[Senate Hearing 109-938]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 109-938
 
 SUPPORTING THE WARFIGHTER: ASSESSING THE DEPARTMENT OF DEFENSE SUPPLY 
                         CHAIN MANAGEMENT PLAN

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

                                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

                             SECOND SESSION

                               __________

                             JULY 25, 2006

                               __________

        Available via http://www.access.gpo.gov/congress/senate

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


                                 ______

                    U.S. GOVERNMENT PRINTING OFFICE
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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
             Michael L. Alexander, Minority Staff Director
                  Trina Driessnack Tyrer, Chief Clerk


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

                  GEORGE V. VOINOVICH, Ohio, Chairman
TED STEVENS, Alaska                  DANIEL K. AKAKA, Hawaii
NORM COLEMAN, Minnesota              CARL LEVIN, Michigan
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

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


                            C O N T E N T S

                                 ------                                
Opening statements:
                                                                   Page
    Senator Voinovich............................................     1
    Senator Akaka................................................     3

                               WITNESSES
                         Tuesday, July 25, 2006
                               WITNESSES

Alan F. Estevez, Assistant Deputy Under Secretary of Defense, 
  Supply Chain Integration, U.S. Department of Defense...........     5
William M. Solis, Director, Defense Capabilities Management, U.S. 
  Government Accountability Office...............................     6

                     Alphabetical List of Witnesses

Estevez, Alan F.:
    Testimony....................................................     5
    Prepared statement...........................................    23
Solis, William M.:
    Testimony....................................................     6
    Prepared statement...........................................    35

                                APPENDIX

Questions and responses for the Record from Mr. Estevez..........    55


 SUPPORTING THE WARFIGHTER: ASSESSING THE DEPARTMENT OF DEFENSE SUPPLY 
                         CHAIN MANAGEMENT PLAN

                              ----------                              


                         TUESDAY, JULY 25, 2006

                                   U.S. Senate,    
              Subcommittee on Oversight of Government      
                     Management, the Federal Workforce,    
                            and the District of Columbia,  
                            of the Committee on Homeland Security  
                                          and Governmental Affairs,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 10:05 a.m., in 
room SD-342, Dirksen Senate Office Building, Hon. George V. 
Voinovich, Chairman of the Subcommittee, presiding.
    Present: Senators Voinovich and Akaka.

             OPENING STATEMENT OF SENATOR VOINOVICH

    Senator Voinovich. The hearing will come to order. Today's 
hearing entitled ``Supporting the Warfighter: Assessing the DOD 
Supply Chain Management Plan,'' is the second hearing that 
Senator Akaka and I have held on the Department of Defense's 
Supply Chain Management Improvement Plan and the third hearing 
we have held on DOD business practices.
    The hearing will focus on the progress that DOD has made in 
developing and implementing the Supply Chain Management 
Improvement Plan since the Subcommittee's last hearing on 
October 6, 2005. I am interested to learn if DOD has identified 
and implemented valid performance metrics and data to use in 
measuring progress over the long term. Finally, the hearing 
will examine the extent to which the Supply Chain Management 
Improvement Plan is integrated with other DOD logistic 
strategies, concepts, and plans.
    I would reiterate that our interest in investigating and 
improving the Department's supply chain management is guided by 
two principles:
    First, with a budget of well over $400 billion and a supply 
inventory of $77 billion, the Department must be a good steward 
of the taxpayers' money. I would note that Secretary of Defense 
Rumsfeld once estimated that the Department wastes 5 percent of 
its budget, over $20 billion a year at current budget levels, 
on redundant or outdated business practices.
    Second, inefficiant, ineffective, and redundant steps 
within the supply chain can have a direct and negative impact 
on our soldiers on the battlefield. The current system impedes 
the Department's ability to deliver the right items at the 
right time to the right place for the warfighter. According to 
GAO, the demand for certain items in the war reserve exceeded 
availability during Operation Iraqi Freedom. I know things have 
improved since then, but as a result of the war reserves, they 
did not have enough vehicle generators, tracks for tanks, body 
armor, lithium batteries, ready-to-eat meals, tires, up-
armored, high-mobility, multi-purpose wheeled vehicles, and 
kits to meet the demand in the field. We all are familiar with 
that. We must do all we can to ensure that the men and women of 
the armed services have the supplies that they need.
    At the first Subcommittee hearing in October 2005, Under 
Secretary of Defense Ken Krieg provided an overview of the 
current logistics structure at DOD and summarized the 
Department's ongoing efforts to improve and enhance the 
efficiency and accountability of the supply chain. In addition, 
Secretary Krieg outlined the next steps for the Department, 
which was to develop metrics and benchmarks to measure DOD's 
supply chain management progress.
    I commend the Department for developing the Supply Chain 
Management Improvement Plan in an open and collaborative manner 
with the Office of Budget and Management and the Government 
Accountability Office. I am pleased that the plan includes 
baseline data and several metrics that can track short-term 
progress in the supply chain process. I also appreciate the 
fact that you have spent time with my staff and Senator Akaka's 
staff, and I want you to know that they are going to be 
spending more time with you.
    However, it has now been a year since the plan was 
developed, and these short-term metrics were intended to be 
phased out and replaced by long-term metrics. Mr. Estevez, I am 
interested to learn if the Department has begun to implement 
those long-term metrics to ensure that this plan is driving 
change in the supply chain.
    In addition, there are at least five DOD strategic plans 
that address logistics and business operations, including 
Quadrennial Defense Review, the Logistics Transformation 
Strategy, the Focused Logistics Road Map, and the Enterprise 
Transition Plan. Some of those plans address supply chain 
management while others do not. Mr. Solis, I would like to 
learn from you where the Department has made clear links 
between these various plans. Without clear links between these 
plans, DOD runs the risk of duplicative and inefficient 
operations.
    I would like our witnesses to know that we are committed to 
working with them to ensure that necessary improvements are 
made in this area. Supply chain management has been on the GAO 
high-risk list since 1990. Sixteen years is far too long for a 
process of this magnitude and importance to be mismanaged. With 
the continued collaboration of GAO, OMB, and DOD, as well as 
continued congressional oversight, I am confident that supply 
chain management can be removed from the high-risk list. I am 
going to bring a bottle of champagne when we announce that.
    I would like to thank both of our witnesses for coming 
today. Alan Estevez is the Assistant Deputy Under Secretary of 
Defense for Supply Chain Integration. Thank you for coming. 
Bill Solis is the Director of Defense Capabilities Management 
at the Government Accountability Office, Mr. Solis, it is good 
to see you again.
    I would now like to yield to my good friend and colleague, 
Senator Akaka, for his opening statement. Senator Akaka.

               OPENING STATEMENT OF SENATOR AKAKA

    Senator Akaka. Thank you very much, Mr. Chairman. I join 
you in welcoming our witnesses, and I want all of you to know 
that it is a pleasure to work with the Chairman on these and 
other issues in our Subcommittee. And I am glad to have Mr. 
Estevez, who leads DOD's Supply Chain Integration Initiative, 
and, of course, to see Mr. Solis again, who has long guided 
GAO's oversight of this critical DOD program. And so we have 
been working together and trying to improve the general 
government management of our country.
    The Chairman and I intend to move DOD's supply chain 
management off of the GAO high-risk list, as he has mentioned. 
It has been on there since 1990. Now, we are making solid 
progress, and I thank our witnesses for the important roles 
they are playing in this effort.
    I am especially pleased that Mr. Estevez is with us today 
for a couple of reasons. First, as the head of Supply Chain 
Integration, you are central in identifying the capabilities 
and gaps in supply chain management, which is so important in 
trying to improve what we are doing. And, second, I would like 
to point out that you were last year's recipient of the Service 
to America Award for National Security. And I tell you that 
because I was honored to be at the ceremony as the presenter of 
the 2005 Federal Employee of the Year Award, and I am so happy 
that there are such awards. Again, congratulations.
    Today's discussion will help us better understand where DOD 
is going on supply chain management. Inefficiencies in DOD 
business operations impact our men and our women in uniform. I 
know from reviewing today's written testimony that progress has 
been made. However, having worked on DOD business modernization 
as the ranking member of the Armed Services Readiness 
Subcommittee, I also know the road ahead is rough and that the 
short-term goal of meeting certain milestones by 2008 may not 
be achieved.
    Supply chain management is not a regional issue. Moving 
material forward and expediting replacements without building 
unnecessary stockpiles impacts overseas and domestic operations 
equally. Until DOD builds on its strengths while addressing 
deficiencies within logistics system, our Armed Forces are at 
risk.
    DOD logistics programs and operations account for close to 
one-third of DOD's budget, and the Chairman mentioned $400 
billion as the budget. Logistics and supply chain management, 
which includes the purchase of equipment and spare parts, as 
well as their maintenance and transport, are part of the 
Operations and Maintenance account that supports critical 
portions of DOD's readiness and quality-of-life programs.
    O&M funding also covers a wide range of activities, such as 
depot maintenance, environmental restoration, base operations, 
and the training of U.S. forces. Therefore, we must ensure that 
O&M funds are spent wisely or else the ability of our military 
to meet present and future challenges will be impaired. And 
being the Ranking Member on Readiness, I am being very careful 
about that.
    That is why it is so important that we have initiatives 
with credible and achievable short- and long-term metrics that 
are linked together. Developing programs, setting objectives, 
and establishing benchmarks are only part of the solution to 
improving supply chain management and moving it off the high-
risk list.
    One new program developed as a result of the Supply Chain 
Management Improvement Plan is the Joint Regional Inventory 
Materiel Management Initiative (JRIMM). I am very proud that 
the U.S. Pacific Command, PACOM, was chosen to lead this new 
program. So JRIMM, once fully implemented, will provide 
distribution services to all military commands on Oahu. The 
principles of JRIMM focus on a single joint logistics system to 
eliminate duplicative activities and inventory, leverage 
distribution platforms, and improve shipment loads and routes. 
And all of these need to be examined.
    I support DOD on this effort, and I am confident PACOM's 
experience will increase requirements forecasting, asset 
visibility, and material distribution--three key areas of 
improvement identified by GAO as central to supply chain 
management processes.
    Having spent time with combatant commanders, I know that 
they will not accept a comprehensive logistics system unless 
they are confident that the men and women under their commands 
will have what is needed to carry out their missions. To 
paraphrase you, Mr. Estevez, without the right equipment in the 
right place and at the right time, our Armed Services cannot do 
their jobs. And I thank you for that.
    DOD's management and integration challenges demand long-
term attention and sustained leadership. One critical benchmark 
will be how successfully DOD aligns its logistic supply 
management initiatives to the Department's fiscal year 2008 
budget submission. I am sure Clay Johnson at OMB will let us 
know how DOD is doing in that regard.
    So, Mr. Chairman, I want to thank you for holding this 
hearing. This is really key for our country and government 
management, and I look forward to working with you and with our 
witnesses on this continued partnership.
    Thank you very much, Mr. Chairman.
    Senator Voinovich. Thank you, Senator Akaka. I think we are 
very fortunate to not only have you as the Ranking Member of 
the Subcommittee, but your extensive background on the Armed 
Services Committee gives you an even broader perspective on 
what we are dealing with today. I suspect, that you have been 
dealing with this a lot longer than I have.
    I would like the witnesses to limit their statements to 5 
minutes or less. You all know that your statements will be 
included in the record.
    It is the custom of our Subcommittee to swear in our 
witnesses. If you will please stand, I will swear you in. Do 
you swear that the testimony you are about to give this 
Subcommittee is the truth, the whole truth, and nothing but the 
truth, so help you, God?
    Mr. Estevez. I do.
    Mr. Solis. I do.
    Senator Voinovich. Thank you.
    Mr. Estevez, thank you again for being here today, and we 
look forward to your testimony.

    TESTIMONY OF ALAN F. ESTEVEZ,\1\ ASSISTANT DEPUTY UNDER 
SECRETARY OF DEFENSE, SUPPLY CHAIN INTEGRATION, U.S. DEPARTMENT 
                           OF DEFENSE

    Mr. Estevez. Thank you, sir. Chairman Voinovich, Senator 
Akaka, thank you for the opportunity to appear before you and 
discuss the current status of the Department of Defense's 
efforts to address areas of risk in the Department's supply 
chain processes. I welcome the opportunity to do so as we are 
implementing a comprehensive Supply Chain Management High-Risk 
Improvement Plan to improve the level of logistics support we 
are providing to our warfighters and to increase the return on 
investment for that support to the American taxpayer.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Estevez appears in the Appendix 
on page 23.
---------------------------------------------------------------------------
    Today, I will highlight recent actions the Department has 
undertaken to improve our supply chain management. Before I do 
that, first I would like to thank Senator Akaka for the 
compliment, and also you, Senator Voinovich, I know also a 
compliment to be in the hearing with Mr. Krieg last October for 
winning that award, which, as I said, when I received that 
award, really belongs to the men and women of our services that 
are actually implementing and driving those programs.
    I would like to compliment the respective staffs and the 
staffs of the Government Accountability Office and Office of 
Management and Budget who have worked with the Department in 
addressing the supply chain management high-risk area.
    DOD logistics is a $151 billion a year operation supporting 
our forces around the world, keeping 15,000 aircraft, 300 
ships, 30,000 combat vehicles, fulfilling their mission. Unlike 
our commercial counterparts, DOD logisticians are called upon 
to support operations on short notice, for an indefinite 
period, in parts of the world such as the mountains of 
Afghanistan or the desert of Al Ambar Province, in which we 
have little or no existing presence or capabilities. We have 
also supported unplanned disaster relief efforts, including 
along our own Gulf Coast. Under such circumstances, there will 
always be areas of risk.
    Even as we continue to support multiple operations around 
the world, we have made tremendous progress in transforming DOD 
logistics. I will provide an update on our accomplishments.
    A primary measure of performance of a logistics system is 
customer wait time, that is, how long it takes from the time a 
warfighter orders an item until they receive that item. I am 
pleased to report that we have seen a 33-percent decrease in 
customer wait time from fiscal year 2004 through April 2006, 
from an average of 24 days to 16 days.
    The designation of the U.S. Transportation Command as the 
distribution process owner has already led to significant 
benefits in aligning the Department's distribution process. For 
example, average customer wait time to Iraq and Kuwait has 
decreased from 22 days in March 2005 to 12\1/2\ days in June 
2006.
    DOD is a leader in the implementation of radiofrequency 
identification technology, and the DOD Radio Frequency 
Identification (RFID) network is providing the warfighter with 
unprecedented visibility of incoming shipments. We continue to 
drive our implementation of this leading-edge technology.
    We have seen excellent results in applying continuous 
process improvement to our maintenance depots, and lean 
techniques used in our distribution depots have improved 
processing times for air pallet builds from over 85 hours to an 
average of 35 hours.
    The recommendations of the Base Realignment and Closure 
Commission reinforced the key programs highlight in our High-
Risk Improvement Plan. Initiatives such as our Joint Regional 
Inventory Materiel Management program and our Strategic 
Commodity program will help us to achieve real benefits under 
our BRAC transformation.
    We continue to develop an overarching logistics strategy. 
To that end, we are conducting a job logistics capabilities 
portfolio test to better integrate the warfighter's 
requirements and refine the focus of our logistics strategy. 
The results of that test, along with the operational support 
lessons learned and initiatives contained in our high-risk 
improvement plan, will be incorporated into the comprehensive 
logistics strategic plan.
    Change management begins at the top, and our senior leaders 
are deeply involved. As you know, Ken Krieg, the Under 
Secretary of Defense Acquisition, Technology, and Logistics, 
and Jack Bell, the Deputy Under Secretary of Defense for 
Logistics and Materiel Readiness, receive regular updates on 
our progress.
    Ultimately, the proof of this process will be in the 
translation of these initiatives into improved performance and 
better risk management. We are committed to measurably 
improving logistics support to our military forces.
    Thank you, and I would be happy to answer any questions you 
may have.
    Senator Voinovich. Thank you, Mr. Estevez. Mr. Solis.

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

    Mr. Solis. Chairman Voinovich, Ranking Member Akaka, thank 
you for the opportunity to discuss our views on DOD's progress 
in addressing issues related to improvement in supply chain 
management. At the onset, I would again like to thank the 
Subcommittee for its oversight of this important issue, which, 
as the Chairman mentioned, affects military readiness, the 
safety and well-being of our military members, and the 
investment of billions of dollars. 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 hundreds of 
billions of dollars of taxpayer funds it receives each year. I 
would also like to mention that OMB's and DOD's continued 
commitment and involvement remain essential in resolving the 
DOD supply chain issues we will discuss today.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Solis appears in the Appendix on 
page 35.
---------------------------------------------------------------------------
    As requested, my comments will focus on three issues: 
First, DOD's progress in implementing the Supply Chain 
Management Improvement Plan; second, its progress in 
incorporating performance measures for tracking and 
demonstrating improvement; and, third, the extent to which the 
DOD Supply Chain Management Improvement Plan is aligned with 
other logistics plans across the Department that address 
aspects of the supply chain.
    Regarding progress and its Supply Chain High-Risk Plan, 
since October 2005, DOD has continued to make progress 
implementing the 10 initiatives in its Supply Chain Management 
Improvement Plan, but it will take several years to fully 
implement all of these initiatives. DOD's stated goal for 
implementing this plan is to demonstrate significant 
improvement in supply chain management within 2 years of the 
plan's inception in 2005, but the time frames for substantially 
implementing some of the initiatives are currently 2008 or 
later.
    While DOD has generally stayed on track, it has reported 
some slippage in the implementation of certain initiatives. 
Factors such as the long-standing nature of the problems, the 
complexities of the initiatives, and the involvement of 
multiple organizations within DOD could cause the 
implementation dates of some initiatives to slip further.
    Regarding progress on supply chain metrics, DOD has 
incorporated several broad performance measures in its Supply 
Chain Management Improvement Plan, but it continues to lack 
outcome-focused performance measures for many of the 
initiatives. Therefore, it is difficult to track and 
demonstrate progress toward improving the three focus areas of 
requirements forecasting, asset visibility, and materiel 
distribution. Although DOD's plan includes four high-level 
performance measures that are being tracked across the 
Department, these measures do not necessarily reflect the 
performance of the initiatives and do not relate explicitly to 
the three focus areas. Further, DOD's plan does not include 
cost metrics that might show efficiencies gained through supply 
chain management improvement efforts.
    In their effort to develop performance measures for use 
across the Department, DOD officials have encountered 
challenges such as a lack of standardized, reliable data. 
Nevertheless, DOD could show near-term progress by adding what 
we call intermediate measures. These measures could include 
outcome-focused measures for each of the initiatives or for the 
three focus areas.
    Last, regarding the alignment of the DOD high-risk plan 
with other logistics plans, DOD has multiple plans aimed at 
improving aspects of logistics, including supply chain 
management, but it is unclear how these plans are aligned with 
one another. The plans were developed at different points in 
time for different purposes, and in different formats, so it is 
difficult to determine how all the ongoing efforts link 
together to sufficiently cover requirements forecasting, asset 
visibility, and materiel distribution, and whether they will 
result in significant progress towards resolving this high-risk 
area.
    Also, DOD's Supply Chain Management Improvement Plan by 
design does not account for initiatives outside of the direct 
oversight of the Office of the Secretary of Defense, and DOD 
lacks a comprehensive strategy to guide logistics programs and 
initiatives. DOD is in the process of developing a new plan, 
referred to as a ``To Be'' roadmap, for future logistics 
programs and initiatives. This roadmap is intended to portray 
where the Department is headed in the logistics area, how it 
will get there, and what progress is being made toward 
achieving its objectives, as well as to link ongoing capability 
development, program reviews, and budgeting. However, until the 
roadmap is completed, GAO will not be able to assess how it 
addresses the challenges and risks DOD faces in its supply 
chain improvement efforts.
    In closing, the plan alone will not resolve the problems we 
identified in the DOD supply chain. While we recognize the 
difficulties and long-term nature of dealing with this issue, 
measurable and sustained progress will be needed not only to 
remove the high-risk designation, but provide Congress and DOD 
stakeholders at all levels with the confidence in DOD's supply 
chain.
    Mr. Chairman, Senator Akaka, that concludes my statement. I 
will be happy to answer any questions.
    Senator Voinovich. Thank you very much.
    Mr. Estevez, I understand that you created a Supply Chain 
Logistics Working Group to assess the cost and performance 
outcomes of DOD logistics. This group has developed short-term 
metrics as well as long-term benchmarks and metrics based on 
industry standards that will allow you to measure your 
effectiveness.
    Has the Department been able to measure success based on 
those short-term metrics? And has the Department begun to 
implement the long-term metrics?
    Mr. Estevez. Senator, let me address that in two ways.
    We have obviously shown some results, customer wait time 
being a primary metric of the logistics system. It is analogous 
to a commercial metric called order fulfillment lead time, 
which a commercial company would use to measure whether you are 
delivering the material they need in an industrial capability 
or you are delivering the material you need to sell in the case 
of a Wal-Mart. We are showing measurable improvement in that.
    Now, the initiatives that we are implementing are still in 
microcosm. They are still too small to have direct effect. But 
things that TRANSCOM is doing as the distribution process 
owner, things that our depots are doing are helping to drive 
that wait time down, plus the fact that we have a more robust 
capability of delivering material to places like Iraq and 
Afghanistan as the capacity of the network has increased.
    That metric is going to be both a short-term and a long-
term metric. That is probably the key metric of how the 
logistics system performs. The ultimate outcome of that is 
operational availability. In other words, are the platforms, 
the weapons systems that you are giving us the dollars to buy 
and sustain up to the operational capacity so they can perform 
their mission?
    There are lots of other facets that feed into operational 
availability, whether I have a trained mechanic to fix that 
platform, as well as the logistics system that is feeding the 
parts into that. So that is where we get into an issue of 
whether you can track an initiative right back to that 
operational availability or which of these initiatives are 
affecting the driving down of that customer wait time.
    I think that is our real challenge versus do we have the 
right metrics. I would argue that we have, in fact, identified 
the right metrics to measure the logistics performance.
    Senator Voinovich. The challenge that the Department has is 
it has to distribute supplies all over the world.
    Mr. Estevez. That is correct, sir.
    Senator Voinovich. I would suspect that this exacerbates 
the problem of trying to develop an efficient supply chain 
process. You are so busy just getting the stuff out there that 
you do not have the chance to sit back and look at the process.
    On the other hand, because it is happening every day, you 
really get a chance to see whether or not something is being 
accomplished.
    The question I have is this, and I asked this of Mr. Krieg. 
Do you have the people you need to improve the supply chain 
process? Have you brought on new people to do this? Or have you 
pulled people away from other things that they were doing in 
order to work with you? Could you identify for me the 
management team that you have in place to get the job done?
    Mr. Estevez. I personally have a staff member dedicated to 
focusing on this effort. She is also working some other issues 
as well that feed into this effort, some of the initiatives 
that are embedded in this. Likewise across the military 
services, we are working with the people who are actually 
implementing these programs and also managing the logistics 
processes across the military services.
    So, my counterparts across the military services, the one- 
and two-star generals or SES members that oversee the supply 
management portions of their service, are focused on directing 
these efforts. They recognize the value from driving this 
change, but simultaneously, as you just mentioned, they are 
managing the ongoing support. So we are doing this change while 
we are sustaining our current efforts.
    Senator Voinovich. Do you think that is adequate to get the 
job done? I am interested in Mr. Solis' observation. Mr. Solis.
    Mr. Solis. I know there are other folks in the Department 
that are also working on this. We have not really looked in 
terms of the capacity for the Department to do this. We have 
looked at what they have provided us, but we have not looked at 
the capacity behind it to do the plans that they have put out.
    Senator Voinovich. I want to make sure that you have people 
dedicated to this. Who are staying on top of this issue.
    What is your reaction to that?
    Mr. Estevez. Senator, each of these initiatives is a major 
program in and of itself, with folks dedicated across my staff 
and the military service staffs that are focused on 
implementing these initiatives. The fact that those are 
knowledgeable people that are executing responsibilities across 
the supply chain, I frankly think, is beneficial to our ability 
to drive these initiatives because they understand both the 
flaws in our process and what needs to be done to fix that 
process.
    So they are dedicated and focused on driving these 
implementations because they understand truly the benefits that 
they will derive from an end goal implementation.
    Senator Voinovich. I would like to have a list of who is 
working on it, what their capacity is, and I would also like to 
know particularly if they are political appointees or whether 
they are civil service individuals.
    Mr. Estevez. I would be happy to do that, obviously for the 
record, sir, to give you a definitive list.
    Senator Voinovich. Mr. Estevez, I am very concerned about 
the whole issue of moving forward with change and the time it 
is going to take to get some of these things done. What 
concerns me a great deal is that I know that transformational 
change is not going to get done in 2 years. I am worried that 
after this Administration is gone, how are we going to continue 
to make sure that this gets done? If this has been on the GAO 
high-risk list for 16 years, there has to be some reason why it 
has not been done. I would be interested to know how often the 
Department has taken on improving the supply chain management 
over the last 16 years.
    Senator Akaka.
    Senator Akaka. Thank you very much, Mr. Chairman, Mr. 
Estevez, and Mr. Solis. I want to thank our witnesses again for 
working with us on moving supply chain management off the high-
risk list, and this is what we are trying to do here. This is 
not an easy undertaking, no question about that, and it will 
not happen overnight.
    I also know it is hard for the public to appreciate fully 
how efficiencies in DOD's supply chain could impact them in the 
future. For example, Mr. Estevez, you explained that, in 
addition to supporting the armed services at home and abroad, 
the Department is engaged in disaster relief efforts throughout 
the world. Mr. Estevez, while I know DOD is unable to determine 
in advance the location or the type of disaster relief that may 
be needed, can you explain how DOD addresses the challenging 
and complexities of balancing logistical support to the troops 
on the one hand and on the other hand while being on call for 
disasters?
    Mr. Estevez. A couple of facets to that. Obviously, in 
disaster, one of the things that we tap to provide support is 
our lift capability, C-17s, C-5s, our military lift capability. 
They are obviously being used to support our forces. We are 
able to swing our airplanes around to support disaster relief, 
plus to charter commercial aircraft on a reimbursable basis to 
provide that.
    Much of the supply that is used for disaster relief is 
either commercial supply, for instance, medical equipment that 
we buy under contracts, that we buy direct from vendors, we do 
not stock that in the warehouse, so there are surge clauses in 
those contracts, and we are able to draw on that capability. 
MREs, we stock meals-ready-to-eat, we stock a certain amount of 
those. We are able to draw those down while replenishing those, 
making sure we do not hit a bottom point where we feel like we 
are putting our own forces in danger. Other types of meals, we 
are able, again, to buy off the commercial market under 
existing contracts and just surge those capabilities.
    In point of fact, for this hurricane season we are actually 
engaged with the Federal Emergency Management Agency (FEMA) to 
provide that kind of support to them on an as-needed basis. But 
we do have the capacity to do that kind of dual operation.
    Senator Akaka. Mr. Estevez, would you provide us with a 
more complete description of what the joint logistics 
capabilities portfolio test entails, as well as its time for 
completion? And would you also explain how it will affect the 
supply chain plan and what we call the ``To Be'' roadmap?
    Mr. Estevez. The joint capabilities portfolio test is top-
down-driven, driven by Secretary England through Mr. Krieg. We 
are doing tests, similar tests, in a number of other areas 
aside from logistics. It is an outgrowth of the Quadrennial 
Review, and really the intent is to get a better management 
assessment structure so that we can determine what programs to 
focus on in the joint environment. As you know, the military 
services support programs that support their particular 
service, but when you come to the trade-off in resources to 
implement joint programs, those decisions in the current 
environment tend to peak at the top.
    So this is to put that governance structure in place, trade 
off the capabilities for the combatant commanders, feed in the 
different initiatives that we are doing, the initiatives that 
are under the Supply Chain Management Plan, the initiatives 
that TRANSCOM may be implementing under their distribution 
process owner capability, distribution process ownership, look 
to determine whether we need other process owners in additional 
logistics areas to drive that kind of focus that we are getting 
out of TRANSCOM today, and really, as you assess that whole 
governance process, determine the trade-offs, put a structure 
in place to weigh capabilities against each other. The outcome 
of that will be the strategic plan with the initiatives in the 
high-risk plan as a component of that overarching strategic 
plan.
    Hopefully I have answered your question.
    Senator Akaka. Yes. Mr. Estevez, regarding the ``To Be'' 
roadmap, when will it be completed? And do you foresee any 
significant delays?
    Mr. Estevez. We expect to be getting initial results of the 
joint capabilities test in late winter or early spring next 
year, the February time frame. And at that point we will be 
able to start congealing the roadmap by--I hesitate to give you 
an end date for completing that. I would expect sometime next 
year.
    Senator Akaka. OK. Thank you.
    Mr. Solis. If I could add, I think originally, the ``To 
Be'' roadmap was originally supposed to coincide with the 
President's 2008 budget submission, and I think that was going 
to be very helpful in terms of tying programs to resources. And 
if it is going to be delayed beyond that, I think that becomes 
somewhat problematic because then you get beyond the budget 
submission period, and then you have to wait maybe another year 
to see whether these programs can really be funded and how are 
they going to be funded, because I think that is really key. 
But I think that any delay beyond the budget year or the budget 
submission period, you probably would then have to wait another 
year to really see if DOD could execute some of these programs.
    Senator Akaka. Thank you for that explanation.
    Thank you, Mr. Chairman. My time has expired.
    Senator Voinovich. To follow up on this discussion. I am 
sure the Administration is already working on the 2008 budget.
    Mr. Estevez, are the initiatives you are implementing in 
the 2007 budget?
    Mr. Estevez. Some of the initiatives are covered in the 
2007 budget. Some of them are not. It depends on the start 
date.
    Senator Voinovich. Can you let me know which intiatives are 
covered and which are not?
    Mr. Estevez. Absolutely. Again, if I could take that for 
the record and give you the detail of that.
    Senator Voinovich. Yes.
    Mr. Estevez. Some of them, Senator, if I might add, are not 
really resource-intensive type programs. They are basic 
blocking, tackling, process-focused programs.
    Commodity management or JRIMM, for example, are changing 
the process that don't entail putting dollars in the budget. In 
point of fact, they should relieve focus from the budget.
    Senator Voinovich. As I mentioned earlier, I am concerned 
that the people involved are so busy making sure that the 
process is supplying the warfigher that they do not have time 
to effectively manage the process.
    Do you understand what I am saying? You have people that 
are helping you, and it is good that they have the experience 
and they understand what the motivation is. But I want to know 
how many of them have been around a while. I will never forget, 
I had a chief of staff when I became governor. I recognized 
right away that he was so busy putting out fires that we needed 
to move him out of the management of the operation. We put 
together cabinet clusters, and then I had individuals that I 
put in charge of those cabinet clusters. So every day I knew 
that somebody got up early in the morning and stayed late at 
night to make sure that the management changes and the 
transformation were accomplished.
    I find it hard to believe that you are going to be able to 
get this done and have these people doing both jobs.
    Mr. Estevez. Well, again, there is a mix. Let me use the 
example of radiofrequency identification. Each of the services 
has folks that are dedicated--I am trying to figure out how to 
roll that out and implement that across their departments. DLA 
has a program manager through headquarters, program managers at 
their distribution depots that are going around figuring where 
to put readers and how best to change the business process to 
take advantage of this technology that is going to help us 
downstream.
    Now, some of those people are also involved in operating 
the depot because they are the people who would know how to fix 
that business process.
    Senator Voinovich. This is an automated inventory system so 
you know that you are not selling stuff that you are buying. 
Right?
    Mr. Estevez. That is correct, sir.
    Senator Voinovich. So everybody agrees that this is the 
best technology? Where did you get that technology?
    Mr. Estevez. That technology is a standard enterprise 
resource planning tool that most commercial companies have 
already----
    Senator Voinovich. So a Wal-Mart would have a similar 
system?
    Mr. Estevez. Yes, actually, Wal-Mart built their own, but a 
good segment of the top 50 Fortune companies would be using 
that kind of software.
    Senator Voinovich. The software has already been tested?
    Mr. Estevez. Absolutely, sir. Same with our RFID 
implementation. We are using the same technology that Wal-Mart 
is implementing today.
    Senator Voinovich. Are you getting any help from the 
private sector? Do you have a private sector task force that 
you bounce ideas off of and that can give you some insight into 
things?
    Mr. Estevez. Again, it varies by program. RFID, I am 
working very closely with the Procter & Gambles, Gillettes, 
Wal-Marts of the world who are implementing these programs. 
Many of them are in your State, as a matter of fact, of the 
leading-edge companies. And some of that has paid off in that--
--
    Senator Voinovich. Are they doing this for pay or are they 
doing this pro bono?
    Mr. Estevez. They are doing it pro bono.
    Senator Voinovich. Great. I would suggest that the 
Department continue to use these outside exports, as well as 
people within the Department who are knowledgable about the 
supply chain process to bounce ideas off of. I think that this 
would help to DOD implement the plan faster.
    Mr. Estevez. I could not agree more, and we are going out 
and benchmarking amongst leaders in supply chain management in 
the commercial sector and have great relationships out there to 
draw on.
    Senator Voinovich. Mr. Solis, have you had a chance to 
observe what they are doing in this area? You mentioned you 
were not familiar with the personnel issues.
    Mr. Solis. Right.
    Senator Voinovich. You have just been looking at whether or 
not the short-term metrics have been achieved.
    Mr. Solis. Right. I guess another perspective that I would 
offer related to that, as we mentioned, there are a lot of 
different plans that are out there, and from what we see, there 
is not a clear linkage of how all those plans interrelate, 
particularly with the supply chain plan. And I would only offer 
that until you get some overarching plan that says this is the 
direction we are going to go, which may be the ``To Be'' 
roadmap you are going to have a lot of folks that may or may 
not be working toward a common direction. It is not clear in 
terms of how all these plans link together.
    So the question comes up: How do you better utilize all 
these resources that may be working on all these other 
different plans that are out there? And maybe there is a better 
way to do that once you have your ``To Be'' roadmap or your 
joint portfolio test completed.
    Senator Voinovich. I would like to followup on what you are 
saying. You mentioned these various plans that the Department 
has. Has anybody really sat down and dissected those plans to 
see just how they all interrelate with each other and that 
there is not duplication?
    Mr. Estevez. In point of fact, there is some overlap 
between differing plans. Let me give you an example: the 
Enterprise Transition Plan, which is broader than the logistics 
area.
    For the logistics area, it overlaps with some of the 
initiatives that are in the High-Risk Management Plan, but the 
milestones that are in there are, in fact, the milestones that 
we have given them because visibility is a key component of the 
Enterprise Transition Plan----
    We work closely together in the coordination of the area of 
logistics, not just me but the other SESes that are my 
counterparts in logistics. So the items that are related to 
supply chain that are in the Enterprise Transition Plan are, in 
fact, programs that we are driving----
    Senator Voinovich. So the enterprise transition group is 
looking at the overall transformation of the Department. You 
are a piece of that?
    Mr. Estevez. That is correct, sir.
    Senator Voinovich. OK. Senator Akaka.
    Senator Akaka. Thank you, Mr. Chairman.
    Mr. Estevez, the initiatives in the Supply Chain Management 
Improvement Plan require buy-in from the services and 
investment of funding resources. In some cases, this will 
require investments of both procurement and O&M funds from the 
services.
    How do you plan to obtain the necessary funding commitments 
needed from the services?
    Mr. Estevez. For those programs that require funding--and, 
again, not everything requires resources--I am working with the 
services, my counterparts in the services, to ensure that they 
are putting in sufficient funds to move those programs along. I 
am also working with the Comptroller and PA&E to ensure that 
there is sufficient funds should the services have issues as 
they move through their own funding process.
    Senator Akaka. I am asking this because I know the services 
care about their own funding, and I was interested in how you 
plan to work that out.
    Mr. Estevez, I understand that the U.S. Transportation 
Command is completing a contract that it will use private 
logistic providers for both internal U.S. as well as overseas 
supply shipments. Do you know if other commands are taking this 
particular approach?
    Mr. Estevez. The contract that I believe you are talking 
about is called the Defense Transportation Coordinators 
Initiative, and it is not moving overseas at this point It is 
just for domestic shipments. TRANSCOM is the coordinator of 
transportation for the Department, so this would be a first 
step. Other combatant commands control the transportation 
within their regions, if it is not coming from the United 
States and managed by TRANSCOM.
    Now, after we do this initiative in the United States, 
there are opportunities overseas. TRANSCOM will certainly work 
with the other commands.
    Now, in the case of Oahu, under the JRIMM initiative, we 
are looking at how to synchronize the capability of 
transportation on the island in support of the forces that we 
have out there as part of the JRIMM.
    Senator Akaka. Now that you mention that, Mr. Estevez, I am 
delighted that PACOM was chosen to take the lead by having the 
first JRIMM program. Our staff had an opportunity to meet with 
Navy Commander Bob Boudreau of PACOM and Deputy Commander Mike 
O'Brien at the Defense Distribution Center at Pearl Harbor, 
when Senator Voinovich and I held our NSPS field hearings at 
Fort DeRussy in April of this year. Their briefing and tour 
provided firsthand knowledge of how JRIMM is providing physical 
distribution services for all the combatant commanders on the 
island of Oahu.
    You mentioned that the pilot program of the Navy in San 
Diego yielded a 40 percent reduction in what you termed 
``touches.'' What are your expectations and projections for 
JRIMM over the next 2 years?
    Mr. Estevez. I think we will have at least the same results 
that we had in San Diego. In fact, going back to Senator 
Voinovich's earlier question, we had a commercial group vet 
what we were doing in that to give us advice that, yes, this is 
standard commercial practice, this is the way you should go 
about it, you are doing the right things.
    So we should continue, just as we did in San Diego, to see 
a decrease in what we call customer wait time, the time it 
takes to provide an ordered piece of equipment to the user of 
that equipment. With the decrease in the amount of inventory 
that you need to carry because you are carrying buffer today, 
just because the customer wait time is not assured, and that is 
exactly what JRIMM will provide. So we expect to achieve at 
least the same results that we are achieving in San Diego.
    Mr. Solis. Senator, if I could add?
    Senator Akaka. Mr. Solis.
    Mr. Solis. I think those are things that we would like to 
see, and we would like to actually see those defined a little 
bit better in the actual initiative itself in terms of 
specifics. I think those are all things that, again, when we 
talk about measurable pieces, recognizing the challenge of 
trying to put that together, Mr. Estevez or the Department 
could come back and say here are things that we have actually 
done in terms of reducing cost or inventory, or whatever the 
case may be. I think that would be helpful.
    Senator Akaka. In particular, Mr. Solis, what are your 
expectations on JRIMM, and do you believe that significant 
gains in better logistic response times and reduced inventory 
can be achieved through this initiative?
    Mr. Solis. Conceptually, from what I have seen and what I 
have heard, intuitively, it tells me it is something that is 
good. But, again, what I would ask is that at some point in 
time, we be able to see the metrics or the measures by which we 
can look at and say that there is actual progress being made.
    Again, intuitively, conceptually, and some of the things 
that we have seen and heard, yes, it would lend me to believe 
that it is a good initiative. But I think the proof in the 
pudding would be that you would want to see some specific 
measures that go behind those things.
    Senator Akaka. Thank you, Mr. Chairman.
    Senator Voinovich. Getting back to the issue of calculating 
cost savings, what is your capability?
    Mr. Estevez. We are, by initiative, capable of doing that 
over time. Some of them we have a more robust ability to make 
that projection than in others. And, of course, not every one 
of those initiatives is geared at cost savings. Some of those 
are geared at better operational capability for the force, 
which is, of course, our main goal.
    Again, RFID--since I happen to have my fingers on that one 
pretty closely. I think we are preliminary to be able to do a 
projection. We did, in fact, do a business case analysis on 
RFID that projected a cost savings across the Department of 
best case $1.7 billion, worst case $70 million, depending on 
how it is achieved. I do not want to call it an ``academic 
exercise,'' but it was based on projections.
    Now that we are implementing and we are gathering metrics 
as we are implementing, as we are able to do that, we will be 
able to get a better cost savings assessment. The same thing 
with something like JRIMM. As we can identify what inventory we 
can push back to the national level, how we can flow that 
inventory, we will better be able to make those cost trade-offs 
in identifying the cost savings.
    Senator Voinovich. I suspect that your private sector 
people have been able to calculate savings that they have made 
as a result of the work that they have done.
    Mr. Estevez. Some yes and some no, Senator, amazingly 
enough. Now, their businesses are slightly different than ours. 
In the case of a Wal-Mart, they are interested in item on shelf 
to sell to a consumer. I am interested in that as well, but I 
am more interested in making sure the platform flies at the end 
of the day, so I may carry slightly more inventory than they 
would carry. And the cost of stock-out is just greater for us 
than it would be for them.
    Senator Voinovich. What have you done in the area of 
forecasting?
    Mr. Estevez. We have a great program called readiness-based 
sparing, and what readiness-based sparing does, again, it uses 
those commercial software tools that we were talking about 
earlier with some additional tools that some of the venture 
capital folks have developed that are more robust. We need the 
data from an SAP type, an ERP tool that we are using. But what 
that does is it can take--should we be carrying the engine as a 
spare or should we be carrying the part of the engine as a 
spare? And should we be carrying that at the tactical level or 
should we be holding that at the national level? It helps 
balance that forecastability.
    Navy is moving out very strongly in that, but each of the 
services has a pilot program to implement that because, again, 
they see the benefit to themselves of that operational 
availability at the end of the day.
    Senator Voinovich. During my time in Congress, I have seen 
so often that we override the Department in regards to 
decisionmaking. So often money and importance of a job is 
judged by the jobs that are being generated in our respective 
States. You get this tremendous pressure to continue to do 
things that may not be the best thing for the Department in 
terms of money. I have an up-armor operation in Ohio. 
Information has come back about these Humvees are a little 
dangerous, that they roll.
    Are you able to analyze the initiatives and make 
adjustments if necessary?
    Mr. Estevez. Let me address that from a logistics 
perspective. The logistics system receives information on 
demand as it is occurring. Our ability to analyze all that 
demand varies. So, an army item manager looking at requirements 
for up-armor would see the requirement for that. Then it is a 
matter of turning--so that is almost immediate. And that is a 
matter of what is the surge capability of the industry in order 
to support that.
    If it is a particular part that starts breaking, you might 
not identify that component needs to be made more reliable 
because you are replacing that constantly, longer than you 
would like. But, again, it depends on the component and the 
system. An aircraft component, the folks that manage those 
parts at Wright-Patt, or in Philadelphia for the Navy, are 
pretty good at identifying when they are hitting demand outside 
the bounds.
    The other thing we are doing in that regard is, of course, 
we are going to something called performance-based logistics 
programs where the manufacturer is required to sustain those 
platforms, so it behooves them because the cost burden now goes 
to them to replace parts that they did not expect to replace to 
increase the reliability of those components. And we have been 
very successful in doing that.
    Senator Voinovich. I remember one instance a couple of 
years ago in one of our closed sessions, I asked Secretary 
Rumsfeld a question regarding the demand for up-armored 
Humvees. He said it was X, and I said: That is not true, it is 
Y. I just wondered if somebody had better information that we 
could have known what the capacity really was at the time.
    Mr. Estevez. In the case of an up-armor, the folks at Tank 
Automotive Command, a subcomponent of Army Materiel Command up 
in Detroit, follow that pretty closely. So they should have 
been able to answer that question. Those are their contracts.
    Senator Voinovich. So do you think the problem in this 
particular case was that he just did not have the information 
but somebody did?
    Mr. Estevez. I really do not want to answer that, sir.
    Mr. Solis. Senator, if I could offer some perspective also 
on this, we did some work, actually visited the facility that 
you are talking about, which I believe is in Fairfield, Ohio.
    Senator Voinovich. Right.
    Mr. Solis. We talked to the folks there, and part of it, 
the requirements are coming out of theater, and some of these 
are what are called ``urgent requirements'' that come out of 
theater, and then it goes to the Department. And then once the 
requirement is validated, then the funding has to be provided 
everything else has to be set aside.
    I think in the case of the facility up there, I think part 
of the issue was what was your current capacity, as opposed to 
what is your max capacity. I think there was some of that that 
was going back and forth, and I think that is part of the 
problem the industrial base faces, is trying to understand what 
the requirements that are coming down are. And I think TACOM 
was trying to work with them, but I think, again, the funding 
and everything else that needs to come with that was not always 
there.
    Senator Voinovich. I think the Department needs to do a 
better job at forecasting and understanding demand.
    It seems to me that the Department should be able to 
provide Congress with information on exactly what they need to 
purchase. This would make it harder for Congress to spend on 
items not needed.
    The other question I have is regarding the war on 
terrorism. How have we changed the way we allocate our 
resources to better protect the U.S. and the world from 
terrorism. For example, is more money going to public 
diplomacy?
    Mr. Estevez. Sir, I can really only answer----
    Senator Voinovich. Or is that above your pay grade? 
[Laughter.]
    Mr. Estevez. Again, I can only answer that from a logistics 
perspective because it is above my pay grade. Of course, we are 
looking at what our needs are and trying to plan out our needs 
accordingly. I will say the Department only wants to buy what 
we believe we need.
    Senator Voinovich. Senator Akaka.
    Senator Akaka. Thank you, Mr. Chairman. And in a sense, 
following up on this line, and also in the private sector, Mr. 
Estevez, both you and Mr. Solis discussed the need to 
incorporate best practices from the private sector. I know from 
my experiences as Chairman of the Postal Service Subcommittee 
that the U.S. Postal Service and the United Parcel Service, for 
example, are leaders in logistics.
    What is the status of DOD's efforts to incorporate 
commercial benchmarks for supply chain performance? And how is 
DOD working with the private sector on that?
    Mr. Estevez. We are letting a contract to go out and do 
some benchmarks against the commercial sector based on our 
benchmarks against our metrics. Again, going back to my earlier 
statement, you really cannot benchmark against Wal-Mart because 
they are in a different business line. That is not to say we 
cannot learn lessons from some of the good things that Wal-Mart 
does, but when it comes to the benchmarking, it really comes 
down to what is an industrial activity doing, and there is 
really no one to benchmark against when it comes to deploying 
and sustaining a force in the field. So it is how do you 
segment those benchmarks. But we are letting a contract to do 
that.
    Concurrently, as I said, I certainly am working closely 
with the commercial sector, including folks like United Parcel 
Service, on how they do their business, and they are more than 
willing to open up and show us things that we can learn and 
have, in fact, implemented in the past and will continue to do 
so.
    Senator Akaka. Mr. Solis, do you believe that DOD is on the 
right track in this regard? And what more could be done to 
further the incorporation of the private sector best practices 
into the supply chain management process?
    Mr. Solis. Well, again, I think in terms of adopting or 
trying to look at commercial benchmarks, I think that is a 
worthwhile endeavor to do. We talked about this the last time 
we were here in testimony, and there was some thought that 
maybe we would be further along. And I think that is part of 
the issue that I keep coming back to, is that where we stand 
today versus where we were a few months ago or last year or 
where we hope to be in the future. And I think that is where, 
again, with regard to any of the metrics, whether it is for the 
initiatives or commercial benchmarks, I think we would like to 
see progress so that we can measure where they are in relation 
to the high-risk issues that we are talking about.
    Senator Akaka. Mr. Estevez, large retailers have 
significantly reduced inventory because of gains in inventory 
management. One step in this process is to require suppliers to 
provide advanced shipping notifications with strict delivery 
times. To facilitate this time-sensitive coordination, there 
has been an increase in businesses specializing in promoting 
efficiencies between suppliers and their customers.
    I would add that this is being done in Hawaii by the Matson 
Lines, for example. Warehouse space has been reduced 
significantly because the timing is so good. Matson comes in 
with containers, and by 7:30 in the morning merchandise is 
delivered to the stores. They do not need the warehouse space; 
they put it right on the shelves.
    Mr. Estevez, I know that JRIMM is intended to inject 
efficiencies into the supply chain process, but what other 
steps is DOD taking to manage its huge inventory of items?
    Mr. Estevez. We have a number of programs, Prime Vendor 
being the one that jumps out at me, that essentially is 
delivery from the commercial sector direct to the user at DOD, 
without storing that material. It has to be commercially 
available material, and we tend to use the same networks that 
the private sector company would use to distribute to a Wal-
Mart or a Target or a CVS. So those are excellent programs for 
us.
    Let me recognize retailers have more regular demand on 
items than the Department may have. You have to look at 
industrial activities to really get a better analogy, except 
for those consumable items that I just discussed. So Prime 
Vendor would be one.
    Under our BRAC transformation, we are moving--the Defense 
Logistics Agency is changing its depot structure so that we are 
going to ensure that our network works better to support our 
industrial depot maintenance activities where we are rebuilding 
material. We have looked at programs. We have something called 
Industrial Prime Vendor where material, again, is delivered 
directly to the shop floor without going through a warehouse.
    We are privatizing things like tires so that we are not 
storing tires which previously were held in warehouses--they 
take up a lot of warehouse space. This gives you better 
circulation, the newest technology.
    So we do have a number of programs that do exactly what you 
asked, and, of course, we work with companies like Matson as 
well in doing those types of things.
    Senator Akaka. Yes. Let me follow up, Mr. Estevez. Wouldn't 
better inventory management lead to less outsourcing of 
logistics and supply chain activities?
    Mr. Estevez. I think you have to have a mix. I think most 
commercial companies have a mix between their own internal 
processes and what they outsource. I do not expect us to be 
outsourcing our key supply depots, and obviously we will not be 
outsourcing some of our maintenance capability. But the flow in 
for that material--and you have to assess what material you are 
talking about, and where the commodity is commercially 
available and the surge capability is there, we do not want to 
store it. We want to receive it direct.
    Senator Akaka. Well, I thank you both for your responses. 
No question we are moving in the right direction.
    Mr. Chairman, thank you very much. My time has expired.
    Senator Voinovich. Thank you, Senator Akaka. I really 
appreciate your being here.
    As you know, Mr. Estevez, Senator Akaka and I are concerned 
about how we continue this transformation. Maybe it is being 
pretty selfish, but I am around here at least until the end of 
2010, and depending on who is in the majority, either Senator 
Akaka or I are going to be Chairman of this Subcommittee. We 
plan to continue to work on this issue. One thing that I do not 
want to see happen is that once the Administration changes, we 
lose any progress that has been made. Frankly, the private 
sector has had some of these initiatives in place for a number 
of years. Why are we so far behind the private sector in 
utilizing some of the resources that are out there? Why haven't 
we been on our toes?
    What is being put in place to guarantee that this 
transformation that we are working on is going to continue. 
Because I do not expect that this is going to get off the list 
in 2009, and hopefully we will be closer to it in 2010. I am 
real concerned and that is why I want to know who is working on 
this and how long they have been with the Department. I am even 
interested in knowing when they are eligible to retire.
    Mr. Estevez. I am eligible in, I believe, 2012, Senator. I 
enjoy my job and want to be cracking that bottle of champagne 
with you at the removal of this from the list.
    Senator Voinovich. Well, can I ask you one other question? 
How long have you been with the Department?
    Mr. Estevez. Twenty-five years, sir.
    Senator Voinovich. OK. How come we did not do this 5 years 
ago, 10 years ago?
    Mr. Estevez. There are a variety of facets that we have 
done that have laid the foundation for what we are doing today 
that were done in the past. So it is not that we were sitting 
idle in different areas. And some things we tried. The time was 
not right. It failed in part sometimes because our systems were 
not up to par in order to enable us to do that. That still 
remains an issue. Defense Logistics Agency has had a successful 
implementation of their ERP. The other military services are in 
various stages of implementing theirs. And they really do 
enable the ability to do some of the things that we are doing.
    Again, some of it is just basic blocking and tackling. I 
can only answer for my time in my chair, and I really hesitate 
to second-guess what went on prior. But I do want to emphasize 
that people were not sitting on their hands. We were doing some 
of the foundational work that has enabled us to start driving 
this change.
    Senator Voinovich. Well, it appears that you have been 
empowered to do it. Is part of the problem maybe that you were 
not empowered to do it before?
    Mr. Estevez. Again, I will go back to that you do need the 
leadership commitment to do this. I believe we have that. I 
cannot say that we did not have that in the prior 
Administration, however, but I know we have it right now.
    Senator Voinovich. Are your people excited?
    Mr. Estevez. Yes, they are.
    Senator Voinovich. Good.
    Mr. Estevez. Absolutely.
    Senator Voinovich. Senator Akaka, anything else?
    Senator Akaka. Mr. Chairman, let me follow up here.
    Senator Voinovich makes a good point in wanting to know 
what kind of team is working on supply chain management. When I 
heard him mention that, I was thinking of other parts of 
government where committees or commissions deal with issues, 
like this area.
    So given the move toward joint logistics, could you give 
more detail as to how this high-risk area is integrated into 
the DOD Business Modernization Plan?
    Mr. Estevez. Well, the supply chain management piece of the 
Enterprise Transition Plan, the Business Modernization Plan, is 
driven by our requirements. So while Mr. Brinkley would be 
driving the governance over what systems get implemented and 
the architecture of those systems, they are designing to our 
requirements and putting systems in place to meet the 
requirements laid out by the functional logistics community for 
our piece of that plan.
    The Enterprise Transition Plan addresses other areas, like 
procurement, financial management, that the logistics system is 
a user of versus the driver of those requirements. For the 
requirements related to logistics, we are the functional 
drivers of those, and they relate to our milestones and our 
needs.
    Senator Akaka. And I am assuming from what you are saying 
that this is integrated into that plan.
    Mr. Estevez. Absolutely. I am very comfortable working with 
those folks on what they are doing.
    Senator Akaka. Thank you. Thank you very much, Mr. 
Chairman.
    Senator Voinovich. Thank you. This has been a good hearing, 
and we really appreciate your being here. And, Mr. Estevez, we 
want you to know that we want to help you in any way that we 
can, and if there are some things that we should be doing that 
you think will help, we want to hear from you.
    Mr. Estevez. Thank you, sir.
    Senator Voinovich. The hearing is adjourned.
    [Whereupon, at 11:27 a.m., the Subcommittee was adjourned.]


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