DOD's High-Risk Areas: Progress Made Implementing Supply Chain	 
Management Recommendations, but Full Extent of Improvement	 
Unknown (17-JAN-07, GAO-07-234).				 
                                                                 
Military operations in Iraq and Afghanistan have focused	 
attention on the Department of Defense's (DOD) supply chain	 
management. The supply chain can be critical to determining	 
outcomes on the battlefield, and the investment of resources in  
DOD's supply chain is substantial. In 2005, with the		 
encouragement of the Office of Management and Budget (OMB), DOD  
prepared an improvement plan to address some of the systemic	 
weaknesses in supply chain management. GAO was asked to monitor  
implementation of the plan and DOD's progress toward improving	 
supply chain management. GAO reviewed (1) the integration of	 
supply chain management with broader defense business		 
transformation and strategic logistics planning efforts; and (2) 
the extent DOD is able to demonstrate progress. In addition, GAO 
developed a baseline of prior supply chain management		 
recommendations. GAO surveyed supply chain-related reports issued
since October 2001, identified common themes, and determined the 
status of the recommendations.					 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-07-234 					        
    ACCNO:   A64916						        
  TITLE:     DOD's High-Risk Areas: Progress Made Implementing Supply 
Chain Management Recommendations, but Full Extent of Improvement 
Unknown 							 
     DATE:   01/17/2007 
  SUBJECT:   Accountability					 
	     Defense cost control				 
	     Enterprise architecture				 
	     Internal controls					 
	     Logistics						 
	     Military materiel					 
	     Performance measures				 
	     Planning						 
	     Policy evaluation					 
	     Program management 				 
	     Strategic planning 				 
	     Supply chain management				 
	     Policies and procedures				 
	     Business planning					 
	     Afghanistan					 
	     DOD Enterprise Transition Plan			 
	     Iraq						 

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GAO-07-234

   

     * [1]Report to 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

          * [2]January 2007

     * [3]dod's high-risk areas

          * [4]Progress Made Implementing Supply Chain Management
            Recommendations, but Full Extent of Improvement Unknown

     * [5]Contents

          * [6]Results in Brief
          * [7]Background
          * [8]Improvements to Supply Chain Management Are Linked with
            Overall Defense Business Transformation and Completion of a
            Comprehensive, Integrated Logistics Strategy

               * [9]DOD Is Taking Steps to Advance Business Transformation
               * [10]Completion of a Comprehensive, Integrated Logistics
                 Strategy Could Supplement Business Transformation Efforts

          * [11]DOD Is Unable to Demonstrate the Full Extent of Its Progress
            Toward Improving Supply Chain Management

               * [12]DOD Is Making Progress Implementing Supply Chain
                 Management Initiatives

          * [13]DOD's Supply Chain Management Plan Does Not Track Performance
            Outcomes and Costs Metrics Associated with Focus Areas and
            Initiatives
          * [14]DOD Has Implemented Recommendations for Improving Aspects of
            Supply Chain Management

               * [15]DOD or the Component Organization Concurred with Most of
                 the Recommendations
               * [16]Most Closed Recommendations Were Considered Implemented
               * [17]Recommendations to Improve Supply Chain Management
                 Address Five Common Themes
               * [18]Non-audit Organizations' Recommendations Address Supply
                 Chain Management as Part of a Broader Review of DOD
                 Logistics

          * [19]Conclusions
          * [20]Recommendations for Executive Action
          * [21]Agency Comments and Our Evaluation
          * [22]Scope and Methodology

     * [23]Supply Chain Management: Summary of GAO Report Recommendations
     * [24]Supply Chain Management: Summary of DOD-IG Report Recommendations
     * [25]Supply Chain Management: Summary of Army Audit Agency Report
       Recommendations
     * [26]Supply Chain Management: Summary of Air Force Audit Agency Report
       Recommendations
     * [27]Supply Chain Management: Summary of Naval Audit Service Report
       Recommendations
     * [28]Supply Chain Management: Summary of Non-audit Organization Report
       Recommendations
     * [29]Comments from the Department of Defense
     * [30]GAO Contact and Staff Acknowledgments

          * [31]Acknowledgments

Report to 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

January 2007

DOD'S HIGH-RISK AREAS

Progress Made Implementing Supply Chain Management Recommendations, but
Full Extent of Improvement Unknown

Contents

Table

January 17, 2007

Letter

The Honorable Daniel K. Akaka
Chairman
The Honorable George V. Voinovich
Ranking Minority Member
Subcommittee on Oversight of Government Management, the Federal 
Workforce, and the District of Columbia Committee on Homeland Security
and Governmental Affairs United States Senate

Military operations in Iraq and Afghanistan have focused attention on the
performance of the Department of Defense's (DOD) supply chain management
in support of deployed U.S. troops. The availability of spare parts and
other critical supply items affects the readiness and operational
capabilities of U.S. military forces, and the supply chain can be a
critical link in determining outcomes on the battlefield. Moreover, the
investment of resources in the supply chain is substantial, amounting to
more than $150 billion a year according to DOD. As a result of weaknesses
in DOD's management of supply inventories and responsiveness to warfighter
requirements, supply chain management has been on our list of high-risk
federal government programs since 1990. We initially focused on inventory
management and later determined that problems extended to other parts of
the supply chain, to include requirements forecasting, asset visibility,
and materiel distribution.^1

In 2005, with the encouragement of the Office of Management and Budget
(OMB), DOD developed a plan to address some of the systemic weaknesses as
a first step toward removing supply chain management from our high-risk
list. Since then we have reviewed and commented on DOD's progress toward
implementing its supply chain management improvement plan, the linkage of
this plan with other DOD logistics^2 plans, and the extent to which DOD
has incorporated performance metrics for tracking and
demonstrating progress.^3 We have stated that, overall, DOD's plan
addressing supply chain management is a good first step toward putting DOD
on a path toward resolving long-standing supply chain management problems,
but that the department faces a number of challenges and risks in fully
implementing its proposed changes across the department and measuring
progress.

In response to your Committee's request, we have continued to monitor
DOD's progress toward resolving supply chain management problems.
Specifically, this report discusses (1) the integration of supply chain
management with broader defense business transformation and strategic
logistics planning efforts and (2) the extent to which DOD is able to
demonstrate progress toward improving supply chain management. In
addition, we developed a baseline of recommended improvements to DOD's
supply chain management that have been made over the past 5 years.

Our discussion of the integration of supply chain management with broader
defense business transformation efforts is based primarily on our prior
reports and testimonies. We obtained information from officials in the
Office of the Secretary of Defense on their efforts to develop an
overarching strategy to guide departmentwide logistics programs and
initiatives. We met regularly with DOD and OMB officials to discuss the
overall status of the supply chain management improvement plan, the
implementation schedules of the plan's individual initiatives, and the
plan's performance measures. We visited and interviewed officials from
U.S. Transportation Command, the Defense Logistics Agency, the military
services, and the Joint Staff to gain their perspectives on improving
supply chain management. In developing a baseline of recommended supply
chain management improvements, we surveyed audit reports issued between
October 2001 and September 2006 by our office, the Department of Defense
Office of the Inspector General (DOD-IG), and the military service audit
agencies. We selected this time period because it corresponds with the
onset of recent military operations that began with Operation Enduring
Freedom. For each audit recommendation contained in these reports, we
determined its status and focus. In analyzing the status of
recommendations, we determined whether DOD or the component organization^4
concurred with the recommendations, whether the recommendations were
closed, and whether closed recommendations had been implemented. We
determined that the data we obtained from the DOD-IG and the service audit
agencies were sufficiently reliable for our purposes. In analyzing the
focus of recommendations, we identified those addressing three specific
areas--requirements forecasting, asset visibility, and materiel
distribution--as well those addressing other supply chain management
concerns. We selected these three focus areas as the framework for our
analysis based on our prior work in this high-risk area and because DOD
has structured its supply chain management improvement plan around them.
While we included recommendations by non-audit organizations in our
analysis, we did not determine the extent to which DOD concurred with or
implemented them because their status is not systemically tracked.
Additional information on our analysis, including further explanation of
the terms used in describing the status of recommendations, is discussed
in the scope and methodology section. We conducted our review from January
through November 2006 in accordance with generally accepted government
auditing standards.

Results in Brief

DOD's success in improving supply chain management is closely linked with
its overall defense business transformation efforts and completion of a
comprehensive, integrated logistics strategy. Our prior reviews and
recommendations have addressed business management problems that adversely
affect the economy, efficiency, and effectiveness of DOD's operations, and
that have resulted in a lack of adequate accountability across several of
DOD's major business areas. We have concluded that progress in DOD's
overall approach to business transformation--identified as a high-risk
area in 2005--is needed to confront other high-risk areas, including
supply chain management. We have made a number of recommendations to
address defense business transformation, including strengthening the
management of DOD's business systems modernization through the adoption of
enterprise architecture and investment management best practices. In
response, DOD has taken several actions intended to advance
transformation, such as establishing governance structures like the
Business Transformation Agency and developing an Enterprise Transition
Plan aligned with its business enterprise architecture. As a separate
effort, DOD has been developing a strategy to guide logistics programs and
initiatives across the department. Called the "To Be" logistics roadmap,
this strategy would identify the scope of logistics problems and
capability gaps to be addressed and include specific performance goals,
programs, milestones, resources, and metrics to guide improvements in
supply chain management and other areas of DOD logistics. DOD has not
established a target date for completing the "To Be" logistics roadmap.
According to DOD officials, its completion is pending the results of the
department's ongoing test of new concepts for managing logistics
capabilities. Initial results of this test are expected to be available in
the spring of 2007. We have also noted previously that while DOD and its
component organizations have developed multiple plans for improving
aspects of logistics, the linkages among these plans have not been clearly
shown. Without a comprehensive, integrated logistics strategy, decision
makers will lack the means to effectively guide logistics efforts,
including supply chain management, and the ability to determine if these
efforts are achieving the desired results.

DOD has taken a number of actions to improve supply chain management, but
the department is unable to demonstrate at this time the full extent of
progress that may have resulted from its efforts. In addition to
implementing audit recommendations, as discussed below, DOD is
implementing initiatives in its supply chain management improvement plan.
However, it is unclear how much progress its actions have resulted in
because the plan generally lacks outcome-focused performance metrics that
track progress in the three focus areas and at the initiative level.
Performance metrics are essential for demonstrating progress toward
achieving goals and providing information on which to base organizational
and management decisions. Moreover, outcome-focused performance metrics
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 that are being tracked
across the department, but these measures do not explicitly reflect the
performance of the initiatives or relate to the focus areas. Additionally,
these measures may be affected by many variables other than DOD's supply
chain initiatives. For example, changes in customer wait time could result
from wartime surges in requirements or disruption in the distribution
process; hence, improvements in the high-level performance measures do not
necessarily reflect the success of an initiative in DOD's supply chain
management improvement plan. Further, the plan does not include overall
cost metrics that might show efficiencies gained through improvement
efforts. Although DOD faces challenges to developing departmentwide supply
chain performance measures, such as the difficulty of obtaining
standardized, reliable data from noninteroperable systems, without
outcome-focused performance and cost metrics, it is unclear whether DOD is
progressing toward meeting its stated goal of improving the provision of
supplies to the warfighter and improving readiness of equipment while
reducing or avoiding costs through its supply chain initiatives.

In developing a baseline of recommended supply chain management
improvements, we identified 478 recommendations that audit organizations
have made between October 2001 and September 2006. DOD or the component
organization concurred with 411 (86 percent) of the total recommendations.
In addition, 315 (66 percent) recommendations had been closed, and 275 (87
percent) of the closed recommendations had been implemented at the time we
conducted our review. The three focus areas of requirements forecasting,
asset visibility, and materiel distribution accounted for 196 (41 percent)
of the total recommendations, while other inventory management issues
accounted for most of the remaining recommendations. In addition, we
further grouped the recommendations into five common themes--management
oversight, performance tracking, planning, policy, and processes. Most of
the recommendations addressed processes (38 percent), management oversight
(30 percent), or policy (22 percent), with comparatively fewer addressing
planning (7 percent) and performance tracking (4 percent).^5 Studies
conducted by non-audit organizations, such as the Center for Strategic and
International Studies and the Defense Science Board, made recommendations
that address supply chain management as part of a broader review of DOD
logistics. For example, both these organizations have suggested the
creation of a departmentwide logistics command responsible for end-to-end
supply chain operations.

We are making recommendations to the Secretary of Defense to improve DOD's
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. In commenting on a
draft of this report, DOD concurred with our recommendations.

Background

For 16 years, DOD's supply chain management processes 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.

Removal of a high-risk designation may be 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.^6 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.

Beginning in 2005, 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 supply chain management improvement plan, initially
released in July 2005, contains 10 initiatives proposed as solutions to
address the root causes of problems we identified from our prior work in
the areas of requirements forecasting, asset visibility, and materiel
distribution.

DOD defines requirements as the need or demand for personnel, equipment,
facilities, other resources, or services in specified quantities for
specific periods of time or at a specified time. 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 that 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.

Improvements to Supply Chain Management Are Linked with Overall Defense
Business Transformation and Completion of a Comprehensive, Integrated
Logistics Strategy

DOD's success in improving supply chain management is closely linked with
its overall defense business transformation efforts and completion of a
comprehensive, integrated logistics strategy. In previous reports and
testimonies, we have stated that progress in DOD's overall approach to
business transformation is needed to confront problems in other high-risk
areas, including supply chain management. DOD has taken several steps
intended to advance business transformation, including establishing new
governance structures and aligning new information systems with its
business enterprise architecture. Another key step to supplement these
ongoing transformation efforts is completion of a comprehensive,
integrated logistics strategy that would identify problems and capability
gaps to be addressed, establish departmentwide investment priorities, and
guide decision making.

DOD Is Taking Steps to Advance Business Transformation

DOD's success in improving supply chain management is closely linked with
overall defense business transformation. Our prior reviews and
recommendations have addressed business management problems that adversely
affect the economy, efficiency, and effectiveness of DOD's operations, and
that have resulted in a lack of adequate accountability across several of
DOD's major business areas.^7 We have concluded that progress in DOD's
overall approach to business transformation is needed to confront other
high-risk areas, including supply chain management. DOD's overall approach
to business transformation was added to the high-risk list in 2005 because
of our concern over DOD's lack of adequate management accountability and
the absence of a strategic and integrated action plan for the overall
business transformation effort. Specifically, the high-risk designation
for business transformation resulted because (1) DOD's business
improvement initiatives and control over resources are fragmented; (2) DOD
lacks a clear strategic and integrated business transformation plan and
investment strategy, including a well-defined enterprise architecture to
guide and constrain implementation of such a plan; and (3) DOD has not
designated a senior management official responsible and accountable for
overall business transformation reform and related resources.

In response, DOD has taken several actions intended to advance
transformation. For example, DOD has established governance structures
such as the Business Transformation Agency and the Defense Business
Systems Management Committee. The Business Transformation Agency was
established in October 2005 with the mission of transforming business
operations to achieve improved warfighter support and improved financial
accountability. The agency supports the Defense Business Systems
Management Committee, which is comprised of senior-level DOD officials and
is intended to serve as the primary transformation leadership and
oversight mechanism. Furthermore, in September 2006, DOD released an
updated Enterprise Transition Plan that is intended to be both a business
transformation roadmap and management tool for modernizing its business
process and underlying information technology assets. DOD describes the
Enterprise Transition Plan as an executable roadmap aligned to DOD's
business enterprise architecture. In addition, as required by the National
Defense Authorization Act for Fiscal Year 2006, DOD is studying the
feasibility and advisability of establishing a Deputy Secretary for
Defense Management to serve as DOD's Chief Management Officer and advise
the Secretary of Defense on matters relating to management, including
defense business activities.^8

Business systems modernization is a critical part of DOD's transformation
efforts, and successful resolution of supply chain management problems
will require investment in needed information technology. DOD spends
billions of dollars to sustain key business operations intended to support
the warfighter, including systems and processes related to support
infrastructure, finances, weapon systems acquisition, the management of
contracts, and the supply chain. We have indicated at various times that
modernized business systems are essential to the department's effort in
addressing its supply chain management issues.^9 In its supply chain
management improvement plan, DOD recognizes that achieving success in
supply chain management is dependent on developing interoperable systems
that can share critical supply data. One of the initiatives included in
the plan is business system modernization,^10 an effort that is being led
by DOD's Business Transformation Agency and includes achieving materiel
visibility through systems modernization as one of its six enterprisewide
priorities.

Improvements in financial management are also integrally linked to DOD's
business transformation. Since our first report on the financial statement
audit of a major DOD component over 16 years ago, 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.^11 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
December 2005, DOD issued its Financial Improvement and Audit Readiness
Plan to guide its financial management improvement efforts. The Financial
Improvement and Audit Readiness Plan is intended to provide DOD components
with a roadmap for (1) resolving problems affecting the accuracy,
reliability, and timeliness of financial information; and (2) obtaining
clean financial statement audit opinions. It uses an incremental approach
to structure its process for examining operations, diagnosing problems,
planning corrective actions, and preparing for audit. The plan also
recognizes that it will take several years before DOD is able to implement
the systems, processes, and other changes necessary to fully address its
financial management weaknesses. Furthermore, DOD has developed an initial
Standard Financial Information Structure, which is DOD's enterprisewide
data standard for categorizing financial information. This effort focused
on standardizing general ledger and external financial reporting
requirements.

While these steps are positive, defense business transformation is much
broader and encompasses planning, management, organizational structures,
and processes related to all key business areas. As we have previously
observed, business transformation requires long-term cultural change,
business process reengineering, and a commitment from both the executive
and legislative branches of government. Although sound strategic planning
is the foundation on which to build, DOD needs clear, capable, sustained,
and professional leadership to maintain continuity necessary for success.
Such leadership would provide the attention essential for addressing key
stewardship responsibilities--such as strategic planning, performance
management, business information management, and financial management--in
an integrated manner, while helping to facilitate the overall business
transformation effort within DOD. As DOD continues to evolve its
transformation efforts, critical to successful reform are sustained
leadership, organizational structures, and a clear strategic and
integrated plan that encompasses all major business areas, including
supply chain management.

Completion of a Comprehensive, Integrated Logistics Strategy Could
Supplement Business Transformation Efforts

Another key step to supplement ongoing defense business transformation
efforts is completion of a comprehensive, integrated logistics strategy
that would identify problems and capability gaps to be addressed,
establish departmentwide investment priorities, and guide decision making.
Over the years, we have recommended that DOD adopt such a strategy, and
DOD has undertaken various efforts to identify, and plan for, future
logistics needs. However, DOD currently lacks an overarching logistics
strategy. In December 2005, DOD issued its "As Is" Focused Logistics
Roadmap, which assembled various logistics programs and initiatives
associated with the fiscal year 2006 President's Budget and linked them to
seven key joint future logistics capability areas. The roadmap identified
more than $60 billion of planned investments in these programs and
initiatives, yet it also indicated that key focused logistics capabilities
would not be achieved by 2015. Therefore, the Under Secretary of Defense
for Acquisition, Technology, and Logistics directed the department to
prepare a rigorous "To Be" roadmap that would present credible options to
achieve focused logistics capabilities.

According to officials with the Office of the Secretary of Defense, the
"To Be" logistics roadmap will portray where the department is headed in
the logistics area and how it will get there, and will allow the
department to monitor progress toward achieving its objectives, as well as
institutionalize a continuous assessment process that links ongoing
capability development, program reviews, and budgeting. It would identify
the scope of logistics problems and capability gaps to be addressed and
include specific performance goals, programs, milestones, resources, and
metrics to guide improvements in supply chain management and other areas
of DOD logistics. Officials anticipate that the initiatives in the supply
chain management improvement plan will be incorporated into the "To Be"
logistics roadmap.

DOD has not established a target date for completing the "To Be" roadmap.
According to DOD officials, its completion is pending the results of the
department's ongoing test of new concepts for managing logistics
capabilities. The Deputy Secretary of Defense initiated this joint
capability portfolio management test in September 2006 to explore new
approaches for managing certain capabilities across the department,
facilitating strategic choices, and improving the department's ability to
make capability trade-offs. The intent of joint capability portfolio
management is to improve interoperability, minimize redundancies and gaps,
and maximize effectiveness. Joint logistics is one of the four capability
areas selected as test cases for experimentation. The joint logistics test
case portfolio will include all capabilities required to project and
sustain joint force operations, including supply chain operations.
According to DOD officials, initial results of the joint logistics
capability portfolio management test are expected to be available in late
spring 2007, and the results of the test will then be used to complete the
"To Be" logistics roadmap. The results of the test are also expected to
provide additional focus on improving performance in requirements
determination, asset visibility, and materiel distribution, officials
said.

We have also noted previously that while DOD and its component
organizations have had multiple plans for improving aspects of logistics,
the linkages among these plans have not been clearly shown. In addition to
the supply chain management improvement plan, current DOD plans that
address aspects of supply chain management include the Enterprise
Transition Plan and component-level plans developed by the military
services and the Defense Logistics Agency. Although we are encouraged by
DOD's planning efforts, the department lacks a comprehensive, integrated
strategy to guide logistics programs and initiatives across the
department. Without such a strategy, decision makers will lack the means
to effectively guide program efforts and the ability to determine if these
efforts are achieving the desired results.

DOD Is Unable to Demonstrate the Full Extent of Its Progress Toward
Improving Supply Chain Management

Although DOD is making progress implementing supply chain management
initiatives, it is unable to demonstrate at this time the full extent to
which it is improving supply chain management. DOD has established some
high-level performance measures but they do not explicitly address the
focus areas, and an improvement in those measures cannot be directly
attributed to the initiatives. Further, the metrics in DOD's supply chain
management improvement plan generally do not measure performance outcomes
and costs.

DOD Is Making Progress Implementing Supply Chain Management Initiatives

In addition to implementing audit recommendations, as discussed in the
next section of this report, DOD is making progress improving supply chain
management by implementing initiatives in its supply chain management
improvement plan. For example, DOD has met key milestones in its Joint
Regional Inventory Materiel Management, Radio Frequency Identification,
and Item Unique Identification initiatives.

oThrough its Joint Regional Inventory Materiel Management initiative, DOD
began 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, which was considered
operational in August 2006.

oIn May 2006, DOD published an interim Defense Federal Acquisition
Regulation clause governing the application of tags to different classes
of assets being shipped to distribution depots and aerial ports for the
Radio Frequency Identification initiative.

oThe Item Unique Identification initiative, which 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, received approval
by the International Organization for Standardization/International
Electrotechnical Commission in September 2006 for an interoperable
solution for automatic identification and data capture based on widely
used international standards.

DOD has sought to demonstrate significant improvement in supply chain
management within 2 years of the plan's inception in July 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 DOD's plan, the Readiness Based Sparing
initiative, an inventory requirements methodology that the department
expects will enable higher levels of readiness at equivalent or reduced
inventory costs using commercial off-the-shelf software, is not expected
to begin implementation until January 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, it 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, according to DOD's plan, the Defense Transportation
Coordination initiative experienced a slippage in holding the
presolicitation conference because defining requirements took longer than
anticipated.^12 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.

DOD's Supply Chain Management Plan Does Not Track Performance Outcomes and
Costs Metrics Associated with Focus Areas and Initiatives

The supply chain management improvement plan generally lacks
outcome-focused performance metrics that track progress in the three focus
areas and at the initiative level. Performance metrics are critical for
demonstrating progress toward achieving results, providing 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. Moreover, outcome-focused performance metrics show results
or outcomes related to an initiative or program in terms of its
effectiveness, efficiency, impact, or all of these. To track progress
toward goals, effective performance metrics 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 metrics 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 metrics 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 metrics can
be used to identify the program's discrete contribution to the specific
result.

DOD's plan does include four high-level performance measures that are
being tracked across the department, and while they are not required to do
so, these measures do not explicitly relate to the focus areas. The four
measures are as follows:

oBackorders--number of orders held in an unfilled status pending receipt
of additional parts or equipment through procurement or repair.

oCustomer wait time--number of days between the issuance of a customer
order and satisfaction of that order.

oOn-time orders--percentage of orders that are on time according to DOD's
established delivery standards.

oLogistics 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.

Additionally, these measures may be affected by many variables; hence,
improvements in the high-level performance measures cannot be directly
attributed to the initiatives in the plan. For example, implementing RFID
at a few sites at a time has only a very small impact on customer wait
time. However, variables such as natural disasters, wartime surges in
requirements, or disruption in the distribution process could affect that
measure. DOD's supply chain materiel management regulation requires that
functional supply chain metrics support at least one enterprise-level
metric.^13

DOD's plan also lacks outcome-focused performance metrics for 6 of the 10
specific improvement initiatives contained in the plan. For example, while
DOD intended to have RFID implemented at 100 percent of its U.S. and
overseas distribution centers by September 2007--a measure indicating when
scheduled milestones are met--it had not yet identified outcome-focused
performance 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 improvement initiatives that lack outcome-focused performance
metrics are War Reserve Materiel, which aims to more accurately forecast
war reserve requirements by using capability-based planning and
incorporating lessons learned in Operation Iraqi Freedom, 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.

One of the challenges in developing departmentwide supply chain
performance measures, according to a DOD official, is obtaining
standardized, reliable data from noninteroperable 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. Nevertheless, we believe that
intermediate measures, such as outcome-focused measures for each of the
initiatives or for the focus areas, could show near-term progress.

According to a DOD official, in September 2006, DOD awarded a year-long
supply chain benchmarking contract to assess commercial supply chain
metrics. The official indicated that six outcome measures were chosen for
the initial effort: on-time delivery, order fulfillment cycle time,
perfect order fulfillment, supply chain management costs, inventory days
of supply, and forecast accuracy. Furthermore, the specific supply chains
to be reviewed will be recommended by the various DOD components and
approved by an executive committee. According to the same DOD official,
the contractor will be looking at the specific supply chains approved and
the industry equivalent; and a set of performance scorecards mapping the
target supply segment to average and best-in-class performance from the
comparison population will be developed for each supply chain and provided
to the component. This assessment is a good step but it is too early to
determine the effectiveness of this effort in helping DOD to demonstrate
progress toward improving its supply chain management.

Further, we noted that DOD has not provided cost metrics that might show
efficiencies gained through supply chain improvement efforts. In addition
to improving the provision of supplies to the warfighter and improving
readiness of equipment, DOD's stated goal in its supply chain management
improvement plan is to reduce or avoid costs. However, 9 of the 10
initiatives in the plan lack cost metrics. Without outcome-focused
performance and cost metrics for each of the improvement initiatives that
are linked to the focus areas, such as requirements forecasting, asset
visibility, and materiel distribution, it is unclear whether DOD is
progressing toward meeting its stated goal.

DOD Has Implemented Recommendations for Improving Aspects of Supply Chain
Management

Over the last 5 years, audit organizations have made more than 400
recommendations that focused specifically on improving certain aspects of
DOD's supply chain management. DOD or the component organization concurred
with almost 90 percent of these recommendations, and most of the
recommendations that were closed as of the time of our review were
considered implemented. We determined that the three focus areas of
requirements forecasting, asset visibility, and materiel distribution
accounted for 41 percent of the total recommendations made, while other
inventory management and supply chain issues accounted for the remaining
recommendations. We also grouped the recommendations into five common
themes--management oversight, performance tracking, policy, planning, and
processes. Several studies conducted by non-audit organizations have made
recommendations that address supply chain management as part of a broader
review of DOD logistics.

Appendixes I through V summarize the audit recommendations we included in
our baseline. Appendix VI summarizes recommendations made by non-audit
organizations.

DOD or the Component Organization Concurred with Most of the
Recommendations

In developing a baseline of supply chain management recommendations, we
identified 478 supply chain management recommendations made by audit
organizations between October 2001 and September 2006. DOD or the
component organization concurred with 411 (86 percent) of the
recommendations; partially concurred with 44 recommendations (9 percent);
and nonconcurred with 23 recommendations (5 percent).

These recommendations cover a diverse range of objectives and issues
concerning supply chain management. For example, one recommendation with
which DOD concurred was contained in our 2006 report on production and
installation of Marine Corps truck armor. To better coordinate decisions
about what materiel solutions are developed and procured to address common
urgent wartime requirements, we recommended--and DOD concurred--that DOD
should clarify the point at which the Joint Urgent Operational Needs
process should be utilized when materiel solutions require research and
development.^14

In another case, DOD partially concurred with a recommendation in our 2006
report on Radio Frequency Identification (RFID), which consists of
electronic tags that are attached to equipment and supplies being shipped
from one location to another, enabling shipment tracking. To better track
and monitor the use of RFID tags, we recommended--and DOD partially
concurred--that the secretaries of each military service and the
administrators of other components should determine requirements for the
number of tags needed, compile an accurate inventory of the number of tags
currently owned, and establish procedures to monitor and track tags,

including purchases, reuse, losses, and repairs.^15 In its response to our
report, DOD agreed to direct the military services and the U.S.
Transportation Command to develop procedures to address the reuse of the
tags as well as procedures for the return of tags no longer required.
However, the department did not agree to establish procedures to account
for the procurement, inventory, repair, or losses of existing tags in the
system.

On the other hand, an example of a recommendation that DOD did not concur
with was contained in our 2005 report on supply distribution operations.
To improve the overall efficiency and interoperability of
distribution-related activities, we recommended--but DOD did not
concur--that the Secretary of Defense should clarify the scope of
responsibilities, accountability, and authority between U.S.
Transportation Command's role as DOD's Distribution Process Owner and
other DOD components.^16 In its response to our report, DOD stated that
the responsibilities, accountability, and authority of this role were
already clear.

Most Closed Recommendations Were Considered Implemented

The audit organizations had closed 315 (66 percent) of the 478
recommendations at the time we conducted our review. Of the closed
recommendations, 275 (87 percent) were implemented and 40 (13 percent)
were not implemented as reported by the audit agencies. For example, one
closed recommendation that DOD implemented was in our 2005 report on
oversight of prepositioning programs. To address the risks and management
challenges facing the department's prepositioning programs and to improve
oversight, we recommended that the Secretary of Defense direct the
Chairman, Joint Chiefs of Staff assess the near-term operational risks
associated with current inventory shortfalls and equipment in poor
condition should a conflict arise.^17 In response to our recommendation,
the Joint Staff conducted a mission analysis on several operational plans
based on the readiness of prepositioned assets. On the other hand, an
example of a closed recommendation that DOD did not implement was in our
2003 report on Navy spare parts shortages. To provide a basis for
management to assess the extent to which ongoing and planned initiatives
will contribute to the mitigation of critical spare parts shortages, we
recommended that the Secretary of Defense direct the Secretary of the Navy
to develop a framework that includes long-term goals; measurable,
outcome-related objectives; implementation goals; and performance measures
as a part of either the Navy Sea Enterprise strategy or the Naval Supply
Systems Command Strategic Plan. DOD agreed with the intent of the
recommendation, but not the prescribed action. The recommendation was
closed but not implemented because the Navy did not plan to modify the
Naval Supply Systems Command Strategic Plan or higher-level Sea Enterprise
Strategy to include a specific focus on mitigating spare parts
shortages.^18

Recommendations to Improve Supply Chain Management Address Five Common
Themes

Audit recommendations addressing the three focus areas in DOD's supply
chain management improvement plan--requirements forecasting, asset
visibility, and materiel distribution--accounted for 196 (41 percent) of
the total recommendations. The fewest recommendations were made in the
focus area of distribution, accounting for just 6 percent of the total.
Other inventory management issues accounted for most of the other
recommendations. In addition, a small number of recommendations, less than
1 percent of the total, addressed supply chain management issues that
could not be grouped under any of these other categories. In further
analyzing the recommendations, we found that they addressed five common
themes--management oversight, performance tracking, policy, planning, and
processes. Table 1 shows the number of audit recommendations made by focus
area and theme.

Table 1: Audit Recommendations to Improve Supply Chain Management

                                        

                       Management Performance Policy Planning Processes Total 
                        oversight    tracking                                 
Recommendations                                                            
addressing focus                                                           
areas in DOD's                                                             
supply chain                                                               
management plan                                                            
Requirements                24           0     25        6        41    96 
forecasting                                                                
Asset visibility            27           5     15        7        19    73 
Materiel                    10           3      7        1         6    27 
distribution                                                               
Subtotal                    61           8     47       14        66   196 
Recommendations             82           9     56       17       114   278 
addressing other                                                           
inventory                                                                  
management issues                                                          
Recommendations              1           0      0        3         0     4 
addressing other                                                           
supply chain                                                               
issues^a                                                                   
Total                      144          17    103       34       180   478 

Source: GAO analysis.

^aThese recommendations address aspects of supply chain management that
could not be grouped into one of the three focus areas or as inventory
management.

Most of the recommendations addressed processes (38 percent), management
oversight (30 percent), or policy (22 percent), with comparatively fewer
addressing planning (7 percent) and performance tracking (4 percent). The
management oversight theme includes any recommendations involving
compliance, conducting reviews, or providing information to others. For
example, the Naval Audit Service recommended that the Office of the
Commander, U.S. Fleet Forces Command should enforce existing requirements
that ships prepare and submit Ship Hazardous Material List Feedback
Reports and Allowance Change Requests, whenever required.^19 The
performance tracking theme includes recommendations with performance
measures, goals, objectives, and milestones. For example, the Army Audit
Agency recommended that funding for increasing inventory safety levels be
withheld until the Army Materiel Command develops test procedures and
identifies key performance indicators to measure and assess its
cost-effectiveness and
impact on operational readiness.^20 The policy theme contains
recommendations on issuing guidance, revising or establishing policy, and
establishing guidelines. For example, the DOD-IG recommended that the
Defense Logistics Agency revise its supply operating procedures to meet
specific requirements.^21 The planning theme contains recommendations
related to plan, doctrine, or capability development or implementation, as
well as any recommendations related to training. For example, the Army
Audit Agency recommended the Defense Supply Center in Philadelphia
implement a Quality Assurance Surveillance Plan that encompasses all
requirements of the prime vendor contract.^22 The largest theme,
processes, consists of recommendations that processes and procedures
should be established or documented, and recommendations be implemented.
For example, we recommended that the Secretary of Defense direct the
service secretaries to establish a process to share information between
the Marine Corps and Army on developed or developing materiel
solutions.^23

Non-audit Organizations' Recommendations Address Supply Chain Management
as Part of a Broader Review of DOD Logistics

Studies conducted by non-audit organizations contain recommendations that
address supply chain management as part of a broader review of DOD
logistics. For example, the Center for Strategic and International Studies
and the Defense Science Board suggested the creation of a departmentwide
logistics command responsible for end-to-end supply chain operations. In
July 2005, the Center for Strategic and International Studies issued a
report, "Beyond Goldwater-Nichols: U.S. Government and Defense Reform for
a New Strategic Era," which addressed the entire U.S. national security
structure, including the organization of logistics support. In this
report, the study team acknowledged that recent steps, such as
strengthening joint theater logistics and the existence of stronger
coordinating authorities have significantly increased the unity of effort
in logistical support to ongoing operations. However, according to the
study, much of this reflects the combination of exemplary leadership and
the intense operational pull of Operation Iraqi Freedom, and has not been
formalized and institutionalized by charter, doctrine, or organizational
realignment. It further noted that the fact that a single Distribution
Process Owner was needed to overcome the fragmented structure of DOD's
logistical system underscores the need for fundamental reform. The study
team recommended the integration of the management of transportation and
supply warehousing functions under a single organization such as an
integrated logistics command. The report noted that the Commission on
Roles and Missions also had recommended the formation of a logistics
command back in 1995.

In 2005, the Summer Study Task Force on Transformation, under the
direction of the Under Secretary of Defense for Acquisition, Technology,
and Logistics, convened to assess DOD's transformation progress, including
the transformation of logistics capabilities. In this assessment, issued
in February 2006, the Defense Science Board suggested that each segment in
the supply chain is optimized for that specific function. For example, in
the depot shipping segment of the supply chain, packages are consolidated
into truck-size loads in order to fill the trucks for efficiency. Yet,
optimizing each segment inevitably suboptimizes the major objective of
end-to-end movement from source to user. The Defense Science Board report
further indicated that although the assignment of the U.S. Transportation
Command as the Distribution Process Owner was an important step towards
addressing an end-to-end supply change, it did not go far enough to meet
the objective of an effective supply chain. The necessary step is to
assign a joint logistics command the authority and accountability for
providing this essential support to global operations.

Unlike recommendations made by audit agencies, DOD does not systematically
track the status of recommendations made by non-audit organizations.
Hence, in our analysis, we did not determine the extent to which DOD
concurred with or implemented recommendations from these organizations.

Conclusions

Overcoming systemic, long-standing problems requires comprehensive
approaches. Improving DOD's supply chain management will require continued
progress in defense business transformation, including completion of a
comprehensive, integrated strategy to guide the department's logistics
programs and initiatives. In addition, while DOD has made a commitment to
improving supply chain management, as demonstrated by the development and
implementation of the supply chain management improvement plan, the plan
generally lacks outcome-focused performance metrics that would enable DOD
to track and demonstrate the extent to which its individual efforts
improve supply chain management or the extent of improvement in the three
focus areas of requirements forecasting, asset visibility, and materiel
distribution. Furthermore, without cost metrics, it will be difficult to
show efficiencies gained through supply chain improvement initiatives.

Recommendations for Executive Action

To improve DOD's 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, we
recommend that the Secretary of Defense direct the Under Secretary of
Defense for Acquisition, Technology, and Logistics to take the following
two actions:

Complete the development of a comprehensive, integrated logistics strategy
that is aligned with other defense business transformation efforts,
including the Enterprise Transition Plan. To facilitate completion of the
strategy, DOD should establish a specific target date for its completion.
Further, DOD should take steps as appropriate to ensure the supply chain
management improvement plan and component-level logistics plans are
synchronized with the department's overall logistics strategy.

Develop, implement, and monitor outcome-focused performance and cost
metrics for all the individual initiatives in the supply chain management
improvement plan as well as for the plan's focus areas of requirements
forecasting, asset visibility, and materiel distribution.

Agency Comments and Our Evaluation

In its written comments on a draft of this report, DOD concurred with our
recommendations. The department's response are reprinted in appendix VII.

In response to our recommendation to complete the development of a
comprehensive, integrated logistics strategy, DOD stated that the strategy
is under development and is aligned with other defense business
transformation efforts. DOD estimated that the logistics strategy would be
completed 6 months after it completes the logistics portfolio test case in
the spring of 2007. DOD did not address whether it would take steps to
ensure the supply chain management improvement plan and component-level
logistics plans are synchronized with the department's overall logistics
strategy. We continue to believe that these plans must be synchronized
with the overall logistics strategy to effectively guide program efforts
across the department and to provide the means to determine if these
efforts are achieving the desired results.

In response to our recommendation to develop, implement, and monitor
outcome-focused performance and cost metrics, the department indicated it
has developed and implemented outcome-focused performance and cost metrics
for logistics across the department. However, DOD acknowledged that more
work needs to be accomplished in linking the outcome metrics to the
initiatives in the supply chain management improvement plan as well as for
the focus areas of requirements forecasting, asset visibility, and
materiel distribution. DOD stated that these linkages will be completed as
part of full implementation of each initiative. We are pleased that the
department recognized the need for linking outcome-focused metrics with
the individual initiatives and the three focus areas in its supply chain
management improvement plan. However, it is unclear from DOD's response
how and under what timeframes the department plans to implement this goal.
As we noted in the report, DOD lacks outcome-focused performance metrics
for supply chain management, in part because one of the challenges is
obtaining standardized, reliable data from noninteroperable systems. In
addition, initiatives in the supply chain management plan are many years
away from full implementation. If DOD waits until full implementation to
incorporate outcome-based metrics, it will miss opportunities to assess
progress on an interim basis. We also continue to believe that cost
metrics are critical for DOD to assess progress toward meeting its stated
goal of improving the provision of supplies to the warfighter and
improving readiness of equipment while reducing or avoiding costs through
its supply chain initiatives.

Scope and Methodology

Our discussion of the integration of supply chain management with broader
defense transformation efforts is based primarily on our prior reports and
testimonies. We obtained information on DOD's "To Be" logistics roadmap
and the joint logistics capabilities portfolio management test from senior
officials in the Office of the Deputy Under Secretary of Defense for
Logistics, Materiel, and Readiness. We met regularly with DOD and OMB
officials to discuss the overall status of the supply chain management
improvement plan, the implementation schedules of the plan's individual
initiatives, and the plan's performance measures. We visited and
interviewed officials from U.S. Transportation Command, the Defense
Logistics Agency, the military services, and the Joint Staff to gain their
perspectives on improving supply chain management.

To develop a baseline of recommended supply chain management improvements,
we surveyed audit reports covering the time period of October 2001 to
September 2006. We selected this time period because it corresponds with
recent military operations that began with the onset of Operation Enduring
Freedom and, later, Operation Iraqi Freedom. We surveyed audit reports
issued by our office, the DOD-IG, the Army Audit Agency, the Naval Audit
Service, and the Air Force Audit Agency.

For each audit recommendation contained in these reports, we determined
its status and focus. To determine the status of GAO recommendations, we
obtained data from our recommendation tracking system. We noted whether
DOD concurred with, partially concurred with, or did not concur with each
recommendation. In evaluating agency comments on our reports, we have
noted instances where DOD agreed with the intent of a recommendation but
did not commit to taking any specific actions to address it. For the
purposes of this report, we counted these as concurred recommendations. We
also noted whether the recommendation was open, closed and implemented, or
closed and not implemented. In a similar manner, we worked with DOD-IG and
the service audit agencies to determine the status of their
recommendations. We verified with each of the audit organizations that
they agreed with our definition that a recommendation is considered
"concurred with" when the audit organization determines that DOD or the
component organization fully agreed with the recommendation in it entirety
and its prescribed actions, and "partially concurred with" is when the
audit organization determines that DOD or the component organization
agreed to parts of the recommendation or parts of its prescribed actions.
Furthermore, we verified that a recommendation is officially "closed" when
the audit organization determines that DOD or the component organization
has implemented its provisions or otherwise met the intent of the
recommendation; when circumstances have changed, and the recommendation is
no longer valid; or when, after a certain amount of time, the audit
organization determines that implementation cannot reasonably be expected.
We also verified that an "open" recommendation is one that has not been
closed for one of the preceding reasons. We assessed the reliability of
the data we obtained from DOD-IG and the service audit agencies by
obtaining information on how they track and follow up on recommendations
and determined that their data were sufficiently reliable for our
purposes.

In analyzing the focus of recommendations, we identified those addressing
three specific areas--requirements forecasting, asset visibility, and
materiel distribution--as well those addressing other supply chain
management concerns. We selected these three focus areas as the framework
for our analysis based on our prior work in this high-risk area and
because DOD has structured its supply chain management improvement plan
around them. We then analyzed the recommendations and further divided them
into one of five common themes: management oversight, performance
tracking, planning, process, and policy. To identify the focus area and
theme for each report and recommendation, three analysts independently
labeled each report with a focus area and identified a theme for each
recommendation within the report. The team of analysts then reviewed the
results, discussed any discrepancies, and reached agreement on the
appropriate theme for each recommendation. In the event of a discrepancy
which could not be immediately resolved, we referred to the original
report to clarify what the intent of the report had been in order to
decide on the appropriate focus area and theme. For the purpose of our
analysis, if a recommendation consisted of multiple actions, we counted
and classified each action separately. We excluded from our analysis
recommendations that addressed only a specific piece of equipment or
system. We also excluded recommendations that addressed other DOD
high-risk areas, such as business systems modernization and financial
management. While we included recommendations by non-audit organizations
in our analysis, we did not determine the extent to which DOD concurred
with or implemented them because their status is not systemically tracked.

We conducted our review from January through November 2006 in accordance
with generally accepted government auditing standards.

We are sending copies of this report to the Director, Office of Management
and Budget; the Secretary of Defense; the Deputy Secretary of Defense; the
Under Secretary of Defense for Acquisition, Technology, and Logistics; and
other interested parties. This report will also be available at no charge
on our Web site at http://www.gao.gov.

Should you or your staff have any questions concerning this report, please
contact me at (202) 512-8365 or [email protected]. Key contributors to this
report are listed in appendix VIII.

William M. Solis
Director
Defense Capabilities and Management

Appendix I

Supply Chain Management: Summary of GAO Report Recommendations

Source: GAO.

Appendix II

Supply Chain Management: Summary of DOD-IG Report Recommendations

Source: DOD-IG.

Appendix III

Supply Chain Management: Summary of Army Audit Agency Report
Recommendations

Source: Army Audit Agency.

Appendix IV

Supply Chain Management: Summary of Air Force Audit Agency Report
Recommendations

Source: Air Force Audit Agency.

Appendix V

Supply Chain Management: Summary of Naval Audit Service Report
Recommendations

Source: Navel Audit Service.

Appendix VI

Supply Chain Management: Summary of Non-audit Organization Report
Recommendations

Source: Defense Science Board, RAND, Lexington Institute, Center for
Strategic and International Studies, Army Science Board FY2004 Task Force,
Deputy Under Secretary of Defense and Joint Staff, Defense Business
Practice Implementation Board.

Appendix VII

Comments from the Department of Defense

Appendix VIII

GAO Contact and Staff Acknowledgments

GAO Contact

William M. Solis (202) 512-8365

Acknowledgments

In addition to the contacts named above, key contributors to this report
were Thomas W. Gosling, Assistant Director, Susan C. Ditto, Amanda M.
Leissoo, Marie A. Mak, and Janine M. Prybyla.

(350780)

www.gao.gov/cgi-bin/getrpt?GAO-07-234 .

To view the full product, including the scope
and methodology, click on the link above.

For more information, contact William M. Solis at (202) 512-8365 or
[email protected].

Highlights of [33]GAO-07-234 , a report to 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

January 2007

DOD'S HIGH-RISK AREAS

Progress Made Implementing Supply Chain Management Recommendations, but
Full Extent of Improvement Unknown

Military operations in Iraq and Afghanistan have focused attention on the
Department of Defense's (DOD) supply chain management. The supply chain
can be critical to determining outcomes on the battlefield, and the
investment of resources in DOD's supply chain is substantial. In 2005,
with the encouragement of the Office of Management and Budget (OMB), DOD
prepared an improvement plan to address some of the systemic weaknesses in
supply chain management. GAO was asked to monitor implementation of the
plan and DOD's progress toward improving supply chain management. GAO
reviewed (1) the integration of supply chain management with broader
defense business transformation and strategic logistics planning efforts;
and (2) the extent DOD is able to demonstrate progress. In addition, GAO
developed a baseline of prior supply chain management recommendations. GAO
surveyed supply chain-related reports issued since October 2001,
identified common themes, and determined the status of the
recommendations.

[34]What GAO Recommends

GAO recommends that DOD complete its logistics strategy and develop and
implement outcome-focused performance metrics and cost metrics for supply
chain management. DOD concurred with GAO's recommendations.

DOD's success in improving supply chain management is closely linked with
its defense business transformation efforts and completion of a
comprehensive, integrated logistics strategy. Based on GAO's prior reviews
and recommendations, GAO has concluded that progress in DOD's overall
approach to business defense transformation is needed to confront problems
in other high-risk areas, including supply chain management. DOD has taken
several actions intended to advance business transformation, including the
establishment of new governance structures and the issuance of an
Enterprise Transition Plan aligned with the department's business
enterprise architecture. As a separate effort, DOD has been developing a
strategy--called the "To Be" logistics roadmap--to guide logistics
programs and initiatives across the department. The strategy would
identify the scope of logistics problems and capability gaps to be
addressed and include specific performance goals, programs, milestones,
and metrics. However, DOD has not identified a target date for completion
of this effort. According to DOD officials, its completion is pending the
results of the department's ongoing test of new concepts for managing
logistic capabilities. Without a comprehensive, integrated strategy,
decision makers will lack the means to effectively guide logistics
efforts, including supply chain management, and the ability to determine
if these efforts are achieving desired results.

DOD has taken a number of actions to improve supply chain management, but
the department is unable to demonstrate at this time the full extent of
its progress that may have resulted from its efforts. In addition to
implementing audit recommendations, DOD is implementing initiatives in its
supply chain management improvement plan. However, it is unclear how much
progress its actions have resulted in because the plan generally lacks
outcome-focused performance metrics that track progress in the three focus
areas and at the initiative level. DOD's plan includes four high-level
performance measures, but these measures do not explicitly relate to the
focus areas, and they may be affected by many variables, such as
disruptions in the distribution process, other than DOD's supply chain
initiatives. Further, the plan does not include overall cost metrics that
might show efficiencies gained through the efforts. Therefore, it is
unclear whether DOD is meeting its stated goal of improving the provision
of supplies to the warfighter and improving readiness of equipment while
reducing or avoiding costs.

Over the last 5 years, audit organizations have made more than 400
recommendations that focused specifically on improving certain aspects of
DOD's supply chain management. About two-thirds of the recommendations had
been closed at the time GAO conducted its review, and most of these were
considered implemented. Of the total recommendations, 41 percent covered
the focus areas in DOD's supply chain management improvement plan:
requirements forecasting, asset visibility, and materiel distribution. The
recommendations addressed five common themes--management oversight,
performance tracking, planning, policy, and processes.

References

Visible links

  33. http://www.gao.gov/cgi-bin/getrpt?GAO-07-234
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