Report | Dec. 2, 2015

Defense Logistics Agency's Materiel Returns Program Could Be Managed More Effectively

DODIG-2016-027

Objective

Our objective was to determine whether DoD wholesale managers were effectively managing excess materiel. We focused on the effectiveness of the Defense Logistics Agency’s (DLA) Materiel Returns Program (MRP) at the wholesale level.

Findings

DLA did not effectively manage the MRP at the wholesale level. Specifically, during FY 2013, DLA rejected customer requests to return materiel for 4,456 national item identification numbers (NIIN), valued at $21.2 million, while it procured the same items from contractors. We statistically sampled 253 of the 4,456 NIINs. Of the 253, we focused on 172 processed by supply planners. In summary, we agreed with supply planner decisions not to accept customer return requests for 17 NIINs valued at $417,987. However, supply planners could not provide adequate support for rejecting customer return requests for 155 NIINs, valued at $5.3 million. Supply planners rejected the 155 items for return because:

  • DLA did not ensure MRP guidance included return procedures for materiel such as critical safety items, aviation life support equipment, and items that required first article testing;
  • MRP training did not address how supply planners should evaluate and respond to customer return requests, and
  • supply planners lacked confidence that the materiel offered for return would be returned timely or in serviceable condition.

As a result, DLA missed potential opportunities to satisfy backorders and offset or delay procurements for a projected 2,824 NIINs valued at $9.3 million, and customers were denied the opportunity to receive a credit for returning their excess materiel.

In addition, DLA did not effectively manage the list of items automatically excluded from return, referred to as the auto-TC table, which included 111,709 NIINs. Specifically, DLA officials could not explain why 34 of our 253 sample items, with transactions valued at $3.5 million, were on the auto-TC table. This occurred because DLA guidance did not require that DLA personnel document their rationale for items listed on the table or require management officials to review and update the table on a periodic basis.

As a result, the auto-TC table may not have accurately reflected current operational and program requirements. Therefore, DLA did not have reasonable assurance that the MRP maximized the use of excess DoD materiel, and DLA may have missed additional opportunities to satisfy backorders and offset or delay future procurements.

Recommendations

Among other recommendations, we recommend the Director, DLA develop MRP guidance that includes return procedures for all categories of materiel; develop mandatory initial and periodic MRP-specific training that aligns with the guidance; and develop guidance to require personnel to periodically review and document their rationale for including items on the auto-TC table.

Management Comments and Our Response

The Director, Defense Logistics Agency Logistics Operations, responding for the Director, Defense Logistics Agency, addressed all specifics of the recommendations, and no further comments are required.