GRAPHIC PRESENTATION OF ELEMENTS IN STRATIFICATION OF INVENTORIES

Assuming M-Day as of Date-or Period -Represented by the Basic Inventory Intelligence Used in the Projections (FOR ILLUSTRATION ONLY-ACTUAL SITUATION WILL VARY BY MATERIAL CATEGORIES)

I am going through here with a picture, and we are by no means

funding it at the moment. When we started this approach, and it has been about 2 or 3 years that we have been using it in one form or another, the initial bills were staggering to us.

First of all, it puts a price tag on the mobilization plan from higher authorities. For example, the various mobilization plans of the services call for bringing so many men in during the first 2, 3, 4, 6 and 12 months of mobilization, and the figures are very high.

Our clothing supply office which has done the same thing with their program, with a direct relationship of shoes to a man, and so forth, has done the same thing, and the total bill they come up with is rather staggering.

EXCESS

Predicted Mobilization Experience

Assuming No M-Day Mobilization Reserve
Stock Deficiency

Predicted Mobilization

Experience Based on an
Deficiency
M-Day Mob. Res. Stock

Peacetime

Operating Stock

Due quantities shown on the Item cards as of the base period used in the run (Current on Order) Quantities which can be placed on order on or subsequent to M-day and received prior to P-day. (Mobilization Materiel Procurement Capability)

It indicates to the planners that it is either impossible or that the plan is overambitious. That isn't for us to say.

But until you get a dollar amount on it, or a dollar demand on it, you have no idea of what your plan amounts to. They may adjust your plan downward, and you may say "Well, I don't believe we will get as many men in in this period of time " and the bill goes down correspondingly.

Similarly, the inventory manager when he sees the bill and sees what it would cost to stockpile, maybe he will say "I am, perhaps, underestimating what I can get in."

It is a tremendously informative proposition to us and to anyone else, and it is something we will be working on for a number of years. I dwell on this because when you stratify and hold this material, you have to set this topline, and find out if you need this item in mobilization in a certain quantity, and whether you should keep it. If you do not need it, if you have large quantities on hand (that in this case would be above this topline) on that item and it is excess to your system, you should get rid of it. Until you do that, it is very difficult.

We have done this in the Navy stock fund and I happen to have that job at the moment. We have $13 billion of material in the Navy and of that $13 billion, approximately $2 billion is in the Navy stock

account.

The other $11 billion is in what we call the Appropriation Purchases Account, annual purchases. This is our annual fund.

NAVY STOCK FUND

STRATIFICATION OF ON HAND INVENTORIES &
RELATIONSHIP OF SALES TO OPERATING STOCK

AS OF 30 JUNE 1953

MILLIONS

$800

700

$1622 42 TOTAL ON HAND INVENTORY

169 37 EXCESS

178 22 ECON RES

748.76 MOB. RES:

600

SALES 104890

526.07 OP STOCK

500

500

193,304 ITEMS

600

400

actually, we have not been as deficient as we ourselves thought and makes us look a little better, which is not the principal purpose, but, as of June 30, 1953. I would like to call your attention to how it This is a stratification of the Navy stock Fund inventory holdings

41957--5432

as others thought.

300

200

100

We have in the Navy stock fund as of June 30, 1953, an on-hand inventory of approximately $1,600 million.

Our annual sales for the year, and our accounting system generates them, were $1,048 million.

If you take a look at the two, you do not look as if you are operating too effectively. However, when you layer out your inventory to see why you are holding it, we see that we are holding $748 million worth of material for mobilization in the Navy Stock Fund. If we did not have a mobilization requirement, we would be in the happy situation of any civilian organization where people go to a sale when they want to buy something, for instance, gloves. If they do not like the price they can go to Montgomery Ward, and the other organization will lose the sale of those gloves.

We have excess in the Navy Stock Fund, material which is on hand. over and above what we need to meet mobilization requirements, in the neighborhood of $347 million. We identify it and tag it for disposal.

Mr. BALWAN. What is the economic reserve?

Commander LYNESS. We go through, the process that I described, and we may find that an item is actually excess to our requirement. As far as we are concerned, we could get rid of it now, but some of those items are still moving in our system. We have quantities in excess of what we should keep. If we wanted to we could say we will keep a year's requirements and our mobilization requirements and excess the rest.

On the assumption that we want to keep it, 1 or 2 years later we would be back on the market buying that same item. When you identify your total holdings of excess, then you take a look at that excess, and where the item is moving and you have active demand for it and you are selling it in your system, you measure the cost factors to hold this and the cost of the inventory holdings, and so forth, and if it is economically advantageous to retain a certain quantity. Some of that material is rollback from World War II. Other material was bought in larger quantities than it should have been, and certain design changes made a diminishing demand.

Mr. BALWAN. What is your total excess that you will actually dispose of?

Commander LYNESS. About $170 million.

Mr. BALWAN. Of those common use, standard stock items in the Navy stock fund?

Commander LYNESS. Yes. It will be larger in the technical materials. You see, if you go down our category here, we have no excess in "Provisions," no excess in "Fuel," no excess in "Ship store stock." For those three big categories, we have no excess at all.

If you go by categories, here is a category we have in the stock fund, ship store stock, our exchange merchandise. We hold no reserve whatsoever.

Mr. BALWAN. What is in the ship store stock?

Commander LYNESS. All the items we carry in our Navy exchanges and ship stores, soap, toilet soap, combs, cigarettes, watches, billfolds, anything you want to name.

There is a category where we hold no reserve. We invite comparison from any civilian concern. Our actual turnover in ship store stock

is about five times a year. We are selling about $125 million, and the inventory is about $23 million or $24 million.

In "Provisions," where we have a very small reserve, we are turning our material over in excess of three times a year.

In "Fuel," even with the reserve holdings, we are turning it over about 211⁄2 times a year.

In the category of "General stores," you will notice the sale total inventory relationship next year is not as favorable. It will never be as favorable. Nevertheless, if you break out these layers of stock for other purposes, you will see that we are turning it over about one time a year.

Mr. BALWAN, Clothing isn't that way.

Commander LYNESS. No. Our manager must identify, stratify all the stockholdings. If they cannot identify it as a legitimate mobilization reserve holding, and if they have not identified it as an excess holding, we tell him to put it in the operating stock, and we put it here and flag it for ourselves.

Mr. RIEHLMAN. Your excess shows up on only three different categories: "Clothing," "General stores," and "Vehicle repair parts.' Commander LYNESS. Yes, sir, and "Medical and dental supplies," which may increase.

Mr. RIEHLMAN. What about the economic reserve; where is that? Commander LYNESS. It is the white part on this chart.

Mr. BALWAN. That is only in four categories that you have an economic reserve.

Commander LYNESS. Yes. I think it is important to emphasize again that this is not a static picture. Our managers in the stock fund and the manager for the other $11 billion worth of Navy material have similarly taken a look at the material. They are doing it once a year in the stock fund, and a number of these managers have just finished the first one and are starting again because they have found that it has been so interesting and so productive for them, and they recognize that their first look was deficient.

Capt. T. G. REAMY. As we go through and keep stratifying we generate an excess. You don't know the item is excess until you have taken a good look at it. You have also got the matter of the obsolescent equipment coming in.

You cannot, as of today, say this strata is excess because tommorow there may be another one. We are constantly digging at it. All of those items are generating some excess as we continue working on them. It has got to be a continuing problem.

Mr. RIEHLMAN. I am sure we understand that.

Commander LYNESS. If you ever stop and say you are satisfied, you might as well turn in your suit.

Mr. RIEHLMAN. Well, will we see something of the excess property you have here this afternoon?

Commander LYNESS. Yes, sir.

Mr. RIEHLMAN. That is in the $169 million you are processing? Admiral ANTRIM. That $169 million is in the entire Navy.

Commander LYNESS. Some of the material in the excess you will see here, and you will see some of the excess in ship's parts.

When we finish this and report through the Budget authorities and Congress, these figures will be available within all the inventory holdings that the Navy has, by category.

I do not want to take a lot of time here.