Defense Inventory: Shortages Are Recurring, but Not a Problem (Letter
Report, 08/10/95, GAO/NSIAD-95-137).

GAO reviewed inventory shortages in the Department of Defense's (DOD)
secondary, nonweapon inventory, focusing on: (1) the size of the
shortages; (2) inventory managers' actions in response to the shortages;
(3) whether funding problems caused managers not to buy needed items;
and (4) the need for revising DOD inventory reporting.

GAO found that: (1) the September 1991 DOD secondary inventory shortage
was $16.4 billion instead of the $26 billion DOD reported because DOD
included some Navy nonsecondary inventory items and standard price
surcharges for transportation and inventory losses that increased DOD
acquisition costs; (2) between September 1991 and September 1993, the
shortage decreased to $8.1 billion due to the removal of Desert Storm
requirements, military downsizing, elimination of some war reserve
requirements, and reduced levels of operations; (3) reorder point
shortages were a normal part of the supply system because of continuing
demand, but these shortages were rarely due to a lack of funding; (4)
inventory managers decided not to order almost one-half of $1.1 billion
in reorder point shortages because of invalid requirements, the
availability of substitute items, the transfer to other units of certain
items, and items being removed from the inventory; (5) in general, these
procurement decisions were valid and probably saved millions of dollars,
since the items probably would not have been used; and (6) DOD inventory
reporting is not based on the amount of inventory needed to be on hand,
but rather on reorder points and economic order quantity which can
result in excessive inventory.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  NSIAD-95-137
     TITLE:  Defense Inventory: Shortages Are Recurring, but Not a 
             Problem
      DATE:  08/10/95
   SUBJECT:  Inventory control systems
             Military inventories
             Procurement procedures
             Spare parts
             Medical supplies
             Defense procurement
             Reporting requirements
             Cost effectiveness analysis
             Defense contingency planning
             Logistics
IDENTIFIER:  DOD Supply System Inventory Report
             
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Cover
================================================================ COVER


Report to the Secretary of Defense

August 1995

DEFENSE INVENTORY - SHORTAGES ARE
RECURRING, BUT NOT A PROBLEM

GAO/NSIAD-95-137

Defense Inventory


Abbreviations
=============================================================== ABBREV

  DLA - Defense Logistics Agency
  DOD - Department of Defense

Letter
=============================================================== LETTER


B-261264

August 7, 1995

The Honorable William J.  Perry
The Secretary of Defense

Dear Mr.  Secretary: 

As part of our ongoing evaluation of the Department of Defenses'
(DOD) secondary inventory,\1 we reviewed issues relating to inventory
shortages.  Specifically, we analyzed inventory shortages to
determine (1) the size of the shortage, (2) the actions inventory
managers were taking in response to the shortage and if funding
problems caused managers not to buy needed items, and (3) the need
for revising DOD's inventory reporting. 


--------------------
\1 Secondary inventory items include spare and repair parts, fuel,
construction materials, clothing and textiles, and medical and dental
supplies. 


   BACKGROUND
------------------------------------------------------------ Letter :1

In responding to an earlier report,\2 DOD indicated that it had a
$26-billion inventory shortage that should be considered when
analyzing inventory that needs to be on hand.  We used this September
1991 shortage as a basis for reviewing the shortage issue. 

DOD annually summarizes its secondary inventory in its Supply System
Inventory Report, which is based on financial inventory and other
inventory reports that the military services and the Defense
Logistics Agency (DLA) prepare.  DOD uses the report as a management
tool to monitor changes in the level of inventory.  In the report,
DOD identifies an approved acquisition objective inventory, which it
defines as items needed to satisfy the wartime and peacetime
requirements to equip and sustain U.S.  and allied forces in
accordance with DOD policies and plans. 

When the total of on-hand and due-in inventories falls to or below a
certain level--called the reorder point--inventory managers place
orders for additional inventory.  Depending on the item, the reorder
point may include requirements for one or more of the following: 

  war reserves that are authorized to be purchased,

  customer requisitions that have not been filled,

  a safety level to be on hand in case of minor interruptions in the
     resupply process or unpredictable fluctuations in demand,

  items to be issued during the period between when a need to buy an
     item is identified and when it is received (lead time),

  items held as insurance against inventory outages, and

  items to be issued during the repair period for repairable items. 

Because the reorder point provides for items to be used during the
lead time and for a safety level, inventory managers can place orders
so that the orders arrive before out-of-stock situations occur. 
Generally, inventory managers order an amount of inventory called an
economic order quantity, which is the quantity of stock that will
result in the lowest total costs for ordering and holding inventory. 


--------------------
\2 Defense Inventory:  More Accurate Reporting Categories Are Needed
(GAO/NSIAD-93-31, Aug.  12, 1993). 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :2

DOD's September 1991 secondary inventory shortage was $16.4 billion
rather than the $26 billion that DOD cited.  Two factors that
contributed to the difference were the inclusion in the DOD figure of
Navy items that were not secondary items and standard price
surcharges that increased acquisition costs.  Between September 1991
and September 1993,\3 the $16.4 billion shortage decreased to about
$8.1 billion.  The decrease was attributable to (1) removal of
Operation Desert Storm requirements, (2) downsizing the military
forces, (3) elimination of some war reserve requirements, and (4)
decreases in requirements due to reduced levels of operations. 

Our analysis found that shortages were a normal supply system
condition that often resulted in inventory purchases and that in only
a relatively small number of instances was funding an issue in
deciding whether or not to purchase needed items.  We found that
managers made purchases for about $578 million of $1.1 billion in
shortages that we analyzed.  For the remaining $559 million,
inventory was not ordered because (1) requirements on which the
shortages were based were no longer valid, (2) inventory managers
decided that purchases were not necessary for reasons such as the
availability of substitute items in the supply system, and (3)
responsibility for items had been transferred to other organizations
or the items had been removed from the inventory.  In general, the
decisions not to buy were valid and may have precluded DOD's
acquisition of millions of dollars of inventory that probably would
not have been used. 

DOD's inventory reporting does not focus on the amount of inventory
that is needed to be on hand.  By DOD's definition, inventory needed
to satisfy reorder point and economic order quantity requirements
represents the maximum amount of inventory needed to sustain
operations and provide for war reserves.  Therefore, only $28.8
billion of DOD's reported $58.8 billion September 1993 wholesale
inventory\4 had to be on hand. 


--------------------
\3 Final data for September 1994 were not available until after we
had completed our fieldwork. 

\4 Inventory controlled by inventory managers at inventory control
points as opposed to items controlled by lower levels such as
installations and ships. 


   DOD OVERSTATED ITS INVENTORY
   SHORTAGE
------------------------------------------------------------ Letter :3

We analyzed DOD's secondary inventory records and found that on
September 30, 1991, DOD's secondary inventory shortage was $16.4
billion, not the $26 billion\5 DOD cited.  Specifically, we found
that the Navy computed its portion of the shortage by including (1)
about $5 billion of principal items (e.g., ship and aircraft
components not considered to be secondary inventory) and (2) $2
billion of items supplied by contractors or managed by other DOD
components or petroleum products.  Also, DOD's figure included $2.4
billion of standard price surcharges that increased acquisition costs
by adding charges for transportation and inventory losses. 

Of the $16.4 billion shortage, $6.1 billion was needed to satisfy
economic order quantity requirements and $10.3 billion was needed to
satisfy reorder point requirements.  Because inventory managers do
not place orders until the reorder point is reached, items with
economic order quantity requirement shortages represent an acceptable
and expected condition. 


--------------------
\5 The actual amount was $25.8 billion, which DOD rounded to $26
billion. 


   DECREASED REQUIREMENTS REDUCED
   THE SHORTAGE
------------------------------------------------------------ Letter :4

Between September 1991 and September 1993, the inventory shortage
decreased by about $8.3 billion (51 percent), from $16.4 billion to
about $8.1 billion.  The major contributor to the reduced shortage
was decreased requirements.  The reorder point shortage deceased by
$5.9 billion, while the economic order quantity shortage decreased by
$2.4 billion. 

Of the $8.1 billion shortfall, $3.3 billion was for aviation parts
managed by the Army's Aviation and Troop Support Command, the Navy's
Aviation Supply Office, and the Air Force's San Antonio Air Logistics
Center and for clothing and textile items managed by DLA's Defense
Personnel Support Center.  Officials at these locations attributed
the reduced shortage to

  removing Desert Storm requirements,

  downsizing the military forces,

  eliminating DLA war reserve requirements, and

  decreasing requirements due to reduced levels of operations. 

The transfer of consumable items to DLA also contributed to reduced
shortages in the Navy and the Air Force. 

Our analyses of inventory records showed that requirements were
reduced significantly between September 1991 and September 1993. 
Reorder point requirements, including war reserves, safety levels,
and lead times, decreased by $19.5 billion (34 percent), from $58
billion to $38.5 billion.  The decreased requirements allowed
inventory to be reduced to lower levels before replenishment orders
were placed.  We also noted that economic order quantity requirements
decreased by $3.3 billion
(28 percent), from $11.6 billion to $8.3 billion, which indicated
that DOD was buying inventory in smaller quantities. 


   REORDER POINT SHORTAGES ARE A
   NORMAL SUPPLY SYSTEM CONDITION
   THAT OFTEN RESULT IN PURCHASES
------------------------------------------------------------ Letter :5

We analyzed about $1.1 billion of reorder point shortages (7,109
items) at four inventory control points and determined that purchases
were made or planned for 3,869 items with $578 million of shortages. 
Our work showed that because of continuing demand, shortages recur. 
For example, an engine turbine vane had reorder point shortages in
both March and September 1993.  On March 31, the item had a reorder
point shortage of 1,862.  The inventory manager purchased 2,309 vanes
in April.  Because the inventory was subsequently drawn down and
requirements increased, a second purchase for 1,920 vanes was made in
July and a third purchase of 2,070 vanes in October.  The inventory
manager for the vane said that the shortages were a normal function
of the supply system and resulted in inventory purchases.  The
inventory manager also said that he had purchased larger quantities
of the vane, which resulted in two purchases a year.  The Navy is now
purchasing smaller quantities about four times a year, resulting in
less inventory being held on hand. 


   REORDER POINT SHORTAGES DID NOT
   ALWAYS RESULT IN PURCHASES
------------------------------------------------------------ Letter :6

Inventory managers did not make purchases to satisfy reorder point
shortages of $559 million for 3,240 items because (1) requirements
for the items were not valid, had changed, or were uncertain; (2)
purchases were not necessary for a variety of nonrequirement reasons
such as items being returned to the supply system or the availability
of substitute items; and (3) responsibility for the items was
transferred to other organizations or the items were no longer in the
supply system.  According to inventory managers, in only a few
instances did the items' low priority for funding result in not
purchasing items to satisfy shortages. 


      INVENTORY MANAGERS DID NOT
      MAKE PURCHASES BECAUSE OF
      REQUIREMENTS
---------------------------------------------------------- Letter :6.1

For 2,107 items with $330 million in shortages, inventory managers
did not make purchases because the shortages were based on
requirements that were no longer valid, had changed, or were
uncertain.  Table 1 shows the number of items and shortage values and
why purchases were not made. 



                           Table 1
           
             Requirement-Related Reasons for Not
           Purchasing Inventory to Satisfy Reorder
                       Point Shortages

                                                    Shortage
Reasons                                   Items        value
---------------------------------------  ------  -----------
Requirements were no longer valid            10  $ 5,225,240
Requirements decreased                    2,014  262,352,015
Items had low, decreasing, or no             38    8,982,472
 demands
Item or system on which the item is          15    2,642,331
 used is or will be obsolete
Requirements were incorrect                  28   50,054,352
Requirements were fluctuating                 1       45,974
Requirement was for foreign military          1    1,009,231
 sales
============================================================
Total                                     2,107  $330,311,61
                                                           5
------------------------------------------------------------
The following are examples of items that were not purchased because
of requirement-related reasons. 

  In September 1993, the Army had a reorder point shortage of three
     aircraft engines used on the SH60 helicopter.  The Aviation and
     Troop Support Command did not buy the engine, valued at
     $1,284,923, because its requirements included Navy back orders
     that had been incorrectly requisitioned through the Army.  The
     command canceled the requirements related to the back orders. 

  Decreasing requirements caused 2,000 Navy aviation items with $233
     million in shortages in March 1993 to not have shortages the
     following September.  For example, on March 31, 1993, the
     Aviation Supply Office had a shortage of two power turbine
     assemblies used on the CH-46E helicopter.  Because of lower
     demands and field activities turning in items for repair, the
     inventory manager not only did not buy the 2 assemblies but
     canceled a purchase request for 17 assemblies.  The item had a
     replacement cost of about $135,000 each. 

  In March 1993, the Navy was short eight panel assemblies used on
     the H-53A helicopter.  The Aviation Supply Office did not buy
     the assemblies because the H-53A helicopter was obsolete and not
     in service.  The panel assembly has not been purchased since
     1982 and, if needed, on-hand assemblies can be used.  The
     shortage was valued at $89,948. 

  The San Antonio Air Logistics Center did not buy for a September
     1993 shortage of 1,408 speech equipment units, valued at
     $3,616,649, because of an incorrect additive requirement.  The
     Center also did not buy for a shortage of 54,853 rivets, valued
     at $50,106, because of incorrect lead time data in the file. 
     The speech equipment was used on a variety of aircraft and the
     rivets were used on the F-100 engine. 


      INVENTORY MANAGERS OFTEN
      DECIDED THAT PURCHASES WERE
      NOT NEEDED FOR REASONS NOT
      RELATED TO REQUIREMENTS
---------------------------------------------------------- Letter :6.2

For 375 items with $176 million in shortages, inventory managers did
not make purchases for a variety of reasons not related to
requirements.  These reasons, including the availability of
substitute items in the supply system and increases in on-hand
inventory, are summarized in table 2.




                           Table 2
           
            Nonrequirement-Related Reasons for Not
             Purchasing Items With Reorder Point
                          Shortages

                                                    Shortage
Reasons                                   Items        value
---------------------------------------  ------  -----------
Item was repaired instead of purchased       12            $
                                                  19,423,032
Item provided by another service or           3   51,218,077
 contractor
Substitute item was available                 8   11,831,142
On-hand inventory increased                 288   20,410,250
Customers could buy the item off-the-         3       23,563
 shelf
Replacement item was available                8   10,892,947
 in the supply system
Duplicate item could be used                  1    1,523,568
Contract was amended for size                 5    1,338,042
 redistribution
Item had a low funding priority               4    5,625,186
Purchase was deferred at headquarters         1    6,338,798
 direction
Buy was considered uneconomical               1        3,643
Inventory was available in the system        13   20,393,220
Item was not a secondary inventory item       3    4,528,002
Data were incorrect                          12    5,068,394
Other                                        13   17,738,087
============================================================
Total                                       375            $
                                                 176,355,951
------------------------------------------------------------
The following are examples of items for which purchases were not made
because of nonrequirement-related reasons. 

  In September 1993, the Army was short aircraft engines for the
     MH47E special operation aircraft.  The shortage of 39 aircraft
     engines, valued at $50,255,962, was not bought by the Aviation
     and Troop Support Command.  The Command did not buy the engines
     because the engines are contractor-supported items, and the
     contractor has the responsibility for repairing and stocking the
     engines. 

  Because of increasing inventory, 288 Navy aviation items with March
     1993 shortages that totaled $20.4 million did not have shortages
     the following September.  For example, in March 1993, a receiver
     transmitter used on various aircraft had a reorder point
     shortage for eight valued at $126,244.  The inventory manager at
     the Aviation Supply Office did not expect to buy any receiver
     transmitters because the Army, the Navy, and the Air Force were
     turning in large quantities of the transmitters and the demand
     for it was decreasing. 

  In September 1993, the Air Force was short six fiberglass
     containers used for shipping the inlet fan on the F100 engine. 
     The shortage was valued at $39,345.  The San Antonio Air
     Logistics Center did not buy for the shortage because the
     fiberglass container had been replaced by a metal container. 
     The fiberglass containers were discontinued because they had
     higher damage rates than the metal containers and the repair
     procedures for the fiberglass containers were not
     environmentally acceptable. 

  In May 1994, DLA was short 42,992 sweaters valued at $484,286. 
     There are four different sizes of a modacrylic and wool fiber
     sweater the Air Force, the Army, and the Navy use.  The Defense
     Personnel Support Center filled the shortage with an all wool
     sweater because the modacrylic fiber was no longer produced by
     the manufacturer.  All of the services agreed to this
     substitution. 


      ITEMS WERE TRANSFERRED OR
      REMOVED FROM THE INVENTORY
---------------------------------------------------------- Letter :6.3

For 758 items with $53 million in reorder point shortages, inventory
managers did not make purchases because responsibility for managing
the items had been transferred to other organizations or the items
had been removed from the inventory.  For example, in September 1993,
the Army was short 25 rotary wing blades used on the UH-1H
helicopter.  The inventory manager at the Aviation and Troop Support
Command was not buying the 25 blades because responsibility for the
blades was being transferred to the Army National Guard and the
Command planned to remove the item from its inventory.  The shortage
was valued at $2,099,162. 

At the Aviation Supply Office, 740 items with March 1993 shortages of
$43.3 million were no longer on the office's records in September
1993.  We found that some of these items became obsolete and were
removed from the system or responsibility for the items was
transferred to other organizations such as the Navy's Ships Parts
Control Center or DLA, as the following examples show. 

  The office was short six turbine exhaust ducts in March 1993.  The
     ducts, which cost about $147,000 each, were used on the Harrier
     aircraft.  According to the inventory manager, the item was
     obsolete and had been replaced by a new item.  The inventory
     manager said that five ducts due in on a contract would be
     modified to satisfy requirements for the new item. 

  The office was short 66 sleeve bushings in March 1993.  In May
     1993, the office transferred responsibility for the item to DLA. 
     The bushings, used on a landing gear valve assembly, had a $825
     shortage. 

  In March 1993, the Navy was short one exhaust nozzle augmenter (an
     afterburner) used on the GE F110 engine on the F14 aircraft. 
     The office did not buy for the shortage valued at $256,278
     because the afterburner had been replaced by a new afterburner. 

In September 1993, the Air Force had a reorder point shortage of
electrical wire used on the C5 aircraft.  The San Antonio Air
Logistics Center did not buy the wire because management of the wire
was transferred to DLA.  The shortage was valued at $17,260. 


   INVENTORY REPORTING CATEGORIES
   ARE NOT ACCURATE
------------------------------------------------------------ Letter :7

Trends in the private sector are to hold less inventory.  An
intensely competitive business environment has forced private sector
firms to cut costs by reducing and holding less inventory.  DOD also
recognizes the need to hold smaller inventories.  For example, DOD's
September 1993 secondary inventory was $77.5 billion, which
represented a $10.6-billion reduction from the $88.1 billion
September 1991 inventory.  DOD's 1994 logistics strategic plan calls
for continued efforts to reduce inventory levels and sets a goal to
reduce the value of inventory held to $56 billion by October 2001. 

DOD's current inventory reporting categories, however, do not focus
on the amount of inventory that is needed to be on hand.  In the
September 1993 Supply System Inventory Report, DOD reported $55.4
billion (about
72 percent) of its $77.5 billion inventory as active inventory
satisfying approved acquisition objective requirements.  DOD defines
active inventory as items expected to be consumed within 2 years or
that have been purchased to meet specific war reserve needs. 

In its 1993 materiel management regulation, DOD defined its inventory
requisitioning objective--equivalent to an item's reorder point plus
economic order quantity requirements--as the "maximum quantity of
materiel to be maintained on-hand or on-order to sustain current
operations and core war reserves." Based on our analysis of inventory
reported in DOD's September 1993 Supply System Inventory Report and
other inventory reports, we estimate that $28.8 billion of DOD's
$58.8 billion wholesale inventory was needed to satisfy reorder point
and economic order quantity requirements. 


   RECOMMENDATION
------------------------------------------------------------ Letter :8

To provide the Congress and DOD management with better oversight of
DOD's inventory, we recommend that you direct the Supply System
Inventory Report be revised.  Specifically, the inventory report
should identify (1) inventory that is needed to be on hand or on
order to satisfy reorder point and economic order quantity
requirements and (2) reasons for holding inventory beyond that
amount. 


   AGENCY COMMENTS AND OUR
   EVALUATION
------------------------------------------------------------ Letter :9

In commenting on a draft of this report, DOD agreed with our findings
but disagreed with our recommendation.  DOD said that our
recommendation would create a second definition of "required"
inventory for reporting that would be different than the one DOD uses
for budgeting purposes.  DOD said that the recommended criterion for
required inventory would include only those stocks in use as of the
day of the inventory report and that the criterion is unreasonably
restrictive and impractical. 

Contrary to DOD's comment, we do not believe that our recommended
reporting approach is too restrictive.  DOD regulation 4140.1R
specifically excludes items in the hands of end users, such as troop
units, from reporting, and our recommendation would not change that. 
In addition to funded war reserves, on-hand inventory that satisfies
reorder point and economic order quantity requirements provides for
about 1-1/2 years of supply.  Inventory beyond the 1-1/2 years of
supply is not necessary to be on hand because, if needed, it can be
ordered and received in that time. 

DOD's comments are presented in their entirety in appendix I. 


   SCOPE AND METHODOLOGY
----------------------------------------------------------- Letter :10

We obtained information on DOD's secondary item inventory from the
Office of the Secretary of Defense; the Departments of the Army, the
Navy, and the Air Force; DLA; and several field locations.  We
interviewed officials responsible for inventory management policies
and reviewed applicable policies, procedures, and related documents. 

We analyzed September 30, 1991, and September 30, 1993, military
service and DLA secondary inventory stratification reports to
determine if the shortage was valid.  We then visited the Navy's
Aviation Supply Office, Philadelphia, Pennsylvania; the Army's
Aviation and Troop Support Command, St.  Louis, Missouri; the Air
Force's San Antonio Air Logistics Center, San Antonio, Texas; and
DLA's Defense Personnel Support Center, Philadelphia, Pennsylvania. 
We visited these inventory control points to review their inventory
shortages, which accounted for 62 percent of the $8.1-billion
shortage as of September 30, 1993.  At these locations, we analyzed
about $1.1 billion (7,109 items) of reorder point shortages to
determine if the shortages were valid and what actions were being
taken to correct the shortages. 

We requested inventory stratification tapes or similar information
from the four inventory control points.  For the Army and the Air
Force, the tapes were as of September 30, 1993.  For the Navy, the
tape was as of March 31, 1993.  For DLA, we obtained similar
information contained in supply control studies for May 8, 1994. 
(The difference in the dates was related to the availability of the
data when the fieldwork started at the selected centers.) Using this
information, we judgmentally sampled items with shortages of on-hand
and due-in inventory at the four centers and obtained information on
what was done about the shortages. 

We did not validate the inventory requirements that DOD reported.  We
also did not analyze such items as petroleum, oil, and lubricants;
Marine Corps inventories; and retail-level inventories because they
represented a small part of DOD's overall inventory or because
reorder point and economic order quantity requirements were not
available for them.  By removing surcharges covering the costs to
operate the supply system, we revalued the inventory at the latest
acquisition cost.  We did not, however, revalue items needing repair
to reflect their repair costs. 

We conducted our work between July 1993 and April 1995 in accordance
with generally accepted government auditing standards. 


--------------------------------------------------------- Letter :10.1

As you know, the head of a federal agency is required by 31 U.S.C. 
720 to submit a written statement on actions taken on our
recommendations to the House Committee on Government Reform and
Oversight and the Senate Committee on Governmental Affairs not later
than 60 days after the date of this report.  A written statement must
also be submitted to the House and Senate Committees on
Appropriations with the agency's first request for appropriations
made more than 60 days after the date of the report. 

Please contact me at (202) 512-8412 if you or your staff have any
questions concerning this report.  Major contributors to this report
are listed in appendix II. 

Sincerely yours,

David R.  Warren
Director, Defense Management
 and NASA Issues




(See figure in printed edition.)Appendix I
COMMENTS FROM THE DEPARTMENT OF
DEFENSE
============================================================== Letter 



(See figure in printed edition.)


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix II

NATIONAL SECURITY AND
INTERNATIONAL AFFAIRS DIVISION,
WASHINGTON, D.C. 

John J.  Klotz
Louis V.  Modliszewski
George C.  Surosky

DALLAS REGIONAL OFFICE

Calvin E.  Phillips
Richard L.  Madson

KANSAS CITY REGIONAL OFFICE

Richard E.  Burrell
Leonard C.  Hill
Robert C.  Sommer
Thomas N.  Bloom


GLOSSARY
============================================================ Chapter 0


         ACTIVE INVENTORY
------------------------------------------------------ Chapter 0:0.0.1

Active inventory is materiel expected to be consumed within the
budget year (2 years) and purchased to meet specific war reserve
requirements. 


         APPROVED ACQUISITION
         OBJECTIVE
------------------------------------------------------ Chapter 0:0.0.2

This is the quantity of an item needed to satisfy peacetime and
wartime requirements to equip and sustain U.S.  and allied forces in
accordance with current Department of Defense (DOD) policies and
plans. 


         ECONOMIC ORDER QUANTITY
------------------------------------------------------ Chapter 0:0.0.3

The order quantity that results in the lowest cost to order and hold
inventory. 


         LEAD TIME
------------------------------------------------------ Chapter 0:0.0.4

Lead time is the time from when a decision to buy an item is made to
when the material is received into the system. 


         PRINCIPAL ITEMS
------------------------------------------------------ Chapter 0:0.0.5

Principal items are end items and replacement assemblies of such
importance that management techniques require centralized individual
item management throughout the supply system.  This includes central
inventory control, centralized computation of requirements, central
direction of distribution, and central knowledge and control of all
assets owned by the military services.  Principal items normally are
selected for their essentiality for combat or training, high monetary
value, difficulty of procurement or production, or criticality of
basic materials or components. 


         REORDER POINT
------------------------------------------------------ Chapter 0:0.0.6

The reorder point is a warning point that indicates that a order must
be placed to ensure that inventory will be available to satisfy
future customer demands.  The reorder point consists of the sum of
the safety level, the ordering and shipping time, the repair cycle
level, and the authorized additive levels. 


         REQUISITIONING OBJECTIVE
------------------------------------------------------ Chapter 0:0.0.7

The requisitioning objective is the maximum quantity of materiel to
be maintained on-hand and on-order to sustain current operations and
core war reserves.  It consists of the sum of stocks represented by
the operating level, safety level, repair cycle, and the order and
shipping time.  This objective is equivalent to an item's reorder
point plus economic order quantity requirements. 


         SAFETY LEVEL
------------------------------------------------------ Chapter 0:0.0.8

Safety level is the quantity of materiel required to be on hand to
permit continued operation in case of a minor interruption of normal
replenishment or a fluctuation in demand occurs. 


         SECONDARY ITEM
------------------------------------------------------ Chapter 0:0.0.9

A secondary item is an item that is either a consumable (item that
can be used only once because it cannot be repaired) or reparable
(item that can be repaired and put back into service) other than a
principal item.  Secondary items include spare and repair parts,
fuel, construction materials, clothing and textiles, and medical and
dental supplies. 

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