A 2011 audit found that Boeing was billing the Army almost $1,700 for a dime-sized Chinook helicopter part on sale from DLA for about $8. (Boeing)
For almost a quarter-century, the Government Accountability Office has said the military’s management of equipment and parts stockpiles is one of the government programs most vulnerable to waste, fraud and mismanagement.
The Defense Department had stockpiled $9.2 billion worth of excess parts and other supplies, with another half-billion dollars of unneeded inventory on order, as of September 2011, the most recent available figures from GAO.
While this year’s update to the high-risk list credited the Pentagon with “moderate progress” in addressing supply chain weaknesses, it also said DoD officials still have trouble keeping track of what they have in stock, forecasting future demand and showing they can sustain progress in cleaning up problems.
Two major challenges are overbuying and decentralization, said Zina Merritt, a GAO director of Defense capabilities and management. Each of the military services decides what it needs, Merritt said in an interview. “There’s no one central authority that controls what each service’s requirements are.”
A 2010 plan to improve its inventory management, mandated by Congress, marked the first time the Pentagon has taken a comprehensive approach to changing the way it buys and manages goods, Merritt said.
Overall, the plan calls for slashing the volume of on-order excess stocks by more than half by fiscal 2016; it also sets targets for each of the services to meet. The plan takes note, however, of the challenges in predicting demand, especially during wartime. In harsh desert conditions, for example, jet engines may wear out faster than expected. And when purchasing managers learn that they’ve ordered more of a particular item than needed, ending a contract can be difficult and expensive.
In a separate review released last year, GAO gave a guarded thumbs-up to implementation of the plan thus far, citing data that the Pentagon was four years ahead of schedule in hitting its goal for reducing the volume of on-order excess supplies.
But the review also noted that Defense officials still had a long way to go in strengthening their ability to accurately predict demand. For instance, the Pentagon needed to follow up on earlier recommendations to investigate cases of undelivered cargo shipments, ensure that radio frequency identification tracking tags have enough information, and do more to monitor the cost of damage and pilferage, GAO said.
Even well-intended efforts can go awry. Under a performance-based logistics strategy adopted in 2004 with a goal of cutting costs, the Pentagon allowed weapons contractors to decide what parts are needed to maintain and fix their products.
Instead, the military services have sometimes paid much more than the Defense Logistics Agency would charge for comparable parts, Lynne Halbrooks, the Defense Department’s acting inspector general, told the House Oversight and Government Reform Committee at a hearing last month.
In a 2011 audit, for example, Halbrooks’ office found that Boeing was billing the Army almost $1,700 for a dime-sized Chinook helicopter part on sale from DLA for about $8.
To one lawmaker at the hearing, the episode revived memories of 1980s military procurement scandals. “Why are we still having these kinds of problems?” asked Rep Jackie Speier, D-Calif.
“If we paid too much for that part, we need to get our money back,” answered DoD Comptroller Robert Hale, who said he was not familiar with the episode.
During the audit, Boeing refunded some $77,000 to the government, and the military has been cooperative in dealing with broader issues, according to Halbrooks. Still, of 124 IG recommendations related to performance-based logistics, almost half remain open, she said.
Supply chain management and weapons systems acquisition are two DoD perennials from GAO’s first list, compiled in 1990, to flag programs at high risk for waste and abuse. To pry supply chain management off the roster, Pentagon managers now have to meet five benchmarks.
They are: top leadership support for improvement; the capacity to resolve risks; a fix-it plan for distributing and tracking inventory; the ability to independently verify that the plan is working; and sustained, long-term progress in implementation. By GAO’s count, the Defense Department has fully met only the first two of those benchmarks, and Merritt declined to forecast the odds of supply chain management’s coming off the list when the next update is released in 2015.
“It depends on whether all five of those things are met,” she said.