We found that current and accurate cost data were not available or were not being used by the military services in computing requirements under the EOQ principle. On the basis of the best cost data available, we estimated that, if the cost factors were updated and used: The Air force, by initiating a one-time additional investment of $50 million in inventory, could reduce its annual operating costs by between $12 million and $17 million. The Navy could reduce its investment in inventory by about $4 million and its annual operating costs by about $500,000. The Army could reduce its investment in inventory by about $200,000 and its annual operating costs by about $400,000. In response to our suggestions for improving the application of the EOQ principle, the Department of Defense stated that current instructions were being revised and that they would provide firm criteria relating to deviations from the EOQ concept. The Department stated also that the cost factors would be revised and updated periodically. Index No. 16, B-146828, July 30, 1969 NEED FOR IMPROVEMENT IN THE RECEIPT AND STORAGE OF MILITARY SUPPLIES AND EQUIPMENT DEPARTMENT OF DEFENSE We made a review to evaluate the effectiveness of the policies, procedures, and practices of the Department of Defense and the Defense Supply Agency for the processing, storing and recording of materiel received at major supply activities. We found that -Many depots could not readily identify and locate materiel recently received, and in the process of being stored, which was needed immediately to fill requisitions. -Materiel received was not stored and recorded within the time established by the Department of Defense. -Records maintained by the depots to identify and locate stored materiel contained significant inaccuracies. As a result, shipments of materiel to fill requisitions were delayed and increased costs were incurred to locate and account for materiel that was on hand. We proposed that the Department of Defense -Require that receipt-processing systems at depots provide that materiel receipts not be reported to inventory control points for posting to stock records until the goods have been placed in storage and reflected on stock location records, unless adequate techniques and data processing capabilities exist at the depots to facilitate identification and location of unstored materiel. -Direct that management information systems be improved and used to identify delays in the processing, to ensure that receipts are stored and recorded within prescribed time standards. -Require that depot quality-control programs be expanded and used as a means to identify and correct the causes of inaccuracies in inventory records. The Department of Defense cited certain actions taken to effect improvements in the receipt and storage of materiel. We believe that the actions, if properly implemented, will bring about the needed improvements. Index No. 17, B-114807, August 15, 1969 EFFECTIVENESS OF MEETING THE SUPPLY REQUIREMENTS OF OVERSEAS U.S. AGENCIES-GENERAL SERVICES ADMINISTRATION The General Services Administration (GSA) is the primary source of supply for civil agencies and the military services for a wide range of common-use supplies and equipment items. Our review showed that: 1. Under agreements with military and civilian agencies GSA is required to process priority groups ONE, TWO, THEE, and FOUR export requisitions within 1. 3, 10 and 12 days respectively. 2. Of 6,449 export requisitions traced through all supply point processing phases during May and June 1967, GSA Region 9 filled only 775-about 12 percent-within the prescribed processing time. 3. Region 9's low effectiveness, in our opinion, could be attributed to the fact that operations were not geared to meet the supply demands of U.S. agencies overseas. 4. There was a need to (a) revise certain operating policies and procedures, (b) improve the management information system, (c) exercise management controls over the use of high-priority requisitions, and (d) reevaluate the supply source processing time standards. To the Administrator of General Services we made several proposals to improve Region 9's export supply operations and to provide a higher level of supply effectiveness to U.S. agencies overseas. In general GSA management was receptive to our suggestions and took actions to carry them out. Index No. 18, B-132989, September 9, 1969 POTENTIAL FOR SAVINGS BY REDUCTION OF AIRCRAFT ENGINE PROCUREMENT, We made a review of the method used by the Air Force and the Navy to compute spare aircraft engine requirements. Our review was undertaken primarily to evaluate the adequacy and reasonableness of the requirements computations— common to both services-supporting their planned spare aircraft engine procurements for fiscal year 1969. The Army was not included in our review because at that time the Army was using a method different from that of the Air Force and Navy. We found that the method used by the Air Force and Navy for computing the requirements included two factors-the depot stock factor and the safety fac tor-which were duplicative and provided quantities of engines to meet similar or identical contingencies. The purpose of the safety factor was to provide spare engines if order and shipping time were exceeded or the repair cycle took longer than planned. The depot stock factor was not supported by studies but, based on the explanations we obtained, its purpose was to provide for essentially the same types of contingencies. We estimated that elimination of the depot stock factor could have reduced the planned procurement for fiscal year 1969 by about 200 engines valued at about $35 million. Future needs could be correspondingly reduced. We proposed that the Secretary of Defense -Direct appropriate officials to reevaluate the need for the duplicate factors. -Take prompt action to reduce the planned procurement of engines by the quantities attributable to the duplicate factors. The Department of Defense stated that, in its opinion, the contingency factors in question were not duplicated and that notwithstanding its position on the duplication of the contingency factors, it was exploring another method of computing requirements for space aircraft engines. Our analysis of the Department's reasons for believing the factors in question were not duplicative did not support the Department's position. Accordingly, we recommended that the Secretary of Defense reconsider the position taken on our proposals. Index No. 19, B-157373, January 14, 1970 IMPROVEMENTS NEEDED IN THE MANAGEMENT OF AIRCRAFT MODIFICATIONS— DEPARTMENT OF THE ARMY Aircraft are modified to make them safer, more effective, operationally compatible with newer equipment, and easier to maintain. The Army spent about $120 million for kits, parts, and tools for modifying aircraft during the fiscal years 1965 through 1968. We reviewed the procedures and techniques used in Army management of its aircraft modification program. In many cases, modifications-including those classified as being urgent— were not applied promptly. For example, an urgent modification work order involving safety of the aircraft was issued in February 1967; however, a year later the Army record showed that 223 of the 1,650 affected aircraft had not been modified. As late as August 1969, 24 were still unmodified and 17 of the unmodified aircraft had been flown an average of 75 hours in that month. The volume of modification work orders resulted in work loads beyond the capacity of maintenance activities. More effective management review of proposed modifications was needed to ensure that work loads could be accomplished within the specified time. The Army found it necessary to procure more modification kits than were required on a one-for-one basis for aircraft because of apparent loss of kits by local using units. Also, modifications were delayed in some instances because kits were not received in time for economical installation concurrently with overhaul of the aircraft. We recommended that -The Army require responsible commanders to specifically justify delays in modification work. -Adequate controls be established to ensure that no modification work order is approved unless a statement of all prerequisites for completion of the work as well as anticipated penalty for nonadoption of the modification is prepared and reviewed. -Recommendations for management of aircraft modifications, as presented by Army Aviation Systems Command officials to Army Materiel Command and Army Deputy Chief of Staff for Logistics, be given immediate attention by the Army. -The Army improve management controls to ensure that officials who are responsible for significant modification programs have continuous visibility of the status of modification work order kits from the time the contractor delivers them to the time they are used. We also made other recommendations to improve management of modifica. tion kits and their timely use. The Army implemented the third of our four recommendations. The Army took no position on the other three recommendations pending completion of its own study and of a joint study of the subject being performed by the three military departments. Index No. 20, B-144239, February 27, 1970. OPPORTUNITIES FOR IMPROVING MANAGEMENT OF EXCESS PROPERTY TRANSFERRED TO THE MILITARY AFFILIATE RADIO SYSTEM-DEPARTMENT OF DEFENSE The Military Affiliate Radio System was established by the Department of Defense (DOD) to provide auxiliary communications to military, civil, and disaster relief officials on a local, national, and international basis during periods of emergency. Generally, the System handles a large volume of quasiofficial messages and phone calls for the morale of military and U.S. Government civilian personnel throughout the world. Units of the System operate within each of the military departments. The System includes radio stations, clubs, and operators, both civilian and military. Transfers of excess and surplus Government property are made to the System on a priority basis primarily to supplement and improve capability of member stations. We made a review to ascertain the validity of the System's requirements for transferred property and the adequacy of its controls over the property. During fiscal year 1968, the Army, Navy, and Air Force Military Affiliate Radio System organizations acquired excess and surplus Government property originally costing $56 million. Substantial quantities of the property were not needed by the organizations that acquired them but were needed, in many instances, by other Government agencies. The Military Affiliate Radio System exercised little control over either the property acquired and held in its warehouses or issued to individual members. Equipment was issued to individual members without consideration of their needs, or their ability to use certain types of equipment, and to former members no longer entitled to receive it. We recommended that the Office of the Secretary of Defense establish adequate procedures and controls that would -Limit the transfer of excess and surplus property to the Military Affiliate Radio System to only that property which is needed and can be used by member stations to improve their operating capability. -Provide adequate accountability for excess and surplus property transferred. -Require accountability over property issued to members and recovery of property from former members. -Promote increased emphasis by management review groups, including internal auditors, on review of Military Affiliate Radio System activities. DOD concurred in our conclusions and recommendations and advised that more effective, uniform procedures would be developed for the acquisition. distribution, and use of Government property by the System and that action had been taken to increase the surveillance of the operations of the System by management review groups. Index No. 21, B-161319, March 9, 1970 EXAMINATION INTO THE TRANSFER OF 52 FEDERAL SUPPLY CLASSES FROM THE DEPARTMENT OF DEFENSE TO THE GENERAL SERVICES ADMINISTRATION On July 1, 1967, stocks valued at about $19.5 million and representing 52 Federal supply classes were transferred by the Department of Defense (DOD) to the General Services Administration (GSA). We reported that: 1. Our inventory tests at selected DOD depots after the 52-class transfer showed substantial quantity differences between GSA's recorded inventory and actual stocks on hand. After we brought these discrepancies to GSA's attention, DOD took physical inventories at several depots and compared their counts with GSA's inventory records. These comparisons showed that stock valued at about $3.8 million had not been recorded on GSA inventory records and therefore were "lost" to the supply system. 2. Subsequent physical inventories showed additional stocks valued at about $1.2 million that had not been recorded on GSA inventory records. 3. During the period in which the stocks were "lost" to the supply system GSA purchased identical stocks at a cost of $44,000 and did not, in some cases, fill requisitions for GSA-managed items on a timely basis, because it did not know that the items were on hand. We recommended that the Chairman of the joint DOD/GSA Material Management Review Committee take action to ensure that: 1. Transfer procedures adopted as a result of our report to the Congress in May 1967 (B-161319) are adequately implemented. 2. Physical inventories based on up-to-date stock locator records are taken of all stocks to be transferred. 3. Periodic physical inventories are made of stocks remaining in the custody of the transferring agency and all resulting changes are transmitted to the managing agency. 4. GSA's inventory records show all GSA-managed stocks stored at DOD depots. The Administrator of General Services and the Director, Defense Supply agency, agreed with our recommndations. They advised us that additional management controls would be applied to future transfers to ensure that past difficulties were not repeated. Index No. 22, B-160682, April 21, 1970 NEED TO IMPROVE MILITARY SUPPLY SYSTEMS IN THE FAR EAST-DEPARTMENT OF DEFENSE In our follow-up review of the responsiveness and economy of supply systems supporting military forces in the Far East, we found that the military services have continued to support adequately military units in the Far East-particularly the combat forces in Southeast Asia. However, we noted that the supply systems in the Far East, as well as the supporting systems in the continental United States, continue to be costly and inefficient. We pointed out that (1) substantial imbalances between inventory records and stocks on hand resulted in part from the high volume of changes in item identification data; (2) significant inventory excesses and shortages existed because inappropriate methods and incorrect data were used to compute stock requirements; (3) inadequate controls over reparable items resulted in failure to recover, repair, and reuse expensive components and equipment; and (4) the large volume of unnecessarily high-priority requisitions were causing costly shipment of supplies and equipment. As a result of our findings and recommendations, the military services have taken corrective action which to date has resulted in identifiable savings of approximately $49.5 million. Index No. 23, B-114807, May 22, 1970 OPPORTUNITIES FOR SAVINGS THROUGH THE ELIMINATION OF NON ESSENTIAL STOCK ITEMS-GENERAL SERVICES ADMINISTRATION We reported that: 1. The General Services Administration (GSA) did not have either an effective program for the elimination of inactive and low-demand stock items or the data necessary to implement an effective elimination program. 2. An analysis of information extracted from GSA's automatic data processing system showed that: a. There were over 15,000 items in the stock system for which less than six orders were received during fiscal year 1969. b. No orders were received for about 6,275 of the items during that period. c. The value of inventories of the 15,000 items exceeded $15 million. 3. Because of the rapid increase in the number of items in the GSA stock system, the implementation of a program to identify and eliminate inactive and low-demand items becomes increasingly important for purposes of efficiency and economy. 4. GSA had made little progress in eliminating uneconomical items from the stock system primarily because responsibility had not been effectively assigned. We proposed that GSA implement effective programs to delete nonessential items from the stock system. GSA agreed with our proposal and advised us that programs had been implemented to identify and to delete inactive and low-demand stock items. Index No. 24, B-146828, May 28, 1970 POTENTIAL FOR REDUCING INVENTORY INVESTMENTS IN THE DEFENSE SUPPLY AGENCY THROUGH IMPROVED COMPUTATION OF STOCK NEEDS-DEPARTMENT OF DEFENSE. The General Accounting Office reviewed the policies, procedures, and practices applied by the Defense Supply Agency in determining stock needs. Emphasis was placed upon identifying ways to improve computation of stocks needed to minimize accumulation of excess material. At December 31, 1968, over $250 million worth, or about 23 percent of the stocks managed by three of the five Agency centers were excess to all known military needs. We found that substantial portions of these excess stocks accumulated because (1) Defense Supply Centers erroneously treated requisitions for "one-time needs" as repetitive, (2) projected future requirements were based, in part, on requisitions that customers had requested be canceled, (3) purchases were being made without considering all stocks on hand, and (4) lead times for obtaining new stocks were not based on actual experience. As a result, substantially more stock was procured than necessary, much of which will be disposed of eventually as surplus and at a substantial loss to the Government. We proposed that the Agency revise its procedures for determining stock levels at all Centers to ensure that customers' demands are properly identified as recurring, nonrecurring or a special requirement, and that all assets on hand are considered before purchases are made. We also proposed that large and unusual orders be validated by customers and that actual procurement lead times be substituted for the standard lead times in requirements computations. The Department of Defense, in responding to our draft report, attributed excess inventories to a multiplicity of causes and stated that changes were being made to reduce inventory investments, and the accumulation of excess stocks. For example, the Agency is installing a new computer system and uniform data processing procedures at all inventory control points. We believe that the new computer system and revised procedures, if carefully supervised during their installation and early operational phases, should help improve the management of the Agency's inventories. Index No. 25, B-160334, February 6, 1968 POTENTIAL SAVINGS IN PROCUREMENT OF PETROLEUM PRODUCTS FOR USE BY NAVY CONTRACTORS Our review showed that substantial annual savings could be realized if the Navy would furnish to its contractors the petroleum products used by them |