Summary
Maintaining the right amount and types of items in its inventory--a key aspect of supply chain management--has been a long-standing challenge for the Department of Defense (DOD) and has been on GAO's list of high-risk areas since 1990. DOD retains inventory above its normal operating requirements for various reasons including for contingency purposes or because it is more economical to keep items than dispose and repurchase them later. DOD's inventory levels have grown in recent years to almost $80 billion in fiscal year 2005. GAO was asked to assess the management of contingency retention inventory to determine whether (1) the Army, Air Force, Navy, and Defense Logistics Agency have followed inventory guidance and (2) DOD is providing oversight of inventory across these components. Also, GAO provided an update on the progress DOD has made in implementing GAO's past recommendations on the components' management of economic retention inventory.
Some DOD inventory management centers have not followed DOD-wide and individual policies and procedures to ensure they are retaining the right amount of contingency retention inventory. While policies require the centers to (1) use category codes to describe why they are retaining items in contingency inventory, (2) hold only those items needed to meet current and future needs, and (3) perform annual reviews of their contingency inventory decisions, one or more centers has not followed these policies. For example, the Army's Aviation and Missile Command is not properly assigning category codes that describe the reasons they are holding items in contingency inventory because the inventory system is not programmed to use the codes. GAO found that items valued at $193 million did not have codes to identify the reasons why they were being held, and therefore GAO was unable to determine the items' contingency retention category. GAO also found that some inventory centers have held items such as gears, motors, and electronic switches, even though there have been no requests for some of them by the services in over 10 years. Moreover, some centers are not annually reviewing their contingency retention decisions. Navy Inventory Control Point Mechanicsburg's officials, for example, were unaware that program managers had not conducted the required reviews until GAO brought this to their attention. Since GAO's work only focused on the centers it reviewed, it is unknown if these issues are occurring at other DOD inventory centers. By not following policies for managing contingency inventory, DOD's centers may be retaining items that are needlessly consuming warehouse space, and they are unable to know if their inventories most appropriately support current and future operational needs. DOD has provided insufficient oversight of inventory retention management across the components. DOD's Supply System Inventory Report, which DOD uses to oversee the components' inventory management, only requires the components to report to DOD financial information about their inventories and does not capture if the components are following management policies. Without sufficient oversight of the components' inventory retention practices, DOD cannot be certain that the components have the correct amount or type of items in contingency retention inventory. Lastly, DOD has made no progress to implement GAO's 2001 recommendations requiring the components to (1) establish milestones for reviewing their approaches for making economic retention inventory decisions, and (2) conduct annual reviews of these approaches, as required by DOD policy. At the time GAO issued its report, DOD agreed with the recommendations but stated that further review was necessary before it implemented changes. While subsequent studies reaffirmed the recommendations, DOD has still not taken action. GAO continues to believe that DOD should implement the recommendations to make meaningful improvements to its economic retention management practices.
Recommendations
Our recommendations from this work are listed below with a Contact for more information. Status will change
from "In process" to "Implemented" or "Not implemented" based on our follow up work.
Director:
Team:
Phone:
William M. Solis
Government Accountability Office: Defense Capabilities and Management
(202) 512-8365
Recommendations for Executive Action
Recommendation: To ensure DOD inventory management centers properly assign codes to categorize the reasons to retain items in contingency retention inventory, the Secretary of Defense should direct the Under Secretary of Defense for Acquisition, Technology, and Logistics to direct the Secretary of the Army to instruct the Army Materiel Command to modify the Commodity Command Standard System so it will properly categorize the reasons for holding items in contingency retention inventory.
Agency Affected: Department of Defense
Status: In process
Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
Recommendation: To ensure DOD inventory management centers properly assign codes to categorize the reasons to retain items in contingency retention inventory, the Secretary of Defense should direct the Under Secretary of Defense for Acquisition, Technology, and Logistics to direct the Secretary of the Air Force to instruct the Air Force Materiel Command to correct the Application Programs, Indenture system's deficiency to ensure it properly categorizes the reasons for holding items in contingency retention inventory.
Agency Affected: Department of Defense
Status: In process
Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
Recommendation: To ensure that the DOD inventory management centers retain contingency retention inventory that will meet current and future operational requirements, the Secretary of Defense should direct the Under Secretary of Defense for Acquisition, Technology, and Logistics to direct the Secretary of the Army to instruct the Army Materiel Command to require the Aviation and Missile Command to identify items that no longer support operational needs and determine whether the items need to be removed from the inventory. The Army Materiel Command should also determine whether its other two inventory commands, the Communications-Electronics Command and Tank-automotive and Armaments Command, are also holding obsolete items, and if so, direct those commands to determine whether the disposal of those items is warranted.
Agency Affected: Department of Defense
Status: In process
Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
Recommendation: To ensure that DOD inventory management centers conduct annual reviews of contingency retention inventory as required by DOD's Supply Chain Materiel Management Regulation, the Secretary of Defense should direct the Under Secretary of Defense for Acquisition, Technology, and Logistics to direct the Director of the Defense Logistics Agency to require the Defense Supply Center Richmond to conduct annual reviews of contingency retention inventory. The Defense Logistics Agency should also determine whether its other two centers, the Defense Supply Center Columbus and the Defense Supply Center Philadelphia, are conducting annual reviews, and if not, direct them to conduct the reviews so they can ensure the reasons for retaining the contingency retention inventory are valid.
Agency Affected: Department of Defense
Status: In process
Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
Recommendation: To ensure that DOD inventory management centers conduct annual reviews of contingency retention inventory as required by DOD's Supply Chain Materiel Management Regulation, the Secretary of Defense should direct the Under Secretary of Defense for Acquisition, Technology, and Logistics to direct the Secretary of the Navy to instruct the Naval Inventory Control Point Mechanicsburg to conduct annual reviews of contingency retention inventory. The Naval Inventory Control Point should also determine if its other organization, Naval Inventory Control Point Philadelphia, is conducting annual reviews and if not, direct the activity to conduct the reviews so it can ensure the reasons for retaining the contingency retention inventory are valid.
Agency Affected: Department of Defense
Status: In process
Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
Recommendation: To ensure that DOD inventory management centers conduct annual reviews of contingency retention inventory as required by DOD's Supply Chain Materiel Management Regulation, the Secretary of Defense should direct the Under Secretary of Defense for Acquisition, Technology, and Logistics to direct the Secretary of the Army to instruct the Army Materiel Command to require the Aviation and Missile Command to conduct annual reviews of contingency retention inventory. The Army Materiel Command should also determine if its other two inventory commands, the Communications-Electronics Command and Tank-automotive and Armaments Command, are conducting annual reviews and if not, direct the commands to conduct the reviews so they can ensure the reasons for retaining the contingency retention inventory are valid.
Agency Affected: Department of Defense
Status: In process
Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
Recommendation: To ensure that DOD inventory management centers implement departmentwide policies and procedures for conducting annual reviews of contingency retention inventories, the Secretary of Defense should direct the Office of the Deputy Under Secretary of Defense for Logistics and Materiel Readiness to revise the DOD's Supply Chain Materiel Management Regulation to make clear who is responsible for providing recurring oversight to ensure the inventory management centers conduct the annual reviews of contingency retention inventory.
Agency Affected: Department of Defense
Status: In process
Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
