Defense Logistics: Much of the Inventory Exceeds Current Needs (Letter
Report, 02/28/97, GAO/NSIAD-97-71).

Pursuant to a congressional request, GAO analyzed the Department of
Defense's (DOD) secondary inventory, focusing on the: (1) number of
inventory items with inventory that was not needed to satisfy war
reserve and current operating requirements and their dollar value,
referred to as unneeded inventory; (2) reasons why DOD held 100 years or
more of unneeded inventory for some items; and (3) reasons why DOD had
20 years or more of unneeded inventory on hand and had additional
inventory on order.

GAO found that: (1) although DOD has made progress in reducing the value
of its secondary inventory, GAO's analysis of inventory valued at $67
billion showed that $41.2 billion of the inventory was not needed; (2)
the unneeded inventory represents many years of supply; (3) about $14.6
billion of the unneeded inventory did not have projected demands and
will likely never be used; (4) of the $26.6 billion with projected
demands, unneeded inventory valued at $1.1 billion represented 100 years
or more of supply; (5) DOD representatives and supporting documents gave
many reasons for having 100 years or more of unneeded inventory on hand;
(6) officials cited changed requirements as a contributing factor for
most items; (7) the requirement changes involved recurring or
nonrecurring demands that decreased, fluctuated, or did not materialize,
parts or the systems on which the parts were used were obsolete, and
weapon system programs were being reduced; (8) other reasons included
purchases to cover the expected life of weapon systems and adherence to
minimum buy policies; (9) DOD representatives could not give reasons for
24 percent of the 328 items reviewed because necessary supporting
records were not available or the representatives had recently assumed
responsibility for the items and were not sufficiently familiar with
their histories; (10) Army, Navy, and Air Force records indicated that
unneeded inventory items valued at $28.4 million had 20 years or more of
inventory on hand and another $11.3 million of inventory on order; (11)
however, because the records for almost 40 percent of the reviewed items
were in error (generally on-order quantities had been delivered but not
recorded), these items, in fact, did not have additional stock on order;
and (12) in cases where inventory was actually on order, the reasons
included requirement changes, buys to cover the life of weapon systems,
and adherence to minimum buy policies.

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

 REPORTNUM:  NSIAD-97-71
     TITLE:  Defense Logistics: Much of the Inventory Exceeds Current 
             Needs
      DATE:  02/28/97
   SUBJECT:  Military inventories
             Military materiel
             Surplus federal property
             Spare parts
             Logistics
             Inventory control systems
             Federal supply systems
             Defense contingency planning
             Federal procurement policies
IDENTIFIER:  DLA Consumable Item Transfer Program
             DOD Supply System Inventory Report
             
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Cover
================================================================ COVER


Report to Congressional Requesters

February 1997

DEFENSE LOGISTICS - MUCH OF THE
INVENTORY EXCEEDS CURRENT NEEDS

GAO/NSIAD-97-71

Defense Logistics

(709190)


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

  DLA - Defense Logistics Agency
  DOD - Department of Defense

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


B-272664

February 28, 1997

The Honorable Richard Durbin
The Honorable Tom Harkin
United States Senate

The Honorable Peter DeFazio
The Honorable Carolyn Maloney
House of Representatives

The Department of Defense (DOD) uses its secondary inventory--spare
and repair parts, clothing, medical supplies, and other support
items--to support its operating forces.  As requested, we analyzed
DOD's secondary inventory.  Our specific objectives were to provide
information on the (1) number of inventory items with inventory that
was not needed to satisfy war reserve and current operating
requirements and their dollar value (hereafter referred to as
unneeded inventory), (2) reasons why DOD held 100 years or more of
unneeded inventory for some items, and (3) reasons why DOD had 20
years or more of unneeded inventory on hand and had additional
inventory on order. 

Overall data on the number and value of DOD's unneeded inventory were
based on analyses of computerized inventory files.  To determine the
reasons for having 100 years or more of unneeded inventory on hand
and for having additional inventory on order for items with 20 years
or more of unneeded inventory on hand, we gathered and analyzed
information from responsible inventory managers on judgmentally
selected items. 


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

Inventory management represents a significant responsibility within
DOD involving annual purchases of $14.5 billion and the storage and
distribution of inventory valued at $69.6 billion.  In 1990, we
identified DOD's secondary inventory management as a high-risk area
because of the high levels of unneeded inventory and inadequate
systems for determining inventory requirements.  This report is one
in a series of reports that address management issues in this area. 
A list of related products can be found at the end of this report. 

DOD annually summarizes its secondary inventory in its Supply System
Inventory Report.  The report is based on financial inventory and
other inventory reports prepared by the military services and the
Defense Logistics Agency (DLA).  DOD uses the report as a management
tool to monitor changes in the level of inventory. 

DOD holds inventory to meet the operational requirements of the
military services.  When the total of on-hand and due-in inventory
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-requisitioned material that has not been shipped,

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

  -- stock to satisfy demands during the period between when a need
     to buy an item is identified and when it is received,

  -- minimum quantities for designated items (insurance items), and

  -- stock to satisfy demands during the repair period for repairable
     items. 

Because the reorder point provides for inventory to be used during
the time needed to order and receive inventory 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 inventory that will result in the lowest total
costs for ordering and holding inventory.  Inventory needed to
satisfy reorder point and economic order quantity requirements is the
maximum quantity of material to be maintained on hand or on order to
sustain current operations and war reserves.  Inventory used to
satisfy these requirements is referred to as needed inventory in this
report.  Most of the inventory that exceeds reorder point and
economic order quantity requirements is held for economic or
contingency purposes or for potential reutilization/disposal. 

In commenting on our past reports,\1 DOD disagreed with our
definition of needed inventory because it differs from the definition
that DOD uses for budgeting purposes.  As we previously reported, the
DOD definition covers a longer period of time and includes inventory
in excess of reorder point and economic order quantity requirements. 
This overstates by billions of dollars the amount of inventory needed
to be on hand. 


--------------------
\1 Defense Inventory:  More Accurate Reporting Categories Are Needed
(GAO/NSIAD-93-31, Aug.  12, 1993) and Defense Inventory:  Shortages
Are Recurring, but Not a Problem (GAO/NSIAD-95-137, Aug.  7, 1995). 


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

Although DOD has made progress in reducing the value of its secondary
inventory, our analysis of inventory valued at $67 billion showed
that $41.2 billion of the inventory was not needed.  The unneeded
inventory represents many years of supply.  About $14.6 billion of
the unneeded inventory did not have projected demands and will likely
never be used.  Of the $26.6 billion with projected demands, unneeded
inventory valued at $1.1 billion represented 100 years or more of
supply. 

DOD representatives and supporting documents gave many reasons for
having 100 years or more of unneeded inventory on hand.  Officials
cited changed requirements as a contributing factor for most items. 
The requirement changes involved recurring or nonrecurring demands
that decreased, fluctuated, or did not materialize; parts or the
systems on which the parts were used were obsolete; and weapon system
programs were being reduced.  Other reasons included purchases to
cover the expected life of weapon systems and adherence to minimum
buy policies.  DOD representatives could not give reasons for 24
percent of the 328 items reviewed because necessary supporting
records were not available or the representatives had recently
assumed responsibility for the items and were not sufficiently
familiar with their histories. 

Army, Navy, and Air Force records indicated that unneeded inventory
items valued at $28.4 million had 20 years or more of inventory on
hand and another $11.3 million of inventory on order.  However,
because the records for almost 40 percent of the reviewed items were
in error (generally on-order quantities had been delivered but not
recorded), these items, in fact, did not have additional stock on
order.  In cases where inventory was actually on order, the reasons
included requirement changes, buys to cover the life of weapon
systems, and adherence to minimum buy policies. 


   MUCH OF DOD'S INVENTORY IS
   UNNEEDED
------------------------------------------------------------ Letter :3

Our analysis of DOD's September 30, 1995, Supply System Inventory
Report and inventory stratification reports indicated that $34
billion of the $69.6 billion secondary inventory that DOD reported
exceeded war reserve and current operating requirements.  Although
DOD had reduced its inventory from $77.5 billion since September 30,
1993, about half of the inventory continued to be unneeded. 

On the basis of our analysis of computer data tapes for 3.3 million
items, representing inventory valued at $67 billion, we identified
1.9 million items that had $41.2 billion of unneeded inventory on
hand.\2 Table 1 summarizes the data by DOD component. 



                                Table 1
                
                 Summary of Items and Value of Unneeded
                  Secondary Inventory by DOD Component

                         (Dollars in billions)

                          Inventory analyzed     Unneeded inventory\a
                        ----------------------  ----------------------
Component                    Items       Value       Items       Value
----------------------  ----------  ----------  ----------  ----------
Army                       117,610        $9.0      63,362        $4.8
Navy                       334,337        17.6     172,325        11.2
Air Force                  289,438        31.1     140,220        19.1
DLA                      2,515,231         9.3   1,548,545         6.1
======================================================================
Total                    3,256,616       $67.0   1,924,452       $41.2
----------------------------------------------------------------------
\a Most items with unneeded inventory also have needed inventory on
hand. 


--------------------
\2 The $67 billion inventory that we analyzed differed from the $69.6
billion reported in DOD's Supply System Inventory Report because of
differences in time frames, valuation methods used, and specific
items included.  See the scope and methodology section for more
details on our analysis. 


      SOME ITEMS HAVE NO PROJECTED
      DEMANDS
---------------------------------------------------------- Letter :3.1

No projected demands existed for 1.5 million of the 1.9 million items
with unneeded inventory.  The 1.5 million items had unneeded
inventory valued at $14.6 billion.  Without demands, it is unlikely
that this inventory will ever be used.  Table 2 shows the number of
items with unneeded inventory that had no projected demands and the
value of the unneeded inventory by DOD component. 



                                Table 2
                
                Items Without Projected Demands and the
                    Value of the Unneeded Secondary
                               Inventory

                         (Dollars in billions)

Component                                    Items               Value
------------------------------  ------------------  ------------------
Army                                        29,005                $0.7
Navy                                       124,632                 4.0
Air Force                                  111,982                 6.5
DLA                                      1,281,052                 3.4
======================================================================
Total                                    1,546,671               $14.6
----------------------------------------------------------------------
Examples of items with no projected demands can be found in appendix
I. 


      OTHER ITEMS HAVE PROJECTED
      DEMANDS
---------------------------------------------------------- Letter :3.2

Of the 1.9 million items with unneeded inventory, 378,000 items with
unneeded inventory valued at $26.6 billion had projected demands. 
Using the projected demand data, we computed the years of unneeded
supply for those items and found that some items had many years of
supply.  Figure 1 shows the 378,000 items with unneeded secondary
inventory stratified by years of supply, and figure 2 shows the
corresponding values.  See appendix II for a breakdown of the data by
DOD component. 

   Figure 1:  Items With Unneeded
   Secondary Inventory Stratified
   by Years of Supply

   (See figure in printed
   edition.)

   Figure 2:  Unneeded Secondary
   Inventory Values Stratified by
   Years of Supply

   (See figure in printed
   edition.)


   UNNEEDED INVENTORY REPRESENTS
   MANY YEARS OF SUPPLY
------------------------------------------------------------ Letter :4

Further analysis of the 3.3 million items identified 11,646 items
that had 100 or more years of unneeded inventory valued at $1.1
billion.  We judgmentally selected 328 of these items with unneeded
inventory valued at $354 million for review to determine why the
unneeded inventory was on hand. 

Through discussions with item managers and review of supporting
documents, we identified a variety of reasons for having 100 or more
years of unneeded inventory on hand.  Most reasons related to changed
requirements.  For 81 items with unneeded inventory valued at $279
million, requirements had changed because parts were obsolete or were
for use on weapon systems that were no longer in service or were
being phased out of service.  Additional requirement-related changes
involved items for which recurring or nonrecurring demands decreased,
fluctuated, or did not materialize and items were purchased before
the weapon systems to be supported were activated. 

Other reasons included purchases to cover the life of a weapon
system, minimum purchases required by procurement policy, and parts
added through disassembly of modification kits.  We were not able to
determine the reasons for 78 items (24 percent) with $28.9 million of
unneeded inventory because records were not available and the item
managers did not have detailed knowledge of the items.  In most
cases, responsibility for the items had transferred to or from
another DOD activity.  Responsibility for a large number of these
items was transferred from the military services to DLA under the
consumable item transfer program. 

We found that the records for 5 of the 328 items reviewed were in
error and incorrectly showed $364,000 of unneeded inventory.  Table 3
summarizes the reasons for the remaining 323 items having 100 years
or more of unneeded inventory on hand. 



                                Table 3
                
                 Reasons For Items Having 100 Years or
                More of Unneeded Secondary Inventory On
                                  Hand

                         (Dollars in millions)

                                                              Unneeded
Reason                                            Items          value
----------------------------------------  -------------  -------------
Demands decreased, fluctuated, or did               126          $37.2
 not materialize
Item or system on which the item was                 64          261.8
 used was, or would be, obsolete
Weapon system program was reduced or                 17           16.7
 weapon was retired from service
Buy was considered economical (minimum               15            0.3
 buy)
Life of system buy                                    5            2.8
Item was purchased before the system it               4            0.3
 supported was activated
Modification kits were disassembled                   2            1.2
Other (decreased failure rates, etc.)                12            4.7
Unable to determine reason                           78           28.9
======================================================================
Total                                               323         $353.9
----------------------------------------------------------------------
Examples of items with 100 years or more of unneeded inventory on
hand can be found in appendix I. 


   ADDITIONAL UNNEEDED INVENTORY
   IS ON ORDER
------------------------------------------------------------ Letter :5

We identified 145 Army, Navy, and Air Force items with unneeded
inventory valued at $28.4 million that represented 20 or more years
of supply on hand and that had an additional $11.3 million on order. 
We did not make a similar analysis for DLA items because data
provided by DLA did not include the amount of inventory on order. 

We judgmentally selected 57 items for review to determine why
additional inventory was being ordered.  These items had $24.9
million of unneeded inventory on hand that represented 20 or more
years of supply and that had an additional $2 million on order.  We
found that the records for 23 items were in error and incorrectly
showed $553,000 of unneeded inventory was on order.  Generally, the
on-order inventory already had been delivered.  Of the 34 remaining
items, 11 had 100 or more years of unneeded inventory on hand and
$796,000 of additional inventory on order.  Reasons we identified for
having unneeded inventory on order included demands decreased or did
not materialize, purchases were for weapon systems that had not been
activated, and purchases were to cover the expected life of weapon
systems.  Table 4 summarizes the reasons for having additional
inventory on order for the 34 items. 



                                Table 4
                
                Reasons for Having Additional Secondary
                           Inventory On Order

                         (Dollars in thousands)

Reason                                            Items       On order
----------------------------------------  -------------  -------------
Demand decreased or did not materialize              15         $356.5
 after the buy
Item was purchased before the weapon                  6          282.1
 system it supported was activated
Life of system or long-term buys                      4          235.9
Buy was considered economical (minimum                1           10.2
 buy)
DLA purchased the item to satisfy                     1          547.4
 mission critical requirements of the
 services
The Air Force transferred assets to the               1            6.2
 Navy after the Navy placed the order
All assets were not considered when the               1            0.6
 buy was made
Unable to determine reason                            5           51.0
======================================================================
Total                                                34       $1,489.9
----------------------------------------------------------------------
Examples of items with 20 or more years of unneeded inventory on hand
and additional inventory on order can be found in appendix I. 


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

DOD generally agreed with the factual data in this report but did not
agree with our definitions of needed and unneeded inventory.  (See
app.  III for DOD's complete comments.) According to DOD, the terms
do not reflect accurately how the Department determines inventory
requirements or decides how much inventory to hold once it has been
stocked.  DOD stated that it has consistently defined required
inventory as inventory that is projected to be used through the end
of the budget year and noted that our definition implies that all
unneeded inventory should be disposed of.  DOD also stated that
dealing with the requirements determination system and on-hand
inventory in the same report is confusing. 

DOD has consistently disagreed with our definition of needed
inventory because it differs from the definition that DOD uses for
budgeting purposes.  We continue to believe that our characterization
of DOD's inventory is reasonable.  Our definition of needed inventory
represents inventory that is required to prevent out-of-stock
situations.  DOD's definition includes requirements that are
projected to be used through the end of the budget year and can
represent as much as 2 years of potential requirements.  As a result,
the DOD definition includes inventory in excess of current operating
and war reserve requirements.  In fact, our review showed that much
of the inventory even exceeds DOD's definition of required inventory. 
No demands were projected for unneeded inventory valued at $14.6
billion and an additional $20.6 billion of unneeded inventory was not
expected to be needed in the next 2 years.  Lastly, notwithstanding
DOD's comments, it is important to note that DOD stated that it has
reduced and plans to continue reducing the inventory. 

With regard to DOD's comment on inventory retention, we are not
suggesting that all unneeded inventory should be disposed of.  We
recognize that some of this inventory should be retained for economic
or contingency reasons.  Nevertheless, DOD has a tremendous potential
for further inventory reductions because much of the inventory has no
projected demands and it is unlikely that this inventory will ever be
used.  Other inventories may not be needed because many years of
supply are on hand. 

We do not agree with DOD's comment that dealing with the requirements
determination system and on-hand inventory in the same report is
confusing.  Discussing the inventory that is required and the
inventory that is on hand is entirely appropriate and must be
discussed together to determine whether there is unneeded inventory. 


   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :7

For overall inventory data, we analyzed March 31, 1996, computerized
inventory stratification reports for items managed by the military
services and August 1996 inventory data for those managed by DLA. 
Stratification reports match on-hand and due-in inventory to
requirements and are used for budgeting and reporting purposes. 
Because our fieldwork at the Navy and the Air Force inventory control
points was completed before March 31, 1996, data were available, we
used their September 30, 1995, inventory stratification reports as
the basis for selecting our sample items at those locations. 

We used the data to identify items with unneeded inventory, compute
years of supply, and identify items with unneeded inventory on hand
and additional inventory on order.  We used projected demand data to
compute years of supply.  Because demand data were not projected for
1.5 million items with unneeded inventory, we could not estimate
years of supply for those items.  Also, because DLA did not provide
contract data, we were not able to determine the number and value of
DLA items with additional inventory on order. 

We judgmentally selected and reviewed 328 items with 100 or more
years of supply and 57 items with 20 or more years of unneeded
inventory on hand and additional inventory on order.  For items with
100 or more years of unneeded inventory, we selected items to review
that had the highest value and quantity of unneeded inventory and a
cross section of the remaining items.  For items with 20 or more
years of unneeded inventory and additional inventory on order, we
used a similar methodology to select items for review.  Because we
did not look at items with 20 or more years of unneeded inventory and
additional inventory on order in prior reviews, we did not make any
comparisons with past performance. 

To learn why unneeded inventory was accumulated or was on order, we
held discussions and collected information from item managers and
analyzed inventory records at the Army's Aviation and Troop Support
Command, St.  Louis, Missouri; the Naval Inventory Control Point,
Philadelphia, Pennsylvania; the Air Force's Warner Robins Air
Logistics Center, Georgia; and the DLA's Defense Supply Center,
Richmond, Virginia.  We also obtained inventory records and
photographed items at Defense Distribution Depots in Warner Robins,
Georgia; Norfolk and Richmond, Virginia; and New Cumberland
(Susquehanna), Pennsylvania.  At the Army and DLA inventory control
points, we reviewed a limited number of items that had no projected
demands on which we could compute years of supply to identify the
nature of those items. 

We did not include such items as petroleum, oil, and lubricants or
those in Marine Corps and retail level inventories in our analysis
because they represented a small part of DOD's overall inventory or
reorder point and economic order quantity requirements were not
available for these items. 

By removing surcharges covering the costs to operate the supply
system, we revalued the inventory at the latest acquisition cost.  We
did not revalue items needing repair to reflect their repair costs
nor did we revalue potential reutilization/disposal stocks to their
scrap value.  We did not validate DOD's inventory requirements. 

We performed our review between April 1996 and January 1997 in
accordance with generally accepted government auditing standards. 


---------------------------------------------------------- Letter :7.1

We are sending copies of this report to the appropriate congressional
committees; the Secretaries of Defense, the Army, the Navy, and the
Air Force; the Director, DLA; and the Director, Office of Management
and Budget. 

Please contact me at (202) 512-8412 if you have any questions.  The
major contributors to this report are listed in appendix IV. 

David R.  Warren
Director, Defense Management Issues


EXAMPLES OF SPECIFIC INVENTORY
ITEMS
=========================================================== Appendix I


   ITEMS WITH NO PROJECTED DEMANDS
--------------------------------------------------------- Appendix I:1

The Army had 14 electronic signal comparators (see fig.  I.1) on hand
as of March 1996, of which 2 were needed for war reserve and current
operating requirements.  The comparators, valued at $90,000 each, are
used on a test set.  Inventory records show that the Army has issued
one comparator since January 1994.  According to the item manager,
the test set overhaul program was canceled in fiscal year 1996, but
the comparators will be retained in the inventory until the test set
is phased out in 2005. 

   Figure I.1:  Comparator Stored
   in Airtight Container at the
   Susquehanna Depot

   (See figure in printed
   edition.)


The Defense Logistics Agency (DLA) had 2,576 insulator inserts (see
fig.  I.2) on hand as of August 1996, of which 5 were needed for war
reserve and current operating requirements.  The inserts, valued at
$11 each, are used on a submarine.  Inventory records showed that the
item was last purchased in 1987 and that the last demand was in
October 1994.  The item manager was not able to provide information
on why so many of the inserts were on hand, and in October 1996,
initiated action to dispose of 1,551 of the inserts. 

   Figure I.2:  Insulator Insert
   Stored at the Richmond Depot

   (See figure in printed
   edition.)


   ITEMS WITH 100 OR MORE YEARS OF
   INVENTORY
--------------------------------------------------------- Appendix I:2

As of March 1996, the Army had 424 spacer sleeves on hand for use on
engines such as the T-53-L-701A.  Only 3 of the 424 sleeves were
needed to satisfy war reserve and current operating requirements. 
According to the item manager at the Aviation and Troop Support
Command, the sleeves, valued at $2 each, were last purchased in
November 1994 under a minimum buy policy.  Army Materiel Command
procurement policy does not permit item managers to place orders
valued at less than $2,350.  The manager stated that if unneeded
sleeves were disposed of, a future demand could result in another
purchase of the minimum dollar amount. 


The Army had 6,599 camouflage screen systems (see fig.  I.3) on hand
as of March 1996.  Inventory records showed that only 712 of the
screen systems, valued at $379 each, were needed.  The unneeded
screens represented a 159-year supply.  According to the item
manager, the screen system was purchased in 1990 and developed for
use during Operation Desert Storm.  The manager said that demands for
the screens have decreased since then and that the screen will remain
in the Army supply system until 2003 when it is expected to be
replaced. 

   Figure I.3:  Camouflage Screen
   System Stored at the
   Susquehanna Depot

   (See figure in printed
   edition.)


As of September 1995, the Navy had 361 constant speed drives (see
fig.  I.4), valued at $32,880 each, on hand.  Only one of the drives,
used on the TA-4J aircraft, was categorized as needed.  According to
the item manager, the drives were accumulated as they were replaced
by a newer part.  Because of the high failure rate of the replacement
part, the original drives are being retained in case they need to be
reinstalled on the aircraft through the year 2000.  In that year, the
TA-4J will be out of the inventory. 

   Figure I.4:  Constant Speed
   Drive Stored at the Norfolk
   Depot

   (See figure in printed
   edition.)


Navy records showed that only 2 of the 364 frequency indicators (see
fig.  I.5) on hand were needed as of September 1995.  According to
the item manager, requirements for the indicators, valued at $2,542
each, decreased when aircraft such as the A-6 and the F-4 were being
taken out of service.  The manager stated that 357 of the indicators
were disposed of in February 1996. 

   Figure I.5:  Frequency
   Indicator Stored at the Norfolk
   Depot

   (See figure in printed
   edition.)


As of September 1995, the Air Force had 4,177 wiring harnesses,
valued at $113 each (see fig.  I.6), for the airborne radio
communication system.  Of these, 4,152 were not needed to satisfy war
reserve and current operating requirements.  On the basis of
projected demand data, we determined that the unneeded harnesses
represented 277 years of supply.  According to the item manager,
demand for the harnesses decreased as modifications to the radio
system were made.  However, some of the harnesses are being retained
to support the military services, the Coast Guard, and foreign
military sales and to reconfigure other radios.  The item manager
informed us that 3,822 harnesses have been recommended for disposal. 

   Figure I.6:  Wiring Harness
   Stored at the Warner Robins
   Depot

   (See figure in printed
   edition.)


The Air Force had 335 AP1 central computers (see fig.  I.7) for the
F-15 aircraft on hand as of September 1995.  Of these, 326 computers,
valued at $71,673 each, were obsolete and not needed.  The unneeded
computers represented 109 years of supply.  According to the item
manager at the Warner Robins Air Logistics Center, the obsolete
computers are turned in to the supply system as modifications to the
F-15 aircraft are accomplished.  The item manager stated that the
computers are eligible for disposal, but funds are not available to
demilitarize them. 

   Figure I.7:  AP1 Central
   Computer Stored at the Warner
   Robins Depot

   (See figure in printed
   edition.)

As of August 1996, DLA had 127 motor blower brakes on hand.  The
brakes are used on the B-1B aircraft.  Inventory records showed that
101 brakes, valued at $4,110 each, were unneeded and represented 101
years of supply.  According to the item manager, 100 brakes were
expected to be needed for fiscal year 1996.  However, September 1996
records showed that only one had been used in the past year.  The
item manager believed that the demands for the brakes are cyclic
because the contractor repairing the B-1B periodically orders the
parts in bulk. 


DLA also had 2,152 contact thermocouples (see fig.  I.8) for the T-56
aircraft engine on hand as of August 1996.  Of these, 2,113
thermocouples, valued at $227 each, were unneeded and represented 141
years of supply.  According to the item manager, in March 1996
responsibility for the thermocouple was transferred from the Navy to
DLA.  The item manager stated that no disposal actions were taken
because demand was unknown for this newly transferred item. 

   Figure I.8:  Contact
   Thermocouple Stored at the
   Norfolk Depot

   (See figure in printed
   edition.)



   ITEMS WITH 20 YEARS OR MORE OF
   UNNEEDED INVENTORY ON HAND AND
   ADDITIONAL INVENTORY ON ORDER
--------------------------------------------------------- Appendix I:3

As of September 1995, the Navy had 27 circuit card assemblies on hand
(see fig.  I.9).  They are used on the P-3C and S-3B aircraft and the
SH-60B helicopter.  Although 25 of the assemblies (valued at $1,156
each) were not needed to satisfy war reserve and current operating
requirements, another 10 were on order.  According to the item
manager, demands for the assemblies decreased after the item was
ordered in December 1994.  The manager stated that the Navy supply
system automatically ordered the item (automatic ordering is limited
to purchases under $25,000) when the reorder point was reached and
the purchase was not reviewed by an item manager.  The 10 assemblies
were delivered in May 1996, and the manager said that all unneeded
assemblies, including the 10 delivered, have been recommended for
disposal. 

   Figure I.9:  Circuit Card
   Assembly Stored at the Norfolk
   Depot

   (See figure in printed
   edition.)


As of September 1995, the Navy had 67 direct linear valves (see
fig.  I.10) on hand.  They are used on a hydraulic pump for an
aircraft catapult system.  Fifty-nine of the valves, valued at $69
each, were unneeded and an additional 66 valves were on order.  The
item manager said that demands for the valves decreased after the
last order was placed in May 1994.  The item manager stated that the
order was not canceled because termination was not cost-effective for
any purchase costing less than $10,000. 

   Figure I.10:  Direct Linear
   Valve Stored at the Norfolk
   Depot

   (See figure in printed
   edition.)


The Air Force had 32 combining glasses (see fig.  I.11), valued at
$17,057 each, on hand as of September 1995.  Only one of the glasses
was needed to satisfy war reserve and current operating requirements;
however, four additional glasses were on order.  According to the
item manager, the glasses were ordered in July 1993 to support the
F-15E aircraft because the contractor was discontinuing production of
the glass. 

   Figure I.11:  Combining Glass
   Stored at the Warner Robins
   Depot

   (See figure in printed
   edition.)

As of September 1995, the Air Force also had 710 band-II
backward-wave oscillators on hand.  Although 682 of the oscillators,
valued at $8,261 each, were unneeded, another 20 oscillators were on
order.  According to the item manager, the oscillators were ordered
in September 1993 because the manufacturer was shutting down
production and the purchase would cover all Air Force requirements
through 2040. 


In reviewing the supporting documents for DLA items with 100 or more
years of inventory on hand, we noted that DLA also had additional
stock on order for some items.  For example, DLA had 618
identification markers, valued at $0.65 each, on hand as of August
1996.  The markers (see
fig.  I.12) are used on aircraft such as the C-130F and the P-3. 
Although only 103 of the markers on hand were needed to satisfy war
reserve and current operating requirements, an additional 100 markers
were on order.  According to the item manager, the markers were
ordered in November 1995 and demands have been fluctuating.  The
manager said that the order should be canceled and that excess
markers would be processed for disposal. 

   Figure I.12:  Identification
   Marker Stored at the Norfolk
   Depot

   (See figure in printed
   edition.)


UNNEEDED INVENTORY STRATIFIED BY
YEARS OF SUPPLY AND DOD COMPONENT
========================================================== Appendix II



                               Table II.1
                
                Number of Items With Unneeded Inventory
                 Stratified by Years of Supply and DOD
                               Component

                                                 Air
Years of supply               Army     Navy    Force      DLA    Total
-------------------------  -------  -------  -------  -------  =======
Less than 1                  4,273    5,005    4,332   76,250   89,860
1 to 2                       4,557    5,505    3,410   40,205   53,677
2 to 10                     15,170   20,275   10,242   90,952  136,639
10 to 20                     4,552    6,963    4,534   25,213   41,262
20 to 50                     3,426    5,669    3,582   19,815   32,492
50 to 100                    1,229    2,256    1,255    7,465   12,205
100 or more                  1,150    2,020      883    7,593   11,646
======================================================================
Total                       34,357   47,693   28,238  267,493  377,781
----------------------------------------------------------------------


                               Table II.2
                
                 Value of Unneeded Inventory Stratified
                  by Years of Supply and DOD Component

                         (Dollars in millions)

                                                 Air
Years of supply               Army     Navy    Force      DLA    Total
-------------------------  -------  -------  -------  -------  =======
Less than 1                   $275     $844   $1,133     $246   $2,498
1 to 2                         585    1,141    1,531      272    3,529
2 to 10                      2,310    3,375    5,009    1,060   11,754
10 to 20                       430      884    2,045      427    3,786
20 to 50                       212      608    1,633      326    2,779
50 to 100                      137      238      619      144    1,138
100 or more                     80      172      665      211    1,128
======================================================================
Total                       $4,029   $7,262  $12,635   $2,686  $26,612
----------------------------------------------------------------------



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

at the end of this appendix. 



(See figure in printed edition.)


The following is GAO's comment on the Department of Defense's (DOD)
letter dated February 4, 1997. 

GAO COMMENT

1.  DOD did not agree that acquisition lead time contributes to the
amount of stock purchased, but did agree that it is one of the
determinants of when the reorder point is reached. 

Lead time is an important element in the requirements determination
process.  In addition, lead time is a major factor in deciding the
quantity of inventory to purchase when an item is initially
introduced into the supply system.  Further, as DOD states, lead time
also is a consideration as item managers decide how far in advance of
actual needs a resupply order should be placed. 


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix IV

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

Charles Patton
James Murphy
Louis Modliszewski
David Keefer

NORFOLK FIELD OFFICE

Sandra Bell
Dawn Godfrey

KANSAS CITY FIELD OFFICE

Robert Sommer

RELATED GAO PRODUCTS

Defense Logistics:  Requirement Determinations for Aviation Spare
Parts Need to Be Improved (GAO/NSIAD-96-70, Mar.  19, 1996). 

Army Inventory:  Budget Requests for Spare and Repair Parts Are Not
Reliable (GAO/NSIAD-96-3, Dec.  29, 1995). 

Defense Inventory:  Opportunities to Reduce Warehouse Space
(GAO/NSIAD-95-64, May 24, 1995). 

Defense Supply:  Inventories Contain Nonessential and Excessive
Insurance Stocks (GAO/NSIAD-95-1, Jan.  20, 1995). 

Defense Supply:  Acquisition Leadtime Requirements Can Be
Significantly Reduced (GAO/NSIAD-95-2, Dec.  20 1994). 

Army Inventory:  Unfilled War Reserve Requirements Could Be Met With
Items From Other Inventory (GAO/NSIAD-94-207, Aug.  25, 1994). 

Navy Supply:  Improved Material Management Can Reduce Shipyard Costs
(GAO/NSIAD-94-181, July 27, 1994). 

Army Inventory:  Opportunities Exist for Additional Reductions to
Retail Level Inventories (GAO/NSIAD-94-129, June 6, 1994). 

Army Inventory:  More Effective Review of Proposed Inventory Buys
Could Reduce Unneeded Procurement (GAO/NSIAD-94-130, June 2, 1994). 

Air Force Logistics:  Improved Backorder Validation Procedures Will
Save Millions (GAO/NSIAD-94-103, Apr.  20, 1994). 

Defense Inventory:  Changes in DOD's Inventory Reporting, 1989-1992
(GAO/NSIAD-94-112, Feb.  10, 1994). 

Air Force Logistics:  Some Progress, but Further Efforts Needed to
Terminate Excess Orders (GAO/NSIAD-94-3, Oct.  13, 1993). 

*** End of document. ***