results. We have great discrepancy in practice as between the individual military departments.

I noted from the testimony that we still have this extensive misuse of local purchase by the Air Force which indeed is a device which takes an end run around central control, if you will.

I note that we still do not have a uniform ration law established. Until that is done we do not get into the use of standardized menus and the economies of subsistence, procurement, storage, and distribution.

I would be the first to concede that improvements have been made in our requirements planning and, some very helpful and encouraging action has been taken in the Defense Department under Secretary McGuire in this matter of screening requirements.

But anyone who looks at the excess and surplus, as your committee has been doing, must come to the conclusion that we have not yet scratched the surface on controlling the items that are going into our inventories systems.

The one reaction that I have from the testimony is that we have perhaps put too much emphasis on coordinated purchasing, or single service procurement, which, after all, is but one step in the supply system.

I note that the ropewalk at Boston is still in operation as an indication of the continued difficulty in getting the military out of active operation of those business-type activities of which the Commission found so many.

I would not attempt to tell the committee that all the business-type activities of the Department of Defense are wrong or improper. Of course they are not, but certainly there is economic reality in the importance of this when we realize that as of the time of the Commission's study the capital investment in these commercial-type activities by the Department of Defense was some $15 billion; that there were some 600,000 persons employed in these commercial activities, and that was only after our having identified some 2,600 in some 48 different categories.

Now, immediately after the Commission's report, in 1955, and 1956, and 1957, there was quite a bit of activity and many of the smaller operations were shut down.

In the past 2 years there has been a very disappointing amount of activity in this field. I think it is fair to the Department of Defense to say that their attempts to shut down commercial-type activities have not completely been with the cooperation of the Congress in various specific items, but that is a problem of our form of government and it is a problem which can be resolved.

In the meantime, as long as we continue these activities by Government, they will not be replaced by taxpaying business operations.

One of the very shocking things in the study of the Department of Defense to us, as brought out by the personnel committee, which was headed by Tom Reid of the Ford Motor Co., one of the better qualified personnel men in business in this country, was the realization that we had at that time some 16,000 duplicate staff managerial positions in the support activities in the Department of Defense as between civilian and military.

There were some $110 million annually involved in that duplication at the time of our study.

I am not aware that substantial progress has been made in correcting that. Certainly the committee is in a position to find that out.

I do not want to be considered as throwing brickbats here because I just do not know in some of these fields how much progress has been made since our study.

But I would point out that we still have this turnover of supply management people on the part of the military, as a part of the rotation system, so that we do not get a continuity of business-type experience and yet in many cases it is the military man who is in a top position. We need a continuity of civilian management in the details of these various supply operations.

Now that is not at all to imply that these military men involved are not sincere, capable, and dedicated people. But a supply system is essentially a civilian-type function.

It is not what military people were trained for. So when through rotation they get into this sort of thing, they have to go through a period of education and training, as would be true of any of us.

In considering this matter of integration that has been referred to somewhat briefly before the committee, I wonder if we have an appreciation of what it means to have the duplication in supply and distribution systems that are part of this picture.

Not only are there the general breakdowns and duplication between the Army, Navy, Marine Corps, and the Air Force, but we have the separate supply systems within the Army for the various corps, within the Navy for the bureaus, all of which gets into further areas of duplication, areas which consume manpower, and areas which because of their segregation involved great problems of common management.

I

Considerable discussion yesterday, I think, was given to the use of the General Services Administration for common-use items. think I would express just a word of caution on that.

At the time of the Commission's study, the General Services Administration, which was a creature of the first Hoover Commission, as you all know, in some of its functions was not performing in a reasonable, satisfactory manner, for the responsibilities that it had.

IMPROVEMENTS IN GENERAL SERVICES ADMINISTRATION

It is entirely fair to say that improvements have been made in the handling of the General Services Administration supply system since the time of the Commission's study.

I think the less said about traffic management in General Services Administration the better; not in the sense that GSA is doing a poor job today, but in the sense that we never have achieved in the handling of traffic management for the civilian agencies concentration of that activity in GSA. It continues to be spread around in most of the civilian departments, as was true at the time of the first Hoover Commission study and as was true at the time of our recheck on it several years ago.

If we are going to use GSA for a considerable part of these common use items, I think we need to keep in mind that if economy is to come economy in manpower, economy in inventory, economy in distribution-then it must be more than a mere procurement responsibility.

It must be a supply responsibility in that field and using GSA supply facilities as much as possible around the country.

Of course, General Services Administration today has no oversea responsibilities whatsoever.

In some of our inspection trips we had some illustrations of the problems of the military in really accepting GSA for more than a short period in supply management.

We went into a GSA warehouse on the Pacific coast in South San Francisco, and found that for the civilian agencies GSA was doing a pretty good job on office supplies. They had a backlog, as I recall it, of 126 typewriters to cover all Government installations on the Pacific coast.

Certainly not an excessive one by any standard.

The next day we went into the Marine Corps warehouse at Harrison Street in San Francisco and found over 4,000 typewriters in that one installation and a group of men engaged in taking them apart, oiling them, repairing them, and so on.

There is a great reluctance as we get down below the top echelon to accept the potentialities of General Services Administration on the one hand and to objectively look at its limitations on the other.

I point this out only to urge that the committee look at it with some caution-aware of the limits of what GSA can do and the fact that really big savings will not materialize until the full management of common supply and service activities are pulled together under one control within the DOD. Then and only then can the full potential of GSA be realized in procuring those commercial type items common to both the military and civilian agencies of the Government.

STOCK FUNDS SHOULD BE HARD AS A MANAGEMENT TOOL

I listened with great interest yesterday to some of the remarks and discussion of industrial funding and revolving funds. We made some review of that in our Commission studies.

Industrial funding, if I am not mistaken, started in the Navy as far back as 1893. It has become a traditional habit of control.

After all, what are we talking about in stock funds? We are talking about merely a management tool which can be a management limitation and which can be an operational limitation.

I think there are great benefits which have been achieved and can be achieved with the use of stock funds but they should be a tool and not a Bible.

Dependence upon them can be overdone and you can freeze into an operation an inflexibility, an uneconomic lack of control, and cer tainly it is much harder with respect to stock funds for the Congress to carry out the check and balance that it is able to do through the normal appropriations procedure.

I came across a few days ago a report of the Department of Defense appropriation hearings for 1960 before the House in which an illustration of this problem was made in volume 2, page 289, when General Arnold gave an illustration of the problem of where stock funds do not help.

He describes in his testimony how one of his own warehouses had a supply of laundry machinery, how their own laundry machinery

was worn out, but because they did not have money to use to go to the stock fund they could not take the equipment out of their own warehouse and use it.

A ridiculous situation, as any of us know, but it illustrates the realities of unflexibility that can come into the stock fund operation.

SURPLUS PROPERTY PROBLEMS

I think it might be appropriate at this time, if it is your pleasure, Mr. Chairman-I have studiously kept away from surplus disposal among other parts of the supply because, as you know, we have at the table with me a man who has forgotten more about supply management and surplus problems than almost anyone in the country and still has left more knowledge than the rest of us have.

General Wood was Chairman of the Commission's Task Force on Surplus Disposal. He was a member of the Committee on Business Organization of the Department of Defense and I would be very grateful to have you invite him to give you his views on this subject at this time.

The CHAIRMAN. We shall be very glad to do so.

General Wood is a distinguished citizen of Chicago. He has been a former Quartermaster General in the U.S. Army.

General, if you have any comments that you would like to make, we shall be very grateful to hear them. We appreciate your coming here.

General WOOD. I have no prepared statement because I feel that the committee has been burdened with enough testimony and very good testimony.

I think the committee is performing a public service in attacking this problem.

What comments I make will be very brief.

The rote of surplus begins in the requirements-requirements prepared by the requirements branches of the various bureaus and departments; then they are passed over to procurement.

In many cases the requirements are drawn up by young untrained officers who have had no supply experience and it is a matter of rote. They do not have the proper record of issues, what we would call in commercial language, sales. It is as if the buyers of Sears, Roebuck kept on buying regardless of the amount of sales.

So it starts there.

Then you get to the depots of the various departments and in those depots you have what you call mobilization reserves, economic reserves, and contingency reserves, and certain goods are set aside in case of war or in case of contingencies and so on.

There is a tremendous waste there. It is all right in certain very technical things, let us say missiles and parts of which you keep a reserve, but there is no object in keeping a reserve of hardware where goods can be turned out in a very short time in time of war.

Another thing is that the officers are not trained in supply. There is one rule of thumb that applies both in military and commercial service about 20 percent of the items furnish 80 percent of the sales or issue. Say there are 100,000 items in the catalog. Twenty thousand items will produce 80 percent of the sales. But just as much time

and effort is put on that 80 percent that is relatively unimportant as on the 20 percent that is important.

The procurement officer will buy as liberally of the item which is called for maybe once every 6 months as the items which are called on every day. To use an example, it is just as if Sears bought just as many pianos as they did overalls. They sell a couple of hundred pianos a year and they sell several million overalls. That is to illustrate the errors that the defense makes.

I have spent 20 years in the Government service as an officer of the Army in the Panama Canal and I have been 40 years in commercial business. In many cases the problems and human nature are the same in either one, Government or big business.

You have just as much difficulty in prying anything away from a department in big business as you have from a department of the Government.

But to show the results, the total inventory on your general supply chart is shown for the Defense Department as $349 million in the tabulation. Anyhow, it shows about 3 years supply; $349 million and $80 million of excess, but the proportion is so big for the inventory and for the amount of supply.

But the committee can recommend a fine system. I think progress is being made. Mr. Shoemaker recommends you have to come more nearly to a complete integration. Your greatest difficulty is the personnel.

For the average Army or naval officer, the supply department does not appeal to him. He does not get the experience; he does not get the outlook.

Furthermore, while an officer may be severely reprimanded if a shortage develops anywhere, he is never reprimanded for a surplus. So he always protects himself by buying all he can, getting everything in the warehouse.

That is the part that is the most difficult to deal with. This committee can recommend, and I hope enforce, a system that is good, but unless the personnel get experience and are properly trained you cannot get very good results. Now, there is not as much waste, but it is still colossal. You probably know that.

The CHAIRMAN. General Wood, to what degree do the tables of equipment for the various units when summated, or if summated, would not those largely prevent overbuying?

General WOOD. Will you repeat that, please?

The CHAIRMAN. With respect to the tables of equipment that each military unit will have, I had always thought that the summation of those tables of equipment would give the general requirements for the service and this would hold down excess buying.

General WOOD. Yes, but there comes a rub.

The table of equipment is often very faulty. I saw that particularly in the Air Corps. I was advisor to General Arnold in supply in the Air Corps in the last war. Those tables of spare parts, the orders were issued when you put in a new airplane, and there again they were so unbalanced, so much we will say on 75 percent of the various items in the table of equipment that the requirements would be excessive.