1. 1 Physical Inventory Control Policy Changes March 10, 2011 Lynn Fulling ODASD(Supply Chain Integration) OUSD(AT&L/L&MR)

2. AT&L / Logistics & Material Readiness Office of Deputy Assistant Secretary (Supply Chain Integration) 2  Policies:  Department of Defense Instruction Supply Chain Materiel Management Policy DoDI 4140.01  Department of Defense Manual Supply Chain Materiel Management Procedures DoDM 4140.01  Implementing Instructions:  DoD 4000.25-2-M, “Military Standard Transaction Reporting and Accounting Procedures (MILSTRAP),” September 1, 2001  DoD 4000.25-M, “Defense Logistics Management System (DLMS),” March 1, 2003 Physical Inventory Controls 2

3. AT&L / Logistics & Material Readiness Office of Deputy Assistant Secretary (Supply Chain Integration) 3  Cancelling DoD Directive 4140.1, “Supply Chain Materiel Management Policy,” April 22, 2004 and reissuing it as a DoD Instruction.  Cancelling DoD 4140.1-R, “Supply Chain Materiel Management Regulation,” May 23, 2003 and reissuing it as a DoD Manual with 11 volumes.  Part of an overall initiative under DA&M for all OSD offices to reduce the number of directives and update/cancel old issuances.  Implementing Instructions will be reissued as “Defense Log Manuals” after policy documents are updated. What Are We Doing, and Why? 3

4. AT&L / Logistics & Material Readiness Office of Deputy Assistant Secretary (Supply Chain Integration) 4 Supply chain management policies and procedures … Today DoD 4140.1 Regulation DoD 4000.25 Manuals DoD 4140.1 Directive

5. AT&L / Logistics & Material Readiness Office of Deputy Assistant Secretary (Supply Chain Integration) 5 DoD 4140.01 Instruction Defense Log Manuals DoD 4140.01 Manual (11 vols) Supply chain management policies and procedures … Tomorrow

6. AT&L / Logistics & Material Readiness Office of Deputy Assistant Secretary (Supply Chain Integration) Overview  DoD Instruction 4140.01  Status of issuance  Changes  DoD Manual 4140.01  Status of issuance  Changes  DLM 4000.25-M  Status of issuance  Upcoming change

7. AT&L / Logistics & Material Readiness Office of Deputy Assistant Secretary (Supply Chain Integration) DoD Instruction 4140.01 Status  Issuance is in Stage 3: Formal coordination  20 work days for formal coordination  15 work days to adjudicate the response  10 work days for OGC review of adjudication  Pre-signature review  45 work days for final edit, OGC review, and signature  ECD: July 2011

8. AT&L / Logistics & Material Readiness Office of Deputy Assistant Secretary (Supply Chain Integration)  Accountability, control, and DoD-wide visibility of materiel shall be maintained throughout the DoD supply chain, with the required level of physical protection and identification of the materiel at minimal cost.  However, the highest levels of accountability, control, visibility, protection, and identification shall apply to the stewardship of controlled inventory items (CII) including nuclear weapons- related materiel (NWRM) commensurate with the risk of materiel release.  All materiel recurrently used, bought, stocked, or distributed shall be cataloged with an accountable record. 8 DoD Instruction 4140.01 Accountability Policy

9. AT&L / Logistics & Material Readiness Office of Deputy Assistant Secretary (Supply Chain Integration) DoD Manual 4140.01 Status  Issuance is complete with Stage 2: Pre- Coordination  30 work days for pre-coordination and legal objection review  Currently awaiting signature on Action memo and SD 106 requesting formal coordination  Stage 3: Formal Coordination Issuance  45 work days to formally coordination, adjudicate the responses and OGC review of adjudication  Stage 4: Pre-signature review  45 work days for final edit, OGC review, and signature  ECD: September 2011

10. AT&L / Logistics & Material Readiness Office of Deputy Assistant Secretary (Supply Chain Integration) DoD Manual 4140.01 Volume 5 Required procedures for PICP  Summary of change reasons - GAO FIAR related input - USD(AT&L) memo “Item Unique Identification (IUID) of Tangible Personal Property – Policy Clarification for Secondary Items in Use or in Inventory” - Tightening of controls - Clarity of policy 10 ALL DoD 4140.01 CHANGES REVIEWED IN NEXT CHARTS ARE IN DRAFT STAGE

11. AT&L / Logistics & Material Readiness Office of Deputy Assistant Secretary (Supply Chain Integration)  Added responsibilities - ASD(L&MR) to develop policy for PICP - Director, DLA to “administer PICP” - Military Departments and Components to “establish and maintain PICP”  Para 2.a.(1) Accountable Record. All materiel within the DoD supply chain, whether in storage, in transit, in repair, or on loan, shall have an accountable record that accounts for materiel by NSN except for controlled inventory and NWRM. 11 DoD Manual 4140.01 Volume 5 Required procedures for PICP

12. AT&L / Logistics & Material Readiness Office of Deputy Assistant Secretary (Supply Chain Integration) DoDM V5, page 31, paragraph 9.b.(1)(a) – (e)  Control Plan will include physical inventories, location surveys, quality control, research, accuracy and performance goals, workload and performance management reporting, reconciliation of records  Maintain quantitative balance records by individual storage locations  Support perpetual inventories where current item record balances are maintained by posting all balance affecting events  All physical counts shall be blind counts 12 Required procedures for PICP in the draft DoDM 4140.01 Volume 5

13. AT&L / Logistics & Material Readiness Office of Deputy Assistant Secretary (Supply Chain Integration) Required procedures for PICP in the draft DoDM 4140.01 Volume 5 (cont)  DoDM V5, page 31, paragraph 9.b.(1) (e) Use of any one or a combination of the following three inventory counting approaches as appropriate to the physical inventory item policy requirements, storage facility physical constraints, physical inventory support system capabilities, types of items, and inventory accuracy conditions - Cycle counting - Statistical sample counting - Wall-to-wall inventories  DoDM V5, page 31, paragraph 9.b.(1)(f) Select items for physical inventory according to - NWRM items (100% physical inventories) - Classified items (100% physical inventories) - Sensitive and pilferable items (100% physical inventories) - Annual random statistical samples - Items with known or suspected discrepancies - All others based on a prioritization system or sampling strategy 13

14. AT&L / Logistics & Material Readiness Office of Deputy Assistant Secretary (Supply Chain Integration)  Added clarification to ensure the statistical sample counts include a portion of inventory that is representative of the total inventory item population and statistically significant into para 9b.(1)(d)2.  Added requirement back in to produce and forward the Component Inventory Control Effectiveness (ICE) Reports to the office of DASD(SCI) into para 9.b.(2)(a)10.  Added responsibility for DoD PICP Administrator to review and analyze the (ICE) reports and provide analyses to DASD(SCI) ) into para 9.b.(2)(f)2. 14 Required procedures for PICP in the draft DoDM 4140.01 Volume 5 (cont)

15. AT&L / Logistics & Material Readiness Office of Deputy Assistant Secretary (Supply Chain Integration) DoD Manual 4140.01 Volume 11 Management of Critical Safety Items, Controlled Inventory Items including Nuclear Weapons-Related Materiel  July 2008 USD(AT&L) memo “NWRM”  October 2008 USD(AT&L) memo “Appropriate Safeguarding Policy on Cataloging, Access, and Dissemination of NWRM data”  Tightening of controls  Clarity of policy 15

16. AT&L / Logistics & Material Readiness Office of Deputy Assistant Secretary (Supply Chain Integration)  Definition of NWRM draft From the 2008 memo incorporated into both the instruction and the manual: Classified or unclassified assemblies and subassemblies (containing no fissionable or fusionable material) identified by the Military Departments that comprise or could comprise a standardized war reserve nuclear weapon (including equivalent training devices) as it would exist once separated or removed from its intended delivery vehicle. The delivery vehicle is the portion of a weapon system that delivers a nuclear weapon to its target, including cruise and ballistic missile airframes as well as delivery aircraft. USD(AT&L) October 2008 NWRM memo in the draft DoDI 4140.01/DoDM 4140.01 Volume 11

17. AT&L / Logistics & Material Readiness Office of Deputy Assistant Secretary (Supply Chain Integration)  Verify what’s in the package/shipping container prior to shipping - DoDM V11 page 11, paragraph 1.a.(6)(a) ( 6) All shipments and receipts of items classified SECRET and above and NWRM shall have a 100 percent report of shipment (REPSHIP) confirmation and REPSHIP receipt acknowledgement using an auditable standard electronic data interchange. This requires that: (a) The contents of shipments be verified (e.g., visual, barcodes, radio frequency identification) before closure of the packaging or shipping container to ensure that the individual items, quantities, markings, and associated documentation are correct.  Account for disassembled NWRM - DoDM V11 page 12, paragraph 1.a.(9) (9) Reparable items that are classified or NWRM that are disassembled during repair and not subsequently reassembled in the same action shall be added or updated in the accountable records within 24 hours of disassembly at the base or depot level at contractor or organic repair facilities. USD(AT&L) October 2008 NWRM memo in the draft DoDM 4140.01 Volume 11 (cont)

18. AT&L / Logistics & Material Readiness Office of Deputy Assistant Secretary (Supply Chain Integration)  Verify correct item has been received - DoDM V11 page 11, paragraph 1.a.(6)(b) and (c) (b) For NWRM, the shipper shall notify the intended recipient of the intent to ship and shall await positive acknowledgement from the intended recipient before actual shipment. The shipper then shall notify the intended recipient that the shipment has occurred and the recipient shall acknowledge receipt of the shipment. (c) The contents of all receipts shall be validated for kind, count, and condition unless the recipient has verification that the appropriate packaging procedure was followed and there is no evidence of tampering.  24 hour deadline on discrepancy reports - DoDM V11 page 15, paragraph 1.b.(4)(c) (c) If the markings on the packaging, documentation, or automated shipment notification do not match the actual item in the package, the recipient shall submit a Supply Discrepancy Report (SDR) within 24 hours of discovery to the responsible action activity (e.g., shipping activity or source of supply) in accordance with Military Service or agency policy. This requirement includes quantity discrepancies (over or under shipment), incorrect item received, unique identification (UII or serial number) mismatch, or receipt of a misdirected shipment. 18 USD(AT&L) October 2008 NWRM memo in the draft DoDM 4140.01 Volume 11 (cont)

19. AT&L / Logistics & Material Readiness Office of Deputy Assistant Secretary (Supply Chain Integration)  Conduct inventories - DoDM V11 page 11, paragraph 1.a.(7)(a) DoD Components having custody or accountability of items that are classified SECRET or above and not installed on an end item; Security Risk Category I NNMR; Security Risk Category II, III, and IV Arms; or NWRM that is not installed on an end item shall conduct physical inventories in accordance with DoD 4000.25-2-M (Reference (h)) and DoD 4000.25-M (Reference (i)). The inventory shall consist of a 100 percent count as reflected by the number of items listed on the crates or containers. The UII mark should be employed in conducting the physical count as the items are marked and the technology becomes available at the unit, installation, or depot activity level.  Do causative research, and sign-off at Flag/SES level - DoDM V11 page 14, paragraph 1.b.(1)(d) Causative research is required on all discrepancies found as a result of the inventory. Adjustments to the NWRM accountable record as a result of the causative research must be approved at the general or flag officer or Senior Executive Service level regardless of dollar value. Adjustments to the classified and sensitive items record as a result of the causative research must be approved by the site commander or director regardless of dollar value. 19 USD(AT&L) October 2008 NWRM memo in the draft DoDM 4140.01 Volume 11 (cont)

20. AT&L / Logistics & Material Readiness Office of Deputy Assistant Secretary (Supply Chain Integration)  CII, including NWRM, Training - DoDM V11 page 12, paragraph 1.a.(8) (8) All personnel newly assigned to handle CII, including NWRM, shall be trained before assuming their duties, and all personnel handling such items shall receive refresher training at least annually. - DoDM V11 page 15, paragraph 1.b.(6)(a) and (b) (a) The DoD Components shall develop training courses on the detailed procedures for handling CII, including NWRM. The training must include positive inventory control and accountability, particularly the prompt identification and accountability of disassembled items. The training will also reemphasize Military Standard 129 (Reference (m)) for proper uniform military marking for shipment and storage, and Military Standard 2073-1E (Reference (n)). (b) Once developed, the training shall be provided to government and contractor personnel, including distribution personnel, to enable them to properly handle and account for CII, including NWRM. 20 USD(AT&L) October 2008 NWRM memo in the draft DoDM 4140.01 Volume 11 (cont)

21. AT&L / Logistics & Material Readiness Office of Deputy Assistant Secretary (Supply Chain Integration)  Apply special controls and update NWRM list every 2 years or more often - DoDM V11 page 8, paragraph 3.h. h. Maintain a list of NWRM assemblies and subassemblies as appropriate and update the list every 2 years or more often, as needed. - DoDM V11 page 9, paragraph 1.(a) (1) The highest levels of materiel accountability, control, visibility, protection and identification shall apply to the stewardship of CSI, and CII (classified, sensitive, and pilferable), including NNMR, AA&E, and NWRM, commensurate with the risk of materiel release. Materiel managers shall follow special procedures for the handling, identification, and control of CSI, and CII including NNMR, AA&E and NWRM including engineering and design information. 21 USD(AT&L) October 2008 NWRM memo in the draft DoDM 4140.01 Volume 11 (cont)

22. AT&L / Logistics & Material Readiness Office of Deputy Assistant Secretary (Supply Chain Integration)  Readily identifiable packaging - DoDM V11 page 13, paragraph 1.a. (14) (14) Packaging for CII including NWRM shall be readily identifiable, subject to operational security requirements. Packaging should enable verification of the materiel without unpacking or breaking the preservation barrier.  Mark with correct condition and do not co-mingle - DoDM page 12, paragraph 1.a.(10) (10) Unserviceable CII, including NWRM, shall be promptly marked with the correct condition and shall not be co-mingled in storage with serviceable items or other unserviceable items of another condition. 22 USD(AT&L) October 2008 NWRM memo in the draft DoDM 4140.01 Volume 11 (cont)

23. AT&L / Logistics & Material Readiness Office of Deputy Assistant Secretary (Supply Chain Integration)  Account for & manage by serial number; assign UII - DoDM V11 page 9, paragraph 1.a.(3) (3) Unique item level traceability is required for all DoD serially managed items that are also sensitive or pilferable, all DoD serially managed critical safety items, and all NWRM using a UII assigned to each individual item (i.e., a single instance of a stock-numbered item or a single assembly or subassembly. Unique item level traceability is also required for depot level reparables as well as any item that the materiel manager decides requires unique item level traceability. This requirement does not apply to lot-controlled assets. Components shall begin to transition from serially managing these critical items using the manufacturer’s serial number to serially managing the items using the globally unique and machine- readable UII (Construct #1 or #2 or acceptable equivalents) as defined in the “DoD Guide to Uniquely Identifying Items” (Reference (d)). 23 USD(AT&L) October 2008 NWRM memo in the draft DoDM 4140.01 Volume 11 (cont)

24. AT&L / Logistics & Material Readiness Office of Deputy Assistant Secretary (Supply Chain Integration)  100 percent reporting of shipments and receipts - DoDM V11 page 14, paragraph 1.b.(3)(a) (a) All shipments and receipts shall have a 100 percent REPSHIP confirmation and REPSHIP receipt acknowledgement using auditable standard electronic data interchange. Appropriate consideration shall be given to operations security (OPSEC) requirements.  Identify NWRM in key information systems - DoDM page 13, paragraph 1.a.(11) (11) CII, including NWRM, shall be identified in key information systems in such a way to ensure that personnel handling the materiel are alerted that, besides operation security requirements, special handling procedures are required 24 USD(AT&L) October 2008 NWRM memo in the draft DoDM 4140.01 Volume 11 (cont)

25. AT&L / Logistics & Material Readiness Office of Deputy Assistant Secretary (Supply Chain Integration)  Timely demil of NWRM - DoDM page 10, paragraph 1.a.(5) Assignment of the CIIC shall also take into account the need for demilitarization to be accomplished in a timely manner  Conduct annual audits - DoDM page 13, paragraph 1.a.(12) - (12) The Military Departments and DLA shall annually conduct an audit of current procedures for CII, including NWRM, to ensure corrective actions are taken to address any systemic supply chain management issues. The audit shall ensure that only activities authorized to possess CII, including NWRM, do so. USD(AT&L) October 2008 NWRM memo in the draft DoDM 4140.01 Volume 11 (cont)

26. AT&L / Logistics & Material Readiness Office of Deputy Assistant Secretary (Supply Chain Integration) DoD Manual 4140.01 Implementing Procedures for Physical Inventory Control  Detailed procedures are in - DoD 4000.25-2-M, “Military Standard Transaction Reporting and Accounting Procedures (MILSTRAP),” September 1, 2001 - DoD 4000.25-M, “Defense Logistics Management System (DLMS),” March 1, 2003 - Implementing Instructions Upcoming Changes New DoDI 4140.1 authorizes DLM publication DLMs will replace and supersede current DoD 4000.25 manuals Physical inventory updates will be in new DLMs Sampling strata/Cycle counting strata to be revised/added 26

27. AT&L / Logistics & Material Readiness Office of Deputy Assistant Secretary (Supply Chain Integration) Questions? 27

28. AT&L / Logistics & Material Readiness Office of Deputy Assistant Secretary (Supply Chain Integration) Back up 28

29. AT&L / Logistics & Material Readiness Office of Deputy Assistant Secretary (Supply Chain Integration) PICP Five Major Elements  Physical Inventory. (Conducting Physical Counts on Material)  Record Reconciliation. - Location Survey: Storage activity verification of locator records - Location Reconciliation: Match between storage activity records and owner/IMM records End-of-Day on items having balance affecting transactions Annual according to schedule  Research. (Determine reason for discrepancies/corrective actions)  Quality Control (Quality checks on process execution)  Management Reporting. (Inventory Control Effectiveness (ICE) management goals and metrics) 29 Physical Inventory Control Program (PICP)