June 11, 2015 —
Our objective was to determine whether the Defense Logistics Agency (DLA) made cost effective materiel purchases to support the C-130 Hercules aircraft through multiple contracts.
DLA Aviation did not make cost effective materiel purchases to support the C-130 aircraft. Specifically, DLA Aviation purchased inventory that Air Force customers forecasted but the Air Force did not order as expected. This occurred because DLA Aviation did not adequately assess whether supply chain disruptions, such as delivery time delays or insufficient part quality, would affect its ability to receive all the parts that the Air Force needed to perform its repairs. Air Force customers did not order parts until all the necessary parts were available for the repairs.
DLA Aviation also missed opportunities to cancel or reduce purchases more than the target quantity for replenishing a part’s stock level through new purchases. The DLA Aviation procurement review processes for orders still awaiting delivery allowed it to purchase quantities of parts that exceeded the inventory target quantities and relied on monthly inventory data that understated on-order quantities when conducting these reviews. In December 2014, DLA initiated a computer system change so the monthly inventory data included the previously missing on order quantities.
As a result, DLA Aviation accumulated inventory unique to the C-130 aircraft that exceeded actual customer orders. Our 68-part nonstatistical sample had inventory valued at $16 million, yet DLA customers only ordered $1.36 million annually from July 2012 through June 2014. DLA Aviation accumulated $6.6 million of C-130 inventory that exceeded average annual customer orders and purchased $2 million in inventory not needed to meet current inventory target quantities.
If inventory management is not improved, DLA Aviation will continue to acquire future inventory that exceeds customers’ actual orders. Additionally, DLA Aviation will use funds to manage and store this inventory, resulting in increased materiel prices to its customers.
We recommend the Director, DLA, implement controls within the customer collaboration process that assess the supply chain risks before incorporating its customers’ demand forecasts and making new materiel purchases; and
We recommend the Commander, DLA Aviation, evaluate and improve DLA Aviation procedures for reviewing purchase requests and orders of parts that are more than inventory target quantities.
Management Comments and Our Response
Comments from DLA addressed all specifics of the recommendations, and no further comments are required.
This report is a result of Project No. D2014-D000AH-0184.000.