If inventory levels are too high, money is invested  on items that may never be used. Actual Lead Times Varied Considerably from Estimated Lead Times for All Components

The military components’ acquisition lead time estimates to acquire spare  and repair parts varied considerably from the actual lead times  experienced. The  combined value of the lead time underestimates for all the components  resulted in slightly over $12 billion in spare and repair parts arriving more  than 90 days later than expected, which may have negatively affected  equipment readiness and overall rates because units may not have had the  necessary inventory to support and sustain ongoing military operations. If  lead time estimates had been more accurate, orders could have been  placed and funds obligated earlier, and in some instances readiness rates  could potentially have been improved. Further, the combined value of the  lead time overestimates resulted in the military components obligating  almost $2 billion more than 90 days earlier than necessary, which could  add to excess on-hand inventories, although spare parts that come in early  could potentially improve readiness. The variances between the Army’s actual and estimated lead times  occurred, in part, because of miscoding of late deliveries as not  representative of future delivery times, lack of accurate lead time data in  one of its computer systems, and data input errors. Management Actions and Initiatives to Reduce Lead Times from 2002 to 2005 Less Effective than Previous Initiatives from 1994 to 2002

USD (AT&L) and the military components’ management actions and  initiatives to reduce lead times from 2002 to 2005 were less effective  overall than previous initiatives from 1994 to 2002. Slower Rate of Reductions in Lead Times from 2002- 2005 than from 1994-2002

USD (AT&L) and the components’ management actions and initiatives to  reduce lead times from 2002 to 2005 resulted in a slower rate of reduction  in DOD-wide lead times of an average of 0.9 percent annually as compared  to an average reduction of 5.6 percent annually from 1994 to 2002. These  initiatives and actions generally fell into three areas of focus: streamlining  internal administrative processes, improving oversight, and developing  relationships with suppliers, as shown in table 8. Until USD  (AT&L) takes steps to exercise oversight as it did from 1994 to 2002, such  as reemphasizing guidance, establishing lead time reduction goals,  collecting data and establishing metrics to measure progress toward  meeting lead time reduction goals, measuring and reporting on the results  of individual initiatives, and measuring the financial impact of lead time  reductions, the components and USD (AT&L) will not have available the  information needed to effectively manage and provide oversight of lead  times, hampering their ability to reduce lead times. As a result, even as  lead times were reduced by an average of 0.9 percent a year from 2002 to  2005, requirements to cover lead times rose. The additional lead time  requirements potentially tied up $2.7 billion that could have been obligated  for other needs. Absent actions by all of the  military components to address these problems and institute corrective  procedures, their acquisition lead time estimates will continue to vary  greatly from their actual lead times. The military components have also slowed their efforts to reduce  acquisition lead times as compared to earlier years. 2. 1. Moreover, DOD did not concur with our recommendation that the Under  Secretary of Defense for Acquisition, Technology, and Logistics work  closely with the Army and Navy to develop joint strategic relationships  with suppliers that would be beneficial in reducing lead times. We further examined budget stratification  data from the Army, Navy, Air Force, and the Defense Logistics Agency.
Why GAO Did This Study

GAO has identified the Department of Defense's (DOD) management of its inventory as a high-risk area since 1990 due to ineffective and inefficient inventory systems and practices. Management of inventory acquisition lead times is important in maintaining cost-effective inventories, budgeting, and having material available when needed, as lead times are DOD's best estimate of when an item will be received. Under the Comptroller General's authority to conduct evaluations on his own initiative, GAO analyzed the extent to which (1) DOD's estimated lead times varied from actual lead times, and (2) current management actions and initiatives have reduced lead times as compared to past years. To address these objectives, GAO computed the difference between the components' actual and estimated lead times, and compared component initiatives to reduce lead times for 1994-2002 to 2002-2005.

What GAO Found

The military components' estimated lead times to acquire spare parts varied considerably from the actual lead times experienced. The effect of the lead time underestimates was almost $12 billion in spare parts arriving more than 90 days later than anticipated, which could negatively affect readiness rates because units may not have needed inventory. If orders had been placed earlier, readiness rates could potentially have been improved. While having spare parts arrive earlier than estimated could potentially improve readiness, the effect of lead time overestimates resulted in obligating almost $2 billion more than 90 days earlier than necessary. The Army underestimated lead times, the Defense Logistics Agency (DLA) overestimated lead times, and the Air Force and Navy both overestimated and underestimated lead times. The variances were due to problems such as miscoding late deliveries as not representative of future delivery times, lack of recorded lead time data, data input errors, estimates that did not reflect improvements made in actual lead times, and the use of standard default data instead of other data that may have been obtainable. Absent actions to address these problems, lead time estimates will continue to vary from actual lead times and will contribute to inefficient use of funds and potential shortages or excesses. The Under Secretary of Defense for Acquisition, Technology, and Logistics (USD (AT&L)) and the components' actions and initiatives to reduce lead times from 2002 to 2005 were less effective overall than previous efforts from 1994 to 2002. From 2002 to 2005, DOD-wide lead times were reduced by an average of 0.9 percent annually as compared to an average reduction of 5.6 percent annually from 1994 to 2002, potentially leading to an additional $2.7 billion in lead time requirements, tying up money that could have been obligated for other needs. The higher rate of reduction from 1994 to 2002 can be attributed to three areas of focus: streamlining internal administrative processes, oversight from USD (AT&L), and developing strategic relationships with suppliers. However, from 2002 to 2005, USD (AT&L) no longer provided active oversight such as establishing lead time reduction goals, reporting metrics, reporting the impact of specific initiatives, or estimating the financial impact of reduced lead times, as had been done previously. Until steps are taken to renew management focus on reducing lead times, the components may continue to experience spare parts shortages and increased inventory levels to cover lead times.