GAO

United States General Accounting Office

Report to Congressional Committees

October 1999 DEFENSE 

INVENTORY

Improved 

Management 

Framework Needed to 

Guide Navy Best 

Practice Initiatives

GAO/NSIAD-00-1
Page 1 GAO/NSIAD-00-1 Defense Inventory

Contents

Letter 3

Appendixes Appendix I: Summary of Navy Initiatives 16

Appendix II: Comments From the Department of Defense 24

Appendix III: GAO Contacts and Staff Acknowledgments 26

Related GAO Products 27

Tables Table 1: Department of the Navy Initiatives' Status and Projected 

Completion Dates 9

Figures Figure 1: Department of the Navy's Supply Chain Cycles 6

Abbreviations

DOD Department of Defense
Contents

Page 2 GAO/NSIAD-00-1 Defense Inventory
Page 3 GAO/NSIAD-00-1 Defense Inventory

United States General Accounting Office

Washington, D.C. 20548

National Security and

International Affairs Division

B-281459 Leter

October 21, 1999

Congressional Committees

Section 347 of the Strom Thurmond National Defense Authorization Act for 

Fiscal Year 1999 requires the secretary of each military department to 

submit to Congress a schedule for implementing best commercial 

inventory practices for the acquisition and distribution of secondary 

inventory items.1

 Best commercial inventory practices are defined as 

practices that enable the military departments to reduce inventory levels 

while improving the responsiveness of the supply system to user needs. 

Section 347 further requires that the schedule provide for implementation 

of such best practices to be completed within 5 years of enactment, or by 

October 17, 2003. The section also requires us to evaluate the extent to 

which the secretary of each military department has complied with the 

act’s requirements.

In this report, we discuss our evaluation of the Department of the Navy’s 

best practices implementation schedule for the acquisition and distribution 

of secondary inventory items, which the Department of the Navy submitted 

to Congress on June 16, 1999. In our evaluation, we (1) determined the 

extent to which the schedule responds to the provisions of the act and

(2) identified specific elements of a management framework needed for 

effective implementation and oversight of the Department of the Navy’s 

best practice initiatives.

Results in Brief The Department of the Navy’s schedule is generally responsive to the act. 

Specifically, the schedule describes 25 initiatives that address the 

acquisition and distribution of secondary items managed by the Navy and 

the Marine Corps. These initiatives are primarily aimed at improving the 

Navy and Marine Corps planning, sourcing, delivery, and maintenance 

processes. While some of the initiatives did not include specific time 

frames to complete implementation, the Secretary of the Navy advised 

1

 Secondary inventory includes spare parts, clothing, and medical supplies to support 

Department of Defense (DOD) operating forces worldwide.
B-281459

Page 4 GAO/NSIAD-00-1 Defense Inventory

Congress that with few exceptions, implementation of the initiatives is 

expected to be completed by 2003.

Though generally responsive to the act’s requirements, the management 

framework that is outlined in the schedule lacks specific elements that are 

needed to assess implementation progress, measure success and identify 

needed changes. As a result, while the schedule describes an overall 

implementation strategy, it does not provide sufficient information for 

Congress and Defense managers to measure the progress and results of the 

initiatives. Also, the management framework contained in the schedule 

does not provide a clear link to top-level DOD improvement goals or 

provide details for periodic evaluation of an initiative’s progress. In our 

prior work, we noted that the lack of such information contributed to 

DOD’s difficulty in implementing new initiatives. The Government 

Performance and Results Act offers a model for developing an effective 

management framework to improve the likelihood of successfully 

implementing initiatives and assessing results.

To ensure that progress and results information is available to Congress 

and Defense managers, we are recommending that the Secretary of the 

Navy develop a Results Act management approach for implementing the 25 

initiatives.

Background To provide consumable and reparable parts for its ships, aircraft, and 

ground equipment, the Department of the Navy uses an extensive logistics 

system that is based on management processes, procedures, and concepts 

that have evolved over time. Reparable parts are expensive items that can 

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

engines, and landing gear. The naval logistics system, often referred to as a 

logistics pipeline or supply chain, involves several interrelated activities 

that play a role in providing parts where and when they are needed.2

 These 

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

which together require billions of dollars of investments in personnel, 

equipment, facilities, and inventory.

2

 The Navy also relies on this pipeline for consumable parts that are used extensively to fix 

reparable parts and end items such as ships and aircraft. The Defense Logistics Agency 

provides most of the consumable parts that Navy repair activities use and handles a large 

portion of the warehousing and distribution of reparable parts.
B-281459

Page 5 GAO/NSIAD-00-1 Defense Inventory

The Department of the Navy recognizes that focusing on integrated supply 

chains can optimize logistics support and improve the management of 

secondary inventory. Navy analysis has shown that in the private sector, 

world-class firms have demonstrated superior responsiveness to customer 

needs through integrated supply chains at about half the cost of their 

average industry segments. The Department of the Navy has identified four 

interrelated management cycles in its supply chain:

• Planning, which includes the forecasting of demand for items, and 

supply and distribution planning.

• Sourcing, which includes identifying sources of inventory to support 

acquisition, repair, and other services.

• Delivery, which involves ordering, storage, and transportation.

• Maintenance, which includes repairing weapon systems and component 

parts.

Figure 1 illustrates these cycles and their interrelationships.
B-281459

Page 6 GAO/NSIAD-00-1 Defense Inventory

Figure 1: Department of the Navy’s Supply Chain Cycles

Source: Department of the Navy section 347 report to Congress (June 16, 1999).

Since 1990, we have identified DOD’s management of secondary 

inventories as a high-risk area because levels of inventory were too high 

and management systems and procedures were ineffective.3 In addition, 

our financial statement audits have identified continuing significant 

problems with the integrity of DOD’s inventory data. For example, we 

reported that inaccurate inventory data resulted from weaknesses in the 

Delivery

•Order management

•Warehouse management

•Transportation management

•Delivery infrastructure management

Delivery

•Order management

•Warehouse management

•Transportation management

•Delivery infrastructure management

Sourcing

•Source material for acquisition, repair 

 and services.

• Manage sourcing infrastructure

 -Organic and commercial quality 

 contracts, vendor payment

Sourcing

•Source material for acquisition, repair 

 and services.

• Manage sourcing infrastructure

 -Organic and commercial quality 

 contracts, vendor payment

 

 Maintenance

•Execution 

 -Execute repair, ensure piece parts

 support, maximize capacity, test, and

 release.

•Manage infrastructure

 -Engineering changes, shop planning,

 facilities, and equipment.

 

 Maintenance

•Execution 

 -Execute repair, ensure piece parts

 support, maximize capacity, test, and

 release.

•Manage infrastructure

 -Engineering changes, shop planning,

 facilities, and equipment.

Planning

•Demand and supply planning

 - Aggregate and prioritize demand;

 assess supply resources; and plan

 inventory, distribution requirements,

 production and material.

•Manage planning infrastructure.

Planning

•Demand and supply planning

 - Aggregate and prioritize demand;

 assess supply resources; and plan

 inventory, distribution requirements,

 production and material.

•Manage planning infrastructure.

Four

Supply Chain

Cycles

Four

Supply Chain

Cycles

3

 In 1990, we began a special effort to review and report on the federal program areas that 

we identified as high risk because of vulnerabilities to waste, fraud, abuse, and 

mismanagement. This effort, which was supported by the Senate Committee on 

Government Affairs and the House Committee on Government Reform, brought a muchneeded focus to problems that were costing the government billions of dollars. 
B-281459

Page 7 GAO/NSIAD-00-1 Defense Inventory

Department’s procedures relied on to maintain visibility over, and conduct 

physical counts of, on-hand inventories. Until these problems are 

effectively resolved, DOD’s ability to reliably measure and assess 

performance will continue to be impaired.4 While DOD has made some 

improvements, these general conditions still exist and this area remains on 

our high-risk list.5 We have reported that adopting best business practices 

in inventory management along with improving the reliability of financial 

management information are key steps toward solving these problems.

Congress has recently taken specific actions to encourage DOD to adopt 

best commercial practices to improve its inventory management. The 

National Defense Authorization Act for Fiscal Year 1998 required the 

Director, Defense Logistics Agency, to develop and submit to Congress a 

schedule for implementing best commercial practices for the acquisition 

and distribution of nine categories of consumable-type supplies. The act 

also required that the schedule provide for the implementation of such 

practices to be completed by November 2000. As previously noted, the 

National Defense Authorization Act for Fiscal Year 1999 placed a similar 

requirement on the secretary of each military department. The military 

departments’ schedules are to provide for the implementation of such best 

practices to be completed by October 17, 2003.

DOD is working to adopt best practices in its operations. In November 

1997, the Secretary of Defense issued the Defense Reform Initiative report, 

which identified a number of reengineering initiatives aimed at adopting 

modern business practices to achieve world-class standards of 

performance. In addition, the DOD performance plan for fiscal year 2000 

notes that the inventory supply system is larger than required to support 

today’s smaller force structure and outlines goals to reduce inventory levels 

and streamline infrastructure. In March 1999, the Undersecretary of 

Defense (Acquisition Reform) stated that DOD needed “a revolution in 

business affairs...that embodies the best of modern business practices, the 

ability to access the full range and scope of technologies to meet the speed 

4 Results Act: DOD’s Annual Performance Plan for Fiscal Year 1999 (GAO/NSIAD-98-188R, 

June 5, 1998), DOD Financial Management: More Reliable Information Key to Assuring 

Accountability and Managing Defense Operations More Efficiently (GAO/ NSIAD-99-145, 

Apr. 14, 1999), and Department of Defense: Status of Financial Management Weaknesses 

and Actions Needed to Correct Continuing Challenges (GAO/NSIAD-99-171, May 4, 1999).

5 Major Management Challenges and Program Risks: Department of Defense

(GAO/OCG-99-4, January 1999).
B-281459

Page 8 GAO/NSIAD-00-1 Defense Inventory

and agility demanded by the new battlespace, and an absolute commitment 

to finding the best, most efficient means of delivering goods and services to 

our warfighters.” 

Department of the 

Navy’s Schedule 

Generally Responds to 

the Act’s Requirements 

The Department of the Navy’s schedule is generally responsive to the act. 

Specifically, the schedule describes initiatives that address the acquisition 

and distribution of secondary items managed by the Navy and the Marine 

Corps, and for some initiatives provides general information regarding 

completion dates. In submitting the schedule to Congress, the Secretary of 

the Navy stated that with few exceptions, implementation of the initiatives 

is expected to be completed by 2003. The schedule contains 25 initiatives 

that are primarily aimed at improving the Department of the Navy’s 

planning, sourcing, delivery, and maintenance management processes. For 

example, the Direct Vendor Delivery Program is designed to find 

alternative commercial methods of supplying inventory items that would 

lower overall costs, and the Maintenance Cycle Time Reengineering 

initiative is focused on improving maintenance operations that will result in 

reduced inventory levels, repair times and repair costs.

The schedule describes the status of the initiatives as new, developing, or 

mature. According to Navy officials, six initiatives are new, that is in the 

earliest stages of development and generally exploratory in nature. Another 

14 initiatives are categorized as developing, which means they have 

progressed to the point where viability of concept has been proven, 

business rules are being developed, and the initiatives will be expanded. 

The remaining five initiatives are considered mature because they have 

been under way for some time and are considered established business 

practices.

For each initiative, the schedule provides a general description, overall 

goals, planned actions and related milestones and describes desired 

outcomes. The schedule also estimates what portion of the existing 

inventory may be affected by each initiative. Many of the planned actions 

and milestones listed in the schedule relate to periodic program reviews, 

not specific implementation dates. For 10 initiatives, the schedule provides 

general information suggesting completion dates; while for 13 initiatives, 

specific completion dates could not be determined. For 2 of the 25 

initiatives, completion dates were scheduled for after the 5-year time frame 

required by the act. Table 1 summarizes the information related to initiative 

status and completion dates. (See app. I for a more detailed description of 

each initiative.)
B-281459

Page 9 GAO/NSIAD-00-1 Defense Inventory

Table 1: Department of the Navy Initiatives’ Status and Projected Completion Dates

Management 

Framework Is Key to 

Implementing 

Initiatives

Though generally responsive to the act’s requirements, the schedule 

provides a management framework that lacks specific elements that are 

needed to assess implementation progress, measure success, and identify 

needed changes. The management framework described in the schedule 

provides an overall strategy that links the initiatives to three general 

improvement goals and four supply chain functions. In addition, each 

Supply chain cycle 

targeted for 

improvement Initiative Status

Projected 

completion date

Planning Enterprise Resource Planning New Not indicated

Serial Number Tracking Developing Oct. 2003

Long-Term Contracting Mature Not indicated

Enhanced Sparing Model Developing 2003

Retention Level Review Mature March 2000

Material Requirement Review Developing Not indicated

Sourcing Total Asset Visibility, Navy Mature Sept. 2002

Total Asset Visibility, Marine Corps Mature Not indicated

Navy Electronic Commerce Online Developing June 1999

Readiness Support System New Not indicated

Contractor Logistics Support, Navy Developing Not indicated

Contractor Logistics Support, Marine Corps Developing June 2001

Direct Vendor Delivery Developing Not indicated

Electronic Servmart Shopping Developing Dec. 2001

Delivery Customer Wait Time Developing Not indicated

One Touch Supply Developing Sept. 1999

Regional Third Party Logistics Providers New Dec. 2000

Third Party Logistics Providers-Retrograde Management Developing Not indicated

Prime Vendor, Marine Corps Developing Not indicated

Maintenance Organic Industrial Enterprise Logistics Support New Not indicated

Maintenance Cycle Time Reengineering New June 2006

Modernization of Maintenance Information Support System Developing Oct. 2005

Manufacturing Resource Planning II Developing Sept. 2000

Rapid Retargeting New Not indicated

Logistics Engineering Change Proposals Mature Not indicated
B-281459

Page 10 GAO/NSIAD-00-1 Defense Inventory

initiative contains limited program evaluation and implementation 

milestones, such as dates for program reviews. The schedule does not 

provide, however, specific information needed to assess implementation 

progress, initiative results, or program evaluation plans. The Government 

Performance and Results Act can provide a model for developing an 

effective management framework to guide implementation of the initiatives 

and to provide Congress and DOD managers with information on progress 

and results.

The Schedule Provides a 

Limited Management 

Framework 

In our past work, we reported that the lack of a management framework 

contributed to DOD’s difficulty in implementing new initiatives. For 

example, we reported that DOD did not have an adequate management 

framework to clearly determine the progress being made in realizing the 

Total Asset Visibility initiative goals and that the initiative’s strategic and 

implementation plans were inadequate. As a result, DOD managers did not 

have a clear picture of what the initiative’s implementation status was or 

how initiatives within each service contributed to achieving overall DOD 

goals and objectives. In addition, we reported there was confusion over 

who would use the system and how it would be used.6

The Department of the Navy schedule presents the 25 initiatives within the 

context of an overall implementation strategy that addresses three 

improvement goals: enhancing customer support, reducing total ownership 

costs, and reducing infrastructure. As discussed earlier, this strategy also 

recognizes the relationship of these initiatives to four principal supply 

chain management functions and estimates the potential application of the 

initiatives to current inventory levels. This overall strategy is an important 

element of a management framework because it recognizes the 

interrelationship of the initiatives and their systemwide potential, which 

helps minimize potential conflicts and duplication of efforts. The schedule 

also indicates senior-level Navy officials will review the status of these 

initiatives semiannually and provide program updates to the Secretary of 

the Navy and to the Deputy Under Secretary of Defense for Logistics.

However, other framework elements necessary to assess implementation 

progress and measure success are not included in the schedule. 

Specifically, the schedule lacks objective and precise outcome measures 

6 Defense Inventory: DOD Could Improve Total Asset Visibility Initiative With Results Act 

Framework (GAO/NSIAD-99-40, Apr. 12, 1999).
B-281459

Page 11 GAO/NSIAD-00-1 Defense Inventory

that could be used to assess implementation progress and results. For 

example, for the Organic Industrial Enterprise Logistics Support initiative, 

the schedule identifies reductions of inventory requirements, total costs in 

the supply chain, and repair costs as desired outcomes but does not 

quantify these goals. Without this specific information, it is impossible to 

determine the magnitude or impact these initiatives may have on overall 

logistics operations and objective information regarding the initiatives’ 

implementation progress and achievement of their desired outcomes may 

not be available to Congress and to Defense managers.

Other management framework elements provided in the schedule are 

limited. Initiative goals and objectives in the schedule are not linked to 

specific DOD or Department of the Navy strategic logistics goals. 

Implementation milestones are in some cases very general, which will 

make it difficult to track implementation progress. Although the schedule 

contains dates for periodic program reviews for each initiative, it does not 

identify the general scope, methodology, or key issues to be addressed in 

these reviews.

Results Act Management 

Framework

The Results Act framework generally consists of establishing strategic 

plans, performance plans, and mechanisms for measuring program 

progress and results. Such a framework would include (1) establishing 

broad general initiative goals and objectives, (2) linking these goals to 

overall DOD goals and objectives, (3) establishing quantifiable 

performance measures to assess whether the initiatives are achieving 

desired results, (4) defining levels of accountability and responsibility for 

implementing the initiatives and identifying the resources that will be 

required to achieve goals, (5) establishing milestones necessary to measure 

progress toward full implementation, and (6) defining an evaluation plan 

for periodically comparing actual results to established goals and 

objectives. This information would allow Congress and other 

decisionmakers to measure initiatives’ implementation progress and to 

determine whether the initiatives are achieving their desired results.

In addition to these potential benefits, considering the initiatives as 

interrelated efforts maximizes their systemwide improvement potential. 

Our prior work on best inventory management practices has shown that 

efforts to reengineer a logistics system are more successful when various 

logistics activities are viewed as a series of interrelated processes rather 
B-281459

Page 12 GAO/NSIAD-00-1 Defense Inventory

than isolated functional areas.7 For example, when one airline began 

changing the way it purchased parts from suppliers, it considered how 

those changes would affect mechanics in repair workshops. Additionally, 

airline officials described how a combination of supply chain 

improvements could lead to continuous improvements. They described 

how culture changes, improved data accuracy, and more efficient 

processes led to reductions in inventories and complexity of operations. 

These reductions can lead to further efficiencies and process 

improvements.

Conclusions The schedule generally meets the requirements of the act by providing 

information on 25 initiatives that the Secretary of the Navy has advised 

Congress that, with few exceptions, are expected to be completed by 2003. 

In addition, the schedule presents an overall strategy to adopt best 

practices that is linked to general improvement goals and considers the 

improvement efforts in a supply chain management context. Executing this 

strategy and achieving the corresponding goals of reducing inventory levels 

while improving the responsiveness of the supply system to user needs will 

depend on the successful implementation of these initiatives. However, the 

management framework outlined in the schedule lacks specific elements 

needed to assess implementation progress, measure success, and identify 

needed changes. The Results Act provides a model for developing a more 

effective management framework that could provide this information and 

allow for meaningful evaluations of progress and results.

Recommendations To provide a mechanism to improve the potential for successfully 

implementing the initiatives and measure results, we recommend that the 

Secretary of Defense direct the Secretary of the Navy to improve the 

management framework for implementing the 25 initiatives based on the 

principles embodied in the Results Act. Specifically, this management 

framework should include

• direct links to top-level DOD goals and objectives, including objective 

and precise outcome measures related to reducing pipeline time, 

improving customer service, and reducing total inventory, and

7 Inventory Management: DOD Can Build on Progress by Using Best Practices for Reparable 

Parts (GAO/NSIAD-98-97, Feb. 27, 1998).
B-281459

Page 13 GAO/NSIAD-00-1 Defense Inventory

• clearly defined initiative goals, quantifiable performance measures, 

implementation schedule milestones including specific implementation 

dates, and key issues and methodologies that will be used to periodically 

assess the overall impact the initiatives have achieved in reducing 

inventory levels while improving the responsiveness of the supply 

system to user needs.

Agency Comments and 

Our Evaluation

In commenting on a draft of this report, DOD concurred with our 

recommendations and stated that the Department of the Navy’s schedule 

will be updated in the first quarter of 2000. This update will provide links 

between the schedule initiatives and the objectives set forth in DOD’s 

Logistics Strategic Plan, quantifiable performance measures, and specific 

initiative milestone dates where practicable. DOD noted, however, that 

several Navy initiatives are exploratory in nature and until they are tested, 

proven successful, and funded, implementation—and specific 

implementation dates—cannot be assured. DOD’s comments are included 

in their entirety as appendix II.

DOD did express concern that the draft report implied that the current 

management framework for implementing the initiatives is inadequate. 

DOD stated that the Navy’s current management framework is guided by 

the DOD Logistics Strategic Plan and the Navy’s High Yield Logistics 

Strategy and that the initiatives are subject to review within existing chains 

of command and at appropriate levels. Further, DOD cited results that have 

been achieved and asserted that such successes would not have been 

possible without an adequate management framework. We did not 

conclude that the Navy’s management framework was inadequate. 

However, we believe it can be improved, particularly in areas related to 

measuring progress and results. We have revised our conclusion to more 

clearly reflect our position.

Scope and 

Methodology

We based our analysis of the extent to which the schedule responds to the 

requirements of the act on the information in the schedule, discussions 

with Navy and Marine Corps officials, and our prior work comparing DOD 

and private sector logistics practices.

In addition to determining whether the schedule responds to the act, we 

identified areas in which it could be improved to guide initiative 

implementation and improve management of secondary inventory items. 
B-281459

Page 14 GAO/NSIAD-00-1 Defense Inventory

Specifically, we examined the schedule in terms of outcome-oriented 

Results Act principles to determine whether the schedule provides an 

overall strategy for adopting best practices and contains key management 

information to guide implementation. We did not assess the merits of the 

initiatives or the initiatives’ likelihood for success.

We interviewed officials and obtained information about ongoing and 

planned initiatives at Department of the Navy Headquarters, Washington, 

D.C.; the Navy Supply and Navy Inventory Control Point in Mechanicsburg 

and Philadelphia, Pennsylvania, respectively; the Fleet Industrial Supply 

Center, San Diego and Naval Aviation Depot North Island, California. We 

also obtained information from the Marine Corps Headquarters, Logistics 

and Installations, Navy Annex, Arlington, Virginia; the Marine Corps 

Logistics Base, Albany, Georgia; and Camp Pendleton, California. In 

addition, we used information from our related reports that have been 

issued since 1993.

We conducted our review from November 1998 to June 1999 in accordance 

with generally accepted government auditing standards.

We are sending copies of this report to the appropriate congressional 

committees; the Honorable William Cohen, Secretary of Defense; the 

Honorable Richard Danzig, Secretary of the Navy; Admiral Jay Johnson, 

Chief of Naval Operations; General James Jones, Commandant, Marine 

Corps; Lieutenant General Henry T. Glisson, Director, Defense Logistics 

Agency; and Jacob Lew, Director, Office of Management and Budget. 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. Key contributors to this report are listed in 

appendix III.

David R. Warren, Director

Defense Management Issues
B-281459

Page 15 GAO/NSIAD-00-1 Defense Inventory

List of Congressional Committees

The Honorable John Warner

Chairman

The Honorable Carl Levin

Ranking Minority Member

Committee on Armed Services

United States Senate

The Honorable Ted Stevens

Chairman

The Honorable Daniel K. Inouye

Ranking Minority Member

Subcommittee on Defense

Committee on Appropriations

United States Senate

The Honorable Floyd Spence

Chairman

The Honorable Ike Skelton

Ranking Minority Member

Committee on Armed Services

House of Representatives

The Honorable Jerry Lewis

Chairman

The Honorable John P. Murtha

Ranking Minority Member

Subcommittee on Defense

Committee on Appropriations

House of Representatives
Page 16 GAO/NSIAD-00-1 Defense Inventory

Appendix I

Summary of Navy Initiatives AAppenendxdieixIs

The Department of the Navy’s best practices implementation schedule lists 

25 initiatives, including 22 for the Navy and 3 for the Marine Corps, and 

links the initiatives to the four supply chain cycles that they will affect. 

These cycles are planning, sourcing, delivery, and maintenance. According 

to Navy officials, the plan is dynamic and specific milestones and dates will 

be updated as necessary. This appendix summarizes the information 

contained in the schedule submitted to Congress on June 16, 1999. Because 

these initiatives are not centrally managed and tracked by the Department 

of the Navy, information regarding the current status of each initiative was 

not readily available and is therefore not presented in this appendix.

Planning Initiatives Six initiatives relate to the planning cycle that includes demand forecasting 

and supply and distribution planning functions. Some of these initiatives 

are primarily related to information technology, while others deal with 

evaluations of current inventory policies. For example, the serial number 

tracking initiative is focused on developing technology to provide 

integrated maintenance and supply information on specific items in the 

Navy inventory. The Retention Level Review initiative is designed to reduce 

inventory by evaluating the amount of secondary material that should be 

retained based on a prudent level of risk.

Enterprise Resource 

Planning

Enterprise resource planning is a new initiative to explore the possibility of 

replacing existing supply and maintenance software with a complete new 

resource planning software package. According to the schedule, the 

concept development milestone was reached in March 1999, and a request 

for proposal was issued in May 1999. Proposal evaluation, metrics review, 

and an initial contract award were scheduled during the June-August 1999 

period, and periodic program reviews are planned through October 2002.

Serial Number Tracking This is a developing initiative to provide integrated maintenance 

management information systems. The existing maintenance and supply 

information systems are separate and distinct and collect different types of 

data. This initiative is designed to gather maintenance and supply data on 

specific inventory items and use that information to identify logistics 

deficiencies and develop least cost solutions and increase readiness. 

According to the schedule, between September 1999 and October 2003, the 

Navy plans to establish this capability at all levels of aircraft maintenance. 

Periodic program reviews are also planned during this period.
Appendix I

Summary of Navy Initiatives

Page 17 GAO/NSIAD-00-1 Defense Inventory

Long-Term Contracting This is a mature initiative for reducing the amount of time it takes to place 

and receive an order for a secondary item. Under this initiative, the Navy 

establishes a long-term contractual relationship with a vendor, that permits 

the vendor to procure material to reduce production lead times and reduce 

the Navy’s administrative lead times. The schedule shows the Navy planned 

to perform a metrics review in July 1999, complete a plan of action with 

milestones by September 1999, and conduct periodic program reviews 

through October 2002.

Enhanced Sparing Model This initiative is to reduce inventories of spares by improving configuration 

data management and new modeling techniques. The initial effort will 

apply to the F/A-18E/F aircraft and selected subsystems during fiscal years 

1999-2003. The schedule shows that through October 1999, the Navy plans 

to establish new allowance requirements, revise allowances, and identify a 

strategy for improved configuration data management software changes. 

After that date, milestones call for periodic program reviews through 

October 2002.

Retention Level Review This is a mature initiative designed to evaluate the amount of secondary 

inventory that the Department of the Navy should retain. The goal is to 

reduce the amount of inventory the Navy holds while minimizing the risk 

that it would have to buy inventory that it previously decided was not 

needed. The schedule states that from July to December 1999, the Navy 

plans to conduct a metrics review, develop the concept, perform a 6-month 

program review, and analyze inventory levels. It plans to implement new 

inventory retention levels in March 2000 and perform annual program 

reviews through October 2002.

Material Requirements 

Review

Using this developing initiative, the Navy intends to identify the optimum 

amount of spare repair parts and consumables to be carried on combat 

logistics force ships by making trade-offs between inventory levels and 

transportation requirements. By reducing order and ship time, the potential 

exists to reduce inventory requirements without affecting readiness. 

According to schedule milestones, the Navy planned to identify alternatives 

between March and May 1999, make recommendations to proceed in 

October 1999, and perform periodic program reviews through October 

2002.
Appendix I

Summary of Navy Initiatives

Page 18 GAO/NSIAD-00-1 Defense Inventory

Sourcing Initiatives The schedule lists eight initiatives that relate to the sourcing cycle. The 

sourcing cycle includes acquiring items, repair services, and managing 

contracts. Some of these initiatives involve identifying and distributing 

assets in inventory, while others are designed to find alternative 

commercial methods of supplying inventory items at lower costs to the 

Department of the Navy. For example, Navy and Marine Corps total asset 

visibility initiatives are aimed at achieving visibility in wholesale, retail, and 

other inventories so that they can be redistributed, if necessary. Under the 

contract logistics support initiative, the Navy and the Marine Corps award 

contracts to commercial vendors who provide inventory directly to 

customers in time to meet their requirements, thus reducing the need for 

Department of Defense (DOD) resources.

Total Asset Visibility--Navy The Total Asset Visibility program is a mature initiative, which began in the 

early 1990s.1 The program is designed to link inventory information 

systems to improve asset visibility and provide an inventory redistribution 

capability. The initiative requires modifications to information systems and 

new business rules governing inventory redistribution procedures. 

According to the schedule, the Navy will complete a number of total asset 

visibility projects by September 2002, and make periodic program reviews 

through October 2002.

Total Asset Visibility--

Marine Corps

This is also a mature initiative involving various efforts since 1991 to 

identify and distribute assets. DOD goals have been incorporated, 

development and testing of systems and procedures have been conducted, 

and visibility and redistribution systems have been fielded. Additional 

milestones in the schedule call for expanding implementation, completing 

prototype capability design, and performing a full program review in June 

2001.

Navy Electronic Commerce 

Online

This developing initiative is to provide an electronic procurement system 

that is simple to use, is accessible through the Internet or other networks, 

and can be completely paperless. The Navy expects the system to make 

procurements faster, more accurate, and less expensive. According to the 

1 Defense Inventory: DOD Could Improve Total Asset Visibility Initiative With Results Act 

Framework (GAO/NSIAD-99-40, Apr. 12, 1999).
Appendix I

Summary of Navy Initiatives

Page 19 GAO/NSIAD-00-1 Defense Inventory

schedule, the system has been deployed to Naval Inventory Control Point 

users, to some Navy Fleet Industrial Supply Centers, and to Marine Corps 

logistics bases. Further deployments were planned through June 1999, and 

program reviews are scheduled on an annual basis through October 2002.

Readiness Support Systems This is a new initiative aimed at simplifying access to a wide variety of new 

business practices. The Navy intends to establish a single electronic 

clearinghouse to forward support requests to the correct contractor or 

DOD organizations. According to the schedule, testing was completed in 

May 1999, a prototype was to be implemented in August 1999, and periodic 

program reviews are planned through October 2002.

Contractor Logistics 

Support, Navy

Using this developing initiative, which is focused primarily on new 

acquisition weapon systems, the Navy negotiates a contract with a 

commercial vendor at or below the total cost of traditional supply support. 

The vendor is required to buy new inventory or buy out the Navy’s existing 

inventory and provide material directly to customers. According to the 

schedule, the Navy has planned various phases and milestones from May to 

December 1999 related to business case and metrics development and 

software programming changes to support the initiative. The Navy plans to 

identify candidates for contractor logistics support in March 2000 and 

perform periodic program reviews through October 2002.

Contractor Logistics 

Support, Marine Corps

This is a developing initiative to use a commercial contractor for logistics 

support for a major weapon system. The contractor will be responsible for 

supplying repair parts, providing inventory forecasting, and technical 

support, and reporting on the status of orders. According to the schedule, 

the Marine Corps expects to award a sole-source contract with the original 

equipment manufacturer during the first quarter of fiscal year 2000. The 

Marine Corps has established milestones for initial operational testing and 

evaluation in the third quarter of fiscal year 2000, to be followed by 

quarterly program reviews and implementation of contractor logistics 

support for the new vehicle in the third quarter of fiscal year 2001.

Direct Vendor Delivery This is a developing initiative to award contracts to commercial vendors to 

provide inventory directly to Navy customers in time to meet their needs, 

reducing the use of Navy resources. The Navy conducted business case 

development in May 1999 and planned a metrics review in July 1999. It also 
Appendix I

Summary of Navy Initiatives

Page 20 GAO/NSIAD-00-1 Defense Inventory

plans to conduct a 6-month review to address barriers to success in 

October 1999, complete requests for process changes in December 1999, 

identify candidates for the initiative in March 2000, and perform periodic 

program reviews through October 2002.

Electronic Servmart 

Shopping

This is a developing initiative to implement an online ordering system that 

allows fleet customers to access and order materials from their computers 

and make payments using a purchase card. Orders can be delivered to 

customers or prepared for pickup the next day, eliminating the need for 

trips to the self-service Servmart stores. According to the schedule, the 

concept has been implemented at five facilities, and it will be implemented 

at three additional facilities in September 1999. The Navy plans a 6-month 

program review to address barriers to success in October 1999. The 

initiative will be expanded to remaining Fleet Industrial Supply Centers in 

December 2000 and to other Navy activities in December 2001. Periodic 

program reviews are scheduled through October 2002.

Delivery Initiatives The schedule lists five initiatives under the delivery management cycle. The 

delivery cycle includes ordering, storage, and transportation of items in 

addition to managing the delivery infrastructure. Two initiatives deal with 

information technology systems and the other three use third-party 

providers for specific inventory items. For example, the Marine Corps’ 

prime vendor initiative uses contractors to provide market ready or 

commercial supplies in medical, subsistence, automotive, and other 

business areas to a wide range of Marine Corps customers.

Customer Wait Time This is a developing initiative for speeding up the delivery of parts that are 

needed for maintenance. The Navy intends to track the time from the 

ordering of a part to its delivery, develop a strategy for different shore 

facilities and deployment sites, then optimize the Navy’s investment in 

spare parts. The schedule indicates a metrics review for July 1999 and 

periodic program reviews through October 2003.

One Touch Supply This developing initiative allows customers to use the Internet to access 

various Navy databases at different facilities as a means to expedite the 

ordering and delivery of supplies. A customer can locate stock, input 

requisitions, perform technical screening, and check on requisition status. 
Appendix I

Summary of Navy Initiatives

Page 21 GAO/NSIAD-00-1 Defense Inventory

The initiative was started in November 1997, and the Navy planned to add 

the capability to access Defense Logistics Agency databases in August 1999 

and other Navy databases in September 1999. Periodic program reviews are 

scheduled through October 2003.

Regional Third Party 

Logistics Providers

This is a new initiative to use a single contractor, rather than many, to 

provide customers with inventory that is readily available in the 

commercial sector. A desired outcome of this initiative is lower inventory 

levels and related infrastructure. Norfolk/Tidewater, Virginia regional 

locations under consideration for this initiative include Public Works 

Center supply, Naval Shipyard shop stores, and in the future, Naval Air 

Station pre-expended bins. The schedule shows that in March and April 

1999 the Navy was to complete a business case analysis and solicit vendor 

bids. Selection of a third-party provider is scheduled for September 1999 

and a 6-month review is planned for October 1999. The strategy is to be 

assessed, refined, and expanded to other regions and to the Navy supply 

system between April and December 2000, and program reviews are 

scheduled through October 2002.

Third Party Logistics 

Providers−Retrograde 

Management

This developing initiative uses a single third-party logistics provider to 

reduce the amount of Navy reparable secondary items in the pipeline. The 

method for achieving this initiative is an A-76 competition in the area of 

transportation. Concept development and vendor solicitations were 

scheduled for April 1999, and a business case analysis was set for May 1999. 

A 6-month program review to address barriers to success and potential 

worldwide implementation is planned for December 1999. Periodic 

program reviews are planned between April 2000 and October 2002.

Prime Vendor, Marine Corps This is a developing initiative to select vendors that can provide marketready or commercial supplies to a wide range of customers. Prime vendor 

arrangements normally take advantage of existing commercial distribution 

networks that can be tailored to the individual customer. The Marine Corps 

has implemented and/or planned prime vendor programs in nine logistics 

business areas: subsistence, medical/pharmaceutical/dental, maintenance 

repair operations, industrial, automotive overseas, fleet automotive 

support, lumber/wood products, individual clothing and combat 

equipment, and food service equipment. The number of locations involved 

varied. The schedule states the Marine Corps plans to develop a future site 
Appendix I

Summary of Navy Initiatives

Page 22 GAO/NSIAD-00-1 Defense Inventory

implementation plan between August and November 1999 and has ongoing 

actions to monitor and expand prime vendor opportunities.

Maintenance Initiatives The schedule lists six initiatives relating to the maintenance cycle. This 

cycle includes repairing weapon systems and component parts and 

managing the maintenance infrastructure. Two of these initiatives are 

related to reengineering maintenance processes, two are information 

technology related initiatives, and two are focused on redesigning spare 

parts.

Organic Industrial 

Enterprise Logistics 

Support

This is a new initiative to assess commercial industry’s interest in providing 

industrial support to the aviation depots and to solicit concepts for doing 

so. The initiative encompasses the entire logistics supply chain for material 

supply support to the Naval Aviation Depots. The Navy schedule calls for 

completion of a business case analysis and validation of any selected 

concepts in January 2000, with subsequent implementation of any proven 

concepts. The projected milestone date for award of an implementation 

contract is July 2000. Annual program reviews are planned through 

October 2002.

Maintenance Cycle Time 

Reengineering

This is a new initiative to reengineer selected Navy aviation maintenance 

processes. As a result of a Naval Air Systems Command’s activity based 

cost analysis, the Navy established separate business process 

reengineering teams for material management, aviation depot planning and 

scheduling, and component repair. These teams are to document the 

current processes, determine what the reengineered processes should look 

like, and conduct business case analyses to support the merits of revised 

processes. The schedule calls for implementation of the reengineered 

processes in October 1999 and completion of aviation depot cellular repair 

organizations in March 2001 and reengineering initiatives in June 2006.

Modernization of 

Maintenance Information 

Support System

This developing initiative is to modernize the Navy information system 

used to manage organizational and intermediate-level aviation maintenance 

activities both ashore and afloat. The schedule indicates that the Navy 

began fielding the modernized system in fiscal year 1998 and that the 

system will be installed at a small percentage of maintenance activities by 

October 1999. Operational testing is scheduled for December 1999. The 
Appendix I

Summary of Navy Initiatives

Page 23 GAO/NSIAD-00-1 Defense Inventory

system is scheduled to be installed at additional sites by October 2000 and 

at all sites by October 2005.

Manufacturing Resource 

Planning II

This is a developing initiative to improve resource planning through the use 

of an automated information management system. This system provides 

planning, scheduling, capacity, and other information to reduce repair cycle 

time and eliminate excess inventory. The Navy selected its aviation depot in 

Jacksonville, Florida, as the prototype location, and it plans to expand 

coverage to the other aviation depots by September 2000. Annual program 

reviews are planned through October 2002.

Rapid Retargeting This new initiative invests in a technology to redesign obsolete components 

in order to provide new hardware for sea and aviation weapon systems. 

This concept may be applied to other DOD organizations and agencies that 

may have a similar requirement. According to the schedule, the Navy has 

developed criteria for selecting components for the program. Additionally, 

the schedule called for a review of program metrics in July 1999, a 6-month 

program review to address barriers to success in October 1999, and 

subsequent annual program reviews through October 2002.

Logistics Engineering 

Change Proposals

This is a mature initiative that uses engineering change proposals 

sponsored by the Naval Inventory Control Point to introduce enhanced 

technology, redesign items, or improve repair processes. The objective of 

this initiative is to reduce or eliminate support costs while maintaining or 

improving safety and performance. According to the schedule, a 

memorandum of agreement with fleet customers was scheduled to be 

completed in March 1999. Also, a metrics review was planned for July 1999, 

a 6-month program/budget review to address barriers to success was 

scheduled for October 1999, and periodic program reviews are scheduled 

through October 2002.
Page 24 GAO/NSIAD-00-1 Defense Inventory

Appendix II

Comments From the Department of Defense ApendixI
Appendix II

Comments From the Department of Defense

Page 25 GAO/NSIAD-00-1 Defense Inventory

Now on p. 12.

Now on p. 13.
Page 26 GAO/NSIAD-00-1 Defense Inventory

Appendix III

GAO Contacts and Staff Acknowledgments ApendxiI

GAO Contacts Charles Patton (202) 512-4412

Robert Repasky (202) 512-9868

Acknowledgments In addition to those named above, Lionel Cooper, Gary Kunkle, Thaddeus 

Rytel, and William Woods made key contributions to this report.
Page 27 GAO/NSIAD-00-1 Defense Inventory

Related GAO Products

Inventory Management: More Information Needed to Assess DLA’s Best 

Practice Initiatives (GAO/NSIAD-98-218, Sept. 2, 1998).

Inventory Management: DOD Can Build on Progress by Using Best 

Practices for Reparable Parts (GAO/NSIAD-98-97, Feb. 27, 1998).

Defense Inventory Management: Expanding Use of Best Practices for 

Hardware Items Can Reduce Logistics Costs (GAO/NSIAD-98-47, 

Jan. 20, 1998).

Inventory Management: Greater Use of Best Practices Could Reduce DOD's 

Logistics Costs (GAO/T-NSIAD-97-214, July 24, 1997).

Inventory Management: The Army Could Reduce Logistics Costs for 

Aviation Parts by Adopting Best Practices (GAO/NSIAD-97-82, 

Apr. 15, 1997).

Defense Inventory Management: Problems, Progress, and Additional 

Actions Needed (GAO/T-NSIAD-97-109, Mar. 20, 1997).

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).

(709382) Letr
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 37050

Washington, DC 20013

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 (202) 512-6061, or TDD (202) 512-2537.

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
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. GI00