Defense Logistics: More Efficient Use of Active RFID Tags Could  
Potentially Avoid Millions in Unnecessary Purchases (08-MAR-06,  
GAO-06-366R).							 
                                                                 
For many years, the Department of Defense (DOD) has been	 
attempting to improve visibility over its inventory and 	 
equipment. The 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. Additionally, needed supplies may not reach 
the warfighter when needed, which may impair readiness. In order 
to improve visibility, DOD began using a technology to enable it 
to track shipments. This technology is known as radio frequency  
identification (RFID). RFID technology consists of active or	 
passive electronic tags that are attached to equipment and	 
supplies that are shipped from one location to another. This	 
technology is part of a family of automatic information 	 
technologies used to enable hands-off identification of cargo and
inventory. This report focuses on active RFID tags, which cost	 
around $100 each and are reusable. DOD has been using active RFID
technology since the early 1990s to help with in-transit	 
visibility of shipments, and, as of January 2005, it officially  
began to implement the use of passive RFID. During the course of 
our work on the use and implementation of passive RFID technology
in DOD, we observed that active RFID tags were not being	 
routinely returned for reuse. This report discusses DOD's	 
efficiency in managing the reuse of active RFID tags,		 
specifically the effectiveness of DOD's RFID policy and the	 
extent of tag reuse and monitoring. DOD's final RFID policy was  
issued by the Under Secretary of Defense (Acquisition,		 
Technology, and Logistics), the defense logistics executive for  
RFID implementation, on July 30, 2004.				 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-06-366R					        
    ACCNO:   A48639						        
  TITLE:     Defense Logistics: More Efficient Use of Active RFID Tags
Could Potentially Avoid Millions in Unnecessary Purchases	 
     DATE:   03/08/2006 
  SUBJECT:   Accountability					 
	     Cargo security					 
	     Defense procurement				 
	     Equipment inventories				 
	     Inventory control					 
	     Military inventories				 
	     Military policies					 
	     Policy evaluation					 
	     Radio frequency identification			 
	     technology 					 
                                                                 
	     Risk management					 
	     Electronic equipment				 
	     Cost control					 
	     Radio frequency identification			 

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GAO-06-366R

March 08, 2006

The Honorable Donald H. Rumsfeld

Secretary of Defense

Subject: Defense Logistics: More Efficient Use of Active RFID Tags Could
Potentially Avoid Millions in Unnecessary Purchases

Dear Mr. Secretary:

For many years, the Department of Defense (DOD) has been attempting to
improve visibility over its inventory and equipment. The 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. Additionally, needed
supplies may not reach the warfighter when needed, which may impair
readiness. In order to improve visibility, DOD began using a technology to
enable it to track shipments. This technology is known as radio frequency
identification (RFID). RFID technology consists of active or passive
electronic tags that are attached to equipment and supplies that are
shipped from one location to another. This technology is part of a family
of automatic information technologies used to enable hands-off 
identification of cargo and inventory. This report focuses on active RFID
tags, which cost around $100 each and are reusable.

DOD has been using active RFID technology since the early 1990s to help
with in-transit visibility of shipments, and, as of January 2005, it
officially began to implement the use of passive RFID. During the course
of our work on the use and implementation of passive RFID technology in
DOD,1 we observed that active RFID tags were not being routinely returned
for reuse. This report discusses DOD's efficiency in managing the reuse of
active RFID tags, specifically the effectiveness of DOD's RFID policy and
the extent of tag reuse and monitoring. DOD's final RFID policy was issued
by the Under Secretary of Defense (Acquisition, Technology, and
Logistics), the defense logistics executive for RFID implementation, on
July 30, 2004.

For this report, we reviewed DOD's July 30, 2004, RFID implementation
policy and its concept of operations guidance for DOD components, and
interviewed knowledgeable officials from the Defense Logistics Agency
(DLA); the Army Program Executive Office, Enterprise Information Systems,
Product Manager Joint -

1 GAO, Defense Logistics: Better Strategic Planning Can Help Ensure DOD's
Successful Implementation of Passive Radio Frequency Identification,
GAO-05-345 (Washington, D.C.: Sept. 12, 2005).

Automatic Identification Technology Office; the Navy; the Air Force; and
the U.S. Transportation Command. Although we did not verify the data
provided, we determined that the data used were sufficiently reliable for
the purposes of this report. We conducted this assignment in conjunction
with our work on passive RFID from July 2004 through January 2006 in
accordance with generally accepted government auditing standards. Our
scope and methodology are discussed in further detail at the end of this
report.

Results in Brief

DOD's use of active RFID tags can be more efficiently managed, potentially
avoiding millions of dollars in unnecessary tag purchases. DOD's current
RFID policy does not require active tags to be returned or reused even
though these tags are designed for repeated reuse. DOD's July 30, 2004,
RFID policy governing active RFID tag return and reuse only "encourages"
components to return active RFID tags for reuse. The policy does not
specifically direct that active tags be returned for reuse or require
military services and other users to reuse tags. Estimates of tag reuse by
DOD component officials and DOD tag reuse data as of May 2005 indicate
that the majority of active RFID tags had not been returned or reused more
than twice. For example, Army and DLA officials estimate that 10 percent
of active tags were being returned for reuse before Operations Iraqi
Freedom and Enduring Freedom and only 3 percent after. Moreover, during
the period May 2002 through May 2005, DOD active tag use data for 614,681
tags show that 84 percent of the tags (514,455 tags) had been used only
one or two times. Only 16 percent of the tags (100,226 tags) were reported
as being reused more than twice. Furthermore, DOD does not routinely
monitor or account for reuse of all active RFID tags because it has not
developed procedures to do this. Officials from the Army and DLA-the
largest purchasers of active RFID tags-informed us that they are unaware
of the status or location of the majority of previously used tags.
Nonetheless, DOD continues to spend millions of dollars purchasing active
RFID tags without having procedures to determine whether the purchase of
new tags is needed or whether the demand could be met through reuse of
existing tags. If the 84 percent reuse rate is applied to DOD's total tag
purchases since December 1997,2 around 1,101,816 tags, valued at over $110
million, have been used only one or two times and are in an unknown
status, even though these tags could potentially be reused. Without
greater efficiency in the reuse of active RFID tags, DOD could spend
millions of dollars for unnecessary purchases.

We are recommending that DOD revise its RFID policy and operational
guidance to require that active tags be returned for reuse and to develop
procedures to track and monitor use of RFID tags. In commenting on a draft
of this report, DOD concurred with our first recommendation and partially
concurred with our second recommendation. DOD stated that it will issue
additional guidance on tag reuse by July 2006. DOD's comments and our
evaluation are discussed in detail at the end of this report.

2 The Army Program Executive Office, Enterprise Information Systems,
Product Manager Joint - Automatic Identification Technology Office began
recording purchases of active RFID tags in December 1997.

Background

DOD began implementing active RFID technology in the mid-1990s with Army
initiatives to better identify and manage its total assets, including
those in transit to the warfighter. Active RFID technology is used on
containers and major pieces of equipment for tracking shipments and their
contents while in transit over long distances. Active RFID tags, which
generally use a battery, have transmitters that transmit information
through radio signals that are read electronically. Active RFID tags hold
relatively large amounts of data so they are capable of storing detailed
manifest and transportation data. Active RFID tags cost around $100 each 
and are reusable. By using active RFID tags and associated infrastructure,
DOD has sought to improve its capability to see timely and accurate
information on military units' strategic deployments, troop sustainment
cargo, military units' intra-theater movements, and non-military unit
cargo movements within the United States. Active RFID technology was used
to track parts and supplies shipped to and within theater during Operation
Iraqi Freedom, although not entirely successfully because some of the same
problems that occurred during Operations Desert Shield and Desert Storm
were repeated, as we have previously reported and other DOD and military
service after-action studies have documented.3

Active RFID Tags Can Be More Efficiently Managed

DOD's use of active RFID tags can be more efficiently managed, potentially
avoiding millions of dollars in unnecessary tag purchases. DOD's current
RFID policy does not require active tags to be returned or reused; DOD tag
reuse data indicate that few active RFID tags have been returned or reused
more than twice, and DOD does not routinely monitor reuse of or account
for all active RFID tags.

DOD Policy Does Not Require Return or Reuse of Active Tags

DOD's current policy on RFID does not require active RFID tags to be
returned or reused. DOD's July 30, 2004, policy governing the return and
reuse of active RFID tags "encourages" components to return these tags for
reuse through the Defense Logistics Management Supplement Materiel Returns
Program to receive

3 Department of Defense, Conduct of the Persian Gulf War: Final Report to
the Congress (Washington, D.C.: Apr. 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.: Mar. 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).

reimbursement of certain costs.4 The policy also states that the services
and other requisitioners and users "may opt" to establish their own retail
operations for used tags. The policy, however, does not specifically
direct that active tags be returned for reuse or require military services
and other users to reuse tags.

Few Active Tags Have Been Returned or Reused

Army, Navy, Air Force, U.S. Transportation Command, and DLA officials
informed us that few active RFID tags were being returned or reused. Army
and DLA officials estimated that rates of tag returns had been 10 percent
before Operations Iraqi Freedom and Enduring Freedom, and 3 percent after.
DOD tag use data for the period May 2002 through May 2005, for 614,681
active RFID tags, shows that the majority of the tags (514,455 tags, or 84
percent) were used one or two times, while a small percentage of the tags
(100,226 tags, or 16 percent) were reported to have been reused on more
than two occasions. These data indicate that about 61 percent (372,863) of
these active RFID tags had been used one time, and 23 percent (141,592) of
them had been used twice. The remaining 16 percent (100,226 tags) had been
used on more than two occasions, ranging from 3 to 51 times.

DOD Does Not Routinely Monitor or Account for Reuse of Active Tags

The military services and DLA do not routinely monitor or account for the
return and reuse of active RFID tags because there are no procedures in
place to do so.5 For example, U.S. Transportation Command and Air Force
officials told us that they could not account for active RFID tags after
the tags have been used because they use the tags as if they were
consumable or expendable items that have a one-time use. Furthermore,
officials from the Army and DLA-the largest purchasers of active RFID
tags-said that they were unaware of the status or location of the majority
of previously used active RFID tags. However, active RFID tags were
designed to be reused, and DOD's RFID policy acknowledges the economic
benefits of reusing these tags. DLA officials explained that active tags
are lost or even discarded, which they recognized was not an economical
practice. DOD nonetheless continues to spend millions of dollars
purchasing large quantities of active RFID tags without having procedures
to determine whether the purchase of new tags is needed or whether the
demand could be met through reuse of existing tags.

DOD's purchases of active RFID tags have increased significantly in recent
years. Between December 1997 and early June 2005, as shown in table 1, DOD
purchased over 1.3 million active RFID tags, with an average unit purchase
price per tag of about $100. DOD's May 2002 through 2005 tag use data
indicate that 84 percent of active tags are used only one or two times. If
this reuse rate is applied to the total active RFID tags DOD has purchased
since December 1997, this means that 1,101,816 tags, valued at over $110
million, have been used only one or two times and are in an unknown
status. These tags could potentially be reused if DOD revised its policy
to require reuse of active tags.

4 If tags are returned through this program, services will be reimbursed
for packaging, crating, handling, and transportation costs. Services will
not be reimbursed for tags returned without going through this program.

5 DOD policy does not require routine collection of reuse data or that
components establish procedures to monitor tag reuse.

Table 1: DOD Active RFID Tag Purchases from December 1997 through June 3,
2005

Calendar year         Quantity Purchase costs 
                                  
                        purchased 
1997a                      10a       $1,400 a 
1998                    23,762     $3,755,732 
1999                    78,145    $12,581,345 
2000                    27,836     $3,857,648 
2001                    27,733     $3,267,352 
2002                    58,286     $5,747,210 
2003                   366,841    $35,212,123 
2004                   475,717    $47,085,115 
2005b                 253,356b   $19,381,778b 
Total                1,311,686   $130,889,703 
Average purchase price per tag         $99.79 

Source: GAO analysis of data provided by Army Program Executive Office,
Enterprise Information Systems, Product Manager Joint - Automatic
Identification Technology Office.

aData for 1997 reflects purchase quantities in December 1997.

bData for 2005 reflects purchase quantities from January 1, 2005, through
June 3, 2005.

If DOD had more effective policies and procedures governing the reuse of
active RFID tags, including procedures to track and monitor use, it might
avoid millions of dollars in unnecessary purchases.

Conclusions

DOD spends millions of dollars annually purchasing active RFID tags, which
are designed for repeated reuse, but most are not being reused by DOD
routinely. In the absence of a policy requirement to return or reuse
active RFID tags, DOD components may continue to treat these tags as
expendable items and may not return or reuse the tags. Without improved
procedures to track and monitor tag reuse, DOD and its components are
likely to continue to invest heavily in the purchase of active RFID tags
without knowing how many new tags are actually needed to meet overall
goals, objectives, and strategies. If active tags were returned for reuse,
and effective procedures established to monitor and track reuse of these
tags, DOD could be more efficient in its use of existing tags and could
avoid unnecessary future purchases of active RFID tags.

Recommendations for Executive Action

We recommend that the Secretary of Defense direct the Under Secretary of
Defense (Acquisition, Technology, and Logistics) to take the following two
actions:

           o  Modify the July 30, 2004, RFID policy and other operational
           guidance to require that active RFID tags be returned for reuse or
           be reused by the military services and other users.
           o  Direct the secretaries of each military service and
           administrators of other components to establish procedures to
           track and monitor the use of active RFID tags, to include

                        o determining requirements for the number of tags
                        needed,
                        o compiling an accurate inventory of the number of
                        tags currently owned, and
                        o establishing procedures to monitor and track tags,
                        including purchases, reuse, losses, repairs, and any
                        other categories that would assist management's
                        oversight of these tags.

Agency Comments and Our Evaluation

In written comments on a draft of this report, DOD concurred with our
first recommendation to modify its RFID policy and guidance on active RFID
tag return and reuse, and partially concurred with our second
recommendation to require the services and other tag users to develop
procedures to track and monitor use of active RFID tags. DOD's written
comments are reprinted in their entirety in enclosure I.

DOD concurred with our recommendation to modify the July 30, 2004, RFID
policy and other operational guidance to require that active RFID tags be
returned for reuse or be reused by the military services and other users.
The department stated that it recognizes the importance of reusing these
tags to the maximum extent possible and that its policy establishes
procedures for the return of tags. DOD also stated that its policy
implicitly addresses that these tags should be reused at the local level
and, when no longer required for local reuse, the policy directs that the
tags be returned to the wholesale level for reuse. We disagree that DOD's
RFID policy specifically directs components to return tags to the
wholesale level for reuse. The existing policy only "encourages"
components to use the Defense Logistics Management Supplement Materiel
Returns Program to return tags no longer required and receive
reimbursement for packaging, crating, handling, and transportation costs.
The department stated that it will issue additional guidance on tag reuse
by July 2006. The department said that its July 30, 2004, RFID policy will
be institutionalized in the next update of the DOD 4140.1-R, DOD Supply
Chain Materiel Management Regulation, in fiscal year 2007, which will make
explicit reference to reuse of the tags. We believe that this action will
satisfy our recommendation if the explicit reference in the updated policy
guidance actually requires the services and other users to return tags for
reuse or to reuse tags locally.

DOD partially concurred with our second recommendation directing the
secretaries of each military service and administrators of other
components to establish procedures to track and monitor the use of active
RFID tags to include (1) determining requirements for the number of tags
needed; (2) compiling an accurate inventory of the number of tags
currently owned; and (3) establishing procedures to monitor and track
tags, including purchases, reuse, losses, repairs, and any other
categories that would assist management's oversight of these tags. The
department stated, as it said when concurring with our first
recommendation, that it will direct the military services and U.S.
Transportation Command to develop procedures by July 2006 to address the
reuse of tags as well as procedures for return of the tags no longer
required. The department also stated that active tag reuse is monitored by
the Army Program Executive Office, Enterprise Information Systems, Product
Manager Joint - Automatic Identification Technology Office and reports are
generated that provide last tag read locations. The department said that
it will ensure the components are aware of this capability so that they
may better use these reports in managing RFID tag use. The department
further stated that although many tags have been written to only once,
there may be legitimate operational reasons for these occurrences and that
the Office of the Assistant Deputy Under Secretary of Defense and the
components will investigate the causes for low instances of tag reuse and
the business processes contributing to the low reuse of tags.

The department, however, disagreed with the need to establish procedures
to account for procurement, inventory, repairs, or losses of existing
tags. It stated that active RFID tags are consumable items. Nonetheless,
we continue to believe that DOD can potentially avoid millions of dollars
in unnecessary active RFID tag purchases if the department and its
components would establish accountability procedures to track and monitor
active tag requirements, inventory, purchases, reuse, losses, and repairs
as we recommended. DOD's July 20, 2004, RFID policy does not define active
RFID tags as consumable items. Also, its policy emphasizes the capability
of active tags to be reused and to even be refurbished. Moreover, the
capability of active RFID tags to be reused would seem to preclude these
tags from meeting DOD's definition of a "consumable item." For example,
DOD regulation 4140.1-R defines a consumable item as "[a]n item of supply
(except explosive ordnance and major end items of equipment) that is
normally expended or used up beyond recovery in the use for which it is
designed or intended." Because active RFID tags can be reused, they are
not expended or used up beyond recovery, and thus we do not believe that
they should be treated as consumable items in general operating
environments. Consequently, we continue to believe our recommendation is
merited and DOD should develop procedures to track and monitor its use of
active RFID tags so that it has a sound basis for determining its current
and future requirements and procurement actions for active RFID tags.

Scope and Methodology

To evaluate DOD's reuse of active RFID tags, we relied on data gathered
through our visits and interviews with key personnel within DLA; the Army
Program Executive Office, Enterprise Information Systems, Product Manager
Joint - Automatic Identification Technology Office; the Navy; the Air
Force; and the U.S. Transportation Command. We reviewed DOD's RFID
implementation policy and its concept of operations guidance for DOD
components, and we obtained briefings to understand DOD's strategy for
implementing active RFID technology into its supply chain processes.
Additionally, we visited and observed the use of active RFID technology at
DLA's Defense Distribution Depot in Susquehanna, Pennsylvania, and the
Norfolk Ocean Terminal initiative at the Navy's Fleet and Industrial
Supply Center in Norfolk, Virginia. Although we did not verify the data
provided, we determined that the data used were sufficiently reliable for
the purposes of this review. Subsequent to our exit meeting, DOD provided
us with a snapshot of active RFID tag reuse data covering May 2002 through
May 2005. Because these new data were provided after audit work was
completed, we did not assess their accuracy or examine the methodology by
which the data were collected. We conducted our work in conjunction with
our work on passive RFID from July 2004 to January 2006 in accordance with
generally accepted government auditing standards.

We are sending copies of this report to the appropriate congressional
committees; 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 at (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. Key contributors to this report were David A.
Schmitt, Assistant Director; Renee S. Brown; James A. Driggins; Jeffrey R.
Hubbard; Shvetal Khanna; Nicole Harms; Louis V. Modliszewski; Kenneth E.
Patton; Charles W. Perdue; Keith A. Rhodes; Dudley C. Roache, Jr.; Yong
Song; and Cheryl A. Weissman.

Sincerely yours,

William M. Solis, Director

Defense Capabilities and Management

Enclosure

                    Comments from the Department of Defense

(350690)
*** End of document. ***