civilian economy consistent with military requirements and the national interests. Gentlemen, this concludes my prepared statement. Mr. MCGUIRE. I would like to start with the area of inventory management. We believe we are achieving the dual objective of effectiveness and economy by progressively integrating logistics operations throughout the Department. In achieving these objectives, certain policies have been established; specifically, these policies are: (a) Inventories held by the separate military services are considered assets of the Department of Defense. They will be utilized in lieu of new procurement when and where a valid need exists. (b) Single service management techniques, or the General Services Administration are to be used for like groupings of items. (c) Single service distribution of material is to be applied where concentration of defense activities warrants. (d) Advanced principles for requirements determination and data processing will be applied to logistics operations. (e) We are continuing our efforts to the development of common identifications, improved supply procedures, simplification of common commercial items, and standardization of technical items. Based on these policies, the Department of Defense has taken steps over the past several years which we believe have achieved positive results. If you have no objection, Mr. Chairman, I will submit for the record a list of these factual accomplishments. The CHAIRMAN. Thank you very much. (The document referred to follows:) DEPARTMENT OF DEFENSE FACTUAL ACCOMPLISHMENTS-INVENTORY MANAGEMENT AND SURPLUS DISPOSAL BODY OF POLICY AND PROGRAM DIRECTION NOW IN EFFECT A. Each item of materiel within a military service will be managed by only one inventory control point; item and financial records will be maintained by condition and purpose (serviceable; peacetime, mobilization, etc.); physical inventories will be taken generally once a year. B. Maximum reliance will be placed by the DOD on producer or commercial distributive systems and on the stores depot system of the GSA. C. Optimum use on an interservice basis will be made of available materiel within the DOD. D. Uniform and comprehensive inventory management reporting will be made to the DOD by all military services (not items but values). E. Standard forms for supply documentation of materiel transactions will be used throughout the DOD. F. The Armed Forces Supply Support Center is in operation to perform common supply functions of utilization, cataloging, standardization, and analysis of supply systems. G. Comprehensive updated utilization screening procedures are in effect to assure maximum use of available assets within DOD and within the Federal Government. H. Uniform demilitarization policies are in effect for all elements of the DOD for surplus military property located in the continental United States, Territories, and possessions. I. Peacetime operating and safety levels of supply will be computed on economic factors using prescribed formulas to determine economic order quantities of supply and economic levels of stock. J. Uniform and comprehensive accounting and reporting for the excess and surplus property program will be used throughout the DOD. K. All inventories held in quantities above minimum peacetime and mobilization requirements will be transferred between inventory managers of the DOD without reimbursement to be used in lieu of new procurement. L. Military service excess stock fund inventories held in lots of $3,000 or less (acquisition cost) will be transferred within the DOD at the post, camp, and station level, and within the Federal Government without reimbursement to be used in lieu of new procurement. M. The GSA will be used to screen all excess military property held in lots of $3,000 or less (over 50 percent of all lots) with simultaneous screening of military and civil agencies being performed on a regional basis. N. An accelerated item reduction program is in effect and will be completed by December 31, 1961. The program will reduce the range of items through simplification, will increase commonality of item use, will increase central knowledge of items, and will result in inventory reduction through cleanup and attrition. O. The establishment of consolidated surplus sales offices and a single bidders registration office has been directed, and these offices will operate on an interservice basis. (Reduction from 315 to 35 offices.) C. Current inter-Government utilization of DOD assets: 387.0 Other Federal agencies____ 134. 0 1, 172. 0 117.0 Total_ 721.0 1, 289. 0 Mr. MCGUIRE. Workload indices during fiscal year 1955 through fiscal year 1959 show increases ranging from 16 percent to 23 percent. Supply system operating costs increased only 11 percent. In the past 2 years inventories have been reduced by $7.3 billion. Interservice and interagency utilization of material assets in lieu of new procurement has risen from $721 million in fiscal year 1958 to a current rate of $1.3 billion annually. This obviously is the utilization of our assets in lieu of new procure ment. We have single manager assignments for subsistence, medical supplies, clothing and textiles, and petroleum. A comprehensive analysis of the single manager concept revealed that significant economies have been achieved by the elimination of concurrent buying and selling— EFFORTS TO ELIMINATE CONCURRENT BUYING AND SELLING The CHAIRMAN. Mr. McGuire, do I understand you to say the elimination of concurrent buying and selling? Mr. MCGUIRE. This is our objective. The CHAIRMAN. Has it been achieved? Mr. MCGUIRE. I believe that it has been achieved, Senator. I don't mean to hedge this. We think it is achieved in principle and in practice. There are instances where it will happen. There is one point that I would like to stress, if I may. In the screening process, and I am going to get to this later in my statement we have said that on items with an original cost of $3,000 and under the cost of screening nationally is not worth while. It costs more to do this than we can save through utilization. Therefore, we are only screening such items on a regional basis, and if no need develops we dispose of them. Now, to illustrate what I am saying, we might be screening, let's say, in area A, and the other side of the country in area B, we might be buying a comparable small value item. It do not call this concurrent buying and selling. I call this sound management. It is cheaper for the Government to handle it this way. As I said, a comprehensive analysis of the single manager concept revealed that significant economies have been achieved by the elimination of concurrent buying and selling; reduction of crosshauls and backhauls; payroll reductions; more economical procurement operations; and item reduction and standardization programs. The systems are providing effective supply support and the customers approve. Our estimates indicate one-time savings of $239 million resulting primarily from reduced inventory, and annual savings at the rate of $13 million each year. I wish to stress that these are only the identifiable savings, and I believe they have been made on a conservative basis. Two new single managers have been designated. These are: Military Industrial Supply Agency (Navy). In addition the military departments are to review and submit recommendations on single managership for construction supplies and automotive supplies. Coordinated procurement program: Under the DOD coordinated procurement program we have 64 plant assignments and 39 commodity assignments through which we coordinate the procurement of items in the majority of the Federal supply classes. Under these assignments, one Department serves as the procuring agency for all other Departments. During the past year, we have devoted considerable time and effort toward reenergizing and improving the scope and efficiency of this program. SURPLUS DISPOSAL The value of military equipment in use which must be supported through our logistics systems amounts to $63.6 million. This figure represents the acquisition cost of our capital equipment. This capital equipment either wears out from use or becomes obsolecent. For the purpose of planning our future efforts, we make the assumption that 10 percent, or $6.4 billion, of this equipment will be subject to disposal each year, and this is for planning purposes only. Inventories are also disposed of for other reasons such as damage or deterioration. Further, just as in the case of the best of our industrial concerns, we do make mistakes in predicting requirements. Our supply system inventories as of June 30, 1959, were valued at $46.8 billion. Included in this total is $9.5 billion, which is excess or surplus. The CHAIRMAN. How much surplus? Mr. MCGUIRE. Included in this total is $9.5 billion, which is either excess or surplus and, if you would allow me to, sir, I have a table which I would like to discuss in detail to explain that because I think there is some confusion on this terminology. We have been making an intensive drive to clean out inventories by utilization and disposal. In this respect I would like to comment that some of the things that we are now calling excess and putting into disposal channels are not new. They have been in the inventory system for some time. The point here is that I think we now have the capabilities to identify them, and, the determination to bring them out on top of the table and decide what we are going to do about them. If they are not usable in our inventory we take steps to get them out of the system so that we are not paying needless handling and warehousing charges. I know some of the figures have frightened some people, but I point out to you it is not something new that has suddenly developed. We expect that, for the next 2 years at least, the volume of property entering the disposal program for all sources will approximate $10 billion annually priced at acquisition cost. I have a table here, and I believe this table is included in my original statement. This shows the comparison of utilization under the disposal program for the fiscal years 1959 and 1958, which I think is significant. In the year 1958, which I will read first and then follow with the 1959 figure, we processed property in the amount of $6.5 billion; in 1959, $8.9 billion. This is the rate of the processing of this material. The CHAIRMAN. When you say processing, does that mean disposed of? Mr. MCGUIRE. No. This is the property that we put into this screening category for review, sir. As a result of this, we find a requirement for it and utilize it within our own system, or have another Government agency take it off our hands, or put it into the disposal channels. The donation program also would be included in this. Breaking that figure down we utilized $1,591,000 in 1959 and $0.942 billion in 1958. In rough figures, and I could give the figures in detail or with greater accuracy if you desire them, in utilization within the system, which is the true test of the efficiency of the screening process, in 1958 it was around $700 million and in 1959 it was $1.2 billion. Representative CURTIS. I am trying to follow this on the chart. Is this the chart that is in your paper? Mr. MCGUIRE. Yes. I am now taking the chart, Mr. Curtis, and breaking it down as to A, B, and C. Representative CURTIS. Yes. I was just trying to follow you here. Mr. MCGUIRE. I was trying to do it from memory. I am glad you told me which page it was on in the original statement. Representative CURTIS. There was a little discrepancy in the figures. That is why I wasn't sure. Mr. MCGUIRE. Thank you for your assistance in that matter. The items that we couldn't use out of the excess listing, so-called Mr. O'MAHONEY. What do you mean by "the items that we couldn't use"? Who are we? Mr. MCGUIRE. The Department of Defense, not the full Government, Senator. I am attempting, Senator, to trace very quickly and briefly the processes through which merchandise or items that are called excess go through before they are released for surplus. I am pointing out that because it is listed as excess it is not excess to the Department of Defense requirement; it is excess to the agency which happens to hold it, and then the step we take to go through other areas, Army, Navy, Air Force, Marine Corps. Senator O'MAHONEY. Who in the Department of Defense exercises that function of determining what is usable and what is not? Mr. MCGUIRE. First of all, each individual service reviews in their requirements SCREENING OF EXCESS PROPERTY Senator O'MAHONEY. Mr. McGuire, the individual service can't review anything. It is somebody in the individual service, some officer. Mr. MCGUIRE. That is right. Senator O'MAHONEY. Who is it? Mr. MCGUIRE. I think I can tell you, but Mr. Riley, who is in charge of this area, will give you this in the exact detail. Mr. RILEY. Senator, these determinations are normally made by an inventory control point. He is the manager of that kind of material. Senator O'MAHONEY. Inventory control point? Mr. RILEY. Yes, sir. Senator O'MAHONEY. What is the point in your terminology? Mr. RILEY. An inventory control point, sir, is one that has the function or the responsibility for the computation of requirements for items assigned for distribution. Senator O'MAHONEY. Who is the individual in charge? Military or civilian? Mr. RILEY. In most cases it is military. Senator O'MAHONEY. In most cases it is military? Mr. RILEY. Yes, sir. Senator O'MAHONEY. What knowledge does he have of making contracts? Mr. RILEY. I beg your pardon. Senator O'MAHONEY. What knowledge is such a military man required to have for making contracts? |