Defense Inventory: Improved Management Framework Needed to Guide Navy
Best Practice Initiatives (Letter Report, 10/21/1999, GAO/NSIAD-00-1).
Pursuant to a legislative requirement, GAO provided information on the
Navy's best practices implementation schedule for the acquisition and
distribution of secondary inventory items, which the Navy submitted to
Congress on June 16, 1999, focusing on: (1) the extent to which the
schedule responds to the provisions of the Strom Thurmond National
Defense Authorization Act for Fiscal Year 1999; and (2) identifying
specific elements of a management framework needed for effective
implementation and oversight of the Navy's best practice initiative.
GAO noted that: (1) the Navy's schedule is generally responsive to the
act; (2) specifically, the schedule describes 25 initiatives that
address the acquisition and distribution of secondary items managed by
the Navy and the Marine Corps; (3) these initiatives are primarily aimed
at improving the Navy and Marine Corps planning, sourcing, delivery, and
maintenance processes; (4) while some of the initiatives did not include
specific timeframes to complete implementation, the Secretary of the
Navy advised Congress that with few exceptions, implementation of the
initiatives is expected to be completed by 2003; (5) though generally
responsive to the act's requirements, the management framework that is
outlined in the schedule lacks specific elements that are needed to
assess implementation progress, measure success, and identify needed
changes; (6) as a result, while the schedule describes an overall
implementation strategy, it does not provide sufficient information for
Congress and Department of Defense (DOD) managers to measure the
progress and results of the initiatives; (7) also, the management
framework contained in the schedule does not provide a clear link to
top-level DOD improvement goals or provide details for periodic
evaluation of an initiative's progress; (8) in GAO's prior work, GAO
noted that the lack of such information contributed to DOD's difficulty
in implementing new initiatives; and (9) the Government Performance and
Results Act offers a model for developing an effective management
framework to improve the likelihood of successfully implementing
initiatives and assessing results.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: NSIAD-00-1
TITLE: Defense Inventory: Improved Management Framework Needed to
Guide Navy Best Practice Initiatives
DATE: 10/21/1999
SUBJECT: Private sector practices
Naval procurement
Inventory control systems
Logistics
Performance measures
Equipment repairs
Federal property management
Strategic planning
Spare parts
Military inventories
IDENTIFIER: Navy Direct Vendor Delivery Program
DOD Total Asset Visibility Initiative
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Report to Congressional Committees
October 1999
DEFENSE INVENTORY
Improved Management Framework Needed to Guide Navy Best Practice
Initiatives
*****************
*****************
GAO/NSIAD-00-1
Letter 3
Appendixes
Appendix I:Summary of Navy Initiatives
16
Appendix II:Comments From the Department of Defense
24
Appendix III:GAO Contacts and Staff Acknowledgments
26
Related GAO Products
27
Table 1: Department of the Navy Initiatives' Status and Projected
Completion Dates9
Figure 1: Department of the Navy's Supply Chain Cycles6
DOD Department of Defense
Major Management Challenges and Program Risks: Department of Defense
National Security and
International Affairs Division
B-281459
October 21, 1999
Congressional Committees
Section 347 of the Strom Thurmond National Defense Authorization Act for
Fiscal Year 1999 requires the secretary of each military department to
submit to Congress a schedule for implementing best commercial inventory
practices for the acquisition and distribution of secondary inventory
items./Footnote1/ Best commercial inventory practices are defined as
practices that enable the military departments to reduce inventory levels
while improving the responsiveness of the supply system to user needs.
Section 347 further requires that the schedule provide for implementation
of such best practices to be completed within 5 years of enactment, or by
October 17, 2003. The section also requires us to evaluate the extent to
which the secretary of each military department has complied with the
act's requirements.
In this report, we discuss our evaluation of the Department of the Navy's
best practices implementation schedule for the acquisition and
distribution of secondary inventory items, which the Department of the
Navy submitted to Congress on June 16, 1999. In our evaluation, we (1)
determined the extent to which the schedule responds to the provisions of
the act and
(2) identified specific elements of a management framework needed for
effective implementation and oversight of the Department of the Navy's
best practice initiatives.
Results in Brief
The Department of the Navy's schedule is generally responsive to the act.
Specifically, the schedule describes 25 initiatives that address the
acquisition and distribution of secondary items managed by the Navy and
the Marine Corps. These initiatives are primarily aimed at improving the
Navy and Marine Corps planning, sourcing, delivery, and maintenance
processes. While some of the initiatives did not include specific time
frames to complete implementation, the Secretary of the Navy advised
Congress that with few exceptions, implementation of the initiatives is
expected to be completed by 2003.
Though generally responsive to the act's requirements, the management
framework that is outlined in the schedule lacks specific elements that
are needed to assess implementation progress, measure success and identify
needed changes. As a result, while the schedule describes an overall
implementation strategy, it does not provide sufficient information for
Congress and Defense managers to measure the progress and results of the
initiatives. Also, the management framework contained in the schedule does
not provide a clear link to top-level DOD improvement goals or provide
details for periodic evaluation of an initiative's progress. In our prior
work, we noted that the lack of such information contributed to DOD's
difficulty in implementing new initiatives. The Government Performance and
Results Act offers a model for developing an effective management
framework to improve the likelihood of successfully implementing
initiatives and assessing results.
To ensure that progress and results information is available to Congress
and Defense managers, we are recommending that the Secretary of the Navy
develop a Results Act management approach for implementing the 25
initiatives.
Background
To provide consumable and reparable parts for its ships, aircraft, and
ground equipment, the Department of the Navy uses an extensive logistics
system that is based on management processes, procedures, and concepts
that have evolved over time. Reparable parts are expensive items that can
be fixed and used again, such as hydraulic pumps, navigational computers,
engines, and landing gear. The naval logistics system, often referred to
as a logistics pipeline or supply chain, involves several interrelated
activities that play a role in providing parts where and when they are
needed./Footnote2/ These activities include the purchase, storage, repair,
and distribution of parts, which together require billions of dollars of
investments in personnel, equipment, facilities, and inventory.
The Department of the Navy recognizes that focusing on integrated supply
chains can optimize logistics support and improve the management of
secondary inventory. Navy analysis has shown that in the private sector,
world-class firms have demonstrated superior responsiveness to customer
needs through integrated supply chains at about half the cost of their
average industry segments. The Department of the Navy has identified four
interrelated management cycles in its supply chain:
o Planning, which includes the forecasting of demand for items, and
supply and distribution planning.
o Sourcing, which includes identifying sources of inventory to support
acquisition, repair, and other services.
o Delivery, which involves ordering, storage, and transportation.
o Maintenance, which includes repairing weapon systems and component parts.
Figure 1 illustrates these cycles and their interrelationships.
Figure****Helvetica:x11****1: Department of the Navy's Supply Chain
Cycles
*****************
*****************
Source: Department of the Navy section 347 report to Congress (June 16,
1999).
Since 1990, we have identified DOD's management of secondary inventories
as a high-risk area because levels of inventory were too high and
management systems and procedures were ineffective./Footnote3/ In
addition, our financial statement audits have identified continuing
significant problems with the integrity of DOD's inventory data. For
example, we reported that inaccurate inventory data resulted from
weaknesses in the Department's procedures relied on to maintain visibility
over, and conduct physical counts of, on-hand inventories. Until these
problems are effectively resolved, DOD's ability to reliably measure and
assess performance will continue to be impaired./Footnote4/ While DOD has
made some improvements, these general conditions still exist and this area
remains on our high-risk list./Footnote5/ We have reported that adopting
best business practices in inventory management along with improving the
reliability of financial management information are key steps toward
solving these problems.
Congress has recently taken specific actions to encourage DOD to adopt
best commercial practices to improve its inventory management. The
National Defense Authorization Act for Fiscal Year 1998 required the
Director, Defense Logistics Agency, to develop and submit to Congress a
schedule for implementing best commercial practices for the acquisition
and distribution of nine categories of consumable-type supplies. The act
also required that the schedule provide for the implementation of such
practices to be completed by November 2000. As previously noted, the
National Defense Authorization Act for Fiscal Year 1999 placed a similar
requirement on the secretary of each military department. The military
departments' schedules are to provide for the implementation of such best
practices to be completed by October 17, 2003.
DOD is working to adopt best practices in its operations. In November
1997, the Secretary of Defense issued the Defense Reform Initiative
report, which identified a number of reengineering initiatives aimed at
adopting modern business practices to achieve world-class standards of
performance. In addition, the DOD performance plan for fiscal year 2000
notes that the inventory supply system is larger than required to support
today's smaller force structure and outlines goals to reduce inventory
levels and streamline infrastructure. In March 1999, the Undersecretary of
Defense (Acquisition Reform) stated that DOD needed "a revolution in
business affairs****Symbol:xbc****that embodies the best of modern
business practices, the ability to access the full range and scope of
technologies to meet the speed and agility demanded by the new
battlespace, and an absolute commitment to finding the best, most
efficient means of delivering goods and services to our warfighters.(c)
Department of the Navy's Schedule Generally Responds to the Act's
Requirements
The Department of the Navy's schedule is generally responsive to the act.
Specifically, the schedule describes initiatives that address the
acquisition and distribution of secondary items managed by the Navy and
the Marine Corps, and for some initiatives provides general information
regarding completion dates. In submitting the schedule to Congress, the
Secretary of the Navy stated that with few exceptions, implementation of
the initiatives is expected to be completed by 2003. The schedule contains
25 initiatives that are primarily aimed at improving the Department of the
Navy's planning, sourcing, delivery, and maintenance management processes.
For example, the Direct Vendor Delivery Program is designed to find
alternative commercial methods of supplying inventory items that would
lower overall costs, and the Maintenance Cycle Time Reengineering
initiative is focused on improving maintenance operations that will result
in reduced inventory levels, repair times and repair costs.
The schedule describes the status of the initiatives as new, developing,
or mature. According to Navy officials, six initiatives are new, that is
in the earliest stages of development and generally exploratory in nature.
Another 14 initiatives are categorized as developing, which means they
have progressed to the point where viability of concept has been proven,
business rules are being developed, and the initiatives will be expanded.
The remaining five initiatives are considered mature because they have
been under way for some time and are considered established business
practices.
For each initiative, the schedule provides a general description, overall
goals, planned actions and related milestones and describes desired
outcomes. The schedule also estimates what portion of the existing
inventory may be affected by each initiative. Many of the planned actions
and milestones listed in the schedule relate to periodic program reviews,
not specific implementation dates. For 10 initiatives, the schedule
provides general information suggesting completion dates; while for 13
initiatives, specific completion dates could not be determined. For 2 of
the 25 initiatives, completion dates were scheduled for after the 5-year
time frame required by the act. Table 1 summarizes the information related
to initiative status and completion dates. (See app. I for a more detailed
description of each initiative.)
Table****Helvetica:x11****1: Department of the Navy Initiatives' Status
and Projected Completion Dates
-------------------------------------------------------------------------
| Supply : Initiative : Status : Projected |
| chain : : : |
| cycle : : : completio |
| targeted : : : n date |
| for : : : |
| improvement : : : |
|-----------------------------------------------------------------------|
| Planning : Enterprise Resource Planning : New : Not |
| : : : indicated |
|-----------------------------------------------------------------------|
| : Serial Number Tracking : Developi : Oct. 2003 |
| : : ng : |
|-----------------------------------------------------------------------|
| : Long-Term Contracting : Mature : Not |
| : : : indicated |
|-----------------------------------------------------------------------|
| : Enhanced Sparing Model : Developi : 2003 |
| : : ng : |
|-----------------------------------------------------------------------|
| : Retention Level Review : Mature : March 2000 |
|-----------------------------------------------------------------------|
| : Material Requirement Review : Developi : Not |
| : : ng : indicated |
|-----------------------------------------------------------------------|
| Sourcing : Total Asset Visibility, Navy : Mature : Sept. 2002 |
|-----------------------------------------------------------------------|
| : Total Asset Visibility, Marine : Mature : Not |
| : Corps : : indicated |
|-----------------------------------------------------------------------|
| : Navy Electronic Commerce Online : Developi : June 1999 |
| : : ng : |
|-----------------------------------------------------------------------|
| : Readiness Support System : New : Not |
| : : : indicated |
|-----------------------------------------------------------------------|
| : Contractor Logistics Support, : Developi : Not |
| : Navy : ng : indicated |
|-----------------------------------------------------------------------|
| : Contractor Logistics Support, : Developi : June 2001 |
| : Marine Corps : ng : |
|-----------------------------------------------------------------------|
| : Direct Vendor Delivery : Developi : Not |
| : : ng : indicated |
|-----------------------------------------------------------------------|
| : Electronic Servmart Shopping : Developi : Dec. 2001 |
| : : ng : |
|-----------------------------------------------------------------------|
| Delivery : Customer Wait Time : Developi : Not |
| : : ng : indicated |
|-----------------------------------------------------------------------|
| : One Touch Supply : Developi : Sept. 1999 |
| : : ng : |
|-----------------------------------------------------------------------|
| : Regional Third Party Logistics : New : Dec. 2000 |
| : Providers : : |
|-----------------------------------------------------------------------|
| : Third Party Logistics : Developi : Not |
| : Providers-Retrograde Management : ng : indicated |
|-----------------------------------------------------------------------|
| : Prime Vendor, Marine Corps : Developi : Not |
| : : ng : indicated |
|-----------------------------------------------------------------------|
| Maintenance : Organic Industrial Enterprise : New : Not |
| : Logistics Support : : indicated |
|-----------------------------------------------------------------------|
| : Maintenance Cycle Time : New : June 2006 |
| : Reengineering : : |
|-----------------------------------------------------------------------|
| : Modernization of Maintenance : Developi : Oct. 2005 |
| : Information Support System : ng : |
|-----------------------------------------------------------------------|
| : Manufacturing Resource : Developi : Sept. 2000 |
| : Planning II : ng : |
|-----------------------------------------------------------------------|
| : Rapid Retargeting : New : Not |
| : : : indicated |
|-----------------------------------------------------------------------|
| : Logistics Engineering Change : Mature : Not |
| : Proposals : : indicated |
-------------------------------------------------------------------------
Management Framework Is Key to Implementing Initiatives
Though generally responsive to the act's requirements, the schedule
provides a management framework that lacks specific elements that are
needed to assess implementation progress, measure success, and identify
needed changes. The management framework described in the schedule
provides an overall strategy that links the initiatives to three general
improvement goals and four supply chain functions. In addition, each
initiative contains limited program evaluation and implementation
milestones, such as dates for program reviews. The schedule does not
provide, however, specific information needed to assess implementation
progress, initiative results, or program evaluation plans. The Government
Performance and Results Act can provide a model for developing an
effective management framework to guide implementation of the initiatives
and to provide Congress and DOD managers with information on progress and
results.
The Schedule Provides a Limited Management Framework
-----------------------------------------------------
In our past work, we reported that the lack of a management framework
contributed to DOD's difficulty in implementing new initiatives. For
example, we reported that DOD did not have an adequate management
framework to clearly determine the progress being made in realizing the
Total Asset Visibility initiative goals and that the initiative's
strategic and implementation plans were inadequate. As a result, DOD
managers did not have a clear picture of what the initiative's
implementation status was or how initiatives within each service
contributed to achieving overall DOD goals and objectives. In addition, we
reported there was confusion over who would use the system and how it
would be used./Footnote6/
The Department of the Navy schedule presents the 25 initiatives within the
context of an overall implementation strategy that addresses three
improvement goals: enhancing customer support, reducing total ownership
costs, and reducing infrastructure. As discussed earlier, this strategy
also recognizes the relationship of these initiatives to four principal
supply chain management functions and estimates the potential application
of the initiatives to current inventory levels. This overall strategy is
an important element of a management framework because it recognizes the
interrelationship of the initiatives and their systemwide potential, which
helps minimize potential conflicts and duplication of efforts. The
schedule also indicates senior-level Navy officials will review the status
of these initiatives semiannually and provide program updates to the
Secretary of the Navy and to the Deputy Under Secretary of Defense for
Logistics.
However, other framework elements necessary to assess implementation
progress and measure success are not included in the schedule.
Specifically, the schedule lacks objective and precise outcome measures
that could be used to assess implementation progress and results. For
example, for the Organic Industrial Enterprise Logistics Support
initiative, the schedule identifies reductions of inventory requirements,
total costs in the supply chain, and repair costs as desired outcomes but
does not quantify these goals. Without this specific information, it is
impossible to determine the magnitude or impact these initiatives may have
on overall logistics operations and objective information regarding the
initiatives' implementation progress and achievement of their desired
outcomes may not be available to Congress and to Defense managers.
Other management framework elements provided in the schedule are limited.
Initiative goals and objectives in the schedule are not linked to specific
DOD or Department of the Navy strategic logistics goals. Implementation
milestones are in some cases very general, which will make it difficult to
track implementation progress. Although the schedule contains dates for
periodic program reviews for each initiative, it does not identify the
general scope, methodology, or key issues to be addressed in these reviews.
Results Act Management Framework
--------------------------------
The Results Act framework generally consists of establishing strategic
plans, performance plans, and mechanisms for measuring program progress
and results. Such a framework would include (1) establishing broad general
initiative goals and objectives, (2) linking these goals to overall DOD
goals and objectives, (3) establishing quantifiable performance measures
to assess whether the initiatives are achieving desired results, (4)
defining levels of accountability and responsibility for implementing the
initiatives and identifying the resources that will be required to achieve
goals, (5) establishing milestones necessary to measure progress toward
full implementation, and (6) defining an evaluation plan for periodically
comparing actual results to established goals and objectives. This
information would allow Congress and other decisionmakers to measure
initiatives' implementation progress and to determine whether the
initiatives are achieving their desired results.
In addition to these potential benefits, considering the initiatives as
interrelated efforts maximizes their systemwide improvement potential. Our
prior work on best inventory management practices has shown that efforts
to reengineer a logistics system are more successful when various
logistics activities are viewed as a series of interrelated processes
rather
than isolated functional areas./Footnote7/ For example, when one airline
began changing the way it purchased parts from suppliers, it considered
how those changes would affect mechanics in repair workshops.
Additionally, airline officials described how a combination of supply
chain improvements could lead to continuous improvements. They described
how culture changes, improved data accuracy, and more efficient processes
led to reductions in inventories and complexity of operations. These
reductions can lead to further efficiencies and process improvements.
Conclusions
The schedule generally meets the requirements of the act by providing
information on 25 initiatives that the Secretary of the Navy has advised
Congress that, with few exceptions, are expected to be completed by 2003.
In addition, the schedule presents an overall strategy to adopt best
practices that is linked to general improvement goals and considers the
improvement efforts in a supply chain management context. Executing this
strategy and achieving the corresponding goals of reducing inventory
levels while improving the responsiveness of the supply system to user
needs will depend on the successful implementation of these initiatives.
However, the management framework outlined in the schedule lacks specific
elements needed to assess implementation progress, measure success, and
identify needed changes. The Results Act provides a model for developing a
more effective management framework that could provide this information
and allow for meaningful evaluations of progress and results.
Recommendations
To provide a mechanism to improve the potential for successfully
implementing the initiatives and measure results, we recommend that the
Secretary of Defense direct the Secretary of the Navy to improve the
management framework for implementing the 25 initiatives based on the
principles embodied in the Results Act. Specifically, this management
framework should include
o direct links to top-level DOD goals and objectives, including objective
and precise outcome measures related to reducing pipeline time,
improving customer service, and reducing total inventory, and
o clearly defined initiative goals, quantifiable performance measures,
implementation schedule milestones including specific implementation
dates, and key issues and methodologies that will be used to
periodically assess the overall impact the initiatives have achieved in
reducing inventory levels while improving the responsiveness of the
supply system to user needs.
Agency Comments and Our Evaluation
In commenting on a draft of this report, DOD concurred with our
recommendations and stated that the Department of the Navy's schedule will
be updated in the first quarter of 2000. This update will provide links
between the schedule initiatives and the objectives set forth in DOD's
Logistics Strategic Plan, quantifiable performance measures, and specific
initiative milestone dates where practicable. DOD noted, however, that
several Navy initiatives are exploratory in nature and until they are
tested, proven successful, and funded, implementation--and specific
implementation dates--cannot be assured. DOD's comments are included in
their entirety as appendix II.
DOD did express concern that the draft report implied that the current
management framework for implementing the initiatives is inadequate. DOD
stated that the Navy's current management framework is guided by the DOD
Logistics Strategic Plan and the Navy's High Yield Logistics Strategy and
that the initiatives are subject to review within existing chains of
command and at appropriate levels. Further, DOD cited results that have
been achieved and asserted that such successes would not have been
possible without an adequate management framework. We did not conclude
that the Navy's management framework was inadequate. However, we believe
it can be improved, particularly in areas related to measuring progress
and results. We have revised our conclusion to more clearly reflect our
position.
Scope and Methodology
We based our analysis of the extent to which the schedule responds to the
requirements of the act on the information in the schedule, discussions
with Navy and Marine Corps officials, and our prior work comparing DOD and
private sector logistics practices.
In addition to determining whether the schedule responds to the act, we
identified areas in which it could be improved to guide initiative
implementation and improve management of secondary inventory items.
Specifically, we examined the schedule in terms of outcome-oriented
Results Act principles to determine whether the schedule provides an
overall strategy for adopting best practices and contains key management
information to guide implementation. We did not assess the merits of the
initiatives or the initiatives' likelihood for success.
We interviewed officials and obtained information about ongoing and
planned initiatives at Department of the Navy Headquarters, Washington,
D.C.; the Navy Supply and Navy Inventory Control Point in Mechanicsburg
and Philadelphia, Pennsylvania, respectively; the Fleet Industrial Supply
Center, San Diego and Naval Aviation Depot North Island, California. We
also obtained information from the Marine Corps Headquarters, Logistics
and Installations, Navy Annex, Arlington, Virginia; the Marine Corps
Logistics Base, Albany, Georgia; and Camp Pendleton, California. In
addition, we used information from our related reports that have been
issued since 1993.
We conducted our review from November 1998 to June 1999 in accordance with
generally accepted government auditing standards.
We are sending copies of this report to the appropriate congressional
committees; the Honorable William Cohen, Secretary of Defense; the
Honorable Richard Danzig, Secretary of the Navy; Admiral Jay Johnson,
Chief of Naval Operations; General James Jones, Commandant, Marine Corps;
Lieutenant General Henry T. Glisson, Director, Defense Logistics Agency;
and Jacob Lew, Director, Office of Management and Budget. We will also
make copies available to others upon request.
Please contact me on (202) 512-8412 if you or your staff have any
questions concerning this report. Key contributors to this report are
listed in appendix III.
*****************
*****************
David R. Warren, Director
Defense Management Issues
List of Congressional Committees
The Honorable John Warner
Chairman
The Honorable Carl Levin
Ranking Minority Member
Committee on Armed Services
United States Senate
The Honorable Ted Stevens
Chairman
The Honorable Daniel K. Inouye
Ranking Minority Member
Subcommittee on Defense
Committee on Appropriations
United States Senate
The Honorable Floyd Spence
Chairman
The Honorable Ike Skelton
Ranking Minority Member
Committee on Armed Services
House of Representatives
The Honorable Jerry Lewis
Chairman
The Honorable John P. Murtha
Ranking Minority Member
Subcommittee on Defense
Committee on Appropriations
House of Representatives
--------------------------------------
/Footnote1/-^ Secondary inventory includes spare parts, clothing, and
medical supplies to support Department of Defense (DOD) operating forces
worldwide.
/Footnote2/-^ The Navy also relies on this pipeline for consumable parts
that are used extensively to fix reparable parts and end items such as
ships and aircraft. The Defense Logistics Agency provides most of the
consumable parts that Navy repair activities use and handles a large
portion of the warehousing and distribution of reparable parts.
/Footnote3/-^ In 1990, we began a special effort to review and report on
the federal program areas that we identified as high risk because of
vulnerabilities to waste, fraud, abuse, and mismanagement. This effort,
which was supported by the Senate Committee on Government Affairs and
the House Committee on Government Reform, brought a much-needed focus to
problems that were costing the government billions of dollars.
/Footnote4/-^ Results Act: DOD's Annual Performance Plan for Fiscal Year
1999 (GAO/NSIAD-98-188R, June 5, 1998), DOD Financial Management: More
Reliable Information Key to Assuring Accountability and Managing Defense
Operations More Efficiently (GAO/ NSIAD-99-145, Apr. 14, 1999), and
Department of Defense: Status of Financial Management Weaknesses and
Actions Needed to Correct Continuing Challenges (GAO/NSIAD-99-171, May
4, 1999).
/Footnote5/-^(GAO/OCG-99-4, January 1999).
/Footnote6/-^ Defense Inventory: DOD Could Improve Total Asset Visibility
Initiative With Results Act Framework (GAO/NSIAD-99-40, Apr. 12, 1999).
/Footnote7/-^ Inventory Management: DOD Can Build on Progress by Using
Best Practices for Reparable Parts (GAO/NSIAD-98-97, Feb. 27, 1998).
SUMMARY OF NAVY INITIATIVES
===========================
The Department of the Navy's best practices implementation schedule lists
25 initiatives, including 22 for the Navy and 3 for the Marine Corps, and
links the initiatives to the four supply chain cycles that they will
affect. These cycles are planning, sourcing, delivery, and maintenance.
According to Navy officials, the plan is dynamic and specific milestones
and dates will be updated as necessary. This appendix summarizes the
information contained in the schedule submitted to Congress on June 16,
1999. Because these initiatives are not centrally managed and tracked by
the Department of the Navy, information regarding the current status of
each initiative was not readily available and is therefore not presented
in this appendix.
Planning Initiatives
Six initiatives relate to the planning cycle that includes demand
forecasting and supply and distribution planning functions. Some of these
initiatives are primarily related to information technology, while others
deal with evaluations of current inventory policies. For example, the
serial number tracking initiative is focused on developing technology to
provide integrated maintenance and supply information on specific items in
the Navy inventory. The Retention Level Review initiative is designed to
reduce inventory by evaluating the amount of secondary material that
should be retained based on a prudent level of risk.
Enterprise Resource Planning
----------------------------
Enterprise resource planning is a new initiative to explore the
possibility of replacing existing supply and maintenance software with a
complete new resource planning software package. According to the
schedule, the concept development milestone was reached in March 1999, and
a request for proposal was issued in May 1999. Proposal evaluation,
metrics review, and an initial contract award were scheduled during the
June-August 1999 period, and periodic program reviews are planned through
October 2002.
Serial Number Tracking
----------------------
This is a developing initiative to provide integrated maintenance
management information systems. The existing maintenance and supply
information systems are separate and distinct and collect different types
of data. This initiative is designed to gather maintenance and supply data
on specific inventory items and use that information to identify logistics
deficiencies and develop least cost solutions and increase readiness.
According to the schedule, between September 1999 and October 2003, the
Navy plans to establish this capability at all levels of aircraft
maintenance. Periodic program reviews are also planned during this period.
Long-Term Contracting
---------------------
This is a mature initiative for reducing the amount of time it takes to
place and receive an order for a secondary item. Under this initiative,
the Navy establishes a long-term contractual relationship with a vendor,
that permits the vendor to procure material to reduce production lead
times and reduce the Navy's administrative lead times. The schedule shows
the Navy planned to perform a metrics review in July 1999, complete a plan
of action with milestones by September 1999, and conduct periodic program
reviews through October 2002.
Enhanced Sparing Model
----------------------
This initiative is to reduce inventories of spares by improving
configuration data management and new modeling techniques. The initial
effort will apply to the F/A-18E/F aircraft and selected subsystems during
fiscal years 1999-2003. The schedule shows that through October 1999, the
Navy plans to establish new allowance requirements, revise allowances, and
identify a strategy for improved configuration data management software
changes. After that date, milestones call for periodic program reviews
through October 2002.
Retention Level Review
----------------------
This is a mature initiative designed to evaluate the amount of secondary
inventory that the Department of the Navy should retain. The goal is to
reduce the amount of inventory the Navy holds while minimizing the risk
that it would have to buy inventory that it previously decided was not
needed. The schedule states that from July to December 1999, the Navy
plans to conduct a metrics review, develop the concept, perform a 6-month
program review, and analyze inventory levels. It plans to implement new
inventory retention levels in March 2000 and perform annual program
reviews through October 2002.
Material Requirements Review
----------------------------
Using this developing initiative, the Navy intends to identify the optimum
amount of spare repair parts and consumables to be carried on combat
logistics force ships by making trade-offs between inventory levels and
transportation requirements. By reducing order and ship time, the
potential exists to reduce inventory requirements without affecting
readiness. According to schedule milestones, the Navy planned to identify
alternatives between March and May 1999, make recommendations to proceed
in October 1999, and perform periodic program reviews through October 2002.
Sourcing Initiatives
The schedule lists eight initiatives that relate to the sourcing cycle.
The sourcing cycle includes acquiring items, repair services, and managing
contracts. Some of these initiatives involve identifying and distributing
assets in inventory, while others are designed to find alternative
commercial methods of supplying inventory items at lower costs to the
Department of the Navy. For example, Navy and Marine Corps total asset
visibility initiatives are aimed at achieving visibility in wholesale,
retail, and other inventories so that they can be redistributed, if
necessary. Under the contract logistics support initiative, the Navy and
the Marine Corps award contracts to commercial vendors who provide
inventory directly to customers in time to meet their requirements, thus
reducing the need for Department of Defense (DOD) resources.
Total Asset Visibility--Navy
----------------------------
The Total Asset Visibility program is a mature initiative, which began in
the early 1990s./Footnote1/ The program is designed to link inventory
information systems to improve asset visibility and provide an inventory
redistribution capability. The initiative requires modifications to
information systems and new business rules governing inventory
redistribution procedures. According to the schedule, the Navy will
complete a number of total asset visibility projects by September 2002,
and make periodic program reviews through October 2002.
Total Asset Visibility--Marine Corps
------------------------------------
This is also a mature initiative involving various efforts since 1991 to
identify and distribute assets. DOD goals have been incorporated,
development and testing of systems and procedures have been conducted, and
visibility and redistribution systems have been fielded. Additional
milestones in the schedule call for expanding implementation, completing
prototype capability design, and performing a full program review in June
2001.
Navy Electronic Commerce Online
-------------------------------
This developing initiative is to provide an electronic procurement system
that is simple to use, is accessible through the Internet or other
networks, and can be completely paperless. The Navy expects the system to
make procurements faster, more accurate, and less expensive. According to
the schedule, the system has been deployed to Naval Inventory Control
Point users, to some Navy Fleet Industrial Supply Centers, and to Marine
Corps logistics bases. Further deployments were planned through June 1999,
and program reviews are scheduled on an annual basis through October 2002.
Readiness Support Systems
-------------------------
This is a new initiative aimed at simplifying access to a wide variety of
new business practices. The Navy intends to establish a single electronic
clearinghouse to forward support requests to the correct contractor or DOD
organizations. According to the schedule, testing was completed in May
1999, a prototype was to be implemented in August 1999, and periodic
program reviews are planned through October 2002.
Contractor Logistics Support, Navy
----------------------------------
Using this developing initiative, which is focused primarily on new
acquisition weapon systems, the Navy negotiates a contract with a
commercial vendor at or below the total cost of traditional supply
support. The vendor is required to buy new inventory or buy out the Navy's
existing inventory and provide material directly to customers. According
to the schedule, the Navy has planned various phases and milestones from
May to December 1999 related to business case and metrics development and
software programming changes to support the initiative. The Navy plans to
identify candidates for contractor logistics support in March 2000 and
perform periodic program reviews through October 2002.
Contractor Logistics Support, Marine Corps
------------------------------------------
This is a developing initiative to use a commercial contractor for
logistics support for a major weapon system. The contractor will be
responsible for supplying repair parts, providing inventory forecasting,
and technical support, and reporting on the status of orders. According to
the schedule, the Marine Corps expects to award a sole-source contract
with the original equipment manufacturer during the first quarter of
fiscal year 2000. The Marine Corps has established milestones for initial
operational testing and evaluation in the third quarter of fiscal year
2000, to be followed by quarterly program reviews and implementation of
contractor logistics support for the new vehicle in the third quarter of
fiscal year 2001.
Direct Vendor Delivery
----------------------
This is a developing initiative to award contracts to commercial vendors
to provide inventory directly to Navy customers in time to meet their
needs, reducing the use of Navy resources. The Navy conducted business
case development in May 1999 and planned a metrics review in July 1999. It
also plans to conduct a 6-month review to address barriers to success in
October 1999, complete requests for process changes in December 1999,
identify candidates for the initiative in March 2000, and perform periodic
program reviews through October 2002.
Electronic Servmart Shopping
----------------------------
This is a developing initiative to implement an online ordering system
that allows fleet customers to access and order materials from their
computers and make payments using a purchase card. Orders can be delivered
to customers or prepared for pickup the next day, eliminating the need for
trips to the self-service Servmart stores. According to the schedule, the
concept has been implemented at five facilities, and it will be
implemented at three additional facilities in September 1999. The Navy
plans a 6-month program review to address barriers to success in October
1999. The initiative will be expanded to remaining Fleet Industrial Supply
Centers in December 2000 and to other Navy activities in December 2001.
Periodic program reviews are scheduled through October 2002.
Delivery Initiatives
The schedule lists five initiatives under the delivery management cycle.
The delivery cycle includes ordering, storage, and transportation of items
in addition to managing the delivery infrastructure. Two initiatives deal
with information technology systems and the other three use third-party
providers for specific inventory items. For example, the Marine Corps'
prime vendor initiative uses contractors to provide market ready or
commercial supplies in medical, subsistence, automotive, and other
business areas to a wide range of Marine Corps customers.
Customer Wait Time
------------------
This is a developing initiative for speeding up the delivery of parts that
are needed for maintenance. The Navy intends to track the time from the
ordering of a part to its delivery, develop a strategy for different shore
facilities and deployment sites, then optimize the Navy's investment in
spare parts. The schedule indicates a metrics review for July 1999 and
periodic program reviews through October 2003.
One Touch Supply
----------------
This developing initiative allows customers to use the Internet to access
various Navy databases at different facilities as a means to expedite the
ordering and delivery of supplies. A customer can locate stock, input
requisitions, perform technical screening, and check on requisition
status. The initiative was started in November 1997, and the Navy planned
to add the capability to access Defense Logistics Agency databases in
August 1999 and other Navy databases in September 1999. Periodic program
reviews are scheduled through October 2003.
Regional Third Party Logistics Providers
----------------------------------------
This is a new initiative to use a single contractor, rather than many, to
provide customers with inventory that is readily available in the
commercial sector. A desired outcome of this initiative is lower inventory
levels and related infrastructure. Norfolk/Tidewater, Virginia regional
locations under consideration for this initiative include Public Works
Center supply, Naval Shipyard shop stores, and in the future, Naval Air
Station pre-expended bins. The schedule shows that in March and April 1999
the Navy was to complete a business case analysis and solicit vendor bids.
Selection of a third-party provider is scheduled for September 1999 and a
6-month review is planned for October 1999. The strategy is to be
assessed, refined, and expanded to other regions and to the Navy supply
system between April and December 2000, and program reviews are scheduled
through October 2002.
Third Party Logistics Providers-Retrograde Management
-----------------------------------------------------
This developing initiative uses a single third-party logistics provider to
reduce the amount of Navy reparable secondary items in the pipeline. The
method for achieving this initiative is an A-76 competition in the area of
transportation. Concept development and vendor solicitations were
scheduled for April 1999, and a business case analysis was set for May
1999. A 6-month program review to address barriers to success and
potential worldwide implementation is planned for December 1999. Periodic
program reviews are planned between April 2000 and October 2002.
Prime Vendor, Marine Corps
--------------------------
This is a developing initiative to select vendors that can provide market-
ready or commercial supplies to a wide range of customers. Prime vendor
arrangements normally take advantage of existing commercial distribution
networks that can be tailored to the individual customer. The Marine Corps
has implemented and/or planned prime vendor programs in nine logistics
business areas: subsistence, medical/pharmaceutical/dental, maintenance
repair operations, industrial, automotive overseas, fleet automotive
support, lumber/wood products, individual clothing and combat equipment,
and food service equipment. The number of locations involved varied. The
schedule states the Marine Corps plans to develop a future site
implementation plan between August and November 1999 and has ongoing
actions to monitor and expand prime vendor opportunities.
Maintenance Initiatives
The schedule lists six initiatives relating to the maintenance cycle. This
cycle includes repairing weapon systems and component parts and managing
the maintenance infrastructure. Two of these initiatives are related to
reengineering maintenance processes, two are information technology
related initiatives, and two are focused on redesigning spare parts.
Organic Industrial Enterprise Logistics Support
-----------------------------------------------
This is a new initiative to assess commercial industry's interest in
providing industrial support to the aviation depots and to solicit
concepts for doing so. The initiative encompasses the entire logistics
supply chain for material supply support to the Naval Aviation Depots. The
Navy schedule calls for completion of a business case analysis and
validation of any selected concepts in January 2000, with subsequent
implementation of any proven concepts. The projected milestone date for
award of an implementation contract is July 2000. Annual program reviews
are planned through October 2002.
Maintenance Cycle Time Reengineering
------------------------------------
This is a new initiative to reengineer selected Navy aviation maintenance
processes. As a result of a Naval Air Systems Command's activity based
cost analysis, the Navy established separate business process
reengineering teams for material management, aviation depot planning and
scheduling, and component repair. These teams are to document the current
processes, determine what the reengineered processes should look like, and
conduct business case analyses to support the merits of revised processes.
The schedule calls for implementation of the reengineered processes in
October 1999 and completion of aviation depot cellular repair
organizations in March 2001 and reengineering initiatives in June 2006.
Modernization of Maintenance Information Support System
-------------------------------------------------------
This developing initiative is to modernize the Navy information system
used to manage organizational and intermediate-level aviation maintenance
activities both ashore and afloat. The schedule indicates that the Navy
began fielding the modernized system in fiscal year 1998 and that the
system will be installed at a small percentage of maintenance activities
by October 1999. Operational testing is scheduled for December 1999. The
system is scheduled to be installed at additional sites by October 2000
and at all sites by October 2005.
Manufacturing Resource Planning II
----------------------------------
This is a developing initiative to improve resource planning through the
use of an automated information management system. This system provides
planning, scheduling, capacity, and other information to reduce repair
cycle time and eliminate excess inventory. The Navy selected its aviation
depot in Jacksonville, Florida, as the prototype location, and it plans to
expand coverage to the other aviation depots by September 2000. Annual
program reviews are planned through October 2002.
Rapid Retargeting
-----------------
This new initiative invests in a technology to redesign obsolete
components in order to provide new hardware for sea and aviation weapon
systems. This concept may be applied to other DOD organizations and
agencies that may have a similar requirement. According to the schedule,
the Navy has developed criteria for selecting components for the program.
Additionally, the schedule called for a review of program metrics in July
1999, a 6-month program review to address barriers to success in October
1999, and subsequent annual program reviews through October 2002.
Logistics Engineering Change Proposals
--------------------------------------
This is a mature initiative that uses engineering change proposals
sponsored by the Naval Inventory Control Point to introduce enhanced
technology, redesign items, or improve repair processes. The objective of
this initiative is to reduce or eliminate support costs while maintaining
or improving safety and performance. According to the schedule, a
memorandum of agreement with fleet customers was scheduled to be completed
in March 1999. Also, a metrics review was planned for July 1999, a 6-month
program/budget review to address barriers to success was scheduled for
October 1999, and periodic program reviews are scheduled through October
2002.
--------------------------------------
/Footnote1/-^ Defense Inventory: DOD Could Improve Total Asset Visibility
Initiative With Results Act Framework (GAO/NSIAD-99-40, Apr. 12, 1999).
COMMENTS FROM THE DEPARTMENT OF DEFENSE
=======================================
*****************
*****************
*****************
*****************
GAO CONTACTS AND STAFF ACKNOWLEDGMENTS
======================================
GAO Contacts
------------
Charles Patton (202) 512-4412
Robert Repasky (202) 512-9868
Acknowledgments
---------------
In addition to those named above, Lionel Cooper, Gary Kunkle, Thaddeus
Rytel, and William Woods made key contributions to this report.
RELATED GAO PRODUCTS
====================
Inventory Management: More Information Needed to Assess DLA's Best
Practice Initiatives (GAO/NSIAD-98-218, Sept. 2, 1998).
Inventory Management: DOD Can Build on Progress by Using Best Practices
for Reparable Parts (GAO/NSIAD-98-97, Feb. 27, 1998).
Defense Inventory Management: Expanding Use of Best Practices for Hardware
Items Can Reduce Logistics Costs (GAO/NSIAD-98-47,
Jan. 20, 1998).
Inventory Management: Greater Use of Best Practices Could Reduce DOD's
Logistics Costs (GAO/T-NSIAD-97-214, July 24, 1997).
Inventory Management: The Army Could Reduce Logistics Costs for Aviation
Parts by Adopting Best Practices (GAO/NSIAD-97-82,
Apr. 15, 1997).
Defense Inventory Management: Problems, Progress, and Additional Actions
Needed (GAO/T-NSIAD-97-109, Mar. 20, 1997).
Inventory Management: Adopting Best Practices Could Enhance Navy Efforts
to Achieve Efficiencies and Savings (GAO/NSIAD-96-156,
July 12, 1996).
Best Management Practices: Reengineering the Air Force's Logistics System
Can Yield Substantial Savings (GAO/NSIAD-96-5, Feb. 21, 1996).
Inventory Management: DOD Can Build on Progress in Using Best Practices to
Achieve Substantial Savings (GAO/NSIAD-95-142,
Aug. 4, 1995).
(709382)
Table 1: Department of the Navy Initiatives' Status and Projected
Completion Dates9
Figure 1: Department of the Navy's Supply Chain Cycles6
*** End of document. ***