[Senate Hearing 109-272]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 109-272
 
            FROM FACTORY TO FOXHOLE: IMPROVING DOD LOGISTICS

=======================================================================

                                HEARING

                               before the

                  OVERSIGHT OF GOVERNMENT MANAGEMENT,
                 THE FEDERAL WORKFORCE AND THE DISTRICT
                        OF COLUMBIA SUBCOMMITTEE

                                 of the

                              COMMITTEE ON
                         HOMELAND SECURITY AND
                          GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE


                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                            OCTOBER 6, 2005

                               __________



       Printed for the use of the Committee on Homeland Security
                        and Governmental Affairs



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        COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS

                   SUSAN M. COLLINS, Maine, Chairman
TED STEVENS, Alaska                  JOSEPH I. LIEBERMAN, Connecticut
GEORGE V. VOINOVICH, Ohio            CARL LEVIN, Michigan
NORM COLEMAN, Minnesota              DANIEL K. AKAKA, Hawaii
TOM COBURN, Oklahoma                 THOMAS R. CARPER, Delaware
LINCOLN D. CHAFEE, Rhode Island      MARK DAYTON, Minnesota
ROBERT F. BENNETT, Utah              FRANK LAUTENBERG, New Jersey
PETE V. DOMENICI, New Mexico         MARK PRYOR, Arkansas
JOHN W. WARNER, Virginia

           Michael D. Bopp, Staff Director and Chief Counsel
   Joyce A. Rechtschaffen, Minority Staff Director and Chief Counsel
                      Trina D. Tyrer, Chief Clerk


   OVERSIGHT OF GOVERNMENT MANAGEMENT, THE FEDERAL WORKFORCE AND THE 
                   DISTRICT OF COLUMBIA SUBCOMMITTEE

                   NORM COLEMAN, Minnesota, Chairman
TED STEVENS, Alaska                  CARL LEVIN, Michigan
TOM COBURN, Oklahoma                 DANIEL K. AKAKA, Hawaii
LINCOLN D. CHAFEE, Rhode Island      THOMAS R. CARPER, Delaware
ROBERT F. BENNETT, Utah              MARK DAYTON, Minnesota
PETE V. DOMENICI, New Mexico         FRANK LAUTENBERG, New Jersey
JOHN W. WARNER, Virginia             MARK PRYOR, Arkansas

                   Andrew Richardson, Staff Director
              Richard J. Kessler, Minority Staff Director
            Nanci E. Langley, Minority Deputy Staff Director
                       Tara E. Baird, Chief Clerk


                            C O N T E N T S

                                 ------                                
Opening statements:
                                                                   Page
    Senator Voinovich............................................     1
    Senator Akaka................................................     4

                               WITNESSES
                       Thursday, October 6, 2005

Kenneth J. Krieg, Under Secretary of Defense for Acquisition, 
  Technology, and Logistics, U.S. Department of Defense..........     7
Hon. Clay Johnson III, Deputy Director for Management, Office of 
  Management and Budget..........................................    10
William M. Solis, Director, Defense Capabilities and Management, 
  Government Accountability Office...............................    11

                     Alphabetical List of Witnesses

Johnson, Hon. Clay III:
    Testimony....................................................    10
    Prepared statement...........................................    39
Krieg, Kenneth J.:
    Testimony....................................................     7
    Prepared statement...........................................    27
Solis, William M.:
    Testimony....................................................    11
    Prepared statement...........................................    41

                                APPENDIX

Questions and answers submitted for the record from Mr. Krieg....    54


            FROM FACTORY TO FOXHOLE: IMPROVING DOD LOGISTICS

                              ----------                              


                       THURSDAY, OCTOBER 6, 2005

                                 U.S. Senate,      
                Oversight of Government Management,        
                        the Federal Workforce and the      
                     District of Columbia Subcommittee,    
                    of the Committee on Homeland Security  
                                  and Governmental Affairs,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 2:30 p.m., the 
Hon. George V. Voinovich, Chairman of the Subcommittee, 
presiding.
    Present: Senators Voinovich and Akaka.

             OPENING STATEMENT OF SENATOR VOINOVICH

    Senator Voinovich. Good afternoon. The hearing will please 
come to order.
    Today's hearing is entitled, ``From Factory to Foxhole: 
Improving DOD Logistics,'' examines a somewhat arcane yet 
vitally important issue that affects the men and women of our 
Armed Forces.
    This is the fourth Subcommittee hearing Senator Akaka and I 
have held on the Government Accountability Office's high-risk 
list and the third in our ongoing investigation into the 
management challenges facing the Department of Defense. As you 
know, the Department is the leading agency with eight areas on 
the high-risk list. In addition, there are six government-wide 
high-risk areas that DOD shares with all Federal agencies.
    Senator Akaka and I will be focusing our Subcommittee 
agenda on two of the DOD high-risk areas. Our first is the 
personnel security clearance process, which is an issue DOD 
shares with the Office of Personnel Management. Today's hearing 
topic, supply chain management, is the second area where we 
will be dedicating our time and resources to guarantee that 
necessary improvements are made.
    Unfortunately, during Operation Iraqi Freedom, GAO found 
several examples of a mismanaged supply chain, including (1) a 
$1.2 billion discrepancy in the material shipped to, and 
received by, the Army; (2) cannibalized equipment because of a 
lack of spare parts; and (3) a war reserve that did not 
adequately supply the warfighter with enough body armor, 
lithium batteries, up-armored kits for Humvees, and meals-
ready-to-eat. This is surprising to me because I thought we had 
a stockpile of these meals. Based on these findings, I do not 
think anyone would disagree that the Department must improve 
the way it supplies the men and women of the Armed Services 
with critical life-supporting gear.
    In Ohio, I spoke with a constituent who said they were 
sending telescopic lenses for rifles to Iraq, because the 
soldiers did not have them. I think it is a tragedy that 
important supplies like this were not available at a time when 
it was needed. I understand that things have substantially 
improved since that time.
    My interest in investigating and improving the Department's 
supply chain management process is governed by two important 
principles. First, with a budget of over $420 billion, which is 
a little less than we borrow each year to run the Federal 
Government. Second, with $77 billion worth of items in its 
inventory, the Department must be a better steward of the 
taxpayers' money. In fact Secretary Rumsfeld has estimated that 
the Department wastes 5 percent, or $20 billion a year, on 
redundant or outdated business practices.
    We've got something on the floor of the Senate today where 
we--in terms of a system that deals with taking care--it's 
supposed to be a computerized system where people can book 
airlines, and I just couldn't believe it, $500 million, 7 years 
and it still doesn't work. So there's some problems there and 
I'm sure we'll get into some of those systems.
    More importantly however, inefficient, ineffective and 
redundant steps within the supply chain have a direct and 
immediate impact on our soldiers on the battlefield. This is 
why we are here today. In other words, the current system 
impedes the Department's ability to deliver the right items at 
the right time to the right place for the warfighter.
    Even though today's hearing title implies a much broader 
focus, we must not lose sight of the fact that the supply chain 
management process, which is a key component of the 
Department's logistics program, has been on the GAO's high-risk 
list since 1990. That's 15 years. That's just too long for a 
process of this magnitude and importance to be mismanaged.
    Therefore, I'd like our witnesses to know that I am 
committed to working with them to ensure that the necessary 
improvements are made in the supply chain area, and that it is 
eventually removed from the high-risk list. Then we'll set off 
the fireworks and have a big party. I'd like to do it before 
this President leaves office. Do you hear me?
    Fortunately, the Department is taking steps in the right 
direction. In July, the Department unveiled a plan to improve 
their supply chain management process. The plan contains a 
matrix consisting of 10 specific business practices that can be 
measured against three strategic goals, which include 
improvements in (1) asset visibility; (2) forecasting; and (3) 
distribution.
    I commend the Department for developing the supply chain 
management plan in an open and collaborative manner with GAO 
and OMB. When you get GAO, OMB, and the Department all working 
together, that's a sign that you've got something really good 
underway.
    I would like to express my appreciation to OMB Deputy 
Director for Management, Clay Johnson, for facilitating this 
process. Clay, I want to thank you publicly for all the time 
that you have put into this plan. You have been very 
conscientious and I couldn't ask for any more from you. Thank 
you once again.
    And I applaud the Bush Administration for the no-nonsense 
approach that you've taken on management issues. You don't get 
credit for this, but this is the first administration that 
really has a management agenda: You rate agencies by giving 
them a green, red, and yellow.
    Mr. Johnson. You're getting a green so far on this. 
[Laughter.]
    Senator Voinovich. However, now that the plan is developed, 
the Department must begin the more difficult task of 
implementation. As Chairman of the Oversight of Government 
Management Subcommittee I will conduct continued oversight on 
this issue. I want to make it clear that Senator Akaka and I 
are committed. We may not be having frequent hearings, but 
we're going to have frequent visits to monitor the progress 
that's being made. So often we get more out of meetings than 
when we have a public hearing.
    My goal today is to develop a clear understanding of the 
benchmarks and metrics that will be used to measure successful 
supply chain management improvements. I hope that in the 
testimony today it is clear that you have agreed on the metrics 
to judge the progress. In other words, here's the baseline. I 
just listed several things that aren't the way they're supposed 
to be. Here's the benchmarks, and how are we going to judge 
them as we move along whether or not we're making progress?
    Mr. Solis, I really think, it is important that GAO 
continues looking at this issue. I think it's real important 
that everybody understands what the issues are, including this 
Subcommittee, so that a year from now, we are all on the same 
page. I think it's real important that we agree on what the 
metrics should be in terms of their performance.
    Our review will also include the ability for DOD, OMB, and 
GAO to continually collaborate on the implementation of the 
plan. It is evident that this triad created the momentum for 
writing the Department's supply chain management plan, and 
continued collaboration will enable you to establish and 
maintain a framework of accountability necessary for successful 
implementation. Again, Mr. Solis, it would be nice if you keep 
working together as you go along on this issue. Too often, I 
think sometimes--and I don't know what the rules are--but you 
represent us but it's good to touch base and so forth.
    Mr. Solis. We do plan to continue that relationship with 
OMB and DOD.
    Senator Voinovich. Great. In addition, the unique 
partnership between DOD, OMB, and GAO has broader implications 
for outlining progress in each high-risk program area. 
Therefore, I applaud OMB and GAO for having the foresight to 
apply the DOD supply chain management model to the entire high-
risk list by requiring affected agencies to development 
improvement plans. I'm optimistic that this exercise will have 
a positive impact on the performance of the 25 areas listed on 
the high-risk list.
    Perhaps improvements will lead to the elimination of more 
than three high-risk areas, thereby surpassing the number of 
programs removed on this year's list. We congratulate you, 
Clay. If I had your job and I took the high-risk list and 
brought it down I would brag about it. So I think that if we 
can keep working on it, hopefully it really will be beneficial.
    Before I yield to Senator Akaka, I would like to thank each 
of our witnesses today, especially Under Secretary Krieg for 
his dedicated service to the Department, which began in 2001. 
Mr. Krieg came from the private sector, joined the Federal 
Government--and I'm not taking any shots at anybody that has 
left, but so often people come into the Department, start to 
really find out what's going on and then they go back to the 
private sector.
    Mr. Krieg, I mentioned this to you when I met you in my 
office, I'm very grateful to you that you decided to stay on 
and take on this responsibility, because your performance is 
going to be so much better because you've got the experience 
under your belt from being in the Department of Defense. I 
would also like to thank your wife Ann and your two children 
Alan and Meredith because of the sacrifices they make.
    We had a meeting this morning with the Army Corps of 
Engineers and I never got a chance to thank them. We've got 
this Katrina thing out there and we keep hearing criticisms of 
FEMA and this group and that group. And these people are out 
there 24/7, busting their backs, trying to do their job. You 
see on television criticism. Some of them haven't seen their 
wives or their kids for a long period of time. I think that, 
Senator Akaka, I'm going to introduce a resolution on the floor 
of the Senate--I know we have differences of opinion, you and I 
don't, but in terms of Katrina, maybe we do. But the fact of 
the matter is I don't think we disagree that there are some 
very dedicated Federal workers that are out there doing the 
job, and we ought to let them know how much we appreciate what 
they're doing for our country.
    Finally, Mr. Krieg, I'd like to congratulate Alan Estevez 
from your staff for winning the Service to America Medal in 
National Security. This is the first Partnership for Public 
Service that I've missed and I would have loved to have seen 
you present that to him that night.
    I now yield to my good friend and colleague, Senator Akaka.
    I think this is really important. As Ranking Member of the 
Armed Services Readiness Subcommittee, he has a vast background 
on the managerial intricacies of the Department of Defense, and 
I'm sure, Senator Akaka, because of that position you've got 
staff people that are really familiar with this area. I wanted 
to say that I'm going to use your encyclopedic knowledge to 
help in making sure that we do as good a job as we can in terms 
of oversight in regard to this very important issue for our 
country.
    Senator Akaka.

               OPENING STATEMENT OF SENATOR AKAKA

    Senator Akaka. Thank you very much, Mr. Chairman. It is no 
secret that it is a pleasure for me to partner with the 
Chairman. We have worked together very well. Our Chairman heads 
one of the most important Subcommittees, Government Management 
and the Federal Workforce, which is the essence of our 
government. So what we are doing together is trying to do all 
we can to improve whatever government. And I join him in 
working on that. And since he has mentioned Katrina, I just 
want you to know I just returned last night from Louisiana, 
where I visited with Chairman Domenici and Ranking Member 
Bingaman of the Committee on Energy and Natural Resources. The 
three of us went there to look at the aftermath of Katrina and 
Rita, and I am saying this just to emphasize the comment that 
the Chairman made. I came away feeling that there are a lot of 
heroes in that area who sacrificed their time, even their 
lives, in saving people. I was able to speak to some of these 
people, and I saw a different view of what is there.
    However, we need to take the next steps in recovery, and 
one area is in the energy field by trying to bring the energy 
back up because it affects our whole Nation.
    Mr. Chairman, last month the Nation learned a painful 
lesson about the importance of logistics, and, again, this came 
up in our visit, too. After Hurricane Katrina struck, the 
National Guard responded with the largest domestic mobilization 
in history. Unfortunately, the Guard was under-equipped. 
According to Lieutenant General Blum, Chief of the National 
Guard Bureau, the Guard lacked sufficient trucks, radios, and 
night vision goggles to do their job properly. At the same 
time, food, water, and ice that had been pre-positioned in the 
region was stuck in warehouses. This is history.
    The Federal response to Katrina underscored three 
challenges of logistics: Asset visibility, forecasting, and 
distribution.
    Commanders must have the ability to: (1) see exactly what 
assets they have and where the assets are located; (2) 
accurately predict future needs; and, (3) quickly move supplies 
from factory to foxhole. Defense logistics requires balancing 
the roles of supplier to the warfighter with accountability to 
the taxpayer.
    DOD logistics has been on the Government Accountability 
Office High-Risk List since 1990, under various names, and the 
GAO has issued more than 72 reports in this area. While much 
more remains to be done, there have been some improvements.
    One improvement has been in distribution. In Operation 
Desert Storm, it took months to move supplies into the region 
before the invasion. Once the supplies got there, it was often 
difficult to determine what had been delivered. We heard many 
stories of troops tearing apart truckloads of supplies looking 
for particular items that they needed.
    In Operation Iraqi Freedom, we were able to move supplies 
into the region more quickly, and once we got there, we had 
much better accountability for what we had. One reason for the 
improved accountability was the increased use of Radio 
Frequency Identification, or RFID, to track these supplies. 
This is a critical improvement, and one that we need to 
continue to develop.
    Shortages of critical supplies, however, continue. In 
Desert Storm, we learned about shortages of desert camouflage 
uniforms and boots. In Operation Iraqi Freedom, we learned 
about the shortages of chem-bio suits, armored Humvees, and 
body armor.
    It is just plain wrong that family members of those 
fighting in Iraq and Afghanistan needed to purchase, in many 
cases, critical safety gear for loved ones. We included a 
provision in last year's Defense Authorization bill requiring 
DOD to reimburse Service members, up to $1,100 per item, for 
protective equipment. The law required the Secretary of Defense 
to develop regulations for reimbursement by February 25, 2005, 
yet these regulations were not issued until yesterday, while 
the Senate was considering Senator Dodd's amendment to expand 
this program. The amendment we approved yesterday will help to 
ensure that our warfighters have needed protective equipment.
    Such problems are why we are discussing DOD's strategic 
plan today.
    Mr. Chairman, I am very pleased that the Office of 
Management and Budget and the GAO are working with DOD on the 
broad issue of defense logistics and have developed a 
measurable plan for improvement.
    The presence today of Mr. Johnson, who has been such a big 
help, Mr. Krieg, and Mr. Solis demonstrates the commitment to 
the request we made of OMB at our hearing last February that 
there be a clear strategy to review high-risk programs and get 
DOD off the high-risk list. I do want to add that I am 
especially pleased that Mr. Johnson has taken our request 
seriously, and I understand that all areas on the high-risk 
list are under close review by OMB. And I want you to know, 
Clay, that I really appreciate what you are doing.
    Again, I want to thank our witnesses as well as their 
staffs for bringing all of this about and helping us improve 
the system.
    Thank you very much, Mr. Chairman.
    [The prepared statement of Senator Akaka follows:]

                  PREPARED STATEMENT OF SENATOR AKAKA

    Thank you, Mr. Chairman. It is a pleasure partnering with you once 
again as we examine another high-risk government program. As you know, 
I also serve as the Ranking Member of the Armed Services Readiness 
Subcommittee, so this hearing is of particular interest to me.
    Last month, the Nation learned a painful lesson about the 
importance of logistics. After Hurricane Katrina struck, the National 
Guard responded with the largest domestic mobilization in history. 
Unfortunately, the Guard was under-equipped. According to Lt. General 
Blum, Chief of the National Guard Bureau, the Guard lacked sufficient 
trucks, radios, and night vision goggles to do their job properly. At 
the same time, food, water, and ice that had been pre-positioned in the 
region was stuck in warehouses.
    The Federal response to Katrina underscored three challenges of 
logistics:

      Asset Visibility,
      Forecasting, and
      Distribution.

    Commanders must have the ability to: (1) see exactly what assets 
they have and where the assets are located, (2) accurately predict 
future needs, and (3) quickly move supplies from factory to foxhole. 
Defense logistics requires balancing the roles of supplier to the 
warfighter with accountability to the taxpayer.
    Department of Defense (DOD) logistics has been on the Government 
Accountability Office (GAO) High-Risk List since 1990, under various 
names, and the GAO has issued more than 72 reports in this area. While 
much more remains to be done, there have been some improvements.
    One improvement has been in distribution. In Operation Desert 
Storm, it took months to move supplies into the region before the 
invasion. Once the supplies got there, it was often difficult to 
determine what had been delivered. We heard many stories of troops 
tearing apart truckloads of supplies looking for particular items that 
they needed.
    In Operation Iraqi Freedom, we were able to move supplies into the 
region more quickly, and once we got there, we had much better 
accountability for what we had. One reason for the improved visibility 
was the increased use of Radio Frequency Identification, or RFID, to 
track supplies.
    This is a critical improvement, and one that we need to continue to 
develop.
    Shortages of critical supplies, however, continue. In Desert Storm, 
we learned about shortages of desert camouflage uniforms and boots. In 
Operation Iraqi Freedom, we learned about shortages of chem-bio suits, 
armored Humvees, and body armor.
    It is just plain wrong that family members of those fighting in 
Iraq and Afghanistan needed to purchase, in many cases, critical safety 
gear for loved ones. We included a provision in last year's Defense 
authroization bill requiring DOD to reimburse Service members--up to 
$1,100 per item--for protective equipment. The law required the 
Secretary of Defense to develop regulations for reimbursement by 
February 25, 2005, yet these regulations were not issued until 
yesterday, while we were considering Senator Dodd's amendment to expend 
this program. The amendment we approved yesterday will help to ensure 
that our warfighters have needed protective equipment.
    Such problems are why we are discussing DOD's strategic plan today.
    I am pleased that the Office of Management and Budget (OMB) and the 
GAO are working with DOD on the broad issue of defense logistics and 
have developed a measurable plan for improvement.
    The presence today of Mr. Johnson, Mr. Kreig, and Mr. Solis 
demonstrates the commitment to the request we made of OMB at our 
hearing last February that there be a clear strategy to review high-
risk programs and get DOD off the high-risk list. I do want to add that 
I am especially pleased that Mr. Johnson has taken our request 
seriously, and I understand that all areas of the high-risk list are 
under close review by OMB.
    Thank you, Mr. Chairman.

    Senator Voinovich. Thank you, Senator Akaka. That was a 
wonderful statement.
    We are fortunate to have three great witnesses today. 
Gentleman, it is the custom of this Subcommittee to swear in 
all witnesses. If you will stand, do you swear that the 
testimony you are about to give is the truth, the whole truth, 
and nothing but the truth, so help you, God?
    Mr. Krieg. I do.
    Mr. Johnson. I do.
    Mr. Solis. I do.
    Senator Voinovich. Our witnesses this afternoon include Ken 
Krieg, Under Secretary of Defense for Acquisition, Technology, 
and Logistics. Mr. Krieg, we are honored to welcome you today; 
Hon. Clay Johnson, Deputy Director for Management at the Office 
of Management and Budget, who has been before the Subcommittee 
on many occasions. We really appreciate you being here today to 
show your concern for this issue; and William Solis, who is the 
Director of Defense Capabilities and Management at the 
Government Accountability Office. Mr. Solis, I am glad to have 
you here today. I have a great deal of respect for Comptroller 
General David Walker, but I like to see the people in the 
Government Accountability Office that handle the issue to 
testify before the Subcommittee because you are where the 
rubber meets the road.
    Mr. Krieg, if you will start the testimony.

 TESTIMONY OF KENNETH J. KRIEG,\1\ UNDER SECRETARY OF DEFENSE 
FOR ACQUISITION, TECHNOLOGY, AND LOGISTICS, U.S. DEPARTMENT OF 
                            DEFENSE

    Mr. Krieg. Thank you, Senator. Chairman Voinovich, Senator 
Akaka, I know you are committed, as I am, to providing our 
warfighters with the best logistics support possible. That is 
why I am very pleased to take the opportunity to be here today 
to begin to outline the work that we have had going on in the 
Department and that OMB, GAO, and DOD are working together on 
supply chain logistics.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Kreig appears in the Appendix on 
page 27.
---------------------------------------------------------------------------
    The need to improve the DOD supply chain is clearly based 
on the strategic need. First, we need increased speed and 
agility in our military response, which means that our 
logistics processes must be as rapid and agile as our 
warfighters on the front line. Second, we need to adjust our 
sustainment to meet the needs of a coalition force that is much 
more mobile and distributed than ever before. This demands that 
we work more closely with both our customers and our suppliers 
to create more reliable and secure distribution systems. 
Finally, we need clear accountability for resources and 
outcomes. We need this particularly in logistics, which is 
funded primarily through operations and maintenance money and 
is distributed to every DOD facility and every DOD 
organization.
    Achievement of these objectives will enable DOD to 
transform its competitive advantage into a truly offensive 
weapon. This process will be driven by outcome performance and 
enabled by transparent accountability.
    Let me assure you that I have heard and the Department has 
heard your interest in this issue. We are developing and 
implementing an individual plan of action in partnership with 
OMB and GAO that we hope will produce--I believe will produce 
the type of results that will remove DOD's supply operations 
from the high-risk list. This is not a list that anyone wants 
to be No. 1 on. We are also pursuing leading-edge commercial 
procurement practices; we are actively developing an integrated 
logistics transformation strategy; and we are improving our 
support to deployed forces with increased supply availability, 
reduced supply times, and smaller, more agile operational 
supply lines.
    I would like in just a couple of minutes to briefly 
summarize our current logistics posture and then follow up with 
highlights of the next steps.
    The current state of DOD logistics is strong and improving, 
particularly in terms of our core business, which is to project 
and sustain U.S. military power.
    Thanks in part to continued support from Congress, we have 
historically materiel availability to meet the warfighter 
needs. There are still problems, but overall the system is 
performing very well.
    We also have historically low back orders and cost recovery 
rates in organizations like the Defense Logistics Agency.
    When we look at the DOD supply chains, we can see that we 
are dealing with a huge business that has two fundamental 
responsibilities: First--and I share your views on these--we 
provide our warfighters--we need to provide our warfighters 
with the best support possible; and, second, we need to ensure 
that the taxpayers are receiving the best value for their 
money.
    To that end, we have made several logistics improvements to 
enhance both efficiency and accountability from 2001 to today. 
As you both noted, and obviously we are here today, we have 
built a set of initiatives that have accountabilities, that 
have metrics and that have timelines, and that are focused on 
improving asset visibility, forecasting and managing demand, 
and then improving distribution.
    To improve asset visibility, we have implemented, as 
Senator Akaka noted, Radio Frequency Identification on all 
loaded ocean containers and air pallets moving through our 
distribution system into Iraq and Afghanistan. We will continue 
to expand our program, and I would note, Senator Voinovich, 
that is the program that Alan Estevez led, and led to his award 
the other night. When combined with item unique identification, 
or every item has a number, if you will, and integrated in 
supply data management systems, we will lead DOD into an era of 
asset visibility across the enterprise.
    We are committed to employing best-in-class, not just in 
the Department of Defense, but best-in-class supply chains and 
supply chain practices. For example, for items in five key 
areas--food, fuel, medicines, clothing, and common shop 
materials--we use the commercial supply chains, hold very 
limited inventory inside the Department of Defense, and are 
realizing 24- to 48-hour turnaround times, response times. For 
those more military-unique items, we are moving towards 
consolidated purchasing and strategic buying practices, 
consistent with OMB guidance.
    We have improved that notion of factory-to-foxhole 
distribution capabilities by expanding the role of the 
Commander of U.S. Transportation Command to include 
synchronization of both the front-end and end-to-end 
distribution, not just port to port.
    More broadly, we have also implemented life cycle 
management and systems and notions like performance-based 
logistics for new weapons programs. These efforts place assets 
back in the hands of our warfighters much faster and will allow 
us to reduce inventory.
    The last thing I would note, before getting to the next 
steps, is that we are committed inside the Department to 
growing our people in this area. Obviously, the intellectual 
property that drives these kind of systems is so valuable, and 
I know of this Subcommittee's hard work in that area. We thank 
you for that, and we hope that we will live up to the kind of 
standards you have set for us.
    Finally, I would like to touch on a few of our major 
initiatives. First, we have put some benchmarks and some 
measures into the performance plan, but we continue to look to 
the best of industry to provide benchmarking to improve our 
performance.
    Next, we plan to accelerate and expand several strategic 
initiatives, as I said, life cycle management, performance-
based logistics, and Radio Frequency Identification.
    We also plan to build on successful application of our 
commercial supply chains and apply similar practices for war 
reserve consumable materials as well. This will enable us to 
draw upon the commercial market for surge requirements while 
also reducing our need to hold war reserve inventory.
    We also plan to develop strategic performance goals for our 
key logistics capabilities that will guide both capital 
investment and process improvement.
    Finally, I would like to note that we sent to you last 
week, which I am sure you have not had time yet to go through, 
our Enterprise Transformation Plan, which lays out the data 
strategies that support the kind of business processes we are 
talking about here, and obviously data is a huge enabling 
factor in driving better performance throughout the system. We 
have plans, but the challenge is to turn these plans into 
action and those actions into outcomes. I believe our strategic 
actions are responsive to the needs of our customers, and we 
also need to be responsive to our ultimate funders, the 
American taxpayers, and consistent with the recommendations of 
GAO and OMB, and aligned with the intent of this Subcommittee.
    Thank you for having us. Thank you for staying in tune with 
us. Thank you for the challenges you will put in front of us in 
the years ahead. I look forward to working with you.
    Senator Voinovich. Thank you very much, Mr. Krieg. Mr. 
Johnson.

  TESTIMONY OF HON. CLAY JOHNSON III,\1\ DEPUTY DIRECTOR FOR 
          MANAGEMENT, OFFICE OF MANAGEMENT AND BUDGET

    Mr. Johnson. Mr. Chairman, Senator Akaka, thank you for 
having me. I just have a few remarks. I am delighted to be here 
to say some really good things about the work that DOD has done 
on supply chain management.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Johnson appears in the Appendix 
on page 39.
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    They have developed a plan to address the risks associated 
with supply chain management, which involves so much money at 
the Department of Defense, and a plan that can be used as a 
model for how the Department of Defense can and should and will 
address the risks in all the other high-risk areas, and how the 
rest of the government should lay out their plans for 
addressing the risks in their areas. It is a really fine plan. 
And one of the keys to its success, I think, is there are lots 
of metrics, there are lots of clear identification of what 
success means. Success will be when they have taken it from 
this level, that level, the response times from this to that. 
Very clear goals, measurable performance goals, and also a very 
clear definition of what has to be done by March of next year 
and September of the following year and so forth, and by whom 
and what is their phone number and what is their E-mail 
address. So lots of clarity and lots of accountability. Those 
are two of the four things that we have proclaimed as important 
in getting anything done, particularly in the management area, 
but it is probably true in life, that you need to have a real 
clear definition of success. You need to have clear 
accountability for a very clear action plan, for a detailed 
action plan, detailed management, true definition of success, 
and clear, unadulterated commitment to make it happen. All four 
of those components exist at the Department of Defense from the 
Secretary on down, and I have no doubt that Ken and his team 
are going to do a wonderful job of implementing this plan and 
show the rest of the Federal Government and Congress what is 
possible, how much method can be brought to the supply chain 
management madness at the Department of Defense.
    We talked earlier about the 25 items on the high-risk list. 
For 6 of the 25 items, there are plans that have been worked on 
by the owner of the initiative with GAO, and a general plan has 
been agreed to, and it is in place, and the agencies are 
responsible for implementing that plan. For another 7 of the 
high-risk list items, there is a plan that has been developed. 
GAO is looking at that and addressing final issues and so 
forth.
    For another 9 high-risk items, there is a plan in 
development. It has not been finalized to the point where it 
can be brought into GAO, but GAO has been involved in initial 
discussions on those plans.
    There are two items that we are not yet tracking, and there 
is one item that we are not intending to track. That is the 
U.S. Postal Service.
    But, anyway, there is lots of progress, lots of activity 
across the Federal Government to look at these high-risk list 
items. But the supply chain management at the Department of 
Defense is--one plan has been wonderfully laid out. There is 
strong commitment, and I think it will be very interesting, as 
you said, sir, over the next 3 years, 3-plus years, before this 
President leaves, to see just how much can be accomplished, 
because I think there is a lot to be accomplished, and a lot 
will be accomplished, and I think DOD will be the better for 
it, but all the other high-risk list items will be better for 
it also.
    Senator Voinovich. That is very impressive, and we look 
forward to working with you, Clay. Again, if there are things 
that you need from us, you should let us know.
    Mr. Solis.

      TESTIMONY OF WILLIAM M. SOLIS,\1\ DIRECTOR, DEFENSE 
 CAPABILITIES AND MANAGEMENT, GOVERNMENT ACCOUNTABILITY OFFICE

    Mr. Solis. Mr. Chairman, Senator Akaka, I appreciate the 
opportunity to be here today to discuss supply chain management 
within the Department of Defense and, more specifically, DOD's 
plans to begin resolving problems and show progress toward the 
long-term goal of removing supply chain management from the 
list of high-risk areas.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Solis appears in the Appendix on 
page 41.
---------------------------------------------------------------------------
    At the outset, I would like to thank the Subcommittee for 
its continued encouragement of OMB's effort to work with the 
agencies over the next several years to reduce risk in each of 
the 25 areas. The active involvement of this Subcommittee is 
essential to ultimately ensuring DOD's progress in addressing 
and resolving its high-risk areas, while enhancing public 
confidence in DOD's stewardship of the hundreds of billions of 
dollars of taxpayer funds it receives each year.
    The message this afternoon is focused on two main points: 
First, I will discuss why we have listed DOD's supply chain as 
a high-risk area; and, second, our assessment of DOD's plan to 
improve supply chain processes.
    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 DOD and measuring 
progress.
    With regard to my first point, for 15 years DOD's supply 
chain management processes have been a high-risk area needing 
urgent attention. In 1990, we began a program to report on 
government operations that were at high risk for fraud, waste, 
abuse, and mismanagement. The program serves to identify and 
help resolve serious weaknesses in areas that involve 
substantial resources and provide critical services to the 
public. That year, we identified the Department's inventory 
management of supplies in support of forces as high risk due to 
a long history of problems such as excess inventory levels, 
inadequate controls over items, and cost overruns of logistics 
systems. Since then, our work has shown that the supply 
problems adversely affecting 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 involved the entire supply 
chain.
    Many of these problems reoccurred in OIF. For example, we 
noted that due to distribution and asset visibility issues, a 
backlog of material accumulated at distribution points and 
vehicles were cannibalized due to unavailability of parts. We 
also noted a $1.2 billion discrepancy between material shipped 
to the theater of operations and material acknowledged as 
received.
    In regard to my second point, DOD's plan to improve supply 
chain management, as I mentioned, provides a good start and 
framework for addressing some of the long-term systemic 
problems. However, the Department faces many challenges and 
risks in its efforts to improve the supply chain. Successful 
resolution of these problems will require DOD to diligently 
complete parts of the plan, fully implement the changes across 
the Department, and measure progress. In addition, resolution 
of these problems will require investment in needed information 
technology, a critical enabler that will provide the essential 
underpinning to improving supply chain processes.
    We used five criteria to assess DOD's plan: Does it include 
a strong commitment by top leadership? Does it have sufficient 
capacity, that is, people and resources? Does the plan contain 
corrective actions, a program to monitor these actions, and a 
means of measuring progress? I will briefly touch on each one 
of these.
    First, in regard to the strong commitment by top 
leadership, the formulation of DOD's plan and its endorsement 
by Ken Krieg is evidence of a strong commitment by top DOD 
leadership. However, it is important for DOD to sustain this 
leadership as it goes forward in implementing this multiyear 
plan. 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 to ensure that a long-term 
departmentwide commitment is sustained.
    Second, in regard to capacity, DOD has the people and other 
resources to draw upon to resolve its supply chain management 
problems, but most of them are under the direction of the 
military services and DLA. Therefore, it is important for the 
Department to obtain the necessary resource commitments from 
these organizations.
    Third, in regard to the corrective action plan, DOD's plan 
for improving supply chain management addresses root causes for 
problems in three key areas--requirements forecasting, material 
distribution, and asset visibility--that we frequently 
identified as impeding effective supply chain management. 
However, we are concerned about the time frames for completing 
some of the plan's initiatives. For example, DOD's milestones 
for implementing and improving information technology systems 
under it, Business Management Modernization Program are not 
specifically linked to improvements in the three focus areas, 
and until all these initiatives are substantially implemented 
across the Department, we will not know whether they provide 
effective solutions.
    Fourth, in regard to program monitoring, while DOD's plan 
cites a general methodology for evaluating progress, the 
Department has not provided all the information needed for this 
to occur. For example, DOD has not specified all the metrics 
and systems to be used to track progress. Until it does, DOD 
cannot assure comprehensive monitoring of progress within the 
Department or validation by independent groups.
    Last, in regard to DOD's 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 metrics necessary to 
demonstrate how the initiatives are affecting supply to the 
warfighter. In addition, while DOD's plan identified some 
viable overall supply chain management performance metrics, 
such as level of backorders and the amount of customer wait 
time, it does not have cost baselines or cost performance 
targets. Until DOD tracks the additional cost metrics and 
supply performance targets needed, it will be difficult to 
convincingly demonstrate progress in improving supply chain 
management.
    That concludes my statement. I would be happy to answer any 
questions.
    Senator Voinvoich. Thank you very much, Mr. Solis.
    I will begin the questioning in reference to the last thing 
you said, Mr. Solis.
    Mr. Krieg, in the area of metrics and systems in place to 
monitor progress. Would you respond to what he just mentioned 
in terms of the feeling that maybe we are not yet there with 
the plan?
    Mr. Krieg. Sure. I believe--and we have begun this work--
that we will get continually smarter both about what matters 
and how you measure it, and then how closely you can track it 
and perform. So we have begun--we started with the baseline of 
the way the private sector thinks about success in supply 
chains--customer wait times, back orders, those kinds of 
issues. Many of those related to the way the Defense Logistics 
Agency does business with consumables and supply.
    And so we have started to build those out. We contract some 
of them. Some of them we contract with some depth. But there 
are others that we do need to build, and we have recognized 
that. Part of the Enterprise Transformation Plan talks about 
the data strategies that will support an ever growing ability 
to track and see and understand. Second, part of the work we 
have got under way in the Quadrennial Defense Review, which is 
our once every 4 years looking at strategy driving changes in 
the way we do work inside the Department of Defense, we have 
added a business practices portion to it this year. One of 
those business practices--and I co-chair that group with Duncan 
McNabb, who has been J-4, the Joint Logistics Director inside 
the Joint Staff. Duncan and I have been working on the supply 
chain. And so we have committed that we are going to go out to 
the next generation of benchmarking to really build the kinds 
of measures that will have us understand the relationship 
between what we say we are going to do and what the outcomes 
are.
    So I would say we have the given capabilities to do this, a 
recognition that data strategies and data systems providing 
that information as opposed to going out and asking for 
individual goals every time you want to know something, is 
clearly the management approach that we are headed on.
    Senator Voinovich. Do you think it is possible to have 
performance metrics in place in 3 or 4 months?
    Mr. Krieg. I think what you will see, sir, is that there 
will be a growing set of metrics and a growing set of 
competencies as we learn how to go get data and we learn how to 
tie together the various pieces in terms of outcome. So I 
believe in 3 or 4 months we will show----
    Senator Voinovich. I am interested in making sure the 
Department has metrics in place to measure their success. I 
have always said, if you can't measure it, don't do it.
    Mr. Krieg. What gets tracked gets done.
    Senator Voinovich. Exactly. The other thing I would like to 
discuss is cost savings. People have been asking me why am I 
spending all this time on supply chain management, because they 
know it is going to be a major commitment. Do you have a cost 
baseline? Do you know how much money can be saved? Do you know 
what you are spending now? If this plan is implemented, are we 
going to be able to show taxpayer savings? In other words, we 
are working harder and smarter and doing more with less, doing 
more for the warfighter.
    Mr. Krieg. The answer to your full question is no, I don't 
know exactly what that is, but, yes, I believe that there is 
opportunity, and that is exactly, right, getting a common 
resource baseline, understanding--the answer is we can account 
for and we can show you in the budget lots of ways of looking 
at logistics. We are going to try to--we are going to come 
within the Department, and then along with these gentlemen 
within the government, to a common way of looking at this.
    What is the point? The point is everyone is doing things 
differently, and so you have to go together across the 
enterprise. We have got that work underway. I believe that is 
one of the really important parts to tying inputs, what we put 
in the budget, to outputs, what are the measures of success. 
When you can do that, then you have the tools to really measure 
performance and drive outcomes.
    Senator Voinovich. When I was Mayor of Cleveland, we did a 
comprehensive management study called the Operations 
Improvement Task Force. It took us 6 months to complete the 
study. We then went back to look at how much we saved the city. 
I understand it is not going to be easy to evaluate the 
Department in this manor but it is very important to understand 
financial savings to be able to measure success.
    Mr. Krieg. I think the key to success there is not a one-
time study to see what it looks like, but make it a part of the 
way you manage, and that is how it becomes the forefront in 
people's minds over time.
    Senator Voinovich. Senator Akaka and I have been working on 
human capital issues for sometime now and have made it a 
priority in the Federal Government. Could you share with us the 
steps you have taken to incorporate human capital concepts into 
the plan, including the evaluation of your core competencies of 
your employees, succession planning in the event of 
retirements? I am really concerned about the issue of senior 
people taking early retirement.
    Could you comment on how you are identifying core 
competencies you need and what kind of succession plans are in 
place for those employees retiring?
    Mr. Krieg. Let me tell you that today it is not in the plan 
you see in front of you because that was not the way we 
defined--that was not the way the high-risk plan defined the 
problem. That being said, the three of us committed that there 
was more to working on supply chain over time than just this 
plan.
    I agree with you, and so as I look at the organizations 
that comprise this--for example, I think one of the most 
advanced in thinking through this is the Defense Logistics 
Agency. It is now tracking its workforce, understanding--using 
combinations of client surveys and all the kinds of tools you 
would use to really build down the business process and human 
capital strategies and link those together over time.
    I would not contend that the entire Department of Defense 
supply chain is that advanced, but I believe that it is 
absolutely critical that we bring the human skills and human 
competencies along in order to perform over time.
    As you have noted so many times, if you look at the average 
age of the Department of Defense workforce, it is 47\1/2\, 49, 
50--it depends on how one looks at that--with an extensive 
average age of service. It is time to begin using--to drive 
that as a key performance responsibility of management, and I 
do believe that tools like the National Security Personnel 
System will have the tools. Now it is up to us----
    Senator Voinovich. Mr. Krieg, if you were to do an analysis 
of your workforce to determine if you are lacking in core 
competencies to determine retirement perspectives. Who would do 
this for you?
    Mr. Krieg. First of all, I would ask Frank Anderson, who is 
the President of the Defense Acquisition University, to pull 
this together using the--bringing the whole community together, 
the acquisition technology and logistics workforce. So we have 
started that.
    But I will tell you that looking down into the details, it 
will be part of charging each of the large management leaders 
like Keith Lippert in the Defense Logistics Agency with being 
able to do that. So we are going to try to set standards at the 
Department of Defense level; then put those managers in 
leadership positions in charge of understanding their data, 
understanding their performance, and getting back to us.
    So that is the technique we are going to use. It is a large 
workforce, and so managing it all from central, we need to set 
the standards, we need to set the requirements, and then we 
need to hold people accountable in that process.
    Senator Voinovich. I want you to know I am very interested 
in this area, and I will continue to follow-up with talking to 
you on this issue. As I have said before, we need qualified 
people to get the job done.
    Mr. Krieg. Yes, sir.
    Senator Voinovich. Mr. Krieg, with all of the processes you 
plan to put in place, I am interested in seeing how you are 
going to ensure that they become part of the culture of DOD. I 
plan to stay on top of this issue, to make sure that long after 
you leave the Department the processes that we are discussing 
today are institutionalized.
    I have gone way beyond my time. Senator Akaka.

               OPENING STATEMENT OF SENATOR AKAKA

    Senator Akaka. Thank you very much, Mr. Chairman.
    I want to thank our witnesses for their testimony, but 
before I begin my questions, I would like to make a few 
observations.
    It seems to me that defense logistics and its problems are 
longstanding, complicated, and directly tied to poor 
information systems, which is why I am pleased there is 
committed leadership by DOD and by OMB on this issue. However, 
previous attempts at improvement have failed because the plans 
were not institutionalized. Only through high-level commitment 
and strong oversight by Congress and OMB will this plan 
succeed.
    I also want to mention what the Chairman just talked about, 
human capital. It is true, as he said, that we will be facing a 
huge problem in the near future when the baby-boomers begin to 
retire. And we really need to work on that together.
    These are questions I have for Mr. Solis and Mr. Krieg. Mr. 
Krieg, you have testified about the expanded role of U.S. 
Transportation Command, TRANSCOM, in the distribution process. 
However, in August 2005, GAO reported that DOD has yet to 
finalize plans to define the role of TRANSCOM as the 
distribution process owner, or DPO, to improve the efficiency 
of the distribution process.
    Mr. Solis, can you please explain the importance of 
TRANSCOM to DOD logistics and describe the problems that GAO 
has found in this area?
    Mr. Solis. Senator, I would be glad to. During the initial 
phases of OIF, distribution and visibility, but particularly 
distribution, were some major issues in terms of not only 
getting the equipment and supplies in, but then distributing 
them to the tip of the spear, so to speak. In September 2003, 
the Secretary of Defense, recognizing this problem, designated 
TRANSCOM as the distribution process owner. With that, around 
December 2003, to my recollection, the initial joint 
distribution operations center was set up over in the Gulf. And 
since that time, it has been operating, and the flow of 
supplies has improved greatly.
    Our concern has been that distribution has been an ongoing 
problem going back to Operation Desert Shield and Desert Storm. 
And until that gets solved and codified and institutionalized 
into doctrine, for example, for the next operation, even though 
everybody around the table has agreed that this is a good way 
to operate, you may have different players, different 
personalities involved, and people aren't going to know that 
this is the way that we did it before and it was successful. 
Until you institutionalize that, until you put it in the 
training and doctrine, that is where we see the problem for the 
next operation.
    Senator Akaka. Thank you for that response.
    Mr. Krieg, what is the current status of the DPO directive? 
And when can we expect it to be finalized?
    Mr. Krieg. I can't give you an answer to the last question 
as to when, but let me tell you the status. Many of the 
decisions we made as we were going through this was to not 
write the directive until you had enough experience to know 
what it was that you were writing the directive about. There 
were lots of drafts that floated around, but we decided to keep 
that last step open until we had gotten more confidence on 
notions like the joint distribution approach--and I am going to 
apologize, I am not going to get the acronym right--the JD-DOC, 
making the joint logistics commander in the theater really 
responsible for seeing things. Those kinds of things are now 
coming into place. I was just with General Schwartz, the new 
commander. We were just making a joint briefing and discussion 
with the deputy as part of the Quadrennial Defense Review 
Business Practices that I co-chair, supply chain, 
institutionalizing the DPO, the distribution process center, 
and incorporating these new concepts that have been developed 
during wartime into doctrine are key goals that we have set out 
for ourselves.
    So I would expect--we are committed to doing that. We 
believe it is the right thing to do. Innovation in wartime is a 
key opportunity. Our challenge is to make the way you do 
business in wartime the way you try to build it into your 
structure. And so we agree with that approach.
    Senator Akaka. I am glad to hear that and of your plans to 
bring that about.
    Mr. Solis, one of the reasons that DOD logistics was 
identified as high-risk is because of the excess inventory 
level. While supply inventory levels are down from 1990, they 
have been increasing again in recent years and are currently at 
$77 billion.
    My questions are: How much confidence does GAO have in the 
inventory numbers? And can you explain the reason for any 
doubts, if you may have them?
    Mr. Solis. Senator, as you know, over the years we have not 
had the ability to render opinions on DOD's financial 
statements, and I don't think that is any different today. I 
think the number itself, it is what it is, and that is the best 
number that is available at this point in time. But in terms of 
saying that is an absolute right number given the financial 
management problems that the Department has had and to say that 
is a good number, I don't think we could absolutely say that.
    Senator Akaka. As followup, Mr. Solis, how does GAO plan to 
monitor implementation of the plan and validate results?
    Mr. Solis. A couple of different things that we plan to do. 
One, obviously, we will look at each one of these initiatives 
in terms of where they are in terms of their progress as we go 
throughout the next year and a half or so. We will be sitting 
down with Ken's folks, going through the metrics, the expected 
outcomes, to see where they are at on that.
    We also will be doing individual jobs which will look at 
the supply chain in total rather than just individual 
initiatives. And as you are aware, every 2 years we report out 
on the status of the high-risk series, which will be due in 
January 2007.
    So that is kind of our general game plan to follow-up on 
this, and we also have engaged the Department of Defense IG and 
the audit services of the individual Services to also cooperate 
and work with us on making sure that we have covered a number 
of things in terms of the high-risk area.
    Senator Akaka. Mr. Johnson, although my time is up, let me 
ask how OMB will remain engaged on the implementation of this 
plan? And when can we expect to see results?
    Mr. Johnson. Well, on this particular supply chain plan, we 
talked about sitting down with DOD and the DOD branch at OMB 
and getting an update on what we have done and what we were 
supposed to do within the last 6 months and what did we do and 
how does it look and do we need to recalibrate where we are 
trying to go or action plan, or whatever. And so we will do 
that.
    We are available, I know DOD is available, GAO is available 
to keep you all informed in whatever fashion you all deem most 
appropriate about DOD's progress on this. But we intend to stay 
in touch with them, and also then use their example to instill 
the same sort of discipline and follow-up with all the other 
high-risk areas.
    Senator Akaka. Thank you. My time has expired, Mr. 
Chairman.
    Senator Voinovich. Thank you, Senator Akaka.
    Mr. Krieg, it is my understanding that each Service and 
Agency within DOD has its own supply chain management education 
programs. Since the Department's supply chain management plan 
includes the development of a joint theater logistics program, 
will DOD create a joint logistical training program to ensure 
that the military and civilian employees in each of the 
Services are trained under the same curriculum? And if so, 
should these be combined under the distribution process 
ownership program established by the Secretary of Defense?
    Mr. Krieg. Let me take that one for the record and get back 
to you with exactly where we are and where we are going, 
because I am not up to speed on that in particular. But, 
obviously, the more you move to a common business process, a 
data approach, and the more you have a common data system, then 
the way you train people and how you grow them should move in 
the same direction.
    So as a matter of principle, I would say yes, but I have 
not worked the training part of this yet, training and 
education part of this year to know--to be able to tell you 
where we are.
    I don't know, Bill, if you have a sense.
    Mr. Solis. Senator, I know it has been a concept that has 
been discussed in terms of, for example, getting the Defense 
Acquisition University involved in that concept. I don't know 
that it has gone any further than the discussion phase. I know 
in my discussions with the folks at TRANSCOM, they have been 
pushing this kind of a concept of a joint logistician, which, 
again, I think is, at best, in discussion and it may be at the 
conceptual stages at this point. But I think it is worth 
pursuing given the fact that if you go to a joint theater 
logistics management process or model, I think everybody needs 
to understand how you are going to work in a joint environment, 
particularly as it pertains to logistics.
    Senator Voinovich. My understanding is that each have a 
different system. Is that corrent?
    Mr. Solis. They are using different systems, yes. I think--
again, I am going back to OIF. I know even within the Marine 
Corps there were two different supply systems, which caused a 
lot of problems. I think they have corrected that now. I think 
there are some differences in each of the supply systems.
    Senator Voinovich. And the concept here would be that they 
would be universally the same?
    Mr. Krieg. I think if we can separate information system 
from data level, I think our notion is that you want to move to 
common data. Whether you put it in a single information system 
for all the Department of Defense, which is a fairly complex 
program management and development, or whether you want to have 
a limited number of systems that produce common data, thereby 
reducing the risk in implementation, it would tend toward the 
latter part, than to try to get one information system, because 
all the way across the Department of Defense as the exact same 
system, those are challenges to build them that way.
    Senator Voinovich. The thing is, and this is probably 
elementary, and you will say, ``Why did you ask me this 
question?'' But we had the Army and we had the Marines and we 
had the National Guard and we had the Reserves, and the other 
Services. It seemed like when I talked to our guys from Ohio 
that were there, they had their own stuff in terms of what they 
needed.
    Is there any communication back and forth between the 
Services as to the up-armor Humvees, for example? How does that 
all work?
    Mr. Krieg. I do think there is--as we move to this joint 
theater distribution concept, where the joint logistics 
commander is integrating the needs of the various organizations 
in the field and then helping set the demand pattern and the 
flow pattern back to the United States and on back in the 
supply chain, you will begin to move that forward. There is a 
lot of communications among them, but there are also specific 
needs of each of the individual units and each of the 
individual Services. So you want to figure out how to get a 
common supply chain that can manage the differences, can allow 
a Service--because they have different equipment. So you want 
to be able to integrate the supply chain but still manage the 
different needs of the different Services in the field. So that 
is at least the concept, and I do believe over the last couple 
of years, there has been a significant improvement in the 
concept of joint theater logistics and its implementation. I 
don't know what you have seen, Bill.
    Mr. Solis. Yes, in terms of Humvees and the up-armor 
Humvees, the requirements that come out are coming out as 
theater requirements. They are not, as far as I know they are 
coming out for specific Services, but they are also coming out 
as theater requirements.
    Senator Voinovich. One of the big criticisms that I have 
heard about Iraq is that we really didn't understand the 
religions and curtural views of the people. But seting that 
aside, the preparation of going to war in Iraq and having the 
necessary supplies available to carry out the mission is an 
essential part of planning for war. Before we undertake these 
missions, we should have a pretty good idea of what it is that 
we need to be successful.
    In doing this, we have to assess what the various Services 
need. For example who determines how many up-armor Humvees each 
Service needs? Rather than having the individual Services 
purchase their own, should we have one group purchase for all 
of them?
    That is what we are trying to do, bring some sense to this 
and get systems in place so that we can do this efficiently? 
Last night, we had a vote on the floor of the Senate for 
additional funding for up-armor Humvees. I voted for it, which 
I ordinarily never do because I don't want to spend more money.
    I was at a meeting sometime ago with Secretary Rumsfeld, to 
discuss up-armor Humvees. He said, ``Well, we are doing the 
most we can at 250 a month.'' And I said, ``I know the people 
that manufacture these things, and they can do 450 a month.'' 
Here is the Secretary of Defense, and he doesn't know what the 
capacity is out there to get the job done.
    In my opinion, we could have delivered these Humvees a lot 
sooner had somebody really known what the details were in terms 
of the capacity to manufacture and deliver them.
    With continued oversight I am hopeful that we are going to 
get this done.
    Mr. Krieg. We will be glad to come show you the details of 
how that proceeded and what we learned from it. I would note 
that--and I am not trying to defend where we were with up-armor 
Humvees--it is important to understand the way we think about 
this that the needs in operation, the needs will evolve and 
change. The clear challenge, particularly in the kinds of wars, 
the kinds of events we will deal with in the future, the clear 
challenge of the supply chain is to be agile so we can react 
quickly to changes in need, changes in demand, and, therefore, 
changes in supply. That is going to be more the future than it 
was the past, and that is clearly the kind of challenge we 
ourselves have put in front of us, is to be able to react 
quickly. That is why understanding demand, being able to track 
it----
    Senator Voinovich. In terms of demand, do you turn to the 
war fighter in the field to determine what is needed to get the 
job done?
    Mr. Krieg. You want to push demand as far forward as 
possible. That is the clear lesson from business, the clear 
lesson here. And integrating operations planning and supply 
chain planning as part of the way you do business is one of the 
core challenges as we go forward.
    Senator Voinovich. Is there a section in the Defense 
Department that anticipates contingencies?
    Mr. Krieg. It won't tell you everything, trust me, but, 
yes, that is what planners try to do. They try to anticipate 
contingencies. They try to think through what the needs will 
be. They try to work back and say does the supply chain there 
perform. And making that supply chain more responsive is 
clearly one of the key challenges in a world where the 
competition is ever changing, if you will, and the need to 
change quickly is part of the strategic requirement.
    Mr. Solis. Senator, if I could add one other thing, as we 
noted in the plan, one of the high problem areas or root cause 
areas has been requirements for forecasting, and that has been 
a continual problem, whether it is during peacetime or during 
operations. And we noted in some cases where things like 
batteries or tires were sorely underestimated even in terms of 
initial needs because requirements had not been updated. And so 
I think that process is something that needs to continually be 
looked at, whether it is for tires, batteries, up-armor 
Humvees. In the case of up-armor Humvees, there was a change in 
theater requirement. In other cases where you had standing war 
reserve materials, some of those were woefully inadequate in 
terms of updating the models and things of that nature.
    So those requirements need to be constantly updated to make 
sure that the warfighter has what they need when they need it.
    Senator Voinovich. It would seem to me that within the 
logistics area you would have experienced people who had been 
through the mill, had previous experience, that would be asking 
the right questions of the people who are supposed to be 
coordinating supply chain management.
    Mr. Solis. And some do, and I think, again, from some of 
the work that we did recently--and we issued a report in April 
of this year--we looked at, again, things like batteries or 
wartime models. Some of those models had not been updated since 
1999, and some of the uses for batteries had expanded beyond 
what was being used in 1999 from about, I don't know, 10 items 
to about 50 or 60 different items. And so when they went to 
war, the demand had shot up tremendously based on an old model.
    So I think it is incumbent to make sure that we are always 
making sure that the requirements are as up-to-date whether it 
is for peacetime usage, war material usage, or whatever.
    Senator Voinovich. Senator Akaka.
    Senator Akaka. Thank you, Mr. Chairman.
    Mr. Krieg, let me ask you a question that has bothered me 
for a while, and hopefully you have an answer. What do you see 
as the root cause or causes of the logistics problems that have 
plagued DOD for so many years, and how does the plan address 
these causes?
    Mr. Krieg. Well, several things, and I think we have talked 
about a number of them.
    First of all, you need to understand what you have. So item 
visibility is really important so you know what you have and 
where it is.
    Second, you need to understand what it is you are going to 
need so that demand forecasting is really critical.
    Third, you have got to be able to link all of the people 
who are participating in what you want to have--what you now 
have and what you can produce so that they can all see that 
flow.
    I think that is the kind of plan--that knowledge of what 
you have, the knowledge of what you are going to need, and the 
knowledge of what you can produce--bringing those three 
together and the roles and responsibilities to make that happen 
are what supply chain is all about. And I do believe that we 
have tried in this plan at least to begin building those areas 
out.
    As Mr. Solis said, is this plan the end? No. This plan is 
the beginning, and we will learn as we go through it. But I 
think those are at least three of the key areas.
    Senator Akaka. Would anyone else want to add to that list?
    Mr. Solis. I would echo that. Of course, in our plan we 
said three: Forecasting, visibility, and distribution. But in 
the largest context for us for the high risk, it has also been 
accountability and sustained commitment. And I think what I do 
like about the plan is that for each one of these items, 
initiatives, there is a name and an E-mail address clearly 
indicated for each one of those initiatives. So there is 
accountability. There are people that we can go to and say, OK, 
where are we with this?
    The other thing, I think, though, is sustained commitment, 
and I think we have that here. The question comes up--and I 
hope Mr. Krieg would stay around for a long time. Can that 
commitment be sustained after Mr. Krieg leaves? And I think 
that it is incumbent upon all the high-risk areas in terms of 
really dealing with the issue.
    Senator Akaka. And I liked what you had said earlier, that 
we need to update whatever information we have on these items.
    Mr. Krieg, how does this plan relate to the DOD logistics 
transformation strategy and the commercial benchmarking road 
map?
    Mr. Krieg. I would say that this part of the plan, this 
part of the high-risk series, is a part of the broader 
logistics road map. If you think about our overall logistics 
and supply chain responsibilities, we really have three kinds 
of economies we work in. We have a large-item, large capital 
management economy--the depots, the big weapons systems, the 
maintenance and sustainment of those systems. We have commodity 
supplies that the Defense Logistics Agency does. And then we 
have the way we distribute and sustain in an operation. All 
three of those are a little different. All three of them are 
dependent--success in operations is dependent on all three of 
them working together.
    So this concentrates on the inventory management part of 
the supply chain. The overall logistics transformation strategy 
would then bring in those other areas. And then I think lastly, 
adding to it, a part of continuous process improvement. How do 
you continually get better? How do you tighten your performance 
characteristic and make it more efficient? So we use a 
technique--we are beginning to build a technique out inside the 
Department--it is already alive and well in many parts of the 
Department--called Lean Six Sigma. It is a common commercial 
technique that allows you to both shorten your process, make 
your process more efficient, and then make your results more 
effective, quality management. And it puts both those 
techniques together, and I think it will be a critical part of 
driving this kind of change over time.
    Senator Akaka. My last question is something that the 
Chairman and I have thought about and are always trying to find 
an answer. I would like to address this to Mr. Solis, although 
if any of you want to comment on it, that is fine, too.
    So here is the question: Are there areas in the improvement 
plan that are outside the span of control of Mr. Krieg? And how 
would the creation of a CMO, or chief management officer, 
affect the implementation of the plan?
    Mr. Solis. As I mentioned earlier, I think the one thing 
that a CMO does in this case is give you sustained management, 
as we have mentioned, for a 7-year period to make sure that you 
have sustained look-sees at the process of improving supply 
chain management.
    I think the thing with the CMO also, it does give the 
strategic point of view in terms of making sure that while Mr. 
Krieg is implementing some things over here, to make sure that 
we have things at the DOD level, at the Secretary level, that 
meet the goals of the Department as well.
    So I think it is important at some point maybe to consider 
having a CMO to make sure that those things are taken care of.
    Senator Akaka. Mr. Krieg.
    Mr. Krieg. We have had wonderful conversations about this, 
as I have with the Comptroller General as well. As I think the 
Deputy sent a note up here or testified in his hearing, we are 
going to look at that issue. We will consider it as time goes 
on, and we can talk about individual views over time as we work 
on this. But I think in my view, the Department of Defense, 
when it functions well, does have a chief operating officer. I 
believe it is the Deputy Secretary of Defense. I believe the 
Acting Deputy Secretary of Defense--you all can work on that 
part--does believe that he is accountable for that and does 
believe that it is his responsibility to look across all the 
tools of the Department.
    That being said, we also work with several important groups 
that help us do that--the Defense Business Systems Management 
Committee. You asked about commitment of the DOD management to 
information processes and information systems. The Deputy 
chairs that. It has got all the senior leaders--me, the Service 
Secretaries, Marty Schwartz at TRANSCOM, Keith Lippert at DLA--
who come in and are working on this and we meet once a month on 
it.
    I have a Defense Logistics Board that looks within that 
context at logistics, Norty Schwartz, Keith Lippert, the Vice 
Chiefs. We are all committed to work this issue.
    And so while one person is important to have the leadership 
drive, it is important in an area as complex as this one to 
have all the parts of the leadership team pulling together 
because the changes are significant, they do cross--and in 
order to be really successful, there needs to be cultural and 
sustained ownership by those who are going to be there 
regardless of who the individual sitting in whatever the top 
box is.
    And so I think there is a lot we need to do, and I do 
believe that we are trying to put the kinds of broad-scale 
management tools and broad-scale management efforts in so we 
can integrate these kinds of changes over time.
    Senator Akaka. Without leaving the Hon. Clay Johnson out, 
do you have any comments on this?
    Mr. Johnson. No, sir. [Laughter.]
    Senator Akaka. Thank you. Mr. Chairman, my time has 
expired.
    Senator Voinovich. Thank you, Senator Akaka.
    I have additional questions, but I will submit them to you 
in writing. I would like to finish this by saying that I am 
really interested in the metrics of this plan. Mr. Solis, has 
GAO determined what metrics you would use to measure whether or 
not we are making progress on the plan that has been put 
together?
    Mr. Solis. Well, specifically what I was talking about or 
referencing in the metrics themselves--and Ken shared or his 
folks shared some of the commercial benchmarks and also what is 
in the plan--give kind of a pulse check of the general health 
of the supply chain. What my comments were really going to, if 
you look at some of the initiatives that are there right now, 
for example, RFID, some of the expected outcomes that are 
listed, you talk about improved asset visibility, reduction of 
costs, things of that nature. But when you go to the metrics 
that are associated with that initiative, basically what you 
see are implementation dates. So you don't really have a sense 
of--you have the expected outcomes, but you don't have the 
associated metrics that would say this has worked or is not 
working from an outcome basis.
    So we are not prescribing necessarily what metrics to use, 
but what we are looking for is an outcome-based metric that 
would say here is how you are doing with this initiative.
    Senator Voinovich. Well, I would appreciate if you would 
continue to work with DOD so that a few months from now we 
could say that we have an agreement on the metrics to measure 
success. If there is a difference of opinion, then, of course, 
we will talk about it.
    Mr. Solis. Right, and I think we plan to, and we recognize 
that some of this is still in process, but that was our initial 
observation on the metrics.
    Senator Voinovich. Another issue is the human capital side 
of supply chain management. I really think it is important that 
you institutionalize what you are doing.
    I am also interested in looking at what the private sector 
is doing in this area. I do understand that there is probably 
not a private organization in the country that can even touch 
the Defense Department. But are there any companies--I guess 
probably a Wal-Mart, that buy a lot of product and are 
constantly at how they distribute things. In fact, I heard a 
story that Sam Walton went bankrupt twice, and then he hired 
some guy that worked for the Army who went to work for him and 
put this logistics thing into place. That is when he started to 
make some money.
    But the question I have is: How long does it really take to 
do this transformation that we are talking about doing so that 
we are realistic about the goals that we are setting in terms 
of getting this done?
    Mr. Krieg. I think it is a multiyear effort. If a company 
were to come from where we are and try to implement it, I don't 
think the chairman of that corporation would say he would get 
it done in 2 years. I think he would say it is a 5-, 6-, or 7-
year effort. But I know we are not going from zero either. So 
we are at a running start, if you will, as we enter. But it is 
a complex--I like to think--as I look at the Department of 
Defense, we are the size and complexity of a good-size country. 
And at our current size, we would be 24, 25, or 26 in the rank 
of countries in terms of gross domestic product. And we are 
that complex.
    So thinking through how one makes that kind of change on 
that kind of scale is an awesome task, and you have to hit the 
right things and build momentum over time.
    Senator Voinovich. Well, I think that gets back to the CMO 
bill that Senator Akaka and I introduced this year. I used to 
say when I ran for Mayor of Cleveland that there is not a 
Republican way here or a Democratic way, there is a right way 
and a wrong way on management issues.
    It seems to me that we need someone in the DOD who is there 
for a long period of time to oversee this tremendous 
transformation. Roger Kelick worked at DOD during the Clinton 
Administration. Mr. Kreig, you know Roger? During his time, he 
did a lot of good work, and after the Clinton Administration he 
was gone. I am concerned that if we are going to make the kind 
of changes that we want to make, I think we have to start to 
re-evaluate how we get things done in the country.
    We had a hearing several years ago, that focused on, is the 
government organized in a way to deal with the 21st Century. We 
have to start thinking about different ways of doing things. We 
have got to make certain adjustments. Any organization that 
doesn't change with the times--look at any major corporation 
today--if they continued to operate the way they did 10 years 
ago, they would be out of business.
    I think that we need to change the thinking that we have 
always done it this way. There needs to be some thought given 
to a Chief Management Officer to handle the management issues. 
Someone who is there for a termal period, who is interested in 
getting it done right.
    I think the Administration would do a great favor to the 
country if they started to look at how we do things and 
determine if we are flexible enough and are we making 
adjustments to deal with some of the problems that we are going 
to be confronted with in this century?
    Mr. Johnson. There was an editorial in the Wall Street 
Journal last week. Dan Henninger was talking about Katrina, but 
his premise was more of the same is unacceptable. And you are 
asking that question about everything we do, not about Katrina. 
And it is a very good question.
    Senator Voinovich. Thank you very much for testifying 
today.
    The hearing is adjourned.
    [Whereupon, at 4:10 p.m., the Subcommittee was adjourned.]

                            A P P E N D I X

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