Report | April 25, 2014

Navy Can Improve Management of Zero-Demand Items

DODIG-2014-063

Objective

We determined whether the Navy, in coordination with the Defense Logistics Agency (DLA), effectively identified and managed zero-demand stock.

Finding

Naval Supply Systems Command (NAVSUP) has reduced the number of zero-demand items through its disposal review process; however, NAVSUP needs additional improvements to identify and manage zero-demand items. For the 89 zero-demand items reviewed, NAVSUP personnel identified full or partial disposal actions for 23 items and provided a valid retention justification for 48 items. However, NAVSUP supply planners did not identify 18 additional zero-demand items, valued at $26.1 million, as potential excess for disposal.

This occurred because NAVSUP procedures do not require supply planners to comprehensively review zero-demand items to ensure they support valid requirements. As a result, NAVSUP is paying DLA storage costs for items no longer needed. In response to our audit, NAVSUP disposed of the 18 zero?demand items. This will allow NAVSUP to put to better use $90,835 in associated storage costs annually, and $454,175 over a 5-year period.

Recommendations

We recommend that the Commander, Naval Supply Systems Command, develop and implement procedures to clarify requirements related to the review of zero-demand items. The procedures should include collaboration with appropriate program offices and other stakeholders to verify the accuracy of the weapon system data and to validate that the items support valid requirements.

We also recommend that the Commander, Naval Supply Systems Command, in coordination with the Office of the Assistant Secretary of Defense for Logistics and Materiel Readiness, develop a phased approach, with milestones, for reviewing all zero-demand items.

Management Comments and Our Response

Comments from the Commander, Naval Supply Systems Command addressed the recommendations. The Commander, Naval Supply Systems Command agreed to develop and implement procedures to clarify requirements related to the review of zero-demand items; and coordinate with the Assistant Secretary of Defense for Logistics and Materiel Readiness to develop a phased approach with milestones for reviewing zero-demand items.