Army Inventory: Reparable Exchange Items at Divisions Can Be Reduced
(Letter Report, 12/28/94, GAO/NSIAD-95-36).

Many of the reparable exchange items repaired and stocked at Army
installations are also stocked at the divisions.  If the four divisions
in GAO's review relied on inventories at the installations as their main
supply source for reparable exchange items, they could reduce their
inventory investment by nearly $47 million.  Because of the close
proximity of the divisions and their respective installation support
activities, supply responsiveness would not suffer.  Army officials were
concerned that if the divisions eliminated reparable items from their
inventories, the divisions would not have all of their authorized
inventory items if they had to deploy.  However, GAO found that in 93
percent of the cases there was more than enough inventory at the
installation and wholesale level depots to meet the divisions'
authorized inventory, without retaining the added inventory of such
items at the division level.  Officials were also concerned about
situations in which units were at training locations away from the
installation and needed a reparable exchange item.  GAO suggests that
this problem could be overcome by allowing the units to keep a minimum
number of readiness-related reparable exchange items at the division
level.

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

 REPORTNUM:  NSIAD-95-36
     TITLE:  Army Inventory: Reparable Exchange Items at Divisions Can 
             Be Reduced
      DATE:  12/28/94
   SUBJECT:  Military inventories
             Combat readiness
             Cost effectiveness analysis
             Defense contingency planning
             Property and supply management
             Spare parts
             Inventory control systems
             Army supplies
             Logistics

             
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Cover
================================================================ COVER


Report to the Chairman, Subcommittee on Readiness, Committee on Armed
Services, House of Representatives

December 1994

ARMY INVENTORY - REPARABLE
EXCHANGE ITEMS AT DIVISIONS CAN BE
REDUCED

GAO/NSIAD-95-36

Army Inventory


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

  ASL - authorized stockage list
  RX - reparable exchange

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


B-258908

December 28, 1994

The Honorable Earl Hutto
Chairman, Subcommittee on Readiness
Committee on Armed Services
House of Representatives

Dear Mr.  Chairman: 

Our prior reports\1 to you on spare and repair parts inventories at
the division level focused on ways to streamline the Army's retail
inventory system, which consists of inventory valued at over $3.3
billion.  As a result of these reports, the Army has taken
significant actions to reduce its inventory investment at the
divisions. 

As requested, this report focuses on reparable exchange items that
are repaired at the installation level and are stocked at both the
installation and the division level.  Our objective was to determine
if one of the inventory levels could be eliminated or reduced without
adversely affecting the units' ability to deploy or perform their
peacetime missions. 


--------------------
\1 Army Inventory:  Opportunities Exist for Additional Reductions to
Retail Level Inventories (GAO/NSIAD-94-129, June 6, 1994); Army
Inventory:  Divisions' Authorized Levels of Demand-Based Items Can Be
Reduced (GAO/NSIAD- 93-09, Oct.  20, 1992); Army Inventory:  Fewer
Items Should Be Stocked at the Division Level (GAO/NSIAD-91-218, July
24, 1991); and Army Logistics:  Authorized Levels of Repair Parts at
the Divisions Level Are Overstated (GAO/NSIAD-91-58, Nov.  20, 1990). 


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

According to Army regulations, one retail authorized stockage list
(ASL) will not be a backup to another retail ASL.  An exception to
this general policy is made, however, when the installation is
responsible for general support maintenance of the items.  In such
cases, Army regulations allow the installation ASL to be the backup
source of supply to units
(e.g.  divisions, nondivisional units, separate brigades, reserve,
and National Guard units).  When an item on the installation's ASL is
received at the installation for repair, the installation issues a
serviceable item to the unit, repairs the unserviceable item, and
then keeps it in installation stock.  The items repaired and stocked
at the installation are referred to as reparable exchange (RX) items. 
Many of these items, which include such things as engines,
transmissions, and other major components used on track and wheeled
vehicles and aircraft, are also stocked at the divisions collocated
at these installations. 

Each of the four divisions reviewed received its RX item support from
the installation it is collocated with.  Fort Riley supports the 1st
Infantry Division, Fort Hood supports the 1st Cavalry and 2nd Armored
Divisions, and Fort Carson supports the 4th Infantry Division.  In
addition, the installations' RX programs provide support to other
nondivisional, Army reserve, and National Guard units.  However, the
main justification for the installations' RX programs are the Army
units physically located with them.  For example, Fort Carson has 146
RX line items with an ASL stockage level valued at $7.3 million and
91 of these line items, with an ASL value of $6.8 million, are also
stocked at the 4th Infantry Division.  The basis for stocking the
remaining 55 RX line items at the installation, with an ASL stockage
value of about $500,000, are not solely dependent upon demands from
the 4th Infantry Division. 


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

Many of the RX items that are repaired and stocked at the
installations are also stocked at the divisions.  If the four
divisions in our review relied on inventories at the installation
level as their primary supply source for reparable exchange items,
they could reduce their inventory investment by as much as $46.7
million.  Because of the collocation or close proximity of the
divisions and their respective installation support activity, supply
responsiveness would not suffer. 

Army officials were concerned that if the divisions eliminated
reparable exchange items from their inventories, the divisions may
not have all of their authorized inventory items if they had to
deploy.  Our review showed, however, that for 93 percent of the
cases, there was more than sufficient inventory at the installation
and wholesale level depots to meet the divisions' authorized
inventory, without retaining the added inventory of such items at the
division level. 

Officials were also concerned about situations where units were at
training locations away from the installation and had a need for an
RX item.  If the unit had to go to the installation to get a
replacement item, the training tempo could be disrupted and readiness
could suffer.  In our opinion, this problem could be overcome by
allowing the units to retain a minimum number of readiness-related RX
items at the division level. 


   RX INVENTORY LEVELS STOCKED AT
   BOTH THE INSTALLATIONS AND THE
   DIVISIONS
------------------------------------------------------------ Letter :3

At the three installations in our review, the RX program consisted of
623 line items with an ASL value of $56.4 million.  These items
account for about 19 percent of the installations' inventory line
items and about 74 percent of the installations' ASL inventory value
as shown in table 1. 



                           Table 1
           
                RX Items Stocked at the Three
                        Installations

                    (Dollars in millions)


Installation  Number   Value  Number   Value  Number   Value
------------  ------  ------  ------  ------  ------  ------
Fort Riley       222   $10.7     189   $10.6      85      99
Fort Hood      1,513    57.5     288    38.5      19      67
Fort Carson    1,588     8.3     146     7.3       9      87
============================================================
Total          3,323   $76.5     623   $56.4      19      74
------------------------------------------------------------
Many of the RX line items stocked at the three installations were
also stocked at one or more of the four divisions.  While these items
represent only 2 percent of the divisions' total ASL line items, they
comprise $46.7 million, or 22 percent, of the divisions' ASL
inventory value as shown in table 2. 



                           Table 2
           
              Number and Value of RX Line Items
                   Stocked at the Divisions

                    (Dollars in millions)


                    ASL line                ASL line
                    items in                items in
                          RX  Percen              RX  Percen
Division       ASL   program       t   ASL   program       t
------------  ----  --------  ------  ----  --------  ------
1st Infantry  4,29       117     2.7  $51.     $14.3    27.7
                 9                       7
1st Cavalry   5,93       119     2.0  78.0      15.0    19.2
                 5
2nd Armored   4,77       123     2.6  33.0       9.4    28.5
                 9
4th Infantry  5,24        91     1.7  46.4       8.0    17.2
                 5
============================================================
Total         20,2     450\a     2.2  $209     $46.7    22.3
                58                      .1
------------------------------------------------------------
\a Represents 251 individual line items.  In other words, some of the
line items stocked at one division are also stocked at other
divisions. 

If the divisions relied on their installations for primary support
for RX items, rather than maintaining a separate inventory, they
could reduce their inventory investment by as much as $46.7 million. 
Furthermore, because of the close proximity of the divisions to their
respective installation supply activity, supply responsiveness would
not be adversely affected. 


   ANALYSIS OF ARMY CONCERNS ABOUT
   ELIMINATING THE DIVISIONS'
   STOCK OF RX ITEMS
------------------------------------------------------------ Letter :4

Army officials expressed concern about whether installations could
support the divisions with RX items if they deployed.  The reason for
their concern is that, for a number of RX items, the installations
are authorized to stock less than the divisions.  Therefore, if the
RX items were deleted from the divisions' inventory level and the
divisions had to deploy, Army officials were concerned that the
installations would not be able to fill the divisions to their
authorized levels. 

We analyzed the amount of on-hand stock at the installation level for
those RX items that the divisions are also authorized to stock.  In
44 percent of the cases, the on-hand serviceable inventory at the
installations would be sufficient to fill the divisions' stock levels
to their authorized level if the four divisions deployed.  Table 3
shows the number of RX line items for which sufficient inventory is
available at the installation level to reconstitute the divisions'
authorized inventory level if the divisions had to deploy. 



                           Table 3
           
            Divisions' Authorized Inventory Items
           That Could Be Filled From Installations'
                         RX Inventory

                                 On-hand line
                                         item
                  Number of RX   inventory at
                 line items on            the     Percent of
                           the   installation    line items'
                 installations  sufficient to  that could be
                         ' and           fill    filled from
                    divisions'     divisions'   installation
Division                  ASLs            ASL      inventory
---------------  -------------  -------------  -------------
1st Infantry               117             45             38
1st Cavalry                119             59             50
2nd Armored                123             70             57
4th Infantry                91             26             29
============================================================
Total                      450            200             44
------------------------------------------------------------
We then obtained wholesale supply inventory balances for the RX
items.  In our analysis, we gave consideration to the fact that some
RX items are common to more than one division.  In such cases, we
totaled the authorized levels at the divisions.  For example, if an
RX line item had an authorized inventory level of 5 at one division
and 8 at another division, we assumed that 13 items would be needed
if the divisions deployed. 

We compared the divisions' total ASL requirements for the RX line
items to the inventory balances\2 at the installations and the
wholesale level depots.  As shown in table 4, there were enough
serviceable inventory items at the installations and depots to fill
the total requirements for 93 percent\3 of the items even if all four
divisions deployed at the same time. 



                           Table 4
           
            Percent of RX Items on the Divisions'
            Authorized Stockage List That Could Be
             Filled From On-hand Inventory at the
                   Installations and Depots

                                                  Percent of
                  Number of RX        On-hand     line items
                 line items on   inventory at  that could be
                           the  installations    filled from
                    divisions'  and depots to        on-hand
                           and           fill   inventory at
                 installations     divisions'  installations
Division                ' ASLs           ASLs     and depots
---------------  -------------  -------------  -------------
1st Infantry               117            110             94
1st Cavalry                119            116             97
2nd Armored                123            119             97
4th Infantry                91             83             91
============================================================
Total                      450            428             95
All divisions\a            251            234             93
------------------------------------------------------------
\a Number of individual line items based on the fact that some items
are stocked at more than one division. 

Not only were there sufficient inventory available to completely
satisfy the divisions' authorized stock levels for 93 percent of the
items, there were sufficient inventory of some items to satisfy the
divisions' ASL requirements many times over as shown in table 5.  It
should be remembered, however, that the inventory at the wholesale
level is available to support all of the Army divisions, reserves and
National Guard, foreign military sales customers, and depot repair
programs, not just the four divisions in our review.  Nevertheless,
the four divisions in our review would, because they are mechanized
infantry and armored divisions, be the major consumers of the types
of items in the RX program. 



                           Table 5
           
                Number of Times the Divisions'
               Authorized Stock Levels Could Be
            Satisfied From Inventory Available at
                 the Installations and Depots

Number of times
the four
divisions'
authorized
stock levels
can be               Number of     Cumulative     Cumulative
satisfied           line items          total        percent
---------------  -------------  -------------  -------------
Greater than                31             31             12
 201
101-200                     25             56             22
51-100                      36             92             37
11-50                       74            166             66
6-10                        24            190             76
3-5                         19            209             83
1-2                         25            234             93
less than 1                 17            251            100
------------------------------------------------------------
The following examples illustrate the extent to which inventory
available at the installations and the wholesale level depots was
more than sufficient to reconstitute the divisions' authorized stock
levels in the event the divisions deployed. 

Two divisions had a combined authorized stock level of four engines
(stock number 2805-01-169-1100) with a unit price of $1,100.  There
were
21 engines at the installations and 5,620 engines at the depots that
were in a serviceable, ready to issue condition. 

One division had an authorized stock level of one engine (stock
number 2840-01-013-1339) with a unit price $134,087.  The
installations had
2 engines and the depots had 253 engines in a serviceable, ready to
issue condition. 

Army officials were also concerned that if the items were not stocked
at the divisions and the divisions had to deploy, the divisions might
not have the funds to buy the items or there might not be sufficient
time to ship the items to the divisions before they deployed. 

In our opinion, neither of these issues should present a problem.  It
seems highly unlikely that the Army would deploy a unit with
insufficient inventory just because the unit may not have the funds
to pay an Army supply entity for the items it needs.  Moreover, with
the rapid transportation now available, the needed items in inventory
could be shipped from the depots or wherever else the items may be
located to the unit requiring the items within a very short time
frame.  Our prior reports\4 as well as a study done for the Army\5
have repeatedly pointed out that the current transportation systems
can respond to the Army's supply responsiveness needs and for that
reason inventory levels at retail activities can be reduced. 

Another concern expressed by the officials was the effect on units'
training tempo and readiness if the divisions were at a training
location away from the installation and did not have the RX items on
their ASLs.  If they needed an RX item, they would have to return to
the installation each time they needed an item and this could disrupt
training.  We agree that this could present a problem.  For that
reason, the divisions may want to keep a minimum number of
readiness-related RX items on their ASLs for just that purpose. 


--------------------
\2 We considered only depot-level serviceable assets classified as
"available for general issue." We did not consider those serviceable
inventory items that were under the control of a program manager or
were designated as war reserve items. 

\3 The remaining 7 percent comprise 17 individual items.  The
attributes of these items in terms of stock levels, price, and item
type are similar to the items in the 93 percent.  There are
sufficient items at the installations and depots to satisfy a large
percentage of the requirements.  Additionally, there are other
serviceable items at the divisions, in war reserves, and project
stocks that could be used to satisfy the requirement deficit. 

\4 Army Inventory:  Fewer Items Should Be Stocked at the Division
Level (GAO/NSIAD-91-218, July 24, 1991) and Army Inventory: 
Divisions' Authorized Levels of Demand Based Items Can Be Reduced
(GAO/NSIAD-93-09, Oct.  20, 1992). 

\5 Causes of U.S.  Army Class IX Excess at the Retail Level (Mar.  1,
1988). 


   RECOMMENDATIONS
------------------------------------------------------------ Letter :5

We recommend that the Secretary of the Army issue guidance to the
divisions that directs them to review their ASLs and minimize the
number of RX items stocked at the division level.  In this regard, we
recommend that the divisions rely primarily on the installations to
provide needed supply support for those RX items that are repaired at
the installation level. 


   AGENCY COMMENTS AND OUR
   EVALUATION
------------------------------------------------------------ Letter :6

In commenting on a draft of this report, the Department of Defense
generally agreed with our findings and recommendations.  The
Department stated that the ASLs for RX items at divisions not
considered as early deployers should be reviewed and reduced to a
minimum level based on order-ship-time as opposed to operating level,
safety level, and order-ship-time.  With regard to installations'
ASLs, the Department said that the minimum level should be based on
the most efficient repair cycle time as opposed to demands.  The
Department went on to say that by February 1995, the Secretary of
Defense will direct the Army to develop and issue appropriate
guidance by the end of fiscal year 1995 to implement these actions. 

We generally agree with the Department's plan of action.  However, it
should be noted that the current automated inventory management
system does not have the capability to compute a stock level based on
factors other than demand.  Therefore, to achieve the proposed
changes for computing the ASL levels will require a system's change. 

The Department's comments are presented in their entirety in appendix
II. 


---------------------------------------------------------- Letter :6.1

We performed our review between June and September 1994, in
accordance with generally accepted government auditing standards. 
The scope and methodology of our review are shown in appendix I. 

We are sending copies of this report to the Chairmen of the House
Committee on Government Operations, the Senate Committee on
Governmental Affairs, the House and Senate Committees on
Appropriations, and the Senate Committee on Armed Services; the
Director of the Office of Management and Budget; and the Secretaries
of Defense and the Army.  Copies will also be made available to other
parties on request.  Please contact me at (202) 512-5140 if you or
your staff have any questions.  Major contributors to this report are
listed in appendix III. 

Sincerely yours,

Mark E.  Gebicke
Director, Military Operations
 and Capabilities Issues


SCOPE AND METHODOLOGY
=========================================================== Appendix I

To determine the extent of the duplicate stock of reparable exchange
(RX) items at the installation and division levels, we identified the
items that were being repaired at three installations as part of the
RX program.  We then compared these items to the items being stocked
at the four divisions located at these installations. 

We held discussions with responsible officials at Army headquarters
and U.S.  Forces Command to obtain their views on having the
installations support the divisions for RX items.  A concern they
raised was that if the divisions had to deploy, the installations may
not be able to reconstitute the division's stock level for the RX
items.  To address this concern, we compared the amount of
serviceable RX items on-hand at the installations to the divisions'
authorized stock level for these items.  In certain cases there would
not be sufficient assets at the installations to bring the divisions
stock levels up to their authorized levels.  We then obtained asset
balance information from the depots to determine whether the depots
had sufficient assets to fill the divisions' authorized stock levels
for the RX items. 

In our analysis, we only considered depot-level serviceable items
classified as "available for general issue." We did not consider
serviceable items that were under the control of program managers or
items in war reserve.  Additionally, we did not consider items that
were in process of being repaired at the installations or depots or
items that were on-hand at the divisions.  Therefore, our analysis
represents a conservative estimate of the total assets available to
satisfy the requirements for RX items. 

Our review was performed at three installations and the four Army
divisions at these installations:  Fort Carson, Colorado, which
supports the 4th Infantry Division; Fort Hood, Texas, which supports
the 1st Cavalry and 2nd Armored Divisions; and Fort Riley, Kansas,
which supports the 1st Infantry Division.  The four divisions were
selected because with one exception--24th Infantry--these are the
largest divisions in the Army and are resource intensive in terms of
equipment items.  The 24th Infantry Division was not selected because
it uses a different inventory system that is not readily compatible
with the system used by the other divisions.  Other Army divisions
were not included in our review because they are not equipment
intensive and the value of their spare parts inventories are
relatively smaller. 




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



(See figure in printed edition.)

 Now on p.  2. 



(See figure in printed edition.)

 Now on pp.  3-4. 



(See figure in printed edition.)



(See figure in printed edition.)

 Now on pp.  4-7. 

 Now on p.7. 



(See figure in printed edition.)


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================= Appendix III

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

Norman L.  Rabkin
Robert J.  Lane

NORFOLK REGIONAL OFFICE

Norman L.  Jessup
Raul S.  Cajulis
Patricia W.  Lentini
Nixon D.  Williams
