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
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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 [email protected] 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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