Similarly, we can predict what the activity level and demand will be in mobilization. I am, unfortunately, not a mathematician, but I am told that if you have three elements of a formula you can predict the fourth. We have three elements here, the post-Korean expansion, the demand during that period, the plan for expansion and mobilization, and we can predict X, or the fourth, the estimated demand which would be generated by mobilization. We have a lot of other types of material which lend themselves to this type of projection.

In other cases they may have no current or recent demand, and yet have equipment in reserve fleets which have not been used in recent years but may be called in mobilization. The problem is to start first by predicting what is the top level of your requirement, and what will happen in mobilization.

Mr. COTTER. Do you say that that is based on post-Korea require

ments?

Commander LYNESS. That is right.

Mr. COTTER. You did not use World War II experience at all.

Commander LYNESS. In some places, yes. Our thinking in the Navy is that the more current we can keep our prediction the better it will be.

Mr. COTTER. I am wondering whether your period is long enough for that other projection to extend it up as far as you want, and secondly, do you know how it compares with how it went up in World War II?

Commander LYNESS. We will be very frank. We in the Navy do not have, did not have in World War II, the type of centralized inventory control that we have now, and while we have certain information as to usage and issue during World War II, it is not anywhere nearly as accurate as we would like it to be.

Mr. COTTER. Is that graph translated into dollars?

Commander LYNESS. Yes, sir, in the first instance into actual item predictions. If you use so many items during a recent period you will use so many more items at the mobilization level, and then it is converted into dollars, and then we have a dollar prediction which I will go into in a moment.

Mr. BALWAN. The figures on this chart are indices, based on 100 percent?

Commander LYNESS. This is what happens: these are in terms of

dollars and this is for the system as a whole. They have some 70,000 items, and it is complex and varies among them, but, for the system as a whole, this chart does as well as we have been able to do it.

They are predicting that when M-day comes, if it does come, that their demand will come up as you see by this line [projected mobilization issue requirements]. This is general stores material. They also predict that during the first eight months after mobilization (which is the period they have to worry about, and I say that be

MECHANICSBURG, PA., EXHIBIT NO. 2

cause they use this term P-day which as we see it is the day in which industry, in our best judgment and based on our experience, will be able to meet our full demand, and from then on we need no more stockpiling. We do not plan beyond that for stockpiling although demand will go up to this extent.

Our new input from industry will be coming in at this level, and flattening up at the end, which is the logical expectation [line entitled "Material receipts from procurement initiated after M-day"].

The gap between the two is the big concern. Our issues, our output of material, are exceeding our new input, and something is happening to our new inventory. This is a very typical picture.

We have a tremendous bulk of inventory here [dotted line entitled "Current on hand plus on order], in the neighborhood of $500 million plus. However, in relation to the demand that will hit mobilization in the early phase, the output greatly exceeds the input after the bell rings. Theoretically, and in the best judgment of the General Stores Supply Office as they now stand, somewhere before this theoretical P-day they will run out of material. Actually, they will be running out of items at an even earlier date, and some other items will be past the danger period, but, for the system as a whole, even with the tremendous block of inventory which they now hold in relation to peacetime demand or initial mobilization demand, it will drop and they will run out of material. When they get down to this level, below their issue line, they are in trouble.

So what they do then is price out by item, and then by dollars, where they should be in terms of inventory holdings to meet this demand and to end up a P-day with a minimum stock load so that they can support it in the future.

In this particular segment of our supply system (general stores) it turns out that the bill is roughly what they now hold. If you increase your input from industry through industrial mobilization planning, you can deduct the amount of material necessary to stockpile.

We are showing, for our own satisfaction, that what appears to be an inordinate block of inventory may be deficient in terms of what could conceivably happen in mobilization. We don't know a war is going to come, no one does, but our function is to plan for it and to see what will happen if it does come, and convert that planning into material for which we are responsible, and present the the picture of where we stand.

Mr. BALWAN. At this point, if war came, to meet this deficiency we would run out before P-day, wouldn't we?

Commander LYNESS. Yes, sir.

Mr. RIEHLMAN. How far do you project P-day?

Commander LYNESS. In the case of general stores material, they estimate that P-day is 8 months after mobilization day. In some cases it is 8 months and in some cases it is 3 months, and in the case of ship parts, it is a considerably longer period.

Mr. RIEHLMAN. What would we have to increase in the inventory on the next line above [entitled "Mobilization reserve materiel requirement plus on hand and on order"] to meet the P-day requirements? What would you have to increase as far as the volume of your inventory in concerned?

Commander LYNESS. It is quite a block. In this area, to assure full readiness for every item which they carry in their system and which they feel is militarily necessary, their best estimate is $650,000,000. Mr. RIEHLMAN. That is an increase?

Commander LYNESS. Yes. We do that once a year. I have one at the end which I will close with. We want to take a look once a year and take full benefit of any increase of production from industry, and take full benefit of such decreases as we dropped out of our system by saying that certain items we can get long withou.

In this case we took this total bill of $650 million and we squeezed out of it a bill for what we called the critical items which we felt we must have, and that bill was in the neighborhood of $230 million, and we never asked for the balance.

Mr. RIEHLMAN. Your figure would be something like $650 million. Mr. BALWAN. For one class.

Commander LYNESS. They have now given us the fix, going back to $650 million.

Mr. RIEHLMAN. With respect to your previous statement concerning pushing it down and only taking into consideration items that you felt were absolutely necessary, you brought it down to something like $230 million is that right?

Commander LYNESS. Counting current holdings, yes, sir.

Mr. BALWAN. What is that third bracket [entitled "Materiel receipts from procurement initiated after M-day"]?

Commander LYNESS. This is a counterpart to this. This shows if we did not plan any input, and if we could not get anything in from industry from M- to P-day, we would have to have that much additional.

Mr. RIEHLMAN. On what are you basing your estimate that industry would require 8 months to meet P-day?

Commander LYNESS. When we say that P-day is 8 months after the mobilization, we do not mean we will not get delivery of that item from industry before that. That is the day on which the input from industry will be equal to our requirements.

We base the estimate of it on two factors.

First, there is the experience that we have had in peacetime which, with all its faults, is the best we now have as to how long it is going to take to get quantities, and we compute it on larger amounts.

The second thing is our industrial mobilization program. As we proceed in the second program we are convinced that this block will increase and we can do more. Obviously if you can get it in from production soon after M-day you do not have to stockpile it, and you save yourself a lot of money and the Government a lot of money. Admiral ANTRIM. These general stores are used by all three services. When you said you are going to industry to meet the requirements of the Navy, will they also be able to meet the requirements of the Army and the Air Force?

Commander LYNESS. That is a thorny problem.

Mr. BALWAN. Does this take that into account or not?

Commander LYNESS. The General Stores Supply Office, which has the responsibility of this segment of the Navy, makes its own predictions based on its own requirements.

In the process of going to these various firms they sometimes get a statement back that the firms are committed to the Army or Air Force.

But, to answer your question specifically, I do not believe that there is a full reflection of possible demand from other services which might fall in the same area, but I would assume they are doing the same thing.

Mr. COTTER. Is this purely a Navy requirement?

Commander LYNESS. That is right, except where the Navy has support responsibility for the Army or Air Force.

Mr. COTTER. Would you propose getting that additional inventory from the General Services Administration and storing it as Navy inventory against this mobilization day possibility, or is it supposed to be in their backlog as a community fund and this being your part? Commander LYNESS. If the item were a General Services Administration item, an item normally obtained through the General Services Administration, it wouldn't be here at all. But if it were, the General Services Administration would be evaluated as a source of supply just the same as any other source of supply.