We determined whether the Defense Logistics Agency (DLA) was effectively managing excess demilitarization (DEMIL) code B and sensitive DEMIL code Q items in Long-Term Storage (LTS). Specifically, we reviewed whether items assigned to LTS were justified and reused and whether unneeded items were disposed of promptly. DEMIL code B items are munitions list items that are defense-related property for military use, and sensitive DEMIL code Q items are commerce control list items.
DLA did not effectively manage LTS inventory. Specifically, DLA stored items in LTS inventory that exceeded historical demand and, therefore, were not justified for retention. This occurred because although a policy memorandum directed DLA to review LTS items for continued retention after 24 months, the policy did not specify how to determine acceptable inventory levels for those items. As a result, DLA unnecessarily incurred costs to store 768,571 LTS inventory items, valued at $169.5 million, that far exceeded the historical demand.
In addition, in 2014, DLA reused 216,003 LTS inventory items, valued at $55.4 million, through its automated process to identify items for reuse (automated recoupment). However, DLA’s process did not identify 87,135 LTS inventory items that could have been reused. This occurred because DLA inappropriately excluded 12 categories of LTS inventory from the automated recoupment process, and the process did not identify all LTS items eligible for recoupment. As a result, in 2014, DLA missed opportunities to offset or reduce purchases for items valued at $17.9 million that were already in LTS inventory.
We recommend that the Director, DLA:
- in coordination with the Assistant Secretary of Defense for Logistics and Materiel Readiness, implement a policy to establish a demand-based inventory management process for LTS inventory;
- determine acceptable inventory levels for LTS items based on the revised guidance and dispose of inventory items that exceed those inventory levels;
- update the automated recoupment process to eliminate excluded categories and ensure all items are appropriately recouped from LTS inventory; and
- determine why eligible LTS inventory items are not automatically recouped and correct those deficiencies in the automated recoupment process.
Management Comments and Our Response
The Deputy Director, DLA Logistics Operations, responding for the Director, DLA, addressed all specifics of the recommendations, and no further comments are required.