needed to manage unnecessary material.

Over the last 10 years, we have issued more than 30 reports addressing the

Army’s logistics problems. These reports have highlighted issues related to

large inventory levels, inefficient repair practices, and information system

problems. While the Army has taken actions to correct its logistics

problems, these problems have not been completely resolved.

Results in Brief The Army’s efforts to improve its logistics pipeline for aviation parts and

reduce logistics costs could be enhanced by incorporating best practices

we have identified in the private sector. The Army’s current repair

pipeline, characterized by a $2.6 billion investment in aviation parts, is

slow and inefficient. For example, in one case we examined, it took the

Army 4 times longer than a commercial airline to ship a broken part to the

depot and complete repairs. Also, for 24 different types of items examined,

we calculated it took the Army an average of 525 days to repair and ship

the parts to field units. The Army estimates only 18 days (3 percent)

should have been needed to repair the items. The remaining 507 days

Page 2 GAO/NSIAD-97-82 Inventory Management
B-272662 

(97 percent) were used to transport or store the parts or were the result of

unplanned repair delays. Because of this lengthy pipeline time, the Army

buys, stores, and repairs more parts than would be necessary with a more

efficient system.

Several factors contribute to the long pipeline time. These factors are

(1) broken reparable parts move slowly between field units and a repair

depot, (2) reparable parts are stored in warehouses for several months

before and after they are repaired, (3) repair depots are inefficiently

organized, and (4) consumable parts are not available to mechanics when

needed.

The Army has recognized that it must improve its logistics systems. Under

a recently established program called “Velocity Management,” the Army

plans to focus on and improve four key areas: repair of components, order

and shipment of parts, inventory levels, and financial management. The

program is in the initial stages of development and has had limited success

in actual Army-wide process improvements to date. At CCAD, depot

officials are not actively pursuing this program’s initiatives. Instead, depot

officials are initiating process improvements under a local program

designed to identify the actual cost of operations and improve the

efficiency of CCAD operations.

Best practices used in the airline industry provide opportunities to build

on the Army’s efforts to improve its logistics pipeline. We identified key

best practices to address each of the four factors contributing to the

Army’s long pipeline time:

• Third-party logistics services can assume warehousing and distribution

functions and provide rapid delivery of parts and state-of-the-art

information systems that would speed the shipment of parts between

depots and field locations.

• Eliminating excess inventory and quickly initiating repair actions can

reduce the amount of time parts are stored, improve the visibility of

production backlogs, and reduce the need for large inventory to cover

operations while parts are out of service.

• Cellular manufacturing techniques can improve repair shop efficiency by

bringing all the resources (tooling, support equipment, etc.) needed to

complete repairs to one location, thereby minimizing the current

time-consuming exercise of routing parts to different workshops located

hundreds of yards apart.

Page 3 GAO/NSIAD-97-82 Inventory Management
B-272662 

• Innovative supplier partnerships can increase the availability of

consumable parts, minimize the time it takes to deliver parts to mechanics,

and delay the purchase of parts until they are needed to complete repairs.

Although we cannot say that these practices can be successfully integrated

into the Army’s system, we believe they are compatible with many aspects

of the Army’s operations and the Velocity Management program. Because

of the significant benefits realized by private firms that have adopted these

practices, we further believe that the potential benefits in adopting these

practices are enough to justify a demonstration project involving the Army

and DLA. This demonstration project could determine with certainty the

feasibility and cost-effectiveness of these practices.

The Army Operates a

Slow, Inefficient, and

Costly Logistics

System

The Army’s current depot repair pipeline, characterized by a $2.6 billion

inventory investment, is slow, unreliable, and inefficient. For 24 different

types of aviation parts examined, we calculated the Army’s logistics

system took an average of 525 days to ship broken parts from field units to

the depot, repair them, and return the repaired parts to using units. We

estimated 507 days (97 percent) of this time was the result of unplanned

repair delays, depot storage, or transportation time. In another measure of

efficiency, we calculated the Army uses its inventory 6 times slower than

an airline in our comparison.

The amount of time required by the system is important because the Army

must invest in enough inventory to resupply units with serviceable parts

and cover the amount of time it takes to move and repair parts through

this process. If this repair time were reduced, inventory requirements

would also be reduced. For example, in an Army-sponsored RAND study,

it was noted that reducing the repair time for one helicopter component

from 90 days to 15 days would reduce inventory requirements for that

component from $60 million to $10 million.3

Also, in a 1996 preliminary report to the Army, RAND concluded that “if

non-value-added steps [in the repair process] were reduced or eliminated,

repair cycle times could become much shorter and far less variable. The

benefits for the Army would be greater weapon system availability, more

regular and predictable supply of serviceable components, savings from

3

RAND Arroyo Center Documented Briefing, Weapon System Sustainment Management: A Concept for

Revolutionizing the Army Logistics System (1994).

Page 4 GAO/NSIAD-97-82 Inventory Management
B-272662 

reduced pipeline inventory requirements, and a repair system more

flexible and responsive in serving the needs of the combat commander.”4

To calculate the amount of time the Army’s system takes to repair and

distribute parts using the current depot repair process, we judgmentally

selected 24 types of Army aviation parts and computed the time the parts

spent in four key segments of the repair process. The key segments were

(1) preparing and shipping the parts from the bases to the depot,

(2) storing the parts at the depot before induction into the repair shop,

(3) repairing the parts, and (4) storing the parts at the depot before they

were shipped to a field unit. For the parts we selected, it took the Army an

average of 525 days to complete this process. Table 1 shows the fastest,

slowest, and average time the Army took to complete each of the four

pipeline segments.

Table 1: Average Days Used by the

Army Depot Repair System for 24

Types of Aviation Parts Pipeline segment

Fastest time

(days)

Slowest time

(days)

Average time

(days)

Part preparation and shipment to

the depot

Less than 1 899 75

Depot storage prior to repair Less than 1 887 158

Depot repair time 1 1,067 147

Depot storage prior to issue Less than 1 1,196 145

Total depot repair pipeline timea Not applicable Not applicable 525

aIt is inappropriate to sum the pipeline segments for the fastest and slowest times because these

values represent the Army’s pipeline performance on one component in each segment. The

average time for each segment, however, is appropriate to sum because it represents the

average time for all components that passed through that pipeline segment.

As shown in table 1, the repair pipeline time was both long and highly

variable. The fastest time the Army took to complete any of the four

pipeline segments was less than 1 day, but the slowest times ranged from

887 days to more than 1,000 days.

In contrast, one airline we found to be using leading-edge practices, British

Airways, took a much shorter period of time to move a part through its

logistics system. As shown in figure 1, the average time to move a gearbox

assembly through the first three segments was 116 days for British

Airways while the Army’s average time was 429 days, or about 4 times

longer. While the Army’s repair time was twice as long as British Airways,

most of the Army’s time occurred in the shipping and storage segments.

4

RAND Annotated Briefing, Improving the Army’s Repair Process: Baseline Repair Cycle Time

Measures (DRR-1271-1-A, May 1996).

Page 5 GAO/NSIAD-97-82 Inventory Management
B-272662 

Figure 1: Comparison of the Army’s and British Airways’ Pipeline Times for a Gearbox Assembly

Part readied for 


transport from base

In-transit Part received at


repair center and


sent to storage or


maintenance shops

Storage time Shop flow Awaiting 


parts/


queue time

Repaired part


turned into 


warehouse

British Airways

Army

66 days 111 days 252 days Total = 429 Days

2 days 1 day 113 days Total = 116 Days

In part, because of this slow process, the Army has invested billions of

dollars in inventory to support peacetime operations that is not used as

effectively as it could be. DOD reported that as of September 1995, the

value of the Army’s reparable aviation parts inventory was $2.6 billion,5

with 74 percent ($1.9 billion) allocated to support daily operations,

11 percent for war reserves, and 15 percent allocated as long supply— a

term identifying stock that is excess to current Army requirements.

One measure of the repair process efficiency is a calculation of how often

an organization uses its inventory. This calculation is called the turnover

rate. The higher the turnover rate, the more often a company is using its

inventory. At one airline we visited—British Airways—the turnover rate

for reparable parts was 2.3 times each year. In comparison, we calculated

that, based on fiscal year 1995 repairs, the Army’s turnover rate was 

0.4 times, or about 6 times slower (see fig. 2). This calculation neither

includes inventory the Army has allocated for war reserves nor inventory

the Army has stored at field level organizations, which is classified as

retail inventory.

5

These inventory values were calculated by DOD using its standard valuation methodology—the value

of reparable parts requiring repair was reduced by the estimated cost of repair, and excess inventory

was valued at the estimated salvage price (2.5 percent of the fiscal year 1995 acquisition costs).

Page 6 GAO/NSIAD-97-82 Inventory Management
B-272662 

Figure 2: Comparison of British

Airways and Army Inventory Turnover

Rates

Number of inventory turns per year

0

0.5

1.0

1.5

2.0

2.5

3.0

Army British

Airways

Comparing the Army’s engineering estimate of the repair time that should

be needed to complete repairs with the actual amount of time taken is

another measure of the repair process’ efficiency. Of the 525-day average

pipeline time from our sample, the Army estimates an average of 18 days

should be needed to repair the item(s). The remaining 507 days, or

97 percent of the total time, were spent to transport or store the part(s) or

for unplanned repair delays.

Several Factors

Contribute to This

Slow System

Several factors contribute to the Army’s slow logistics pipeline. Four of the

factors are (1) slow processing and shipping of parts from the field to the

repair depot, (2) delays in inducting parts into the repair shops,

(3) inefficient organization of the depot repair process, and (4) lack of

consumable parts needed to complete repairs. Because of these factors,

parts sit idle or are delayed in the repair process, which lengthens the total

repair time.

Slow Processing and

Shipping of Parts to the

Depot

Preparing and shipping a broken part from the operating unit to the depot

for repair—a process called “retrograde”—took an average of 75 days for

the items we examined. In contrast, British Airways estimated that only 

Page 7 GAO/NSIAD-97-82 Inventory Management
B-272662 

2 days were needed to prepare and ship components from operating

locations to its repair centers. In May 1996, RAND also found the Army’s

retrograde process to be slow; the median retrograde time for a sample of

items it measured from the point when maintenance personnel determined

a part was not reparable at the operating unit until it arrived at a DLA depot

storage facility was 22 days and the longest time was more than 100 days.

Delayed Induction of Parts Our sample data show that broken parts may sit in storage at the depot

facility for a long period of time until a certain quantity of parts are moved

to or are “inducted” into the repair shop. Because different operating units

ship parts to the depot in various quantities, each part that is inducted for

repair may be stored for different amounts of time. For example, the Army

inducted helicopter gearboxes into the repair shop 5 times over a 2-year

period. The average storage time for the parts inducted in each group

ranged from 15 to 366 days. Table 2 shows the quantity of parts inducted

and the average amount of days the parts were stored before being

inducted.

Table 2: Gearbox Repair Inductions

Group Induction date

Average storage

time (days)

Number of parts

inducted

1 Sept. 8, 1994 27 11

2 Sept. 20, 1994 15 7

3 Dec. 9, 1994 32 8

4 Jan. 17, 1996 310 10

5 Apr. 24, 1996 366 1

According to Army officials, parts sit in storage before induction because

of the method that is used to plan repair programs. Item managers

periodically review and compare inventory levels and the projected

requirements for parts. Based upon this analysis, an item manager

determines how many parts should be either repaired or purchased to

meet the Army’s anticipated needs. For items that need to be repaired, the

Army develops a repair program, which includes a funding estimate for the

repairs. The depot can induct parts into the repair process only after this

program and its related funding have been approved. Also, parts may sit in

storage because an excessive amount of inventory is available to meet

current and projected Army requirements. As previously discussed,

15 percent of the Army inventory is classified as long supply, or excess to

current requirements.

Page 8 GAO/NSIAD-97-82 Inventory Management
B-272662 

Inefficient Organization of

Repair Activities

The Army moves parts from one location to another several times during

the repair process, which increases the time required to complete a repair.

Functions such as testing, cleaning, and machining are sometimes done at

separate shops that are hundreds of yards apart. Routing components

through different shops reduces the efficiency of the process because each

time a part is moved, it must be prepared for transportation, physically

moved, and processed through the shop. For example, at CCAD, the repair

of hydraulic components involves routing parts through six different

shops, each located 100 to 400 yards from the main repair shop (see fig. 3),

which adds time and reduces the efficiency of the process. For one

hydraulic part we examined, the Army estimated the repair time of 

31 days—only 3 days were estimated for direct labor to repair the item and 

28 days (90 percent) were estimated to cover handling and moving the part

to different shops, or anticipated repair delays.

Page 9 GAO/NSIAD-97-82 Inventory Management
B-272662 

Figure 3: The Army’s Repair Process for a Hydraulic Component

Chrome

Shop

DLA 

Storage

Depot

Cleaning 

Shop

Nondestructive

Test Shop

Plate

Shop

Machine

Shop

Paint

Shop

300 Yards

150 Yards

200 Yards

100 Yards

400 Yards

100 Yards

400 Yards

300 Yards

Broken part

Repaired part

400 Yards

100 Yards

400 Yards

400 Yards

150 Yards 150 Yards

Depot

Automated

Distribution

Warehouse

(Start)

(End)

Main Hydraulic Shop

(located in two floors)

-Disassemble

-Inspect

-Evaluate

-Reassemble

-Test

400 Yards

Inadequate Piece Part

Support

Another cause of delays is mechanics often do not have the necessary

consumable parts that are used in large quantities to repair aircraft

components. According to CCAD officials, the lack of piece parts is the

primary cause for repair delays at the depot. The traditional DOD supply

system used at CCAD to provide piece parts to mechanics involves several

inventory storage locations at the depot and a wholesale inventory system

managed by DLA (see fig. 4).

Page 10 GAO/NSIAD-97-82 Inventory Management
B-272662 

Figure 4: Multilayered Inventory System for Consumable Parts

Depot Bulk 

Storage

Depot 

Automated

Distribution 

Warehouse

DLA 

Wholesale

Inventorya

$5.7 Billion

on hand

$23 Million

on hand

$23 Million

on hand

Manufacturers

Corpus Christi Army Depot Supply System

Maintenance

Shop Storage

(72 Locations)

End users

Unknown amount 

on hand

DOD Wholesale Supply System

aDLA inventory is stored at multiple locations nationwide to support all DOD customers.

This process has created as many as four layers of inventory in the CCAD

supply system. As of August 1996, the first two layers (depot bulk storage

and the automated distribution warehouse) stored inventory valued at

$46 million. For the next two layers (maintenance shop storage and

end-user storage), the Army does not centrally track inventory levels or

supply effectiveness. Therefore, CCAD officials could not provide us with

consolidated information on the amount or value of the inventory stored in

these locations or if the inventory was the right type of material or in the

appropriate quantity to meet the mechanics’ needs. Figure 5 shows the

CCAD automated storage and distribution warehouse where $23 million of

inventory is stored. Figure 6 shows 1 of the 72 maintenance shop storage

locations and is an example of the size of some of these facilities.

Page 11 GAO/NSIAD-97-82 Inventory Management
B-272662 

Figure 5: CCAD Automated

Distribution Warehouse

Page 12 GAO/NSIAD-97-82 Inventory Management
B-272662 

Figure 6: CCAD Maintenance Shop

Inventory Storage Location

Despite this investment in inventory, the supply system frequently fails to

completely fill orders when they are placed by mechanics or other CCAD

customers. According to Army records, the CCAD bulk storage warehouse

did not have an adequate supply of inventory to meet customer demands

75 percent of the time during the first 11 months of fiscal year 1996.6

 When

parts are not available at the bulk storage facility, the maintenance shops

can request (backorder) them from the DLA wholesale system, which may

take several days or even months for delivery. As of August 1996, CCAD

mechanics had more than $40 million worth of parts on backorder, of

which 34 percent was still unfilled after 3 months.

Depot officials identified several options available to minimize repair

delays that are caused by part shortages. For example, depot personnel

can buy the part from local vendors or fabricate the part in its machine

6

The Army calculated this fill rate by comparing total demands with the total number of times a

demand was completely filled by the inventory on hand at depot storage locations. At times, a demand

is partially filled by inventory on hand, with the remaining unfilled demands placed on backorder, and

filled at a later time. These “partial fills” are not included in the 75-percent calculation.

Page 13 GAO/NSIAD-97-82 Inventory Management
B-272662 

shops. In other cases, mechanics remove parts from one component that

has just entered the repair shop and install the part on one that is nearing

completion. This is called a “rob-back” of parts. Depot officials did not

have any records that specifically quantify the number of rob-back actions

in the depot, but they indicated that it was a common practice among

maintenance personnel.

Effects of the Army’s

Process

The following examples of parts we examined illustrate the effects of the

Army’s slow and inefficient logistics pipeline. First, in fiscal year 1995, the

Army repaired 25 helicopter rotor heads. The average time to ship these

units from field locations and complete the repair of each item was 723

days. Of the 723-day average, 577 days involved shipping and storage time

and 146 days involved repair time. The Army’s engineering estimate

indicates the optimum repair shop time should be 35 days. At the end of

fiscal year 1995, the Army had 134 units on hand, valued at $20.9 million.

Using historical demand data, this inventory could satisfy Army

requirements for the next 3.5 years.

Also, in fiscal year 1995, the Army repaired 79 helicopter transmissions. It

took the Army an average of 414 days to ship and repair each of these

items. This 414-day average was comprised of 67 days for shipping, 229

days for storage, and 118 days for repair. The Army’s engineering estimate

indicates 37 days should be needed for repair shop time. At the end of

fiscal year 1995, the Army had 204 transmissions on hand, which should

satisfy routine requirements for 4.7 years.

The Army Has

Targeted Logistics

System Improvements

The Army has recognized that it must develop a faster and more flexible

logistics pipeline. In early 1995, the Army’s Deputy Chief of Staff for

Logistics directed the Army logistics community to implement a program

called “Velocity Management” to speed up key aspects of the logistics

system and reduce the Army’s need for large inventory levels. Under this

program, the Army has established Army-wide process improvement

teams for the following four areas: (1) ordering and shipping of parts,

(2) the repair cycle, (3) inventory levels and locations, and (4) financial

management. Also, under this program, the Army is establishing local-level

site improvement teams to examine and improve the logistics operations

of individual Army units. As of September 1996, however, Velocity

Management has had no impact on CCAD operations and has had only

limited success in improving overall logistics operations.

Page 14 GAO/NSIAD-97-82 Inventory Management
B-272662 

The Army established the Velocity Management program with the goals,

concepts, and top-management support that parallel the improvement

efforts found in private sector companies. The overall goal of the program

is to eliminate unnecessary steps in the logistics pipeline that delay the

flow of parts through the system. Like the private sector, the Army plans

to achieve these improvements by changing its processes, not by refining

the existing system that tends to gain only incremental improvements. The

Army also recognizes the importance of top-management support to the

ultimate success of these initiatives. The Army’s current leadership has

strongly endorsed the program as a vehicle for making dramatic

improvements to its current logistics system.

As of September 1996, CCAD was not actively involved in the Velocity

Management program. Instead, depot officials established a program to

improve CCAD operations. Under this program, depot officials have focused

on changing the management culture, measuring the actual cost of

operations, and redesigning some of the local repair processes. The first

major initiative pursued by depot officials was to measure the actual cost

of completing repairs using an activity-based cost analysis of certain depot

processes. Depot officials have also redesigned the repair process for

helicopter blades, moving all of the resources needed to complete repairs

into one facility, which is intended to reduce the repair cycle time. Unless

CCAD’s local program is expanded to include other DOD organizations, such

as DLA, substantial reductions in the total pipeline time may not be

possible.

Industry Best

Practices Can Be

Used to Build on

Army Initiatives

The airline industry has developed leading-edge practices that focus on

reducing the time and complexity of the logistics pipeline. As discussed in

our reports on Air Force and Navy reparable parts logistics operations, we

identified four best practices in the airline industry that have the potential

for use in military systems and have resulted in significant improvements

and reduced logistics costs for several airlines, especially British Airways.

These practices are the prompt repair of items, the reorganization of the

repair process, the establishment of partnerships with key suppliers, and

the use of third-party logistics services. When used together, they can help

maximize a company’s inventory investment, decrease inventory levels,

and provide a more flexible repair capability. In our opinion, they address

many of the same problems the Army is facing and represent practices that

could be applied to Army operations.

Page 15 GAO/NSIAD-97-82 Inventory Management
B-272662 

Repairing Items Promptly Certain airlines streamlined their repair process by eliminating excess

inventories and initiating repair actions as quickly as possible, which

prevented the broken items from sitting in storage for extended periods.

Minimizing idle time helps reduce inventories because it lessens the need

for extra “cushions” of inventory to cover operations while parts are out of

service. In addition, repairing items promptly promotes flexible scheduling

and production practices, enabling maintenance operations to respond

more quickly as repair needs arise.

Prompt repair involves inducting parts into maintenance shops soon after

broken items arrive at repair facilities. In contrast, as discussed earlier in

this report, the Army sometimes holds parts for more than a year before

they are inducted for repair. Prompt repair does not mean that all parts are

fixed, however. The goal is to quickly fix only those parts that are needed.

One airline that uses this approach routes broken parts directly to holding

areas next to repair shops, rather than to stand-alone warehouses, so that

mechanics can quickly access broken parts when it comes time to repair

them. These holding areas also give the production managers and the

mechanics better visibility of any backlogs.

Reorganizing the Repair

Process

One approach to simplify the repair process is the “cellular” concept,

which brings all the resources, such as tooling and support equipment,

personnel, and inventory that are needed to repair a broken part into one

location, or one “cell.” This approach simplifies the flow of parts through

the process by eliminating the time-consuming exercise of routing parts to

workshops in different locations. It also ensures that mechanics have the

technical support so that operations run smoothly. In addition, because

inventory is placed near the workshops, mechanics have quick access to

the parts they need to complete the repairs more quickly. British Airways

adopted the cellular approach after determining that parts could be

repaired as much as 10 times faster using this concept. Another airline that

adopted this approach in its engine blade shop reduced its repair time by

as much as 50 percent to 60 percent and decreased work-in-process

inventory by 60 percent.

One airline we visited has also adapted the cellular concept to its aircraft

overhaul process. The airline established work cells adjacent to the

aircraft bays that contain a variety of tooling and support equipment that

enable mechanics to overhaul a variety of aircraft parts alongside the

aircraft. At this location, the airline completes a majority of aircraft repairs

planeside, using this cellular approach.

Page 16 GAO/NSIAD-97-82 Inventory Management
B-272662 

Establishing Partnerships

With Key Suppliers

Several airlines and manufacturers that we visited have worked with

suppliers to improve parts support while reducing overall inventory. The

use of local distribution centers and integrated supplier programs are two

approaches that specifically seek to improve the management and

distribution of consumable items. These approaches help ensure that the

consumable parts for repair and manufacturing operations are readily

available, which prevents items from stalling in the repair process and is

crucial in speeding up repair time. In addition, by improving management

and distribution methods, such as using streamlined ordering and fast

deliveries, firms can delay the purchase of inventory until it is needed.

Firms, therefore, can reduce their stocks of “just-in-case” inventory.

Local distribution centers are supplier-operated facilities that are

established near a customer’s operations and provide deliveries of parts

within 24 hours. One airline that used this approach worked with key

suppliers to establish more than 30 centers near its major repair

operations. These centers receive orders electronically and, in some cases,

handle up to eight deliveries per day. Airline officials said that the ability

to get parts quickly has contributed to repair time reductions. In addition,

the officials said that the centers have helped the airline cut its on hand

supply of consumable items nearly in half.

Integrated supplier programs involve the shifting of inventory management

functions to suppliers. Under this arrangement, a supplier monitors parts

usage and determines how much inventory is needed to maintain a

sufficient supply. The supplier’s services are tailored to the customer’s

requirements and can include placing a supplier’s representative in

customer facilities to monitor supply bins at end-user locations, place

orders, manage receipts, and restock bins. Other services can include

24-hour order-to-delivery times, quality inspections, parts kits,

establishment of electronic data interchange links and inventory bar

coding, and vendor selection management. Table 3 summarizes the types

of services, reductions, and improvements achieved by an integrated

supplier (TriStar Aerospace Corporation) for some of its customers

(designated as A through E) under the integrated supplier program.

Page 17 GAO/NSIAD-97-82 Inventory Management
B-272662 

Table 3: Integrated Supplier Program Results for Five Companies

Company ABCDE

Date established 10/16/93 1/17/92 1/7/94 7/29/92 7/9/93

Length of contract (years) 5 5 3 3 3

Number of line items 8,858 8,000 4,500 1,888 1,900

Numbers of stocking

points/bins

29,505 3,404 13,153 Not available 4,311

Number of customer facilities 45 7 3 1 1

Amount of inventory reduction $7,350,000 $2,000,000 $1,800,000 $300,000 $200,000

Percent reduction 84 50 60 30 29

Fill rate (percent)a 98.0 88.7 96.7 99.0 94.3

Order ship timeb (hours) 24 48 48 24 24

Frequency of deliveries Daily Daily Daily Daily Daily

Number of orders filled daily 300 200 150 15 75

aFill rate is the number of times the inventory requested is on hand and delivered to the customer,

expressed as a percent of total orders.

bOrder ship time is the amount of time it takes Tri-Star to deliver inventory to the customer after

receiving an order.

Source: TriStar Aerospace Corporation.

The use of an integrated supplier program would significantly alter the

current DOD process of providing piece parts to mechanics at the repair

depot or in the field. Figure 7 compares using the DOD system at CCAD with

using the integrated supplier concept. As shown, the integrated supplier

concept provides the opportunity to reduce or eliminate inventory in the

DLA wholesale system, the depot bulk storage location, and the automated

distribution warehouse.

Page 18 GAO/NSIAD-97-82 Inventory Management
B-272662 

Figure 7: DOD Supply System at CCAD Compared to an Integrated Supplier Concept

Depot 

Bulk 

Storage

Depot 

Automated

Distribution 

Warehouse

DLA 

Wholesale

Inventory

Manufacturers

CCAD Supply System

Manufacturers a

Maintenance

Shop Storage

Locations

End-users

Key

Vendor

Integrated Supplier Concept

Maintenance

Shop Storage

End-users

X

X

X

Using Third-Party Logistics

Providers

The airlines we contacted provided examples of how third-party logistics

providers can be used to reduce costs and improve performance.

Third-party providers manage and carry out certain functions, such as

inventory storage and distribution. They can also offer management

expertise that companies often do not have the time or the resources to

develop.

For example, one airline contracts with a third-party provider to handle

deliveries and pickups from suppliers and repair vendors, which has

improved the reliability and speed of deliveries. The airline receives most

items within 5 days, which includes time-consuming customs delays, and

is able to deliver most items to repair vendors in 3 days. In the past,

deliveries took as long as 3 weeks.

Page 19 GAO/NSIAD-97-82 Inventory Management
B-272662 

Third-party providers can also assume other functions. One provider that

we visited, for example, can assume warehousing and shipping

responsibilities and provide rapid transportation to speed parts to end

users. The provider can also pick up any broken parts from a customer

and deliver them to the source of repair within 48 hours. In addition, this

provider maintains the data associated with warehousing and in-transit

activities, offering real-time visibility of assets.

Integrated Best

Practices May

Produce Significant

Savings

Some combination of the four best practices discussed in this report may,

in our opinion, significantly reduce the Army’s repair pipeline time and

inventory requirements. The current repair pipeline at CCAD, including the

average number of days it took to move the parts we examined through

this pipeline and the flow of consumable parts into the repair depot, is

shown in figure 8. A modified Army system incorporating the use of an

integrated supplier for consumable items, third-party logistics services,

inducting parts soon after they arrive at the depot, and cellular repair

shops is shown in figure 9. A comparison of figures 8 and 9 shows the

potential reductions possible using these key best practices.

Page 20 GAO/NSIAD-97-82 Inventory Management
B-272662 

Figure 8: Current Repair Pipeline at CCAD

Manufacturers

DLA

Depot

Storage

Repair 

Depot 

Storage

Operating 

Base

Operating 

Base

Depot

Repair

DLA

Depot

Storage

DLA

Depot

Storage

Consumable 

Parts Flow

Reparable

Parts Flow

75 Days

158 Days

147 Days

145 Days

DLA performance for all 

 DOD customers:

Hardware items:

- $5.7 billion inventory

- over 2 years on hand 

- 5-week order/ship time

- $23 million retail inventory

- $23 million automated 

 distribution warehouse

- 72 other storage locations

- 25% fill rates

- $40 million backorders 

 to mechanics

Page 21 GAO/NSIAD-97-82 Inventory Management
B-272662 

Figure 9: Best Practices Applied to the Army Repair Pipeline

Manufacturers

Consumable 

Parts Flow Integrated

Supplier

Operating 

Base

Operating 

Base

Cellular 

Depot

Repair

Reparable

Parts Flow

2 Days

30 Days

Third-party

provider

Third-party

provider

Storage + 

2 day delivery

- 24 hour delivery

- minimum DOD inventory

- 95% or better fill rates

- in-plant representative

The reparable parts pipeline time could be reduced by hundreds of days

with the application of third-party logistics providers, the cellular concept,

and quick induction of parts into repair. The consumable parts flow could

be improved and inventories substantially reduced by using the integrated

supplier concept. If the Army were able to adopt these practices and

achieve savings similar to the private sector, inventory and related

management costs could be substantially reduced.

Page 22 GAO/NSIAD-97-82 Inventory Management
B-272662 

Recommendations As part of the Army’s current efforts to improve the logistics system’s

responsiveness and reduce its complexity, we recommend that the

Secretary of Defense direct the Secretary of the Army, working with DLA,

to develop a demonstration project to determine the extent to which the

Army can apply best practices to its logistics operations. We also

recommend that the Secretary of the Army appoint an accountable

“change agent” for this program who will periodically report back to the

Secretary on the progress of the demonstration project. In addition, we

recommend that the Secretary of the Army identify the Army facilities that

will participate in this project, establish specific test program milestones,

and identify the performance measures that will be used to quantify

process improvements and reductions in the overall pipeline time. The

practices should be tested in an integrated manner, where feasible, to

maximize the interrelationship many of these practices have with one

another. The specific practices that should be considered, where feasible,

are

• eliminating excess inventory and inducting parts at repair depots soon

after they break, consistent with repair requirements, to prevent parts

from sitting idle;

• using the cellular concept to reduce the time it takes to repair parts;

• establishing innovative supplier partnerships to increase the availability of

parts needed to complete repairs at the depot, such as local distribution

centers and integrated supplier programs; and

• using third-party logistics providers to store and distribute spare parts

between the depot and end users to improve delivery times.

We further recommend that this project be used to quantify the costs and

benefits of these practices and to serve as a means to identify and alleviate

barriers or obstacles that may inhibit the expansion of these practices.

After these practices have been tested, the Army should consider

expanding and tailoring the use of these practices, where feasible, so they

can be applied to other locations.

Agency Comments In its comments on a draft of this report, DOD agreed with the findings and

recommendations. DOD indicated that the Army is participating in DLA’s

Virtual Prime Vendor pilot program, which is intended to improve supply

support to depot maintenance activities. DOD stated that contractors under

that program will determine, working with DLA, the best method of support

to meet the performance criteria of the program.

Page 23 GAO/NSIAD-97-82 Inventory Management
B-272662 

DOD estimates that the Army will initiate a Virtual Prime Vendor pilot at an

Army depot by October 1998. DOD stated that, after the pilot is successfully

implemented at an Army site, the Army plans to assess the applicability of

this approach at other locations. However, an implementation date for

future projects has not been set. In addition, the Army plans to identify

and appoint an accountable change agent for these programs by

June 1997. DOD’s comments are included in appendix I.

Scope and

Methodology

We reviewed documents and interviewed officials on the Army’s inventory

policies, practices, and efforts to improve its logistics operations. We

contacted officials at the Office of the Deputy Under Secretary of Defense

for Logistics, Washington D.C.; Army Headquarters, Washington, D.C.; the

Army Materiel Command, Alexandria, Virginia; the Army’s Aviation and

Troop Command, St. Louis, Missouri; and the Army Industrial Operations

Command, Rock Island Arsenal, Rock Island, Illinois.

To examine the Army’s logistics operations and improvement efforts, we

visited the DLA Defense Distribution Depot, Corpus Christi, Texas; the DLA

Premium Services System, Memphis, Tennessee; CCAD, Corpus Christi,

Texas; and the (Army) 101st Airborne Division (Air Assault), Fort

Campbell, Kentucky. At these locations, we discussed with supply and

maintenance personnel the operations of the Army’s current logistics

system, customer satisfaction, planned improvements to their logistics

system, and the potential application of private sector logistics practices

to their operations. We also reviewed and analyzed detailed information

on inventory levels and usage, repair times, supply effectiveness and

response times, and other related logistics performance measures. We did

not test or otherwise validate the Army’s data.

To calculate the amount of time the Army’s system takes to repair and

distribute parts using the current depot repair process, we judgmentally

sampled 24 components—9 of the components, provided to us and

currently stored by the Defense Distribution Depot, Corpus Christi, were

ones with an active fiscal year 1996 repair program, and 15 components

were selected from the top 20 repair programs managed by the Army’s

Aviation and Troop Command based on dollar value, impact on readiness,

and numbers of backorders.

To identify leading commercial practices, we used information from our

February 1996 report that compared Air Force logistics practices to those

of commercial airlines. This information, which was collected by making

Page 24 GAO/NSIAD-97-82 Inventory Management
B-272662 

an extensive literature search, identified leading inventory management

concepts and detailed examinations and discussions of logistics practices

used by British Airways, United Airlines, Southwest Airlines, American

Airlines, Federal Express, Boeing, the Northrop-Grumman Corporation,

and TriStar Aerospace. We also participated in roundtables and

symposiums with recognized leaders in the logistics field to obtain

information on how companies are applying integrated approaches to their

logistics operations and establishing supplier partnerships to eliminate

unnecessary functions and reduce costs. Finally, to gain a better

understanding on how companies are making breakthroughs in logistics

operations, we attended and participated in the Council of Logistics

Management’s Annual Conferences in San Diego, California, and Orlando,

Florida. We did not independently verify the accuracy of logistics costs

and performance measures provided by private sector organizations.

We conducted our review from January 1996 to December 1996 in

accordance with generally accepted government auditing standards.

We are sending copies of this report to the appropriate congressional

committees; the Secretaries of Defense and the Army; the Directors of DLA

and the Office of Management and Budget; and other interested parties.

We will also make copies available to others upon request.

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

questions concerning this report. The major contributors to this report are

listed in appendix II.

Sincerely yours,

David R. Warren, Director

Defense Management Issues

Page 25 GAO/NSIAD-97-82 Inventory Management
Contents

Letter 1

Appendix I 

Comments From the

Department of

Defense

28

Appendix II 

Major Contributors to

This Report

31

Related GAO Products 32

Tables Table 1: Average Days Used by the Army Depot Repair System for

24 Types of Aviation Parts

5

Table 2: Gearbox Repair Inductions 8

Table 3: Integrated Supplier Program Results for Five Companies 18

Figures Figure 1: Comparison of the Army’s and British Airways’ Pipeline

Times for a Gearbox Assembly

6

Figure 2: Comparison of British Airways and Army Inventory

Turnover Rates

7

Figure 3: The Army’s Repair Process for a Hydraulic Component 10

Figure 4: Multilayered Inventory System for Consumable Parts 11

Figure 5: CCAD Automated Distribution Warehouse 12

Figure 6: CCAD Maintenance Shop Inventory Storage Location 13

Figure 7: DOD Supply System at CCAD Compared to an

Integrated Supplier Concept

19

Figure 8: Current Repair Pipeline at CCAD 21

Figure 9: Best Practices Applied to the Army Repair Pipeline 22

Abbreviations

CCAD Corpus Christi Army Depot

DLA Defense Logistics Agency

DOD Department of Defense

Page 26 GAO/NSIAD-97-82 Inventory Management
Page 27 GAO/NSIAD-97-82 Inventory Management
Appendix I 

Comments From the Department of Defense

Page 28 GAO/NSIAD-97-82 Inventory Management
Appendix I 

Comments From the Department of Defense

Now on p. 23.

Now on p. 23.

Page 29 GAO/NSIAD-97-82 Inventory Management
Appendix I 

Comments From the Department of Defense

Now on p. 23.

Now on p. 23.

Page 30 GAO/NSIAD-97-82 Inventory Management
Appendix II 

Major Contributors to This Report

National Security and

International Affairs

Division, Washington,

D.C.

Charles I. (Bud) Patton, Jr.

Kenneth R. Knouse, Jr.

Dayton Field Office Robert L. Repasky

Matthew B. Lea

Frederick J. Naas

Dallas Field Office Robert C. Gorman

Robert D. Malpass

Page 31 GAO/NSIAD-97-82 Inventory Management
Related GAO Products

Inventory Management: Adopting Best Practices Could Enhance Navy

Efforts to Achieve Efficiencies and Savings (GAO/NSIAD-96-156, July 12, 1996).

Best Management Practices: Reengineering the Air Force’s Logistics

System Can Yield Substantial Savings (GAO/NSIAD-96-5, Feb. 21, 1996).

Inventory Management: DOD Can Build on Progress in Using Best Practices

to Achieve Substantial Savings (GAO/NSIAD-95-142, Aug. 4, 1995).

Commercial Practices: DOD Could Reduce Electronics Inventories by Using

Private Sector Techniques (GAO/NSIAD-94-110, June 29, 1994).

Commercial Practices: Leading-Edge Practices Can Help DOD Better

Manage Clothing and Textile Stocks (GAO/NSIAD-94-64, Apr. 13, 1994).

Commercial Practices: DOD Could Save Millions by Reducing Maintenance

and Repair Inventories (GAO/NSIAD-93-155, June 7, 1993).

DOD Food Inventory: Using Private Sector Practices Can Reduce Costs and

Eliminate Problems (GAO/NSIAD-93-110, June 4, 1993).

DOD Medical Inventory: Reductions Can Be Made Through the Use of

Commercial Practices (GAO/NSIAD-92-58, Dec. 5, 1991).

Commercial Practices: Opportunities Exist to Reduce Aircraft Engine

Support Costs (GAO/NSIAD-91-240, June 28, 1991).

(709176) Page 32 GAO/NSIAD-97-82 Inventory Management
Ordering Information

The first copy of each GAO report and testimony is free.

Additional copies are $2 each. Orders should be sent to the

following address, accompanied by a check or money order

made out to the Superintendent of Documents, when

necessary. VISA and MasterCard credit cards are accepted, also.

Orders for 100 or more copies to be mailed to a single address

are discounted 25 percent.

Orders by mail:

U.S. General Accounting Office

P.O. Box 6015

Gaithersburg, MD 20884-6015

or visit:

Room 1100

700 4th St. NW (corner of 4th and G Sts. NW)

U.S. General Accounting Office

Washington, DC

Orders may also be placed by calling (202) 512-6000 

or by using fax number (301) 258-4066, or TDD (301) 413-0006.

Each day, GAO issues a list of newly available reports and

testimony. To receive facsimile copies of the daily list or any

list from the past 30 days, please call (202) 512-6000 using a

touchtone phone. A recorded menu will provide information on

how to obtain these lists.

For information on how to access GAO reports on the INTERNET,

send an e-mail message with "info" in the body to:

info@www.gao.gov

or visit GAO’s World Wide Web Home Page at:

http://www.gao.gov

PRINTED ON RECYCLED PAPER
United States

General Accounting Office

Washington, D.C. 20548-0001

Official Business

Penalty for Private Use $300

Address Correction Requested

Bulk Rate

Postage & Fees Paid

GAO

Permit No. G100