The basic challenge of inventory management is having the proper amount of items on hand when required—neither too much nor too little. If inventory levels are too low, DOD and its components may experience supply shortages and be unable to satisfy customer demands. This could result in DOD undertaking costly and often wasteful efforts to recover from being out of stock. If inventory levels are too high, money is invested on items that may never be used. Additionally, a series of unnecessary expenditures is incurred for more warehouses, transportation, and personnel; storage and distribution facilities become more crowded; maintenance workloads may increase; and inventory excesses are generated which eventually may have to be disposed of, perhaps at a severe financial loss. Inventory levels are influenced by the amount of time between the initiation of a procurement action and the receipt of the item into the supply system. This time frame is known as acquisition lead time, and it consists of two parts: administrative and production lead times. Administrative lead time is the time interval from the initiation of a procurement action to the contract award, while the production lead time is the interval from the contract award to delivery of the items. Since acquisition lead times are the components’ estimates as to when an item will arrive, varying from that expectation results in consequences when items arrive too early or too late. To promote accuracy and completeness in the management of acquisition lead times, having appropriate policies, procedures, and instructions is an important component of an agency’s internal control framework. As discussed in GAO’s Internal Control Standards guidance, we identified that other important activities related to information processing systems, performance measures and indicators, and the recording and classification of transactions and events are also necessary. Inventory management and oversight is the shared responsibility between the USD (AT&L) and the military components. USD (AT&L) has overall responsibility for the development of acquisition policies for monitoring the overall effectiveness and efficiency of the DOD acquisition system. The components are responsible for implementing the materiel management policies and activities. The DOD Supply Chain Materiel Management Regulation states that the military components should aggressively pursue the lowest possible acquisition lead times, and in coming up with lead time estimates, they may use contractor information, historical information from representative procurements, technical documentation, or the best judgment of acquisition personnel. It also establishes for the military components overarching guiding principles, assigns responsibility, defines, and provides guidelines for developing acquisition lead time, and states that they should identify and track deviations from normal historical or projected patterns in such areas as demand, stock levels, and lead times. The military components have an inventory management agency that purchases and delivers items and services to the warfighter. The primary inventory agencies that provide this support to the warfighter are (1) the U.S. Air Force Materiel Command, (2) the U.S. Army Materiel Command, (3) the Defense Logistics Agency, and (4) the Naval Inventory Control Point. Table 1 shows the primary logistics agencies and their inventory management centers. To implement DOD’s acquisition lead time policy, each of the military components developed their own procedures for managing acquisition lead times, and as such, each used slightly different methodologies to calculate their estimated administrative lead time and production lead time values. The military components’ acquisition lead time estimates to acquire spare and repair parts varied considerably from the actual lead times experienced. More specifically, estimated lead times for all of the components rarely approximated actual lead times, with only 5 percent of the deliveries we reviewed having actual acquisition lead times that were within 1 week of the estimated lead time. While each of the military components had instances of both underestimated and overestimated lead times, the Army’s acquisition lead time estimates were generally understated, while DLA’s estimates were generally overstated. The Air Force’s and the Navy’s estimates were both overstated and understated. For the more than one million spare part deliveries we reviewed, the military components’ estimated acquisition lead times rarely approximated the actual lead times and were generally either understated or overstated. DOD’s Supply Chain Materiel Management Regulation provides guidance for developing materiel requirements based on customer expectations while minimizing the investment in inventories. In addition, accurate lead time estimates are critically important in enabling the military components to have the proper amount of inventory on hand. However, as table 2 shows, 5 percent of the deliveries, totaling about $700 million, had actual acquisition lead times that were within a week of the estimate. The combined value of the lead time underestimates for all the components resulted in slightly over $12 billion in spare and repair parts arriving more than 90 days later than expected, which may have negatively affected equipment readiness and overall rates because units may not have had the necessary inventory to support and sustain ongoing military operations. If lead time estimates had been more accurate, orders could have been placed and funds obligated earlier, and in some instances readiness rates could potentially have been improved. Further, the combined value of the lead time overestimates resulted in the military components obligating almost $2 billion more than 90 days earlier than necessary, which could add to excess on-hand inventories, although spare parts that come in early could potentially improve readiness. We reviewed the two parts of acquisition lead time, administrative lead time and production lead time, and found that each of the military components more accurately estimated the administrative portion than the production portion. However, for administrative lead time, the military components’ estimates fell within the 1-week range only about 20 percent of the time while production lead time estimates matched the actual production lead times within the 1-week range just over 10 percent of the time. Officials explained that the accuracy of their administrative lead time estimates was better than their production lead time estimates because they have more management control over their internal processes than over external contractor practices. Officials stated that variability always exists when generating lead time estimates, but they agreed that improved and more reliable lead time estimates can contribute to lower levels of inventory. They also stated that understated lead time estimates can result in backorders or part shortages which may impact a unit’s readiness if the needed spare parts are not available when expected, and overstated estimates result in prematurely obligating funds that could have been used for other military needs and can unnecessarily increase inventory levels and associated costs. The Army tended to underestimate their acquisition lead times and receive items later than expected. Of the 9,380 Army deliveries we reviewed, more than 58 percent of their actual acquisition lead times were more than 90 days longer than their estimated lead times. This represented about $10.6 billion worth of inventory arriving later than expected. Additionally, almost 12 percent had actual acquisition lead times that were more than 90 days shorter than their estimated lead times and that resulted in about $900 million of premature obligations, as shown in table 3. The variances between the Army’s actual and estimated lead times occurred, in part, because of miscoding of late deliveries as not representative of future delivery times, lack of accurate lead time data in one of its computer systems, and data input errors. Of the data we examined, most of the underestimates occurred within the Army Aviation and Missile Life Cycle Management Command within the Army Materiel Command. This command develops, acquires, fields, and sustains aviation, missile, and unmanned vehicle systems. When this command cannot obtain items, such as landing gear, helicopter blades, and aircraft access doors in accordance with expectations, it can have immediate and serious ramifications on the operational readiness of many units. We found production lead times in 3,863 orders, for items valued at $10.3 billion of the $10.6 billion we analyzed, where the actual lead times were more than 90 days later than the estimated lead times. According to our analyses of the command’s deliveries received in fiscal year 2005, nearly 63 percent arrived more than 90 days later than expected. Army officials stated that some of the variances between actual and estimated lead times occurred because some actual lead times were miscoded as nonrepresentative by the command’s acquisition personnel, who initially believed that certain delivery delays would be short-lived and were not representative of future deliveries. Once Army officials realized the delays were not short-lived, they said that item managers made some adjustments for particular affected items. Army guidance states that lead times should be computed using the most recent representative procurement. However, it does not give clear guidance on when to decide if continuing late contractor deliveries should be considered representative, and any adjustments made to particular affected items would not prevent similar situations from occurring in the future. As a result, actual lead times can be miscoded and excluded from lead time updates, which makes subsequent estimates inaccurate. Army officials acknowledged that this command has experienced a problem in meeting supply demands for several years, especially after Operation Iraqi Freedom began, because of the surge in demand for their items. The high demand depleted much of the Army’s on-hand supply of inventory more quickly than anticipated and replacing the items was difficult since many aviation-related items had long lead times for replacement. At the same time, the Army was unable to order some items as quickly as needed because it lacked sufficient available funds to obligate and process orders. However, Army officials stated that many manufacturers were operating at their highest capacity and placing orders more quickly would not have resulted in the companies actually producing the additional items any faster. Officials from the U.S. Army TACOM Life Cycle Management Command in Warren, Michigan made similar statements to explain the lateness of some of their deliveries. They agreed that they had experienced delays in getting items from certain contractors due to the high level of demand. They also acknowledged budgetary constraints during the years of our sample that resulted in hiring freezes and other personnel challenges that added to their workload and hindered their ability to process contracts and orders and to periodically review, validate, and make corrections to any inaccurately recorded lead time estimates. Army officials also attributed inaccuracies in lead times to input errors that item managers were unable to detect and correct.