With billions of dollars in excess inventory stuffed in warehouses, and a flood of items expected to return from Afghanistan in the near future, the U.S. Defense Department is facing an inventory crisis without an easy way to eliminate extra items, a former director of the Defense Logistics Agency (DLA) said.
That could translate to yet another cost that Pentagon planners have failed to foresee, and one they’ll have to address as the department tries to cut expenses.
Keith Lippert, a retired U.S. Navy vice admiral who stepped down as DLA director in 2006, told an audience May 23 at the Defense Logistics and Materiel Readiness Summit in Alexandria, Va., that the inventory problem facing DoD is troubling given current fiscal pressures, and certain to get worse.
“There is a need to dispose of material,” he said. “We have to free up this warehouse space, and in terms of priorities of all the things that they do at DLA and the services ... if there are 25 things that have to be done, disposal is probably number 26.”
The excess inventory is all-encompassing: parts and supplies for vehicles, gear, weapons — everything the U.S. military has needed over a decade of fighting two wars.
“You add to this everyone coming back from Afghanistan and Iraq, all the material coming in, it’s just going to compound the problem,” Lippert said.
Beyond the issue of priority, Lippert said, excess inventory is also a practical problem. Many of the items must either be sold for pennies on the dollar, marketed for a higher value through foreign military sales, or destroyed, simply because the U.S. lacks enough space to store all the items once they return from overseas. All three solutions require manpower that is already stretched thin trying to keep track of needed parts in warehouses with too many items.
Lack of Metrics
Recognizing its growing stockpiles that include more than $9 billion of excess in an inventory valued at roughly $100 billion, according 2010 figures released by DoD, the department launched the Comprehensive Inventory Management Program in to 2010.
A Government Accountability Office report on the program, released in May, found that DoD has likely avoided $1 billion in cost, but that a lack of metrics could seriously harm its efforts to cut inventory.
“As part of the plan, DoD is developing metrics to assess the effectiveness and efficiency of its inventory management, but it has not determined if it will incorporate these metrics into guidance,” the report said. “This may hamper its ability to assess inventory management performance and sustain management attention on improvement.”
The report, however, did cite the systemic inventory issues that have plagued the Pentagon for years.
“Since 1990, we have identified DoD supply chain management as a high-risk area due in part to ineffective and inefficient inventory management practices and procedures, weaknesses in accurately forecasting the demand for spare parts, and challenges in achieving widespread implementation of key technologies aimed at improving asset visibility,” it said. “These factors have contributed to the accumulation of billions of dollars in spare parts that are excess to current requirements.”
Concerned about the pace at which the DoD is eliminating inventory, Lippert, who is the chief strategy officer at Accenture National Security Services, said that without action, the Pentagon will be overwhelmed.
“All the reduction that may happen will be offset because here comes this other stuff,” he said. “And if you think disposal is a challenge now, just wait till all this comes back, because inventory is going to grow and it’s going to become a bigger challenge.”
Although the GAO report points to concerns about DoD’s ability to reduce its existing stockpiles, Lippert said that stronger action, possibly in the form of congressional hearings, is likely needed to cause real change.
“It’s probably going to take some kind of burning platform to get everyone’s attention other than a new GAO report,” he said.
Analyzing Data
Part of what has made the process so difficult has been the lack of data on inventory, but that has changed in recent years, experts said.
“There’s a lot of data that’s being generated, automated data,” said Col. Edward Mays, assistant commander for acquisition, logistics and product support at Marine Corps Systems Command. “It exists, but we haven’t had the time to think about how to use it.”
Now, with usable data, the armed forces are starting to use statistical analysis to more intelligently manage inventory and service schedules, although on only a small scale.
Mays leads a small group at his command that is attempting to find inefficiencies and savings. In the year it has been operating, the group identified nearly $50 million in mine-resistant ambush-protected vehicle servicing and parts savings, among other areas.
The emphasis on analysis comes as the focus on war fighting begins to decline and fiscal restraint enters regular parlance.
“We supported the war fighter, but many things fell to the side,” Mays said. “As we went off to war, we haven’t really thought much about policy. We’ve been running really hard, we’ve been doing a lot of things, but we haven’t thought about policy.”
Mays said that his work is being considered by the chain of command, but that the magnitude of the problem makes solutions difficult to implement. The use of the statistical analysis that and others are doing can be a boon in the new age of efficiency, Lippert said.
“There’s no doubt in my mind that there are all kinds of savings here,” he said.
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