DOD Medical Inventory:

Reductions Can Be Made Through the Use of Commercial Practices

NSIAD-92-58: Published: Dec 5, 1991. Publicly Released: Dec 5, 1991.

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Pursuant to a congressional request, GAO compared commercial logistics practices with similar Department of Defense (DOD) and Department of Veterans Affairs (VA) operations, focusing on medical logistics practices at DOD hospitals and warehouses and selected private hospitals.

GAO found that: (1) the DOD health care system could save millions of dollars by increasing its use of inventory management practices pioneered by leading civilian hospitals, such as the standardization of supplies, electronic ordering, and just-in-time and stockless delivery programs; (2) DOD warehouses hold inventory that would last for 36 to 95 days, and the Defense Logistics Agency (DLA), through its depot system, stores another layer of supplies that would last approximately 250 days; (3) progressive civilian hospitals maintain much smaller levels and fewer layers of supplies, have no depot system, have reduced or eliminated the need for outside warehouses and central supply rooms, and have reduced the volume of work on loading docks; (4) since 1988, VA has relied on vendors to deliver certain intraveneous solutions and related supplies directly to its hospitals, and, as a result, expects this program to save approximately $75 million over a 5-year period; (5) VA implemented a pilot at 32 of its hospitals that should eliminate the need to store some of its pharmaceuticals in its warehouse system; and (6) according to a DOD evaluation of business practices associated with its medical logistics systems, changes that may be called for include revising military regulations, policies, and procedures and changing the DLA role to contracting and paying for, but not storing, military supplies.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: DOD began its first pilot program in January 1993, which is now operating at 119 hospitals within 14 geographic regions. It plans to soon extend pilot programs to 26 more hospitals in 7 other regions. Specific cost savings attributed to these pilots include a $104.8-million reduction in DLA inventory, a $6.2-million reduction in Walter Reed Medical Center inventory, a $6.2-million reduction in operating costs at Walter Reed, and an undertermined reduction in other DOD medical facilities inventories. Officials also noted other benefits, such as: (1) better item visibility and demand data; (2) a more cooperative partnership with the private sector; and (3) increased standardization of supplies.

    Recommendation: The Secretary of Defense should direct the services and DLA to conduct pilot programs that will demonstrate the applicability of commercial practices to military medical facilities. Those programs should include facilities from all three services, test initiatives encompassing all aspects of inventory management, and quantify the cost and benefits of the changes. Those programs should comprehensively test the extensive changes in the total logistics system needed to dramatically reduce inventory costs. Among the practices that should be included in the tests are: (1) significantly reducing duplicative inventory requirements in medical facilities; (2) establishing electronic ordering capabilities with private vendors and DOD medical facilities; (3) using prime vendors to deliver supplies from a variety of manufacturers directly to medical facilities; (4) eliminating the need to store medical supplies in warehouses adjacent to medical facilities and in the DLA depot system; and (5) contracting with private firms to maintain and rotate war reserve material.

    Agency Affected: Department of Defense

  2. Status: Closed - Implemented

    Comments: Army facilities have not eliminated retail inventory storage facilities with the prime vendor program. Potential inventory reductions therefore still exist. GAO is examining this issue under job code 709055.

    Recommendation: The Army, Navy, and Air Force should tailor changes required in each of their facilities so the successful results of the pilot programs can be applied. This approach would allow DOD the flexibility to accommodate special conditions such as remote facility locations, access to commercial distribution systems, and support for overseas operations and at the same time improve its logistics systems and save money.

    Agency Affected: Department of Defense: Department of the Air Force

  3. Status: Closed - Implemented

    Comments: Air Force facilities have not eliminated retail inventory storage facilities with the prime vendor program. Potential inventory reductions therefore still exist. GAO is examining this issue under job code 709055.

    Recommendation: The Army, Navy, and Air Force should tailor changes required in each of their facilities so the successful results of the pilot programs can be applied. This approach would allow DOD the flexibility to accommodate special conditions such as remote facility locations, access to commercial distribution systems, and support for overseas operations and at the same time improve its logistics systems and save money.

    Agency Affected: Department of Defense: Department of the Army

  4. Status: Closed - Implemented

    Comments: Navy facilities have not eliminated retail inventory storage facilities with the prime vendor program. Potential inventory reductions therefore still exist. GAO is examining this issue under job code 709055.

    Recommendation: The Army, Navy, and Air Force should tailor changes required in each of their facilities so the successful results of the pilot programs can be applied. This approach would allow DOD the flexibility to accommodate special conditions such as remote facility locations, access to commercial distribution systems, and support for overseas operations and at the same time improve its logistics systems and save money.

    Agency Affected: Department of Defense

 

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