Navy Inventory Management: Improvements Needed to Prevent Excess Purchases
NSIAD-98-86
Published: Apr 30, 1998. Publicly Released: May 15, 1998.
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Highlights
Pursuant to a congressional request, GAO reviewed the excess inventory the Navy had on order, focusing on whether the Navy: (1) had valid requirements to support inventory purchases; (2) had purchased items that exceeded needs and the causes of this condition; and (3) was cancelling purchases that exceeded needs.
Recommendations
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Department of the Navy | The Secretary of the Navy should improve the validity of requirements by, among other things: (1) updating depot demand forecasts in a timely manner; (2) implementing current Navy guidance for measuring the effectiveness of using planned program requirements to satisfy nonrecurring demands by matching customer requisitions with these requirements; and (3) recording broken parts to be returned for repair as due ins when computing requirements. |
DOD agreed with the recommendation on effectiveness measures, partially agreed with the recommendation on updating depot demand forecasts, and disagreed with the recommendation to record broken parts as due-in assets. DOD stated that the Navy will provide detailed guidance on measures of effectiveness for planned program requirements. Detailed guidance was provided NAVICP by NAVSUP in a letter dated 3 September 1999, covering metrics for assessing PPR maintenance, PPRs as predictors of demand, and for support of planned nonrecurring demand. Although DOD agreed that demand forecasts should be updated, it felt that the current procedures were adequate. GAO's review showed that item managers need to take additional steps to verify forecasted demands in a more timely manner to prevent excess purchases. DOD does not plan to take any action on GAO's recommendation to record broken parts as due-in assets.
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| Department of the Navy | The Secretary of the Navy should improve the process for cancelling contracts where items are excess to needs by: (1) eliminating 1- and 2-year protection levels when considering purchases for cancellation; (2) reemphasizing to item managers that they have the responsibility and authority to direct cancellation of contracts; (3) requiring economic analyses to determine if it is economical to cancel contracts for excess material; and (4) automatically adjusting item manager cancellation recommendations when the recommended quantities exceed the quantities available to cancel. |
DOD did not agree to eliminate protection levels. GAO's work shows that protection levels have a major effect on which contracts are considered for termination. In July 1998, the Navy reiterated contract termination policy and procedure with its item managers and buyers, clearly stating that item managers have the authority and responsibility to terminate a contract when the stock position warrants. DOD did not agree to require economic analyses, stating that the Navy's past experience with an economic termination model did not achieve the intent of promoting the termination of unneeded material. Without these analyses, item managers have no evidence that they made the most economical decision. The Navy noted a change in the contract quantity adjustments process that would eliminate the potential for contract terminations being rejected when the quantity an item manager recommends for cancellation exceeds the quantities available to cancel.
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Topics
Contract terminationInternal controlsInventory control systemsLogisticsMilitary cost controlMilitary inventoriesNaval procurementProperty and supply managementSpare partsSurplus federal property