The purpose of this research is to examine inventory management issues in today's Navy healthcare environment. The automated inventory systems and inventory processes used by Navy medical inventory managers limit their ability to control variable inventory costs and provide good customer service. This thesis examines two current approaches used by Navy medical material managers at several Navy Medical Treatment Facilities: the Medical Inventory Control System (MICS) and the Prime Vendor Program. Background and case study research obtained from the Naval Medical Center, Oakland are used for comparative analyses of these approaches with cost minimizing models and service level models. Research results indicate that although introduction of the Prime Vendor Program has been effective in addressing many of the cost and customer service problems associated with MICS, several inefficiencies still exist and explicit cost minimization is not specifically addressed with the prime Vendor Program. It is recommended that the MICS be changed to allow Navy medical inventory managers to correct the cost and customer service inefficiencies noted in this research or that the MICS be replaced with an automated system that provides Navy medical inventory managers with the ability to optimally manage their inventories.