Inventory Management:

DOD Can Build on Progress in Using Best Practices to Achieve Substantial Savings

NSIAD-95-142: Published: Aug 4, 1995. Publicly Released: Aug 4, 1995.

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Pursuant to a congressional request, GAO reviewed the Department of Defense's (DOD) efforts to adopt best inventory management practices, focusing on: (1) whether DOD has adopted the specific practices recommended for consumable items; (2) the savings and benefits being achieved through the use of these practices; and (3) DOD overall progress in improving consumable item management.

GAO found that: (1) the Defense Logistics Agency (DLA) has taken steps to improve its logistics practices and reduce consumable inventories, although it could make further improvements with items such as bolts, valves, and fuses that cost millions of dollars to manage and store; (2) DLA inventories are expected to decrease only 20 percent by 1997, but these inventories could last over two years; (3) DLA has not tested the most innovative commercial practices of using supplier parks and other techniques that give established distribution networks the responsibility to manage, store, and distribute inventory on a frequent basis directly to end users; (4) DLA use of best inventory practices is exemplified for personnel items where prime vendors are used to supply personnel items directly to military facilities; (5) DLA expects to reduce the 1992 personnel item inventory by 53 percent in 1997; and (6) DOD hospitals still hold larger inventories than those civilian hospitals that have reduced inventories through effective partnering arrangements with prime vendors.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: DOD has implemented a prime vendor program at about 200 medical facilities nationwide. By establishing a close partnership between the prime vendor and DOD customer, DOD was able to significantly lower costs and reduce inventories. The customer orders supplies directly from the prime vendor using electronic ordering systems and then the prime vendor delivers inventory directly to the customer within hours of receiving the order. By using prime vendors, most DOD hospitals have cut their on-hand supply of medical items nearly in half. In fact, DOD's prime vendor program for medical supplies has resulted in savings that GAO estimates at $167.3 million in fiscal years 1995 and 1996.

    Recommendation: The Secretary of Defense should direct the secretaries of each of the military services to use the prime vendor program in enhancing the partnership between the DOD medical facilities and the prime vendors by integrating the vendor into the day-to-day supply operations.

    Agency Affected: Department of Defense

  2. Status: Closed - Implemented

    Comments: DOD has implemented a prime vendor program at about 200 medical facilities nationwide. By establishing a close partnership between the prime vendor and DOD customer, DOD was able to significantly lower costs and reduce inventories. The customer orders supplies directly from the prime vendor using electronic ordering systems and then the prime vendor delivers inventory directly to the customer within hours of receiving the order. By using prime vendors, most DOD hospitals have cut their on-hand supply of medical items nearly in half. In fact, DOD's prime vendor program for medical supplies has resulted in savings that GAO estimates at $167.3 million in fiscal years 1995 and 1996.

    Recommendation: The Secretary of Defense should direct the secretaries of each of the military services to use the prime vendor program in enhancing the partnership between the DOD medical facilities and the prime vendors by delivering supplies on a frequent basis (several times a day).

    Agency Affected: Department of Defense

  3. Status: Closed - Implemented

    Comments: DOD has implemented a prime vendor program at about 200 medical facilities nationwide. By establishing a close partnership between the prime vendor and DOD customer, DOD was able to significantly lower costs and reduce inventories. The customer orders supplies directly from the prime vendor using electronic ordering systems and then the prime vendor delivers inventory directly to the customer within hours of receiving the order. By using prime vendors, most DOD hospitals have cut their on-hand supply of medical items nearly in half. In fact, DOD's prime vendor program for medical supplies has resulted in savings that GAO estimates at $167.3 million in fiscal years 1995 and 1996.

    Recommendation: The Secretary of Defense should direct the secretaries of each of the military services to use the prime vendor program in enhancing the partnership between the DOD medical facilities and the prime vendors by using the vendor's expertise to improve inventory management operations.

    Agency Affected: Department of Defense

  4. Status: Closed - Implemented

    Comments: In FY 1997, DOD began using a prime vendor concept, called virtual prime vendor, for hardware items. The program uses techniques similar to the supplier park. In February 1997, DOD began testing a prime vendor program to support the C-130 propeller shop at Warner Robins Air Logistics Center. Under this concept, a vendor has been awarded a contract to buy, store and distribute various items used in the repair of the C-130 propeller. By the end of 1997, DOD plans to expand the program at Warner Robins and have similar programs at other DOD repair depots. Also in 1997, DOD began using the prime vendor concept for facilities maintenance supplies. Under this concept, a prime vendor will serve a geographic region where all military facilities can elect to order supplies from the vendor. In February 1997, four military facilities began using the prime vendor concept in the first region. By February 1998, DLA plans to have a prime vendor contract for ten geographic regions.

    Recommendation: The Secretary of Defense should direct the secretaries of each of the military services and the Director, DLA, to work together to identify an Army, Navy, and Air Force site that will test the supplier park concept.

    Agency Affected: Department of Defense

  5. Status: Closed - Implemented

    Comments: In FY 1997, DOD began using a prime vendor concept, called virtual prime vendor, for hardware items. The program uses techniques similar to the supplier park. In February 1997, DOD began testing a prime vendor program to support the C-130 propeller shop at Warner Robins Air Logistics Center. Under this concept, a vendor has been awarded a contract to buy, store and distribute various items used in the repair of the C-130 propeller. By the end of 1997, DOD plans to expand the program at Warner Robins and have similar programs at other DOD repair depots. Also in 1997, DOD began using the prime vendor concept for facilities maintenance supplies. Under this concept, a prime vendor will serve a geographic region where all military facilities can elect to order supplies from the vendor. In February 1997, four military facilities began using the prime vendor concept in the first region. By February 1998, DLA plans to have a prime vendor contract for ten geographic regions.

    Recommendation: The Secretary of Defense should direct the secretaries of each of the military services and the Director, DLA, to work together to identify specific items with high usage rates and low unit costs to use in a test program.

    Agency Affected: Department of Defense

  6. Status: Closed - Implemented

    Comments: In FY 1997, DOD began using a prime vendor concept, called virtual prime vendor, for hardware items. The program uses techniques similar to the supplier park. In February 1997, DOD began testing a prime vendor program to support the C-130 propeller shop at Warner Robins Air Logistics Center. Under this concept, a vendor has been awarded a contract to buy, store and distribute various items used in the repair of the C-130 propeller. By the end of 1997, DOD plans to expand the program at Warner Robins and have similar programs at other DOD repair depots. Also in 1997, DOD began using the prime vendor concept for facilities maintenance supplies. Under this concept, a prime vendor will serve a geographic region where all military facilities can elect to order supplies from the vendor. In February 1997, four military facilities began using the prime vendor concept in the first region. By February 1998, DLA plans to have a prime vendor contract for ten geographic regions.

    Recommendation: The Secretary of Defense should direct the secretaries of each of the military services and the Director, DLA, to work together to negotiate with prospective suppliers to perform these inventory management functions during the test program.

    Agency Affected: Department of Defense

  7. Status: Closed - Implemented

    Comments: In FY 1997, DOD began using a prime vendor concept, called virtual prime vendor, for hardware items. The program uses techniques similar to the supplier park. In February 1997, DOD began testing a prime vendor program to support the C-130 propeller shop at Warner Robins Air Logistics Center. Under this concept, a vendor has been awarded a contract to buy, store and distribute various items used in the repair of the C-130 propeller. By the end of 1997, DOD plans to expand the program at Warner Robins and have similar programs at other DOD repair depots. Also in 1997, DOD began using the prime vendor concept for facilities maintenance supplies. Under this concept, a prime vendor will serve a geographic region where all military facilities can elect to order supplies from the vendor. In February 1997, four military facilities began using the prime vendor concept in the first region. By February 1998, DLA plans to have a prime vendor contract for ten geographic regions.

    Recommendation: The Secretary of Defense should direct the secretaries of each of the military services and the Director, DLA, to work together to establish partnerships with the suppliers allowing them access to DOD inventory information and facilities, which will enable the suppliers to deliver items directly to the end-user.

    Agency Affected: Department of Defense

  8. Status: Closed - Implemented

    Comments: DOD began using a prime vendor concept, called virtual prime vendor, for hardware items. DOD began testing a prime vendor program to support the C-130 propeller shop at Warner Robins Air Logistics Center. Under this concept, a vendor has been awarded a contract to buy, store and distribute various items used in the repair of the C-130 propeller. By the end of 1997, DOD plans to expand the program at Warner Robins and have similar programs at other DOD depots. DOD began using the prime vendor concept for facilities maintenance supplies. Under this concept, a prime vendor will serve a geographic region where all military facilities can elect to order supplies from the vendor. Four military facilities began using the prime vendor concept. By February 1998, DLA plans to have a prime vendor contract for ten regions. As part of its virtual prime vendor program, DOD plans to determine the associated costs and benefits. This should occur once the program is more advanced.

    Recommendation: The Secretary of Defense should direct the secretaries of each of the military services and the Director, DLA, to work together to develop evaluation criteria that will measure the total costs of inventory delivered under the test program in order to compare costs and benefits to the total cost being incurred under the current system.

    Agency Affected: Department of Defense

  9. Status: Closed - Implemented

    Comments: DOD implemented a prime vendor program at about 200 medical facilities nationwide. By establishing a close partnership between the prime vendor and DOD customer, DOD was able to significantly lower costs and reduce inventories. The customer orders supplies directly from the prime vendor using electronic ordering systems and then the prime vendor delivers inventory directly to the customer within hours of receiving the order. By using prime vendors, most DOD hospitals have cut their on-hand supply of medical items nearly in half. In fact, DOD's prime vendor program for medical supplies has resulted in savings that GAO estimates at $167.3 million in fiscal years 1995 and 1996.

    Recommendation: The Secretary of Defense should direct the secretaries of each of the military services to use the prime vendor program in enhancing the partnership between the DOD medical facilities and the prime vendors by delivering supplies directly to the point of use in the hospital.

    Agency Affected: Department of Defense

  10. Status: Closed - Implemented

    Comments: In FY 1997, DOD began using a prime vendor concept, called virtual prime vendor, for hardware items. The program uses techniques similar to the supplier park. In February 1997, DOD began testing a prime vendor program to support the C-130 propeller shop at Warner Robins Air Logistics Center. Under this concept, a vendor has been awarded a contract to buy, store and distribute various items used in the repair of the C-130 propeller. By the end of 1997, DOD plans to expand the program at Warner Robins and have similar programs at other DOD repair depots. Also in 1997, DOD began using the prime vendor concept for facilities maintenance supplies. Under this concept, a prime vendor will serve a geographic region where all military facilities can elect to order supplies from the vendor. In February 1997, four military facilities began using the prime vendor concept in the first region. By February 1998, DLA plans to have a prime vendor contract for ten geographic regions.

    Recommendation: The Secretary of Defense should direct the secretaries of each of the military services and the Director, DLA, to work together to establish aggressive milestones for the initial phases of this test program to achieve early results.

    Agency Affected: Department of Defense

 

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