Dear Secretary Estevez:
We recognize that the crisis-to-crisis mode of budgeting that agencies have struggled with over the last several years has made it difficult to effectively plan, execute budgets, and manage programs across the board. We commend the Department of Defense (DOD) for embarking on an important initiative to improve its inventory management despite the obstacles put in your way. By better managing the purchase, storage and delivery of spare parts and other items, as well as improving the ability to forecast future demands, the DOD will reduce wasteful spending practices and save money that could fund our military's critical needs.
Since 1990, the Department's supply chain management has been on the Government Accountability Office's (GAO) list of high-risk federal government programs needing urgent attention. A key problem is the amount of inventory purchased by the Department and military services beyond what is needed. There are billions of dollars of unnecessary inventory, including spare parts and other supplies, in military warehouses. While some of these items may see reuse, a substantial portion of them will eventually see disposal.
Additionally, each of the military services also has spare parts and other inventory on-order that they do not need. These are items that are under contract, but not yet delivered to the warehouses. They are unneeded according to the Department's own determination.
From FY2009 to FY2011, DOD made steady progress in addressing this problem, reducing the on-order excess from $1.3 billion to $609 million. Unfortunately, the numbers are now trending in the reverse direction.
DOD's most recent figures indicate that the level of on-order excess inventory has climbed to $754 million in FY2013.
According to the Department, the level of on-order excess is increasing, while overall on-order dollars are decreasing. In other words, despite the fact that the services are decreasing purchases, we see even more unneeded items being ordered.
The Department has stated that the recent increased level of on-order excess is due to the shrinking defense budget, stating that the services are, ". . . taking a more conservative approach to canceling orders,"[i] rather than redoubling efforts to cancel unnecessary orders.
These facts are troubling reminders that the DOD still has a lot of work ahead in its efforts to avoid wasteful spending by better aligning inventory with demand. As Secretary Hagel acknowledged last month in his preview of the fiscal year 2015 budget, DOD must adapt, innovate, and make difficult choices to ensure that our military remains ready and capable. Some of those choices would be less difficult if DOD could resume progress in reducing the excess on-order inventory.
We request that you explain to us why the amount of on-order excess inventory began to rise in fiscal year 2012 and what steps DOD will take to once again reduce the excess inventory. Further, we ask that you detail the level of total on-order excess that's been purchased during the past several years, including the amounts of on-order excess that saw disposal. Finally, for the total amount of disposed excess items, we ask that you provide details on the value and type of disposition (sold, scrapped or transferred to non-defense entities). We respectfully ask that you respond to these requests by April 25th.
We look forward to working with you and members of your team during the months ahead on this important issue.