It also appears that there is a lack of uniform guidance on the establishment of surge and mobilization capacity requirements for the physical distribution system. The various studies on the distribution system have employed surge and mobilization capability ranging from 15 percent to 100 percent. This suggests a need to develop and implement a defined surge and mobilization capability criterion for warehouse capacity planning purposes. Conclusions The OSD Task Force believes that DOD has adequately studied the distribution system issue, and it has been determined that excess capacity exists. A depot consolidation plan should be developed and implemented within the framework of an aggressive timetable, as designated by the Secretary of Defense. It is evident that there is little accurate data on capacity and utilization in the wholesale distribution system. The lack of accurate capacity data places an obvious constraint on developing sound warehouse capacity decisions. Recommendations OSD 5-1: DOD should develop and implement a final plan for improving the wholesale distribution system using information in all the previous studies. The WIDS prototype system could serve as a model. It has identified four depots as candidates for consolidation or merger, but do not argue that these four depots are the only candidates for consolidation. The consolidation plan should include those system changes needed to facilitate depot restructuring, accurate identification of excess capacity and mobilization requirements, and the selection of candidates for depot deactivation. Further, any transportation savings that could be realized from the WIDS study and that are independent of actual depot consolidation should be implemented expeditiously. OSD 5-2: The reporting system should be upgraded to improve the adequacy and accuracy of physical warehouse capacity data. In particular, DOD Instruction 4145.5 should be revised to improve the existing warehouse reporting system. Data should be generated that will allow DOD to develop representative depot productivity and efficiency measures, so that depot performance can be more effectively monitored and controlled. Savings and Impact Analysis Precise estimates of savings are difficult because the conclusions were inferentially drawn from three recent studies, none of which came up with precisely this recommendation. On the other hand, the four depots referenced for closure here were each recommended for closure by at least two of these recent studies. In the time available for our review, the Office of the Secretary of Defense (OSD) Task Force was not able to develop independent analyses of the cost consequences of the reconfiguration of the depot structure implied by the WIDS study. Significant transportation cost savings would result from the recommended consolidation, as well as from better transportation planning for the reconfigured depot structure. We believe a $25 million estimate of annual savings to be quite conservative, based upon our review of the prior studies. Operating cost savings would also be significant, with the precise amount dependent upon the incremental operating costs that the remaining depots would incur as a result of closing the four suggested depots. Our assessment of the three prior studies leads us to feel that a conservative estimate of annual operating savings would also be at least $25 million. The combined annual savings of $50 million would be 7 to 12 percent of estimated wholesale depot operational costs, according to DOD officials. Also, based inferentially on the three prior studies reviewed, we believe that one-time implementation costs of as much as $50 million could be incurred. This would translate to a one-year payback on the investment. Assuming a 10 percent inflation rate, the mean estimated savings for the first three years from implementation of this recommendation would be: Implementation The Secretary of Defense should develop and implement a final plan to consolidate the wholesale depot system as discussed above. To the extent that the consolidation plan constitutes a proposal to close or realign military installations or facilities having more than 300 civilian employees this would result in the reduction of 50 percent of the number of civilian employees at such installations, or 1,000 employees total DOD may not implement the plan until it has complied with the requirements of 10 U.S.C Section 2687 (1980) and Section 112 of the 1982 Military Construction Appropriations Act, 970106. Pursuant to these statutes, DOD must publicly announce the consolidation plan, comply with the requirements of the National Environmental Policy Act of 1969, and submit a detailed written justification to the House and Senate Armed Services Committees. Congress then has 60 days in which to affirmatively reject the proposal before it can be implemented by DOD. DOD Instruction 4145.5 should be revised to improve the existing warehouse reporting system as discussed above. II. ISSUE AND RECOMMENDATION SUMMARIES (CONT'D) A. LOGISTICS (CONT'D) OSD 6: DEMILITARIZATION OF CONVENTIONAL AMMUNITION Summary Recommendation The Department of Defense (DOD), through the Defense Property Disposal Service (DPDS), should solicit bids for the one-time demilitarization of its backlog of approximately 200,000 short tons of conventional ammunition and for the ongoing demilitarization of the estimated 40,000 short tons of ammunition accumulated annually. Bids should be sought both for contractor demilitarization in contractor-provided, nonmilitary facilities, and for contractor demilitarization in military facilities. The priority in this solicitation should be the elimination of the existing backlog of surplus and obsolete ammunition. Based on information contained in bid proposals, DOD can then determine the feasibility of ongoing contractor participation in demilitarization. Financial Impact $18-$31 million annually $93-$157 million Potential Savings: Annual savings of One-time savings from demilitarization Background Ammunition stocks become surplus and obsolete as new technology and weapons are introduced and phased in. The disposal of obsolete surplus ammunition in the United States has generally been accomplished by demilitarization (dismantling and destruction) at a military base in accordance with the Defense Demilitarization Manual (DOD 4160.21-M-1). With a Ammunition becomes more sensitive with age. large stockpile of ammunition awaiting demilitarization, there is an increased potential for theft and accidental discharge. Therefore, good safety practice dictates strict control and prompt demilitarization of ammunition stockpiles. In 1977, the Army assumed the role of single manager for conventional ammunition for all of the services. In this role, the Army's responsibilities include production and acquisition of ammunition as well as maintenance, renovation, demilitarization and disposal. With respect to demilitarization, this meant that as of November 1, 1977, the Army inherited from the other services the ammunition inventories designated for demilitarization. In order to assess the nature of the problem and determine feasible alternative solutions, the Office of the Secretary of Defense (OSD) Task Force conducted interviews with appropriate OSD and Army personnel. Data were gathered on inventory levels and estimated costs associated with demilitarization of the backlog. Pertinent DOD memoranda and directives on the demilitarization effort were also obtained. Special attention was directed to the Blue Ribbon Panel report. Findings At the end of FY 1977, the Army's demilitarization inventory was approximately 39,000 short tons. At the beginning of FY 1978, as a result of the Army's designation as a single manager for conventional ammunition, the Army's demilitarization inventory increased by 98, 700 short tons to 137,700 short tons. |