Product Code Database
Pursuant to a congressional request, GAO reviewed the Department of Defense''s (DOD) inventory decisions for secondary items, focusing on: (1) cost considerations; (2) use of the DOD replenishment formula; and (3) private-sector methods for making purchasing decisions. GAO found that: (1) the Air Force does not use the DOD replenishment formula to establish reparable order quantities because it is impracticable; (2) the Defense Logistics Agency (DLA) uses a modified replenishment formula when ordering secondary items because of the formula''s cost constraints; (3) the DOD replenishment formula, which is based on the economic order quantity formula, is flawed due to unreliable cost estimates and invalid procedures for determining obsolescence costs; (4) noncost constraints, such as maximum and minimum order limits, limit the use of the DOD replenishment formula and increase ordering costs; (5) the private-sector companies surveyed do not use the economic order quantity formula, since some of its underlying assumptions are invalid and it foregoes possible efficiency gains; (6) the companies successfully use alternative purchasing methods tailored to their operations; (7) three companies are implementing a new logistics system that integrates the efforts of the supplier, distributor, and customer; (8) the success of alternative purchasing methods depends on the cooperation of suppliers and the retraining of employees to maintain lower inventories; (9) two formulas based on economic order quantity principles recognize fluctuations in demand which significantly reduces ordering and holding costs; and (10) DOD is implementing commercial inventory practices to address its inventory problems.
References
^ Defense Inventory: Applying Commercial Purchasing Practices Should Help Reduce Supply Costs: Nsiad-93-112 Indigo. ISBN 9781287246220 (revised Oct 2015)
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