Air Force Supply: Management Actions Create Spare Parts Shortages and
Operations Problems (Chapter Report, 04/29/99, GAO/NSIAD/AIMD-99-77).

Pursuant to a congressional request, GAO reviewed the effectiveness of
the Air Force Supply Management Activity Group in meeting its military
customers needs, focusing on the: (1) extent and impact of military
customers not receiving aircraft spare parts when needed; and (2)
reasons why parts were not always available when needed.

GAO noted that: (1) over the last several years, the effectiveness of
the supply activity group in meeting customer needs has declined; (2)
key Air Force indicator reports used to monitor supply effectiveness
showed that major aircraft not mission capable due to supply problems
increased from 6.4 percent in fiscal year (FY) 1990 to 13.9 percent in
FY 1998; (3) GAO specifically reviewed B-1B, F-16, and C-5 aircraft
supply problems and found that these problems were causing inefficient
maintenance actions, excessive use of spares designated to support
deployed operations, and aircrews to be not fully trained; (4) for
example, at two major commands, significant personnel resources were
used to remove parts from B-1B, F-16, and C-5 aircraft and to put those
same parts on other aircraft in order to keep them mission capable; (5)
while the total magnitude of the problem is not known, records at two
Air Force commands showed maintenance personnel time involved in this
practice equated to about 43 people working 8 hours a day, 5 days a week
for 2 years; (6) spares packages purchased to support deployed
operations were being used to meet day-to-day operational needs; (7)
this was particularly the case for the C-5 and B-1B aircraft where usage
of items from the packages increased by 14.2 and 13.5 percent,
respectively, over a 2-year period; (8) B-1B and F-16 reports show that
only 83 percent of their peacetime flying hour training program was
accomplished and Air Force officials cited supply and maintenance
problems as major causes; (9) as a result, one squadron reported that
some of its aircraft commanders, pilots, and weapons system officers
were not combat mission ready; (10) GAO also analyzed selected parts
that were most frequently causing supply problems for the B-1B, F-16,
and C-5 aircraft; (11) the key reasons contributing to supply problems
were: (a) weaknesses in forecasting inventory requirements and executing
inventory procurement and repair budgets; (b) not achieving Agile
Logistics goals; and (c) untimely repair by depot maintenance
activities; (12) the inventory forecasting error caused a $500-million
shortfall in funding in the FY 1997 supply activity group's budget; (13)
the Air Force also reduced the supply activity group's budget by $948
million between fiscal years 1997 and 1999 to reflect Agile Logistics
efficiency goals; (14) however, since these efficiency goals were not
achieved, fewer items than projected were available for sale to
customers; and (15) the Air Force has studies underway to improve supply
effectiveness and has increased funding for the purchase and repair of
spares.

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

 REPORTNUM:  NSIAD/AIMD-99-77
     TITLE:  Air Force Supply: Management Actions Create Spare Parts
	     Shortages and Operations Problems
      DATE:  04/29/99
   SUBJECT:  Military cost control
	     Spare parts
	     Avionics
	     Military inventories
	     Logistics
	     Air Force supplies
	     Military aircraft
	     Inventory control systems
	     Aircraft maintenance
IDENTIFIER:  B-1B Aircraft
	     F-16 Aircraft
	     C-5 Aircraft
	     Air Force Working Capital Fund
	     Air Force Agile Logistics Program

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n199077 GAO United States General Accounting Office

Report to the Chairman, Subcommittee on Military Readiness,
Committee on Armed Services, House of Representatives

April 1999 AIR FORCE SUPPLY Management Actions Create Spare Parts
Shortages and Operational Problems

GAO/ NSIAD/ AIMD- 99- 77

GAO United States General Accounting Office

Washington, D. C. 20548 Lett er National Security and
International Affairs Division Lett er

B-280237 Letter April 29, 1999 The Honorable Herbert H. Bateman
Chairman, Subcommittee on Military Readiness Committee on Armed
Services House of Representatives

Dear Mr. Chairman: This is the second report in response to your
request that we review financial management and operational issues
related to the Supply Management Activity Group of the Air Force
Working Capital Fund. Our June 1998 report 1 discussed the (1)
long- standing problems that the Department of Defense (DOD),
including the Air Force, had in preparing accurate financial
reports on its working capital fund operations, (2) difficulties
that the Air Force had in

developing prices that the Supply Management Activity Group
charged customers, and (3) problems that the Air Force Working
Capital Fund and the Supply Management Activity Group had in
managing cash, including the practice of advance billing customers
to maintain

an adequate cash balance. This second report discusses the
effectiveness of the Supply Management Activity Group in providing
inventory items to its customers.

We are sending copies of this report to Representative Solomon P.
Ortiz, Ranking Minority Member, Subcommittee on Military
Readiness, House Committee on Armed Services; Senator John Warner,
Chairman, and Senator Carl Levin, Ranking Minority Member, Senate
Committee on Armed Services; Senator Ted Stevens, Chairman, and
Senator Daniel K. Inouye, Ranking

Minority Member, Subcommittee on Defense, Senate Committee on
Appropriations; Representative Jerry Lewis, Chairman, and
Representative John P. Murtha, Ranking Minority Member,
Subcommittee on Defense, House Committee on Appropriations. We are
also sending copies of this report to the Honorable William S.
Cohen, Secretary of Defense, and the

Honorable F. Whitten Peters, Acting Secretary of the Air Force. 1
Air Force Supply Management: Analysis of Activity Group's
Financial Reports, Prices, and Cash Management (GAO/ AIMD/ NSIAD-
98- 118, June 8, 1998).

B-280237 Page 2 GAO/ NSIAD/ AIMD- 99- 77 Air Force Supply
Management

Copies will also be made available to others upon request. If you
have any questions about this report, please call Mr. Greg
Pugnetti, Assistant Director, at (202) 512- 6240. Other major
contributors to this report are listed in appendix III.

Sincerely yours, Jack L. Brock, Jr. Director, Governmentwide and
Defense Information Systems Accounting and Information Management
Division

David R. Warren Director, Defense Management Issues National
Security and International Affairs Division

B-280237 Page 3 GAO/ NSIAD/ AIMD- 99- 77 Air Force Supply
Management

Page 4 GAO/ NSIAD/ AIMD- 99- 77 Air Force Supply Management

Executive Summary Purpose Congressional committees, as well as Air
Force officials, have expressed

concerns about reported spare parts shortages and the possibility
that these shortages are causing readiness problems. This report
responds to a request from the Chairman, Subcommittee on Military
Readiness, House Armed Services Committee, asking GAO to review
the effectiveness of the Air Force Supply Management Activity
Group in meeting its military customers needs. Specifically, the
report discusses (1) the extent and

impact of military customers not receiving aircraft spare parts
when needed and (2) the reasons why parts were not always
available when needed.

Background The Supply Management Activity Group is part of the Air
Force Working Capital Fund, a revolving fund that relies on sales
revenue, rather than direct appropriations, to finance its
operations. The wholesale division 1 of this group obligated a
reported $3.4 billion in fiscal year 1998 to buy new

inventory items or pay for the repair of existing items. Working
capital funds are expected to (1) generate sufficient revenue to
cover the full costs of their operations and (2) operate on a
break- even basis over time that is, not make a profit nor incur a
loss. Customers primarily use Operations and Maintenance
appropriations to pay for inventory items. Payments from

customers replenish the cash balance in the Air Force Working
Capital Fund, which is used to finance ongoing operations, such as
purchasing new items or paying for the repair of broken items. The
Air Force Materiel Command oversees the operations of the Supply
Management Activity

Group through inventory control points located at its five Air
Logistics Centers. The Air Force is working to improve the
efficiency of its logistics systems and as part of that effort is
making a fundamental shift in the way it manages inventory under a
program called Agile Logistics. 2 In the past, the

inventory moved through a long, slow process where broken items
went from bases to storage depots to repair depots and, once
repaired, back again to the bases. The current concept calls for
expedited transportation to move broken items from bases to repair
depots. Once the items arrive at 1 Items in the wholesale division
are managed by the Air Force and generally support aircraft and
other weapon systems. These include items such as transmitters and
landing gears. 2 GAO will report separately on the implementation
of the Agile Logistics program.

Executive Summary Page 5 GAO/ NSIAD/ AIMD- 99- 77 Air Force Supply
Management

the repair depot, they are to be promptly fixed and sent back to
the bases quickly. Under this concept, the Air Force wants to
achieve more timely processing and repair of broken items so it
can reduce the amount of inventory it needs to purchase and store.
Results in Brief Over the last several years, the effectiveness of
the supply activity group in meeting customer needs has declined.
Key Air Force indicator reports used

to monitor supply effectiveness showed that major aircraft not
mission capable due to supply problems increased from 6.4 percent
in fiscal year 1990 to 13.9 percent in fiscal year 1998. GAO
specifically reviewed B-1B, F- 16, and C- 5 aircraft supply
problems and found that these problems were causing inefficient
maintenance actions, excessive use of spares

designated to support deployed operations, and aircrews to be not
fully trained. For example:

 At two major commands, significant personnel resources were used
to remove parts from B-1B, F- 16, and C- 5 aircraft and to put
those same parts on other aircraft in order to keep them mission
capable. While the total magnitude of the problem is not known,
records at two Air Force commands showed maintenance personnel
time involved in this practice equated to about 43 people working
8 hours a day, 5 days a week for 2 years.  Spares packages
purchased to support deployed operations were being

used to meet day- to- day operational needs. This was particularly
the case for the C- 5 and B-1B aircraft where usage of items from
the packages increased by 14.2 and 13. 5 percent, respectively,
over a 2- year period.  B-1B and F- 16 reports show that only 83
percent of their peacetime flying hour training program was
accomplished and Air Force officials

cited supply and maintenance problems as major causes. As a
result, one squadron reported that some of its aircraft
commanders, pilots, and weapons system officers were not combat
mission ready.

GAO also analyzed selected parts that were most frequently causing
supply problems for the B-1B, F- 16, and C- 5 aircraft. The key
reasons contributing to supply problems were (1) weaknesses in
forecasting inventory

requirements and executing inventory procurement and repair
budgets, (2) not achieving Agile Logistics goals, and (3) untimely
repair by depot maintenance activities. The inventory forecasting
error caused a

$500 million shortfall in funding in the fiscal year 1997 supply
activity group's budget. The Air Force also reduced the supply
activity group's

Executive Summary Page 6 GAO/ NSIAD/ AIMD- 99- 77 Air Force Supply
Management

budget by $948 million between fiscal year 1997 and 1999 to
reflect Agile Logistics efficiency goals. However, since these
efficiency goals were not achieved, fewer items than projected
were available for sale to customers. As a result of these
actions, even though military units had funds to purchase spare
parts, the supply group did not always have sufficient funds to
buy new parts or pay for the repair of broken parts that customers
needed.

The Air Force has studies underway to improve supply effectiveness
and has increased funding for the purchase and repair of spares.
GAO is making a recommendation to the Secretary of the Air Force
to improve the

availability of items needed by military units. Principal Findings
Inventory Problems Adversely Affected Customers' Operations

Performance data that the Air Force uses to monitor the
performance of its Supply Management Activity Group indicate
increased instances of aircraft not being mission capable due to
supply problems. This situation contributed to several problems
for operational units. These included (1) usable parts being
removed from one aircraft to keep other aircraft mission capable,
(2) mobility readiness spares packages being used to meet day- to-
day supply needs, and (3) aircrews not completing annual training

requirements. Also, Air Force officials stated that the parts
shortage problem could potentially impede their ability to
effectively accomplish contingency missions, particularly if
several squadrons were required to deploy at the same time.

Due primarily to a shortage of spare parts, Air Force aircraft
mission capability rates 3 have declined in recent years from 84.6
percent in fiscal year 1990 to 74.3 percent in fiscal year 1998. 4
As shown in table 1, in fiscal year 1998, major aircraft that were
reported not mission capable due to

supply problems about doubled the percentage reported in fiscal
year 1990. 3 The mission capability rate is based on all aircraft
that are in a unit's possession at a specific point in time. On
the other hand, the Status of Resources and Training System
(SORTS) identifies the current level of selected resources and
training status of a unit that is, its ability to undertake its
wartime mission. As a result, a unit could have a low mission
capability rate but still be considered able to accomplish its
wartime mission.

4 Reported mission capable rates for major Air Force aircraft do
not include data on helicopters, training aircraft such as the T-
37, and some low density aircraft such as the SR- 71.

Executive Summary Page 7 GAO/ NSIAD/ AIMD- 99- 77 Air Force Supply
Management

Table 1: Reported Total Not Mission Capable Rates Due to Supply
Problems for Air Force Major Aircraft

Source: The Air Force's Multi- Echelon Resource and Logistics
Information Network and the Reliability and Maintainability
Information System.

The lack of needed inventory items raised the following concerns:
Maintenance personnel were performing double work, in some cases,
by

removing parts from one aircraft and then putting them on another.
The total magnitude of this practice is not known because time
spent in performing required operational checks was not always
reflected in base reports. However, Air Combat Command and Air
Mobility Command records showed that from October 1, 1996, through

September 1998 maintenance personnel spent about 178, 000 hours
removing inventory items on the B-1B, F- 16, and C- 5 aircraft to
replace broken items on other aircraft. This equates to about 43
people working 8 hours a day, 5 days a week for 2 years. In
addition, it took maintenance personnel weeks and, in some cases,
months to put an aircraft back together once parts were removed
from the aircraft.  Mobility readiness spares packages are air
transportable supplies to support deployed operations. While items
from these packages can be

used to meet unit supply shortages, Air Force officials cautioned
that the packages need to contain sufficient items to support
deployments. The percentage of items used from the C- 5 and B-1B
packages increased by 14.2 and 13.5 percent, respectively, between
fiscal year 1996 and 1998.  Training missions were also impacted
by supply and maintenance

problems. According to Air Combat Command records, B-1B and F- 16
customers flew 79, 267 hours, or 83 percent, of their total flying
hour program dedicated to pilot and aircrew training during fiscal
year 1998.

Fiscal year Percent of aircraft not mission capable due to supply
problems

1990 6.4 1991 8.6 1992 9.5 1993 10. 2 1994 10. 3 1995 10. 8 1996
11. 0 1997 12. 6 1998 13. 9

Executive Summary Page 8 GAO/ NSIAD/ AIMD- 99- 77 Air Force Supply
Management

This is a decrease from the previous year when the Air Combat
Command flew about 90 percent of the flying hours available for
training. Supply and maintenance problems were identified as the
key reasons for this reduction in flying hours due to the lack of
aircraft availability. Further, one B-1B squadron official
explained that supply shortages were a major contributor to (1) 6
of 30 aircraft commanders, (2) 2 of 13 pilots, and (3) 5 of 41
weapons system officers not meeting annual training requirements.

Budgeting, Agile Logistics, and Inventory Repair Problems Were
Major Causes of Parts Shortages

GAO judgmentally selected and reviewed B-1B, F- 16, or C- 5 spare
parts that were causing aircraft to be not mission capable or were
potential supply problem items. As shown in table 2, for the 155
items reviewed, the key factors causing the support problems can
be generally categorized as

weaknesses in forecasting inventory requirements and execution in
procurement and repair budgets; not achieving inventory management
improvements under the Agile Logistics program; and untimely depot

repairs. 5 Because of the integrated nature of the supply system
there is a general interrelationship among these causes.

Table 2: Primary Reasons Why Problem Items Were Not Available as
of September 1997 and September 1998

a Primarily technical problems that affect the reliability of an
item.

Inventory Requirements Forecasting and Budgeting Problems

Problems related to the forecasting of inventory requirements and
the execution of the Supply Management Activity Group's fiscal
year 1997 budget resulted in a funding shortfall for 57 of the
items reviewed. This

severely limited the group's ability to buy and repair the items
needed by its 5 In our analysis, we considered an item to still be
a problem in September 1998 if it caused aircraft to be not
mission capable for more than 100 hours during that month.

Cause category September 1997 September 1998

Number Percent Number Percent

Forecasting and budgeting 57 36. 8 0 0. 0 Agile Logistics 31 20. 0
26 27. 1 Untimely repair 53 34. 2 63 65. 6 Other a 14 9.0 7 7.3

Total 155 100. 0 96 100.0

Executive Summary Page 9 GAO/ NSIAD/ AIMD- 99- 77 Air Force Supply
Management

customers. Air Force records show that the primary cause of this
funding shortfall was an inaccurate inventory requirement
forecast. As a result, the fiscal year 1997 budget was about $500
million less than needed to buy new inventory items and pay for
the repair of broken items. Because of funding shortfalls that
resulted from these problems, activity group officials took action
to optimize the use of available funds. The actions included
directing

that high priority be given to items that were causing aircraft to
be not mission capable. The effect of this policy was that the
number of usable items available at the base and wholesale levels
declined resulting in shortages of different inventory items,
which caused aircraft to be not mission capable. The Air Force is
in process of studying the requirements forecasting problem and
plans to report on its findings in May 1999.

Overly Optimistic Agile Logistics Goals The Air Force reduced its
supply group's budget in anticipation of savings from the
implementation of new logistics processes as part of its Agile
Logistics program. However, for 31 of the 155 items reviewed,
supply

problems occurred principally because Agile Logistics process
improvement goals were not achieved. These goals related to
improving processes such as the timely return of broken items to
depots and reducing the time it takes to receive an item once it
is ordered by a unit. These and other process improvements were
the basis for a $948- million reduction

over a 3- year period in the Supply Management Activity Group's
budget. Since these goals were not achieved, the supply group had
less funding than needed to meet customers needs. Consequently,
even though customers had funds to purchase items, the supply
group could not provide them. As a result, units relied on
uneconomical maintenance actions to meet supply needs. These
actions included taking parts off of one aircraft and putting them
on another aircraft and using supplies designated for deployments.

Untimely Repair of Broken Inventory Items The other major cause of
parts shortages in September 1997 was the depot maintenance
activities' inability to accomplish timely repair for 53 items

reviewed. A major reason for this situation was the shortages of
component parts to fix broken repairable items and repair shop
personnel. Although component part shortages have been a long-
standing and well- documented problem, the Air Force Materiel
Command has not yet developed an effective plan to correct the
problem. Further, although

manpower shortages were frequently a major constraint, maintenance
activities were being asked to repair the items that were breaking
on a daily basis, as well as, to reduce the reported backlog of
work from prior years.

This situation also contributed to Agile Logistics goals not being
met.

Executive Summary Page 10 GAO/ NSIAD/ AIMD- 99- 77 Air Force
Supply Management

Recommendation Since GAO is reporting separately on the Agile
Logistics program implementation and the Air Force is in the
process of reviewing the

requirements forecasting process, GAO is making no recommendations
on these issues in this report. However, in order for the supply
group to provide more timely and responsive support to its
customers, the Air Force must resolve the component parts shortage
problem. GAO recommends that the Secretary of the Air Force direct
the Commander of the Air Force

Materiel Command to address this problem by developing (1) a
strategy for identifying and correcting the underlying causes of
the problem, (2) a systematic process for identifying and focusing
management attention on the most critical awaiting parts problem
items, (3) a standardized approach that item managers can use to
obtain and analyze data on awaiting parts problems, and (4) more
reliable data on the number and type of component parts that will
be needed to repair broken repairable items.

Agency Comments In its comments on a draft of this report, DOD
concurred with GAO's recommendation and identified two studies
underway that should help the

Department identify areas for improvement. Further, additional
funding has been provided to purchase additional spare parts
critical to future operations. DOD further stated that the above
actions plus the implementation of GAO's recommendation should
improve the reliability

and accuracy of the Air Force's supply activity group's
operations. DOD's comments also stipulated that despite shortfalls
in the Agile Logistics program, it has helped the Air Force reduce
its supply pipeline from 67 days in fiscal year 1994 to 52 days in
1998. GAO recognizes that the

Air Force has initiated numerous process improvements attempting
to reduce its processing time, and its fiscal year 1998 budget was
predicated on an average pipeline time frame of 52 days. The Air
Force reduced its budget based on these predicated savings. Data
available to GAO indicated that the supply group's average actual
pipeline time for the fourth quarter of fiscal year 1998 was 87.5
days. GAO noted in this report the Air Force's inability to
achieve the 52- day goal was due largely to a shortage of

component parts and items on backorder. The pipeline time
associated with a shortage of component parts and backorders
accounted for 37. 1 of the 87. 5 days. DOD's comments are included
in appendix II.

Page 11 GAO/ NSIAD/ AIMD- 99- 77 Air Force Supply Management

Contents Executive Summary 4 Chapter 1 Introduction

14 Process for Providing Aircraft Spare Parts to Air Force Units
14 Air Force Is Changing Its Approach to Managing Inventory 16
Objective, Scope, and Methodology 16

Chapter 2 Inventory Problems Adversely Affected Customer
Operations

20 Performance Data Indicate a Steady Decline in the Supply

Management Activity Group's Effectiveness 20 Lack of Parts
Hindered Peacetime Missions 26 Conclusions 29

Chapter 3 Budget, Inventory Management, and Repair Problems Were
Primary Causes of Spare Parts Shortages

30 Inventory Requirements Forecasting and Budget Problems 30
Overly Optimistic Agile Logistics Goals 33 Untimely Repairs Were a
Major Cause of Supply Support Problems 36 Conclusions 40
Recommendation 41 Agency Comments 41

Appendixes Appendix I: Listing of the Reports in This Series 44
Appendix II: Comments From the Department of Defense 45 Appendix
III: Major Contributors to This Report 47

Tables Table 1: Reported Total Not Mission Capable Rates Due to
Supply Problems for Air Force Major Aircraft 7

Table 2: Primary Reasons Why Problem Items Were Not Available as
of September 1997 and September 1998 8 Table 2.1: Reported Average
Mission Capable Rates for Air Force Major Aircraft 21 Table 2.2:
Reported Total Not Mission Capable Supply Rates for

Air Force Major Aircraft 22 Table 2.3: Reported Number of
Cannibalizations Per 100 Sorties for

the F- 16, B-1B, and C- 5 Aircraft 23 Table 2.4: Reported
Cannibalization Hours for ACC and AMC B-1B,

F- 16, and C- 5 Aircraft for Fiscal Years 1997 and 1998 23

Contents Page 12 GAO/ NSIAD/ AIMD- 99- 77 Air Force Supply
Management

Table 2.5: Use of Mobility Readiness Spares Packages to Satisfy
Parts Shortages for B-1B, C- 5, and F- 16 Aircraft That Were Not
Mission Capable 25 Table 2.6: Supply Issue Effectiveness Rates for
the B-1B, F- 16, and

C- 5 for Fiscal Years 1994 Through 1998 26 Table 2.7: ACC Flying
Hours That Were Available and Used for Pilot

and Aircrew Training in Fiscal Year 1998 27 Table 2.8: AMC
Estimated Loss of Revenue From Declined Missions

for Its C- 5, C- 17, and C- 141 Aircraft From September 1, 1997
Through August 31, 1998 28 Table 3.1: Primary Reasons Why Problem
Items Were Not Available

as of September 1997 and September 1998 30 Table 3.2: Primary
Causes of Repair Problems as of September 1997 and September 1998
37

Figures Figure 1.1: Process of Providing Spare Parts to Customers
16

Abbreviations

ACC Air Combat Command AFMC Air Force Materiel Command ALC Air
Logistics Center AMC Air Mobility Command AWP Awaiting parts DLA
Defense Logistics Agency DOD Department of Defense GAO General
Accounting Office

Page 13 GAO/ NSIAD/ AIMD- 99- 77 Air Force Supply Management

Page 14 GAO/ NSIAD/ AIMD- 99- 77 Air Force Supply Management

Chapter 1 Introduction Chapt er 1

The Chairman, Subcommittee on Military Readiness, House Committee
on Armed Services, requested that we conduct a series of reviews
on the financial operations and effectiveness of Defense business
operations. As part of this series, we reported on the Air Force
Supply Management

Activity Group's financial operations in June 1998. 1 This report
discusses the supply group's ability to effectively provide
inventory items to its customers. Ineffective or inefficient
operations in these activities can adversely affect readiness and
the use of operations and maintenance and other Defense
appropriated dollars.

The Air Force Supply Management Activity Group helps to maintain
combat readiness and sustainability by supplying the Air Force
with items necessary to support troops, weapon systems, aircraft,
communications systems, and other military equipment. In doing so,
the group is responsible for about two million items, ranging from
weapon system spare parts, to

fuels, medical and dental supplies and equipment, and uniforms.
The Department of Defense (DOD) reported that the supply group
generated $10.2 billion in revenue during fiscal year 1998 and had
$27.6 billion in inventory at the end of fiscal year 1998.

Process for Providing Aircraft Spare Parts to Air Force Units

The supply group's operations are financed as part of the Air
Force Working Capital Fund. The supply group operates under the
revolving fund concept of breaking even over time by charging
customers the full costs of goods and services provided to them as
currently defined in DOD's

Financial Management Regulation, Volume 11B, Reimbursable
Operations, Policy and Procedures Defense Business Operations
Fund. The supply group receives orders from customers to purchase
inventory items. Customers use appropriated funds, primarily
operations and maintenance

appropriations, to finance these orders. The supply group uses
payments from customers to replenish the inventory sold to
customers by (1) ordering repair services of existing inventory
from industry and DOD depot maintenance activities or (2) buying
new inventory items.

The supply group procures critical material and makes repair parts
available to its customers through five inventory control points:
Ogden Air Logistics Center (ALC), Ogden, Utah; Oklahoma City ALC,
Oklahoma City, Oklahoma; Sacramento ALC, Sacramento, California;
San Antonio ALC, San Antonio, Texas; and Warner Robins ALC, Warner
Robins, Georgia. The

1 Appendix I provides a listing of the reports issued in this
series.

Chapter 1 Introduction

Page 15 GAO/ NSIAD/ AIMD- 99- 77 Air Force Supply Management

Air Force is in the process of closing the Sacramento and San
Antonio ALCs based on the 1995 Base Realignment and Closure
recommendations. The five ALCs report to the Air Force Materiel
Command (AFMC), located at Dayton, Ohio.

Air Force spare parts are classified as either consumables or
repairables, and are procured in order to support either peacetime
or wartime operations. Consumable items, which are mostly managed
by the Defense Logistics Agency (DLA), are those items that are
discarded when they fail. Repairable items, managed by the Air
Force Supply Management Activity Group, are those items that can
be cost effectively repaired. Peacetime

operating spares are those items that are bought to support
peacetime training and to ensure an adequate force is available
for initial wartime operations (readiness). Mobility readiness
spares packages (these packages replaced the war reserve spares
kits) are air transportable

packages of repair parts and maintenance supplies required to
support planned deployed operations until resupply can begin.

The process used to repair failed repairable items begins when
unit maintenance personnel at an Air Force base removes a failed
item from the aircraft. At this point, base maintenance attempts
to either repair the item or obtain a serviceable replacement from
base supply. However, if base maintenance cannot repair the item
and a suitable replacement item is not available, the base must
(1) return the broken item to a maintenance depot 2 for repair and
(2) request a replacement from the appropriate inventory control
point. The inventory control point, in turn, attempts to find a
replacement in its existing wholesale inventory. If a replacement
is not available, the inventory control point must either acquire
a new one or repair a broken one. This process is illustrated in
figure 1.1.

2 Some items are repaired by contractor repair facilities.

Chapter 1 Introduction

Page 16 GAO/ NSIAD/ AIMD- 99- 77 Air Force Supply Management

Figure 1.1: Process of Providing Spare Parts to Customers

Air Force Is Changing Its Approach to Managing Inventory

To improve the operations of its logistical activities, including
the management of inventory, the Air Force is implementing a
program called Agile Logistics. This program focuses on
reengineering the old batch processing approach where repair
requirements were determined once a quarter. The new program is
based on a repair- on- demand concept where decisions are made
daily to repair only those items that have been

requisitioned by customers. Under this program, the Air Force
plans to (1) reduce the time required to repair inventory items,
(2) reduce inventory levels, (3) match the repair of items with
the demand from customers, and (4) rapidly move items to and from
customers.

Objective, Scope, and Methodology

The objective of our review was to evaluate the effectiveness of
the Supply Management Activity Group. Specifically, this report
addresses (1) the extent to which military customers are receiving
aircraft spare parts when needed to ensure that aircraft are
available and capable of carrying out their assigned mission and
(2) the reasons why parts were not always

available to customers when they needed them. This review is a

Customer

Aircraft needs a part.

Base Maintenance

Removes the broken part and orders new part from base supply.
Installs new part when received.

Base Supply

Ships the part if they have it. If they don't have it, part is
ordered and broken part is sent to DLA warehouse for storage.

Depot Maintenance

The Air Force Supply Management Activity Group pays the Air Force
Depot Maintenance Activity Group and contractors to fix broken
inventory items. Fixed items are sent back to DLA warehouse for
storage until parts are ordered by base supply.

DLA Warehouse

Air Force Supply Management Activity Group directs DLA warehouse
to provide items to base supply. DLA also stores broken item in
need of repair until the Air Force Supply Management Activity
Group determines that the part needs to be fixed.

Chapter 1 Introduction

Page 17 GAO/ NSIAD/ AIMD- 99- 77 Air Force Supply Management

continuation of our work on the activity group's financial
reports, prices, and cash management practices (GAO/ AIMD/ NSIAD-
98- 118, June 8, 1998).

To assess whether the group was providing effective support to its
customers, we obtained and analyzed trend data on the group's
performance indicators that included (1) mission capable rates for
major Air Force aircraft (the percentage of major aircraft that
were capable of accomplishing their mission), (2) total not
mission capable supply

rates for major Air Force aircraft (the percentage of aircraft
that were not capable of accomplishing their mission because of
parts problems), (3) cannibalization rates (the number of times
per 100 sorties that a serviceable part was removed from one
aircraft and put on another), (4) the use of inventory items in
the mobility readiness spares packages to keep aircraft mission
capable so they could perform peacetime missions, and (5) issue
effectiveness rates (the percentage of time that the group was
able to satisfy customer requests with stock on hand in base
supply).

The data on mission capable rates and total not mission capable
supply rates were originally collected in various logistical
systems and consolidated in the Air Force's Multi- Echelon
Resource and Logistics Information Network. We did not
independently verify this data. However, we (1) compared the data
available at Air Force headquarters, major commands, and bases to
determine if it was consistent and (2) discussed the accuracy and
usefulness of the data with officials and/ or managers at Air
Force headquarters, major commands, and bases. We determined that
(1) the data were consistent at the multiple locations that we
visited, (2) Air

Force officials and managers use these data to monitor readiness
and make key funding decisions, and (3) these officials consider
the data to be reliable. To determine why inventory items were not
available to customers, we

reviewed 155 individual inventory items for the B-1B, F- 16, and
C- 5 aircraft that were not available to customers as of September
1997. We selected these aircraft because they represented
different types of aircraft (bomber, fighter, and cargo) which had
lower- than- average mission capable rates for the respective
aircraft types in September 1997. We also reviewed Air Force
reports on the Supply Management Activity Group's effectiveness
and discussed the group's support problems with cognizant
officials and managers at the Air Force headquarters, AFMC
headquarters, and ALC levels.

Chapter 1 Introduction

Page 18 GAO/ NSIAD/ AIMD- 99- 77 Air Force Supply Management

The inventory items selected for review included the following for
each type of aircraft: (1) the 25 items that caused aircraft to be
grounded the most hours during September 1997, (2) the 25 items
that had the most incidents grounding an aircraft (number of times
a certain inventory item

grounded an aircraft) during September 1997, (3) the 15 items that
were cannibalized the most frequently during the fourth quarter of
fiscal year 1997, (4) the 35 items that the major command
considered to be the biggest problems, and (5) the 9 to 10 items
that the major commands identified as likely sustainability
problems in the event of a major

contingency. Many of the items we reviewed were included in two or
more of the above categories. For each of the 155 inventory items,
we obtained the views of cognizant ALC officials and/ or item
managers on the reasons why items were not available as of
September 1997 and, if an item caused aircraft to be grounded more
than 100 hours in September 1998, the primary cause as of then. We
also obtained documentation on the items' usage and repair
history. In selecting the items to be reviewed, we focused on
items directly managed by the Supply Management Activity Group's
wholesale division. 3 We did not review items managed by DLA since
this review focused on the

effectiveness of the Air Force Supply Management Activity Group.
To determine if B-1B, F- 16, and C- 5 customers could obtain the
inventory items they needed from the Supply Management Activity
Group and, if not, the impact on the customers' operations, we
obtained and analyzed information on (1) inventory items
cannibalized or removed from aircraft to determine the number of
items cannibalized from aircraft as well as the

number of hours involved in removing the inventory items from one
aircraft and installing the items on another aircraft, (2)
training received by aircrews to determine if the lack of aircraft
due to inventory shortages prevented aircrews from receiving
planned training, and (3) revenue lost by

the Transportation Working Capital Fund because aircraft were not
available, due to inventory shortages, to perform missions in
support of customers.

We did not perform a review of Air Force's readiness and the
impact parts shortages would have on contingency missions.
However, we interviewed Air Force wing commanders as well as other
officials at Air Force bases to 3 The supply group's retail
inventory operations encompass items that are managed by the other

services, defense agencies, or government agencies. These non- Air
Force entities are the inventory control points for these items,
not the Air Force Supply Management Activity Group.

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Page 19 GAO/ NSIAD/ AIMD- 99- 77 Air Force Supply Management

determine the impact of the low- mission capability rates due to
inventory and maintenance problems on the Air Force's ability to
accomplish its wartime mission in the event of two major theater
wars.

We performed our review at the  Headquarters, Office of the Under
Secretary of Defense (Comptroller) and Air Force, Washington, D.
C.;  Air Force Materiel Command, Wright- Patterson Air Force Base,
Ohio;  Oklahoma City Air Logistics Center, Tinker Air Force Base,
Oklahoma;  Ogden Air Logistics Center, Hill Air Force Base, Utah;
San Antonio Air Logistics Center, Kelly Air Force Base, Texas;
Sacramento Air Logistics Center, McClellan Air Force Base,
California;

 Warner Robins Air Logistics Center, Robins Air Force Base,
Georgia;  Air Combat Command, Langley Air Force Base, Virginia;
Air Mobility Command, Scott Air Force Base, Illinois;  Dover Air
Force Base, Delaware;  Dyess Air Force Base, Texas;  Ellsworth Air
Force Base, South Dakota;  Moody Air Force Base, Georgia;  Shaw
Air Force Base, South Carolina; and  Travis Air Force Base,
California.

Our review was performed from May 1998 through February 1999 in
accordance with generally accepted government auditing standards.

Page 20 GAO/ NSIAD/ AIMD- 99- 77 Air Force Supply Management

Chapter 2 Inventory Problems Adversely Affected Customer
Operations Chapt er 2

Key performance data on supply operations indicate that the Air
Force Supply Management Activity Group's effectiveness has
declined steadily since the early 1990s. Detailed review of supply
problems being experienced for the C- 5, B-1B, and F- 16 aircraft
showed negative trends for such things as mission capability,
removing usable parts from one aircraft for use on another, and
excessive use of spares that are purchased to support deployed
operations. Further, some C- 5, B-1B, and F- 16 units experienced
operational problems related to completing required training or
accomplishing airlift mission goals. Officials also noted that
supply problems could potentially adversely affect their ability
to meet contingency operations.

Performance Data Indicate a Steady Decline in the Supply
Management Activity

Group's Effectiveness Performance data that the Air Force uses to
monitor the performance of its Supply Management Activity Group
indicate a negative trend. Specifically, Air Force performance
data indicate increased instances of (1) aircraft not being
mission capable, which was primarily due to supply problems,

(2) usable parts being removed from one aircraft to keep other
aircraft mission capable, and (3) mobility readiness spares
package assets used to keep aircraft mission capable. The
performance data also indicate that the supply group frequently
did not have the parts that customers needed.

Reported Mission Capability Rates for Major Aircraft Have Declined
Since the Early 1990s The Air Force measures the availability of
aircraft through the use of mission capable rates that represent
the reported percent of unit aircraft 1 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.

1 The mission capability rate is based on all aircraft that are in
a unit's possession at a specific point in time. Aircraft that are
not available to a unit, such as those that are at a depot
undergoing programmed depot maintenance, are not included in
mission capable rates. On the other hand, the Status of Resources
and Training System (SORTS) identifies the current level of
selected resources and training status of a unit that is, its
ability to undertake its wartime mission. As a result, a unit
could have a

low- mission capability rate but still be considered able to
accomplish its wartime mission.

Chapter 2 Inventory Problems Adversely Affected Customer
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Page 21 GAO/ NSIAD/ AIMD- 99- 77 Air Force Supply Management

As summarized in table 2.1, data provided by Air Force
headquarters indicate that the average mission capable rate for
Air Force major aircraft 2 declined steadily from 84.6 percent in
fiscal year 1990 to 74.3 percent in fiscal year 1998.

Table 2. 1: Reported Average Mission Capable Rates for Air Force
Major Aircraft

Source: The Air Force's Multi- Echelon Resource and Logistics
Information Network and the Reliability and Maintainability
Information System.

While Air Force major aircraft experienced a decline in mission
capable rates from fiscal year 1990 through fiscal year 1998, most
of that decline was attributed to supply problems. Specifically,
as summarized in table 2.2, the reported total not mission capable
supply rates for Air Force major aircraft more than doubled from
6.4 percent in fiscal year 1990 to 13. 9 percent in fiscal year
1998.

2 Reported mission capable rates for the Air Force major aircraft
do not include data on (1) helicopters, (2) training aircraft such
as T- 37, and (3) some low density aircraft such as the SR- 71.

Figures expressed as a percentage

Fiscal year Mission capable rates for major aircraft

1990 84. 6 1991 83. 4 1992 82. 7 1993 80. 8 1994 79. 3 1995 78. 7
1996 78. 5 1997 76. 6 1998 74. 3

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Page 22 GAO/ NSIAD/ AIMD- 99- 77 Air Force Supply Management

Table 2.2: Reported Total Not Mission Capable Supply Rates for Air
Force Major Aircraft

Source: The Air Force's Multi- Echelon Resource and Logistics
Information Network and the Reliability and Maintainability
Information System.

Customers Were Frequently Removing Good Parts From Aircraft to
Keep Other Aircraft Mission Capable

Because mission capable rates for major aircraft have steadily
declined since 1990, we selected three aircraft the B-1B, F- 16,
and C- 5 to obtain additional indicators on the performance of the
Supply Management Activity Group. We selected these aircraft
because they represented different types of aircraft (bomber,
fighter, and cargo) which had lower- than- average mission capable
rates for their respective aircraft types in September 1997.

We found that in the last several years, there has been an
increase in the removal of usable parts from these aircraft to
replace broken parts on other, like aircraft to keep them mission
capable. The Air Force refers to this practice as cannibalizing
parts. The Air Force performance indicator for this practice is
called the cannibalization rate, which is the average number of
cannibalization actions per 100 sorties flown. In many cases, a
part is cannibalized when base supply cannot deliver a good part
when

needed and mission requirements demand the aircraft be returned to
a mission capable status. Even though bases were cannibalizing
parts more frequently in recent years, the aircraft mission
capable rates have continued to decline as shown in table 2.1. As
table 2.3 shows, the

cannibalization rate for Air Combat Command's (ACC) F- 16s and B-
1Bs and the Air Mobility Command's (AMC) C- 5 aircraft have
increased over the last several years but especially from fiscal
year 1995 to fiscal year 1998.

Figures expressed as a percentage

Fiscal year Total not mission capable supply rates for major
aircraft

1990 6.4 1991 8.6 1992 9.5 1993 10. 2 1994 10. 3 1995 10. 8 1996
11. 0 1997 12. 6 1998 13. 9

Chapter 2 Inventory Problems Adversely Affected Customer
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Page 23 GAO/ NSIAD/ AIMD- 99- 77 Air Force Supply Management

Table 2.3: Reported Number of Cannibalizations Per 100 Sorties for
the F- 16, B-1B, and C- 5 Aircraft

Source: Air Combat Command and Air Mobility Command.

Table 2. 3 also shows that (1) the cannibalization rate for the F-
16 has more than doubled from fiscal year 1993 through fiscal year
1998, (2) for B-1B aircraft, maintenance personnel were
cannibalizing a part from an aircraft for almost every one sortie
flown during fiscal year 1998, and (3) for C- 5 aircraft,
maintenance personnel were cannibalizing a part from an aircraft
every time two sorties were flown during fiscal year 1998. While
cannibalizing parts from aircraft is considered a normal part of
the maintenance process and is used as a maintenance tool to work
around parts shortages, maintenance personnel expended a large
amount of time

cannibalizing parts. Table 2.4 shows the hours spent in fiscal
years 1997 and 1998 by ACC and AMC maintenance personnel
cannibalizing B-1B, F- 16, and C- 5 parts.

Table 2.4: Reported Cannibalization Hours for ACC and AMC B-1B, F-
16, and C- 5 Aircraft for Fiscal Years 1997 and 1998

Source: Air Combat Command and Air Mobility Command.

As the above table shows, ACC and AMC expended about 178,000 hours
removing usable parts from one aircraft and putting those same
parts on other aircraft in order to keep them mission capable
during fiscal Figures represent average cannibalization actions
per 100 sorties flown

Fiscal year F- 16 B-1B C- 5

1993 5.3 55.7 37.9 1994 7.8 61.1 30.9 1995 8.4 53.5 40.5 1996 10.
0 66. 9 41. 4 1997 12. 8 93. 9 45. 9 1998 12. 1 96. 3 54. 0

Type of aircraft Cannibalization hours

Fiscal year 1997 Fiscal year 1998

F- 16 35, 472 43, 431 B-1B 31,377 29,342 C- 5 19,123 19,271

Total hours 85, 972 92, 044

Chapter 2 Inventory Problems Adversely Affected Customer
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Page 24 GAO/ NSIAD/ AIMD- 99- 77 Air Force Supply Management

years 1997 and 1998. This equates to about 43 people working 8
hours a day, 5 days a week for the entire 2 fiscal years. However,
the total magnitude of the number of hours spent removing parts
from aircraft and putting them on other aircraft is not known. For
example, the amount of time spent in performing required
operational checks to determine if cannibalized parts were working
properly once they were installed was not always reflected in base
reports on cannibalizations.

Cannibalization actions resulting from parts shortages also
doubled the workload for these personnel since they had to take
parts off of one aircraft and put them on another aircraft. In
addition, it took maintenance

personnel weeks and, in some cases, months to put an aircraft back
together once parts were removed from the aircraft. For example,
every time Dover Air Force Base rotated its C- 5 aircraft used for
cannibalization about 8 times a year 10 to 15 maintenance
personnel worked 12 hour shifts for 10 to 14 days in order to take
good parts off the

new cannibalization aircraft and rebuild the old cannibalization
aircraft. Maintenance personnel at a Dyess Air Force Base B-1B
squadron usually worked two, 10- hour shifts to rotate
cannibalization aircraft. Data provided by Dyess showed that for
the five most recent cannibalized aircraft, it took the squadron
anywhere from 10 to 66 days, for an average of 39 days, to rebuild
the aircraft. The rebuild time for the squadron at Dyess does not
include the time it took to take the parts that were used to
rebuild the old cannibalization aircraft off the new
cannibalization aircraft because Dyess did not track this type of
information.

Mobility Readiness Spares Package Assets Used to Keep Aircraft
Mission Capable

Another indication of supply problems is the use of mobility
readiness spares package assets to satisfy peacetime requirements.
Mobility readiness spares packages are air transportable packages
of repair parts

and maintenance supplies required to support planned deployed
operations until resupply can begin. However, the Air Force is
using these assets to satisfy peacetime critical parts shortages
as shown in table 2. 5.

Chapter 2 Inventory Problems Adversely Affected Customer
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Page 25 GAO/ NSIAD/ AIMD- 99- 77 Air Force Supply Management

Table 2.5: Use of Mobility Readiness Spares Packages to Satisfy
Parts Shortages for B-1B, C- 5, and F- 16 Aircraft That Were Not
Mission Capable

Source: Weapon System Management Information System.

As shown in table 2.5, the use of mobility reserve spares package
assets to sustain aircraft mission capability has increased over
the last several years for the B-1B and C- 5. Specifically, the
use of such assets to satisfy parts shortages has worsened for the
B-1B and C- 5 from fiscal year 1996 through

fiscal year 1998, while the use of the mobility readiness spares
package assets has remained about the same for the F- 16 during
the same time period. While DOD policy allows this practice and
there are no restrictions on the number of assets that can be used
to support peacetime operations, Air Force headquarters officials
stated that it is imperative that the packages be maintained at
sufficient levels to sustain operations. The practice of using
mobility readiness spares package assets is another indication
that the Supply Management Activity Group is encountering problems
in meeting the needs of its customers. This practice, in effect,
trades off the Air Force's ability to sustain its forces during
wartime for the

ability to prepare its peacetime forces for war. Base Supply
Frequently Did Not Have the Parts That Customers Needed

Another indicator measuring the effectiveness of the Supply
Management Activity Group is the supply issue effectiveness rate,
which is the percent of time that base supply will have a part in
stock when a maintenance organization needs the part for repairing
an aircraft. This indicator is used to measure how well the
customer is supported by the supply group since base supply cannot
possibly stock every part. A high issue effectiveness rate
reflects success in anticipating customer needs while a low rate
reflects poor forecasting of customer needs.

As table 2.6 shows, ACC and AMC data indicate that the supply
effectiveness rate has declined for the (1) B-1B and F- 16 from
fiscal year 1994 through fiscal year 1998 and (2) C- 5 from fiscal
year 1996 through

Fiscal year B-1B C- 5 F- 16

Number of parts Percent

of total Number of parts Percent

of total Number of parts Percent

of total

1996 147 1. 5 809 3. 8 3, 613 6. 4 1997 780 6. 2 3,156 15. 1 3,
600 5. 5 1998 2,006 15. 0 4, 308 18. 0 3, 783 5. 6

Chapter 2 Inventory Problems Adversely Affected Customer
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Page 26 GAO/ NSIAD/ AIMD- 99- 77 Air Force Supply Management

fiscal year 1998. Further, the actual rate has been below the
standard set by the two major commands for fiscal years 1996 and
1997.

Table 2.6: Supply Issue Effectiveness Rates for the B-1B, F- 16,
and C- 5 for Fiscal Years 1994 Through 1998

a Information was not available. b Standards were not established
for fiscal year 1998.

Source: Air Combat Command and Air Mobility Command.

The table combines consumable items, which are primarily managed
by DLA, and repairable items, which are managed by the supply
group. When looking just at repairable items, we found that the
issue effectiveness rate was 46.7 percent and 41.3 percent for the
B-1B and 49.3 percent and

48. 7 percent for the F- 16 in fiscal years 1997 and 1998,
respectively. These figures indicate that bases only have one out
of every two repairable items in stock when maintenance personnel
need them to repair aircraft.

Lack of Parts Hindered Peacetime Missions

We also selected the B-1B, F- 16, and C- 5 aircraft to assess the
impact of parts shortages on customers' operations. Because
aircraft were not always available due to spare parts shortage
problems as well as other problems, such as aircraft maintenance
and deployments, Air Force units were not able to perform all of
their peacetime missions. Specifically, the lack of spare parts
prevented (1) some units from accomplishing all of their pilot
and/ or aircrew training and (2) AMC from performing all customer
requested airlift services. Lastly, officials indicated that the
shortage of

spare parts has the potential to adversely affect contingency
operations, particularly if several squadrons were required to
deploy at the same time.

Figures expressed as a percentage

Fiscal year B-1B F- 16 C- 5

Actual Standard Actual Standard Actual Standard

1994 67. 4 62 74. 9 64 a a 1995 66. 7 70 74. 6 74 a a 1996 65. 3
70 71. 8 74 71. 2 75 1997 63. 2 70 70. 2 74 69. 5 75 1998 59. 1 b
71. 6 b 69. 5 75

Chapter 2 Inventory Problems Adversely Affected Customer
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Page 27 GAO/ NSIAD/ AIMD- 99- 77 Air Force Supply Management

Air Force Customers Unable to Perform All Training Missions

Because aircraft were not available for flying sorties due to
supply problems and other problems such as aircraft maintenance
and deployments, some Air Force customers were unable to perform
all of their required training missions. Training is an essential
part of Air Force customers' operations because it provides pilots
and other aircrew members with the necessary training to be (1)
qualified to fly certain types of aircraft such as the B-1B and
(2) proficient at performing certain tasks

such as midair refueling at night, following terrain at night, and
releasing or firing aircraft weapons as necessary during
deployment missions. Table 2.7 shows that during fiscal year 1998,
B-1B and F- 16 customers only flew 79, 267 hours, or 83 percent,
of their total flying hours available for pilot and

aircrew training.

Table 2.7: ACC Flying Hours That Were Available and Used for Pilot
and Aircrew Training in Fiscal Year 1998

Source: Air Combat Command information.

At Air Force bases we visited, officials confirmed that, in some
cases, aircraft were not available for training sorties because of
supply problems. For example, at one B-1B squadron, parts shortage
problems were cited as a major contributor to aircraft not being
available for training. Due to the lack of available aircraft,
some aircrew members could not meet their annual training sortie
requirements during the training year from July 1, 1997, through
June 30, 1998. Specifically, aircrew members were not classified
as combat mission ready as follows: (1) 6 out of 30 aircraft
commanders, or 20 percent, (2) 2 out of 13 pilots, or 15 percent,
and

(3) 5 out of 41 weapons system officers, or 12 percent. According
to the squadron commander, these crew members could not be used on
combat missions until they accomplished the required training.

Air Force officials at another B-1B base also cited the lack of
parts, as well as maintenance problems, as reasons why aircraft
were not available and why aircrews did not receive all their
needed training. For example, because of unavailable aircraft, the
base did not have sufficient B-1Bs to provide aircrews training in
tactical formation flying that requires the use

Description F- 16 B-1B Totals Percent of total

Available training hours 76,546 19, 343 95, 889 100 Training hours
used 63, 112 16, 155 79, 267 83 Training hours not used 13, 434 3,
188 16, 622 17

Chapter 2 Inventory Problems Adversely Affected Customer
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Page 28 GAO/ NSIAD/ AIMD- 99- 77 Air Force Supply Management

of two aircraft flying close together in formation. Only four
personnel at the base were qualified in tactical formation flying.
Officials said that in the event of a wartime mission, the
aircrews not qualified in tactical formation flying would have to
fly their aircraft so as to maintain a certain distance from the
nearest B-1B, a situation that was described as dangerous in
wartime conditions. Further, this base is also tasked four times a
year to provide four of its aircraft to a B-1B weapons training
school at another

base. However, for such a deployment during October 1998, the base
could only send two of the four required aircraft- the other two
aircraft had to be sent from other B-1B bases. According to an Air
Force official, the lack

of spare parts was a major reason why the base could not send two
of its aircraft to the weapons training school. Parts Shortages
Cited as a Major Contributor to an Estimated $64 Million in Lost
Revenue

An important mission of the transportation activity group, which
is part of the Air Force's Working Capital Fund, is to provide
strategic airlift services by moving cargo and passengers
worldwide for wartime deployments of fighting forces and peacetime
missions to include humanitarian efforts. These airlift services
are provided by the Air Force's AMC, which, like other working
capital fund activities, relies on sales revenue from services
provided to customers to finance its operations. We found,
however, that because some C- 5, C- 17, and C- 141 aircraft were
not available, AMC did not perform customer airlift services as
shown in table 2.8. Although these

aircraft were not mission capable for a variety of reasons such as
maintenance problems, AMC cited parts shortages as a major
contributor as to why the aircraft were not available to perform
airlift services.

Table 2. 8: AMC Estimated Loss of Revenue From Declined Missions
for Its C- 5, C- 17, and C- 141 Aircraft From September 1, 1997,
Through August 31, 1998

Source: Air Mobility Command. NA Not applicable.

Type aircraft Missions declined

Estimated flying hours per

mission Revenue per flying hour Estimated lost

revenue

C- 5 167 20. 2 $12, 605 $42,521, 707 C- 17 25 15. 8 7,025 2, 774,
875 C- 141 183 19. 1 5,349 18,696, 359

Total 375 NA NA $63,992, 941

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Page 29 GAO/ NSIAD/ AIMD- 99- 77 Air Force Supply Management

Table 2.8 shows that from September 1, 1997, to August 31, 1998,
AMC declined 375 requests from customers to perform airlift
services because of unavailable aircraft. Since aircraft were not
available to meet these

requests, AMC estimated that it lost at least $64 million in
revenue. A Mobility Command official stated that they used a
conservative estimate of the flying hours per mission to calculate
the lost revenue and, therefore, the

estimated revenue not earned due to unavailable aircraft is
probably understated. Parts Shortages Also Have Potential Adverse
Impact on Contingency Missions

Although we did not perform a review of Air Force's readiness in
terms of contingency deployments, we found indications at the
bases we visited that parts shortages have the potential to
adversely impact their ability to effectively accomplish
contingency missions. Air Force base officials said the impact
that parts shortages would have on contingency deployments is
difficult to determine and depended on a variety of factors,
including the

(1) number of squadrons a base would be required to deploy, (2)
number of aircraft to be taken, (3) number of sorties to be flown
and the duration of the sorties, and (4) location of the
deployment. At some bases, officials stated that sending one
squadron would not present much of a problem, but that sending two
or more would be more difficult to do. Officials at one base
stated that parts shortages have a definite impact on their
ability to respond to contingency missions. Similarly, officials
at another base stated that parts shortages were their most
significant problem regarding

readiness. Conclusions Mission capability rates reported for major
Air Force aircraft have declined

significantly over the last 8 years. Further, more specific
analysis on three aircraft the B-1B, F- 16, and C- 5 shows similar
trends as well as significant increases in cannibalization rates
and the use of supplies

intended to support deployed operations. At some Air Force bases,
this situation has adversely affected maintenance operations as
well as aircrew training programs. Further, based on discussions
with Air Force officials, there are indications these problems
could potentially impact contingency missions.

Page 30 GAO/ NSIAD/ AIMD- 99- 77 Air Force Supply Management

Chapter 3 Budget, Inventory Management, and Repair Problems Were
Primary Causes of Spare Parts Shortages Chapt er 3

To assess the reasons why spare shortages existed, we judgmentally
selected and reviewed B-1B, F- 16, or C- 5 inventory items. The
155 items we selected were (1) causing aircraft to be not mission
capable and/ or (2) considered actual or potential problem items
by ACC or AMC. This analysis identified three key factors causing
support problems that generally can be categorized as weaknesses
in (1) forecasting inventory requirements and executing inventory
procurement and repair budgets,

(2) not achieving Agile Logistics goals, and (3) repairing items
when needed by customers. Because of the integrated nature of the
supply systems there is a general interrelationship among these
causes.

Table 3.1 shows the results of our analysis for the 155 items that
were not available as of September 1997 and for 96 of the 155
items that were still causing support problems as of September
1998. 1

Table 3.1: Primary Reasons Why Problem Items Were Not Available as
of September 1997 and September 1998

a Primarily technical problems that affect the reliability of an
item.

Inventory Requirements Forecasting and Budget Problems

For 57 of the 155 items we reviewed, problems related to the
forecasting of inventory requirements used in developing the
supply budget were cited as the reason why the Supply Management
Activity Group could not meet its customers' needs as of September
1997. This happened primarily because inventory requirements were
understated by 18 percent. Some minor problems related to
obligating funds and the timely receipt of obligation data also
contributed to the problems. The Air Force is in the process of
reviewing possible corrective actions.

1 In our analysis, we considered an item to still be a problem in
September 1998 if it caused aircraft to be not mission capable for
more than 100 hours during that month.

September 1997 September 1998 Cause category Number Percent Number
Percent

Forecasting and budgeting 57 36. 8 0 0. 0 Agile Logistics 31 20. 0
26 27. 1 Untimely repair 53 34. 2 63 65. 6 Other a 14 9.0 7 7.3

Total 155 100. 0 96 100.0

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Underestimation of Customers' Inventory Requirements Resulted in
Support Problems

Air Force records indicate that the Supply Management Activity
Group received about $2.5 billion in fiscal year 1997 obligation
authority even though inventory requirements (purchase of new
items and repair of broken items) were estimated at $3 billion.
This clearly limited the supply

group's ability to buy and repair the items its customers needed
and was the primary cause of spare parts shortages, as of
September 1997, for the 155 items we reviewed. It also caused (1)
the number of serviceable items

available at the base and wholesale levels to decline because
items were used but not replenished during fiscal year 1997 and
(2) a large backlog of procurement and repair requirements to
carry over from fiscal year 1997 to

fiscal year 1998. Air Force headquarters officials identified two
primary reasons for the differences between the budget estimate
and the requirements for fiscal year 1997. First, because of a
computer interface problem, about

$200 million in procurement and repair requirements were
inadvertently left out of the inventory requirements estimate.
Second, Air Force officials estimate that the group's inventory
requirements increased by about $300 million between March 1995,
when they initially determined their fiscal year 1997 inventory
requirements, and March 1996, when the Air

Force updated its inventory requirements. For example,
documentation provided by Air Force headquarters showed that force
structure changes resulted in an expansion in the overhaul program
for B-52 engines. This

expansion increased the group's fiscal year 1997 inventory
requirements by $26 million which was to be used for the repair of
struts and the replacement of inventory items that could no longer
be repaired.

Because of the differences between the budget and the actual
funding needed, supply officials took action in January 1997 less
than 4 months into the fiscal year to ensure the most effective
possible use of their

available obligation authority. Specifically, they attempted to
optimize their obligation authority by directing activities to
repair only high priority requirements, such as items that were
causing

aircraft to be not mission capable;  repair items on an as- needed
basis to avoid repairing unneeded items; and

 severely limit the procurement of new repairable items because
they believed that repairing items and procuring the component
parts needed to accomplish the repairs would have a more positive
near- term effect on aircraft mission capable rates.

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This approach limited the likelihood that scarce resources would
be wasted on the repair or procurement of unneeded items, but it
also created supply shortages at the base level. Since repairs
were generally limited to high priority requirements, relatively
low priority requirements such as replenishing base stockage
levels were generally not satisfied. As a result,

base supply activities were less likely to have items in stock
when units needed them. Further, because repairs were accomplished
as the needs arose rather than in anticipation of the needs, it
frequently took the supply group longer to provide the items that
were needed by units. These factors and the resulting base- level
shortages were reasons why, as discussed in chapter 2, the supply
group's issue effectiveness rates were low during

fiscal year 1997. Moreover, because these shortages were carried
into the next year, 2 they also contributed to the low issue
effectiveness rates that continued during fiscal year 1998.

Budget Execution Problems Also Contributed to Supply Group's
Fiscal Year 1997 Support Problems

To a minor extent, budget execution problems also prevented supply
group managers from fully using their available obligation
authority. For example, the supply group's wholesale division was
given about $3. 2 billion of obligation authority in fiscal year
1997, 3 but the group reported obligations of about $3.15 billion
a $50- million difference. While the $50 million represents only
1.5 percent of the supply group's obligation authority, obligating
this money would have made more inventory items available to
customers. According to an Air Force budget official, since the
Defense

Finance and Accounting Service's accounting systems did not
provide September obligation data until 6 or more weeks after the
end of the month, supply managers did not know that additional
obligation authority was available until after the end of the
fiscal year.

Similarly, the Air Force would have been in a position to request
additional obligation authority if the supply group had timely
sales data from the Defense Finance and Accounting Service.
Specifically, because (1) DOD established the group's obligation
authority based on projected sales 4 and

2 AFMC officials estimate that, as of September 1997, the supply
group needed about $427 million to buy and/ or fund the repair of
items that were (1) causing aircraft to be not mission capable and
(2) needed to fill bases' authorized stockage levels. 3 This
obligation authority was available to not only purchase new items
and repair broken items but

also to finance the supply group's operating costs, such as the
salaries of item managers. 4 The Office of the Under Secretary of
Defense (Comptroller) established the supply group's fiscal year
1997 wholesale budget based on a unit cost target of $0. 959,
which meant that it was authorized to obligate $0.959 for every
$1. 00 of projected sales.

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(2) the supply group's actual fiscal year 1997 wholesale sales
were about $188 million higher than expected, the Air Force could
have used the higher sales level and the customer support problems
discussed previously as a basis for requesting additional
obligation authority from the Office of the Under Secretary of
Defense (Comptroller). However, Air Force headquarters officials
stated that managers did not receive timely sales data from the
Defense Finance and Accounting Service systems and, therefore, did
not know until sometime in fiscal year 1998 that their fiscal year
1997 sales were higher than the budget estimate. As a result, this
option was not even considered.

DOD Directed the Air Force to Address Its Forecasting Problems

In its fiscal year 2000 budget document for the supply group, the
Office of the Under Secretary of Defense (Comptroller) raised
concerns about the readiness of all military services and cited a
lack of spare parts as a major contributor to a decline in the
mission capability of aircraft. To help improve readiness, about
$141 million in obligation authority was added to the supply
group's fiscal year 2000 budget to buy and repair additional
inventory items. However, the budget document raised concerns
about the Air Force's ability to use this additional obligation
authority to purchase the correct inventory items. Accordingly,
the Deputy Secretary of Defense directed AFMC to conduct a review
of the process it uses to determine the inventory requirements of
its customers.

AFMC's review, which is currently underway, is to identify the
underlying causes of the forecasting problems. In doing so, it is
to comprehensively evaluate the procedures, methodologies, and
practices that the supply group uses to forecast its customers'
requirements. The AFMC Commander is required to provide a report
on the review's findings, conclusions, and

any recommendations to both Air Force headquarters and the Office
of the Under Secretary of Defense (Comptroller) by May 15, 1999.

Overly Optimistic Agile Logistics Goals

The Air Force reduced its supply group's budget by $948 million
over a 3- year period in anticipation of savings resulting from
process improvements related to the Agile Logistics program.
However, for 31 of the 155 items we reviewed, problems occurred
because of inventory

management weaknesses, including the Air Force's inability to
achieve the Agile Logistics reduced processing time goals.
Further, the Air Force's inability to achieve the reduced
processing time goals was a contributing factor for many other
problem items. The ultimate result of not achieving these goals
was that the supply group had less funding than required to

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Management

meet customer inventory needs. This situation is in addition to
the requirements forecasting problem discussed in the prior
section.

Air Force Reduced Supply Group's Budget in Anticipation of Savings

The Air Force's Agile Logistics program is consistent with DOD's
goals for improving logistics support 5 and is based on three key
assumptions: (1) reduced logistics response time, 6 (2) seamless
logistics systems, and (3) streamlined logistics infrastructure.
It also assumes that the use of current and future technologies
will allow units to order spare parts virtually real time and that
more efficient commercial and military transportation alternatives
will make large inventories unnecessary.

The Air Force used anticipated Agile Logistics improvements as a
basis for reducing the supply group's buy and repair funding by
about $948 million over a 3- year period. Specifically, the Air
Force reduced the supply group's fiscal year 1997 budget by $336
million based on the assumption that total pipeline and logistics
response time could be reduced to 57 days (from a

fiscal year 1994 baseline of 67 days); reduced it an additional
$289 million in fiscal year 1998 based on the assumption that the
total time could be reduced to 52 days; and reduced it another
$323 million in fiscal year 1999 based on the assumption that the
total time could be reduced to 41 days. This means, for example,
that the activity group's fiscal year 1997

requirement would have been about $336 million higher had it been
based on a total pipeline and logistics response time of 67 days
(the fiscal year 1994 baseline) rather than the Agile Logistics
goal of 57 days.

New Supply Support Goals Were Not Achieved Data we obtained showed
that Agile Logistics goals were not being

achieved. For example, one ALC indicated that the total pipeline
time for the items it managed was about 68 days during fiscal year
1998 (compared to a standard of 52 days) and AFMC headquarters
indicated that the Command's average logistics response time for
repairable items during fiscal year 1998 was 44. 7 days (compared
to a budget goal of 9 days). 5 DOD's conceptual framework for the
future of the United States Armed Forces calls for the military

services to fuse information, logistics, and transportation
technologies in a manner that will allow them to (1) provide rapid
crisis response, (2) track and shift assets, even while enroute,
(3) deliver tailored logistics packages when and where needed, and
(4) ensure the availability of spare parts and other items needed
to sustain combat operations. Under this Focused Logistics
concept, operational units can reduce their logistical tails
because it is assumed that they will receive timely, continuous,
and

flexible support from wholesale supply activities. 6 Logistics
response time begins when a unit requests an item that is not
available in base supply and that must, therefore, be
requisitioned from the wholesale storage activity. It ends when
the base receives the item. In this report, when we refer to
pipeline times it includes logistics response times.

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Consequently, although we found some problems with the accuracy
and completeness of the data used to monitor actual pipeline
times, (1) the results of our review of the 155 problem items, (2)
our discussions with cognizant Air Force logistics officials, and
(3) the relative consistency of

the data that we obtained from Air Force headquarters, AFMC, and
the ALCs, indicate that the untimely processing of repairable
items is a problem that warrants close management attention.

Air Force headquarters officials agree that the untimely
processing of repairable items is a serious problem that has
adversely affected the mission capability of aircraft.
Specifically, they stated that the inability to achieve their
depot repair time goal was due largely to a shortage of component
parts needed to repair broken items a condition called

Awaiting Parts (AWP). Similarly, they stated that the inability to
achieve the logistics response time goal was due primarily to
backorder time. 7 They also stated that DOD policy, which they
agree with, precludes them from

considering AWP and backorder time when determining funding
requirements. Air Force and DOD officials said that the AWP
problem and backorders are both indications that the supply system
is not working as intended and once the underlying cause( s) of
these problems are fixed, any

inventory purchased to support the longer pipeline would become
excessive.

The Air Force's ability to effectively support its units in the
future will depend, to a large extent, on whether logistics
managers throughout the service are able to do a better job of
identifying and correcting the problems that have prevented them
from achieving their Agile Logistics goals. This is unlikely to
happen until (1) accurate and complete data on

pipeline processing times are developed and analyzed consistently
throughout the Air Force, (2) individuals responsible for managing
the various pipeline segments are clearly identified and held
accountable, and (3) commanders and managers throughout the Air
Force periodically monitor the progress that is being made in
achieving Agile Logistics goals. In those instances where goals
appear unrealistic or unattainable, budget estimates must be
adjusted accordingly.

We are reporting separately on the Air Force's problems in
implementing the Agile Logistics program. The report will detail
specific implementation 7 When an item requested by a customer is
not available at the wholesale level, it is placed on backorder
until it can be obtained by repairing a broken item or by some
other means.

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Parts Shortages Page 36 GAO/ NSIAD/ AIMD- 99- 77 Air Force Supply
Management

issues the Air Force needs to address and actions the Air Force
plans to take. Untimely Repairs Were a Major Cause of Supply
Support Problems

Because it significantly reduces the amount of usable inventory
available at the wholesale level, the Air Force's Agile Logistics
program significantly increases the importance of depot
maintenance activities' role in providing timely and effective
support to supply group customers. In many instances, how quickly
the supply group can support its customers now depends primarily
on how quickly depot maintenance activities can complete repairs
on broken items. At the same time, because the Agile Logistics
program changed depot repair operations from a batch- oriented
process

where repair requirements were determined once a quarter to a
repair- ondemand approach where repair decisions are made daily,
it also makes it much more difficult for these maintenance
activities to plan their work and operate efficiently. AFMC
officials knew in advance that Agile Logistics could adversely
affect the efficiency of their depot maintenance operations as
previously configured, but believed this potential disadvantage
would be more than

offset by improved processing times and lower inventory levels.
Specifically, they assumed that (1) the shift from a batch repair
concept to a repair- on- demand concept would allow them to reduce
shop flow times and (2) these and other process improvements would
reduce the supply group's inventory requirements by $948 million.

However, as discussed previously, the Air Force has not achieved
the Agile Logistics goals. As a result, the budgeted Agile
Logistics savings reduced the supply group's funding, but the
effect of these savings has been less timely and effective support
to customers. The next sections discuss two key factors that have
limited depot maintenance activities' ability to achieve
anticipated reductions in their repair times: (1) shortages of
component parts and (2) personnel skill limitations. Table 3.2,
which is a

further breakout of the repair problem cause category shown in
table 3.1, shows the extent to which these factors are
contributing to untimely repairs.

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Table 3.2: Primary Causes of Repair Problems as of September 1997
and September 1998

a Includes problems related to test equipment.

Component Parts Shortages Have Been a Major Impediment to Timely
Repairs

A shortage of the component parts needed to repair broken items a
condition that, as noted previously, the Air Force refers to as
AWP was the most frequent cause of untimely repairs for the items
we reviewed. This AWP problem adversely affected the supply
group's ability to support its

customers because it increased the number of broken items in the
supply pipeline which, in turn, limited the number of usable items
that could be provided to customers.

Our work showed that AWP is a pervasive problem that adversely
affected repairs at both the depot and base levels. For example,
one of the biggest readiness problems for the B-1B bomber during
fiscal year 1998 was the

Band 8 Transmitter that was experiencing significant AWP problems.
Specifically, the Air Force's spares inventory for this item was
more than $40 million (64 items at $644,237 each), but the item
nevertheless caused B-1B aircraft to be not mission capable for a
total of 59,925 hours during fiscal year 1998 8 because much of
this inventory was in an AWP status at both the depot and base
levels. For example, as of July 1998, 26 Band 8

Transmitters were at the repair contractor in an AWP status 16 of
which had been in that status for more than a year. Additionally,
19 transmitters were in an AWP status at base level, had been in
that status for an average

of 139 days, and were awaiting an average of 5.5 component parts
each. Some of the needed component parts were managed by DLA but
most were managed by the Air Force supply group.

September 1997 September 1998 Cause category Number Percent of
total

problem Number Percent of total problem

Component parts shortages 38 71. 7 34 54. 0 Personnel/ Skills
constraints 8 15. 1 21 33. 3 Other a 7 13. 2 8 12. 7

Total 53 100.0 63 100. 0

8 At any given time more than one part may be causing an aircraft
to be not mission capable.

Chapter 3 Budget, Inventory Management, and Repair Problems Were
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Management

Similarly, the Band 7 Transmitter used on the B-1B, which caused
B-1B aircraft to be not mission capable for about 36,400 hours in
fiscal year 1998, was also a problem because of untimely depot
repairs, in general, and a shortage of the component parts needed
to accomplish the repairs, in particular. For example, as of
October 1998, 15 of these ALC- repaired items were in an AWP
status at the depot level, 12 were in an AWP status for more than
a year, and all but three needed more than one component part. In

addition, although 10 additional Band 7 Transmitters were in the
shop undergoing repairs, 55 component parts were needed in order
to complete repairs on them. As was the case with the Band 8
Transmitters, most of the needed component parts were managed by
the Air Force supply group.

Studies Have Identified AWP Problem

Recent Air Force studies have identified problems similar to those
discussed above and/ or have identified some of the underlying
causes of the problems. For example, these problems were
identified in a survey that AFMC headquarters conducted in early
1998 of item managers who were

responsible for problem items. Specifically, when asked if parts
shortages were a significant problem, about 56 percent of the 622
item manager responses stated that they were. Similarly, when
asked if a shortage of carcasses to repair was a problem, about 11
percent of the responses indicated that it was. However, the Air
Force, in general, and AFMC, in particular, have done very little
to resolve the AWP problem. For example, as of December 1998, AFMC
headquarters had not yet developed (1) a long- term strategy for
identifying and correcting the root cause( s) of the AWP problem,
(2) a systematic process for identifying and focusing management
attention on

the most critical AWP problem items, or (3) a standardized
approach that item managers can use to analyze data on AWP
problems. Further, AFMC officials acknowledged that the AWP
problem was due partly to a lack of reliable data on the number
and type of component parts that will be needed to repair broken
items, but have not developed a specific plan for resolving the
problem.

Finally, AFMC officials realize that, to effectively manage the
AWP problem, the supply group's material managers must have easy
access to the automated data they need to identify and analyze
individual AWP

problem items. However, presently, data on (1) the number of items
that are in an AWP status and (2) the number and type of component
parts each item needs must be obtained from several different
sources, and even then may not be available in automated format.

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Parts Shortages Page 39 GAO/ NSIAD/ AIMD- 99- 77 Air Force Supply
Management

Manpower Constraints Have Caused Maintenance Delays

A shortage of personnel or skills was another major factor that
limited depot maintenance activities' ability to repair items in a
timely manner. Our recent work on the Air Force's logistics reform
initiatives indicated that one of the key reasons for personnel
and skill shortages was that AFMC

officials had made little progress in developing the multi-
skilled workers that their depot maintenance activities will need
in order to operate effectively in a repair- on- demand
environment. As discussed below, two

additional reasons for personnel and skills shortages were (1) the
temporary workload increase that resulted when the supply group
carried a large backlog of repair requirements into fiscal year
1998 and (2) the disruptions associated with the on- going closure
of two ALCs.

Repair Backlog Caused Temporary Manpower Constraints

Due largely to the budget and funding problems discussed
previously, the Air Force entered fiscal year 1998 with a
substantial backlog of repair work. This, in turn, increased some
maintenance shops' workloads to the

point where they could not accomplish all of the work during
fiscal year 1998. However, because of funding constraints and the
possibility that some shops' workloads may decrease once the
backlog is eliminated, ALC

officials decided not to hire full- time maintenance personnel to
accomplish most of the additional work. Instead, they used the
existing workforce and, where appropriate, overtime to reduce the
backlog. This approach allowed the supply group to alleviate, but
not eliminate, some of its support problems during fiscal year
1998. For example, the shop that repairs the constant speed drive
used in the B-1B aircraft cited insufficient manpower as the
reason why it had problems keeping up with repairs for this item.
During fiscal year 1998, the shop repaired more items

than failed 139 items broke and 169 were repaired. However, the
item caused B-1B aircraft to be not mission capable for 7,792
hours during fiscal year 1998 and, as of September 30, 1998, bases
still had an outstanding requirement for 13 constant speed drives.
On a more positive note, the constant speed drive caused aircraft
to be not mission capable for only

197 hours in September 1998. Personnel Turbulence and Productivity
Are Problems as ALC Closures Transfer Work to

Other Locations Our review of the 155 problem items indicates that
the on- going closure of

two ALCs and transfer of their workloads to the three remaining
ALCs and other sources of repair has already had some impact.
Specifically, as of September 1998, closure- related personnel and
skill shortages were the

primary cause of the support problem for eight of the items we
reviewed. Further, the closures may become a more significant
problem as the workload transfers proceed.

Chapter 3 Budget, Inventory Management, and Repair Problems Were
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Management

For example, 10 of the problem items we reviewed were part of the
C- 5 Malfunction Detection Analysis Subsystem that was repaired at
the San Antonio ALC until the workload was transferred to the
Warner Robins ALC in January 1999. The San Antonio ALC was able to
reduce the number of hours these 10 items caused aircraft to be
not mission capable from 24,130 hours in September 1997, to 2,308
hours in September 1998, or about 90 percent. However, the San
Antonio ALC shop supervisor stated that his shop's ability to keep
up with the repair workload had been adversely

affected by the loss of trained maintenance technicians,
especially during the first quarter of fiscal year 1999. Further,
both the San Antonio and Warner Robins shop supervisors
acknowledged that there was likely to be a temporary loss of
productivity and efficiency during and immediately following the
workload transition. Nevertheless, both supervisors said they

were working together to ensure a smooth transition by taking such
action as (1) having Warner Robins personnel train at San Antonio
prior to the workload transfers, (2) moving some of the test
equipment to Warner Robins prior to the transition date, and (3)
having San Antonio personnel visit Warner Robins after the
transfer to provide assistance.

AFMC's Work Force Plan AFMC officials are taking action to
alleviate their depot maintenance manpower problems. For example,
by the end of fiscal year 1999, they plan to identify (1) the work
force they will need in order to accomplish their depot
maintenance workload through the year 2005 and (2) requirements
for not only permanent employees, but also the temporary, term,
and

contract field team employees that will be needed to augment the
permanent workforce during unplanned peaks in demand. They also
plan to develop an enhanced technical training program to cross
train workers, thereby making them more versatile and providing
maintenance

supervisors the flexibility they need in order to operate
effectively in a repair- on- demand environment. Conclusions
Several factors contributed to the Supply Management Activity
Group not

being able to achieve its goals for meeting customer needs.
Management actions related to forecasting requirements and
estimating savings from logistics process improvements resulted in
the group having fewer funds than needed to meet customer needs.
As a result, even though customers had operations and maintenance
funds to purchase inventory, the supply group did not have
sufficient obligation authority to buy or repair items

needed by customers.

Chapter 3 Budget, Inventory Management, and Repair Problems Were
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Parts Shortages Page 41 GAO/ NSIAD/ AIMD- 99- 77 Air Force Supply
Management

A number of the problems experienced are related to implementation
issues associated with the Air Force Agile Logistics program.
Since we are reporting separately on the Agile Logistics program
implementation and the Air Force is in the process of reviewing
the requirements forecasting process, we are making no
recommendations on these issues in this report. We will monitor
the results of the Air Force study and report to the

Subcommittee, as appropriate. Further, if the supply group is to
provide more timely and responsive support to its customers, the
Air Force must resolve the problem of not having the necessary
component parts needed

to fix broken repairable items. Recommendation We recommend that
the Secretary of the Air Force direct the AFMC Commander to
implement a comprehensive program to address depot

maintenance activities' AWP problems. As a minimum, the AFMC
Commander should develop (1) a strategy for identifying and
correcting the underlying causes of the problem, (2) a systematic
process for identifying and focusing management attention on the
most critical AWP problem items, (3) a standardized approach that
item managers can use to obtain and analyze data on AWP problems,
and (4) more reliable data on the number and type of component
parts that will be needed to repair broken

repairable items. Agency Comments In its comments, DOD concurred
with our recommendation and stated that the Air Force is taking
action to improve its supply parts availability.

Specifically, additional funding was provided for the purchase of
spare parts in fiscal year 1999, and DOD also provided the Air
Force with $382 million in additional contract authority to
purchase parts to improve parts availability beginning in fiscal
year 2000. The Air Force is also

conducting two studies to (1) improve the forecasting of inventory
items that customers need and (2) help correct the awaiting parts
problems. DOD also noted that the aging of aircraft, increased
operations tempo, and technical surprises have all contributed to
increased demands on the supply system and the Air Force is
working to fix the problems noted in the audit.

DOD's comments also stipulated that despite shortfalls in the
Agile Logistics program, it has helped the Air Force reduce its
supply pipeline from 67 days in fiscal year 1994 to 52 days in
1998. We recognize that the Air Force has initiated numerous
process improvements attempting to reduce

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Management

its processing time, and its fiscal year 1998 budget was
predicated on an average pipeline time frame of 52 days. The Air
Force reduced its budget based on these predicated savings. Data
available to us indicated that the

Supply Group's average pipeline time for the fourth quarter of
fiscal year 1998 was 87.5 days. As noted in our report, the Air
Force's inability to achieve the 52 day goal was due largely to a
shortage of component parts (called awaiting parts) and items on
backorder. The pipeline time associated with awaiting parts and
backorders accounted for 37.1 of the 87. 5 days

Page 43 GAO/ NSIAD/ AIMD- 99- 77 Air Force Supply Management

Page 44 GAO/ NSIAD/ AIMD- 99- 77 Air Force Supply Management

Appendix I Listing of the Reports in This Series Appendi x I

DOD Information Services: Improved Pricing and Financial Management Practices Needed for Business Area (

GAO/AIMD-98-182
, Sept. 15, 1998).
DOD Information Services: Improved Pricing and Financial
Management Practices Needed for Business Area (  GAO/AIMD-98-182 ,
Sept. 15, 1998).

Air Force Supply Management: Analysis of Activity Group's
Financial Reports, Prices, and Cash Management (GAO/ AIMD/ NSIAD-
98- 118, June 8, 1998). Navy Ordnance: Analysis of Business Area
Efforts to Streamline Operations and Reduce Costs (GAO/ AIMD/
NSIAD- 98- 24, Oct. 15, 1997).

Navy Ordnance: Analysis of Business Area Price Increases and
Financial Losses (GAO/ AIMD/ NSIAD- 97- 74, Mar. 14, 1997).

Page 45 GAO/ NSIAD/ AIMD- 99- 77 Air Force Supply Management

Appendix II Comments From the Department of Defense Appendi x I I

Appendix II Comments From the Department of Defense

Page 46 GAO/ NSIAD/ AIMD- 99- 77 Air Force Supply Management

Now on pp. 10, 40.

Page 47 GAO/ XXXX-??-?? Document Name

Appendix III Major Contributors to This Report Appendi x I I I

Accounting and Information Management Division, Washington D. C.

Gregory E. Pugnetti, Assistant Director Ron L. Tobias, Accountant-
in- Charge William A. Hill, Senior Accountant Cristina Chaplain,
Communications Analyst

San Francisco Field Office

Eddie W. Uyekawa, Evaluator- in- Charge Karl J. Gustafson, Senior
Evaluator Christine D. Frye, Senior Evaluator Donald Y. Yamada,
Senior Evaluator

(709337 and 511641) Let t er

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