[Senate Hearing 110-391]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 110-391
 
                FROM WAREHOUSE TO WARFIGHTER: AN UPDATE 
                   ON SUPPLY CHAIN MANAGEMENT AT DOD 

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

                                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 TENTH CONGRESS

                             FIRST SESSION

                               __________

                             JULY 10, 2007

                               __________

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

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

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        COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS

               JOSEPH I. LIEBERMAN, Connecticut, Chairman
CARL LEVIN, Michigan                 SUSAN M. COLLINS, Maine
DANIEL K. AKAKA, Hawaii              TED STEVENS, Alaska
THOMAS R. CARPER, Delaware           GEORGE V. VOINOVICH, Ohio
MARK L. PRYOR, Arkansas              NORM COLEMAN, Minnesota
MARY L. LANDRIEU, Louisiana          TOM COBURN, Oklahoma
BARACK OBAMA, Illinois               PETE V. DOMENICI, New Mexico
CLAIRE McCASKILL, Missouri           JOHN WARNER, Virginia
JON TESTER, Montana                  JOHN E. SUNUNU, New Hampshire

                  Michael L. Alexander, Staff Director
     Brandon L. Milhorn, Minority Staff Director and Chief Counsel
                  Trina Driessnack Tyrer, Chief Clerk


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

                   DANIEL K. AKAKA, Hawaii, Chairman
CARL LEVIN, Michigan                 GEORGE V. VOINOVICH, Ohio
THOMAS R. CARPER, Delaware           TED STEVENS, Alaska
MARK L. PRYOR, Arkansas              TOM COBURN, Oklahoma
MARY L. LANDRIEU, Louisiana          JOHN WARNER, Virginia

                   Richard J. Kessler, Staff Director
                  Evan Cash, Professional Staff Member
             Jennifer A. Hemingway, Minority Staff Director
             David Cole, Minority Professional Staff Member
                      Emily Marthaler, Chief Clerk



















































                            C O N T E N T S

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

                               WITNESSES
                         Tuesday, July 10, 2007

Hon. Jackson P. Bell, Deputy Under Secretary of Defense, 
  Logistics and Material Readiness, U.S Department of Defense....     5
General Norton A. Schwartz, Commander, U.S. Transportation 
  Command........................................................     7
Lieutenant General Robert T. Dail, Director, Defense Logistics 
  Agency.........................................................     9
William M. Solis, Director, Defense Capabilities Management, U.S. 
  Government Accountability Office...............................    11

                     Alphabetical List of Witnesses

Bell, Hon. Jackson P.:
    Testimony....................................................     5
    Joint prepared statement with Lieutenant General Dail and 
      General Schwartz...........................................    27
Dail, Lieutenant General Robert T.:
    Testimony....................................................     9
    Joint prepared statement with Mr. Bell and General Schwartz..    27
Schwartz, General Norton A:
    Testimony....................................................     7
    Joint prepared statement with Mr. Bell and Lieutenant General 
      Dail.......................................................    27
Solis, William M.:
    Testimony....................................................    11
    Prepared statement...........................................    49

                                APPENDIX

Background.......................................................    77
GAO Report entitled ``DOD's High-Risk Areas, Progress Made 
  Implementing Supply Chain Management Recommendations, but Full 
  Extent of Improvement Unknown,'' January 2007, GAO-07-234......    83
GAO Report entitled ``Defense Logistics, Efforts to Improve 
  Distribution and Supply Support for Joint Military Operations 
  Could Benefit from a Coordinated Management Aopproach,'' June 
  2007, GAO-07-807...............................................   245
Copy of the ``Business Case Analysis for Radio Department of 
  Defense Passive Radio Frequency Identification,'' submitted by 
  General Schwartz...............................................   307


                     FROM WAREHOUSE TO WARFIGHTER:

                       AN UPDATE ON SUPPLY CHAIN

                           MANAGEMENT AT DOD

                              ----------                              


                         TUESDAY, JULY 10, 2007

                                   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 2:36 p.m., in 
Room SD-342, Dirksen Senate Office Building, Hon. Daniel K. 
Akaka, Chairman of the Subcommittee, presiding.
    Present: Senators Akaka and Voinovich.

               OPENING STATEMENT OF SENATOR AKAKA

    Senator Akaka. Good to see all of you here. Good afternoon. 
This hearing of the Oversight of Government Management 
Subcommittee is called to order. I would like to welcome all of 
our witnesses. Today's hearing will look at progress made--and 
after reading some of the history, I must say that is true that 
progress has been made--in implementing the Department of 
Defense's 2005 plan for improving supply chain management. 
Supply chain management has been on the Government 
Accountability Office's High-Risk List since 1990, and that is 
far too long. My good friend Senator Voinovich and I are 
dedicated to seeing this issue removed from the list.
    Since 2005, he and I have chaired several hearings on 
supply chain management.
    After our last hearing in July 2006, Senator Voinovich and 
I asked GAO for an analysis of DOD's Joint Theater Logistics 
Initiative, which is one aspect of the plan for improvement. 
GAO has completed their analysis, and their report is being 
made public today at this hearing. Mr. Solis, I look forward to 
hearing more about your team's findings today.
    Supply chain management is critical to our security. It 
affects the safety of men and women in uniform who are 
currently engaged in two simultaneous conflicts in Iraq and 
Afghanistan. Even after these conflicts end, effective supply 
chain management will remain vital. We need to look to the 
future when we must stock and store supplies for the next 
contingency, be it missions abroad or assisting others right 
here at home.
    To begin, let me congratulate the Defense Department for 
what it has done well in supply chain management. I am very 
impressed by the progress made by the Defense Logistics Agency 
in implementing the Joint Regional Inventory Materiel 
Management initiative (JRIMM), which has now been operational 
in my home State of Hawaii on Oahu, and it has been operating 
since August of last year. I hope that we will continue to see 
the benefits of jointly managing supplies regionally as JRIMM 
is expanded in the Pacific Command and into other regions.
    I also want to recognize the progress made by the 
Transportation Command in implementing several forward-looking 
initiatives as it grows into its role as the ``distribution 
process owner.''
    However, having said all of this, there are several areas 
we are especially concerned about.
    First, poor container management continues to be a serious 
problem. At this moment, DOD cannot account for more than 
50,000 containers in the Central Command theater. They are 
lost. They have disappeared. Many of these containers do not 
even belong to the military. DOD also has thousands of 
containers that it has simply failed to return to their 
commercial owners who, in turn, charge the government late fees 
for not getting them back. This has forced the Defense 
Department to buy them out. It has spent $203 million to buy 
out over 25,000 containers. Now it has thousands of containers 
that are its responsibility--if it can ever find them. This is 
exactly the kind of waste that helped put this issue on the 
High-Risk List.
    Asset visibility cannot be fully achieved without adequate 
technology applied to the supply chain. Radio Frequency 
Identification Initiative (RFID), in theory will track every 
pallet and every container from the warehouse to the 
warfighter. This capability has been in use in the private 
sector for years now and has greatly improved inventory levels 
and visibility. While implementation of RFID continues to move 
forward at DOD, there is still a long way to go.
    We also need to work to ensure that information systems 
involved with logistics can communicate with each other. 
Personnel in the field are being forced to find tedious, manual 
work-arounds to exchange information between different computer 
systems. Computers working in joint operations cannot always 
automatically exchange needed data.
    The Defense Department needs to formulate a unified, 
comprehensive strategy to address future logistics 
capabilities. It has been promised since we started these 
hearings that the Department was working toward that goal. I am 
particularly concerned that the ``To Be'' roadmap, which was 
supposed to provide this strategy, is still not complete, even 
though it was supposed to be released last February. Without a 
long-term strategy, all of the links in the supply chain--the 
Defense Logistics Agency, the Transportation Command, and the 
combatant commands--are likely to end up with their own 
approaches which may not be consistent.
    As Chairman of the Armed Services Readiness Subcommittee, I 
know that the failure to modernize business processes 
contributes greatly to all of DOD's high-risk areas. These 
areas also have to be removed from GAO's High-Risk List. I look 
forward to continuing to work with Senator Voinovich, as well 
as the Office of Management and Budget and the Department of 
Defense, to work toward this goal.
    With that, it is my pleasure to have several witnesses here 
today from DOD that can give us a broader look at the work 
being done to improve logistics at the Department. I want to 
commend you all for your commitment to creating not just a 
joint force but one that is integrated in its efforts as well.
    I also want to welcome back Mr. Solis, who has come before 
this Subcommittee again to give us GAO's perspective on this 
important issue. And I look forward to hearing from each of you 
today.
    I am so delighted to have Senator Voinovich here, and I ask 
him for his statement.

             OPENING STATEMENT OF SENATOR VOINOVICH

    Senator Voinovich. Thank you, Senator Akaka. Let me begin 
by thanking you for holding the Subcommittee's third hearing on 
the Department of Defense's supply chain management. This 
Subcommittee is very fortunate to have Senator Akaka's 
leadership. Not only with his experience on this full Committee 
but his experience on the Armed Services Committee, you are 
able to bring both perspectives to this issue.
    Supply chain management, as many of you know, has been on 
the GAO high-risk list since 1990, 17 years is far too long. My 
continued 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 
resources in the supply chain amounting to more than $162 
billion, the Department must be a good steward of taxpayer 
dollars. As I have noted in the past, former Secretary of 
Defense Don Rumsfeld once estimated that the Department wastes 
5 percent of its budget--more than $20 billion a year at 
current budget levels--on redundant or outdated business 
practices. Based on my experience as a former mayor and 
governor, I believe it is more like 10 percent rather than 5 
percent.
    Second, and arguably more important given Operation Iraqi 
Freedom, inefficient, ineffective, and redundant steps within 
the supply chain can have a direct and negative impact on the 
warfighter. We must assure that the current supply chain system 
at the Department has the ability to deliver the right items, 
at the right time, to the right place to our soldiers in the 
battlefield.
    Since our last hearing in July 2006, we have seen 
noticeable progress, as I said, in this high-risk area. I have 
been pleased with the Department's continued commitment to 
improving supply chain management.
    At the Subcommittees's request, the GAO has released two 
reports critiquing the Department's supply chain management. 
The first report, released in January of this year, takes a 
hard look at the supply chain management improvement plan and 
overall logistics planning within the Department.\1\ In this 
report, GAO found that the plan continues to lack outcome-
focused performance metrics as well as overall cost metrics for 
each of the 10 initiatives in the plan.
---------------------------------------------------------------------------
    \1\ The GAO Report entitled ``DOD's High-Risk Areas, Progress Made 
Implementing Supply Chain Management Recommendations, but Full Extent 
of Improvement Unknown,'' January 2007, appears in the Appendix on page 
83.
---------------------------------------------------------------------------
    Since the Subcommittee began working on this issue over 2 
years ago, we have continued to press upon the Department the 
need to develop long-term performance and cost metrics. I am 
disappointed that after several requests, including personally 
asking Deputy Secretary England, the Department has not put 
forth these important measures. These metrics are essential for 
this Subcommittee to provide effective oversight of this issue 
and will be vital in the next Administration. I think the 
Department has a very good plan underway. I am hoping that the 
next Administration will embrace it. But I want to know what 
metrics can the Subcommittee use to determine whether or not 
the Dpartment is indeed following the plan that was put in 
place.
    Mr. Bell, I am interested in your opinion on the 
Department's ability to measure the success of the supply chain 
management plan absent these performance objectives.
    The second GAO report,\1\ which is being released in 
connection with today's hearing, focuses on Joint Theater 
Logistics, an initiative in the supply chain management 
improvement plan that centers on getting the right supplies 
into a combat theater in a timely manner. Mr. Solis, I look 
forward to your remarks on the findings within this report and, 
more importantly, from our DOD witnesses on how the Department 
intends to implement the recommendations.
---------------------------------------------------------------------------
    \1\ The GAO report entitled ``Defense Logistics, Efforts to Improve 
Distribution and Supply Support for Joint Military Operations Could 
Benefit from a Coordinated Management Approach,'' June 2007, appears in 
the Appendix on page 245.
---------------------------------------------------------------------------
    Key support components of Joint Theater Logistics include 
the Defense Logistics Agency and U.S. Transportation Command. 
General Schwartz, my staff recently visited USTRANSCOM, and 
they were pleased with the information provided and the 
processes established under your leadership. It seems to me 
that successful implementation of the Joint Deployment 
Distribution Operations Centers and the current transformation 
of the information technology architecture to support supply 
chain management will go a long way toward improving supply 
chain management. Success will depend in part, however, upon 
the services' willingness to accept these initiatives.
    General Schwartz, given your responsibility as the 
distribution process owner, with responsibility for overseeing 
Department-wide distribution of assets, I question whether or 
not you have the necessary authority to carry out the mission 
that has been given to you. I look forward to hearing from you 
and General Dail on how you will work together to ensure that 
assets are made available to our men and women in uniform 
without delay.
    Given the complex nature of supply chain management and the 
need for business transformation within the Department, it is 
imperative that the Department, I believe, have a Chief 
Management Officer, and I have been batting that ball back and 
forth with Mr. England for a long time. I am pleased to see 
that language was included in the Fiscal Year 2008 Defense 
Authorization bill, which is currently being debated on the 
Senate floor. This language is a step in the right direction to 
ensure continuous top-level attention to management issues at 
the Department. And the reason why Senator Akaka and I are so 
strong on this is that from our experience--and I know, Senator 
Akaka, from my experience as mayor--transformation is not done 
in 2 or 3 years. In many instances, transformation may take 5 
to 6 years if you are going to institutionalize it and put it 
in concrete. And I keep saying to the people, Ken Krieg and 
company that have worked on this so far, I would like to have 
some guarantee that all this work that I did is not going to go 
down the tubes when the next Administration comes into office. 
And it would be comforting to me to know there is somebody 
there that is smart, knows the system, and is going to stay on 
top of it to make sure that your hard work bears fruition for 
the Department of Defense.
    I just want you to know that I am very grateful for your 
presence here today, and I am grateful for the conscientious 
effort that you have made to take this on, something that has 
been around too long. Thank you, Senator.
    Senator Akaka. Thank you, Senator Voinovich.
    It is my pleasure now to welcome Jack Bell, Deputy Under 
Secretary for Logistics, Department of Defense; General Norton 
Schwartz, Commander, U.S. Transportation Command; Lieutenant 
General Robert Dail, Director, Defense Logistics Agency; and 
Bill Solis, Director, Defense Capabilities Management, 
Government Accountability Office.
    It is the custom of this Subcommittee to swear in all 
witnesses, so will you please stand and raise your right hand? 
Do you solemnly swear that the testimony you are about to give 
to this Subcommittee is the truth, the whole truth, and nothing 
but the truth, so help you, God?
    Mr. Bell. I do.
    General Schwartz. I do.
    General Dail. I do.
    Mr. Solis. I do.
    Senator Akaka. Thank you. Let the record note that the 
witnesses responded in the affirmative.
    Although statements are limited to 7 minutes, I want all of 
our witnesses to know that their entire statements will be 
included in the record. I understand that all witnesses from 
the Department of Defense will be submitting a joint statement 
for the record, but each would like to also make brief remarks.
    So, Mr. Bell, will you please proceed with your statement?

STATEMENT OF HON. JACKSON P. BELL,\1\ DEPUTY UNDER SECRETARY OF 
 DEFENSE, LOGISTICS AND MATERIEL READINESS, U.S. DEPARTMENT OF 
                            DEFENSE

    Mr. Bell. Thank you, Chairman Akaka and Senator Voinovich. 
Thank you for this opportunity to appear before you today. I am 
honored to have appearing with me General Norton Schwartz, as 
you have indicated, Commander of the U.S. Transportation 
Command and the Department's Distribution Process Owner; and 
Lieutenant General Bob Dail, the Director of the Defense 
Logistics Agency. I also welcome this opportunity to appear 
with Bill Solis of the Government Accountability Office.
---------------------------------------------------------------------------
    \1\ The joint prepared statement of Mr. Bell, General Schwartz, and 
Lieutenant General Dail appears in the Appendix on page 27.
---------------------------------------------------------------------------
    As in recent years, we come before you today to report to 
you the progress the Department of Defense is making to reduce 
risk and to institutionalize the improvements that we are 
making in our supply chain management processes. In the 
interest of time, I will summarize my written testimony and 
highlight our efforts to support our deployed warfighters and 
the progress that we have made since the last hearing in July 
2006.
    Before we address those areas, I want to compliment your 
staffs, the staffs of the Office of Management and Budget, and 
the staffs of the Government Accountability Office for their 
support of our efforts.
    As we have indicated, DOD logistics is a very large and 
complex business involving over a million uniformed, civilian, 
and contract employees. This effort did account for $160 
billion in spending in fiscal year 2006, shaped significantly 
by our Global War on Terror operations. Our military forces are 
deployed to some of the most difficult environments and some of 
the most remote parts of the world, significantly accelerating 
the equipment maintenance and RESET requirements. Our supply 
chains operate across international boundaries where we have 
little or no military presence.
    In Iraq and Afghanistan, our supply chain operates over 
enemy-challenged ground lines of communication, adding 
significantly both to the cost of our equipment and the 
personnel needed to provide security.
    Nonetheless, in January through May of this year we moved 
almost 80,000 troops and over 280,000 short tons of materiel 
fully supporting the requirements in Iraq and Afghanistan. And 
we are today processing approximately 6,000 requisitions each 
day for our Army and Marine Corps troops there.
    In supply chain operations, a primary output metric of 
performance is customer wait time--how long it takes from the 
time a customer orders an item until it is received. Last year, 
we reported that we had achieved a 33-percent reduction in 
customer wait time from fiscal year 2004 through April 2006, 
from an average of 24 days to 16 days. Since then, we have 
achieved another 6-percent decrease in wait time, despite the 
surge of our deployed forces and despite continuing 
difficulties with our ground lines of communications. Where 
possible, key commodities and components are now stocked 
forward and delivered as soon as they are requested.
    While supporting the warfighting effort, we continue to 
make improvements in our supply chain operations, and I would 
like today to highlight three areas of focus.
    First, we are continuing to institutionalize the supply 
chain operations improvement plan efforts. These include 
initiatives to integrate transportation operations across DOD, 
to achieve global asset visibility both for our inventories and 
for our in-transit shipments, and to consolidate inventory 
management and supply and storage activities. General Schwartz 
and General Dail will report on some of these key initiatives.
    Second, we are integrating life cycle management principles 
into our acquisition and sustainment programs. This effort 
focuses on improving equipment reliability and reducing the 
long-term, cost-effective support for a system as part of an 
integral process during the acquisition approval steps.
    Finally, we are developing the concept of joint logistics 
portfolio governance. The intent of portfolio governance is to 
coordinate development of related logistics capabilities across 
the Department, to improve interoperability, to minimize 
capability redundancies and gaps, and to maximize cost-
effectiveness. The logistics portfolio management test should 
be completed later this year.
    The results of our life cycle management initiative, the 
logistics portfolio test, and our supply chain management 
improvement efforts all will be incorporated in the 
Department's logistics strategic plan, called the ``Logistics 
Roadmap.'' The development of this Logistics Roadmap should be 
completed by the summer of 2008.
    Based on the significant progress that DOD has made in 
supply chain management, in December 2006, the Under Secretary 
of Defense for AT&L requested that GAO remove supply chain 
management from its high-risk list. GAO declined, stating that 
DOD has not yet met key requirements for removal from the high-
risk designation. Based on our progress to date, DOD believes 
we have met and are meeting these requirements. Key output 
metrics and data system support are being put in place, and 
performance improvements are already showing in these metrics.
    The institutionalization of key initiatives is testament 
that we have the will, we have the commitment, and capacity to 
address these challenges on an ongoing basis, transcending 
leadership changes. We will continue to work with the GAO to 
earn their support in removing supply chain management from 
their high-risk list.
    In closing, DOD appreciates the opportunity to explain our 
progress in improving supply chain management. Following the 
testimony of my colleagues, I will be happy to answer any 
questions. Thank you.
    Senator Akaka. Thank you very much, Mr. Bell. General 
Schwartz, your testimony.

 GENERAL NORTON A. SCHWARTZ,\1\ COMMANDER, U.S. TRANSPORTATION 
              COMMAND, U.S. DEPARTMENT OF DEFENSE

    General Schwartz. Mr. Chairman, Senator Voinovich, it is a 
privilege to be with you today representing the more than 
152,000 people that are a part of the U.S. Transportation 
Command family. Our core mission is to provide outstanding 
support to the warfighter and the Nation by rapidly delivering 
combat power and sustainment to the joint force commander. We 
also redeploy our forces home and provide the utmost care in 
moving our wounded troops to more advanced medical facilities 
here, in Europe in the case of the current missions, or in the 
United States.
---------------------------------------------------------------------------
    \1\ The joint prepared statement of Mr. Bell, General Schwartz, and 
Lieutenant General Dail appears in the Appendix on page 27.
---------------------------------------------------------------------------
    In our role as the distribution process owner, USTRANSCOM 
serves as the quarterback of the joint deployment and 
distribution enterprise. We lead a collaborative effort within 
the Defense Logistics Community to develop and pursue system-
wide distribution process improvements to increase the 
precision, the reliability, and the efficiency of the DOD 
supply chain that you referred to earlier. When fully 
developed, this enterprise will aid us in fulfilling our 
fundamental obligations and keeping our promises to our 
warfighters in the Nation today and tomorrow.
    Mr. Chairman, one of the enterprise initiatives I would 
like to bring to your attention is the Defense Transportation 
Coordination Initiative (DTCI). DTCI is an effort to increase 
the effectiveness and efficiency of DOD freight movements in 
the continental United States--the lower 48, if you will. 
USTRANSCOM, in partnership with General Dail and the Defense 
Logistics Agency and the military services, is currently 
selecting a transportation services coordinator to manage these 
DOD freight movements. This coordinator will have visibility of 
CONUS freight movements enabling load consolidation, use of 
more efficient intermodal means of transportation, and 
importantly, more intelligent scheduling. These improvements 
will increase the precision and reliability of freight 
movements leading to increased customer confidence, cost 
savings, and not unimportant, increased and more effective 
workforce management.
    Use of a single coordinator will also help us gather the 
metrics that you and we seek collectively to drive continual 
process improvements in our distribution system. With the 
planned contract award next month, we are now only weeks away 
from implementation and look forward with great anticipation to 
the very positive changes I believe that DTCI will have on DOT 
transportation, writ large.
    Just as DTCI will improve commercial transportation, our 
Joint Deployment and Distribution Operations Center concept is 
improving integration of this from the strategic to the 
tactical level. Creation of the so-called JDDOC was the first 
major distribution process owner initiative and addressed the 
longstanding need to improve integration of strategic, that is, 
national partner activity here in the United States and that 
which is occurring in theater under the supervision of the 
combatant commander. JDDOC has since matured into a critical 
node for improved end-to-end distribution.
    Let me give you an example. Let me compare two moves of the 
10th Mountain Division to the Central Command AOR, one in 2005 
and one in 2006.
    The 2005 move was planned entirely by air--that is, the 
movement of their helicopter assets--and it ran into a number 
of problems, including weather delays, customs lead time, 
commercial to organic transload requirements, materiel 
visibility, and limited jet fuel in some locations. Thinking 
that there must be a better way, the DDOC, the Central Command, 
the European Command, many players, the services, worked 
together to develop an air and sea solution, that is, something 
called in the industry ``intermodal solution.'' That included a 
transload operation at Rota Air Base in Spain. And by using 
this multi-mode approach, we were not only faster, sir, we 
actually delivered 4 days sooner than the 2005 scenario, and it 
cost the taxpayers $2 million less to execute.
    I would argue that this kind of thing is an example of 
precise, reliable, and efficient delivery to the warfighter. 
And in retrospect, this multi-modal solution may seem self-
evident, but solutions do not always present themselves linking 
the supported combatant commanders to the distribution national 
partners without having one entity as the quarterback of the 
process. The result of these efforts is that each geographic 
commander now has one of these operations centers, and the 
concept is being codified in doctrine, policy, and training.
    The DDOC continues to mature, and later this year we will 
publish the third edition of the template, which will 
incorporate, sir, performance metrics and guidance for the 
geographic combatant commanders on how we collectively can 
execute this mission.
    Finally, sir, in 2006, Under Secretary of Defense Krieg 
designated our command as the functional proponent for radio 
frequency identification and related automatic information 
technology in the Department. Under this designation, we will 
prepare and execute an implementation strategy and draft the 
corporate approach for active and passive RFID, satellite 
tracking, use of bar codes, and other asset visibility 
technologies.
    We have recently published the concept of operations for 
this to improve the overall performance for the warfighter, and 
our goal is to publish the implementation plan this fall, which 
will address both asset visibility and your considerations in 
terms of improving the supply chain.
    Mr. Chairman and Senator Voinovich, I am grateful for the 
opportunity to testify today, and I would be happy to discuss 
these very important issues that you have tracked for so many 
years. Thank you, sir.
    Senator Akaka. Thank you very much, General Schwartz. 
General Dail, your testimony.

    LIEUTENANT GENERAL ROBERT T. DAIL,\1\ DIRECTOR, DEFENSE 
          LOGISTICS AGENCY, U.S. DEPARTMENT OF DEFENSE

    General Dail. Good afternoon, Chairman Akaka, Senator 
Voinovich, and distinguished Members of the Subcommittee. I am 
Lieutenant General Robert Dail, Director of the Defense 
Logistics Agency. It is my privilege to appear today and 
represent the more than 21,000 men and women of the agency who, 
for more than 40 years, have provided responsive global 
logistics support to America's Armed Forces in peace and in 
war. We are a combat enabler, a supporting organization, 
dedicated to improving warfighter support to the combatant 
commands and supporting the ongoing combat operations in Iraq 
and Afghanistan.
---------------------------------------------------------------------------
    \1\ The joint prepared statement of Mr. Bell, General Schwartz, and 
Lieutenant General Dail appears in the Appendix on page 27.
---------------------------------------------------------------------------
    I am here today to talk about how we accomplish our mission 
through close collaboration with the military services, the 
combatant commands, the distribution process owner and with 
General Schwartz, to my right, at U.S. Transportation Command. 
We are a link between our warfighters and the great American 
industrial base.
    DLA is an integral part of the military logistics system. 
The Army, Navy, Air Force, Marine Corps, and Coast Guard rely 
on DLA supply centers to source and provide food, fuel, medical 
supplies, clothing, construction and barrier material, and we 
also provide more than 90 percent of aviation, land, and 
maritime weapons systems spare parts. We receive, store, and 
issue DLA and military service assets at our distribution 
centers located across the continental United States, Hawaii, 
and in key en route infrastructure locations overseas. Our 
Defense Reutilization and Marketing Service is a key partner in 
the reuse or disposal of property no longer required by the 
individual military services.
    In recent years, DLA and the U.S. Transportation Command, 
the Department's strategic mobility provider and life provider, 
and as its distribution process owner, have forged a very 
strong partnership that seamlessly connects warfighters' 
requirements with the American industrial base. This 
partnership, part of the USTRANSCOM's DPO charter, helps 
synchronize key DOD supply chains, ensuring that material 
arrives in theater, on time, to the warfighters who need it.
    The past 2 years have been very busy for the Defense 
Logistics Agency, U.S. Transportation Command, and the military 
services as we have worked to transform and employ new methods 
and capabilities to manage DOD's supply chains.
    I have listed and discussed the various joint supply chain 
initiatives in my formal written statement to the Subcommittee: 
The Joint Deployment and Distribution Operations Centers 
(JDDOCs) that General Schwartz mentioned; the Joint Regional 
Inventory and Materiel Management Initiative that, Mr. 
Chairman, you mentioned in your opening statement. These are 
initiatives that we have undertaken with the various combatant 
commands.
    The Radiofrequency Identification Technology initiatives 
and the Integrated Data Environment, Global Transportation 
Network Convergence Initiative that we have undertaken with the 
U.S. Transportation Command, and the Integrated Logistics 
Partnerships that we have begun just recently in 2006 to 
partner with the military services that promise great savings 
and economy while increasing output tremendously. Each of these 
initiatives has improved readiness and response times. They 
have provided warfighters the agility that they require to be 
successful wherever they operate around the world.
    Finally, Mr. Chairman, the Defense Logistics Agency remains 
committed to ensuring that America's fighting forces are the 
best equipped and supplied of any force in the world. We pledge 
to use America's resources wisely while continuing to support 
high levels of readiness in the military services. Our Nation 
and our freedom depend upon it.
    I thank you, Mr. Chairman, and Senator Voinovich, for your 
leadership, in making sure our Armed Forces continue to be 
strong.
    This concludes my statement, and I look very much forward 
to answering your questions.
    Senator Akaka. Thank you very much, Lieutenant General 
Dail.
    Now we will hear from Bill Solis.

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

    Mr. Solis. Chairman Akaka, Senator Voinovich, thank you for 
the opportunity to provide an update on the progress made by 
the Department of Defense for resolving longstanding problems 
with supply chain management. The challenges to successfully 
improving the management of DOD's vast and complex supply chain 
network are formidable, and your active involvement has been 
and will continue to be vital to keeping attention focused on 
this important aspect of DOD's business and logistics support 
operations.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Solis appears in the Appendix on 
page 49.
---------------------------------------------------------------------------
    My comments will focus on four issues: First, DOD's overall 
progress in implementing its supply chain management 
improvement plan; second, its progress in implementing joint 
theater logistics, one of the 10 initiatives in DOD's plan; 
third, I will discuss other recent work we have completed on 
aspects of supply chain management; and fourth, and finally, I 
will address broader, though related, issues of defense 
business transformation, logistics governance, and strategic 
planning within DOD.
    Regarding DOD's supply chain management plan, DOD has shown 
progress in developing and implementing its improvement 
initiatives, which are intended to address three main focus 
areas: Requirements forecasting, asset visibility, and material 
distribution. As previously mentioned, DOD has established 
Joint Deployment Distribution Operations Centers in each 
geographic combatant command, following the reported success of 
the first such operation in Kuwait. DOD has also reported 
initial success with a storage and distribution initiative 
known as Joint Regional Inventory and Material Management. In 
March 2007, the DLA was tasked to be the lead proponent for the 
continued worldwide implementation of this initiative. 
Furthermore, in the Defense Transportation Coordination 
Initiative, DOD has taken numerous actions to incorporate the 
lessons learned from a prior prototype program and, moreover, 
has taken positive steps to adopt best practices employed by 
other public and private organizations.
    Despite these examples of progress made, since the last 
hearing before this Subcommittee in July 2006, we have not seen 
significant changes in how DOD proposes to measure the impact 
of these initiatives in its plan. As before, the plan contains 
four overarching performance measures, but these are not well-
linked with the individual improvement initiatives or the three 
focus areas, limiting DOD's ability to fully demonstrate the 
results achieved through its plan. Furthermore, some of these 
initiatives are in their early stages, with full implementation 
several years away.
    Regarding joint theater logistics, we found in our recent 
work that DOD has not taken a coordinated and comprehensive 
management approach to guide and oversee this initiative. 
Rather, development and implementation of joint theater 
logistics has been fragmented among various DOD components 
largely because of a lack of specific goals and strategies, 
accountability for achieving results, and outcome-oriented 
performance measures.
    Further, DOD faces challenges that hinder specific joint 
theater logistics efforts to improve distribution and supply 
support to the warfighter. For example, initiatives to improve 
the coordination of surface transportation assets, mainly 
trucks, in a theater of operations face challenges such as 
potential duplication of responsibilities, the unavailability 
of information technology tools, and unclear lines of command 
and control.
    Despite the benefits attributed to the Joint Deployment 
Distribution Operations Center in Kuwait, effective management 
of supply distribution across the theater has been hindered by 
ongoing problems in achieving asset visibility. Senior military 
commanders in Kuwait attributed these problems to a lack of 
interoperability among information technology systems that make 
it difficult to obtain accurate and timely information on 
assets in the theater.
    We also found continuing problems with container management 
that hinder asset visibility and impede DOD's ability to 
effectively manage logistics operations and costs. Some 
challenges that DOD faces with container management include the 
application of radio frequency identification tags on 
containers in the supply chain, compliance with container 
management processes, and the return of commercial containers 
to maritime carriers.
    Our other recent work has identified continued systemic 
weaknesses in aspects of DOD's supply chain. In February, we 
reported that problems continue in managing Army's 
prepositioned stocks. Despite recent efforts to improve 
requirement setting, the Army has not yet determined the 
reliable requirements for secondary items and operational 
project stocks.
    In March, we reported that the military services are 
experiencing difficulties in estimating the length of time 
between the initiation of a procurement action and the receipt 
of spare parts into the supply system for equipment and weapons 
systems.
    In April, we reported continuing problems in Air Force's 
inventory management practices, hindering its ability to 
efficiently and effectively maintain its spare parts inventory 
for military equipment.
    Specifically, from fiscal year 2002 through 2005, an 
average of 52 percent, or about $1.3 billion, of the Air 
Force's secondary on-order inventory was not needed to support 
on-order requirements. Further, about 65 percent, or about 
$18.7 billion, of on-hand inventory was not needed to support 
required inventory levels. We calculated that it also costs the 
Air Force from $15 million to $30 million a year to store its 
unneeded items.
    Finally, I would now like to turn to broader issues 
affecting supply chain management. Transforming and improving 
defense business operations are integral to resolving supply 
chain management operations. Because of the complexity and 
long-term nature of the business transformation, we have stated 
that DOD needs a Chief Management Officer with significant 
authority, experience, and a term that would provide sustained 
leadership and the time to integrate DOD's overall business 
transformation efforts. Based on our work, pending legislation, 
and other recent studies, it is clear that a broad-based 
consensus has emerged that the status quo is no longer 
acceptable.
    As our work on joint theater logistics indicated, DOD may 
also need to re-examine fundamental aspects of logistics 
governance and strategy. The diffused organization of DOD's 
logistics operations, including separate funding and management 
of resources and systems, complicates DOD's ability to adopt a 
coordinated and comprehensive approach to joint theater 
logistics. In this respect, joint theater logistics may serve 
as a microcosm of some of the challenges DOD faces in resolving 
supply chain management problems.
    In the governance area, DOD has been testing, as mentioned, 
a new approach to managing joint capabilities as a portfolio, 
but key decisions are still to be made on how to implement this 
approach. In addition, DOD plans to develop an overarching 
logistics strategy, but has delayed the completion of that 
strategy until sometime next year.
    In closing, DOD officials believe that the commitment they 
have demonstrated to resolving supply chain problems, including 
the development of the plan and making progress in implementing 
initiatives, justifies removing this area from our high-risk 
list. In preparing the January 2007 biennial update to the 
high-risk list, we decided that notwithstanding the positive 
steps taken by DOD to address problems, supply chain management 
should remain on our high-risk list until DOD can successfully 
demonstrate improvements in requirements forecasting, asset 
visibility, and materiel distribution. The work we have 
completed since January 2007 reaffirms our decision to retain 
supply chain management as a high-risk area.
    We look forward to continuing our work with the Department 
to provide an accurate appraisal of the progress toward the 
goal of successfully resolving problems that have hindered 
effective and efficient supply chain management.
    Mr. Chairman, Senator Voinovich, this concludes my prepared 
remarks. I will be happy to answer any questions.
    Senator Akaka. Thank you very much, Mr. Solis.
    General Schwartz, according to GAO, the Department has 
bought out over 25,000 containers that were accumulating 
detainment fees. This cost taxpayers about $203 million, and 
now the containers belong to the Department of Defense. In 
addition to this, we have lost over 54,000 containers.
    What do you plan to do with all of these containers? Do 
you, for example, plan to sell any of these to recoup some of 
those costs?
    General Schwartz. Mr. Chairman, let me address that by 
first articulating how we got to where we are at. You are quite 
right that this is an area that has been difficult to manage.
    Let me take you back to October 2001 and try to describe 
the picture of missions beginning to occur in Afghanistan. It 
is a landlocked country. It is not a country with a lot of 
developed transportation infrastructure. There isn't a single 
oil refinery anywhere in the country, for example. And so we 
were very much in an expeditionary mode in that time frame, 
beginning combat operations. And so containers were used for 
many different things there. They were used for storage. They 
were used for places for people to sleep. They were used for 
force protection purposes. You can imagine the various uses. 
And so unquestionably there was a large number of detained 
containers that belonged to carriers that were put to use in 
ways that commanders on the ground felt was necessary in order 
to accomplish their missions.
    Now, with that as background, we beam forward several 
years. The current numbers that I have for containers in the 
Central Command AOR is there are about 110,000 government-owned 
containers, about an additional 30,000 which are leased, and 
then there are about 4,400 which are under detention, i.e., 
carrier owned but in our possession, about 3 percent. That is 
at least a third of where we once were.
    So how did we make the improvements over time from a 
completely expeditionary mode to something more in the 
sustainment mode and to where we are now driving the numbers 
down further? Two major things. In the early days, sir, we did 
not have a dedicated element to manage containers in the 
theater, nor did we have software that would do this. We do 
now. We have a dedicated container management element in 
Central Command that works, both the management, the training 
of people in logistic elements in the various commands in 
Afghanistan and in Iraq, and likewise maintains the database. 
So what we have done is dedicate resources to managing both the 
assets and the problem.
    To conclude, sir, your question about what do we do with 
those assets we own, as you are aware, the government maintains 
a certain number of assets, whether it be airplanes or ships or 
containers or pallets for loading airplanes in reserve for 
those moments when we might be called upon to surge. So we will 
maintain in reserve status a number of containers so that we 
don't run into the scenario we had in Afghanistan again, that 
instead of sending carrier containers into an austere area, we 
will send government-owned containers.
    Second, the excess amount of containers, what we will try 
to do, frankly, is find folks who we can lease them to for use, 
and we can get them back if that is necessary. So there is a 
business piece to this in terms of making them available to 
industry for use, and then there is a part to it for having a 
reserve so that we don't again fall into the situation where we 
don't have enough containers, that we have to use commercial 
ones to do our mission.
    Thank you, sir.
    Senator Akaka. Thank you, General Schwartz. I am wondering 
though, did these containers make it to their destinations? 
What were in those cointainers, and were they empty when we 
lost them?
    General Schwartz. Sir, I am sure it is some of all of the 
above. It is important to understand that, again--and you have 
traveled to both Afghanistan and Iraq. I know both of you have. 
You will see containers being used for a number of functions. 
For sure there are no more carrier containers that are out 
there being used for storage and so on. But I think it is key 
to understand that we got on top of this once we recognized how 
severe the problem was, and I believe that we are on the 
glidepath here not only to correcting the problem in the short 
term, but having a longer-term posture which is correct for the 
Armed Forces.
    Finally, sir, I think it is important to recognize that 
much of the container detention was not dry goods. These were 
refrigerated containers. And, again, if you think back to the 
Afghanistan scenario, there was not permanent cold storage in 
Afghanistan. And so one of the things that occurred was use of 
refrigerated containers to store foodstuffs for our troops that 
we now are building some temporary sort of permanent cold 
storage to compensate. But that occurred several years after 
the initiation of combat operations.
    Senator Akaka. Thank you. We will have another round. 
Senator Voinovich, your questions.
    Senator Voinovich. Mr. Solis and Mr. Bell, I am concerned 
that the substantial progress that we have seen in the supply 
chain management will be lost with the change in leadership due 
to a new Administration. We are running out of time. In your 
opinion, does the supply chain management improvement plan that 
you have worked very hard on, have the necessary metrics in 
place to institutionalize the progress made and ensure that no 
time is lost with the change in leadership?
    Mr. Bell. Thank you, Senator Voinovich. We are concerned 
about several levels of institutionalizing the progress that we 
have made, and we are focusing on those areas. For example, for 
the distribution process owner authorities, we have worked very 
diligently to get approval of the internal direction, the 
directive, and the instructions that are necessary to 
institutionalize that function to transcend administrations. 
That process has been completed. The coordination is done. We 
expect those to be signed up within the next 2 weeks. They are 
both up in the Under Secretary's office and the Deputy 
Secretary's office for signature.
    Similarly, we are working on institutionalizing the 
introduction of metrics for measuring supply chain performance. 
One of the functions of the joint logistics portfolio 
governance test has been to test the use of metrics across the 
entire supply chain from the vendors actually all the way 
through the theater logistics commands and theater support 
logistics to the end user, and customer wait time and time-
definite delivery and perfect order fulfillment are key output 
metrics that we believe as a result of the governance test we 
can institutionalize.
    The next component, though, to institutionalize them is we 
have to have certain enabling capabilities such as global asset 
visibility, which we are working on with our RFID, both sensor-
based and satellite-based. We have to develop those 
capabilities to have real-time visibility in where our assets 
are so that we can measure how we are performing in terms of 
customer wait time or perfect order fulfillment.
    We think there are some challenges involved in that 
process, but we are making significant progress, we believe, so 
that it will not only transcend the change in political 
administrations, but will also transcend the normal rotation of 
military leadership in some of the key joint functions.
    Senator Voinovich. Mr. Solis.
    Mr. Solis. I would offer that as it pertains to the plan, 
there are still----
    Senator Voinovich. Mr. Solis, Deputy Secretary England has 
asked for Supply Chain Management to be removed from the GAO 
high-risk list. Was a lack of metrics a reason for not removing 
a supply chain?
    Mr. Solis. Well, I think that is part of it. I think there 
are other reasons, as I mentioned in my oral statement. But 
pertaining to that, I think six of the ten initiatives do not 
have any outcome measures that are associated with it. Also, I 
think nine of the ten initiatives still do not have any cost 
metrics. And so it becomes difficult for us or anybody else to 
measure how they are doing on the particular initiatives.
    Let me be clear. Each one of these organizations here has 
their own internal metrics, but the linkage of their metrics, 
as it relates to the plan, as it relates to the initiatives in 
the plan, and how it relates to the four overall metrics in the 
plan is not clear. And that is why we talk about the lack of 
metrics. It becomes difficult to measure the progress, as it 
pertains to these particular initiatives.
    Senator Voinovich. You just heard from Mr. Bell. What is 
your comment about what he just indicated? And has there been 
any communication in the last several weeks or months dealing 
with what he just talked about in terms of metrics?
    Mr. Solis. Well, I know we have committed to get together 
and talk as we have in the past. We will continue to have these 
discussions, probably even shortly after this hearing.
    Senator Voinovich. Well, one of the things that I was 
pleased about and I know Senator Akaka was pleased about is 
that we requested that the Department of Defense, the 
Government Accountability Office, and the Office of Budget and 
Management come together and develop kind of a consensus on 
what the plan should be. And from what I understand, that has 
come along quite nicely. But what you are saying is that in 
some of these areas, you just have not had a meeting of the 
minds.
    Mr. Solis. Well, DOD has a plan, but again, some of the 
initiatives are still a ways off and, in fairness, some of them 
are just beginning. Also, in our view, they are still lacking 
the outcome measures that we would like to see so that we can 
better see where they are in terms of the progress.
    Senator Voinovich. I would like to have you prepare a 
list--some of that is in your testimony, but prepare a list, 
get it over to Mr. Bell, have him respond to it, and see if we 
cannot stay on top of this so that maybe 6 months from now, 
when you come back, you can all say that you have worked 
something out and that you agree on it.
    Is RFID working out as well as you believed it would? What 
kind of help did you get from the private sector?
    General Schwartz. Senator, if I may at least lead, RFID has 
a number of applications. It has applications in terms of in-
transit visibility, containers that are moving and so on. It 
also has applications in terms of inventory management, and 
General Dail can address that in greater detail. But an 
important notion here is that while--I have been to 
Bentonville, Arkansas, we will soon visit Best Buy, and there 
are very fine companies out there employing various aspects of 
RFID, whether it be passive or active or otherwise.
    The one thing to appreciate, there are some differences 
about our business models, if you will. In the end, Wal-Mart 
stores don't move--ours do. And so there are some differences 
here that one has to accommodate. Nonetheless, they are a 
powerful example to us, and we are pursuing putting the right 
kind of RFID on the right purpose.
    For example, active tags cost at the moment $65 apiece. 
They are expensive. They hold lots of data. You can put one on 
a container, and it can tell you every single box that is in 
the container.
    Passive tags, on the other hand, are maybe 65 cents apiece, 
and at that kind of economics, you can maybe put a passive tag 
on every box. And General Dail can use that in his warehouse if 
he chooses to.
    The key point here is that there are different kinds, and 
it is important to apply the right kind of technology to the 
right problem. And I think in the case of Wal-Mart, if you have 
been reading the literature, they implemented a passive ID 
strategy, and they have been adjusting this a little bit. They 
discovered that it was not producing the outcome that they 
desired.
    So there is still some experimentation going on, sir, and 
very importantly, we are committed to this. Our plan for 
executing this on behalf of the Department will be certainly 
available for your perusal in the September time frame, and it 
will include both the in-transit segment and the inventory 
management segment.
    Senator Voinovich. Could I ask just one more question, 
Senator Akaka, to follow up on that?
    Senator Akaka. We will have a second round. Thank you, 
Senator Voinovich.
    Mr. Bell, your testimony says that the Logistics Roadmap 
plan will now be complete next summer.
    Mr. Bell. Yes, sir.
    Senator Akaka. This is more than a year after what we were 
told last year. You say that it will be released after 
finishing up the logistics capability portfolio management 
tests. Why does a document that will contain ``planned and 
desired capabilities'' have to rely on this current test?
    Mr. Bell. One of the reasons is that the concept of 
portfolio governance is a different concept of how we work 
towards support of the joint warfighting effort in dealing with 
the current authorities that we have within the Department of 
Defense in which there are significant Title X authorities that 
are vested with the services, and the question is how do we 
integrate those most effectively.
    The governance concept looks at taking a cross-department 
view of the development of capabilities. We think it is 
critical in terms of the Logistics Roadmap that we adopt that 
cross-department view of governance in developing our 
capabilities going forward, and that is the reason we made the 
decision to defer completion of the roadmap until we could see 
the extent to which we could apply this governance concept in 
getting to a joint approach to the whole Department's 
capabilities.
    Senator Akaka. Since it has been delayed for over a year 
because of testing of one new capability, what is to stop it 
from being delayed again? Can you commit to this Subcommittee 
that you intend to have the roadmap by next summer?
    Mr. Bell. We certainly do intend to do that. We think this 
delay, while it seems to be unusually long for a single-
capability view, is actually a critical step forward in 
developing a joint approach to governance as the DPO concept 
has been, as the defense logistics executive concept has been. 
Otherwise, we obviously would not have deferred completion of 
the roadmap until we had finished this test.
    Many elements of the so-called Logistics Roadmap are well 
developed. Many of the metrics in terms of output metrics of 
supply chain performance we believe are falling into place. We 
can develop the capabilities to measure performance against 
those metrics. While we have some disagreement with GAO 
regarding metrics associated with specific improvement 
initiatives within the overall improvement plan, I believe GAO 
would acknowledge that, in terms of supply chain overall 
performance metrics, we are focused in the right direction.
    So many of the elements of the Logistics Roadmap are well 
in place, and we think with the addition of this concept of 
joint governance across departmental lines, it will be a 
significant improvement in our capabilities.
    Senator Akaka. I understand that TRANSCOM is working on an 
internal plan called Theater Enterprise Deployment and 
Distribution (TED2). Is the TED2 document related to the 
Logistics Roadmap currently under development at DOD, General 
Schwartz?
    General Schwartz. Chairman, it is indirectly related, but 
it is an independent initiative, and it is an example of what I 
would call portfolio management with a small P and a small M, 
not the capital P, capital M that the Secretary was addressing.
    What we are doing is recognizing that in the theater there 
are multiple systems. Senator Voinovich mentioned that some 
cannot talk to one another; they don't interact easily in terms 
of data transfer and so on. This particular initiative is 
producing results in terms of narrowing down the numbers of 
systems and making sure that, in fact, they are interoperable.
    A case in point: We currently have two port management 
systems. One is called the Worldwide Port System. It is an 
Army-developed product. And then there is a system called the 
Global Air Transportation Execution System (GATES), which is an 
Air Force product.
    Now, where we all came from, services develop their own 
systems, and at one time there was not the emphasis on assuring 
interoperability and so on. And what we are doing is converging 
these two to a single port system so that if Marines arrive or 
Army arrives or Air Force arrives, we will be operating 
essentially the same piece of software. That is the kind of 
portfolio management I am doing as the distribution process 
owner, and it applies, at least indirectly, to this notion that 
you referred to earlier.
    Mr. Bell. If I may, in fact, those kinds of portfolio views 
across the Department in terms of developing interoperable 
capabilities is exactly what the overall portfolio governance 
test is about.
    Senator Akaka. I have a final question, but before I ask 
it, let me ask Senator Voinovich whether you have any further 
questions.
    Senator Voinovich. Yes, I do.
    Senator Akaka. Will you proceed?
    Senator Voinovich. Thank you. Mr. Bell, your tenure will 
end with this Administration. Is that right?
    Mr. Bell. Yes, sir.
    Senator Voinovich. General Schwartz, how many years do you 
have left in your current job?
    General Schwartz. Sir, at least until the summer of 2008 I 
think is what the Secretary has indicated.
    Senator Voinovich. General Dail.
    General Dail. Sir, I am intending to stay in this position 
for an indefinite period until my period of service is over. I 
would certainly think spring of 2009.
    Senator Voinovich. General Schwartz, you have been in your 
position for how many years?
    General Schwartz. Almost 2 years, sir.
    General Dail. Sir, I was his deputy for 2 years and then 
moved to DLA just this past year. I have been in my job about 
10 months.
    Senator Voinovich. One of the things that really disturbs 
me is the change of responsibilities is much too quick in the 
military. I remember Wright-Patterson Air Force Base where 
people would come in 3 years and then out they go. This does 
not really lend itself to transformation.
    Do you have civilians that are underneath you that are 
going to be around for a while? I would like to know how long 
you are going to be in each of your positions and who are the 
people that report to you and how long are they going to be 
around.
    When you put together your plan to reform or transform, do 
you have a list of things based on the potential to save money? 
Did you approach them with the idea of saving money, or did you 
look first to see what the low-hanging fruit was and then 
thought, well, we can knock these off easy and we will get on 
with the other ones after we have done the easy stuff?
    General Schwartz. I have to answer yes to both.
    General Dail. It is a combination.
    General Schwartz. It really is. We are, Senator Voinovich, 
taking a concerted business case approach to this, and that is 
why use of satellite technology, for example, has application 
in a place like Pakistan, where we are moving cargoes from 
Karachi into Afghanistan over a ground line of communication 
without any military footprint whatsoever. And so that is a 
place where a satellite tracking capability perhaps has an 
application. But it is expensive, and so you are not going to 
do that on a line of communication over which you exercise 
exclusive control.
    So the bottom line is our approach to this, as I indicated 
earlier, is to apply the right technology to the right problem, 
and it has to have a business case.
    Senator Voinovich. When you started this project, if I 
asked you do you have a number that you thought you might save 
as a result of putting this new system in place, and then to be 
able--so you can compare? You said $65 for one gizmo and 65 
cents for what you called passive.
    General Schwartz. Right.
    Senator Voinovich. Have you got those numbers on a piece of 
paper so you can compare them?
    General Schwartz. I can provide that for you for the 
record, sir.\1\ I think it is accurate to say that our initial 
motivation on this was to provide in-transit visibility. An 
example, on December 21, 2006, sir, if you would buy your wife 
a gift off the Internet for Christmas, you get a tracking 
number, and you put that into one of the websites for the major 
transportation carriers, and you can see that box coming to 
you. As long as you can see that gift coming to you, on 
December 23 you are probably not going to buy your wife a back-
up gift just in case the first one you ordered does not make it 
because you do not want that to occur.
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    \1\ Copy of the ``Business Case Analysis for Radio Department of 
Defense Passive Radio Frequency Identification,'' submitted for the 
record by General Schwartz appears in the Appendix on page 307.
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    Believe it or not, supply sergeants operate exactly the 
same way, and so the initial purpose of this was to provide 
that visibility of that product moving through the supply 
chain, so that we changed behavior at the receiving end.
    So part of this was behavioral, was transformation 
organizationally, and so on. There is a business case for RFID, 
and I will be happy to provide that to you for the record, sir.
    General Dail. Sir, if I can just add one comment, the 
Chairman mentioned earlier about the Joint Regional Inventory 
Materiel Management Initiative we have in Pearl Harbor that 
will support all four of these service components on the Island 
of Oahu. When we entered into the next phase, which we will 
again this coming fiscal year, our intent is to take 
radiofrequency identification technology and, with the help of 
General Schwartz and his command, instrument up the island. And 
then I will purchase some additional stock and position it at 
Pearl Harbor.
    We think, as we have discussed with the services, that the 
return, because of the confidence level that it will have with 
visibility of stock on the island and coming from the United 
States en masse in horizon lines coming into the State, that we 
will be able to get that replenishment on the surface 
transportation and not have to use air transportation and 
military aircraft. And that will save the services $2 to $3 
million a year, and we think that is a business case that for 
the first time we have been able to apply to an actual 
initiative that we have been able to do together at USTRANSCOM 
and the Defense Logistics Agency.
    So I think sometimes we do take low-hanging fruit, but 
sometimes I think we have been able to apply a business case to 
an initiative and a new way of doing business on the island of 
Oahu.
    Senator Voinovich. Finally, if I asked you what equipment 
you now have in Iraq--humvees and Strikers and so on and so 
forth--could you tell me what you have there?
    Mr. Bell. I think we could provide that report to you, sir, 
from the services.
    Senator Voinovich. Do you have any idea what percentage of 
the equipment that we have in the total Defense Department is 
there--15 percent, 20 percent, or 50, 75, 80 percent? Does 
anybody know that?
    Mr. Bell. Rather than guessing, I would rather take that as 
a question for the record if we could.
    Senator Voinovich. I would like that very much. Thank you.
    Senator Akaka. Thank you, Senator Voinovich. Let me get 
into a third round, and this is for the three of our DOD 
witnesses. When we eventually begin redeploying forces in Iraq 
and Afghanistan, this moment will present a significant 
logistical challenge since we have been there for several years 
now and moved many assets there.
    What planning, if any, have you done to ensure that we have 
the logistics capability to leave the theater and return our 
assets back to the United States? Mr. Bell.
    Mr. Bell. Yes, sir. It is obviously fair to say that we 
have extensive planning activities currently underway 
throughout DOD addressing that question so that when the time 
comes and the decision is made to begin to draw down forces 
that we will have put in place the capabilities logistically to 
do that in the right order with the right amount of equipment 
coming down in the right sequence.
    That effort has been underway for some time and is being 
discussed at all levels, both in CENTCOM in Iraq as well as at 
the Pentagon.
    Senator Akaka. General Schwartz.
    General Schwartz. Sir, I would concur with that. I would 
say that our objective--and this is really Central Command's 
objective--is to execute a retrograde, the redeployment, 
whatever that turns out to be, with the same precision that we 
would execute a deployment.
    To take you back a few years, during the roll-up for Desert 
Shield/Desert Storm, materiel returned to the United States 
without good visibility, went to the wrong port, materiel was 
lost. We will not repeat that exercise. And one of the things 
we are doing, Mr. Chairman, in cooperation with the Army 
Materiel Command--General Ben Griffin is a case in point. The 
Congress appropriated roughly $15 billion to the Army to 
execute RESET of equipment. My promise to Ben Griffin was he 
would not lose a vacancy on a RESET line because I did not get 
the piece of equipment back to him on time. And so we, as a 
result of working the RESET program, have sharpened our focus 
and our procedures, are making sure that stuff that is heading 
westbound arrives at the right port, has the right 
transportation plan back to the forts and so on.
    I am not Pollyannish about the challenge this will be. This 
will be a major undertaking. But I am confident that we have 
the procedures in place and the commercial and organic military 
capacity to make it happen.
    Senator Akaka. General Dail.
    General Dail. Sir, I would echo the comment that General 
Schwartz made about our entire focus would be on ensuring that 
we support Central Command's, Admiral Fallon's plans to execute 
whatever operations that he would undertake. Defense Logistics 
Agency is a largely contractual operation, so we have already 
begun planning about what kinds of capabilities we would need 
to increase to support a redeployment of some sort in the 
future. In our case, Defense Reutilization and Marketing 
Service, which deals with the reuse, disposal, proper handling 
of hazardous materials, those kinds of movements and retrograde 
operations back to the continental United States or some other 
locale that may have a vendor that may want to procure some 
retrograde material or scrap, to the point where we may want to 
increase some of our other contractual capabilities in Kuwait 
and some other areas to support a precise redeployment of 
capability. We are linked at this point in time with the proper 
folks in U.S. Central Command, U.S. Transportation Command.
    Senator Akaka. Mr. Solis, GAO did not make any 
recommendations relating to container management, yet I see it 
as one of the more interesting parts of your report. Do you 
think that container management is just a symptom of overall 
management issues?
    Mr. Solis. Well, from my perspective, I think it has been a 
longer-term problem, and I would even go back beyond 2001. When 
I think back to the first Gulf War, you heard a term referred 
to as ``Iron Mountains,'' and those were referring to not only 
just the equipment, but all the containers that were piling up. 
So this is, again, one of the reasons why we felt it was 
something that needed to be addressed in the longer term.
    As we looked at this, we first reported on the problems 
back in 2003 about the containers and the lack of visibility. 
As our current work has shown, there is still a problem. 
However, there are efforts by the Department and TRANSCOM to 
try to get a handle on it. I think what we are going to do is 
probably track that as it moves to see how this pans out over 
the next several months or year to see if they get a hold of 
this.
    Senator Akaka. Do you think the container problem has been 
solved?
    Mr. Solis. I think it remains to be seen. In fact, one of 
the enablers to track this, of course, is the RFID tagging 
system. And as we mentioned in our JTL report, there are still 
inconsistent applications, such as whether the tags are on 
there and whether the information on the tags is accurate. And 
so I think there are still issues related to whether they are 
going to be able to track those containers given the processes 
that are currently in place.
    As General Schwartz mentioned, Afghanistan is another 
issue, and it could be problematic just in terms of the 
geographics itself. So, again, I think it remains to be seen 
over the next several months or so to see how the handle will 
be--how they will get a handle on this in terms of dealing with 
the issue.
    Senator Akaka. Finally, let me ask Mr. Bell--and I am 
tagging this onto a question that Senator Voinovich asked, too. 
I would like to end with a question about sustainability of the 
Department's efforts in supply chain management. In less than 
18 months, there will be a new Administration running the 
Department of Defense. What steps are you taking now to ensure 
that progress made so far does not end when the civilian 
leadership turns over at the Pentagon?
    Mr. Bell. Thank you, Chairman Akaka. Several important 
steps we have underway. As a team here, we are focusing in our 
overall supply chain management efforts to institutionalize all 
of the key elements of the improvement program, and you have 
heard different elements of that described today.
    On a personal basis, within my shop, I have identified and 
designated a Principal Deputy, Assistant Deputy Under Secretary 
of Defense, who is well known to you, Alan Estevez, who has 
reported to you frequently, who will have the responsibility 
for managing the transition on the carry-through on all of the 
items that we have in implementation. And Mr. Estevez, as you 
know, has been intimately involved in the whole supply chain 
improvement program during this period.
    We are also working with the other commands to make sure 
that the elements that we need to have in place get 
sufficiently documented so that when there is a transition 
occurring in Administrations, our plan is to have a transition 
handover book available for the new Administration that 
identified all the new initiatives and all of the key points of 
contact within the Department of Defense that are working on 
these initiatives.
    Senator Akaka. Thank you very much. Senator Voinovich.
    Senator Voinovich. General Schwartz, to improve end-to-end 
supply distribution, the Secretary has designated your command 
as the Department's Distribution Process Owner. However, GAO 
has noted instances of overlapping roles and responsibilities 
in the Department that the Department clearly define the 
responsibilities and authorities of the DPO in relation to 
other players in the distribution process as an issue of chain 
of command.
    This past April, the Defense Business Board recommended 
that DOD take steps to clearly identify decisionmaking 
authority for supply chain integration and to clearly define 
responsibilities and authorities for all players in the supply 
and distribution process.
    To what extent do the DPO responsibilities and authorities 
need further clarification? Do you have the necessary authority 
to break through the stovepipes in DOD's supply chain and 
logistics system in order to improve the efficiency of the 
overall system? In other words, once you get it done, are you 
in a position where you could make it happen? Do you have the 
authority?
    General Schwartz. I do. As a practice, sir, I do not assert 
dominion. You can accomplish certain things by brute force, but 
it seems to me that the approach that we have followed is, 
again, to try to make the case for those things we think are 
needed, and sometimes there is a bit of friction, and I will 
admit that openly. But I must tell you that we have not failed 
to do something that we were committed to do. We have overcome 
all resistance. For example, recently the Joint Requirements 
Oversight Council approved our expeditionary port-opening 
capability. There was some resistance from the services on that 
initiative. We overcame that because we were persistent.
    I think it is important that, as Secretary Bell mentioned, 
we have our charter document, which is over 10 years old that 
has not been updated, that soon will be signed out by the Under 
Secretary and the Deputy. The DPO instruction is soon to be 
approved, and I would say more importantly, frankly, that 
responsibility now resides in the Unified Command Plan. And, 
Senator Voinovich, the Unified Command Plan has the President's 
ink on it, and everybody gets that.
    So I think this is in part a matter of authorities that are 
documented. I think they very soon will be in an end-to-end 
fashion. And it is also a matter for us to be persuasive, that 
this is the way to proceed. And I must tell you--and General 
Dail can confirm this--that the services recognize the 
pressures they are going to face in a declining--in a post-
Operation Iraqi Freedom environment. And so they are looking 
for ways to be prudential and more efficient.
    What our obligation is is to make a case that is compelling 
and they will follow our lead. That is what we have seen thus 
far. In those cases where we have to compel cooperation, the 
Deputy Secretary has been more than receptive of accomplishing 
that task on our behalf.
    General Dail. Senator, I would like to add that, in 
addition to the authorities that he spoke to, I think it is 
something that you mentioned earlier about a succession 
strategy and making sure that you have people that continue to 
stay on long enough to understand what the intent and what the 
vision is for the DOD supply chain. I served for General 
Schwartz at U.S. Transportation Command, and my movement to the 
directorship at DLA--the relationship that we enjoy 
professionally has made it a lot easier to build these 
capabilities and these initiatives together. And I think that 
when we provide a business case, something that is of value to 
the military services, they have come forward and willingly 
have asked to participate in these improvements and in these 
initiatives.
    Senator Voinovich. So you use the power of the obvious 
benefit.
    General Dail. Yes, sir.
    Senator Voinovich. But if that does not work, you can use 
other methods.
    General Dail. Absolutely, sir.
    Senator Voinovich. Yes. What was the receptivity to the 
Business Board's recommendations? And if they were well 
received, how long do you think it will take you to respond to 
them?
    General Schwartz. Sir, in fact, I, General Dail, and the 
Secretary met with the Business Board 3 weeks ago, and as I 
understand it, they are going to brief the Deputy Secretary on 
the result of that interaction tomorrow afternoon at lunch. And 
we have an obligation, the three of us do, within a matter of 
weeks to get back to the Secretary after tomorrow's session 
with our take on that session.
    I think the bottom line is there was fundamentally violent 
agreement. There is a view that the board has had over time 
that there should be sort of a King of Logistics, if you will, 
either a Joint Logistics Command or other such solutions. I 
personally do not favor that. But beyond that one area of 
disagreement on how much purview one individual should have in 
uniform, I think there is agreement with their fundamental 
argument that we need to document the authorities, we need to 
make sure that this process improvement mechanism and the 
supply chain oversight mechanism is well institutionalized. And 
that is what we will tell the Secretary.
    Senator Voinovich. And you will get back to the Board, in 
other words, the Board will come back to them and say here is 
what we have done as a result of that, and so you will get some 
feedback from them so they know how you are responding to it.
    General Schwartz. Yes, sir.
    Senator Voinovich. I would just like to finish on this 
note. I think that you mentioned that the pressure is going to 
be on the Defense Department, and I think that is a very good 
observation. I think one of the things that the American people 
have not recognized is because of the war in Iraq and 
Afghanistan, the tripling of the amount of money that we spend 
for the 22 agencies and the Homeland Security, that an enormous 
amount of money has gone out, and that the nondefense 
discretionary budget has been squeezed pretty hard. And there 
is going to be a lot of pressure to get back to putting more 
money in that area because of the fact that some are concerned 
about the fact at this stage of the game that maybe we are 
eating our seed corn and not doing some things that we ought to 
be doing in terms of our competitiveness.
    So I think that the more you can get that message out, the 
better, and it would be wonderful if, as a result of your work 
that you or maybe your successor can come in here and say, hey, 
we really got on this thing, and we are saving this money, and 
it is really working.
    There are a lot of folks out there that really are kind of 
losing faith in our management. I think one of the reasons why 
we had such a tough time on the immigration bill is that people 
just did not believe that we were securing the border. Then 
after we had the fiasco with the passports, they said again we 
cannot seem to get things done. And I think we need to restore 
people's faith, I think, in the management of this government, 
and I made that very clear to Clay Johnson, who is in charge of 
Management over at OMB.
    So good luck, and thank you very much for your effort. I 
think it is one of the most worthwhile things maybe you will 
have something to do with.
    General Schwartz. Sir, all I can tell you, in our small 
bubble, we are committed to restoring people's faith in our 
integrity and in our capacity to manage this.
    Senator Akaka. Thank you very much, Senator Voinovich.
    I want to thank our witnesses for appearing today. Removing 
supply chain management from GAO's high-risk list is an 
important task, as you all well know. Inadequate management 
puts not only our tax dollars at risk but, more importantly, 
the safety of our warfighters serving overseas.
    I find some of the examples cited by GAO very concerning. 
Issues like container management are only a symptom of a larger 
challenge that the Department faces. I look forward to 
continuing to work with the Department of Defense in the future 
on this issue. I know that Senator Voinovich and I are 
dedicated to getting supply chain management off the high-risk 
list.
    The hearing record will remain open for 1 week for 
additional statements or questions other Members may have 
pertaining to this hearing.
    And with that, let me say thank you again, and the hearing 
is adjourned.
    [Whereupon, at 4:12 p.m., the Subcommittee was adjourned.]


















































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