Report | Jan. 23, 2017

Management of Excess Material in the Navy's Real-Time Reutilization Asset Management Facilities Needs Improvement DODIG-2017-043

Objective

Our audit objective was to determine whether the Navy was effectively managing excess material.  Specifically, we determined whether the Navy was identifying and reporting excess material to the wholesale level to ensure the effective use or reuse of that material and to minimize the Navy’s cost to store and maintain excess inventory.

For this audit, we focused on the retention of excess consumable material in the Navy Real-Time Reutilization Asset Management (RRAM) facilities.  Examples of such material include aircraft damper seals, spring tension washers, and electrical cable assemblies.  These RRAM facilities provide a collection, storage, inventory, and redistribution point for excess material.  We reviewed whether consumable material held in RRAM facilities for more than 4 ½ years was justified for retention to minimize the Navy’s cost to store and maintain excess material and was reused to offset or defer procurements.

Findings

The Navy did not effectively manage excess material stored in 10 of the 12 RRAM facilities. Specifically, the Navy retained excess material that had no demand for more than 4 ½ years without adequate justification.  The Navy did not effectively manage excess material because the Office of the Chief of Naval Operations did not provide clear, comprehensive guidance for the retention, disposition, categorization, and validation of continued need for the excess consumable material in the RRAM facilities.  As a result, the Navy potentially incurred unnecessary costs to store and manage 51,039 unique item numbers, valued at more than $99.6 million, in the RRAM facilities.

Additionally, the Navy did not maximize the use of existing consumable material in the Fleet Logistics Center RRAM facility in Norfolk, Virginia.  Specifically, the Navy held consumable material rather than using it to fill requisitions or offset purchases for items such as safety relief valves and valve disks.  This occurred because Navy guidance did not require customers to first use the Navy Enterprise Resource Planning system when requisitioning material.  As a result, the Navy missed opportunities at the Fleet Logistics Center Norfolk RRAM facility to offset or reduce procurements for 617 unique item numbers valued at $306,454.

Recommendations

We recommend that the Chief of Naval Operations develop and implement retention and disposition guidance for excess consumable material in the RRAM facilities that includes, at a minimum, standardized procedures for retaining material based on demand, validating material for continued need if the retention decision is not based on demand, and properly categorizing material.  In addition, we recommend that the Commander, Naval Supply Systems Command, update policy (Publication 485) to require users requisitioning material to use the Navy Enterprise Resource Planning system before using the alternative methods, which should ensure the Navy maximizes use of excess consumable material available in the Real-Time Reutilization Asset Management facilities.

Management Comments and Our Response

The Deputy Chief of Naval Operations for Fleet Readiness and Logistics, responding for the Chief of Naval Operations, and the Chief of Staff, Naval Supply Systems Command, responding for the Commander, Naval Supply Systems Command, agreed with our findings and recommendations.

The Navy agreed to develop and implement retention and disposition guidance for excess consumable material in the RRAM facilities by November 2017.  We will close this recommendation once we receive and analyze the new policy to ensure that it includes appropriate retention and disposition guidance for excess consumable material in the RRAM facilities. 

The Navy also agreed to update its policy (Publication 485) to require users that requisition material to use the Navy Enterprise Resource Planning system before using the alternative methods. An interim change notice addressing the use of the Navy Enterprise Resource Planning system will be issued by March 2017.  The Navy informed us that parts of Publication 485 are undergoing revision, and that the updated language will be included in the revisions.  The Navy estimates that the revisions to Publication 485 will be finalized by March 2018. We will close this recommendation once we receive and analyze the updated Naval Supply Systems Command Publication 485 to ensure that it addresses our recommendation.


1   Excess refers to material that exceeds the amount expected to be used in normal operations.

2   The wholesale level is the highest level of DoD supply, and as such, procures, repairs, and maintains stocks to resupply lower levels of supply, such as the consumer, intermediate, or regional levels.

3   Consumable material is a supply item normally used for its intended purpose and purchased at the wholesale level.

4   We reviewed demand supply records between July 2011 and March 2016. We selected this time period for review based on when demand supply records were first available in the Navy Enterprise Resource Planning system and the last transaction posted in the system as of our data request date. We reviewed this time period because the Navy did not have standardized metrics for retaining excess consumable material based on demand.

5   We did not identify any material held with no demand from July 11, 2011, through March 6, 2016, at Yokosuka, Japan, and Pearl Harbor, Hawaii.

6   This report refers to national item identification numbers as unique item numbers. A national item identification number is a nine-digit number that differentiates supply items.

7   Navy Enterprise Resource Planning is the Department of the Navy financial system of record that streamlines business operations for financial and supply chain management.

This report is a result of Project No. D2016-D000RD-0052.000.