Defense Logistics
DOD Needs to Take Additional Actions to Address Challenges in Supply Chain Management Gao ID: GAO-11-569 July 28, 2011DOD estimated that overall spending on logistics, including supply chain management, was more than $210 billion in fiscal year 2010. Because of long-standing weaknesses in supply chain management, GAO has designated DOD supply chain management as a high-risk area and identified three focus areas for improvement--requirements forecasting, asset visibility, and materiel distribution. GAO reviewed the extent to which DOD has developed and implemented (1) corrective action plans that address challenges in the three focus areas, (2) an effective program for monitoring and validating the effectiveness and sustainability of supply chain management corrective actions, and (3) an ability to demonstrate supply chain management progress. GAO prepared this report to assist Congress in its oversight of DOD's supply chain management. GAO reviewed strategic and improvement plans, reviewed documents detailing the performance management framework, and assessed performance measures.
DOD has developed and begun to implement a corrective action plan for requirements forecasting, one of the three focus areas GAO identified as needing improvement in supply chain management. However, it does not have similar plans for the focus areas of asset visibility or materiel distribution. Such corrective action plans are critical to resolving weaknesses in these two areas. Such plans should (1) define root causes of problems, (2) identify effective solutions, and (3) provide for substantially completing corrective measures in the near-term, including steps necessary to implement solutions. DOD's Comprehensive Inventory Management Improvement Plan, issued in October 2010 in response to a statutory mandate, includes the elements necessary to serve as a corrective action plan for requirements forecasting. DOD's 2010 Logistics Strategic Plan, and other prior logistics-related plans, do not contain all of the elements needed to serve as corrective action plans for either asset visibility or materiel distribution, such as definition of problems or performance information to gauge progress in achieving outcomes. DOD outlined a performance management framework that is designed to provide guidance and oversight of logistics efforts, including supply chain improvement efforts. GAO's prior work has shown that in order for agencies to address challenges, they need to institute a program to monitor and validate the effectiveness and sustainability of corrective actions. The framework, as outlined in the 2010 Logistics Strategic Plan, offers a new management tool that may enable DOD to manage performance in supply chain management. For example, it calls for an ongoing assessment and feedback process that could help to ensure that improvement efforts are effective. However, DOD has not included key elements for instituting its performance management framework, such as implementing guidance to affected stakeholders, a strategy to communicate results internally and to stakeholders such as Congress, or definition of the roles and responsibilities of senior logistics governance bodies and chief management officers. Until the framework is fully instituted, DOD may not be able to effectively use this new management tool to monitor the effectiveness of corrective actions. DOD and its components track many aspects of the supply chain; however, DOD does not have performance measures that assess the overall effectiveness and efficiency of the supply chain across the enterprise. In order to fully address challenges, agencies must be able to demonstrate progress achieved through corrective actions, which is possible through the reporting of performance measures. In the development of its inventory management improvement plan, a collaborative process was used to define existing and needed performance measures for requirements forecasting. A similar collaborative focus on developing enterprisewide performance measures for asset visibility and materiel distribution has not occurred. The department may have difficulty demonstrating progress until enterprisewide performance measures are developed and implemented in all three focus areas for improving its supply chain management. GAO recommends that DOD develop and implement corrective action plans and performance measures for asset visibility and materiel distribution and take steps to fully institute its performance management framework. DOD concurred or partially concurred with two recommendations and did not concur with four, citing ongoing initiatives and existing policy. GAO believes all recommendations remain valid, as further discussed in the report.
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: Jack E. Edwards Team: Government Accountability Office: Defense Capabilities and Management Phone: (202) 512-8246GAO-11-569, Defense Logistics: DOD Needs to Take Additional Actions to Address Challenges in Supply Chain Management
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United States Government Accountability Office:
GAO:
Report to Congressional Committees:
July 2011:
Defense Logistics:
DOD Needs to Take Additional Actions to Address Challenges in Supply
Chain Management:
GAO-11-569:
GAO Highlights:
Highlights of GAO-11-569, a report to congressional committees.
Why GAO Did This Study:
DOD estimated that overall spending on logistics, including supply
chain management, was more than $210 billion in fiscal year 2010.
Because of long-standing weaknesses in supply chain management, GAO
has designated DOD supply chain management as a high-risk area and
identified three focus areas for improvement”requirements forecasting,
asset visibility, and materiel distribution. GAO reviewed the extent
to which DOD has developed and implemented (1) corrective action plans
that address challenges in the three focus areas, (2) an effective
program for monitoring and validating the effectiveness and
sustainability of supply chain management corrective actions, and (3)
an ability to demonstrate supply chain management progress. GAO
prepared this report to assist Congress in its oversight of DOD‘s
supply chain management. GAO reviewed strategic and improvement plans,
reviewed documents detailing the performance management framework, and
assessed performance measures.
What GAO Found:
DOD has developed and begun to implement a corrective action plan for
requirements forecasting, one of the three focus areas GAO identified
as needing improvement in supply chain management. However, it does
not have similar plans for the focus areas of asset visibility or
materiel distribution. Such corrective action plans are critical to
resolving weaknesses in these two areas. Such plans should (1) define
root causes of problems, (2) identify effective solutions, and (3)
provide for substantially completing corrective measures in the near-
term, including steps necessary to implement solutions. DOD‘s
Comprehensive Inventory Management Improvement Plan, issued in October
2010 in response to a statutory mandate, includes the elements
necessary to serve as a corrective action plan for requirements
forecasting. DOD‘s 2010 Logistics Strategic Plan, and other prior
logistics-related plans, do not contain all of the elements needed to
serve as corrective action plans for either asset visibility or
materiel distribution, such as definition of problems or performance
information to gauge progress in achieving outcomes.
DOD outlined a performance management framework that is designed to
provide guidance and oversight of logistics efforts, including supply
chain improvement efforts. GAO‘s prior work has shown that in order
for agencies to address challenges, they need to institute a program
to monitor and validate the effectiveness and sustainability of
corrective actions. The framework, as outlined in the 2010 Logistics
Strategic Plan, offers a new management tool that may enable DOD to
manage performance in supply chain management. For example, it calls
for an ongoing assessment and feedback process that could help to
ensure that improvement efforts are effective. However, DOD has not
included key elements for instituting its performance management
framework, such as implementing guidance to affected stakeholders, a
strategy to communicate results internally and to stakeholders such as
Congress, or definition of the roles and responsibilities of senior
logistics governance bodies and chief management officers. Until the
framework is fully instituted, DOD may not be able to effectively use
this new management tool to monitor the effectiveness of corrective
actions.
DOD and its components track many aspects of the supply chain;
however, DOD does not have performance measures that assess the
overall effectiveness and efficiency of the supply chain across the
enterprise. In order to fully address challenges, agencies must be
able to demonstrate progress achieved through corrective actions,
which is possible through the reporting of performance measures. In
the development of its inventory management improvement plan, a
collaborative process was used to define existing and needed
performance measures for requirements forecasting. A similar
collaborative focus on developing enterprisewide performance measures
for asset visibility and materiel distribution has not occurred. The
department may have difficulty demonstrating progress until
enterprisewide performance measures are developed and implemented in
all three focus areas for improving its supply chain management.
What GAO Recommends:
GAO recommends that DOD develop and implement corrective action plans
and performance measures for asset visibility and materiel
distribution and take steps to fully institute its performance
management framework. DOD concurred or partially concurred with two
recommendations and did not concur with four, citing ongoing
initiatives and existing policy. GAO believes all recommendations
remain valid, as further discussed in the report.
View [hyperlink, http://www.gao.gov/products/GAO-11-569] or key
components. For more information, contact Jack E. Edwards at (202) 512-
8246 or edwardsj@gao.gov.
[End of section]
Contents:
Letter:
Background:
DOD Has Developed and Is Implementing a Corrective Action Plan for One
of Three High-Risk Focus Areas Needing Improvement:
DOD Has Outlined a Framework for Guiding and Overseeing Improvement
Efforts but Has Not Provided Implementation Plans:
DOD Continues to Have Gaps in Its Ability to Measure Performance in
Supply Chain Management:
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:
Related GAO Products:
Tables:
Table 1: Extent to Which DOD's Comprehensive Inventory Management
Improvement Plan Addresses the Elements of a Corrective Action Plan to
Resolve High-Risk Challenges within the Requirements Forecasting Focus
Area:
Table 2: Six-Step Performance Management Framework in DOD's 2010
Logistics Strategic Plan:
Abbreviations:
CMO: Chief Management Officer:
DLA: Defense Logistics Agency:
DOD: Department of Defense:
TRANSCOM: U.S. Transportation Command:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
July 28, 2011:
Congressional Committees:
One of the most complex and vital tasks facing the Department of
Defense (DOD) is managing its supply chain to effectively and
efficiently provide spare parts, food, fuel, and other critical
supplies in support of U.S. military forces. In short, DOD's goal and
challenge are to deliver the right items to the right place at the
right time, and at the right cost. Supply chain management encompasses
the processes and systems for accomplishing this goal, and many DOD
organizations have important roles and responsibilities, including the
Office of the Secretary of Defense, the military services, Defense
Logistics Agency (DLA), U.S. Transportation Command (TRANSCOM), and
the geographic combatant commands. DOD's investment in its supply
chains is substantial; DOD estimated that overall spending on
logistics, including supply chain management, amounted to more than
$210 billion in fiscal year 2010.
Because of long-standing weaknesses in supply chain management, we
have designated DOD supply chain management as a high-risk area
needing management attention and improvement.[Footnote 1] We
identified three focus areas for improvement--requirements
forecasting, asset visibility, and materiel distribution.
* Requirements forecasting. DOD defines requirements as the need or
demand for personnel, equipment, facilities, other resources, or
services in specified quantities for specific periods of time or at a
specified time. Accurately forecasted supply requirements are a key
first step in efficiently buying, storing, positioning, and shipping
items that the warfighter needs. Matching supply inventories to
requirements has been a continuing challenge for the department. As a
result, the services and DLA have had inventory levels that are higher
than needed to meet current requirements. DOD reported that it manages
more than 4 million secondary inventory items valued at more than $91
billion as of September 2009.[Footnote 2] However, DOD reported that
$10.3 billion (11 percent) of its secondary inventory has been
designated as potential excess and categorized for potential reuse or
disposal. According to DOD, another $15.2 billion (17 percent) of its
secondary inventory exceeds the approved acquisition objective and is
being retained because it was determined to be more economical to
retain than to dispose of it or it might be needed in the future.
[Footnote 3] Our prior reviews of spare parts inventory management at
DLA and the Army, Navy, and Air Force[Footnote 4] found that problems
with accurately forecasting demand for spare parts were a major factor
contributing to mismatches between inventory levels and requirements.
[Footnote 5]
* Asset visibility. DOD describes this focus area 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
that information. Limitations in asset visibility make it difficult to
obtain timely and accurate information on the assets that are present
in the theater of operations. DOD faces asset visibility challenges
due, in part, to a lack of interoperability among information
technology systems, problems with the management of shipping
containers, and challenges in instituting new technologies for
tracking assets.[Footnote 6]
* Materiel distribution. This focus area is the process for
synchronizing all elements of the logistics system to deliver needed
supplies to support the deployed warfighter. DOD has faced difficult
distribution challenges in Afghanistan due to limited cargo-processing
and cargo-receiving capabilities, a lack of full visibility over
supply and equipment movements into and around Afghanistan, and a lack
of coordination and competing logistics priorities in a coalition
environment, along with several other challenges. During operations in
Iraq, DOD faced challenges in coordinating and consolidating
distribution and supply support, such as 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. Such distribution and supply support
challenges impeded the timely delivery of supplies and contributed to
shortages of items critical to the warfighter.[Footnote 7]
Under our criteria for removing a high-risk designation, agencies with
such programs must, among other things, develop and implement detailed
corrective action plans and have an effective approach for managing
performance, which includes a program to monitor and validate the
effectiveness and sustainability of corrective actions and the ability
to demonstrate progress. As we have discussed in prior reports and
testimonies, DOD has taken steps toward addressing supply chain
management weaknesses over the last several years and has made some
progress.[Footnote 8] In 2010, DOD issued its Logistics Strategic
Plan,[Footnote 9] which represents the department's most recent high-
level strategy for continuing to address supply chain management, as
well as other logistics issues.
This report addresses DOD's efforts to improve supply chain management
under its 2010 Logistics Strategic Plan. It was prepared under the
authority of the Comptroller General to conduct evaluations at his own
initiative and is being addressed to the committees of jurisdiction
and to others who have expressed interest in tracking DOD's efforts to
improve supply chain management. Specifically, this report addresses
the extent to which DOD has developed and implemented (1) corrective
action plans that address challenges in the three focus areas we
identified for improvement, (2) an effective program for monitoring
and validating the effectiveness and sustainability of supply chain
management corrective actions, and (3) an ability to demonstrate
supply chain management progress. The Related GAO Products section at
the end of this report provides additional information on our prior
relevant work.
To assess the extent to which DOD has developed and implemented
corrective action plans that address high-risk challenges in the three
focus areas, we identified existing plans for logistics, supply chain
management, and the three focus areas. We assessed the extent to which
such plans provided a comprehensive, integrated strategy for improving
one or more of the focus areas and included the key elements of a
corrective action plan that we have previously identified. We also met
with officials from the Office of the Deputy Assistant Secretary of
Defense for Supply Chain Integration to determine the status of DOD's
planning efforts. To assess the extent to which DOD has an effective
program for monitoring and validating the effectiveness and
sustainability of corrective actions, we reviewed the performance
management framework identified in DOD's 2010 Logistics Strategic
Plan. We reviewed the features of the framework, its implementation
status, and the extent the framework included key elements as
identified, for example, in results-oriented management best
practices. We also met with DOD officials to understand the logistics
governance processes and structure. To assess the extent to which DOD
has an ability to demonstrate supply chain management progress, we
reviewed performance measures discussed in the Logistics Strategic
Plan, as well as any existing or planned performance measures for the
three focus areas. As a basis for evaluating these measures, we
reviewed DOD policy, federal standards, and our prior findings and
recommendations on this issue. We also reviewed ongoing performance
measurement initiatives and met with officials from the Office of the
Secretary of Defense and military services who are involved with those
initiatives. We spoke with DOD officials, including officials from
various agencies and offices, to determine what performance measures
they tracked and monitored. Additional information on our scope and
methodology is provided in appendix I.
We conducted this performance audit from February 2010 to July 2011 in
accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evident to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe
that the evidence obtained provides a reasonable basis for our finding
and conclusions based on our audit objectives.
Background:
DOD defines its logistics mission, including supply chain management,
as supporting the projection and sustainment of a ready, capable force
through globally responsive, operationally precise, and cost-effective
joint logistics support for America's warfighters. Supply chain
management is the operation of a continuous and comprehensive
logistics process, from initial customer order for materiel or
services to the ultimate satisfaction of the customer's requirements.
It is DOD's goal to have an effective and efficient supply chain, and
the department's current improvement efforts are aimed at improving
supply chain processes, synchronizing the supply chain from end to
end, and adopting challenging but achievable standards for each
element of the supply chain.
Many DOD Organizations Have Important Roles and Responsibilities for
Supply Chain Management:
Many organizations within DOD have important roles and
responsibilities for supply chain management, and these
responsibilities are spread across multiple components with separate
funding and management of logistics resources and systems. The Office
of the Under Secretary of Defense for Acquisition, Technology and
Logistics serves as the principal staff assistant and advisor to the
Secretary of Defense for all matters relating to defense logistics,
among other duties. The Secretary of Defense also designated the Under
Secretary of Defense for Acquisition, Technology and Logistics as the
department's Defense Logistics Executive with overall responsibility
for improving and maintaining the defense logistics and supply chain
system. The Assistant Secretary of Defense for Logistics and Materiel
Readiness, under the authority, direction, and control of the Under
Secretary of Defense for Acquisition, Technology and Logistics, serves
as the principal logistics official within the senior management of
the department. Within the Office of the Assistant Secretary for
Logistics and Materiel Readiness, the Deputy Assistant Secretary of
Defense for Supply Chain Integration improves the integration of the
DOD supply chain through policy development and facilitates component
implementation of supply chain management practices, among other
duties.
Each of the military departments is separately organized under its own
Secretary. Subject to the authority, direction, and control of the
Secretary of Defense, the Secretaries of the military departments are
responsible for, among other things, organizing, training, and
equipping their forces. Additionally, according to a DOD directive,
each military department Secretary is responsible for preparing and
submitting budgets for their respective department, justifying
approved budget requests[Footnote 10] before Congress, and
administering the funds made available for maintaining, equipping, and
training their forces.[Footnote 11] Another important organization in
supply chain management is DLA, which purchases and provides nearly
all of the consumable items[Footnote 12] needed by the military,
including a majority of the spare parts needed to maintain weapon
systems and other equipment.
During joint military operations, J-4 is the principal joint staff
organization responsible for integrating logistics planning and
execution in support of joint operations. In carrying out this
responsibility, the J-4 relies on various DOD components, including
the military services, DLA, and TRANSCOM, to provide the logistics
resources and systems needed to support U.S. forces. Specifically,
DOD's doctrine governing logistics in joint operations states that DLA
and the military services share responsibilities as the suppliers of
equipment and supplies to the joint force needed for sustained
logistic readiness.[Footnote 13] It further states that as the
suppliers, they are responsible for delivering the right forces and
materiel, at the right place and time, to give the components of the
joint force what they require, when they need it. TRANSCOM, in
addition to its responsibilities for transporting equipment and
supplies in support of military operations, is designated as the
distribution process owner for DOD. The role of the distribution
process owner is to, among other things, oversee the overall
effectiveness, efficiency, and alignment of departmentwide
distribution activities, including force projection, sustainment, and
redeployment/retrograde operations.
DOD also has two senior-level governance bodies for logistics and
supply chain management--the Joint Logistics Board and the Supply
Chain Executive Steering Committee. The Joint Logistics Board reviews
the status of the logistics portfolio and the effectiveness of the
defensewide logistics chain in providing support to the warfighter.
The Joint Logistics Board is co-chaired by the Assistant Secretary of
Defense for Logistics and Materiel Readiness and the Joint Staff
Director of Logistics, and has senior-level participants from the
military services, combatant commands, and DLA.[Footnote 14] DOD
officials stated that the Supply Chain Executive Steering Committee is
another important executive-level governance body for oversight of
improvement efforts. The Executive Steering Committee is chaired by
the Deputy Assistant Secretary of Defense for Supply Chain Integration
and has participants from many of the same DOD organizations as the
Joint Logistics Board.
The department's Chief Management Officer (CMO) and Deputy CMO are
senior-level officials with broad oversight responsibilities across
defense business operations, which include supply chain
management.[Footnote 15] They have responsibilities related to the
improvement of the efficiency and effectiveness of these business
operations. For example, they oversee the development and
implementation of DOD's Strategic Management Plan, which includes
supply chain management and other business operations areas such as
business system modernization and financial management.
GAO Has Designated DOD Supply Chain Management as a High-Risk Area:
DOD maintains military forces with unparalleled combat and support
capabilities; however, it also continues to confront long-standing
management problems related to its business operations that support
these forces. These business operations include--in addition to supply
chain management--financial management, business system modernization,
and overall defense business transformation, among others. We have
identified DOD supply chain management as a high-risk area due to
weaknesses both in the management of supply inventories and
responsiveness to warfighter requirements.[Footnote 16] Inventory
management problems have included (1) high levels of inventory beyond
that needed to support current requirements and future demands and (2)
ineffective and inefficient inventory management practices. In
addition, we have reported on shortages of critical items and other
supply support problems during the early operations in Iraq, as well
as on the numerous logistics challenges that DOD faces in supporting
forces in Afghanistan.[Footnote 17]
We initiated our high-risk list and biennial updates to focus
attention on government operations that we identified as being at high
risk due to their greater vulnerabilities to fraud, waste, abuse, and
mismanagement, as well as areas that have a need for broad-based
transformations to address major economic, efficiency, or
effectiveness challenges. The high-risk list serves to identify
serious weaknesses in areas involving substantial resources and
provide critical services to the public. Solutions to high-risk
problems offer the potential to save billions of dollars, improve
service to the public, and strengthen the performance and
accountability of the U.S. government.
Removal of a high-risk designation may be considered when legislative
and agency actions result in significant and sustainable progress
toward resolving a high-risk problem. Over time, we have removed the
high-risk designations of 21 programs or operations.[Footnote 18] When
we review an agency's actions taken to address high-risk challenges,
we assess the actions against five criteria: (1) a demonstrated strong
commitment to and top leadership support for addressing problems, (2)
the capacity to address problems, (3) a corrective action plan that
provides for substantially completing corrective measures in the near
term, (4) a program to monitor and independently validate the
effectiveness and sustainability of corrective measures, and (5)
demonstrated progress in implementing corrective measures.[Footnote
19] With respect to supply chain management, we found in our most
recent update of the high-risk series that DOD generally met the first
two criteria. That is, DOD demonstrated top leadership support for
addressing its supply chain management weaknesses, and it has the
people and resources necessary to do so. We found that DOD partially
met the other three criteria.[Footnote 20]
Prior and Current Strategic Planning for DOD Supply Chain Management:
On the basis of our prior work, we have recommended that DOD develop
an integrated, comprehensive plan for improving logistics, to include
supply chain management.[Footnote 21] Our prior work has shown that
strategic planning is the foundation for defining what an agency seeks
to accomplish, identifying the strategies it will use to achieve
desired results, determining how well it succeeds in reaching results-
oriented goals, and achieving objectives. Combined with effective
leadership, strategic planning provides decision makers with a
framework to guide program efforts and the means to determine if these
efforts are achieving the desired results. Characteristics of an
effective strategic plan should include a comprehensive mission
statement; problem definition, scope, and methodology; goals and
objectives; activities, milestones, and performance measures;
resources and investments; organizational roles, responsibilities, and
coordination; and key external factors that could affect the
achievement of goals.[Footnote 22]
Over the last several years, DOD has issued a series of strategic
planning documents for logistics and supply chain management. For
example, DOD issued the first iteration of its Supply Chain Management
Improvement Plan in 2005 to address some of the systemic weaknesses
highlighted in our reports. DOD subsequently updated that plan on a
periodic basis. Also in 2005, DOD produced its Focused Logistics
Roadmap, which catalogued current efforts and initiatives. In 2008,
DOD released its Logistics Roadmap with the intent of providing a more
coherent and authoritative framework for logistics improvement
efforts, including supply chain management. While these plans have
differed in scope and focus, they have typically included a number of
high-level goals and related initiatives addressing aspects of supply
chain management.
These prior plans represented positive steps toward resolving
weaknesses in supply chain management. However, our reviews of the
plans found that they fell short of providing an integrated,
comprehensive strategy for improving logistics, including supply chain
management.[Footnote 23] The plans, for example, had some deficiencies
that reduced their usefulness for guiding and overseeing improvements.
Among other things, the plans did not identify the scope of logistics
problems or the capability gaps they sought to address, provide a
basis for determining funding priorities among various initiatives, or
clearly link to logistics decision-making processes.
Most recently, DOD issued its 2010 Logistics Strategic Plan and
indicated a commitment to update this plan annually. The plan, which
supersedes the prior plans issued by the department, identifies four
overarching logistics goals, including one goal that specifically
addresses supply chain management.[Footnote 24] We testified on this
plan in July 2010 and identified some of the same deficiencies found
in previous plans.[Footnote 25]
DOD Has Developed and Is Implementing a Corrective Action Plan for One
of Three High-Risk Focus Areas Needing Improvement:
DOD Has a Corrective Action Plan for Inventory Management That
Addresses the Requirements Forecasting Focus Area:
DOD has developed and begun to implement a corrective action plan for
requirements forecasting, one of the three major focus areas we
identified as needing improvement in supply chain management.
Specifically, DOD's Comprehensive Inventory Management Improvement
Plan, issued in October 2010 in response to a statutory mandate,
[Footnote 26] includes developing more accurate demand forecasting as
a key improvement effort for the department. On the basis of our
analysis, we believe this document can serve as a corrective action
plan for the requirements forecasting focus area.[Footnote 27]
Corrective action plans are critical to resolving weaknesses in high-
risk areas. Such plans should (1) define root causes of problems, (2)
identify effective solutions, and (3) provide for substantially
completing corrective measures in the near-term, including steps
necessary to implement solutions.[Footnote 28]
DOD's inventory management improvement plan is aimed at reducing
excess inventory and contains nine individual sub-plans that address a
range of inventory management problems.[Footnote 29] One sub-plan
focuses on improving demand forecasting accuracy and the setting of
inventory levels across the department. We have previously reported
that the mismatch between inventory levels and requirements is due
largely to inaccurate demand forecasts,[Footnote 30] and DOD
acknowledged in its 2010 Logistics Strategic Plan that inaccurate
requirements forecasting continues to be a weakness within its supply
chain. The Comprehensive Inventory Management Improvement Plan
addresses all three of the general elements of a corrective action
plan (see table 1). The plan defines the root causes of problems in
demand forecasting, identifies solutions to improve its demand
forecasting processes and procedures, and provides steps to achieve
these solutions.
Table 1: Extent to Which DOD's Comprehensive Inventory Management
Improvement Plan Addresses the Elements of a Corrective Action Plan to
Resolve High-Risk Challenges within the Requirements Forecasting Focus
Area:
Element: Defines root causes for challenges;
Extent to which plan addresses element: Addresses: The plan identifies
problems and describes current practices for inventory management
overall and specifically for key issues of requirements forecasting,
such as demand forecasting. The plan details the amount of inventory
excesses.
Element: Identifies effective solutions;
Extent to which plan addresses element: Addresses: The plan identifies
desired outcomes for each aspect of inventory management addressed by
the plan. Specifically for requirements forecasting, the plan includes
five actions, or solutions, to improve the prediction of future demand
so that inventory requirements more accurately reflect actual needs.
Element: Provides steps to implement solutions;
Extent to which plan addresses element: Addresses: The plan identifies
actions for near-term implementation for each aspect of inventory
management addressed by the plan. Specifically for requirements
forecasting, the plan identifies five departmentwide actions to
improve demand forecasting with targeted dates for completion through
2013. Each action is comprised of subordinate key milestones, and the
plan identifies an office(s) with primary responsibility and targeted
date for completion for each key milestone.
Source: GAO analysis of plan.
[End of table]
As we noted earlier, effective strategic planning guides program
improvement efforts and provides the means to determine if these
efforts are achieving the desired results. Characteristics of
effective strategic planning include a comprehensive mission
statement; problem definition, scope, and methodology; goals and
objectives; activities, milestones, and performance measures;
resources and investments; organizational roles, responsibilities, and
coordination; and key external factors that could affect the
achievement of goals. We reported in January 2011 that DOD's
Comprehensive Inventory Management Improvement Plan addresses or
partially addresses all of these characteristics and that it
represents an important step for DOD in its efforts to improve its
inventory management practices.[Footnote 31] Further, the plan
contains an appendix that details how other DOD strategies, plans, or
efforts relate to its various sub-plans. Additionally, it describes
the process that will be used to implement the plan and monitor
progress against performance targets. While this inventory management
improvement plan contains both the elements of a corrective action
plan and characteristics of effective strategic planning, effective
implementation will be critical for achieving expected outcomes.
Implementation will be challenged by several issues, such as
aggressive time lines and benchmarks and implementation of certain
automated business systems.
DOD Does Not Have Detailed Corrective Action Plans for the Asset
Visibility and Materiel Distribution Focus Areas:
DOD has not developed corrective action plans for two other supply
chain management focus areas: asset visibility and materiel
distribution. DOD has plans that address aspects of these two focus
areas,[Footnote 32] but officials could not identify plans for either
area that address key problems and solutions in a comprehensive,
integrated manner. Challenges within these two focus areas are often
interrelated and result in impacts on warfighter support. For example,
difficulties or inaccuracies in the visibility over assets can cause
delays in the distribution of supplies to the warfighter. Until the
department develops and implements corrective action plans for these
remaining two focus areas, DOD may have difficulty resolving long-
standing weaknesses in supply chain management.
Recent reviews and audits have pointed to continuing problems with
asset visibility and materiel distribution that have affected supply
support to the warfighter. In a recent internal DOD review of joint
supply issues in theater, the department acknowledged it had
insufficient visibility of assets in theater, which can result in
potential inventory sources being overlooked due to lack of visibility
or service ownership,[Footnote 33] as well as limited visibility of
assets while in-transit. In addition, a December 2010 Army Audit
Agency report found that despite having policies and procedures in
place for identifying, inspecting, and repairing containers, personnel
in Iraq sometimes did not comply with the policies and failed to
correctly inspect the condition of containers or update this
information in computer systems.[Footnote 34] As a result, the Army
did not have an accurate accounting of containers that were in good
condition for supporting the ongoing drawdown in Iraq and meeting time
frames for that withdrawal. In a prior review of supply support in
Afghanistan, we reported that DOD has been challenged by several
materiel distribution issues, such as the transportation of cargo
through neighboring countries and around Afghanistan, limited airfield
infrastructure, limited storage capacity at logistics hubs, and
difficulties in synchronizing the arrival of units and equipment. DOD
had undertaken some efforts to mitigate these challenges, such as the
expanding cargo areas at some distribution hubs. Later this year we
will report on the extent to which DOD continues to experience
challenges with asset visibility and materiel distribution in
Afghanistan.
The 2010 Logistics Strategic Plan indicates that improving asset
visibility and materiel distribution remain priorities for the
department; however, the plan does not, by itself, constitute a
corrective action plan to resolve supply chain management weaknesses
because it lacks detailed information needed to guide and oversee
improvement efforts.[Footnote 35] Regarding asset visibility, the
Logistics Strategic Plan indicates that two priorities for the
department are implementing a global container management policy and
implementing radio frequency identification.[Footnote 36] Similarly,
the Logistics Strategic Plan includes improvement initiatives for
materiel distribution. However, the plan does not discuss the root
causes for either asset visibility or materiel distribution
weaknesses, identify the extent to which the weaknesses are present,
detail steps for implementing improvement initiatives and thus
achieving solutions, or contain information (such as milestones,
performance information, benchmarks, and targets) necessary to gauge
the department's progress in implementing these initiatives and
achieving outcomes.
DOD has not developed corrective actions plans for asset visibility
and materiel distribution because senior-level officials considered
prior strategic plans and initiatives sufficient to address high-risk
challenges in these areas. However, there is some indication that DOD
may place more emphasis on developing more comprehensive, integrated
plans in the future. In our review of DOD's Comprehensive Inventory
Management Plan, we noted that officials from the Office of the
Secretary of Defense and DOD components provided considerable
management focus and coordination across stakeholder organizations to
develop that plan. In addition, during the course of our current
review, a senior DOD logistics official stated that the department
began an effort in January 2011 to more comprehensively review the
current state of asset visibility and to develop a plan to guide
future improvements in this focus area. This official expects that the
asset visibility plan would be developed with the same collaborative
approach as was used in the development of the inventory management
plan and that the two plans would be similar in their degree of
detail. Further, the senior official stated that there were ongoing
initiatives in the department that could provide the foundation for a
similar plan for addressing weaknesses in materiel distribution, but
that such an effort had progressed less than the one for asset
visibility in terms of developing a plan for guiding improvements.
Recent actions by the Secretary of Defense indicate that the
department intends to take additional steps aimed at achieving cost
efficiencies in these two focus areas. In a March 14, 2010 memorandum,
the Secretary outlined the steps that DOD plans to take to reduce
inefficiencies and eliminate duplication with respect to in-transit
asset visibility. The memorandum required TRANSCOM to prepare an
implementation plan for approval by the Chairman of the Joint Chiefs
of Staff that, among other things, would designate TRANSCOM as the
department's lead for improving in-transit asset visibility by
synchronizing ongoing improvement initiatives and eliminating
duplication and nonstandard practices among DOD components. The same
memorandum indicated TRANSCOM should also prepare an implementation
plan that, if approved, would require the military services to
coordinate more closely with distribution partners on decisions
regarding distribution. Specifically, the memorandum noted that the
implementation plan would require the services to use the distribution
process owner governance structure to coordinate decisions that impact
distribution and deployment capabilities.
DOD Has Outlined a Framework for Guiding and Overseeing Improvement
Efforts but Has Not Provided Implementation Plans:
DOD Has Outlined a Performance Management Framework for Guiding and
Overseeing Improvement Efforts:
In its 2010 Logistics Strategic Plan, DOD outlined a performance
management framework to provide guidance and oversight of logistics
improvement efforts, including supply chain improvement efforts. The
plan states that the framework will be used to measure, track, and
report progress in its improvement efforts. Our prior work has shown
that in order for agencies to address high-risk challenges, they need
to institute a program to monitor and validate the effectiveness and
sustainability of corrective actions.
DOD's framework consists of a six-step process (see table 2) and
offers a new management tool that may enable DOD to manage performance
in supply chain management. For example, the framework refers to
developing measures and targets that are tied to goals and
initiatives, and it calls for an ongoing assessment and feedback
process that could help to ensure that improvement efforts are
effective and staying on track. Furthermore, the first step of the
framework is consistent with the development of corrective action
plans for high-risk areas, as discussed in the previous section of
this report. In addition, the framework replicates the performance
management framework described in the department's overarching
Strategic Management Plan for business operations.[Footnote 37] DOD
senior officials within the Supply Chain Integration Office expect the
confluence between the two plans to have a positive, behavior-shaping
influence on DOD organizations.
Table 2: Six-Step Performance Management Framework in DOD's 2010
Logistics Strategic Plan:
Step: 1. Plan;
Associated actions: Develop a set of integrated goals, measures and
targets, and key initiatives that address performance issues of
importance to all targets. Key initiatives are selected based on their
probability of overcoming significant management challenges, ability
to drive needed change, or importance to improving support to
combatant commanders.
Step: 2. Set targets;
Associated actions: Establish performance targets through a
collaborative process for each measure to define what the department
expects to achieve. They will be tracked and assessed routinely
throughout the year of execution.
Step: 3. Cascade measures;
Associated actions: Review respective organizational strategic plans,
goals, measures, and targets by each DOD component after updates of
the Logistics Strategic Plan to revise them as needed to reflect the
broader priorities set forth in the Logistics Strategic Plan and
Strategic Management Plan.
Step: 4. Align processes;
Associated actions: Realign operations or organizational structures as
necessary to better integrate functional activities with larger,
defensewide end-to-end processes based on cascaded goals, measures,
and targets.
Step: 5. Assess and report;
Associated actions: Assess the Logistics Strategic Plan through a
collaborative and continuous assessment and feedback process overseen
by the Assistant Secretary of Defense for Logistics and Materiel
Readiness, and document results in a DOD Logistics Strategic
Management Report.
Step: 6. Correct;
Associated actions: Identify and implement corrective actions by
accountable individuals when flat or negative trends appear.
Source: DOD's 2010 Logistics Strategic Plan.
[End of table]
Although DOD outlined a performance management framework for
logistics, it has not instituted this framework across the logistics
enterprise. We did not find evidence during our review that DOD was
using its logistics framework yet to guide and oversee improvement
efforts.
DOD Has Not Included Key Elements for Instituting Its Performance
Management Framework:
The department has not instituted the framework because key elements
have not been fully defined and developed. Specifically, DOD has not
(1) developed and issued implementation guidance; (2) carried out a
strategy for communicating information about supply chain improvement
efforts, performance, and progress; or (3) clearly defined the roles
and responsibilities of senior-level logistics governance bodies and
chief management officials. We have found some of these same
weaknesses with DOD's overarching performance management framework
identified in the Strategic Management Plan for business operations.
[Footnote 38] Until these elements are fully defined and developed,
DOD may not be in a position to effectively use this new management
tool to monitor and validate the effectiveness and sustainability of
corrective actions.
DOD Has Not Issued Implementation Guidance:
Other than the general outline of the performance management framework
provided in the 2010 Logistics Strategic Plan, DOD has not developed
and issued detailed implementation guidance to affected stakeholders.
DOD and its components commonly issue directives, instructions,
regulations, and other guidance to direct the implementation of new
policies and programs. DOD officials from the Office of Supply Chain
Integration stated that guidance on the performance management
framework will be issued as necessary based on the results of initial
assessments. However, no guidance has been issued to date, and
procedures do not exist for implementing each of the six steps in the
framework. For example, no guidance exists on the process by which
stakeholders will reach consensus on setting performance targets,
aligning efforts, and assessing and reporting results. The Logistics
Strategic Plan states that strategic planning is a collaborative
effort among the Office of the Secretary of Defense, DOD components,
and other stakeholders. However, the plan does not provide detail
describing how or when this collaboration will occur.
Questions about how DOD intended to implement the Logistics Strategic
Plan were raised during a July 2010 congressional hearing.[Footnote
39] In questions for the record submitted to DOD, a senior logistics
official was asked to explain how the department intends to translate
the general discussion in the Logistics Strategic Plan into specific
guidance for the service and agency components.[Footnote 40] The
official responded that the components' strategic plans will align to
departmentwide priorities, and top-level policy changes will cascade
into component-level processes. However, the response did not discuss
how or when that process will occur.
DOD Has Not Carried Out a Strategy for Communicating Implementation
Plans and Results:
Reporting on performance and progress is identified as a step within
the performance management framework; however, DOD has not carried out
a strategy for communicating its implementation plans and results of
its supply chain improvement efforts. For example, DOD does not have a
communications strategy in place to inform internal and external
stakeholders of current efforts, progress made, remaining problems,
and next steps needed for further progress. Our prior work has shown
that a communication strategy that creates shared expectations and
reports progress is important for results-oriented management and
transformation.
According to the 2010 Logistics Strategic Plan, DOD will develop a
management report to document the department's assessments of
implementation of its general plan. However, a management report has
not yet been issued, and it is unclear what types of information DOD
intends to include in this management report or how information in the
report will be used by decision makers as part of the performance
management framework. In addition, DOD officials stated that the
management report would be used informally among internal stakeholders
and that they did not plan on sharing the performance report with
external stakeholders such as Congress.
DOD Has Not Defined Key Roles and Responsibilities:
DOD has not clearly defined the supply chain management improvement-
related roles and responsibilities of senior-level logistics
governance bodies, CMO, and Deputy CMO in the performance management
framework for logistics. Our prior work on results-oriented management
and organizational transformation cites the importance of establishing
clearly defined roles and responsibilities, and we previously
testified that it was unclear how the 2010 Logistics Strategic Plan
will be used within the existing decision-making and governance
structure for logistics to assist decision makers and influence
resource decisions and priorities.
The Logistics Strategic Plan calls for senior-level logistics
governance bodies, including the Joint Logistics Board and Supply
Chain Executive Steering Committee, to oversee implementation of
improvements under the new performance management framework. However,
the exact roles and responsibilities of these bodies are not defined
in the plan. DOD issued a charter for the Joint Logistics Board in
2010 that broadly defines the roles and responsibilities of the board,
and a draft charter exists for the Supply Chain Executive Steering
Committee. However, neither charter specifically defines or describes
the participation of those bodies in the performance management
framework for logistics. For example, the charters do not clarify how
the governance bodies will provide oversight of the key initiatives in
the Logistics Strategic Plan. Moreover, it is not clear how the bodies
will play a role in implementing individual steps in the framework
such as setting targets and monitoring performance against those
targets. Both bodies appear to provide oversight primarily by periodic
briefings, as opposed to systematic monitoring of performance measures
and improvement initiatives. For example, we found that the Joint
Logistics Board provides some oversight of issues such as the
development of a new joint supply support concept, ongoing and new
joint logistics initiatives, and activities of joint groups and
commands. The Supply Chain Executive Steering Committee maintains
visibility over issues such as the development of performance metrics
and some supply chain management initiatives. Although both bodies
have met regularly, our review of records from these meetings indicate
that neither body has exercised comprehensive and systematic oversight
across all key improvement initiatives for supply chain management.
Specifically, our review of the Joint Logistics Board's 2010 meeting
minutes showed that the board discussed and received status briefings
on 4 of the 12 supply chain improvement initiatives identified as key
priorities in the 2010 Logistics Strategic Plan. Similarly, the
agendas of the Supply Chain Executive Steering Committee highlight
that the committee received status briefing on 3 key supply chain
improvement initiatives.
The CMO and Deputy CMO are in a unique position to coordinate
improvement efforts across various business operations, ensure that
business-related plans are aligned, and monitor progress in
implementing these plans, but their roles and responsibilities as they
specifically relate to participation in the performance management
framework for logistics have not been clearly defined. DOD officials
have stated that logistics governance bodies are to oversee
improvement efforts within the logistics enterprise, but DOD
Directives provide that the CMO and Deputy CMO also have
responsibilities related to the improvement of the efficiency and
effectiveness of the department's business operations.[Footnote 41]
However, it is unclear what roles and responsibilities the CMO and
Deputy CMO should have as part of the performance management framework
for logistics in ensuring that key logistics or supply chain
management initiatives that are deemed priorities for the department
realize their intended effectiveness and efficiency improvements. We
have previously reported that additional opportunities exist for the
CMO, assisted by the Deputy CMO, to provide the leadership needed to
achieve business-related goals, including supply chain management
goals.[Footnote 42] For example, the Deputy CMO stated that she was
not involved in developing or reviewing the Comprehensive Inventory
Management Improvement Plan. Although she did review the Logistics
Strategic Plan, this plan lacked clear performance measurement
information and other detailed information, as noted earlier in this
report. Moreover, successful resolution of weaknesses in supply chain
management depends on improvements in some of DOD's other business
operations, such as business systems modernization and financial
management. We have previously recommended that DOD more clearly
define how the CMO, Deputy CMO, and the military departments will
reach consensus on business priorities, coordinate review and approval
of updates to plans, synchronize the development of plans with the
budget process, monitor implementation of reform initiatives, and
report on progress, on a periodic basis, towards achieving established
goals.
DOD Continues to Have Gaps in Its Ability to Measure Performance in
Supply Chain Management:
Effective Performance Measures Are Important for Demonstrating
Progress in Programs and Activities:
Federal government standards and best practices highlight the
importance of tracking and demonstrating progress in programs and
activities through the development and implementation of performance
measures. Among other things, those standards indicate the importance
of establishing and monitoring performance measures to improve program
effectiveness and accountability for results.[Footnote 43]
Incorporating outcome-based performance measures is also a best
practice for effective strategic planning, and performance measures
enable an agency to assess accomplishments, strike a balance among
competing priorities, and make decisions to improve program
performance, realign processes, and assign accountability.[Footnote
44] Further, our prior work has shown that in order to fully address
high-risk challenges, agencies must be able to demonstrate progress
achieved through corrective actions, which is possible through the
reporting of performance measures.[Footnote 45] Characteristics of
effective performance measures include having baseline or trend data
for performance assessments, setting measurable targets for future
performance, and establishing time frames for the achievement of goals.
DOD logistics plans and policies also acknowledge an important role
for performance measures. The 2010 Logistics Strategic Plan emphasizes
performance management, and the need for performance measures is
embedded in the performance management framework that is outlined in
the plan. In addition, DOD's supply chain regulation requires that
components use metrics to evaluate the performance and cost of their
supply chain operations; lay out requirements for those metrics; and
direct that metrics address the enterprise, functional, and program or
process level of supply chain operations.[Footnote 46] The regulation
also directs DOD components to develop data collection capabilities
that support supply chain metrics.
With respect to DOD's prior logistics strategic planning efforts that
have covered supply chain management and other areas, such as the
Logistics Roadmap, we have recommended that the Under Secretary of
Defense for Acquisition, Technology and Logistics develop, implement,
and monitor outcome-oriented performance measures to assess progress
toward achieving the objectives and goals identified in these plans.
[Footnote 47] We have also recommended that DOD develop and implement
outcome-oriented performance measures that address each of the three
focus areas for supply chain improvement.[Footnote 48] DOD agreed with
these recommendations, but performance measurement has continued to
challenge DOD's supply chain management, as discussed below.
Developing Enterprisewide Performance Measures for Supply Chain
Management Has Challenged DOD:
DOD and its components track many aspects of supply chain performance,
but DOD does not have performance measures that assess the overall
effectiveness and efficiency of the supply chain across the
enterprise. DOD components individually track aspects of their own
operations using certain performance measures. For example, TRANSCOM
uses logistics response time to measure the time that passes between
submission of a requisition for an item and the delivery of the item
to the supply support activity. DLA uses a perfect order fulfillment
metric to measure how well the end-to-end supply chain delivers the
right part to the customer on time, in the correct quantity, and with
no material deficiencies. The department consistently tracks one
enterprisewide supply chain metric, customer wait time.[Footnote 49]
DOD logistics officials stated that as of December 2010, they
increased the amount of performance information they regularly submit
to the Deputy CMO for inclusion in the department's performance
budget. These measures include customer wait time by military service,
perfect order fulfillment for DLA, and two measures related to
inventory management. However, our prior work has found, and DOD has
acknowledged, that additional measures are needed.
In an effort to develop enterprisewide performance measures, DOD began
an initiative in 2007 called the Joint Supply Chain Architecture to
identify a hierarchy of performance measures to track overall
effectiveness and efficiency of the supply chain and to identify areas
for improvement based on industry standards. Led by the Deputy
Assistant Secretary of Defense for Supply Chain Integration and the
Director of the Joint Chiefs of Staff Logistics Directorate, the Joint
Supply Chain Architecture effort is identified in the 2010 Logistics
Strategic Plan as a key initiative intended to promote process
standardization, facilitate process integration, and define the
enterprise framework. The Joint Supply Chain Architecture is based on
the Supply Chain Operations Reference model, a process model that is a
long-established best practice for commercial supply chains and that
provides a method to evaluate and improve supply chains. We found DOD
has made progress with the initiative. The progress includes
clarifying some common concepts across the various DOD supply chains
and organizations. For instance, it details the types of performance
information that will feed into higher-level measures and identifies
three possible enterprisewide measures--customer wait time, perfect
order fulfillment, and total supply chain management cost. The
measures focus on speed, reliability, and efficiency of the supply
chain, respectively.
Two of these three measures, customer wait time and perfect order
fulfillment, are not new and predate the Joint Supply Chain
Architecture. DOD directed the implementation of the customer wait
time metric as early as 2000 in a DOD instruction.[Footnote 50]
Perfect order fulfillment is used by DLA, as noted above, but it is
not used by any other DOD components or at the enterprisewide level. A
total supply chain management cost metric is far from completion, and
various officials stated that the meaningfulness of this measure is
uncertain. Time lines for completion of a total supply chain
management cost metric or an enterprisewide perfect order fulfillment
metric have not been established. DOD officials stated that the
current focus of the Joint Supply Chain Architecture effort was to
identify and validate the many data sources from across the supply
chain needed to support the development of enterprisewide metrics.
DOD Used a Collaborative Process to Identify Performance Measures for
the Requirements Forecasting Focus Area:
In developing the Comprehensive Inventory Management Improvement Plan,
DOD made considerable progress in identifying departmentwide
performance measures, including measures within the requirement
forecasting focus area, by using a collaborative process involving
stakeholders representing key DOD components. As part of its plan, DOD
established a metrics working group responsible for developing needed
measures that do not exist and set time frames for their use. The plan
identifies two to-be-developed metrics necessary to increase demand
accuracy and reduce the percentage of over-forecasting bias. The two
are to be developed by the end of fiscal year 2012.
A similar collaborative process for defining performance measurement
for asset visibility and materiel distribution has not yet occurred.
For example, implementation of radio frequency identification
technology has been identified as a priority for the department in
various strategic planning documents. However, DOD has not established
performance measures to assess the impact of its implementation,
despite the significant initial investment of resources required to
use the technology. When asked to detail the progress made in passive
radio frequency identification[Footnote 51] implementation in a recent
congressional hearing on supply chain management, the response of the
Principal Deputy Assistant Secretary of Defense for Logistics and
Materiel Readiness included two examples of improvements, such as a
reduction in time to perform inventory at Tinker Air Force Base.
However, DOD has not developed comprehensive, enterprisewide measures
of implementation or results achieved.
Data quality and a shared approach to performance measurement across
organizations present challenges to DOD's efforts to establish
enterprisewide performance measures for all three focus areas of
supply chain management. Ongoing efforts to modernize or replace DOD
business information systems, including systems supporting supply
chain management, are intended to improve data quality and data
sharing within DOD components. However, we have found that data-
quality problems persist, and these systems are not designed to
routinely share data across organization boundaries, such as among
military departments. Further, DOD's information system modernization
efforts have experienced significant delays and cost increases while
projected benefits have not yet been achieved.[Footnote 52] Our recent
review of DOD's Comprehensive Inventory Management Improvement Plan
revealed concerns about data reliability and availability that could
affect the department's efforts in implementing the plan, including
delays in implementing business system modernization. The department
is further challenged because it does not have a common approach to
developing and implementing performance measures that include common
definitions, data sources, and agreement regarding how to measure
attributes of the supply chain across the enterprise. For example, we
found that it could be difficult for the services and DLA to measure
demand forecasting as they all differ in their current approach. These
factors have likewise been a challenge for the Joint Supply Chain
Architecture initiative. For example, one weapons system official
explained that customer wait time may be ambiguous because it can be
calculated differently and with different definitions. Until DOD
overcomes such challenges and establishes enterprisewide performance
measures for assessing supply chain performance in the three focus
areas for improvement identified in our high-risk series, the
department may have difficulty in demonstrating progress resulting
from its corrective actions.
Conclusions:
DOD has demonstrated two key ingredients for making further
improvements in supply chain management--namely, top leadership
support and access to the necessary people and resources.
Additionally, DOD through its new inventory management improvement
plan has taken an important step toward improving requirements
forecasting, one of the three focus areas where we have documented
supply chain management weaknesses. Although implementation challenges
remain to be addressed, the plan provides a path forward to improve
DOD's inventory management practices. The lack of corrective action
plans for asset visibility and materiel distribution results in
additional uncertainties regarding how promptly, effectively, and
efficiently DOD will be able to address its systemic problems in
supply chain management.
The new performance management framework outlined in the 2010
Logistics Strategic Plan could be an effective management tool if it
is instituted across the logistics enterprise. However, DOD has not
taken action to provide implementation guidance, an effective
communications strategy that provides transparency and accountability
for improvement efforts, or well-defined and documented roles and
responsibilities of key governance bodies and certain senior positions
within its performance management framework for logistics. The
participation of the Joint Logistics Board and the Supply Chain
Executive Steering Committee in the framework and how these two bodies
will provide effective oversight to all key initiatives for supply
chain management is unclear. Further, the roles and responsibilities
of the department's CMO and Deputy CMO, as they relate to the
performance management framework for logistics and existing logistics
governance bodies, are similarly unclear. Moreover, the department has
not defined how the CMO and Deputy CMO will ensure alignment of supply
chain management improvement plans and performance management with
plans and performance management of other defense business operations.
Without these additional actions, DOD may not be able to fully
implement the framework and use it effectively as a tool for managing
performance.
Performance information is critical for developing and implementing
both effective corrective action plans and the performance management
framework, and DOD has demonstrated an ability to plan for developing
and enhancing performance measurement in the inventory management
area. Developing meaningful, appropriate enterprisewide measures is a
difficult task, especially for an organization the size and scope of
DOD. Continued progress in defining needed performance measures for
the requirement forecasting focus area, combined with the
identification, development, and implementation of performance
measures in the asset visibility and materiel distribution focus areas
could highlight progress and needed management focus in order to
address problems in those areas that span the supply chain enterprise.
In the absence of effective performance measures, DOD cannot be
assured that corrective actions are achieving intended results.
Further, without these measures, it will be difficult for DOD to
demonstrate progress to external stakeholders, such as Congress, and
show that resources are invested efficiently.
Recommendations for Executive Action:
We recommend the Secretary of Defense take the following six actions
to improve DOD's supply chain management and address challenges in
this high-risk area.
To address remaining challenges in asset visibility and materiel
distribution, we recommend that the Secretary of Defense direct the
Under Secretary for Defense for Acquisition, Technology and Logistics
to develop and implement corrective action plans for improving these
focus areas. As these two areas are closely interrelated, DOD may wish
to consider creating a single comprehensive, integrated plan that
addressed both focus areas for improvement. The corrective action plan
or plans should (1) identify the scope and root causes of capability
gaps and other problems, effective solutions, and actions to be taken
to implement the solutions; (2) include the characteristics of
effective strategic planning, including a mission statement; goals and
related strategies (for example, objectives and activities);
performance measures and associated milestones, benchmarks, and
targets for improvement; resources and investments required for
implementation; key external factors that could affect the achievement
of goals; and the involvement of all key stakeholders in a
collaborative process to develop and implement the plan; and (3)
document how the department will integrate these plans with its other
decision-making processes; delineate organizational roles and
responsibilities; and support departmentwide priorities identified in
higher-level strategic guidance (such as the Strategic Management Plan
and Logistics Strategic Plan).
To institute the performance management framework for guiding and
overseeing supply chain management and other logistics improvement
efforts, we recommend that the Secretary of Defense direct the Under
Secretary of Defense for Acquisition, Technology and Logistics to take
the following three actions:
* Develop and issue detailed guidance to affected stakeholders
involved in implementing the performance management framework for
logistics.
* Develop and implement a communications strategy for documenting and
reporting on the results of supply chain management improvement
efforts. The strategy should be linked with corrective actions plans,
contain performance measurement information, and inform both internal
and external stakeholders, including Congress.
* Revise the existing charter of the Joint Logistics Board and the
draft charter of the Supply Chain Executive Steering Committee to
define and describe how the governance bodies will participate in the
performance management framework for logistics.
We also recommend that the Secretary of Defense clearly define the
CMO's and Deputy CMO's roles and responsibilities as they specifically
relate to (1) the performance management framework for logistics,
including the establishment of corrective action plans and related
performance measures; (2) existing governance bodies for logistics;
and (3) the alignment of supply chain management improvement plans and
performance management with those of DOD's other business operations
areas.
We recommend that the Secretary of Defense direct the Under Secretary
of Defense for Acquisition, Technology and Logistics to use a
collaborative process, involving all key stakeholders, to identify,
develop, and implement enterprisewide performance measures needed to
demonstrate progress in the focus areas of asset visibility and
materiel distribution. These measures should be incorporated into
corrective action plans and the performance management framework.
Agency Comments and Our Evaluation:
In written comments on a draft of this report, DOD stated that it
concurred with the overall intent of the report and specifically
concurred or partially concurred with two of our six recommendations.
However, the department did not concur with four of our
recommendations. The Principal Deputy Assistant Secretary of Defense
for Logistics and Materiel Readiness stated that DOD did not concur
with three of our recommendations based on its ongoing major
initiatives and did not concur with one recommendation that the
department stated was addressed in existing policy.
DOD concurred with our recommendation to issue guidance to all
affected stakeholders involved in implementing the new performance
management framework for logistics that was outlined in the 2010
Logistics Strategic Plan. DOD stated that guidance will be provided to
components and applicable defense agencies in the last quarter of
fiscal year 2011. DOD did not elaborate regarding the nature and scope
of information to be included in this guidance.
DOD partially concurred with our recommendation to revise the charters
of the Joint Logistics Board and the Supply Chain Executive Steering
Committee to define and describe how these governance bodies will
participate in the performance management framework for logistics. DOD
stated that the performance management framework is not explicitly
described in the charters, but that the charters reflect that these
bodies are to provide oversight, coordination, and information-sharing
for logistics initiatives and issues. DOD stated its view that no
change is required for the Joint Logistics Board charter, but the
draft charter for the Supply Chain Executive Steering Committee will
be revised to address reviews that are of performance measures and
initiatives designed to drive logistics improvements. We continue to
believe that effective implementation of DOD's new performance
management framework for logistics will require departmentwide
direction and oversight from its governance bodies to ensure
initiatives are staying on track and that progress toward goals is
being made consistently throughout the department. As we discussed in
our report, we found that neither of the two governance bodies has
exercised comprehensive and systematic oversight across all the key
improvement initiatives for supply chain management that were outlined
in the 2010 Logistics Strategic Plan. Since DOD does not intend to
revise their charters in order to define and describe how these bodies
will participate in the department's new performance management
framework, then it will be even more important that their roles and
responsibilities be made clear and explicit in the implementation
guidance that DOD says it plans to issue for the performance
management framework.
In disagreeing with our other four recommendations, DOD indicates that
its ongoing involvement in major improvement initiatives, as well as
existing policy, is sufficient for addressing supply chain management
problems. We disagree based on the findings discussed in this report.
Problems in supply chain management, including the three focus areas
of requirements forecasting, asset visibility, and materiel
distribution, are long-standing and complex. Identifying root causes
and implementing effective solutions will require the involvement and
coordination of multiple stakeholders across the department, as well
as a strong effort to monitor, evaluate, and oversee improvements. Our
recommendations are intended to promote a systemic, integrated, and
enterprisewide approach to resolving problems in supply chain
management. In addition, the recommendations are closely linked with
criteria and steps that agencies need to take to successfully
institute changes across an enterprise and to have an area removed
from GAO's high-risk list. As noted in our report, with the issuance
of the Comprehensive Inventory Management Improvement Plan in 2010,
DOD took important initial positive steps to address challenges in the
requirements forecasting focus area, as well as other areas of
inventory management. We believe that a similar approach could also be
effective in addressing challenges in asset visibility and materiel
distribution challenges. Our evaluation of DOD's comments with regard
to each of these four recommendations follows.
DOD disagreed with our recommendation to develop and implement
corrective action plans for the focus areas of asset visibility and
materiel distribution. DOD stated that it did not agree with our
recommendation because the department is already engaged in major
efforts to improve asset visibility and materiel distribution. While
DOD for many years has had improvement initiatives for certain
challenges within these areas, we continue to believe that developing
and implementing a corrective action plan for each of the remaining
focus areas--or a single, integrated plan covering both areas--is
critical to resolving supply chain management problems with a
systemic, integrated, and enterprisewide approach. GAO's criteria for
removing the high-risk designation--for supply chain management and
other programs--specifically calls for corrective actions plans that
identify the root causes of problems, solutions to these problems, and
steps to achieve these solutions. Moreover, an effective strategic
planning process that results in a high-quality corrective action plan
can provide clear direction to addressing DOD's weaknesses in supply
chain management.
DOD commented that its involvement in major efforts to improve asset
visibility and materiel distribution negates the need for a corrective
action plan. DOD specifically refers to three efforts--(1) the
Distribution Strategic Opportunities initiative, (2) the Distribution
Network Optimization initiative, and (3) the Comprehensive Inventory
Management Improvement Plan. DOD states that each of these efforts has
specific goals, milestones, and targets, and involves key
stakeholders. It is unclear why DOD, in its written comments, focuses
on the first two efforts to the exclusion of other ongoing initiatives
for improving distribution. During our review, DOD officials did not
highlight these efforts as paramount, nor does the 2010 Logistics
Strategic Plan characterize these as DOD's most critical key
initiatives. On the contrary, the 2010 Logistics Strategic Plan
briefly describes the Distribution Strategic Opportunities initiative
as an effort "to improve distribution across the enterprise" and
includes it among several other initiatives the department has to
improve supply chain processes. The Logistics Strategic Plan provides
no other explanation of this initiative; provides no goals,
milestones, or targets associated with the initiative; and does not
show how this initiative will enable it to achieve high-level outcomes
such as operating supply chains more effectively and efficiently. The
plan, moreover, makes no specific mention of the second effort--the
Distribution Network Optimization initiative--although information
provided separately by the department indicates it is a sub-initiative
under the Distribution Strategic Opportunities initiative.
Furthermore, without a strategic planning process that examines root
problems and capability gaps and results in a corrective action plan,
it is unclear that these initiatives alone are sufficient for
addressing all major challenges in the asset visibility and materiel
distribution focus areas. For example, it is unclear to what extent
these initiatives address challenges in managing supply support in a
joint theater of operations. It is also unclear whether the
initiatives are intended to focus on improving asset visibility. As
mentioned above, DOD has demonstrated an ability to carry out a
collaborative strategic planning process resulting in the issuance of
its Comprehensive Inventory Management Improvement Plan. That plan
identifies corrective actions that could, when implemented,
effectively address the requirements forecasting focus area and other
aspects of inventory management. We continue to believe that following
a similar collaborative approach that results in a corrective action
plan or plans for the focus areas of asset visibility and materiel
distribution would result in significant progress in addressing
remaining challenges in the supply chain management high-risk area.
DOD did not concur with our recommendation to develop and implement a
communications strategy for documenting and reporting on the results
of supply chain management improvement efforts. DOD stated that an
additional strategy of documenting and reporting its progress is not
required because the department's senior logistics leadership is
continuously engaged in communicating its goals and performance to
internal and external stakeholders via governing bodies, public
forums, and formal reporting to Congress. Further, DOD stated that it
will continue to use monthly in-progress reviews of supply chain
management improvement efforts as the communications strategy with the
components. We continue to believe that DOD needs to report on the
results and progress of its logistics and supply chain management
improvement efforts. Such reporting can enhance accountability, help
ensure that all stakeholders are aware of progress being made and
areas needing further attention, and convey consistent directions
throughout the department for follow-on actions. Communication
regarding goals and performance are key steps that DOD identifies as
part of the performance management framework for logistics outlined in
the Logistics Strategic Plan. Further, DOD stated in this plan its
commitment to issue a DOD Logistics Strategic Management Report to
document the results of the assessments performed as part of the
performance management framework. Given DOD's response to our
recommendation, it is unclear how the department plans to implement
these aspects of its performance management framework. As discussed in
this report, a management report has not yet been issued, and it is
unclear what types of information DOD intends to include in this
report and how the information in the report will be used as part of
the performance management framework. Further, DOD officials stated
that the report would be used among internal stakeholders and they did
not plan on sharing the report with Congress.
DOD did not concur with our recommendation to clearly define the CMO's
and Deputy CMO's roles and responsibilities as they specifically
relate to (1) the performance management framework for logistics, (2)
existing governance bodies for logistics, and (3) the alignment of
supply chain management improvement efforts with those of DOD's other
business operations areas. DOD stated that this recommendation is not
required because the Deputy CMO's roles and responsibilities are
sufficiently documented in DOD guidance. We stated in our report that
the CMO and Deputy CMO have broad responsibilities related to the
improvement of the efficiency and effectiveness of DOD's business
operations. However, we have previously reported that additional
opportunities exist for the CMO and Deputy CMO to achieve business-
related goals, including supply chain management goals. For example,
we reported that the Deputy CMO was not involved in developing or
reviewing the Comprehensive Inventory Management Improvement Plan.
This plan was described in DOD's comments on this draft report as one
of the three major ongoing efforts to improve supply chain management.
Further, neither the CMO nor Deputy CMO attends meetings of the Joint
Logistics Board or Supply Chain Executive Steering Committee. Among
the responsibilities of the Deputy CMO are to participate as a member
of senior governance councils, and participation in senior logistics
governance bodies therefore may provide more opportunities for closer
collaboration and involvement of the Deputy CMO in addressing
challenges in supply chain management, especially those challenges
that span business areas. DOD additionally stated in its comments that
it did not concur with our recommendation because the logistics
enterprise reports to the Under Secretary of Defense for Acquisition,
Technology and Logistics, who has oversight and management
responsibility for logistics. Our recommendation does not imply that
oversight and management responsibility for logistics should be
shifted to the CMO and Deputy CMO; however, these individuals are in a
unique position to coordinate improvement efforts across all defense
business areas. Therefore, these individuals need to have a clearly
defined role, consistent with their overarching responsibilities in
each business area, including logistics and supply chain management.
DOD did not concur with our recommendation to use a collaborative
approach to identify, develop, and implement enterprisewide
performance measures needed to demonstrate progress in the focus areas
of asset visibility and materiel distribution. DOD stated that no
additional actions are required because enterprisewide performance
measures have been and continue to be developed using a collaborative
process involving all stakeholders. Further, DOD stated that the
performance management framework is a process rather than a document
of performance management. The department's comments noted that it is
following this process in a collaborative fashion involving all
stakeholders in the identification, development, and implementation of
enterprisewide performance measures to demonstrate progress in key
areas, including asset visibility and materiel distribution. As noted
in our report, DOD used a collaborative process to define existing and
needed performance measures as part of the development of its
Comprehensive Inventory Management Improvement Plan. We continue to
believe that DOD should follow a similar, collaborative approach for
the focus areas of asset visibility and materiel distribution. Our
work has shown that, at this time, enterprisewide measures for these
focus areas do not yet exist. DOD began an initiative in 2007 called
the Joint Supply Chain Architecture to identify a hierarchy of
performance measures. However, the only enterprisewide performance
measure used across the department, customer wait time, predates this
Joint Supply Chain Architecture initiative. Other enterprisewide
measures identified by the initiative are not fully developed and may
be some time from full implementation. We agree with DOD that the
performance management framework is a process and not a document. Our
report does not suggest otherwise. We recommended that once key
performance measures for these focus areas are defined and
implemented, they be incorporated as part of the process for managing
improvement efforts within the performance management framework.
DOD's comments are reprinted in their entirety in appendix II. The
department also provided technical comments that we have incorporated
into this report where applicable.
We are sending copies of this report to the appropriate congressional
committees. We are also sending copies to the Secretary of Defense;
the Deputy Secretary of Defense; and the Under Secretary of Defense
for Acquisition, Technology and Logistics. This report will also be
available at no charge on our Web site at [hyperlink,
http://www.gao.gov]. Should you or your staff have any questions
concerning this report, please contact me at (202) 512-8246 or
edwardsj@gao.gov. Contact points for our Offices of Congressional
Relations and Public Affairs may be found on the last page of this
report. Staff who are major contributors to this report are listed in
appendix III.
Signed by:
Jack E. Edwards:
Director, Defense Capabilities and Management:
List of Committees:
The Honorable Carl Levin:
Chairman:
The Honorable John McCain:
Ranking Member:
Committee on Armed Services:
United States Senate:
The Honorable Daniel K. Inouye:
Chairman:
The Honorable Thad Cochran:
Ranking Member:
Subcommittee on Defense:
Committee on Appropriations:
United States Senate:
The Honorable Howard P. McKeon:
Chairman:
The Honorable Adam Smith:
Ranking Member:
Committee on Armed Services:
House of Representatives:
[End of section]
Appendix I: Scope and Methodology:
To determine the extent to which the Department of Defense (DOD) has
developed and implemented detailed corrective action plans that
address high-risk challenges in the three focus areas we identified
for improvement, we identified existing plans for logistics, supply
chain management, and the three focus areas: requirements forecasting,
asset visibility, and materiel distribution. We assessed the extent to
which such plans provide a comprehensive, integrated strategy for
improving one or more of the focus areas and include the key elements
of a corrective action plan that we have previously identified.
Specifically, we evaluated DOD's October 2010 Comprehensive Inventory
Management Improvement Plan and determined its applicability as a
corrective action plan for inventory management and the requirements
forecasting focus area by comparing the plan and its elements to
criteria from our prior reports on corrective action plans and
effective strategic planning. Specific criteria on corrective action
plans and the elements of effective strategic planning are discussed
in the report. Using these same criteria, we evaluated the 2010
Logistics Strategic Plan and determined the extent to which it could
serve as a corrective action plan for the areas of asset visibility
and materiel distribution. We met with officials from the Office of
the Deputy Assistant Secretary of Defense for Supply Chain Integration
to discuss features of the 2010 Logistics Strategic Plan and any
ongoing and possible future strategic planning efforts. We reviewed
DOD's testimony before Congress and written responses to questions for
the record on the plan. We also reviewed prior GAO reports and
testimonies pertaining to DOD supply chain management, including prior
strategic planning efforts.
To assess the extent to which DOD has an effective program for
monitoring and validating the effectiveness and sustainability of
corrective actions, we reviewed the performance management framework
identified in DOD's 2010 Logistics Strategic Plan. We reviewed the
features of the framework that are aimed at helping DOD to guide and
oversee improvement efforts, and we also determined the implementation
status of the framework. In addition, we assessed the extent that DOD
has included elements needed for instituting the framework across the
department. We based this assessment, in part, on a body of work that
sets forth criteria for results-oriented management and best practices
for organizations that are transforming their management practices and
structures.[Footnote 53] We also reviewed DOD's 2009 Strategic
Management Plan and our recently released report on the plan. We
compared the performance management frameworks of the two DOD plans to
determine the degree of congruence between the frameworks. We met with
officials from the Office for Supply Chain Integration to discuss the
performance management framework and oversight structure (including
senior-level logistics governance bodies) and obtain additional
insight and supporting documentation (e.g., agendas and meeting
minutes of these bodies) on the purpose and implementation of the
framework. We reviewed DOD's recent congressional testimony on the
2010 Logistics Strategic Plan and written responses to related
questions for the record to determine DOD's approach and perspective
on implementing the plan, including the performance management
framework. In addition, we reviewed legislation, DOD policies, and
other documentation regarding the chief management officials,
including the DOD Chief Management Officer, the Deputy Chief
Management Officer, and military departments' Chief Management
Officers; and our prior work on performance management.[Footnote 54]
To determine the extent to which DOD has an ability to demonstrate
supply chain management progress, we reviewed how DOD uses, or plans
to use, performance measures discussed in the 2010 Logistics Strategic
Plan. We also reviewed DOD's existing or planned performance measures
for the three focus areas of improvement, including measures discussed
in the Comprehensive Inventory Management Improvement Plan. As a basis
for evaluating these measures, we reviewed DOD's supply chain
management regulation,[Footnote 55] federal standards and best
practices,[Footnote 56] and our prior findings and recommendations on
this issue.[Footnote 57] We discussed existing and planned measures
with officials from the Office for Supply Chain Integration and other
DOD components. We also obtained information from these officials on
the development of the Joint Supply Chain Architecture since a major
effort of the initiative is to define enterprisewide performance
measures to track efficiency, effectiveness, and reliability of the
supply chains. We met with officials from the following weapons
systems program offices involved in implementing Joint Supply Chain
Architecture case study programs: Integrated Materiel Management
Center, U.S. Army Aviation and Missile Life Cycle Management Command,
Redstone Arsenal, Alabama; PEO Integrated Warfare Systems, Washington
Navy Yard, Washington, D.C.; Warner Robins Air Logistics Center,
Robins Air Force Base, Georgia; Naval Inventory Control Point, U.S.
Naval Supply Systems Command, Mechanicsburg and Philadelphia,
Pennsylvania. We discussed performance measures used by these case
study programs as well as DOD efforts to develop enterprisewide
performance measures.
We conducted a site visit to the U.S. Transportation Command, Scott
Air Force Base, Illinois, to obtain information and perspectives on
distribution-related initiatives to discuss supply chain improvement
efforts and performance management. In addition, we contacted
officials from the following agencies and offices to obtain
information and perspectives on the 2010 Logistics Strategic Plan,
supply chain improvement initiatives and efforts, and their use of
performance measures:
* U.S. Joint Forces Command: Operations, Plans, Logistics and
Engineering Directorate, J4 Division, Norfolk, Virginia;
* Defense Logistics Agency, Ft. Belvoir, Virginia;
* U.S. Army: Office of the Deputy Chief of Staff of the Army, G-4
Logistics, Pentagon, Washington, D.C.;
* U.S. Navy: Deputy Assistant Secretary of the Navy, Acquisition and
Logistics Management, Logistics Division, Pentagon, Washington, D.C.;
Chief of Naval Operations Supply, Ordnance and Logistics Operations,
Arlington, Virginia;
* U.S. Air Force: Air Staff, Logistics Directorate, Rosslyn, Virginia;
and the Global Logistics Support Center, Scott Air Force Base,
Illinois.
We also met with representatives from the Institute for Supply
Management and the Center for Advanced Purchasing Studies Research,
Tempe, Arizona; and the University of Alabama Office for Enterprise
Innovation and Sustainability, Huntsville, Alabama, to obtain industry
and academia's views and documentation on the Supply Chain Operation
Reference model, industry standards for supply chain management, and
how application of those standards are unique to DOD.
We conducted this performance audit from February 2010 to July 2011 in
accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evident to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe
that the evidence obtained provides a reasonable basis for our finding
and conclusions based on our audit objectives.
[End of section]
Appendix II: Comments from the Department of Defense:
Office Of The Assistant Secretary Of Defense:
Logistics And Materiel Readiness:
3500 Defense Pentagon:
Washington, DC 20301-3500:
June 16, 2011:
Mr. Jack Edwards:
Director, Defense Capabilities and Management:
U.S. Government Accountability Office:
441 G Street, N.W.
Washington, DC 20548:
Dear Mr. Edwards:
This is the Department of Defense (DoD) response to the GAO draft
report, GAO-11-569, "Defense Logistics: DoD Needs to Take Additional
Actions to Address Challenges in Supply Chain Management," dated May
24, 2011 (GAO Code 351434). Detailed comments on the report
recommendations are enclosed.
The Department concurs with the overall intent of the report and
specifically concurs with the recommendation to issue guidance on the
performance management framework and partially concurs with the
recommendation to revise governance charters. However, the Department
non-concurs with three of the recommendations based on its engagement
in major efforts to improve supply chain management, and with one
recommendation that is addressed in existing policy.
The DoD looks forward to your final report, and thanks the GAO for the
opportunity to review and comment on the draft report.
Sincerely,
Signed by:
Alan F. Estevez:
Principal Deputy:
[End of letter]
GAO Draft Report Dated May 24, 2011:
GAO-11-569 (GAO Code 351434):
"Defense Logistics: DOD Needs To Take Additional Actions To
Address Challenges In Supply Chain Management"
Department Of Defense Comments To The GAO Recommendations:
Recommendation 1: The GAO recommends that the Secretary of Defense
direct the Under Secretary of Defense for Acquisition, Technology and
Logistics to develop and implement corrective action plans for
improving asset visibility and materiel distribution. As these two
areas are closely interrelated, DOD may wish to consider creating a
single comprehensive, integrated plan that addressed both focus areas
for improvement. The corrective action plan or plans should (1)
identify the scope and root causes of capability gaps and other
problems, effective solutions, and actions to be taken to implement
the solutions; (2) include the characteristics of effective strategic
planning, including a mission statement; goals and related strategies
(for example, objectives and activities); performance measures and
associated milestones, benchmarks, and targets for improvement;
resources and investments required for implementation; key external
factors that could affect the achievement of goals; and the
involvement of all key stakeholders in a collaborative process to
develop and implement the plan; and (3) document how the department
will integrate these plans with its other decision-making processes;
delineate organizational roles and responsibilities; support
department wide priorities identified in higher-level strategic
guidance (such as the Strategic Management Plan and Logistics
Strategic Plan).
DoD Response: Non-concur. A single comprehensive, integrated plan is
not required because the Department is currently engaged in major
efforts to improve asset visibility and materiel distribution (i.e.,
Distribution Strategic Opportunities, Distribution Network
Optimization, and the Comprehensive Inventory Management Plan). Each
effort has specific goals, milestones, targets, and involves key
stakeholders.
Recommendation 2: The GAO recommends that the Secretary of Defense
direct the Under Secretary of Defense for Acquisition, Technology and
Logistics take action to develop and issue detailed guidance to
affected stakeholders involved in implementing the performance
management framework for logistics.
DoD Response: Concur. Guidance on the performance management framework
will be provided to Components and applicable Defense Agencies in
fourth quarter FY 2011.
Recommendation 3: The GAO recommends that the Secretary of Defense
direct the Under Secretary of Defense for Acquisition, Technology and
Logistics take action to develop and implement a communications
strategy for documenting and reporting on the results of supply chain
management improvement efforts. The strategy should be linked with
corrective actions plans, contain performance measurement information,
and inform both internal and external stakeholders, including Congress.
DoD Response: Non-concur. An additional communications strategy is not
required because the Department's senior logistics leadership is
continuously engaged in communicating its goals and performance to
internal and external stakeholders via governing bodies, public
forums, and formal reporting to Congress. The Department will continue
to employ monthly in-process reviews of supply chain management
improvement efforts as the communications strategy with the
Components. These in-process reviews with Component senior logistics
leaders address corrective actions and discuss performance management
information.
Recommendation 4: The GAO recommends that the Secretary of Defense
direct the Under Secretary of Defense for Acquisition, Technology and
Logistics to take action to revise the existing charter of the Joint
Logistics Board and the draft charter of the Supply Chain
Executive Steering Committee to define and describe how the governance
bodies will participate in the performance management framework for
logistics.
DoD Response: Partially concur. While the performance management
framework process is not explicitly described in the existing
governance charters, these charters reflect that these forums act as
oversight, coordination, and information sharing bodies for logistics
initiatives and issues. Therefore, no change is required to the Joint
Logistics Board charter. The Supply Chain Executive Steering Committee
charter will be revised to explicitly address reviews that are of
performance measures and initiatives designed to drive logistics
improvements.
Recommendation 5: The GAO recommends that the Secretary of Defense
clearly define the CMO's and Deputy CMO's roles and responsibilities
as they specifically relate to (1) the performance management
framework for logistics, including the establishment of corrective
action plans and related performance measures; (2) existing governance
bodies for logistics; and (3) the alignment of supply chain management
improvement plans and performance management with those of DOD's other
business operations areas.
DoD Response: Non-concur. This recommendation is not required because
the DCMO roles and responsibilities are documented in the DoDD
5105.82. Specifically, the DCMO 1) addresses integration and
coordination of department wide business operations, develops and
maintains the Strategic Management Plan that is developed with the
participation of the Services, Agencies, and OSD offices, 2)
participates as a member of senior governance councils, and 3) assures
alignment of business operations through its advisement on the
Department wide performance goals and assesses progress against those
goals,. This directive defines business operations as the policies,
processes, information, and systems relating to the end to end
financial, logistics, facility management, human capital, acquisition,
administrative, and other such functions of the DoD that support the
warfighter. In addition, the DoD logistics enterprise reports to the
Under Secretary of Defense for Acquisition, Technology and Logistics
who has oversight and management responsibility for DoD logistics.
Recommendation 6: The GAO recommends that the Secretary of Defense
direct the Under Secretary of Defense for Acquisition, Technology and
Logistics to use collaborative process, involving all key
stakeholders, to identify, develop, and implement enterprise wide
performance measures needed to demonstrate progress in the focus areas
of asset visibility and materiel distribution. These measures should
be incorporated into corrective action plans and the performance
management framework.
DoD Response: Non-concur. No additional action is required because
enterprise-wide performance measures have been and continue to be
developed using a collaborative process involving all stakeholders.
The performance management framework is a process rather than a
document of performance management. The Department is following this
process in a collaborative fashion involving all key stakeholders in
the identification, development, and implementation of enterprise wide
performance measures to demonstrate progress in key areas, including
asset visibility and materiel distribution. The Department is
currently engaged in major efforts to improve asset visibility and
materiel distribution (i.e., Distribution Strategic Opportunities,
Distribution Network Optimization, and the Comprehensive Inventory
Management Improvement Plan). These efforts leverage the collaborative
processes with the Components in identifying problems, solutions,
performance measures, corrective actions and targeted improvements in
theatre operations, forward positioning of materiel, and
forecast/demand planning.
[End of section]
Appendix III: GAO Contact and Staff Acknowledgments:
GAO Contact:
Jack E. Edwards, (202) 512-8246 or edwardsj@gao.gov:
Staff Acknowledgments:
In addition to the contact named above, Thomas Gosling, Assistant
Director; Jeffrey Heit; Suzanne Perkins; and Pauline Reaves made key
contributions to this report.
[End of section]
Related GAO Products:
High-Risk Series: An Update. [hyperlink,
http://www.gao.gov/products/GAO-11-278]. Washington, D.C.: February
2011.
Defense Business Transformation: DOD Needs to Take Additional Actions
to Further Define Key Management Roles, Develop Measurable Goals, and
Align Planning Efforts. [hyperlink,
http://www.gao.gov/products/GAO-11-181R]. Washington, D.C.: January
26, 2011.
DOD's 2010 Comprehensive Inventory Management Improvement Plan
Addressed Statutory Requirements, But Faces Implementation Challenges.
[hyperlink, http://www.gao.gov/products/GAO-11-240R]. Washington,
D.C.: January 7, 2011.
Defense Logistics: Additional Oversight and Reporting for the Army
Logistics Modernization Program Are Needed. [hyperlink,
http://www.gao.gov/products/GAO-11-139]. Washington, D.C. November 18,
2010.
DOD's High-Risk Areas: Observations on DOD's Progress and Challenges
in Strategic Planning for Supply Chain Management. [hyperlink,
http://www.gao.gov/products/GAO-10-929T]. Washington, D.C.: July 27,
2010.
Warfighter Support: Preliminary Observations on DOD's Progress and
Challenges in Distributing Supplies and Equipment to Afghanistan.
[hyperlink, http://www.gao.gov/products/GAO-10-842T]. Washington,
D.C.: June 25, 2010.
Defense Inventory: Defense Logistics Agency Needs to Expand on Efforts
to More Effectively Manage Spare Parts. [hyperlink,
http://www.gao.gov/products/GAO-10-469]. Washington, D.C.: May 11,
2010.
Defense Logistics: Lack of Key Information May Impede DOD's Ability to
Improve Supply Chain Management. [hyperlink,
http://www.gao.gov/products/GAO-09-150]. Washington, D.C.: January 12,
2009.
[End of section]
Footnotes:
[1] GAO, High-Risk Series: An Update, [hyperlink,
http://www.gao.gov/products/GAO-11-278] (Washington, D.C.: February
2011).
[2] DOD defines secondary inventory items to include reparable
components, subsystems, and assemblies other than major end items
(e.g., ships, aircraft, and helicopters), consumable repair parts,
bulk items and materiel, subsistence, and expendable end items (e.g.,
clothing and other personal gear).
[3] The approved acquisition objective incorporates both materiel
needed to meet the requirements objective and materiel needed to meet
an additional 2 years of estimated future demand. The requirements
objective is (for wholesale inventory replenishment) the maximum
authorized quantity of stock for an item. It consists of the sum of
stock represented by the economic order quantity, the safety level,
the repair-cycle level, and the authorized additive levels. While
inventory held for economical reasons or future use is not part of the
approved acquisition objective, DOD states that retention of this
inventory is necessary for the military mission.
[4] GAO, Defense Inventory: Defense Logistics Agency Needs to Expand
on Efforts to More Effectively Manage Spare Parts, [hyperlink,
http://www.gao.gov/products/GAO-10-469] (Washington, D.C.: May 11,
2010); Defense Inventory: Army Needs to Evaluate Impact of Recent
Actions to Improve Demand Forecasts for Spare Parts, [hyperlink,
http://www.gao.gov/products/GAO-09-199] (Washington, D.C.: Jan. 12,
2009); Defense Inventory: Management Actions Needed to Improve the
Cost Efficiency of Navy's Spare Parts Inventory, [hyperlink,
http://www.gao.gov/products/GAO-09-103] (Washington, D.C.: Dec. 12,
2008); and Defense Inventory: Opportunities Exist to Save Billions by
Reducing Air Force's Unneeded Spare Parts Inventory, [hyperlink,
http://www.gao.gov/products/GAO-07-232] (Washington, D.C.: Apr. 27,
2007).
[5] Demand forecasting is the prediction of future customer demands so
inventory managers can develop inventory requirements to satisfy
demands when they occur. Inaccurate demand forecasts may lead to
either excess inventory or shortfalls.
[6] GAO, Defense Logistics: Lack of Key Information May Impede DOD's
Ability to Improve Supply Chain Management, [hyperlink,
http://www.gao.gov/products/GAO-09-150] (Washington, D.C.: Jan. 12,
2009); and Defense Logistics: Efforts to Improve Distribution and
Supply Support for Joint Military Operations Could Benefit from a
Coordinated Management Approach, [hyperlink,
http://www.gao.gov/products/GAO-07-807] (Washington, D.C.: June 29,
2007).
[7] GAO, Warfighter Support: Preliminary Observations on DOD's
Progress and Challenges in Distributing Supplies and Equipment to
Afghanistan, [hyperlink, http://www.gao.gov/products/GAO-10-842T]
(Washington, D.C.: June 25, 2010); 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, [hyperlink,
http://www.gao.gov/products/GAO-07-1064T] (Washington, D.C.: July 10,
2007); and Defense Logistics: Actions Needed to Improve the
Availability of Critical Items during Current and Future Operations,
[hyperlink, http://www.gao.gov/products/GAO-05-275] (Washington, D.C.:
Apr. 8, 2005).
[8] GAO, DOD's High-Risk Areas: Observations on DOD's Progress and
Challenges in Strategic Planning for Supply Chain Management,
[hyperlink, http://www.gao.gov/products/GAO-10-929T] (Washington,
D.C.: July 27, 2010);
[hyperlink, http://www.gao.gov/products/GAO-10-842T]; and [hyperlink,
http://www.gao.gov/products/GAO-09-150].
[9] DOD, Office of the Secretary of Defense, Principal Deputy
Assistant Secretary of Defense for Logistics and Materiel Readiness,
Department of Defense Logistics Strategic Plan (July 2010).
[10] The budget requests of the military departments are reviewed and
revised by the Office of the Secretary of Defense and the Office of
Management and Budget before being incorporated into the President's
budget.
[11] DOD Directive 5100.01, Functions of the Department of Defense and
Its Major Components (Dec. 21, 2002).
[12] Consumable items include commodities such as subsistence (food),
fuels, medical supplies, clothing, construction equipment, and spare
parts that are normally expended or intended to be used up beyond
recovery or repair.
[13] Joint Chiefs of Staff, Joint Publication 4-0, Joint Logistics
(July 18, 2008).
[14] The Principal Deputy Assistant Secretary of Defense for Logistics
and Materiel Readiness currently serves as the co-chair as the
Assistant Secretary of Defense for Logistics and Materiel Readiness
position is vacant.
[15] The CMO is responsible for ensuring that DOD's core business
missions are optimally aligned to support the warfighting mission and
establishing performance goals and measures for improving and
evaluating overall economy, efficiency, and effectiveness; and
monitoring and measuring progress of the department, among other
duties. See Department of Defense Directive 5105.02, Deputy Secretary
of Defense (Feb. 18, 2009). The Deputy CMO's responsibilities include
making recommendations to the CMO on the methodologies and measurement
criteria to improve business operations; advising the Secretary of
Defense on performance goals and measures, and assessing progress
against those goals; and assisting department officials in ensuring
that strategic plans, performance goals, and measures are aligned
with, and provide accountability for, DOD strategic goals, among other
duties See Department of Defense Directive 5105.82, Deputy Chief
Management Officer (DCMO) of the Department of Defense (Oct. 17, 2008).
[16] The title of this high-risk area was initially "DOD inventory
management." Subsequently, our work demonstrated that the problems
adversely affecting support to the warfighter extended beyond DOD's
inventory management system to involve the entire supply chain. As a
result, we subsequently modified the title to "DOD supply chain
management."
[17] [hyperlink, http://www.gao.gov/products/GAO-10-842T] and
[hyperlink, http://www.gao.gov/products/GAO-05-275].
[18] In the most recent update, we removed DOD's personnel security
clearance program's high-risk designation because of the department's
progress in improving the timeliness of clearance investigations and
developing tools and metrics to assess quality.
[19] GAO, Determining Performance and Accountability Challenges and
High Risks, [hyperlink, http://www.gao.gov/products/GAO-01-159SP]
(Washington, D.C.: November 2000).
[20] [hyperlink, http://www.gao.gov/products/GAO-11-278].
[21] GAO, DOD's High-Risk Areas: Progress Made Implementing Supply
Chain Management, but Full Extent of Improvement Unknown, [hyperlink,
http://www.gao.gov/products/GAO-07-234] (Washington, D.C.: Jan. 17,
2007).
[22] GAO, Managing for Results: Critical Issues for Improving Federal
Agencies' Strategic Plans, [hyperlink,
http://www.gao.gov/products/GAO/GGD-97-180] (Washington, D.C.: Sept.
16, 1997). For an example showing how these individual elements of a
strategic plan have been addressed, see GAO, Depot Maintenance:
Improved Strategic Planning Needed to Ensure That Navy Depots Can Meet
Future Maintenance Requirements, [hyperlink,
http://www.gao.gov/products/GAO-10-585] (Washington, D.C.: June 11,
2010).
[23] [hyperlink, http://www.gao.gov/products/GAO-09-150], [hyperlink,
http://www.gao.gov/products/GAO-07-1064T], and DOD's High-Risk Areas:
Challenges Remain to Achieving and Demonstrating Progress in Supply
Chain Management, [hyperlink, http://www.gao.gov/products/GAO-06-983T]
(Washington, D.C.: July 25, 2006).
[24] Other goals in the plan also have aspects relating to supply
chain management, including (1) provide logistics support in
accordance with warfighters' requirements and (2) ensure
supportability, maintainability, and costs are considered throughout
the acquisition cycle.
[25] [hyperlink, http://www.gao.gov/products/GAO-10-929T].
[26] National Defense Authorization Act for Fiscal Year 2010, Pub. L.
No. 111-84, § 328 (2009).
[27] As noted earlier, demand forecasting is a factor in establishing
inventory requirements.
[28] [hyperlink, http://www.gao.gov/products/GAO-11-278] and
[hyperlink, http://www.gao.gov/products/GAO-01-159SP].
[29] For our analysis of this plan, see GAO, DOD's 2010 Comprehensive
Inventory Management Improvement Plan Addressed Statutory
Requirements, But Faces Implementation Challenges, [hyperlink,
http://www.gao.gov/products/GAO-11-240R] (Washington, D.C.: Jan. 7,
2011).
[30] [hyperlink, http://www.gao.gov/products/GAO-10-469], [hyperlink,
http://www.gao.gov/products/GAO-09-199], [hyperlink,
http://www.gao.gov/products/GAO-09-103], and [hyperlink,
http://www.gao.gov/products/GAO-07-232].
[31] [hyperlink, http://www.gao.gov/products/GAO-11-240R].
[32] We noted, for example, that a sub-plan of DOD's Comprehensive
Inventory Management Improvement Plan is aimed at improving total
asset visibility. The focus of this sub-plan, however, is on the
inventory management aspects of asset visibility (such as improving
modeling used to adjust inventory levels) and does not address other
challenges such as providing in-transit asset visibility or asset
visibility within a theater of operations.
[33] DOD, Joint Supply Joint Integrating Concept (Mar. 31, 2010).
[34] U.S. Army Audit Agency, Container Management in Iraq, Condition
and Contents A-2011-0047-ALL (Dec. 22, 2010).
[35] [hyperlink, http://www.gao.gov/products/GAO-10-929T].
[36] Radio frequency identification is a type of technology that
enables electronic identification and tracking of equipment and
supplies and that DOD expects will improve its asset visibility.
[37] DOD, Office of the Deputy Chief Management Officer, Department of
Defense Strategic Management Plan (July 31, 2009).
[38] We recently reported that the 2009 Strategic Management Plan has
some weaknesses affecting its performance management framework that
should be addressed. Among these weaknesses, some of the roles and
responsibilities for senior positions in improving business operations
across the department have yet to be fully defined and DOD has not
established mechanisms to guide efforts to monitor progress and take
corrective action. See GAO, Defense Business Transformation: DOD Needs
to Take Additional Actions to Further Define Key Management Roles,
Develop Measurable Goals, and Align Planning Efforts, GAO-11-181R
(Washington, D.C.: Jan. 26, 2011). DOD issued an updated Strategic
Management Plan on December 30, 2010, which covers fiscal year 2011.
We plan to evaluate the updated plan to assess whether it contains key
elements, such as measurable goals, funding priorities, and resource
needs.
[39] High-Risk Logistics Planning: Progress on Improving Department of
Defense Supply Chain Management, Hearing before the Subcommittee on
Oversight of Government Management, the Federal Workforce, and the
District of Columbia, Senate Committee on Homeland Security and
Governmental Affairs (Jul. 27 2010).
[40] The senior DOD official was the Principal Deputy Assistant
Secretary of Defense for Logistics and Materiel Readiness.
[41] See Department of Defense Directive 5105.02, Deputy Secretary of
Defense (Feb. 18, 2009) and Department of Defense Directive 5105.82,
Deputy Chief Management Officer (DCMO) of the Department of Defense
(Oct. 17, 2008).
[42] [hyperlink, http://www.gao.gov/products/GAO-11-181R].
[43] Federal standards include those found in GAO, Standards for
Internal Control in the Federal Government, [hyperlink,
http://www.gao.gov/products/GAO/AIMD-00-21.3.1] (Washington, D.C.:
November 1999).
[44] See, for example, [hyperlink, http://www.gao.gov/products/GAO-09-
150 and GAO, The Results Act: An Evaluator's Guide to Assessing Agency
Annual Performance Plans, [hyperlink,
http://www.gao.gov/products/GAO/GGD-10.1.20 (Washington, D.C.: April
1998).
[45] [hyperlink, http://www.gao.gov/products/GAO-01-159SP] and
[hyperlink, http://www.gao.gov/products/GAO-11-278].
[47] DOD Regulation 4140.1-R, DOD Supply Chain Materiel Management
Regulation (May 23, 2003).
[48] [hyperlink, http://www.gao.gov/products/GAO-09-150].
[48] [hyperlink, http://www.gao.gov/products/GAO-07-234].
[49] Customer wait time is a measure of the number of days from the
issuance of a customer order to satisfaction of that order. We have
previously noted that one weakness of customer wait time as a measure
for tracking supply chain performance is that it could fail to
accurately measure the impact of supply chain management improvement
initiatives as it is influenced by many external factors.
[50] DOD Instruction 4160.61, Customer Wait Time and Time Definite
Delivery (Dec. 14, 2000).
[51] Passive radio frequency identification is one type of this
technology that DOD uses.
[52] GAO, DOD Business Transformation: Improved Management Oversight
of Business System Modernization Efforts Needed, [hyperlink,
http://www.gao.gov/products/GAO-11-53] (Washington, D.C.: Oct. 7,
2010).
[53] See [hyperlink, http://www.gao.gov/products/GAO-11-240R]; GAO,
Combating Terrorism: Evaluation of Selected Characteristics in
National Strategies Related to Terrorism, [hyperlink,
http://www.gao.gov/products/GAO-04-408T] (Washington, D.C.: Feb. 3,
2004); Depot Maintenance: Improved Strategic Planning Needed to Ensure
that Air Force Depots Can Meet Future Maintenance Requirements,
[hyperlink, http://www.gao.gov/products/GAO-10-526] (Washington, D.C.:
May 14, 2010); and Depot Maintenance: Improved Strategic Planning
Needed to Ensure that Navy Depots Can Meet Future Maintenance
Requirements, [hyperlink, http://www.gao.gov/products/GAO-10-585]
(Washington, D.C.: June 11, 2010).
[54] See, for example, DOD Directive 5105.02, Deputy Secretary of
Defense (Sept. 18, 2007) and DOD Directive 5105.82, Deputy Chief
Management Officer (DCMO) of the Department of Defense (Oct. 17, 2008).
[55] DOD Regulation 4140.1-R, DOD Supply Chain Materiel Management
Regulation (May 23, 2003).
[56] These include the Standards for Internal Control in the Federal
Government.
[57] [hyperlink, http://www.gao.gov/products/GAO-09-150].
[End of section]
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