Defense Inventory
Opportunities Exist to Improve the Management of DOD's Acquisition Lead Times for Spare Parts Gao ID: GAO-07-281 March 2, 2007GAO has identified the Department of Defense's (DOD) management of its inventory as a high-risk area since 1990 due to ineffective and inefficient inventory systems and practices. Management of inventory acquisition lead times is important in maintaining cost-effective inventories, budgeting, and having material available when needed, as lead times are DOD's best estimate of when an item will be received. Under the Comptroller General's authority to conduct evaluations on his own initiative, GAO analyzed the extent to which (1) DOD's estimated lead times varied from actual lead times, and (2) current management actions and initiatives have reduced lead times as compared to past years. To address these objectives, GAO computed the difference between the components' actual and estimated lead times, and compared component initiatives to reduce lead times for 1994-2002 to 2002-2005.
The military components' estimated lead times to acquire spare parts varied considerably from the actual lead times experienced. The effect of the lead time underestimates was almost $12 billion in spare parts arriving more than 90 days later than anticipated, which could negatively affect readiness rates because units may not have needed inventory. If orders had been placed earlier, readiness rates could potentially have been improved. While having spare parts arrive earlier than estimated could potentially improve readiness, the effect of lead time overestimates resulted in obligating almost $2 billion more than 90 days earlier than necessary. The Army underestimated lead times, the Defense Logistics Agency (DLA) overestimated lead times, and the Air Force and Navy both overestimated and underestimated lead times. The variances were due to problems such as miscoding late deliveries as not representative of future delivery times, lack of recorded lead time data, data input errors, estimates that did not reflect improvements made in actual lead times, and the use of standard default data instead of other data that may have been obtainable. Absent actions to address these problems, lead time estimates will continue to vary from actual lead times and will contribute to inefficient use of funds and potential shortages or excesses. The Under Secretary of Defense for Acquisition, Technology, and Logistics (USD (AT&L)) and the components' actions and initiatives to reduce lead times from 2002 to 2005 were less effective overall than previous efforts from 1994 to 2002. From 2002 to 2005, DOD-wide lead times were reduced by an average of 0.9 percent annually as compared to an average reduction of 5.6 percent annually from 1994 to 2002, potentially leading to an additional $2.7 billion in lead time requirements, tying up money that could have been obligated for other needs. The higher rate of reduction from 1994 to 2002 can be attributed to three areas of focus: streamlining internal administrative processes, oversight from USD (AT&L), and developing strategic relationships with suppliers. However, from 2002 to 2005, USD (AT&L) no longer provided active oversight such as establishing lead time reduction goals, reporting metrics, reporting the impact of specific initiatives, or estimating the financial impact of reduced lead times, as had been done previously. Until steps are taken to renew management focus on reducing lead times, the components may continue to experience spare parts shortages and increased inventory levels to cover lead times.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-07-281, Defense Inventory: Opportunities Exist to Improve the Management of DOD's Acquisition Lead Times for Spare Parts
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Report to Congressional Committees:
United States Government Accountability Office:
GAO:
March 2007:
Defense Inventory:
Opportunities Exist to Improve the Management of DOD's Acquisition Lead
Times for Spare Parts:
GAO-07-281:
GAO Highlights:
Highlights of GAO-07-281, a report to congressional committees
Why GAO Did This Study:
GAO has identified the Department of Defense‘s (DOD) management of its
inventory as a high-risk area since 1990 due to ineffective and
inefficient inventory systems and practices. Management of inventory
acquisition lead times is important in maintaining cost-effective
inventories, budgeting, and having material available when needed, as
lead times are DOD‘s best estimate of when an item will be received.
Under the Comptroller General‘s authority to conduct evaluations on his
own initiative, GAO analyzed the extent to which (1) DOD‘s estimated
lead times varied from actual lead times, and (2) current management
actions and initiatives have reduced lead times as compared to past
years. To address these objectives, GAO computed the difference between
the components‘ actual and estimated lead times, and compared component
initiatives to reduce lead times for 1994-2002 to 2002-2005.
What GAO Found:
The military components‘ estimated lead times to acquire spare parts
varied considerably from the actual lead times experienced. The effect
of the lead time underestimates was almost $12 billion in spare parts
arriving more than 90 days later than anticipated, which could
negatively affect readiness rates because units may not have needed
inventory. If orders had been placed earlier, readiness rates could
potentially have been improved. While having spare parts arrive earlier
than estimated could potentially improve readiness, the effect of lead
time overestimates resulted in obligating almost $2 billion more than
90 days earlier than necessary. As the table shows, the Army
underestimated lead times, DLA overestimated lead times, and the Air
Force and Navy both overestimated and underestimated lead times.
Table: Acquisition Lead Time Difference for FY 2005 Deliveries (in
percentages):
Air Force;
>90 days early: 23.8;
>1 week to 90 days early: 15.7;
Up to 1 week early - Up to 1 week late: 3.0; >1 week to 90 days late:
15.2;
>90 days late: 42.3;
Total number of deliveries: 18,335.
Army;
>90 days early: 11.8;
>1 week to 90 days early: 9.7;
Up to 1 week early - Up to 1 week late: 4.6; >1 week to 90 days late:
15.3;
>90 days late: 58.5;
Total number of deliveries: 9,380.
Navy;
>90 days early: 39.3;
>1 week to 90 days early: 17.0;
Up to 1 week early - Up to 1 week late: 3.0; >1 week to 90 days late:
12.7;
>90 days late: 27.9;
Total number of deliveries: 19,304.
DLA;
>90 days early: 39.5;
>1 week to 90 days early: 45.7;
Up to 1 week early - Up to 1 week late: 5.0; >1 week to 90 days late:
6.7;
>90 days late: 3.0;
Total number of deliveries: 1,031,779.
Total;
>90 days early: 39.0;
>1 week to 90 days early: 44.4;
Up to 1 week early - Up to 1 week late: 5.0; >1 week to 90 days late:
7.0;
>90 days late: 4.6;
Total number of deliveries: 1,078,798.
Source: GAO analysis of components' delivery order information.
[End of table]
The variances were due to problems such as miscoding late deliveries as
not representative of future delivery times, lack of recorded lead time
data, data input errors, estimates that did not reflect improvements
made in actual lead times, and the use of standard default data instead
of other data that may have been obtainable. Absent actions to address
these problems, lead time estimates will continue to vary from actual
lead times and will contribute to inefficient use of funds and
potential shortages or excesses.
The Under Secretary of Defense for Acquisition, Technology, and
Logistics (USD (AT&L)) and the components‘ actions and initiatives to
reduce lead times from 2002 to 2005 were less effective overall than
previous efforts from 1994 to 2002. From 2002 to 2005, DOD-wide lead
times were reduced by an average of 0.9 percent annually as compared to
an average reduction of 5.6 percent annually from 1994 to 2002,
potentially leading to an additional $2.7 billion in lead time
requirements, tying up money that could have been obligated for other
needs. The higher rate of reduction from 1994 to 2002 can be attributed
to three areas of focus: streamlining internal administrative
processes, oversight from USD (AT&L), and developing strategic
relationships with suppliers. However, from 2002 to 2005, USD (AT&L) no
longer provided active oversight such as establishing lead time
reduction goals, reporting metrics, reporting the impact of specific
initiatives, or estimating the financial impact of reduced lead times,
as had been done previously. Until steps are taken to renew management
focus on reducing lead times, the components may continue to experience
spare parts shortages and increased inventory levels to cover lead
times.
What GAO Recommends:
GAO recommends that DOD take actions to improve the accuracy and
strengthen its management of lead times, such as review lead time data
to detect and correct errors, review and revise the methodology used
for setting lead times, set lead time reduction goals, and direct the
components to measure and report the impact of initiatives to reduce
overall lead times within each of the military components. In its
comments, DOD generally concurred with nine and nonconcurred with two
of our recommendations.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-281].
To view the full product, including the scope and methodology, click on
the link above. For more information, contact William M. Solis at (202)
512-8365 or solisw@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
Actual Lead Times Varied Considerably from Estimated Lead Times for All
Components:
Management Actions and Initiatives to Reduce Lead Times from 2002 to
2005 Less Effective than Previous Initiatives from 1994 to 2002:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Scope and Methodology:
Appendix II: Comments from the Department of Defense:
Appendix III: GAO Contact and Staff Acknowledgments:
Tables:
Table 1: Primary Logistics Agencies and Their Inventory Management
Centers:
Table 2: DOD-Wide Difference in Actual and Estimated Acquisition Lead
Times:
Table 3: Army Differences between Actual and Estimated Acquisition Lead
Times:
Table 4: DLA Differences between Actual and Estimated Acquisition Lead
Times:
Table 5: Air Force Differences between Actual and Estimated Acquisition
Lead Times:
Table 6: Navy Differences between Actual and Estimated Acquisition Lead
Times:
Table 7: Lead Time Reductions from 2002 to 2005 Compared to Lead Time
Reductions from 1994 to 2002:
Table 8: Component Initiatives and Management Actions to Reduce
Acquisition Lead Times from 1994 to 2005:
Figure:
Figure 1: Potential Impact of Reduced Lead Time Inventory Requirements:
Abbreviations:
DLA: Defense Logistics Agency:
DOD: Department of Defense:
USD (AT&L): Under Secretary of Defense for Acquisition, Technology, and
Logistics:
TACOM: Tank-Automotive and Armaments Command:
United States Government Accountability Office:
Washington, DC 20548:
March 2, 2007:
The Honorable Carl Levin:
Chairman:
The Honorable John McCain:
Ranking Minority Member:
Committee on Armed Services:
United States Senate:
The Honorable Ike Skelton:
Chairman:
The Honorable Duncan L. Hunter:
Ranking Minority Member:
Committee on Armed Services:
House of Representatives:
The Department of Defense (DOD) maintains a military force with diverse
capabilities but continues to confront a pervasive, decades-old supply
chain management problem that relates to retaining the appropriate
amount of inventory. 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 to a force that
is highly dispersed and mobile. Supply support to the warfighter
affects readiness and military operations. In fact, the supply chain
can be the critical link in determining whether our frontline military
forces win or lose on the battlefield. 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. DOD
reported that, as of September 30, 2005,[Footnote 1] it owned about $80
billion of secondary inventory of spare parts.[Footnote 2] This
represents a $17 billion, or 27 percent, increase since fiscal year
2001, when the department reported about $63 billion in inventory.
Critically important to maintaining cost-effective inventories,
budgeting, and having materiel available when it is needed is the
development of successful processes that identify and manage
acquisition lead times for the purchase of parts for equipment and
weapon systems. Acquisition lead time, also known as procurement lead
time,[Footnote 3] measures the length of time between the initiation of
a procurement action and the receipt of items into the supply system.
DOD's management of its acquisition lead times affects whether DOD and
its military components[Footnote 4] have the right quantities of the
right items at the right locations at the right time to meet customer
needs. Generating lead time estimates is a protracted and complex
process that requires DOD inventory managers to project, in some cases,
parts usages over several years, which can decrease forecast accuracy
and reduce DOD's flexibility to react to changes in demand.
Additionally, long-standing data problems, internal control weaknesses,
and noninteroperable business systems within DOD further complicate the
process of generating accurate acquisition lead time estimates.
Since 1990, we have reported on weaknesses in DOD's supply chain
management in our high-risk reports. In 1994, we reported[Footnote 5]
that DOD had made only limited progress in reducing acquisition lead
times because its initiatives had been unevenly implemented by the
military components. We recommended that DOD renew emphasis on
implementing lead time reduction initiatives, review and update certain
lead time data, and give consideration to buying items directly from
the manufacturers instead of from contractors. DOD partially concurred
with each of our findings and recommendations. In addition to our
review, a 1998 DOD Inspector General report[Footnote 6] reviewed
initiatives underway at that time to improve acquisition lead times.
The report concluded that the military components had made progress in
reducing acquisition lead times and pointed out that reducing
acquisition lead times decreases inventory levels and associated
inventory holding costs, thus freeing up funds for other uses. The DOD
Inspector General report contained no recommendations.
Because of the potential effects of DOD's management of acquisition
lead times on readiness and inventory expenditures and because of the
continued weaknesses in DOD's supply chain management that we had
identified, we performed this engagement under the Comptroller
General's authority to conduct evaluations on his own initiative. We
are providing this report to you because of your committee's oversight
responsibilities. Our objectives were to determine the extent to which
(1) DOD's estimated lead times varied from the actual lead times
experienced, and (2) current management actions and initiatives have
reduced lead times as compared to past years.
To compare and analyze the estimated to actual lead times, we (1)
obtained and reviewed the military components' regulations and
directives on the policies, procedures, and processes used in computing
and maintaining acquisition lead times and interviewed relevant
officials; (2) obtained from each of the military components the
estimated and actual acquisition lead time values for all of the more
than one million orders valued at almost $19 billion of spare parts
that they received during fiscal year 2005; and (3) computed the
differences between the estimated and actual lead time for each order.
Each order's variance was then categorized according to how closely the
estimate approximated the actual lead time, ranging from no variance to
more than 90 days off as we believe this interval was an appropriate
measure to use in our analyses. We then calculated overall statistics
to show the extent to which the military components accurately
estimated the actual lead times. We also calculated the effect in
dollars for spare parts where the estimates were longer or shorter than
the actual lead times. We assessed the reliability of DOD's acquisition
lead time data by obtaining information from the components' management
of their data reliability procedures. We determined that the data
obtained from DOD's automated systems were sufficiently reliable for
the purposes of this report. Further, to compare the management actions
and initiatives to reduce lead times, we reviewed relevant documents
regarding efforts, policies, and initiatives to reduce lead times and
interviewed officials from the Office of the Under Secretary of Defense
for Acquisition, Technology, and Logistics (USD (AT&L)) and each of the
military components. We conducted our review from November 2005 through
November 2006 in accordance with generally accepted government auditing
standards. For more detailed information on our scope and methodology,
see appendix I.
Results in Brief:
The military components' estimated lead times to acquire spare parts
varied considerably from the actual lead times they experienced. DOD's
Supply Chain Materiel Management Regulation[Footnote 7] provides
guidance for developing materiel requirements based on customer
expectations while minimizing the investment in inventories. Further,
accurate lead time estimates are critically important in enabling the
military components to have the proper amount of inventory on hand.
However, rarely (5 percent) did the components' acquisition lead time
estimates come within a week of the actual lead times, while about 44
percent of the lead time estimates varied either earlier or later than
the actual lead times by at least 90 days. The combined effect of the
understated lead time estimates for all the components was slightly
over $12 billion in spare parts arriving more than 90 days later than
anticipated, which has the potential for negatively affecting readiness
rates because units may not have the necessary inventory to support and
sustain ongoing military operations. If orders had been placed and
funds obligated earlier, in some instances readiness rates could
potentially have been improved. Further, the combined effect of the
overstated lead time estimates for all the components resulted in them
obligating almost $2 billion more than 90 days earlier than necessary,
although spare parts that come in early could potentially improve
readiness.
* Of the 9,380 Army deliveries we reviewed, we found that 58 percent
(valued at $10.6 billion) had actual lead times longer than estimated
by at least 90 days due to such problems as miscoding of late
deliveries as not representative of future deliveries, lack of lead
time data in one of its computer systems, and data input errors that
caused the Army to underestimate lead times and receive items later
than expected.
* Conversely, we found that almost 40 percent of the estimated lead
times for the 1,031,779 DLA deliveries we reviewed[Footnote 8] (valued
at $568.8 million) were overstated by at least 90 days and did not
accurately reflect the improvements made in actual lead times because
the methodology DLA used for computing lead times had not been reviewed
or revised to reflect recent improvements due to the use of long-term
contracts.
* Of the 18,335 Air Force deliveries we reviewed, we found that more
than 42 percent (valued at $155.2 million) had actual lead times longer
and about 24 percent had actual lead times shorter than estimated by at
least 90 days due, in part, to the use of standard default data instead
of other data that may have been obtainable, such as data from the
suppliers.
* Additionally, of the 19,304 Navy deliveries we reviewed, we found
that about 28 percent had actual lead times longer and almost 40
percent (valued at $164.9 million) had actual lead times shorter than
estimated by at least 90 days due to such problems as data input
errors.
Absent actions by the military components to address these problems and
institute corrective procedures, DOD's acquisition lead time estimates
will continue to vary greatly from the actual lead times and will
contribute to inefficient use of funds and potential inventory
shortages or excesses.
USD (AT&L) and the military components' management actions and
initiatives to reduce acquisition lead times from 2002 to 2005 were
less effective overall than previous actions and initiatives from 1994
to 2002. DOD regulations state that the components should aggressively
pursue the lowest possible acquisition lead times. However, from 2002
to 2005, DOD-wide lead times were reduced by an average of 0.9 percent
annually as compared to an average reduction of 5.6 percent annually
from 1994 to 2002. The USD (AT&L) and the components' management
actions and initiatives were more effective from 1994 to 2002 than they
were from 2002 to 2005 because they placed greater emphasis on three
areas that contributed to the higher rate of lead time reduction:
streamlining internal administrative processes, improving oversight,
and developing strategic relationships with suppliers. First, from 1994
to 2002, each of the military components began new initiatives to
streamline administrative processes. While all components continued
these initiatives from 2002 to 2005, the Army and the Navy reduced
focus on these initiatives and were less aggressive than the DLA and
the Air Force in implementing new initiatives to reduce lead times. For
example, DLA and the Air Force reduced their lead times by an average
of 3.3 and 4.1 percent annually, respectively, while the Army's average
lead times increased and the Navy's were unchanged. Second, in 1994,
USD (AT&L) began providing enhanced oversight to acquisition lead
times, but by 2002 it was no longer providing active oversight. For
example, from 2002 to 2005, USD (AT&L) did not establish lead time
reduction goals, require reporting of metrics to measure reductions in
lead times, collect data to report the impact and costs of specific
initiatives on lead times, or measure and provide estimates of the
financial impact of reduced lead times, as had been done previously.
USD (AT&L) officials stated that they no longer provided oversight
because management focus shifted from reducing lead times to improving
performance on broader metrics, such as backorders. Component officials
stated that because USD (AT&L) placed less emphasis on lead times from
2002 to 2005, their organizations also placed less emphasis on lead
time reductions. Officials suggested that renewed emphasis on lead time
reduction by USD (AT&L) could increase the components' management focus
on reducing lead times. Third, all military components were able to
reduce lead times from 1994 to 2002 by implementing initiatives that
developed relationships with suppliers, such as using long-term
contracts and other innovative practices. However, unlike the Air Force
and the DLA, the Army and the Navy have not begun any new initiatives
to improve strategic relationships with suppliers to help reduce lead
times from 2002 to 2005. The military components could have decreased
inventory requirements and potentially saved hundreds of millions of
dollars if more aggressive lead time reductions had been realized from
2002 to 2005, as they had from 1994 to 2002. As a result of the reduced
rate of lead time reduction from 2002 to 2005, lead time requirements
are up to $2.7 billion higher than they would have been if the lead
time reduction rate had remained constant, thus tying up money that
could have been obligated for other needs. Until USD (AT&L) and the
components take steps to renew their focus on reducing lead times by
aggressively continuing prior initiatives and implementing successful
new initiatives, the components may continue to experience spare parts
shortages and may spend significantly more money to purchase additional
inventory.
To improve the accuracy in setting acquisition lead time values, we are
recommending that the Army take steps to determine when lead time
values are representative and should be updated, and update and
maintain automated lead time data in computer systems; the Army and
Navy review and validate lead time data to detect and correct errors;
DLA review and update the methodology used for updating lead times; and
the Air Force evaluate sources of lead time values. To strengthen
management of lead times, we are recommending that USD (AT&L) establish
lead time reduction goals, develop metrics to measure progress in
meeting lead time reduction goals, develop an estimate of the financial
impact of lead time reductions, direct the military components to
measure and report to it on the results and costs of individual
initiatives to reduce overall lead times, and work closely with the
Army and Navy to develop joint strategic relationships with suppliers
that would be beneficial in reducing lead times.
In written comments on a draft of this report, DOD generally concurred
with 9 of our 11 recommendations. DOD identified actions that it is
taking or plans to take to implement these recommendations, and, for
most of them, we agree that its actions are responsive and reasonably
address our findings. However, DOD did not concur with 2 of our 11
recommendations, the first being our recommendation for DLA to review
and revise the methodology used to update lead times. The department
stated that we used data from DLA's legacy computer system in our
review, which did not have the benefit of DLA's newly implemented
computer system. We believe that our recommendation remains valid
because the basic methodology for calculating lead times remains the
same between DLA's old and new computer systems. Therefore,
improvements in the accuracy of DLA's lead time estimates seem unlikely
to result from the use of the old methodology in the new computer
system. DOD also did not concur with our recommendation for USD (AT&L)
to work closely with the Army and Navy to develop joint strategic
relationships with suppliers that would be beneficial in reducing lead
times, stating that it is actively pursuing a joint strategy to develop
strategic relationships and that to instruct the services to develop
strategic relationships separately would lead to a duplication of
effort. We believe that DOD may have misinterpreted our recommendation
as having these services independently pursue strategic supplier
relationships without USD (AT&L) oversight. However, our recommendation
was not for the Army and Navy to develop strategic relationships
separately but for USD (AT&L) to work closely with them to develop
these relationships. Therefore, we believe that this recommendation
remains valid. The department's comments are reprinted in appendix II,
and our response to its comments appears at the end of this report.
Background:
The basic challenge of inventory management is having the proper amount
of items on hand when required--neither too much nor too little. If
inventory levels are too low, DOD and its components may experience
supply shortages and be unable to satisfy customer demands. This could
result in DOD undertaking costly and often wasteful efforts to recover
from being out of stock. If inventory levels are too high, money is
invested on items that may never be used. Additionally, a series of
unnecessary expenditures is incurred for more warehouses,
transportation, and personnel; storage and distribution facilities
become more crowded; maintenance workloads may increase; and inventory
excesses are generated which eventually may have to be disposed of,
perhaps at a severe financial loss.
Inventory levels are influenced by the amount of time between the
initiation of a procurement action and the receipt of the item into the
supply system. This time frame is known as acquisition lead time, and
it consists of two parts: administrative and production lead times.
Administrative lead time is the time interval from the initiation of a
procurement action to the contract award, while the production lead
time is the interval from the contract award to delivery of the items.
Since acquisition lead times are the components' estimates as to when
an item will arrive, varying from that expectation results in
consequences when items arrive too early or too late.
To promote accuracy and completeness in the management of acquisition
lead times, having appropriate policies, procedures, and instructions
is an important component of an agency's internal control framework. As
discussed in GAO's Internal Control Standards guidance, we identified
that other important activities related to information processing
systems, performance measures and indicators, and the recording and
classification of transactions and events are also necessary.[Footnote
9] Inventory management and oversight is the shared responsibility
between the USD (AT&L) and the military components. USD (AT&L) has
overall responsibility for the development of acquisition policies for
monitoring the overall effectiveness and efficiency of the DOD
acquisition system. The components are responsible for implementing the
materiel management policies and activities. The DOD Supply Chain
Materiel Management Regulation states that the military components
should aggressively pursue the lowest possible acquisition lead times,
and in coming up with lead time estimates, they may use contractor
information, historical information from representative procurements,
technical documentation, or the best judgment of acquisition personnel.
It also establishes for the military components overarching guiding
principles, assigns responsibility, defines, and provides guidelines
for developing acquisition lead time, and states that they should
identify and track deviations from normal historical or projected
patterns in such areas as demand, stock levels, and lead times.
The military components have an inventory management agency that
purchases and delivers items and services to the warfighter. The
primary inventory agencies that provide this support to the warfighter
are (1) the U.S. Air Force Materiel Command, (2) the U.S. Army Materiel
Command, (3) the Defense Logistics Agency, and (4) the Naval Inventory
Control Point. Table 1 shows the primary logistics agencies and their
inventory management centers.
Table 1: Primary Logistics Agencies and Their Inventory Management
Centers:
Air Force Materiel Command:
Ogden Air Logistics Center;
Oklahoma City Air Logistics Center;
Warner Robins Air Logistics Center.
Army Materiel Command:
Aviation and Missile Life Cycle Management Command;
Communications-Electronics Life Cycle Management Command;
U.S. TACOM Life Cycle Management Command.
Defense Logistics Agency:
Defense Supply Center Columbus;
Defense Supply Center Philadelphia;
Defense Supply Center Richmond.
Naval Inventory Control Point:
Naval Inventory Control Point Mechanicsburg;
Naval Inventory Control Point Philadelphia.
Source: DOD.
[End of table]
To implement DOD's acquisition lead time policy, each of the military
components developed their own procedures for managing acquisition lead
times, and as such, each used slightly different methodologies to
calculate their estimated administrative lead time and production lead
time values.
Actual Lead Times Varied Considerably from Estimated Lead Times for All
Components:
The military components' acquisition lead time estimates to acquire
spare and repair parts varied considerably from the actual lead times
experienced. More specifically, estimated lead times for all of the
components rarely approximated actual lead times, with only 5 percent
of the deliveries we reviewed having actual acquisition lead times that
were within 1 week of the estimated lead time. While each of the
military components had instances of both underestimated and
overestimated lead times, the Army's acquisition lead time estimates
were generally understated, while DLA's estimates were generally
overstated. The Air Force's and the Navy's estimates were both
overstated and understated.
Acquisition Lead Time Estimates for All Components Rarely Approximated
Actual Lead Times:
For the more than one million spare part deliveries we reviewed, the
military components' estimated acquisition lead times rarely
approximated the actual lead times and were generally either
understated or overstated. DOD's Supply Chain Materiel Management
Regulation provides guidance for developing materiel requirements based
on customer expectations while minimizing the investment in
inventories. In addition, accurate lead time estimates are critically
important in enabling the military components to have the proper amount
of inventory on hand. However, as table 2 shows, 5 percent of the
deliveries, totaling about $700 million, had actual acquisition lead
times that were within a week of the estimate. The combined value of
the lead time underestimates for all the components resulted in
slightly over $12 billion in spare and repair parts arriving more than
90 days later than expected, which may have negatively affected
equipment readiness and overall rates because units may not have had
the necessary inventory to support and sustain ongoing military
operations. If lead time estimates had been more accurate, orders could
have been placed and funds obligated earlier, and in some instances
readiness rates could potentially have been improved. Further, the
combined value of the lead time overestimates resulted in the military
components obligating almost $2 billion more than 90 days earlier than
necessary, which could add to excess on-hand inventories, although
spare parts that come in early could potentially improve readiness.
Table 2: DOD-Wide Difference in Actual and Estimated Acquisition Lead
Times:
Total DOD-wide;
Dollar value (in thousands) of deliveries with variances: >90 days
early: $1,909,523;
Dollar value (in thousands) of deliveries with variances: >1 week to 90
days early: $2,041,190;
Dollar value (in thousands) of deliveries with variances: Up to 1 week
early - Up to 1 week late: $699,378;
Dollar value (in thousands) of deliveries with variances: >1 week to 90
days late: $2,047,081;
Dollar value (in thousands) of deliveries with variances: >90 days
late: $12,023,766;
Percent of deliveries reviewed with variances: >90 days early: 39.0;
Percent of deliveries reviewed with variances: >1 week to 90 days
early: 44.4;
Percent of deliveries reviewed with variances: Up to 1 week early - Up
to 1 week late: 5.0;
Percent of deliveries reviewed with variances: >1 week to 90 days late:
7.0;
Percent of deliveries reviewed with variances: >90 days late: 4.6.
Source: GAO analysis of delivery order information provided by each of
the military components.
[End of table]
We reviewed the two parts of acquisition lead time, administrative lead
time and production lead time, and found that each of the military
components more accurately estimated the administrative portion than
the production portion. However, for administrative lead time, the
military components' estimates fell within the 1-week range only about
20 percent of the time while production lead time estimates matched the
actual production lead times within the 1-week range just over 10
percent of the time. Officials explained that the accuracy of their
administrative lead time estimates was better than their production
lead time estimates because they have more management control over
their internal processes than over external contractor practices.
Officials stated that variability always exists when generating lead
time estimates, but they agreed that improved and more reliable lead
time estimates can contribute to lower levels of inventory. They also
stated that understated lead time estimates can result in backorders or
part shortages which may impact a unit's readiness if the needed spare
parts are not available when expected, and overstated estimates result
in prematurely obligating funds that could have been used for other
military needs and can unnecessarily increase inventory levels and
associated costs.
Army Tended to Underestimate Lead Time Estimates:
The Army tended to underestimate their acquisition lead times and
receive items later than expected. Of the 9,380 Army deliveries we
reviewed, more than 58 percent of their actual acquisition lead times
were more than 90 days longer than their estimated lead times. This
represented about $10.6 billion worth of inventory arriving later than
expected. Additionally, almost 12 percent had actual acquisition lead
times that were more than 90 days shorter than their estimated lead
times and that resulted in about $900 million of premature obligations,
as shown in table 3.
Table 3: Army Differences between Actual and Estimated Acquisition Lead
Times:
Army: AMCOM-Aviation;
Dollar value (in thousands) of deliveries with variances: >90 days
early: $851,500;
Dollar value (in thousands) of deliveries with variances: >1 week to 90
days early: $642,284;
Dollar value (in thousands) of deliveries with variances: Up to 1 week
early --Up to 1 week late: $333,998;
Dollar value (in thousands) of deliveries with variances: >1 week to 90
days late: $1,193,565;
Dollar value (in thousands) of deliveries with variances: >90 days
late: $10,309,932;
Percent of deliveries reviewed with variances: >90 days early: 11.7;
Percent of deliveries reviewed with variances: >1 week 90 days early:
8.0;
Percent of deliveries reviewed with variances: Up to 1 week early
- Up to 1 week late: 2.6;
Percent of deliveries reviewed with variances: >1 week to 90 days late:
15.1;
Percent of deliveries reviewed with variances: >90 days late: 62.7.
Army: CECOM;
Dollar value (in thousands) of deliveries with variances: >90 days
early: 36,274;
Dollar value (in thousands) of deliveries with variances: >1 week to 90
days early: 29,942;
Dollar value (in thousands) of deliveries with variances: Up to 1 week
early --Up to 1 week late: 5,989;
Dollar value (in thousands) of deliveries with variances: >1 week to 90
days late: 39,034;
Dollar value (in thousands) of deliveries with variances: >90 days
late: 158,066;
Percent of deliveries reviewed with variances: >90 days early: 17.4;
Percent of deliveries reviewed with variances: >1 week 90 days early:
18.1;
Percent of deliveries reviewed with variances: Up to 1 week early - Up
to 1 week late: 2.6;
Percent of deliveries reviewed with variances: >1 week to 90 days late:
13.9;
Percent of deliveries reviewed with variances: >90 days late: 47.9.
Army: TACOM-Warren;
Dollar value (in thousands) of deliveries with variances: >90 days
early: 16,364;
Dollar value (in thousands) of deliveries with variances: >1 week to 90
days early: 85,646;
Dollar value (in thousands) of deliveries with variances: Up to 1 week
early --Up to 1 week late: 88,560;
Dollar value (in thousands) of deliveries with variances: >1 week to 90
days late: 86,324;
Dollar value (in thousands) of deliveries with variances: >90 days
late: 147,231;
Percent of deliveries reviewed with variances: >90 days early: 3.5;
Percent of deliveries reviewed with variances: >1 week 90 days early:
9.1;
Percent of deliveries reviewed with variances: Up to 1 week early - Up
to 1 week late: 22.2;
Percent of deliveries reviewed with variances: >1 week to 90 days late:
19.4;
Percent of deliveries reviewed with variances: >90 days late: 45.8.
Total;
Dollar value (in thousands) of deliveries with variances: >90 days
early: $904,138;
Dollar value (in thousands) of deliveries with variances: >1 week to 90
days early: $757,871;
Dollar value (in thousands) of deliveries with variances: Up to 1 week
early --Up to 1 week late: $428,547;
Dollar value (in thousands) of deliveries with variances: >1 week to 90
days late: $1,318,923;
Dollar value (in thousands) of deliveries with variances: >90 days
late: $10,615,229;
Percent of deliveries reviewed with variances: >90 days early: 11.8;
Percent of deliveries reviewed with variances: >1 week 90 days early:
9.7;
Percent of deliveries reviewed with variances: Up to 1 week early
- Up to 1 week late: 4.6;
Percent of deliveries reviewed with variances: >1 week to 90 days late:
15.3;
Percent of deliveries reviewed with variances: >90 days late: 58.5.
Source: GAO analysis of delivery order information provided by Army
Materiel Command.
[End of table]
The variances between the Army's actual and estimated lead times
occurred, in part, because of miscoding of late deliveries as not
representative of future delivery times, lack of accurate lead time
data in one of its computer systems, and data input errors. Of the data
we examined, most of the underestimates occurred within the Army
Aviation and Missile Life Cycle Management Command within the Army
Materiel Command. This command develops, acquires, fields, and sustains
aviation, missile, and unmanned vehicle systems. When this command
cannot obtain items, such as landing gear, helicopter blades, and
aircraft access doors in accordance with expectations, it can have
immediate and serious ramifications on the operational readiness of
many units. We found production lead times in 3,863 orders, for items
valued at $10.3 billion of the $10.6 billion we analyzed, where the
actual lead times were more than 90 days later than the estimated lead
times. According to our analyses of the command's deliveries received
in fiscal year 2005, nearly 63 percent arrived more than 90 days later
than expected. Army officials stated that some of the variances between
actual and estimated lead times occurred because some actual lead times
were miscoded as nonrepresentative by the command's acquisition
personnel, who initially believed that certain delivery delays would be
short-lived and were not representative of future deliveries. Once Army
officials realized the delays were not short-lived, they said that item
managers made some adjustments for particular affected items. Army
guidance states that lead times should be computed using the most
recent representative procurement.[Footnote 10] However, it does not
give clear guidance on when to decide if continuing late contractor
deliveries should be considered representative, and any adjustments
made to particular affected items would not prevent similar situations
from occurring in the future. As a result, actual lead times can be
miscoded and excluded from lead time updates, which makes subsequent
estimates inaccurate.
Army officials acknowledged that this command has experienced a problem
in meeting supply demands for several years, especially after Operation
Iraqi Freedom began, because of the surge in demand for their items.
The high demand depleted much of the Army's on-hand supply of inventory
more quickly than anticipated and replacing the items was difficult
since many aviation-related items had long lead times for replacement.
At the same time, the Army was unable to order some items as quickly as
needed because it lacked sufficient available funds to obligate and
process orders. However, Army officials stated that many manufacturers
were operating at their highest capacity and placing orders more
quickly would not have resulted in the companies actually producing the
additional items any faster.
Officials from the U.S. Army TACOM Life Cycle Management Command in
Warren, Michigan made similar statements to explain the lateness of
some of their deliveries. They agreed that they had experienced delays
in getting items from certain contractors due to the high level of
demand. They also acknowledged budgetary constraints during the years
of our sample that resulted in hiring freezes and other personnel
challenges that added to their workload and hindered their ability to
process contracts and orders and to periodically review, validate, and
make corrections to any inaccurately recorded lead time estimates.
Army officials also attributed inaccuracies in lead times to input
errors that item managers were unable to detect and correct. At the
Army's Communications-Electronics Life Cycle Management Command, lead
time data are not automatically maintained or updated in the Logistics
Modernization Program, which was designed to improve Army maintenance
logistical and financial operations, and officials had to manually
input the data from the command's older computer system. However,
according to Army officials, the heavy workloads of item managers have
not allowed them to validate these data to detect and correct any lead
time data input errors.
Absent actions by the Army, across each of its Life Cycle Management
Commands, to determine when deliveries are representative and should be
used to update lead time values, maintain and update lead time data in
its new computer system, and validate data input to detect and correct
errors, late deliveries and parts shortages will likely continue.
DLA Tended to Overestimate Lead Time Estimates:
DLA tended to overestimate its acquisition lead times and receive items
sooner than expected. Of the 1,031,779 DLA deliveries we reviewed,
almost 40 percent had actual acquisition lead times that were more than
90 days shorter than their estimated lead times. This resulted in about
$568 million being obligated earlier than necessary and inventory
arriving earlier than expected. Conversely, only about 3 percent of
DLA's deliveries had actual acquisition lead times that were more than
90 days longer than their estimated lead times, totaling approximately
$319 million, as shown in table 4.
Table 4: DLA Differences between Actual and Estimated Acquisition Lead
Times:
DLA;
Dollar value (in thousands) of deliveries with variances: >90 days
early: $568,775;
Dollar value (in thousands) of deliveries with variances: >1 week to 90
days early: $1,021,343;
Dollar value (in thousands) of deliveries with variances: Up to 1 week
early --Up to 1 week late: $221,812;
Dollar value (in thousands) of deliveries with variances: >1 week to 90
days late: $481,150;
Dollar value (in thousands) of deliveries with variances: >90 days
late: $319,184;
Percent of deliveries with variances: >90 days early: 39.5;
Percent of deliveries with variances: >1 week to 90 days early: 45.7;
Percent of deliveries with variances: Up to 1 week early - Up to 1 week
late: 5.0;
Percent of deliveries with variances: >1 week to 90 days late: 6.7;
Percent of deliveries with variances: >90 days late: 3.0.
Source: GAO analysis of delivery order information provided by DLA.
[End of table]
DLA manages almost every consumable item the military services need to
operate, and according to officials, many of these items have been
placed on long-term contracts, thus allowing faster order processing.
Since the deliveries from the contractors were also faster, there have
been reduced overall acquisition lead times. Even though DLA uses a
methodology for computing and maintaining lead time estimates that is
more heavily weighted toward the recent actual lead times than the
existing ones on file, the process did not compute revised estimates
that accurately reflected the rapid improvements being made through
their lead time initiatives. Additionally, DLA officials stated that
they emphasized business practices that encouraged earlier deliveries
as opposed to later ones. They went on to state that the storage and
handling costs were minimal, although we were unable to confirm this
statement, and being able to meet customers' needs by having the
necessary items on hand was most important to them. With the emphasis
on meeting or beating the estimated lead times, there is reduced
incentive for DLA to adjust its lead times to more precisely reflect
actual lead times experienced. Absent actions by DLA to review and
revise the methodology and inputs it uses in calculating lead time
estimates so that the estimates more precisely reflect its actual
experiences, DLA will continue to obligate funds earlier than necessary
and have early delivery of items.
Air Force Tended to Underestimate and Overestimate Lead Time Estimates:
The Air Force tended to both underestimate and overestimate its
acquisition lead times, receiving a significant amount of items both
sooner and later than expected. Of the 18,335 Air Force deliveries we
reviewed, more than 42 percent had actual acquisition lead times that
were more than 90 days longer than estimated. This resulted in about
$528 million worth of inventory that arrived later than estimated. At
the same time, about 24 percent had actual acquisition lead times that
were more than 90 days shorter than estimated, which resulted in about
$272 million of premature obligations, as shown in table 5.
Table 5: Air Force Differences between Actual and Estimated Acquisition
Lead Times:
Air Force: Ogden, Utah;
Dollar value (in thousands) of deliveries with variances: >90 days
early: $84,826;
Dollar value (in thousands) of deliveries with variances: >1 week to 90
days early: $31,463;
Dollar value (in thousands) of deliveries with variances: Up to 1 week
early - Up to 1 week late: $6,816;
Dollar value (in thousands) of deliveries with variances: >1 week to 90
days late: $24,778;
Dollar value (in thousands) of deliveries with variances: >90 days
late: $62,539;
Percent of deliveries with variances: >90 days early: 40.1;
Percent of deliveries with variances: >1 week to 90 days early: 15.7;
Percent of deliveries with variances: Up to 1 week early - Up to 1 week
late: 3.3;
Percent of deliveries with variances: >1 week to 90 days late: 12.0;
Percent of deliveries with variances: >90 days late: 28.9.
Air Force: Oklahoma City;
Dollar value (in thousands) of deliveries with variances: >90 days
early: 141,986;
Dollar value (in thousands) of deliveries with variances: >1 week to 90
days early: 123,750;
Dollar value (in thousands) of deliveries with variances: Up to 1 week
early - Up to 1 week late: 23,475;
Dollar value (in thousands) of deliveries with variances: >1 week to 90
days late: 114,317;
Dollar value (in thousands) of deliveries with variances: >90 days
late: 362,827;
Percent of deliveries with variances: >90 days early: 18.8;
Percent of deliveries with variances: >1 week to 90 days early: 16.0;
Percent of deliveries with variances: Up to 1 week early - Up to 1 week
late: 3.2;
Percent of deliveries with variances: >1 week to 90 days late: 16.9;
Percent of deliveries with variances: >90 days late: 45.1.
air Force: Warner Robins;
Dollar value (in thousands) of deliveries with variances: >90 days
early: 44,852;
Dollar value (in thousands) of deliveries with variances: >1 week to 90
days early: 27,081;
Dollar value (in thousands) of deliveries with variances: Up to 1 week
early - Up to 1 week late: 3,198;
Dollar value (in thousands) of deliveries with variances: >1 week to 90
days late: 16,081;
Dollar value (in thousands) of deliveries with variances: >90 days
late: 103,004;
Percent of deliveries with variances: >90 days early: 22.3;
Percent of deliveries with variances: >1 week to 90 days early: 14.5;
Percent of deliveries with variances: Up to 1 week early - Up to 1 week
late: 2.0;
Percent of deliveries with variances: >1 week to 90 days late: 13.1;
Percent of deliveries with variances: >90 days late: 48.1.
Air Force: Total;
Dollar value (in thousands) of deliveries with variances: >90 days
early: $271,665;
Dollar value (in thousands) of deliveries with variances: >1 week to 90
days early: $182,293;
Dollar value (in thousands) of deliveries with variances: Up to 1 week
early - Up to 1 week late: $33,489;
Dollar value (in thousands) of deliveries with variances: >1 week to 90
days late: $155,176;
Dollar value (in thousands) of deliveries with variances: >90 days
late: $528,370;
Percent of deliveries with variances: >90 days early: 23.8;
Percent of deliveries with variances: >1 week to 90 days early: 15.7;
Percent of deliveries with variances: Up to 1 week early - Up to 1 week
late: 3.0;
Percent of deliveries with variances: >1 week to 90 days late: 15.2;
Percent of deliveries with variances: >90 days late: 42.3.
Source: GAO analysis of delivery order information provided by the Air
Force Materiel Command.
[End of table]
A sample of 30 Air Force deliveries selected from the ones with the
greatest variances between actual and estimated lead times provided an
explanation for some of these variances. In over half of the sampled
late deliveries, the item managers at the air logistics centers had
used their standard default lead time values for the estimates. It is
the Air Force's standard procedure to use the standard default
administrative lead time value for spare parts that have not been
bought in more than 5 years, but Air Force guidance does not direct the
use of default production lead times for spare parts that have not been
purchased for more than 5 years.[Footnote 11] However, many items we
reviewed used the standard default production lead time value because,
according to officials, it was an easy estimate for item managers to
use given their workload. In these cases, the default values greatly
understated the actual lead times and resulted in later arrivals of
deliveries to the air logistics centers, which may have negatively
impacted their operational units' mission readiness if those items had
not been available when needed. Officials said that these default
values may not be the best information available, and there might be
other information obtained or generated for use in place of the default
values. One possibility might be contacting the supplier to determine
the current lead time. They noted that the use of these default values
could also be an explanation for the overstated lead times as well as
the understated lead times. Absent actions by the Air Force to review
and validate its default lead time estimates and consider other options
for better lead time data, mostly for infrequent buys, parts shortages
or early obligation of funds will likely continue.
Navy Tended to Underestimate and Overestimate Lead Time Estimates:
The Navy tended to both underestimate and overestimate its acquisition
lead times, receiving a significant amount of items both sooner and
later than expected. Of the 19,304 Navy deliveries we reviewed, just
over 39 percent had actual acquisition lead times that were more than
90 days shorter than estimated. As a result, about $165 million worth
of inventory arrived earlier than expected and the funds for this
inventory were obligated prematurely. In addition, about 28 percent had
actual lead times that exceeded their estimates by more than 90 days,
which resulted in almost $561 million of items arriving later than
anticipated, as shown in table 6.
Table 6: Navy Differences between Actual and Estimated Acquisition Lead
Times:
Navy: Mechanicsburg;
Dollar value (in thousands) of deliveries with variances: >90 days
early: $70,792;
Dollar value (in thousands) of deliveries with variances: >1 week to 90
days early: $29,343;
Dollar value (in thousands) of deliveries with variances: Up to 1 Week
early --Up to 1 week late: $6,772;
Dollar value (in thousands) of deliveries with variances: >1 week to 90
days late: $30,950;
Dollar value (in thousands) of deliveries with variances: >90 more days
late: $82,430;
Percent of deliveries with variances: >90 days early: 41.2;
Percent of deliveries with variances: >1 week to 90 days early: 17.0;
Percent of deliveries with variances: Up to 1 week early - Up to 1 week
late: 3.0;
Percent of deliveries with variances: >1 week to 90 days late: 13.1;
Percent of deliveries with variances: >90 days late: 25.7.
Navy: Philadelphia;
Dollar value (in thousands) of deliveries with variances: >90 days
early: 94,154;
Dollar value (in thousands) of deliveries with variances: >1 week to 90
days early: 50,339;
Dollar value (in thousands) of deliveries with variances: Up to 1 Week
early --Up to 1 week late: 8,759;
Dollar value (in thousands) of deliveries with variances: >1 week to 90
days late: 60,882;
Dollar value (in thousands) of deliveries with variances: >90 more days
late: 478,554;
Percent of deliveries with variances: >90 days early: 34.9;
Percent of deliveries with variances: >1 week to 90 days early: 17.1;
Percent of deliveries with variances: Up to 1 week early - Up to 1 week
late: 3.1;
Percent of deliveries with variances: >1 week to 90 days late: 11.8;
Percent of deliveries with variances: >90 days late: 33.0.
Navy: Total;
Dollar value (in thousands) of deliveries with variances: >90 days
early: $164,946;
Dollar value (in thousands) of deliveries with variances: >1 week to 90
days early: $79,682;
Dollar value (in thousands) of deliveries with variances: Up to 1 Week
early --Up to 1 week late: $15,531;
Dollar value (in thousands) of deliveries with variances: >1 week to 90
days late: $91,832;
Dollar value (in thousands) of deliveries with variances: >90 more days
late: $560,984;
Percent of deliveries with variances: >90 days early: 39.3;
Percent of deliveries with variances: >1 week to 90 days early: 17.0;
Percent of deliveries with variances: Up to 1 week early - Up to 1 week
late: 3.0;
Percent of deliveries with variances: >1 week to 90 days late: 12.7;
Percent of deliveries with variances: >90 days late: 27.9.
Source: GAO analysis of delivery order information provided by Naval
Inventory Control Points at Mechanicsburg and Philadelphia.
[End of table]
Navy officials stated that they believe these variances are acceptable
and reasonable due to the variability in generating lead times,
especially for ship parts that are bought infrequently. They said that
updating the lead time estimates more often would not make the
forecasts more accurate because there are not enough observations per
item to update more often. We did not evaluate whether more frequent
updating of the lead time estimates would improve their accuracy.
However, some of the variances between the Navy's actual and estimated
lead times occurred because of data input errors. We found input errors
in a sample of 30 Navy deliveries selected from the ones with the
greatest variances between the estimated and actual lead times that
affected the estimates' accuracy. For example, in two cases, the lead
time estimates were incorrectly loaded into the ordering system used by
the inventory control points at 10 times longer than what the correct
estimates should have been, and the error was not detected. Also, many
of the excessive estimated lead times of the sample items we reviewed
could not be explained by Navy officials, who stated there were
conflicting lead time data within their records. Until the Navy
addresses these concerns by reviewing and validating its lead time data
and correcting errors, either parts shortages or early obligation of
funds are likely to continue.
Management Actions and Initiatives to Reduce Lead Times from 2002 to
2005 Less Effective than Previous Initiatives from 1994 to 2002:
USD (AT&L) and the military components' management actions and
initiatives to reduce lead times from 2002 to 2005 were less effective
overall than previous initiatives from 1994 to 2002. Progress in
reducing lead times varied greatly by service from 2002 to 2005, with
DLA and the Air Force reducing their lead times by about 3.3 and 4.1
percent annually respectively, while the Navy's lead times remained the
same, and the Army experienced an increase in lead times by 0.3 percent
annually. Of the various management actions and initiatives taken by
the services from 2002 to 2005, some were new and some were
continuations of previous initiatives, with each service pursuing
varying combinations of initiatives. For example, initiatives to
streamline administrative processes were implemented by all military
components from 1994 to 2002 and from 2002 to 2005, with DLA and the
Air Force more aggressively implementing new initiatives from 2002 to
2005 than did the Army and Navy. In addition, from 1994 to 2002,
enhanced USD (AT&L) oversight contributed to the rapid pace of lead
time reduction; however, from 2002 to 2005, USD (AT&L) no longer
continued to monitor progress made by the components in reducing lead
times, and all components experienced reduced management oversight.
Moreover, while new initiatives to improve contracting practices were
implemented by all military components from 1994 to 2002 and were
continued by all components from 2002 to 2005, from 2002 to 2005 DLA
and the Air Force began new initiatives to strategically manage
relationships with suppliers, while the Army and Navy did not. The
military components could have decreased inventory requirements and
saved money if more aggressive lead time reductions had been realized
from 2002 to 2005 as they had been from 1994 to 2002.
Slower Rate of Reductions in Lead Times from 2002-2005 than from 1994-
2002:
USD (AT&L) and the components' management actions and initiatives to
reduce lead times from 2002 to 2005 resulted in a slower rate of
reduction in DOD-wide lead times of an average of 0.9 percent annually
as compared to an average reduction of 5.6 percent annually from 1994
to 2002. The DOD Supply Chain Materiel Management Regulation gives
general guidance stating that the military components should
aggressively pursue the lowest possible acquisition lead times. As
shown in table 7, progress in reducing lead times varied by military
component from 2002 to 2005. The Army experienced an average annual
lead time increase of 0.3 percent per year from 2002 to 2005, as
compared to an average yearly reduction of 9.7 percent from 1994 to
2002, in part due to higher demands and supplier capacity issues. The
Navy's lead times were unchanged from 2002 to 2005, after decreasing by
2.8 percent from 1994 to 2002. The Air Force reduced its lead times
from 2002 to 2005, but at a lower rate than it did from 1994 to 2002.
The Air Force reduced its acquisition lead times by an average of 4.1
percent per year from 2002 to 2005, compared to an average yearly
reduction of 4.5 percent from 1994 to 2002. Similarly, DLA's
acquisition lead times also decreased at a lower rate from 2002 to 2005
than from 1994 to 2002, being reduced by an average of 3.3 percent per
year in the former as compared to 6.2 percent per year in the latter.
Table 7: Lead Time Reductions from 2002 to 2005 Compared to Lead Time
Reductions from 1994 to 2002:
Component: DLA;
Average lead time in days: FY 1994: 293;
Average lead time in days: FY 2002: 176;
Average lead time in days: FY 2005: 159;
Reduction FY 1994-2002: Total: 39.9%;
Reduction FY 1994-2002: Average yearly: 6.2%;
Reduction FY 2002-2005: Total: 9.7%;
Reduction FY 2002- 2005: Average Yearly: 3.3%.
Component: Army;
Average lead time in days: FY 1994: 690;
Average lead time in days: FY 2002: 305;
Average lead time in days: FY 2005: 308;
Reduction FY 1994-2002: Total: 55.8%;
Reduction FY 1994-2002: Average yearly: 9.7%;
Reduction FY 2002-2005: Total: -1.0%;
Reduction FY 2002- 2005: Average Yearly: -0.3%.
Component: Navy;
Average lead time in days: FY 1994: 522;
Average lead time in days: FY 2002: 416;
Average lead time in days: FY 2005: 416;
Reduction FY 1994-2002: Total: 20.3%;
Reduction FY 1994-2002: Average yearly: 2.8%;
Reduction FY 2002-2005: Total: 0.0%;
Reduction FY 2002- 2005: Average Yearly: 0.0%.
Component: Air Force;
Average lead time in days: FY 1994: 620;
Average lead time in days: FY 2002: 430;
Average lead time in days: FY 2005: 379;
Reduction FY 1994-2002: Total: 30.6%;
Reduction FY 1994-2002: Average yearly: 4.5%;
Reduction FY 2002-2005: Total: 11.9%;
Reduction FY 2002-2005: Average Yearly: 4.1%.
Component: DOD Total[A];
Average lead time in days: FY 1994: 531;
Average lead time in days: FY 2002: 336;
Average lead time in days: FY 2005: 327;
Reduction FY 1994-2002: Total: 36.7%;
Reduction FY 1994- 2002: Average yearly: 5.6%;
Reduction FY 2002-2005: Total: 2.7%;
Reduction FY 2002-2005: Average Yearly: 0.9%.
Source: GAO analysis of DOD budget stratification data.
[A] DOD total was collectively determined by averaging all lead times
and reductions for the individual items from the military components.
[End of table]
Military Components Pursued Various Initiatives to Reduce Lead Times
with Varying Results:
Each of the military components pursued various initiatives to reduce
acquisition lead times during both the 1994-2002 and 2002-2005 time
periods with varying results. The progress of the military components
in reducing lead times varied because each pursued different
combinations of new and continued initiatives and management actions.
These initiatives and actions generally fell into three areas of focus:
streamlining internal administrative processes, improving oversight,
and developing relationships with suppliers, as shown in table 8.
Table 8: Component Initiatives and Management Actions to Reduce
Acquisition Lead Times from 1994 to 2005:
Streamlining admin. processes.
Initiative or Management action: -Information technology;
DLA: '94-'02: action not undertaken[C];
DLA: '02-'05: action underway[A];
Air Force: '94-'02: action not undertaken[C];
Air Force: '02- '05: action underway[A];
Army: '94-'02: action not undertaken[C];
Army: '02-'05: action underway[A];
Navy: '94-'02: action not undertaken [C];
Navy: '02-'05: action not undertaken[C].
Initiative or Management action: -Process redesign;
DLA: '94-'02: action underway;
DLA: '02-'05: action underway;
Air Force: '94-'02: action underway;
Air Force: '02-'05: action underway;
Army: '94-'02: action underway;
Army: '02-'05: action underway[B];
Navy: '94-'02: action underway;
Navy: '02-'05: action underway[B].
Initiative or Management action: -Lead time reduction teams;
DLA: '94- '02: action underway;
DLA: '02-'05: action underway[B];
Air Force: '94-'02: action underway;
Air Force: '02-'05: action underway[B];
Army: '94-'02: action underway;
Army: '02-'05: action underway[B];
Navy: '94-'02: action underway;
Navy: '02-'05: action underway[B].
Initiative or Management action: -Pre-loading technical data;
DLA: '94- '02: action not undertaken;
DLA: '02-'05: action not undertaken;
Air Force: '94-'02: action underway;
Air Force: '02- '05: action underway[B];
Army: '94-'02: action underway;
Army: '02-'05: action underway[A];
Navy: '94-'02: action not undertaken;
Navy: '02-'05: action not undertaken.
Oversight efforts.
Initiative or Management action: -Lead time reduction goal;
DLA: '94- '02: action underway;
DLA: '02-'05: action not undertaken;
Air Force: '94-'02: action underway;
Air Force: '02-'05: action not undertaken;
Army: '94-'02: action underway;
Army: '02-'05: action not undertaken;
Navy: '94-'02: action underway;
Navy: '02-'05: action not undertaken.
Initiative or Management action: -Accurate, historical lead times;
DLA: '94-'02: action underway;
DLA: '02-'05: action underway;
Air Force: '94-'02: action underway;
Air Force: '02-'05: action underway;
Army: '94-'02: action underway;
Army: '02-'05: action underway;
Navy: '94-'02: action underway;
Navy: '02-'05: action underway.
Initiative or Management action: -Tracks savings for initiatives;
DLA: '94-'02: action not undertaken;
DLA: '02-'05: action underway[A];
Air Force: '94-'02: action not undertaken;
Air Force: '02- '05: action not undertaken;
Army: '94-'02: action not undertaken;
Army: '02-'05: action not undertaken;
Navy: '94-'02: action not undertaken;
Navy: '02-'05: action not undertaken.
Initiative or Management action: -Managers held accountable;
DLA: '94- '02: action underway;
DLA: '02-'05: action underway;
Air Force: '94-'02: action underway;
Air Force: '02-'05: action underway;
Army: '94-'02: action underway;
Army: '02-'05: action underway;
Navy: '94-'02: action underway;
Navy: '02-'05: action underway[A].
Initiative or Management action: -Track results of goals;
DLA: '94-'02: action underway;
DLA: '02-'05: action not undertaken;
Air Force: '94-'02: action not undertaken;
Air Force: '02-'05: action not undertaken;
Army: '94-'02: action underway[A];
Army: '02-'05: action underway[A];
Navy: '94-'02: action underway;
Navy: '02-'05: action underway[A].
Initiative or Management action: -Track results of individual
initiatives;
DLA: '94-'02: action not undertaken;
DLA: '02-'05: action underway[A];
Air Force: '94-'02: action not undertaken;
Air Force: '02-'05: action not undertaken;
Army: '94-'02: action not undertaken;
Army: '02-'05: action not undertaken;
Navy: '94-'02: action not undertaken;
Navy: '02-'05: action not undertaken.
Strategic supplier relationships.
Initiative or Management action: -Direct vendor delivery;
DLA: '94-'02: action underway;
DLA: '02-'05: action underway[B];
Air Force: '94-'02: action underway;
Air Force: '02-'05: action underway[B];
Army: '94-'02: action underway;
Army: '02-'05: action underway[B];
Navy: '94- '02: action underway;
Navy: '02-'05: action underway[B].
Initiative or Management action: -Strategic supply planning;
DLA: '94- '02: action not undertaken;
DLA: '02-'05: action underway;
Air Force: '94-'02: action not undertaken;
Air Force: '02- '05: action underway;
Army: '94-'02: action not undertaken;
Army: '02-'05: action not undertaken;
Navy: '94-'02: action not undertaken;
Navy: '02-'05: action not undertaken.
Initiative or Management action: -Strategic supplies alliances;
DLA: '94-'02: action not undertaken;
DLA: '02-'05: action underway;
Air Force: '94-'02: action not undertaken;
Air Force: '02-'05: action underway;
Army: '94-'02: action not undertaken;
Army: '02-'05: action not undertaken;
Navy: '94-'02: action not undertaken;
Navy: '02-'05: action not undertaken.
Initiative or Management action: -Long-term strategic contracts;
DLA: '94-'02: action underway;
DLA: '02-'05: action underway;
Air Force: '94-'02: action underway;
Air Force: '02-'05: action underway;
Army: '94-'02: action underway;
Army: '02-'05: action underway;
Navy: '94-'02: action underway;
Navy: '02-'05: action underway.
Initiative or Management action: -Supply chain analysis;
DLA: '94-'02: action not undertaken[C];
DLA: '02-'05: action underway[A];
Air Force: '94-'02: action not undertaken;
Air Force: '02-'05: action underway[A];
Army: '94-'02: action not undertaken;
Army: '02-'05: action not undertaken[C];
Navy: '94-'02: action not undertaken;
Navy: '02-'05: action not undertaken.
Source: GAO analysis of information from DLA, Air Force, Army, and
Navy.
Legend: = initiative or action underway; -- = initiative or action not
undertaken.
[A] Initiative or action underway for part of component and/or is not
being fully implemented.
[B] Initiative or action already institutionalized and will not
generate additional lead time reductions.
[C] Initiative or action planned.
[End of table]
DLA began a number of new initiatives and took several management
actions from 2002 to 2005 that have helped it reduce lead times, and it
also continued several initiatives that it had instituted from 1994 to
2002. This combination of continued and new initiatives enabled DLA to
reduce its average lead time to 159 days. The Air Force also began a
number of new initiatives and took several management actions to reduce
lead times from 2002 to 2005, while continuing several initiatives that
it had instituted from 1994 to 2002. This combination of continued and
new initiatives enabled the Air Force to reduce its average lead time
from 430 to 379 days from 2002 to 2005. Conversely, although individual
Army components began some new initiatives to reduce lead times, the
Army began no new componentwide initiatives to reduce lead times from
2002 to 2005. Furthermore, the Army has placed less effort in
continuing new initiatives, which, combined with higher demands and
supplier capacity issues, has resulted in the Army's average lead time
increasing from 305 to 308 days from 2002 to 2005. Likewise, the Navy
also did not begin any new componentwide initiatives to reduce lead
times from 2002 to 2005, resulting in lead times holding steady at 416
days from 2002 to 2005.
Initiatives to Streamline Administrative Processes Implemented by All
Components:
Initiatives to streamline administrative processes were implemented or
continued by all military components from 1994 to 2002 and from 2002 to
2005, with DLA and the Air Force more aggressively implementing new
initiatives from 2002 to 2005 than did the Army and Navy. All
components are working to design new information technology systems
that could potentially improve administrative lead times. For example,
DLA has just transitioned to its newly implemented information
technology system, which officials said will help reduce process times
for a number of transactions, shaving days off of administrative lead
time. The components are also working on noninformation technology
solutions. For example, Air Force officials recently said that they
completed an initiative to reduce clutter on work desks, which involved
redesigning all workspaces so that if an employee is absent, another
employee can find any needed document in the absent employee's desk
within 5 minutes. They attributed this initiative to preventing
bottlenecks that could occur if employees had to search for needed
documents and information, potentially delaying the acquisition of
items. The Army's information technology initiative has only been
implemented at one of its Life Cycle Management Commands and the Navy's
is still in the planning stages.
One particular initiative that officials cited as having been effective
in reducing administrative lead times for the Air Force and Army over
the last decade has been the entering of technical data into the
inventory control computer systems for items in stock before a need
arises to order them again. According to officials, from 1994 to 2002,
the Army in particular made significant progress in reducing lead times
because of the entering of technical specification data. Before
technical data for items were entered into computers, engineers often
had to delay the acquisition process while they prepared technical
drawings and wrote technical specifications. These delays ranged from
days to several months. By determining technical specifications before
there was a need for an item and saving these data in the computer
system, officials were able to greatly reduce administrative lead
times. They said that already having them in the system helped reduce
lead times even when the technical specifications subsequently needed
changing; however, they added that they have not completed entering
technical specifications for all items. Although Army engineers have
reduced workloads during certain periods of time when they have fewer
orders to process, there are no efforts underway to enter technical
specification data during these periods. An Army official indicated
they were not entering technical specifications for items where the
lead time savings would typically be fewer than 2 weeks, because such
savings are not considered significant by Army officials. Army
officials, however, made this determination without using any metrics
or measures to determine the actual savings or cost of entering
technical specifications for items with savings of fewer than 2 weeks.
USD (AT&L) No Longer Provided Oversight and Guidance on Lead Times from
2002 to 2005:
From 1994 to 2002, enhanced USD (AT&L) oversight and guidance
contributed to the rapid pace of lead time reduction; however, from
2002 to 2005, USD (AT&L) no longer continued to monitor progress made
by the components in reducing lead times, and all components
experienced reduced management oversight. In 1994, we reported that USD
(AT&L) was unaware of the lack of progress made in reducing lead times
from 1990 to 1994 because of the absence of adequate oversight
information.[Footnote 12] We also indicated that the data reported by
military components did not include historical trends to indicate
changes in lead time days before and after the lead time reduction
initiatives were begun. Likewise, we reported that the statistics at
that time were not comprehensive enough to tie specific initiatives to
the lead time reductions experienced for individual initiatives. At the
time, however, USD (AT&L) was able to provide a general estimate of the
financial benefit of lead time reductions, determining that for each
day that the DOD-wide average lead time is reduced, a procurement
savings of $10 million can be realized. If the financial benefits of
lead time reductions are the same in 2005 as they were in 1994, the
value of the savings in 2005 dollars would be $12.5 million per day.
On November 23, 1994, USD (AT&L) issued a memorandum to its components
emphasizing the importance of fully implementing its guidance on
reducing acquisition lead times. On March 8, 1995, according to DOD
officials, components were challenged to reduce business process cycle
times by at least 50 percent over the next 5 years (from 1995 to 2000).
According to DOD officials, guidance and oversight were then applied to
acquisition lead times through the budget process. However, by 2002,
USD (AT&L) officials said they no longer provided active oversight on
acquisition lead time or monitored the progress made by the components
in reducing lead times, because management focus shifted from reducing
lead times to improving performance on more broad metrics such as
backorders. They added that they continued to monitor other broad
metrics from 2002 to 2005 and did not establish lead time reduction
goals or require standardized reporting of metrics designed to measure
reductions in lead times. In addition, with the exception of DLA's
Strategic Material Sourcing initiative, USD (AT&L) and component
officials said they did not collect data, establish metrics, or measure
and report the impact and costs of any specific initiative on lead
times. Without this information, USD (AT&L) and the components were
unable to provide effective oversight on lead time reduction efforts.
Furthermore, from 2002 to 2005, USD (AT&L) officials said they no
longer measured the financial impact of lead time reductions on
inventories. USD (AT&L) and the components thus have been unable to
determine the relative value of pursuing lead time reductions when
determining the best use of their resources. The inability to determine
the financial impact on inventories of lead time reductions and the
projected time saved from the proposed initiatives impedes the ability
of decision makers to make informed choices as to which initiatives to
implement.
According to officials, without active USD (AT&L) oversight, all
components experienced reduced management oversight from 2002 to 2005.
Officials from the military components indicated that, because less
emphasis was placed on lead times by USD (AT&L), less emphasis was
placed on lead times at the component level. These officials said that
component managers tend to place enhanced management focus on what they
are held accountable for by USD (AT&L). Component officials suggested
that renewed emphasis on lead time reduction by USD (AT&L), including
the setting of lead time reduction goals, could increase the
components' management focus on reducing lead times. Until USD (AT&L)
takes steps to exercise oversight as it did from 1994 to 2002, such as
reemphasizing guidance, establishing lead time reduction goals,
collecting data and establishing metrics to measure progress toward
meeting lead time reduction goals, measuring and reporting on the
results of individual initiatives, and measuring the financial impact
of lead time reductions, the components and USD (AT&L) will not have
available the information needed to effectively manage and provide
oversight of lead times, hampering their ability to reduce lead times.
Further, without this information, USD (AT&L) and the components will
not be able to prioritize or reevaluate lead time reduction
initiatives, determine the relative importance of lead time reduction
when making contracting decisions, or determine the cost-effectiveness
of lead time reduction efforts.
Subsequent to September 2005, Air Force and DLA officials said they
began planning and implementing new efforts to improve oversight,
including setting lead time reduction goals, holding managers
accountable for lead times, tracking lead times to ensure that goals
were met, and regularly reporting lead times to managers. In addition,
a new metric is also currently under development by DLA, called
attainment to plan, which measures the ability of item supply planners
to have material available when needed. DLA officials stated that they
anticipate increased focus on lead times will improve performance of
this metric. Moreover, USD (AT&L) officials stated they were working
with the military components to define a DOD-wide lead time metric.
They also stated in August 2006 that they were in the process of
awarding a contract to a private company to evaluate if USD (AT&L)
oversight of lead times would be worthwhile and stated that they
currently were providing no oversight. USD (AT&L) officials indicated
that increases in lead times could lead to increases in backorders, and
said that they provide oversight on backorders.[Footnote 13]
Initiatives to Develop Relationships with Suppliers Implemented by
Components:
Initiatives to develop relationships with suppliers were implemented by
all of the military components from 1994 to 2002. All military
components implemented initiatives to improve contracting practices
from 1994 to 2002 and continued them from 2002 to 2005. For example,
each component used initiatives to increase use of long-term contracts
to reduce lead times. According to Navy officials, one example of a
successful initiative begun in the late 1990s was the Navy's practice
of considering lead times as criteria in contract awards for spare
parts. Whenever issuing a new contract for spare parts, they said that
the Navy sets as a criterion for the bid a 25 percent reduction in the
item's production lead time, and by adding this as a factor, the Navy
is able to encourage suppliers to reduce lead times.
In addition to continuing these prior initiatives, from 2002 to 2005
the DLA and the Air Force began new initiatives to strategically
develop relationships with suppliers. According to DLA and Air Force
officials, these new initiatives not only helped reduce lead times by
allowing for streamlined and simplified purchasing of items on long-
term contracts, but also (1) allow for increased information sharing
with suppliers, (2) enable components to leverage their buying power,
and (3) empower components to strategically target key items to ensure
their availability.
For example, according to DLA officials, their Strategic Material
Sourcing initiative is intended to improve procurement for 3.6 million
items designated as critical. Items are designated as critical based on
a series of factors, then are grouped into categories, with different
acquisition strategies being used for different categories of items. Of
the 3.6 million items marked as critical, 390,000 were identified for
placement on contracts strategically designed to leverage DLA's market
power to improve sourcing for these items. By forming alliances with
producers of these items, DLA officials told us they have been able to
reduce lead times by taking advantage of DLA's buying power and by
negotiating contracts that ensure supply availability in otherwise
volatile markets. As of August 2006, one-half of these targeted items
were already on strategic long-term contracts. According to officials,
this initiative has thus far generated $247 million in gross savings
with over $64 million generated in 2005 alone, while costing only $5.6
million to implement. These savings do not include savings from reduced
storage costs, nor do they include the future savings expected as the
program continues. This initiative is also unique in that DLA officials
said they are using metrics to measure and report the effectiveness of
the initiative, thereby improving accountability. An example identified
by Air Force officials is the purchase supply chain management
initiative. One of many parts of this initiative aimed at reducing lead
times is the use of Commodity Councils to help improve acquisition of
select items. Commodity Councils are groups of experts in particular
commodity groupings who work together to improve acquisition of these
items. They do so through commodity management, which is the process of
developing a systematic approach to the entire usage cycle for a group
of items. In addition, USD (AT&L) is in the process of implementing a
new initiative to improve commodity management DOD-wide. This new
initiative seeks to emulate the successes of commodity management
programs run by DLA and the Air Force across DOD.
In contrast, the Army and the Navy, while continuing old initiatives,
have not developed new initiatives to develop strategic relationships
with suppliers for critical items. Army and Navy officials indicated
that they are content with the lead time reductions experienced and
stated that new initiatives were not undertaken because of a lack of
USD (AT&L) focus and oversight on lead time reduction. Officials cited
ongoing military operations as one of the primary factors diverting
attention away from reducing lead times. While the Army and Navy
continue to benefit from the lead time reductions generated from past
initiatives, until these two components begin initiatives to develop
strategic relationships with suppliers, they may be unable to realize
the potential benefits from improved supplier relationships and may
continue to experience lower rates of lead time reductions than DLA and
the Air Force.
More Aggressive Lead Time Reductions Could Have Resulted in Decreases
in Inventory Requirements and Monetary Savings:
The military components could have decreased inventory requirements and
saved money if more aggressive lead time reductions had been realized
from 2002 to 2005, as they had from 1994 to 2002. DOD budget documents
indicate that inventory requirements to cover lead times increased from
$15.6 billion in 2002 to $19.9 billion in 2005. According to officials,
the primary reason for the increase in inventory has been increased
demand due to recent military operations. As a result, even as lead
times were reduced by an average of 0.9 percent a year from 2002 to
2005, requirements to cover lead times rose. If the military components
had been able to continue reducing lead times by an average of 5.6
percent a year, as they did from 1994 to 2002, the military components'
lead time inventory requirements would only have risen to $17.2
billion, rather than to $19.9 billion, as shown in figure 1. The
additional lead time requirements potentially tied up $2.7 billion that
could have been obligated for other needs.
Figure 1: Potential Impact of Reduced Lead Time Inventory Requirements:
[See PDF for image]
Source: GAO analysis of DOD's summary budget stratification data.
[End of figure]
In addition to the potential savings associated with decreased
inventory requirements, if the military components had been able to
continue reducing their lead times at 5.6 percent per year, it would
have led to a significant savings from a reduced need to maintain
"safety" inventory,[Footnote 14] which is the amount of inventory the
military components maintain on-hand to cover supply and demand
fluctuations. This level is determined by a formula that includes a
number of factors, including lead times. Reductions in lead times can
significantly impact safety inventories needed. Due to reduced USD
(AT&L) oversight of lead times, we were unable to determine how
reducing lead times would financially impact procurement costs for
safety inventories. However, in 1994 we reported that if the components
could reduce their overall lead times by 25 percent by 2000, it would
lead to a procurement savings of about $910 million. Until USD (AT&L)
and the components take steps to renew their focus on reducing lead
times by aggressively continuing prior initiatives and implementing
successful new initiatives, the components may continue to experience
spare parts shortages and may spend significantly more money to
purchase additional inventory.
Conclusions:
Acquisition lead times are the military components' estimates as to
when items will arrive, and varying from that expectation increases the
likelihood that the right supplies will not be at the right place at
the right time. When the components understate their lead time
estimates, material shortages and reduced readiness can occur. Without
more accurate lead time estimates, the components will not place orders
and obligate funds as early as necessary, and they may miss
opportunities to potentially improve readiness rates. Conversely,
overstated and lengthy acquisition lead time estimates can cause early
obligation of funds as well as increases in on-hand inventories,
although spare parts that come in early could potentially improve
readiness. Until the Army reviews and evaluates when deliveries are
representative and should be used to update lead time values, maintains
lead time data in each of its computer systems, and validates data
input, later than expected deliveries and potential parts shortages
will likely occur. In addition, absent actions by DLA to review and
revise the methodology and inputs it uses to compute lead time
estimates, DLA will continue to obligate funds earlier than necessary
and have early delivery of items. Moreover, without taking steps to
review and validate default lead time estimates and consider other
options for obtaining better lead time data, the Air Force will
continue to experience early obligation of funds and potential parts
shortages. Finally, until the Navy reviews and validates its lead time
data and corrects errors, parts shortages and early obligation of funds
are likely to continue. Absent actions by all of the military
components to address these problems and institute corrective
procedures, their acquisition lead time estimates will continue to vary
greatly from their actual lead times.
The military components have also slowed their efforts to reduce
acquisition lead times as compared to earlier years. Their current lead
time reduction rate may not be significant enough to offset the costs
of growing requirements. Until USD (AT&L) and the military components
take steps to renew their focus on reducing lead times by continuing
prior initiatives and implementing successful new initiatives to
streamline administrative processes, improve oversight, and develop
strategic relationships with suppliers, they will be unable to
significantly reduce lead times as they were able to do in the past. As
a result, the military components may potentially spend hundreds of
millions of dollars to purchase additional inventory. Increased
emphasis on improved lead time estimates and overall lead time
reductions will improve the military components' ability to efficiently
use available resources.
Recommendations for Executive Action:
To improve the military components' accuracy in setting acquisition
lead time values, we recommend that the Secretary of Defense take the
following six actions.
1. Direct the Secretary of the Army to have the Commanding General,
Army Materiel Command, direct the Aviation and Missile Life Cycle
Management Command to establish clear guidelines for item managers to
know when to review and how to determine whether deliveries should be
considered representative and thus used to update lead times.
2. Direct the Secretary of the Army to have the Commanding General,
Army Materiel Command, direct the Life Cycle Management Commands to
reemphasize the importance of periodically reviewing and validating
their recorded lead time data to detect and correct data input errors
and other inaccurate information.
3. Direct the Secretary of the Army to have the Commanding General,
Army Materiel Command, direct Communications-Electronics Life Cycle
Management Command to maintain and update automated lead time data
within its Logistics Modernization Program computer system.
4. Direct the Director of DLA to have its supply centers review the
methodology and inputs used to compute its lead time estimates and
revise them to incorporate recent improvements in DLA actual lead
times.
5. Direct the Secretary of the Air Force to have the Commander, Air
Force Materiel Command, direct its air logistic centers to use better
sources of lead time information, such as supplier estimates, if
available, rather than default values for items that have not been
ordered in the last 5 years.
6. Direct the Secretary of the Navy to direct the Commander, Naval
Inventory Control Point, to reemphasize the importance of having its
inventory control points periodically review and validate their
recorded lead time data to detect and correct data input errors or
other inaccurate information.
To strengthen DOD's and the military components' management of
acquisition lead times, we recommend that the Secretary of Defense
direct the Under Secretary of Defense for Acquisition, Technology, and
Logistics to take the following five actions.
1. Establish component lead time reduction goals over a 5-year period
from October 2007-2012.
2. Develop metrics to measure components' progress toward meeting lead
time reduction goals and require the periodic reporting of these
metrics.
3. Develop a general estimate of the financial impact of lead time
reductions, and use that as a metric to help components weigh the
importance of lead time reductions.
4. Direct the components to collect data, establish metrics, and
measure and report the impact of individual lead time reduction
initiatives, to include the cost of each initiative and its estimated
cost savings.
5. Work closely with the Army and Navy to develop joint strategic
relationships with suppliers that would be beneficial in reducing lead
times.
Agency Comments and Our Evaluation:
In written comments on a draft of this report, DOD concurred with
eight, partially concurred with one, and did not concur with two of our
recommendations. For the eight recommendations with which DOD
concurred, the department identified actions and plans that are being
taken to implement these recommendations. We agree that most of the
identified actions are responsive and reasonable to address our
concerns, although in several cases the final actions may not be
completely implemented for several years. However, some of the
department's comments did not appear to address our concerns. More
specifically, for one of the recommendations with which DOD concurred,
we do not believe that its comments address our recommendation that the
Army maintain and update automated lead time data within its Logistics
Modernization Program computer system. In its comments, DOD said that
this computer system does not provide automatic updates of data for
calculation but it does have information needed to make decisions for
manual implementation. As stated in our report, manual input errors
have contributed to inaccuracies in lead times, and we believe these
inaccuracies will continue if the department relies on manual
implementation. We continue to believe that automated updates and
maintenance of lead time data are needed to improve the accuracy of
lead time estimates. Further, DOD stated in its comments that it
already had actions underway to address our recommendation to develop
metrics to measure progress toward meeting lead time reduction goals.
However, the contract for reviewing lead times is not to be awarded
until later in fiscal year 2007. Since this effort was not underway at
the time of our review, we believe that it is important to recommend
that this effort be pursued until fully implemented.
DOD partially concurred with our recommendation that the Under
Secretary of Defense for Acquisition, Technology, and Logistics develop
a general estimate of the financial impact of lead time reductions, and
use that as a metric to help components weigh the importance of lead
time reductions. DOD stated that to the extent that financial impact
can be estimated, it will be one of the elements considered in a review
DOD expects to conclude in 2008. DOD further stated that the challenge
in estimating the financial impact of lead time reductions was that
there are many other variables, and the effect of individual variables
on lead time estimates cannot be separately identified. We recognize
that the Office of the Under Secretary of Defense for Acquisition,
Technology, and Logistics has concerns about its ability to estimate
the financial impact of lead time reductions, but note that it was able
to provide an estimate of $10 million in financial impact for each day
that lead time was reduced when we published our 1994 report. Moreover,
during our review, TACOM officials informed us that they have the
ability to simulate the impact of reductions in lead times using their
requirements determination process system on an item-by-item basis. The
potential savings generated from the simulations could be helpful in
estimating the savings from lead time reduction initiatives. We further
note that the inability to determine the financial impact of lead time
reductions does not provide the needed incentives for the components to
reduce lead times and impedes the ability of decision makers to make
informed choices as to which initiatives to implement. Therefore, we
continue to believe that the recommendation to the Under Secretary of
Defense for Acquisition, Technology, and Logistics is valid.
In addition, DOD did not concur with our recommendation to DLA to have
the supply centers review the methodology and inputs used to compute
its lead time estimates and revise them to incorporate recent
improvements in DLA actual lead times. DOD stated that our review used
data primarily from DLA's legacy system from 2002 to 2005, which was
prior to DLA's implementation of its new computer system called
Business Systems Modernization, and stated that consequently the
benefits of this new system and processes were not taken into account
in our review. While we agree that the implementation of this new
computer system should provide DLA with more tools to manage
acquisition lead times, according to DLA's Cross-Process Policy
Memorandum 06-001 dated June 1, 2006, the basic methodology for
automatic adjustments to both administrative and production lead times
remains the same in the new system as under the legacy system (i.e.,
each is calculated as a weighted average based on one-third of the
existing lead time of record and two-thirds of the actual or new lead
time for the current award). Calculating the lead times in the same
manner but recording the values in a newly implemented computer system
will not improve the accuracy of the lead time estimates. Therefore, we
continue to believe that the recommendation to DLA is valid.
Moreover, DOD did not concur with our recommendation that the Under
Secretary of Defense for Acquisition, Technology, and Logistics work
closely with the Army and Navy to develop joint strategic relationships
with suppliers that would be beneficial in reducing lead times. The
department stated that it is actively pursuing a joint strategy to
develop strategic relationships, and that to instruct the services to
develop strategic relationships separately with these suppliers would
lead to a duplication of effort and dissipate the department's
leverage. We believe that DOD misunderstood our recommendation. The
joint strategy initiative that DOD is actively pursuing, according to
documentation provided by DOD, is focused on commodity management, not
on developing strategic relationships to reduce lead times. Our
recommendation calls for the Under Secretary of Defense for
Acquisition, Technology, and Logistics to work closely with the Army
and Navy to move beyond simply managing the acquisition of individual
parts, and to form strategic partnerships with key suppliers for ranges
of items in situations where it would be possible to leverage these
relationships to reduce lead times. Documentation from DOD further
states that DOD's commodity management plan acknowledges that service
initiatives will produce improvements, and that it respects those
initiatives. Our recommendation, for the Under Secretary of Defense for
Acquisition, Technology, and Logistics to work closely with the Army
and Navy to develop similar initiatives to those already underway by
DLA and the Air Force, is not duplicative of ongoing efforts, but would
complement them. Until the Army and the Navy begin initiatives to
develop strategic relationships with suppliers, they may be unable to
realize the potential benefits from improved supplier relationships and
may continue to experience lower rates of lead time reductions than DLA
and the Air Force. Therefore, we continue to believe that the
recommendation to the Under Secretary of Defense for Acquisition,
Technology, and Logistics is valid.
The department's comments are reprinted in appendix II.
We are sending copies of this report to the Chairmen and Ranking
Minority Members of the Senate Committee on Armed Services; the
Subcommittee on Readiness and Management Support, Senate Committee on
Armed Services; the Subcommittee on Defense, Senate Committee on
Appropriations; the House Committee on Armed Services; the Subcommittee
on Readiness, House Committee on Armed Services; and the Ranking
Minority Member, Subcommittee on Defense, House Committee on
Appropriations. We are also sending copies to the Secretary of Defense;
the Secretaries of the Army, Navy, and Air Force; the Director of DLA;
and the Under Secretary of Defense for Acquisition, Technology, and
Logistics. Copies will be made available to others upon request. Should
you or your staff have any questions concerning this report, please
contact William M. Solis, Director, at (202) 512-8365 or
solisw@gao.gov. Contact points for our Offices of Congressional
Relations and Public Affairs may be found on the last page of this
report. Key contributors to this report are listed in appendix III.
Sincerely yours,
Signed by:
William M. Solis:
Director, Defense Capabilities and Management:
[End of section]
Appendix I: Scope and Methodology:
To address our objectives, we reviewed relevant documents, guidance,
reports, and other information, as available, which related to
acquisition lead times for class IX spare parts and any initiatives the
Department of Defense (DOD) or the military components were undertaking
in this area. We also interviewed cognizant officials within the Office
of the Under Secretary of Defense (Acquisition, Technology, and
Logistics); the Defense Logistics Agency Headquarters; the Army
Materiel Command Headquarters; Headquarters Air Force, the Deputy Chief
of Staff, Installations, and Logistics, Inventory Management and
Stockage Branch; and the Naval Supply Systems Command, Naval Inventory
Control Point-Mechanicsburg, Pennsylvania. We also performed additional
work at the Air Force Materiel Command Headquarters at Wright-Patterson
Air Force Base, Ohio, had discussions with officials at the U.S. Army
Tank Automotive and Armaments (TACOM) Life Cycle Management Command in
Warren, Michigan, and obtained data from U.S. Army Communications-
Electronics Life Cycle Management Command, U.S. Army Aviation and
Missile Life Cycle Management Command, and the Naval Inventory Control
Point-Philadelphia, Pennsylvania.
To examine the extent to which the military components' estimated lead
times varied from actual lead times, we obtained and reviewed
information from each military component concerning any relevant
policies, procedures, regulations, instructions, or memorandums about
acquisition lead time development, maintenance, or management. We also
obtained information regarding the processes used by the military
components in generating their acquisition lead times from discussions
with cognizant officials. To test the accuracy of the military
components in estimating the acquisition lead times and the related
actual arrival of items ordered, we requested that each military
component provide us with a data file that contained the following
information for class IX spare parts they each received between October
1, 2004, and September 30, 2005:
* item name,
* item NSN,
* date ordered,
* ordered from what company,
* quantity ordered,
* date delivered,
* quantity delivered,
* where delivered,
* purchase order number or some other financial related reference,
* cost per item,
* total cost of order,
* forecasted/on-file administrative lead time for item at time of
order,
* forecasted/on-file production lead time for item at time of order,
and:
* overall acquisition lead time for item.
For DLA and the Air Force, we obtained data that covered deliveries to
all three of their supply centers and Air Logistic Centers,
respectively. In regard to the Army, we obtained data from three Life
Cycle Management Commands: TACOM, Communications-Electronic, and
Aviation and Missile. We also obtained data from the Naval Inventory
Control Points that are located in Mechanicsburg, Pennsylvania and
Philadelphia, Pennsylvania. We compared the forecasted/on-file
estimated lead times for each delivery with the actual lead times
experienced, and then grouped the variances into five different
categories. The categories were the actual lead time (1) was within
plus or minus 1 week from the estimated lead time, (2) was greater than
1 week to less than 90 days earlier than the estimated lead time, (3)
was 90 or more days earlier than the estimated lead time, (4) was
greater than 1 week to less than 90 days later than the estimated lead
time; and, (5) was 90 or more days later the estimated lead time. For
all of the records in each category, we calculated the percent of
records in each category as compared to the total number of records
reviewed and also calculated their dollar value. We took steps to
ensure the reliability of the data we used in our review. We provided a
list of specific data elements to the Army, Navy, Air Force, and DLA
officials. The military components returned the requested information
to us. To assess the reliability of these data, we reviewed the data
for obvious inconsistency and completeness errors. In addition, we
worked with agency officials to identify any data problems. When we
found discrepancies (such as nonpopulated fields or data
discrepancies), we brought them to the officials' attention and worked
with them to correct the errors. In addition, we sent an electronic
questionnaire with questions regarding our use of the data and followed
up on issues we believed were pertinent regarding the reliability of
the data. Based on these efforts, we determined that the data were
sufficiently reliable for the purposes of our report.
To examine the extent to which military components' current management
actions, initiatives, and other programs have reduced lead times and
affected inventory and budget requirements, we obtained and reviewed
information from each military component concerning any relevant
policies, procedures, regulations, instructions, or memorandums
regarding efforts, policies, actions, or initiatives to reduce lead
times. We also interviewed officials within the Office of the Under
Secretary of Defense (Acquisition, Technology, and Logistics); the
Defense Logistics Agency Headquarters; the Army Materiel Command
Headquarters; Headquarters Air Force, The Deputy Chief of Staff,
Installations, and Logistics, Inventory Management and Stockage Branch;
and Naval Supply Systems Command, Naval Inventory Control Point-
Mechanicsburg, Pennsylvania. We also performed additional work at the
Air Force Materiel Command Headquarters at Wright-Patterson Air Force
Base, Ohio and had discussions with officials at the U.S. Army TACOM
Life Cycle Management Command in Warren, Michigan. We further examined
budget stratification data from the Army, Navy, Air Force, and the
Defense Logistics Agency. Using that budget stratification data, we
reviewed all items present in the September 30 budget stratification
reports for both 2002 and 2005 to determine the changes in average
acquisition lead time for those items. We were unable to obtain budget
stratification data for the components for 1994, and thus simply
reported the results of our 1994 GAO report evaluating overall lead
times for each component. Additionally, we requested and analyzed the
summary budget stratification reports for all components for September
2002 through September 2005 to determine any changes in average
acquisition lead time and budget requirements from 2002 to 2005. Based
on our efforts, we determined that the data were sufficiently reliable
for the purposes of our report.
We conducted our work from November 2005 through November 2006 in
accordance with generally accepted government auditing standards.
[End of section]
Appendix II: Comments from the Department of Defense:
Deputy Under Secretary Of Defense For Logistics And Materiel Readiness:
3500 Defense Pentagon:
Washington, DC 20301-3500:
Mr. William Solis:
Director, Defense Capabilities and Management:
U.S. Government Accountability Office:
Washington, DC 20548:
Feb 5 2007:
Dear Mr. Solis:
This is the Department of Defense (DoD) response to the GAO draft
report GAO-07-281, "Defense Inventory: Opportunities Exist to Improve
the Management of DoD's Acquisition Lead Time For Spare Parts" dated
December 20, 2006 (GAO Code 350760). The GAO draft report provides 11
recommendations, 6 of which are actions required by the Military
Services and DLA and 5 of which are actions recommended for the
USD(AT&L). The DoD concurs with 8, partially concurs with 1, and
nonconcurs with 2 of the recommendations in the report. Actions being
taken on each of the recommendations are identified in the enclosure.
As indicated in the GAO report, the Military Services and DLA reduced
acquisition lead times each of the years GAO reviewed (FY 2002 - FY
2005). These reductions were achieved through DoD component initiatives
even though the Department and industrial base are operating in a surge
capacity in support of the Global War on Terror. We concur with 5 of
the 6 recommendations to the Military Services and DLA. We nonconcur on
the recommendation for DLA to have its supply centers to review and
revise lead times because the DLA information used in forming the
recommendation was from the DLA legacy system and did not consider
improvements realized by implementation of the DLA Enterprise Resource
Planning solution, Business Systems Modernization.
Recommendations in the report directed to the USD(AT&L) identify
actions that the Department already had underway prior to the review.
As we indicated at the initial meeting with GAO, the Supply Metrics
Group was formed in 2005 to develop and monitor key supply metrics
within the Department, and Acquisition Lead Time is one of these
metrics. Additionally, the Supply Metrics Group had already initiated a
request for a lead time review to determine if there is a need for
additional lead time reduction initiatives. This review is funded and
the contract will be awarded in FY 2007. We nonconcur with the
recommendation for the Army and Navy to develop its own strategic
relationships. All of the Military Services and DLA have been fully
engaged in our Commodity Management initiative that establishes joint
teams to look at all aspects of a commodity supply chain, including
joint strategic relationships with suppliers. Single Military Service
initiatives run counter to our Base Realignment and Closure Supply and
Storage efforts.
Detailed comments on the draft report recommendations are included in
the enclosure. The DoD appreciates the opportunity to comment on the
draft report.
Signed by:
Jack Bell:
Enclosure:
As stated:
GAO Draft Report - Dated December 20, 2006 GAO Code 350760/GAO-07-281:
"Defense Inventory: Opportunities Exist to Improve the Management of
DoD'S Acquisition Lead Time For Spare Parts"
Department Of Defense Comments To The Recommendations:
Recommendation 1: The GAO recommended that the Secretary of Defense
direct the Secretary of the Army to have the Commanding General, Army
Materiel Command direct the Aviation and Missile Life Cycle Management
Command to (a) establish clear guidelines for item managers to know
when to review and how to determine whether deliveries should be
considered representative and thus used to update lead times. (Pages 36-
37/GAO Draft Report):
DOD Response: Concur. Army Materiel Command (AMC) is working with the
Life Cycle Management Commands, Rand, IBM and University of Alabama to
document these processes and establish appropriate guidelines in
strategic sourcing efforts across AMC. Full implementation and
compliance will be completed by the end FY 2008.
Recommendation 2: The GAO recommended that the Secretary of Defense
direct the Secretary of the Army to have the Commanding General, Army
Materiel Command direct the Life Cycle Management Command to re-
emphasize the importance of periodically reviewing and validating their
recorded lead time data to detect and correct data input errors and
other inaccurate information. (Page 37/GAO Draft Report):
DOD Response: Concur. Army continues to work data quality issues across
all areas and have specified Acquisition Lead Time (ALT) calculation
data for special emphasis. The Army's created the Single Army Logistics
Enterprise (SALE) initiative to implement the most efficient and
effective means of integrating strategic, operational, and tactical
logistics functions into a fully integrated, end-to-end Army logistics
enterprise solution. Improved visibility provided under SALE should
enable managers to clearly see issues and impacts of data quality. SALE
will be fully implemented across the LCMC by the end of FY 2010.
Recommendation 3: The GAO recommended that the Secretary of Defense
direct the Secretary of the Army to have the Commanding General, Army
Materiel Command direct Communications-Electronics Life Cycle
Management Command to maintain and update automated lead time data
within its Logistics Modernization Program computer system. (Page 37/
GAO Draft Report):
DOD Response: Concur. Army Logistics Modernization Program (LMP) does
not provide automatic updates of data for calculation of ALT, but LMP
does maintain and provide managers with the information they need to
make these decisions for manual implementation. LMP implementation will
be complete FY 2010.
Recommendation 4: The GAO recommended that the Secretary of Defense
direct the Director, Defense Logistics Agency to have its supply
centers review the methodology and inputs used to compute its lead time
estimates and revise them to incorporate recent improvement in DLA
actual lead times. (Page 37/GAO Draft Report):
DOD Response: Nonconcur. Data examined by GAO was primarily legacy
system data from 2002 to 2005 and does not reflect the changes
incorporated into the recently completed Defense Logistics Agency (DLA)
implementation of its new Enterprise Resource Planning (ERP) called
Business Systems Modernization (BSM). The transition to BSM was
completed in December 2006 with most of the DLA managed items
transitioning into BSM during the 2006 calendar year. Therefore, the
benefits of the new system and processes, including more accurate
management of acquisition lead times, were not part of the examination
GAO completed in their review.
Recommendation 5: The GAO recommended that the Secretary of Defense
direct the Secretary of the Air Force to have the Commander, Air Force
Material Command to direct its air logistics centers to use better
sources of lead time information, such as supply estimates, if
available, rather than default values for items that have not been
ordered in the last 5 years. (Page 37/GAO Draft Report):
DOD Response: Concur. By February 2007, the Air Force will direct the
Air Force Material Command to direct the air logistics centers to use
better sources of lead time information as the GAO recommended.
Recommendation 6: The GAO recommended that the Secretary of Defense
direct the Secretary of the Navy to direct the Commander, Naval
Inventory Control Point to re-emphasize the importance of having its
inventory control points periodically review and validate their
recorded lead time data to detect and correct data input errors or
other inaccurate information. (Pages 37-38/GAO Draft Report):
DOD Response: Concur. The Navy has in place a robust set of acquisition
lead time forecasting and review processes as presented during the
audit. By February 2007, the Navy will reiterate requirements to ensure
routine application of its review tools.
Recommendation 7: The GAO recommended that the Secretary of Defense
direct the Under Secretary of the Defense for Acquisition, Technology
and Logistics to establish component lead time reduction goals over a 5-
year period from October 2007-2012. (Page 38/GAO Draft Report):
DOD Response: Concur. As GAO indicated, lead times are being reduced
but at a slower pace than in previous years. Lead time is currently a
component level metric and reduction goals are set by each component.
However, DoD is already in-process of developing a Department level
metric and conducting a lead time review that will include an
assessment of the need for additional lead time reduction goals and
metrics. The need for additional goals will be determined upon
completion of the assessment. Assessment is to begin 3rd quarter FY
2007 with a 6 month estimated completion date.
Recommendation 8: The GAO recommended that the Secretary of Defense
direct the Under Secretary of the Defense for Acquisition, Technology
and Logistics to develop metrics to measure components' progress toward
meeting lead time reduction goals and require the periodic reporting of
these metrics. (Page 38/GAO Draft Report):
DOD Response: Concur. As GAO indicated, lead times are being reduced
but at a slower pace than in previous years. Lead time is currently a
component level metric and reduction goals are set by each component.
However, DoD is already in-process of developing a Department level
metric and conducting a lead time review that will include an
assessment of the need for additional lead time reduction goals and
metrics. The need for additional goals will be determined upon
completion of the assessment. Assessment is to begin 3rd quarter FY
2007 with a 6 month estimated completion date.
Recommendation 9: The GAO recommended that the Secretary of Defense
direct the Under Secretary of the Defense for Acquisition, Technology
and Logistics to develop a general estimate of the financial impact of
lead time reductions, and use that as a metric to help components weigh
the importance of lead time reductions. (Page 38/GAO Draft Report):
DOD Response: Partially concur. The DoD components already realize the
importance of accurate lead times and, as GAO pointed out, lead times
dropped over the timeframes they reviewed. However, DoD is in process
of developing a Department level metric and conducting a lead time
review that will include an assessment of the need for additional lead
time reduction goals and metrics. To the extent that financial impact
can be estimated, it will be one of the elements considered in the
review. As we indicated to GAO during the review, the challenge with
estimating financial impact of lead time reductions is that there are
many other variables, such as demand variability, that effect safety
level and the impact of the individual variables on the forecast cannot
be separately identified. Assessment is to begin 3rd quarter FY 2007
with a 6 month estimated completion date.
Recommendation 10: The GAO recommended that the Secretary of Defense
direct the Under Secretary of the Defense for Acquisition, Technology
and Logistics to direct the components to collect data, establish
metrics, and measure and report the impact of individual lead time
reduction initiatives, to include the cost of each initiative and its
estimate cost savings. (Page 38/GAO Draft Report):
DOD Response: Concur. As GAO indicated, lead times are being reduced
but at a slower pace than in previous years. Lead time is currently a
component level metric and reduction goals are set by each component.
However, DoD is in-process of conducting a lead time review that will
include an assessment of the need for additional lead time reduction
goals and metrics. If the assessment results in additional initiatives,
the DoD Components will be requested to measure and report the impact
of the reduction initiatives. Assessment is to begin 3rd quarter FY
2007 with a 6 month estimated completion date.
Recommendation 11: The GAO recommended that the Secretary of Defense
direct the Under Secretary of the Defense for Acquisition, Technology
and Logistics to work closely with Army and Navy to develop joint
strategic relationships with suppliers that would be beneficial in
reducing lead times. (Page 38/GAO Draft Report):
DOD Response: Nonconcur. All Services and DLA share a common group of
key suppliers, with a high degree of commonality in many of the items
purchased. To instruct the Services to develop strategic relationships
separately with these suppliers would lead to duplication of effort and
dissipation to the Department's leverage. DoD is actively pursuing a
joint strategy to leverage DoD's buying power, manage its supplier
base, and to build relationships with key suppliers to improve supply
chain performance, and this is the stated direction of the Base
Realignment and Closure implementation as well. The Department will
achieve optimal results by speaking to its supply base about common
objectives with one voice, and this recommendation works against that.
[End of section]
Appendix III: GAO Contact and Staff Acknowledgments:
GAO Contact:
William M. Solis, (202) 512-8365:
Acknowledgments:
In addition to the contact listed above, Lawson Gist, Jr., Assistant
Director, Rebecca Beale, Christopher Miller, Terry Richardson, Grant
Mallie, Catherine Hurley, Minette Richardson, Nancy Hess, Art James,
Renee Brown, Gayle Fischer, Kenneth Patton, and Nicole Harms made key
contributions to this report.
FOOTNOTES
[1] This was the most up-to-date information available during our
review.
[2] DOD's secondary inventory consists of a wide variety of parts that
includes communication and detection equipment; electrical and
electronic equipment components; engines, turbines, and their
components; aircraft components and accessories; instruments and
laboratory equipment; aircraft and airframe structural components; fire
control equipment; guided missiles; electric wire and power and
distribution equipment; medical supplies; and clothing and textiles.
[3] Hereafter, we will refer to the term as acquisition lead time.
[4] For purposes of this report, DOD's military components are defined
as the Army, Navy, Air Force, and the Defense Logistics Agency (DLA).
[5] GAO, Defense Supply: Acquisition Leadtime Requirements Can Be
Significantly Reduced, GAO/NSIAD-95-2 (Washington, D.C.: Dec. 20,
1994).
[6] Department of Defense Inspector General, Initiatives to Improve
Acquisition Lead Time, Report Number 99-037 (Nov. 23, 1998).
[7] Office of the Deputy Under Secretary of Defense for Logistics and
Materiel Readiness, Department of Defense Supply Chain Materiel
Management Regulation, DOD 4140.1-R (May 2003).
[8] The majority of the items we reviewed belonged to DLA, which
manages more than 5 million items. These items tend to be smaller, less
expensive consumable products as compared to the items managed by the
military components.
[9] GAO, Internal Control Management and Evaluation Tool, GAO-01-1008G
(Washington, D.C.: August 2001).
[10] Army Regulation 710-1, Centralized Inventory Management of the
Army Supply System (Sept. 6, 2005).
[11] Air Force Materiel Command Manual 23-1, Requirement for Secondary
Items (D200A, D200N) (Jan. 5, 2007).
[12] GAO/NSIAD-95-2.
[13] Backorders are orders that are held in an unfilled status pending
receipt of additional parts or equipment through procurement or repair.
DOD's supply chain management improvement plan specifies annual
performance targets for backorders for each of the components and DOD
overall.
[14] Safety level inventory is the quantity of materiel required to be
on hand to permit continued operation in the event of a minor
interruption of normal replenishment or fluctuation in demand.
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