The Defense Logistics Agency (DLA), service headquarters, and inventory control points are responsible for managing secondary inventory. Through their respective item managers, DLA and service inventory control points ensure that needed items are available to the operating forces when and where needed. An item manager’s tasks include determining when to repair or purchase items, positioning them at depots to meet demands, and disposing of unneeded items. The items managed by DLA and service item managers are stored at depots operated and managed by DLA. Depot managers have no authority over what items are stored or whether they should be disposed of. These decisions are made by the item managers. The current DLA distribution depot system consists of two distribution region headquarters. They are located at New Cumberland, Pennsylvania, and Stockton, California. Each of the 27 distribution depots report to one of these regions. For fiscal year 1994, total DOD distribution costs amounted to about $1.5 billion. Figure 1 shows the locations of these depots. When inventory is managed efficiently, enough is stored to meet wartime and peacetime requirements and unnecessary storage costs are avoided. When the total on-hand and due-in inventory falls to or below a certain level—called the reorder point—inventory control points place an order for additional inventory. The reorder point includes items needed to satisfy war reserve requirements and items to be issued during the lead time (the time between when an order is placed and when it is received). In addition, a safety level of inventory is kept on hand in case of minor interruptions in the resupply process or unpredictable fluctuations in demand. By placing orders when the reorder point is reached, item managers ensure that inventory arrives before stock runs out. Generally, the amount of inventory ordered is based on a formula that DOD calls an economic order quantity (also known as a replenishment formula). According to DLA, DOD’s secondary inventory occupies about 360 million cubic feet of storage space and has an actual volume of about 300 million cubic feet. We obtained computerized inventory data records from DLA and each of the military services and identified secondary inventory items with a volume of 218.8 million cubic feet. Our figure differs from DLA’s 300 million cubic feet because approximately 12 percent of the items on the DLA and service data tapes that we used did not have storage space data. To determine whether there are opportunities for reductions, we analyzed DOD’s secondary inventory as it relates to war reserve and current operational needs and in terms of the years of supply that is on hand on an item basis. Using this data, we visited selected storage activities to examine the condition and reasons for continuing to store items that appeared to be no longer needed. This work showed that DOD has a substantial number of items that (1) have over a 20-year supply beyond the levels needed to meet war reserve and operational needs, (2) are for weapon systems no longer in use, (3) are no longer usable, and (4) are not needed. Our analysis of DOD’s September 30, 1993, Supply System Inventory Report and inventory stratification reports indicates that $36.3 billion of the $77.5 billion secondary inventory that DOD reported exceeded current war reserve and operating requirements. On the basis of our analysis of computerized records, we determined that about 2.2 million different items had a volume of 130.4 million cubic feet. A typical DOD warehouse is approximately 595 feet long and 180 feet deep. DLA officials said that it would take approximately 205 warehouses to store the 130.4 million cubic feet of inventory. Figure 2 shows that inventory by DOD component. DLA estimates that the holding costs for the 130 million cubic feet are approximately $94 million per year, which is less than 1 percent of the inventory value. This is low when compared to industry experience, which according to one study, ranges from 5 to 15 percent. For purchase decisions, some inventory control points use a percentage of the item’s value, which can be as high as 18 to 22 percent of the value. However, DOD believes that the holding costs for items already on hand is considerably less than the 18 to 22 percent. As discussed later, DOD has an effort underway to benchmark its holding costs with private industry (see p. 17). The concern about unnecessary secondary inventory storage is not new. In 1992, we reported that storing unneeded secondary inventory would prevent DLA from realizing savings from depot consolidations. We recommended that DLA reduce this inventory so that fewer depots would be required. To estimate the years of supply for each of the types of items, we divided the on-hand inventory by past or projected demand data. We had demand data for about 488,000 of the 2.2 million items that were not needed to satisfy current war reserves or operating requirements. Those items occupied about 73 percent (95.7 million cubic feet) of the 130.4 million cubic feet of space; 84,000 of the items (41.7 million cubic feet) had more than a 20-year supply. The 1.7 million items that did not have demand dataoccupied 34.7 million cubic feet of space. In figure 3, we show the years of supply by service. Figure 4 shows the space occupied by these items. To identify items that will likely never be used, we (1) used DLA and service databases to determine the amounts of stock on hand, (2) discussed with item managers the likelihood of these items being used and plans to dispose of them, and (3) visited supply depots to inspect items that had been in storage for an extensive period of time with little or no demand. Some examples of the items we identified follow. At the Fleet Industrial Supply Center, Norfolk, Virginia, three pump rotors (costing about $22,000 each) for a ship water pump have remained in storage since 1970. Recently, these items were transferred to DLA for management under the Consumable Item Transfer Program. Under this program, DLA assumes management responsibility for selected consumable items used by more than one service. Because DLA now manages these items, they will not be considered for disposal for at least 2 years due to DLA’s disposal policy. At the same location, 10 bearings ($5,590 each) for a gear assembly on an aircraft carrier had been in storage since 1986. After our discussions with the item manager, the Navy disposed of all 10 of these bearings. Figure 5 shows the bearings in storage. At Warner Robins Air Logistics Center, Warner Robins, Georgia, 79 modular radio transmitters belonging to the Army and valued at approximately $16,000 were in storage. Although 69 of these items are excess, the Air Force had not taken any action to determine whether they were needed by the Army. Air Force officials told us that they planned to contact the Army for disposal authority. Figure 6 shows the modular radio transmitters in storage. At the Defense Construction Supply Center, Columbus, Ohio, we were informed that 65 housings for air cylinders used on a electric generating unit have had no demand in years, and no demand is forecasted for the coming year. The item manager indicated that it is unlikely that all the housings will be used, but they cannot be disposed of until additional information is available concerning possible uses for them. Some items have become obsolete as technology has advanced and weapon systems and equipment have been phased out of the inventory. At the Fleet Industrial Supply Center in Norfolk, Virginia, we located two electric pumps valued at approximately $90,700 (about $45,350 each). Though these pumps were for destroyer class ships no longer in the U.S. inventory, they remained in storage. When we questioned this retention decision, the Navy item manager informed us that the pumps were being retained for potential foreign military sales. Despite the absence of U.S. military users, responsibility for their management was transferred to DLA under the Consumable Item Transfer Program. Thus, the electric pumps will be stored for at least 2 years. Figure 7 shows them in storage. DLA also assumed management responsibility for four large distillation units for which there were no known users. The items (costing $72,140 each) have been in storage since 1968 and were used to distill water on Navy ships. According to the Navy, the decision to retain the items was predicated on their high cost. Because of this cost, the Navy chose to research the possible uses of these items before disposing of them. Like other items transferred to DLA, they will not be considered for disposal for at least 2 years. Figure 8 shows the distillation units stored at the Fleet Industrial Supply Center, Norfolk, Virginia. At Warner Robins Air Logistics Center, Warner Robins, Georgia, 4,044 missile control systems (a total cost of approximately $21 million) are being phased out of the inventory. These items have been in storage for many years with no demands. However, subsequent to our visit, the item manager received approval to dispose of them. Also, at Warner Robins Air Logistics Center, three equalizer assemblies costing approximately $75,000 had been in storage for at least 3 years. The assemblies were part of the F-4 aircraft reconnaissance system. Though the items were obsolete to DOD, they were being retained for possible foreign military sales. Figure 9 shows the assemblies in storage. Many items have deteriorated to the point that they are no longer usable. For example, at the Fleet Industrial Supply Center, in Norfolk, Virginia, a hoisting antenna (which cost about $48,500) had been stored outside so long that grass and rust covered it. The Navy item manager informed us that the item is no longer usable and will be disposed of. Figure 10 shows the antenna in outside storage. Also, at the Fleet Industrial Supply Center in Norfolk, Virginia, 13 modernization kits for the P-3C aircraft have been in storage since 1978.