Commercial Practices:

DOD Could Reduce Electronics Inventories by Using Private Sector Techniques

NSIAD-94-110: Published: Jun 29, 1994. Publicly Released: Jul 29, 1994.

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Pursuant to a congressional request, GAO compared the Department of Defense's (DOD) logistics practices with commercial logistics practices, focusing on: (1) electronic supplies used at DOD maintenance and repair facilities; (2) innovative private-sector practices; and (3) DOD efforts to achieve cost savings while meeting customer needs.

GAO found that: (1) the private sector is streamlining its logistics practices to reduce costs and improve service; (2) DOD has not streamlined its operations and maintains excessive inventories of electronic items that are obsolete; (3) DOD turns over its electronic inventories once every 4 years, while private sector companies turn theirs over every 3 months; (4) annual DOD electronics inventory holding costs are estimated to be as much as $330 million; (5) private companies rely on established commercial supply and distribution networks to manage, store, and deliver inventory on a frequent, regular basis, which results in lower inventories and costs; (6) although DOD guidance encourages the use of commercial practices to manage inventories, the Defense Logistics Agency (DLA) has used private-sector practices for only a small portion of its electronics supplies; (7) DLA is pilot testing innovative commercial practices at two maintenance and repair facilities, but to ensure success, DOD must change its overall inventory management philosophy and implement these practices while meeting federal procurement requirements; and (8) proposed legislation to reform the federal procurement system could make it easier for DOD to implement commercial inventory practices.

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