United States General Accounting Office

GAO Testimony

Before the Subcommittee on National Security,

International Affairs, and Criminal Justice, Committee on

Government Reform and Oversight, House of

Representatives

For Release on Delivery

Expected at

9:30 a.m., EST

Thursday,

March 20, 1997

DEFENSE INVENTORY

MANAGEMENT

Problems, Progress, and

Additional Actions Needed

Statement by Henry L. Hinton, Jr., Assistant Comptroller

General, National Security and International Affairs

Division

GAO/T-NSIAD-97-109

Mr. Chairman and Members of the Subcommittee:

We are pleased to be here today to discuss defense inventory management

issues. We have identified defense inventory management as 1 of our 25

high-risk areas in the federal government because of vulnerabilities to

waste, fraud, and abuse.1

 As requested, our testimony will focus on (1) a

historical overview of defense inventory management problems;

(2) measures taken by the Department of Defense (DOD) to improve

inventory management; and (3) the actions DOD needs to aggressively take,

both near and long term, to solve long-standing inventory management

problems.

Background DOD’s secondary inventories include consumable supplies, such as

medical, hardware, food, and clothing items, that are discarded after use

rather than repaired. Secondary items also include reparable items that, if

damaged or worn, can be fixed or overhauled for less than the cost of new

items. Examples of these items are landing gear, hydraulic pumps, and

avionics, which are essential to a weapon system’s operation. In the past 5

years, we have issued a number of reports that address DOD inventory

management problems related to these inventories.2

The private sector, driven by today’s globally competitive business

environment, is faced with the challenge of improving its service while

lowering costs. As a result, many companies have adopted innovative

business practices to meet customer needs and retain profitability. Since

DOD is facing a similar challenge of providing better service at a lower cost,

it has also begun to reexamine its business practices. With the end of the

Cold War, the DOD logistics system must support a smaller, highly mobile,

high technology force with fewer resources. Also, due to the pressures of

budgetary limits and base closures, DOD must seek new and innovative

ways to make logistics processes as efficient and effective as possible. To

address fundamental management problems in the federal government,

1

In 1990, we began a special effort to review and report on the federal program areas 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 and Oversight, brought a much needed focus on problems that were costing the government

billions of dollars. We identified DOD’s secondary inventory management as a high-risk area at that

time because levels of unneeded inventory were too high and systems for determining inventory

requirements were inadequate.

2

See Related GAO Products.

Page 1 GAO/T-NSIAD-97-109
the Congress enacted landmark legislation3

 in the 1990s to establish broad

management reforms within the federal government. These reforms, if

implemented successfully, will help resolve high-risk problems, such as

inventory management, and provide greater accountability in many

government programs and operations. Through these reforms, the

Congress has laid the groundwork for the federal government to use

proven best management practices that have been successfully applied in

the private sector. The administration has embraced these management

reforms and made their implementation a priority.

Results in Brief Inventory management problems have plagued DOD for decades. Despite

numerous efforts on DOD’s part to correct these problems, we continue to

consider inventory management a high-risk area because it is vulnerable to

fraud, waste, and abuse. We recently reported that, as of September 30,

1995, about $34 billion, or about half of DOD’s $69.6 billion secondary

inventory, was not needed to support war reserve or current operating

requirements. Most of the problems that contributed to the accumulation

of this unneeded inventory still exist, such as outdated and inefficient

inventory management practices that frequently do not meet customer

demands, inadequate inventory oversight, weak financial accountability,

and overstated requirements. Because of these problems, we believe DOD’s

annual expenditure of approximately $15 billion for additional inventory is

at risk.

DOD recognizes that it needs to make substantial improvements to its

logistics system. While we continue to see pockets of improvement, as

evidenced by each service’s and the Defense Logistics Agency’s (DLA)

reengineering efforts, DOD has made little overall progress in correcting

systemic problems that have traditionally resulted in large unneeded

inventories. DOD top management needs to continue its commitment to

changing its inventory management culture so that it provides its forces

with necessary supplies in a timely manner while avoiding the

accumulation of unnecessary materials.

To effectively address its inventory management problems, DOD must

adopt a strategy that includes both short- and long-term actions.

3

These laws include (1) the expanded Chief Financial Officers Act of 1990 to prepare financial

statements that can pass the test of an independent audit and provide decisionmakers reliable

information, (2) the 1993 Government Performance and Results Act to measure performance and

focus on results, and (3) the 1995 Paperwork Reduction Act and the 1996 Clinger-Cohen Act to make

wiser investments in information technology.

Page 2 GAO/T-NSIAD-97-109
• In the short term, DOD must continue to emphasize the efficient operation

of its existing logistics systems. This includes reducing and disposing of

unneeded inventory, implementing efficient and effective inventory

management practices, training personnel in these practices and

rewarding the right behavior, improving requirements data accuracy, and

enforcing existing policies and procedures to minimize the acquisition and

accumulation of unnecessary inventory.

• In the long term, DOD must establish goals, objectives, and milestones for

changing its culture and adopting new management tools and practices. A

key part to changing DOD’s management culture will be an aggressive

approach to using best practices from the private sector. From our

discussions with more than 50 private sector companies, we identified

best practices which, if applied in an integrated manner, could help

streamline DOD’s logistics operations, potentially save billions of dollars,

and improve support to the military customer. In our opinion, DOD has not

been aggressive enough in pursing these practices. Recent DOD

reengineering efforts have not incorporated some of the most advanced

practices found in the private sector for reparable parts, and they have

been slow to adopt best practices for hardware items.

Overview of DOD’s

Inventory

Management

Problems

We have reported over the last 20 years on numerous problems dealing

with DOD’s secondary inventory management. We reported that much of

DOD’s unneeded inventory was acquired because of outdated and

inefficient inventory management practices. For consumable items, DOD

holds inventory in as many as four different layers to ensure items are

available to end users when needed—a philosophy some private sector

companies have moved away from in recent years. For reparable aviation

parts, DOD’s depot repair process is slow and inefficient. As a result, each

of the services can spend several months or even years to repair the parts

and then distribute them to the end user.

Much of DOD’s Inventory

Is Unneeded

As of September 30, 1995, DOD held inventories valued at a total of

$69.6 billion, of which about $34 billion was not needed for war reserve or

current operating requirements (see fig. 1). After a detailed analysis of

DOD’s inventory records, we reported in February 1997 that some of DOD’s

inventory could last for decades or may never be used. For example, we

identified about $14.6 billion of inventory that did not have projected

demands and therefore is likely never to be used. We calculated that

another $11.8 billion of inventory could last 2 to 10 years and $1.1 billion

of inventory could last at least 100 years.

Page 3 GAO/T-NSIAD-97-109
Figure 1: DOD Inventory (Sept. 30,

1995) 0.4%

Designated for Reuse or Disposal

$0.3 Billion

War Reserves and Current Operations

$35.7 Billion

48.4%

51.2%

Beyond War Reserves and 

Current Operations

$33.7 Billion

For example, as of September 1995, the Air Force had invested about

$472,000 for 4,177 wiring harnesses used on the airborne radio

communication system. Of these, 4,152 were not needed to satisfy war

reserve and current operating requirements. On the basis of projected

demand data, we determined that the unneeded harnesses represented 277

years of supply. According to the item manager, demand for the harnesses

decreased as modifications to the radio system were made. However,

some of the harnesses are being retained to support the military services,

the Coast Guard, and foreign military sales and to reconfigure other

radios. The item manager informed us that 3,822 harnesses have been

recommended for disposal.

In another example, DLA had 127 motor blower brakes on hand as of

August 1996. The brakes are used on the B-1B aircraft. Inventory records

showed that 101 brakes, valued at $4,110 each, were unneeded and

represented 101 years of supply. According to the item manager, 100

brakes were expected to be needed for fiscal year 1996. However,

Page 4 GAO/T-NSIAD-97-109
September 1996 records showed that only one had been used in the past

year. The item manager believed that the demands for the brakes are

cyclic because the contractor repairing the B-1B periodically orders the

parts in bulk.

To store and distribute this large inventory, DOD operates a worldwide

logistics system. In the United States alone, DOD operates about 25

distribution depots and other storage locations. Much of this storage space

is occupied with unneeded inventory. We reported in May 1995 that DOD

uses about 130 million cubic feet of storage space to store inventory that is

not needed to support current operations or war reserve requirements.

DOD estimated it took approximately 205 warehouses, each the size of over

2 football fields, to provide this space, at an estimated cost of $94 million

per year.

Downsizing of the military forces has contributed to some of DOD’s excess

inventory. However, we have also reported that DOD has wasted billions of

dollars on excess supplies. This problem resulted because inherent in

DOD’s culture was the belief that it was better to overbuy items than to

manage with just the amount of stock needed. The problems that have

contributed to billions of dollars of unneeded inventory still exist, such as

inadequate inventory oversight, weak financial accountability, and

overstated requirements. If DOD had used effective inventory management

and control techniques and modern commercial inventory management

practices, it would have lowered its inventory levels and it would have

avoided the burden and expense of storing excess inventory. Because

these problems still exist, we believe DOD’s annual expenditure of

approximately $15 billion for additional inventory is at risk.

Outdated Logistics System

for Consumable Items

Of DOD’s $69.6 billion inventory, about $19.2 billion is consumable

inventory stored at wholesale and retail facilities (see fig. 2). DOD’s large

inventory of consumable items reflects its philosophy of relying on large

stock levels to readily meet customer needs. As a result, DOD stores

inventory in as many as four different layers to provide items to end users

when needed. The first layer of inventory is the wholesale supply system.

The $14.5 billion inventory stored by DOD at this level can, in some cases,

satisfy the needs of the services for years. For example, we estimated that

DLA wholesale inventory for hardware items could last an average of about

2 years, based on fiscal year 1995 demands. At the retail level, the services

hold additional inventory valued at about $4.7 billion. This inventory is

stored in three different layers close to where the items are used—base

Page 5 GAO/T-NSIAD-97-109
warehouses, central storerooms, and end-user locations. As reported in

August 1995, service facilities we visited had retail stock on hand sufficient

to last from 1 month to over 5 years.

Figure 2: DOD Inventory Composition

(Sept. 30, 1995) Reparable Aircraft Parts

$40.8 Billion

Other Reparable Parts

$9.6 Billion

Personnel Items (Consumables)

$3.5 Billion

Other Consumable Items

$15.7 Billion

Total Inventory $69.6 Billion

Despite this large investment in inventory, DOD’s supply system frequently

fails to meet the needs of its “customer.” For example, at one Army repair

depot we visited, the base warehouse failed to fully satisfy customer

orders 75 percent of the time during the first 11 months of fiscal year 1996.

Also, as of February 1996, the Navy had almost 12,000 broken aircraft

parts, valued at $486 million, that it stopped repairing because parts were

not available to complete repairs. These items, which had been packaged

and moved to a warehouse next to the repair facility, had been storage for

an average of 9 months.

Inefficient Logistics

System for Reparable

Items

DOD’s depot repair pipeline for reparable parts is slow and inefficient.

Several factors contribute to these conditions. These factors are

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

Page 6 GAO/T-NSIAD-97-109
depot, (2) reparable parts are stored in warehouses for several months

before and after they are repaired, (3) work processes at repair depots are

inefficiently organized, and (4) consumable parts are not frequently

available to mechanics when needed. As a result, each of the services can

spend several months or even years to repair and distribute a repaired part

to the end user.

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

DOD must invest in enough inventory to resupply units with serviceable

parts during the time it takes to move and repair broken parts. As of

September 30, 1995, DOD’s reparable parts inventory was valued at about

$50 billion, of which about $41 billion was for aircraft component parts. If

DOD’s repair time were reduced, inventory requirements could also be

reduced. For example, an Army-sponsored RAND study noted that

reducing the repair time for one helicopter component from 90 to 15 days

would also reduce inventory requirements for that component from

$60 million to $10 million.

Additional Problems

Contributing to Unneeded

Inventory

Along with the outdated and inefficient practices discussed above, we

found instances where DOD still lacks adequate oversight of its inventory,

financial accountability remains weak, and requirements continue to be

overstated. These additional problems have contributed to DOD’s unneeded

inventory. For example:

• In August 1996, we reported that Navy managers did not have adequate

visibility over $5.7 billion in operating materials and supplies on board

ships and at 17 redistribution sites. We estimated that, because of the lack

of oversight, in the first half of 1995 item managers ordered or purchased

items in excess of operating level needs. As a result, the Navy will incur

unnecessary costs of about $27 million.

• We reported in March 1996 that the Air Force and the Navy budgeted

$132 million more than was needed for aviation spare parts because of

questionable policies concerning the determination of requirements and

the accountability for depot maintenance assets. The Air Force did not

consider $72 million of on-hand assets, and the Navy counted $60 million

in depot maintenance requirements twice.

• Regarding DOD’s financial accounting process and systems, the Secretary

of Defense, in his February 1996 annual statement of assurance required

by the Federal Managers’ Financial Integrity Act, identified inadequate

internal controls and other significant deficiencies, such as the use of a

variety of nonintegrated systems; inability of current systems to respond

Page 7 GAO/T-NSIAD-97-109
rapidly to change; lack of automated indicators that measure, or link costs,

performance measurements, or other output measurements; difficulties

with consistently valuing and reconciling physical inventories to financial

account balances; and inaccuracies in the valuation of property, plant, and

equipment.

DOD Has Made Some

Progress in Reducing

Inventory

DOD recognizes that it needs to make substantial improvements to its

logistics system. In fact, DOD’s goals, concepts, and top management

commitment to reengineer its business practices closely parallel those we

have seen in the private sector. Since fiscal year 1989, DOD has reduced

secondary inventory levels by $22.9 billion. While this is a significant

reduction, we believe much of it was the result of reduced force levels,

which reduced overall demands on the logistics system. DOD has made

little progress in developing the management tools to help solve its

long-term inventory management problems.

DOD recognizes that it can no longer continue its current logistics practices

if it is to effectively carry out its mission in today’s environment. For

example, Air Force officials stated that budgetary constraints in recent

years have led to substantial reductions in personnel, leaving the

remaining work force to deal with a logistics operation that has

traditionally relied on large numbers of personnel. DOD has also recognized

that, with the end of the Cold War, dramatic changes need to be made and

goals, objectives, and processes similar to those being used in the private

sector need to be established. Aggressively pursuing these goals would fit

into DOD’s plans to reduce infrastructure and operations and support costs

so that funds could be freed up to support its current weapons

modernization efforts.

Prime Vendor Programs for

Personnel Supplies

In response to our recommendations, DOD has adopted best practices to

improve the management of personnel items, but these initiatives impact

less than 3 percent of DOD’s secondary items. Between 1991 and 1995, we

issued a series of reports that identified and recommended ways DOD could

apply best management practices to personnel items. These reports

focused on improved partnerships between suppliers and DOD facilities,

principally through the use of prime vendors. A prime vendor provides

timely and direct delivery between customers and suppliers, and orders

additional stock from manufacturers on short notice, with quick

turnaround, to minimize inventory holding costs. This approach reduces

the need for DOD to stock and distribute inventory from multiple locations.

Page 8 GAO/T-NSIAD-97-109
Since 1993, DLA has taken steps to use prime vendors for personnel items.

One of DLA’s most successful initiatives has been the implementation of a

prime vendor program for medical supplies and pharmaceutical products.

We reported in 1995 that approximately 150 DOD hospitals and medical

treatment facilities were using prime vendors in 21 different geographic

regions across the United States. The use of this program has allowed DOD

to reduce stock levels at both wholesale and retail locations. Reducing

inventory levels has also enabled DOD to reduce the warehouse space

needed to store these items. At one storage depot alone, DLA reduced the

storage space used for medical and pharmaceutical items by about

40 percent over a 3-year period (see fig. 3).

Figure 3: Vacated DLA Warehouse - 1991 vs 1994

We estimate that between September 1991 and September 1996, DOD

reduced its pharmaceutical, medical, and surgical inventories and

associated management costs by about $714 million through the use of

Page 9 GAO/T-NSIAD-97-109
best practices, such as prime vendors. The majority of savings has resulted

from the issuance of medical supplies to military customers without

having to replace inventories through the purchase of additional stocks.

Similar prime vendor programs are being implemented for food and

clothing items.

The prime vendor program also enables DOD hospitals to reduce inventory

costs. For example, we reported in August 1995 that the Walter Reed Army

Medical Center, in addition to a $3.8 million reduction in pharmaceutical

inventories, saves over $6 million a year in related inventory management

expenses by using a prime vendor. In addition, as a result of the

elimination of inventories after the prime vendor program was established,

Walter Reed was able to convert a former warehouse holding medical

supplies into a medical training facility. (see fig. 4).

Figure 4: A Converted Warehouse at the Walter Reed Army Medical Center

Services’ Initiatives for

Improving Reparable Parts

Management

Each service is developing initiatives to improve the management of its

logistics pipeline for reparable aircraft parts to make their logistics

processes faster, better, and cheaper. For example:

• As we reported in 1996, the Air Force has described its “Lean Logistics”

initiative as the cornerstone of all future logistics system improvements.

These efforts, spearheaded by the Air Force Materiel Command, are aimed

at dramatically improving service to the end user while simultaneously

Page 10 GAO/T-NSIAD-97-109
reducing pipeline time, excess inventory, and other logistics costs. In

June 1996, the Air Force began testing certain practices through

demonstration projects at each of the five Air Logistics Centers. In fiscal

year 1997, the Air Force also plans to examine the application of an

integrated supplier program and other logistics practices we have

recommended.

• Under its regional supply and maintenance initiatives, the Navy is

identifying redundant capabilities and consolidating operations into

regionally based activities. In one region, the Navy is consolidating 

32 locations used to calibrate maintenance test equipment into 4 locations.

The Navy believes that eliminating the fragmented management approach

to supply management and maintenance will allow it to decrease

infrastructure costs by reducing redundancies and eliminating excess

capacity. The Navy also believes that moving away from highly

decentralized operations will better position it to improve and streamline

operations Navy-wide. The Navy has also established an initiative looking

at ways to reduce the amount of time it takes a customer to receive a part

after placing an order to the logistics system. We reported in July 1996 that

these initiatives were in the early phases, so broad-based improvements

had not yet occurred.

• The Army developed the “Velocity Management” program to speed up key

aspects of the logistics system and reduce the Army’s need for large

inventory levels. The Army established the program with 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. Under this program, the Army has established

Army-wide process improvement teams for the following four areas:

ordering and shipping of parts, the repair cycle, inventory levels and

locations, and financial management. Also, the Army is establishing

local-level site improvement teams under this program to examine and

improve the logistics operations of individual Army units.

Because these programs have only recently begun, they have had limited

impact in improving DOD’s overall logistics operations.

Page 11 GAO/T-NSIAD-97-109
Aggressive Actions

Are Needed to

Resolve

Long-Standing

Problems

On the basis of the work we have done comparing DOD and private sector

logistics practices, we believe substantial opportunities exist for DOD to

build on its current improvement efforts. Overall, DOD has been slow in

adopting new management practices for hardware items and has not

incorporated some of the most advanced practices found in the private

sector for reparable parts. From our discussions with more than 50

companies, we identified best practices that, if applied in an integrated

manner, could help streamline DOD’s logistics operations, save billions of

dollars, and improve support to the military customer. In the short term,

however, DOD must continue to emphasize the efficient operation of its

existing logistics systems. In the long term, DOD must establish goals,

objectives, and milestones for changing its culture.

Short-Term Solutions In the short term, DOD needs to continue emphasizing the efficient

operation of its existing inventory systems. As previously reported, this

includes committing to improved inventory management by top

management’s emphasis on (1) inventory indicators that highlight

reduction and disposal of unneeded inventory; (2) implementation of

efficient and effective inventory management practices; and (3) training

personnel in those practices and rewarding the right behavior, improving

the accuracy of data such as requirements and the quantity, condition, and

value of inventory items managed through current logistics and financial

systems, and aggressively enforcing existing policies and procedures that

will minimize the acquisition and accumulation of unnecessary inventory.

Long-Term Solutions In the long term, overall solutions include mapping a strategy for

completing its culture change initiatives; setting aggressive goals,

objectives, and milestones for identifying and implementing viable and

more cost-effective commercial practices for supplying its forces;

establishing goals, objectives, and milestones for determining where

outsourcing logistics functions represents a cost-effective and efficient

alternative to traditional methods; and providing inventory managers with

the automated, integrated accounting and management systems necessary

to manage its inventory in a world-class manner. These long-term

solutions will address systemic problems that have contributed to DOD’s

accumulation of unneeded inventory.

Organizational Culture

Challenges Facing DOD

To address and resolve the issues we have discussed today, DOD faces

major challenges as it pursues efforts to institutionalize a reengineered

Page 12 GAO/T-NSIAD-97-109
logistics system. The “corporate culture” within DOD has been traditionally

resistant to change. Organizations often find changes in operations

threatening and are unwilling to change current behavior until proposed

ideas have been proven. This kind of resistance must be overcome if the

services are to expand their concept of operations. DOD’s top management

needs to continue its commitment to changing its inventory management

culture so that it provides its forces with necessary supplies in a timely

manner while avoiding the accumulation of unneeded materials. We

believe that the adoption of best practices is key to changing DOD’s

inventory management culture.

DOD Has Been Slow in

Testing Best Practices for

Hardware Items

While DLA has taken steps to improve its logistics practices and reduce

inventories, such as through long-term contracting, direct vendor delivery,

and electronic commerce, more aggressive steps could provide better

customer service while reducing logistics costs. DLA has not made enough

progress with its $5.7 billion inventory of hardware items because it still

has large amounts of items, such as bolts, valves, and fuses, that cost

millions of dollars to manage and store. We estimate that this inventory

could satisfy DOD’s requirements for the next 2 years, assuming demands

remain constant. In contrast, some private sector companies we visited

maintain inventory levels that last only 90 days. These companies have

achieved these lean inventory levels and saved millions in operating costs

by developing innovative supplier partnerships that give established

commercial distribution networks the responsibility to manage, store, and

distribute inventory on a frequent, regular basis.

Although we recommended in 1993 that DOD pursue innovative

partnerships with its suppliers to reduce logistics costs, DOD is only now in

the initial stages of testing this type of partnership through its “Virtual

Prime Vendor” program for hardware supplies. If successfully

implemented, this concept could enable DOD to improve service to its

customers and reduce overall logistics costs. In our opinion, this program

is close to those efforts we have observed in the private sector and

provides DOD with an excellent opportunity to achieve greater inventory

reductions by minimizing the need to store inventory at wholesale and

retail locations (see fig. 5). If DOD were able to achieve similar

performance from this effort as those in the private sector, hardware

inventories and related management costs could be reduced by billions of

dollars and parts needed to complete repairs would be more readily

available to the end user.

Page 13 GAO/T-NSIAD-97-109
Figure 5: Traditional DOD Logistics System Compared to Best Management Practices

Manufacturers

Traditional Logistics System

Best Management Practices

End-users Military

Warehouses

Central

Storage

Locations

Manufacturers End-users

DLA

Wholesale

Depots

Key

Vendors

DLA

Wholesale

Depots

Military

Warehouses

Central

Storage

Locations

Flow of supplies

Orders

DOD Has Not Tested Most

Advanced Inventory

Practices for Reparable

Parts

In addition to the opportunities to improve the management of hardware

items, there are even greater opportunities to improve DOD’s management

of reparable parts. As of September 30, 1995, DOD held more than

$50 billion worth of these parts, but its efforts to streamline its logistics

system for them have not included key best practices we have identified.

Over the past 13 months, we have reported on the various problems with

DOD’s pipeline for reparable parts and on the substantial improvement

opportunities available to DOD. For example:

• In 1996, we examined 24 different types of Army aviation parts, and

calculated that the Army’s logistics system took an average of 525 days to

ship broken parts from field units to the depot, repair them, and ship the

repaired parts to using units. We estimated that all but 18 days

(97 percent) was the result of unplanned repair delays, depot storage, or

transportation time. We also calculated the Army uses its inventory six

times slower than a major airline, British Airways. That airline had

developed a process to move parts through its repair pipeline much faster.

For example, one part we examined had an Army repair pipeline time of

429 days; in contrast, British Airways was able to complete this process in

116 days. (see fig. 6).

Page 14 GAO/T-NSIAD-97-109
Figure 6: Comparison of British Airways’ and Army’s Repair Pipeline for a Gearbox Assembly

66 Days 111 Days 252 Days

British Airways

Part received at

repair center and

sent to storage or

maintenance shops

Part readied for

transport from base

Repaired part

turned into 

warehouse

In-transit Storage Time Shop Flow Awaiting parts/

queue time

Army

Total =

429 days

2 Days Total =

116 days

1 Day 113 Days

• In July 1996, we reported that the Navy’s repair process can create as

many as 16 time-consuming steps as parts move through the depot repair

pipeline. Component parts can accumulate at each step in the process,

which increases the total number of parts that are needed to meet

customer demands and to ensure a continuous flow of parts. By tracking

parts through each of the 16 steps and using the Navy’s flow time data, we

estimated that it could take, on average, about 4 months from the time a

broken part is removed from an aircraft to the time it is ready for reissue.

Our analysis did not include the amount of time parts were stored in

warehouses awaiting repair or issue to the customer.

• In February 1996, we reported that using its current logistics pipeline

process, the Air Force can spend several months to repair the parts and

then distribute them to the end user. One part we examined had an

estimated repair cycle time of 117 days; it took British Airways only 

Page 15 GAO/T-NSIAD-97-109
12 days to repair a similar part. (see fig. 7). The complexity of the Air

Force’s repair and distribution process creates as many as 12 different

stopping points and several layers of inventory as parts move through the

process. Parts can accumulate at each step in the process, which increases

the total number of parts in the pipeline.

Figure 7: Comparison of British Airways’ and the Air Force’s Repair Pipeline for a Landing Gear Component

2 Days

British Airways

Part received at

repair center and

sent to storage or

maintenance shops

Part readied for

transport from base

Repaired part

turned into 

warehouse

In-transit Storage Time Shop Flow Awaiting parts/

queue time

Air Force

Total =

117 days +

unknown

time

10 Days 0 Days Unknown 90 Days Unknown 15 Days

1 Day Total =

12 days

1 Day 1 Day Combined 9 Days Combined 0 Days

In our reports, we stated that DOD’s improvement efforts were not as

extensive as they could be because they have not incorporated the best

practices we have seen in the private sector. These best practices have

successfully reduced costs and improved logistics operations. We have

recommended that DOD test these concepts and expand them to other

locations, where feasible.

Page 16 GAO/T-NSIAD-97-109
The four specific practices described below are key to the overall

improvement of the reparable parts pipeline. For the companies we

visited, they have resulted in substantial logistics system improvements

and reduced costs. When used together in an integrated fashion, they can

help maximize a company’s inventory investment, decrease inventory

levels, and provide a more flexible repair capability. (see figs. 8 and 9).

Page 17 GAO/T-NSIAD-97-109
Figure 8: Current Repair Pipeline at the Corpus Christi Army Depot, Texas

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 18 GAO/T-NSIAD-97-109
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

• Third-party logistics services can assume warehousing and distribution

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

systems that would speed the shipment of parts between the 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.

Page 19 GAO/T-NSIAD-97-109
• 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.

• Innovative supplier partnerships, as discussed earlier, 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.

Summary Substantial opportunities exist for DOD to improve the management of its

$69.6 billion inventory as well as its $15 billion annual procurement of new

parts. To do this, DOD needs to pursue both short- and long-term goals. In

the short term, DOD needs to focus on improving the effectiveness of its

current inventory management systems, such as those affecting

requirements determination and inventory accountability. In the long term,

DOD must focus on goals and objectives that will dramatically change its

inventory management practices to provide a more cost-effective and

efficient system while maintaining readiness and sustainability goals. The

key to doing this is aggressively focusing on changing its culture and

adopting new leading-edge business practices. Recently enacted

legislation sets an overall framework within which DOD can establish

objectives and measures for achieving these short- and long-term

solutions. Close congressional oversight will continue to be a critical

element as DOD establishes plans, goals, objectives, and milestones for

addressing its inventory management processes.

Mr. Chairman, this concludes our statement. We would be happy to

answer any questions you or the Subcommittee may have.

Page 20 GAO/T-NSIAD-97-109
Page 21 GAO/T-NSIAD-97-109
Related GAO Products

Inventory Management: The Army Could Reduce Logistics Costs for

Aviation Parts by Adopting Best Practices (GAO/NSIAD-97-82, Apr. 15, 1997).

High-Risk Series: Defense Inventory Management (GAO/HR-97-5, Feb. 1997).

Defense Logistics: Much of the Inventory Exceeds Current Needs

(GAO/NSIAD-97-71, Feb. 28, 1997).

Defense Inventory: Spare and Repair Parts Inventory Costs Can Be

Reduced (GAO/NSIAD-97-47, Jan. 17, 1997).

Logistics Planning: Opportunities for Enhancing DOD’s Logistics Strategic

Plan (GAO/NSIAD-97-28, Dec. 18, 1996).

1997 DOD Budget: Potential Reductions to Operation and Maintenance

Program (GAO/NSIAD-96-220, Sept. 18, 1996).

Defense IRM: Critical Risks Facing New Materiel Management Strategy

(GAO/AIMD-96-109, Sept. 6, 1996).

Navy Financial Management: Improved Management of Operating

Materials and Supplies Could Yield Significant Savings (GAO/AIMD-96-94,

Aug. 16, 1996).

Inventory Management: Adopting Best Practices Could Enhance Navy

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

Defense Logistics: Requirement Determinations for Aviation Spare Parts

Need to Be Improved (GAO/NSIAD-96-70, Mar. 19, 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).

Defense Inventory: Opportunities to Reduce Warehouse Space

(GAO/NSIAD-95-64, May 24, 1995).

Best Practices Methodology: A New Approach for Improving Government

Operations (GAO/NSIAD-95-154, May 1995).

Page 22 GAO/T-NSIAD-97-109
Related GAO Products

Defense Business Operations Fund: Management Issues Challenge Fund

Implementation (GAO/NSIAD-95-79, Mar. 1, 1995).

Defense Supply: Inventories Contain Nonessential and Excessive

Insurance Stocks (GAO/NSIAD-95-1, Jan. 20, 1995).

Defense Supply: Acquisition Leadtime Requirements Can Be Significantly

Reduced (GAO/NSIAD-95-2, Dec. 20, 1994).

Reengineering Organizations: Results of a GAO Symposium (GAO/NSIAD-95-34,

Dec. 13, 1994).

Commercial Practices: Opportunities Exist to Enhance DOD’s Sales of

Surplus Aircraft Parts (GAO/NSIAD-94-189, Sept. 23, 1994).

Organizational Culture: Use of Training to Help Change DOD Inventory

Management Culture (GAO/NSIAD-94-193, Aug. 30, 1994).

Partnerships: Customer-Supplier Relationships Can Be Improved Through

Partnering (GAO/NSIAD-94-173, July 19, 1994).

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).

Defense Transportation: Commercial Practices Offer Improvement

Opportunities (GAO/NSIAD-94-26, Nov. 26, 1993).

Defense Inventory: Applying Commercial Purchasing Practices Should

Help Reduce Supply Costs (GAO/NSIAD-93-112, Aug. 6, 1993).

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).

Organizational Culture: Techniques Companies Use to Perpetuate or

Change Beliefs and Values (GAO/NSIAD-92-105, Feb. 27, 1992).

Page 23 GAO/T-NSIAD-97-109
Related GAO Products

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).

(709247) Page 24 GAO/T-NSIAD-97-109
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