In past reports, we criticized DOD’s logistics system as being cumbersome, inefficient, and costly. The report concluded that cumulative savings during fiscal years 1998 to 2010, ranging from $2.2 billion to $3.8 billion, might accrue if the management of all ICPs were transferred to DLA. Savings Estimates Associated With Consolidation Would Be Higher Using BRAC Principles

After examining the report on consolidation, we believe OSD’s approach was reasonable, given the sensitive nature of the issue, the limited amount of time to perform the review, and the data available. However, we concluded that the cost savings estimates would have been $1.3 billion to $2.3 billion greater if BRAC principles had been used. Also, indications are that the savings estimates would be even greater if the review included the savings associated with all 16 business process improvements and likely future improvements to the material management information systems. LMI projected cost savings over a 13-year period (i.e., fiscal  years 1998-2010), which included an 11-year implementation period and 2 years of steady-state savings. To estimate additional potential cost savings, we adjusted LMI’s data to include a longer time period of steady-state savings and a present value analysis. Management of all DOD ICPs under DLA. Comments From the Department of Defense

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Why GAO Did This Study

GAO reviewed the Office of the Secretary of Defense's (OSD) report on its review of the Defense Logistics Agency's (DLA) management of all Department of Defense (DOD) inventory control points (ICP).

What GAO Found

GAO noted that: (1) OSD used conservative assumptions and cost factors in estimating cost savings from consolidating service ICPs under DLA; (2) its projected cost savings of $2.2 billion to $3.8 billion cover a 13-year period, fiscal years 1998 to 2010; (3) GAO believes this approach to be reasonable, given the sensitive nature of the issue, the limited amount of time to perform the review, and the data available; (4) however, the projected cost savings estimates would be at least $1.3 billion to $2.3 billion greater if OSD used base realignment and closure principles, such as estimating steady-state savings over a longer time period and a present value analysis instead of a constant dollar analysis; and (5) the potential savings would likely be greater yet if the analysis included: (a) savings from all business process improvements related to the consolidation; and (b) planned future improvements to DOD's existing material management information systems.