General METZGER. It undoubtedly is less trouble to the manufacturer to procure new material or new parts, because that is part of his purchasing manufacturing program. He is geared to do that.

Mr. HOLIFIELD. What pressure is brought to bear upon manufacturers to make them utilize this excess material?

General METZGER. Through our plant representatives who are located and live with the contractor and who have available the surplus items which are adaptable to the production within the particular plant over which the plant representative has cognizance.

Mr. HOLIFIELD. Are you satisfied they are doing all in their power? And do they have the full cooperation of the manufacturers in the utilization of this material?

General METZGER. Yes, sir. I believe the manufacturers are very receptive to using that material and have been very cooperative. I would like to say, however, that this program has not been under way for too long a time.

Mr. HOLIFIELD. How long a time has it been under way?

General METZGER. Well, approximately, 4 months at present.

Mr. HOLIFIELD. Do you have a program that is known as the "red tag" program whereby you tag these materials as being in that category to be declared excess?

General METZGER. Yes, sir; through our stock-reporting system, reporting all property in service stocks, in depots or warehouses, we are continually reviewing the quantities on hand as against the stock levels we wish to maintain.

Mr. HOLIFIELD. I have been told by people who have visited these warehouses that in some instances you have tremendous stocks of this material set aside as being obsolete, and that it is not being moved but is just sitting there.

General METZGER. In certain instances, sir, that is undoubtedly true, but the plan is under way to dispose of it as rapidly as possible. We would like, however, to have available to us a procedure such as we will attempt to discuss with you today to further assist us in the expeditious movement of that material.

Mr. HOLIFIELD. As a matter of fact, at the present time you are not moving much of this material; are you?

General METZGER. Not as much as we would like, sir.

Mr. HOLIFIELD. The program is only 4 months old, and you really have not got into production, you might say, in declaring excess and redistributing?

General METZGER. We are more or less limited in all of our endeavor at the moment to place our surpluses and service stock into production of current items. Do I make myself clear?

Mr. HOLIFIELD. Are you speaking of critical raw materials now or of parts?

General METZGER. Raw materials, standard fittings, purchase parts, hardware, and the like.

Again I would like to comment that we certainly desire to have available to us an over-all merchandising plan, a merchandising plan wherein this material may be distributed to the economy of the country with the greatest recovery possible in dollars to the Government.

Mr. HOLIFIELD. And the greatest utilization of the material in our defense program.

General METZGER. The greatest utilization, yes, sir, in the economy.
Mr. HOFFMAN. How far have you read in your statement?
General METZGER. I have not read the statement.

Mr. HOLIFIELD. You may proceed, sir.

General METZGER. If I might make one or two further remarks in connection with this presentation which, as I stated before, is an Air Force presentation. We take no pride of authorship. We have availed ourselves of the history in World War II which most certainly was stated by the chairman in his remarks on the floor on the 13th of May, and we may be repetitive in some parts of this presentation. If so, if the chairman wishes to interrupt, we will omit certain remarks, but there may be other procedures which may be better than the one which we are presenting today. If so, the Air Force is very receptive to any other recommendations. This is purely Air Force thinking in the exploratory stage. It has been discussed with other agencies and the other services, but has not progressed beyond the exploratory and planning stage.

Mr. HOFFMAN. Before you go ahead, I cannot understand just what you expect us to do. You come up here with your statement, page 1 of the history; you say that you have talked about a plan that has been devised-and when I say "you" I mean whatever organization is speaking, not you individually—and then over at the bottom of page 2 you say that you think you have a plan which was all right, and then at a further point you say:

After search, A company would find either that (1) the material was already sold elsewhere

that is, when somebody asked for it—

or (2) they had put it to use themselves—

that is, the company that had it, the outfit that had the surplus

or (3) they had made an error in part number or quantity when they reported it to ASU

to their surplus agency—

or (4) they simply could not find it.

There are four things.

How in Heaven's name can the Congress write a law that will cure any one of those?

General METZGER. That is old history which we are presenting to you, leading up to the point that our presentation or thinking now is confined to a plan or a procedure which will eliminate the errors set forth in the history which you, sir, are referring to.

Mr. HOFFMAN. The Congress creates an agency to get an Air Force. Then they give you the money. And you buy too much or have too much which you say is inevitable. And we will concede that. Then you come back to us and want to know how to get rid of the surplus. And you want another agency; do you not?

General METZGER. No, sir.

Mr. HOFFMAN. Some sort of organization.
General METZGER. No, sir.

Mr. HOFFMAN. You say here:

The fault lay with trying to impose upon an aircraft contractor the role of distributor.

You want a distributing agency. That is what he says here. I will let him present it. Apparently, they want Congress to write a law which will make this organization efficient.

Mr. HOLIFIELD. I do not think you are requesting a law?
General METZGER. No, sir; we are not requesting a law.

Mr. HOFFMAN. Then an agency or something. You are here for something, sure as time.

General METZGER. The agency exists, in our opinion, to perform this service for us; the agency does exist. It is a question of presenting it to you gentlemen, to this committee, for your consideration.

Mr. HOFFMAN. For us to solve. We give you the money. You want to create an Air Force. Congress gives you the money. Then you come back here and say that they bought too much stuff: "Now we have a surplus, what will we do with it?"

General METZGER. Sir, we are making this presentation at the request of the subcommittee. We are open-minded as to whatever position this committee or Congress wishes to take in the matter.

Mr. HOLIFIELD. The subcommittee chairman might say, because of the importance of this subject, that the hearing has been called to give the different agencies which are responsible for this material a chance to give us their thinking on it.

As to whether legislation will be needed, or amendment of existing legislation, is not at present before the subcommittee. The purpose of the hearing is to get information to the committee and to the Congress as to the situation which exists in the excess-property field in aircraft at this time in the hope that there may be a plan worked out which will use this more efficiently and redistribute it more quickly.

General METZGER. Yes, sir.

Mr. HOLIFIELD. We understand that there are proponents of the plan and opponents of the plan. This clarification of the thinking of the Armed Forces might be of value to them in arriving at some conclusion. I want the subcommittee to know that these people are here at our invitation. The Air Force has not come and asked us for this, but people in the industry who believe there are great stores of critical materials and aircraft parts that need to be redistributed for defense requirements.

Mr. HOFFMAN. Held by the Air Force?

Mr. HOLIFIELD. Not altogether.

Mr. HOFFMAN. The contractors?

Mr. HOLIFIELD. Much of it by the contractors.

Mr. HOFFMAN. Why do they not go ahead and sell? Why do they come to Congress?

Mr. HOLIFIELD. It is not as simple as that. There is an element of redistribution of excess before you get to the point of surplus disposal under Public Law 152.

Mr. HOFFMAN. I cannot understand it.

Mr. HOLIFIELD. Maybe we can understand it if we will listen to his presentation.

Mr. HOFFMAN. I have been reading it. I cannot understand why they come running back to Congress to do their job.

Mr. HOLIFIELD. Proceed, General Metzger.

General METZGER. Does the Chair care to have me read the history?

Mr. HOLIFIELD. I think it would be well to proceed and give us the presentation, and then we will question you.

General METZGER. Very well, sir.

In any production program, civilian or military, overstocks of materials begin to accumulate from the moment the program is initiated. This is inevitable. These overstocks come about in a variety of manners: First, errors are made in purchasing, which results in materials not required being on hand. Next, engineering changes and modifications render certain parts and materials excess inventory. Then program cut-backs and revisions of manufacturing methods contribute their share of unrequired items.

In any civilian production program, these things are accepted as a part of the cost of production, and the overstocked materials are either set aside for possible future use, or they are sold for what they will bring. In a Nation-wide defense program, the problem is not so easily solved, because not only are the quantities involved large but also, concurrent with an overage in one plant, there may be a critical shortage in another plant. It seems a contradiction to say that an item can be overstock in one plant and in critical shortage in a nearby plant, but such is the case. When the defense program in 1942-46 was initiated, the above situation was not recognized until critical shortages of steel forced attention to it. A study was then made, and the Air Force, having no background and no precedents to rely upon, found itself called upon to create a plan out of thin air, as it were. However, after careful study and consultation with industry representatives, an excellent plan was devised. It was simple, and for the first few months of operation it appeared to function smoothly. The plan, initiated by the Aircraft Scheduling Unit, then located at Dayton, required all contractors to report to ASU, on prepared forms, lists of all materials in their plants in excess of current requirements. These lists were correlated, and master cross-indexes set up.

Then, any contractor experiencing a shortage was told to submit his request to ASU, where it was scanned and compared with the master record of excess stocks. If the item was located on the master stock list, the asking contractor was told that he could secure his needed material from Z company; and, having theoretically "redistributed" the material, ASU removed the item from its master list. From there on, it was up to the asking company to contact Z company (which would be the company holding the material) and have the materials shipped under prices and terms mutually agreed upon. In plan, this system is perfect. And for the first few months of its application it seemed to function perfectly. ASU received and correlated vast lists of excess materials, and washed its hands of each transaction as it was cleared. Everything seemed perfect. Then, after a short while, defects began to show up. In a few months these had snowballed into a great deal of trouble, so serious that it caused a complete reorganization of the program.

The troubles would come about like this: Having been referred to Z company for a certain item, the asking contractor would wire or phone Z company and ask that part AN-16-54, reported to ASU as excess, be shipped air express immediately. After search, A company would find either that (1) the material was already sold elsewhere, or (2) they had put it to use themselves, or (3) they had made

an error in part number or quantity when they reported it to ASU, or (4) they simply could not find it. Having failed to ship the material, for any one of these reasons, Z company would then notify the asking contractor that they did not have the item. Then, the asking company could either go back to ASU for another referral or they could order from a producer of the goods. In many cases, a second referral would result in a second wild-goose chase, and about that time the contractor would bypass the program, and order from a producer. Thus a further burden would be placed upon a producer to make an item already existing in excess stock somewhere. However, there was a still worse crack in the plan: The asking company might be assured by Z company that the material was on hand, and would be shipped at once. And material would be shipped, and in due time it would arrive-only to be found unsuitable for use.

These faults sound relatively simple when put into words, but in actual use they are serious, because words cannot express the time and effort wasted by many people. Wasted time was pyramided upon wasted time, until the program began to suffer. No fault of the plan itself that should be clear, because a cleaner and more efficient plan would be hard to devise. The fault lay with trying to impose upon an aircraft contractor the role of distributor. An aircraft contractor is interested in just one thing-producing, and keeping his schedule. He may be interested in an academic way in redistribution of excess stocks, but not if it takes his mind off his prime job, which is producing.

The contractor will tell you "Yes"-he will cooperate and truthfully, he will try. But after repeated tries he falls back into the pattern of procurement which he has found to be most efficient in keeping his own particular production line going smoothly, and you cannot blame him.

ASU sensed these errors, and began to plan revisions in the program which would eliminate them. They called in representatives of contractors and of producers, and asked their opinions and advice, and from this accumulated advice, a picture began to emerge.

Each different industry in our country follows its own pattern of distribution. Some industries have almost parallel patterns, while others are widely divergent. While a distributor of tires might also efficiently distribute instruments, for instance, he would not necessarily be a good distributor of steel bars and tubing. The patterns are too divergent. To attempt to impose one distribution pattern upon another is to court trouble; it may appear to work for a time, but the inefficiencies overbalance the advantages.

So out of a lengthy series of studies and conferences, ASU developed a modification of the original plan, following industry patterns, which operated in this manner: Industry (meaning the aircraft contractors) was asked to recommend locations and names for contract warehouses and, acting upon their recommendations, a number of distributors were selected and contracts were executed with them to make it possible for them to acquire and distribute stocks of critical materials. These contracts provided guaranties that AAF would take back, at the distributor's cost, any goods remaining in stock at the end of the program. This provision was intended to guarantee the distributor against an inventory loss. There were also provisions as to the per