DOD's High-Risk Areas: Challenges Remain to Achieving and
Demonstrating Progress in Supply Chain Management (25-JUL-06,
GAO-06-983T).
The Department of Defense (DOD) maintains a military force with
unparalleled logistics capabilities, but it continues to confront
decades-old supply chain management problems. The supply chain
can be the critical link in determining whether our frontline
military forces win or lose on the battlefield, and the
investment of resources in the supply chain is substantial.
Because of weaknesses in DOD's supply chain management, this
program has been on GAO's list of high-risk areas needing urgent
attention and transformation since 1990. Last year, DOD developed
a plan to resolve its long-term supply chain problems in three
focus areas: requirements forecasting, asset visibility, and
materiel distribution. In October 2005, GAO testified that the
plan was a good first step. GAO was asked to provide its views on
DOD's progress toward (1) implementing the supply chain
management improvement plan and (2) incorporating performance
measures for tracking and demonstrating improvement, as well as
to comment on the alignment of DOD's supply chain management
improvement plan with other department logistics plans. This
testimony is based on prior GAO reports and ongoing work in this
area. It contains GAO's views on opportunities to improve DOD's
ability to achieve and demonstrate progress in supply chain
management.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-06-983T
ACCNO: A57422
TITLE: DOD's High-Risk Areas: Challenges Remain to Achieving and
Demonstrating Progress in Supply Chain Management
DATE: 07/25/2006
SUBJECT: Accountability
Combat readiness
Defense capabilities
Internal controls
Inventory control
Logistics
Military inventories
Military operations
Performance measures
Program management
Property and supply management
Strategic planning
Supply chain management
GAO High Risk Program
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GAO-06-983T
* Summary
* Background
* DOD Continues to Implement Its Supply Chain Management Impro
* Supply Chain Improvement Plan Lacks Outcome-focused Performa
* DOD Has Multiple Plans Addressing Supply Chain Management, b
* Concluding Observations
* Staff Contacts and Acknowledgements
* Attachment 1: Initiatives in DOD Supply Chain Management Imp
* Order by Mail or Phone
Testimony
Before the Subcommittee on Oversight of Government Management, the Federal
Workforce, and the District of Columbia, Committee on Homeland Security
and Governmental Affairs, U.S. Senate
United States Government Accountability Office
GAO
For Release on Delivery Expected at 10:00 a.m. EDT
Tuesday, July 25, 2006
DOD'S HIGH-RISK AREAS
Challenges Remain to Achieving and Demonstrating Progress in Supply Chain
Management
Statement of Williams M. Solis, Director Defense Capabilities Management
GAO-06-983T
Mr. Chairman and Members of the Subcommittee:
I am pleased to be here today to discuss the Department of Defense's (DOD)
efforts to resolve long-standing problems in supply chain management. DOD
maintains a military force with unparalleled logistics capabilities and
can claim success in meeting the challenges to supplying the warfighter.
For example, by early 2005, DOD moved more than 2 million short tons of
cargo, including equipment, spare parts, and supplies, several thousand
miles to the Persian Gulf in support of Operation Iraqi Freedom. At the
same time, there are pervasive, decades-old problems in DOD's supply chain
management that need to be addressed and resolved. The Under Secretary of
Defense for Acquisition, Technology, and Logistics, as well as other
senior DOD officials, has shown a commitment to improving supply chain
management. The continued active involvement of this Subcommittee is
important to focusing attention on this issue and encouraging DOD to
demonstrate progress.
The fundamental premise of supply chain management is the operation of a
continuous, unbroken, comprehensive, and all-inclusive logistics process,
from initial customer order for materiel or services to the ultimate
satisfaction of the customer's requirements. Supply chain management in
DOD consists of processes and activities to purchase, produce, and deliver
materiel-including ammunition, spare parts, fuel, food, water, clothing,
personal equipment, and other items-to a force that is highly dispersed
and mobile. In 2005, the Army alone had some 260,000 soldiers serving in
120 foreign countries. Altogether, DOD manages more than 4 million
separate types of items that are procured from thousands of suppliers. The
challenges to successfully improving management of this vast and complex
supply chain network are formidable. Challenges may include fragmentation
in the way supply chain management is understood and applied, failure to
develop true integration of supply chain processes, organizational
resistance, lack of buy-in from top managers, lack of or slow development
of needed measurement systems, and lack of integrated information systems
linking participants in the supply chain. Private industry, it should be
noted, also faces these types of challenges to improving their own supply
chains.1
Why is effective supply chain management important for DOD? There are two
primary reasons. First, supply support to the warfighter affects readiness
and military operations. In fact, the supply chain can be the critical
link in determining whether our front-line military forces win or lose on
the battlefield. Second, given the high demand for goods and services to
support ongoing U.S. military operations, the investment of resources in
the supply chain is substantial. For example, DOD estimated that the
annual costs of supplies and associated operations were expected to be
about $50 billion for fiscal year 2005. In addition, DOD's inventory was
valued at approximately $80 billion at the end of that fiscal year. Over
the next 6 years, DOD also plans to invest about $54 billion in aircraft,
trucks, ships, and other mobility assets to deploy and supply its forces.
In addition, the Secretary of Defense recently stated that one of his top
priorities between 2006 and 2008 is improving effectiveness and efficiency
across the department, including creating a culture of efficiency and
eliminating waste. These are issues that we have identified as critical to
improving supply chain management.
1 Deputy Under Secretary of Defense, Supply Chain Integration, DOD Supply
Chain Management Implementation Guide, (McLean, Va.: Logistics Management
Institute, 2000).
Because of weaknesses we have identified through our work, DOD's supply
chain management is on our list of 26 high-risk government programs that
need urgent attention and transformation to ensure that our national
government functions in the most economical, efficient, and effective
manner possible. Last year, with the encouragement of the Office of
Management and Budget (OMB), DOD developed a supply chain management
improvement plan aimed at putting DOD on a path toward resolving long-term
supply chain problems and, eventually, removal from our list of high-risk
programs. More specifically, with the plan's inception in July 2005, DOD
hoped to produce significant improvements over the next 2 years. This
month marks approximately the midpoint of that 2-year period, which ends
in July 2007. The plan encompasses 10 initiatives to address three key
areas of the supply chain management process: requirements forecasting,
asset visibility, and materiel distribution. (Attachment 1 provides a
description of the initiatives and shows the focus area or areas that they
are intended to address). The requirements forecasting initiatives in the
plan aim to improve inventory management by reducing low-usage inventory,
increasing the availability of high-usage and critical inventory, more
accurately identifying war reserve stocks, forecasting wartime demand, and
identifying items with long procurement lead times. The plan's initiatives
that affect asset visibility seek to improve DOD's ability to provide
timely and accurate information regarding the location, quantity,
condition, movement, and status of materiel assets across the department.
Finally, the materiel distribution initiatives were included to improve
the timely and seamless flow of materiel in support of deployed forces. We
have frequently identified systemic weaknesses in these three areas as
impeding effective supply chain management.
During the Subcommittee's October 2005 hearing on this subject, I stated
that DOD's plan addressing supply chain management was a good first step
toward putting DOD on a path toward resolving long-standing supply chain
management problems, but that the department faced a number of challenges
and risks in fully implementing its proposed changes across the department
and measuring progress.2 That bottom-line view remains the same today.
Since October, DOD has regularly updated its supply chain management
improvement plan, added more details, and has made progress implementing
individual initiatives by generally meeting the milestones laid out in its
plan. However, as DOD moves forward, we believe that there are
opportunities to further improve DOD's ability to show progress toward
resolving long-term supply chain problems.
As requested, my comments today will focus on DOD's progress in
(1) implementing the supply chain management improvement plan and
(2) incorporating performance measures for tracking and demonstrating
improvement. In addition, you also asked me to comment on the extent to
which DOD's supply chain management improvement plan is aligned with other
logistics plans across the department that address aspects of the supply
chain. My testimony is based on previous GAO reports and testimonies and
our preliminary observations from an ongoing engagement requested by this
Subcommittee on DOD's efforts to resolve long-standing problems in its
supply chain management process. To obtain our preliminary observations,
we have met on a regular basis with DOD officials and staff from OMB to
discuss the overall status of the plan, the implementation of the plan's
individual initiatives, and performance measures; and we have reviewed
relevant documents, such as current DOD and military service logistics
plans and strategies. This work is being performed in accordance with
generally accepted government auditing standards.
Summary
Since October 2005, DOD has continued to make progress implementing the 10
initiatives in its supply chain management improvement plan, but it will
take DOD several years to fully implement these initiatives under current
schedules. DOD has sought to demonstrate significant improvement in supply
chain management within 2 years of the plan's inception in 2005; however,
the department may have difficulty meeting its short-term goal. Some of
the initiatives are still being developed or piloted and have not yet
reached the implementation stage, others are in the early stages of
implementation, and some are not scheduled for completion until 2008 or
later. While DOD has generally stayed on track, it has reported some
slippage in the implementation of certain initiatives. Given the
long-standing nature of the problems being addressed, the complexities of
the initiatives, and the involvement of multiple organizations within DOD,
we would expect to see further slippage in the future. We have also
previously identified challenges to implementation such as maintaining
long-term commitment for the initiatives and ensuring sufficient resources
are obtained from the organizations involved, including the military
services and the Defense Logistics Agency (DLA).
2 GAO, DOD's High-Risk Areas: High-Level Commitment and Oversight Needed
for DOD Supply Chain Plan to Succeed, GAO-06-113T (Washington, D.C.: Oct.
6, 2005).
While DOD has incorporated several broad performance measures in its
supply chain management improvement plan, the department continues to lack
outcome-focused performance measures for many of the initiatives.
Therefore, it is difficult to track and demonstrate DOD's progress toward
improving its performance in the three focus areas of requirements
forecasting, asset visibility, and materiel distribution. Performance
measures track an agency's progress toward achieving goals, provide
information on which to base organizational and management decisions, and
are important management tools for all levels of an agency, including the
program or project level. Outcome-focused performance measures show
results or outcomes related to an initiative or program in terms of its
effectiveness, efficiency, impact, or all of these. DOD's plan includes
four high-level performance measures, such as customer wait time, that are
being tracked across the department, but these measures do not necessarily
reflect the performance of the initiatives and do not explicitly relate to
the three focus areas. In addition, DOD's plan lacks outcome-focused
performance measures for many of the specific initiatives. Further, DOD
still has not included cost metrics in its plan that might show
efficiencies gained through supply chain improvement efforts, either at
the initiative level or overall. Although DOD officials have made efforts
to develop supply chain management performance measures for implementation
across the department, they have encountered challenges such as a lack of
standardized, reliable data. Consequently, DOD lacks a means to track and
assess progress toward improving efficiency and eliminating waste in
supply chain management. However, DOD could show near-term progress by
adding intermediate measures. These measures could include outcome-focused
measures for each of the initiatives or for the three focus areas.
DOD has multiple plans aimed at improving aspects of logistics, including
supply chain management, but it is unclear how all these plans are aligned
with one another. In addition to the supply chain management improvement
plan, current DOD plans that address aspects of supply chain management
include DOD's Logistics Transformation Strategy, Focused Logistics
Roadmap, and Enterprise Transition Plan; and DLA's Transformation Roadmap.
These plans were developed at different points of time, for different
purposes, and in different formats. Therefore, it is difficult to
determine how all the ongoing efforts link together to sufficiently cover
requirements forecasting, asset visibility, and materiel distribution and
whether they will result in significant progress toward resolving this
high-risk area. Also, the DOD supply chain management improvement plan
does not account for initiatives outside the direct oversight of the
Office of the Secretary of Defense (OSD) that may have an impact on supply
chain management. Until DOD clearly aligns the supply chain management
improvement plan with other department plans and ongoing initiatives,
supply chain stakeholders will not have complete visibility and awareness
of actions DOD is taking to resolve problems in the supply chain.
Moreover, DOD lacks a comprehensive, integrated, and enterprisewide
strategy to guide logistics programs and initiatives. To address this
concern, OSD is working with the military services, DLA, and other
stakeholders to develop a new strategic plan for future logistics programs
and initiatives. Referred to as the "To Be" roadmap, this plan is intended
to portray where the department is headed in the logistics area, how it
will get there, and what progress is being made toward achieving its
objectives, as well as to institutionalize a continuous assessment process
that links ongoing capability development, program reviews, and budgeting.
According to DOD officials, the initiatives in the supply chain management
improvement plan will be incorporated into this roadmap. The first edition
of the "To Be" roadmap is scheduled for completion in February 2007, in
conjunction with the submission of the President's Budget for Fiscal Year
2008. However, until it is completed, we will not be able to assess the
extent to which the roadmap aligns and integrates DOD's various supply
chain improvement efforts.
Background
For 16 years, DOD's supply chain management processes, previously
identified as DOD inventory management, have been on our list of high-risk
areas needing urgent attention because of long-standing systemic
weaknesses that we have identified in our reports. We initiated our
high-risk program in 1990 to report on government operations that we
identified as being at high risk for fraud, waste, abuse, and
mismanagement. The program serves to identify and help resolve serious
weaknesses in areas that involve substantial resources and provide
critical services to the public. The department's inventory management of
supplies in support of forces was one of the initial 14 operational areas
identified as high risk in 1990 because, over the previous 20 years, we
had issued more than 100 reports dealing with specific aspects and
problems in DOD's inventory management. These problems included excess
inventory levels, inadequate controls over items, and cost overruns. As a
result of this work, we had suggested that DOD take some critical steps to
correct the problems identified. Since then, our work has shown that the
problems adversely affecting supply support to the warfighter-such as
requirements forecasts, use of the industrial base, funding, distribution,
and asset visibility-were not confined to the inventory management system,
but also involved the entire supply chain. In 2005, we modified the title
for this high-risk area from "DOD Inventory Management" to "DOD Supply
Chain Management." In the 2005 update, we noted that during Operation
Iraqi Freedom, some of the supply chain problems included backlogs of
hundreds of pallets and containers at distribution points, millions of
dollars spent in late fees to lease or replace storage containers because
of distribution backlogs and losses, and shortages of such items as tires
and radio batteries.
Removal of the high-risk designation is considered when legislative and
agency actions, including those in response to our recommendations, result
in significant and sustainable progress toward resolving a high-risk
problem.3 Key determinants include a demonstrated strong commitment to and
top leadership support for addressing problems, the capacity to do so, a
corrective action plan that provides for substantially completing
corrective measures in the near term, a program to monitor and
independently validate the effectiveness of corrective measures, and
demonstrated progress in implementing corrective measures.
Last year, with the encouragement of OMB, DOD developed a plan for
improving supply chain management that could reduce its vulnerability to
fraud, waste, abuse, and mismanagement and place it on the path toward
removal from our list of high-risk areas. This plan, initially released in
July 2005, contains 10 initiatives proposed as solutions to address the
root causes of problems DOD identified in the areas of forecasting
requirements, asset visibility, and materiel distribution. By committing
to improve these three key areas, DOD has focused its efforts on the areas
we frequently identified as impeding effective supply chain management.
For each of the initiatives, the plan contains implementation milestones
that are tracked and updated monthly.
3 GAO, Determining Performance and Accountability Challenges and High
Risks, GAO-01-159SP (Washington, D.C.: November 2000).
DOD Continues to Implement Its Supply Chain Management Improvement Plan, but
Full Implementation Will Take Several Years
Since October 2005, DOD has continued to make progress implementing the
initiatives in its supply chain management improvement plan, but it will
be several years before the plan can be fully implemented. Progress has
been made in implementing several of the initiatives, including its Joint
Regional Inventory Materiel Management, Readiness Based Sparing, and the
Defense Transportation Coordination Initiative. For example:
o Within the last few months, through its Joint Regional
Inventory Materiel Management initiative, DOD has begun to
streamline the storage and distribution of defense inventory items
on a regional basis, in order to eliminate duplicate materiel
handling and inventory layers. Last year, DOD completed a pilot
for this initiative in the San Diego region and, in January 2006,
began a similar transition for inventory items in Oahu, Hawaii.
o Readiness Based Sparing, an inventory requirements methodology
that the department expects to enable higher levels of readiness
at equivalent or reduced inventory costs using commercial
off-the-shelf software, began pilot programs in each service in
April 2006.
o Finally, in May 2006, the U.S. Transportation Command held the
presolicitation conference for its Defense Transportation
Coordination Initiative, a long-term partnership with a
transportation management services company that is expected to
improve the predictability, reliability, and efficiency of DOD
freight shipping within the continental United States.
DOD has sought to demonstrate significant improvement in supply chain
management within 2 years of the plan's inception in 2005; however, the
department may have difficulty meeting its July 2007 goal. Some of the
initiatives are still being developed or piloted and have not yet reached
the implementation stage, others are in the early stages of
implementation, and some are not scheduled for completion until 2008 or
later. For example, according to the DOD supply chain management
improvement plan, the contract for the Defense Transportation Coordination
Initiative is scheduled to be awarded during the first quarter of fiscal
year 2007, followed by a 3-year implementation period. The War Reserve
Materiel Improvements initiative, which aims to more accurately forecast
war reserve requirements by using capability-based planning and
incorporating lessons learned in Operation Iraqi Freedom, is not scheduled
to begin implementing an improved requirements forecasting process for
consumable items4 as a routine operation until October 2008. The Item
Unique Identification initiative, which involves marking personal property
items with a set of globally unique data elements to help DOD track items
during their life cycles, will not be completed until December 2010 under
the current schedule.
While DOD has generally stayed on track, DOD has reported some slippage in
meeting scheduled milestones for certain initiatives. For example, a
slippage of 9 months occurred in the Commodity Management initiative
because additional time was required to develop a departmentwide approach.
This initiative addresses the process of developing a systematic
procurement approach to the department's needs for a group of items.
Additionally, the Defense Transportation Coordination Initiative
experienced a slippage in holding the presolicitation conference because
defining requirements took longer than anticipated. Given the
long-standing nature of the problems being addressed, the complexities of
the initiatives, and the involvement of multiple organizations within DOD,
we would expect to see further milestone slippage in the future. In our
October testimony, we also identified challenges to implementation such as
maintaining long-term commitment for the initiatives and ensuring
sufficient resources are obtained from the organizations involved.
Although the endorsement of DOD's plan by the Under Secretary of Defense
for Acquisition, Technology, and Logistics is evidence of a strong
commitment to improve DOD's supply chain management, DOD will have to
sustain this commitment as it goes forward in implementing this multiyear
plan while also engaged in departmentwide business transformation efforts.
Furthermore, the plan was developed at the Office of the Under Secretary
of Defense level, whereas most of the people and resources needed to
implement the plan are under the direction of the military services, DLA,
and other organizations such as U.S. Transportation Command. Therefore, it
is important for the department to obtain the necessary resource
commitments from these organizations to ensure the initiatives in the plan
are properly supported.
4 Consumable items are items that are discarded after use rather than
repaired. Examples include food, clothing, hardware, and medical supplies.
Supply Chain Improvement Plan Lacks Outcome-focused Performance Measures for
Many of the Initiatives
While DOD has incorporated several broad performance measures in its
supply chain management improvement plan, the department continues to lack
outcome-focused performance measures for many of the initiatives.
Therefore, it is difficult to track and demonstrate DOD's progress toward
improving its performance in the three focus areas of requirements
forecasting, asset visibility, and materiel distribution. Performance
measures track an agency's progress made towards goals, provide
information on which to base organizational and management decisions, and
are important management tools for all levels of an agency, including the
program or project level. Outcome-focused performance measures show
results or outcomes related to an initiative or program in terms of its
effectiveness, efficiency, impact, or all of these. To track progress
towards goals, effective performance measures should have a clearly
apparent or commonly accepted relationship to the intended performance, or
should be reasonable predictors of desired outcomes; are not unduly
influenced by factors outside a program's control, measure multiple
priorities, such as quality, timeliness, outcomes, and cost; sufficiently
cover key aspects of performance; and adequately capture important
distinctions between programs. Performance measures enable the agency to
assess accomplishments, strike a balance among competing interests, make
decisions to improve program performance, realign processes, and assign
accountability. While it may take years before the results of programs
become apparent, intermediate measures can be used to provide information
on interim results and show progress towards intended results. In
addition, when program results could be influenced by external factors,
intermediate measures can be used to identify the programs' discrete
contribution to the specific result. For example, DOD could show near-term
progress by adding intermediate measures for the DOD supply chain
management improvement plan, such as outcome-focused performance measures
for the initiatives or for the three focus areas.
DOD's supply chain management improvement plan includes four high-level
performance measures that are being tracked across the department, but
these measures do not necessarily reflect the performance of the
initiatives or explicitly relate to the three focus areas. DOD's supply
chain materiel management regulation requires that functional supply chain
metrics support at least one enterprise-level metric.5 In addition, while
not required by the regulation, the performance measures DOD has included
in the plan are not explicitly linked to the three focus areas, and it has
not included overall cost metrics that might show efficiencies gained
through supply chain improvement efforts. The four measures are as
follows:
5 DOD 4140.1-R, DOD Supply Chain Materiel Management Regulation (May 23,
2003).
o Backorders-number of orders held in an unfilled status pending
receipt of additional parts or equipment through procurement or
repair.
o Customer wait time-number of days between the issuance of a
customer order and satisfaction of that order.
o On-time orders-percentage of orders that are on time according
to DOD's established delivery standards.
o Logistics response time-number of days to fulfill an order
placed on the wholesale level of supply from the date a
requisition is generated until the materiel is received by the
retail supply activity.6
The plan also identifies fiscal year 2004 metric baselines for each of the
services, DLA, and DOD overall, and specifies annual performance targets
for these metrics for use in measuring progress. For example, one
performance target for fiscal year 2005 was to reduce backorders by 10
percent from the fiscal year 2004 level. Table 1 shows each performance
measure with the associated fiscal year 2005 performance targets and
actuals and whether the target was met.
Table 1: Supply Chain Performance Measures (Fiscal Year 2005)
Performance measure Target Actual Target met/Not met
Backorders 514,800 642,000 Not Met
Customer wait time 18 days 21 days Not Met
On-time ordersa 75% 48% Not Met
Logistics response timea
Army 27 days 57 days Not Met
Navy 27 days 28 days Not Met
Air Force 27 days 36 days Not Met
DLA 27 days 13 days Met
Source: GAO analysis.
aData includes the continental United States only.
6 DOD maintains spare parts at two levels of inventory. Wholesale-level
inventory represents inventory managed centrally, while retail-level
inventory represents inventory held for use at maintenance activities or
operational units.
As table 1 shows, DOD generally did not meet its fiscal year 2005
performance targets. However, the impact to the supply chain as a result
of implementing the initiatives contained in the plan will not likely be
reflected in these high-level performance metrics until the initiatives
are broadly implemented across the department. In addition, the high-level
metrics reflect the performance of the supply chain departmentwide and are
affected by other variables; therefore, it will be difficult to determine
if improvements in the high-level performance metrics are due to the
initiatives in the plan or other variables. For example, implementing
Radio Frequency Identification-technology consisting of active or passive
electronic tags that are attached to equipment and supplies being shipped
from one location to another and enable shipment tracking-at a few sites
at a time has only a very small impact on customer wait time. However,
variables such at natural disasters, wartime surges in requirements, or
disruption in the distribution process could affect that metric.
DOD's plan lacks outcome-focused performance metrics for many of the
specific initiatives. We noted this deficiency in our prior testimony, and
since last October, DOD has not added outcome-focused performance metrics.
DOD also continues to lack cost metrics that might show efficiencies
gained through supply chain improvement efforts, either at the initiative
level or overall. In total, DOD's plan continues to identify a need to
develop outcome-focused performance metrics for 6 initiatives, and 9 of
the 10 initiatives lack cost metrics. For example, DOD's plan shows that
it expects to have radio frequency identification technology implemented
at 100 percent of its U.S. and overseas distribution centers by September
2007, but noted that it has not yet identified additional metrics that
could be used to show the impact of implementation on expected outcomes,
such as receiving and shipping timeliness, asset visibility, or supply
consumption data. Two other examples of initiatives lacking
outcome-focused performance measures are War Reserve Materiel, discussed
earlier, and Joint Theater Logistics, which is an effort to improve the
ability of a joint force commander to execute logistics authorities and
processes within a theater of operations. Although the plan contains some
performance metrics, many have not been fully defined or are intended to
show the status of a project. Measures showing project status are useful
and may be most appropriate for initiatives in their early stages of
development, but such measures will not show the impact of initiatives on
the supply chain during or after implementation. DOD officials noted that
many of the initiatives in the supply chain management improvement plan
are in the early stages of implementation and that they are working to
develop performance measures for them. For example, an official involved
with the Joint Theater Logistics initiative stated that the processes
necessary for each joint capability needed to be defined before
performance metrics could be developed. The recently issued contract
solicitation for the Defense Transportation Coordination Initiative
contains a number of performance measures, such as on-time pickup and
delivery, damage-free shipments, and system availability, although these
measures are not yet included in DOD's supply chain management improvement
plan. Additionally, we observed that DOD's plan does not identify
departmentwide performance measures in the focus areas of requirements
forecasting, asset visibility, and materiel distribution. Therefore, it
currently lacks a means to track and assess progress in these areas.
Although DOD has made efforts to develop supply chain management
performance measures for implementation across the department, DOD has
encountered challenges in obtaining standardized, reliable data from
noninteroperable systems. The four high-level performance measures in
DOD's plan were defined and developed by DOD's supply chain metrics
working group. This group includes representatives from the services, DLA,
and the U.S. Transportation Command, and meets monthly under the direction
of the Office of the Under Secretary of Defense. For example, the working
group developed a common definition for customer wait time which was
included in DOD guidance.7 The DOD Inspector General has a review underway
to validate the accuracy of customer wait time data and expects to issue a
report on its results later this summer. One of the challenges the working
group faces in developing supply chain performance measures is the ability
to pull standardized, reliable data from noninteroperable information
systems. For example, the Army currently does not have an integrated
method to determine receipt processing for Supply Support Activities,
which could affect asset visibility and distribution concerns. Some of the
necessary data reside in the Global Transportation Network while other
data reside in the Standard Army Retail Supply System. These two databases
must be manually reviewed and merged in order to obtain the information
for accurate receipt processing performance measures.
DOD recognizes that achieving success in supply chain management is
dependent on developing interoperable systems that can share critical
supply chain data. The Business Management Modernization Program, one of
the initiatives in DOD's supply chain improvement plan that has been
absorbed into the Business Transformation Agency,8 is considered to be a
critical enabler that will provide the information technology underpinning
for improving supply chain management. As part of this initiative, DOD
issued an overarching business enterprise architecture and an enterprise
transition plan for implementing the architecture.9 We previously reported
that Version 3.110 of the business enterprise architecture reflects steps
taken by DOD to address some of the missing elements, inconsistencies, and
usability issues related to legislative requirements and relevant
architecture guidance, but additional steps are needed.11 For example, we
said that the architecture does not yet include a systems standards
profile to facilitate data sharing among departmentwide business systems
and promote interoperability with departmentwide information technology
infrastructure systems. Furthermore, we also stated that the military
services' and defense agencies' architectures are not yet adequately
aligned with the departmental architecture.
7 DOD Instruction 4140.61, Customer Wait Time and Time Definite Delivery
(December 14, 2000).
DOD Has Multiple Plans Addressing Supply Chain Management, but Alignment Among
Them Is Unclear
DOD has multiple plans aimed at improving aspects of logistics, including
supply chain management, but it is unclear how all these plans are aligned
with one another. In addition to the supply chain management improvement
plan, current DOD plans that address aspects of supply chain management
include DOD's Logistics Transformation Strategy, Focused Logistics
Roadmap, and Enterprise Transition Plan; and DLA's Transformation Roadmap.
8 The Business Transformation Agency leads and coordinates business
transformation efforts across the department. The Business Management
Modernization Program's mission is to advance departmentwide business
transformation efforts, particularly with regard to business systems
modernization.
9 The enterprise architecture, or modernization blueprint, provides a
clear and comprehensive picture of an entity, whether it is an
organization (e.g., federal department or agency) or a functional or
mission area that cuts across more than one organization (e.g., financial
management). This picture consists of snapshots of the enterprise's
current "As Is" operational and technological environment and its target
or "To Be" environment, as well as a capital investment roadmap for
transitioning from the current to the target environment. These snapshots
further consist of "views," which are basically one or more architecture
products that provide conceptual or logical representations of the
enterprise.
10 Version 3.1 is a minor update to its business enterprise architecture
released on March 15, 2006.
11 GAO, Business Systems Modernization: DOD Continues to Improve
Institutional Approach, but Further Steps Needed, GAO-06-658 (Washington,
D.C.: May 15, 2006).
In December 2004, DOD issued its Logistics Transformation Strategy. The
strategy was developed to reconcile three logistics concepts-force-centric
logistics enterprise, sense and respond logistics, and focused
logistics-into a coherent transformation strategy. The force-centric
logistics enterprise is OSD's midterm concept (2005-2010) for enhancing
support to the warfighter and encompasses six initiatives, one of which
includes "end-to-end distribution." Sense and respond logistics is a
future logistics concept developed by the department's Office of Force
Transformation that envisions a networked logistics system that would
provide joint strategic and tactical operations with predictive, precise,
and agile support. Focused logistics, a concept for force transformation
developed by the Joint Chiefs of Staff, identifies seven key joint
logistics capability areas such as Joint Deployment/Rapid Distribution.
In September 2005, DOD issued its Focused Logistics Roadmap, also referred
to as the "As Is" roadmap. It documents logistics-enabling programs and
initiatives directed toward achieving focused logistics capabilities. It
is intended to provide a baseline of programs and initiatives for future
capability analysis and investment. Seven of the 10 initiatives in the DOD
supply chain management improvement plan and some of the systems included
in the initiative to modernize the department's business systems-under the
Business Transformation Agency-are discussed in the Focused Logistics
Roadmap.
In September 2005, DOD's Enterprise Transition Plan was issued as part of
the Business Management Modernization Program. The Enterprise Transition
Plan is the department's plan for transforming its business operations.
One of the six DOD-wide priorities contained in the Enterprise Transition
plan is Materiel Visibility, which is focused on improving supply chain
performance. The Materiel Visibility priority is defined as the ability to
locate and account for materiel assets throughout their life cycle and
provide transaction visibility across logistics systems in support of the
joint warfighting mission. Two of the key programs targeting visibility
improvement are Radio Frequency Identification and Item Unique
Identification, which also appear in the supply chain management
improvement plan.
The Defense Logistics Agency's Fiscal Year 2006 Transformation Roadmap
contains 13 key initiatives underway to execute DLA's role in DOD's
overarching transformation strategy. The majority of the initiatives are
those that affect supply chain management, and several are found in DOD's
supply chain management improvement plan. For example, the Integrated Data
Environment, Business Systems Modernization, and Reutilization
Modernization Program initiatives found in DLA's Transformation Roadmap
are also in the department's supply chain management improvement plan
under the initiative to modernize the department's business systems.
These plans were developed at different points of time, for different
purposes, and in different formats. Therefore, it is difficult to
determine how all the ongoing efforts link together to sufficiently cover
requirements forecasting, asset visibility, and materiel distribution and
whether they will result in significant progress toward resolving this
high-risk area. Moreover, DOD's supply chain management improvement plan
does not account for initiatives outside OSD's direct oversight that may
have an impact on supply chain management. The initiatives chosen for the
plan were joint initiatives under the oversight of OSD in the three focus
areas of requirements forecasting, asset visibility, and materiel
distribution. However, the U. S. Transportation Command, DLA, and the
military services have ongoing and planned supply chain improvement
efforts in those areas that are not included in the plan. For example, the
U.S. Transportation Command's Joint Task Force - Port Opening initiative
seeks to improve materiel distribution by rapidly extending the
distribution network into a theater of operations. Furthermore, DLA is
implementing a National Inventory Management Strategy, which is an effort
to merge distinct wholesale and retail inventories into a national
inventory, provide more integrated management, tailor inventory to
services' requirements, and reduce redundant inventory levels. Another
example is the Army's efforts to field two new communications and tracking
systems, the Very Small Aperture Terminal and the Mobile Tracking System,
to better connect logisticians on the battlefield and enable them to
effectively submit and monitor their supply requisitions. DOD officials
told us they would be willing to consider adding initiatives that impact
the three focus areas. Until DOD clearly aligns the supply chain
management improvement plan with other department plans and ongoing
initiatives, supply chain stakeholders will not have a comprehensive
picture of DOD's ongoing efforts to resolve problems in the supply chain.
Although we are encouraged by DOD's planning efforts, DOD lacks a
comprehensive, integrated, and enterprisewide strategy to guide logistics
programs and initiatives. In the past, we have emphasized the need for an
overarching logistics strategy that will guide the department's logistics
planning efforts.12 Without an overarching logistics strategy, the
department will be unable to most economically and efficiently support the
needs of the warfighter. To address this concern and guide future
logistics programs and initiatives, DOD is in the process of developing a
new strategic plan-the "To Be" roadmap. This plan is intended to portray
where the department is headed in the logistics area, how it will get
there, and monitor progress toward achieving its objectives, as well as
institutionalize a continuous assessment process that links ongoing
capability development, program reviews, and budgeting. According to DOD
officials, the initiatives in the supply chain management improvement plan
will be incorporated into the "To Be" logistics roadmap.
The roadmap is being developed by a working group representing the four
services, DLA, the U.S. Transportation Command, the U.S. Joint Forces
Command, the Joint Staff, the Business Transformation Agency, and the
Office of the Secretary of Defense. The working group reports to a Joint
Logistics Group comprised of one-star generals and their equivalents
representing these same organizations. Additionally, the Joint Logistics
Board, Defense Logistics Board, and the Defense Logistics Executive (the
Under Secretary of Defense for Acquisition, Technology, and Logistics)
would provide continuous feedback and recommendations for changes to the
roadmap. Regarding performance measures, the roadmap would link objective,
quantifiable, and measurable performance targets to outcomes and logistics
capabilities. The first edition of the "To Be" roadmap is scheduled for
completion in February 2007, in conjunction with the submission of the
President's Budget for Fiscal Year 2008. Updates to the roadmap will
follow on an annual basis. Efforts to develop the "To Be" roadmap show
promise. However, until it is completed, we will not be able to assess how
the roadmap addresses the challenges and risks DOD faces in its supply
chain improvement efforts.
Concluding Observations
DOD faces significant challenges in improving supply chain management over
the coming years. As it develops its "To Be" roadmap for logistics, DOD
would likely benefit from including outcome-focused performance measures
demonstrating near-term progress in the three focus areas of requirements
forecasting, asset visibility, and materiel distribution. With
outcome-focused performance measures, DOD will be able to show results in
these areas that have been long identified as systemic weaknesses in the
supply chain. While we recognize the challenge to developing
outcome-focused performance measures at the department level, DOD could
show near-term progress with intermediate measures. These measures could
include outcome-focused measures for each of the initiatives or for the
three focus areas. To be most effective, the roadmap also would reflect
the results of analysis of capability gaps between its "As Is" and "To Be"
roadmaps, as well as indicate how the department intends to make this
transition. DOD would also benefit by showing the alignment among the
roadmap, the supply chain management improvement plan, and other DOD
strategic plans that address aspects of supply chain management. Clearer
alignment of the supply chain management improvement plan with other
department plans and ongoing initiatives could provide greater visibility
and awareness of actions DOD is taking to resolve problems in the supply
chain. In the long term, however, a plan alone will not resolve the
problems that we have identified in supply chain management. Actions must
result in significant progress toward resolving a high-risk problem before
we will remove the high-risk designation.
12 GAO, Defense Logistics: Strategic Planning Weaknesses Leave Economy,
Efficiency, and Effectiveness of Future Support Systems at Risk,
GAO-02-106 (Washington, D.C.: Oct. 11, 2001).
Mr. Chairman and Members of the Subcommittee, this concludes my prepared
remarks. I would be happy to answer any questions you or other Members of
the Subcommittee may have.
Staff Contacts and Acknowledgements
For further information regarding this testimony, please contact me at
202-512-8365 or [email protected] . Individuals making contributions to this
testimony include Tom Gosling, Assistant Director; Michael Avenick; Susan
Ditto; Marie Mak; Thomas Murphy; Janine Prybyla; and Matthew Spiers.
Attachment 1: Initiatives in DOD Supply Chain Management Improvement Plan
Initiative Description Focus area
Visibility Forecasting Distribution
Radio Frequency Technology X X X
Identification consisting of active
or passive
electronic tags that
are attached to
equipment and
supplies that are
shipped from one
location to another
and enable shipment
tracking.
Item Unique Marking of personal X X
Identification property items with
a machine-readable
Unique Item
Identifier, or set
of globally unique
data elements, to
help DOD value and
track items
throughout their
life cycle.
Joint Regional Streamlining of the X X X
Inventory storage and
Materiel distribution of
Management materiel within a
given geographic
area in order to
eliminate duplicate
materiel handling
and inventory
layers.
Readiness Based An inventory X
Sparing requirements
methodology that
produces an
inventory investment
solution that
enables higher
levels of readiness
at an equal or lower
cost.
War Reserve An improved war X X
Materiel reserve requirements
Improvements forecasting process.
Commodity Process of X X
Management developing a
systematic
procurement approach
to the entire usage
cycle of a group of
items.
Joint Theater Improving the X X
Logistics ability of a joint
force commander to
execute logistics
authorities and
processes within a
theater of
operations.
Joint Deployment Provides Combatant X X
and Distributions Commands with a
Operations Center joint theater
logistics capability
(supply,
transportation, and
distribution) for
command and control
of forces and
materiel moving into
and out of the
theater.
Defense Long-term X
Transportation partnership with a
Coordination coordinator of
Initiative transportation
management services
to improve the
reliability,
predictability, and
efficiency of DOD
materiel moving
within the
continental United
States by all modes.
Business Departmentwide X X X
Management initiative to
Modernization advance business
Program transformation
efforts,
particularly with
regard to business
systems
modernization.
Source: GAO analysis.
(350870)
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Highlights of GAO-06-983T , testimony before the Subcommittee on Oversight
of Government Management, the Federal Workforce, and the District of
Columbia, Committee on Homeland Security and Governmental Affairs, U.S.
Senate
July 25, 2006
DOD'S HIGH-RISK AREAS
Challenges Remain to Achieving and Demonstrating Progress in Supply Chain
Management
The Department of Defense (DOD) maintains a military force with
unparalleled logistics capabilities, but it continues to confront
decades-old supply chain management problems. The supply chain can be the
critical link in determining whether our frontline military forces win or
lose on the battlefield, and the investment of resources in the supply
chain is substantial. Because of weaknesses in DOD's supply chain
management, this program has been on GAO's list of high-risk areas needing
urgent attention and transformation since 1990. Last year, DOD developed a
plan to resolve its long-term supply chain problems in three focus areas:
requirements forecasting, asset visibility, and materiel distribution. In
October 2005, GAO testified that the plan was a good first step.
GAO was asked to provide its views on DOD's progress toward (1)
implementing the supply chain management improvement plan and (2)
incorporating performance measures for tracking and demonstrating
improvement, as well as to comment on the alignment of DOD's supply chain
management improvement plan with other department logistics plans.
This testimony is based on prior GAO reports and ongoing work in this
area. It contains GAO's views on opportunities to improve DOD's ability to
achieve and demonstrate progress in supply chain management.
Since October 2005, DOD has continued to make progress implementing the 10
initiatives in its supply chain management improvement plan, but it will
take several years to fully implement these initiatives. DOD's stated goal
for implementing its plan is to demonstrate significant improvement in
supply chain management within 2 years of the plan's inception in 2005,
but the time frames for substantially implementing some initiatives are
currently 2008 or later. While DOD has generally stayed on track, it has
reported some slippage in the implementation of certain initiatives.
Factors such as the long-standing nature of the problems, the complexities
of the initiatives, and the involvement of multiple organizations within
DOD could cause the implementation dates of some initiatives to slip
further.
DOD has incorporated several broad performance measures in its supply
chain management improvement plan, but it continues to lack
outcome-focused performance measures for many of the initiatives.
Therefore, it is difficult to track and demonstrate progress toward
improving the three focus areas of requirements forecasting, asset
visibility, and materiel distribution. Although DOD's plan includes four
high-level performance measures that are being tracked across the
department, these measures do not necessarily reflect the performance of
the initiatives and do not relate explicitly to the three focus areas.
Further, DOD's plan does not include cost metrics that might show
efficiencies gained through supply chain improvement efforts. In their
effort to develop performance measures for use across the department, DOD
officials have encountered challenges such as a lack of standardized,
reliable data. Nevertheless, DOD could show near-term progress by adding
intermediate measures. These measures could include outcome-focused
measures for each of the initiatives or for the three focus areas.
DOD has multiple plans aimed at improving aspects of logistics, including
supply chain management, but it is unclear how these plans are aligned
with one another. The plans were developed at different points of time,
for different purposes, and in different formats, so it is difficult to
determine how all the ongoing efforts link together to sufficiently cover
requirements forecasting, asset visibility, and materiel distribution and
whether they will result in significant progress toward resolving this
high-risk area. Also, DOD's supply chain management improvement plan does
not account for initiatives outside the direct oversight of the Office of
the Secretary of Defense, and DOD lacks a comprehensive strategy to guide
logistics programs and initiatives. DOD is in the process of developing a
new plan, referred to as the "To Be" roadmap, for future logistics
programs and initiatives. The roadmap is intended to portray where the
department is headed in the logistics area, how it will get there, and
what progress is being made toward achieving its objectives, as well as to
link ongoing capability development, program reviews, and budgeting.
However, until the roadmap is completed, GAO will not be able to assess
how it addresses the challenges and risks DOD faces in its supply chain
improvement efforts.
*** End of document. ***