DOD's High-Risk Areas
High-Level Commitment and Oversight Needed for DOD Supply Chain Plan to Succeed Gao ID: GAO-06-113T October 6, 2005Since 1990 the Department of Defense's (DOD) supply chain management processes have been on GAO's list of high-risk areas needing urgent attention and fundamental transformation to ensure that they function in the most economical, efficient, and effective manner possible. Recently in collaboration with the Office of Management and Budget (OMB), DOD developed a plan to address some of the systemic weaknesses as a first step toward removing supply chain management from the list. DOD's plan focuses on three areas for improvement: accuracy of supply requirements forecasts, distribution of material, and asset visibility. GAO was asked to provide its views on (1) the importance of supply chain management in DOD, (2) why GAO listed it as a high-risk area, (3) GAO's assessment of DOD's plan to improve supply chain processes, and (4) GAO's plans to follow up on DOD's efforts. This testimony contains GAO's views on what remains to be done to improve DOD's supply chain management and bring about lasting solutions. Continued efforts to complete and implement DOD's plan as well as continued oversight by Congress are essential.
It is important for DOD to have effective supply chain management because of (1) its impact on military readiness and operations and (2) the substantial investment in inventory. While DOD maintains military forces with unparalleled capabilities, timely supply support is critical to sustaining them. For example, to support Operation Iraqi Freedom, DOD moved more than 2 million tons of cargo, but shortages of items such as vehicle track shoes and tires hampered operations. In addition, DOD spends billions on supplies. For example, its supply inventory levels have grown in recent years from $62.3 billion in fiscal year 2001 to $77.4 billion in fiscal year 2004. DOD expects to spend approximately $50 billion in fiscal year 2005 for such items and associated operations. In 1990, we identified DOD's inventory management processes as "high risk" because of long-standing problems such as excess inventory levels, inadequate controls, and cost overruns. Since then, GAO's work has shown that the problems adversely affecting supply support to the warfighter involved the entire supply chain. As a first step toward removing supply chain management from GAO's high-risk list, DOD in cooperation with OMB prepared a plan to address weaknesses in three key areas: accuracy of supply requirements forecasts, distribution of material, and asset visibility. DOD's plan to improve supply chain management provides a good start and framework for addressing long-term systemic weaknesses and in focusing the multiyear effort to improve supply support to the warfighter. However, successful resolution of DOD's supply chain management problems will require continued efforts to complete and successfully implement the plan. Based on GAO's criteria for removing programs from the high-risk designation, it is important for DOD to sustain top leadership commitment and long-term institutional support for the plan; obtain necessary resource commitments from the military services, the Defense Logistics Agency, and other organizations; implement proposed improvement initiatives across the department to address root causes; identify performance metrics and valid data to use in monitoring the initiatives; and demonstrate progress toward meeting performance targets. As part of GAO's periodic reassessment of high-risk areas across the federal government, GAO will be assessing DOD's progress in resolving supply chain management and its other high-risk areas. GAO plans to follow up on DOD's actions to improve supply chain management in three ways. First, GAO will assess DOD's progress in implementing recommendations made in prior GAO reports. Second, GAO anticipates evaluating several of DOD's supply management activities as part of our planned engagements over the next 2 years. Third, GAO expects to work with other audit agencies,, as well as DOD and OMB, to coordinate audit coverage of the initiatives, metrics, and data system validity.
GAO-06-113T, DOD's High-Risk Areas: High-Level Commitment and Oversight Needed for DOD Supply Chain Plan to Succeed
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Testimony:
Before the Subcommittee on Oversight of Government Management, the
Federal Workforce, and the District of Columbia, Committee on Homeland
Security and Governmental Affairs, U.S. Senate:
United States Government Accountability Office:
GAO:
For Release on Delivery Expected at 2:30 p.m. EST:
Thursday, October 6, 2005:
DOD'S High-Risk Areas:
High-Level Commitment and Oversight Needed for DOD Supply Chain Plan to
Succeed:
Statement of William M. Solis, Director Defense Capabilities and
Management:
GAO-06-113T:
GAO Highlights:
Highlights of GAO-06-113T, testimony before the Subcommittee on
Oversight of Government Management, the Federal Workforce, and the
District of Columbia, Committee on Homeland Security and Governmental
Affairs, U.S. Senate:
Why GAO Did This Study:
Since 1990 the Department of Defense‘s (DOD) supply chain management
processes have been on GAO‘s list of high-risk areas needing urgent
attention and fundamental transformation to ensure that they function
in the most economical, efficient, and effective manner possible.
Recently in collaboration with the Office of Management and Budget
(OMB), DOD developed a plan to address some of the systemic weaknesses
as a first step toward removing supply chain management from the list.
DOD‘s plan focuses on three areas for improvement: accuracy of supply
requirements forecasts, distribution of material, and asset visibility.
GAO was asked to provide its views on (1) the importance of supply
chain management in DOD, (2) why GAO listed it as a high-risk area, (3)
GAO‘s assessment of DOD‘s plan to improve supply chain processes, and
(4) GAO‘s plans to follow up on DOD‘s efforts.
This testimony contains GAO‘s views on what remains to be done to
improve DOD‘s supply chain management and bring about lasting
solutions. Continued efforts to complete and implement DOD‘s plan as
well as continued oversight by Congress are essential.
What GAO Found:
It is important for DOD to have effective supply chain management
because of (1) its impact on military readiness and operations and (2)
the substantial investment in inventory. While DOD maintains military
forces with unparalleled capabilities, timely supply support is
critical to sustaining them. For example, to support Operation Iraqi
Freedom, DOD moved more than 2 million tons of cargo, but shortages of
items such as vehicle track shoes and tires hampered operations. In
addition, DOD spends billions on supplies. For example, its supply
inventory levels have grown in recent years from $62.3 billion in
fiscal year 2001 to $77.4 billion in fiscal year 2004. DOD expects to
spend approximately $50 billion in fiscal year 2005 for such items and
associated operations.
In 1990, we identified DOD‘s inventory management processes as ’high
risk“ because of long-standing problems such as excess inventory
levels, inadequate controls, and cost overruns. Since then, GAO‘s work
has shown that the problems adversely affecting supply support to the
warfighter involved the entire supply chain. As a first step toward
removing supply chain management from GAO‘s high-risk list, DOD in
cooperation with OMB prepared a plan to address weaknesses in three key
areas: accuracy of supply requirements forecasts, distribution of
material, and asset visibility.
DOD‘s plan to improve supply chain management provides a good start and
framework for addressing long-term systemic weaknesses and in focusing
the multiyear effort to improve supply support to the warfighter.
However, successful resolution of DOD‘s supply chain management
problems will require continued efforts to complete and successfully
implement the plan. Based on GAO‘s criteria for removing programs from
the high-risk designation, it is important for DOD to sustain top
leadership commitment and long-term institutional support for the plan;
obtain necessary resource commitments from the military services, the
Defense Logistics Agency, and other organizations; implement proposed
improvement initiatives across the department to address root causes;
identify performance metrics and valid data to use in monitoring the
initiatives; and demonstrate progress toward meeting performance
targets.
As part of GAO‘s periodic reassessment of high-risk areas across the
federal government, GAO will be assessing DOD‘s progress in resolving
supply chain management and its other high-risk areas. GAO plans to
follow up on DOD‘s actions to improve supply chain management in three
ways. First, GAO will assess DOD‘s progress in implementing
recommendations made in prior GAO reports. Second, GAO anticipates
evaluating several of DOD‘s supply management activities as part of our
planned engagements over the next 2 years. Third, GAO expects to work
with other audit agencies,, as well as DOD and OMB, to coordinate audit
coverage of the initiatives, metrics, and data system validity.
www.gao.gov/cgi-bin/getrpt?GAO-06-113T.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact William Solis at 202 512-
8365 or solisw@gao.gov.
[End of section]
Mr. Chairman and Members of the Subcommittee:
I appreciate the opportunity to be here today to discuss GAO's list of
"high-risk" areas within the Department of Defense (DOD) and, more
specifically, DOD's plan to show to progress toward the long-term goal
of resolving problems and removing supply chain management from our
list. At the onset, I would like to thank the Subcommittee for its
continued encouragement of the Office of Management and Budget's (OMB)
effort to work with agencies over the next several years to reduce risk
in each of the 25 high-risk areas we reported in January 2005. The
active involvement of this Subcommittee is essential to ultimately
ensuring DOD's continued progress in addressing and resolving its high-
risk areas, while enhancing public confidence in DOD's stewardship of
the hundreds of billions of taxpayer funds it receives each year.
Briefly, our high-risk list focuses on major government programs and
operations that either need urgent attention and transformation to
ensure that the U.S. government functions in the most economical,
efficient, and effective manner possible, or that are at high risk
because of their greater vulnerability to fraud, waste, abuse, and
mismanagement. DOD is responsible for 14 of the 25 high-risk areas,
including 8 that are specific to DOD and 6 others that are government-
wide in scope. This year we added DOD's approach to business
transformation to our list of high-risk areas because of our concerns
over the department's lack of adequate management responsibility and
accountability, as well as other concerns. Business transformation
efforts are critical if DOD is to successfully address systemic
management problems related to other high-risk areas, including supply
chain management. In our view, an essential element to business
transformation is strong and sustained executive leadership. As you
know, we have recommended a chief management official or similar
official be created by statute within the department of oversee DOD's
business transformation efforts. We believe that two other essential
elements of DOD's business transformation are (1) an integrated
strategic plan coupled with a well-defined blueprint--referred to as a
business enterprise architecture--to guide and constrain implementation
of such a plan and (2) central control of investments in business
systems modernization.
DOD's business transformation efforts are likely to have a profound
impact across many areas of the department, including supply chain
management. For 15 years, DOD's supply chain management processes have
been on our list of high-risk areas needing urgent attention and
fundamental transformation to ensure that they function in the most
economical, efficient, and effective manner possible. Senior
administration leaders and advisors--including the Secretary of
Defense, the nominee for Deputy Secretary of Defense, and the Deputy
Director of the Office of Management and Budget--have recently
demonstrated a commitment to addressing DOD's management challenges. To
his credit, OMB's Deputy Director for Management and his staff have
been steadfast in their message to DOD about the need for meaningful
action and follow-through on resolving problems associated with all 14
of DOD's high-risk areas. For supply chain management, OMB has worked
with the Under Secretary of Defense for Acquisition, Technology and
Logistics and his staff to help DOD develop an action plan for
improving supply chain management that could reduce its vulnerability
to fraud, waste, abuse, and mismanagement and place it on the path
toward removal from our list of high-risk areas. OMB has proposed using
DOD's plan describing how it expects to address one of its high-risk
areas as a template for other areas on our high-risk list.
During the development of DOD's plan, we were frequently consulted by
OMB and DOD. Based on our analysis of prior reports, we suggested three
areas to DOD that would be critical to addressing our supply chain
management concerns. After consultation with OMB, DOD identified these
three as focus areas for the plan. They are:
* improving material requirements forecasts,
* improving distribution of material, and:
* improving asset visibility.
In response to DOD's request for our thoughts on its draft plan, we
focused on key elements that needed to be in the plan based on work we
have done, recommendations we have made, and our criteria for removal
from our list of high-risk areas. We provided OMB and DOD with GAO and
DOD reports citing deficiencies in these areas. As guidance for
formulating the supply chain management improvement plan, we also
provided OMB and DOD with reports containing our criteria for assessing
agencies' progress toward resolving a high-risk problem and determining
whether to remove the high-risk designation. We also provided examples
where other agencies have succeeded in having the high-risk designation
removed.
Today, I would like to provide our perspectives on (1) the importance
of supply chain management in DOD; (2) why we have listed it as a high-
risk area; (3) our assessment of DOD's plan to improve supply chain
processes; and (4) our plans to follow up on DOD's efforts.
In summary, Mr. Chairman, DOD's plan is a good first step in improving
supply chain management in support of the warfighter. Notwithstanding
this positive first step, the department faces challenges and risks in
successfully implementing its proposed changes across the department
and measuring progress.
My statement is based on previous GAO reports and analysis. Our work
was performed in accordance with generally accepted government auditing
standards.
Background:
DOD is one of the largest and most complex organizations in the world
to manage effectively. While DOD maintains military forces with
unparalleled capabilities, it continues to confront pervasive, decades-
old management problems related to its business operations--which
include outdated systems and processes--that support these forces.
These management weaknesses cut across all of DOD's major business
areas, such as human capital management, including the department's
national security personnel system initiative; the personnel security
clearance program; support infrastructure management; business systems
modernization; financial management; weapon systems acquisition;
contract management; and last, but not least, supply chain management.
All of these areas are on our high-risk list for DOD.
DOD relies on a number of individual processes and activities, known
collectively as supply chain management, to purchase, produce, and
deliver items and services to the warfighter. Its goal for supply chain
management is to deliver the "right items to the right place at the
right time" for the warfighter in support of deploying and sustaining
military capabilities as described in the National Military Strategy.
The department relies on working capital (revolving) funds maintained
by the defense and service logistics agencies to finance the flow of
these items to the forces. Working capital funds allow these agencies
to purchase needed items from suppliers. Military units then order
items from the logistics agencies and pay for them with annually
appropriated operations and maintenance funds when the requested items-
-either from inventory or manufacturers--are delivered to the units.
Effective Supply Chain Management Is Important to Supporting the
Warfighter and Ensuring Effective Investment of Resources:
There are two primary reasons why it is important for DOD to have
effective supply chain management. First, supply support to the
warfighter affects readiness and military operations. In fact, the
supply chain can be the critical link in determining whether our front-
line military forces win or lose on the battlefield. Second, given the
scope of the supply requirements to support U.S. military operations,
the investment of resources in the supply chain is substantial.
While DOD maintains military forces with unparalleled capabilities,
timely supply support is critical to sustaining these forces as they
are trained and deployed to protect our national security. For example,
to support Operation Iraqi Freedom (OIF), DOD moved more than 2 million
tons of cargo--including equipment, spare parts, supplies, and other
items--thousands of miles to the Persian Gulf. Conversely, supply
shortages can adversely affect the readiness of weapon systems. During
OIF, for example, shortages of items such as track shoes prevented
large numbers of Abrams tanks and Bradley Fighting Vehicles from
operating during the summer of 2003. In another case, tire shortages
caused units to strip and leave otherwise good vehicles as well as
supplies behind.
Shortages of supply items also could hurt the morale of those who
employ the weapon systems and raise concerns about forces' safety with
their families.
Furthermore, DOD has a significant investment in inventory and spends
billions for supplies each year. For example, at the end of fiscal year
2004, DOD had approximately $77.4 billion worth of items in its
inventory, an increase of over $15 billion since fiscal year 2001, when
DOD had approximately $62.3 billion worth. DOD estimates that the
annual costs of supplies and associated operations for fiscal year 2005
are expected to be $51.4 billion, or about 12 percent of DOD's $419
billion requested budget. Unless the department has a sound management
plan and acts to invest resources to buy and provide supplies to units,
improve the supply system, as well as invest in essential information
systems, the risk of fraud, waste, abuse, and mismanagement remains
high at a time when DOD is challenged to maintain a high level of
military operations while competing for resources in an increasingly
fiscally constrained environment. We recognize that improving DOD's
supply chain management may not save money in the near term because of
necessary investments in information technology and other enablers.
However, improved systems with timely and reliable data should lead to
more effective investment of resources in the future and thereby avoid
future costs.
Supply Chain Management Is a High-Risk Area Because of Long-Standing
Weaknesses:
For 15 years, DOD's supply chain management processes have been on our
list of high-risk areas needing urgent attention because of long-
standing systemic weaknesses that we have identified in our reports. In
1990, we began a program to report on government operations that we
identified at high risk for fraud, waste, abuse, and mismanagement.
This program serves to identify and help resolve serious weaknesses in
areas that involve substantial resources and provide critical services
to the public. The department's inventory management of supplies in
support of forces was one of the 14 operational areas identified as
high risk in 1990 because, over the previous 20 years, we had issued
more than 100 reports dealing with specific aspects and problems in
DOD's inventory management. These problems included excess inventory
levels, inadequate controls over items, and cost overruns. As a result
of this work, we had suggested that DOD take some critical steps to
correct the problems identified. Since then, our work has shown that
the problems adversely affecting supply support to the warfighter--such
as requirements forecasts, use of the industrial base, funding,
distribution, and asset visibility--were not confined to the inventory
management system, but also involved the entire supply chain. In 2005
we modified the title for this high-risk area from "DOD Inventory
Management" to "DOD Supply Chain Management."
Since 1995 we have issued over 70 reports on various deficiencies in
DOD's supply chain management system. Our assessment of these reports
shows that DOD generally concurred with our recommendations.
Furthermore, these reports had several common themes, including DOD's
need for accurate supply requirements forecasts, an effective
distribution system, and visibility over assets in inventory and while
in transit. Moreover, in our prior reports, we have noted problems with
the information technology systems supporting the supply chain. For
example, DOD has not been able to achieve total asset visibility for
over 30 years in part because the department has lacked necessary
integration among its many inventory management information systems and
has not corrected long-standing data accuracy and reliability within
its existing systems. In addition, DOD's nearly 2,000 logistics
business systems have suffered from duplication, limited
interoperability, and unnecessarily costly operations and maintenance.
GAO has not been alone in criticizing these aspects of DOD's supply
chain management. DOD and audit organizations such as the Department of
Defense Office of Inspector General and the Army Inspector General have
also issued studies and reports addressing the supply systems'
problems.
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
buying, storing, positioning, and shipping items that the warfighter
needs. However, in our April 2005 report on the effectiveness of
logistics in support of OIF, we described how DOD had not modeled
wartime demands for supplies as required to accurately forecast
warfighter requirements. As a result, we found that DOD underestimated
the demand in Iraq for some items, such as armor vehicle track shoes,
lithium batteries, meals-ready-to-eat, and tires, and forces
experienced supply shortages of these items.
Distribution is the process for synchronizing all elements of the
logistics system to deliver the "right things" to the "right place" at
the "right time" to support the warfighter. In our April 2005 report,
we describe several instances where the joint distribution system did
not support the forces in Iraq. We attributed these instances to
conflicts in doctrine about the authority over distribution, improper
packaging of shipments, insufficient transportation equipment and
supply personnel in theater, and the inability of the information
systems to support the requisition and shipment of supplies into and
through Iraq. For example, we found that DOD was not able to
effectively distribute sufficient quantities of items such as body
armor, meals-ready-to-eat, tires, and generators for Marine Corps
amphibious vehicles because of problems with supply chain management.
DOD describes asset visibility as the ability to provide timely and
accurate information on the location, quantity, condition, movement,
and status of supplies and the ability to act on that information. For
over 30 years, the department has been attempting to improve the
visibility over its inventory as well as items in transit, and we have
repeatedly reported problems with its efforts. The continued lack of
visibility over inventory and shipments increases vulnerability to
undetected loss or theft; substantially increases the risk that
millions of dollars will be spent unnecessarily; and if items are not
delivered when needed, may impair warfighter readiness. We have
recently reported on DOD's problems with existing inventory systems
being unable to share data on a near real-time basis and concerns
related to tracking critical supplies for Iraq. For example, in
December 2003 we reported a discrepancy of $1.2 billion between the
amount of material shipped to Army activities in Iraq and the amount of
material that those activities acknowledged they received. Since then,
in an April 2005 report we reported that the lack of visibility over
items in transit significantly affected distribution. For example,
incomplete identification tags attached to shipments resulted in the
loss of some body armor protection plates, delays in getting meals-
ready-to-eat, and the Marine Corps' ability to only verify the receipt
of 15 of 140 amphibious assault vehicle generators that were shipped.
Improving asset visibility should not only improve data for supply
managers' decisions, but should also improve the warfighter's trust in
the supply system.
DOD's Plan Is a Good Start toward Resolving Supply Chain Management
Weaknesses that Will Require Continued Diligence to Succeed:
DOD's plan to improve supply chain management provides a good start and
framework for addressing long-term systemic weaknesses in DOD's supply
chain management and for focusing the multiyear effort that will be
needed to improve supply support to the warfighter. Notwithstanding
this important, positive first step, the department faces many
challenges and risks in its efforts to improve the supply chain. First,
successful resolution of its supply chain management problems will
require DOD to, among other things, diligently complete parts of the
plan, fully implement proposed changes across the department, and
measure progress. Second, resolution of supply chain management
problems will require investment in needed information technology.
DOD's supply chain plan includes the Business Management Modernization
Program as one of its 10 initiatives. In the plan, DOD recognizes that
achieving success in supply chain management is dependent on developing
interoperable systems that can share critical supply data. However, we
recently reported that DOD had made limited progress developing a
common architecture for its business system modernization investments
despite having spent 4 years and about $318 million. Last week DOD, as
part of its Business Management Modernization Program, issued an
overarching business enterprise architecture and an enterprise
transition plan for implementing the architecture. Under the Ronald W.
Reagan National Defense Authorization Act for Fiscal Year 2005, we have
60 days to provide our assessment of the extent to which the
architecture and transition plan meet statutory requirements of 10
U.S.C. section 2222.
Our assessment of DOD's plan to improve its supply chain management is
based on work we have performed, prior recommendations, and the
criteria cited in our November 2000 report on determining performance
and accountability challenges and high risks. We use these criteria to
assess an agency's progress toward resolving a high-risk problem and
determine whether to remove the high-risk designation. There are five
essential questions to be addressed:
1. Does DOD's plan demonstrate a strong commitment and top leadership
support to improve supply chain management?
The formulation of DOD's plan and its endorsement by the Under
Secretary of Defense for Acquisition, Technology and Logistics is
evidence of a strong commitment by top leadership to improve DOD's
supply chain management. His recent referral to supply chain management
as one of the five business areas targeted for improvement by the
department's Business Practices and Processes Integrated Product Team
as part of the current Quadrennial Defense Review is further evidence
of his commitment. However, it is important for DOD to sustain this
commitment as it goes forward in implementing this multiyear plan while
also engaged in departmentwide business transformation efforts. Because
improving supply chain management may be one of several high-risk areas
DOD will be addressing at one time, it may take the involvement of the
Deputy Secretary of Defense or a chief management official, as proposed
by the leadership of this Subcommittee, to ensure that a long-term
departmentwide commitment is sustained. In addition, it is important
that DOD act to institutionalize this effort by incorporating the
elements of the plan into key Office of Secretary of Defense guidance,
such as its Logistics Transformation Strategy and its follow-on
document called the Focused Logistics Roadmap, that are to guide
department activities.
2. Does DOD have the capacity, meaning people and other resources, to
resolve the problems with supply chain management?
If DOD makes implementation of its plan a priority, the department has
people and other resources to draw from in helping to resolve its
supply chain management problems. However, the plan was developed at
the Office of the Under Secretary of Defense level, whereas most of the
people and resources needed to implement the plan are under the
direction of the Defense Logistics Agency and the services. Therefore,
it is important for the department to obtain the necessary resource
commitments from the military services; the Defense Logistics Agency;
and other organizations, such as U.S. Transportation Command, to ensure
that the numerous initiatives on which the multiyear plan depends are
properly supported. Obtaining these commitments might require the
involvement of the Deputy Secretary of Defense or a position such as a
chief management official.
3. Does DOD have an action plan that defines root causes, identifies
effective solutions, and provides for substantially completing
corrective measures over the near term?
DOD's plan for improving supply chain management addresses some of the
root causes for problems in three key areas with potentially effective
solutions that it may be able to fully implement over the next few
years. By committing to improve requirements forecasting, material
distribution, and asset visibility in this plan, DOD has focused its
efforts on three areas we frequently identified as impeding effective
supply chain management. DOD's plan for improvement proposes
departmentwide implementation of 10 initiatives to help resolve supply
chain management problems in the three areas by addressing some of the
causes. For example, implementing radio frequency identification
technology is expected to provide demand data for forecasting
requirements, improve distribution performance, and provide fully
automated visibility over assets in inventories and distribution
centers. However, the time frames for completing some of these 10
initiatives are of concern. For example, milestones for implementing
the Business Management Modernization Program, a critical enabler that
will provide the essential information technology underpinning for
achieving progress in all three focus areas, are not specifically
linked to improvements in requirements forecasting, distribution, and
asset visibility. Until the initiatives are substantially implemented
across the department, we will not know whether they provide effective
solutions to all of the root causes of DOD's supply chain management
problems.
4. Does DOD have a program to monitor and independently validate the
effectiveness and sustainability of corrective measures?
While DOD's plan recognizes the need and cites a general methodology
for evaluating progress associated with each of the 10 initiatives, the
department has not yet provided all of the information needed for this
to occur. DOD's plan cites a two-step approach. The first step is to
have DOD's organizations establish a methodology (internal process) for
monitoring the validity of data as part of implementing the initiatives
and reporting on metrics. DOD's second step is to rely on independent
groups, such as contractors and the Department of Defense Office of
Inspector General, to validate the data, and GAO to monitor the
department's progress in improving supply chain management as part of
its planned audits. Such validation processes are important because, as
we have frequently reported, DOD's systems do not have accurate and
reliable data, and without valid data, it will be difficult to
accurately track progress. However, until DOD specifies all of the
metrics and systems it plans to use to measure progress it cannot
ensure comprehensive monitoring within the department or that
independent groups will know what data and systems should be validated
to confirm DOD's reported progress.
5. Does DOD have the ability to demonstrate progress in implementing
corrective measures?
DOD has the ability to demonstrate some progress in implementing the
initiatives. However, it has not identified all of the performance
metrics necessary to demonstrate how all of the initiatives are
affecting supply to the warfighter. DOD's plan identified some viable
overall supply chain management performance metrics, including the
level of backorders, the amount of customer wait time, and the
percentage of orders on time. The plan also identified baseline and
annual performance targets for these metrics to use in measuring
progress. But it did not have any cost baselines or cost performance
targets. Furthermore, DOD has not yet identified specific outcome
metrics for many of the initiatives. For example, DOD's plan shows that
it expects to have radio frequency identification technology
implemented at 100 percent of its U.S. and overseas distribution
centers by January 2007, but noted that it has not yet identified
additional metrics that could be used to show the impact of
implementation on expected outcomes, such as receiving and shipping
timelines, asset visibility, or supply consumption data. In total,
DOD's plan identifies a need to develop such supply performance metrics
for 6 initiatives, and 9 of the 10 initiatives lack cost metrics. Until
DOD develops and tracks the additional costs and supply impact metrics
it has promised, it will be difficult for the department to
convincingly demonstrate its progress in improving supply chain
management and providing timely logistics support to the warfighter.
GAO Has Plans to Follow Up on DOD's Supply Chain Improvement Efforts:
As part of our periodic reassessment of high-risk areas across the
federal government, we will be assessing DOD's progress in resolving
supply chain management and its other high-risk areas. Our next high-
risk update is due in January 2007. We plan to follow up on DOD's
supply chain management improvement efforts in three ways. First, as a
matter of routine practice we will continue assessing DOD's progress in
implementing the recommendations made in our prior reports. Second, we
also anticipate evaluating several of DOD's supply management
activities as part of our planned engagements over the next 2 years.
For example, next year we expect to evaluate how the Defense Logistics
Agency's and services' spare parts inventory management initiatives
have progressed in meeting their performance objectives and timelines.
Third, in August we met with representatives of the Department of
Defense Office of Inspector General and service audit agencies as well
as DOD and OMB to review DOD's plan and begin the process of sharing
information on planned audits. We expect to meet periodically with
these representatives in the future to coordinate audit coverage of the
initiatives, performance metrics, and data system validity while
minimizing audit duplication.
Along with OMB and the Congress, we look forward to doing our part by
monitoring DOD's progress as it works toward mitigating supply chain
management problems and achieving its goal of supporting the warfighter
by providing the "right items to the right place at the right time."
Mr. Chairman and Members of the Subcommittee, this concludes my
prepared statement. I would be happy to answer any questions you may
have at this time.
Staff Contacts and Acknowledgments:
For further information regarding this testimony, please contact me at
202-512-8365 or solisw@gao.gov. Individuals making contributions to
this testimony include Tom Gosling, Assistant Director; Robert Brown;
Richard Payne; John Pendleton; Dave Schmitt; George Stalcup; and John
Wren.
