DOD's High-Risk Areas
Challenges Remain to Achieving and Demonstrating Progress in Supply Chain Management Gao ID: GAO-06-983T July 25, 2006The Department of Defense (DOD) maintains a military force with unparalleled logistics capabilities, but it continues to confront decades-old supply chain management problems. The supply chain can be the critical link in determining whether our frontline military forces win or lose on the battlefield, and the investment of resources in the supply chain is substantial. Because of weaknesses in DOD's supply chain management, this program has been on GAO's list of high-risk areas needing urgent attention and transformation since 1990. Last year, DOD developed a plan to resolve its long-term supply chain problems in three focus areas: requirements forecasting, asset visibility, and materiel distribution. In October 2005, GAO testified that the plan was a good first step. GAO was asked to provide its views on DOD's progress toward (1) implementing the supply chain management improvement plan and (2) incorporating performance measures for tracking and demonstrating improvement, as well as to comment on the alignment of DOD's supply chain management improvement plan with other department logistics plans. This testimony is based on prior GAO reports and ongoing work in this area. It contains GAO's views on opportunities to improve DOD's ability to achieve and demonstrate progress in supply chain management.
Since October 2005, DOD has continued to make progress implementing the 10 initiatives in its supply chain management improvement plan, but it will take several years to fully implement these initiatives. DOD's stated goal for implementing its plan is to demonstrate significant improvement in supply chain management within 2 years of the plan's inception in 2005, but the time frames for substantially implementing some initiatives are currently 2008 or later. While DOD has generally stayed on track, it has reported some slippage in the implementation of certain initiatives. Factors such as the long-standing nature of the problems, the complexities of the initiatives, and the involvement of multiple organizations within DOD could cause the implementation dates of some initiatives to slip farther. DOD has incorporated several broad performance measures in its supply chain management improvement plan, but it continues to lack outcome-focused performance measures for many of the initiatives. Therefore, it is difficult to track and demonstrate progress toward improving the three focus areas of requirements forecasting, asset visibility, and materiel distribution. Although DOD's plan includes four high-level performance measures that are being tracked across the department, these measures do not necessarily reflect the performance of the initiatives and do not relate explicitly to the three focus areas. Further, DOD's plan does not include cost metrics that might show efficiencies gained through supply chain improvement efforts. In their effort to develop performance measures for use across the department, DOD officials have encountered challenges such as a lack of standardized, reliable data. Nevertheless, DOD could show near-term progress by adding intermediate measures. These measures could include outcome-focused measures for each of the initiatives or for the three focus areas. DOD has multiple plans aimed at improving aspects of logistics, including supply chain management, but it is unclear how these plans are aligned with one another. The plans were developed at different points of time, for different purposes, and in different formats, so it is difficult to determine how all the ongoing efforts link together to sufficiently cover requirements forecasting, asset visibility, and materiel distribution and whether they will result in significant progress toward resolving this high-risk area. Also, DOD's supply chain management improvement plan does not account for initiatives outside the direct oversight of the Office of the Secretary of Defense, and DOD lacks a comprehensive strategy to guide logistics programs and initiatives. DOD is in the process of developing a new plan, referred to as the "To Be" roadmap, for future logistics programs and initiatives. The roadmap is intended to portray where the department is headed in the logistics area, how it will get there, and what progress is being made toward achieving its objectives, as well as to link ongoing capability development, program reviews, and budgeting. However, until it is completed, GAO will not be able to assess how the roadmap addresses the challenges and risks DOD faces in its supply chain improvement efforts.
GAO-06-983T, DOD's High-Risk Areas: Challenges Remain to Achieving and Demonstrating Progress in Supply Chain Management
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Testimony:
Before the Subcommittee on Oversight of Government Management, the
Federal Workforce, and the District of Columbia, Committee on Homeland
Security and Governmental Affairs, U.S. Senate:
United States Government Accountability Office:
GAO:
For Release on Delivery Expected at 10:00 a.m. EDT:
Tuesday, July 25, 2006:
DOD's High-risk areas:
Challenges Remain to Achieving and Demonstrating Progress in Supply
Chain Management:
Statement of Williams M. Solis, Director Defense Capabilities
Management:
GAO-06-983T:
GAO Highlights:
Highlights of GAO-06-983T, testimony before the Subcommittee on
Oversight of Government Management, the Federal Workforce, and the
District of Columbia, Committee on Homeland Security and Governmental
Affairs, U.S. Senate
Why GAO Did This Study:
The Department of Defense (DOD) maintains a military force with
unparalleled logistics capabilities, but it continues to confront
decades-old supply chain management problems. The supply chain can be
the critical link in determining whether our frontline military forces
win or lose on the battlefield, and the investment of resources in the
supply chain is substantial. Because of weaknesses in DOD‘s supply
chain management, this program has been on GAO‘s list of high-risk
areas needing urgent attention and transformation since 1990. Last
year, DOD developed a plan to resolve its long-term supply chain
problems in three focus areas: requirements forecasting, asset
visibility, and materiel distribution. In October 2005, GAO testified
that the plan was a good first step.
GAO was asked to provide its views on DOD‘s progress toward (1)
implementing the supply chain management improvement plan and (2)
incorporating performance measures for tracking and demonstrating
improvement, as well as to comment on the alignment of DOD‘s supply
chain management improvement plan with other department logistics
plans.
This testimony is based on prior GAO reports and ongoing work in this
area. It contains GAO‘s views on opportunities to improve DOD‘s ability
to achieve and demonstrate progress in supply chain management.
What GAO Found:
Since October 2005, DOD has continued to make progress implementing the
10 initiatives in its supply chain management improvement plan, but it
will take several years to fully implement these initiatives. DOD‘s
stated goal for implementing its plan is to demonstrate significant
improvement in supply chain management within 2 years of the plan‘s
inception in 2005, but the time frames for substantially implementing
some initiatives are currently 2008 or later. While DOD has generally
stayed on track, it has reported some slippage in the implementation of
certain initiatives. Factors such as the long-standing nature of the
problems, the complexities of the initiatives, and the involvement of
multiple organizations within DOD could cause the implementation dates
of some initiatives to slip further.
DOD has incorporated several broad performance measures in its supply
chain management improvement plan, but it continues to lack outcome-
focused performance measures for many of the initiatives. Therefore, it
is difficult to track and demonstrate progress toward improving the
three focus areas of requirements forecasting, asset visibility, and
materiel distribution. Although DOD‘s plan includes four high-level
performance measures that are being tracked across the department,
these measures do not necessarily reflect the performance of the
initiatives and do not relate explicitly to the three focus areas.
Further, DOD‘s plan does not include cost metrics that might show
efficiencies gained through supply chain improvement efforts. In their
effort to develop performance measures for use across the department,
DOD officials have encountered challenges such as a lack of
standardized, reliable data. Nevertheless, DOD could show near-term
progress by adding intermediate measures. These measures could include
outcome-focused measures for each of the initiatives or for the three
focus areas.
DOD has multiple plans aimed at improving aspects of logistics,
including supply chain management, but it is unclear how these plans
are aligned with one another. The plans were developed at different
points of time, for different purposes, and in different formats, so it
is difficult to determine how all the ongoing efforts link together to
sufficiently cover requirements forecasting, asset visibility, and
materiel distribution and whether they will result in significant
progress toward resolving this high-risk area. Also, DOD‘s supply chain
management improvement plan does not account for initiatives outside
the direct oversight of the Office of the Secretary of Defense, and DOD
lacks a comprehensive strategy to guide logistics programs and
initiatives. DOD is in the process of developing a new plan, referred
to as the ’To Be“ roadmap, for future logistics programs and
initiatives. The roadmap is intended to portray where the department is
headed in the logistics area, how it will get there, and what progress
is being made toward achieving its objectives, as well as to link
ongoing capability development, program reviews, and budgeting.
However, until the roadmap is completed, GAO will not be able to assess
how it addresses the challenges and risks DOD faces in its supply chain
improvement efforts.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-983T].
To view the full product, click on the link above. For more
information, contact William Solis at 202-512-8365 or solisw@gao.gov.
[End of Section]
Mr. Chairman and Members of the Subcommittee:
I am pleased to be here today to discuss the Department of Defense's
(DOD) efforts to resolve long-standing problems in supply chain
management. DOD maintains a military force with unparalleled logistics
capabilities and can claim success in meeting the challenges to
supplying the warfighter. For example, by early 2005, DOD moved more
than 2 million short tons of cargo, including equipment, spare parts,
and supplies, several thousand miles to the Persian Gulf in support of
Operation Iraqi Freedom. At the same time, there are pervasive, decades-
old problems in DOD's supply chain management that need to be addressed
and resolved. The Under Secretary of Defense for Acquisition,
Technology, and Logistics, as well as other senior DOD officials, has
shown a commitment to improving supply chain management. The continued
active involvement of this Subcommittee is important to focusing
attention on this issue and encouraging DOD to demonstrate progress.
The fundamental premise of supply chain management is the operation of
a continuous, unbroken, comprehensive, and all-inclusive logistics
process, from initial customer order for materiel or services to the
ultimate satisfaction of the customer's requirements. Supply chain
management in DOD consists of processes and activities to purchase,
produce, and deliver materiel--including ammunition, spare parts, fuel,
food, water, clothing, personal equipment, and other items--to a force
that is highly dispersed and mobile. In 2005, the Army alone had some
260,000 soldiers serving in 120 foreign countries. Altogether, DOD
manages more than 4 million separate types of items that are procured
from thousands of suppliers. The challenges to successfully improving
management of this vast and complex supply chain network are
formidable. Challenges may include fragmentation in the way supply
chain management is understood and applied, failure to develop true
integration of supply chain processes, organizational resistance, lack
of buy-in from top managers, lack of or slow development of needed
measurement systems, and lack of integrated information systems linking
participants in the supply chain. Private industry, it should be noted,
also faces these types of challenges to improving their own supply
chains.[Footnote 1]
Why is effective supply chain management important for DOD? There are
two primary reasons. First, supply support to the warfighter affects
readiness and military operations. In fact, the supply chain can be the
critical link in determining whether our front-line military forces win
or lose on the battlefield. Second, given the high demand for goods and
services to support ongoing U.S. military operations, the investment of
resources in the supply chain is substantial. For example, DOD
estimated that the annual costs of supplies and associated operations
were expected to be about $50 billion for fiscal year 2005. In
addition, DOD's inventory was valued at approximately $80 billion at
the end of that fiscal year. Over the next 6 years, DOD also plans to
invest about $54 billion in aircraft, trucks, ships, and other mobility
assets to deploy and supply its forces. In addition, the Secretary of
Defense recently stated that one of his top priorities between 2006 and
2008 is improving effectiveness and efficiency across the department,
including creating a culture of efficiency and eliminating waste. These
are issues that we have identified as critical to improving supply
chain management.
Because of weaknesses we have identified through our work, DOD's supply
chain management is on our list of 26 high-risk government programs
that need urgent attention and transformation to ensure that our
national government functions in the most economical, efficient, and
effective manner possible. Last year, with the encouragement of the
Office of Management and Budget (OMB), DOD developed a supply chain
management improvement plan aimed at putting DOD on a path toward
resolving long-term supply chain problems and, eventually, removal from
our list of high-risk programs. More specifically, with the plan's
inception in July 2005, DOD hoped to produce significant improvements
over the next 2 years. This month marks approximately the midpoint of
that 2-year period, which ends in July 2007. The plan encompasses 10
initiatives to address three key areas of the supply chain management
process: requirements forecasting, asset visibility, and materiel
distribution. (Attachment 1 provides a description of the initiatives
and shows the focus area or areas that they are intended to address).
The requirements forecasting initiatives in the plan aim to improve
inventory management by reducing low-usage inventory, increasing the
availability of high-usage and critical inventory, more accurately
identifying war reserve stocks, forecasting wartime demand, and
identifying items with long procurement lead times. The plan's
initiatives that affect asset visibility seek to improve DOD's ability
to provide timely and accurate information regarding the location,
quantity, condition, movement, and status of materiel assets across the
department. Finally, the materiel distribution initiatives were
included to improve the timely and seamless flow of materiel in support
of deployed forces. We have frequently identified systemic weaknesses
in these three areas as impeding effective supply chain management.
During the Subcommittee's October 2005 hearing on this subject, I
stated that DOD's plan addressing supply chain management was a good
first step toward putting DOD on a path toward resolving long-standing
supply chain management problems, but that the department faced a
number of challenges and risks in fully implementing its proposed
changes across the department and measuring progress.[Footnote 2] That
bottom-line view remains the same today. Since October, DOD has
regularly updated its supply chain management improvement plan, added
more details, and has made progress implementing individual initiatives
by generally meeting the milestones laid out in its plan. However, as
DOD moves forward, we believe that there are opportunities to further
improve DOD's ability to show progress toward resolving long-term
supply chain problems.
As requested, my comments today will focus on DOD's progress in: (1)
implementing the supply chain management improvement plan and: (2)
incorporating performance measures for tracking and demonstrating
improvement. In addition, you also asked me to comment on the extent to
which DOD's supply chain management improvement plan is aligned with
other logistics plans across the department that address aspects of the
supply chain. My testimony is based on previous GAO reports and
testimonies and our preliminary observations from an ongoing engagement
requested by this Subcommittee on DOD's efforts to resolve long-
standing problems in its supply chain management process. To obtain our
preliminary observations, we have met on a regular basis with DOD
officials and staff from OMB to discuss the overall status of the plan,
the implementation of the plan's individual initiatives, and
performance measures; and we have reviewed relevant documents, such as
current DOD and military service logistics plans and strategies. This
work is being performed in accordance with generally accepted
government auditing standards.
Summary:
Since October 2005, DOD has continued to make progress implementing the
10 initiatives in its supply chain management improvement plan, but it
will take DOD several years to fully implement these initiatives under
current schedules. DOD has sought to demonstrate significant
improvement in supply chain management within 2 years of the plan's
inception in 2005; however, the department may have difficulty meeting
its short-term goal. Some of the initiatives are still being developed
or piloted and have not yet reached the implementation stage, others
are in the early stages of implementation, and some are not scheduled
for completion until 2008 or later. While DOD has generally stayed on
track, it has reported some slippage in the implementation of certain
initiatives. Given the long-standing nature of the problems being
addressed, the complexities of the initiatives, and the involvement of
multiple organizations within DOD, we would expect to see further
slippage in the future. We have also previously identified challenges
to implementation such as maintaining long-term commitment for the
initiatives and ensuring sufficient resources are obtained from the
organizations involved, including the military services and the Defense
Logistics Agency (DLA).
While DOD has incorporated several broad performance measures in its
supply chain management improvement plan, the department continues to
lack outcome-focused performance measures for many of the initiatives.
Therefore, it is difficult to track and demonstrate DOD's progress
toward improving its performance in the three focus areas of
requirements forecasting, asset visibility, and materiel distribution.
Performance measures track an agency's progress toward achieving goals,
provide information on which to base organizational and management
decisions, and are important management tools for all levels of an
agency, including the program or project level. Outcome-focused
performance measures show results or outcomes related to an initiative
or program in terms of its effectiveness, efficiency, impact, or all of
these. DOD's plan includes four high-level performance measures, such
as customer wait time, that are being tracked across the department,
but these measures do not necessarily reflect the performance of the
initiatives and do not explicitly relate to the three focus areas. In
addition, DOD's plan lacks outcome-focused performance measures for
many of the specific initiatives. Further, DOD still has not included
cost metrics in its plan that might show efficiencies gained through
supply chain improvement efforts, either at the initiative level or
overall. Although DOD officials have made efforts to develop supply
chain management performance measures for implementation across the
department, they have encountered challenges such as a lack of
standardized, reliable data. Consequently, DOD lacks a means to track
and assess progress toward improving efficiency and eliminating waste
in supply chain management. However, DOD could show near-term progress
by adding intermediate measures. These measures could include outcome-
focused measures for each of the initiatives or for the three focus
areas.
DOD has multiple plans aimed at improving aspects of logistics,
including supply chain management, but it is unclear how all these
plans are aligned with one another. In addition to the supply chain
management improvement plan, current DOD plans that address aspects of
supply chain management include DOD's Logistics Transformation
Strategy, Focused Logistics Roadmap, and Enterprise Transition Plan;
and DLA's Transformation Roadmap. These plans were developed at
different points of time, for different purposes, and in different
formats. Therefore, it is difficult to determine how all the ongoing
efforts link together to sufficiently cover requirements forecasting,
asset visibility, and materiel distribution and whether they will
result in significant progress toward resolving this high-risk area.
Also, the DOD supply chain management improvement plan does not account
for initiatives outside the direct oversight of the Office of the
Secretary of Defense (OSD) that may have an impact on supply chain
management. Until DOD clearly aligns the supply chain management
improvement plan with other department plans and ongoing initiatives,
supply chain stakeholders will not have complete visibility and
awareness of actions DOD is taking to resolve problems in the supply
chain. Moreover, DOD lacks a comprehensive, integrated, and
enterprisewide strategy to guide logistics programs and initiatives. To
address this concern, OSD is working with the military services, DLA,
and other stakeholders to develop a new strategic plan for future
logistics programs and initiatives. Referred to as the "To Be" roadmap,
this plan is intended to portray where the department is headed in the
logistics area, how it will get there, and what progress is being made
toward achieving its objectives, as well as to institutionalize a
continuous assessment process that links ongoing capability
development, program reviews, and budgeting. According to DOD
officials, the initiatives in the supply chain management improvement
plan will be incorporated into this roadmap. The first edition of the
"To Be" roadmap is scheduled for completion in February 2007, in
conjunction with the submission of the President's Budget for Fiscal
Year 2008. However, until it is completed, we will not be able to
assess the extent to which the roadmap aligns and integrates DOD's
various supply chain improvement efforts.
Background:
For 16 years, DOD's supply chain management processes, previously
identified as DOD inventory management, have been on our list of high-
risk areas needing urgent attention because of long-standing systemic
weaknesses that we have identified in our reports. We initiated our
high-risk program in 1990 to report on government operations that we
identified as being at high risk for fraud, waste, abuse, and
mismanagement. The program serves to identify and help resolve serious
weaknesses in areas that involve substantial resources and provide
critical services to the public. The department's inventory management
of supplies in support of forces was one of the initial 14 operational
areas identified as high risk in 1990 because, over the previous 20
years, we had issued more than 100 reports dealing with specific
aspects and problems in DOD's inventory management. These problems
included excess inventory levels, inadequate controls over items, and
cost overruns. As a result of this work, we had suggested that DOD take
some critical steps to correct the problems identified. Since then, our
work has shown that the problems adversely affecting supply support to
the warfighter--such as requirements forecasts, use of the industrial
base, funding, distribution, and asset visibility--were not confined to
the inventory management system, but also involved the entire supply
chain. In 2005, we modified the title for this high-risk area from "DOD
Inventory Management" to "DOD Supply Chain Management." In the 2005
update, we noted that during Operation Iraqi Freedom, some of the
supply chain problems included backlogs of hundreds of pallets and
containers at distribution points, millions of dollars spent in late
fees to lease or replace storage containers because of distribution
backlogs and losses, and shortages of such items as tires and radio
batteries.
Removal of the high-risk designation is considered when legislative and
agency actions, including those in response to our recommendations,
result in significant and sustainable progress toward resolving a high-
risk problem.[Footnote 3] Key determinants include a demonstrated
strong commitment to and top leadership support for addressing
problems, the capacity to do so, a corrective action plan that provides
for substantially completing corrective measures in the near term, a
program to monitor and independently validate the effectiveness of
corrective measures, and demonstrated progress in implementing
corrective measures.
Last year, with the encouragement of OMB, DOD developed a plan for
improving supply chain management that could reduce its vulnerability
to fraud, waste, abuse, and mismanagement and place it on the path
toward removal from our list of high-risk areas. This plan, initially
released in July 2005, contains 10 initiatives proposed as solutions to
address the root causes of problems DOD identified in the areas of
forecasting requirements, asset visibility, and materiel distribution.
By committing to improve these three key areas, DOD has focused its
efforts on the areas we frequently identified as impeding effective
supply chain management. For each of the initiatives, the plan contains
implementation milestones that are tracked and updated monthly.
DOD Continues to Implement Its Supply Chain Management Improvement
Plan, but Full Implementation Will Take Several Years:
Since October 2005, DOD has continued to make progress implementing the
initiatives in its supply chain management improvement plan, but it
will be several years before the plan can be fully implemented.
Progress has been made in implementing several of the initiatives,
including its Joint Regional Inventory Materiel Management, Readiness
Based Sparing, and the Defense Transportation Coordination Initiative.
For example:
* Within the last few months, through its Joint Regional Inventory
Materiel Management initiative, DOD has begun to streamline the storage
and distribution of defense inventory items on a regional basis, in
order to eliminate duplicate materiel handling and inventory layers.
Last year, DOD completed a pilot for this initiative in the San Diego
region and, in January 2006, began a similar transition for inventory
items in Oahu, Hawaii.
* Readiness Based Sparing, an inventory requirements methodology that
the department expects to enable higher levels of readiness at
equivalent or reduced inventory costs using commercial off-the-shelf
software, began pilot programs in each service in April 2006.
* Finally, in May 2006, the U.S. Transportation Command held the
presolicitation conference for its Defense Transportation Coordination
Initiative, a long-term partnership with a transportation management
services company that is expected to improve the predictability,
reliability, and efficiency of DOD freight shipping within the
continental United States.
DOD has sought to demonstrate significant improvement in supply chain
management within 2 years of the plan's inception in 2005; however, the
department may have difficulty meeting its July 2007 goal. Some of the
initiatives are still being developed or piloted and have not yet
reached the implementation stage, others are in the early stages of
implementation, and some are not scheduled for completion until 2008 or
later. For example, according to the DOD supply chain management
improvement plan, the contract for the Defense Transportation
Coordination Initiative is scheduled to be awarded during the first
quarter of fiscal year 2007, followed by a 3-year implementation
period. The War Reserve Materiel Improvements initiative, which aims to
more accurately forecast war reserve requirements by using capability-
based planning and incorporating lessons learned in Operation Iraqi
Freedom, is not scheduled to begin implementing an improved
requirements forecasting process for consumable items[Footnote 4] as a
routine operation until October 2008. The Item Unique Identification
initiative, which involves marking personal property items with a set
of globally unique data elements to help DOD track items during their
life cycles, will not be completed until December 2010 under the
current schedule.
While DOD has generally stayed on track, DOD has reported some slippage
in meeting scheduled milestones for certain initiatives. For example, a
slippage of 9 months occurred in the Commodity Management initiative
because additional time was required to develop a departmentwide
approach. This initiative addresses the process of developing a
systematic procurement approach to the department's needs for a group
of items. Additionally, the Defense Transportation Coordination
Initiative experienced a slippage in holding the presolicitation
conference because defining requirements took longer than anticipated.
Given the long-standing nature of the problems being addressed, the
complexities of the initiatives, and the involvement of multiple
organizations within DOD, we would expect to see further milestone
slippage in the future. In our October testimony, we also identified
challenges to implementation such as maintaining long-term commitment
for the initiatives and ensuring sufficient resources are obtained from
the organizations involved. Although the endorsement of DOD's plan by
the Under Secretary of Defense for Acquisition, Technology, and
Logistics is evidence of a strong commitment to improve DOD's supply
chain management, DOD will have to sustain this commitment as it goes
forward in implementing this multiyear plan while also engaged in
departmentwide business transformation efforts. Furthermore, the plan
was developed at the Office of the Under Secretary of Defense level,
whereas most of the people and resources needed to implement the plan
are under the direction of the military services, DLA, and other
organizations such as U.S. Transportation Command. Therefore, it is
important for the department to obtain the necessary resource
commitments from these organizations to ensure the initiatives in the
plan are properly supported.
Supply Chain Improvement Plan Lacks Outcome-focused Performance
Measures for Many of the Initiatives:
While DOD has incorporated several broad performance measures in its
supply chain management improvement plan, the department continues to
lack outcome-focused performance measures for many of the initiatives.
Therefore, it is difficult to track and demonstrate DOD's progress
toward improving its performance in the three focus areas of
requirements forecasting, asset visibility, and materiel distribution.
Performance measures track an agency's progress made towards goals,
provide information on which to base organizational and management
decisions, and are important management tools for all levels of an
agency, including the program or project level. Outcome-focused
performance measures show results or outcomes related to an initiative
or program in terms of its effectiveness, efficiency, impact, or all of
these. To track progress towards goals, effective performance measures
should have a clearly apparent or commonly accepted relationship to the
intended performance, or should be reasonable predictors of desired
outcomes; are not unduly influenced by factors outside a program's
control, measure multiple priorities, such as quality, timeliness,
outcomes, and cost; sufficiently cover key aspects of performance; and
adequately capture important distinctions between programs. Performance
measures enable the agency to assess accomplishments, strike a balance
among competing interests, make decisions to improve program
performance, realign processes, and assign accountability. While it may
take years before the results of programs become apparent, intermediate
measures can be used to provide information on interim results and show
progress towards intended results. In addition, when program results
could be influenced by external factors, intermediate measures can be
used to identify the programs' discrete contribution to the specific
result. For example, DOD could show near-term progress by adding
intermediate measures for the DOD supply chain management improvement
plan, such as outcome-focused performance measures for the initiatives
or for the three focus areas.
DOD's supply chain management improvement plan includes four high-level
performance measures that are being tracked across the department, but
these measures do not necessarily reflect the performance of the
initiatives or explicitly relate to the three focus areas. DOD's supply
chain materiel management regulation requires that functional supply
chain metrics support at least one enterprise-level metric.[Footnote 5]
In addition, while not required by the regulation, the performance
measures DOD has included in the plan are not explicitly linked to the
three focus areas, and it has not included overall cost metrics that
might show efficiencies gained through supply chain improvement
efforts. The four measures are as follows:
* Backorders--number of orders held in an unfilled status pending
receipt of additional parts or equipment through procurement or repair.
* Customer wait time--number of days between the issuance of a customer
order and satisfaction of that order.
* On-time orders--percentage of orders that are on time according to
DOD's established delivery standards.
* Logistics response time--number of days to fulfill an order placed on
the wholesale level of supply from the date a requisition is generated
until the materiel is received by the retail supply activity.[Footnote
6]
The plan also identifies fiscal year 2004 metric baselines for each of
the services, DLA, and DOD overall, and specifies annual performance
targets for these metrics for use in measuring progress. For example,
one performance target for fiscal year 2005 was to reduce backorders by
10 percent from the fiscal year 2004 level. Table 1 shows each
performance measure with the associated fiscal year 2005 performance
targets and actuals and whether the target was met.
Table 1: Supply Chain Performance Measures (Fiscal Year 2005):
Performance measure: Backorders;
Target: 514,800;
Actual: 642,000;
Target met/Not met: Not Met.
Performance measure: Customer wait time;
Target: 18 days;
Actual: 21 days;
Target met/Not met: Not Met.
Performance measure: On-time orders[A];
Target: 75%;
Actual: 48%;
Target met/Not met: Not Met.
Performance measure: Logistics response time[A]: Army;
Target: 27 days;
Actual: 57 days;
Target met/Not met: Not Met.
Performance measure: Logistics response time[A]: Navy;
Target: 27 days;
Actual: 28 days;
Target met/Not met: Not Met.
Performance measure: Logistics response time[A]: Air Force;
Target: 27 days;
Actual: 36 days;
Target met/Not met: Not Met.
Performance measure: Logistics response time[A]: DLA;
Target: 27 days;
Actual: 13 days;
Target met/ Not met: Met.
Source: GAO analysis.
[A] Data includes the continental United States only.
[End of table]
As table 1 shows, DOD generally did not meet its fiscal year 2005
performance targets. However, the impact to the supply chain as a
result of implementing the initiatives contained in the plan will not
likely be reflected in these high-level performance metrics until the
initiatives are broadly implemented across the department. In addition,
the high-level metrics reflect the performance of the supply chain
departmentwide and are affected by other variables; therefore, it will
be difficult to determine if improvements in the high-level performance
metrics are due to the initiatives in the plan or other variables. For
example, implementing Radio Frequency Identification--technology
consisting of active or passive electronic tags that are attached to
equipment and supplies being shipped from one location to another and
enable shipment tracking--at a few sites at a time has only a very
small impact on customer wait time. However, variables such at natural
disasters, wartime surges in requirements, or disruption in the
distribution process could affect that metric.
DOD's plan lacks outcome-focused performance metrics for many of the
specific initiatives. We noted this deficiency in our prior testimony,
and since last October, DOD has not added outcome-focused performance
metrics. DOD also continues to lack cost metrics that might show
efficiencies gained through supply chain improvement efforts, either at
the initiative level or overall. In total, DOD's plan continues to
identify a need to develop outcome-focused performance metrics for 6
initiatives, and 9 of the 10 initiatives lack cost metrics. For
example, DOD's plan shows that it expects to have radio frequency
identification technology implemented at 100 percent of its U.S. and
overseas distribution centers by September 2007, but noted that it has
not yet identified additional metrics that could be used to show the
impact of implementation on expected outcomes, such as receiving and
shipping timeliness, asset visibility, or supply consumption data. Two
other examples of initiatives lacking outcome-focused performance
measures are War Reserve Materiel, discussed earlier, and Joint Theater
Logistics, which is an effort to improve the ability of a joint force
commander to execute logistics authorities and processes within a
theater of operations. Although the plan contains some performance
metrics, many have not been fully defined or are intended to show the
status of a project. Measures showing project status are useful and may
be most appropriate for initiatives in their early stages of
development, but such measures will not show the impact of initiatives
on the supply chain during or after implementation. DOD officials noted
that many of the initiatives in the supply chain management improvement
plan are in the early stages of implementation and that they are
working to develop performance measures for them. For example, an
official involved with the Joint Theater Logistics initiative stated
that the processes necessary for each joint capability needed to be
defined before performance metrics could be developed. The recently
issued contract solicitation for the Defense Transportation
Coordination Initiative contains a number of performance measures, such
as on-time pickup and delivery, damage-free shipments, and system
availability, although these measures are not yet included in DOD's
supply chain management improvement plan. Additionally, we observed
that DOD's plan does not identify departmentwide performance measures
in the focus areas of requirements forecasting, asset visibility, and
materiel distribution. Therefore, it currently lacks a means to track
and assess progress in these areas.
Although DOD has made efforts to develop supply chain management
performance measures for implementation across the department, DOD has
encountered challenges in obtaining standardized, reliable data from
noninteroperable systems. The four high-level performance measures in
DOD's plan were defined and developed by DOD's supply chain metrics
working group. This group includes representatives from the services,
DLA, and the U.S. Transportation Command, and meets monthly under the
direction of the Office of the Under Secretary of Defense. For example,
the working group developed a common definition for customer wait time
which was included in DOD guidance.[Footnote 7] The DOD Inspector
General has a review underway to validate the accuracy of customer wait
time data and expects to issue a report on its results later this
summer. One of the challenges the working group faces in developing
supply chain performance measures is the ability to pull standardized,
reliable data from noninteroperable information systems. For example,
the Army currently does not have an integrated method to determine
receipt processing for Supply Support Activities, which could affect
asset visibility and distribution concerns. Some of the necessary data
reside in the Global Transportation Network while other data reside in
the Standard Army Retail Supply System. These two databases must be
manually reviewed and merged in order to obtain the information for
accurate receipt processing performance measures.
DOD recognizes that achieving success in supply chain management is
dependent on developing interoperable systems that can share critical
supply chain data. The Business Management Modernization Program, one
of the initiatives in DOD's supply chain improvement plan that has been
absorbed into the Business Transformation Agency,[Footnote 8] is
considered to be a critical enabler that will provide the information
technology underpinning for improving supply chain management. As part
of this initiative, DOD issued an overarching business enterprise
architecture and an enterprise transition plan for implementing the
architecture.[Footnote 9] We previously reported that Version
3.1[Footnote 10] of the business enterprise architecture reflects steps
taken by DOD to address some of the missing elements, inconsistencies,
and usability issues related to legislative requirements and relevant
architecture guidance, but additional steps are needed.[Footnote 11]
For example, we said that the architecture does not yet include a
systems standards profile to facilitate data sharing among
departmentwide business systems and promote interoperability with
departmentwide information technology infrastructure systems.
Furthermore, we also stated that the military services' and defense
agencies' architectures are not yet adequately aligned with the
departmental architecture.
DOD Has Multiple Plans Addressing Supply Chain Management, but
Alignment Among Them Is Unclear:
DOD has multiple plans aimed at improving aspects of logistics,
including supply chain management, but it is unclear how all these
plans are aligned with one another. In addition to the supply chain
management improvement plan, current DOD plans that address aspects of
supply chain management include DOD's Logistics Transformation
Strategy, Focused Logistics Roadmap, and Enterprise Transition Plan;
and DLA's Transformation Roadmap.
In December 2004, DOD issued its Logistics Transformation Strategy. The
strategy was developed to reconcile three logistics concepts--force-
centric logistics enterprise, sense and respond logistics, and focused
logistics--into a coherent transformation strategy. The force-centric
logistics enterprise is OSD's midterm concept (2005-2010) for enhancing
support to the warfighter and encompasses six initiatives, one of which
includes "end-to-end distribution." Sense and respond logistics is a
future logistics concept developed by the department's Office of Force
Transformation that envisions a networked logistics system that would
provide joint strategic and tactical operations with predictive,
precise, and agile support. Focused logistics, a concept for force
transformation developed by the Joint Chiefs of Staff, identifies seven
key joint logistics capability areas such as Joint Deployment/Rapid
Distribution.
In September 2005, DOD issued its Focused Logistics Roadmap, also
referred to as the "As Is" roadmap. It documents logistics-enabling
programs and initiatives directed toward achieving focused logistics
capabilities. It is intended to provide a baseline of programs and
initiatives for future capability analysis and investment. Seven of the
10 initiatives in the DOD supply chain management improvement plan and
some of the systems included in the initiative to modernize the
department's business systems--under the Business Transformation
Agency--are discussed in the Focused Logistics Roadmap.
In September 2005, DOD's Enterprise Transition Plan was issued as part
of the Business Management Modernization Program. The Enterprise
Transition Plan is the department's plan for transforming its business
operations. One of the six DOD-wide priorities contained in the
Enterprise Transition plan is Materiel Visibility, which is focused on
improving supply chain performance. The Materiel Visibility priority is
defined as the ability to locate and account for materiel assets
throughout their life cycle and provide transaction visibility across
logistics systems in support of the joint warfighting mission. Two of
the key programs targeting visibility improvement are Radio Frequency
Identification and Item Unique Identification, which also appear in the
supply chain management improvement plan.
The Defense Logistics Agency's Fiscal Year 2006 Transformation Roadmap
contains 13 key initiatives underway to execute DLA's role in DOD's
overarching transformation strategy. The majority of the initiatives
are those that affect supply chain management, and several are found in
DOD's supply chain management improvement plan. For example, the
Integrated Data Environment, Business Systems Modernization, and
Reutilization Modernization Program initiatives found in DLA's
Transformation Roadmap are also in the department's supply chain
management improvement plan under the initiative to modernize the
department's business systems.
These plans were developed at different points of time, for different
purposes, and in different formats. Therefore, it is difficult to
determine how all the ongoing efforts link together to sufficiently
cover requirements forecasting, asset visibility, and materiel
distribution and whether they will result in significant progress
toward resolving this high-risk area. Moreover, DOD's supply chain
management improvement plan does not account for initiatives outside
OSD's direct oversight that may have an impact on supply chain
management. The initiatives chosen for the plan were joint initiatives
under the oversight of OSD in the three focus areas of requirements
forecasting, asset visibility, and materiel distribution. However, the
U. S. Transportation Command, DLA, and the military services have
ongoing and planned supply chain improvement efforts in those areas
that are not included in the plan. For example, the U.S. Transportation
Command's Joint Task Force - Port Opening initiative seeks to improve
materiel distribution by rapidly extending the distribution network
into a theater of operations. Furthermore, DLA is implementing a
National Inventory Management Strategy, which is an effort to merge
distinct wholesale and retail inventories into a national inventory,
provide more integrated management, tailor inventory to services'
requirements, and reduce redundant inventory levels. Another example is
the Army's efforts to field two new communications and tracking
systems, the Very Small Aperture Terminal and the Mobile Tracking
System, to better connect logisticians on the battlefield and enable
them to effectively submit and monitor their supply requisitions. DOD
officials told us they would be willing to consider adding initiatives
that impact the three focus areas. Until DOD clearly aligns the supply
chain management improvement plan with other department plans and
ongoing initiatives, supply chain stakeholders will not have a
comprehensive picture of DOD's ongoing efforts to resolve problems in
the supply chain.
Although we are encouraged by DOD's planning efforts, DOD lacks a
comprehensive, integrated, and enterprisewide strategy to guide
logistics programs and initiatives. In the past, we have emphasized the
need for an overarching logistics strategy that will guide the
department's logistics planning efforts.[Footnote 12] Without an
overarching logistics strategy, the department will be unable to most
economically and efficiently support the needs of the warfighter. To
address this concern and guide future logistics programs and
initiatives, DOD is in the process of developing a new strategic plan-
-the "To Be" roadmap. This plan is intended to portray where the
department is headed in the logistics area, how it will get there, and
monitor progress toward achieving its objectives, as well as
institutionalize a continuous assessment process that links ongoing
capability development, program reviews, and budgeting. According to
DOD officials, the initiatives in the supply chain management
improvement plan will be incorporated into the "To Be" logistics
roadmap.
The roadmap is being developed by a working group representing the four
services, DLA, the U.S. Transportation Command, the U.S. Joint Forces
Command, the Joint Staff, the Business Transformation Agency, and the
Office of the Secretary of Defense. The working group reports to a
Joint Logistics Group comprised of one-star generals and their
equivalents representing these same organizations. Additionally, the
Joint Logistics Board, Defense Logistics Board, and the Defense
Logistics Executive (the Under Secretary of Defense for Acquisition,
Technology, and Logistics) would provide continuous feedback and
recommendations for changes to the roadmap. Regarding performance
measures, the roadmap would link objective, quantifiable, and
measurable performance targets to outcomes and logistics capabilities.
The first edition of the "To Be" roadmap is scheduled for completion in
February 2007, in conjunction with the submission of the President's
Budget for Fiscal Year 2008. Updates to the roadmap will follow on an
annual basis. Efforts to develop the "To Be" roadmap show promise.
However, until it is completed, we will not be able to assess how the
roadmap addresses the challenges and risks DOD faces in its supply
chain improvement efforts.
Concluding Observations:
DOD faces significant challenges in improving supply chain management
over the coming years. As it develops its "To Be" roadmap for
logistics, DOD would likely benefit from including outcome-focused
performance measures demonstrating near-term progress in the three
focus areas of requirements forecasting, asset visibility, and materiel
distribution. With outcome-focused performance measures, DOD will be
able to show results in these areas that have been long identified as
systemic weaknesses in the supply chain. While we recognize the
challenge to developing outcome-focused performance measures at the
department level, DOD could show near-term progress with intermediate
measures. These measures could include outcome-focused measures for
each of the initiatives or for the three focus areas. To be most
effective, the roadmap also would reflect the results of analysis of
capability gaps between its "As Is" and "To Be" roadmaps, as well as
indicate how the department intends to make this transition. DOD would
also benefit by showing the alignment among the roadmap, the supply
chain management improvement plan, and other DOD strategic plans that
address aspects of supply chain management. Clearer alignment of the
supply chain management improvement plan with other department plans
and ongoing initiatives could provide greater visibility and awareness
of actions DOD is taking to resolve problems in the supply chain. In
the long term, however, a plan alone will not resolve the problems that
we have identified in supply chain management. Actions must result in
significant progress toward resolving a high-risk problem before we
will remove the high-risk designation.
Mr. Chairman and Members of the Subcommittee, this concludes my
prepared remarks. I would be happy to answer any questions you or other
Members of the Subcommittee may have.
Staff Contacts and Acknowledgements:
For further information regarding this testimony, please contact me at
202-512-8365 or solisw@gao.gov. Individuals making contributions to
this testimony include Tom Gosling, Assistant Director; Michael
Avenick; Susan Ditto; Marie Mak; Thomas Murphy; Janine Prybyla; and
Matthew Spiers.
[End of section]
Attachment 1: Initiatives in DOD Supply Chain Management Improvement
Plan:
Initiative: Radio Frequency Identification;
Description: Technology consisting of active or passive electronic tags
that are attached to equipment and supplies that are shipped from one
location to another and enable shipment tracking;
Focus area: Visibility: X;
Focus area: Forecasting: X;
Focus area: Distribution: X.
Initiative: Item Unique Identification;
Description: Marking of personal property items with a machine-readable
Unique Item Identifier, or set of globally unique data elements, to
help DOD value and track items throughout their life cycle;
Focus area: Visibility: X;
Focus area: Forecasting: X;
Focus area: Distribution: [Empty].
Initiative: Joint Regional Inventory Materiel Management;
Description: Streamlining of the storage and distribution of materiel
within a given geographic area in order to eliminate duplicate materiel
handling and inventory layers;
Focus area: Visibility: X;
Focus area: Forecasting: X;
Focus area: Distribution: X.
Initiative: Readiness Based Sparing;
Description: An inventory requirements methodology that produces an
inventory investment solution that enables higher levels of readiness
at an equal or lower cost;
Focus area: Visibility: [Empty];
Focus area: Forecasting: X;
Focus area: Distribution: [Empty].
Initiative: War Reserve Materiel Improvements;
Description: An improved war reserve requirements forecasting process;
Focus area: Visibility: [Empty];
Focus area: Forecasting: X;
Focus area: Distribution: X.
Initiative: Commodity Management;
Description: Process of developing a systematic procurement approach to
the entire usage cycle of a group of items;
Focus area: Visibility: X;
Focus area: Forecasting: X;
Focus area: Distribution: [Empty].
Initiative: Joint Theater Logistics;
Description: Improving the ability of a joint force commander to
execute logistics authorities and processes within a theater of
operations;
Focus area: Visibility: X;
Focus area: Forecasting: [Empty];
Focus area: Distribution: X.
Initiative: Joint Deployment and Distributions Operations Center;
Description: Provides Combatant Commands with a joint theater logistics
capability (supply, transportation, and distribution) for command and
control of forces and materiel moving into and out of the theater;
Focus area: Visibility: X;
Focus area: Forecasting: [Empty];
Focus area: Distribution: X.
Initiative: Defense Transportation Coordination Initiative;
Description: Long-term partnership with a coordinator of transportation
management services to improve the reliability, predictability, and
efficiency of DOD materiel moving within the continental United States
by all modes;
Focus area: Visibility: [Empty];
Focus area: Forecasting: [Empty];
Focus area: Distribution: X.
Initiative: Business Management Modernization Program;
Description: Departmentwide initiative to advance business
transformation efforts, particularly with regard to business systems
modernization;
Focus area: Visibility: X;
Focus area: Forecasting: X;
Focus area: Distribution: X.
Source: GAO analysis.
[End of table]
FOOTNOTES
[1] Deputy Under Secretary of Defense, Supply Chain Integration, DOD
Supply Chain Management Implementation Guide, (McLean, Va.: Logistics
Management Institute, 2000).
[2] GAO, DOD's High-Risk Areas: High-Level Commitment and Oversight
Needed for DOD Supply Chain Plan to Succeed, GAO-06-113T (Washington,
D.C.: Oct. 6, 2005).
[3] GAO, Determining Performance and Accountability Challenges and High
Risks, GAO-01-159SP (Washington, D.C.: November 2000).
[4] Consumable items are items that are discarded after use rather than
repaired. Examples include food, clothing, hardware, and medical
supplies.
[5] DOD 4140.1-R, DOD Supply Chain Materiel Management Regulation (May
23, 2003).
[6] DOD maintains spare parts at two levels of inventory. Wholesale-
level inventory represents inventory managed centrally, while retail-
level inventory represents inventory held for use at maintenance
activities or operational units.
[7] DOD Instruction 4140.61, Customer Wait Time and Time Definite
Delivery (December 14, 2000).
[8] The Business Transformation Agency leads and coordinates business
transformation efforts across the department. The Business Management
Modernization Program's mission is to advance departmentwide business
transformation efforts, particularly with regard to business systems
modernization.
[9] The enterprise architecture, or modernization blueprint, provides a
clear and comprehensive picture of an entity, whether it is an
organization (e.g., federal department or agency) or a functional or
mission area that cuts across more than one organization (e.g.,
financial management). This picture consists of snapshots of the
enterprise's current "As Is" operational and technological environment
and its target or "To Be" environment, as well as a capital investment
roadmap for transitioning from the current to the target environment.
These snapshots further consist of "views," which are basically one or
more architecture products that provide conceptual or logical
representations of the enterprise.
[10] Version 3.1 is a minor update to its business enterprise
architecture released on March 15, 2006.
[11] GAO, Business Systems Modernization: DOD Continues to Improve
Institutional Approach, but Further Steps Needed, GAO-06-658
(Washington, D.C.: May 15, 2006).
[12] GAO, Defense Logistics: Strategic Planning Weaknesses Leave
Economy, Efficiency, and Effectiveness of Future Support Systems at
Risk, GAO-02-106 (Washington, D.C.: Oct. 11, 2001).
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