Defense Inventory:

Opportunities Exist to Improve the Management of DOD's Acquisition Lead Times for Spare Parts

GAO-07-281: Published: Mar 2, 2007. Publicly Released: Mar 2, 2007.

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GAO has identified the Department of Defense's (DOD) management of its inventory as a high-risk area since 1990 due to ineffective and inefficient inventory systems and practices. Management of inventory acquisition lead times is important in maintaining cost-effective inventories, budgeting, and having material available when needed, as lead times are DOD's best estimate of when an item will be received. Under the Comptroller General's authority to conduct evaluations on his own initiative, GAO analyzed the extent to which (1) DOD's estimated lead times varied from actual lead times, and (2) current management actions and initiatives have reduced lead times as compared to past years. To address these objectives, GAO computed the difference between the components' actual and estimated lead times, and compared component initiatives to reduce lead times for 1994-2002 to 2002-2005.

The military components' estimated lead times to acquire spare parts varied considerably from the actual lead times experienced. The effect of the lead time underestimates was almost $12 billion in spare parts arriving more than 90 days later than anticipated, which could negatively affect readiness rates because units may not have needed inventory. If orders had been placed earlier, readiness rates could potentially have been improved. While having spare parts arrive earlier than estimated could potentially improve readiness, the effect of lead time overestimates resulted in obligating almost $2 billion more than 90 days earlier than necessary. The Army underestimated lead times, the Defense Logistics Agency (DLA) overestimated lead times, and the Air Force and Navy both overestimated and underestimated lead times. The variances were due to problems such as miscoding late deliveries as not representative of future delivery times, lack of recorded lead time data, data input errors, estimates that did not reflect improvements made in actual lead times, and the use of standard default data instead of other data that may have been obtainable. Absent actions to address these problems, lead time estimates will continue to vary from actual lead times and will contribute to inefficient use of funds and potential shortages or excesses. The Under Secretary of Defense for Acquisition, Technology, and Logistics (USD (AT&L)) and the components' actions and initiatives to reduce lead times from 2002 to 2005 were less effective overall than previous efforts from 1994 to 2002. From 2002 to 2005, DOD-wide lead times were reduced by an average of 0.9 percent annually as compared to an average reduction of 5.6 percent annually from 1994 to 2002, potentially leading to an additional $2.7 billion in lead time requirements, tying up money that could have been obligated for other needs. The higher rate of reduction from 1994 to 2002 can be attributed to three areas of focus: streamlining internal administrative processes, oversight from USD (AT&L), and developing strategic relationships with suppliers. However, from 2002 to 2005, USD (AT&L) no longer provided active oversight such as establishing lead time reduction goals, reporting metrics, reporting the impact of specific initiatives, or estimating the financial impact of reduced lead times, as had been done previously. Until steps are taken to renew management focus on reducing lead times, the components may continue to experience spare parts shortages and increased inventory levels to cover lead times.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: The Army Materiel Command issued policy that established clear guidelines on when to review and how to determine whether deliveries of items should be considered representative and thus used to update lead times. These guidelines were issued in November 2007 through the Army Material Command's update of the Material Management Policy Book. These guidelines are applicable to item managers working in the Aviation and Missile Life Cycle Management Command, which functions under the Army Materiel Command.

    Recommendation: To improve the military components' accuracy in setting acquisition lead time values, the Secretary of Defense should direct the Secretary of the Army to have the Commanding General, Army Materiel Command, direct the Aviation and Missile Life Cycle Management Command to establish clear guidelines for item managers to know when to review and how to determine whether deliveries should be considered representative and thus used to update lead times.

    Agency Affected: Department of Defense

  2. Status: Closed - Implemented

    Comments: Through implementation of its Logistics Modernization Program (LMP), the Army Materiel Command has taken steps to institutionalize periodic reviews and validation of lead time data. By replacing separate legacy systems at the Army's life cycle management commands and maintenance depots, LMP will eliminate many input errors and other inaccurate information caused by manually typing data from one system to another. In addition, the new system improves visibility for managers to see issues and impacts of data quality.

    Recommendation: To improve the military components' accuracy in setting acquisition lead time values, the Secretary of Defense should direct the Secretary of the Army to have the Commanding General, Army Materiel Command, direct the Life Cycle Management Commands to reemphasize the importance of periodically reviewing and validating their recorded lead time data to detect and correct data input errors and other inaccurate information.

    Agency Affected: Department of Defense

  3. Status: Closed - Implemented

    Comments: The Army's implementation of the Logistics Modernization Program (LMP) enhances its visibility over lead time data and its ability to improve data quality. Although LMP does not provide fully automated updates of lead times, the use of LMP at all life cycle management commands and maintenance deports ensures that the Army will have one set of lead time data (as opposed to, in the past, when lead time data sometimes differed between systems). Because legacy systems have been eliminated, data from these systems is no longer being manual input into LMP.

    Recommendation: To improve the military components' accuracy in setting acquisition lead time values, the Secretary of Defense should direct the Secretary of the Army to have the Commanding General, Army Materiel Command, direct Communications-Electronics Life Cycle Management Command to maintain and update automated lead time data within its Logistics Modernization Program computer system.

    Agency Affected: Department of Defense

  4. Status: Closed - Not Implemented

    Comments: DOD did not concur with the recommendation, nor did it not provide evidence that it had taken actions to implement the recommendation.

    Recommendation: To improve the military components' accuracy in setting acquisition lead time values, the Secretary of Defense should direct the Director of DLA to have its supply centers review the methodology and inputs used to compute its lead time estimates and revise them to incorporate recent improvements in DLA actual lead times.

    Agency Affected: Department of Defense

  5. Status: Closed - Implemented

    Comments: According to information gathered by the DOD Inspector General, the Air Force Materiel Command has directed its air logistics centers to use better sources of lead time data.

    Recommendation: To improve the military components' accuracy in setting acquisition lead time values, the Secretary of Defense should direct the Secretary of the Air Force to have the Commander, Air Force Materiel Command, direct its air logistic centers to use better sources of lead time information, such as supplier estimates, if available, rather than default values for items that have not been ordered in the last 5 years.

    Agency Affected: Department of Defense

  6. Status: Closed - Implemented

    Comments: The Navy Inventory Control Point issued a policy re-emphasizing the importance of reviewing and validating its lead times regularly, and correcting data input errors and other inaccurate information. In addition, the Navy issued guidance to inventory managers in December 2007 instructing them to review and re-validate lead time information. Guidance has been issued twice yearly requiring a similar review and validation of lead time data.

    Recommendation: To improve the military components' accuracy in setting acquisition lead time values, the Secretary of Defense should direct the Secretary of the Navy to direct the Commander, Naval Inventory Control Point, to reemphasize the importance of having its inventory control points periodically review and validate their recorded lead time data to detect and correct data input errors or other inaccurate information.

    Agency Affected: Department of Defense

  7. Status: Closed - Not Implemented

    Comments: DOD did not establish lead time reduction goals for the 5-year time frame from 2007 to 2012.

    Recommendation: To strengthen DOD's and the military components' management of acquisition lead times, the Secretary of Defense should direct the Under Secretary of Defense for Acquisition, Technology, and Logistics to establish component lead time reduction goals over a 5-year period from October 2007-2012.

    Agency Affected: Department of Defense

  8. Status: Closed - Implemented

    Comments: DOD has developed eight metrics that have been reported monthly by DLA since fiscal year 2008. Once DOD establishes lead time reduction goals for the components, progress in meeting the goals can be tracked through such metrics. GAO plans to continue monitoring DOD's efforts to improve inventory management, including its progress in establishing, tracking, and meeting lead times reduction goals.

    Recommendation: To strengthen DOD's and the military components' management of acquisition lead times, the Secretary of Defense should direct the Under Secretary of Defense for Acquisition, Technology, and Logistics to develop metrics to measure components' progress toward meeting lead time reduction goals and require the periodic reporting of these metrics.

    Agency Affected: Department of Defense

  9. Status: Closed - Not Implemented

    Comments: Although DOD studied the financial impact of lead time reductions and developed estimates for some items, it has not developed a general estimate of the financial impact or a metric based on financial impact.

    Recommendation: To strengthen DOD's and the military components' management of acquisition lead times, the Secretary of Defense should direct the Under Secretary of Defense for Acquisition, Technology, and Logistics to develop a general estimate of the financial impact of lead time reductions, and use that as a metric to help components weigh the importance of lead time reductions.

    Agency Affected: Department of Defense

  10. Status: Closed - Not Implemented

    Comments: DOD did not provide evidence that it had directed the components to collect data, establish metrics, and measure and report the impact of individual lead time reduction initiatives.

    Recommendation: To strengthen DOD's and the military components' management of acquisition lead times, the Secretary of Defense should direct the Under Secretary of Defense for Acquisition, Technology, and Logistics to direct the components to collect data, establish metrics, and measure and report the impact of individual lead time reduction initiatives, to include the cost of each initiative and its estimated cost savings.

    Agency Affected: Department of Defense

  11. Status: Closed - Not Implemented

    Comments: DOD did not concur with this recommendation and did not provide evidence that it had taken steps to implement the recommendation. The Navy reported that it had made some progress in builidng strategic relationships with suppliers through the implementation of performance based logistics agreements. The Army is also pursuing an effort to develop long-term relationships with suppliers.

    Recommendation: To strengthen DOD's and the military components' management of acquisition lead times, the Secretary of Defense should direct the Under Secretary of Defense for Acquisition, Technology, and Logistics to work closely with the Army and Navy to develop joint strategic relationships with suppliers that would be beneficial in reducing lead times.

    Agency Affected: Department of Defense

 

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