Defense Inventory: DOD Needs Additional Information for Managing War Reserve Levels of Meals Ready to Eat
Published: 2015-05-07T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Department of Defense (DOD) maintains WRM to reduce reaction time and sustain forces in future military operations. WRM is managed by DLA and the military services. WRM is intended to meet short-term needs until supply pipelines are established. Cost-effective management of WRM that maintains war-fighting capabilities is important as the department faces budget constraints and changes in force structure.
Senate Report 113-176, accompanying S. 2410, a proposed bill for the National Defense Authorization Act for Fiscal Year 2015, included a provision for GAO to review the management of DOD's WRM. This report examines (1) how DOD determines WRM requirements for DLA-managed items, (2) the extent to which DLA has the information needed for MRE inventory decision making, and (3) any strategies DLA pursues to balance cost with readiness in supplying WRM. GAO obtained information from the services on their processes for identifying WRM requirements, reviewed DLA's inventory-management processes and related guidance, and interviewed DLA and military service officials.
section_title: What GAO Found
paragraphs: The military services determine their war reserve materiel (WRM) requirements for Defense Logistics Agency (DLA)-managed items based on operational plans that support warfighting scenarios and other inputs such as deployment schedules and equipment-usage data. WRM can include repair parts, construction equipment and supplies, and chemical protection suits, among other items. Service officials stated that changes to troop end strength, force posture, and force structure could over time be reflected in operational plans, but these factors are more long-term influences than the primary drivers of service WRM requirements for DLA-managed items. DLA compares service WRM requirements against its assets to identify the level of available inventory, including any potential inventory shortfalls, and communicates this information to the military services, which use it to inform their procurement decisions.
DLA monitors various types of data to manage Meals Ready to Eat (MRE), but it lacks other analysis and information that could be useful for managing this category of WRM. DLA monitors data such as purchases from industry and sales to the military services and currently has a yearly purchase objective of 2.5 million MRE cases. Service officials have expressed concerns that in light of changing needs resulting from budgetary effects and reduced end strengths, it may be difficult for the services to consume MREs in the future at a rate that will prevent disposals due to expiring shelf life. However, DLA has not conducted an analysis of the MRE industry to determine the level of purchases needed annually to sustain the industrial base while retaining the ability to meet a surge in requirements. Without conducting an analysis that provides more information on industry capabilities, DLA does not have reasonable assurance that it is balancing readiness and budget priorities with the need to sustain the industrial base in the most efficient way. DLA acknowledges in its strategic plan for MRE inventory that sharing information about the military services' usage patterns among DLA and the services will be vital to making purchase decisions. While the military services provide DLA with their estimated future demand for MREs, DLA does not obtain information from the services, as part of existing coordination efforts, about potential changes to MRE consumption and disposals that could affect future demand. Without obtaining this information from the military services, DLA may be limited in its ability to optimize the supply chain across the department.
DLA uses various supply-chain strategies to balance cost with readiness in meeting the need for items identified as WRM and needed for surges associated with new contingencies or crises. For instance, DLA continues to stock certain types of items, such as those that are military-unique or of limited availability, but seeks to contract for fast access to those items that are readily available on the commercial market, such as medical supplies. Further, for many years DLA has sought to facilitate and improve access to certain items through its Warstopper Program, which addresses weaknesses in certain supply chains, such as MREs, by making targeted investments in industry that guarantee DLA access to materiel and enable industry to increase production when needed.
section_title: What GAO Recommends
paragraphs: To assist with DOD's decision making regarding MRE inventory levels, GAO recommends that DLA conduct analysis to obtain information on MRE industry capabilities and request information on MRE consumption and disposals is shared among DLA and the services as part of existing coordination with the services. DOD concurred with GAO's recommendations.

section_title: Letter
paragraphs: The Department of Defense (DOD) maintains war reserve materiel  (WRM) to reduce reaction time and sustain forces in future military  operations. WRM may be prepositioned overseas or aboard ships,  stored in DOD warehouses as part of general-issue stocks, or obtained  from the commercial market. WRM is generally intended to meet short- term requirements until supply pipelines are established. With the  potential for budget reductions and an expected decline in military force  structure over the next few years, it will be important for DOD to maintain  effective war-fighting capabilities while avoiding excess costs and finding  efficiencies where possible. With regard to WRM, it is important that  military forces have access to the critical items they need before regular  lines of supply are established. Thus, DOD must carefully balance costs  with ensuring rapid access to inventory critical for responding to a crisis or  new military operation. DOD guidance calls for acquiring, sizing,  managing, and positioning WRM to maximize flexibility while minimizing  investment.
WRM is managed by the military services and the Defense Logistics  Agency (DLA). The military services are responsible for managing and  funding their own WRM programs. However, they rely on DLA for certain  items it manages that could be needed for a military operation. DLA  manages about one-fifth of DOD’s total secondary inventory, including  spare parts for military equipment and supplies such as medical items,  fuel, clothing, combat rations, and construction equipment.generally does not separate WRM stock from its other inventory. Rather,  WRM stock is comingled with other inventory and DLA issues these  stocks in response to customer requisitions, whether for peacetime needs  or in response to a surge requirement related to a military operation. DLA  manages certain WRM items differently than others. For example, Meals  Ready to Eat (MRE)—a type of operational food ration—are managed as  a special category of WRM due in part to their shelf-life limitations. DLA  acquires MREs and manages the MRE level of inventory for the  department until the MREs are sold to one of its customers, such as a  military service.
Senate Report 113-176, accompanying S. 2410, a proposed bill for the  National Defense Authorization Act for Fiscal Year 2015, included a  provision for us to review the management of DOD’s war reserve stocks.  This report examines (1) how DOD determines WRM requirements for  DLA-managed items and inventory available to meet these requirements;  (2) the extent to which DLA has information needed for decision making  on managing MRE inventory levels; and (3) any strategies DLA is  pursuing to balance cost with readiness in supplying DLA-managed  WRM.
To describe how DOD determines WRM requirements for DLA-managed  items and inventory available to meet these requirements, we reviewed  DOD, service, and DLA guidance on WRM management. Through  reviews of service-specific guidance and briefings and interviews with  service officials, we obtained information about the services’  requirements-determination processes and the key inputs into these  processes. We met with DLA officials to obtain information on how they  use the service-generated requirements, including their processes for  identifying inventory available to meet WRM requirements and any  associated potential shortfalls.  We obtained and analyzed DLA  inventory stratification reports covering fiscal years 2009 through 2014  that included information on WRM requirements, inventory levels, and   To assess the reliability of the data, we  potential shortfalls over time.reviewed DOD requirements for inventory reporting and discussed the  stratification reports with DLA officials. We determined that the  stratification reports provided sufficiently reliable data for the purposes of  reviewing service WRM requirements levels in comparison to DLA’s other  categories of inventory.
To assess the extent to which DLA has information needed for decision  making on managing MRE inventory levels, we reviewed DOD WRM  management guidance and guidance specific to the subsistence supply  chain (which includes MREs) as well as standards for internal control in  the federal government related to effective program management and  decision making. We reviewed documents including a 2013 DLA study on WRM levels for MREs and DLA’s 2013 strategy for MREs.  Additionally, we interviewed officials from DLA and the services who  manage MREs and discussed, among other things, the types of  information they share for managing inventory levels. We obtained and  analyzed data on MREs from DLA Troop Support, including MRE  purchases, sales, and on-hand inventory to determine trends from fiscal  years 2007 through 2014. To assess the reliability of the data, we  reviewed DLA requirements for tracking MRE-related information and  discussed with DLA officials the processes followed to monitor MRE  purchases, sales, and on-hand inventories. We also reviewed any  inconsistent information (e.g., out-of-range and missing data) with DLA  officials to mitigate any issues identified with the data. Based on these  interviews with DLA officials and our review, we determined that the data  are of sufficient reliability to describe any trends in MRE inventory. We  also met with representatives from the MRE industry to gain their  perspectives.
To identify any strategies DLA is pursuing to balance cost with readiness  in managing WRM, we focused on the following DLA supply chains:  construction and equipment; clothing and textile; industrial hardware;  medical; and subsistence. We selected these five of DLA’s nine supply  chains because they represent a range of items and management  strategies. We analyzed relevant DOD and DLA guidance and met with  officials at DLA Troop Support, Philadelphia, Pennsylvania, who manage  these supply chains to obtain information on their strategies for managing  items and meeting WRM requirements; what considerations may explain  differences in the strategies used to manage WRM; and what initiatives, if  any, could result in supply-chain efficiencies. We reviewed information  that detailed the size and scope of supply chains and documents that  included briefings on any recent changes to management strategies or  improvements to effectiveness or efficiency as a result of management  strategies.
We conducted this performance audit from September 2014 to May 2015  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
subsections: section_title: Background
subsections: section_title: DOD Supply Chain
paragraphs: The DOD supply chain is a global network that provides materiel,  services, and equipment to the joint force. DOD’s supply-chain  responsiveness and reliability affect the readiness and capabilities of  military forces and are critical to the overall success of joint operations.  Inventory management, a key component of the DOD supply chain, is the  process of determining requirements and procuring, managing,  cataloging, distributing, overhauling, and disposing of materiel. DOD  manages more than 5 million secondary inventory items, with a reported  value of approximately $98 billion as of the end of fiscal year 2013.  Management and oversight of DOD inventory is a responsibility shared  among the Under Secretary of Defense for Acquisition, Technology and  Logistics within the Office of the Secretary of Defense; DLA; and the  military services. The Under Secretary of Defense for Acquisition,  Technology and Logistics and its subordinate, the Assistant Secretary of  Defense for Logistics and Materiel Readiness, are responsible for  developing materiel-management policies and ensuring their  implementation in a uniform manner throughout the department, while  DLA and the services are responsible for implementing DOD policies and  procedures for materiel management. As of the end of fiscal year 2013,  the Army, Navy, and Air Force were responsible for about $78 billion of  DOD’s secondary inventory, while DLA was responsible for inventory  valued at about $19 billion.
section_title: DLA Inventory Management
paragraphs: DLA manages, integrates, and synchronizes suppliers and supply chains  to provide materiel to the military services, allies, and multinational  partners. DLA manages mostly consumable items—those that are  normally expended or intended to be used up beyond recovery or  repair—for the military services. DLA provides support across nine  diverse supply chains: aviation, clothing and textile, construction and  equipment, energy, land, maritime, medical, industrial hardware, and  subsistence. To carry out its responsibilities, DLA manages a global  network of distribution depots that receive, store, and issue a wide range  of commodities owned by the military services, General Services  Administration, and DLA. DLA functions through the use of a working  capital fund that relies on sales revenue rather than direct appropriations  to finance its continuing operations.
DOD guidance requires DLA to assess the ability of the inventory to meet  the military services’ requirements and ensure that surplus inventories are  kept only if warranted. The guidance also requires the services and DLA  to group their item inventories into several specific categories, according  to the purpose for which they are held. The categorization is designed to  provide visibility of DOD inventory requirements, assets (on-hand and on- order), demand, and overages or shortfalls. As specified in DOD  guidance, the key inventory categories include the approved acquisition  objective, including WRM, and three categories that exceed the approved  acquisition objective—economic retention stock, contingency retention  stock, and potential reutilization stock.
Approved acquisition objective: The quantity of an item authorized for  peacetime and wartime requirements to equip and sustain U.S. and  allied forces, including inventory categorized as WRM.
Economic retention stock: Materiel that has been calculated to be  more economical to keep than to dispose of and repurchase because  it will likely be needed in the future.
Contingency retention stock: Materiel retained to support specific  contingencies, such as supporting foreign military sales, future military  operations, disaster relief or civil emergencies, or mitigating risk  associated with diminished manufacturing sources or nonprocurable  stock.
Potential reutilization stock: Items that have been identified for  possible disposal but have potential for reuse and are under review  for transfer to DLA Disposition Services.
section_title: Military Services’ WRM Programs
paragraphs: The military departments are responsible for supplying, organizing,  training, and equipping the force. To carry out this responsibility, they are  to procure and manage inventory to support the maintenance of their  equipment and to equip the force. Each of the four services has its own  organizations responsible for managing inventory. Similarly, the services  are responsible for managing and funding their WRM programs and  procuring certain WRM items, while they rely on DLA to provide certain  items it manages that could be needed for a military operation. DOD  guidance states that service-owned WRM items are to be stored as either  starter stocks or swing stocks. DOD guidance does not specifically  define the period that is to be supported by WRM, and the services use  various periods, such as 60 days, for planning purposes, but this figure  can vary by service and item. (App. I provides an overview of the  services’ WRM programs.)
section_title: Meals Ready to Eat
paragraphs: MREs are a type of individual combat, or operational, food ration that is  designed to sustain servicemembers engaged in heavy activity. It is  considered a primary food ration for the military as it sustains troops in  the early stages of a military operation, especially before supply lines are  well established. These rations consist of a full meal packed in a flexible  meal bag, which is lightweight yet durable for use in difficult  environments. While the entree may be eaten cold, it can be heated in  various ways and comes with a flameless heater inside the bag. Figure 1  shows an MRE and the contents of an MRE pouch.
Once field feeding can begin during a military operation, the military  services seek to transition from MREs to other types of rations, such as  group rations that can be used to heat and serve meals for 50 individuals  per pack, and then later to dining facility-prepared meals, once those  capabilities exist. As a result, MREs may be crucial for the early stages of  a military operation. We found in April 2005 that U.S. forces in Iraq  experienced temporary shortages of MREs during the deployment and  major combat phases in early 2003 before dining facilities were  established, and data showed that both the Army and Marine Corps were   We  at risk of running out of food if supply distribution was hindered.found that these shortages resulted from both ineffective distribution,  specifically a lack of sufficient logistics resources that hindered DOD’s  efforts to move MREs promptly from ports to the units that had ordered  them, as well as from inadequate supply forecasts.
During peacetime, MREs are typically consumed during training, such as  field exercises. MREs have limited shelf-life (typically 3 years), so stocks  must be regularly rotated and used to minimize disposals. As such,  MREs are a special category of WRM that is managed differently than  other DLA-managed items. All MREs owned and managed by DLA are  considered WRM while at the same time are issued to support peacetime  needs such as training.
In 2004, the Deputy Secretary of Defense designated the Director of DLA  as the Executive Agent for the department’s subsistence supply chain,  which includes MREs.  According to DLA officials, the Director of DLA  delegated this authority to DLA Troop Support. As the Executive Agent,  DLA is to plan for, procure, manage, distribute, and ensure the  wholesomeness of subsistence products throughout the supply chain, as  well as to deliver items as needed. Further, DLA is to maintain war  reserve subsistence stocks. DLA purchases MREs from three primary  U.S. vendors through its working capital fund. A DLA study from July  2013 described the specifications of contracting with these three  companies, stating that each year, MRE production percentages by  vendor are readjusted to ensure maximum production capability among  the three vendors. DLA officials stated that each vendor is guaranteed at  least a 20-percent award of the total annual quantity, but no firm will  receive an award in excess of 50 percent.
DLA-owned MREs are stored in temperature-controlled facilities to  maximize shelf-life. DLA rotates MREs on a regular basis by issuing the  stock with least remaining shelf life for use in training exercises or other  needs to the services to maximize the use of the product and associated  resources. The sale of MREs to the services replenishes the DLA working  capital fund; the rates that DLA charges the services are higher than the  purchase prices from its vendors to recoup DLA’s expenses for contract  fees, transportation, storage, and other overhead costs. In fiscal year  2014, the rate that DLA charged the services for an MRE case was about  $100.
section_title: Operational Plans Drive the Services’ WRM Requirements, and DLA Identifies Available Inventory and Potential Shortfalls for Items It Manages
paragraphs: DLA has established an annual process with the military services to  obtain their WRM requirements for most DLA-managed items and to  assess the extent to which it has inventory available to help meet those  requirements. After DLA issues a data call, the services identify their  WRM requirements for DLA-managed items, which are determined  primarily using operational plans and other related inputs. DLA  compares the service-identified WRM requirements against its assets to  identify the level of available inventory, including any potential shortfalls,  and communicates this information back to the military services, which in  turn use this information to make procurement decisions regarding WRM.  Figure 2 shows the processes for determining WRM requirements and  available inventory for DLA-managed items.
subsections: section_title: Services Use Operational Plans and Other Inputs in Determining WRM Requirements
paragraphs: The military services determine their WRM requirements for most DLA- managed items based on operational plans that support warfighting  scenarios approved by the Joint Chiefs of Staff and other inputs such as  deployment schedules and equipment usage data. DOD guidance directs  how WRM requirements are to be determined and requires that the  military services calculate war reserve requirements annually, based on  current defense strategic guidance. Service-specific guidance provides  further detail on the requirements process. For example, the Army’s  regulation requires that DOD guidance be used to provide the war-fighting  scenarios necessary to guide WRM requirements determination. Marine  Corps guidance specifies that other information, such as time-phased  force-deployment data, shelf-life information, and equipment-usage data,  among other factors, be used to determine requirements for certain  classes of materiel.
For the requirements determination process for DLA-managed items, the  Army, Marine Corps, and Air Force begin their coordination with DLA  when DLA issues an annual data call requesting them to submit their  WRM requirements for DLA-managed items. Navy officials stated that the  Navy does not participate in this data call; materiel needed during  deployment is stocked on deployed ships as part of the Navy’s  allowancing process (see app. I). DLA officials stated that the data call is  typically sent to the services around November or December each year.  For fiscal year 2014, DLA sent the data call to the services in December  2013 and asked that they provide their WRM requirements to DLA by  January 2014.
In implementing DOD and service guidance, officials from the Army,  Marine Corps, and Air Force stated that approved operational plans are  the primary drivers for service WRM requirements for items that are  covered by DLA’s annual data call. Operational plans are developed by  military planners to support war-fighting scenarios set forth in broad  defense strategic guidance provided by the President, the Secretary of  Defense, and the Chairman of the Joint Chiefs of Staff. Service logistics  officials stated that operational plans generate the selection of military  units, which in turn have associated personnel and equipment, and thus  are the major driver of WRM requirements. Associated information, such  as time-phased force-deployment data that support an approved  operational plan, is likewise used for determining requirements. For  example, Air Force logistics officials stated that operational plans are  used as the basis to determine requirements for WRM, and that three  theater working groups determine the personnel and equipment  necessary to support those operational plans in each of the component  commands by reviewing, validating, and planning the movement of WRM  globally. Similarly, Marine Corps officials stated that annual discussions  are held during which leadership from each Marine Expeditionary Force  determines WRM requirements based on the personnel and equipment  needed to support selected operational plans.stated that operational plans drive the entire process of determining both  Army prepositioning and WRM requirements.
Each service that participates in the annual data call uses modeling  programs to develop and compute WRM requirements needed to support  operational plans. These models contain information such as historical  usage data and equipment maintenance information. Army logistics  officials stated that officials responsible for operations and planning  determine what types and numbers of units would be necessary to carry  out a given operational plan, and these units would have a defined level  of personnel and equipment that would make up the parameters of the  data entered into modeling programs. The Army has various modeling  programs to determine WRM needs for prepositioned and sustainment  stocks. To develop sustainment WRM requirements, for example, it  maintains a modeling program that uses actual data from training and  contingencies that are uploaded to the model every 90 days. Air Force  officials stated that the decisions regarding units and equipment made  during theater working-group discussions are input into an Air Force data  system that computes WRM requirements. Marine Corps logistics officials  stated that to develop WRM requirements, they use technical data, such  as equipment and personnel data, that comes from authoritative data  sources and service systems of record, and a computer modeling  program computes the WRM requirements.
Some service officials stated that changes to troop end strength, force  posture, and force structure could over time be reflected in operational  plans, and ultimately affect WRM requirements, but these factors are  more long-term influences than the primary drivers of the annual WRM  requirements that are the focus of DLA’s annual data call process.  Regarding troop end strength, Marine Corps logistics officials stated that  missions do not change as a result of increases or decreases to end  strength. One official added that operational plans are largely  independent from end strength, since forces will always be first devoted  to contingencies, with the services assuming risk in other areas as a  result of decreases in end strength. Air Force logistics officials stated that  factors such as troop end strength or force posture do not necessarily  affect WRM requirements, especially in the short term, although over time  they may do so. For example, if changes in force posture were to lead to  the closure of bases in Central Command, then the Air Force would  eventually most likely review moving excess WRM from that location to  other locations, or if cheaper than moving they may choose to divest of  the WRM by disposal or sales. Further, the officials stated that the  availability of funding and transportation and storage costs affect WRM  considerably as these factor into decisions about how the Air Force could  best support operational plans.
As they determine their WRM requirements for DLA-managed items,  some service officials stated they review their service’s inventory levels  and prepositioned stocks to determine what inventory is already in place.  The services can then determine and submit their WRM requirements to  DLA for analysis.
section_title: DLA Compares the Services’ Requirements to Assets to Identify Available Inventory and Any Potential Shortfalls in DLA-Managed Items
paragraphs: DLA compares the service-identified WRM requirements against its  assets to identify the level of available inventory, including any potential  shortfalls, and communicates this information back to the military  services. DLA guidance states that it will identify to the services the DLA-  The  managed WRM assets available within its stocks or from industry.guidance states that DLA also will identify potential shortfalls in DLA- managed assets so that the services can budget to procure additional  stocks if they choose.
After the military services submit their WRM requirements, typically by  January each year, DLA screens the total service WRM requirements  against its own inventory levels. DLA also considers inventory that is  available through surge clauses within existing contracts and reviews  possible acceptable substitutes for inventory with identified potential  shortfalls. Based on this analysis, DLA identifies the amount of each  service’s WRM potential shortfalls, if any, by inventory item and provides  this information to each of the services by the end of March.
Service officials told us that DLA’s information on potential WRM  shortfalls is the starting point for their decision-making on potential  procurements. The officials said they review the potential shortfalls and  the criticality of the items and determine what level of risk is acceptable,  which then drives a procurement budgetary decision. The military  services must either accept the risk associated with the WRM shortfall or  address the potential shortfall by investing resources in acquiring  additional inventory. DOD guidance states that the military services are  responsible for programming and funding the acquisition of WRM when  requirements exceed assets and no offset agreement can be reached,  and also for completing a risk assessment to identify any negative  impacts on readiness resulting from non-programmed and unfunded  requirements or when they choose to reallocate resources to other  priorities. Service-specific guidance details the offices and organizations  responsible for determining requirements and assessing the criticality of  items against potential shortfalls. For example, Army logistics officials  stated that Army budgetary priorities can change dramatically based on  the potential WRM shortfalls identified by DLA.
section_title: DLA Monitors Data on MREs but Lacks Analysis and Information That Could Be Useful for Managing Inventory Levels
paragraphs: As the DOD Executive Agent for subsistence, DLA monitors various types  of data on MREs, but it lacks other analysis and information that could be  useful for managing inventory levels. Among the types of data DLA  monitors are its purchases from the MRE industry and its sales to the  military services, factors that cause MRE inventory levels to fluctuate over  time. Military service officials expressed concerns that in light of changing  needs, it may be difficult for the services to consume MREs in the future  at a rate that will prevent disposals due to expiring shelf life. However,  DLA has not conducted recent analysis to determine the level of  purchases needed annually to sustain the current industrial base while  retaining the ability to meet a surge in requirements. In addition, while the  military services provide DLA with their estimated future demand for  MREs, DLA does not obtain information from the services, as part of  existing coordination efforts, about potential changes to consumption and  disposals that could affect future demand. Such analyses and information  could be useful to DLA in managing MRE inventory levels.
subsections: section_title: DLA Monitors Various Types of Data to Manage MREs within the Identified WRM Requirement
paragraphs: DLA’s MRE inventory levels are not set through the annual data call but  are managed against an identified war reserve requirement, with DLA  monitoring various types of data to set exact purchase levels. DOD can  experience a surge in MRE requirements for various reasons, including  military operations, natural disasters, and other emergencies. To satisfy a  surge requirement if needed, DLA maintains a certain level of MREs as  WRM inventory that is owned and managed by DLA. DLA has identified  an MRE war reserve level of 5 million cases. The current level was  established in fiscal year 2005 at a time when U.S. military operations  were ongoing in Iraq and Afghanistan. DLA officials stated that DLA  purchases up to the WRM level, meeting the 5 million case level through  a combination of on-hand assets and assets that are due to be delivered  within a 12-month period. According to a 2013 DLA study, while DLA is  not obligated to purchase a specific amount of MREs per year from its  suppliers, it currently has an annual purchase objective of 2.5 million  MRE cases. This purchase objective represents an annual minimum  target for MRE purchases from industry.
As DLA manages MREs within the WRM level of 5 million cases, it  monitors various types of data to determine the exact amount of MRE  purchases that will be made and when. For example, DLA monitors yearly  sales estimates that are provided by the military services, information  provided by the services about their ability to consume MREs through  training, and agreements in place with the military services about storage  and transportation of MREs. While operational plans are the primary  driver for WRM requirements determination for other DLA-managed  items, numerous factors are at play as DLA plans MRE purchases to buy  towards the level of WRM. For example, service officials told us that end  strength is not a key factor for deciding WRM requirements for other  items. In contrast, end strength is important for MRE WRM levels  because end strength levels directly affect the number of MREs that can  be consumed in training exercises and thus the amount of MREs that can  be rotated in a given year and that would be replaced by future  purchases.
DLA monitors purchases from industry and sales to the services for  planning purposes. According to DLA officials, the goal is to ensure that  the services’ MRE requirements are met in the most efficient and effective  manner possible. DLA also seeks to ensure that appropriate plans are in  place to rotate the WRM stocks of MREs to prevent the need for  disposals. For example, DLA officials stated that the war reserve stocks  of MREs with the shortest shelf life are to be rotated out first to prevent  disposal. Therefore, DLA uses information about service training cycles to  help plan the rotation of the oldest stock. This information affects the  amount of MREs that will need to be replaced as WRM through additional  purchases from industry, all while monitoring on-hand and on-order MRE  inventory levels as compared to the WRM level. DLA officials stated that  DLA uses information such as its knowledge of DOD priorities, service  training cycles, and updates on service training and operational activities  obtained through monthly telephone calls and other regular interaction  with the services to forecast service demand for MREs and further inform  planning.
Further, DLA has performance-based agreements with the Army, Navy,  Marine Corps, and Air Force that detail the specific amount of MRE war  reserve stocks that DLA will deliver to a specific location within a defined  time frame. This information is also tracked by DLA and can further affect  inventory levels and the requirement to purchase additional MREs. For  example, the performance-based agreement between DLA Troop Support  and the Army signed in March 2013 specifies the total number of MRE  cases stored by DLA for the Army in locations in the continental United  States, Europe, Hawaii, Japan, Korea, and Southwest Asia, as well as  aboard Army prepositioning ships. The agreement sets forth  responsibilities of DLA Troop Support, such as to (1) stock and store the  levels of MREs in DLA- or DLA-commercial-provided storage, (2) rotate  the MREs through the DLA customer base, (3) maintain the capability to  deliver the MREs in certain time frames depending on location and  situation (for crisis or contingency needs as opposed to peacetime  needs), and (4) maintain records of MRE stocks, among other duties.  Similarly, the agreement details the responsibilities of the Army, which  include the need to notify DLA Troop Support upon execution of  contingency operation plans and peacetime exercises to allow for the  release of stocks and to submit requisitions to DLA Troop Support for  MREs with specific lead times that vary by location and situational need.
DLA officials stated that as with other types of WRM, the Navy does not  operate in the same manner as the other services. Through the  allowancing process described earlier, the Navy outfits its ships with  stocks in advance of a deployment. The DLA and Navy entered into a  performance-based agreement in 1984 that has remained unchanged  since that time. Under the agreement, DLA is to be able to provide about  20,000 cases of MREs for the Navy in the continental United States.
section_title: MRE Inventory Levels Fluctuate Based on Flow of Purchases and Sales, and DLA Has Periodically Reviewed War Reserve Levels
paragraphs: DLA’s MRE inventory levels fluctuate based on the flow of purchases  from industry and sales to the services, as shown in figure 3. Based on  data from fiscal years 2007 through 2014, on average DLA purchased 3.3  million MRE cases from industry per year and sold 3.56 million cases per  year to the services. The average on-hand inventory level was about 4.66  million cases. In addition, the data show that the average yearly MRE  sales to the services decreased from about 4 million cases in fiscal year  2010 to 3 million cases in fiscal year 2012 and remained relatively  constant at around 3 million cases from fiscal years 2012 through 2014.  There were also decreases in annual purchases from suppliers starting in  fiscal year 2010.
The services have different requirements for, and therefore purchase  different amounts of, MREs. As shown in figure 4, the Army is the largest  purchaser of MREs.
In addition to monitoring sales and purchase data, DLA has conducted  several reviews since 2003 to determine whether the war reserve level is  appropriate based on potential contingency requirements, historical  demand, and industry capability.
A DLA study conducted in 2003 reviewed the processes used to  determine war reserve requirements for MREs and found that the war  reserve level could be maintained at 4.1 million cases.
A DLA study conducted in 2007 analyzed historical sales data that  included a worst-case planning scenario and found that the war  reserve level could be within the range of 3.2 million to 5 million  cases.
A DLA study completed in July 2013, using a methodology similar to  that of previous studies, found that the level of MRE on-hand  inventory could be at a range between 3.45 million and 3.96 million  cases of MREs to support contingency requirements, efficiently  manage resources, and sustain the industrial base. The 2013 study  stated that reasons for the proposed decrease in MRE on-hand  inventory included less demand for MREs from fiscal years 2010  through 2012; the withdrawal of U.S. troops from Iraq and  Afghanistan; the possible effects of sequestration on force structure;  and an increased capacity reported by the MRE industry to meet  surge requirements. Further, the Federal Emergency Management  Agency moved from using military grade MREs to commercially  available alternatives, meaning that the demand for MREs is further  reduced. In addition, the study noted that other troop feeding options  such as new types of rations and dining facilities that can be quickly  established could reduce dependence on MREs during contingency  operations.
Although DLA’s 2013 study supported a lower war reserve inventory level  for MREs, DLA issued an MRE strategic plan in September 2013 stating  that after subsequent analysis, DLA leadership decided to maintain the  current level of 5 million cases and revisit this level after 2014. As of March 2015, DLA officials stated that an update to the MRE strategic plan  was under review. According to DLA officials, higher-than-expected  demand for MREs occurred in fiscal years 2013 and 2014. Prior  estimates for those 2 years were 2.3 million to 2.7 million cases, but  actual sales were around 2.9 million each year. Officials attributed the  higher-than-anticipated demand to increased training needs during  peacetime and to small-scale deployments in response to crises such as  the Ebola virus epidemic in Africa and tensions in Syria and the Ukraine.  The 2013 MRE strategic plan projected purchases of 2.3 million to 2.5  million cases a year through fiscal year 2016, a level that, according to  the plan, will allow DLA to uphold the war reserve level of 5 million cases.
section_title: Military Services May Not Be Able to Maintain Sufficient Rotations of MREs through Future Consumption
paragraphs: Military service officials who manage MREs expressed concerns that in  light of changing needs, resulting from budgetary impacts and smaller  end strengths, it may be difficult for the services to consume MREs in the  future at a rate that will allow them to maintain sufficient rotations of  MREs and prevent disposals due to expiring shelf life. Army and Marine  Corps officials stated that they did not believe reduced purchases of  MREs would result in shortages, but they also cautioned that since MREs  are critical for military operations, it is important that the MRE industry be  able to increase production to meet a surge in need.
According to service officials, each service estimates the amount of  MREs needed for training and other purposes. These estimates are  largely based on training plans and are submitted to DLA annually.  According to service officials, these estimates have ranged from about  3.2 million to 3.6 million cases per year over the past several years.  Service officials stated that they are responsible for monitoring MRE  consumption and ensuring that their service works towards purchasing  the estimated amounts from DLA. Service officials also stated that they  track use of MREs to the unit level for training or operational needs.  However, they acknowledged that they may not always know if MREs are  consumed or disposed of. For example, an Air Force subsistence official  stated that the Air Force has recently begun to track MRE disposals and  he knew that disposals occurred, but he could not identify how many  disposals had occurred. A Marine Corps subsistence official stated that  some MREs are disposed of due to issues such as accidental improper  storage, and the Marine Corps’ subsistence office would only know this  information if the unit decided to report the disposal. An Army subsistence  official stated that he receives reports on MRE disposals, but that the  reports may not always be complete and reliable.
The performance-based agreements between DLA and each service  establish the policies, procedures, and responsibilities concerning  operational rations support to the service by DLA. According to these  agreements, DLA is financially responsible for inventory losses unless the  losses result from a service’s inability to rotate inventory within the  required time limits; then the loss is the responsibility of the service.  Some service subsistence officials stated that it can be challenging to  meet the rotation demands in these agreements through training and  operational use of MREs. Service subsistence officials also stated that  disposal of unused MREs is costly, and that MREs cost almost as much  to dispose of as to purchase because they must be disposed of in certain  ways due to the flameless heating component.
With regard to the current MRE war reserve level of 5 million cases, Army  and Marine Corps officials stated that they have been able to meet the  required rotation demands in recent years, and that they believe that  MRE disposals have not been a major issue. However, officials stated  that, in the coming years, decreasing troop end strength will likely result in  fewer service members to train. Because many MREs are consumed  during field training, reductions in the number of service members  therefore are likely to decrease the services’ overall demand for MREs.  For example, the DLA study conducted in 2013 stated that the Army  planned to reduce its MRE war reserve levels by 200,000 cases due to  decreases in troop end strength. Army officials told us that they expect  that planned reductions in troop end strength will reduce MRE  consumption. Army and Marine Corps officials also stated that, while  MREs are of critical importance because they are a primary food ration  for sustaining military forces during the early phases of military  operations, their experience shows that the current war reserve level of 5  million cases per year is probably not necessary and that they would  support DLA maintaining a lower inventory level of MREs. However,  these officials stated that the level would ultimately depend on industry  capabilities to meet surge needs.
Officials from the Army’s subsistence program stated that they have been  concerned for several years that withdrawals from operations in Iraq and  Afghanistan would result in substantial amounts of MREs that the Army  could not consume. One official stated that although MRE disposals due  to lack of consumption have not yet been an issue for the Army, two  events likely prevented the need for disposals in recent years. First,  according to Army and DLA officials, in 2012 a warehouse fire in  Afghanistan destroyed around 125,000 cases of MREs. Second, the 2011  tsunami in Japan destroyed around 100,000 cases of MREs. Army  subsistence officials also stated that due to concerns about the Army  being able to use enough of the MRE stock stored in Japan, DLA and the  Army chose to restock the Japan levels to 4,800 cases instead of the  100,000, cases that were stored there prior to the tsunami. Further,  service and DLA officials stated that there are 300,000 cases of MREs  from fiscal year 2011 stored in a cold-storage warehouse facility that had  been held back from consumption to undergo extensive testing to ensure  the cases were not infested with a certain type of beetle. While the MREs  were ultimately deemed safe for consumption through 2015, service  officials expressed concerns that the MREs were at the end of their shelf  life and, consequently, they did not want to accept them from DLA.  However, they added that it may be necessary to accept the MREs to  prevent a large-scale disposal. An Army official stated that while this  issue stemmed from a possible infestation that required MREs to be  taken out of rotation and tested, it had altered the flow of MREs from  various fiscal years and problems with meeting rotational levels would  continue. DLA officials stated that this was a one-time occurrence and  they did not share the Army’s concern.
In addition, an official from the Air Force’s subsistence program stated  that Air Force demand for MREs may decrease in the coming years as a  result of shortening the duration of basic training. While shorter training  may result in less consumption of MREs, the official stated that the Air  Force uses fewer MREs than the Army and Marine Corps and is therefore  not as concerned about the ability of the Air Force to rotate MREs if the  war reserve level remains at 5 million cases, provided that funding for the  Air Force’s rotation program remains available. The official stated that Air  Force war reserve levels for MREs may decrease in certain areas such  as Europe due to a focus on operations elsewhere, but that the Air  Force’s overall war reserve requirement was unlikely to decrease  dramatically in the coming years.
section_title: DLA Lacks Analysis on Purchase Levels Needed to Sustain the Industrial Base and Information on the Services’ MRE Usage
paragraphs: Although DLA monitors various data on MREs, as previously discussed, it  lacks analysis on the level of MRE purchases needed to sustain the  industrial base while maintaining surge capability. More specifically, DLA  has not assessed whether its annual purchase objective of 2.5 million  cases is valid. Further, DLA’s ability to forecast the number of MREs the  services will need is limited to some extent because DLA does not obtain  information from the services about their usage of MREs, including  consumption and possible disposals. Standards for Internal Control in the  Federal Government state that an agency needs relevant, reliable, and  timely information to effectively and efficiently run its operations and make  appropriate decisions. Further, DOD guidance states that the  department’s materiel management shall operate as a high-performing  and agile supply chain responsive to customer requirements during  peacetime and war while balancing risk and total cost.
DLA has not conducted a recent detailed analysis to determine the level  of MRE purchases from industry necessary to sustain the current  industrial base while retaining the ability to meet a surge capability.  Although DLA has an annual purchase objective of at least 2.5 million  cases, officials stated that this number reflects an unofficial agreement  with the MRE industry and is based on limited information from industry  rather than on a DLA analysis of industry capabilities. Further, DOD has  acknowledged that DLA’s future acquisitions of MREs may need to  address a reduced annual purchase objective to avoid disposal of unused  stock. DOD noted that reduced acquisitions could challenge the  department’s ability to meet surge requirements. However, the 2013 MRE  strategic plan states that it is a challenge for DOD to determine what  quantities of MRE sales will keep each of the MRE suppliers producing at  a level that sustains the industrial base to meet the needs of the  department as well as respond to a surge requirement that could occur.  The strategic plan further states that a minimum sustaining rate study  could be conducted to develop this type of analysis. A 2013 review  conducted by DLA to assess the appropriateness of the MRE war reserve  level states that such a study would require the participation and  cooperation of industry. DLA officials stated that this type of analysis was conducted more than 20 years ago regarding the MRE industrial  base, but noted that this dated analysis would not reflect the current  industrial base.
DLA officials told us that this type of analysis has been conducted on  other supply chains, and that while this type of study can be performed by  an outside party such as a contractor, an office within DLA routinely  conducts these studies. For example, in 2013, DLA conducted a minimum  sustaining rate study and other industrial capability assessments of the  three manufacturers of a certain type of parachute that had high demand  during the height of military operations in Afghanistan, but now has far  less demand as a result of the drawdown. DLA subsequently reported  that information collected about its own demand patterns and the  capabilities of the manufacturers was used to determine the most cost- effective industrial solution for that particular item.
According to DLA officials, DLA has not conducted a minimum sustaining  rate study or other similar analysis for MREs because industry would  have to provide access to financial and production records. Access to  such records is provided by companies for any minimum sustaining rate  study conducted by DLA, as was the case for the study on parachute  manufacturers discussed previously. However, DLA officials stated that  DOD cannot require a supplier to provide the financial data needed to  complete a minimum sustaining rate study. DLA may request the  suppliers agree to such a financial audit, as was the case for the study on  parachute manufacturers discussed previously. While DLA officials told  us that they obtain some information from MRE suppliers on their  capabilities, DLA stated in both its 2013 MRE study and the 2013  strategic plan that it is difficult to know the capabilities of the MRE  industries without more detailed information provided by industry, since  as stated in its strategic plan, the companies have expanded product  lines and customer bases. For example, the three suppliers are  expanding their commercial business to make MRE-like rations and other  products available to the public (such as shelf-stable meals and pouched  foods) and producing other types of operational rations, such as first  strike rations and unitized group rations.
DLA has conducted recent analyses of the supply chains for other types  of operational rations. In 2014, DLA conducted an analysis of the first  strike rations and unitized group rations that have low or zero peacetime  demand. DLA’s analysis focused on possible strategies to assist the  subsistence industry in quickly ramping up production of these rations.  DLA officials noted that this analysis included a review of and data from  the operational ration industry that produces MREs. However, several  companies that do not produce MREs were part of this analysis, and one  major MRE supplier was not included in this analysis. Additionally, DLA  conducted an analysis in 2010 that assessed various acquisition  strategies for MREs, from continuing its current strategy of relying on  three selected MRE suppliers to pursuing full and open competition  among possible suppliers. As part of this analysis, DLA reviewed the  industrial capabilities that exist among MRE suppliers relative to projected  DOD surge needs. However, the analysis did not determine the level of  MRE purchases from the current three suppliers that can sustain the  industrial base, and it did not include an assessment of the validity of the  current 2.5 million case purchase objective.
Without conducting an analysis to determine the amount of annual MRE  purchases needed to sustain the industrial base and respond to surge  needs, DLA lacks information that would be useful for managing MRE  inventory, including an assessment of the validity of the 2.5 million case  purchase objective and an understanding of the potential consequences  of falling below the annual purchase objective. DLA officials told us that it  is important to appropriately balance risk and cost and ensure that the  services have MREs as needed while best using resources. Further, as  previously discussed, DLA conducted reviews to assess the  appropriateness of the MRE war reserve levels in 2003, 2007, and 2013.  All of these reviews resulted in various conclusions to either hold constant  or reduce purchases, as they were based mostly on DOD’s projected  demand for MREs and not a detailed analysis of industry capabilities.  Such analysis could be useful to DLA in managing MRE inventory.
In addition, although DLA coordinates with the military services to obtain  information on MRE requirements and demands as previously discussed,  DLA does not obtain consumption and disposal information from the  services. DLA states in its 2013 MRE strategic plan that it is vital to  collaborate and share information with the military services to continually  improve processes. DLA officials stated that DLA does not obtain  information from the services on consumption and disposals because  DLA’s responsibility ends once it sells MREs to the services. Service  officials agreed that it is the responsibility of the services to incorporate  information related to usage of MREs in determining their requirements  for MRE purchases from DLA. However, DLA acknowledges in the  strategic plan that sharing information about the military services’ demand  and usage patterns will be vital to making purchase decisions. Officials  from the Army, Marine Corps, and Air Force stated that they monitor the  consumption of MREs. Further, service officials stated that while they do  not monitor total MRE disposals at this time, they do collect and track  some information regarding disposals when this information is provided  by units and could provide this information to DLA if requested.
Such information, along with the information DLA already tracks, could  provide further insight on potential changes in the services’ future  demand for MREs during peacetime and help DLA in managing its MRE  inventory. DLA reports in its MRE strategic plan that it intends to continue  monthly coordination phone calls with the services and to include effects  of sequestration and training budgets as items for discussion. As there is  already considerable existing coordination between DLA and the military  services, sharing additional information related to changes in MRE  consumption and disposals could provide additional insight to DLA on  service demand and usage patterns. In the absence of such information,  DLA’s information regarding future service demand for MREs may be  limited, making it difficult to optimize the MRE supply chain across DOD.  Obtaining this additional information from the services would help DLA  ensure that, consistent with DOD guidance, its MRE supply chain is agile  and responsive to customer requirements during peacetime and war  while balancing risk and total cost.
The difficulty of forecasting demand for items has been a recurring  inventory-management problem across DOD. Previous GAO reports have  cited difficulty with demand forecasting at each of the services and DLA.  In addition, we have identified DOD supply-chain management as a high- risk area since 1990 due in part to weaknesses in accurately forecasting  the demand for spare parts. Furthermore, DOD issued its  Comprehensive Inventory Management Improvement Plan to focus, in  part, on improving the accuracy of demand forecasts. Finally, the Office of  the Deputy Assistant Secretary of Defense for Supply Chain Integration  commissioned a study on forecasting across the department that  recommended that DLA and the services should tailor their approach  based on an item’s demand pattern.
section_title: DLA Employs Various Strategies to Balance Cost and Readiness in Managing WRM Requirements
paragraphs: DLA uses various supply-chain strategies to balance cost with readiness  in meeting the need for items identified as WRM and needed for surges  associated with new contingencies or crises. DLA is working to reduce its  on-hand inventory to reduce costs, but will continue to stock certain types  of items, such as those that are military-unique or of limited availability.  On the other hand, DLA seeks to contract for fast access to those items  that are readily available on the commercial market that would be costly  to stock, such as medical supplies. Further, DLA for many years has been  seeking to facilitate and improve access to certain WRM items through its  Warstopper Program.
subsections: section_title: DLA Is Working to Reduce Its On-Hand Inventory but Will Continue to Stock Certain Types of Items
paragraphs: DLA has sought to reduce its on-hand inventory, including WRM items, to  gain certain benefits, but will continue to stock items that are, among  other things, military-unique or of limited availability. In a June 2014  report, we found that DLA had set an internal goal in 2012 for reducing  inventory and disposing of nearly $4 billion of on-hand inventory, and that  it accomplished this goal in fiscal year 2013. According to DLA  headquarters officials, the benefits of reducing on-hand inventory are     (1) achieving cost savings by reducing the warehouse infrastructure  needed to store on-hand inventory and (2) preventing reductions to DLA’s  working-capital fund obligational authority, which might reduce supply  availability for the military customers.
As part of its responsibilities to perform storage and distribution functions  for WRM in support of operational requirements, DLA keeps on-hand  assets that are above current needs (in other words, the assets are in  excess of the approved acquisition objective and being held as retention  stock) if the materiel will help to meet a service WRM requirement. DLA  recategorizes such stock as WRM in its inventory stratification reporting,  and this stock becomes part of the approved acquisition objective. This  recategorization protects the WRM stocks from disposal that could  otherwise occur. However, these stocks are not otherwise managed or  stored separately specifically for the purpose of being available in the  event of a military operation. Rather, the inventory is comingled with  regular stocks, and DLA issues these stocks in response to customer  requisitions, whether for peacetime needs or in response to a surge  requirement related to a military operation.
DLA officials stated that there are certain types of items that need to be  stocked in order to ensure they are available for surge needs, such as  those items that are military-unique or of limited availability. Further, small  items that are low cost and without shelf-life constraints can be stocked.  The officials stated that decisions to stock items are made on a case-by- case basis depending on the assessment of the responsible supply-chain  managers, which includes an assessment of the surge needs associated  with an item. Some examples of military-unique items stocked by DLA are  camouflaged bandages, chemical protection suits, and operational  rations, including MREs. As another example, supply-chain managers  from the construction and equipment supply chain stated that DLA stocks  a type of matting (called AM2 matting) that can be configured into landing  pads for expeditionary aircraft because it is of limited availability and  military-specific. Industrial hardware supply-chain managers told us that  fasteners, nuts, and bolts are stocked in DLA depots because many are  low cost and without shelf-life constraints. Further, DLA officials told us  that these items do not take up considerable storage space in DLA  storage depots.
DLA also has sought to comingle its stocks with service stocks to gain  efficiencies and reduce storage and transportation costs. These initiatives  are not focused specifically on WRM inventories since WRM stocks are  not maintained or stored separately from other stocks, but do include  items that have WRM requirements. For example, DLA and the Army  have a joint initiative under way to transfer sustainment stocks of DLA- managed items previously owned by the Army to DLA. When transferred,  these items would be comingled in DLA storage facilities. Army officials  stated that because of efficiencies that DLA can provide, such as  improved forecasting and better rotation of inventory, the Army will have  to buy and stock less prepositioned inventory and will have fewer  disposals due to shelf-life issues.
section_title: DLA Seeks to Contract for Fast Access to Readily Available Commercial Items
paragraphs: To maximize use of funds and minimize inventory storage costs, DLA  attempts to meet some WRM requirements by contracting for fast access  to materiel that is readily available from commercial sources when  practicable. DLA makes use of commercial practices, such as prime- vendor contracts, to obtain commercial goods and supplies.of such commercial practices is to decrease the need for and costs of  maintaining government inventory.
DLA also acquires items through contingency contracts with industry as  an alternative to stocking items on shelves. A DLA official stated that the  agency’s long-term contracts with industry attempt to leverage the  commercial marketplace to acquire surge coverage to offset the need to  stock items as WRM. As such, contracts can include surge and  sustainment clauses to provide access to items with WRM requirements  when the need for them arises. For example, according to DLA officials,  since medical items are costly to stock and have limited shelf life, DLA’s  medical supply chain uses contingency contracts to acquire the majority  of its items. In recent years, DLA has sought to stock fewer items within  the medical supply chain and relied more on contingency contracts. A  DLA official stated that this strategy had improved delivery times from  over 200 days prior to operations in Iraq and Afghanistan to a current  delivery time of 3 to 5 days. This official stated that when DLA contracts  for access to medical inventory and obtains the inventory when needed, it  does not have to be stocked on DOD shelves, which prevents wasting  money on stocked items that must be later destroyed due to expired shelf  life and ensures that medical professionals and their patients obtain high- quality products.
DLA also incorporates surge clauses into its contracts for some items that  it maintains in its stocks. For example, MREs are stocked, but DLA may  obtain additional supplies of these if needed through surge clauses. DLA  officials stated that the current contract between DLA and MRE-producing  companies outlines specific guidelines for each company to produce  MREs in the event of a surge requirement that results from various  scenarios, including new or escalating military operations, natural  disasters, or other emergencies.
section_title: DLA Uses Its Warstopper Program to Facilitate and Improve Access to Certain Items
paragraphs: In addition to stocking certain items and seeking to establish contracts  that can rapidly provide items to meet surge needs, DLA has a  Warstopper Program that is aimed at facilitating and improving access to  certain items by enabling DLA to maintain an industrial base for critical  “go-to-war” items. DLA uses Warstopper funds to address weaknesses in  certain supply chains by making targeted investments in industry that  guarantee DLA access to materiel and enable industry to increase  production when needed.
The Warstopper Program was authorized by Congress in the early 1990s  as a result of critical shortages for certain items that occurred during  Operation Desert Storm in 1991. These items generally had high  demand during operations, but low demand during peacetime. DLA was  designated the lead for the program, and Congress began funding the  program in fiscal year 1992. DLA’s guidance regarding the Warstopper  Program states that its purpose is to fund initiatives that ensure materiel  availability when DLA’s normal peacetime procurements, inventory, and  service prepositioned war reserve stocks are not adequate to meet the  services’ go-to-war shortfalls for critical materiel.investments are intended to facilitate the acceleration of production for  critical items and maintain critical industrial capability. Further, the  guidance states that DLA manages the Warstopper Program to ensure  the transition from peacetime to wartime is supported by a viable  industrial base despite the variable demand patterns, technology   Warstopper  inhibitors, skill retention, and general industry issues that may exist for  DLA-managed go-to-war items.
Items must meet certain mission, demand, or production characteristic  criteria to be funded through the Warstopper Program. Regarding mission  characteristics, at the establishment of the program, Congress identified  certain items to be included as part of the program due to the critical  shortages that emerged during Operation Desert Storm, such as  operational rations (including MREs), nerve-agent antidote auto-injectors,  chemical protective gloves, chemical protective suits, combat boots, and  barrier materials. Aside from these congressionally-identified items, other  mission characteristics include life-saving or life-preserving items and  items that, if unavailable, can severely affect a strategic warfighting  capability. For example, medical items and personal protection items with  high value to the preservation of a servicemember’s life (examples  include helmets, body armor, fire-retardant garments, medical patient  movement items and surgical equipment) are important for DOD’s  warfighting capability, according to the Warstopper Program guidance.  Similarly, the guidance includes examples of energy items and repair  parts capable of stopping a strategic warfighter capability if they are  unavailable, such as lithium batteries and helicopter windshields. Demand  characteristics that can facilitate an item’s inclusion in the Warstopper  Program include items with a validated WRM requirement and those with  a low peacetime and high wartime demand. Lastly, production  characteristics that will exceed the industrial capability to meet wartime  requirements, such as long lead times or short shelf lives, could make an  item eligible for Warstopper funding.
DLA conducts research and analysis to determine whether an investment  is needed to help ensure availability of items and materiel that meet the  criteria for the program. DLA guidance states that studies, data collection,  and reports are outputs of the program that provide information to assess  the state of the industrial base and develop industrial solutions, as  opposed to buying more stocks to store. The office responsible for  managing a particular item or supply chain develops a proposal for the  investment and submits the proposal to DLA headquarters for approval.  The investment may take the form of one of several types of contingency  contracts or other means of investment, such as the purchase of critical  raw materials or the purchase of government-provided equipment to  speed up or modernize industrial processes. For example, DLA’s  subsistence office developed a proposal to provide operational ration  manufacturers with two types of machines to assist with the cooking and  filling and sealing process for operational rations, including MREs.
Subsistence officials stated that manufacturers can use the equipment  from the government for commercial use so that the equipment does not  fall into disrepair from lack of use. DLA is to review Warstopper  investments annually. According to DLA officials, since 1993, a  cumulative investment total of $856 million in Warstopper funding has  resulted in cost avoidances for the department of about $5.9 billion that  would have been spent on stocking items and other related costs.
Past investment items include operational rations, certain types of  batteries, fiber used in flame-retardant items, specialty steels for repair  parts, nerve-agent antidote auto-injectors, and certain types of military  specific barriers, among others. DLA officials provided examples of how  the program has increased availability of items that are needed to meet  surge wartime needs.
Regarding the fiber used in fire-retardant items, $1.37 million of  Warstopper funding was invested to increase surge output by up to 54  percent in the first 180 days of surge needs.
Similarly, $6.1 million was invested in long-lead time components of  AM2 matting used to create landing pads for expeditionary aircraft,  which subsequently increased surge output by 85 percent in the first  180 days.
Numerous items within the medical supply chain also are funded by  Warstopper investments. DLA’s medical supply chain was budgeted for  over $36 million in Warstopper funds in fiscal year 2015, and it executes  approximately 55 percent of DLA’s Warstopper budget annually. Through  the use of over 155 contingency contracts funded by the Warstopper  Program in the medical supply chain, DLA officials stated that the  department has purchased access to over $280 million of medical and  pharmaceutical supplies at a cost of $24 million for contract fees. DLA  officials stated that these contingency contracts exist with manufacturers,  distributors, and prime vendors.
section_title: Conclusions
paragraphs: The ready availability of war reserve materiel items is central to ensuring  that U.S. forces can be sustained in the early stages of operations, before  regular supply chains are established. By utilizing a variety of contracting  strategies for items that are readily available, stocking some military- essential items, and acting to support the integrity of its supply chains  through the Warstopper program, DLA is working to meet warfighter  needs while also pursuing efficiencies in its operations at a time of budget  constraints and uncertainty. DLA has also put effort into managing the  MRE inventory and, in doing so, monitors various types of data. However,  DLA lacks other analysis and information that could be useful in  managing this inventory. For instance, without conducting an analysis that  provides more information on industry capabilities than its previous  studies, DLA does not have reasonable assurance that it is balancing  readiness and budget priorities with the need to sustain the industrial  base in the most efficient way. Similarly, without obtaining information  from the military services about potential changes to consumption and  disposals of MREs that could affect future demand, DLA may be limited in  its ability to optimize the supply chain across the department. Forecasting  demand for supplies has been a long-standing challenge for DOD in  managing its inventories, and additional information sharing among DLA  and the services could help to reduce uncertainty about the future  demand for MREs. Such analysis and information will help ensure that  DLA, consistent with DOD guidance, is acquiring, sizing, and managing  MRE war reserve stocks to maximize flexibility while minimizing  investment.
section_title: Recommendations for Executive Action
paragraphs: To obtain information useful to DLA’s decision making regarding MRE  inventory levels, we recommend that the Assistant Secretary of Defense  for Logistics and Materiel Readiness direct the Director, DLA, to take the  following two actions:
Conduct an analytical study of the MRE industry’s capabilities that  provides information on the level of MRE purchases needed to sustain  the industrial base, including the ability to respond to a surge  requirement. Specifically, the analysis should assess the validity of  the current annual purchase objective of 2.5 million cases.
Request that the military services, as part of existing coordination  efforts, share information on potential changes to MRE consumption  and disposals that could affect future demand.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to DOD for comment. In written  comments, DOD concurred with our two recommendations aimed at  improving the information used as part of DLA’s decision making  regarding MRE inventory levels. DOD’s comments are reprinted in their  entirety in appendix II. DOD also provided technical comments, which we  incorporated into the report as appropriate.
DOD concurred with our first recommendation that DLA conduct an  analytical study of the MRE industry’s capabilities that provides  information on the level of MRE purchases needed to sustain the  industrial base, including the ability to respond to a surge requirement,  and that this analysis assess the validity of the current annual purchase  objective of 2.5 million cases. DOD stated in its written response that DLA  will conduct an analytical study on the level of MRE purchases needed to  sustain the industrial base. DOD noted that this effort would require the  participation and cooperation of industry, as we acknowledge in our  report. DOD did not explicitly state that this analysis would assess the  validity of the current purchase objective of 2.5 million cases, and  therefore we encourage DLA to plan to incorporate this assessment as  part of the analysis it conducts.
DOD concurred with our second recommendation that DLA request that  the military services, as part of existing coordination efforts, share  information on potential changes to MRE consumption and disposals that  could affect future demand. We note that we made minor revisions to this  recommendation after the draft was provided to DOD for its comment in  order to clarify the recommendation in response to DOD’s technical  comments. This revision did not alter the original intent of the  recommendation. In its written response, DOD stated that it concurs and  the military services will share potential changes in usage of MREs in the  existing quarterly reviews with DLA.
We are sending copies of this report to the appropriate congressional  committees, the Secretary of Defense; the Assistant Secretary of Defense  for Logistics and Materiel Readiness; the Director of DLA, and the  Secretaries of the Army, Navy, and Air Force. In addition, the report is  available at no charge on the GAO website at http://www.gao.gov.
If you or your staffs have any questions about this report, please contact  Johana Ayers at (202) 512-5741 or ayersj@gao.gov. Contact points for  our Office of Congressional Relations and Public Affairs may be found on  the last page of this report. GAO staff who made major contributions to  this report are listed in appendix III.
section_title: Appendix I: Military Service War Reserve Materiel Programs
paragraphs: The military services have different approaches for managing their war  reserve materiel (WRM) programs.
Army: The Army categorizes WRM as part of its Army Prepositioned  Stock program. These stocks consist of major end items to replace  combat losses and war reserve secondary items to replace supplies  consumed in battle. Army Materiel Command manages the Army  Prepositioned Stock program and is required to coordinate with the  Defense Logistics Agency (DLA) and other organizations that provide  equipment or stock for the program, such as operational rations and  medical supplies. Army logistics officials said revised Army guidance  will consolidate information from several regulations that previously  set policy and procedural guidance for management, use, and storage  of prepositioned stock, as well as standardizing terminology within the  prepositioning program.
Navy: The Navy’s deployed ships carry the items necessary for  operations during their deployment at sea. The Navy has an  “allowancing” process to outfit ships with the correct stocks for a  deployment, and it monitors metrics on the performance of these  allowances. Naval supply guidance states that certain items are  prepositioned as war reserve stocks, such as major assemblies,  components, and equipment related to nuclear items and materials.
U.S. Navy, Navy Supply Manual, vol. II, ch. 6, “Supply System Management”. operational capability. The Air Force is currently undertaking a  reorganization of its WRM program. In the past, each Air Force major  command had its own WRM program. Air Force officials stated that  leadership decided to centralize and streamline the program to be  more transparent and have “one voice” for WRM. In January 2015,  the Air Force issued revised WRM guidance that details changes to  the program and its management, including the development of a  WRM global strategy and the appointment of a global manager of  WRM. The revised guidance designates the Air Force Materiel  Command as the global manager for WRM, which in turn assigned its  subordinate Air Force Sustainment Center as global manager. Within  the Air Force Sustainment Center, the 635th Supply Chain Operations  Wing at Scott Air Force Base will execute centralized WRM global  management. Offices that manage unique WRM items, such as  ammunition and medical items, must coordinate with the global  manager. Functional managers of items such as fuel and subsistence  must coordinate with DLA for items it manages; however, the global  manager coordinates with DLA for other items.
section_title: Appendix II: Comments from the Department of Defense
section_title: Appendix III: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the individual named above, key contributors to this report  were Thomas Gosling (Assistant Director), Charlene Calhoon, Timothy  Carr, Martin De Alteriis, Suzanne M. Perkins, Amie Steele, Sabrina C.  Streagle, and Erik Wilkins-McKee.