    Defense Logistics: Better Strategic Planning Can Help Ensure
    DOD's Successful Implementation of Passive Radio Frequency
    Identification (12-SEP-05, GAO-05-345).

    The Department of Defense (DOD) has had problems with tracking
    and identifying inventory for many years, most recently in
    Operation Iraqi Freedom. One of several tools DOD is using to
    address these inventory problems is radio frequency
    identification (RFID). RFID technology consists of passive or
    active tags that are attached to equipment and supplies that are
    shipped from one location to another. Although DOD did not begin
    official implementation of passive RFID technology until January
    1, 2005, DOD has been using active RFID technology since the
    early 1990s and began developing policy and pilot testing passive
    RFID in 2003. As of January 1, 2007, all commodities, excluding
    bulk commodities, are to have passive RFID tags. Full
    implementation of passive RFID is estimated to cost hundreds of
    millions of dollars. This report (1) provides information on the
    status of passive RFID implementation, (2) addresses the extent
    to which DOD has developed a strategic approach for implementing
    passive RFID, and (3) highlights challenges DOD recognizes it
    faces in implementing passive RFID and any plans developed by DOD
    to mitigate these challenges.
    -------------------------Indexing Terms-------------------------
    REPORTNUM:   GAO-05-345
        ACCNO:   A36358
      TITLE:     Defense Logistics: Better Strategic Planning Can Help
    Ensure DOD's Successful Implementation of Passive Radio Frequency
    Identification
         DATE:   09/12/2005
      SUBJECT:   Cost analysis
    	     Internal controls
    	     Inventory control
    	     Logistics
    	     Military policies
    	     Program evaluation
    	     Projections
    	     Radio frequency identification
    	     technology

    	     Strategic planning
    	     Program implementation

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    GAO-05-345

                     United States Government Accountability Office

                         GAO Report to Congressional Committees

    September 2005

    DEFENSE LOGISTICS

      Better Strategic Planning Can Help Ensure DOD's Successful Implementation of
                         Passive Radio Frequency Identification

                                           a

    GAO-05-345

    [IMG]

    September 2005

    DEFENSE LOGISTICS

    Better Strategic Planning Can Help Ensure DOD's Successful Implementation of
    Passive Radio Frequency Identification

      What GAO Found

    Since 2003, DOD and the components have taken actions to begin using a
    potentially promising technology, known as passive RFID, throughout their
    supply chain operations (see figure below). These actions include
    development of policy and guidance and the use of pilot projects and
    initial implementation to test the technology's application to their
    business processes. In addition, infrastructure and funding have been
    provided, but this has been minimal because implementation did not
    officially begin until January 2005. Future funding requirements are
    expected to increase sharply as full implementation proceeds-from $6.6
    million as of January 2005 to about $472 million projected from fiscal
    years 2006 through 2011. This $472 million projection does not include the
    cost of system interoperability, which officials believe will be the most
    expensive element of implementation. Full implementation of passive RFID
    in supply operations is not anticipated until 2016 or beyond.

    While DOD has taken a number of actions to direct the implementation of
    passive RFID, it has not yet developed a comprehensive strategic
    management approach that incorporates sound management principles. The
    planning by DOD and its components lacks or only partially incorporates
    several key management principles needed to effectively guide, monitor,
    and assess implementation. The development of a comprehensive strategic
    management approach that fully incorporates these principles could provide
    decision makers with a framework to guide RFID implementation efforts and
    the means to determine whether these efforts are achieving the desired
    results. This affects both DOD and its components because the components
    are developing implementation plans to support DOD's RFID policy.

    DOD has identified several challenges that will need to be resolved before
    passive RFID can be fully implemented, but it has not yet developed a
    mitigation plan to address these challenges. Some challenges relate to the
    fact that passive RFID is a new and evolving technology, while other
    challenges derive from operational issues and obtaining adequate funding.
    Furthermore, certain regulatory and administrative obstacles remain. Until
    DOD and the components identify actions to mitigate these implementation
    challenges, their progress in resolving these challenges may be impeded.

    Projected Supply Chain Distribution Process

    Source: U.S. Army.

    United States Government Accountability Office

    Contents

      Letter

    Results in Brief
    Background
    DOD and Its Military Components Have Taken Actions to

    Implement Passive RFID Technology DOD's Implementation of Passive RFID
    Technology Lacks a

    Comprehensive Strategic Management Approach DOD Has Identified Several
    Challenges for Passive RFID Conclusions Recommendations for Executive
    Action Agency Comments and Our Evaluation

                                           1

                                          3 7

    10

    20 24 33 34 35

    Appendix I Scope and Methodology

    Appendix II Examples of Passive and Active RFID Equipment

    Appendix III Comments from the Department of Defense

    Appendix IV GAO Contact and Staff Acknowledgments

      Tables

    Table 1: Examples of DOD's Ongoing, Completed, and Terminated

    Passive RFID Pilot Projects and Initial Implementations as

    of January 2005 15 Table 2: Quantities of Passive RFID Infrastructure
    Items Reported by Major Department of Defense Component as of January 2005
    17

    Table 3: Reported Passive RFID Expenditures by Major DOD Component as of
    January 2005 17 Table 4: Passive RFID Projected Costs by Major DOD
    Component and Year for Fiscal Years 2006 through 2011 19 Table 5:
    Comparison of Key Management Principles to DOD's and

    Its Military Components' Passive RFID Policies and

    Implementation Plans 20

    Figures
                           Figure 1: Passive and Active RFID Tags               9
                    Figure 2: Projected Supply Chain Distribution Process      10
                 Figure 3: Timeline of Major DOD Actions to Implement Passive
                                            RFID                               12

    This is a work of the U.S. government and is not subject to copyright
    protection in the United States. It may be reproduced and distributed in
    its entirety without further permission from GAO. However, because this
    work may contain copyrighted images or other material, permission from the
    copyright holder may be necessary if you wish to reproduce this material
    separately.

    United States Government Accountability Office Washington, DC 20548

    September 12, 2005

    Congressional Committees

    The Department of Defense (DOD) has had problems with tracking and
    identifying inventory for many years. Since at least 1990, we have
    considered DOD's inventory management to be a high-risk area because
    inventory management systems and procedures are ineffective. Continued
    lack of visibility over inventory and equipment shipments increases
    vulnerability to undetected loss or theft and substantially heightens the
    risk that millions of dollars will be spent unnecessarily. Furthermore, it
    potentially compromises cargo security and the readiness of the
    warfighters. DOD has been using active radio frequency identification
    (RFID) technology for over a decade as a tool to help resolve this
    problem. More recently, DOD has also begun to use passive RFID technology.
    Both passive and active RFID technologies are part of a family of
    automatic information technologies used to enable hands-off identification
    of cargo and inventory. RFID technology consists of active or passive
    electronic tags that are attached to equipment and supplies that are
    shipped from one location to another. Full implementation of RFID
    technology into DOD's supply chain will require an investment estimated to
    cost hundreds of millions of dollars.

    DOD's use of active and passive RFID technology is evolving.1 DOD began
    using active RFID in the early 1990s as a tool to help resolve visibility
    problems experienced during Operations Desert Shield and Desert Storm.
    Active RFID technology is intended to provide nearly real-time, in-transit
    visibility of shipments. During Operation Iraqi Freedom, active technology
    was used to track parts and supplies shipped to and within theater,
    although not entirely successfully because some of the same visibility
    problems that occurred during Operations Desert Shield and Desert Storm

    1 Additional information regarding governmentwide implementation of RFID
    technology is discussed in GAO, Information Security: Radio Frequency
    Identification Technology in the Federal Government, GAO-05-551
    (Washington, D.C.: May 27, 2005).

    were repeated, as we have previously reported and other DOD and military
    service after-action studies have documented.2

    DOD has just begun implementing passive RFID, envisioned to ultimately
    work in conjunction with active RFID, to better enable inventory
    management and accountability. Passive RFID, which appears to be
    promising, is an emerging technology for both commercial and defense
    applications, and DOD logistics leadership views it as a key factor in
    transforming DOD logistics. Passive RFID is intended to facilitate
    accurate, efficient, hands-free data capture of shipping contents to
    improve item-level visibility. In October 2003, DOD developed initial RFID
    policy establishing business rules and requirements for implementing
    passive RFID technology in an integrated DOD supply chain enterprise.
    DOD's final RFID policy, dated July 30, 2004, directs the implementation
    of passive RFID technology for solicitations issued on or after October 1,
    2004, for delivery of materiel on or after January 1, 2005. As part of
    this implementation process, DOD stipulated that its vendors and two of
    its distribution depots be required to use passive RFID technology as of
    January 1, 2005. DOD met the January 1, 2005, date through its initial
    implementation of passive RFID at the Defense Logistics Agency's (DLA) San
    Joaquin, California, and Susquehanna, Pennsylvania distribution depots.

    This report addresses the status of DOD's passive RFID implementation and
    was prepared under the authority of the Comptroller General and is being
    addressed to the committees of jurisdiction. We focused on passive RFID
    because of its newness and potential high costs, and because it is just
    beginning to be implemented throughout DOD. We are providing you with this
    report because of your oversight responsibilities for defense issues. It
    addresses three key objectives: (1) to provide information on the

    2 Department of Defense, Conduct of the Persian Gulf War: Final Report to
    the Congress (Washington, D.C.: April 1992); GAO, Operation Desert Storm:
    Lack of Accountability Over Materiel During Redeployment, GAO/NSIAD-92-258
    (Washington, D.C.: Sept. 23, 1992); U.S. Army Materiel Command (USAMC),
    Operation Iraqi Freedom (OIF), Lessons Learned Conference (Redstone
    Arsenal, Ala.: Sept. 10-11, 2003); GAO, Defense Logistics: Preliminary
    Observations on the Effectiveness of Logistics Activities during Operation
    Iraqi Freedom, GAO-04-305R (Washington, D.C.: Dec. 18, 2003); Department
    of Defense, Objective Assessment of Logistics in Iraq: DUSD (L&MR) and
    Joint Staff (JSJ4) Sponsored Assessment to Review the Effectiveness and
    Efficiency of Selected Aspects of Logistics Operations During Operation
    Iraqi Freedom (OIF) (Washington, D.C.: March 2004); GAO, Defense
    Inventory: Actions Needed to Improve the Availability of Critical Items
    During Current and Future Operations, GAO-05-275 (Washington, D.C.: Apr.
    8, 2005).

    status of passive RFID implementation in DOD, (2) to identify the extent
    to which DOD has developed a strategic approach for implementing passive
    RFID technology, and (3) to highlight a broad spectrum of challenges that
    DOD recognizes it faces with the ongoing implementation of passive RFID
    technology and any plans developed by DOD to mitigate these challenges.

    For this report, we obtained and analyzed DOD's and various DOD military
    components' RFID guidance; readily available literature that describes the
    technology; funding, expenditures, and future projections data and
    requirements; and infrastructure being used and required for implementing
    the technology throughout DOD. We also reviewed studies initiated by DOD
    or its various military components. We interviewed knowledgeable officials
    from the Office of the Secretary of Defense, the four military services,
    DLA, the U.S. Transportation Command, the Joint Forces Command, and
    members of Joint Staff directorates. Additionally, we observed passive
    RFID technology being used at DLA's distribution depot in Susquehanna,
    Pennsylvania and at the Navy Ocean Terminal in Norfolk, Virginia. Because
    DOD is just beginning to implement passive RFID technology, we did not
    verify the data provided and considered the data sufficiently reliable for
    the purposes of this review. We conducted our work from July 2004 through
    August 2005 in accordance with generally accepted government auditing
    standards. Our scope and methodology are discussed in further detail in
    appendix I.

                                    Results in Brief

    Since 2003, the Office of the Under Secretary of Defense (Acquisition,
    Technology, and Logistics), the military services, DLA, and U.S.
    Transportation Command have taken actions to implement a potentially
    promising technology, known as passive RFID, into their operations. These
    actions include the development of overall policy and operational
    guidance, the use of pilot projects and initial implementation at several
    receiving and conveyor locations, and providing infrastructure and
    funding. The Under Secretary of Defense developed interim and final policy
    and operational guidance establishing requirements effective January 1,
    2005, for the implementation of passive RFID technology in the DOD supply
    chain. This policy and guidance establishes requirements for tagging cases
    and pallets, contract requirements, technical specifications, architecture
    and integration, security, and funding. The military services, DLA, and
    U.S. Transportation Command have also developed respective operational
    plans to guide their implementation of DOD's overall policy. In addition,
    DOD has conducted several pilot projects to test the technology's
    application to their business processes and has implemented some passive

    RFID capability at two DLA distribution depots and at one Navy ocean
    terminal. Additional passive RFID capability will be added to these
    locations as requirements are determined. Reports regarding the results of
    some of the completed pilot projects cite lessons learned that focus
    largely on the technical aspects of implementing the passive technology.
    Furthermore, minimal infrastructure and funding exists because passive
    RFID is an emerging technology and existing infrastructure and funding has
    primarily been in connection with the pilot projects and initial
    implementation. A sharp increase in expenditures-including costs for
    purchasing passive RFID equipment such as tags, readers, and writers, and
    costs associated with installation and maintenance-is expected as full
    implementation proceeds as directed by DOD's RFID policy and guidance.
    However, the cost projections made by DOD's military components, which
    reflect large increases in funding requirements, are probably lower than
    actual requirements will be because the services have had difficulty in
    determining cost estimates due to the evolving nature of the technology.
    Additionally, these cost projections do not include the cost of systems
    interoperability, which officials believe will be the most expensive
    element of implementation.

    While DOD has taken a number of actions to guide and direct the
    implementation of passive RFID, it has not yet developed a comprehensive
    strategic management approach that incorporates sound management
    principles and could ensure that passive RFID is efficiently and
    effectively implemented. Existing passive RFID implementation policy and
    operational guidance for both DOD and its military components lack or only
    partially incorporate several key management principles, such as those
    used by leading organizations and embodied in the Government Performance
    and Results Act of 19933 (GPRA), that are needed to effectively guide,
    monitor, and assess implementation. Among the key management principles
    that are missing or are only partially present are (1) general and
    long-term goals and objectives, (2) a description of specific actions to
    support goals and objectives, (3) performance measures to evaluate
    specific actions, (4) schedules and milestones for meeting deadlines, (5)
    identification of total resources needed and annual cost estimates for
    passive RFID implementation into the supply chain, and (6) evaluation of
    the overall program with specific processes to allow for adjustments and
    changes. Inclusion of these elements in planning and guidance could better
    guide implementation efforts and provide DOD

    3 Pub. L. No. 103-62 (1993).

    decision makers with a means for determining whether their efforts achieve
    the desired results in implementing passive RFID into the DOD logistics
    supply chain. For example, detailed identification of resources needed
    could enable DOD and its military components to determine whether they are
    making the right investments, targeted to their needs, resulting in a
    sound return on investment. This affects both DOD and its military
    components, because the military components are developing implementation
    plans to support DOD's RFID policy. Without an improved strategic
    management approach that would incorporate these management principles,
    DOD and its military components cannot ensure that their implementation of
    passive technology into the DOD supply chain will be successful.

    DOD has identified several challenges that will need to be resolved before
    passive RFID technology can be fully implemented in its supply chain
    processes, but the department has not yet developed a mitigation plan to
    resolve them. Some challenges relate to the fact that passive RFID is a
    new and evolving technology. For example, the electronic product code
    standards that identify specific information about items are being revised
    to provide increased capabilities, development of newer generation tags is
    creating uncertainty about upgrading and replacing equipment, concerns
    exist about the industrial base's ability to meet the demand for tags and
    equipment for both the private and public sectors, and training must be
    provided. Other challenges derive from operational issues associated with
    performance capabilities. For example, because the performance
    capabilities of passive RFID technology are still being determined,
    concerns exist about systems integration, which enables interoperability
    of automatic information systems among the military components to
    facilitate active and passive system interaction, and about the need for
    improvement in the accuracy of tag read rates. In addition, concerns exist
    about the availability of and permissions process for military use of
    authorized spectrum frequencies in foreign countries. Another challenge is
    obtaining adequate funding. Without the data needed to create business
    case analyses that demonstrate appropriate return rates on investment, the
    military services have been reluctant to provide funding for
    implementation. In addition to these challenges, certain regulatory and
    administrative obstacles remain, including the final approval of a
    proposed acquisition rule that will require vendors to contractually apply
    tags to products the government purchases, along with the approval of
    multivendor contracts for DOD-wide purchases of passive RFID equipment.
    Until the multivendor contracts are awarded, the DOD military components
    may be unable to leverage the purchasing power of the department to
    realize economy and efficiency benefits. Based on our

    discussions with DOD officials, the underlying cause of these various
    challenges is the newness and evolving nature of the technology. However,
    officials noted that the current challenges they face will be resolved
    over time and are to be expected with the integration of any new
    technology. Without identifying the challenges that adversely impact
    passive RFID implementation and identifying the actions necessary to
    mitigate them, progress in resolving such challenges may be impeded.

    We are recommending that the Secretary of Defense direct the Under
    Secretary of Defense (Acquisition, Technology, and Logistics) to develop a
    DOD-wide comprehensive strategic management approach that will ensure that
    passive RFID technology is efficiently and effectively implemented
    throughout the supply chain processes and will include an integrated
    strategy for fully implementing passive RFID, performance measures or
    metrics of progress, and a corrective action plan. We are also
    recommending that the Secretary of Defense direct the secretaries of each
    of the military services and other DOD military components to develop
    comprehensive strategic management approaches that support this DOD
    approach to fully implement passive RFID. As DOD and the military
    components develop these comprehensive strategic management approaches, we
    recommend that these approaches identify the specific challenges impeding
    passive RFID implementation and the actions needed to mitigate these
    challenges. In commenting on a draft of this report, DOD did not concur
    with our recommendation to expand its RFID planning efforts to include a
    comprehensive management approach that embodies key management principles
    used by leading organizations. The department asserted that it has already
    set forth the goals, objectives, performance measures, and milestones in
    its July 2004 RFID policy sufficient to guide the planning activities of
    the military services and other components. We disagree with the
    department's position because DOD's existing RFID policy lacks a number of
    key management principles necessary for good program management, and the
    lack of a comprehensive approach to guide the planning activities of the
    services and other components may impair DOD's ability to efficiently and
    effectively implement passive RFID technology. The department concurred
    with our recommendation for each of the military services and
    administrators of other DOD military components to develop individual
    comprehensive management approaches for implementing RFID. We believe that
    this approach will satisfy the intent of our recommendation if, prior to
    the military components developing their plans, the Under Secretary of
    Defense (Acquisition, Technology, and Logistics) takes additional actions
    to develop a DOD-wide comprehensive strategic management approach that
    would then be supported by the plans developed by the military

    components. The department did not concur with our recommendation to
    develop a plan to identify challenges impeding passive RFID implementation
    and actions needed to mitigate those challenges. In essence, the
    department stated that the passive RFID challenges described in the draft
    report have basically been resolved. We do not believe this to be the
    case. We recognize that passive RFID is an evolving technology and that
    the department is continuing to address the challenges associated with
    implementing passive RFID technology. However, we believe that the
    challenges identified in the report continue to exist and that it is
    necessary for the department to identify specific challenges impeding
    passive RFID implementation and to develop a mitigation plan to address
    these challenges as RFID implementation proceeds. DOD's comments and our
    evaluation are discussed in detail at the end of this report.

                                       Background

    RFID technology is one type of automatic identification technology.
    Automatic identification technology is a suite of commercial
    technologies-including bar codes, smart cards, magnetic stripes, and radio
    frequency identification-that provides a range of capabilities that enable
    the automatic capture of source data and enhance the ability to identify,
    track, document, and control deploying and redeploying forces, equipment,
    personnel, and sustainment cargo. Anticipated potential benefits of RFID
    include providing (1) near real-time, in-transit visibility for all
    classes of supplies and materiel; (2) "in the box" content-level detail
    for all classes of supplies and materiel; (3) quality, nonintrusive
    (handsoff) identification and data collection that enables enhanced
    inventory management; and (4) better item-level visibility. RFID tagging
    of DOD materiel is applicable to all items except bulk commodities such as
    bulk liquids, sand, and gravel.

    At the most basic level, RFID is a data input system that consists of (1)
    a transponder, generally referred to as a tag; (2) a tag reader, also
    known as an interrogator, that reads the tag using a radio signal; (3)
    centralized data processing equipment; and (4) a method of communication
    between the reader and the computer. The reader sends a signal to the tag,
    which prompts the tag to respond with information about the container or
    item to which it is attached. The information is forwarded to central data
    processing equipment, which can then be used to get detailed information
    about the container or item, such as the shipping date or the date
    received. The information contained in the central data processing
    equipment can provide visibility over inventory items throughout the
    supply chain. DOD's final RFID policy, issued on July 30, 2004, includes
    business rules for implementing two types of RFID tags-active and passive.

    Active RFID technology, which is more mature than passive technology, is
    used on containers or pieces of equipment for tracking shipments and their
    contents while in transit. Active RFID tags, which generally use a
    battery, have transmitters that transmit information when interrogated
    through radio signals that are read electronically. Active tags are more
    expensive than passive tags and are used for tracking major items and
    containers over long distances.

    Passive RFID is the newer technology and its use in DOD is evolving.
    Ultimately, this technology, which appears to be promising, will be used
    to enable better inventory management and accountability. Passive RFID
    tags are applied to cases, pallets, and item packaging. Passive tags do
    not have batteries and store only a limited amount of information. To be
    activated, these tags require strong radio frequency signals from reader
    devices to enable the tags to send back the information stored on them.
    Once the radio signal is received, a small amount of the reader's signal
    power is temporarily stored and then used to generate the tag response.
    However, because of the tags' limited energy, the radio frequency signal
    strength emitted by them is at a low level, thus limiting the distance-
    generally 3 to 10 feet-from which the tags can be read. We reported in our
    May 2005 report that, under perfect conditions, the tags can be read from
    a range up to about 20 feet. Passive tags are much lighter and less
    expensive than active tags, ranging from about $0.20 to several dollars
    each, in comparison with about $100 each for active tags. DOD is testing
    the passive technology through pilot projects and initial implementation
    to assess its application to existing business processes. DOD's RFID
    policy, issued on July 30, 2004, requires (1) the department and its
    various military components to begin to implement passive RFID and
    immediately expand active RFID technology and capability within the DOD
    supply chain, and (2) suppliers to affix passive RFID tags on certain
    commodities for solicitations issued on or after October 1, 2004, for
    materiel delivered on or after January 1, 2005.

    Passive and active RFID tags physically differ from one another, as figure
    1 shows. Even though passive and active RFID technologies require similar
    types of equipment and function in a similar manner, the equipment is not
    interchangeable between the two technologies because they serve different
    purposes and use different radio frequencies. For more detail about the
    equipment necessary for passive and active RFID technology, see appendix
    II.

    Figure 1: Passive and Active RFID Tags

    Although passive RFID is an emerging technology for both commercial and
    defense applications, DOD logistics leadership views it as a key factor in
    transforming DOD logistics. DOD envisions using passive RFID technology to
    facilitate accurate, hands-off data capture in support of its logistics
    business processes in an integrated DOD supply chain enterprise. DOD
    anticipates that the application of passive RFID technology will provide
    efficient and accurate item/content visibility for better inventory
    management. DOD's goal for passive RFID is to provide nonintrusive
    identification of shipping contents to improve item-level visibility, and
    its goal for active RFID is to provide nearly real-time, in-transit
    visibility for most classes of supplies and materiel. Figure 2 depicts how
    DOD could use both passive and active RFID as items are physically moved
    from the manufacturers and suppliers to the warfighter.

    Figure 2: Projected Supply Chain Distribution Process

    Source: U.S. Army.

    As the defense logistics executive responsible for RFID implementation,
    the Under Secretary of Defense (Acquisition, Technology, and Logistics)
    issued DOD's final RFID policy on July 30, 2004. Certain other DOD
    military components also have specific responsibilities in the RFID
    implementation process. The DOD Logistics Automatic Identification
    Technology Office, for example, is the DOD focal point for coordinating
    overarching guidance for the use of automatic identification technology
    within the department. The Army Program Executive Office, Enterprise
    Information Systems, Product Manager Joint-Automatic Identification
    Technology Office is the DOD procurement activity for automatic
    identification technology equipment-including equipment and
    infrastructure-and it maintains a standing contract for equipment
    integration, installation, and maintenance. This office is also
    responsible for maintaining contracts for the purchase of passive RFID
    tags. DLA is the procurement activity and single manager for active RFID
    tags. Finally, the U.S. Transportation Command, as the distribution
    process owner, is responsible for directing and supervising execution of
    the strategic distribution system for moving and distributing supplies.

    DOD and its military components have developed RFID policy, and DOD has
    provided guidance to suppliers and military components for implementing
    passive RFID technology. DOD also is using pilot projects and has begun
    initial implementation at several receiving and conveyor locations to
    better understand this technology and test its application to their
    business processes. Although the military components have begun acquiring
    and funding the infrastructure needed for passive RFID implementation,
    existing infrastructure is minimal because implementation did not begin
    until January 1, 2005. Consequently, DOD is

      DOD and Its Military Components Have Taken Actions to Implement Passive RFID
      Technology

    just beginning to purchase equipment for passive RFID technology
    implementation, and it projects a sharp increase in expenditures as full
    implementation proceeds.

        DOD Has Developed Policy and Guidance and the Military Components Are
        Developing Plans to Implement Passive RFID Technology

    Since 2003, the Office of the Under Secretary of Defense (Acquisition,
    Technology, and Logistics) has developed policy and guidance to implement
    a potentially promising technology, known as passive RFID into their
    supply chain operations. The military services, DLA, and U.S.
    Transportation Command also have developed or are developing plans and
    guidance to support passive RFID implementation. DOD's RFID policy and the
    military components' implementation plans are evolving, and the department
    has taken several actions to provide additional guidance to suppliers and
    military components for implementing passive RFID. Figure 3 identifies the
    dates of several major policy and guidance actions that DOD has taken or
    plans to take to implement passive RFID into its supply chain processes.
    Although DOD plans to begin implementing the use of passive RFID to all
    classes of all commodities, excluding bulk commodities, shipped to all
    locations by January 1, 2007, it will be fiscal year 2016-and beyond for
    the Army-before passive RFID will be fully implemented into supply chain
    operations, according to Navy and Army funding projections.

    Figure 3: Timeline of Major DOD Actions to Implement Passive RFID

    The initial RFID policy, issued by the Under Secretary of Defense
    (Acquisition, Technology, and Logistics), required suppliers to put
    passive RFID tags on pieces, parts, cases, or pallets by January 2005. A
    DOD news release officially announced the RFID policy in late October
    2003. In early 2004, the initial RFID policy was updated. The updated
    policy provided an initial set of business rules for the implementation of
    passive RFID and laid out the requirement to plan for a January 1, 2005,
    implementation of the passive RFID business rules.

    In late July 2004, the Under Secretary issued the final RFID policy. This
    policy finalized the business rules for the implementation of passive RFID
    and prescribed the implementation approach for DOD suppliers and vendors
    to use to apply passive RFID tags. The final policy establishes a
    mandatory requirement on solicitations issued on or after October 1, 2004,
    for suppliers to use passive RFID tags for deliveries that take place on
    or after January 1, 2005. This requirement applies to shipments of
    materiel in four supply classes that are delivered to two of DOD's
    distribution depots-San Joaquin, California, and Susquehanna,
    Pennsylvania-in accordance with the supplier implementation plan of the
    policy. In late August 2004, the Under Secretary of Defense (Acquisition,
    Technology,

    and Logistics) issued a Logistics Decision Memorandum approving initial
    implementation of passive RFID at strategic distribution depots, strategic
    aerial ports, and maintenance depots. Starting January 1, 2006, the final
    RFID policy expands the requirement for suppliers to tag six additional
    supply classes and 32 additional shipping locations. Commencing January 1,
    2007, all classes of all commodities, excluding bulk commodities, shipped
    to all locations are to be affixed with passive RFID tags.

    According to the final policy, the Defense Logistics Board is to review
    the internal implementation plan, benefits, compliance requirements, and
    requisite budget requirements annually, based on an assessment of the
    implementation to date. As part of this review process, in late August
    2004 the Under Secretary of Defense (Acquisition, Technology, and
    Logistics) met with the Defense Logistics Board to discuss DOD's strategy
    for RFID implementation and to obtain the board's agreement on future
    funding for both active and passive RFID. Additionally, a defense
    logistics executive decision memorandum issued in March 2005 stated that
    Defense Logistics Board members agreed that implementation of RFID across
    the department had the potential to greatly enhance visibility of the
    supply chain. The memorandum further stated that the business case
    analysis developed by DLA was compelling, and directed the secretaries of
    the military departments to move forward with passive and active RFID
    implementation. While we reviewed the contents of DOD's business case
    analysis, we did not assess its methodology and validity.

    The final RFID policy also states that the Army's Program Executive Office
    Enterprise Information Systems continue development of a multivendor
    contract to support the purchase of passive RFID technology and to
    leverage the purchasing power of the department. Additionally, DOD's
    policy requires military components to prepare passive RFID implementation
    plans to support the DOD vision.

    To meet the requirements of the final DOD RFID policy, in September 2004
    DOD developed a departmentwide RFID Concept of Operations as an outline
    for the military services and other military components to follow in
    implementing RFID technology into DOD logistics and to articulate the
    specific uses of passive RFID throughout the DOD supply chain. The
    document outlines the scope, objectives and goals, assumptions and
    constraints, and project framework for DOD's implementation of RFID.

    DOD has taken other actions to provide guidance and policy to DOD military
    components and external partners. For example, DOD has established Web
    sites such as www.dodait.com and www.dodrfid.org for

    suppliers, DOD military components, and others to use to access RFID
    information, specifications, and updates to policy and guidance. DOD has
    also established Integrated Process Team Working Groups to discuss issues
    involving RFID and the implications of RFID for current business
    processes, new technology concerns, and strategic planning and
    implementation. DOD has hosted several conferences on RFID implementation
    instructions and training for suppliers and DOD military components.

    In response to DOD's policy and concept of operations guidance, the
    military components are developing implementation plans to support DOD's
    policy and vision for passive RFID technology. As of January 2005, the
    Navy and DLA have completed passive RFID implementation plans. While the
    U.S. Transportation Command does not have a formal passive RFID
    implementation plan, its business process plan contains elements of DOD
    passive RFID guidance and requirements. The Army and Marine Corps have
    draft implementation plans, and the Air Force had just begun development
    of its plan at the time of this review.

        DOD Is Using Pilot Projects and Initial Implementations to Test the
        Application of Passive RFID Technology

    DOD is using several pilot projects and has begun initial implementation
    at several receiving and distribution facilities to better understand
    passive RFID technology and test its application to their business
    processes. Examples of these pilot projects and initial implementations
    are listed in table 1 below. These pilot projects involve DLA and each
    military service and are small in scope, and generally have involved
    selected supply items, such as meals-ready-to-eat or individual protective
    clothing. One of these pilot projects, the Navy's ocean terminal project,
    which began in November 2003, successfully transitioned into an initial
    passive RFID implementation by May 2004. Since that time, the Navy's Fleet
    Industrial Supply Center, Ocean Terminal Division, has abandoned its
    legacy handheld scanning processes in favor of the passive RFID
    documentation procedures, which document shipments by scanning RFID tags
    as they pass through reader devices. Furthermore, DOD's operational
    guidance required DLA to initially implement passive RFID by January 1,
    2005, by enabling two of its distribution depots to receive selected
    passive RFID tagged items. As of late December 2004, DLA had completed
    this initial implementation at three receiving locations and one conveyor
    location in the Susquehanna, Pennsylvania depot and at three receiving and
    two conveyor locations in the San Joaquin, California depot. As of June
    2005, a DLA official told us that surveys are being conducted to determine
    the number and location of future passive RFID infrastructure
    requirements. Reports regarding the results of some of the completed pilot
    projects cite

    lessons learned that focus largely on the technical aspects of
    implementing the passive technology. For example, a meals-ready-to-eat
    pilot project, conducted in May 2004, was designed to simulate the process
    as products moved from vendor to depot to the delivery of the product to
    the unit level. This demonstration illustrated ways in which passive RFID
    could be implemented in the DLA supply chain. According to the reported
    results for this pilot, the most important benefit from the demonstration
    was the experience gained from the physical implementation of an RFID
    system within a DOD environment. Lessons learned centered on the
    technology's systems integration, application software, frequency
    coordination, and the immaturity of the passive RFID technology. Regarding
    the technology's immaturity, the report stated that the passive RFID
    hardware and software were currently too immature for many production
    operations.

    Phase I of the protective equipment project tracked pallets and cases of
    Joint Service Lightweight Integrated Suit Technology (JSLIST) suits using
    passive RFID tags. The project evaluated the passive technology's
    implementation at three locations representing different functional areas
    of the JSLIST supply chain: vendor (shipping), DLA Distribution Center
    (receiving and shipping), and Army customer (receiving). The Phase I
    report stated that in March 2004 the first shipment of 29 pallets of RFID
    tagged suits was successfully distributed among the functional areas using
    a RFID-enabled receiving process. Lessons learned from the protective
    equipment project also indicated that passive RFID tag and reader
    technology is immature and that the receiving processes, data elements,
    and data entry procedures are not well known or documented at DLA
    distribution centers. We did not evaluate the results of these reports.

    Table 1: Examples of DOD's Ongoing, Completed, and Terminated Passive RFID
    Pilot Projects and Initial Implementations as of January 2005

    Pilot project/initial
          implementation     Component    Location            Description
                                        Army National  Applying passive RFID tags
        Pilot: DLA/Army MRE  DLA/Army     Training                to shipments of
                                       Center (interim
         Shipments-ongoing                test at Fort    MREs from suppliers

                                          Lee)

    Pilot: Individual Protective Equipment (IPE) completed 11/2004

    DLA/Army	San Joaquin, CA Blue Grass Depot, KY Fort Hood, TX

    Receiving shipments of IPEs from San Joaquin to Blue Grass Army Depot
    tagged with passive RFID technology Pilot: Military Shipping Label
    completed 12/2004

    Air Force Spangdahlem AB, GE	Using passive RFID to replace active RFID
    tags for shipments to Spangdahlem AB, GE

    Pilot project/initial implementation

    Pilot: Seabee RFID Pilotterminateda 11/2004

    Initial implementation: Strategic distribution centersongoing

    Initial Implementation: Norfolk/Lejeune Shipmentsongoing

    Component Location Description

    Navy Fort Hunter-Liggett, CA	The integration of passive RFID into the
    Common Logistics Command and Control System -Joint Expeditionary
    Warfighter Logistics System

              DLA           San Joaquin, CA    Centers capable of reading passive
                                               RFID
                                                       tags attached to shipments
                            Susquehanna, PA           received from suppliers and
                                                    applying passive RFID tags on
                                                shipments to DOD activities and
                                                             units
    Navy/Marine Corps     Norfolk Ocean        Receiving shipments from DLA
                         Terminal/Camp Lejeune (Susquehanna, PA) tagged with
                                               passive
                                                        RFID technology

    Source: GAO analysis of DOD data.

    aThis project was terminated because DLA was dissatisfied with the status
    and direction of the project, and its lack of DLA relevance.

        Existing Passive RFID Infrastructure Is Minimal, and Expenditures Are
        Projected to Increase Sharply as Full Implementation Proceeds

    As of January 2005, the DOD military components owned and operated very
    little passive RFID infrastructure. DOD is just beginning to test and
    implement passive RFID technology for managing its inventory because
    passive RFID implementation did not officially begin until January 1,
    2005. Passive RFID expenditures to date have largely been in connection
    with pilot projects, so DOD military components have spent a minimal
    amount of money on passive RFID technology. The passive RFID
    infrastructure owned by major DOD military components is shown in table 2.
    Future cost projections of implementing passive RFID in DOD's supply chain
    operations are estimated to be significantly higher than current
    expenditures as full passive RFID implementation proceeds. Additionally,
    the projected cost for passive RFID implementation-about $437 million from
    fiscal years 2006 through 2011-includes costs for purchasing passive RFID
    equipment such as tags, readers, and writers, and costs associated with
    installation and maintenance, but does not include the cost of system
    interoperability, which officials estimate to be the most expensive
    element of implementation.

    Table 2: Quantities of Passive RFID Infrastructure Items Reported by Major
    Department of Defense Component as of January 2005

    Writers/ DOD component Tags Readers Handheld readers printers

                                             DLA     5,000            11    0
                     U.S. Transportation Command              0    0        0
                                            Army              0    0        0
                                            Navy     8,867            16    10
                                       Air Force      Yesa            40    2
                                    Marine Corps              0    4        0
                                           Total        Unknown       71    12

    Source: GAO analysis of data from the DLA, U.S. Transportation Command,
    Army, Navy, Air Force, and Marine Corps.

    aThe Air Force did not provide the quantity of passive tags owned.

    DOD military components have spent a minimal amount of money on passive
    RFID technology because passive RFID technology is new and DOD is just
    beginning to implement this technology in its supply chain processes.
    Current expenditures have largely been in connection with pilot projects.
    As of January 2005, DOD and its military components had spent about $7.4
    million on passive RFID technology. As shown in table 3, the Army and the
    Marine Corps had not spent any money on pilot testing passive RFID as of
    January 2005. The Marine Corps does possess some passive RFID
    infrastructure; however, according to Marine Corps officials, that
    infrastructure was acquired and paid for by the Office of the Secretary of
    Defense (OSD). As of January 2005, DLA had spent the most on passive RFID
    infrastructure in its pilot testing and initial implementation at two of
    its distribution depots, in San Joaquin, California, and Susquehanna,
    Pennsylvania.

    Table 3: Reported Passive RFID Expenditures by Major DOD Component as of
    January 2005

                               DOD component Expenditures

                                    OSD $1,650,000a

                                    DLA $3,545,000b

                         U.S. Transportation Command $503,000c

                                        Army $0d

                                    Navy $1,458,523e

                                  Air Force $276,761f

                               DOD component Expenditures

                                    Marine Corps $0g

                                    Total $7,433,284

    Source: GAO analysis of reported expenditure data from OSD, DLA, U.S.
    Transportation Command, Army, Navy, Air Force, and Marine Corps.

    a

    OSD estimate consists of funding for consulting services, tags, readers,
    software, etc. to support initial implementations.

    b The DLA estimate consists of funding for six passive RFID pilot projects
    and initial implementation at two distribution depots-Susquehanna, PA, and
    San Joaquin, CA.

      The U.S. Transportation Command estimate consists of funding for one passive
                                  RFID pilot project.

    d The Army has not spent any money on passive RFID.

    e

    The Navy estimate consists of funding for five passive RFID pilot
    projects.

    f The Air Force estimate consists of funding for one passive RFID pilot
    project.

    g The Marine Corps does possess some passive RFID infrastructure; however,
    it was purchased by OSD.

    Future cost projections of implementing passive RFID in DOD's supply chain
    operations are estimated to be significantly higher than current
    expenditures. In response to OSD's final RFID implementation policy, major
    DOD military components have projected significant increases in passive
    RFID funding for fiscal years 2006 through 2011. Although passive RFID
    testing and implementation in the DOD supply chain had cost $7.4 million
    as of January 2005, from fiscal years 2006 through 2011 the DOD military
    components project costs of about $437 million on passive RFID
    implementation, as shown in table 4. The figures provided by DLA represent
    actual budgeted amounts, while other component officials emphasized that
    the projections they provided were estimates and did not represent actual
    figures in the budget. The Marine Corps and Air Force did not provide any
    cost projections for passive RFID.

    Table 4: Passive RFID Projected Costs by Major DOD Component and Year for Fiscal
                                Years 2006 through 2011

    Dollars in thousands

        DOD component      2006    2007    2008    2009    2010     2011    Total
             DLAa       $25,706 $23,191 $20,747 $18,516 $18,553 $18,098  $124,811
             U.S.
        Transportation     $580 $1,047     $743    $780    $495     $535   $4,180
           Commandb
            bArmy        $5,600 $8,030  $12,040 $17,713 $26,110 $39,660  $109,153
            bNavy        $3,000 $16,400 $38,700 $43,000 $48,300 $49,900  $199,300
        cMarine Corps         0       0       0       0       0        0
          cAir Force          0       0       0       0       0        0
            Total       $34,886 $48,668 $72,230 $80,009 $93,458 $108,193 $437,444

    Source: GAO analysis of data from DLA, U.S. Transportation Command, Army,
    Navy, Air Force, and Marine Corps.

    a

    The DLA figures are actual budgeted amounts.

    b The U.S. Transportation Command, Army, and Navy figures are based on
    overall maintenance and procurement projections.

    c

    The Marine Corps and Air Force did not provide us with any passive RFID
    cost projections.

    Although the total projected cost for passive RFID implementation is
    estimated at about $437 million over fiscal years 2006 through 2011, this
    total does not include the cost of system interoperability. Officials
    estimate system interoperability to be the most expensive element of
    implementation because of the various systems that will need to be
    integrated to exchange automated shipping and receiving data from the use
    of passive RFID technology. According to DOD, system interoperability
    entails the ability of systems, units, or forces to provide data,
    information, materiel, and services and to accept the same from other
    systems, units, or forces and to use the data, information, materiel, and
    services so exchanged to enable them to operate effectively together.
    Interoperability includes both the technical exchange of information and
    the end-to-end operational effectiveness of that exchange of information
    as required for mission accomplishment. DOD envisions a seamless
    integration between passive and active RFID technology; however, such a
    seamless integration cannot take place unless the information captured by
    the RFID technology can flow though interoperable logistics information
    systems. According to Navy and Army projections, it will be fiscal year
    2016-and beyond for the Army-before passive RFID will be fully implemented
    into supply chain operations. The Marine Corps and Air Force did not know
    their funding needs for implementing passive RFID. As of January 2005,
    there was no estimate as to how much full interoperability will cost.
    System interoperability is just one of many

    challenges DOD must overcome before full implementation can occur
    throughout DOD's supply chain process.

      DOD's Implementation of Passive RFID Technology Lacks a Comprehensive
      Strategic Management Approach

    While DOD has taken a number of actions to guide and direct the
    implementation of passive RFID into the supply chain process, passive RFID
    could be more efficiently and effectively implemented if DOD developed a
    comprehensive strategic management approach to ensure that implementation
    efforts are guided by sound management principles. Sound management
    principles, such as those used by leading organizations and embodied in
    GPRA, include identification of general and long-term goals and
    objectives, a description of specific actions, performance measures to
    evaluate actions, recognition of key external factors, comprehensive
    schedules and milestones, identification of resources and annual cost
    estimates, accountability for implementation, and evaluation of the
    overall program with specific processes to allow for adjustments and
    changes. Combined with effective leadership, these principles provide
    decision makers with a framework to guide program efforts and the means to
    determine if these efforts are achieving the desired results. We compared
    the contents of DOD's and available military components' implementation
    plans with these key management principles. Table 5 shows the results of
    the analysis for passive RFID.

    Table 5: Comparison of Key Management Principles to DOD's and Its Military
    Components' Passive RFID Policies and Implementation Plans

                               Key management principles

                                                         Resources
                 General and                         Schedules and
                 long-            Description Key    annual
                 term goals and of specific            and cost
                                Performance external
    Component                  actions measures    milestones   Accountability
                   objectives         factors          estimates       Evaluation

            OSD Partially Partially No No Partially Partially Yes Partially

    DLA Partially Partially No Yes Partially Partially Yes No

    U.S. No Partially No No No Partially Partially No
    Transportation
    Command

    a

    Army Partially Partially Partially Yes Partially No Yes No

              Navy Partially Partially Partially Yes Yes Yes Yes Partially

    b

    Air Force No No No No No No No No

    c

    Marine Corps Partially Partially No Yes No Partially Yes No

    Source: GAO analysis of DOD data.

    a

    The Army's RFID plan was a draft document at the time of this analysis. b
    The Air Force had not developed a plan at the time of this analysis.

    c

    The Marine Corps' plan for automatic identification technologies
    (including RFID) was a draft document at the time of this analysis.

    As table 5 shows, many of these key management principles are missing or
    are only partially incorporated into existing passive RFID implementation
    policy and operational guidance for both DOD and its military components.
    While DOD has incorporated some of these key management principles-for
    example, by establishing business rules for passive RFID to explain how
    RFID will affect supply chain operations and processes- DOD has not fully
    incorporated all of these principles into a comprehensive strategic
    management approach to manage the implementation of passive RFID into the
    DOD logistics supply chain. In turn, the DOD military components are also
    unable to develop comprehensive plans to support DOD-wide passive RFID
    implementation due to the lack of an overarching DOD comprehensive
    strategic management plan. Among the key management elements that are
    missing or only partially present are (1) general and long-term goals and
    objectives, (2) a description of specific actions to support goals and
    objectives, (3) performance measures to evaluate specific actions, (4)
    schedules and milestones for meeting deadlines, (5) identification of
    total resources needed and annual cost estimates for passive RFID
    implementation into the supply chain, and (6) evaluation of the overall
    program with specific processes to allow for adjustments and changes.

    The following discussion focuses on the key principles that are missing or
    only partially present in DOD's and its military components' planning and
    operational guidance for passive RFID.4

    o  	General and long-term goals and objectives. Key management principles
    include having clearly defined general and long-term program goals and
    objectives with specific expected results and annual goals that relate
    back to the overall goals and objectives to guide implementation. OSD has
    identified general passive RFID broad and descriptive goals and
    objectives, such as to (1) implement knowledge-enabled logistics through
    fully automated visibility and management of assets in support of the
    warfighter; (2) ensure readiness for the forces and sustainability of the
    operations; (3) increase warfighter/customer confidence in the reliability
    of the DOD supply chain; (4) improve process efficiency of sourcing and
    delivery by improving shipping and receiving subprocesses; (5) improve

    4 We did not perform a GPRA comparison for the Air Force because the Air
    Force had not developed its RFID implementation plan at the time of this
    analysis.

    product lifecycle management (i.e., warranties/configuration management);
    (6) employ mature and emerging supply chain technologies to optimize
    effective in-transit and asset visibility within the DOD supply chain; (7)
    enable an adaptive supply chain with sense and respond capabilities; and
    (8) use RFID to facilitate accurate, hands-off data capture in support of
    business processes in an integrated DOD supply chain enterprise as an
    integral part of a comprehensive suite of automatic identification
    technology. The Army, Marine Corps, Navy, and DLA goals and objectives,
    included in their respective RFID implementation plans, are also general
    and descriptive in nature. The OSD and component general and descriptive
    goals and objectives do not define specific expected results, such as
    integration of automatic information systems, and no annual goals are
    identified, as suggested by the principle. A hierarchical relationship
    among and between OSD's and the military components' goals and objectives
    is also lacking. The U.S. Transportation Command's implementation plan for
    passive RFID did not contain any goals or objectives.

    o  	Description of specific actions to support goals and objectives. Good
    management practices call for a description of specific actions to support
    goals and objectives. OSD has described, in some detail, specific actions
    related to operational processes where passive RFID technology is expected
    or mandated to be used. OSD's planning also includes an expectation for
    the automated information systems that support logistics activities to be
    RFID compatible. However, the following specific actions are not
    consistently present throughout OSD's policy or the military components'
    implementation plans: obtaining necessary workforce skills, considering
    human resource issues, identifying major capital resources (for example,
    RFID-specific equipment such as read stations and write stations),
    identifying major technological resources, and obtaining needed
    information resources. The presence of such specific actions is important
    for evaluating the achievement of organizational visions, missions, goals,
    and objectives, and could provide the basis for monitoring corrective
    actions that may be needed. Inclusion of such actions could assist DOD and
    the military components to better develop a strategic focus for passive
    RFID implementation and to ensure goals and objectives are achieved.

    o  	Performance measures to evaluate specific actions. Successful
    organizations develop performance measures to evaluate specific actions
    for programs. OSD policy does not include performance measures to assess
    specific actions developed for passive RFID implementation. The Army and
    Navy implementation plans contain a basic set of measures designed to
    determine what progress the Army and Navy are making in achieving OSD's
    and their overall goal of improved logistics. For example, measures the
    Army identified include quantitative improvement for intransit visibility,
    the read rate (accuracy) of tags, and the amount of

    inventory reduced by the RFID technology. While these performance measures
    evaluate specific actions and support OSD goals and objectives, the
    planning does not include interim steps or specific details of how the
    measures will be taken or further identification of what targets the Army
    and Navy must achieve in order to be successful. Neither DLA, the U.S.
    Transportation Command, nor the Marine Corps included any performance
    measures in their respective passive RFID implementation plans.

    o  	Comprehensive schedules and milestones for meeting deadlines. Leading
    organizations incorporate comprehensive schedules and milestones for
    meeting deadlines to monitor the progress of a program. For passive RFID,
    the Army, Navy, OSD, and DLA had short-term schedules, but these plans
    were only 2-year schedules based on supporting OSD guidance. Key
    management principles recommend that these schedules and milestones span a
    5-year period. The Marine Corps and U.S. Transportation Command had no
    schedules and milestones listed for passive RFID in their implementation
    plans.

    o  	Identification of total resources needed and annual cost estimates.
    Good management practices call for the identification of total resources
    needed and annual cost estimates. For passive RFID, OSD and its military
    components have established a framework for resource and annual cost
    estimation. For example, OSD states that the cost of implementing RFID
    into the DOD supply chain would be funded with Operations and Maintenance
    Fund or Working Capital Fund processes. The Navy's plan identifies annual
    and total resources needed; however, total resources needed-including
    annual cost estimates-are not present in OSD's plan or in the plans of the
    other military components. Without detailed resource planning, DOD and its
    military components cannot be certain that the passive RFID investments
    they are making are the right investments to meet their needs, and that
    implementing passive RFID would result in a sound return on their
    investments.

    o  	Evaluation of an overall program with specific processes to allow for
    adjustments and changes. Successful organizations implement the evaluation
    of an overall program with specific processes to allow for adjustments and
    changes. For passive RFID, OSD identified evaluation methods to monitor
    progress toward achieving the general goals and objectives of DOD-wide
    RFID implementation. For example, OSD's final RFID policy states that the
    Defense Logistics Board is to review internal implementation plans,
    benefits, compliance requirements, and requisite budget requirements
    annually based on an assessment of the implementation to date. This review
    is to include an updated analysis of implementation success as well as to
    provide guidance for the expansion of RFID capabilities into additional
    applications and supply chain functional processes. Although OSD
    identified evaluation methods to

      DOD Has Identified Several Challenges for Passive RFID

    monitor progress towards achieving general goals and objectives, no
    specific process is in place to reexamine and revise the general goals and
    objectives themselves. The Navy also acknowledged the need for evaluation,
    but it did not explain how this evaluation would occur. DLA, the U.S.
    Transportation Command, the Army, and the Marine Corps did not include any
    evaluation methods in their passive RFID implementation plans. The U.S.
    Transportation Command's participation in passive RFID pilot programs is
    mentioned, but no process for evaluating RFID implementation is stated.

    While DOD and its military components have made strides in developing
    policy and guidance to implement passive RFID, their early planning does
    not go far enough to protect the government's interest as investment in
    the technology continues. Because the military components are developing
    implementation plans to support DOD's RFID policy, the development of a
    comprehensive strategic management approach that fully incorporates these
    key management principles could provide decision makers in both DOD and
    the military components with a framework to guide RFID implementation
    efforts and the means to determine whether these efforts are achieving the
    desired results.

    DOD officials have identified a broad spectrum of challenges concerning
    passive RFID that remain to be resolved before passive RFID technology can
    be fully implemented into DOD operations, but their RFID implementation
    planning does not include any actions to mitigate these challenges. Among
    the challenges facing DOD as it implements passive RFID are those in four
    distinct categories. First, passive RFID technology is a new technology
    that is evolving. Consequently, electronic product code (EPC)
    standards-which identify specific information about items- are being
    revised, development of newer generation tags is creating uncertainty
    about upgrades and replacement of equipment, concerns have been raised
    about the industrial base's ability to meet the demand for tags and
    equipment, and training must be provided. Second, the performance
    capabilities of the technology are still being determined, creating
    operational issues concerning systems integration, the fragility of tags,
    the percentage of accurate read rates, and spectrum frequency. Third, the
    return on investment from passive RFID has been difficult to determine and
    without the data needed to create a business case analysis, the military
    services have been reluctant to provide funding for implementation.
    Fourth, certain regulatory and administrative requirements remain,
    including the implementation of a Defense Federal Acquisition Regulation
    Supplement rule (acquisition rule) and the

    approval of a multivendor contract for passive RFID purchases. In
    addition, although DOD and its military components have identified these
    passive RFID implementation challenges, they have not yet identified
    actions to mitigate these challenges.

                                 Technology Is Evolving

    The EPC standards for passive RFID tags were being revised at the time of
    our review to provide increased capabilities,5 and as of August 2005 these
    revised standards had been published and were awaiting approval from the
    International Standards Organization.6 These new standards, designated EPC
    UHF GEN 2 (Generation 2), call for a radio frequency range of Ultra-High
    Frequency (UHF) 860-960 MHz, with a minimum read range of 3 meters-about
    10 feet. The Generation 2 specifications were published in December 2004,
    but equipment and tags using these specifications were not available as of
    May 2005. DOD's RFID policy for placing tags on cases, pallets, and item
    packaging of shipped goods calls for the phasing out, over an anticipated
    2-year period, of the tags currently in use once equipment operating under
    the new tag specifications is available. The current policy requiring the
    use of existing passive tags on items shipped after January 2005 has
    caused component officials to question the rationale for making an
    investment in tags and equipment, such as readers and printers, that will
    have to be replaced or upgraded in a short period of time to comply with
    the Generation 2 standards and tag format.

    In our May 2005 report concerning governmentwide use of RFID technology,
    we identified a potential concern about whether the demand for passive
    RFID tags and equipment may eventually exceed the industrial base's
    ability to supply them.7 Specifically, we stated that the increasing
    demand for passive RFID tags may eventually outstrip the supply and that
    the 30 percent damage rate during production will likely contribute to

    5 The EPC standards provide a uniform format for encoding passive RFID
    tags to carry a sequence of digits that identifies the manufacturer,
    product, and version, followed by another sequence that is a serial
    number, which identifies each item uniquely.

    6 EPCglobal, Inc., is working with DOD to administer and develop the EPC
    standards. EPCglobal was formed in November 2003 as a joint venture
    between EAN Inc. and the Uniform Code Council. It is "a not-for-profit
    organization ... to establish and support the Electronic Product Code
    (EPC) Network as the global standard for immediate, automatic, and
    accurate identification of any item in the supply chain of any company, in
    any industry, anywhere in the world."

    7 GAO-05-551.

    future shortages. Army representatives expressed similar concerns about
    the industrial base's ability to supply passive tags and equipment in
    sufficient quantities to meet the implementation demand anticipated by
    both the military and commercial sectors. Thus, the infrastructure, such
    as RFID readers and write-stations, which are needed to support passive
    RFID technology, could be unavailable as implementation progresses. For
    example, DOD's and Wal-Mart's schedules for implementing passive RFID
    technology are similar, which could drive the near-term demand for tags
    and other equipment to exceed supply levels. Wal-Mart, the largest U.S.
    retailer, is requiring all of its suppliers to adopt RFID technology
    standards as of January 2006. As of January 18, 2005, according to
    Wal-Mart officials, 57 of the 100 suppliers scheduled to implement RFID in
    January 2005 were shipping tagged cases and pallets and that some of the
    200 suppliers scheduled to begin shipping tagged cases and pallets in 2006
    were already doing so. Army representatives also pointed out, however,
    that once Generation 2 standards are finalized, additional industrial base
    sources are expected to emerge to meet and surpass the public- and
    private-sector market demand.

    Additionally, training is an ongoing challenge to passive RFID
    implementation. As in any new technology or operating system, the end
    users must be trained both to recognize RFID and to use it. Such training
    is especially important when dealing with inventory assets for DOD
    personnel operating in a combat setting. While the services have
    acknowledged this lack of training and are working to correct it, concerns
    remain about passive RFID training, as the following examples illustrate.

    o  	The Air Force has provided passive RFID training to personnel in
    selected areas, associated with their pilot projects, but it has not
    institutionalized this training in its training curriculum.

    o  	The Army has updated its training curriculum to include active RFID
    training into its business processes. In addition, its reserve forces get
    the same training as the active forces, and several reserve classes have
    already received training in active RFID technology. However, the Army is
    presently considering how to incorporate passive RFID training into its
    curriculum. At the time of our review, no official passive RFID training
    was in place.

    o  	The Navy provides passive RFID technology training through contractor
    support in conjunction with its active RFID training on Early Entry
    Deployment System Kits; these kits provide the capabilities of
    writing/reading/uploading tags, access to regional servers, and printing
    labels.

    o  	The Marine Corps anticipates using contractor support for passive RFID
    training in conjunction with its active RFID training on Early Entry
    Deployment System Kits, as well as including this training into its
    training center curriculum.

    o  	U.S. Transportation Command officials pointed out that they are
    attempting to train all shippers, transportation consignees, and supply
    receivers to correctly use the single RFID format and data standard that
    DOD adopts. The requirements and standards for this are being developed
    and mandated by OSD/Joint Chiefs of Staff offices. As the distribution
    process owner, the U.S. Transportation Command is responsible for
    improving the overall efficiency and interoperability of
    distribution-related activities.

    Overall, DOD and its military components acknowledged that passive RFID
    implementation will require significant training to ensure proper use
    throughout the military supply chain.

        Performance Capabilities of Passive RFID Technology Are Still Being
        Determined

    Three performance capability issues also lead to challenges for DOD in
    implementing passive RFID technology. The first is that of systems
    integration, which enables interoperability of automatic information
    systems among the military components so these systems can work together
    and facilitate active and passive system interaction. Furthermore, common
    systems and standards for interoperability need to be established. For
    example, an Air Force official explained that because DLA and each of the
    services are developing their own plans to incorporate passive RFID into
    existing business processes, there is a possibility that implementation in
    each service could be different, leading to limited interoperability among
    the services. If passive RFID implementation is not interoperable among
    the services, this could lead to inefficiencies that could be avoided if
    interoperability had been built into the services' passive RFID
    implementation plans as these plans developed.

    A second performance capability issue concerns the accuracy of passive
    RFID tag read rates. Army officials told us that within DOD and private
    industry there is a concern about the level of accuracy for reading tags.
    For example, results of some read-rate experiences within DOD and
    commercial industry have been reported at approximately 90 percent
    accuracy for passive RFID tags placed on individual cases and pallets.
    This is "not yet good enough" for Army-wide implementation, according to
    officials in the Army Program Executive Office, Enterprise Information
    Systems, Product Manager Joint-Automatic Identification Technology Office.
    The 10 percent tag misread rate could be attributed to the

    placement of the tags on an item or to the quality of the tags. For
    instance, Navy tests have shown that inaccurate tag readings can occur
    when metals, packages containing liquids, or extremely dense material are
    tagged. In addition to the problems in reading individual tags, the
    technology is not yet sufficiently sophisticated to read all tagged items
    on fully loaded pallets within acceptable accuracy rates. For example,
    Navy officials found problems reading tags on items in the middle of a
    pallet versus those on the periphery. According to a Navy official,
    testing in October 2004 regarding the Navy ocean terminal pilot project
    identified an 85 percent accuracy read rate for tagged items on fully
    loaded pallets. The Air Force has experienced considerably lower accuracy
    read rates, ranging from 32 to 65 percent, according to a briefing
    presented by an Air Force official on February 10, 2005. Private industry
    has experienced this problem as well. According to Wal-Mart officials, as
    of January 18, 2005, the accuracy of its read rate for tagged items on
    fully loaded pallets was 66 percent and stated that reading all cases on a
    fully loaded pallet remains the biggest challenge. Our May 2005 report
    corroborates reliability problems with reading tags-and an inability to
    read tags in some instances-associated with conditions such as close
    proximity of multiple tagged items, environmental conditions, and reading
    tags at high speeds.8 Furthermore, some tags have been found to be
    fragile, which could be a result of manufacturing and production
    techniques, according to an Army official. The fragility of passive RFID
    tags is further corroborated by a research group's survey of RFID tag
    vendors. We reported in May 2005 that this survey found that up to 30
    percent of chips for passive RFID tags are damaged during production when
    they are attached to their antenna, and an additional 10 to 15 percent are
    damaged during the printing process.

    A third area of performance capability involves spectrum frequency.
    Obtaining radio frequency spectrum permissions outside the continental
    United States is an implementation issue. Foreign governments can impose
    requirements on the type of RFID reader technology to be used, and must
    grant permission for use of spectrum frequencies in their countries. Army
    officials told us that the military does not use RFID technology in
    countries that do not grant frequency permission. Currently there is no
    worldwide frequency standard for passive RFID tags. For example, the
    allowed UHF frequency spectrum in the United States, Europe, and Japan
    ranges from 860 to 960. However, the International

    8 GAO-05-551.

    Organization for Standardization is considering possible worldwide
    frequency standards for passive RFID tags because of the impact an absence
    of standards could have on the commercial application of RFID tags.
    Furthermore, an Army official told us that Germany's frequency spectrum
    for active RFID will change in 2006. Consequently,
    radiofrequency-dependent equipment may have to be upgraded or replaced.
    Army officials are considering the use of region-or country-specific RFID
    readers operating with locally approved frequencies to address this issue.

        Concerns Exist about the Unknown Return on Investment for Passive RFID

    The military services have expressed concern about the unknown return on
    investment for passive RFID, which has led to reluctance to provide
    funding for passive RFID. Studies have been conducted to determine a
    return on investment, although these studies have had mixed results.
    Without data to determine a business case analysis that would demonstrate
    a return on investment from using passive RFID technology, the military
    services have been reluctant to provide funding to support it. For
    example, in commenting on DOD's draft RFID policy, Air Force officials
    stated that DOD directed investment in passive RFID infrastructure without
    first building a business case to document the savings. Without seeing
    documented savings, the Air Force considered that it would face tremendous
    challenges in supporting the initial investment.

    Navy officials commented similarly that without a compelling business case
    it is unable to proceed with investments and implementation as it needs to
    do. DOD's operational guidance states that the military components will
    plan for a January 1, 2005, implementation of passive RFID, although DOD's
    RFID policy does not require implementation by the military components to
    begin until January 1, 2006. Navy officials expressed their concern that
    this 2005 goal was not supportable because the Navy had not planned or
    budgeted for enabling passive RFID at its key supply system locations.
    Navy officials stated that a compelling business case was needed to help
    balance their total resource requirements against passive RFID's projected
    benefits. They also explained that ultimately they need a better
    understanding of the savings that investment in passive RFID can provide.

    Furthermore, in commenting on DOD's draft RFID policy, the Office of the
    Army's Deputy Chief of Staff for Logistics pointed out several concerns
    impacting the Army's implementation of passive RFID technology. First,
    funding for passive RFID technology would be challenging because DOD's
    RFID policy was issued in the middle of a budget cycle and the schedule

    for implementing RFID was not synchronized with the budget cycle process.
    Second, in order to justify funding necessary to implement passive RFID,
    the Army needed to conduct business process analyses, pilot projects, and
    site surveys, as well as to procure equipment and develop and conduct
    training to support RFID. Third, while DOD's RFID policy states that the
    cost of implementing and operating RFID technology is to be considered a
    normal cost of transportation and logistics, and it should be funded
    through routine operation and maintenance, working capital funds, or
    capital investment processes, such use of working capital funds would
    increase operating costs and surcharges until the potential RFID benefits
    offset them. Those costs would, in turn, be passed on to customers through
    higher prices that would have to be paid from appropriated funds. Finally,
    the Army is transitioning from its legacy Standard Automated Management
    Information System to a replacement system, the Single Army Logistics
    Enterprises System. Army officials have not determined if adopting passive
    RFID in its legacy systems is a sound investment strategy. They elaborated
    that because the Army is fielding its new Single Army Logistics
    Enterprises System, expensive and timeconsuming changes to its legacy
    system may not be cost effective.

    Regarding costs and benefits of implementing passive RFID, we reported in
    May 2005 that organizations need to determine whether the increased
    visibility provided by RFID technology will outweigh the costs associated
    with its implementation.9 The military components and OSD have conducted
    some studies to develop a business case for use of RFID, although these
    studies have had mixed results. For example, the Center of Naval Analysis
    published a cost and benefits study in June 2004, but concluded that the
    option preferable to current full investment would be to wait until
    passive RFID technology is more mature because they had no hard data to
    use to estimate benefits.10 However, according to a January 25, 2005, DLA
    briefing, the bottom-line results of a DOD business case analysis found
    that "there is a reasonable to good expectation that implementation of
    Passive RFID across DOD will provide an economic return on investment in
    the near term and an excellent expectation of economic returns in the long
    term." This DOD business case analysis was issued in April 2005 and was
    conducted pursuant to an August 30, 2004, logistics decision memorandum
    directing DLA to work with the Deputy

    9 GAO-05-551.

    10 Center of Naval Analysis, An Examination of Costs and Benefits of Navy
    RFID Adoption, CRM D0010265.A2/Final (June 2004).

    Under Secretary of Defense (Logistics and Materiel Readiness) to document
    the investment and cost benefits of implementing passive RFID. DOD
    recognized that this business case analysis is an initial and abbreviated
    analysis due to time constraints. The DOD business case analysis presented
    two results, which it characterized as optimistic and pessimistic. The
    optimistic result estimated savings of $1.781 billion, while the
    pessimistic result estimated savings of $70 million. In a March 10, 2005,
    Logistics Decision Memorandum, the Under Secretary of Defense
    (Acquisition, Technology, and Logistics) stated that this business case
    was compelling and directed the Secretaries of the military departments to
    move forward with passive and active RFID implementation as justified by
    the DOD business case. While we did not assess DOD's business case for
    implementing passive RFID because it was released after we completed our
    field work, we believe that it represents a step in the right direction.
    Lastly, Army officials informed us that the Army's Logistics
    Transformation Agency is conducting a business case analysis involving
    passive RFID, but this analysis was still being conducted as of May 2005.

        Regulatory and Administrative Requirements Need to Be Approved

    DOD faces two additional challenges in implementing passive RFID as a
    result of regulatory and administrative processes. The regulatory
    challenge faced by DOD is one of ensuring consistency in the contractual
    requirements its vendors must follow in affixing or applying passive RFID
    tags on the products DOD purchases. DOD's July 30, 2004, RFID policy
    includes a requirement that passive RFID will be mandatory in
    solicitations issued on or after October 1, 2004, for delivery of materiel
    on or after January 1, 2005. To implement this action, DOD has proposed a
    rule to amend the Defense Federal Acquisition Regulation Supplement
    (DFARS)11 for passive RFID. This proposed rule was published in the
    Federal Register on April 21, 2005, for a 60-day comment period.12 The
    proposed rule is limited in scope, specifying that passive RFID tagging
    will be required on only four supply classes,13 excluding bulk
    commodities, and

    11 DFARS are published regulations DOD uses to establish and manage
    procurement business rules, policy, and guidance. The Director of Defense
    Procurement and Acquisition Policy is responsible for these regulations.

    12 70 Fed. Reg. 20726 (Apr. 21, 2005). After further consideration
    following the 60-day comment period, DOD will determine if and when to
    finalize a proposed rule.

    13 These four classes are Subclass of Class I, packaged operational
    rations; Class II, clothing, individual equipment, tentage, organizational
    tool kits, hand tools, and administrative and housekeeping supplies and
    equipment; Class VI, personal demand items; and Class IX, repair parts and
    military components.

    only applies to shipments of those classes of items that are delivered to
    two specific defense distribution depots-Susquehanna, Pennsylvania, and
    San Joaquin, California. As DOD continues implementation, it will need
    similar DFARS amendments that apply to its remaining supply classes and
    shipping locations. For example, DOD's RFID policy expands the requirement
    for passive RFID tagging as of January 1, 2006, to six additional supply
    classes and 32 additional shipping locations, and as of January 1, 2007,
    to all supply classes (except bulk commodities) shipped to all locations.
    Consequently, DFARS may need to be further amended to accommodate
    implementation of DOD's expanded policy requirements. Until additional
    DFARS amendments are in place, the contract language regarding vendors'
    placement of passive RFID tags on all products purchased by and shipped to
    DOD may not be standardized. Without additional DFARS rules, supply
    contracts could be subjected to individual contract clauses regarding
    passive RFID, which could result in inconsistencies among contracts across
    DOD and its military components.

    The administrative challenge concerns establishing agreements with vendors
    to provide EPC-compliant technology through multivendor contract
    mechanisms, which can include the use of blanket purchase agreements, to
    leverage the purchasing power of the department for passive RFID
    infrastructure purchases. DOD designated the Army Program Executive
    Office, Enterprise Information Systems, Product Manager-Automatic
    Identification Technology Office as the DOD procurement agent for
    automatic identification technology equipment, including RFID equipment
    and infrastructure. As such, the office is to establish and maintain a
    multivendor contract for equipment, equipment integration, installation,
    and maintenance. While DOD policy requires that passive RFID
    implementation begin on January 1, 2005, the absence of a multivendor
    contract obligated the services and DLA to individually purchase passive
    RFID equipment in order to conduct the services' pilot projects and meet
    DLA's commitment to enable two of its depots- Susquehanna, Pennsylvania,
    and San Joaquin, California-to receive and process passive RFID-tagged
    shipments from vendors. In addition, according to an official in the Army
    Program Executive Office, a total of five blanket purchase agreements are
    to be established for passive RFID. As of April 12, 2005, the Automatic
    Identification Technology Office had established one blanket purchase
    agreement for passive RFID tags. It is still in the process of
    establishing the remaining four blanket purchase agreements for acquiring
    passive RFID equipment. According to Army officials, the delay in
    establishing the multivendor contract can be attributed to the fact that
    Army and DOD officials were working to define requirements and develop an
    Independent Government Cost Estimate, a

    process that they consider to be part of the normal contracting process.
    Until other multivendor contracts are established, the DOD military
    components may be unable to leverage the purchasing power of the
    department to realize economy and efficiency benefits. In response to
    DOD's comments on a draft of this report, we were informed that as of
    August 11, 2005, three blanket purchase agreements have now been awarded,
    and only two agreements remain to be established and are expected to be
    established in the near future.

        DOD and Its Military Components Have Not Yet Identified Actions to Mitigate
        Passive RFID Implementation Challenges

      Conclusions

    Although the Marine Corps and Army draft passive RFID plans and the Navy
    and DLA passive RFID plans identify challenges and external factors
    affecting implementation, which is a key element of GPRA, most of these
    plans do not identify any actions for mitigating passive RFID
    implementation challenges. The OSD and U.S. Transportation Command plans
    do not identify passive RFID implementation challenges. Based on our
    discussions with DOD officials, the underlying cause of these various
    challenges is the newness and evolving nature of the technology. However,
    officials noted that the current challenges they face will be resolved in
    time and are to be expected with the integration of any new technology. We
    recognize that the identification of such challenges is a positive and
    essential step, but identification does not go far enough to ensure their
    resolution in an efficient and effective manner. Until DOD and the
    military components identify actions to mitigate these implementation
    challenges, their progress in resolving these challenges will be impeded.

    Although much more needs to be done, incorporating passive RFID technology
    into the DOD supply chain offers the promise of a technology that may
    begin to help address the long-standing problems of inadequate asset
    visibility throughout DOD and the military services. While DOD and its
    military components have made strides in developing policy and guidance to
    implement passive RFID, their early planning does not go far enough to
    ensure that Congress is sufficiently informed of the investments that will
    be required and that the department can achieve its goals with this
    technology. In particular, neither the department nor its military
    components have developed comprehensive strategic management approaches to
    ensure that implementation efforts fully incorporate key management
    principles, such as those used by leading organizations and contained in
    the Government Performance and Results Act. These principles can provide
    decision makers with a framework to guide program efforts and the means to
    determine if these efforts are achieving the desired results. Although DOD
    and its military components have

    incorporated some of these key management principles in their RFID policy
    and guidance, many of these principles are missing or are only partially
    present. Without an improved management approach, DOD and its military
    components may, in the long term, continue to invest heavily in passive
    RFID without knowledge of which and how much infrastructure, and at what
    cost, will be needed to meet overall goals, objectives, and strategies. In
    addition, some key challenges slowing progress toward full implementation
    of RFID include (1) the newness and unproven state of passive RFID
    technology, (2) difficulty with demonstrating a sound business case and
    return on investment for passive RFID technology, and (3) lack of a
    DOD-wide needs assessment that identifies, by location, the
    infrastructure, maintenance support, and funding resources needed to fully
    implement passive RFID technology in the DOD supply chain processes. As
    the department and the military components continue to implement passive
    RFID without a comprehensive strategic management approach that identifies
    the challenges impeding implementation and ways to overcome those
    challenges, DOD and its military components will not have a means of
    measuring the progress of implementation and developing defensible budget
    requests, or of taking corrective actions as necessary in competitive
    budget environments.

    Recommendations for 	We recommend that the Secretary of Defense take the
    following three actions:

      Executive Action

    o  	Direct the Under Secretary of Defense (Acquisition, Technology, and
    Logistics) to expand its current RFID planning efforts to include a
    DODwide comprehensive strategic management approach that will ensure that
    RFID technology is efficiently and effectively implemented throughout the
    department. This strategic management approach should incorporate the
    following key management principles:

    o  	an integrated strategy with goals, objectives, and results for fully
    implementing RFID in the DOD supply chain process, to include the
    interoperability of automatic information systems;

    o  a description of specific actions needed to meet goals and objectives;

    o  	performance measures or metrics to evaluate progress toward achieving
    the goals;

    o  schedules and milestones for meeting deadlines;

    o  	identification of total RFID resources needed to achieve full
    implementation; and

    o  an evaluation and corrective action plan.

    o  	Direct the secretaries of each military service and administrators of
    other DOD military components to develop individual comprehensive
    strategic

    management approaches that support the DOD-wide approach for fully

    implementing RFID into the supply chain processes.  o  Direct the Under
    Secretary of Defense (Acquisition, Technology, and

      Agency Comments
      and Our Evaluation

    Logistics), the secretaries of each military service, and administrators
    of other military components to develop a plan that identifies the
    specific challenges impeding passive RFID implementation and the actions
    needed to mitigate these challenges. Such a plan could be included in the
    strategic management approach that we recommend they develop.

    DOD provided written comments on a draft of this report. The department
    concurred with our recommendation for each of the military services and
    administrators of other DOD military components to develop individual
    comprehensive management approaches for implementing RFID, but did not
    concur with our other two recommendations.

    DOD did not concur with our recommendation to expand its RFID planning
    efforts to include a comprehensive management approach to ensure efficient
    and effective implementation. The department commented that RFID is a
    critical transformational technology that will be implemented across the
    department over the next several years. The department stated that its
    approach is to build the rollout for passive RFID from the bottom up. The
    department asserted that it has already set forth the goals, objectives,
    performance measures, and milestones sufficient to guide the planning
    activities of the military services, DLA, and the U.S. Transportation
    Command, and that these activities have plans in development. The
    department stated that it will work with these activities to ensure that
    RFID is efficiently and effectively implemented throughout the department,
    to ensure implementation is funded, and to evaluate the benefits being
    achieved and report progress as part of the department's supply chain
    management improvement plan. We disagree. DOD's July 2004 RFID policy does
    not represent a sound strategic approach because it lacks a number of key
    management principles necessary for good program management. Specifically,
    we found that the policy (1) contains only general and descriptive goals
    and objectives that do not define specific expected results, and no annual
    goals are identified, as suggested by the principle; (2) describes
    specific actions related to operational processes but does not provide
    specific actions related to things such as obtaining necessary workforce
    skills, considering human resource issues, identifying major capital
    resources, identifying major technological resources, and obtaining needed
    information resources, which could provide the basis for monitoring
    corrective actions that may be needed; (3) does not include performance
    measures to assess the progress of implementation actions

    for passive RFID; and (4) contains only short-term schedules rather than
    comprehensive schedules and milestones for meeting deadlines. Despite
    DOD's assertion in its comments that it already has sufficient guidance to
    ensure that RFID is efficiently and effectively implemented throughout the
    department, implementation of the technology is adequately funded,
    benefits are being achieved, and progress is being reported as part of the
    department's supply chain management improvement plan, we continue to
    believe that the incomplete incorporation of these key management
    principles in DOD's RFID policy may impede DOD's ability to achieve these
    things. The lack of clear, comprehensive, and integrated performance goals
    and measures has handicapped DOD efforts for several undertakings,
    including business management transformation,14 critical spare parts
    shortages,15 installation preparedness,16 and depot maintenance.17 We
    continue to believe that DOD needs to develop a more comprehensive
    strategic management approach to guide the implementation of RFID
    technology throughout the department.

    The department concurred with our recommendation for each of the military
    services and other DOD military components to develop individual
    comprehensive management approaches for implementing RFID. In its
    comments, the department said that the services, DLA, and U.S.
    Transportation Command have RFID implementation plans in varying stages of
    development. The department stated that OSD will direct that these plans
    be completed by September 30, 2005, and that these plans will incorporate
    the key management principles cited in our report and will correct
    deficiencies cited in our report. The department noted that it would be
    premature to expect detailed implementation plans until RFID funding is
    solidified. We believe that this approach will satisfy the intent of our
    recommendation if, prior to the military components developing their

    14 GAO, Defense Management: Key Elements Needed to Successfully Transform
    DOD Business Operations, GAO-05-629T (Washington, D.C.: Apr. 28, 2005).

    15 GAO, Defense Inventory: The Department Needs a Focused Effort to
    Overcome Critical Spare Part Shortages, GAO-03-707 (Washington, D.C.: June
    27, 2003).

    16 GAO, Combating Terrorism: DOD Efforts to Improve Installation
    Preparedness Can Be Enhanced with Clarified Responsibilities and
    Comprehensive Planning, GAO-04-855 (Washington, D.C.: Aug. 12, 2004); and
    Combating Terrorism: Actions Needed to Guide Services' Antiterrorism
    Efforts at Installations, GAO-03-14 (Washington, D.C.: Nov. 1, 2002).

    17 GAO, Depot Maintenance: Key Unresolved Issues Affect the Army Depot
    System's Viability, GAO-03-682 (Washington, D.C.: July 7, 2003).

    plans, the Under Secretary of Defense (Acquisition, Technology, and
    Logistics) takes additional actions to develop a DOD-wide comprehensive
    strategic management approach that would then be supported by the plans
    developed by the military components.

    The department did not concur with our recommendation to develop a plan to
    identify challenges impeding passive RFID implementation and actions
    needed to mitigate those challenges. The department stated that the
    challenges outlined in our report have either already been mitigated or
    represented a misunderstanding on our part. In essence, the department's
    comments suggest that the passive RFID challenges identified in our draft
    report have been basically resolved. We do not believe this to be the
    case. We recognize that passive RFID is an evolving technology and that
    the department is continuing to address the challenges associated with
    implementing passive RFID technology. However, we continue to believe that
    the challenges identified in the report remain, and that the department
    needs to develop a mitigation plan to address these challenges.
    Specifically, our responses to DOD's comments about the individual
    challenges identified in the draft report are as follows.

    o  	DOD stated that the audit incorrectly states that new standards are
    currently being developed to "meet DOD's RFID policy requirements." The
    department commented that the specification for the Electronic Product
    Code RFID tags being required by DOD is already published and products
    compliant to this specification are available on the market today. DOD
    also stated that the audit incorrectly states that the new standard will
    "define the DOD approved format for EPCs." The department said that the
    approved format for DOD was published in May 2005 and that the new
    Generation 2 standard, although already developed, is still awaiting
    International Standards Organization (ISO) approval. DOD stated that any
    concerns expressed in the audit to the contrary appear unfounded. We
    disagree with DOD's assertion that the concerns expressed in the report
    are unfounded. Nonetheless, we have clarified the language in the report
    to respond to DOD's technical concerns about our description of the
    development status of the new Generation 2 EPC standard. As discussed in
    the report, we found that the military components are reluctant to
    purchase passive RFID infrastructure knowing that the standard is going to
    change and that they might need to modify existing equipment or purchase
    new equipment to be compliant with the new EPC standard. Because the new
    Generation 2 EPC standard has not yet been approved and equipment and tags
    using the new standard were not available as of May 2005, we continue to
    believe that the military components' concern is valid and that it may not
    be the best use of scarce resources to fund

          purchases of equipment necessary for implementing passive RFID until

    equipment operating under the new tag specifications is available.  o  The
    department stated that the audit conjectures that the industrial base will
    not have the capacity to supply sufficient quantities of tags and
    equipment to meet requirements. The department stated that it had not
    found this to be the case. DOD further stated that the audit appeared to
    base this concern on some anecdotal comments made during some interviews.
    DOD also commented that it recognized that the department needed to
    consider lead times as new products come to the market. We concur that
    lead times are necessary for evolving technologies such as passive RFID,
    and we acknowledge in our report that these challenges will be resolved
    over time and are to be expected with the integration of any new
    technology. Nonetheless, we continue to believe that this is a valid
    concern that is not solely based on anecdotal comments made during some
    interviews. While this concern was expressed during some interviews
    conducted in the course of this audit, it was further corroborated in our
    May 2005 report,18 in which we reported that the increasing demand for
    passive RFID tags may eventually outstrip the supply and that the 30
    percent damage rate during production will likely contribute to future
    shortages.

    o  	The department stated that the report identifies training as a
    challenge, and that DOD already has plans to address that challenge. DOD
    stated that the RFID implementation plans developed by the services, DLA,
    and U.S. Transportation Command will address training; that the Defense
    Acquisition University is developing computer-based training for internal
    stakeholders; and that training is being provided to DOD's Procurement
    Technical Assistance Centers. DOD commented that its training strategy
    will be refined and intensified as implementation continues. In our
    report, we recognize the planned efforts to provide training by the
    military components. We also believe that these actions cited by DOD
    recognize the necessity for passive RFID training throughout the
    department. However, until such training is formalized into the various
    training curriculums and personnel become proficient in the use of RFID
    technology and its capabilities, training remains a concern for passive
    RFID implementation. As recognized by DOD in identifying the need to
    refine and intensify its training strategy, we believe training will be a
    continuing challenge as DOD addresses the need to train new personnel and
    to refresh training of experienced personnel.

    o  	The department states that systems interoperability is already being
    facilitated because the military components share a common approach,

    18 GAO-05-551.

    the Advance Shipment Notice (ASN), for passing RFID information. We
    continue to believe that interoperability is a challenge. An ASN is a
    notification issued by a supplier prior to shipment that provides the
    recipient with advance notice describing in detail what is being shipped.
    While the ASN provides helpful information, we do not believe that the ASN
    effectively addresses the interoperability concern. As we stated in our
    draft report, DOD identifies system interoperability as the ability of
    systems, units, or forces to provide data, information, materiel, and
    services and to accept the same from other systems, units, or forces and
    to use the data, information, materiel, and services so exchanged to
    enable them to operate effectively together. We also stated in our draft
    report that interoperability includes both the technical exchange of
    information and the end-to-end operational effectiveness of that exchange
    of information as required for mission accomplishment. DOD envisions a
    seamless integration between passive and active RFID technology; however,
    such a seamless integration cannot take place unless the information
    captured by the RFID technology can flow through interoperable logistics
    information systems. Effective implementation of passive RFID requires
    interoperability of automatic information systems among the military
    components so these systems can work together and facilitate active and
    passive system interaction. Common systems and standards for
    interoperability need to be established. If passive RFID implementation is
    not interoperable among the military components, this could lead to
    inefficiencies that could be avoided if interoperability had been built
    into the military components' passive RFID implementation plans as these
    plans developed.

    o  	The department stated that the low read rates cited in our audit were
    based on older pilot projects reading all cases on a pallet. The comments
    noted that pallet and case tags on a conveyor are consistently read at 100
    percent and stated that the audit does not mention this fact. The
    department stated that the draft report implied that the read rates were
    too low for implementation and responded that this simply was not true.
    The department stated that the use of the ASNs mitigated low read rates
    because the ASN contains the nested relationship of all cases on the
    pallet and that the reading of just one tag enables determining all other
    tags on the shipment. We continue to believe that for DOD to use passive
    RFID technology as intended, the accuracy of passive RFID read rates is
    critical to expeditiously verify that individual items were actually
    received. While read rates of tags on individual pallets and cases may be
    100 percent, as stated by the department, our report focused on the
    technology not yet being sufficiently sophisticated to read all tagged
    items on fully loaded pallets with acceptable accuracy rates. As stated in
    our report, our audit found problems reading tags on items in the middle
    of a pallet versus those on the periphery as follows: the Navy experienced
    an 85 percent

    accuracy read rate for tagged items on fully loaded pallets in its
    terminal pilot project, reported in October 2004; the Air Force has
    experienced 32 to 65 percent accuracy read rates for fully loaded pallets,
    reported on February 10, 2005; and even Wal-Mart reported that as of
    January 18, 2005, it has experienced only 66 percent accuracy of its read
    rate for tagged items on fully loaded pallets and stated that reading all
    cases on a fully loaded pallet remains the biggest challenge. These read
    rate figures were the most recent figures that were available to us at the
    time of our audit, and we believe that the dates of these data are
    sufficiently recent to demonstrate that this concern will continue for
    some time. Furthermore, while the ASN provides details pertaining to
    individual shipments- including a list of the contents of a shipment of
    goods as well as additional information relating to the shipment such as
    product description, physical characteristics, type of packaging, and
    configuration of goods within the transportation equipment-the ASN
    basically serves as a verification control mechanism to validate the
    contents of shipments received. The ASN is not a new type of control
    mechanism. In April 2005, the existing Material Inspection Receiving
    Report-which basically served the function of a packing slip-was expanded
    to contain RFID tag data. We believe that the ASN should continue to be
    used as a control to ensure that shipments sent by suppliers are actually
    received, but we believe that the ASN does not mitigate nor should it
    serve as a replacement for the need to read the passive RFID tags on all
    of the items received to ensure that what the ASN says was sent is what
    was actually received.

    o  	DOD stated that one worldwide frequency standard is not required as
    recommended in the audit and will not occur. DOD stated that passive RFID
    technology as adopted can operate anywhere along the UHF band and a
    foreign country only needs to open up a portion of that band for RFID
    technology to be able to operate. The department also stated that readers
    are designed to operate at the country-approved spectrum. However, as
    discussed in our draft report, we did not advocate a worldwide standard.
    In our draft report, we noted that there was no worldwide frequency
    standard, and stated that a worldwide standard was being considered by the
    International Organization for Standardization, but we did not recommend
    that such a worldwide standard be developed. The concerns identified in
    the report were that the United States would need to obtain frequency
    spectrum permissions from foreign governments to be able to use RFID
    reader technology in their countries, and that foreign governments can
    impose requirements on the type of readers that can be used. We continue
    to believe that these are implementation issues because DOD will need to
    ensure that its procedures in place for requesting frequency spectrum
    permissions are followed, track any special requirements imposed by
    foreign governments, and identify and respond to changes in a country's
    spectrum. For example, in our draft report, we

    pointed out that Germany's spectrum for active RFID will be changing in
    2006, so radio frequency-dependent equipment operating under the old
    spectrum may need to be upgraded or replaced.

    o  	The department stated that the concerns raised in the audit about
    unknown return on investment were dated because the DOD business case
    analysis has now been completed. DOD also stated that the Navy business
    case has been superseded by a more recent business case analysis that did
    find a return on investment. We believe that DOD's new business case
    analysis, issued in April 2005, is a step in the right direction, and we
    referred to the findings of this new business case analysis in our report.
    We continue to believe, however, that return on investment remains a
    strong concern among the military components and the DOD business case
    still needs to be adapted into the development of individual business case
    analyses by the military components that they can use to integrate the
    technology into their respective business processes. Our initial review of
    the department's business case analysis leads to reservations regarding
    the potential benefits it portrays because of the wide disparity between
    the optimistic and pessimistic results. As stated in our report, the DOD
    business case analysis presented two results, which it characterized as
    optimistic and pessimistic. The optimistic result estimated savings of
    $1.781 billion, while the pessimistic result estimated savings of $70
    million. Although DOD recognized that this business case is an initial and
    abbreviated analysis due to time constraints, DOD stated that this
    business case was compelling and directed the secretaries of the military
    departments to move forward with passive and active RFID implementation as
    justified by the business case. In addition, DOD's business case is a
    departmentwide analysis and was developed to determine a gross benefit to
    the department. Until a return on investment can be demonstrated by the
    military components, the military components may continue to be reluctant
    to provide funds necessary for successful implementation. As stated in our
    report, we did not assess the methodology and validity of the DOD business
    case analysis, primarily because it was released after we concluded our
    field work.

    o  	The department stated that the DFARS clause is nearing completion and
    will be followed by subsequent DFARS clauses as DOD phases in
    implementation. DOD also stated that the concern raised in the audit about
    "inconsistencies among contracts across DOD" is not an issue because very
    few contracts have been let in the interim. DOD explained that the purpose
    of the proposed DFARS clause was to standardize contract clauses across
    the department. We continue to believe that the development and approval
    of DFARS clauses remain a valid concern. As described in our draft report,
    the existing proposed rule is limited in scope, applying only to four
    supply classes delivered to two distribution depots. We stated in our
    draft report our concern that as DOD continues

    passive RFID implementation, it will need additional DFARS amendments as
    RFID tagging requirements expand to DOD's remaining six supply classes and
    32 additional shipping locations as of January 1, 2006, and to all supply
    classes (except bulk commodities) shipped to all locations as of January
    1, 2007. DOD's comments acknowledge that they will need subsequent DFARS
    clauses as DOD phases in implementation. We concur with DOD that the
    purpose of the DFARS clause is to standardize contract clauses across the
    department; however, until additional DFARS amendments are in place, the
    contract language regarding vendors' placement of passive RFID tags on all
    products purchased by and shipped to DOD may not be standardized. Until
    DFARS clauses are approved for all supply classes and shipping locations,
    supply contracts could be subjected to individual contract clauses, which
    could result in inconsistencies among contracts across DOD and its
    military components. Just because few contracts have been awarded to date,
    as DOD stated in its comments, does not, in our opinion, mean that there
    will continue to be few contracts awarded until such time as additional
    DFARS amendments to cover the remaining supply classes and shipping
    locations are approved. The fact that the proposed DFARS clause covering
    only a portion of supply classes and locations still has not been
    completed but was anticipated to have been completed in October 2004 is
    indicative that the DFARS concern is likely to continue for some time.

    o  	The department stated that the discussion of multivendor contracts was
    dated because since the audit, awards have been made for tag, reader,
    printer, and integration software/services. DOD also commented that
    blanket purchase agreements are not mandatory and are just one tool for
    procurement of RFID equipment, which can be and has been purchased without
    the use of such agreements. As stated in our draft report, the
    administrative challenge concerns establishing agreements with vendors to
    provide EPC-compliant technology to leverage the purchasing power of the
    department for passive RFID infrastructure purchases. As of August 11,
    2005, we were informed by officials in the Army Program Executive Office,
    Enterprise Information Systems, Product Manager-Automatic Identification
    Technology Office that three of five blanket purchase agreements had been
    established. These agreements are for tags, fixed and transportable
    readers, and technical engineering services. The remaining two blanket
    purchase agreements, for printers and multiprotocol handheld readers, are
    anticipated to be established soon. However, until the remaining
    multivendor contracts are awarded, we continue to believe that the
    establishment and award of contract mechanisms such as blanket purchase
    agreements are administrative challenges and the DOD military components
    may be unable to leverage the purchasing power of the department to
    realize economy and efficiency benefits.

    DOD's comments are printed in appendix III. DOD also provided technical
    comments, which we have incorporated as appropriate.

    We are sending copies of this report to the appropriate congressional
    committees; the Secretary of Defense; the Secretaries of the Army, Air
    Force, and the Navy; the Commandant of the Marine Corps; the
    Commander, U.S. Transportation Command; and the Director, Defense
    Logistics Agency. We will also make copies available to others upon
    request. In addition, the report will be available at no charge on the GAO
    Web site at http://www.gao.gov.

    Please contact me on (202) 512-8365 or solisw@gao.gov if you or your staff
    have any questions concerning this report. Contact points for our Offices
    of Congressional Relations and Public Affairs may be found on the last
    page of this report. GAO staff who made major contributions to this report
    are listed in appendix IV.

    William M. Solis, Director
    Defense Capabilities and Management

    List of Congressional Committees

    The Honorable John Warner
    Chairman
    The Honorable Carl Levin
    Ranking Minority Member
    Committee on Armed Services
    United States Senate

    The Honorable Ted Stevens
    Chairman
    The Honorable Daniel K. Inouye
    Ranking Minority Member
    Subcommittee on Defense
    Committee on Appropriations
    United States Senate

    The Honorable Duncan L. Hunter
    Chairman
    The Honorable Ike Skelton
    Ranking Minority Member
    Committee on Armed Services
    House of Representatives

    The Honorable C.W. Bill Young
    Chairman
    The Honorable John P. Murtha
    Ranking Minority Member
    Subcommittee on Defense
    Committee on Appropriations
    House of Representatives

                           Appendix I: Scope and Methodology

    To determine the status of the Department of Defense's (DOD)
    implementation of passive Radio Frequency Identification (RFID)
    technology, we relied on information gathered through our visits and
    interviews with key personnel within the Office of the Secretary of
    Defense; the Defense Logistics Agency; the U.S. Transportation Command;
    the Joint Forces Command; the Logistics and Command, Control,
    Communications and Computer Systems Directorates within the Office of the
    Joint Chiefs of Staff; the Army Program Executive Office, Enterprise
    Information Systems, Product Manager-Automatic Identification Technology
    Office; and pertinent logistics offices within the Departments of the Air
    Force, Navy, and Marine Corps. We reviewed DOD's overall RFID
    implementation policy, its concept of operations guidance for DOD military
    components and suppliers and pertinent articles, and we obtained briefing
    documents to understand DOD's strategy for implementing RFID technology
    into its supply chain processes. We also obtained and reviewed historical
    RFID infrastructure and cost data and obtained, to the extent available,
    DOD military components' future infrastructure and funding requirements to
    fully implement the technology into the DOD supply chain operations.
    Because DOD is just beginning to implement passive RFID technology, we did
    not verify the data provided and considered the data sufficiently reliable
    for the purposes of this review. Additionally, we visited and observed the
    use of RFID technology at the Defense Logistics Agency's Defense
    Distribution Depot in Susquehanna, Pennsylvania, and the Norfolk Ocean
    Terminal pilot initiative at the Navy's Fleet and Industrial Supply Center
    in Norfolk, Virginia.

    To identify the extent to which DOD has developed a strategic approach for
    implementing passive RFID technology, we obtained and analyzed DOD's and
    various DOD military components' passive RFID guidance. We assessed this
    guidance by comparing its content to key management principles, such as
    those used by leading organizations and contained in the Government
    Performance and Results Act of 1993, to determine whether DOD's planning
    contained key management attributes that are necessary to guide and
    monitor implementation of the technology.

    To determine the broad spectrum of challenges DOD faces with
    implementation of RFID technology, we relied on analysis of data gathered
    through visits and interviews with and briefings provided by key personnel
    from the DOD organizations identified above. We also conducted a
    literature search to understand the RFID technology and the applications
    of it for commercial and defense purposes. We obtained and reviewed RFID
    technology studies initiated by DOD or its military components. We

    Appendix I: Scope and Methodology

    also obtained and analyzed DOD military components' comments regarding
    DOD's overall RFID policy and concept of operations guidance.

    We conducted our work from July 2004 through August 2005 in accordance
    with generally accepted government auditing standards.

    Appendix II: Examples of Passive and Active RFID Equipment

    Appendix II: Examples of Passive and Active RFID Equipment

    Appendix III: Comments from the Department of Defense

                          Page 49 GAO-05-345 Defense Logistics

    Appendix III: Comments from the Department of Defense

                          Page 50 GAO-05-345 Defense Logistics

    Appendix III: Comments from the Department of Defense

                          Page 51 GAO-05-345 Defense Logistics

    Appendix III: Comments from the Department of Defense

                          Page 52 GAO-05-345 Defense Logistics

    Appendix III: Comments from the Department of Defense

                          Page 53 GAO-05-345 Defense Logistics

    Appendix IV: GAO Contact and Staff Acknowledgments

      GAO Contact Acknowledgments

    (350561)

    William M. Solis (202) 512-8365

    In addition to those named above, Renee S. Brown, James A. Driggins, K.
    Nicole Harms, Jeffrey R. Hubbard, Shvetal Khanna, Louis V. Modliszewski,
    Kenneth E. Patton, Charles W. Perdue, Keith A. Rhodes, Dudley C. Roache,
    Jr., David A. Schmitt, Yong Song, and Cheryl A. Weissman also made
    significant contributions to this report.

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