transfer policy. The inventories reported in Part II of this report have been stratified in accordance with this Instruction.

Mobilization Reserve Study

A study is in progress to determine the policies and practices which should be applied Defense-wide in establishing and managing mobilization reserve stocks of secondary items. The major objectives of the study involve a review of current logistics guidance and item selection criteria and the development of uniform policies and methods for the computation of secondary item mobilization gross and net requirements. target date for completion of the study is 15 October 1966.

The current

Identification, Control, and Utilization of Short Shelf-Life Items

The short shelf-life program, which was started in the preceding year with the preparation of a study by a joint DOD/GSA Task Group, continued satisfactorily toward the implementation of a uniform system for controlling short shelf-life assets. An Addendum Report was prepared by the original study group which had been reconvened (1) for the purpose of expanding to a broader coverage the proposed DOD Instruction that had been submitted with the basic report of the preceding year, and (2) to analyze and respond appropriately (in the proposed Instruction) to the General Accounting Office report of March 1965, "Supply Management of Paint and Other Short Shelf-Life Items".

In their follow-on session, the joint study group developed many additional facts which contributed significantly to the full understanding of the shelf-life problem, and because of this additional insight into the matter, the proposed DOD Directive was redrafted in its entirety, and recirculated for coordination.

Closely associated with the general shelf-life problem is the specific problem of the medical, stockpile maintained by the Public Health Service. The use and rotation of this stockpile of Civil Defense medical supplies have been identified as major problems in which the entire Federal Govern

ment has an interest.

An interagency committee, chaired by GSA, was organized to acquire

a full understanding of the problems which now discourage cross-servicing of the medical items in that stockpile; DSA has been appointed to represent Defense. The DOD can be of assistance in utilizing the current short-life stockpile items and in contributing to the long-term solution to the problem.

Phased Provisioning

Phased provisioning requires that quantity procurement of selected high-cost items be deferred until later stages of production of weapons, systems, and equipment, thereby enhancing the ability to predict actual requirements more reliably. Buffer stock quantities of these selected items are held by the contractor as in-production materiel to serve as back-up support in case a demand occurs while phased provisioning is in effect.

During the past three years DOD provisioning activities have been working with prime contractors to set up definite contract and cost terms, and to perfect government-contractor provisioning relationships and oper ating techniques.

Procurement programs to which phased provisioning has been applied, or is planned, include the J-79-15 engine (for the F-4 aircraft), the C-141A aircraft and its TF-33 engine, the F-111A aircraft and its TF-30

engine, the C-5A aircraft and its TF-39 engine, and the A-7A aircraft.

The C-141A was the first major program to which phased provisioning was applied. To date, procurement savings of $4.3 million have been identified. An additional $4.3 million potential savings remains, pending final decisions to buy or not to buy selected phased provisioning items. The dollars saved have been used to meet other unfunded requirements.

Initially, $8.3 million worth of phased provisioning items have been identified for the F-111A program, and $0.6 million for the A-7A. Negotiations are in progress for the C-5A program.

UTILIZATION

DOD Utilization Program

This program of full utilization of available assets continues to be administered by DSA through its Defense Logistics Services Center (DLSC) where the requirements of the military services are matched against potential excess and other releasable assets of all parts of the DOD. By this, and by other means, DOD utilization amounted to $1,596 million in fiscal year 1966, an increase of 64 percent over 1961 and of 9 percent over 1965. Transfers to Civil Agencies and MAP amounted to $604 million, an increase of 53 percent over the preceding year.

DOD Donation Program

The Federal Property and Administrative Services Act of 1949, as amended, provides for donation of surplus personal property to state governmental agencies through the Department of Health, Education and Welfare (DHEW), accredited Service educational activities, and public airports, public bodies and other donees authorized by GSA, to be used for health, education and civil defense purposes, including research.

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Dollar value of surplus property donated to authorized recipients during the last fiscal year amounted to $285 million, of which $264 million was to state governments through DHEW. Donations have been at about this level for the past three years. For fiscal year 1966, donations were expected to run somewhat higher, but increased utilization within DOD and decreased generation of excess kept the level constant. DOD Surplus Sales Improvements

The Department of Defense has inaugurated a series of improvements or innovations aimed at improving buyer participation and realizing an optimum return from sales of surplus property. The following are a number of the most significant actions.

a.

The development and use of a DOD centralized bidders list. The use of a computerized DOD process not only identifies potential buyers, but also identifies the types and classes of surplus property of interest to such buyers in the geographical areas in which they wish to participate. The list is automatically purged of nonparticipating registrants. The development and use by all Defense Surplus Sales Offices of standard catalog formats, sales conditions, and methods of sale.

b.

C.

The mechanical centralized selection of bidders in Zip Code sequence, for the purpose of printing and distributing sales catalogs

containing surplus personal property being sold in the 48 contiguous states.

d. The adoption of "guaranteed description" sales in lieu of the formerly used "caveat emptor" type of sale.

e.

The acceptance of personal checks, in addition to cash, money

orders, certified checks or bid bonds, in bidding for surplus personal property.

f. The adoption of improved market development procedures, and merchandising techniques, to sell surplus personal property. These functions are promoted by the use of merchandising specialists and a market research activity which have at their disposal the sales history of specific items, computed and maintained by an automatic data process.

ITEM MANAGEMENT

Item Reduction Program

The Inventory Item Reduction Program is established as an integral part of the DOD Cost Reduction Program. Increased emphasis on the Inventory Item Reduction Program and the efforts expended by the military services under the item entry control and the inactive item review programs have resulted in the elimination of 421,460 items from the DOD supply system during fiscal year 1966.

Item Management Coding Program

The Item Management Coding Program continues to be an important part of the DOD Logistics System. Within Federal Supply Classes assigned to DSA for integrated management, determination of the specific items to be managed by DSA is accomplished by application of uniform item management coding criteria approved by the Defense Materiel Council.

A prerequisite to IMC requires coding activities to review all items for withdrawal of interest. This is resulting in the removal of large numbers of items from the DOD supply system. As of 30 June 1966 various service inventory control points had indicated withdrawal of interest in