Air Force Depot Maintenance: Management Changes Would Improve
Implementation of Reform Initiatives (Chapter Report, 06/25/1999,
GAO/NSIAD-99-63).

The Air Force is launching three depot maintenance initiatives to better
manage its depot maintenance programs, including the management of spare
and repair parts. The Air Force spends about $4 billion each year on its
depot maintenance programs. This report reviews the status of the three
initiatives and related management issues.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  NSIAD-99-63
     TITLE:  Air Force Depot Maintenance: Management Changes Would
	     Improve Implementation of Reform Initiatives
      DATE:  06/25/1999
   SUBJECT:  Logistics
	     Equipment repairs
	     Reengineering (management)
	     Strategic planning
	     Spare parts
	     Military cost control
	     Air Force supplies
	     Aircraft maintenance
	     Performance measures
IDENTIFIER:  Air Force Agile Logistics Program
	     DOD Quadrennial Defense Review
	     Defense Reform Initiative
	     Air Force Depot Maintenance Reform Initiatives
	     Air Force Lean Logistics Program
	     Air Force Baseline Agile Logistics Master Plan and Road
	     Map

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    United States General Accounting Office GAO                Report
    to Congressional Requesters June 1999          AIR FORCE DEPOT
    MAINTENANCE Management Changes Would Improve Implementation of
    Reform Initiatives GAO/NSIAD-99-63 United States General
    Accounting Office
    National Security and Washington, D.C. 20548
    International Affairs Division B-282640
    Letter June 25, 1999 The Honorable James M. Inhofe Chairman The
    Honorable Charles S. Robb Ranking Minority Member Subcommittee on
    Readiness and Management Support Committee on Armed Services
    United States Senate As you requested, we assessed the progress of
    the Air Force's depot maintenance reform initiatives. These
    initiatives are part of the Department of Defense's programs to
    improve the efficiency and responsiveness of its industrial
    operations. We make recommendations to the Secretary of Defense to
    require the Secretary of the Air Force to take a number of actions
    that should improve the initiatives and better ensure their
    success. We are sending copies of this report to Senator Ted
    Stevens, Chairman, and Senator Robert Byrd, Ranking Minority
    Member, Senate Committee on Appropriations; Senator John W.
    Warner, Chairman, and Senator Carl Levin, Ranking Minority Member,
    Senate Committee on Armed Services; Representative C. W. Bill
    Young, Chairman, and Representative David Obey, Ranking Minority
    Member, House Committee on Appropriations; Representative Floyd
    Spence, Chairman, and Representative Ike Skelton, Ranking Minority
    Member, House Committee on Armed Services; the Honorable William
    S. Cohen, Secretary of Defense; the Honorable F. Whitten Peters,
    Acting Secretary of the Air Force; and the Honorable Jacob J. Lew,
    Director, Office of Management and Budget. We will make copies
    available to others on request. If you have questions regarding
    this report, please contact me at (202) 512-8412. Other points of
    contact and key contributors are listed in appendix III. David R.
    Warren, Director Defense Management Issues Letter Executive
    Summary Purpose                 The Air Force is implementing
    three depot maintenance initiatives designed to better manage its
    depot maintenance programs, including the management of spare and
    repair parts. The Air Force spends approximately $4 billion on its
    depot maintenance programs annually. At the request of the
    Chairman and Ranking Minority Member of the Senate Armed Services
    Committee, GAO reviewed the status of the three initiatives and
    management issues related to the initiatives. Background
    The Air Force Materiel Command (AFMC), which includes five Air
    Logistics Centers,1 provides supply and maintenance support to the
    Air Combat Command, Air Mobility Command, Air Education and
    Training Command, Air Force Reserves, Air National Guard, and
    other major Air Force customers as well as to some Army, Navy, and
    foreign military sales customers. The Air Force's complex,
    integrated support structure determines which weapon systems and
    components must be repaired or purchased and manages supply and
    maintenance processes and the repair and overhaul of weapon
    systems and components. The Department of Defense (DOD) has
    recognized in recent years that its logistics activities,
    including depot maintenance performed in both the public and
    private sectors, need to become more efficient. Accordingly, it
    has initiated efforts to improve logistics activities by
    incorporating many best business practices that commercial
    companies have used to become more efficient and effective. For
    its part, the Air Force began to reengineer its supply and
    maintenance operations. Its plan, broadly stated, called for steps
    to be taken to reduce the time required to repair components and
    aircraft, reduce the amount and costs of supply inventories, match
    the repair of items with the demand from customers, prioritize
    repairs when multiple priorities exist, and rapidly move
    components and spare parts to and from customers. This effort,
    known as Agile Logistics, focuses on three principal initiatives.
    More specifically, * The depot enhancement initiative applies to
    the repair of reparable spare parts such as aircraft landing
    gears, wheels, and avionics, and is aimed at limiting repairs to
    those items that customers need and have 1The Air Force is now
    closing the Sacramento and San Antonio Air Logistics Centers based
    on recommendations of the 1995 Base Realignment and Closure
    Commission. Letter    Page 2
    GAO/NSIAD-99-63 Air Force Depot Maintenance Executive Summary
    requisitioned, and meeting customers' needs faster by prioritizing
    repairs daily. * The aircraft enhancement initiative applies to
    performance of scheduled maintenance to keep aircraft operational
    or upgrade their capabilities and is designed to reduce repair
    turnaround times and costs through improved teamwork and
    communication. * The contract enhancement initiative applies to
    depot reparable workloads performed by contractors and is designed
    to reduce repair turnaround times and reduce costs. In the past,
    GAO has reported on inefficiencies in DOD's logistics systems and
    processes and pointed out the need for them to be more efficient,
    less costly, and more responsive to customer needs. GAO has
    supported the application of best practices in this area. The Air
    Force's three enhancement initiatives represent an effort to
    achieve these ends. Results in Brief        The Air Force is now
    implementing all three enhancement initiatives at its logistics
    centers, but the extent of implementation has varied. The Air
    Force's plans established broad goals of increased operational
    efficiency and reduced costs, as well as an approach to
    implementing the initiatives. However, the plans did not include
    specific criteria for determining that the initiatives are
    successfully achieving stated goals. Likewise, AFMC did not
    establish clear and consistent measures to facilitate tracking
    progress and assessing the initiatives' success. Therefore,
    limited data are available to quantify the initiatives' success in
    achieving desired goals such as expediting repairs and reducing
    costs. To the extent data were available, they indicated mixed
    results. GAO identified a number of management changes that would
    better support implementation of the initiatives and provide more
    accurate and complete data for evaluating the implementation.
    These changes include * developing an implementation plan that
    establishes standard measures for assessing whether process
    improvement initiatives are achieving desired goals and results, *
    assessing progress toward implementing standard organizational
    structures and processes, * addressing weaknesses in information
    management systems used to manage the process and assess activity
    performance, consistent with the Clinger/Cohen Act and Year 2000
    requirements, Letter    Page 3
    GAO/NSIAD-99-63 Air Force Depot Maintenance Executive Summary *
    identifying costs of fully implementing the initiatives and
    avoiding premature budget reductions in anticipation of savings,
    and * developing effective working agreements with other defense
    logistics activities that are key to timely access to needed
    repair parts and successful implementation of logistics reforms.
    GAO makes recommendations to the Secretaries of Defense and the
    Air Force that will enhance implementation of the three depot
    maintenance initiatives. Principal Findings Implementation Varies
    The three enhancement initiatives vary in the extent to which they
    have Among Initiatives         been implemented at AFMC centers.
    AFMC did not establish consistent measures by which to assess each
    initiative's success in achieving Agile Logistics objectives, such
    as reducing repair time and costs. However, based on available
    data, GAO provides information on the status of the initiatives: *
    The depot reparable initiative has been applied to about 31
    percent of the Air Force's depot reparable items with mixed
    results in such areas as improving repair times and mission
    capability rates. AFMC officials continue to assess the extent to
    which other items should be brought under the initiative, or
    whether some items originally included were the right candidates.
* The aircraft enhancement initiative has been applied to an
    estimated 65 percent of the 10 aircraft systems that receive
    periodic programmed depot maintenance. AFMC officials report that
    turnaround times for periodic overhauls and repairs of aircraft
    have been reduced, but cost reductions have not been determined
    because the Air Force has no system for tracking such costs.
    Officials are still considering whether the initiative should be
    applied to all aircraft in the depot maintenance program. * The
    contract enhancement initiative has been implemented to varying
    degrees at each AFMC center, and in varying degrees within
    individual contracts. While AFMC officials believe the program has
    been useful in reducing repair time and costs, these officials
    have no data on actual reductions in turnaround times and costs
    that are specifically related to the initiative. At the same time,
    these officials believed that contract costs could increase if
    contractors are required to stock supply parts in advance of need
    to meet the initiative's new requirements. Page 4
    GAO/NSIAD-99-63 Air Force Depot Maintenance Executive Summary
    Management Changes Can             All three Air Force initiatives
    could be more effectively implemented Improve Implementation of
    through management changes that would help in achieving program
    Initiatives                        objectives. Also, the Air Force
    has adopted a new vision statement for logistics management.
    However, it is not clear how well the new vision will be
    integrated with or address these issues because the Air Force has
    not developed a detailed plan for implementing the vision.
    Standard Organizational            One objective of the Agile
    Logistics program is to improve the effectiveness Structures and
    Processes Not       and efficiency of depot operations through the
    use of standard Fully Implemented                  organizational
    structures and processes. However, AFMC centers have implemented
    only parts of the standardized process and structure. Thus, AFMC
    does not yet have the more streamlined and standardized
    organization originally envisioned to improve personnel and
    equipment efficiency. Greater Organizational Support
    Implementation of each of the reengineering initiatives could
    benefit from Would Facilitate Effective         greater support
    from managers and workers to ensure the acceptance of Initiative
    Implementation          change and to facilitate greater worker
    flexibility. One of the greatest challenges to the success of the
    initiatives, according to AFMC officials, is convincing
    supervisors and workers at the centers to accept the new way of
    doing business. Increased and sustained emphasis by top-level
    command officials is a best management practice for encouraging
    commitment to new initiatives at lower levels. Developing a multi-
    skilled workforce is equally important and equally challenging.
    Having the flexibility to move maintenance workers from one shop
    to another, depending on shifting work priorities, is critical to
    the success of the initiatives. Standard Measures Could Help
    AFMC headquarters developed some initial measures to assess the
    Assess Initiative Impact and       performance of its depot
    enhancement prototype initiative, but dropped Effectiveness
    them as the initiative was expanded AFMC-wide. AFMC headquarters
    and the centers have not since agreed upon standard measures to
    assess individual and collective performance of the initiatives.
    Improved Information Systems       Continuing system weaknesses
    have made it difficult for AFMC to Are Needed to Fully Implement
    implement and assess the effectiveness of its enhancement
    initiatives.2 Initiatives and Assess Success     Much of the data
    used to manage the Agile Logistics prototype initiative 2In Best
    Management Practices: Reengineering the Air Force's Logistics
    System Can Yield Substantial Savings (GAO/NSIAD-96-5, Feb. 21,
    1996), GAO reported that information system deficiencies were an
    obstacle to the Air Force's reengineering of its logistics system.
    Page 5                                             GAO/NSIAD-99-63
    Air Force Depot Maintenance Executive Summary were collected
    manually-a task that project leaders said would be impossible
    under an Air Force-wide program. After years of minimal progress
    in trying to develop DOD-wide logistics information systems, DOD
    recently returned responsibility for logistics information systems
    to the services. It is unclear what impact this will have on the
    development of essential system improvements critical to the
    successful implementation of the Agile Logistics program. However,
    it will be important for the Air Force to ensure that future
    system changes are made in accordance with relevant legislative
    and departmental policy guidance, including the Clinger/Cohen Act
    of 1996, which requires federal agencies to have processes and
    information in place to help ensure that information technology
    projects (1) are implemented at acceptable costs, within
    reasonable and expected time frames and (2) are contributing to
    tangible, observable improvements in mission performance. These
    actions need to be done in concert with DOD's actions to remediate
    the Year 2000 problem. Greater Attention to Cost and      AFMC
    headquarters' planning for the new initiatives did not include a
    Savings Issues Needed to Avoid     means of adequately identifying
    or tracking costs of implementing them or Premature Budget
    Reductions        for evaluating the resulting savings. Without
    this information, decisionmakers made premature budget reductions
    based on anticipated savings estimates. However, operation and
    maintenance funding reductions of $386 million in fiscal year
    1997, $289 million in fiscal year 1998, and $323 million in fiscal
    year 1999 resulted in critical shortages of repair parts and spare
    parts. AFMC headquarters officials subsequently requested
    additional funding and no longer plan to reduce future budgets in
    anticipation of cost savings. According to AFMC headquarters
    officials, achieving cost savings will require reductions in
    inventories of major and secondary items and faster logistics
    response time. Reductions in aircraft inventories, based upon
    faster turnaround times, will also be key to achieving future
    savings. Unless inventories are reduced, the three initiatives
    might end up costing more than the current system because of the
    costs to implement the program. Improved Supply Support
    Improving the efficiency and cost-effectiveness of depot
    maintenance Needed                             depends on the
    timely availability of repair parts. Unavailability of parts has
    been a long-standing problem. AFMC headquarters officials believed
    that their parts suppliers must improve the timely availability of
    parts to effectively support the new initiatives. Without
    resolution of continued problems, it will be difficult for the
    AFMC to achieve the objectives of its initiatives. GAO supports
    the use of best inventory management practices, Page 6
    GAO/NSIAD-99-63 Air Force Depot Maintenance Executive Summary such
    as prime vendor support,3 where there is potential to reduce costs
    and provide improved service. Although DOD has made limited use of
    prime vendor support for hardware items such as spare and repair
    parts, the Air Force may have greater opportunities in this area
    to improve supply support for its enhancement initiatives. New
    Vision         In January 1998, the AFMC Commander announced a new
    vision for logistics management, outlining a number of goals for
    changing logistics management policies and practices. Among the
    vision's goals were matching repair to demand and setting and
    filling appropriate inventory levels. These and other goals build
    on the enhancement initiatives. However, AFMC has not developed a
    detailed implementation plan with criteria for measuring
    achievement of its goals and objectives. Thus, it is not clear
    whether planned improvement initiatives from this effort would
    address specific problems identified in this report.
    Recommendations    Chapter 3 includes several GAO recommendations
    intended to help the Air Force effectively implement its three
    depot maintenance initiatives. Agency Comments    GAO requested
    comments on a draft of this report from the Secretary of Defense.
    Air Force officials provided oral comments on behalf of DOD
    stating that the Department agreed with GAO's findings and with
    the intent of its recommendations. In acknowledging that measures
    were needed to better ensure success of its reform initiatives,
    the Air Force offered a general description on a number of actions
    that it had taken or planned to take to improve the reengineering
    of its industrial operations. However, the Air Force's responses
    were too general to determine to what extent GAO's concerns would
    be addressed. GAO, in evaluating the Air Force's comments,
    outlined additional information that would be needed for a
    complete evaluation of the Air Force's cited actions. DOD's
    comments and GAO's evaluation with additional amplification of
    suggested actions are more fully discussed at the end of chapter 3
    and in appendix II. 3Prime vendors are contractors that buy
    inventory items from a variety of suppliers, store them in
    commercial warehouses, and ship them to customers as needed. Page
    7                                           GAO/NSIAD-99-63 Air
    Force Depot Maintenance Contents Letter
    1 Executive Summary
    2 Chapter 1                      DOD Recognizes the Need to
    Improve Its Logistics Activities                10 Introduction
    Structure of Air Force Depot Maintenance Operations
    11 Air Force Efforts to Reform Its Depot Operations
    13 Previous GAO Observation on Air Force Agile Logistics
    Initiatives          15 Recent Air Force Analyses
    16 Objectives, Scope, and Methodology
    16 Chapter 2                      Depot Repair Enhancement
    Initiative                                        18 Status of
    Aircraft Repair Enhancement Initiative
    22 Contract Repair Enhancement Initiative
    24 Implementation of              Conclusions
    27 the Enhancement Initiatives Chapter 3
    Standard Organizational Structures and Process
    28 Management Issues                Not Fully Organized Greater
    Organization Support Would Enhance
    30 Needing Attention to             Initiative Implementation Aid
    Implementation of  Standard Set of Measures Could Help In
    Measuring Program Impact                    32 Reform Initiatives
    Improved Management Information Systems Would Aid in
    33 Implementing and Assessing Initiatives Greater Attention to
    Cost and Savings Issues Could Help                    36 Avoid
    Premature Budget Reductions Improved Supply Support Needed for
    Effective Implementation                37 of the Initiatives New
    Vision for Logistics Management
    42 Conclusions
    43 Recommendations
    44 Agency Comments and Our Evaluation
    44 Page 8                             GAO/NSIAD-99-63 Air Force
    Depot Maintenance Contents Appendixes              Appendix I:
    Recent Air Force Studies on Agile Logistics
    46 Appendix II: GAO Evaluation of Air Force Comments
    50 Appendix III: GAO Contacts and Staff Acknowledgments
    52 Related GAO Products
    56 Tables                  Table 2.1: Stock-Numbered Reparable
    Items Reported Under the                         19 Depot
    Enhancement Initiative as of September 30, 1998 Table 2.2: Number
    of Contracts Incorporating Selected Aspects of
    26 the Contract Enhancement Initiative as of September 30, 1998
    Abbreviations AFMC          Air Force Materiel Command DLA
    Defense Logistics Agency DOD           Department of Defense DRI
    Defense Reform Initiative EXPRESS Execution and Prioritization of
    Repair Support System IG            Inspector General QDR
    Quadrennial Defense Review Page 9
    GAO/NSIAD-99-63 Air Force Depot Maintenance Chapter 1 Introduction
    Chapter 1 Annually, the Department of Defense (DOD) spends a
    reported $14 billion for depot-level maintenance programs and
    activities. DOD has recognized the importance of ensuring that all
    its logistics support activities, including depot maintenance, are
    run as efficiently and cost-effectively as possible, given the
    changed threat environment and declining budgets. In 1994, the
    Department began efforts to streamline logistics operations
    through the use of best commercial business practices. For its
    part in improving depot maintenance activities, the Air Force has
    three primary initiatives designed to provide better service to
    its customers by reducing repair turnaround times, reducing supply
    inventories and costs, prioritizing repairs appropriately, and
    providing spare parts rapidly. As we have noted in previous
    reports, the use of best commercial practices can result in
    improvements in the Air Force's reengineering of logistics
    operations. DOD Recognizes the       DOD has recognized that the
    changing threat environment and declining Need to Improve Its
    budgets require that the military services seek ways to improve
    the efficiency and cost-effectiveness of all of their logistics
    support activities, Logistics Activities     including depot
    maintenance. Thus, in 1994, DOD initiated efforts to incorporate
    best commercial business practices into its logistics activities.
    These initiatives were later reflected in DOD's May 1997
    Quadrennial Defense Review report and November 1997 Defense Reform
    Initiative report.1 The waste and inefficiency in DOD's logistics
    activities, including the management of its depot maintenance
    program, are key reasons we previously identified DOD's
    infrastructure activities as 1 of 24 high-risk areas in the
    federal government.2 DOD components are now implementing a number
    of initiatives to improve operations and enhance the effectiveness
    and efficiency of their logistics support activities. These
    initiatives include competitive sourcing and privatization,
    acquisition reform, organization streamlining and consolidations,
    base realignment and closures, personnel reductions, inventory
    reduction, and management process reengineering. 1DOD undertook
    the Quadrennial Defense Review to comprehensively examine the
    national security threats, risks, and opportunities the United
    States faces from 1997 to 2015. The Defense Reform Initiative
    addressed DOD's corporate vision for reforming its management
    techniques and business practices. 2In 1990 we began a special
    effort to review and report on federal program areas we identified
    as high risk because of vulnerabilities to waste, fraud, abuse,
    and mismanagement. For our most recent report on high risk
    associated with DOD's support infrastructure, see High Risk
    Series: Defense Infrastructure (GAO/HR-97-7, Feb. 1997). Page 10
    GAO/NSIAD-99-63 Air Force Depot Maintenance Chapter 1 Introduction
    Legislative requirements also play a role in the management of
    DOD's logistics activities and reengineering programs. For
    example, 10 U.S.C. section 2464 requires the Secretary of Defense
    to identify and maintain a "core"3 logistics capability unless he
    waives this requirement for national defense reasons. The
    legislation states that not more than 50 percent of funds for
    depot maintenance activities may be used for the performance of
    depot maintenance by nonfederal personnel. It also states that
    DOD-performed depot maintenance and repair workloads valued at $3
    million or more cannot be changed to contractor performance
    without the use of competing the work among public and private
    sector entities. The requirement for in-house capabilities
    reinforces the need to ensure they are efficient and cost
    effective. Structure of Air Force  Depot maintenance is a key part
    of the total DOD logistics system. The Air Depot Maintenance
    Force Materiel Command (AFMC) and its five air logistics centers
    manage the Air Force's wholesale logistics system and perform
    depot-level Operations                       maintenance, repair,
    overhaul, and modification on an array of aircraft, systems,
    weapons, and components. At Air Force bases around the world, base
    maintenance personnel make minor repairs, using replacement parts
    ordered from the centers. Broken reparable parts are sent to the
    centers as are entire aircraft and weapon systems if overhaul and
    modifications are required. Work may be done there by the military
    depots or contracted out to private sector firms. Parts used in
    overhaul and maintenance operations are manufactured almost
    exclusively by the private sector. The Defense Logistics Agency
    (DLA) handles warehousing and distribution of repair parts at each
    of the five centers.4 DLA manages about 93 percent of the
    consumable items that the Air Force uses. In general, new and
    repaired parts are stored at each center in DLA warehouses until
    they are needed. DLA also stores broken items until the centers'
    repair shops are ready to fix them. Depending on the provisions of
    the contract, contractors may receive items for repair from DLA or
    directly from Air Force customers as government-furnished items,
    and they may purchase parts for 3Core is the capability, including
    personnel, equipment, and facilities, to ensure a timely response
    to a mobilization, national contingency, or other emergency
    requirement. 4DLA is a combat support agency that provides
    material and supplies to the military services and supports their
    acquisition and maintenance of weapon systems and other equipment.
    Page 11                                            GAO/NSIAD-99-63
    Air Force Depot Maintenance Chapter 1 Introduction use in repair
    operations from DLA or private-sector vendors. Once a repair is
    completed, contractors can ship the items to DLA for storage and
    distribution or ship them directly to Air Force customers.
    Financial management is a key aspect of the Air Force's logistics
    operations. Logistics activities, including depot maintenance, are
    financed through working capital funds. Under the working capital
    fund concept, activities sustain their operations by charging
    their customers for goods and services based on predetermined
    rates designed to recover the costs of operations.5 For the Air
    Force, the working capital fund has two primary groups-the Supply
    Management Activity Group and Depot Maintenance Activity Group.
    The Supply Group supports its customers, such as Air Force depots,
    by procuring critical material and making repair parts available
    to the appropriate activities.6 The Supply Group also manages some
    Air Force- unique consumable items and almost all reparable items-
    those identified as being economical to repair at Air Force bases
    or at the depot level by Air Force-owned depots or contractors.
    Material is procured from vendors and stored until needed. The
    reported value of the Supply Group-managed items is about $2.4
    billion for consumable items and about $25 billion for reparable
    items. From the Supply Group, the Depot Maintenance Group finances
    the purchase of supplies and services that are used for depot
    maintenance in-house and contracted for. We have reported that the
    Air Force's working capital funds have had long-standing financial
    management weaknesses impairing the Air Force's ability to (1)
    ensure that customers can purchase inventory items when needed and
    (2) achieve the goals of the working capital funds, which are to
    focus management attention on the full costs of carrying out
    operations and to manage those costs effectively.7 5Separate
    working capital funds exist for the Army, Navy, Air Force, and
    Defense-wide activities. 6The Supply Group is responsible for
    about two million items, including weapon system spare parts,
    fuels, food, medical-dental supplies, equipment, and uniforms.
    7Air Force Supply Management: Analysis of Activity Group's
    Financial Reports, Prices, and Cash Management (GAO/AIMD/NSIAD-98-
    118, June 8, 1998). Page 12
    GAO/NSIAD-99-63 Air Force Depot Maintenance Chapter 1 Introduction
    Air Force Efforts to           The Air Force recognized that it
    had inefficiencies in its depot maintenance Reform Its Depot
    operations. As a result of previous practices, its depots incurred
    net operating losses during fiscal years 1993-97. In 1996, the Air
    Force began Operations                     testing initiatives
    that incorporated best commercial practices designed to improve
    its depot operations, and it is now implementing those
    initiatives. Past Practices Resulted in     While having
    weaknesses and limitations in precision, data systems that
    Inefficiencies                 the Air Force uses to analyze its
    depots' operations' cost and productivity provide a general
    indication of inefficiencies in the current operating environment.
    On the basis of these data, the Air Force reported that for fiscal
    years 1993-97, its depots incurred a net operating loss of $216.7
    million. For the same time, reported worker productivity remained
    relatively constant. Although the Air Force has not formally
    analyzed why this situation has not improved, it has observed
    several contributors. Among these have been difficulties in
    forecasting future workloads, setting appropriate rates to recover
    costs, and underutilizing depot industrial repair and overhaul
    facilities. Underuse of these facilities increases costs of
    operations because the depot infrastructure is larger than needed
    to accomplish identified maintenance workloads. Using current and
    future workload estimates, AFMC headquarters officials projected
    that, for fiscal year 1999, its depots have about 18 percent
    excess capacity in facilities and equipment.8 However, we reported
    that using criteria established during the 1995 base realignment
    and closure process, excess capacity in the five Air Force depots
    was closer to 65 percent in 1999.9 The impending closure of two of
    the five depots should reduce some of this excess. Air Force Plans
    for            Under an umbrella concept initially called Lean
    Logistics but later renamed Reengineering Logistics        Agile
    Logistics, the Air Force began exploring ways to adopt concepts
    and Activities                     practices used in the private
    sector commercial firms to reengineer costly 8DOD's estimates are
    determined by dividing projected workload of about 22 million
    hours for fiscal year 1999 by the amount of available capacity
    estimated at 27 million hours. DOD normally measures capacity by
    an analysis that constrains facility and equipment capacity
    availability by the availability of trained personnel and the
    organization of work stations, assuming an 8-hour work day and a
    5-day-a-week operation. During the 1995 base realignment and
    closure process, DOD used a measure called maximum potential
    capability that was intended to capture the potential capacity of
    industrial facilities and equipment unconstrained by the number of
    trained personnel currently assigned to these facilities. 9Defense
    Depot Maintenance: Uncertainties and Challenges DOD Faces in
    Restructuring Its Depot Maintenance Program (GAO/T-NSIAD-97-111,
    Mar. 18, 1997). Page 13
    GAO/NSIAD-99-63 Air Force Depot Maintenance Chapter 1 Introduction
    and inefficient logistics activities. Using the Agile Logistics
    program as the cornerstone for improving its logistics activities,
    the Air Force began to consider ways to * expedite the repair of
    components and aircraft, * reduce the amount and costs of supply
    inventories, * match the repair of items with the demand from
    customers, * prioritize repairs when multiple priorities exist, *
    rapidly move components and spare parts to and from customers, and
* improve contracting for logistics support. The Air Force's
    efforts to implement Agile Logistics ultimately focused on three
    specific initiatives for reforming current logistics activities-
    the depot repair enhancement initiative, the aircraft repair
    enhancement initiative, and the contract repair enhancement
    initiative. These initiatives are targeted at specific areas of
    maintenance noted above, but they are intended to address all
    logistics activities necessary for effective support of the
    warfighter. Depot Enhancement Initiative       The depot
    enhancement initiative affects the repair of reparable spare parts
    such as aircraft landing gears, wheels, and avionics. This
    initiative seeks to reengineer the old "batch processing" approach
    by repairing only the items for which customers have an immediate
    need. The initiative also seeks to improve support to depot
    customers by meeting their needs for components on a faster basis-
    reducing the requirement to store additional inventory in
    anticipation of need. Under the depot enhancement initiative,
    depots prioritize repairs on a daily basis, using automated
    systems that establish the next day's repair requirements and
    distribution priorities. Also, the Air Force expected to change
    the depots' organizational structures by placing key supply and
    maintenance personnel under a single manager, rather than having
    them reporting to several managers. This new approach was to be
    more conducive to effective teamwork and communication for
    reparable item management. Aircraft Enhancement Initiative    The
    aircraft enhancement initiative is for aircraft that are
    periodically scheduled or programmed for extensive maintenance at
    Air Force depots to keep them operational or to upgrade their
    capabilities. The initiative was designed to improve repair
    turnaround times for these aircraft. This was to be accomplished
    by reengineering the existing repair process to improve teamwork
    and communication for more effective management of supply Page 14
    GAO/NSIAD-99-63 Air Force Depot Maintenance Chapter 1 Introduction
    and maintenance during the programmed maintenance process. The
    concept of matching repair with demand did not apply to the
    aircraft initiative since aircraft are prescheduled for this
    extensive maintenance. Contract Enhancement Initiative The
    contract enhancement initiative applies to depot reparable
    workloads performed by contractors. Like the depot initiative,
    this initiative also called for improving operational performance
    by reducing repair turnaround times and doing repairs on demand.
    The Air Force's logistics centers were to apply the new initiative
    to terms of existing and future contracts whenever possible.
    Previous GAO                       We have previously recommended
    that the Air Force reengineer its Observation on Air
    logistics activities, and we identified additional best commercial
    practices that could result in further improvements. In our
    February 1996 report on Force Agile Logistics              the Air
    Force reengineering efforts,10 we generally supported the Air
    Initiatives                        Force's reengineering efforts.
    Noting that some of the results to date were promising, we
    concluded that the Air Force efforts should be supported and
    expanded. We also noted that the success of the Air Force in
    achieving a "quantum leap" in system improvements hinged on its
    ability to address and overcome certain barriers, such as inherent
    organizational resistance to change. In agreeing with our previous
    recommendations to build on the existing Air Force reengineering
    efforts, DOD stated that the Air Force's logistics reform strategy
    should receive top-level DOD support in achieving its goals. DOD
    also agreed that the Air Force should consider adding other
    leading-edge logistics concepts into its reengineering efforts,
    for example, installing commercially available management
    information systems to track inventory amounts, location,
    condition, and requirements and reorganizing depot workshops to
    reduce the time it takes to repair components. The Air Force
    enhancement initiatives represent efforts to deal with these
    issues. 10Best Management Practices: Reengineering the Air Force's
    Logistics System Can Yield Substantial Savings (GAO/NSIAD-96-5,
    Feb. 21, 1996). Page 15
    GAO/NSIAD-99-63 Air Force Depot Maintenance Chapter 1 Introduction
    Recent Air Force               Two recent Air Force studies-an Air
    Force Inspector General report (Dec. Analyses
    1997) on the implementation and maturity of Agile Logistics and
    the effect of the initiatives on combat readiness and an Air Force
    board report (Mar. 1998) on the management of reparable spares-
    identify weaknesses in the Air Force's implementation of its
    enhancement initiatives. They also show that the Air Force has a
    number of significant issues to address if it is to succeed in its
    reengineering efforts. Appendix I provides additional details from
    these reports. Objectives, Scope, and  As requested by the
    Chairman and Ranking Minority Member, Methodology
    Subcommittee on Readiness, Senate Armed Services Committee, we
    reviewed the status of the Air Force's three depot maintenance
    enhancement initiatives and management issues related to the
    initiatives. Although the Air Force's management data and
    accounting systems have many problems that can affect their
    reliability, Air Force officials use them to manage and track
    their logistics and other programs. They provide the best
    available trend information on depot maintenance effectiveness and
    efficiency. We used this data in analyzing the Air Force's
    reported financial and productivity measures for fiscal years
    1993-97. We did not independently test the accuracy of this data
    or any data on logistics operations AFMC headquarters or its
    centers provided. We also reviewed AFMC and center business plans
    for the Air Force working capital funds to identify program budget
    issues and costs of operations. To determine the status of the
    enhancement initiatives' implementation, we analyzed AFMC and
    center (1) program management plans, (2) analyses of costs and
    benefits of the depot initiative prototype demonstration, (3)
    performance indicator reports that were used for maintenance shops
    participating in the prototype demonstration, and (4) reports on
    initiative implementation and results being achieved. We examined
    AFMC and center analyses of automated system requirements, reports
    of problems encountered during initiative implementation, and the
    status of corrective actions planned or taken. We also interviewed
    logistics managers and depot mangers at AFMC and three air
    logistics centers to obtain their views on the logistics
    enhancement initiatives, the impact the program was having or
    expected to have on depot maintenance operations, and other
    related logistics issues. In addition, we interviewed DLA
    headquarters officials to discuss DLA's role in the Air Force's
    reengineering initiatives and specific issues related to DLA
    supply support at the Air Force centers. Page 16
    GAO/NSIAD-99-63 Air Force Depot Maintenance Chapter 1 Introduction
    We made extensive use of our prior work in identifying and
    evaluating issues that challenge the Air Force's success in
    implementing the Agile Logistics initiatives. We also reviewed
    recent studies of the Agile Logistics Program by the Air Force
    Inspector General and a group of active and retired military
    representatives and private industry representatives appointed by
    the AFMC Commander to evaluate AFMC's management of reparable
    items. We performed work at AFMC, Wright-Patterson Air Force Base,
    Dayton, Ohio; Warner Robins Air Logistics Center, Warner Robins,
    Georgia; Ogden Air Logistics Center, Hill Air Force Base, Ogden,
    Utah; and Oklahoma City Air Logistics Center, Tinker Air Force
    Base, Oklahoma City, Oklahoma. We did not visit the two remaining
    centers-Sacramento Air Logistics Center, McClellan Air Force Base,
    Sacramento, California, and San Antonio Air Logistics Center,
    Kelly Air Force Base, Texas-because of their impending closure. We
    conducted our review from October 1997 to March 1999 in accordance
    with generally accepted government auditing standards. Page 17
    GAO/NSIAD-99-63 Air Force Depot Maintenance Chapter 2 Status of
    Implementation of the Enhancement Initiatives
    Chapter 2 The Air Force's plans for implementing its enhancement
    initiatives were largely focused on broad concepts and principles
    to implement the initiatives and achieve the intended
    improvements. Included in the approach to implementation was use
    of standard organizational structures and employee position
    descriptions, a description of the new process, and an assessment
    of required automated system support. Currently, the Air Force is
    in the process of implementing the three initiatives. In its plans
    for implementation, the Air Force did not establish clear and
    consistent measures to facilitate tracking progress and measuring
    the success of the initiatives. Thus, it cannot conclusively
    determine whether the goals of the Agile Logistics program, that
    is, increased operational efficiency and reduced costs, are being
    achieved. However, limited information indicates that the
    initiatives have been implemented piecemeal and have had mixed
    results. As discussed in chapter 3, key management changes,
    including the addition of measures for determining the achievement
    of initiative goals, could facilitate implementation of the
    initiatives and provide for a clearer evaluation of the
    implementation. Depot Repair                    Implementation
    status: Partial implementation. Enhancement Initiative Reported
    results: Some improvement in supply status; mixed results in
    maintenance activities. As noted, the depot enhancement initiative
    pertained to the repair of reparable spare parts such as aircraft
    landing gears, wheels, and avionics, with an emphasis on meeting
    customer needs for components on a faster basis. This initiative
    has been applied to about one-third of the Air Force's stock-
    numbered depot reparable items. AFMC officials continue to assess
    the extent to which other items should be brought under the
    initiative. Implementation History          The depot enhancement
    initiative began as an AFMC headquarters- sponsored prototype
    effort from June 1996 to June 1997 and afterward was expanded
    AFMC-wide. For the prototype effort, AFMC selected 10 depot shops,
    2 at each of the 5 centers. The prototype effort included a
    workload of less than 1 percent of the Air Force's inventory of
    reparable items. AFMC required the five centers to collect and
    report data in four areas: customer impact, responsiveness to the
    customer, repair depot efficiency, and Page 18
    GAO/NSIAD-99-63 Air Force Depot Maintenance Chapter 2 Status of
    Implementation of the Enhancement Initiatives operating costs.
    AFMC used this data to conduct a cost/benefit analysis of the
    prototype program and to determine whether the initiative should
    be expanded Air Force-wide. AFMC expanded the initiative AFMC-wide
    beginning in June 1997. As of September 30, 1998, the three AFMC
    centers we visited reported that they had applied the depot
    initiative to about 31 percent of the stock-numbered reparable
    items they managed, representing about 68 percent of the items'
    total dollar value. Table 2.1 provides details regarding the
    extent to which the three centers applied the depot enhancement
    initiative to their reparable stock-numbered items. Table 2.1:
    Stock-Numbered Reparable Items Reported Under the Depot
    Enhancement Initiative as of September 30, 1998 Dollars in
    millions Items under the Reparable items            enhancement
    managed                initiative                  Percent
    Initiative    Value of Total       Total      Total        Total
    items to initiative items Center              number
    value number           value           total     to total Ogden
    23,391 $4,227.6        3,057       $300.4             13
    7 Ok. City               14,833       226.1     2,509
    85.9            17           38 Warner Robins          39,443
    11,220.0       18,335     10,325.0            46           92
    Total                  77,667 $15,674.7      23,901 $10,711.3
    31           68 Source: Data provided by each center. Officials at
    the centers we visited identified several types of items that are
    not yet included in the depot enhancement initiative. For example,
    they have not included items with low or infrequent demands, items
    that have dual sources of repair, and items that are on aircraft
    undergoing programmed depot maintenance. Center officials said
    that they recognized many additional items should be added to the
    initiative and they were trying to identify those items. AFMC has
    not made final decisions as to whether some of the items included
    in the initiative were not good candidates. AFMC officials said
    that unique considerations such as long lead times, repair
    complexities, or the routine size of the daily repair schedule
    suggest that repair forecasting may in some cases be more cost
    effective than daily demand schedules called for by the
    initiative. Page 19
    GAO/NSIAD-99-63 Air Force Depot Maintenance Chapter 2 Status of
    Implementation of the Enhancement Initiatives Supply Availability
    Available data collected during the prototype period (June 1996 to
    June 1997) showed that the number of components awaiting repair
    due to the lack of spare parts decreased 25 percent. This data
    essentially indicated that more repair parts were available to
    complete needed component repairs-a measurement of improvement in
    the supply function. Change in Maintenance     Implementation of a
    repair-on-demand concept was a significant change Processes
    from the previous Air Force process. Under the old system, repair
    levels were negotiated quarterly based on projections of what
    items would fail or require scheduled repair. The new system
    requires daily changes in maintenance processes in response to the
    latest assessment of the most urgent requirements. According to
    maintenance officials at the three centers, this change initially
    disrupted the maintenance process throughout the shops
    participating in the pilot effort. Available data collected during
    the prototype period showed that the average repair time increased
    in 6 of the 10 shops; 2 of the 6 shops' repair times increased
    over 100 percent. In its October 1997 report, an AFMC analysis
    group found that after the year-long depot enhancement prototype
    initiative, performance indicators showed negative trends for some
    maintenance shops. For example, the total number of aircraft that
    were reported as mission incapable was 50 percent higher than
    before the initiative, and the total number of hours these
    aircraft remained mission incapable increased by 77 percent.
    However, this performance could have been partly the result of an
    Air Force-wide problem in fiscal year 1997 involving underfunding
    of inventory requirements. This issue is addressed more fully in a
    separate report on the Air Force's Supply Management Group.1
    Overall, AFMC's analysis of the prototype effort showed that
    conditions related to shop performance and cost outcomes generally
    worsened during the prototype period, even though the depots were
    operating under enhanced conditions that were not representative
    of the normal repair environment. For instance, some shops were
    allowed to add additional workers, others were fully funded for
    repair work, and some shops had piece parts required for component
    repair already in place to avoid delays due to awaiting parts.
    These conditions would not exist once the initiative was expanded
    AFMC-wide. 1Air Force Supply: Management Actions Create Spare
    Shortages and Operational Problems (GAO/NSIAD/AIMD-99-77, Apr. 29,
    1999). Page 20                                       GAO/NSIAD-99-
    63 Air Force Depot Maintenance Chapter 2 Status of Implementation
    of the Enhancement Initiatives We observed that because of the
    enhanced conditions, such as fully funding the repair work and
    having piece parts already in place, one shop at the Warner Robins
    Center was able to reduce the frequency that aircraft were
    reported as mission incapable2 due to maintenance problems. After
    the prototype demonstration ended and the special conditions were
    eliminated, the number of hours that aircraft were mission
    incapable increased, though not to as high a level as when the
    prototype period began. For example, when the shop began the
    prototype initiative, the number of mission incapable hours
    reported was about 2,700. This number fluctuated during the 12-
    month prototype period, but at the end of the period in June 1997,
    the total number of mission incapable hours reported was 324.
    After the prototype period ended, the mission incapable hours
    began increasing, and for the 5-month period August to December
    1997 averaged 1,938 hours. Results of Initiative Since     In
    analyzing project data as of September 30, 1998, we found that
    results the Prototype                   achieved at various AFMC
    centers continues to be mixed. For instance: * Officials in the
    Ogden center's depot avionics shop reported that between October
    1997 and September 1998, the depot reduced by 45 and 38 percent,
    respectively, the number of times and hours that aircraft were
    reported as mission incapable because the shop did not provide a
    reparable item in a timely manner. For the same period of time,
    the shop had little or no improvement in other areas such as
    repair times. * Officials at the Oklahoma City center reported
    that between March 1998 and September 1998, the availability of
    reparable components to base- level customers increased by 22
    percent. For the same time period, the number of times that
    aircraft were reported as mission incapable decreased by 8
    percent, but the number of hours during which they were incapable
    increased by 28 percent. * Officials at the Warner Robins center
    reported that the number of aircraft that were mission incapable
    fluctuated throughout the year, but increased 10 percent overall
    for the period October 1997 to September 2The Air Force measures
    the availability of aircraft through the use of mission-capable
    rates that represent the reported percent of unit aircraft that
    are capable of performing at least one of their assigned missions.
    Aircraft that are not capable of accomplishing any of the missions
    are classified as (1) "not mission capable supply" if they cannot
    accomplish the missions because of parts shortages, (2) "not
    mission capable maintenance" if they cannot accomplish the
    missions because of required base-level maintenance, or (3) "not
    mission capable both" if both parts problems and required base-
    level maintenance are preventing the aircraft from accomplishing
    the missions. Page 21
    GAO/NSIAD-99-63 Air Force Depot Maintenance Chapter 2 Status of
    Implementation of the Enhancement Initiatives 1998; the number of
    hours incapable increased 12 percent. Other depot performance
    measures did not show significant improvement. According to AFMC
    officials, difficulties in obtaining repair parts when needed were
    a key factor in the maintenance depots' inabilities to reduce
    repair times. Aircraft Repair               Implementation status:
    Partial implementation. Enhancement Initiative Reported results:
    Reduced programmed aircraft maintenance time. As noted, the
    aircraft repair enhancement initiative affects aircraft that are
    periodically scheduled or programmed for extensive maintenance at
    Air Force depots, and emphasized faster turnaround times for this
    maintenance. Implementation of this initiative has been piecemeal
    and incomplete, largely because of resource constraints. Officials
    at the three centers believed that the initiative was having a
    positive impact on improving the time and costs of periodic
    programmed maintenance of aircraft. Due to a lack of data,
    however, it is unclear to what extent the initiative has resulted
    in these improvements or what cost savings may have resulted. The
    Air Force has not decided whether this initiative should be
    applied to all aircraft. Implementation History        The
    aircraft enhancement initiative began as a joint effort by the
    Oklahoma City and Warner Robins centers in March 1996.  AFMC
    headquarters later assumed leadership of this initiative in August
    1998. Because AFMC made the depot enhancement initiative a higher
    priority, resources for implementing the aircraft enhancement
    initiative were constrained. Therefore, rather than reengineer the
    entire process for programmed depot maintenance, the centers
    emphasized identifying the most immediate problems that could be
    corrected and applying quick fixes that could be executed with
    available resources. They repeated this cycle for the next most
    pressing issues. Officials at the three centers estimated that as
    of October 1, 1998, the date that AFMC directed them to formally
    implement the program, the initiative had been used on an average
    of 65 percent of the 10 aircraft systems that received periodic
    programmed depot maintenance. Page 22
    GAO/NSIAD-99-63 Air Force Depot Maintenance Chapter 2 Status of
    Implementation of the Enhancement Initiatives Results of the
    Initiative     Officials at the three AFMC centers believed that,
    due to the aircraft initiative, they have reduced the time needed
    to complete tasks during programmed depot maintenance for some
    aircraft. For example: * Officials at the Ogden depot reported
    that the aircraft initiative facilitated innovative approaches in
    work on C-130 aircraft that reduced the aircraft stripping and
    painting time by 200 hours. * Officials at the Oklahoma City depot
    noted that their workload for the E-3 aircraft increased 100
    percent over the last 3 fiscal years because of the need for
    modifications, upgrades, and more extensive repairs aging aircraft
    need. Although they anticipated a corresponding increase in repair
    times, under the initiative they accomplished the increased
    workload more efficiently with an actual increase in repair time
    of only 46 percent. * Officials at the Warner Robins Center
    reported that they had reduced programmed depot maintenance time
    for the F-15 about 42 percent, from 154 to 89 days. They also
    reported that using the aircraft initiative's principles helped
    them to win a public-private competition for maintenance on the C-
    5 aircraft. For fiscal year 1997, center officials reported that
    quicker turnaround times allowed them to reduce the number of
    other aircraft at the center awaiting or undergoing programmed
    depot maintenance, thus freeing up depot maintenance capacity to
    accommodate the C-5 work. In analyzing the reported initiative
    results, we observed that none of the three centers had calculated
    the amount of cost reductions that could be attributed to use of
    the aircraft enhancement initiative. Officials at all three
    centers told us that they do not yet have sufficient systems in
    place to track actual reductions in costs. They anticipated that
    these systems would be in place during fiscal year 1999. However,
    they believed that the centers can achieve reductions in aircraft
    repair times by using principles of the aircraft enhancement
    initiative without adding costs. Issues Associated With        The
    Air Force factors depot maintenance time into aircraft fleet
    Future Application of the     requirements to ensure that
    sufficient aircraft are available to meet mission Initiative
    requirements while providing adequate time to provide needed
    maintenance. Consequently, while not a goal of the initiative, the
    Air Force may be able to reduce its aircraft inventory through the
    use of the initiative, since accomplishing maintenance more
    quickly could reduce the number of aircraft required to meet
    mission needs. Further, a smaller inventory of aircraft should
    allow the Air Force to reduce the costs of holding and Page 23
    GAO/NSIAD-99-63 Air Force Depot Maintenance Chapter 2 Status of
    Implementation of the Enhancement Initiatives maintaining
    aircraft. Whether reductions in turnaround time will ultimately
    allow the Air Force to reduce its inventory of aircraft is
    unclear. Also, according to an AFMC headquarters official, the Air
    Force and AFMC headquarters have not determined whether the
    initiative should be applied to all programmed depot maintenance
    aircraft or the extent to which aircraft inventories should be
    reduced as a result of faster repairs. AFMC officials stated that,
    when evaluating whether to implement proposed maintenance time
    reduction activities, it is important to evaluate the cost-
    effectiveness of the time reduction activities, determining
    whether additional costs are involved in achieving reductions in
    repair times. Another consequence of reduced repair turnaround
    times is an expansion of excess depot capacity. Action could be
    needed to deal with current and additional future excess capacity
    to minimize overhead costs. The Air Force believes that the
    reduction from five to three depots would eliminate any potential
    excess capacity related to aircraft hangar space. Contract Repair
    Implementation status: Partial implementation. Enhancement
    Initiative  Reported results: Reduced costs and repair times. As
    noted, the contract repair enhancement initiative applies to depot
    reparable workloads performed by contractors and emphasizes
    reducing repair turnaround times. Application of this initiative
    involves contract restructuring or modifications as necessary, or
    incorporating applicable provisions in new contracts.
    Implementation of this initiative has varied at each AFMC center,
    with most use being made by the Warner Robins center. Although
    officials report improvements in contract costs and turnaround
    times, the Air Force has no system for tracking whether reported
    results are actually being achieved. Also, the issue of whether
    the initiative should be applied to all contracts has not been
    decided. Implementation History         The contract enhancement
    initiative was officially adopted in January 1997 after having
    been applied to a small number of contracts at each of the centers
    beginning in May 1996. During the pilot effort, the five centers
    applied aspects of the contract initiative to 14 contracts-1 at
    the Ogden center, 4 at the Oklahoma City center, 5 at the San
    Antonio center, 1 at the Sacramento center, and 3 at the Warner
    Robins center. Although the Page 24
    GAO/NSIAD-99-63 Air Force Depot Maintenance Chapter 2 Status of
    Implementation of the Enhancement Initiatives centers did not
    prepare cost/benefit analyses, they concluded that the initiative
    could be useful in reducing repair times and costs. AFMC
    headquarters' implementation approach was to identify and
    prioritize assets for repair, similar to the depot enhancement
    initiative. Under the contract initiative, AFMC centers hoped to
    reduce repair turnaround times by enhancing contractor performance
    whenever possible by (1) establishing priorities for the release
    of parts to the repair line to support the repair of items with
    the highest need, (2) encouraging contractors to obtain repair
    parts in advance to help minimize the time that components await
    parts, (3) using parts from less critical components to repair
    more critical ones, and (4) allowing contractors to reclaim usable
    parts from condemned components, thus reducing costs and returning
    assets to operational units in a shorter period of time.
    Additionally, AFMC headquarters and the centers identified several
    actions to be taken when contracting for the repair of reparable
    items with the overall goal of reducing repair times, contract
    repair costs, and eliminating excess inventory. These actions
    included allowing contractors to become more involved in the
    planning process such as helping develop the scope of work; using
    incentives to increase contractor performance; and negotiating
    longer-term performance periods. Application of the Contract  As
    of September 30, 1998, the three centers reported that they had
    applied Initiative                         some aspects of the
    enhancement initiative to 258 maintenance contracts- about 61
    percent of 421 contracts that were in effect at that time. As
    shown in table 2.2, the Warner Robins center, which was the first
    center to use this initiative, has applied the initiative to more
    contracts than the other two. Most contracts focused on the goals
    of reducing repair time and fast transportation of the components
    needing repair from and to the customers. Page 25
    GAO/NSIAD-99-63 Air Force Depot Maintenance Chapter 2 Status of
    Implementation of the Enhancement Initiatives Table 2.2:
    Contracts Including Selected Goals of the Contract Enhancement
    Initiative as of September 30, 1998 Contracts        Contracts at
    Contracts at Goals                               at Ogden Oklahoma
    City Warner Robins                    Total Reduce repair time
    18                   22                  85     125 Reduce
    inventories                            1                    2
    10      13 Reduce repair costs                           1
    7                  40      48 Repair on demand
    3                    2                  81      86 Fast
    transportation                           2                   53
    94     149 Note: Individual aspects of the initiative were applied
    to more than one contract. Source: Data provided by each center.
    Like the depot repair enhancement initiative, the contract repair
    enhancement initiative was originally intended to use a daily
    forecast for repairs on demand. However, none of the centers had
    implemented the concept of daily repair on demand. AFMC
    headquarters allowed the centers to adopt a longer forecast period
    because automated data systems were not yet adequate to support
    contract repair-on-demand. The Warner Robins center was the only
    center using a prototype planning tool for automating the
    identification and prioritization of work to be done under
    contract. However, the prototype allows use of a 30-day forecast
    for repair contractors, while the Air Force depots were expected
    to respond to daily forecast changes. Oklahoma City and Ogden
    officials said they did not believe it was practicable to adjust
    contract workloads frequently. They said that depot maintenance
    contractors want to know in advance what the workload will be so
    that they can stabilize their workforce and ensure they have
    required parts available. Results of Initiative     Officials at
    the three centers reported to AFMC headquarters their estimated
    impact of the contract repair initiative in reducing repair time,
    maintenance costs, and inventories of reparable items. However, it
    is difficult to assess these reported estimates of success because
    the centers had no system for tracking actual results. An AFMC
    program official said that AFMC headquarters was evaluating the
    interfaces needed between automated systems to be able to measure
    outcomes such as turnaround time reductions. Page 26
    GAO/NSIAD-99-63 Air Force Depot Maintenance Chapter 2 Status of
    Implementation of the Enhancement Initiatives Although no overall
    quantifiable data readily exists, center officials cited examples
    they believed showed that the application of the initiative
    allowed them to reduce contract costs and repair turnaround times.
    For example, the Warner Robins center reported that it reduced
    costs on a contract for the F-15 aircraft's radar system by
    $450,000 and avoided costs of about $1.4 million for the C-130
    aircraft due to overall improvements in the repair process. An
    Ogden center official told us that use of the initiative had
    benefited the center through improved teamwork, greater contractor
    involvement in the process, and reduced time spent processing
    paperwork. Issues Associated With        An important issue
    associated with future use of the initiative is the extent Future
    Application of the     to which contractors can be encouraged to
    accept and implement the Initiative                    initiative
    objectives. According to a Warner Robins official responsible for
    overseeing the initiative's implementation, the repair-on-demand
    concept could be disruptive for contractors because fluctuations
    in the workload require them to accept more flexible and
    potentially more costly working arrangements than they currently
    use. Also, he said that the Air Force would likely face
    difficulties in obtaining contractors' voluntary acceptance of
    some major changes, such as the use of contractor funds for
    obtaining repair parts in advance to reduce turnaround times, and
    taking other actions necessary to improve the efficiency of their
    operations. Such changes could require contract modifications,
    which could result in increased costs. Conclusions
    Each of the three initiatives are in various stages of
    implementation. However, only broad goals were established for the
    initiatives and the Air Force did not establish tracking measures
    to assess whether the three depot enhancement initiatives were
    achieving the desired results. While there are indications of some
    positive outcomes, the initiatives have not yet achieved the
    desired goals of increased operational efficiency and reduced
    costs. Chapter 3 discusses issues that must be addressed to
    facilitate implementation of the initiatives and provide a clearer
    basis for assessing results. Page 27
    GAO/NSIAD-99-63 Air Force Depot Maintenance Chapter 3 Management
    Issues Need Attention to Aid Implementation of Reform Initiatives
    Chapter 3 The implementation of the three initiatives could be
    enhanced if the Air Force took management action to (1) set up
    organizational structures and processes as originally planned, (2)
    support initiative implementation, (3) develop standard measures
    to assess performance, (4) improve automated management
    information systems, (5) avoid premature budget reductions, and
    (6) improve supply management support. Addressing these issues is
    vital to the success of AFMC headquarters' vision for
    reengineering its logistics activities. AFMC headquarters has
    recently adopted a new vision for logistics management but has not
    yet made clear how this new vision will be integrated with or
    address the management issues associated with the three ongoing
    reengineering initiatives. Standard                         Our
    prior assessments of Defense reform initiatives have noted the
    Organizational                   difficulties of implementing
    reforms when corrective actions require the development and use of
    common systems and processes across Structures and Process
    organizational boundaries.1 An objective of the enhancement
    initiatives Not Fully Implemented was to improve the effectiveness
    and efficiency of depot operations through the use of standard
    organizational structures and processes. This objective has not
    been fully achieved because the centers have not fully
    incorporated standardization requirements into their maintenance
    and supply organizations. Lack of standardization among the
    centers for the aircraft enhancement initiative program is partly
    due to the fact that the initiative was originally center-
    sponsored and only came under direct AFMC oversight in August
    1998. AFMC has expressed interest in closer integration of the
    programs, which could facilitate greater standardization.
    Advantages of Standard           According to an AFMC official,
    implementing the enhancement initiatives Structures and Processes
    with standardized organizational structures and processes would
    allow depot workers to be moved within and among the depots
    without the costs and time delays for training or for learning a
    new process or management structure. Standardization also would
    help (1) provide managers and workers a common understanding of
    program objectives and (2) simplify program management and
    oversight by having standard operating procedures that allow AFMC-
    wide refinements without the added costs and time to tailor such
    actions to individual operations at the Air Force depots.
    Officials also said that a waiver of the standardization
    requirements would be approved if the impact of a center's request
    did not significantly change the standard requirements. 1Defense
    Reform Initiative: Organization, Status, and Challenges
    (GAO/NSIAD-99-87, Apr. 21, 1999). Page 28
    GAO/NSIAD-99-63 Air Force Depot Maintenance Chapter 3 Management
    Issues Need Attention to Aid Implementation of Reform Initiatives
    While the depot enhancement prototype initiative was under way,
    AFMC began developing an implementation plan that provided broad
    direction on the use of a standard process and organizational
    structure for AFMC depot facilities, as well as position
    descriptions, for converting depot shops to the new process. For
    example, the new organizational structure called for collocation
    of supply managers, item managers, and other key players with a
    single manager over both supply and maintenance operations. The
    new structure placed accountability and authority with a single
    manager to remove impediments and constraints to the repair of
    items. The two centers that sponsored the aircraft enhancement
    initiative did not develop a detailed plan for implementing it,
    but they did prepare a manual in July 1996 that described the
    initiative's management structure. This structure, referred to as
    the weapons system support center, called for collocation of key
    individuals in planning, supply, contracting, and engineering
    support. The centers expected that, as the focal point for parts,
    tools, and equipment, this management structure would improve
    teamwork and communication for more effective management of supply
    and maintenance issues during the programmed depot maintenance
    process. AFMC Has Identified Need        Although program
    officials at AFMC said that standardization is necessary for
    Greater Efforts in This     for the Air Force to have an effective
    depot enhancement initiative, the Area
    centers were ultimately responsible for determining how they would
    implement the initiative. The centers implemented the following
    structures with the following variations: * Officials at the Ogden
    depot established two shop service centers rather than one
    standard center because the maintenance workload was not housed in
    a single location and they believed that repair processes should
    be tailored to the depot's unique work requirements. As of
    December 1998, the depot had made six requests to deviate from the
    standardization process: AFMC approved one, and five were pending.
* Officials at the Oklahoma City depot decided that their service
    center chief would report to a material manager instead of the
    standard repair manager position because they believed the
    material manager was in the best position to be a problem solver.
    In April 1998, AFMC headquarters denied the depot's request to
    make this change, and as of December 1998, the depot was
    implementing the standard structure. * Officials at the Warner
    Robins depot changed some standard position requirements by using
    nonstandard positions such as supply technicians and material
    handlers. In their opinion, their structure recognized the Page 29
    GAO/NSIAD-99-63 Air Force Depot Maintenance Chapter 3 Management
    Issues Need Attention to Aid Implementation of Reform Initiatives
    need to use less costly positions to support standardization
    requirements. As of December 1998, AFMC headquarters had not
    approved the depot's request to add these nonstandard positions.
    In September 1998, after AFMC assumed management control of the
    aircraft enhancement initiative, it directed the centers to follow
    a standard organizational structure with standard personnel
    descriptions for the support center. In early 1999, AFMC
    headquarters officials evaluated the extent to which the three
    centers had implemented the standard and found mixed results. They
    found that implementation of objective standardized structures at
    Warner Robins, Ogden, and Oklahoma City was about 70 percent, 30
    percent, and 5-10 percent complete, respectively. AFMC officials
    told us that they expected to further evaluate progress in this
    area next year. AFMC headquarters officials have stated that they
    want closer integration of the three initiatives in the future.
    Management and oversight for both depot and contractor repair
    options could be enhanced to the extent that both sources of
    repair can use the same system tools, be monitored by the same
    measures, and make repairs to the items using the same logic
    rules. While recognizing this, AFMC headquarters has not yet
    outlined how or when they expect to better integrate management of
    the three initiatives. Greater Organization     Our prior work
    examining Defense reform initiatives has also noted the Support
    Would            importance of top management commitment and
    sustained support for reform initiatives, and overcoming cultural
    barriers and resistance to Enhance Initiative       change. The
    Air Force has recognized that its corporate culture is an
    Implementation           important factor in whether it achieves
    its reengineering goals. AFMC believes that changing the mindset
    of the current workforce will be a challenge because (1) its
    organizations have often found change threatening and have been
    unwilling to modify behavior until proposed ideas are proven, (2)
    the enhancement initiatives call for organizational and process
    changes and many personnel have difficulty understanding how they
    will be affected and are reluctant to embrace the initiatives, and
    (3) essential employee groups have not yet fully supported the
    implementation of the new initiatives. Particularly important is
    management emphasis on workers becoming skilled in multiple areas
    and greater worker flexibility in work assignments. Also, as we
    stated in our February 1996 report on the Air Force's
    reengineering efforts, top-level management has not always
    provided the support necessary for successful implementation of
    the reengineering initiatives. Page 30
    GAO/NSIAD-99-63 Air Force Depot Maintenance Chapter 3 Management
    Issues Need Attention to Aid Implementation of Reform Initiatives
    A key need, according to AFMC's plan for implementing the depot
    initiative, is for workers to be multiskilled. Our prior work has
    shown that multiskilling can be an important concept in fostering
    improved worker productivity.2 A multiskilled workforce gives
    depot managers the flexibility to shift workers among different
    skill areas and offers better opportunities to effectively move
    workers to areas with increased workloads. According to depot
    officials, the ability to shift workers among various tasks allows
    them to adjust to unanticipated work stoppages due to parts
    shortages, technical problems, temporary labor imbalances, or
    changes in work priorities. Without a multiskilled staff, AFMC
    officials believe it will be difficult to efficiently manage a
    repair-on-demand logistics system where workload instability is
    likely to increase. However, the centers do not yet have many
    workers trained to perform multiple tasks. Officials at the three
    centers we visited estimated that only about 10 percent of their
    workers were multiskilled because employee bargaining agreements
    between Air Force management and worker unions generally have not
    supported this concept. Currently, depot workers are trained in
    specific technical areas and perform work within their specific
    specialization, and labor agreements usually require that workers
    only perform work in their specialized area. Therefore, depot
    managers have limited ability to move workers to other areas when
    there are unanticipated changes in work priorities. According to
    an AFMC headquarters official, the Command has made progress by
    negotiating an agreement on training the workforce to perform
    multiple tasks. However, officials at the centers we visited said
    that they had made little progress in training workers because of
    the cost and time involved. In a previous report, we noted that
    the Navy adopted a program to improve its cost-effectiveness and
    responsiveness through multiskilling at an intermediate repair
    activity in Pearl Harbor, Hawaii.3 When the Navy transferred
    civilians from the shipyard to an intermediate activity at the
    same location, it implemented a program to train workers in a
    second complementary skill area, allowing them to perform multiple
    tasks. Maintenance facility managers said under this program, they
    used a limited number of workers more cost-effectively and were
    more responsive to 2Army Industrial Facilities: Workforce
    Requirements and Related Issues Affecting Depots and Arsenals
    (GAO/NSIAD-99-31, Nov. 30, 1998). 3Army Industrial Facilities:
    Workforce Requirements and Related Issues Affecting Depots and
    Arsenals (GAO/NSIAD-99-31, Nov. 30, 1998). Page 31
    GAO/NSIAD-99-63 Air Force Depot Maintenance Chapter 3 Management
    Issues Need Attention to Aid Implementation of Reform Initiatives
    emerging requirements. The shipyard and intermediate repair
    activity at Pearl Harbor is attempting to expand on the program to
    improve productivity and reduce costs. We are evaluating this
    effort as a part of a separate review. Standard Set of
    Our prior reporting on Defense reform initiatives has also shown
    the Measures Could Help            importance of clear results
    oriented goals and performance measures. The Air Force's Baseline
    Agile Logistics Master Plan and Road Map cited the in Measuring
    Program  need for performance measures to provide management with
    information Impact                         that will "identify
    problems, suggest solutions, lead to changes in behavior, and set
    or reset correct incentives at all levels of operations." While
    some initial steps were taken to develop such measures for the
    depot enhancement initiative, they were not completed, nor were
    measures developed for the other initiatives. While AFMC
    headquarters developed some initial measures to assess the
    performance of its depot enhancement prototype initiative, they
    were used in a limited way initially and were later dropped as the
    initiative was expanded AFMC-wide. AFMC headquarters and its
    centers were unable to agree on appropriate measures of
    performance associated with the initiatives. AFMC has collected
    some measures that provide partial information on the three
    enhancement initiatives, but it lacks standard measures that would
    provide a comprehensive perspective on the initiatives'
    performance and their impact on the overall logistics system.
    Available measures developed by the individual centers offer
    limited insight into the collective performance impact of the
    depot, aircraft, and contract enhancement initiatives. AFMC
    headquarters and the centers collect data on a number of measures
    for evaluating performance aspects of the overall supply and
    maintenance functions, but not specifically for the enhancement
    initiatives. In the absence of initiative specific measures and
    because the enhancement initiatives have been only partially
    implemented, available metrics developed by the centers offer
    limited insight into the collective performance impact of the
    three enhancement initiatives. Page 32
    GAO/NSIAD-99-63 Air Force Depot Maintenance Chapter 3 Management
    Issues Need Attention to Aid Implementation of Reform Initiatives
    Improved Management  AFMC headquarters recognized that effective
    automated data systems Information Systems            support was
    fundamental to successful implementation of its three enhancement
    initiatives. However, its decision to develop new systems Would
    Aid in                   concurrently with upgrading legacy
    systems impaired its ability to track Implementing and
    implementation of the initiatives. Although AFMC headquarters and
    the Assessing Initiatives          centers have made progress in
    identifying and correcting deficiencies in automated data systems
    support, system weaknesses have made it difficult for AFMC to
    implement and assess the effectiveness of its enhancement
    initiatives. Long-standing System           The Air Force's
    problems with automated systems support are not new. For Problems
    example, we reported in February 1996 that existing systems were
    an obstacle to the Air Force's reengineering of its logistics
    system.4 In that report, we noted that, according to AFMC's Deputy
    Chief of Staff for Logistics, AFMC headquarters was working with
    systems that have not been significantly improved in 15 years. As
    a result, much of the data used to support the enhancement
    initiatives has been collected manually, a task that project
    leaders said would be impossible under an Air Force-wide program.
    Also, we noted that required management actions and funding
    decisions related to systems improvement were outside the
    responsibility of managers of the enhancement initiatives and the
    entire Air Force. This report noted that improvements to existing
    systems would not be fully deployed throughout the Air Force for 5
    to 10 years. Until recently, the Joint Logistics Systems Center
    had responsibility for improving existing systems by standardizing
    data systems across DOD. However, in September 1998, DOD disbanded
    the Joint Logistics Systems Center and returned responsibility for
    automated system improvements to each service. Enhancement
    Initiatives'       AFMC headquarters and its centers recognized
    that to support the Information System             enhancement
    initiatives, existing automated management information Approach
    systems must be upgraded as new systems were being developed.
    According to AFMC headquarters program plans, the depot
    enhancement initiative required significant upgrades to 15 legacy
    systems and the development of 3 new systems-changes and upgrades
    that are now in 4Best Management Practices: Reengineering the Air
    Force's Logistics System Can Yield Substantial Savings (GAO/NSIAD-
    96-5, Feb. 21, 1996). Page 33
    GAO/NSIAD-99-63 Air Force Depot Maintenance Chapter 3 Management
    Issues Need Attention to Aid Implementation of Reform Initiatives
    process. The aircraft enhancement initiative required one new
    system to support reengineering of the programmed depot
    maintenance process, and the contract initiative required changes
    to two existing systems that interface between the centers' and
    contractors' systems. Our analysis of the status of AFMC
    headquarters' systems improvement showed that, as of October 1998,
    work was completed on 73 proposals for system changes to correct
    problems with existing or new systems. AFMC headquarters reported
    that as of October 1998, it had 43 pending changes, most of which
    related to its prototype EXPRESS5 software that was used to
    prioritize customer needs. Officials reported that these changes
    could take up to 4 or 5 years to complete. Also, after the latest
    changes were incorporated in October 1998, AFMC headquarters
    planned to change EXPRESS from a prototype system to a production
    system with new computer servers and other hardware added to
    support EXPRESS. A different but time-consuming approach to deal
    with AFMC's system information needs would have been for AFMC to
    use the depot prototype initiative to identify key system
    requirements, develop and test those requirements, and have
    critical system support in place prior to AFMC- wide
    implementation. AFMC did not use this approach because of the long
    lead time this approach would have required. Instead, the Air
    Force directed its efforts at improving data systems as the
    enhancement initiatives were being implemented. This resulted in
    implementation problems and a lack of data to track and assess the
    success of the initiatives. According to logistics managers,
    inadequate data systems support was the primary limitation on
    evaluating the impact of the enhancement initiatives on logistics
    operations. Information Systems        Problems with automated
    data systems emerged as implementation of the Implementation
    Problems    enhancement initiative progressed. Information systems
    were unable to provide data on critical issues, such as whether
    data being generated on current operations was reliable for
    decision-making purposes and whether concepts such as repair on
    demand were producing desired results. Inadequate automated system
    support was a key concern for full implementation of the depot
    enhancement initiative because the centers recognized that EXPRESS
    was not working as anticipated. For example, (1) items with high
    repair costs and long repair times were not identified 5EXPRESS
    stands for execution and prioritization of repair support system.
    Page 34                                         GAO/NSIAD-99-63
    Air Force Depot Maintenance Chapter 3 Management Issues Need
    Attention to Aid Implementation of Reform Initiatives for repair,
    (2) inaccurate data was fed from AFMC's central stock leveling
    system that sets base peacetime operating stocks of repair parts,
    (3) repairs were delayed because some items were erroneously shown
    to be awaiting parts, and (4) items with configurations similar to
    the original items were not identified for potential use in
    filling customer requisitions. Similarly, problems occurred in
    linking legacy and new automated data systems to achieve total
    integration of the aircraft schedule, bill of materials, and
    resource allocation. Center program officials considered these
    linkages crucial to the success of the aircraft enhancement
    initiative in reducing repair times and costs. Interfaces have
    been established for some systems, but interfaces involving four
    key legacy systems are pending funds for design and development.
    Logistics managers told us they resorted to less optimal and time-
    consuming manual intervention to enhance data integrity and used
    temporary fixes to link some systems. Future Directions    AFMC
    must ensure that decisionmakers have timely, accurate, and
    complete information to help them resolve overall logistics
    problems. At the same time, the Air Force must ensure that it has
    explored alternatives for addressing information system needs
    within the bounds of relevant legislative and departmental policy
    guidance, including * the Clinger/Cohen Act of 1996, which
    requires federal agencies to have processes and information in
    place to help ensure that information technology projects (1) are
    implemented at acceptable costs, within reasonable and expected
    time frames, and (2) are contributing to tangible, observable
    improvements in mission performance and * DOD requirements to
    ensure that systems are economically justified and comply with DOD
    technical and data standards-which are intended to help pave the
    way toward an interoperable systems environment. Additionally,
    AFMC efforts to improve its information systems capabilities must
    be in concert with departmental efforts to remediate the Year 2000
    problem. The Year 2000 problem is rooted in the way dates are
    recorded, computed, and transmitted in automated information
    systems. With the typical two-digit format for recording dates,
    the year 2000, for example, is indistinguishable from 1900.
    Efforts are required and under way to correct this problem;
    failure to do so could cause DOD mission-critical operations to be
    degraded or disrupted. Page 35
    GAO/NSIAD-99-63 Air Force Depot Maintenance Chapter 3 Management
    Issues Need Attention to Aid Implementation of Reform Initiatives
    Greater Attention to     We have previously reported concerns
    about the abilities of DOD and the Cost and Savings
    services to fully account for the costs associated with
    implementing various reform initiatives and concerns about
    premature reductions in Issues Could Help        operating budgets
    in anticipation of projected savings. Because AFMC Avoid Premature
    headquarters did not adequately identify or track the upfront
    costs of Budget Reductions        implementing the new
    initiatives, budget reductions based on anticipated savings from
    them may have been premature. AFMC headquarters has identified the
    need for additional implementation funding and is undertaking an
    analysis to determine whether the initiatives are achieving
    anticipated savings. AFMC headquarters and center officials told
    us that they do not know how much it has cost to implement the
    depot, contract, and aircraft enhancement initiatives, but they
    estimated that millions of dollars were being spent and additional
    funds were required. They pointed out that AFMC's June 1997
    deployment plan for the depot initiative forecasted an
    implementation cost of about $18.6 million. In addition, AFMC's
    Depot Maintenance Activity Group business plan for fiscal years
    1998 and 1999 showed that the depot initiative needed funding of
    $9 million for each year for spare parts procurement. This amount
    was unfunded because the funds had been taken from the budget in
    anticipation of cost reductions based on repair times being
    reduced. Notwithstanding a lack of complete information on
    implementation costs, the Air Force anticipated savings from the
    three initiatives. On the basis of this assumption, it reduced the
    working capital fund $336 million in fiscal year 1997, $289
    million in fiscal year 1998, and $323 million in fiscal year 1999.
    However, AFMC headquarters officials determined that it had not
    achieved this level of savings and the resulting funding shortfall
    was adversely affecting support to its customers.6 Although these
    officials believed that they were achieving savings from the
    initiatives, the exact savings cannot be determined because the
    Air Force does not have a system for tracking savings. Because of
    the funding shortfall in maintenance and operations, AFMC
    headquarters has requested that the Air Force provide additional
    funding and no longer plans to reduce future budgets in
    anticipation of cost savings from the new initiatives. 6Air Force
    Supply: Management Actions Create Spare Shortages and Operational
    Problems (GAO/NSIAD/AIMD-99-77, Apr. 29, 1999). Page 36
    GAO/NSIAD-99-63 Air Force Depot Maintenance Chapter 3 Management
    Issues Need Attention to Aid Implementation of Reform Initiatives
    According to AFMC headquarters, achieving actual cost savings will
    require reductions in inventories of major and secondary items and
    faster maintenance response times. For example, if the aircraft
    initiative achieves its goal of moving aircraft through the repair
    process and returning them to the customer on an accelerated
    schedule, the Air Force should eventually be able to reduce the
    number of aircraft that are in the inventory. However, if excess
    aircraft are not retired from inventory or fewer aircraft are
    acquired in the future, the Air Force may not achieve the
    significant savings the initiatives anticipated. Ogden Center
    officials said that the primary means to achieve cost savings from
    the depot initiative is reducing the amount of supply inventory.
    By repairing and returning secondary items to the customers
    faster, the centers can reduce the number of secondary items they
    maintain to support longer repair schedules-known as the
    maintenance float. Without reductions in the number of items
    dedicated to maintenance float or airplanes in the inventory to
    offset the increased cost of the depot initiative, overall costs
    could increase because of additional costs for improvements.
    Improved Supply                 Our prior reporting has emphasized
    the need for DOD to apply best Support Needed for
    practices in order to obtain more efficient and effective supply
    support at less cost.7 Effective supply support is critical to
    achieving the enhancement Effective
    initiatives' objectives. To accomplish repairs on demand and
    reduce Implementation of the  turnaround times, the Air Force
    depots must have obtained or be able to Initiatives
    obtain in a timely manner the parts and reparable components that
    are required to accomplish the overhaul and repair of reparable
    items. Air Force data indicate that parts and components required
    from both the Air Force Supply Group and DLA are sometimes
    unavailable, and according to AFMC headquarters officials, these
    supply activities do not provide acceptable support to their
    enhancement initiatives. Parts availability is a key measure of
    the ability of the supply system to satisfy requests in a timely
    way.8 According to AFMC headquarters 7Inventory Management:
    Greater Use of Best Practices Could Reduce DOD's Logistics Costs
    (GAO/T-NSIAD-97-214, July 24, 1997). 8Parts availability measures
    how often the supply system had a part or component in stock to
    meet an Air Force customer's requirement. If the customer's
    requirement could not be filled when requested, the supply system
    generally backordered the part or component. Page 37
    GAO/NSIAD-99-63 Air Force Depot Maintenance Chapter 3 Management
    Issues Need Attention to Aid Implementation of Reform Initiatives
    personnel, parts availability at 90 percent or above could be
    required to support the Agile Logistics initiatives. However, the
    Air Force Supply Group averaged 50 percent overall in parts
    availability for April through September 1998. For the same
    period, DLA averaged 77 percent in availability of repair parts.
    We have reported in recent years that implementing best inventory
    management practices such as prime vendor support may be a
    feasible option for improving customer responsiveness and reducing
    inventory costs. However, DOD has made little progress in
    expanding the use of prime vendors for parts and components, and
    it is unclear to what extent this option will prove to be cost-
    effective for military-unique items. Air Force Supply
    Air Force customers, including maintenance depots, obtain parts
    and Management Group Support components that are used in
    accomplishing maintenance tasks from the Air Force Supply
    Management Group. The Supply Group-managed reparable items are
    unique to Air Force weapon systems and are not readily available
    in the commercial sector. These items are often of high-dollar
    value and require lengthy lead times to procure if they are not in
    stock or on order. Air Force data show that the Supply Group's
    performance in providing items has declined steadily in recent
    years.9 Key indicators also show that support to AFMC depot
    maintenance customers is generally less effective than that to
    other Air Force customers such as operational fighting units. For
    instance, the Supply Group's parts availability for AFMC between
    April to September 1998 ranked sixth out of the nine Air Force
    commands the Group served. For example, the percent of
    availability averaged 50 percent, ranging from a low of 46 percent
    to a high of 53 percent. Officials at the three centers we visited
    said that inadequate supply support contributed to extended
    overhaul and repair times for some items. They noted that a
    critical factor in implementing the repair-on-demand concept is
    that required parts and components be available in a timely manner
    to accommodate repair schedules. 9In a separate ongoing assignment
    we are assessing overall Air Force Supply Group effectiveness. We
    are also finalizing the results of a separate review of the Supply
    Management Activity Group and its impact on the ability of its
    customers to obtain aircraft spare parts when needed. Since the
    early 1990s, Air Force data have shown increased instances of
    aircraft that were not mission capable due to spare parts
    shortages. We found that shortages of inventory items were due, at
    least in part, because the Air Force did not achieve the reduced
    pipeline processing time goals that are the cornerstone of its
    reform initiatives. Page 38
    GAO/NSIAD-99-63 Air Force Depot Maintenance Chapter 3 Management
    Issues Need Attention to Aid Implementation of Reform Initiatives
    The Supply Group's inability to support its customers meant that
    too many items were in the supply pipeline (items in transit from
    bases to depots and items being repaired) and not enough usable
    items were available at bases. Two major causes of the problem
    were (1) a lack of accurate data and effective procedures for
    monitoring pipeline processing times and taking timely and
    appropriate corrective action, when necessary and (2) the depot
    maintenance activities' inability to repair items because of
    shortages of parts, repair shop personnel, and testing
    equipment.10 The Supply Group's strategic plan for fiscal years
    1999 to 2005 does not address what measures, if any, it plans to
    take to increase parts availability. However, the plan does
    include strategies to improve stockage effectiveness-another
    measure of supply support effectiveness.11 Additionally, the
    Supply Group intends to have memorandums of agreement with each
    supplying depot maintenance manager to help reduce repair times,
    ensure time-definite delivery, and ensure parts support for items
    being repaired in depot shops. Also, AFMC headquarters depot
    maintenance officials said that they were working with officials
    in the Supply Group to identify additional actions to improve
    supply support. DLA Support    DLA is the primary supplier of
    parts the AFMC centers need for depot maintenance repairs and
    operates all depot supply distribution functions. However,
    unavailability of repair parts at depots has been a chronic
    problem.12 The impact of these problems was severe under the old
    approach, but it is even more critical for successful
    implementation of the repair-on-demand approach. This makes
    updating AFMC's previous support agreement with DLA imperative.
    AFMC headquarters data on parts availability for March through
    September 1998 showed that DLA generally met the Air Force's goal
    of 75 percent availability, averaging 77 percent for the period.
    However, in an AFMC 10See Air Force Supply: Management Actions
    Create Spare Shortages and Operational Problems (GAO/NSIAD/AIMD-
    99-77, Apr. 29, 1999) and Defense Inventory: Continuing Challenges
    in Managing Inventories and Avoiding Adverse Operational Effects
    (GAO/T-NSIAD-99-83, Feb. 25, 1999). 11Stockage effectiveness
    measures the percentage of time the supply system satisfies a
    requisition for items that have an authorized stockage level,
    whereas parts availability measures how often the supply system
    satisfies a requisition for any item-regardless of whether or not
    it has an authorized stock level. 12Air Force Supply: Management
    Actions Create Spare Shortages and Operational Problems
    (GAO/NSIAD/AIMD-99-77, Apr. 29, 1999). Page 39
    GAO/NSIAD-99-63 Air Force Depot Maintenance Chapter 3 Management
    Issues Need Attention to Aid Implementation of Reform Initiatives
    official's view, this rate is not adequate to support the new
    initiatives that require a 90 percent or more availability rate.
    According to AFMC headquarters logistics personnel, the extent to
    which items critical to repairs are provided on a timely basis
    cannot be easily evaluated with current data, but the answer is
    key to the success of the new initiatives. The new initiatives
    have increased the need for significant changes in business
    relationships between AFMC and DLA. As AFMC implemented the
    enhancement initiatives, it sought accelerated deliveries of
    repair parts and transportation of items to and from the
    customers. Negotiations have taken place between DLA and AFMC to
    develop an updated support agreement to ensure that parts are made
    available on an expedited basis, as needed, to support the new
    initiatives. However, AFMC headquarters and DLA have not been able
    to agree on the details of the new agreement. According to an AFMC
    headquarters official, progress in negotiating an agreement for
    DLA support of the enhancement initiatives has been slow and
    difficult, with little progress since early 1998. Neither AFMC
    headquarters nor DLA officials were optimistic about when an
    agreement would be reached. AFMC headquarters officials said that
    they want an agreement that specifies support arrangements and
    contains measures that will be used for evaluating DLA supply
    support performance. On the other hand, DLA officials want an
    agreement that contains broader, more general language to allow
    flexibility in support arrangements. Also, in contrast to AFMC
    headquarters, which wants each center to receive individual
    attention, DLA wants only one operating agreement covering both
    AFMC headquarters and its centers. Aside from negotiations over
    the interagency agreement, AFMC headquarters officials expressed
    concern over specific aspects of their working relationship with
    DLA that were often rooted in problems associated with their
    management information systems. According to headquarters
    officials, AFMC's working relationship with DLA could be improved
    in areas such as supply quantity and ownership data, visibility of
    orders and location of parts, questionable cost charges, and
    reconciliation of discrepancies between the two organizations'
    databases. AFMC headquarters officials said that these issues have
    caused the centers and DLA to take time-consuming and costly
    actions to manually intervene and work around problems. For
    example, AFMC's systems, in Page 40
    GAO/NSIAD-99-63 Air Force Depot Maintenance Chapter 3 Management
    Issues Need Attention to Aid Implementation of Reform Initiatives
    particular the requisitioning for inventory system,13 do not
    interface with DLA's new automated system for inventory
    management. The new system includes the tracking and reporting of
    stock transactions between the two organizations. Manual
    intervention is required to match item numbers, quantities, and
    ownership information. AFMC headquarters and the centers have
    identified numerous discrepancies between their records and DLA's
    since DLA brought its new system on line at the three centers
    between August 1997 and January 1998. The three centers reported
    progress in resolving these discrepancies. For example, since the
    new DLA system was implemented, the three centers reported making
    inventory record adjustments totaling $4 billion to reconcile
    records, stock orders, and requisition returns between the
    centers' records and DLA records. DLA officials said that in
    addition to the new systems, the Air Force has a number of legacy
    systems that do not interface effectively with DLA's automated
    supply systems. This lack of effective interface is causing some
    problems at the center level with timely receipt of orders. Also,
    DLA and the Air Force have not yet settled on what performance
    indicators to use and how they will be tracked to evaluate
    problems existing in supply and transportation support. However,
    DLA officials said that DLA fully supports the Air Force's
    initiatives and is working with the centers to improve supply
    support. Opportunities to Increase     In recent years we have
    recommended that DOD consider the use of prime Use of Best
    Inventory         vendors14 and other best management practices to
    improve supply support Management Practices
    responsiveness and reduce the cost of DOD's logistics system. The
    services and DLA have pursued a number of initiatives to improve
    supply support of weapon system parts and components, including
    limited use of prime vendors, but significant supply support
    weaknesses remain. 13This system is called the DO35. It is the Air
    Force's Stock Control and Distribution System. This system tracks
    depot supply stocks and their distribution and provides
    information on backorders, supply balances, daily transactions,
    and floating stock balances. 14A prime vendor is a single vendor
    that buys inventory from a variety of suppliers and stores the
    inventory in its warehouses until ordered by the customers. The
    prime vendor then ships the inventory to the DOD activity as
    ordered. This process is intended to improve support to the
    customer by reducing delivery time and reducing costs for
    maintaining, warehousing, and distributing inventory. Page 41
    GAO/NSIAD-99-63 Air Force Depot Maintenance Chapter 3 Management
    Issues Need Attention to Aid Implementation of Reform Initiatives
    Starting in 1993, DOD began prime vendor initiatives for the
    procurement of items readily available in the commercial sector,
    such as medicines and food products. DOD has reported benefits
    such as inventory reduction; reduced response time; and reduced
    purchase, storage, and distribution costs. We have recommended
    that DOD expand its prime vendor initiatives to other areas,
    including the supply of parts and components required in the depot
    maintenance process.15 To date DOD has made limited progress in
    this area. Recently, the Congress enacted legislation requiring
    DLA and the military services to develop and submit schedules for
    implementing best commercial practices in their acquisition and
    distribution of inventory items.16 The legislation calls for the
    implementation of best practice initiatives to be completed within
    the next 3 years in the case of DLA and 5 years for the services.
    We are currently reviewing the implementation of these
    initiatives. DOD officials have observed difficulties in
    effectively using prime vendors to provide spare and repair parts
    for several weapon system programs. They noted that military-
    unique items with low or infrequent demand do not lend themselves
    to the new management concepts embodied in the commercial sector's
    prime vendor programs. Thus, it is uncertain how cost- effective
    this concept will be in supplying military-unique items with
    uncertain requirements and only one customer. On the other hand,
    it remains a viable option that merits further consideration as
    the Department continues to strive to improve its spare and repair
    parts supply support responsiveness. New Vision for
    In January 1998, the Air Force announced a new vision for its
    logistics Logistics Management management that builds on its
    current initiatives. However, it is not clear from the new vision
    statement how the Air Force is going to deal with the specific
    problems identified in this report related to the initiatives
    already under way. In response to two recent Air Force studies
    addressing implementation of Agile Logistics, the Air Force
    established a new vision for its logistics management program.
    More specifically, in January 1998, the AFMC 15Inventory
    Management: Greater Use of Best Practices Could Reduce DOD's
    Logistics Costs (GAO/T-NSIAD-97-214, July 24, 1997). 16 Section
    347 of the Strom Thurmond National Defense Authorization Act for
    Fiscal Year 1999 (P.L. 105-261). Page 42
    GAO/NSIAD-99-63 Air Force Depot Maintenance Chapter 3 Management
    Issues Need Attention to Aid Implementation of Reform Initiatives
    Commander presented five major goals for changing logistics
    management policies and practices. These goals were to * set
    appropriate inventory levels and fill them; * match repair to
    demand; * develop better cost estimates and use them to cost-
    effectively execute inventory actions and the concept of repairs
    on demand; * quickly identify and react cost-effectively to
    surprises; and * continuously reduce total costs, improve cost
    estimation, and reduce cycle times. Although these goals appear to
    be consistent with its enhancement initiatives, AFMC headquarters
    has not yet provided a detailed plan for implementation of this
    vision. An effective implementation plan should provide details
    regarding how to achieve these goals. Further, such a plan should
    identify whether, and to what extent, the command will address
    needed improvements in the implementation and management of the
    depot, contract, and aircraft enhancement initiatives. Conclusions
    Progress in implementing the initiatives is difficult to measure
    because only broad goals of increased operational efficiency and
    reduced costs were established, along with an approach to
    implementing the initiatives. No agreed upon metrics were
    established for measuring progress in implementing the
    initiatives.  Moreover, available data indicates only limited
    progress has been made in implementing the initiatives, and
    decisions are yet to be made regarding the extent to which the
    initiatives should be applied to all reparable items and aircraft.
    Also, implementation of the initiatives has been affected by
    various management problems, including limited implementation of
    standard organizational structures and processes, lack of a
    multiskilled workforce training plan, lack of standard measures to
    assess performance, inadequate automated management information
    systems to support analysis and decision-making, and lack of
    reliable information on investment costs and expected savings.
    Progress has also been hampered by incomplete action on reaching
    agreements that are essential for achieving program goals (such as
    identifying ways to improve supply support from the Air Force
    Supply Group and updating AFMC's support agreement with DLA). To
    what extent other options, such as prime vendor, offer a viable
    alternative to mitigate supply support weaknesses remains to be
    determined. AFMC has recently set forth a new vision for logistics
    reform that appears to be consistent with the goals for its three
    enhancement initiatives. Page 43
    GAO/NSIAD-99-63 Air Force Depot Maintenance Chapter 3 Management
    Issues Need Attention to Aid Implementation of Reform Initiatives
    Although over a year has passed since the vision and goals were
    announced, the Air Force has not yet provided details on how these
    goals will be achieved. Precisely how AFMC headquarters plans
    address implementation and management problems we identified is
    unclear. Without a detailed implementation plan, it is unclear
    whether or to what extent the new vision may further the Air
    Force's objective of improving the economy and efficiency of its
    logistics system. Recommendations    We recommend that the
    Secretary of Defense direct the Secretary of the Air Force to
    require the Air Force Materiel Command to refine and improve its
    implementation and management of the three reengineering
    initiatives by taking the following actions: * Develop an
    implementation plan that details the specific criteria for
    determining if the initiatives are successfully achieving stated
    goals and desired results. * Determine the extent to which the
    enhancement initiatives should be applied to all reparable items
    to ensure optimum benefits. * Assess progress in implementing the
    standardized organizational structures and processes and the
    extent to which they are achieving the objectives of better
    teamwork. * Develop and implement a transition plan to ensure
    sufficient numbers of trained multiskilled personnel are available
    to meet requirements and produce needed operational efficiencies.
* Upgrade automated management information systems needed to
    support the initiatives in keeping with DOD and Clinger/Cohen Act
    requirements associated with acquiring information systems support
    and ensuring Year 2000 compliance. * Develop and implement
    improved strategies for providing more effective supply support to
    depot maintenance customers, including the exploration of prime
    vendor or other best inventory management practices and agreements
    with the Air Force Supply Group and DLA. * Reassess the extent to
    which costs have been fully identified and budgeted to avoid
    funding shortfalls and to ensure that operating funds are not
    prematurely reduced in anticipation of savings from the
    initiatives. Page 44
    GAO/NSIAD-99-63 Air Force Depot Maintenance Chapter 3 Management
    Issues Need Attention to Aid Implementation of Reform Initiatives
    Agency Comments and  We requested comments on a draft of this
    report from the Secretary of Our Evaluation
    Defense. Air Force officials provided oral comments, stating that
    the Department agreed with our findings and with the intent of our
    recommendations. In acknowledging that measures were needed to
    better ensure success of its reform initiatives, the Air Force
    offered a general description of actions it had taken or planned
    to take to improve the reengineering of its industrial operations.
    However, given the general nature of the comments, it is uncertain
    to what extent the Air Force will address the concerns we have
    raised. For example, the Air Force said it would address the need
    for an initiative implementation plan through a DOD-wide planning
    effort. We reviewed a draft of the DOD-wide plan and could not
    determine how the Air Force's initiatives were addressed. We had
    similar type questions regarding other points made by the Air
    Force and they are presented in appendix II. Page 45
    GAO/NSIAD-99-63 Air Force Depot Maintenance Appendix I Recent Air
    Force Studies on Agile Logistics Appendix I Two recent Air Force
    studies on the Air Force's Agile Logistics initiatives provide
    additional insight into problems experienced with implementation
    of Agile Logistics: (1) a December 1997 report by the Air Force
    Inspector General (IG) on the implementation and maturity of Agile
    Logistics and the effect on combat readiness and (2) a March 1998
    report by a Reparable Spares Management Board. The Board consisted
    of a group of active and retired military representatives and
    private industry representatives appointed by the Commander of Air
    Force Materiel Command (AFMC) to identify management changes that
    the Air Force could implement within the next 12 to 24 months to
    help reverse negative performance and financial trends associated
    with reparable spares management. Air Force Inspector     Key
    findings of the Inspector General's December 1997 report included
    General Audit Report     * Three special factors skewed the
    results of the prototype depot initiative that were difficult to
    duplicate for subsequent shops: additional resources, high
    priority handling and movement of assets destined to the shops
    throughout all segments of the logistics pipeline, and a funding
    anomaly. * The Air Force needed usable, meaningful measures that
    are deployed and used throughout the logistics community because,
    overall, the current Agile Logistics measures process was not
    effective. The IG found that AFMC and the centers had jointly
    developed measures, but only two centers knew of specific measures
    and no center used the AFMC developed package as the measures
    baseline. Selective measures were being used but few personnel
    knew of these measures, how to track them, or the source of the
    data. * The centers used temporary arrangements to reorganize
    their workforce. Long-term support of the depot initiative
    requires movement of workers from one organizational area to
    another (matrixing) and having some workers qualified to perform
    additional duties (multiskilling). However, reclassification
    actions were not accomplished to formally allow matrixing and
    multiskilling. * The centers implemented the depot initiative in
    spite of system deficiencies. System limitations and inaccurate
    data were the largest barrier to success. Erroneous data entry,
    time disconnects, and software errors corrupted the information
    generated by existing computer systems. The depots did not have an
    operational network to fully implement the depot initiative and
    without the benefit of an approved network layout, had some
    network infrastructure in place, had acquired some, and had other
    purchases planned. Funding was not available for Page 46
    GAO/NSIAD-99-63 Air Force Depot Maintenance Appendix I Recent Air
    Force Studies on Agile Logistics all network requirements and
    funding requirements had not been identified for personal computer
    upgrades. * The Defense Logistics Agency (DLA) was critical to the
    success of Agile Logistics and the duties and responsibilities for
    both DLA and the Air Force must be clearly defined and achievable.
    The scope of DLA responsibilities to support agile logistics was
    not clearly defined and the significant ramifications and costs of
    these changes were not sufficiently addressed to ensure DLA could
    respond to Air Force needs. * People across the board showed
    dedication, flexibility, and adaptability as their logistics world
    fundamentally changed. However, the level of buy-in varied widely
    at the commands and few knew the overall flow or were aware of
    long term changes due to Agile Logistics. Also, Agile Logistics
    was poorly understood at the field level due to the lack of
    adequate policy and guidance, which also hindered the long-term
    success of Agile Logistics. The IG's report noted corrective
    action underway by AFMC. For example, AFMC had taken action to
    adopt a more realistic schedule to develop and test automated
    system changes, to scrub information sources and data bases and
    correct erroneous data, and awarded a contract to correct problems
    with EXPRESS. The report also made a number of recommendations
    addressing each of its findings. For instance, the report
    recommended that AFMC (1) specify DLA requirements to support
    Agile Logistics implementation, (2) jointly, with DLA, determine
    the cost for DLA to meet Air Force requirements, and (3) negotiate
    and formalize coverage of Agile Logistics in the agreement between
    the Air Force and DLA. Although AFMC did not provide a formal
    written response to each of the IG's findings, conclusions and
    recommendations, it stated that corrective action would be taken
    as implementation of Agile Logistics matured. Reparable Spares
    In December 1997, the Commander of AFMC appointed the Board to
    focus Management Board Report    on ways to improve AFMC's (1)
    financial management process that plans, programs, budgets for,
    and executes supply chain management activities, (2) performance
    measures, and (3) accountability in the supply chain. The Board's
    final report dated March 30, 1998, proposed a number of actions
    that the Air Force could initiate to improve the management of
    reparable spares. Overall, the Board concluded that the Air Force
    now faces the following problems that must be resolved quickly:
    (1) the requirements process, which defines what the Air Force
    should buy and repair, is broken and must be rebuilt; (2) the
    budgeting processes underestimate support costs and, as a result,
    fail to execute support budgets properly; Page 47
    GAO/NSIAD-99-63 Air Force Depot Maintenance Appendix I Recent Air
    Force Studies on Agile Logistics (3) obligation authority for
    logistics services is not executed cost- effectively; (4) new
    information systems under development will not support the
    seamless logistics system needed for the new environment; (5)
    despite all the changes, the Air Force has not reengineered any
    single process in its entirety to reflect the new environment; and
    (6) the basic management culture in AFMC resists change. Some of
    the report's key findings were: * Air Force logistics has changed
    fundamentally during the past 15 years, provoking many changes in
    logistics policy and practice. Although each change felt like a
    major adjustment at the time, the Air Force did not develop a
    system-wide vision to coordinate the changes. As a result, changes
    from the late 1980s and 1990s had only incremental effects and
    often unintended negative consequences. * Changes resulting from
    Agile Logistics initiatives did not provide the cost savings
    necessary to meet budget reductions because "the Air Force often
    used unrealistic expectations about future performance, failed to
    anticipate implementation and transition costs, or double- counted
    cost savings." With anticipated costs and savings overstated, the
    Air Force cut its support budget more than it cut support costs.
    Because the Air Force did not develop a system-wide vision,
    logistics managers cut support for discretionary activities faster
    than depot repair activities, delayed sending assets for depot
    repair as long as possible, and, where possible, postponed work
    from one fiscal year to the next. * Individual organizations
    within the Air Force implemented the initiatives without the
    benefit of a coordinated, Air Force-wide look at how the required
    changes would fit together. Such initiatives required new forms of
    material management discipline that material managers were not
    prepared to provide. Thus, a set of uncoordinated changes, each
    producing unforeseen problems did not achieve all of the
    anticipated benefits. * The Air Force had measures, but would
    benefit from a better understanding of how the commercial sector
    used measures to drive improvement in a supply chain. * For the
    mid-term, EXPRESS can help the Air Force implement the repair on
    demand concept, but this concept required adequate capability to
    be available for a repair action to occur when a demand occurs.
    The Air Force needed a planning process that can anticipate future
    customer demands and mobilize all relevant processes to prepare
    for that demand. Such a concept is likely to work only if
    providers and Page 48
    GAO/NSIAD-99-63 Air Force Depot Maintenance Appendix I Recent Air
    Force Studies on Agile Logistics customers communicate with one
    another more effectively than today and have access to better
    analytic tools to support joint planning. Current Air Force plans
    for integrating its logistics information systems would not lead
    to complete integration. * The Air Force cannot achieve a seamless
    logistics information management system as envisioned under Agile
    Logistics until it specifies which databases are to be shared and
    identifies common applications for base and depot-level
    maintenance and material management. * In contrast to the
    experience of successful commercial firms, the Air Force
    initiatives will not succeed unless the leadership is committed to
    a program of long-term, strategic, system-wide change and, without
    this leadership, the planned logistics changes will become a few
    more incremental adjustments with little effect. The Board made no
    specific recommendations for AFMC but suggested several actions
    that AFMC could consider for improving the management of reparable
    spares. Among these suggestions were that the Air Force leadership
    needed (1) clear top-down information on corporate goals, guidance
    on who is accountable for meeting these goals, and sufficient
    resources for achieving them, (2) training and other arrangements
    to ensure that communication and teamwork help link segments of
    the supply chain, and (3) a formal process to design changes to
    the logistics process and then implement, monitor, evaluate, and
    correct changes for system improvement. The Board suggested that
    the Air Force should (1) integrate its logistics information
    systems to allow all players in the logistics pipeline access to
    accurate and timely cost, schedule, and performance data and (2)
    improve discipline during data entry to significantly improve the
    accuracy of data produced by automated systems. Also, the Air
    Force should use a small number of system measures to define and
    potentially quantify the broad goals of the organization as a
    whole, motivational measures for specific teams or managers to
    apply to particular situations, and diagnostic measures to help
    decisionmakers track particular processes in order to diagnose and
    overcome problems with pursuing motivational measures. The Board
    noted that the Commander of AFMC was initiating a new management
    approach that,  if properly implemented, should allow AFMC to
    address the problems noted by its report. AFMC made no formal
    written response to the Board's findings and suggested actions.
    Page 49                                        GAO/NSIAD-99-63 Air
    Force Depot Maintenance Appendix II GAO Evaluation of Air Force
    Comments
    Appendix I I Presented below is our evaluation of the specific
    oral comments provided on a draft of this report. 1.  Concerning
    our recommendation to develop a detailed implementation plan, the
    Air Force stated that it has begun implementing the three
    enhancement initiatives as outlined in DOD's report Product
    Support for the 21st Century, which covers current and future
    logistics reform initiatives. We examined the Air Force's input to
    a March 1999 draft of this report because no final report had been
    issued. Information in that draft provided some general
    information on the overall objectives and goals of the Air Force's
    Agile Logistics program. However, this input did not relate what
    plans the Air Force had to better manage the implementation and
    execution of either the existing enhancement initiatives or those
    being planned for the future. With only this information, we
    cannot determine to what extent the Air Force intends to address
    the specific problems discussed in our report. 2.   Regarding our
    recommendation that a determination be made concerning whether the
    enhancement initiatives should be applied to all reparable items,
    the Air Force said it is making such an assessment. While the Air
    Force officials stated that all aircraft would be included in the
    aircraft initiative, the Air Force did not identify the criteria
    it used in making that determination. 3.  Regarding our
    recommendation concerning the use of standardized organizational
    structures and processes to help achieve the objectives of the
    enhancement initiatives, the Air Force agreed that greater
    standardization might improve the effectiveness and efficiency of
    depot operations. However, it noted that process flexibility may
    be needed in some instances to ensure readiness. The Air Force did
    not indicate whether it would require its depots to comply with
    standard processes and organizational structures or the basis on
    which the depots would be allowed to deviate from standard
    requirements. 4.  Regarding our recommendation for the development
    and implementation of a transition plan to ensure sufficient
    numbers of trained multiskilled personnel, Air Force officials
    said they recognized the importance of a multiskilled workforce to
    enhance operational efficiencies. However, they did not identify a
    plan for developing a multiskilled workforce or say when this
    training would be completed, what worker classifications were
    needed to be multiskilled, or how the training would be
    accomplished. We would expect a multiskilling plan to have these
    types of details. Page 50
    GAO/NSIAD-99-63 Air Force Depot Maintenance Appendix II GAO
    Evaluation of Air Force Comments 5.  Regarding our recommendation
    to develop standard measures to evaluate the three enhancement
    initiatives, Air Force officials stated that they were developing
    such measures. However, they did not indicate how they plan to
    resolve the long-standing impasse between AFMC and its centers on
    the appropriate criteria for measuring the effectiveness of the
    initiatives. Also, they did not indicate either a time frame for
    developing and implementing the measures or features of the
    initiatives that would be monitored and evaluated. In finalizing
    our report we combined this recommendation with our first
    recommendation to address goals and results. 6.  Regarding our
    recommendation to upgrade automated management information systems
    needed to support the reengineering alternatives, Air Force
    officials said they were now developing new logistics systems that
    will communicate together, share data, and have common
    applications. They said that these new systems will be consistent
    with the Clinger/Cohen Act and be Year 2000 compliant. They did
    not specifically address the automated system weaknesses
    identified in our report or indicate how the new systems
    correspond to the Air Force's actions taken or planned to improve
    automated systems support for the three enhancement initiatives.
    7.  Regarding our recommendation to develop and implement improved
    strategies for providing more effective supply support to depot
    maintenance customers, Air Force officials stated that AFMC is
    already engaged with DLA on prime vendor initiatives. However, it
    is not clear how current initiatives would address specific
    problems identified in this report. Also, the officials did not
    address how or when it planned to improve the support from its
    supply management group. 8.  Finally, regarding our recommendation
    to reassess the extent to which costs for the enhancement
    initiatives have been fully identified, Air Force officials did
    not comment on any reassessment of funding requirements. At the
    same time, they said they did not have a system for tracking
    savings by individual initiatives. They also stated that in a
    resource-constrained environment, the Air Force has no alternative
    to taking savings based on the best estimates known at the time to
    fund high-priority requirements. However, the resource-constrained
    environment the officials described makes it important to avoid
    reducing operating accounts in anticipation of savings that may
    not be realized. Page 51
    GAO/NSIAD-99-63 Air Force Depot Maintenance Appendix III GAO
    Contacts and Staff Acknowledgments
    Append IIix I GAO Contacts:      Julia Denman (202) 512-4290
    Acknowledgments    In addition to those named above, Bobby
    Worrell, Terry Wyatt, Bruce Fairbairn, and Frederick Naas made key
    contributions to this report. Page 52
    GAO/NSIAD-99-63 Air Force Depot Maintenance Page 53    GAO/NSIAD-
    99-63 Air Force Depot Maintenance Page 54    GAO/NSIAD-99-63 Air
    Force Depot Maintenance Page 55    GAO/NSIAD-99-63 Air Force Depot
    Maintenance Related GAO Products Army Industrial Facilities:
    Workforce Requirements and Related Issues Affecting Depots and
    Arsenals (GAO/NSIAD-99-31, Nov. 30, 1998). Air Force Supply
    Management: Analysis of Activity Group's Financial Reports,
    Prices, and Cash Management (GAO/AIMD/NSIAD-98-118, June 8, 1998).
    Outsourcing DOD Logistics: Savings Achievable but Defense Science
    Board's Projections Are Overstated (GAO/NSIAD-98-48, Dec. 8,
    1997). Defense Depot Maintenance: Challenges Facing DOD in
    Managing Working Capital Funds (GAO/T-NSIAD/AIMD-97-152, May 7,
    1997). Defense Depot Maintenance: Uncertainties and Challenges DOD
    Faces in Restructuring Its Depot Maintenance Program (GAO/T-NSIAD-
    97-112, May 1,1997) and (GAO/T-NSIAD-97-111, Mar. 18, 1997). Best
    Management Practices: Reengineering the Air Force's Logistics
    System Can Yield Substantial Savings (GAO/NSIAD-96-5, Feb. 21,
    1996). (709315)    Letter    Page 56
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