DOD's High-Risk Areas
Efforts to Improve Supply Chain Can Be Enhanced by Linkage to Outcomes, Progress in Transforming Business Operations, and Reexamination of Logistics Governance and Strategy Gao ID: GAO-07-1064T July 10, 2007The availability of spare parts and other critical items provided through the Department of Defense's (DOD) supply chains affects the readiness and capabilities of U.S. military forces. Since 1990, GAO has designated DOD supply chain management as a high-risk area. In 2005, DOD developed a plan aimed at addressing supply chain problems and having GAO remove this high-risk designation. DOD's plan focuses on three areas: requirements forecasting, asset visibility, and materiel distribution. GAO was asked to provide its views on (1) DOD's progress in developing and implementing the initiatives in its plan, (2) the results of recent work relating to the three focus areas covered by the plan, and (3) the integration of supply chain management with efforts to improve defense business operations. GAO also addressed broader issues of logistics governance and strategic planning. This testimony is based on prior GAO reports and analysis. To determine whether to retain the high-risk designation for supply chain management, GAO considers factors such as whether DOD makes substantial progress implementing improvement initiatives; establishes a program to validate the effectiveness of the initiatives; and completes a comprehensive, integrated strategy.
The most recent update to DOD's plan shows that DOD has made progress developing and implementing its supply chain management improvement initiatives. DOD is generally staying on track for implementing its initiatives, although there have been delays in meeting certain milestones. However, the long-term time frames for many of these initiatives present challenges to the department in sustaining progress toward substantially completing their implementation. The plan also lacks outcome-focused performance measures for many individual initiatives and the three focus areas, limiting DOD's ability to fully demonstrate the results achieved through its plan. Increasing DOD's focus on outcomes will enable stakeholders to track the interim and long-term success of its initiatives and help DOD determine if it is meeting its goals of more effective and efficient supply chain management. GAO's recent work has identified problems related to the three focus areas in DOD's plan. In the requirements area, the military services are experiencing difficulties estimating acquisition lead times to acquire spare parts for equipment and weapon systems, hindering their ability to efficiently and effectively maintain spare parts inventories for military equipment. Challenges in the asset visibility area include lack of interoperability among information technology systems, problems with container management, and inconsistent application of radio frequency identification technology, which make it difficult to obtain timely and accurate information on assets in theater. In the materiel distribution area, challenges remain in coordinating and consolidating distribution and supply support within a theater. Improving defense business operations is integral to resolving supply chain management problems. Progress in DOD's overall approach to business transformation is needed to confront problems in other high-risk areas, including supply chain management. Because of the complexity of business transformation, GAO has stated that DOD needs a Chief Management Officer with significant authority, experience, and a term that would provide sustained leadership and the time to integrate DOD's overall business transformation efforts. GAO's work, pending legislation, and other recent studies indicate a consensus that the status quo is no longer acceptable. GAO's recent review of joint theater logistics raises concerns about whether DOD can effectively implement this initiative without reexamining fundamental aspects of the department's logistics governance and strategy. In this respect, joint theater logistics may serve as a microcosm of some of the challenges DOD faces in resolving supply chain management problems. Moreover, GAO recommended in that report that DOD align its approach to joint theater logistics with ongoing actions the department is taking to reform its logistics governance and develop its logistics strategy. Several recent studies of DOD logistics systems have recommended changes to DOD's organizational structure for providing joint logistics and supply support to military operations.
GAO-07-1064T, DOD's High-Risk Areas: Efforts to Improve Supply Chain Can Be Enhanced by Linkage to Outcomes, Progress in Transforming Business Operations, and Reexamination of Logistics Governance and Strategy
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Testimony:
Before the Subcommittee on Oversight of Government Management, the
Federal Workforce, and the District of Columbia, Committee on Homeland
Security and Governmental Affairs, U.S. Senate:
United States Government Accountability Office:
GAO:
For Release on Delivery Expected at 2:30 p.m. EDT:
Tuesday, July 10, 2007:
DOD'S High-Risk Areas:
Efforts to Improve Supply Chain Can Be Enhanced by Linkage to Outcomes,
Progress in Transforming Business Operations, and Reexamination of
Logistics Governance and Strategy:
Statement of William M. Solis, Director:
Defense Capabilities Management:
GAO-07-1064T:
GAO Highlights:
Highlights of GAO-07-1064T, a testimony before the Subcommittee on
Oversight of Government Management, the Federal Workforce, and the
District of Columbia, Committee on Homeland Security and Governmental
Affairs, U.S. Senate
Why GAO Did This Study:
The availability of spare parts and other critical items provided
through the Department of Defense‘s (DOD) supply chains affects the
readiness and capabilities of U.S. military forces. Since 1990, GAO has
designated DOD supply chain management as a high-risk area. In 2005,
DOD developed a plan aimed at addressing supply chain problems and
having GAO remove this high-risk designation. DOD‘s plan focuses on
three areas: requirements forecasting, asset visibility, and materiel
distribution.
GAO was asked to provide its views on (1) DOD‘s progress in developing
and implementing the initiatives in its plan, (2) the results of recent
work relating to the three focus areas covered by the plan, and (3) the
integration of supply chain management with efforts to improve defense
business operations. GAO also addressed broader issues of logistics
governance and strategic planning.
This testimony is based on prior GAO reports and analysis.
To determine whether to retain the high-risk designation for supply
chain management, GAO considers factors such as whether DOD makes
substantial progress implementing improvement initiatives; establishes
a program to validate the effectiveness of the initiatives; and
completes a comprehensive, integrated strategy.
What GAO Found:
The most recent update to DOD‘s plan shows that DOD has made progress
developing and implementing its supply chain management improvement
initiatives. DOD is generally staying on track for implementing its
initiatives, although there have been delays in meeting certain
milestones. However, the long-term time frames for many of these
initiatives present challenges to the department in sustaining progress
toward substantially completing their implementation. The plan also
lacks outcome-focused performance measures for many individual
initiatives and the three focus areas, limiting DOD‘s ability to fully
demonstrate the results achieved through its plan. Increasing DOD‘s
focus on outcomes will enable stakeholders to track the interim and
long-term success of its initiatives and help DOD determine if it is
meeting its goals of more effective and efficient supply chain
management.
GAO‘s recent work has identified problems related to the three focus
areas in DOD‘s plan. In the requirements area, the military services
are experiencing difficulties estimating acquisition lead times to
acquire spare parts for equipment and weapon systems, hindering their
ability to efficiently and effectively maintain spare parts inventories
for military equipment. Challenges in the asset visibility area include
lack of interoperability among information technology systems, problems
with container management, and inconsistent application of radio
frequency identification technology, which make it difficult to obtain
timely and accurate information on assets in theater. In the materiel
distribution area, challenges remain in coordinating and consolidating
distribution and supply support within a theater.
Improving defense business operations is integral to resolving supply
chain management problems. Progress in DOD‘s overall approach to
business transformation is needed to confront problems in other high-
risk areas, including supply chain management. Because of the
complexity of business transformation, GAO has stated that DOD needs a
Chief Management Officer with significant authority, experience, and a
term that would provide sustained leadership and the time to integrate
DOD‘s overall business transformation efforts. GAO‘s work, pending
legislation, and other recent studies indicate a consensus that the
status quo is no longer acceptable.
GAO‘s recent review of joint theater logistics raises concerns about
whether DOD can effectively implement this initiative without
reexamining fundamental aspects of the department‘s logistics
governance and strategy. In this respect, joint theater logistics may
serve as a microcosm of some of the challenges DOD faces in resolving
supply chain management problems. Moreover, GAO recommended in that
report that DOD align its approach to joint theater logistics with
ongoing actions the department is taking to reform its logistics
governance and develop its logistics strategy. Several recent studies
of DOD logistics systems have recommended changes to DOD‘s
organizational structure for providing joint logistics and supply
support to military operations.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-1064T].
To view the full product, including the scope and methodology, click on
the link above.
For more information, contact William Solis at (202) 512-8365 or
solisw@gao.gov.
[End of section]
Mr. Chairman and Members of the Subcommittee:
I am pleased to be here today to discuss the progress made by the
Department of Defense (DOD) toward resolving long-standing problems
with supply chain management. The availability of spare parts and other
critical items that are procured and delivered through DOD's supply
chain network affects the readiness and capabilities of U.S. military
forces, and can affect the success of a mission. In addition, the
investment of resources in DOD's supply chains is substantial,
amounting to more than $150 billion a year according to DOD, and supply
inventory levels have grown by 35 percent from $63.3 billion in fiscal
year 2001 to $85.6 billion in fiscal year 2006.[Footnote 1] DOD also
invests billions in information technology systems that support supply
chain management and other business operations. Over time, DOD has
sought to better integrate its supply chain operations to effectively
support military forces and to make its supply chains more efficient
from source of supply to point of consumption. However, the challenges
to successfully improving management of DOD's vast and complex supply
chain network are formidable, and problems with supply chain management
have yet to be fully resolved. Today's hearing is the third time since
2005 that we have testified before this Subcommittee on supply chain
management.[Footnote 2] Your active involvement has been and will
continue to be vital to keeping attention focused on this important
aspect of DOD's business and logistics support operations.
GAO's audits and evaluations have identified a number of federal
programs and operations that are high risk because of their greater
vulnerabilities to fraud, waste, abuse, and mismanagement. In recent
years, GAO's high-risk program has increasingly focused on those major
programs and operations that need urgent attention and transformation
in order to ensure that our government functions in the most
economical, efficient, and effective manner possible. We first
designated DOD inventory management as a high-risk area in 1990 because
of ineffective and inefficient inventory systems and practices. The
problems we found--based on a large body of work on the management of
military supplies--included on-hand inventory that was not needed to
meet required inventory levels, inadequate controls over items, and
cost overruns. We have reported on efforts to address this and other
high-risk areas in our biennial updates to our high-risk programs since
then. In preparing the 2005 update of the high-risk series, we
determined that systemic supply problems extended beyond inventory
management to other aspects of the supply chain, including inaccurate
supply forecasts, poor asset visibility, and ineffective distribution.
We therefore expanded our high-risk designation to include the entirety
of "DOD supply chain management."
Over the years DOD has taken actions toward its goal of integrating and
improving supply chain management. For example, it has revised policies
and practices aimed at addressing shortcomings identified during
Operation Iraqi Freedom. It has implemented recommendations made by our
office and other audit organizations regarding specific aspects of its
supply chain operations. It has also identified technologies and
commercial best practices that could lead to substantial improvements
over the long term. Another step has been the development of DOD's
supply chain management improvement plan. In 2005, with the
encouragement of the Office of Management and Budget (OMB) and input
from our office, DOD developed this plan with the intent of addressing
the problems that have prompted us to retain this high-risk
designation. (We subsequently refer to this document as the plan.)
DOD's plan lists 10 initiatives aimed at making improvements in three
focus areas of supply chain management--requirements forecasting, asset
visibility, and materiel distribution.
DOD officials believe the commitment they have demonstrated to
resolving supply chain management problems, including developing the
plan and making progress implementing initiatives, justifies removing
this area from our high-risk list. In December 2006, the Under
Secretary formally requested that we consider removing supply chain
management from our list of high-risk areas. We decided that
notwithstanding positive steps taken by DOD to address problems, supply
chain management should remain a high-risk area until DOD can
successfully demonstrate improvements in requirements forecasting,
asset visibility, and materiel distribution, and we retained this
designation in the 2007 biennial update of our high-risk
series.[Footnote 3]
Today, I would like to provide our perspectives on (1) DOD's progress
in developing and implementing the initiatives in its plan, (2) the
results of our recent work relating to the three focus areas covered by
the plan, and (3) the integration of supply chain management with
efforts to transform and improve defense business operations. Finally,
I will address broader issues of logistics governance and strategic
planning within DOD. My statement is based on previous GAO reports and
analysis, including a report we are releasing today on DOD's efforts to
develop and implement joint theater logistics,[Footnote 4] one of the
initiatives in the plan. In addition, we have met regularly with DOD
and OMB staff to obtain updates on DOD's plan and information on the
specific initiatives. We conducted our work in accordance with
generally accepted government auditing standards.
Summary:
The most recent update to the plan shows that DOD has made progress
developing and implementing its supply chain management improvement
initiatives, but the current performance measures in the plan do not
fully demonstrate results. DOD is generally staying on track for
implementing its initiatives, although there have been delays in
meeting certain milestones. Notwithstanding this overall progress and
the commitment of DOD leadership to resolving supply chain problems,
the long-term time frames for many of these initiatives present
challenges to the department in sustaining progress toward
substantially completing their implementation. Moreover, the plan lacks
outcome-focused performance measures that could gauge the results of
many of the individual improvement initiatives or demonstrate progress
in the three focus areas, limiting DOD's ability to fully demonstrate
the results achieved through its plan. Increasing the plan's focus on
measurable outcomes will enable DOD's internal and external
stakeholders, including Congress and OMB, to track the interim and long-
term success of DOD's initiatives and help DOD determine if it is
meeting its goals of achieving more effective and efficient supply
chain management.
In addition, our recent work has identified continuing problems related
to the three focus areas in DOD's plan.
* In the area of requirements forecasting, the military services are
experiencing difficulties estimating the length of time between the
initiation of a procurement action and the receipt of spare parts into
the supply system for equipment and weapon systems. We also found
continuing problems in the Air Force's inventory management practices,
hindering its ability to efficiently and effectively maintain its spare
parts inventory for military equipment. Specifically, an average of 52
percent ($1.3 billion) of the Air Force's secondary on-order inventory
was not needed to support on-order requirements. Further, about 65
percent ($18.7 billion) of on-hand inventory was not needed to support
required inventory levels. We calculated that it costs the Air Force
from $15 million to $30 million annually to store its unneeded items.
Problems also continue in managing prepositioned stocks.
* Our work in the area of asset visibility has indicated numerous
challenges, from lack of interoperability among information technology
systems to problems with container management. Limitations in asset
visibility capabilities make it difficult to obtain timely and accurate
information on the assets that are present in the theater of
operations.
* With respect to materiel distribution, we have found that challenges
remain in coordinating and consolidating distribution and supply
support within a theater. For example, DOD is establishing separate
organizations to coordinate surface transportation and lacks a single
organization with authority to integrate and synchronize surface
deployment and distribution movements. One key challenge has been
establishing an effective mechanism that would enable a joint force
commander to exercise appropriate command and control over
transportation and other logistics assets in the theater.
Further, transforming and improving defense business operations are
integral to resolving supply chain management problems. As we have
previously stated, progress in DOD's overall approach to business
transformation is needed to confront problems in other high-risk areas,
including supply chain management. Because of the complexity and long-
term nature of business transformation, we have stated that DOD needs a
Chief Management Officer with significant authority, experience, and a
term that would provide sustained leadership and the time to integrate
DOD's overall business transformation efforts. Our work, pending
legislation, and other recent studies indicate a consensus that the
status quo is no longer acceptable. In addition to business
transformation, we have identified two other DOD high-risk areas that
are closely linked with supply chain management--modernizing business
systems and improving financial management.
Our recent review of joint theater logistics raises concerns about
whether DOD can effectively implement this initiative without
reexamining fundamental aspects of the department's logistics
governance and strategy. In this respect, joint theater logistics may
serve as a microcosm of some of the challenges DOD faces in resolving
supply chain management problems. We found during our review that DOD
has not developed a coordinated and comprehensive management approach
to guide and oversee implementation of joint theater logistics across
the department. Moreover, we recommended in that report that DOD align
its approach to joint theater logistics with ongoing actions the
department is taking to reform its logistics governance and develop its
logistics strategy. Regarding logistics governance, DOD has been
testing a new approach to managing joint capabilities as a portfolio,
but key decisions are still to be made on how to implement this
approach. In addition, DOD has plans to develop an overarching
logistics strategy but has delayed completion of this strategy until
sometime next year. The diffused organization of DOD's logistics
operations, including separate funding and management of resources and
systems, complicates DOD's ability to adopt a coordinated and
comprehensive approach. Several recent studies of DOD's logistics
system have recommended changes to DOD's organizational structure for
providing joint logistics and supply support to military operations.
Background:
DOD relies on a number of individual processes and activities, known
collectively as supply chain management, to purchase, produce, and
deliver items and services to military forces. The department relies on
working capital (revolving) funds maintained by the defense and service
logistics agencies to finance the flow of these items to the forces.
Working capital funds allow these agencies to purchase needed items
from suppliers. Military units then order items from the logistics
agencies and pay for them with annually appropriated operations and
maintenance funds when the requested items--either from inventory or
manufacturers--are delivered to the units.
The Under Secretary of Defense (Acquisition, Technology, and Logistics)
has been designated by the Secretary of Defense as the department's
Defense Logistics Executive, with authority to address logistics and
supply chain issues. Officials within the Office of the Assistant
Deputy Under Secretary of Defense for Supply Chain Integration
completed the first iteration of the plan in July 2005 and have updated
it several times since then based on information provided by designated
lead proponents for the individual initiatives. DOD has shared its plan
externally with Congress, OMB, and our office. OMB has characterized
the plan as a model for other federal agencies to use in developing
their own plans to address their high-risk areas.
The plan has three focus areas: requirements forecasting, asset
visibility, and materiel distribution--issues that we have identified
based on GAO audits since 1995 as critical to improving DOD supply
chain management. Accurately forecasted supply requirements are a key
first step in buying, storing, positioning, and shipping items that the
warfighter needs. DOD describes asset visibility as the ability to
provide timely and accurate information on the location, quantity,
condition, movement, and status of supplies and the ability to act on
this information. Distribution is the process for synchronizing all
elements of the logistics system to deliver the "right things" to the
"right place" at the "right time" to support the warfighter. Our prior
work has identified problems in these three focus areas, as well as
other aspects of supply chain management.
DOD's plan identifies joint theater logistics as an initiative that
will improve both asset visibility and materiel distribution. Joint
theater logistics is intended to enhance the ability of a joint force
commander to direct various logistics functions, including distribution
and supply support activities, across the theater and, for several
years, has been part of DOD's planned transformation of logistics
capabilities. Joint theater logistics is one of seven future logistics
capabilities that DOD has grouped under "focused logistics." DOD has
broadly defined joint theater logistics as an adaptive ability to
anticipate and respond to emerging theater logistics and support
requirements.
In general, when legislative and agency actions result in significant
and sustainable progress toward resolving a high-risk problem, we
remove the high-risk designation. Key determinants include a
demonstrated strong commitment to and top leadership support for
addressing problems, the capacity to do so, a corrective action plan,
and demonstrated progress in implementing corrective measures.[Footnote
5] From 1990 through 2007, we removed 18 areas from the high-risk list.
Our decisions on removing supply chain management from the high-risk
list will be guided by whether DOD (1) sustains top leadership
commitment and long-term institutional support for the plan; (2)
obtains necessary resource commitments from the military services, the
Defense Logistics Agency, and other organizations; (3) makes
substantial progress implementing improvement initiatives across the
department; (4) establishes a program to demonstrate progress and
validate the effectiveness of the initiatives; and (5) completes the
development of a comprehensive, integrated strategy for guiding supply
chain management improvement efforts across the department.
DOD Has Made Progress in Developing and Implementing the Initiatives in
Its Plan, but Current Performance Measures Do Not Fully Demonstrate
Results:
The most recent update to the plan in May 2007 shows that DOD, over the
past year, has made progress in developing and implementing its
improvement initiatives. We noted this progress in the January 2007
update of our high-risk series. Specific examples of progress made
include the following:
* DOD has established joint deployment distribution operations centers
in each geographic combatant command. In early 2004, DOD established
the first of these operations centers in Kuwait, under U.S. Central
Command, after distribution problems arose during the initial stages of
Operation Iraqi Freedom. DOD has since expanded this organization to
its other geographic combatant commands. These operations centers can
help joint force commanders synchronize the arrival of supplies into a
theater and assist in other aspects of distribution and supply support.
They are designed to incorporate representatives from DOD components,
such as U.S. Transportation Command, the Defense Logistics Agency, and
the military services, who can provide a knowledgeable connection to
logistics supply centers in the United States and facilitate the
distribution of supplies to the theater. The expansion of these
operations centers to all the geographic commands was based on the
success of the first operations center in Kuwait, which has been
credited with improving the management of supplies moving across the
distribution system and achieving cost savings.[Footnote 6]
* DOD has reported initial success with an initiative aimed at
streamlining the storage and distribution of common items for multiple
military service locations through the use of Defense Logistics Agency
hubs. The objectives of this initiative, called joint regional
inventory and material management, include eliminating duplicate
materiel handling and inventory layers. DOD has met key milestones in
this initiative and recently completed the pilot program in Hawaii.
U.S. Pacific Command officials stated that they had reduced redundant
service-managed inventories, the number of times they handle parts, and
customer wait times over the course of the pilot. They estimated that
the services had reduced their inventory levels by more than $10
million. In March 2007, the Defense Logistics Agency was tasked to be
the lead proponent for continued worldwide implementation of joint
regional inventory and material management.
* DOD also made progress toward improving transportation management of
military freight. Before the end of this fiscal year, U.S.
Transportation Command plans to award a contract to a third-party
logistics provider, or 3PL, to coordinate the movement of freight
shipments within the continental United States. This effort, called the
defense transportation coordination initiative, is aimed at improving
the reliability, predictability, and efficiency of moving freight among
DOD's depots, logistics centers, and field activities. In a recent
report on this initiative,[Footnote 7] we stated that DOD had taken
numerous actions to incorporate the lessons learned from a prior
prototype program and, moreover, had taken positive steps to adopt best
practices employed by other public and private organizations to
transform their culture. Still, the long-term success of this effort
remains uncertain given the challenges in undertaking organizational
transformation and because the program is still in its early stages.
Despite the progress indicated by the development and implementation of
these initiatives, the recent update of DOD's plan indicates some
delays in achieving certain milestones. For example, the radio
frequency identification (RFID)[Footnote 8] initiative experienced a
slippage from December 2006 to September 2007 in its milestone to
implement passive RFID at the first 25 percent of Defense Logistics
Agency's distribution centers located outside the continental United
States. This milestone was adjusted based on lessons learned from the
implementation of RFID at sites within the continental United States.
Also, the item unique identification initiative[Footnote 9] experienced
a slippage of a year, from January 2007 to January 2008, for the
milestone on demonstrating integration with international entities,
because required ratification from the North Atlantic Treaty
Organization was delayed. Schedule delays such as these may be expected
given the long-standing nature of the problems being addressed, the
complexities of the initiatives, and the involvement of multiple
organizations. Furthermore, some of these initiatives are in the early
stages of implementation, with full implementation several years away.
The long-term time frames for many of these initiatives present
challenges to the department in sustaining progress toward
substantially completing their implementation.
Since the last hearing before this Subcommittee in July 2006, we have
not seen significant changes in how DOD proposes to measure the impact
of its initiatives in its plan. The plan, as before, contains four
performance metrics--backorders, customer wait time, on-time orders,
and logistics response time.[Footnote 10] While these four measures
capture broad aspects of DOD's supply chain performance, they can be
affected by variables other than the initiatives themselves. For
example, natural disasters, wartime surges in requirements, or
disruption in the distribution process could each result in increased
backorders, longer customer wait time, fewer on-time orders, and slowed
response time, regardless of DOD's initiatives. Consequently, changes
in these high-level metrics might not be directly attributable to the
initiatives in the plan. While it may take years before the results of
programs become apparent, intermediate metrics can be used to provide
information on interim results and show progress toward intended
results. In addition, when program results could be influenced by
external factors, intermediate metrics can be used to identify the
program's discrete contribution to the specific result.
As we noted last July, the results of DOD's initiatives would be more
apparent if DOD applied more outcome-oriented performance metrics for
many of the individual initiatives and for the three focus areas.
Outcome-oriented performance metrics show results or outcomes related
to an initiative or program in terms of effectiveness, efficiency,
impact, or all of these. Since last July, DOD has not added new outcome-
focused performance metrics to its plan. DOD also continues to lack
cost metrics that might show efficiencies gained through these supply
chain efforts, either at the initiative level or overall. In total,
DOD's plan identifies a need to develop outcome-focused performance
metrics for 6 initiatives, and 9 out of 10 initiatives lack cost
metrics. We recommended in January that DOD develop, implement, and
monitor outcome-focused performance and cost metrics for all the
individual initiatives in the plan as well as for the plan's focus
areas of requirements forecasting, asset visibility, and materiel
distribution.[Footnote 11] In response to our recommendation, DOD
asserted that it had developed and implemented outcome-focused
performance and cost metrics for logistics across the department, but
it also acknowledged that more work needed to be done to link the
outcome metrics to the initiatives in the plan as well as for the focus
areas. DOD stated that these linkages will be completed as part of full
implementation of each initiative.
Recent GAO Reviews Have Found That Systemic Supply Chain Management
Problems Continue:
Our recent work has identified continued systemic weakness in aspects
of DOD's supply chain management. I will briefly highlight some of the
results from these reviews, structured around the three focus areas
covered by DOD's plan.
Requirements Forecasting Problems Exist in Managing Spare Parts and
Prepositioned Stocks:
In the area of requirements forecasting, the military services are
experiencing difficulties estimating acquisition lead times to acquire
spare parts for equipment and weapon systems.[Footnote 12] Effective
processes that identify and manage acquisition lead times are of
critical importance to maintaining cost-effective inventories,
budgeting, and having materiel available when it is needed. In March
2007, we reported that 44 percent of the services' lead time estimates
varied either earlier or later than the actual lead times by at least
90 days.[Footnote 13] Overestimates and underestimates of acquisition
lead time contribute to inefficient use of funds and potential
shortages or excesses of spare parts. We recommended a number of
actions DOD should take to improve the accuracy and strengthen the
management of lead times. For example, we made specific recommendations
directed toward the Army, the Air Force, the Navy, and the Defense
Logistics Agency with the intent of improving their accuracy in setting
acquisition lead times. DOD mostly concurred with our recommendations.
In a separate review of the Air Force's inventory management
practices,[Footnote 14] we found continuing problems hindering its
ability to efficiently and effectively maintain its spare parts
inventory for military equipment. From fiscal years 2002 through 2005,
more than half of the Air Force's secondary inventory (spare parts),
worth an average of $31.4 billion annually, was not needed to support
required on-order and on-hand inventory levels. We found an average of
52 percent ($1.3 billion) of the Air Force's secondary on-order
inventory was not needed to support on-order requirements.[Footnote 15]
This unneeded on-order inventory indicates that the Air Force did not
cancel orders or deobligate funds for items that were not needed to
support requirements. When the Air Force buys unneeded items, it is
obligating funds unnecessarily, which could lead to not having
sufficient funds to purchase needed items. The Air Force has continued
to purchase unneeded inventory because its policies do not provide
incentives--such as requiring contract termination review for all
unneeded on-order inventory or reducing the funding available for the
Air Force Materiel Command by an amount up to the value of the Air
Force's on-order inventory that is not needed to support requirements-
-to reduce the amount of inventory on order that is not needed to
support requirements. In addition, although the percentage of the Air
Force's on-hand inventory was reduced by 2.7 percent during these
years, about 65 percent ($18.7 billion) of this inventory was not
needed to support required inventory levels. We calculated that it
costs the Air Force from $15 million to $30 million annually to store
its unneeded items. We recommended that the Air Force improve its
policies regarding on-order inventory, revalidate the need to retain
items that are not needed to meet inventory requirements and for which
there is no recurring demand, and take other actions to improve
accountability for, and management of, its secondary inventory. DOD
generally concurred with our recommendations.
Another area of continuing concern has been the stocks maintained in
the Army's prepositioning programs. Prepositioning is one of three
ways, along with airlift and sealift, that the U.S. military can
deliver equipment and supplies to field combat-ready forces. The Army
drew heavily from its prepositioned stocks to support Operations Iraqi
Freedom and Enduring Freedom, and these sustained operations have taken
a toll on the condition and readiness of military equipment. In
February 2007, we reported the Army was changing its overall
prepositioning strategy and, in doing so, faced major strategic and
management challenges.[Footnote 16] One of these challenges was that
despite recent efforts to improve requirements setting, the Army had
not yet determined reliable requirements for secondary items and
operational project stocks.[Footnote 17] Also, the Army does not
systematically measure or report readiness for the secondary item and
operational project programs. Without sound requirements or reporting
mechanisms, the Army cannot reliably assess the impact of any
shortfalls, determine the readiness of its programs, or make informed
investment decisions about them. We recommended that the Army develop
an implementation plan that, among other things, completes ongoing
reevaluation of the secondary item and project stock requirements as
well as establishes systematic readiness measurement and reporting of
secondary items and operational project stock programs. DOD concurred
with this recommendation.
Effective Management of Supplies Is Hindered by Problems in Achieving
Asset Visibility:
Despite the benefits attributed to the joint deployment distribution
operations center in Kuwait, effective management of supply
distribution across the theater has been hindered by ongoing problems
in achieving asset visibility. Senior military commanders in Kuwait
attributed these problems to a lack of interoperability among
information technology systems that makes it difficult to obtain
timely, accurate information on assets in the theater.[Footnote 18] We
have previously reported that the defense logistics systems used by
various components to order, track, and account for supplies are not
well integrated and do not provide the information needed to
effectively manage theater distribution and provide asset
visibility.[Footnote 19] Officials told us their staff must use manual
work-arounds to overcome the problems caused by noninteroperable
information systems and estimated that their staff spend half their
time pulling data from information systems, e-mailing it around for
validation or coordination, consolidating it on a spreadsheet, and then
analyzing it to make management decisions. In January 2007, a joint
assessment conducted by several DOD components at Camp Arifjan, Kuwait,
found that separate movement control battalions in Kuwait and Iraq use
both automated and handwritten transportation movement requests to
track air and ground movements and must consolidate manual and
automated data into spreadsheets in order to capture the total theater
movement picture. Neither movement battalion has total visibility over
what is occurring in both Kuwait and Iraq nor do they have total
visibility of the surface transportation resources necessary to
optimize the distribution of resources.
In our review of joint theater logistics, we also found continuing
problems with container management that hinder asset visibility and
impede DOD's ability to effectively manage logistics operations and
costs, although improvements had been made since we last reported on
this issue in 2003.[Footnote 20] Some challenges that DOD faces with
container management include the application of RFID on containers in
the supply chain, compliance with container management processes, and
the return of commercial containers to maritime carriers.
In 2004, the Under Secretary of Defense (Acquisition, Technology, and
Logistics) directed the use of active RFID on all consolidated
shipments moving to, from, or between overseas locations in order to
provide global in-transit visibility, and U.S. Central Command has
emphasized the need to use this technology to improve asset visibility
in Iraq and Afghanistan. However, according to U.S Central Command
officials, DOD continues to struggle with the application of RFID in
the theater supply chain because of problems such as containers shipped
without RFID tags or with tags that are broken, tags with incorrect
information, or tags that are rewritten but not cross-referenced to the
original shipping information. Noncompliance with container management
processes established by U.S. Central Command can also limit asset
visibility. For example, the Army's system has not been able to
effectively track containers as they pass through distribution
channels, significantly hampering asset visibility in theater because
tagged containers can become "lost" in theater, with no one able to
track the location of the container or its contents. In addition, if
the container is commercially owned and not returned to the carrier
within a specified time period, detention charges begin accumulating.
During our review of joint theater logistics we also found that U.S.
Transportation Command and the Military Surface Deployment and
Distribution Command, to improve management and accountability over
containers and to address the growing detention charges, developed a
theater container management process and established the container
management element--a unit responsible for tracking and providing
management oversight of containers in the theater. In addition, the
Army decided to purchase, or "buy out," commercial containers to reduce
monthly detention charges. Container management element officials told
us that through a combination of container buyouts and increased
oversight, detention charges decreased from approximately $10.7 million
per month in December 2005 to $3.7 million per month in October 2006.
However, although DOD has been able to reduce monthly detention charges
on commercial containers, it is still experiencing problems with
retaining visibility over containers, and its problem with commercial
container detention charges is shifting from Iraq to Afghanistan.
In addition, the Army continues to experience problems in developing
and implementing system initiatives affecting asset visibility. For
example, the Logistics Management Program, one of the Army's major
business system modernization efforts intended to manage its inventory
and depot maintenance operations, has continued to experience problems
with accurately recognizing revenue and billing customers, and the
accuracy of its financial reports continues to be questionable. If
information contained in asset accountability systems is not accurate,
complete, and timely, DOD's day-to-day operations could be adversely
affected. As of September 30, 2006, the Army reported that
approximately $452 million had been obligated for this system effort
and estimates that it will invest at least another $895 million in this
program. Also, its schedule to reach full operational capability has
slipped from fiscal year 2005 to fiscal year 2010.[Footnote 21] We have
recently reviewed the Army's progress in achieving asset visibility and
expect to issue our report by the end of this month.[Footnote 22]
Challenges Remain in Coordinating and Consolidating Distribution and
Supply Support within a Theater:
In our review of joint theater logistics, we found that DOD components
have made progress developing and implementing joint theater logistics
initiatives in the areas of distribution and supply support; however,
the department faces a number of challenges that hinder its ability to
fully realize the benefits of these efforts. Unless DOD successfully
addresses these challenges, the initiatives are not likely to
significantly improve the ability of a joint force commander to harness
the diffuse logistics resources and systems that exist within the
department and effectively and efficiently direct logistics functions,
including distribution and supply support activities, across the
theater of operations to accomplish an assigned mission.
For example, initiatives to improve the coordination of surface
transportation assets--mainly trucks--in a theater of operations face
challenges such as potential duplication of responsibilities, the
unavailability of information technology tools, and unclear lines of
command and control. According to a 2005 RAND Corporation
study,[Footnote 23] during the initial phase of Operation Iraqi Freedom
there was no single organization deployed in theater with the authority
to rebalance transportation assets across the theater and integrate and
synchronize the surface deployment and distribution movements of
materiel in support of the commander's priorities. As part of its
modular transformation, the Army is creating theater and expeditionary
sustainment commands that are aimed in part at centralizing control
over Army surface transportation assets within a theater of
operations.[Footnote 24] In a separate initiative, U.S. Transportation
Command created a new organization, the director of mobility forces-
surface, to integrate surface deployment and distribution priorities
set by the joint force commander.
Army officials raised concerns about whether the theater and
expeditionary sustainment commands would have the information
technology tools and personnel necessary to effectively and efficiently
carry out their missions. They said that these commands were designed
to be smaller than their predecessors, based on an assumption that
certain information technology tools would be available to enable the
commands to operate with fewer personnel. However, some of these
information technology tools--such as the next generation Mobile
Tracking System, Battle Command Sustainment Support System, and
Transportation Coordinator's Automated Information for Movements System
II--have experienced problems during their development that have
limited their capability or have delayed their fielding. According to
Army officials, the shortcomings in available information tools have
resulted in the need for additional staff in the theater and
expeditionary sustainment commands and have required the commands to
use manual, ad hoc techniques, which are cumbersome and manpower
intensive, to validate, coordinate, and analyze data for decision
making.
The U.S. Transportation Command-led efforts to establish the director
of mobility forces-surface have also faced implementation challenges.
The initial assessment of the director of mobility forces-surface pilot
in Kuwait by U.S. Transportation Command and U.S. Central Command
indicated that the initiative faces a number of challenges related to
command and control, availability of information technology tools,
securing personnel with the expertise and knowledge to use the
information technology tools that are available, and potential
duplication of responsibilities with other Army organizations. U.S.
Central Command discontinued the pilot in May 2007 until some of these
issues were resolved. In addition, the Army reviewed more than 100
proposed responsibilities of the director of mobility forces-surface
and found that most of these responsibilities are already covered by
the Army's theater and expeditionary sustainment commands or other
commands.
DOD also has developed initiatives to consolidate and improve storage
and shipping of materiel, including node management and deployable
depot, joint regional inventory and material management, and theater
consolidation and shipping point,[Footnote 25] but such efforts have
been implemented on a limited scale. During our visits to Kuwait, we
found that the Defense Logistics Agency and the Army were operating
separate facilities that have the potential for consolidation, which
could result in more efficient use of resources. We discussed this
issue with senior U.S. military officials in Kuwait and with Defense
Logistics Agency officials. Following these discussions and the
completion of our fieldwork, the Defense Logistics Agency assessed ways
to improve theater distribution and made recommendations to consolidate
and relocate existing operations. Specifically, in April 2007, the
Defense Logistics Agency study team recommended terminating the theater
consolidation and shipping point contract, assuming these functions at
the defense distribution depot, and drawing down inventory and
operations at the Army general support warehouse at Camp Arifjan.
Finally, various options have emerged for improving the ability of a
joint force commander to exercise command and control over joint
theater logistics functions. U.S. Joint Forces Command is coordinating
the joint experimental deployment and support initiative, whose
objective is to experiment with a range of command and control options
that can provide logistics coordination, integration, and
synchronization to meet the combatant commander's priorities. The
initiative builds upon DOD's joint deployment distribution operations
center concept and progresses along a continuum to include more robust
organizational options. However, the military services have raised
concerns about how their own roles and responsibilities for providing
logistics support might be affected and have opposed expansion of the
most robust command and control option that has emerged--known as the
joint force support component command.
Our discussions with officials from the combatant commands and the
military services indicated that there are unresolved issues related to
exercising joint command and control over logistics functions in a
theater of operations. A number of officials had concerns about how
organizations such as the joint force support component command would
be staffed and what roles and authorities it would have. Specifically,
they mentioned statutory requirements for logistics support, directive
authority for logistics, and operational and financial considerations.
The services expressed concerns about mandating that they provide staff
to the joint force support component command, while also fulfilling
their Title 10 responsibilities to man, train, and equip their
forces.[Footnote 26] Officials from military service components in the
geographic combatant commands raised the issue of having a service
component take direction from a separate component command at the same
level, rather than from a higher-level command, and they were resistant
to losing personnel to such an organization because the service
component commands still have tactical logistics responsibilities to
fulfill. Some military service officials raised questions about the
effectiveness of a joint force support component command that lacked an
ability to exercise directive authority for logistics. This authority
gives the combatant commander the ability to shift logistics resources
within the theater in order to accomplish a mission.[Footnote 27]
Officials we interviewed did not believe this authority could be
delegated below the level of a joint force commander or service
component commander[Footnote 28] to an entity such as the joint force
support component command. Thus, they questioned how the joint force
support component command differs from other logistics command and
control organizations if the organization can make recommendations to
the joint force commander but not actually direct the transfer of
assets across the service components, known as cross-leveling.
Readiness and financial considerations related to exercising directive
authority for logistics include the military operational risks and
trade-offs associated with cross-leveling. Assets diverted from one
unit to support another unit may affect the giving organization's
ability to conduct a future operation, and officials raised concerns
that logisticians in a separate logistics command may not fully
understand the impact of cross-leveling on the next military mission.
Additionally, because the services obtain funding for their own assets,
several officials told us that some form of financial reconciliation
must be considered when exercising directive authority for logistics.
Transforming and Improving Defense Business Operations Are Integral to
Resolving Supply Chain Management Problems:
DOD spends billions of dollars to sustain key business operations
intended to support the warfighter, including systems and processes
related to the supply chain and other business areas. We have reported
on inefficiencies in DOD's business operations, such as the lack of
sustained leadership and a comprehensive, integrated, and
enterprisewide business plan. Moreover, at a time of increasing
military operations and growing fiscal constraints, billions of dollars
have been wasted annually because of the lack of adequate transparency
and appropriate accountability across DOD's business areas.
As we have previously stated, progress in DOD's overall approach to
business transformation is needed to confront problems in other high-
risk areas, including supply chain management.[Footnote 29] Because of
the complexity and long-term nature of business transformation, we have
stated that DOD needs a Chief Management Officer with significant
authority, experience, and a term that would provide sustained
leadership and the time to integrate DOD's overall business
transformation efforts. Without formally designating responsibility and
accountability for results, reconciling competing priorities among
various organizations and prioritizing investments will be difficult
and could impede the department's progress in addressing deficiencies
in key business areas. Based on our long-standing body of work, pending
legislative language, and the results of studies completed by the
Defense Business Board and the Institute for Defense Analysis, there is
a clear consensus that the department needs a Chief Management Officer
and that the status quo is no longer acceptable.
The two other DOD high-risk areas that are most closely linked with
supply chain management are modernizing business systems and improving
financial management. Successful resolution of supply chain management
problems will require investment in needed information technology. The
DOD systems environment that supports these operations is overly
complex and error prone, and is characterized by little standardization
across the department, multiple systems performing the same tasks, the
same data stored in multiple systems, and the need for data to be
entered manually into multiple systems. Modernized business systems are
essential to the department's effort to address its supply chain
management issues. In its plan, DOD recognizes that achieving success
in supply chain management depends on developing interoperable systems
that can share critical supply data. One of the initiatives included in
the plan is business system modernization, an effort that is being led
by DOD's Business Transformation Agency and that includes achieving
materiel visibility through systems modernization as an enterprisewide
priority.
Regarding financial management, we have repeatedly reported that
weaknesses in business management systems, processes, and internal
controls not only adversely affect the reliability of reported
financial data, but also the management of DOD operations. Such
weaknesses have adversely affected the ability of DOD to control costs,
ensure basic accountability, anticipate future costs and claims on the
budget, measure performance, maintain funds control, and prevent fraud.
In 2005, DOD issued its Financial Improvement and Audit Readiness Plan,
which is intended to provide DOD components with a road map for
resolving problems affecting the accuracy, reliability, and timelines
of financial information and obtaining clean financial statement audit
opinions. However, tangible evidence of improvements in financial
management remains limited, and DOD recognizes that it will take
several years to implement the systems, processes, and other
improvements needed to address its financial management challenges.
Improving Supply Chain Management May Involve Reexamining Fundamental
Aspects of DOD's Logistics Governance and Strategy:
Our recent review of joint theater logistics raises concerns about
whether DOD can effectively implement this initiative without
reexamining fundamental aspects of the department's logistics
governance and strategy. In this respect, joint theater logistics may
serve as a microcosm of some of the challenges DOD faces in resolving
supply chain management problems. We found that DOD has not developed a
coordinated and comprehensive management approach to guide and oversee
implementation of joint theater logistics across the department.
Efforts to develop and implement joint theater logistics initiatives
have been fragmented among various DOD components largely because of a
lack of specific goals and strategies, accountability for achieving
results, and outcome-oriented performance measures--key principles of
sound management. While DOD has broadly defined joint theater logistics
as an adaptive ability to anticipate and respond to emerging theater
logistics and support requirements, it has not developed specific goals
and strategies linked to this vision. In addition, DOD has not assigned
accountability for achieving results under joint theater logistics and
has not developed outcome-oriented performance measures that would
enable the department to know whether its efforts are fully and
effectively achieving a joint theater logistics capability. Without a
coordinated and comprehensive approach to managing joint theater
logistics, DOD lacks assurance that it is on the right path toward
achieving this capability or that individual initiatives will
collectively address gaps in logistics capabilities. Further, DOD will
have difficulty achieving the desired improvements in distribution and
asset visibility associated with joint theater logistics as portrayed
in the plan.
Based on our review, we recommended that DOD develop and implement a
coordinated and comprehensive management approach to guide and oversee
efforts across the department to improve distribution and supply
support for the U.S. forces in a joint theater. This approach should
encompass sound management principles, including developing specific
strategies and goals, assigning accountability for achieving results,
and using outcome-oriented performance measures. Moreover, in that
report we recommended that DOD align its approach to joint theater
logistics with ongoing actions the department is taking to reform its
logistics governance and strategy, which are discussed below. In
considering options for implementing this recommendation, we stated
that DOD should determine whether any changes should be made to DOD's
organizational structure and control of resources for joint logistics
support, and identify the steps needed to make these changes, including
changes to existing laws, such as Title 10. DOD concurred with our
recommendation.
Regarding logistics governance, DOD has been testing a new approach to
managing joint capabilities as a portfolio.[Footnote 30] In September
2006, the Deputy Secretary of Defense selected joint logistics as one
of four capability areas for testing capabilities portfolio
management.[Footnote 31] These experiments were initiated in response
to the 2006 Quadrennial Defense Review, which emphasized DOD's need to
build on capabilities-based planning and management. According to DOD
officials, the purpose of this test is to determine if DOD can make
better leadership decisions by managing a portfolio of capabilities
instead of managing systems and capabilities individually. Thus, this
portfolio test is intended to enable senior leaders to consider trade-
offs across previously stovepiped areas and to better understand the
implications of investment decisions across competing priorities.
Specifically in the joint logistics area, the portfolio includes all
capabilities required to project and sustain joint force operations,
including supply chain operations. While DOD officials told us the
initial results of the test have been completed and have shown that
portfolio management is an effective means for managing capabilities,
they said that decisions had not yet been made on how to implement this
new governance approach.
The decisions DOD makes on capabilities portfolio management will also
influence the development of its logistics strategy. In our prior work,
we have noted that DOD has undertaken various efforts over the years to
identify, and plan for, future logistics needs, but it has lacked an
overarching, consistent logistics strategy. Last year, the department
began to develop a "to be" road map to guide future logistics programs
and initiatives. DOD officials described the "to be" road map as
portraying where the department is headed in the logistics area and how
it will get there; monitoring progress toward achieving its objectives;
and institutionalizing a continuous assessment process that links
ongoing capability development, program reviews, and budgeting.
According to DOD officials, the initiatives in the plan will be
incorporated into the "to be" road map. At this time last year, the
first edition of the "to be" road map was scheduled for completion in
February 2007, in conjunction with the submission of the President's
Budget for Fiscal Year 2008, with annual updates planned. However, DOD
subsequently put the "to be" road map on hold pending the completion of
the capabilities portfolio management test. DOD officials have told us
that the "to be" road map is now scheduled to be completed in summer
2008. In January,[Footnote 32] we recommended that DOD improve its
ability to guide logistics programs and initiatives across the
department and to demonstrate the effectiveness, efficiency, and impact
of its efforts to resolve supply chain management problems by
completing the development of a comprehensive, integrated logistics
strategy that is aligned with other defense business transformation
efforts. DOD concurred with our recommendation.
In reviewing DOD's approach to developing and implementing joint
theater logistics initiatives, we found that the diffused organization
of DOD's logistics operations, including separate funding and
management of resources and systems, complicates DOD's ability to adopt
a coordinated and comprehensive approach. Several recent studies of DOD
logistics system have reached similar conclusions. Since 2003, a number
of studies have recommended changes to DOD's organizational structure
for providing joint logistics and supply support to military
operations.[Footnote 33] Some of these organizations have noted that
control over resources is a critical issue to be addressed. For
example, the Defense Science Board recommended creation of a joint
logistics command that would combine the missions of U.S.
Transportation Command, the Defense Logistics Agency, and service
logistics commands. The Center for Strategic and International Studies
also suggested the creation of a departmentwide logistics command
responsible for end-to-end supply chain operations. Regarding resource
allocation, this study further stated that resources should be
organized, managed, and budgeted largely along military service lines,
but in those instances where joint capability needs are not being met
by the services, the Secretary must turn to joint processes and
entities. The Lexington Institute, which also recommended creation of a
U.S. logistics command at the four-star level, concluded that Title 10
may need to be amended in order to create this command. The Lexington
Institute also concluded that existing funding mechanisms act as
disincentives for joint logistics transformation and interoperability.
The Defense Business Practice Implementation Board, while not agreeing
with the idea of combining U.S. Transportation Command and the Defense
Logistics Agency, recommended that DOD elevate leadership for supply
chain integration by designating a new under secretary of defense who
would have authority to direct integration activities, including
control over budget decisions affecting these two components and the
military services. While we noted that transformational changes such as
those proposed by these organizations may not be possible without
amending existing laws, the scope of our joint theater logistics review
did not include an assessment of these proposals or what changes, if
any, would require congressional action.
Also contributing to coordination problems in the area of supply chain
management have been difficulties in clearly defining the
responsibilities and authorities of defense components that have a role
in supply chain operations. For example, although the Secretary of
Defense in 2003 designated the Commander, U.S. Transportation Command,
as DOD's distribution process owner--with responsibilities for
overseeing the overall effectiveness, efficiency, and alignment of DOD-
wide distribution activities--DOD has yet to issue a directive defining
the process owner's authority, accountability, resources, and
responsibility.[Footnote 34] We have recommended that DOD enhance its
ability to take a more coordinated approach to improving the supply
distribution system by, among other things, clarifying the scope of
responsibilities, accountability, and authority between the
distribution process owner and other organizations.[Footnote 35]
Although DOD did not concur with this recommendation at the time we
issued our report in 2005, DOD officials have recently told us they
plan to issue a directive aimed at more clearly defining the role of
the distribution process owner. Until this directive is issued, the
responsibilities and authorities of the distribution process owner
remain unclear. Echoing this theme, the Defense Business Board in April
2007 recommended that DOD take steps to clearly identify decision-
making authority regarding supply chain integration. Specifically, the
Defense Business Board recommended that DOD define and communicate
enterprise goals in order to align initiatives; clearly define
responsibilities and authorities of all players in the supply and
distribution processes; and allocate responsibility and authority to
set direction and oversee progress, and make necessary decisions to
carry out DOD's agreed-upon supply chain management strategy and
achieve enterprise goals.
DOD, like much of the federal government, will face critical challenges
during the 21st century that will test fundamental notions about how
agencies and departments should be organized and aligned to carry out
their missions. For example, the department faces challenges in
accomplishing its transformation goals and making improvements in key
business areas such as supply chain management. We have suggested that
decision makers may need to reexamine fundamental aspects of DOD's
programs by considering issues such as whether current organizations
are aligned and empowered to meet the demands of the new security
environment as efficiently as possible and what kinds of economies of
scale and improvements in delivery of support services would result
from combining, realigning, or otherwise changing selected support
functions, including logistics. [Footnote 36]
Concluding Observations:
Between now and the next update of our high-risk series in 2009, we
plan to continue to assess DOD's progress in resolving supply chain
management problems against the criteria we have established for
removing a high-risk designation. In addition to monitoring the
progress of DOD's plan, we plan to conduct audits related to specific
aspects of supply chain management. As I indicated earlier, a priority
for the department as it moves forward should be to track and assess
the outcomes achieved through its initiatives and the progress made in
resolving supply chain management problems in the three focus areas of
asset visibility, requirements forecasting, and materiel distribution.
We will also consider progress made in defense business transformation,
business system modernization, and financial management because of the
close linkage between these efforts and DOD's success in improving its
supply chain management. We look forward to working with the department
to provide an accurate appraisal of progress toward the goal of
successfully resolving problems that have hindered effective and
efficient supply chain management.
Mr. Chairman, this concludes my prepared remarks. I would be happy to
answer any questions you or other Members of the Subcommittee may have.
Contacts and Acknowledgments:
For further information regarding this testimony, please contact
William Solis 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 statement. Individuals making contributions to
this testimony include Tom Gosling, Assistant Director; Karyn Angulo;
Larry Junek; and Marie Mak.
FOOTNOTES
[1] Part of this growth was caused by inflation. The inflation rate
over this period as measured by the Gross Domestic Product Price Index
was a little over 13 percent.
[2] GAO, DOD's High-Risk Areas: High-Level Commitment and Oversight
Needed for DOD Supply Chain Plan to Succeed, GAO-06-113T (Washington,
D.C.: Oct. 6, 2005); and DOD's High-Risk Areas: Challenges Remain to
Achieving and Demonstrating Progress in Supply Chain Management, GAO-06-
983T (Washington, D.C.: July 25, 2006).
[3] GAO, High-Risk Series: An Update, GAO-07-310 (Washington, D.C.:
January 2007).
[4] GAO, Defense Logistics: Efforts to Improve Distribution and Supply
Support for Joint Military Operations Could Benefit from a Coordinated
Management Approach, GAO-07-807 (Washington, D.C.: June 29, 2007).
[5] The criteria for removing a high-risk designation are contained in
GAO, Determining Performance and Accountability Challenges and High
Risks, GAO-01-159SP (Washington, D.C.: November 2000).
[6] For example, U.S. Transportation Command officials said that the
operations center was responsible for shifting from the use of airlift
to sealift to transport supplies, which reduces costly airlift
requirements and frees up airlift capacity; coordinating the movement
of personnel from their point of origin to final destination rather
than through intermediate locations with time-consuming layovers (a
concept referred to as single ticket); and improving distribution
management by facilitating the use of pure-packed pallets and
containers, developing a container management plan, and improving the
return of Army materiel from the theater. According to data provided by
U.S. Transportation Command, the activities of this joint deployment
distribution operations center resulted in total cost avoidance and
savings of $343 million between fiscal years 2004 and 2007.
[7] GAO, Defense Transformation: DOD Has Taken Actions to Incorporate
Lessons Learned in Transforming Its Freight Distribution System, GAO-07-
675R (Washington, D.C.: May 8, 2007.)
[8] RFID consists of electronic tags that are attached to equipment and
supplies being shipped from one location to another, enabling shipment
tracking.
[9] Item unique identification provides for marking of personal
property items with a set of globally unique data items to help DOD
value and track items throughout their life cycle.
[10] Backorders are the number of orders held in an unfilled status
pending receipt of additional parts or equipment through procurement or
repair. Customer wait time measures the number of days between the
issuance of a customer order and satisfaction of that order. On-time
orders is the percentage of orders that are on time according to DOD's
established delivery standards. Logistics response time refers to the
number of days to fulfill an order placed on the wholesale level of
supply from the date a requisition is generated until the materiel is
received by the retail supply activity.
[11] GAO, DOD's High-Risk Areas: Progress Made Implementing Supply
Chain Management, but Full Extent of Improvement Unknown, GAO-07-234
(Washington, D.C.: Jan. 17, 2007).
[12] Acquisition lead time, also known as procurement lead time,
measures the length of time between the initiation of a procurement
action and the receipt of items into the supply system.
[13] GAO, Defense Inventory: Opportunities Exist to Improve the
Management of DOD's Acquisition Lead Times for Spare Parts, GAO-07-281
(Washington, D.C.: Mar. 2, 2007).
[14] GAO, Defense Inventory: Opportunities Exist to Save Billions by
Reducing Air Force's Unneeded Spare Parts Inventory, GAO-07-232
(Washington, D.C.: Apr. 27, 2007).
[15] Secondary inventory items include reparable components;
subsystems; and assemblies other than major end items (such as
aircraft), consumable repair parts, bulk items and materiel,
subsistence, and expendable end items, including clothing and other
personal gear. Inventory that is not in DOD's possession but for which
contracts have been awarded or funds have been committed is considered
to be on order.
[16] GAO, Defense Logistics: Improved Oversight and Increased
Coordination Needed to Ensure Viability of the Army's Prepositioning
Strategy, GAO-07-144 (Washington, D.C.: Feb. 15, 2007).
[17] Operational project stocks include items not typically part of
unit equipment, such as chemical defense equipment, pipeline systems,
mortuary units, and bare base sets for housing soldiers in austere
environments.
[18] Interoperability refers to the ability of different systems to
communicate effectively, including sharing information.
[19] GAO, Defense Logistics: DOD Has Begun to Improve Supply
Distribution Operations, but Further Actions Are Needed to Sustain
These Efforts, GAO-05-775 (Washington, D.C.: Aug. 11, 2005).
[20] GAO, Defense Logistics: Preliminary Observations on the
Effectiveness of Logistics Activities during Operation Iraqi Freedom,
GAO-04-305R (Washington, D.C.: Dec. 18, 2003).
[21] Full operational capability means that the system has been
deployed to all intended locations.
[22] We conducted this engagement in response to a request from the
Subcommittee on Readiness and Management Support, Senate Armed Services
Committee.
[23] RAND Corporation, Sustainment of Army Forces in Operation Iraqi
Freedom: Battlefield Logistics and Effects on Operations, Contract No.
DASW01-C-0003 (Santa Monica, Calif.: 2005).
[24] Theater sustainment commands provide the Army a single
headquarters responsible for operational command and control of
logistics operations throughout the theater. Expeditionary sustainment
commands, a forward extension of the theater sustainment commands, have
a primary role of managing regional logistics operations in support of
the joint task force commander.
[25] Node management and deployable depot is a Defense Logistics Agency
initiative to develop a small-scale, rapidly deployable distribution
center that has the capability to provide consolidated shipping,
receiving, cross-docking, storage, communication, and order processing.
Joint regional inventory and material management, identified as one of
the 10 initiatives in the plan, was discussed earlier in this
statement. Theater consolidation and shipping points is an effort by
the Defense Logistics Agency, in coordination with the Army and
combatant commands, to improve the efficiency and interoperability of
materiel consolidation and shipping activities.
[26] Various provisions of Title 10, U.S. Code establish
responsibilities and authorities for supplying and equipping the armed
forces. See 10 U.S.C. §§ 3013, 3062, 5013, 5062, 5063, 8013, and 8062.
[27] Under 10 U.S.C. §164, unless otherwise directed by the President
or the Secretary of Defense, the authority, direction, and control of
the commander of a combatant command with respect to the commands and
forces assigned to that command include giving authoritative direction
to subordinate commands and forces necessary to carry out missions
assigned to the command, including authoritative direction over all
aspects of military operations, joint training, and logistics.
[28] Joint Chiefs of Staff, Joint Publication 4-0, Doctrine for
Logistic Support of Joint Operations (Apr. 6, 2000), p. I-3.
[29] The other high-risk areas under DOD's approach to business
transformation are business systems modernization, the personnel
security clearance program, support infrastructure management,
financial management, and weapon systems acquisition.
[30] DOD has identified other actions in addition to portfolio
management for improving DOD governance. For example, DOD is studying
ways to establish better strategic direction and exploring options for
DOD capital resource allocation and funding stability.
[31] The other three test cases are joint command and control, joint
net-centric operations, and battlespace awareness.
[32] GAO-07-234.
[33] For a listing of these studies and their recommendations, see GAO-
07-234.
[34] In May 2006, the Deputy Secretary of Defense redesignated the
Commander, U.S. Transportation Command as DOD's distribution process
owner. Under this redesignation, the mission of the distribution
process owner is to oversee the overall effectiveness, efficiency, and
alignment of DOD-wide distribution activities and to establish concepts
and operational frameworks relating to the planning and execution of
DOD transportation operations.
[35] GAO-05-775.
[36] GAO, 21st Century Challenges: Reexamining the Base of the Federal
Government, GAO-05-325SP (Washington, D.C.: February 2005).
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