Inventory Management:

Adopting Best Practices Could Enhance Navy Efforts to Achieve Efficiencies and Savings

NSIAD-96-156: Published: Jul 12, 1996. Publicly Released: Jul 12, 1996.

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Pursuant to a congressional request, GAO examined the Navy's aircraft logistics system, focusing on the Navy's efforts to improve and reduce the cost of the system.

GAO found that: (1) the best practices identified in the airline industry could improve the responsiveness of the Navy's logistics system and save millions of dollars; (2) the Navy's logistics system is complex and often does not respond quickly to customer needs; (3) the factors contributing to this situation include the lack of spare parts, slow distribution, and inefficient repair practices; (4) some customers wait as long as four months for available parts; (5) the Navy is centralizing its supply management and repair activities, outsourcing certain management functions, and analyzing the effectiveness of its repair pipeline; (6) the best practices employed by the private sector show promise for the Navy because these firms hold minimum levels of inventory, have readily accessible spare parts, and quick repair times; (7) it takes an average of 11 days to repair a broken part in the private sector, as opposed to 37 days in the Navy's repair process; (8) the private-sector average is a result of repairing items immediately after they break, using local distribution centers and integrated supplier programs, and third-party logistic providers; and (9) many of the airline industry's best practices are compatible with the Navy's logistics system.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: On August 5, 1996, the Office of the Secretary of Defense (OSD) formally requested the Assistant Secretary of the Navy (Research, Development and Acquisition), in coordination with the Director of the Defense Logistics Agency, to initiate a demonstration project to determine the extent to which the Navy can apply best practices to its logistics operations. OSD directed the Navy to initiate the demonstration project by the first quarter of fiscal year 1997.

    Recommendation: As part of the Navy's current efforts to improve the logistics system's responsiveness and reduce its complexity, the Secretary of Defense should direct the Secretary of the Navy, working with the Defense Logistics Agency, to develop a demonstration project to determine the extent to which the Navy can apply best practices to its logistics operations.

    Agency Affected: Department of Defense

  2. Status: Closed - Implemented

    Comments: GAO reported in February 1998 (GAO/NSIAD-98-97) that the Navy has initiated a program to test supplier partnerships such as the integrated supplier concept. The Navy plans to test this concept at two depots in 1998. GAO also reported that the Navy's efforts could be expanded to include other best practices GAO recommended, specifically, prompt repair of items, cellular repair and third-party logistics. To date, the Navy has not established programs to test these practices. According to Navy officials, there are no plans to test or expand these additional practices into Navy operations.

    Recommendation: The Secretary of the Navy should identify several naval facilities to participate in the project and test specific practices highlighted in this report. The practices should be tested in an integrated manner, where feasible, to maximize the interrelationship many of these practices have with one another. The specific practices that should be tested are: (1) inducting parts at repair depots soon after they break, consistent with repair requirements, to prevent parts from sitting idle; (2) reorganizing repair workshops using the cellular concept to reduce the time it takes to repair parts; (3) using integrated supplier programs to shift the management responsibilities for consumable inventories to suppliers; (4) using local supplier distribution centers near repair facilities for quick shipments of parts to mechanics; and (5) expanding the use of third-party logistics services to store and distribute spare parts between the depots and end-users to improve delivery times.

    Agency Affected: Department of Defense: Department of the Navy

  3. Status: Closed - Implemented

    Comments: GAO reported in February 1998 that the Navy has initiated a program to adopt best practices such as the integrated supplier concept. The Navy plans to test the concept at two depots in 1998. GAO also reported that the Navy's efforts could be expanded to include other best practices GAO recommended, specifically, prompt repair of items, cellular repair and third-party logistics. To date, the Navy has not established programs to test the additional practices. As part of the test of the integrated supplier concept, the Navy and Defense Logistics Agency expect to quantify the costs and benefits associated with the practice. Additionally, the Navy expects to identify impediments, if any, to expanding the implementation to other sites.

    Recommendation: This demonstration project should be used to quantify the costs and benefits of these practices and to serve as a means to identify and alleviate barriers or obstacles (such as overcoming a strong internal resistance to change and any unique operational requirements) that may inhibit the expansion of these practices. After these practices have been tested, the Navy should consider expanding and tailoring the use of these practices, where feasible, so they can be applied to other locations.

    Agency Affected: Department of Defense: Department of the Navy

 

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