Defense Inventory: Navy Spare Parts Quality Deficiency Reporting 
Program Needs Improvement (16-AUG-01, GAO-01-923).		 
								 
The Department of Defense (DOD) budgets billions of dollars each 
year to purchase and repair the spare parts needed to maintain	 
its weapon systems and support equipment. The quality of the	 
spare parts can greatly  determine if the Department's investment
of funds is effective, efficient, and economical. This report	 
examines the Navy's Product Quality Deficiency Reporting Program,
and the extent to which the program gathered the data needed for 
analyses, correction, and prevention of deficiencies in spare	 
parts. GAO found that data on parts defects identified at the	 
time of installation were underreported. Data on parts that	 
failed after some operation but before their expected design life
were not collected as part of this program. GAO further found	 
that, of the quality reports it reviewed, some key information	 
was omitted on the cause of the parts failures, and some reports 
did not identify who was responsible for the defect. To a large  
extent, the program's ineffectiveness can be attributed to lack  
of management, limited training and incentives to report	 
deficiencies, and competing priorities for the staff resources	 
needed to carry out the program.				 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-01-923 					        
    ACCNO:   A01310						        
  TITLE:     Defense Inventory: Navy Spare Parts Quality Deficiency   
             Reporting Program Needs Improvement                              
     DATE:   08/16/2001 
  SUBJECT:   Spare parts					 
	     Data collection					 
	     Quality control					 
	     Reporting requirements				 
	     Military inventories				 
	     Navy Product Quality Deficiency			 
	     Reporting Program					 
								 

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GAO-01-923
     
Report to Congressional Requesters

United States General Accounting Office

GAO

August 2001 DEFENSE INVENTORY

Navy Spare Parts Quality Deficiency Reporting Program Needs Improvement

GAO- 01- 923

Page 1 GAO- 01- 923 Defense Inventory

August 16, 2001 The Honorable C. W. Bill Young Chairman, Committee on
Appropriations House of Representatives

The Honorable Jerry Lewis Chairman, Subcommittee on Defense Committee on
Appropriations House of Representatives

The Department of Defense budgets billions of dollars each year to purchase
and repair the spare parts needed to maintain its weapon systems and support
equipment. To the extent these parts contain product quality deficiencies, 1
safety, readiness, and mission performance capabilities can be greatly
reduced and support costs can increase. Thus, the quality of spare parts is
an important indicator of whether the Department?s investment of funds is
effective, efficient, and economical. Since 1990, we have reported that the
Department?s inventory, including spare parts, is a high- risk area because
it is vulnerable to fraud, waste, and abuse.

You requested that we review issues related to the quality and availability
of spare parts for aircraft, ships, vehicles, and weapon systems within the
Air Force, the Army, and the Navy. In response to your request, we have
completed several studies related to these issues. 2 Because of your
concerns about the quality of spare parts being provided to military field

1 A product quality deficiency, as defined in the joint- service Product
Quality Deficiency Report Program Directive (DLAD 4155. 24/ AR 702- 7/
SECNAVINST 4855. 5B/ AFI 21- 115, dated May 1997), is a defect or
nonconforming condition detected on new or newly reworked government- owned
products, premature equipment failures, and products in use that do not
fulfill their expected purpose, operation, or service due to deficiencies in
design, specification, material, manufacturing, and workmanship.

2 Related GAO reviews of spare parts shortages have been completed on the
Air Force, the Army, and the Navy (see Related GAO Products).

United States General Accounting Office Washington, DC 20548

Page 2 GAO- 01- 923 Defense Inventory

units, we focused this report on the Navy?s 3 Product Quality Deficiency
Reporting Program. Navy and Defense Logistics Agency quality assurance
officials identified this program as the key Navy- wide method of gathering
data on the deficient spare parts that are sent to field units and other
locations for use in weapon systems maintenance. Specifically, we determined
the extent to which the program, which is being implemented under a joint-
service directive, 4 gathered the data needed for analyses, correction, and
prevention of deficiencies in spare parts.

Under the joint- service directive, Navy maintenance activities, including
field units, depots, contractors, and others, are required to report spare
parts quality deficiencies detected on (1) new or newly reworked government-
owned products; (2) equipment that fails prematurely, that is, before the
end of its design life; and (3) products in use that do not fulfill their
expected purpose, operation, or service. The Navy is to use data from the
program to, among other things, document and report on deficient spare
parts, initiate corrective action to fix or replace deficient items, and
take preventive action to preclude a recurrence of known problems with parts
and/ or suppliers.

The Navy?s Product Quality Deficiency Reporting Program has been largely
ineffective in gathering the data needed for analyses so that Navy managers
can determine the full extent of spare parts quality deficiencies affecting
maintenance activities. Without these data, managers lose opportunities to
initiate important corrective and preventive action with parts and
suppliers. Specifically, we found the following problems in the program:

3 The Air Force Audit Agency issued one report entitled Quality Deficiency
Reporting

(99062011, July 7, 2000) and began a follow- on audit (project 01062009) in
December 2000 to determine whether the Air Force is effectively managing its
Product Quality Deficiency Reporting Program. The Department?s Inspector
General began an audit (D2001CF0090.000) in March 2001 on the Navy and
Marine Corps? quality deficiency reporting procedures for naval repair
parts. The Army Audit Agency plans to begin a study (Code A1109C) in
November 2001 to evaluate the effectiveness of the Army?s Product Quality
Deficiency Reporting Program.

4 The joint- service Product Quality Deficiency Report Program Directive
(DLAD 4155. 24/ AR 702- 7/ SECNAVINST 4855.5B/ AFI 21- 115, dated May 1997)
states that it is applicable to and has been coordinated with the Defense
Logistics Agency, the Army, the Navy, the Air Force, the Marine Corps, and
the General Services Administration, which are referred to as components.
The directive is mandatory for use when reporting product quality deficiency
conditions across component lines and is encouraged for use within the
services. Results in Brief

Page 3 GAO- 01- 923 Defense Inventory

 Data on parts deficiencies identified at the time of installation were
underreported, leaving Navy managers without sufficiently reliable data to
determine trends in the frequency of parts failing because of quality
problems.

 Data on parts that failed after some operation but before their expected
design life were not collected as part of this program, as was agreed to by
the Army, the Air Force, and the Marine Corps under the joint- service
directive. These data are important for complete reporting of spare parts
deficiencies to determine if there are problems with particular parts or
suppliers of parts. While the Navy has attempted to gather these data under
a separate program, a limited analysis has been done to determine the causes
of problems, and data have not been reported upward or combined with other
quality deficiency data to provide a Navy- wide view of spare parts quality
problems.

 Of the 19, 124 quality deficiency reports we reviewed for a 3- year time
period, about 72 percent omitted key information on the cause of the parts
failures, and 70 percent did not identify who was responsible for the
deficiencies. This information is needed to consider corrective and
preventive actions with suppliers to resolve problems.

To a large extent, the program?s ineffectiveness can be attributed to a lack
of management emphasis, limited training and incentives to report
deficiencies, and competing priorities for the staff resources needed to
carry out the program. Another contributing cause to the program?s
ineffectiveness is the lack of Navy- wide visibility into program results,
such as the extent to which design and manufacturing changes were made to
prevent future spare parts deficiencies or the amount of refunds obtained
from contractors for deficient material. These kinds of results are not
reported or measured on a Navy- wide basis.

To address program weaknesses, we are making recommendations that the Navy
take steps to increase the level of training, incentives, management
emphasis, and results reporting as necessary to improve program
effectiveness. In commenting on a draft of this report, the Department of
Defense concurred with our recommendations and stated that the Navy would
initiate program enhancements and provide a status report to the Office of
the Secretary of Defense on accomplishments and remaining challenges.

Page 4 GAO- 01- 923 Defense Inventory

The Department budgets billions 5 of dollars each year to purchase and
repair spare parts 6 and has established various programs to help ensure
product quality throughout the acquisition and repair processes. According
to Navy and Defense Logistics Agency quality assurance officials, although
it is normal in manufacturing processes that some deficient parts will be
delivered to the end users, the rate of deficiencies is to be managed and
controlled to acceptable levels. In fact, according to these officials,
spare parts quality is of greater importance in today?s environment of
increased deployments, extended preventive maintenance cycles, and just- in-
time deliveries of parts.

A Defense Logistics Agency joint- service directive for quality deficiency
reporting regulates Department activities. 7 The directive establishes a
Department- wide system for the military services and other activities to
report, investigate, and correct the causes of individual problems and
identify trends and recurring deficiencies. The system is to be used to
document the quality of spare parts delivered for use in the maintenance and
repair processes and is the key program for documenting quality deficiency
data Navy- wide. When deficient parts are delivered and are detected by end
users, such as military supply or maintenance personnel, these users are
required to report the details of the deficiencies under a uniform set of
guidelines. Each military service and agency manages its own quality
deficiency reporting program.

The Navy?s Product Quality Deficiency Reporting Program is designed to
document and report unsatisfactory material, initiate corrective action to
fix or replace deficient items, grant credit or compensation for items, and
take actions to prevent recurrence. The program applies to all Navy
activities. 8 Navy activities report quality deficiency data both internally
and

5 Summary data was not available on total amounts budgeted or spent on
spares each year. However, the Navy manages spare parts inventory valued at
about $17.5 billion and recorded depot- level obligation authority for
repairable spare parts of between $2. 0 and $2.8 billion annually from 1997
through 2000. Obligations are financial amounts associated with orders
placed, contracts awarded, services rendered, and other transactions
occurring during a given period that would require payments during the same
period or in the future.

6 Spare parts are repair parts and components, including kits, assemblies,
and subassemblies required for the maintenance of all equipment. 7 Joint-
service Product Quality Deficiency Report Program Directive (DLAD 4155. 24/
AR 702- 7/ SECNAVINST 4855.5B/ AFI 21- 115, dated May 1997). 8 The Marine
Corps operates a separate Product Quality Deficiency Reporting Program for
ground equipment, which was not included as part of this review. Background

Page 5 GAO- 01- 923 Defense Inventory

to a broader program, known as the Product Data Reporting and Evaluation
Program, where it is managed as one of several databases. This broader
program is a Navy- wide automated system for collecting data on the quality
of material and products furnished by contractors. 9 The quality deficiency
report is also one of several records used in the Navy?s Red/ Yellow/ Green
Program, 10 another Product Data Reporting and Evaluation Program
application used to reduce the risk of receiving nonconforming products and
late shipments.

The Assistant Secretary of the Navy for Research, Development, and
Acquisition has program authority and sets policy, and the Naval Sea Systems
Command administers the Product Quality Deficiency Reporting Program. Navy
program executive officers, program managers, and commanders of the naval
systems commands are to process quality deficiency reports for their systems
and equipment in accordance with instructions and to ensure people are
properly trained in reporting deficiencies. Quality deficiency reporting
data are generally sent to a screening point, such as the Navy?s Inventory
Control Point, 11 for review and forwarding to an appropriate item 12
manager or action point to determine the causes and who is responsible for
the deficiencies. Once a determination is made and final disposition occurs,
the quality deficiency reporting database is to be updated to reflect the
results.

9 Navy and Marine Corps Product Data Reporting and Evaluation Program
(PDREP) Manual, NAVSO P- 3683A, Feb. 9, 2000. 10 The Red/ Yellow/ Green
Program classifies the risk degree by assigning a color to a contractor?s
historical quality and delivery performance for specific items: Red is high
risk, yellow is moderate, and green is low. A neutral label is used if
sufficient data is not available.

11 The Inventory Control Point is an organizational activity within the
Department?s supply system that is assigned the primary responsibility for
material management of a group of items, such as computing requirements and
providing procurement, distribution, disposal, and rebuild direction.

12 An item is any level of hardware assembly, for example, a segment of a
system, subsystem, equipment, or component part.

Page 6 GAO- 01- 923 Defense Inventory

The Navy?s Product Quality Deficiency Reporting Program has been largely
ineffective in gathering the data needed for analyses so that Navy managers
can accurately report on and correct deficiencies in the quality of spare
parts being provided to end users, including maintenance personnel in field
activities. Specifically, the program data were incomplete and of limited
value because they were underreported, did not include information on parts
that failed prematurely, and omitted key data on the causes of failures. To
a large extent, the program?s ineffectiveness can be attributed to limited
training and incentives to report deficiencies, lack of management emphasis,
and competing priorities for the staff resources needed to carry out the
program. In addition, a contributing cause of the program?s ineffectiveness
may be a lack of Navy- wide visibility into program results.

Many deficiencies in the quality of new and rebuilt parts occur that have
not been reported to the program. As a result, program data are unreliable
and can be misleading in determining the significance of deficient parts and
conducting trend analyses.

Using information gathered under the program, the Navy produces an annual
report summarizing quality deficiency data, such as the number of deficiency
reports, the value of deficient material, and related information on new and
reworked material, including rebuilt parts. Data system managers said this
report is the most comprehensive attempt to collect and analyze Navy- wide
quality deficiency data. The May 2000 report showed that during calendar
years 1997- 99 the number of deficiency reports averaged about 6,500 per
year, representing all parts that were reported as deficient at the time of
installation by the Naval Sea Systems Command, the Naval Air Systems
Command, and the Naval Supply Systems Command. Each report identified one or
more deficient parts to be evaluated for possible quality problems.

During our visits to a number of ship and aircraft maintenance and operating
units, we were told that not all deficiencies on parts that failed at the
time of installation were reported, and we found that the estimated extent
of underreporting varied. For example, one ship maintenance unit that
handled munitions systems reported most deficiencies. However, an aircraft
squadron commander said his unit documented quality deficiency problems and
knew of the reporting requirements, but the unit rarely reported these
problems to the quality deficiency program because there was no incentive to
do so. In addition, Navy supervisor of shipbuilding officials at one
facility told us that the full- time position dedicated to The Navy?s
Deficiency

Reporting Program Is Largely Ineffective in Gathering Needed Data

Quality Deficiencies Are Underreported

Page 7 GAO- 01- 923 Defense Inventory

quality deficiency reporting had been eliminated and the work was reassigned
to another staff member as a collateral duty. As a result, the number of
quality deficiency reports dropped from about 200 each year in calendar
years 1997 and 1998 to 34 in calendar year 2000. Also, Navy officials said
several major Navy program offices have their own internal systems for
handling parts quality deficiencies and do not share this information with
the Navy?s quality deficiency reporting program. While these examples are
not intended to reflect the experience of all Navy units, they indicate how
the data gathered by the program can vary among units based on factors other
than the actual numbers of quality deficiencies encountered by maintenance
personnel. Various unit commanders indicated that their efforts to report
spare parts quality deficiencies were limited because accurate and complete
data needed for the reporting process were not available on the failed parts
and increased resources would be needed to make meaningful improvements in
the availability of these data.

Due to the underreporting, the interpretation of program data can be
misleading. For example, in a March 2001 two- page report to the Congress 13
on how the Department planned to improve its quality assurance program, the
Principal Deputy Under Secretary of Defense, Acquisition, Technology, and
Logistics stated that the Department used product quality deficiency reports
as a key method to measure the quality of the products it purchased. The
Department stated that it had no evidence of a systemic quality problem and
that a decreasing number of investigated quality deficiency reports recorded
in recent years may indicate that product quality is getting better.
However, after we discussed our findings with the Department about the
underreporting of quality deficiencies in the Navy, the Department stated in
its report that if user feedback is not input into the system and
investigated, due to reduced staffing, this metric fails to be a valid
measure. According to Navy and Defense Logistics Agency quality assurance
officials, the trend in the number of deficiencies reported may reflect the
level of resources dedicated to filling out and analyzing deficiency reports
rather than the actual number of deficiencies found by maintenance
personnel.

13 S. Rept. 106- 292, p. 331, on the National Defense Authorization Act for
Fiscal Year 2001, directed the Secretary of Defense to submit a report to
the Congress on how the Department planned to improve its quality assurance
program.

Page 8 GAO- 01- 923 Defense Inventory

The Navy does not attempt to use the Product Quality Deficiency Reporting
Program to collect a major category of quality deficiencies- those involving
parts that failed prematurely, that is, after some operation but before the
end of their expected design life. Premature failure data are important to
determine if there are problems with particular parts or suppliers of parts.
Consequently, not knowing the full extent of deficiencies can prevent
meaningful analyses of quality problems on a systemwide basis.

Under the May 1997 joint- service directive on quality deficiency reporting,
the Navy could capture data on premature equipment failures, including
parts, as part of its program, as the Army, the Air Force, and the Marine
Corps agreed to do. Although the joint- service directive states that it is
applicable to a broad range of deficiencies, including premature failures,
the Navy did not agree to this application. It has instead used deficiency
reporting to identify mainly new or newly reworked parts that fail, as
specified in a 1993 version of the joint- service directive. Navy quality
assurance officials said the program was limited to capturing data on those
parts because some type of warranty might be involved or they might obtain
replacement parts or reimbursements from the suppliers. However, after we
discussed this issue with Assistant Secretary of the Navy, Research,
Development, and Acquisition officials, they said that premature failures
should be included in the Navy program. They said that in April 2001 they
approved the Navy?s use of a new draft version of the joint- service
directive that includes the requirement to report premature failures as
quality deficiencies.

While the Navy has not captured data on premature parts failures under the
Product Quality Deficiency Reporting Program, Naval Air Systems Command
officials said they have attempted to identify these deficiencies through
their Engineering Investigation Request Program. However, they said that
resource shortages have limited this program mainly to the analysis of
mission- critical and safety- of- life requests for engineering
investigations, and that as a result, many premature parts failure requests
were not analyzed. Without validation and analysis of the causes of these
failures, managers are not in a position to take corrective or preventive
action. Furthermore, Naval Air Systems Command- wide data on engineering
investigation requests were not available, and reports have not been
combined with quality deficiency reports to provide managers with a
systemwide view of spare parts problems.

According to Navy and Defense Logistics Agency quality assurance officials,
premature parts failures are an important aspect of quality, and The Program
Does Not

Report Parts That Fail Prematurely

Page 9 GAO- 01- 923 Defense Inventory

without this data the Navy is not in a position to completely identify its
problems with parts and suppliers. Premature parts failures could indicate
problems in design, manufacture, or installation that, if not corrected,
could lead to unanticipated parts shortages and increased costs.

Quality deficiency reporting data that were collected under the program have
been of limited value because they frequently lacked key information on the
causes of the parts failures and identification of whom was responsible.
Navy and Defense Logistics Agency quality assurance officials said that
identifying whether a contractor is responsible for deficiencies is
important for obtaining credits or refunds and preventing recurring
problems.

We reviewed the Navy?s systemwide database 14 of quality deficiencies for
the Naval Air, the Naval Sea, and the Naval Supply Systems Commands. We
reviewed the number of reports submitted during calendar years 1997- 99
(19,124 reports) and determined their status as of September 20, 2000. We
found that in most cases the causes of problems had not been identified in
the database and responsibility for the deficiencies had not been
determined. Specifically, we found that

 about 72 percent (13,675) of the reports did not identify the specific
causes for the failures, which is information needed for effective
corrective and preventive actions, and

 about 70 percent (13,287) of the reports did not identify who- a private
contractor or a Navy or other government activity- was responsible for the
deficiencies.

According to Navy and Defense Logistics Agency quality assurance officials,
analyzing product quality deficiencies to determine causes and
responsibilities for failures is often difficult, time- consuming, and staff
intensive. They said that the information needed to fill out the deficiency
form is not always available, the deficient part might have been damaged or
misplaced, or the part may not be forwarded for analysis to determine the
cause of the deficiency. Also, a supplier might have provided a replacement
part and not identified the cause of the problem. They said

14 This database is part of the Product Data Reporting and Evaluation
Program. Deficiency Reports Omit

Key Data on Causes of Failures

Page 10 GAO- 01- 923 Defense Inventory

problems were more likely among deployed units. Officials at units we
visited identified similar problems.

According to an Assistant Secretary of the Navy, Research, Development and
Acquisition official, when the Navy screening points receive a quality
deficiency report, they work with the originators to provide the missing
descriptive data and decide if an in- depth analysis is needed. If an
analysis is needed, other problems may arise such as a lack of access to
contractor information, which can prevent a complete analysis of the cause
of a quality deficiency.

The need for completed quality deficiency reporting to identify cause and
responsibility for the deficiencies is important to achieving program
results and is especially important for the Navy and the Defense Logistics
Agency to obtain some type of credit for deficient parts, where allowed by
the parts contract. Credit can involve a contractor providing replacement
parts or monetary consideration. Also, determining responsibility is the
first step in providing feedback to the supplier that deficient material has
been provided, manufacturing or repair processes must be reviewed, and
corrective actions may be necessary. Without such a determination, neither
credit nor quality parts may be obtained.

According to Navy quality assurance officials, this information is also
needed for other Navy programs. For example, the Navy?s Red/ Yellow/ Green
Program is designed to help reduce the risk of receiving products that do
not conform to requirements and late shipments. This program uses quality
deficiency reports as one of the key inputs to the evaluation, but only when
such reports show that a specific contractor was found to be responsible for
the deficiencies in parts. However, since the quality deficiency data we
examined were so often incomplete, many of the reports lacked the needed
information. According to Navy and Defense Logistics Agency quality
assurance officials, the lack of complete and reliable quality deficiency
data limits their usefulness in identifying suppliers of deficient parts.

In addition to the problems of incomplete and underreported data, concerns
about using the data to determine the extent of spare parts quality
deficiencies are twofold. First, to be meaningful, the number of quality
deficiencies identified should be compared with the total number of parts
used, but the data to compute such a deficiency rate are often not
available. Second, even if a deficiency rate could be determined, criteria
for determining what constitutes a reasonable deficiency rate for a
particular part have not been established for the quality deficiency

Page 11 GAO- 01- 923 Defense Inventory

reporting program as it has been, for example, for the Red/ Yellow/ Green
Program.

Navy officials at many levels- maintenance personnel, program officials,
quality assurance managers, and Command- level staff- indicated that program
ineffectiveness is to some extent the result of a lack of action by Navy
management to emphasize the importance of the program to the Navy. In
addition, Navy officials identified the following causes of program
ineffectiveness:

 Limited training to supply, maintenance, and key command personnel
explaining reporting procedures, types of quality deficiencies to be
reported, and benefits to the Navy to be derived from the program.

 Limited incentives and competing priorities for available staff resources
to fill out the quality deficiency reports and do all their other work as
well.

 Lack of Navy- wide visibility into the results being derived from the
program.

According to Navy quality assurance officials, some training that covers
filling out the standardized quality deficiency reporting form has been
given, but it has not been effective in encouraging additional quality
deficiency reporting. Navy and Defense Logistics Agency quality assurance
officials said that their sailors and their commanders do not receive
training on the importance of the quality deficiency reporting program to
the Navy. Without such training, reporting quality deficiencies does not
become a priority within units.

Officials within the Naval Systems Commands told us that compliance with
quality deficiency reporting has diminished because fewer resources have
been available to carry out tasks that are deemed more essential. They
indicated that if maintenance personnel must choose between repairing needed
equipment and filling out quality deficiency reports, they choose the repair
work to support their primary mission. Limited incentives exist at the unit
level to encourage compliance with program reporting requirements because
financial credits for deficient parts are often not returned to the
reporting units, so unit commands may not see the credits as an incentive to
expend resources for quality deficiency reporting. They also said that new
automation and decision support tools might help facilitate the deficiency
reporting and analysis processes and therefore improve compliance with
reporting requirements. Program Ineffective Due to

Limited Emphasis, Training, Incentives, and Visibility

Page 12 GAO- 01- 923 Defense Inventory

Navy and Defense Logistics Agency quality assurance officials said that
clearly reported program results could stimulate greater management emphasis
and staff support for the program. However, while the program is designed to
provide a basis for reporting, correcting, and preventing spare parts
quality deficiencies, the results are not always measured or clearly
reported. For example, a Navy- wide annual report shows that during the 3-
year period 1997- 99, quality deficiency reports submitted from the Naval
Air, Sea, and Supply Systems Commands identified about $466 million in
rejected material, mostly on aircraft parts. The meaning of these data,
however, is unclear because information is not available on what portion of
the rejected material was investigated, was found deficient, and yielded
some type of credit or reimbursement from contractors to the government.
Also, the data did not include any reporting of parts design modifications,
manufacturing changes, or other actions taken based on quality deficiency
reporting in order to prevent recurrence of problems. Without such reporting
of results, program weaknesses such as incomplete data may not appear to be
important issues to Navy and Department managers.

According to Navy quality assurance officials, although one Navy instruction
governs the analysis of quality deficiency reports, the level of execution
can vary significantly among units, depending on the program emphasis
assigned and resources made available. For example, Navy Inventory Control
Point officials who manage ships? quality deficiency reporting told us they
track the quality deficiencies and identify costs avoided and recovered from
contractors. Their internal metrics for fiscal years 1998 through 2000
identified several million dollars in replacement items, refunds, and
credits received from contractors that they said were directly attributable
to quality deficiency reports. They said that cost avoidance is an important
measure of results and should be tracked and reported Navy- wide along with
other metrics. However, they said that such reporting is not required and
the extent of reporting varies significantly among the Naval Air, Sea, and
Supply Systems Commands and their subordinate units.

Without an effective Navy- wide program to document feedback from users of
parts on the quality deficiencies they encounter, Navy managers lack the
data needed to fully assess the extent and seriousness of spare parts
quality problems. Furthermore, to the extent that the data are incomplete or
are not analyzed to determine the causes of and accountability for
deficiencies, managers cannot effectively correct quality problems, address
supplier issues, or ensure high quality when buying or rebuilding
Conclusions

Page 13 GAO- 01- 923 Defense Inventory

spare parts. Such activities are important because they can affect the
safety, readiness, mission performance capabilities, and support costs of
military forces. The Navy?s Product Quality Deficiency Reporting Program has
been largely ineffective in meeting these management needs due to weaknesses
in program implementation, including insufficient training, limited
incentives and automation support, competing priorities for staff resources,
and a lack of Navy- wide measurement of program results. A stronger quality
deficiency reporting program would better enable management to take
corrective and preventive actions that over time can result in both mission
performance improvements and cost reductions.

Given the importance of high quality spare parts to safety, readiness,
mission performance, and support costs, and the role that an effective
Product Quality Deficiency Reporting Program can play in helping to ensure
high quality, we recommend that the Secretary of Defense direct the
Secretary of the Navy to

 increase the program?s levels of (1) training, describing what quality
deficiencies to report, how to report them, and why it is important to the
Navy; (2) incentives, including financial credits back to the reporting unit
where appropriate to encourage participation; (3) automation support, to
simplify and streamline reporting and analysis; and (4) management emphasis
provided to the program, as necessary, to determine the causes, trends, and
responsibilities for parts failures and achieve greater compliance with
joint- service requirements, including reporting on parts that fail before
the end of their design life, and

 require program officials to measure and periodically report to the
appropriate Defense and Navy managers the results of the program in such
areas as actions taken to correct parts quality deficiencies, prevent
recurrences, and obtain credits or reimbursements from suppliers for
deficient products.

In written comments on a draft of this report, Department of Defense
concurred with our recommendations. It stated that the Navy would initiate
the recommended enhancements to the Navy Product Quality Deficiency
Reporting Program no later than September 15, 2001. In addition, the Navy
will provide a status update to the Office of the Secretary of Defense on
accomplishments and remaining challenges no later than March 15, 2002. The
Department?s comments are presented in their entirety in appendix I.
Recommendations for

Executive Action Agency Comments

Page 14 GAO- 01- 923 Defense Inventory

To determine whether the Navy?s Product Quality Deficiency Reporting Program
has been effective in gathering the data needed for analyses, correction,
and prevention of deficiencies in spare parts, we analyzed the completeness
of the quality deficiency data contained in the Navy?s Product Deficiency
Reporting and Evaluation Program database. These data cover aircraft, ships,
and other spare parts in the Navy, including parts managed for the Navy by
the Defense Logistics Agency. For comparison purposes, we also analyzed data
from the Navy?s Maintenance and Material Management System, which is
designed to track maintenance support data on how often a part failure is
involved.

We discussed the causes of underreporting of quality deficiencies, the lack
of reporting of premature failures, the omission of data in deficiencies
being reported, and the causes of program weaknesses with Department, Navy,
and Defense Logistics Agency officials. Specifically, work was conducted at
headquarters offices, including the Office of the Under Secretary of Defense
(Acquisition, Technology, and Logistics); the Office of the Assistant
Secretary of the Navy (Research, Development, and Acquisition); and the
Naval Air Systems, the Naval Sea Systems, and the Naval Supply Systems
Commands. Work was also conducted at the Naval Inventory Control Point
activities in Mechanicsburg and Philadelphia, Pennsylvania, who have assumed
responsibility for quality deficiency reporting functions. In addition, work
was done at Navy field activities in different geographical areas, including
Lemoore and San Diego, California; Norfolk, Virginia; and Portsmouth, New
Hampshire.

The Marine Corps aircraft quality deficiency reporting is managed by the
Naval Air Systems Command and was included in our review. The Marine Corps
operates a separate program for ground equipment that was not included in
this review.

We conducted our work between August 2000 and June 2001 in accordance with
generally accepted government auditing standards. Scope and

Methodology

Page 15 GAO- 01- 923 Defense Inventory

We are sending copies of this report to the Secretaries of Defense and the
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Please contact me at (202) 512- 8412 if you or your staff have any questions
regarding this report. Key contributors to this report were Allan Roberts;
Lionel Cooper; Gary Kunkle; Jean Orland; Lawson Gist, Jr.; Robert B. Brown;
and Nancy Ragsdale.

David R. Warren Director Defense Capabilities and Management

Appendix I: Comments From the Department of Defense Page 16 GAO- 01- 923
Defense Inventory

Appendix I: Comments From the Department of Defense

Appendix I: Comments From the Department of Defense Page 17 GAO- 01- 923
Defense Inventory

Related GAO Products Page 18 GAO- 01- 923 Defense Inventory

Army Inventory: Parts Shortages Are Impacting Operations and Maintenance
Effectiveness (GAO- 01- 772, July 31, 2001).

Navy Inventory: Parts Shortages Are Impacting Operations and Maintenance
Effectiveness (GAO- 01- 771, July 31, 2001).

Air Force Inventory: Parts Shortages Are Impacting Operations and
Maintenance Effectiveness (GAO- 01- 587, June 27, 2001).

Major Management Challenges and Program Risks: Department of Defense (GAO-
01- 244, Jan. 2001).

High- Risk Series: An Update (GAO- 01- 263, Jan. 2001).

Defense Inventory: Improved Management Framework Needed to Guide Navy Best
Practice Initiatives (GAO/ NSIAD- 00- 1, Oct. 21, 1999). Related GAO
Products

(709521)

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