DOD's High-Risk Areas: Efforts to Improve Supply Chain Can Be
Enhanced by Linkage to Outcomes, Progress in Transforming
Business Operations, and Reexamination of Logistics Governance
and Strategy (10-JUL-07, GAO-07-1064T).
The availability of spare parts and other critical items provided
through the Department of Defense's (DOD) supply chains affects
the readiness and capabilities of U.S. military forces. Since
1990, GAO has designated DOD supply chain management as a
high-risk area. In 2005, DOD developed a plan aimed at addressing
supply chain problems and having GAO remove this high-risk
designation. DOD's plan focuses on three areas: requirements
forecasting, asset visibility, and materiel distribution. GAO was
asked to provide its views on (1) DOD's progress in developing
and implementing the initiatives in its plan, (2) the results of
recent work relating to the three focus areas covered by the
plan, and (3) the integration of supply chain management with
efforts to improve defense business operations. GAO also
addressed broader issues of logistics governance and strategic
planning. This testimony is based on prior GAO reports and
analysis. To determine whether to retain the high-risk
designation for supply chain management, GAO considers factors
such as whether DOD makes substantial progress implementing
improvement initiatives; establishes a program to validate the
effectiveness of the initiatives; and completes a comprehensive,
integrated strategy.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-07-1064T
ACCNO: A72326
TITLE: DOD's High-Risk Areas: Efforts to Improve Supply Chain
Can Be Enhanced by Linkage to Outcomes, Progress in Transforming
Business Operations, and Reexamination of Logistics Governance
and Strategy
DATE: 07/10/2007
SUBJECT: Defense cost control
Defense procurement
Inventory control
Logistics
Military forces
Military inventories
Military materiel
Spare parts
Strategic planning
Supply chain management
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GAO-07-1064T
* [1]Summary
* [2]Background
* [3]DOD Has Made Progress in Developing and Implementing the Ini
* [4]Recent GAO Reviews Have Found That Systemic Supply Chain Man
* [5]Requirements Forecasting Problems Exist in Managing Spare Pa
* [6]Effective Management of Supplies Is Hindered by Problems in
* [7]Challenges Remain in Coordinating and Consolidating Distribu
* [8]Transforming and Improving Defense Business Operations Are I
* [9]Improving Supply Chain Management May Involve Reexamining Fu
* [10]Concluding Observations
* [11]Contacts and Acknowledgments
* [12]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 2:30 p.m. EDT
Tuesday, July 10, 2007
DOD'S HIGH-RISK AREAS
Efforts to Improve Supply Chain Can Be Enhanced by Linkage to Outcomes,
Progress in Transforming Business Operations, and Reexamination of
Logistics Governance and Strategy
Statement of William M. Solis, Director
Defense Capabilities Management
GAO-07-1064T
Mr. Chairman and Members of the Subcommittee:
I am pleased to be here today to discuss the progress made by the
Department of Defense (DOD) toward resolving long-standing problems with
supply chain management. The availability of spare parts and other
critical items that are procured and delivered through DOD's supply chain
network affects the readiness and capabilities of U.S. military forces,
and can affect the success of a mission. In addition, the investment of
resources in DOD's supply chains is substantial, amounting to more than
$150 billion a year according to DOD, and supply inventory levels have
grown by 35 percent from $63.3 billion in fiscal year 2001 to $85.6
billion in fiscal year 2006.^1 DOD also invests billions in information
technology systems that support supply chain management and other business
operations. Over time, DOD has sought to better integrate its supply chain
operations to effectively support military forces and to make its supply
chains more efficient from source of supply to point of consumption.
However, the challenges to successfully improving management of DOD's vast
and complex supply chain network are formidable, and problems with supply
chain management have yet to be fully resolved. Today's hearing is the
third time since 2005 that we have testified before this Subcommittee on
supply chain management.^2 Your active involvement has been and will
continue to be vital to keeping attention focused on this important aspect
of DOD's business and logistics support operations.
GAO's audits and evaluations have identified a number of federal programs
and operations that are high risk because of their greater vulnerabilities
to fraud, waste, abuse, and mismanagement. In recent years, GAO's
high-risk program has increasingly focused on those major programs and
operations that need urgent attention and transformation in order to
ensure that our government functions in the most economical, efficient,
and effective manner possible. We first designated DOD inventory
management as a high-risk area in 1990 because of ineffective and
inefficient inventory systems and practices. The problems we found--based
on a large body of work on the management of military supplies--included
on-hand inventory that was not needed to meet required inventory levels,
inadequate controls over items, and cost overruns. We have reported on
efforts to address this and other high-risk areas in our biennial updates
to our high-risk programs since then. In preparing the 2005 update of the
high-risk series, we determined that systemic supply problems extended
beyond inventory management to other aspects of the supply chain,
including inaccurate supply forecasts, poor asset visibility, and
ineffective distribution. We therefore expanded our high-risk designation
to include the entirety of "DOD supply chain management."
^1Part of this growth was caused by inflation. The inflation rate over
this period as measured by the Gross Domestic Product Price Index was a
little over 13 percent.
^2GAO, DOD's High-Risk Areas: High-Level Commitment and Oversight Needed
for DOD Supply Chain Plan to Succeed, [13]GAO-06-113T (Washington, D.C.:
Oct. 6, 2005); and DOD's High-Risk Areas: Challenges Remain to Achieving
and Demonstrating Progress in Supply Chain Management, [14]GAO-06-983T
(Washington, D.C.: July 25, 2006).
Over the years DOD has taken actions toward its goal of integrating and
improving supply chain management. For example, it has revised policies
and practices aimed at addressing shortcomings identified during Operation
Iraqi Freedom. It has implemented recommendations made by our office and
other audit organizations regarding specific aspects of its supply chain
operations. It has also identified technologies and commercial best
practices that could lead to substantial improvements over the long term.
Another step has been the development of DOD's supply chain management
improvement plan. In 2005, with the encouragement of the Office of
Management and Budget (OMB) and input from our office, DOD developed this
plan with the intent of addressing the problems that have prompted us to
retain this high-risk designation. (We subsequently refer to this document
as the plan.) DOD's plan lists 10 initiatives aimed at making improvements
in three focus areas of supply chain management--requirements forecasting,
asset visibility, and materiel distribution.
DOD officials believe the commitment they have demonstrated to resolving
supply chain management problems, including developing the plan and making
progress implementing initiatives, justifies removing this area from our
high-risk list. In December 2006, the Under Secretary formally requested
that we consider removing supply chain management from our list of
high-risk areas. We decided that notwithstanding positive steps taken by
DOD to address problems, supply chain management should remain a high-risk
area until DOD can successfully demonstrate improvements in requirements
forecasting, asset visibility, and materiel distribution, and we retained
this designation in the 2007 biennial update of our high-risk series.^3
3GAO, High-Risk Series: An Update, [15]GAO-07-310 (Washington, D.C.:
January 2007).
Today, I would like to provide our perspectives on (1) DOD's progress in
developing and implementing the initiatives in its plan, (2) the results
of our recent work relating to the three focus areas covered by the plan,
and (3) the integration of supply chain management with efforts to
transform and improve defense business operations. Finally, I will address
broader issues of logistics governance and strategic planning within DOD.
My statement is based on previous GAO reports and analysis, including a
report we are releasing today on DOD's efforts to develop and implement
joint theater logistics,^4 one of the initiatives in the plan. In
addition, we have met regularly with DOD and OMB staff to obtain updates
on DOD's plan and information on the specific initiatives. We conducted
our work in accordance with generally accepted government auditing
standards.
Summary
The most recent update to the plan shows that DOD has made progress
developing and implementing its supply chain management improvement
initiatives, but the current performance measures in the plan do not fully
demonstrate results. DOD is generally staying on track for implementing
its initiatives, although there have been delays in meeting certain
milestones. Notwithstanding this overall progress and the commitment of
DOD leadership to resolving supply chain problems, the long-term time
frames for many of these initiatives present challenges to the department
in sustaining progress toward substantially completing their
implementation. Moreover, the plan lacks outcome-focused performance
measures that could gauge the results of many of the individual
improvement initiatives or demonstrate progress in the three focus areas,
limiting DOD's ability to fully demonstrate the results achieved through
its plan. Increasing the plan's focus on measurable outcomes will enable
DOD's internal and external stakeholders, including Congress and OMB, to
track the interim and long-term success of DOD's initiatives and help DOD
determine if it is meeting its goals of achieving more effective and
efficient supply chain management.
In addition, our recent work has identified continuing problems related to
the three focus areas in DOD's plan.
^4GAO, Defense Logistics: Efforts to Improve Distribution and Supply
Support for Joint Military Operations Could Benefit from a Coordinated
Management Approach, [16]GAO-07-807 (Washington, D.C.: June 29, 2007).
o In the area of requirements forecasting, the military services
are experiencing difficulties estimating the length of time
between the initiation of a procurement action and the receipt of
spare parts into the supply system for equipment and weapon
systems. We also found continuing problems in the Air Force's
inventory management practices, hindering its ability to
efficiently and effectively maintain its spare parts inventory for
military equipment. Specifically, an average of 52 percent ($1.3
billion) of the Air Force's secondary on-order inventory was not
needed to support on-order requirements. Further, about 65 percent
($18.7 billion) of on-hand inventory was not needed to support
required inventory levels. We calculated that it costs the Air
Force from $15 million to $30 million annually to store its
unneeded items. Problems also continue in managing prepositioned
stocks.
o Our work in the area of asset visibility has indicated numerous
challenges, from lack of interoperability among information
technology systems to problems with container management.
Limitations in asset visibility capabilities make it difficult to
obtain timely and accurate information on the assets that are
present in the theater of operations.
o With respect to materiel distribution, we have found that
challenges remain in coordinating and consolidating distribution
and supply support within a theater. For example, DOD is
establishing separate organizations to coordinate surface
transportation and lacks a single organization with authority to
integrate and synchronize surface deployment and distribution
movements. One key challenge has been establishing an effective
mechanism that would enable a joint force commander to exercise
appropriate command and control over transportation and other
logistics assets in the theater.
Further, transforming and improving defense business operations
are integral to resolving supply chain management problems. As we
have previously stated, progress in DOD's overall approach to
business transformation is needed to confront problems in other
high-risk areas, including supply chain management. Because of the
complexity and long-term nature of business transformation, we
have stated that DOD needs a Chief Management Officer with
significant authority, experience, and a term that would provide
sustained leadership and the time to integrate DOD's overall
business transformation efforts. Our work, pending legislation,
and other recent studies indicate a consensus that the status quo
is no longer acceptable. In addition to business transformation,
we have identified two other DOD high-risk areas that are closely
linked with supply chain management--modernizing business systems
and improving financial management.
Our recent review of joint theater logistics raises concerns about
whether DOD can effectively implement this initiative without
reexamining fundamental aspects of the department's logistics
governance and strategy. In this respect, joint theater logistics
may serve as a microcosm of some of the challenges DOD faces in
resolving supply chain management problems. We found during our
review that DOD has not developed a coordinated and comprehensive
management approach to guide and oversee implementation of joint
theater logistics across the department. Moreover, we recommended
in that report that DOD align its approach to joint theater
logistics with ongoing actions the department is taking to reform
its logistics governance and develop its logistics strategy.
Regarding logistics governance, DOD has been testing a new
approach to managing joint capabilities as a portfolio, but key
decisions are still to be made on how to implement this approach.
In addition, DOD has plans to develop an overarching logistics
strategy but has delayed completion of this strategy until
sometime next year. The diffused organization of DOD's logistics
operations, including separate funding and management of resources
and systems, complicates DOD's ability to adopt a coordinated and
comprehensive approach. Several recent studies of DOD's logistics
system have recommended changes to DOD's organizational structure
for providing joint logistics and supply support to military
operations.
Background
DOD relies on a number of individual processes and activities,
known collectively as supply chain management, to purchase,
produce, and deliver items and services to military forces. The
department relies on working capital (revolving) funds maintained
by the defense and service logistics agencies to finance the flow
of these items to the forces. Working capital funds allow these
agencies to purchase needed items from suppliers. Military units
then order items from the logistics agencies and pay for them with
annually appropriated operations and maintenance funds when the
requested items--either from inventory or manufacturers--are
delivered to the units.
The Under Secretary of Defense (Acquisition, Technology, and
Logistics) has been designated by the Secretary of Defense as the
department's Defense Logistics Executive, with authority to
address logistics and supply chain issues. Officials within the
Office of the Assistant Deputy Under Secretary of Defense for
Supply Chain Integration completed the first iteration of the plan
in July 2005 and have updated it several times since then based on
information provided by designated lead proponents for the
individual initiatives. DOD has shared its plan externally with
Congress, OMB, and our office. OMB has characterized the plan as a
model for other federal agencies to use in developing their own
plans to address their high-risk areas.
The plan has three focus areas: requirements forecasting, asset
visibility, and materiel distribution--issues that we have
identified based on GAO audits since 1995 as critical to improving
DOD supply chain management. Accurately forecasted supply
requirements are a key first step in buying, storing, positioning,
and shipping items that the warfighter needs. DOD describes asset
visibility as the ability to provide timely and accurate
information on the location, quantity, condition, movement, and
status of supplies and the ability to act on this information.
Distribution is the process for synchronizing all elements of the
logistics system to deliver the "right things" to the "right
place" at the "right time" to support the warfighter. Our prior
work has identified problems in these three focus areas, as well
as other aspects of supply chain management.
DOD's plan identifies joint theater logistics as an initiative
that will improve both asset visibility and materiel distribution.
Joint theater logistics is intended to enhance the ability of a
joint force commander to direct various logistics functions,
including distribution and supply support activities, across the
theater and, for several years, has been part of DOD's planned
transformation of logistics capabilities. Joint theater logistics
is one of seven future logistics capabilities that DOD has grouped
under "focused logistics." DOD has broadly defined joint theater
logistics as an adaptive ability to anticipate and respond to
emerging theater logistics and support requirements.
In general, when legislative and agency actions result in
significant and sustainable progress toward resolving a high-risk
problem, we remove the high-risk designation. Key determinants
include a demonstrated strong commitment to and top leadership
support for addressing problems, the capacity to do so, a
corrective action plan, and demonstrated progress in implementing
corrective measures.^5 From 1990 through 2007, we removed 18 areas
from the high-risk list. Our decisions on removing supply chain
management from the high-risk list will be guided by whether DOD
(1) sustains top leadership commitment and long-term institutional
support for the plan; (2) obtains necessary resource commitments
from the military services, the Defense Logistics Agency, and
other organizations; (3) makes substantial progress implementing
improvement initiatives across the department; (4) establishes a
program to demonstrate progress and validate the effectiveness of
the initiatives; and (5) completes the development of a
comprehensive, integrated strategy for guiding supply chain
management improvement efforts across the department.
^5The criteria for removing a high-risk designation are contained in GAO,
Determining Performance and Accountability Challenges and High Risks,
[24]GAO-01-159SP (Washington, D.C.: November 2000).
DOD Has Made Progress in Developing and Implementing the Initiatives
in Its Plan, but Current Performance Measures Do Not Fully Demonstrate
Results
The most recent update to the plan in May 2007 shows that DOD,
over the past year, has made progress in developing and
implementing its improvement initiatives. We noted this progress
in the January 2007 update of our high-risk series. Specific
examples of progress made include the following:
o DOD has established joint deployment distribution operations
centers in each geographic combatant command. In early 2004, DOD
established the first of these operations centers in Kuwait, under
U.S. Central Command, after distribution problems arose during the
initial stages of Operation Iraqi Freedom. DOD has since expanded
this organization to its other geographic combatant commands.
These operations centers can help joint force commanders
synchronize the arrival of supplies into a theater and assist in
other aspects of distribution and supply support. They are
designed to incorporate representatives from DOD components, such
as U.S. Transportation Command, the Defense Logistics Agency, and
the military services, who can provide a knowledgeable connection
to logistics supply centers in the United States and facilitate
the distribution of supplies to the theater. The expansion of
these operations centers to all the geographic commands was based
on the success of the first operations center in Kuwait, which has
been credited with improving the management of supplies moving
across the distribution system and achieving cost savings.^6
^6For example, U.S. Transportation Command officials said that the
operations center was responsible for shifting from the use of airlift to
sealift to transport supplies, which reduces costly airlift requirements
and frees up airlift capacity; coordinating the movement of personnel from
their point of origin to final destination rather than through
intermediate locations with time-consuming layovers (a concept referred to
as single ticket); and improving distribution management by facilitating
the use of pure-packed pallets and containers, developing a container
management plan, and improving the return of Army materiel from the
theater. According to data provided by U.S. Transportation Command, the
activities of this joint deployment distribution operations center
resulted in total cost avoidance and savings of $343 million between
fiscal years 2004 and 2007.
o DOD has reported initial success with an initiative aimed at
streamlining the storage and distribution of common items for
multiple military service locations through the use of Defense
Logistics Agency hubs. The objectives of this initiative, called
joint regional inventory and material management, include
eliminating duplicate materiel handling and inventory layers. DOD
has met key milestones in this initiative and recently completed
the pilot program in Hawaii. U.S. Pacific Command officials stated
that they had reduced redundant service-managed inventories, the
number of times they handle parts, and customer wait times over
the course of the pilot. They estimated that the services had
reduced their inventory levels by more than $10 million. In March
2007, the Defense Logistics Agency was tasked to be the lead
proponent for continued worldwide implementation of joint regional
inventory and material management.
o DOD also made progress toward improving transportation
management of military freight. Before the end of this fiscal
year, U.S. Transportation Command plans to award a contract to a
third-party logistics provider, or 3PL, to coordinate the movement
of freight shipments within the continental United States. This
effort, called the defense transportation coordination initiative,
is aimed at improving the reliability, predictability, and
efficiency of moving freight among DOD's depots, logistics
centers, and field activities. In a recent report on this
initiative,^7 we stated that DOD had taken numerous actions to
incorporate the lessons learned from a prior prototype program
and, moreover, had taken positive steps to adopt best practices
employed by other public and private organizations to transform
their culture. Still, the long-term success of this effort remains
uncertain given the challenges in undertaking organizational
transformation and because the program is still in its early
stages.
Despite the progress indicated by the development and
implementation of these initiatives, the recent update of DOD's
plan indicates some delays in achieving certain milestones. For
example, the radio frequency identification (RFID)^8 initiative
experienced a slippage from December 2006 to September 2007 in its
milestone to implement passive RFID at the first 25 percent of
Defense Logistics Agency's distribution centers located outside
the continental United States. This milestone was adjusted based
on lessons learned from the implementation of RFID at sites within
the continental United States. Also, the item unique
identification initiative^9 experienced a slippage of a year, from
January 2007 to January 2008, for the milestone on demonstrating
integration with international entities, because required
ratification from the North Atlantic Treaty Organization was
delayed. Schedule delays such as these may be expected given the
long-standing nature of the problems being addressed, the
complexities of the initiatives, and the involvement of multiple
organizations. Furthermore, some of these initiatives are in the
early stages of implementation, with full implementation several
years away. The long-term time frames for many of these
initiatives present challenges to the department in sustaining
progress toward substantially completing their implementation.
^7GAO, Defense Transformation: DOD Has Taken Actions to Incorporate
Lessons Learned in Transforming Its Freight Distribution System,
[25]GAO-07-675R (Washington, D.C.: May 8, 2007.)
^8RFID consists of electronic tags that are attached to equipment and
supplies being shipped from one location to another, enabling shipment
tracking.
Since the last hearing before this Subcommittee in July 2006, we
have not seen significant changes in how DOD proposes to measure
the impact of its initiatives in its plan. The plan, as before,
contains four performance metrics--backorders, customer wait time,
on-time orders, and logistics response time.^10 While these four
measures capture broad aspects of DOD's supply chain performance,
they can be affected by variables other than the initiatives
themselves. For example, natural disasters, wartime surges in
requirements, or disruption in the distribution process could each
result in increased backorders, longer customer wait time, fewer
on-time orders, and slowed response time, regardless of DOD's
initiatives. Consequently, changes in these high-level metrics
might not be directly attributable to the initiatives in the plan.
While it may take years before the results of programs become
apparent, intermediate metrics can be used to provide information
on interim results and show progress toward intended results. In
addition, when program results could be influenced by external
factors, intermediate metrics can be used to identify the
program's discrete contribution to the specific result.
^9Item unique identification provides for marking of personal property
items with a set of globally unique data items to help DOD value and track
items throughout their life cycle.
^10Backorders are the number of orders held in an unfilled status pending
receipt of additional parts or equipment through procurement or repair.
Customer wait time measures the number of days between the issuance of a
customer order and satisfaction of that order. On-time orders is the
percentage of orders that are on time according to DOD's established
delivery standards. Logistics response time refers to the 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.
As we noted last July, the results of DOD's initiatives would be
more apparent if DOD applied more outcome-oriented performance
metrics for many of the individual initiatives and for the three
focus areas. Outcome-oriented performance metrics show results or
outcomes related to an initiative or program in terms of
effectiveness, efficiency, impact, or all of these. Since last
July, DOD has not added new outcome-focused performance metrics to
its plan. DOD also continues to lack cost metrics that might show
efficiencies gained through these supply chain efforts, either at
the initiative level or overall. In total, DOD's plan identifies a
need to develop outcome-focused performance metrics for 6
initiatives, and 9 out of 10 initiatives lack cost metrics. We
recommended in January that DOD develop, implement, and monitor
outcome-focused performance and cost metrics for all the
individual initiatives in the plan as well as for the plan's focus
areas of requirements forecasting, asset visibility, and materiel
distribution.^11 In response to our recommendation, DOD asserted
that it had developed and implemented outcome-focused performance
and cost metrics for logistics across the department, but it also
acknowledged that more work needed to be done to link the outcome
metrics to the initiatives in the plan as well as for the focus
areas. DOD stated that these linkages will be completed as part of
full implementation of each initiative.
Recent GAO Reviews Have Found That Systemic Supply Chain Management
Problems Continue
Our recent work has identified continued systemic weakness in
aspects of DOD's supply chain management. I will briefly highlight
some of the results from these reviews, structured around the
three focus areas covered by DOD's plan.
^11GAO, DOD's High-Risk Areas: Progress Made Implementing Supply Chain
Management, but Full Extent of Improvement Unknown, [26]GAO-07-234
(Washington, D.C.: Jan. 17, 2007).
Requirements Forecasting Problems Exist in Managing Spare Parts
and Prepositioned Stocks
In the area of requirements forecasting, the military services are
experiencing difficulties estimating acquisition lead times to
acquire spare parts for equipment and weapon systems.^12 Effective
processes that identify and manage acquisition lead times are of
critical importance to maintaining cost-effective inventories,
budgeting, and having materiel available when it is needed. In
March 2007, we reported that 44 percent of the services' lead time
estimates varied either earlier or later than the actual lead
times by at least 90 days.^13 Overestimates and underestimates of
acquisition lead time contribute to inefficient use of funds and
potential shortages or excesses of spare parts. We recommended a
number of actions DOD should take to improve the accuracy and
strengthen the management of lead times. For example, we made
specific recommendations directed toward the Army, the Air Force,
the Navy, and the Defense Logistics Agency with the intent of
improving their accuracy in setting acquisition lead times. DOD
mostly concurred with our recommendations.
In a separate review of the Air Force's inventory management
practices,^14 we found continuing problems hindering its ability
to efficiently and effectively maintain its spare parts inventory
for military equipment. From fiscal years 2002 through 2005, more
than half of the Air Force's secondary inventory (spare parts),
worth an average of $31.4 billion annually, was not needed to
support required on-order and on-hand inventory levels. We found
an average of 52 percent ($1.3 billion) of the Air Force's
secondary on-order inventory was not needed to support on-order
requirements.^15 This unneeded on-order inventory indicates that
the Air Force did not cancel orders or deobligate funds for items
that were not needed to support requirements. When the Air Force
buys unneeded items, it is obligating funds unnecessarily, which
could lead to not having sufficient funds to purchase needed
items. The Air Force has continued to purchase unneeded inventory
because its policies do not provide incentives--such as requiring
contract termination review for all unneeded on-order inventory or
reducing the funding available for the Air Force Materiel Command
by an amount up to the value of the Air Force's on-order inventory
that is not needed to support requirements--to reduce the amount
of inventory on order that is not needed to support requirements.
In addition, although the percentage of the Air Force's on-hand
inventory was reduced by 2.7 percent during these years, about 65
percent ($18.7 billion) of this inventory was not needed to
support required inventory levels. We calculated that it costs the
Air Force from $15 million to $30 million annually to store its
unneeded items. We recommended that the Air Force improve its
policies regarding on-order inventory, revalidate the need to
retain items that are not needed to meet inventory requirements
and for which there is no recurring demand, and take other actions
to improve accountability for, and management of, its secondary
inventory. DOD generally concurred with our recommendations.
^12Acquisition lead time, also known as procurement lead time, measures
the length of time between the initiation of a procurement action and the
receipt of items into the supply system.
^13GAO, Defense Inventory: Opportunities Exist to Improve the Management
of DOD's Acquisition Lead Times for Spare Parts, [27]GAO-07-281
(Washington, D.C.: Mar. 2, 2007).
^14GAO, Defense Inventory: Opportunities Exist to Save Billions by
Reducing Air Force's Unneeded Spare Parts Inventory, [28]GAO-07-232
(Washington, D.C.: Apr. 27, 2007).
^15Secondary inventory items include reparable components; subsystems; and
assemblies other than major end items (such as aircraft), consumable
repair parts, bulk items and materiel, subsistence, and expendable end
items, including clothing and other personal gear. Inventory that is not
in DOD's possession but for which contracts have been awarded or funds
have been committed is considered to be on order.
Another area of continuing concern has been the stocks maintained
in the Army's prepositioning programs. Prepositioning is one of
three ways, along with airlift and sealift, that the U.S. military
can deliver equipment and supplies to field combat-ready forces.
The Army drew heavily from its prepositioned stocks to support
Operations Iraqi Freedom and Enduring Freedom, and these sustained
operations have taken a toll on the condition and readiness of
military equipment. In February 2007, we reported the Army was
changing its overall prepositioning strategy and, in doing so,
faced major strategic and management challenges.^16 One of these
challenges was that despite recent efforts to improve requirements
setting, the Army had not yet determined reliable requirements for
secondary items and operational project stocks.^17 Also, the Army
does not systematically measure or report readiness for the
secondary item and operational project programs. Without sound
requirements or reporting mechanisms, the Army cannot reliably
assess the impact of any shortfalls, determine the readiness of
its programs, or make informed investment decisions about them. We
recommended that the Army develop an implementation plan that,
among other things, completes ongoing reevaluation of the
secondary item and project stock requirements as well as
establishes systematic readiness measurement and reporting of
secondary items and operational project stock programs. DOD
concurred with this recommendation.
^16GAO, Defense Logistics: Improved Oversight and Increased Coordination
Needed to Ensure Viability of the Army's Prepositioning Strategy,
[29]GAO-07-144 (Washington, D.C.: Feb. 15, 2007).
^17Operational project stocks include items not typically part of unit
equipment, such as chemical defense equipment, pipeline systems, mortuary
units, and bare base sets for housing soldiers in austere environments.
Effective Management of Supplies Is Hindered by Problems in
Achieving Asset Visibility
Despite the benefits attributed to the joint deployment
distribution operations center in Kuwait, effective management of
supply distribution across the theater has been hindered by
ongoing problems in achieving asset visibility. Senior military
commanders in Kuwait attributed these problems to a lack of
interoperability among information technology systems that makes
it difficult to obtain timely, accurate information on assets in
the theater.^18 We have previously reported that the defense
logistics systems used by various components to order, track, and
account for supplies are not well integrated and do not provide
the information needed to effectively manage theater distribution
and provide asset visibility.^19 Officials told us their staff
must use manual work-arounds to overcome the problems caused by
noninteroperable information systems and estimated that their
staff spend half their time pulling data from information systems,
e-mailing it around for validation or coordination, consolidating
it on a spreadsheet, and then analyzing it to make management
decisions. In January 2007, a joint assessment conducted by
several DOD components at Camp Arifjan, Kuwait, found that
separate movement control battalions in Kuwait and Iraq use both
automated and handwritten transportation movement requests to
track air and ground movements and must consolidate manual and
automated data into spreadsheets in order to capture the total
theater movement picture. Neither movement battalion has total
visibility over what is occurring in both Kuwait and Iraq nor do
they have total visibility of the surface transportation resources
necessary to optimize the distribution of resources.
^18Interoperability refers to the ability of different systems to
communicate effectively, including sharing information.
^19GAO, Defense Logistics: DOD Has Begun to Improve Supply Distribution
Operations, but Further Actions Are Needed to Sustain These Efforts,
[30]GAO-05-775 (Washington, D.C.: Aug. 11, 2005).
In our review of joint theater logistics, we also found continuing
problems with container management that hinder asset visibility
and impede DOD's ability to effectively manage logistics
operations and costs, although improvements had been made since we
last reported on this issue in 2003.^20 Some challenges that DOD
faces with container management include the application of RFID on
containers in the supply chain, compliance with container
management processes, and the return of commercial containers to
maritime carriers.
In 2004, the Under Secretary of Defense (Acquisition, Technology,
and Logistics) directed the use of active RFID on all consolidated
shipments moving to, from, or between overseas locations in order
to provide global in-transit visibility, and U.S. Central Command
has emphasized the need to use this technology to improve asset
visibility in Iraq and Afghanistan. However, according to U.S
Central Command officials, DOD continues to struggle with the
application of RFID in the theater supply chain because of
problems such as containers shipped without RFID tags or with tags
that are broken, tags with incorrect information, or tags that are
rewritten but not cross-referenced to the original shipping
information. Noncompliance with container management processes
established by U.S. Central Command can also limit asset
visibility. For example, the Army's system has not been able to
effectively track containers as they pass through distribution
channels, significantly hampering asset visibility in theater
because tagged containers can become "lost" in theater, with no
one able to track the location of the container or its contents.
In addition, if the container is commercially owned and not
returned to the carrier within a specified time period, detention
charges begin accumulating.
During our review of joint theater logistics we also found that
U.S. Transportation Command and the Military Surface Deployment
and Distribution Command, to improve management and accountability
over containers and to address the growing detention charges,
developed a theater container management process and established
the container management element--a unit responsible for tracking
and providing management oversight of containers in the theater.
In addition, the Army decided to purchase, or "buy out,"
commercial containers to reduce monthly detention charges.
Container management element officials told us that through a
combination of container buyouts and increased oversight,
detention charges decreased from approximately $10.7 million per
month in December 2005 to $3.7 million per month in October 2006.
However, although DOD has been able to reduce monthly detention
charges on commercial containers, it is still experiencing
problems with retaining visibility over containers, and its
problem with commercial container detention charges is shifting
from Iraq to Afghanistan.
^20GAO, Defense Logistics: Preliminary Observations on the Effectiveness
of Logistics Activities during Operation Iraqi Freedom, [31]GAO-04-305R
(Washington, D.C.: Dec. 18, 2003).
In addition, the Army continues to experience problems in
developing and implementing system initiatives affecting asset
visibility. For example, the Logistics Management Program, one of
the Army's major business system modernization efforts intended to
manage its inventory and depot maintenance operations, has
continued to experience problems with accurately recognizing
revenue and billing customers, and the accuracy of its financial
reports continues to be questionable. If information contained in
asset accountability systems is not accurate, complete, and
timely, DOD's day-to-day operations could be adversely affected.
As of September 30, 2006, the Army reported that approximately
$452 million had been obligated for this system effort and
estimates that it will invest at least another $895 million in
this program. Also, its schedule to reach full operational
capability has slipped from fiscal year 2005 to fiscal year
2010.^21 We have recently reviewed the Army's progress in
achieving asset visibility and expect to issue our report by the
end of this month.^22
^21Full operational capability means that the system has been deployed to
all intended locations.
^22 We conducted this engagement in response to a request from the
Subcommittee on Readiness and Management Support, Senate Armed Services
Committee.
Challenges Remain in Coordinating and Consolidating Distribution
and Supply Support within a Theater
In our review of joint theater logistics, we found that DOD
components have made progress developing and implementing joint
theater logistics initiatives in the areas of distribution and
supply support; however, the department faces a number of
challenges that hinder its ability to fully realize the benefits
of these efforts. Unless DOD successfully addresses these
challenges, the initiatives are not likely to significantly
improve the ability of a joint force commander to harness the
diffuse logistics resources and systems that exist within the
department and effectively and efficiently direct logistics
functions, including distribution and supply support activities,
across the theater of operations to accomplish an assigned
mission.
For example, initiatives to improve the coordination of surface
transportation assets--mainly trucks--in a theater of operations
face challenges such as potential duplication of responsibilities,
the unavailability of information technology tools, and unclear
lines of command and control. According to a 2005 RAND Corporation
study,^23 during the initial phase of Operation Iraqi Freedom
there was no single organization deployed in theater with the
authority to rebalance transportation assets across the theater
and integrate and synchronize the surface deployment and
distribution movements of materiel in support of the commander's
priorities. As part of its modular transformation, the Army is
creating theater and expeditionary sustainment commands that are
aimed in part at centralizing control over Army surface
transportation assets within a theater of operations.^24 In a
separate initiative, U.S. Transportation Command created a new
organization, the director of mobility forces-surface, to
integrate surface deployment and distribution priorities set by
the joint force commander.
Army officials raised concerns about whether the theater and
expeditionary sustainment commands would have the information
technology tools and personnel necessary to effectively and
efficiently carry out their missions. They said that these
commands were designed to be smaller than their predecessors,
based on an assumption that certain information technology tools
would be available to enable the commands to operate with fewer
personnel. However, some of these information technology
tools--such as the next generation Mobile Tracking System, Battle
Command Sustainment Support System, and Transportation
Coordinator's Automated Information for Movements System II--have
experienced problems during their development that have limited
their capability or have delayed their fielding. According to Army
officials, the shortcomings in available information tools have
resulted in the need for additional staff in the theater and
expeditionary sustainment commands and have required the commands
to use manual, ad hoc techniques, which are cumbersome and
manpower intensive, to validate, coordinate, and analyze data for
decision making.
^23RAND Corporation, Sustainment of Army Forces in Operation Iraqi
Freedom: Battlefield Logistics and Effects on Operations, Contract No.
DASW01-C-0003 (Santa Monica, Calif.: 2005).
^24Theater sustainment commands provide the Army a single headquarters
responsible for operational command and control of logistics operations
throughout the theater. Expeditionary sustainment commands, a forward
extension of the theater sustainment commands, have a primary role of
managing regional logistics operations in support of the joint task force
commander.
The U.S. Transportation Command-led efforts to establish the
director of mobility forces-surface have also faced implementation
challenges. The initial assessment of the director of mobility
forces-surface pilot in Kuwait by U.S. Transportation Command and
U.S. Central Command indicated that the initiative faces a number
of challenges related to command and control, availability of
information technology tools, securing personnel with the
expertise and knowledge to use the information technology tools
that are available, and potential duplication of responsibilities
with other Army organizations. U.S. Central Command discontinued
the pilot in May 2007 until some of these issues were resolved. In
addition, the Army reviewed more than 100 proposed
responsibilities of the director of mobility forces-surface and
found that most of these responsibilities are already covered by
the Army's theater and expeditionary sustainment commands or other
commands.
DOD also has developed initiatives to consolidate and improve
storage and shipping of materiel, including node management and
deployable depot, joint regional inventory and material
management, and theater consolidation and shipping point,^25 but
such efforts have been implemented on a limited scale. During our
visits to Kuwait, we found that the Defense Logistics Agency and
the Army were operating separate facilities that have the
potential for consolidation, which could result in more efficient
use of resources. We discussed this issue with senior U.S.
military officials in Kuwait and with Defense Logistics Agency
officials. Following these discussions and the completion of our
fieldwork, the Defense Logistics Agency assessed ways to improve
theater distribution and made recommendations to consolidate and
relocate existing operations. Specifically, in April 2007, the
Defense Logistics Agency study team recommended terminating the
theater consolidation and shipping point contract, assuming these
functions at the defense distribution depot, and drawing down
inventory and operations at the Army general support warehouse at
Camp Arifjan.
^25Node management and deployable depot is a Defense Logistics Agency
initiative to develop a small-scale, rapidly deployable distribution
center that has the capability to provide consolidated shipping,
receiving, cross-docking, storage, communication, and order processing.
Joint regional inventory and material management, identified as one of the
10 initiatives in the plan, was discussed earlier in this statement.
Theater consolidation and shipping points is an effort by the Defense
Logistics Agency, in coordination with the Army and combatant commands, to
improve the efficiency and interoperability of materiel consolidation and
shipping activities.
Finally, various options have emerged for improving the ability of
a joint force commander to exercise command and control over joint
theater logistics functions. U.S. Joint Forces Command is
coordinating the joint experimental deployment and support
initiative, whose objective is to experiment with a range of
command and control options that can provide logistics
coordination, integration, and synchronization to meet the
combatant commander's priorities. The initiative builds upon DOD's
joint deployment distribution operations center concept and
progresses along a continuum to include more robust organizational
options. However, the military services have raised concerns about
how their own roles and responsibilities for providing logistics
support might be affected and have opposed expansion of the most
robust command and control option that has emerged--known as the
joint force support component command.
Our discussions with officials from the combatant commands and the
military services indicated that there are unresolved issues
related to exercising joint command and control over logistics
functions in a theater of operations. A number of officials had
concerns about how organizations such as the joint force support
component command would be staffed and what roles and authorities
it would have. Specifically, they mentioned statutory requirements
for logistics support, directive authority for logistics, and
operational and financial considerations. The services expressed
concerns about mandating that they provide staff to the joint
force support component command, while also fulfilling their Title
10 responsibilities to man, train, and equip their forces.^26
Officials from military service components in the geographic
combatant commands raised the issue of having a service component
take direction from a separate component command at the same
level, rather than from a higher-level command, and they were
resistant to losing personnel to such an organization because the
service component commands still have tactical logistics
responsibilities to fulfill. Some military service officials
raised questions about the effectiveness of a joint force support
component command that lacked an ability to exercise directive
authority for logistics. This authority gives the combatant
commander the ability to shift logistics resources within the
theater in order to accomplish a mission.^27 Officials we
interviewed did not believe this authority could be delegated
below the level of a joint force commander or service component
commander^28 to an entity such as the joint force support
component command. Thus, they questioned how the joint force
support component command differs from other logistics command and
control organizations if the organization can make recommendations
to the joint force commander but not actually direct the transfer
of assets across the service components, known as cross-leveling.
Readiness and financial considerations related to exercising
directive authority for logistics include the military operational
risks and trade-offs associated with cross-leveling. Assets
diverted from one unit to support another unit may affect the
giving organization's ability to conduct a future operation, and
officials raised concerns that logisticians in a separate
logistics command may not fully understand the impact of
cross-leveling on the next military mission. Additionally, because
the services obtain funding for their own assets, several
officials told us that some form of financial reconciliation must
be considered when exercising directive authority for logistics.
^26Various provisions of Title 10, U.S. Code establish responsibilities
and authorities for supplying and equipping the armed forces. See 10
U.S.C. SS 3013, 3062, 5013, 5062, 5063, 8013, and 8062.
Transforming and Improving Defense Business Operations Are Integral
to Resolving Supply Chain Management Problems
DOD spends billions of dollars to sustain key business operations
intended to support the warfighter, including systems and
processes related to the supply chain and other business areas. We
have reported on inefficiencies in DOD's business operations, such
as the lack of sustained leadership and a comprehensive,
integrated, and enterprisewide business plan. Moreover, at a time
of increasing military operations and growing fiscal constraints,
billions of dollars have been wasted annually because of the lack
of adequate transparency and appropriate accountability across
DOD's business areas.
As we have previously stated, progress in DOD's overall approach
to business transformation is needed to confront problems in other
high-risk areas, including supply chain management.^29 Because of
the complexity and long-term nature of business transformation, we
have stated that DOD needs a Chief Management Officer with
significant authority, experience, and a term that would provide
sustained leadership and the time to integrate DOD's overall
business transformation efforts. Without formally designating
responsibility and accountability for results, reconciling
competing priorities among various organizations and prioritizing
investments will be difficult and could impede the department's
progress in addressing deficiencies in key business areas. Based
on our long-standing body of work, pending legislative language,
and the results of studies completed by the Defense Business Board
and the Institute for Defense Analysis, there is a clear consensus
that the department needs a Chief Management Officer and that the
status quo is no longer acceptable.
^27Under 10 U.S.C. S164, unless otherwise directed by the President or the
Secretary of Defense, the authority, direction, and control of the
commander of a combatant command with respect to the commands and forces
assigned to that command include giving authoritative direction to
subordinate commands and forces necessary to carry out missions assigned
to the command, including authoritative direction over all aspects of
military operations, joint training, and logistics.
^28Joint Chiefs of Staff, Joint Publication 4-0, Doctrine for Logistic
Support of Joint Operations (Apr. 6, 2000), p. I-3.
The two other DOD high-risk areas that are most closely linked
with supply chain management are modernizing business systems and
improving financial management. Successful resolution of supply
chain management problems will require investment in needed
information technology. The DOD systems environment that supports
these operations is overly complex and error prone, and is
characterized by little standardization across the department,
multiple systems performing the same tasks, the same data stored
in multiple systems, and the need for data to be entered manually
into multiple systems. Modernized business systems are essential
to the department's effort to address its supply chain management
issues. In its plan, DOD recognizes that achieving success in
supply chain management depends on developing interoperable
systems that can share critical supply data. One of the
initiatives included in the plan is business system modernization,
an effort that is being led by DOD's Business Transformation
Agency and that includes achieving materiel visibility through
systems modernization as an enterprisewide priority.
Regarding financial management, we have repeatedly reported that
weaknesses in business management systems, processes, and internal
controls not only adversely affect the reliability of reported
financial data, but also the management of DOD operations. Such
weaknesses have adversely affected the ability of DOD to control
costs, ensure basic accountability, anticipate future costs and
claims on the budget, measure performance, maintain funds control,
and prevent fraud. In 2005, DOD issued its Financial Improvement
and Audit Readiness Plan, which is intended to provide DOD
components with a road map for resolving problems affecting the
accuracy, reliability, and timelines of financial information and
obtaining clean financial statement audit opinions. However,
tangible evidence of improvements in financial management remains
limited, and DOD recognizes that it will take several years to
implement the systems, processes, and other improvements needed to
address its financial management challenges.
^29The other high-risk areas under DOD's approach to business
transformation are business systems modernization, the personnel security
clearance program, support infrastructure management, financial
management, and weapon systems acquisition.
Improving Supply Chain Management May Involve Reexamining
Fundamental Aspects of DOD's Logistics Governance and Strategy
Our recent review of joint theater logistics raises concerns about
whether DOD can effectively implement this initiative without
reexamining fundamental aspects of the department's logistics
governance and strategy. In this respect, joint theater logistics
may serve as a microcosm of some of the challenges DOD faces in
resolving supply chain management problems. We found that DOD has
not developed a coordinated and comprehensive management approach
to guide and oversee implementation of joint theater logistics
across the department. Efforts to develop and implement joint
theater logistics initiatives have been fragmented among various
DOD components largely because of a lack of specific goals and
strategies, accountability for achieving results, and
outcome-oriented performance measures--key principles of sound
management. While DOD has broadly defined joint theater logistics
as an adaptive ability to anticipate and respond to emerging
theater logistics and support requirements, it has not developed
specific goals and strategies linked to this vision. In addition,
DOD has not assigned accountability for achieving results under
joint theater logistics and has not developed outcome-oriented
performance measures that would enable the department to know
whether its efforts are fully and effectively achieving a joint
theater logistics capability. Without a coordinated and
comprehensive approach to managing joint theater logistics, DOD
lacks assurance that it is on the right path toward achieving this
capability or that individual initiatives will collectively
address gaps in logistics capabilities. Further, DOD will have
difficulty achieving the desired improvements in distribution and
asset visibility associated with joint theater logistics as
portrayed in the plan.
Based on our review, we recommended that DOD develop and implement
a coordinated and comprehensive management approach to guide and
oversee efforts across the department to improve distribution and
supply support for the U.S. forces in a joint theater. This
approach should encompass sound management principles, including
developing specific strategies and goals, assigning accountability
for achieving results, and using outcome-oriented performance
measures. Moreover, in that report we recommended that DOD align
its approach to joint theater logistics with ongoing actions the
department is taking to reform its logistics governance and
strategy, which are discussed below. In considering options for
implementing this recommendation, we stated that DOD should
determine whether any changes should be made to DOD's
organizational structure and control of resources for joint
logistics support, and identify the steps needed to make these
changes, including changes to existing laws, such as Title 10. DOD
concurred with our recommendation.
Regarding logistics governance, DOD has been testing a new
approach to managing joint capabilities as a portfolio.^30 In
September 2006, the Deputy Secretary of Defense selected joint
logistics as one of four capability areas for testing capabilities
portfolio management.^31 These experiments were initiated in
response to the 2006 Quadrennial Defense Review, which emphasized
DOD's need to build on capabilities-based planning and management.
According to DOD officials, the purpose of this test is to
determine if DOD can make better leadership decisions by managing
a portfolio of capabilities instead of managing systems and
capabilities individually. Thus, this portfolio test is intended
to enable senior leaders to consider trade-offs across previously
stovepiped areas and to better understand the implications of
investment decisions across competing priorities. Specifically in
the joint logistics area, the portfolio includes all capabilities
required to project and sustain joint force operations, including
supply chain operations. While DOD officials told us the initial
results of the test have been completed and have shown that
portfolio management is an effective means for managing
capabilities, they said that decisions had not yet been made on
how to implement this new governance approach.
The decisions DOD makes on capabilities portfolio management will
also influence the development of its logistics strategy. In our
prior work, we have noted that DOD has undertaken various efforts
over the years to identify, and plan for, future logistics needs,
but it has lacked an overarching, consistent logistics strategy.
Last year, the department began to develop a "to be" road map to
guide future logistics programs and initiatives. DOD officials
described the "to be" road map as portraying where the department
is headed in the logistics area and how it will get there;
monitoring progress toward achieving its objectives; and
institutionalizing a continuous assessment process that links
ongoing capability development, program reviews, and budgeting.
According to DOD officials, the initiatives in the plan will be
incorporated into the "to be" road map. At this time last year,
the first edition of the "to be" road map was scheduled for
completion in February 2007, in conjunction with the submission of
the President's Budget for Fiscal Year 2008, with annual updates
planned. However, DOD subsequently put the "to be" road map on
hold pending the completion of the capabilities portfolio
management test. DOD officials have told us that the "to be" road
map is now scheduled to be completed in summer 2008. In
January,^32 we recommended that DOD improve its ability to guide
logistics programs and initiatives across the department and to
demonstrate the effectiveness, efficiency, and impact of its
efforts to resolve supply chain management problems by completing
the development of a comprehensive, integrated logistics strategy
that is aligned with other defense business transformation
efforts. DOD concurred with our recommendation.
^30DOD has identified other actions in addition to portfolio management
for improving DOD governance. For example, DOD is studying ways to
establish better strategic direction and exploring options for DOD capital
resource allocation and funding stability.
^31The other three test cases are joint command and control, joint
net-centric operations, and battlespace awareness.
In reviewing DOD's approach to developing and implementing joint
theater logistics initiatives, we found that the diffused
organization of DOD's logistics operations, including separate
funding and management of resources and systems, complicates DOD's
ability to adopt a coordinated and comprehensive approach. Several
recent studies of DOD logistics system have reached similar
conclusions. Since 2003, a number of studies have recommended
changes to DOD's organizational structure for providing joint
logistics and supply support to military operations.^33 Some of
these organizations have noted that control over resources is a
critical issue to be addressed. For example, the Defense Science
Board recommended creation of a joint logistics command that would
combine the missions of U.S. Transportation Command, the Defense
Logistics Agency, and service logistics commands. The Center for
Strategic and International Studies also suggested the creation of
a departmentwide logistics command responsible for end-to-end
supply chain operations. Regarding resource allocation, this study
further stated that resources should be organized, managed, and
budgeted largely along military service lines, but in those
instances where joint capability needs are not being met by the
services, the Secretary must turn to joint processes and entities.
The Lexington Institute, which also recommended creation of a U.S.
logistics command at the four-star level, concluded that Title 10
may need to be amended in order to create this command. The
Lexington Institute also concluded that existing funding
mechanisms act as disincentives for joint logistics transformation
and interoperability. The Defense Business Practice Implementation
Board, while not agreeing with the idea of combining U.S.
Transportation Command and the Defense Logistics Agency,
recommended that DOD elevate leadership for supply chain
integration by designating a new under secretary of defense who
would have authority to direct integration activities, including
control over budget decisions affecting these two components and
the military services. While we noted that transformational
changes such as those proposed by these organizations may not be
possible without amending existing laws, the scope of our joint
theater logistics review did not include an assessment of these
proposals or what changes, if any, would require congressional
action.
^32 [32]GAO-07-234 .
^33For a listing of these studies and their recommendations, see
[33]GAO-07-234 .
Also contributing to coordination problems in the area of supply
chain management have been difficulties in clearly defining the
responsibilities and authorities of defense components that have a
role in supply chain operations. For example, although the
Secretary of Defense in 2003 designated the Commander, U.S.
Transportation Command, as DOD's distribution process owner--with
responsibilities for overseeing the overall effectiveness,
efficiency, and alignment of DOD-wide distribution activities--DOD
has yet to issue a directive defining the process owner's
authority, accountability, resources, and responsibility.^34 We
have recommended that DOD enhance its ability to take a more
coordinated approach to improving the supply distribution system
by, among other things, clarifying the scope of responsibilities,
accountability, and authority between the distribution process
owner and other organizations.^35 Although DOD did not concur with
this recommendation at the time we issued our report in 2005, DOD
officials have recently told us they plan to issue a directive
aimed at more clearly defining the role of the distribution
process owner. Until this directive is issued, the
responsibilities and authorities of the distribution process owner
remain unclear. Echoing this theme, the Defense Business Board in
April 2007 recommended that DOD take steps to clearly identify
decision-making authority regarding supply chain integration.
Specifically, the Defense Business Board recommended that DOD
define and communicate enterprise goals in order to align
initiatives; clearly define responsibilities and authorities of
all players in the supply and distribution processes; and allocate
responsibility and authority to set direction and oversee
progress, and make necessary decisions to carry out DOD's
agreed-upon supply chain management strategy and achieve
enterprise goals.
^34In May 2006, the Deputy Secretary of Defense redesignated the
Commander, U.S. Transportation Command as DOD's distribution process
owner. Under this redesignation, the mission of the distribution process
owner is to oversee the overall effectiveness, efficiency, and alignment
of DOD-wide distribution activities and to establish concepts and
operational frameworks relating to the planning and execution of DOD
transportation operations.
DOD, like much of the federal government, will face critical
challenges during the 21st century that will test fundamental
notions about how agencies and departments should be organized and
aligned to carry out their missions. For example, the department
faces challenges in accomplishing its transformation goals and
making improvements in key business areas such as supply chain
management. We have suggested that decision makers may need to
reexamine fundamental aspects of DOD's programs by considering
issues such as whether current organizations are aligned and
empowered to meet the demands of the new security environment as
efficiently as possible and what kinds of economies of scale and
improvements in delivery of support services would result from
combining, realigning, or otherwise changing selected support
functions, including logistics. ^36
^35 [34]GAO-05-775 .
^36GAO, 21st Century Challenges: Reexamining the Base of the Federal
Government, [35]GAO-05-325SP (Washington, D.C.: February 2005).
Concluding Observations
Between now and the next update of our high-risk series in 2009,
we plan to continue to assess DOD's progress in resolving supply
chain management problems against the criteria we have established
for removing a high-risk designation. In addition to monitoring
the progress of DOD's plan, we plan to conduct audits related to
specific aspects of supply chain management. As I indicated
earlier, a priority for the department as it moves forward should
be to track and assess the outcomes achieved through its
initiatives and the progress made in resolving supply chain
management problems in the three focus areas of asset visibility,
requirements forecasting, and materiel distribution. We will also
consider progress made in defense business transformation,
business system modernization, and financial management because of
the close linkage between these efforts and DOD's success in
improving its supply chain management. We look forward to working
with the department to provide an accurate appraisal of progress
toward the goal of successfully resolving problems that have
hindered effective and efficient supply chain management.
Mr. Chairman, this concludes my prepared remarks. I would be happy
to answer any questions you or other Members of the Subcommittee
may have.
Contacts and Acknowledgments
For further information regarding this testimony, please contact
William Solis at (202) 512-8365 or [17][email protected] . Contact
points for our Offices of Congressional Relations and Public
Affairs may be found on the last page of this statement.
Individuals making contributions to this testimony include Tom
Gosling, Assistant Director; Karyn Angulo; Larry Junek; and Marie
Mak.
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[36]www.gao.gov/cgi-bin/getrpt?GAO-07-1064T .
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and methodology, click on the link above.
For more information, contact William Solis at (202) 512-8365 or
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Highlights of [37]GAO-07-1064T , a 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 10, 2007
DOD'S HIGH-RISK AREAS
Efforts to Improve Supply Chain Can Be Enhanced by Linkage to Outcomes,
Progress in Transforming Business Operations, and Reexamination of
Logistics Governance and Strategy
The availability of spare parts and other critical items provided through
the Department of Defense's (DOD) supply chains affects the readiness and
capabilities of U.S. military forces. Since 1990, GAO has designated DOD
supply chain management as a high-risk area. In 2005, DOD developed a plan
aimed at addressing supply chain problems and having GAO remove this
high-risk designation. DOD's plan focuses on three areas: requirements
forecasting, asset visibility, and materiel distribution.
GAO was asked to provide its views on (1) DOD's progress in developing and
implementing the initiatives in its plan, (2) the results of recent work
relating to the three focus areas covered by the plan, and (3) the
integration of supply chain management with efforts to improve defense
business operations. GAO also addressed broader issues of logistics
governance and strategic planning.
This testimony is based on prior GAO reports and analysis.
To determine whether to retain the high-risk designation for supply chain
management, GAO considers factors such as whether DOD makes substantial
progress implementing improvement initiatives; establishes a program to
validate the effectiveness of the initiatives; and completes a
comprehensive, integrated strategy.
The most recent update toDOD'splanshows that DOD has made progress
developing and implementing its supply chain management improvement
initiatives. DOD is generally staying on track for implementing its
initiatives, although there have been delays in meeting certain
milestones. However, the long-term time frames for many of these
initiatives present challenges to the department in sustaining progress
toward substantially completing their implementation. The plan also lacks
outcome-focused performance measures for many individual initiatives and
the three focus areas, limiting DOD's ability to fully demonstrate the
results achieved through its plan. Increasing DOD's focus on outcomes will
enable stakeholders to track the interim and long-term success of its
initiatives and help DOD determine if it is meeting its goals of more
effective and efficient supply chain management.
GAO's recent work has identified problems related to the three focus areas
in DOD's plan. In the requirements area, the military services are
experiencing difficulties estimating acquisition lead times to acquire
spare parts for equipment and weapon systems, hindering their ability to
efficiently and effectively maintain spare parts inventories for military
equipment. Challenges in the asset visibility area include lack of
interoperability among information technology systems, problems with
container management, and inconsistent application of radio frequency
identification technology, which make it difficult to obtain timely and
accurate information on assets in theater. In the materiel distribution
area, challenges remain in coordinating and consolidating distribution and
supply support within a theater.
Improving defense business operations is integral to resolving supply
chain management problems. Progress in DOD's overall approach to business
transformation is needed to confront problems in other high-risk areas,
including supply chain management. Because of the complexity of business
transformation, GAO has stated that DOD needs a Chief Management Officer
with significant authority, experience, and a term that would provide
sustained leadership and the time to integrate DOD's overall business
transformation efforts. GAO's work, pending legislation, and other recent
studies indicate a consensus that the status quo is no longer acceptable.
GAO's recent review of joint theater logistics raises concerns about
whether DOD can effectively implement this initiative without reexamining
fundamental aspects of the department's logistics governance and strategy.
In this respect, joint theater logistics may serve as a microcosm of some
of the challenges DOD faces in resolving supply chain management problems.
Moreover, GAO recommended in that report that DOD align its approach to
joint theater logistics with ongoing actions the department is taking to
reform its logistics governance and develop its logistics strategy.
Several recent studies of DOD logistics systems have recommended changes
to DOD's organizational structure for providing joint logistics and supply
support to military operations.
References
Visible links
13. http://www.gao.gov/cgi-bin/getrpt?GAO-06-113T
14. http://www.gao.gov/cgi-bin/getrpt?GAO-06-983T
15. http://www.gao.gov/cgi-bin/getrpt?GAO-07-310
16. http://www.gao.gov/cgi-bin/getrpt?GAO-07-807
17. mailto:[email protected]
18. http://www.gao.gov/
19. http://www.gao.gov/
20. http://www.gao.gov/fraudnet/fraudnet.htm
21. mailto:[email protected]
22. mailto:[email protected]
23. mailto:[email protected]
24. http://www.gao.gov/cgi-bin/getrpt?GAO-01-159SP
25. http://www.gao.gov/cgi-bin/getrpt?GAO-07-675R
26. http://www.gao.gov/cgi-bin/getrpt?GAO-07-234
27. http://www.gao.gov/cgi-bin/getrpt?GAO-07-281
28. http://www.gao.gov/cgi-bin/getrpt?GAO-07-232
29. http://www.gao.gov/cgi-bin/getrpt?GAO-07-144
30. http://www.gao.gov/cgi-bin/getrpt?GAO-05-775
31. http://www.gao.gov/cgi-bin/getrpt?GAO-04-305r
32. http://www.gao.gov/cgi-bin/getrpt?GAO-07-234
33. http://www.gao.gov/cgi-bin/getrpt?GAO-07-234
34. http://www.gao.gov/cgi-bin/getrpt?GAO-05-775
35. http://www.gao.gov/cgi-bin/getrpt?GAO-05-325SP
36. http://www.gao.gov/cgi-bin/getrpt?GAO-07-1064T
37. http://www.gao.gov/cgi-bin/getrpt?GAO-07-1064T
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