ICPs provide services associated with the acquisition, distribution, maintenance, and disposal of consumable and reparable parts, and supplies needed to operate weapon systems and components. DLA manages 5 ICPs at 5 locations, and the services manage 11 ICPs at 13 locations. DLA’s ICPs manage consumable items such as repair parts, personnel support items, fuel, and other bulk items and material. The services’ ICPs manage reparable components, subsystems, and assemblies and selected consumable items. The 16 ICPs employ about 24,000 people and manage parts valued at approximately $69 billion. The number of ICPs is expected to be reduced to 11 ICPs at 13 locations by fiscal year 2003. (See app. I for a list of service and DLA ICPs by location and by those that are scheduled for downsizing.) In past reports, we criticized DOD’s logistics system as being cumbersome, inefficient, and costly. Likewise, since at least the 1970s, DOD has recognized and been concerned about overlap and duplication in its logistics system and other inefficiencies. In 1989, OSD proposed a review to consolidate ICPs under a single service or agency manager, but the services strongly opposed the idea because they believed their ability to support weapon systems effectively would be adversely affected. However, in the National Defense Authorization Act for Fiscal Year 1996, Congress required the Secretary of Defense to review the management of all DOD ICPs by DLA, including service-managed reparable items. Thus, in April 1996, the Deputy Under Secretary of Defense for Logistics tasked the Logistics Management Institute (LMI) to conduct such a review. On November 19, 1996, OSD reported the results of its review to Congress and provided a copy to the Comptroller General of the United States. The report concluded that cumulative savings during fiscal years 1998 to 2010, ranging from $2.2 billion to $3.8 billion, might accrue if the management of all ICPs were transferred to DLA. The report also noted the services’ concerns regarding the transfer, principally the risk of disrupting the intraservice integration of material and weapon system management. The report noted, however, that actions could be taken to lessen the risks. Given the services’ concerns, the report stated that DOD, through its QDR and other future planning and programming efforts, would examine alternatives that might provide similar savings at less overall risk. LMI developed a scenario for consolidating the service ICPs under a single manager within DLA and identified the associated potential costs, benefits, and risks. LMI recognized that if the proposed consolidation were to occur, the implementation might differ from its scenario, and the major personnel reductions and site consolidations envisioned in the review would likely have to undergo a process similar to that recently used for BRAC actions. Therefore, LMI considered its analysis conceptual in nature because it did not address specifics, such as which ICPs to close and which to retain. The analysis was intended to indicate only whether the consolidation has merit. Under LMI’s scenario, the consolidation would take place during fiscal years 1998-2010, reduce the number of ICPs to either six or three, and affect at least 12,000 people. Figure 1 is a chronology of LMI’s scenario, the actions projected to occur, and the associated range of savings. No actions would be scheduled during this period of steady-state savings; the movement of ICP personnel would be completed by fiscal year 2008. $0.7 billion to $1.2 billion saved DLA would reduce the number of ICPs and standardize systems and procedures. Remaining business process improvements would be implemented. $0.9 billion to $1.6 billion saved Under DLA management, service ICPs would continue with the same service people, policies, systems, and procedures (i.e., transfer in place). DLA could elect to consolidate support functions regionally or at a single site to reduce the number of personnel required. Some business process improvements would be implemented. $0.6 billion to $1.0 billion saved A 1-year period of decision-making and pre-implementation planning. To identify the cost savings of its scenario, LMI considered three areas through which savings were possible: (1) a transfer in place, (2) site consolidation, and (3) business process improvements. (See app. II for a list of the business improvements identified by LMI.) LMI developed the cost savings for the transfer in place and site consolidations using the services’ and DLA’s ICP and supporting headquarters cost data. For the business process improvements, however, LMI could not obtain complete data from the services for all 16 improvements, but was able to price 4 individual initiatives that would result from the transfer. To develop the potential cost savings in these areas, LMI used cost factors and made assumptions that were conservative in nature. According to an LMI official, the team’s conservative approach was designed to avoid overstating the anticipated cost savings. After examining the report on consolidation, we believe OSD’s approach was reasonable, given the sensitive nature of the issue, the limited amount of time to perform the review, and the data available. However, we concluded that the cost savings estimates would have been $1.3 billion to $2.3 billion greater if BRAC principles had been used. Also, indications are that the savings estimates would be even greater if the review included the savings associated with all 16 business process improvements and likely future improvements to the material management information systems. Full achievement of these additional savings is dependent on the consolidation of the ICPs under a single manager. Given the short time frame LMI had to review the ICP consolidation, it performed a conceptual analysis to show whether savings were possible. It did not use the cost of base realignment actions (COBRA) model, which was used during the four BRAC rounds since 1988 to evaluate the cost of stationing alternatives. Although LMI was not required to use the model, COBRA was the proven, standard means for analyzing proposed consolidations. We recognize the difficulty in using the COBRA model because it requires the collection of a large amount of data and numerous assumptions, such as which sites to retain and which to close. Had LMI used some of the BRAC principles that were used in the COBRA model, such as a longer period of steady-state savings and a present value analysis in arriving at its cost savings estimates, the combined effect would have resulted in larger estimated savings. More importantly, using these BRAC principles provides a way of showing cost savings estimates that are consistent with how DOD projected costs and savings in previous BRAC rounds. To illustrate, BRAC legislation required that consolidations be completed in no more than 6 years and that DOD project savings over a 20-year period, thus ensuring at least 14 years of steady-state savings. BRAC also required the use of a present value analysis to reflect the value of money over time. LMI projected cost savings over a 13-year period (i.e., fiscal years 1998-2010), which included an 11-year implementation period and 2 years of steady-state savings. Its analysis also did not consider the time value of money. An LMI official told us that, given more time, it would have considered using a present value analysis and a longer time period. We adjusted LMI’s cost savings estimates by applying these two BRAC principles without changing LMI’s scenario or assumptions. Specifically, we extended LMI’s ending time frame from fiscal year 2010 to 2022 to allow 14 years of steady-state savings and performed a present value analysis on LMI’s cost savings estimates, using a rate of 4 percent. Table 1 shows the results of our adjustments. LMI’s analysis could be adjusted in many ways if the scenario assumptions were changed. We could have used a 20-year period (fiscal years 1998-2017), which would include 14 years of steady-state savings. Although we believe this alternative calculation would generate savings similar to or greater than those from our analysis, we would have had to make numerous assumptions about LMI’s consolidation scenario. For example, by achieving consolidation within the first 6 years (i.e., between fiscal year 1998 and 2003, or sooner), DOD could increase the potential cost savings even more. We have previously reported on the effect of implementing BRAC actions sooner and the resulting increase in savings. The savings identified in LMI’s analysis do not include potential savings from all 16 business process improvements and a DOD-wide material management information system. We were unable to quantify these associated costs and savings, but we believe their inclusion into LMI’s analysis would increase LMI’s cost savings estimates. Although LMI identified 16 business process improvements from which savings could be anticipated, it estimated costs and savings for only 4. These four, however, account for a significant portion of the overall estimated savings—ranging between $1.5 billion and $2.7 billion. Nevertheless, the additional 12 could also result in savings. According to LMI officials, these business process improvements are a sample of improvements that DLA could make as a single manager for all DOD ICPs, to include improving the contracting methodology and process, deleting inactive parts, and improving material acquisitions and inventory storage. According to an LMI official, LMI estimated savings for only four improvements because of the lack of data, time constraints, and limited resources. Service officials stated that the savings associated with these four process improvements duplicate ongoing service efforts and should not be considered in this analysis. However, they did not provide data to support their statements. We believe that even greater savings could be achieved if the business process improvements were implemented by a single manager across service lines for all of DOD’s ICPs.