Navy Ordnance: Analysis of Business Area Efforts to Streamline Operations
and Reduce Costs (Letter Report, 10/15/97, GAO/AIMD/NSIAD-98-24).
Pursuant to a congressional request, GAO reviewed financial and
management issues related to the ordnance business area of the Navy
Working Capital Fund, focusing on: (1) the Navy's proposed and ongoing
actions to reduce the business area's costs; and (2) additional cost
reduction opportunities.
GAO noted that: (1) the Navy is in the process of developing the cost
reduction plan GAO recommended in its March 1997 report and has proposed
and begun implementing a number of actions to reduce its ordnance
business area's annual operating costs by $151 million, or 25 percent,
between fiscal year 1996 and 1999; (2) this is a significant step in the
right direction and should result in substantial cost reductions and
more streamlined operations; (3) GAO's review of the business area's
operations and discussions with the Office of the Secretary of Defense
(OSD) and Navy ordnance officials indicate that the Navy has both an
opportunity and the authority to further reduce Navy ordnance costs; (4)
specifically: (a) redundant ordnance engineering capability exists
within the business area and other Navy organizations; (b) military
personnel are performing work that could be performed by less expensive
civilian employees; (c) redundant missile maintenance capability exists;
and (d) no financial incentive exists for customers to store only needed
ammunition (the business area's inventory records show that 43 percent
of the ammunition stored was unneeded as of May 1, 1997) since they do
not directly pay for storage costs; (5) while most of the planned cost
reduction actions appear to be appropriate, it remains to be seen
whether the business area will reduce costs by $151 million; (6) in
addition, GAO's review of available data indicates that one of the costs
reduction actions--the planned personnel reductions--may adversely
affect the Concord Naval Weapons Station's ability to load ships during
mobilization, thus creating potential readiness problems; and (7) these
personnel reductions are likely to have little impact on the Navy, but
could have a significant impact on the Army and Air Force, which would
rely heavily on Concord during a major contingency operation.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: AIMD/NSIAD-98-24
TITLE: Navy Ordnance: Analysis of Business Area Efforts to
Streamline Operations and Reduce Costs
DATE: 10/15/97
SUBJECT: Industrial funds
Ammunition
Financial management
Cost effectiveness analysis
Overhead costs
Military cost control
Equipment maintenance
Privatization
Logistics
Human resources utilization
IDENTIFIER: Navy Working Capital Fund
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Cover
================================================================ COVER
Report to the Chairman, Subcommittee on Military Readiness, Committee
on National Security, House of Representatives
October 1997
NAVY ORDNANCE - ANALYSIS OF
BUSINESS AREA EFFORTS TO
STREAMLINE OPERATIONS AND REDUCE
COSTS
GAO/AIMD/NSIAD-98-24
GAO/AIMD-98-24
Navy Ordnance
(511612 and 709229)
Abbreviations
=============================================================== ABBREV
DLA - Defense Logistics Agency
DOD - Department of Defense
NOC - Naval Ordnance Center
OSD - Office of the Secretary of Defense
Letter
=============================================================== LETTER
B-274841
October 15, 1997
The Honorable Herbert H. Bateman
Chairman, Subcommittee on Military Readiness
Committee on National Security
House of Representatives
Dear Mr. Chairman:
This is our second report in response to your request that we review
financial and management issues related to the ordnance business area
of the Navy Working Capital Fund. The Navy reorganized this business
area in 1993 in order to reduce costs and address various
deficiencies in ordnance logistics management that were identified
during Desert Shield/Desert Storm operations and by various working
groups and studies. However, the business area has experienced
financial difficulties since the reorganization--losing a reported
$212 million during fiscal years 1994 through 1996 despite price
increases of about 78 percent. Our March 1997 report\1 discussed the
causes of these price increases and losses, including the fact that
business area managers have not been able to reduce overhead costs as
rapidly as their workload has declined. This second report (1)
provides our evaluation of the Navy's proposed and ongoing actions to
reduce the business area's costs and (2) identifies additional cost
reduction opportunities.
--------------------
\1 Navy Ordnance: Analysis of Business Area Price Increases and
Financial Losses (GAO/AIMD/NSIAD-97-74, March 14, 1997).
BACKGROUND
------------------------------------------------------------ Letter :1
The Navy ordnance business area, which consists of the Naval Ordnance
Center (NOC) headquarters and subordinate activities, such as Naval
weapons stations, operates under the revolving fund concept as part
of the Navy Working Capital Fund. It provides various services,
including ammunition storage and distribution,\2 ordnance
engineering, and missile maintenance, to customers who consist
primarily of Defense organizations, but also include foreign
governments. Revolving fund activities rely on sales revenue rather
than direct congressional appropriations to finance their operations
and are expected to operate on a break-even basis over time--that is,
to neither make a profit nor incur a loss, but to recover all costs.
During fiscal year 1996, the Navy ordnance business area reported
revenue of about $563 million and costs of about $600 million, for a
net operating loss of about $37 million. In accordance with current
Department of Defense (DOD) policy, this loss and the $175 million
the business area lost during fiscal years 1994 and 1995 will be
recouped by adding surcharges to subsequent years' prices.
As discussed in our March 1997 report, higher-than-expected overhead
costs were the primary cause of the losses that the business area
incurred during fiscal years 1994 through 1996. We also testified on
this problem in May 1997,\3 and recommended that the Secretary of the
Navy develop a plan to streamline the Naval ordnance business area's
operations and reduce its overhead costs. The Navy has initiated a
restructuring of the business area that, according to the Secretary
of the Navy, is "akin to placing it in receivership."
--------------------
\2 Ammunition storage and distribution, which is one of the business
area's core requirements and largest workloads, involves the receipt,
storage, segregation, and issue of ammunition, as well as services
related to loading ammunition on to and off of naval ships and
commercial vessels.
\3 Defense Depot Maintenance: Challenges Facing DOD in Managing
Working Capital Funds (GAO/T-NSIAD/AIMD-97-152, May 7, 1997).
RESULTS IN BRIEF
------------------------------------------------------------ Letter :2
The Navy is in the process of developing the cost reduction plan we
recommended in our March 1997 report and has proposed and begun
implementing a number of actions to reduce its ordnance business
area's annual operating costs by $151 million, or 25 percent, between
fiscal year 1996 and 1999. This is a significant step in the right
direction and should result in substantial cost reductions and more
streamlined operations.
Additionally, our review of the business area's operations and
discussions with the Office of the Secretary of Defense (OSD) and
Navy ordnance officials indicate that the Navy has both an
opportunity and the authority to further reduce Navy ordnance costs.
Specifically, (1) redundant ordnance engineering capability exists
within the business area and between the business area and other Navy
organizations, (2) military personnel are performing work that could
be performed by less expensive civilian employees, (3) redundant
missile maintenance capability exists, and (4) no financial incentive
exists for customers to store only needed ammunition (the business
area's inventory records show that 43 percent of the ammunition
stored was unneeded as of May 1, 1997) since they do not directly pay
for storage costs.
While most of the planned cost reduction actions appear to be
appropriate, it remains to be seen whether the business area will
reduce costs by $151 million. In addition, our review of available
data indicates that one of the cost reduction actions--the planned
personnel reductions--may adversely affect the Concord Naval Weapons
Station's ability to load ships during mobilization, thus creating
potential readiness problems. These personnel reductions are likely
to have little impact on the Navy, but could have a significant
impact on the Army and Air Force, which would rely heavily on Concord
during a major contingency operation.
OBJECTIVE, SCOPE, AND
METHODOLOGY
------------------------------------------------------------ Letter :3
The objective of our audit of the Navy ordnance business area was to
assess the Navy's efforts to reduce costs and streamline its
operations. Our current audit of the restructuring of the Navy
ordnance business area is a continuation of our work on the business
area's price increases and financial losses (GAO/AIMD/NSIAD-97-74,
March 14, 1997). In that report we recommended that the Secretary of
Defense direct the Secretary of the Navy to develop a plan to
streamline the Navy ordnance business operations and reduce its
infrastructure costs, including overhead. This plan should (1)
concentrate on eliminating unnecessary infrastructure, including
overhead, (2) identify specific actions that need to be accomplished,
(3) include realistic assumptions about the savings that can be
achieved, (4) establish milestones, and (5) clearly delineate
responsibilities for performing the tasks in the plan.
To evaluate the actions being taken or considered by the NOC to
streamline its operations and reduce costs, we (1) used the work that
we performed in analyzing the business area's price increases and
financial losses and (2) analyzed budget reports to identify planned
actions and discussed the advantages and disadvantages of the planned
actions with Navy, OSD, U.S. Transportation Command, and Joint Staff
officials. In analyzing the actions, we determined (1) if specific
steps and milestones were developed by the NOC to accomplish the
actions, (2) whether the initiatives appeared reasonable and could
result in improved operations, (3) what dollar savings were estimated
to result from the implementation of the actions, (4) whether the
actions went far enough in reducing costs and improving operations,
and (5) what other actions not being considered by the NOC could
result in further cost reductions or streamlined operations. We did
not independently verify the financial information provided by the
Navy ordnance business area.
We performed our work at the Office of the DOD Comptroller and Joint
Staff, Washington, D.C.; Offices of the Assistant Secretary of Navy
(Financial Management and Comptroller), Naval Sea Systems Command,
Naval Air Systems Command, and Headquarters, Defense Finance and
Accounting Service, all located in Arlington, Virginia; Headquarters,
U.S. Atlantic Fleet, Norfolk, Virginia; Naval Ordnance Center
Headquarters, Indian Head, Maryland; Naval Ordnance Center Atlantic
Division, Yorktown, Virginia; Naval Ordnance Center Pacific Division,
Seal Beach, California; Naval Weapons Station, Yorktown, Virginia;
Naval Weapons Station, Charleston, South Carolina; Naval Weapons
Station, Earle, New Jersey; Naval Weapons Station, Seal Beach,
California; Naval Weapons Station, Concord, California; Naval Weapons
Station Detachment, Fallbrook, California; Naval Warfare Assessment
Division, Corona, California; and U.S. Transportation Command, Scott
Air Force Base, Illinois. Our work was performed from June 1996
through September 1997 in accordance with generally accepted
government auditing standards.
We requested written comments on a draft of this report. The Under
Secretary of Defense (Comptroller) provided us with written comments,
which we incorporated where appropriate. These comments are
reprinted in appendix I.
NAVY'S PROPOSED AND ONGOING
ACTIONS
------------------------------------------------------------ Letter :4
The Navy has incorporated a goal to reduce annual costs by $151
million into its ordnance business area's budget estimate and has
identified the major actions that will be taken to achieve this goal.
Our analysis of available data indicates that the planned actions
should result in substantial cost reductions and more streamlined
operations. However, we cannot fully evaluate the reasonableness of
the cost reduction goal at this time because the Navy does not expect
to finalize the cost reduction plan until October 1997.
ONGOING RESTRUCTURING SHOULD
REDUCE COSTS AND STREAMLINE
OPERATIONS
---------------------------------------------------------- Letter :4.1
During the fiscal year 1998 budget review process, OSD officials
worked with the Navy to formulate a restructuring of the Navy
ordnance business area. According to the budget estimate the Navy
submitted to the Congress in February 1997, this restructuring will
allow the ordnance business area to achieve substantial cost and
personnel reductions without adversely affecting ordnance activities'
ability to satisfy their customers' peacetime and contingency
requirements. Specifically, the budget estimate indicated that
between fiscal years 1996 and 1999, the business area's civilian and
military fiscal year end strengths will decline by 18 percent and 23
percent, respectively, and its annual costs will decline by $151
million, or 25 percent. The budget also indicated that the business
area will increase its fiscal year 1998 prices in order to recover
$224 million of prior year losses and achieve a zero accumulated
operating result by the end of fiscal year 1998.
The Navy's fiscal year 1998 budget submission also indicated that the
planned restructuring of the business area (1) is based on an
assessment of whether current missions should be retained in the
business area, outsourced to the private sector, or transferred to
other organizations and (2) will make fundamental changes in how the
business area is organized and conducts its business. Our assessment
of the individual actions--most of which are expected to be initiated
by October 1997 and completed during fiscal year 1998--shows that the
Navy is planning to reduce costs by eliminating or consolidating
redundant operations and reducing the number of positions in the
business area. These actions, which are listed below, should help to
streamline the Navy ordnance operations and reduce costs.
-- Properly sizing the business area's workforce to accomplish the
projected workload by eliminating about 800 positions, or about
18 percent of the total, before the end of October 1997.
-- Enhancing the business area's ability to respond to
unanticipated workload changes by increasing the percentage of
temporary workers in the work force from 8 percent to 20
percent.
-- Enhancing the business area's ability to identify redundant
ordnance engineering capability and to streamline its
information resource functions by consolidating management
responsibility for these areas by October 1, 1997.
-- Reducing overall operating costs by significantly cutting back
on operations at the Charleston and Concord Weapons Stations,
beginning in October 1997.
-- Eliminating redundant capability and reducing costs by
consolidating (1) some weapons station functions, such as safety
and workload planning, at fewer locations, (2) inventory
management functions at the Inventory Management and Systems
Division, and (3) maintenance work on the Standard Missile at
the Seal Beach Naval Weapons Station.
-- Reducing overhead contract costs, such as utilities and real
property maintenance during fiscal year 1998.
-- Enhancing business area managers' ability to focus on their core
ordnance missions of explosive safety, ordnance distribution,
and inventory management by transferring east coast base support
missions to the Atlantic Fleet on October 1, 1997.
ADDITIONAL COST REDUCTIONS ARE
POSSIBLE
------------------------------------------------------------ Letter :5
The Navy's planned restructuring of its ordnance business area will
reduce overhead costs and is an important first step toward the
elimination of the redundant capability both within the business area
and between the business area and other organizations. However, as
discussed in the following sections, our analysis indicates that
there are opportunities for additional cost reductions by (1)
developing and implementing a detailed plan to eliminate redundant
ordnance engineering capability, (2) converting military guard
positions to civilian status, and (3) implementing two actions that
Navy ordnance officials are currently considering.
ELIMINATION OF REDUNDANT
ENGINEERING CAPABILITY COULD
YIELD SUBSTANTIAL SAVINGS
---------------------------------------------------------- Letter :5.1
Navy ordnance officials plan to consolidate management responsibility
for the business area's nine separate ordnance engineering activities
under a single manager on October 1, 1997. This will allow this
manager to have visibility over all of the business area's
engineering resources and should facilitate more effective management
of these engineering resources. However, it will not result in any
savings unless action is also taken to eliminate the redundant
ordnance engineering capability that previous studies have identified
both within the ordnance business area and between the business area
and other Navy organizations.
For example, a 1993 Navy study estimated that 435 work years, or $22
million, could be saved annually by reducing Navy-wide in-service
ordnance engineering functions from 20 separate activities to 8
consolidated activities. However, Navy ordnance officials stated
that these consolidations were never implemented. They also stated
that although they did not know why the consolidations were not
implemented, they believe it was because (1) the Navy's ordnance
engineering personnel are managed by the NOC and three different
major research and development organizations and (2) the Navy did not
require these four organizations to consolidate their ordnance
in-service engineering functions.
CONVERTING MILITARY GUARD
POSITIONS TO CIVILIAN STATUS
COULD SAVE MONEY
---------------------------------------------------------- Letter :5.2
Since 1954, DOD Directive 1100.4 has required the military services
to staff positions with civilian personnel unless the services deem a
position military essential for reasons such as combat readiness or
training. This is primarily because, as we have previously
reported,\4 on average, a civilian employee in a support position
costs the government about $15,000 per year less than a military
person of comparable pay grade.
Our analysis showed that the percentage of military personnel in the
NOC workforce is about six times greater than in other Navy Working
Capital Fund activities, with most of these positions being military
guards such as personnel who guard access to the weapons station at
the main entrance. Further, Navy ordnance officials indicated that
they know of no reason why the guard positions should not be
converted to civilian status. In fact, these officials said that
they would prefer to have civilian guards since they are cheaper than
military guards, and they noted that all of their activities already
have some civilian security positions. Consequently, the Navy can
save about $6.8 million annually by converting the NOC's guard
positions to civilian status (based on the $15,000 per position
savings estimate).
NOC officials told us that they reviewed the need for all of their
military positions, and indicated that they plan to eliminate some of
these positions. However, they stated that they do not plan to
convert any military guard positions to civilian status. A Navy
Comptroller official told us that (1) all of the NOC's guard
functions will probably be transferred to the Atlantic and Pacific
fleets as part of the ordnance business area restructuring and (2)
the fleet commanders, not the NOC, should, therefore, decide whether
the military guard positions should be converted to civilian status.
--------------------
\4 DOD Force Mix Issues: Greater Reliance on Civilians in Support
Roles Could Provide Significant Benefits (GAO/NSIAD-95-5, October 19,
1994).
NAVY IS CONSIDERING
ADDITIONAL ACTIONS TO REDUCE
COSTS
---------------------------------------------------------- Letter :5.3
Navy ordnance officials are currently considering two additional
actions--further consolidating the business area's missile
maintenance work and charging individual customers for the storage of
ammunition--that would result in additional cost reductions and a
more efficient operation, if implemented. As discussed below,
consolidating missile maintenance work would allow the business area
to reduce the fixed overhead cost that is associated with this
mission, and charging customers for ammunition storage services would
give customers an incentive to either relocate or dispose of unneeded
ammunition and, in turn, could result in lower storage costs.
FURTHER CONSOLIDATION OF
MISSILE MAINTENANCE WORK
IS POSSIBLE
-------------------------------------------------------- Letter :5.3.1
The Navy ordnance business area, which has had a substantial amount
of excess missile maintenance repair capacity for several years, is
being forced to spread fixed missile maintenance overhead costs over
a declining workload base that is expected to account for only 3
percent of the business area's total revenue in fiscal year 1998.
This problem, which is caused by factors such as force structure
downsizing, continues even though the business area recently achieved
estimated annual savings of $2.3 million by consolidating all
maintenance work on the Standard Missile at one location. The
following table shows the substantial decline in work related to four
specific types of missiles.
Table 1
Navy Ordnance Business Area's Missile
Maintenance Workload Trend for Four
Missiles
(Number of missiles repaired)
Fiscal year
--------------------------------
1997 1998
(estim (estim
Type of missile 1994 1995 1996 ate) ate)
------------------------------------ ---- ---- ---- ------ ------
Harm 1,46 765 186 162 73
3
Harpoon 479 474 496 367 95
Standard 2,49 2,94 1,08 500 930
7 5 2
Sidewinder 1,80 2,28 1,29 337 601
6 8 2
----------------------------------------------------------------------
Note: Actual data for fiscal years 1994, 1995, and 1996, and planned
data for fiscal years 1997 and 1998.
NOC officials are currently evaluating several alternatives for
consolidating missile maintenance work, including (1) consolidating
all work on air launched missiles at one Naval weapons station, (2)
transferring all or part of the business area's missile maintenance
work to the Letterkenny Army Depot, Ogden Air Logistics Center and/or
a private contractor, and (3) accomplishing all or part of the work
in Navy regional maintenance centers. According to DOD, the
evaluation of these alternatives should be completed in the spring of
1998.
Based on our discussions with Navy ordnance and maintenance
officials, the NOC's evaluations of maintenance consolidation
alternatives should
-- identify the total cost of the various alternatives, including
onetime implementation costs and costs that are not included in
depot maintenance sales prices, such as the cost of shipping
items from coastal locations to inland depots and/or contractor
plants and
-- assess each alternative's potential impact on readiness.
CHARGING FOR AMMUNITION
STORAGE COULD RESULT IN
LOWER COSTS AND OTHER
BENEFITS
-------------------------------------------------------- Letter :5.3.2
The Navy ordnance business area incurs costs to store ammunition for
customers that are not required to pay for this storage service.
Instead, this storage cost is added to the price charged to load
ammunition on and off Naval ships and commercial vessels. As shown
in the following figure, the business area's inventory records
indicate that 51,231 tons, or about 43 percent, of ammunition stored
at the weapons stations was not needed as of May 1, 1997, because (1)
there is no requirement for it or (2) the quantity on hand exceeds
the required level.
Figure 1: Amount of Ordnance
Stored at Naval Weapons
Stations As of May 1, 1997
(See figure in printed
edition.)
If the business area charged customers for ammunition storage, the
costs of the storage service would (1) be charged to the customers
that benefit from this service and (2) provide a financial incentive
for customers to either relocate or dispose of unneeded ammunition.
This, in turn, could allow the business area to reduce the number of
locations where ammunition is stored and thereby reduce operating
costs. This approach has been adopted by the Defense Logistics
Agency, which also performs receipt, storage, and issue functions,
and the agency stated that instituting such user charges has helped
to reduce infrastructure costs by allowing it to eliminate unneeded
storage space. In addition, we recently recommended such an approach
in our report, Defense Ammunition: Significant Problems Left
Unattended Will Get Worse (GAO/NSIAD-96-129, June 21, 1996).
Navy ordnance officials told us that they are currently considering
charging customers for the storage of ammunition and are taking steps
to do so. These officials informed us that they (1) have discussed
DLA's experience in charging a storage cost with DLA officials, (2)
have discussed this matter with the torpedo program manager and sent
a letter addressing the cost to move the torpedoes off the weapons
stations, (3) are drafting similar letters to the other ordnance
program managers, and (4) are in the process of determining
ammunition storage costs for use in developing storage fees.
SOME PERSONNEL REDUCTIONS COULD
ADVERSELY AFFECT CUSTOMER
SUPPORT
------------------------------------------------------------ Letter :6
Most aspects of the Navy's planned restructuring of its ordnance
business area appear to be cost-effective alternatives. However, DOD
budget documents indicate that the Navy's fiscal year 1998 budget
submission for its ordnance business area did not adequately consider
the impact that planned personnel reductions would have on the
business area's ability to support non-Navy customers during
mobilization. These documents also indicate that the Navy was
proposing to reduce the operating status of some weapons stations,
including Concord. However, OSD officials were concerned with the
Navy's proposal because these weapons stations
-- would handle a majority of all DOD-wide, Army, Air Force, and
U.S. Transportation Command explosive cargo in the event of a
major contingency;
-- have 10 times the explosive cargo capacity of the ports
considered for retention;
-- are having their facilities expanded by the Army to accomplish
additional U.S. Transportation Command work; and
-- have specialized explosive storage areas that must be retained
to support current inventories of Navy missiles.
OSD officials concluded that no alternative to these ports exists and
that DOD must, therefore, keep these ports operational. The Deputy
Secretary of Defense agreed with this assessment and, in December
1996, directed the Navy not to place any port in a functional
caretaker status or reduce its ordnance handling capability until a
detailed plan is (1) coordinated within OSD, the Joint Staff, and the
other Military Departments and (2) approved by the Secretary of
Defense.
According to U.S. Transportation Command and Navy ordnance
officials, a May 1997 DOD-wide paper mobilization exercise validated
the OSD officials' concerns about Concord Naval Weapons Station
performing its mobilization mission. Specifically, the exercise
demonstrated that, among other things, (1) the Concord Naval Weapons
Station is one of three ports that are essential to DOD for getting
ordnance items to its warfighters during mobilization and (2) if
Concord is not sufficiently staffed or equipped, there could be a
delay in getting ordnance to the warfighter during mobilization.
According to Navy ordnance, OSD, the Joint Staff, and U.S.
Transportation Command officials, although there is widespread
agreement that Concord is needed by all of the military services to
meet ammunition out-loading requirements during mobilization, there
is no agreement on how to finance the personnel that will be needed
in order to accomplish this mission. The Army and Air Force do not
believe they should subsidize the operations of a Navy base. At the
same time, Navy officials do not believe they should finance the
entire DOD mobilization requirement at Concord because (1) most of
their facilities in the San Francisco Bay area have been closed and
Concord is, therefore, no longer needed by the Navy during peacetime,
(2) the Army and Air Force need Concord more than the Navy does, and
(3) Concord does not receive enough ship loading and unloading work
during peacetime to keep the current work force fully employed.
Accordingly, the Navy plans to retain some personnel at Concord, but
has shifted all of its peacetime ship loading and unloading
operations out of Concord and plans to gradually transfer ammunition
currently stored at Concord to other locations.
Navy, OSD, and Joint Staff officials informed us that several actions
are needed to ensure that Concord has sufficient, qualified personnel
to load ammunition onto ships: (1) revalidate the ammunition
out-loading mobilization requirements for Concord, (2) determine the
minimum number of full-time permanent personnel that Concord needs
during peacetime in order to ensure that it can quickly and
effectively expand its operations to accomplish its mobilization
mission (the core workforce), (3) ensure that Concord's core
workforce is sufficiently trained to accomplish its mobilization
mission, and (4) determine a method, either through a direct
appropriation or the Working Capital Funds, to finance the Concord's
mobilization requirements.
CONCLUSIONS
------------------------------------------------------------ Letter :7
To the Navy's credit, it has acted to reduce its ordnance business
area's annual cost by $151 million and has incorporated this cost
reduction goal into the business area's budget estimate. Our
analysis of available data indicates that, in general, the planned
actions should result in substantial cost reductions and more
streamlined Navy ordnance operations. The Navy could reduce its cost
further and prevent a possible degradation of military readiness by
taking the additional actions recommended in this report. Further,
the Navy still needs to ensure that a final restructuring plan is
completed so that it can tie together all of its planned actions and
establish specific accountability, schedules, and milestones as
needed to gauge progress.
RECOMMENDATIONS
------------------------------------------------------------ Letter :8
In order for the Concord Weapons Station to accomplish its
mobilization mission, we recommend that the Secretary of Defense
-- revalidate the amount of ammunition Concord Weapons Station
needs to load onto ships during mobilization,
-- direct the Secretary of the Navy to determine the minimum number
of personnel Concord Weapons Station needs during peacetime in
order to ensure that it can quickly and effectively expand its
operations to accomplish its mobilization mission, and
-- ensure that Concord's core workforce is sufficiently trained to
accomplish its mobilization mission.
We recommend that the Secretary of the Navy
-- incorporate into the NOC's detailed cost reduction plan (1)
specific actions that need to be accomplished, (2) realistic
assumptions about the savings that can be achieved, (3)
milestones, and (4) clearly delineated responsibilities for
performing the tasks in the plan;
-- evaluate the cost-effectiveness of (1) consolidating all or most
of the business area's missile maintenance workload at one
location and/or (2) transferring all or some of this work to
public depots or the private sector;
-- develop and implement policies and procedures for charging
customers for ammunition storage services;
-- evaluate the appropriateness of converting military guard
positions to civilian positions;
-- direct the NOC Commander to determine if it would be
cost-beneficial to convert non-guard military positions to
civilian status; and
-- eliminate the excess ordnance engineering capability that
previous studies have identified both within the NOC and between
the NOC and other Navy organizations.
AGENCY COMMENTS AND OUR
EVALUATION
------------------------------------------------------------ Letter :9
In its written comments on this report which identifies the actions
the Navy ordnance business area is taking to reduce costs and
streamline its operations, DOD agreed fully with five of our eight
recommendations. It partially concurred with the remaining three
recommendations, as discussed below.
In our draft report, we recommended that the Secretary of Defense
direct the Secretary of the Navy to (1) determine the minimum number
of personnel Concord Weapons Station needs during peacetime in order
to ensure that it can quickly and effectively expand its operation to
accomplish its mobilization mission and (2) ensure that this core
workforce is sufficiently trained to accomplish its mobilization
mission. In partially concurring with this recommendation, DOD
agreed that both of these tasks should be accomplished and that the
Navy should be responsible for identifying the peacetime manning
requirement. However, it indicated that this core workforce cannot
be adequately trained for its mobilization mission unless it is given
the appropriate amount and type of work during peacetime. DOD
further stated it will take steps during the fiscal year 1999 budget
process to ensure that adequate and funded workload is provided to
Concord. We agree with DOD's comment and revised our final report to
recommend that DOD act to ensure that the core workforce is
sufficiently trained.
Concerning our recommendation to charge customers for ammunition
storage services, the Navy agreed that action should be taken to (1)
store only necessary ammunition at its weapons stations and (2)
transfer excess ammunition to inland storage sites or disposal. The
Navy believes that this can be accomplished without imposing a
separate fee for storing ammunition. However, Navy records show that
51,231 tons, or about 43 percent, of ammunition stored at weapons
stations was not needed as of May 1997. As stated in this report,
because of the persistent nature of this problem, we continue to
believe that charging customers for ammunition storage will provide
the financial incentive for customers to relocate or dispose of
unneeded ammunition.
Finally, concerning our recommendation to convert military guard
positions to civilian positions, the Navy stated that it is in the
process of transferring the Navy ordnance east coast security
positions to the Atlantic Fleet and that it plans to transfer the
west coast security positions to the Pacific Fleet. It believes that
the two Fleet Commanders need time to evaluate the appropriateness of
converting the military guard positions to civilian positions. We
agree with DOD's comment that this decision should be made by the
Fleet Commanders and have revised our recommendation accordingly. As
part of this evaluation, the Navy needs to consider the cost of the
guard positions since a civilian employee in a support position costs
the government about $15,000 per year less than a military person of
comparable pay grade.
---------------------------------------------------------- Letter :9.1
We are sending copies of this report to the Ranking Minority Member
of your Subcommittee; the Chairmen and Ranking Minority Members of
the Senate Committee on Armed Services; the Senate Committee on
Appropriations, Subcommittee on Defense; the House Committee on
Appropriations, Subcommittee on National Security; the Senate and
House Committees on the Budget; the Secretary of Defense; and the
Secretary of the Navy. Copies will also be made available to others
upon request. If you have any questions about this report, please
call Greg Pugnetti at (202) 512-6240. Other major contributors to
this report are listed in appendix II.
Sincerely yours,
Jack L. Brock, Jr.
Director, Defense Information and
Financial Management Systems
Accounting and Information
Management Division
David R. Warren
Director, Defense Management
National Security and International
Affairs Division
(See figure in printed edition.)Appendix I
COMMENTS FROM THE DEPARTMENT OF
DEFENSE
============================================================== Letter
(See figure in printed edition.)
(See figure in printed edition.)
(See figure in printed edition.)
MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix II
ACCOUNTING AND INFORMATION
MANAGEMENT DIVISION,
WASHINGTON, D.C.
-------------------------------------------------------- Appendix II:1
Gregory E. Pugnetti, Assistant Director
Ron L. Tobias, Senior Auditor
William A. Hill, Senior Auditor
Cristina Chaplain, Communications Analyst
SAN FRANCISCO REGIONAL OFFICE
-------------------------------------------------------- Appendix II:2
Karl J. Gustafson, Evaluator-In-Charge
Eddie W. Uyekawa, Senior Evaluator
*** End of document. ***