United States General Accounting Office

GAO Report to the Secretary of Defense

January 1997 DEFENSE

INVENTORY

Spare and Repair Parts

Inventory Costs Can Be

Reduced

GAO/NSIAD-97-47

GAO United States

General Accounting Office

Washington, D.C. 20548

National Security and

International Affairs Division

B-275462 

January 17, 1997

The Honorable William J. Perry

The Secretary of Defense

Dear Mr. Secretary:

This report discusses how the military services can reduce their spare and

repair parts storage and holding costs by consolidating and/or disposing of

inventory that is not needed to meet current operating and war reserve

requirements or is requested infrequently.

The scope and methodology of our review are described in appendix I.

Background The Army, the Navy, and the Air Force have about 632,000 line items of

spare and repair parts inventory, valued at $83.5 billion,1

 that are available

for general issue.2

 The majority of the general issue spare and repair parts

items are stored at a few major locations that are managed and operated

by the Defense Logistics Agency (DLA), with the remaining being stored at

hundreds of other service-managed locations. To illustrate, over

95 percent of the value of the Army’s general issue inventory is stored at 

7 major locations and the remaining 5 percent is at 110 other locations.

The Navy stores 81 percent of its inventory at 6 locations, the other

19 percent at 52 locations. The Air Force’s storage pattern is similar to the

other services. About 96 percent of its inventory is stored at 6 major

locations and the other 4 percent at 105 locations. At the DLA storage

locations, DLA performs the receipt, storage, and issue functions and bills

the services for performing these functions. The services are also billed for

the storage space assigned to them for their items. The storage costs range

from $0.48 a square foot to $5.15 a square foot depending on whether it is

open or covered storage. DLA’s accounting system tracks storage costs only

in total by type of storage space assigned, not item-by-item.

Results in Brief Most of the services’ inventory items stored at nonmajor locations are in

small quantities. In fact, over 53 percent of the items were in quantities of

1

The value was determined by multiplying the inventory quantity shown in the inventory master data

files by the unit price.

2

General issue inventory is available for issue to the services’ customers. It does not include inventory

stored at contractor or the services’ maintenance facilities, inventory reserved for special projects, or

war reserve inventory.

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B-275462 

3 or less, while only 25 percent were in quantities of 11 or more. However,

the inventory at the nonmajor locations is valued at over $8.3 billion.

The need for many of the items stored at nonmajor locations is

questionable. Of the $8.3 billion of inventory at the nonmajor locations,

$2.7 billion of it was not needed to meet the services’ current operating

and war reserve requirements. Our analysis also showed that many of the

Army items3

 were infrequently issued over the 2-year period ending

August 1996. Over 53 percent of the items at nonmajor storage locations

had no issues and an additional 33 percent of the items had less than five

issues during the same 2-year period.

Maintaining inventory that is not needed is expensive and does not

contribute to an effective, efficient, and responsive supply system. Based

on our analysis, we estimate the services could save about $382 million

annually in inventory holding costs by eliminating inventory at nonmajor

locations that is not needed to meet current operating and war reserve

requirements.

Services Have Small

Quantities of

Inventory Stored at

Numerous Locations

The Army, the Navy, and the Air Force own and manage about 632,000 line

items of general issue spare and repair parts. These items have an

inventory quantity of about 108 million, an inventory value of $83.5 billion,

and are stored at 229 different locations by service as shown in table 1.

Table 1: Storage Locations, Quantities,

and Value of Army, Navy, and Air

Force General Issue Inventory

Dollars in millions

Service

Number of

storage locations

Number of

line items Quantities Value

Army 117 83,759 42,234,665 $10,185.8

Navy 58 310,762 33,557,388 33,696.8

Air Force 111 237,460 32,288,896 39,596.9

Total 286a 631,981 108,080,949 $83,479.5

aThe same item may be stored at more than one location. As a result, the 286 storage locations

actually represent 229 separate and distinct storage locations.

Even though the services’ general issue inventories are stored at numerous

locations, the vast majority of the items are concentrated at a few major

3

Information was not readily available from the Air Force and the Navy to determine the number of

inventory issues on an item-by-item basis at each storage location.

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B-275462 

locations. As shown in table 2, the value of the general issue inventory at

the other-than-major storage locations is relatively small. However, it is

still worth over $8.3 billion.

Table 2: Value of General Issue Inventory by Type of Storage Location

Inventory Inventory

Major storage locations Other storage locations

Dollars in millions

Service Number Line items Quantity Value Number Line items Quantity Value

Army 7 81,747 39,464,486 $9,642.2 110 11,159 2,770,179 $543.6

Navy 6 239,781 16,631,104 27,359.3 52 154,069 16,926,284 6,337.5

Air Force 6 222,972 30,680,542 38,163.0 105 19,097 1,608,354 1,433.9

Total 19 544,500a 86,776,132 $75,164.5 267 184,325a 21,304,817 $8,315.0

aThe same line item could be stored at both a major and nonmajor storage location. For that

reason, the sum of line items at the major and nonmajor storage locations is greater than the

number of line items shown in table 1.

Our analysis of the items stored at nonmajor locations showed that the

majority of items had small quantities on hand. As shown in table 3, over

53 percent of the items (147,232 of the 276,750) had an on-hand inventory

of 3 or less, while about 25 percent of the items (69,173 of the 276,750) had

quantities of 11 or more.

Table 3: Number of Items Stored at Nonmajor Locations by Frequency of Inventory on Hand

Number of items stored at nonmajor locations with a quantity of:

Service

Number of

line itemsa 1 2 3 4-6 7-10 11+

Army 14,532 4,657 2,282 1,230 1,923 1,162 3,238

Navy 242,087 76,715 35,083 18,693 32,029 19,310 60,257

Air Force 20,131 3,247 3,856 1,469 3,374 2,547 5,638

Total 276,750 84,619 41,221 21,392 37,326 23,019 69,173

aBecause some items are stored at multiple locations with different quantities on hand, the

number of line items in tables 2 and 3 will not agree.

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B-275462 

Some Inventory at

Nonmajor Storage

Locations Is Not

Needed and Is Issued

Infrequently

Our analysis of the general issue inventory at nonmajor storage locations

showed that over $2.7 billion of it was excess to the amount needed to

meet current operating and war reserve requirements. For these items,

there was sufficient inventory on hand at the major storage locations to

meet the peacetime operating and war reserve requirements. If the items

are not needed to meet current operating and war reserve requirements,

then the question is why the services continue to store them and incur the

inventory storage and holding costs.

Table 4 shows the extent of the inventory at nonmajor storage locations

that is not needed to meet current operating and war reserve

requirements.

Table 4: General Issue Inventory at

Nonmajor Storage Locations Not

Needed to Meet Current Operating and

War Reserve Requirements Inventory at nonmajor storage locations that is excess to current

operating and war reserve requirements

Dollars in millions

Service Number of line items Inventory quantity Inventory value

Army 4,735 897,638 $169.2

Navy 95,989 11,945,962 2,398.0

Air Force 2,981 298,260 176.7

Total 103,705 13,141,860 $2,743.9

The following is an example of inventory at a nonmajor storage location

that is not needed to meet current operating and war reserve

requirements. An Army truck engine for a commercial cargo vehicle, unit

price of $7,010, has a current operating and war reserve requirement of

214. There are 360 engines on hand at 4 major storage locations and an

additional 543 engines on hand at 2 nonmajor storage locations. The truck

engine and its container occupy about 53.6 cubic feet and the total storage

space occupied by the 543 engines at the two nonmajor locations is 

29,104 cubic feet. Because the quantity of engines at nonmajor storage

locations is not needed to meet the current operating and war reserve

requirements, these engines could be disposed of, storage space could be

freed up, and storage costs could be reduced.

Our analysis of the general issue inventory at nonmajor storage locations

also showed that many of the items are issued infrequently. DLA classifies

inventory items that have not been requested in the past 24 months as

dormant. DLA routinely requests the services to review their dormant stock

to determine if the stock is still needed. Our analysis of the frequency of

inventory issues at nonmajor storage locations showed that over 53

Page 4 GAO/NSIAD-97-47 Defense Inventory
B-275462 

percent of the Army items,4 with an inventory value of $144 million, had no

issues for the 2-year period ending August 1996. Another 33 percent of the

items, with an inventory value of $132 million, had 5 or fewer issues during

the same 2-year period. The fact that the number of items issued from

these storage locations is relatively small raises the question of why the

Army continues to store the inventory items there. Table 5 shows the

frequency of issues for the Army’s general issue inventory items at the

nonmajor storage locations.

Table 5: Frequency of Army Inventory Issues for the 2-Year Period Ending August 1996

Number of items with:

Service

Number of

itemsa 0 issues 1-5 issues 6-10 issues 11-15 issues 16 or more issues

Army 11,159 5,950 3,695 894 416 541

aThe number of line items will not agree with the total number of issues because the same item

may be stored at more than one location and could have had a different number of issues at each

location. In such cases, the number of issues would be cumulative.

The following example illustrates the type of items that are stored at the

nonmajor storage locations and have not had any issues during the past 

2 years.

• An electronics unit, unit price of $12,532, which is used on the multiple

launch rocket system has an on-hand balance of 11 at 4 nonmajor storage

locations. This item has not been issued from the four locations during the

past 2 years. Therefore, there is no need to maintain these items at the four

storage locations and incur storage costs.

Maintaining Unneeded

Inventories Is

Expensive and Does

Not Contribute to

Supply Effectiveness

Maintaining inventory that is not needed or is issued infrequently is

expensive. DLA’s charge for covered storage is $5.15 a square foot. The

charge is not based on the space the particular item occupies but rather

the square footage assigned to it. To illustrate, if a pack of washers is being

stored in a bin, the storage cost is based on the bin size and not the

number of washer packs in the bin. Therefore, if washers are being stored

at numerous locations, a storage cost is charged at each location even

though all the washers could be consolidated into one location.

According to DLA officials, the Base Realignment and Closure

Commission’s reductions in force structure have resulted in the depots

4

The Navy and the Air Force does not maintain inventory issue data by storage location. As a result, we

could not determine the number of issues for the Navy and the Air Force items stored at nonmajor

storage locations.

Page 5 GAO/NSIAD-97-47 Defense Inventory
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experiencing considerable increases in materiel returns and redistribution

orders. As a result, the Department of Defense’s storage space occupancy

goal of 85 percent5

 is being exceeded by some depots.

In an attempt to address this problem, DLA performed a study to identify

ways to free up storage space and reduce storage costs by disposing of

items that are not needed. The DLA Defense Distribution Region West’s

analysis of 3,130 dormant line items of inventory at its storage facilities

showed that by eliminating the dormant line items, over 126,000 square

feet of storage space could be freed up and the services could save an

estimated $989,000 in storage costs—an average savings of about $316 per

line item.6

 It should be noted that the DLA analysis only covered one of its

regions and only addressed the dormant stock. It did not address those

situations where inventory quantities could be consolidated into fewer

storage locations. Therefore, the potential savings in storage costs would

be much greater on a DLA-wide basis.

During our visit to a storage location, we noted numerous examples where

storage bins capable of holding many items contained only a few. Our

analysis of the services’ inventory data showed that 31 percent of the

276,750 items stored at nonmajor locations had only 1 unit on hand. In

total, 53 percent of the items stored at these locations had three or less on

hand. In addition, the same items were also stored at other locations and

the on-hand quantities at all the locations often exceeded the current

operating and war reserve requirements. The following examples illustrate

the inefficiencies of storing small quantities of items, many of which are

unneeded, at multiple storage locations.

• One $2.96 nonmetallic bumper that is used on the main gun of the Bradley

fighting vehicle was the only item in a standard, small storage bin. The bin,

which occupies 1.83 square feet of space, can hold 259 nonmetallic

bumpers. Based on the least expensive form of covered storage of 

$5.15 per square foot, it costs the Army $9.42 a year to store the $2.96 item.

Our review of Army inventory records showed that there are 1,675 stored

at 2 other locations. The Army’s requirement for this item is 1,271.

Therefore, 404 of the items are excess to the Army’s needs. Additionally,

over the past 2 years, there have been only three issues of this item and

5

When the storage occupancy rate exceeds 85 percent, warehousing efficiency is affected as items

must be moved and relocated in order to make room for incoming items. In turn, the frequent

movement of items can result in items being lost or misplaced.

6

The storage cost savings ($989,000) divided by the number of dormant line items (3,130) equals a line

item cost of about $316.

Page 6 GAO/NSIAD-97-47 Defense Inventory
B-275462 

none of the issues were from the storage location where the single item

was stored.

• Two small bolts, unit price of $9.30, were being stored in a bin capable of

holding 200 bolts. The bolt, which is used on the MQM 107 target drone, is

also stored at 2 other locations and the total on-hand quantity is 499 versus

a current operating and war reserve requirement of 8. During the last 

2 years, there has only been 1 issue for 20 of the bolts and that was from a

storage location other than the one visited.

• One ring spacer with a unit price of $0.93 was being stored in a bin that

could accommodate 177 spacers. This item, which is used on the engine

for the OH-58 helicopter, is also stored at 2 other locations and the

on-hand quantity is 137 versus a current operating and war reserve

requirement of 102. In the past 2 years, there have been two issues for a

total quantity of six, none of which were from the storage location visited.

• Two nonmetallic grommets with a unit price of $2.33 were being stored in

a bin that can accommodate 20 items. The item, which is used on air

delivery equipment, is also stored at another location and the total

on-hand quantity is 480 versus a current operating and war reserve

requirement of 54. During the past 2 years, there have been 4 issues of the

grommet for a total quantity of 20. None of the issues were from the

storage location visited.

DLA officials said that from a cost-effectiveness and supply responsiveness

standpoint, it is not necessary to store items at multiple locations. They

said that the services should not be concerned where the stock is

physically located if DLA can meet the services’ response requirements.

However, under the services’ current inventory stocking policies, the

services direct where the items are stored. Consequently, this does not

always result in the most economical and cost-effective storage decisions.

The DLA officials believed that if the decision as to where the stock should

be stored was vested with DLA, better stocking decisions would be made

and storage costs would be reduced. Based on our analysis of the number

of items stored at nonmajor storage locations, the number of items not

needed to meet current operating and war reserve requirements, and the

number of items that are issued on an infrequent basis, we would agree

that better decisions are needed concerning where inventory should be

stored.

In addition to the cost to store inventory, the services incur holding costs.

The services calculate a variable holding cost on an item-by-item basis to

Page 7 GAO/NSIAD-97-47 Defense Inventory
B-275462 

identify those items that are more economical to stock than not to.7 Using

the services’ data, we estimate that the services could save about

$382 million in holding costs by eliminating inventory at nonmajor

locations that is not needed to meet current operating and war reserve

requirements as shown in table 6.

Table 6: Annual Inventory Holding

Cost for Items Not Needed to Meet

Current Operating and War Reserve

Requirements

Dollars in millions

Service Number of line items Annual holding cost

Army 4,735 $57.7

Navy 95,989 319.5

Air Force 822a 4.5

Total 101,546 $381.7

aThe Air Force only calculates holding costs for consumable items; the other services calculate

holding costs for reparable as well as consumable items. For this reason, the number of Air Force

items shown above does not agree with the number of items shown in table 4.

Recommendations We recommend that the Secretary of Defense direct the service secretaries

to:

• Begin to consolidate the warehousing of identical items that are not

needed or infrequently issued at fewer storage locations. This can be

accomplished over time by filling item requests by depleting the stock at a

particular location or locations, disposing of unneeded items, and not

restocking the items at those locations.

• After consolidating the warehousing of items not needed or infrequently

requested, determine whether all storage facilities are needed. If facilities

are no longer needed, take actions to close them.

Agency Comments The Department of Defense concurred with a draft of this report. It said

that DLA was coordinating with the military services to reengineer the

distribution system with the objectives of providing greater

responsiveness to the customer and increasing efficiencies in receiving,

storing, and shipping spare parts inventories. The Department also stated

that these increased efficiencies should reduce the number of required

storage facilities. To accomplish these objectives, the military services will

be requested to review the items stored in multiple locations, which are

7

The annual holding cost for an item represents the unit cost of an item multiplied by the variable cost

to hold factor (cost of funds invested in inventory, losses due to obsolescence, other inventory losses,

and storage costs) multiplied by the quantity on hand.

Page 8 GAO/NSIAD-97-47 Defense Inventory
B-275462 

either not needed or infrequently issued in order to identify opportunities

for consolidation.

As you know, 31 U.S.C. 720 requires the head of a federal agency to submit

a written statement on actions taken on our recommendations to the

House Committee on Government Reform and Oversight and the Senate

Committee on Governmental Affairs not later than 60 days after the date of

this report. A written statement must also be submitted to the House and

Senate Committees on Appropriations with the agency’s first request for

appropriations made more than 60 days after the date of the report.

We are sending copies of this report to the Secretaries of the Army, the

Navy, and the Air Force; the Commander of DLA; and the Director, Office of

Management and Budget. Copies will also be sent to the Chairmen and

Ranking Minority Members, House Committee on Government Reform and

Oversight, Senate Committee on Governmental Affairs, House and Senate

Committees on Appropriations, House Committee on National Security,

Senate Committee on Armed Services, and House and Senate Committees

on the Budget.

Please contact me on (202) 512-5140 if you have any questions concerning

this report. Major contributors to this report are listed in appendix II.

Sincerely yours,

Mark E. Gebicke

Director, Military Operations

 and Capabilities Issues

Page 9 GAO/NSIAD-97-47 Defense Inventory
Appendix I 

Scope and Methodology

We reviewed and analyzed master data files from the Army, the Navy, and

the Air Force to identify the number of spare and repair parts they

manage. From these files, we determined the on-hand inventory available

for general issue and the storage locations of the general issue inventory.

We arrayed the inventory by storage location and dollar value in

descending order to identify natural break points for determining which

storage locations should be considered major storage locations and which

nonmajor.

Using the above information for the inventory at the nonmajor storage

locations, we determined whether the on-hand inventory was excess to the

current operating and war reserve requirements. In making this

determination, we first applied the inventory at the major storage

locations to the requirements. In those cases where the inventory at the

major locations was not sufficient to satisfy the requirements, we then

applied inventory from the nonmajor storage locations. Any remaining

inventory at these storage locations was considered excess to the current

operating and war reserve requirements.

We used the item transaction history data files, which show all requests

for an item for the past 24 months, to assess the frequency of requests for

items at the nonmajor storage locations. We then compared the results of

this analysis to a similar analysis of frequency of request for the same

items at the major storage locations in order to determine the extent that

items at the nonmajor storage locations are infrequently requested.

We also interviewed service and DLA officials and reviewed internal studies

and reports to determine their views on the potential for consolidating

and/or eliminating inventory items that are not needed or are infrequently

requested.

Our review was conducted between March and November 1996 in

accordance with generally accepted government auditing standards.

Page 10 GAO/NSIAD-97-47 Defense Inventory
Appendix II 

Comments From the Department of Defense

Page 11 GAO/NSIAD-97-47 Defense Inventory
Appendix III 

Major Contributors to This Report

National Security and

International Affairs

Division, Washington,

D.C.

Sharon A. Cekala

Robert J. Lane

Kansas City Field

Office

Leonard C. Hill1 Robert C. Sommer

Richard E. Burrell

Mark T. Amo

(703136) Page 12 GAO/NSIAD-97-47 Defense Inventory
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