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Enhanced by Linkage to Outcomes, progress in Transforming Business 
Operations, and Reexamination of Logistics Governance and Strategy' 
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Testimony: 

Before the Subcommittee on Oversight of Government Management, the 
Federal Workforce, and the District of Columbia, Committee on Homeland 
Security and Governmental Affairs, U.S. Senate: 

United States Government Accountability Office: 

GAO: 

For Release on Delivery Expected at 2:30 p.m. EDT: 

Tuesday, July 10, 2007: 

DOD'S High-Risk Areas: 

Efforts to Improve Supply Chain Can Be Enhanced by Linkage to Outcomes, 
Progress in Transforming Business Operations, and Reexamination of 
Logistics Governance and Strategy: 

Statement of William M. Solis, Director: 
Defense Capabilities Management: 

GAO-07-1064T: 

GAO Highlights: 

Highlights of GAO-07-1064T, a testimony before the Subcommittee on 
Oversight of Government Management, the Federal Workforce, and the 
District of Columbia, Committee on Homeland Security and Governmental 
Affairs, U.S. Senate 

Why GAO Did This Study: 

The availability of spare parts and other critical items provided 
through the Department of Defenseís (DOD) supply chains affects the 
readiness and capabilities of U.S. military forces. Since 1990, GAO has 
designated DOD supply chain management as a high-risk area. In 2005, 
DOD developed a plan aimed at addressing supply chain problems and 
having GAO remove this high-risk designation. DODís plan focuses on 
three areas: requirements forecasting, asset visibility, and materiel 
distribution. 

GAO was asked to provide its views on (1) DODís progress in developing 
and implementing the initiatives in its plan, (2) the results of recent 
work relating to the three focus areas covered by the plan, and (3) the 
integration of supply chain management with efforts to improve defense 
business operations. GAO also addressed broader issues of logistics 
governance and strategic planning. 

This testimony is based on prior GAO reports and analysis. 

To determine whether to retain the high-risk designation for supply 
chain management, GAO considers factors such as whether DOD makes 
substantial progress implementing improvement initiatives; establishes 
a program to validate the effectiveness of the initiatives; and 
completes a comprehensive, integrated strategy. 

What GAO Found: 

The most recent update to DODís plan shows that DOD has made progress 
developing and implementing its supply chain management improvement 
initiatives. DOD is generally staying on track for implementing its 
initiatives, although there have been delays in meeting certain 
milestones. However, the long-term time frames for many of these 
initiatives present challenges to the department in sustaining progress 
toward substantially completing their implementation. The plan also 
lacks outcome-focused performance measures for many individual 
initiatives and the three focus areas, limiting DODís ability to fully 
demonstrate the results achieved through its plan. Increasing DODís 
focus on outcomes will enable stakeholders to track the interim and 
long-term success of its initiatives and help DOD determine if it is 
meeting its goals of more effective and efficient supply chain 
management. 

GAOís recent work has identified problems related to the three focus 
areas in DODís plan. In the requirements area, the military services 
are experiencing difficulties estimating acquisition lead times to 
acquire spare parts for equipment and weapon systems, hindering their 
ability to efficiently and effectively maintain spare parts inventories 
for military equipment. Challenges in the asset visibility area include 
lack of interoperability among information technology systems, problems 
with container management, and inconsistent application of radio 
frequency identification technology, which make it difficult to obtain 
timely and accurate information on assets in theater. In the materiel 
distribution area, challenges remain in coordinating and consolidating 
distribution and supply support within a theater. 

Improving defense business operations is integral to resolving supply 
chain management problems. Progress in DODís overall approach to 
business transformation is needed to confront problems in other high-
risk areas, including supply chain management. Because of the 
complexity of business transformation, GAO has stated that DOD needs a 
Chief Management Officer with significant authority, experience, and a 
term that would provide sustained leadership and the time to integrate 
DODís overall business transformation efforts. GAOís work, pending 
legislation, and other recent studies indicate a consensus that the 
status quo is no longer acceptable. 

GAOís recent review of joint theater logistics raises concerns about 
whether DOD can effectively implement this initiative without 
reexamining fundamental aspects of the departmentís logistics 
governance and strategy. In this respect, joint theater logistics may 
serve as a microcosm of some of the challenges DOD faces in resolving 
supply chain management problems. Moreover, GAO recommended in that 
report that DOD align its approach to joint theater logistics with 
ongoing actions the department is taking to reform its logistics 
governance and develop its logistics strategy. Several recent studies 
of DOD logistics systems have recommended changes to DODís 
organizational structure for providing joint logistics and supply 
support to military operations. 

[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-1064T]. 

To view the full product, including the scope and methodology, click on 
the link above.
For more information, contact William Solis at (202) 512-8365 or 
solisw@gao.gov. 

[End of section] 

Mr. Chairman and Members of the Subcommittee: 

I am pleased to be here today to discuss the progress made by the 
Department of Defense (DOD) toward resolving long-standing problems 
with supply chain management. The availability of spare parts and other 
critical items that are procured and delivered through DOD's supply 
chain network affects the readiness and capabilities of U.S. military 
forces, and can affect the success of a mission. In addition, the 
investment of resources in DOD's supply chains is substantial, 
amounting to more than $150 billion a year according to DOD, and supply 
inventory levels have grown by 35 percent from $63.3 billion in fiscal 
year 2001 to $85.6 billion in fiscal year 2006.[Footnote 1] DOD also 
invests billions in information technology systems that support supply 
chain management and other business operations. Over time, DOD has 
sought to better integrate its supply chain operations to effectively 
support military forces and to make its supply chains more efficient 
from source of supply to point of consumption. However, the challenges 
to successfully improving management of DOD's vast and complex supply 
chain network are formidable, and problems with supply chain management 
have yet to be fully resolved. Today's hearing is the third time since 
2005 that we have testified before this Subcommittee on supply chain 
management.[Footnote 2] Your active involvement has been and will 
continue to be vital to keeping attention focused on this important 
aspect of DOD's business and logistics support operations. 

GAO's audits and evaluations have identified a number of federal 
programs and operations that are high risk because of their greater 
vulnerabilities to fraud, waste, abuse, and mismanagement. In recent 
years, GAO's high-risk program has increasingly focused on those major 
programs and operations that need urgent attention and transformation 
in order to ensure that our government functions in the most 
economical, efficient, and effective manner possible. We first 
designated DOD inventory management as a high-risk area in 1990 because 
of ineffective and inefficient inventory systems and practices. The 
problems we found--based on a large body of work on the management of 
military supplies--included on-hand inventory that was not needed to 
meet required inventory levels, inadequate controls over items, and 
cost overruns. We have reported on efforts to address this and other 
high-risk areas in our biennial updates to our high-risk programs since 
then. In preparing the 2005 update of the high-risk series, we 
determined that systemic supply problems extended beyond inventory 
management to other aspects of the supply chain, including inaccurate 
supply forecasts, poor asset visibility, and ineffective distribution. 
We therefore expanded our high-risk designation to include the entirety 
of "DOD supply chain management." 

Over the years DOD has taken actions toward its goal of integrating and 
improving supply chain management. For example, it has revised policies 
and practices aimed at addressing shortcomings identified during 
Operation Iraqi Freedom. It has implemented recommendations made by our 
office and other audit organizations regarding specific aspects of its 
supply chain operations. It has also identified technologies and 
commercial best practices that could lead to substantial improvements 
over the long term. Another step has been the development of DOD's 
supply chain management improvement plan. In 2005, with the 
encouragement of the Office of Management and Budget (OMB) and input 
from our office, DOD developed this plan with the intent of addressing 
the problems that have prompted us to retain this high-risk 
designation. (We subsequently refer to this document as the plan.) 
DOD's plan lists 10 initiatives aimed at making improvements in three 
focus areas of supply chain management--requirements forecasting, asset 
visibility, and materiel distribution. 

DOD officials believe the commitment they have demonstrated to 
resolving supply chain management problems, including developing the 
plan and making progress implementing initiatives, justifies removing 
this area from our high-risk list. In December 2006, the Under 
Secretary formally requested that we consider removing supply chain 
management from our list of high-risk areas. We decided that 
notwithstanding positive steps taken by DOD to address problems, supply 
chain management should remain a high-risk area until DOD can 
successfully demonstrate improvements in requirements forecasting, 
asset visibility, and materiel distribution, and we retained this 
designation in the 2007 biennial update of our high-risk 
series.[Footnote 3] 

Today, I would like to provide our perspectives on (1) DOD's progress 
in developing and implementing the initiatives in its plan, (2) the 
results of our recent work relating to the three focus areas covered by 
the plan, and (3) the integration of supply chain management with 
efforts to transform and improve defense business operations. Finally, 
I will address broader issues of logistics governance and strategic 
planning within DOD. My statement is based on previous GAO reports and 
analysis, including a report we are releasing today on DOD's efforts to 
develop and implement joint theater logistics,[Footnote 4] one of the 
initiatives in the plan. In addition, we have met regularly with DOD 
and OMB staff to obtain updates on DOD's plan and information on the 
specific initiatives. We conducted our work in accordance with 
generally accepted government auditing standards. 

Summary: 

The most recent update to the plan shows that DOD has made progress 
developing and implementing its supply chain management improvement 
initiatives, but the current performance measures in the plan do not 
fully demonstrate results. DOD is generally staying on track for 
implementing its initiatives, although there have been delays in 
meeting certain milestones. Notwithstanding this overall progress and 
the commitment of DOD leadership to resolving supply chain problems, 
the long-term time frames for many of these initiatives present 
challenges to the department in sustaining progress toward 
substantially completing their implementation. Moreover, the plan lacks 
outcome-focused performance measures that could gauge the results of 
many of the individual improvement initiatives or demonstrate progress 
in the three focus areas, limiting DOD's ability to fully demonstrate 
the results achieved through its plan. Increasing the plan's focus on 
measurable outcomes will enable DOD's internal and external 
stakeholders, including Congress and OMB, to track the interim and long-
term success of DOD's initiatives and help DOD determine if it is 
meeting its goals of achieving more effective and efficient supply 
chain management. 

In addition, our recent work has identified continuing problems related 
to the three focus areas in DOD's plan. 

* In the area of requirements forecasting, the military services are 
experiencing difficulties estimating the length of time between the 
initiation of a procurement action and the receipt of spare parts into 
the supply system for equipment and weapon systems. We also found 
continuing problems in the Air Force's inventory management practices, 
hindering its ability to efficiently and effectively maintain its spare 
parts inventory for military equipment. Specifically, an average of 52 
percent ($1.3 billion) of the Air Force's secondary on-order inventory 
was not needed to support on-order requirements. Further, about 65 
percent ($18.7 billion) of on-hand inventory was not needed to support 
required inventory levels. We calculated that it costs the Air Force 
from $15 million to $30 million annually to store its unneeded items. 
Problems also continue in managing prepositioned stocks. 

* Our work in the area of asset visibility has indicated numerous 
challenges, from lack of interoperability among information technology 
systems to problems with container management. Limitations in asset 
visibility capabilities make it difficult to obtain timely and accurate 
information on the assets that are present in the theater of 
operations. 

* With respect to materiel distribution, we have found that challenges 
remain in coordinating and consolidating distribution and supply 
support within a theater. For example, DOD is establishing separate 
organizations to coordinate surface transportation and lacks a single 
organization with authority to integrate and synchronize surface 
deployment and distribution movements. One key challenge has been 
establishing an effective mechanism that would enable a joint force 
commander to exercise appropriate command and control over 
transportation and other logistics assets in the theater. 

Further, transforming and improving defense business operations are 
integral to resolving supply chain management problems. As we have 
previously stated, progress in DOD's overall approach to business 
transformation is needed to confront problems in other high-risk areas, 
including supply chain management. Because of the complexity and long- 
term nature of business transformation, we have stated that DOD needs a 
Chief Management Officer with significant authority, experience, and a 
term that would provide sustained leadership and the time to integrate 
DOD's overall business transformation efforts. Our work, pending 
legislation, and other recent studies indicate a consensus that the 
status quo is no longer acceptable. In addition to business 
transformation, we have identified two other DOD high-risk areas that 
are closely linked with supply chain management--modernizing business 
systems and improving financial management. 

Our recent review of joint theater logistics raises concerns about 
whether DOD can effectively implement this initiative without 
reexamining fundamental aspects of the department's logistics 
governance and strategy. In this respect, joint theater logistics may 
serve as a microcosm of some of the challenges DOD faces in resolving 
supply chain management problems. We found during our review that DOD 
has not developed a coordinated and comprehensive management approach 
to guide and oversee implementation of joint theater logistics across 
the department. Moreover, we recommended in that report that DOD align 
its approach to joint theater logistics with ongoing actions the 
department is taking to reform its logistics governance and develop its 
logistics strategy. Regarding logistics governance, DOD has been 
testing a new approach to managing joint capabilities as a portfolio, 
but key decisions are still to be made on how to implement this 
approach. In addition, DOD has plans to develop an overarching 
logistics strategy but has delayed completion of this strategy until 
sometime next year. The diffused organization of DOD's logistics 
operations, including separate funding and management of resources and 
systems, complicates DOD's ability to adopt a coordinated and 
comprehensive approach. Several recent studies of DOD's logistics 
system have recommended changes to DOD's organizational structure for 
providing joint logistics and supply support to military operations. 

Background: 

DOD relies on a number of individual processes and activities, known 
collectively as supply chain management, to purchase, produce, and 
deliver items and services to military forces. The department relies on 
working capital (revolving) funds maintained by the defense and service 
logistics agencies to finance the flow of these items to the forces. 
Working capital funds allow these agencies to purchase needed items 
from suppliers. Military units then order items from the logistics 
agencies and pay for them with annually appropriated operations and 
maintenance funds when the requested items--either from inventory or 
manufacturers--are delivered to the units. 

The Under Secretary of Defense (Acquisition, Technology, and Logistics) 
has been designated by the Secretary of Defense as the department's 
Defense Logistics Executive, with authority to address logistics and 
supply chain issues. Officials within the Office of the Assistant 
Deputy Under Secretary of Defense for Supply Chain Integration 
completed the first iteration of the plan in July 2005 and have updated 
it several times since then based on information provided by designated 
lead proponents for the individual initiatives. DOD has shared its plan 
externally with Congress, OMB, and our office. OMB has characterized 
the plan as a model for other federal agencies to use in developing 
their own plans to address their high-risk areas. 

The plan has three focus areas: requirements forecasting, asset 
visibility, and materiel distribution--issues that we have identified 
based on GAO audits since 1995 as critical to improving DOD supply 
chain management. Accurately forecasted supply requirements are a key 
first step in buying, storing, positioning, and shipping items that the 
warfighter needs. DOD describes asset visibility as the ability to 
provide timely and accurate information on the location, quantity, 
condition, movement, and status of supplies and the ability to act on 
this information. Distribution is the process for synchronizing all 
elements of the logistics system to deliver the "right things" to the 
"right place" at the "right time" to support the warfighter. Our prior 
work has identified problems in these three focus areas, as well as 
other aspects of supply chain management. 

DOD's plan identifies joint theater logistics as an initiative that 
will improve both asset visibility and materiel distribution. Joint 
theater logistics is intended to enhance the ability of a joint force 
commander to direct various logistics functions, including distribution 
and supply support activities, across the theater and, for several 
years, has been part of DOD's planned transformation of logistics 
capabilities. Joint theater logistics is one of seven future logistics 
capabilities that DOD has grouped under "focused logistics." DOD has 
broadly defined joint theater logistics as an adaptive ability to 
anticipate and respond to emerging theater logistics and support 
requirements. 

In general, when legislative and agency actions result in significant 
and sustainable progress toward resolving a high-risk problem, we 
remove the high-risk designation. Key determinants include a 
demonstrated strong commitment to and top leadership support for 
addressing problems, the capacity to do so, a corrective action plan, 
and demonstrated progress in implementing corrective measures.[Footnote 
5] From 1990 through 2007, we removed 18 areas from the high-risk list. 
Our decisions on removing supply chain management from the high-risk 
list will be guided by whether DOD (1) sustains top leadership 
commitment and long-term institutional support for the plan; (2) 
obtains necessary resource commitments from the military services, the 
Defense Logistics Agency, and other organizations; (3) makes 
substantial progress implementing improvement initiatives across the 
department; (4) establishes a program to demonstrate progress and 
validate the effectiveness of the initiatives; and (5) completes the 
development of a comprehensive, integrated strategy for guiding supply 
chain management improvement efforts across the department. 

DOD Has Made Progress in Developing and Implementing the Initiatives in 
Its Plan, but Current Performance Measures Do Not Fully Demonstrate 
Results: 

The most recent update to the plan in May 2007 shows that DOD, over the 
past year, has made progress in developing and implementing its 
improvement initiatives. We noted this progress in the January 2007 
update of our high-risk series. Specific examples of progress made 
include the following: 

* DOD has established joint deployment distribution operations centers 
in each geographic combatant command. In early 2004, DOD established 
the first of these operations centers in Kuwait, under U.S. Central 
Command, after distribution problems arose during the initial stages of 
Operation Iraqi Freedom. DOD has since expanded this organization to 
its other geographic combatant commands. These operations centers can 
help joint force commanders synchronize the arrival of supplies into a 
theater and assist in other aspects of distribution and supply support. 
They are designed to incorporate representatives from DOD components, 
such as U.S. Transportation Command, the Defense Logistics Agency, and 
the military services, who can provide a knowledgeable connection to 
logistics supply centers in the United States and facilitate the 
distribution of supplies to the theater. The expansion of these 
operations centers to all the geographic commands was based on the 
success of the first operations center in Kuwait, which has been 
credited with improving the management of supplies moving across the 
distribution system and achieving cost savings.[Footnote 6] 

* DOD has reported initial success with an initiative aimed at 
streamlining the storage and distribution of common items for multiple 
military service locations through the use of Defense Logistics Agency 
hubs. The objectives of this initiative, called joint regional 
inventory and material management, include eliminating duplicate 
materiel handling and inventory layers. DOD has met key milestones in 
this initiative and recently completed the pilot program in Hawaii. 
U.S. Pacific Command officials stated that they had reduced redundant 
service-managed inventories, the number of times they handle parts, and 
customer wait times over the course of the pilot. They estimated that 
the services had reduced their inventory levels by more than $10 
million. In March 2007, the Defense Logistics Agency was tasked to be 
the lead proponent for continued worldwide implementation of joint 
regional inventory and material management. 

* DOD also made progress toward improving transportation management of 
military freight. Before the end of this fiscal year, U.S. 
Transportation Command plans to award a contract to a third-party 
logistics provider, or 3PL, to coordinate the movement of freight 
shipments within the continental United States. This effort, called the 
defense transportation coordination initiative, is aimed at improving 
the reliability, predictability, and efficiency of moving freight among 
DOD's depots, logistics centers, and field activities. In a recent 
report on this initiative,[Footnote 7] we stated that DOD had taken 
numerous actions to incorporate the lessons learned from a prior 
prototype program and, moreover, had taken positive steps to adopt best 
practices employed by other public and private organizations to 
transform their culture. Still, the long-term success of this effort 
remains uncertain given the challenges in undertaking organizational 
transformation and because the program is still in its early stages. 

Despite the progress indicated by the development and implementation of 
these initiatives, the recent update of DOD's plan indicates some 
delays in achieving certain milestones. For example, the radio 
frequency identification (RFID)[Footnote 8] initiative experienced a 
slippage from December 2006 to September 2007 in its milestone to 
implement passive RFID at the first 25 percent of Defense Logistics 
Agency's distribution centers located outside the continental United 
States. This milestone was adjusted based on lessons learned from the 
implementation of RFID at sites within the continental United States. 
Also, the item unique identification initiative[Footnote 9] experienced 
a slippage of a year, from January 2007 to January 2008, for the 
milestone on demonstrating integration with international entities, 
because required ratification from the North Atlantic Treaty 
Organization was delayed. Schedule delays such as these may be expected 
given the long-standing nature of the problems being addressed, the 
complexities of the initiatives, and the involvement of multiple 
organizations. Furthermore, some of these initiatives are in the early 
stages of implementation, with full implementation several years away. 
The long-term time frames for many of these initiatives present 
challenges to the department in sustaining progress toward 
substantially completing their implementation. 

Since the last hearing before this Subcommittee in July 2006, we have 
not seen significant changes in how DOD proposes to measure the impact 
of its initiatives in its plan. The plan, as before, contains four 
performance metrics--backorders, customer wait time, on-time orders, 
and logistics response time.[Footnote 10] While these four measures 
capture broad aspects of DOD's supply chain performance, they can be 
affected by variables other than the initiatives themselves. For 
example, natural disasters, wartime surges in requirements, or 
disruption in the distribution process could each result in increased 
backorders, longer customer wait time, fewer on-time orders, and slowed 
response time, regardless of DOD's initiatives. Consequently, changes 
in these high-level metrics might not be directly attributable to the 
initiatives in the plan. While it may take years before the results of 
programs become apparent, intermediate metrics can be used to provide 
information on interim results and show progress toward intended 
results. In addition, when program results could be influenced by 
external factors, intermediate metrics can be used to identify the 
program's discrete contribution to the specific result. 

As we noted last July, the results of DOD's initiatives would be more 
apparent if DOD applied more outcome-oriented performance metrics for 
many of the individual initiatives and for the three focus areas. 
Outcome-oriented performance metrics show results or outcomes related 
to an initiative or program in terms of effectiveness, efficiency, 
impact, or all of these. Since last July, DOD has not added new outcome-
focused performance metrics to its plan. DOD also continues to lack 
cost metrics that might show efficiencies gained through these supply 
chain efforts, either at the initiative level or overall. In total, 
DOD's plan identifies a need to develop outcome-focused performance 
metrics for 6 initiatives, and 9 out of 10 initiatives lack cost 
metrics. We recommended in January that DOD develop, implement, and 
monitor outcome-focused performance and cost metrics for all the 
individual initiatives in the plan as well as for the plan's focus 
areas of requirements forecasting, asset visibility, and materiel 
distribution.[Footnote 11] In response to our recommendation, DOD 
asserted that it had developed and implemented outcome-focused 
performance and cost metrics for logistics across the department, but 
it also acknowledged that more work needed to be done to link the 
outcome metrics to the initiatives in the plan as well as for the focus 
areas. DOD stated that these linkages will be completed as part of full 
implementation of each initiative. 

Recent GAO Reviews Have Found That Systemic Supply Chain Management 
Problems Continue: 

Our recent work has identified continued systemic weakness in aspects 
of DOD's supply chain management. I will briefly highlight some of the 
results from these reviews, structured around the three focus areas 
covered by DOD's plan. 

Requirements Forecasting Problems Exist in Managing Spare Parts and 
Prepositioned Stocks: 

In the area of requirements forecasting, the military services are 
experiencing difficulties estimating acquisition lead times to acquire 
spare parts for equipment and weapon systems.[Footnote 12] Effective 
processes that identify and manage acquisition lead times are of 
critical importance to maintaining cost-effective inventories, 
budgeting, and having materiel available when it is needed. In March 
2007, we reported that 44 percent of the services' lead time estimates 
varied either earlier or later than the actual lead times by at least 
90 days.[Footnote 13] Overestimates and underestimates of acquisition 
lead time contribute to inefficient use of funds and potential 
shortages or excesses of spare parts. We recommended a number of 
actions DOD should take to improve the accuracy and strengthen the 
management of lead times. For example, we made specific recommendations 
directed toward the Army, the Air Force, the Navy, and the Defense 
Logistics Agency with the intent of improving their accuracy in setting 
acquisition lead times. DOD mostly concurred with our recommendations. 

In a separate review of the Air Force's inventory management 
practices,[Footnote 14] we found continuing problems hindering its 
ability to efficiently and effectively maintain its spare parts 
inventory for military equipment. From fiscal years 2002 through 2005, 
more than half of the Air Force's secondary inventory (spare parts), 
worth an average of $31.4 billion annually, was not needed to support 
required on-order and on-hand inventory levels. We found an average of 
52 percent ($1.3 billion) of the Air Force's secondary on-order 
inventory was not needed to support on-order requirements.[Footnote 15] 
This unneeded on-order inventory indicates that the Air Force did not 
cancel orders or deobligate funds for items that were not needed to 
support requirements. When the Air Force buys unneeded items, it is 
obligating funds unnecessarily, which could lead to not having 
sufficient funds to purchase needed items. The Air Force has continued 
to purchase unneeded inventory because its policies do not provide 
incentives--such as requiring contract termination review for all 
unneeded on-order inventory or reducing the funding available for the 
Air Force Materiel Command by an amount up to the value of the Air 
Force's on-order inventory that is not needed to support requirements-
-to reduce the amount of inventory on order that is not needed to 
support requirements. In addition, although the percentage of the Air 
Force's on-hand inventory was reduced by 2.7 percent during these 
years, about 65 percent ($18.7 billion) of this inventory was not 
needed to support required inventory levels. We calculated that it 
costs the Air Force from $15 million to $30 million annually to store 
its unneeded items. We recommended that the Air Force improve its 
policies regarding on-order inventory, revalidate the need to retain 
items that are not needed to meet inventory requirements and for which 
there is no recurring demand, and take other actions to improve 
accountability for, and management of, its secondary inventory. DOD 
generally concurred with our recommendations. 

Another area of continuing concern has been the stocks maintained in 
the Army's prepositioning programs. Prepositioning is one of three 
ways, along with airlift and sealift, that the U.S. military can 
deliver equipment and supplies to field combat-ready forces. The Army 
drew heavily from its prepositioned stocks to support Operations Iraqi 
Freedom and Enduring Freedom, and these sustained operations have taken 
a toll on the condition and readiness of military equipment. In 
February 2007, we reported the Army was changing its overall 
prepositioning strategy and, in doing so, faced major strategic and 
management challenges.[Footnote 16] One of these challenges was that 
despite recent efforts to improve requirements setting, the Army had 
not yet determined reliable requirements for secondary items and 
operational project stocks.[Footnote 17] Also, the Army does not 
systematically measure or report readiness for the secondary item and 
operational project programs. Without sound requirements or reporting 
mechanisms, the Army cannot reliably assess the impact of any 
shortfalls, determine the readiness of its programs, or make informed 
investment decisions about them. We recommended that the Army develop 
an implementation plan that, among other things, completes ongoing 
reevaluation of the secondary item and project stock requirements as 
well as establishes systematic readiness measurement and reporting of 
secondary items and operational project stock programs. DOD concurred 
with this recommendation. 

Effective Management of Supplies Is Hindered by Problems in Achieving 
Asset Visibility: 

Despite the benefits attributed to the joint deployment distribution 
operations center in Kuwait, effective management of supply 
distribution across the theater has been hindered by ongoing problems 
in achieving asset visibility. Senior military commanders in Kuwait 
attributed these problems to a lack of interoperability among 
information technology systems that makes it difficult to obtain 
timely, accurate information on assets in the theater.[Footnote 18] We 
have previously reported that the defense logistics systems used by 
various components to order, track, and account for supplies are not 
well integrated and do not provide the information needed to 
effectively manage theater distribution and provide asset 
visibility.[Footnote 19] Officials told us their staff must use manual 
work-arounds to overcome the problems caused by noninteroperable 
information systems and estimated that their staff spend half their 
time pulling data from information systems, e-mailing it around for 
validation or coordination, consolidating it on a spreadsheet, and then 
analyzing it to make management decisions. In January 2007, a joint 
assessment conducted by several DOD components at Camp Arifjan, Kuwait, 
found that separate movement control battalions in Kuwait and Iraq use 
both automated and handwritten transportation movement requests to 
track air and ground movements and must consolidate manual and 
automated data into spreadsheets in order to capture the total theater 
movement picture. Neither movement battalion has total visibility over 
what is occurring in both Kuwait and Iraq nor do they have total 
visibility of the surface transportation resources necessary to 
optimize the distribution of resources. 

In our review of joint theater logistics, we also found continuing 
problems with container management that hinder asset visibility and 
impede DOD's ability to effectively manage logistics operations and 
costs, although improvements had been made since we last reported on 
this issue in 2003.[Footnote 20] Some challenges that DOD faces with 
container management include the application of RFID on containers in 
the supply chain, compliance with container management processes, and 
the return of commercial containers to maritime carriers. 

In 2004, the Under Secretary of Defense (Acquisition, Technology, and 
Logistics) directed the use of active RFID on all consolidated 
shipments moving to, from, or between overseas locations in order to 
provide global in-transit visibility, and U.S. Central Command has 
emphasized the need to use this technology to improve asset visibility 
in Iraq and Afghanistan. However, according to U.S Central Command 
officials, DOD continues to struggle with the application of RFID in 
the theater supply chain because of problems such as containers shipped 
without RFID tags or with tags that are broken, tags with incorrect 
information, or tags that are rewritten but not cross-referenced to the 
original shipping information. Noncompliance with container management 
processes established by U.S. Central Command can also limit asset 
visibility. For example, the Army's system has not been able to 
effectively track containers as they pass through distribution 
channels, significantly hampering asset visibility in theater because 
tagged containers can become "lost" in theater, with no one able to 
track the location of the container or its contents. In addition, if 
the container is commercially owned and not returned to the carrier 
within a specified time period, detention charges begin accumulating. 

During our review of joint theater logistics we also found that U.S. 
Transportation Command and the Military Surface Deployment and 
Distribution Command, to improve management and accountability over 
containers and to address the growing detention charges, developed a 
theater container management process and established the container 
management element--a unit responsible for tracking and providing 
management oversight of containers in the theater. In addition, the 
Army decided to purchase, or "buy out," commercial containers to reduce 
monthly detention charges. Container management element officials told 
us that through a combination of container buyouts and increased 
oversight, detention charges decreased from approximately $10.7 million 
per month in December 2005 to $3.7 million per month in October 2006. 
However, although DOD has been able to reduce monthly detention charges 
on commercial containers, it is still experiencing problems with 
retaining visibility over containers, and its problem with commercial 
container detention charges is shifting from Iraq to Afghanistan. 

In addition, the Army continues to experience problems in developing 
and implementing system initiatives affecting asset visibility. For 
example, the Logistics Management Program, one of the Army's major 
business system modernization efforts intended to manage its inventory 
and depot maintenance operations, has continued to experience problems 
with accurately recognizing revenue and billing customers, and the 
accuracy of its financial reports continues to be questionable. If 
information contained in asset accountability systems is not accurate, 
complete, and timely, DOD's day-to-day operations could be adversely 
affected. As of September 30, 2006, the Army reported that 
approximately $452 million had been obligated for this system effort 
and estimates that it will invest at least another $895 million in this 
program. Also, its schedule to reach full operational capability has 
slipped from fiscal year 2005 to fiscal year 2010.[Footnote 21] We have 
recently reviewed the Army's progress in achieving asset visibility and 
expect to issue our report by the end of this month.[Footnote 22] 

Challenges Remain in Coordinating and Consolidating Distribution and 
Supply Support within a Theater: 

In our review of joint theater logistics, we found that DOD components 
have made progress developing and implementing joint theater logistics 
initiatives in the areas of distribution and supply support; however, 
the department faces a number of challenges that hinder its ability to 
fully realize the benefits of these efforts. Unless DOD successfully 
addresses these challenges, the initiatives are not likely to 
significantly improve the ability of a joint force commander to harness 
the diffuse logistics resources and systems that exist within the 
department and effectively and efficiently direct logistics functions, 
including distribution and supply support activities, across the 
theater of operations to accomplish an assigned mission. 

For example, initiatives to improve the coordination of surface 
transportation assets--mainly trucks--in a theater of operations face 
challenges such as potential duplication of responsibilities, the 
unavailability of information technology tools, and unclear lines of 
command and control. According to a 2005 RAND Corporation 
study,[Footnote 23] during the initial phase of Operation Iraqi Freedom 
there was no single organization deployed in theater with the authority 
to rebalance transportation assets across the theater and integrate and 
synchronize the surface deployment and distribution movements of 
materiel in support of the commander's priorities. As part of its 
modular transformation, the Army is creating theater and expeditionary 
sustainment commands that are aimed in part at centralizing control 
over Army surface transportation assets within a theater of 
operations.[Footnote 24] In a separate initiative, U.S. Transportation 
Command created a new organization, the director of mobility forces- 
surface, to integrate surface deployment and distribution priorities 
set by the joint force commander. 

Army officials raised concerns about whether the theater and 
expeditionary sustainment commands would have the information 
technology tools and personnel necessary to effectively and efficiently 
carry out their missions. They said that these commands were designed 
to be smaller than their predecessors, based on an assumption that 
certain information technology tools would be available to enable the 
commands to operate with fewer personnel. However, some of these 
information technology tools--such as the next generation Mobile 
Tracking System, Battle Command Sustainment Support System, and 
Transportation Coordinator's Automated Information for Movements System 
II--have experienced problems during their development that have 
limited their capability or have delayed their fielding. According to 
Army officials, the shortcomings in available information tools have 
resulted in the need for additional staff in the theater and 
expeditionary sustainment commands and have required the commands to 
use manual, ad hoc techniques, which are cumbersome and manpower 
intensive, to validate, coordinate, and analyze data for decision 
making. 

The U.S. Transportation Command-led efforts to establish the director 
of mobility forces-surface have also faced implementation challenges. 
The initial assessment of the director of mobility forces-surface pilot 
in Kuwait by U.S. Transportation Command and U.S. Central Command 
indicated that the initiative faces a number of challenges related to 
command and control, availability of information technology tools, 
securing personnel with the expertise and knowledge to use the 
information technology tools that are available, and potential 
duplication of responsibilities with other Army organizations. U.S. 
Central Command discontinued the pilot in May 2007 until some of these 
issues were resolved. In addition, the Army reviewed more than 100 
proposed responsibilities of the director of mobility forces-surface 
and found that most of these responsibilities are already covered by 
the Army's theater and expeditionary sustainment commands or other 
commands. 

DOD also has developed initiatives to consolidate and improve storage 
and shipping of materiel, including node management and deployable 
depot, joint regional inventory and material management, and theater 
consolidation and shipping point,[Footnote 25] but such efforts have 
been implemented on a limited scale. During our visits to Kuwait, we 
found that the Defense Logistics Agency and the Army were operating 
separate facilities that have the potential for consolidation, which 
could result in more efficient use of resources. We discussed this 
issue with senior U.S. military officials in Kuwait and with Defense 
Logistics Agency officials. Following these discussions and the 
completion of our fieldwork, the Defense Logistics Agency assessed ways 
to improve theater distribution and made recommendations to consolidate 
and relocate existing operations. Specifically, in April 2007, the 
Defense Logistics Agency study team recommended terminating the theater 
consolidation and shipping point contract, assuming these functions at 
the defense distribution depot, and drawing down inventory and 
operations at the Army general support warehouse at Camp Arifjan. 

Finally, various options have emerged for improving the ability of a 
joint force commander to exercise command and control over joint 
theater logistics functions. U.S. Joint Forces Command is coordinating 
the joint experimental deployment and support initiative, whose 
objective is to experiment with a range of command and control options 
that can provide logistics coordination, integration, and 
synchronization to meet the combatant commander's priorities. The 
initiative builds upon DOD's joint deployment distribution operations 
center concept and progresses along a continuum to include more robust 
organizational options. However, the military services have raised 
concerns about how their own roles and responsibilities for providing 
logistics support might be affected and have opposed expansion of the 
most robust command and control option that has emerged--known as the 
joint force support component command. 

Our discussions with officials from the combatant commands and the 
military services indicated that there are unresolved issues related to 
exercising joint command and control over logistics functions in a 
theater of operations. A number of officials had concerns about how 
organizations such as the joint force support component command would 
be staffed and what roles and authorities it would have. Specifically, 
they mentioned statutory requirements for logistics support, directive 
authority for logistics, and operational and financial considerations. 
The services expressed concerns about mandating that they provide staff 
to the joint force support component command, while also fulfilling 
their Title 10 responsibilities to man, train, and equip their 
forces.[Footnote 26] Officials from military service components in the 
geographic combatant commands raised the issue of having a service 
component take direction from a separate component command at the same 
level, rather than from a higher-level command, and they were resistant 
to losing personnel to such an organization because the service 
component commands still have tactical logistics responsibilities to 
fulfill. Some military service officials raised questions about the 
effectiveness of a joint force support component command that lacked an 
ability to exercise directive authority for logistics. This authority 
gives the combatant commander the ability to shift logistics resources 
within the theater in order to accomplish a mission.[Footnote 27] 
Officials we interviewed did not believe this authority could be 
delegated below the level of a joint force commander or service 
component commander[Footnote 28] to an entity such as the joint force 
support component command. Thus, they questioned how the joint force 
support component command differs from other logistics command and 
control organizations if the organization can make recommendations to 
the joint force commander but not actually direct the transfer of 
assets across the service components, known as cross-leveling. 
Readiness and financial considerations related to exercising directive 
authority for logistics include the military operational risks and 
trade-offs associated with cross-leveling. Assets diverted from one 
unit to support another unit may affect the giving organization's 
ability to conduct a future operation, and officials raised concerns 
that logisticians in a separate logistics command may not fully 
understand the impact of cross-leveling on the next military mission. 
Additionally, because the services obtain funding for their own assets, 
several officials told us that some form of financial reconciliation 
must be considered when exercising directive authority for logistics. 

Transforming and Improving Defense Business Operations Are Integral to 
Resolving Supply Chain Management Problems: 

DOD spends billions of dollars to sustain key business operations 
intended to support the warfighter, including systems and processes 
related to the supply chain and other business areas. We have reported 
on inefficiencies in DOD's business operations, such as the lack of 
sustained leadership and a comprehensive, integrated, and 
enterprisewide business plan. Moreover, at a time of increasing 
military operations and growing fiscal constraints, billions of dollars 
have been wasted annually because of the lack of adequate transparency 
and appropriate accountability across DOD's business areas. 

As we have previously stated, progress in DOD's overall approach to 
business transformation is needed to confront problems in other high- 
risk areas, including supply chain management.[Footnote 29] Because of 
the complexity and long-term nature of business transformation, we have 
stated that DOD needs a Chief Management Officer with significant 
authority, experience, and a term that would provide sustained 
leadership and the time to integrate DOD's overall business 
transformation efforts. Without formally designating responsibility and 
accountability for results, reconciling competing priorities among 
various organizations and prioritizing investments will be difficult 
and could impede the department's progress in addressing deficiencies 
in key business areas. Based on our long-standing body of work, pending 
legislative language, and the results of studies completed by the 
Defense Business Board and the Institute for Defense Analysis, there is 
a clear consensus that the department needs a Chief Management Officer 
and that the status quo is no longer acceptable. 

The two other DOD high-risk areas that are most closely linked with 
supply chain management are modernizing business systems and improving 
financial management. Successful resolution of supply chain management 
problems will require investment in needed information technology. The 
DOD systems environment that supports these operations is overly 
complex and error prone, and is characterized by little standardization 
across the department, multiple systems performing the same tasks, the 
same data stored in multiple systems, and the need for data to be 
entered manually into multiple systems. Modernized business systems are 
essential to the department's effort to address its supply chain 
management issues. In its plan, DOD recognizes that achieving success 
in supply chain management depends on developing interoperable systems 
that can share critical supply data. One of the initiatives included in 
the plan is business system modernization, an effort that is being led 
by DOD's Business Transformation Agency and that includes achieving 
materiel visibility through systems modernization as an enterprisewide 
priority. 

Regarding financial management, we have repeatedly reported that 
weaknesses in business management systems, processes, and internal 
controls not only adversely affect the reliability of reported 
financial data, but also the management of DOD operations. Such 
weaknesses have adversely affected the ability of DOD to control costs, 
ensure basic accountability, anticipate future costs and claims on the 
budget, measure performance, maintain funds control, and prevent fraud. 
In 2005, DOD issued its Financial Improvement and Audit Readiness Plan, 
which is intended to provide DOD components with a road map for 
resolving problems affecting the accuracy, reliability, and timelines 
of financial information and obtaining clean financial statement audit 
opinions. However, tangible evidence of improvements in financial 
management remains limited, and DOD recognizes that it will take 
several years to implement the systems, processes, and other 
improvements needed to address its financial management challenges. 

Improving Supply Chain Management May Involve Reexamining Fundamental 
Aspects of DOD's Logistics Governance and Strategy: 

Our recent review of joint theater logistics raises concerns about 
whether DOD can effectively implement this initiative without 
reexamining fundamental aspects of the department's logistics 
governance and strategy. In this respect, joint theater logistics may 
serve as a microcosm of some of the challenges DOD faces in resolving 
supply chain management problems. We found that DOD has not developed a 
coordinated and comprehensive management approach to guide and oversee 
implementation of joint theater logistics across the department. 
Efforts to develop and implement joint theater logistics initiatives 
have been fragmented among various DOD components largely because of a 
lack of specific goals and strategies, accountability for achieving 
results, and outcome-oriented performance measures--key principles of 
sound management. While DOD has broadly defined joint theater logistics 
as an adaptive ability to anticipate and respond to emerging theater 
logistics and support requirements, it has not developed specific goals 
and strategies linked to this vision. In addition, DOD has not assigned 
accountability for achieving results under joint theater logistics and 
has not developed outcome-oriented performance measures that would 
enable the department to know whether its efforts are fully and 
effectively achieving a joint theater logistics capability. Without a 
coordinated and comprehensive approach to managing joint theater 
logistics, DOD lacks assurance that it is on the right path toward 
achieving this capability or that individual initiatives will 
collectively address gaps in logistics capabilities. Further, DOD will 
have difficulty achieving the desired improvements in distribution and 
asset visibility associated with joint theater logistics as portrayed 
in the plan. 

Based on our review, we recommended that DOD develop and implement a 
coordinated and comprehensive management approach to guide and oversee 
efforts across the department to improve distribution and supply 
support for the U.S. forces in a joint theater. This approach should 
encompass sound management principles, including developing specific 
strategies and goals, assigning accountability for achieving results, 
and using outcome-oriented performance measures. Moreover, in that 
report we recommended that DOD align its approach to joint theater 
logistics with ongoing actions the department is taking to reform its 
logistics governance and strategy, which are discussed below. In 
considering options for implementing this recommendation, we stated 
that DOD should determine whether any changes should be made to DOD's 
organizational structure and control of resources for joint logistics 
support, and identify the steps needed to make these changes, including 
changes to existing laws, such as Title 10. DOD concurred with our 
recommendation. 

Regarding logistics governance, DOD has been testing a new approach to 
managing joint capabilities as a portfolio.[Footnote 30] In September 
2006, the Deputy Secretary of Defense selected joint logistics as one 
of four capability areas for testing capabilities portfolio 
management.[Footnote 31] These experiments were initiated in response 
to the 2006 Quadrennial Defense Review, which emphasized DOD's need to 
build on capabilities-based planning and management. According to DOD 
officials, the purpose of this test is to determine if DOD can make 
better leadership decisions by managing a portfolio of capabilities 
instead of managing systems and capabilities individually. Thus, this 
portfolio test is intended to enable senior leaders to consider trade- 
offs across previously stovepiped areas and to better understand the 
implications of investment decisions across competing priorities. 
Specifically in the joint logistics area, the portfolio includes all 
capabilities required to project and sustain joint force operations, 
including supply chain operations. While DOD officials told us the 
initial results of the test have been completed and have shown that 
portfolio management is an effective means for managing capabilities, 
they said that decisions had not yet been made on how to implement this 
new governance approach. 

The decisions DOD makes on capabilities portfolio management will also 
influence the development of its logistics strategy. In our prior work, 
we have noted that DOD has undertaken various efforts over the years to 
identify, and plan for, future logistics needs, but it has lacked an 
overarching, consistent logistics strategy. Last year, the department 
began to develop a "to be" road map to guide future logistics programs 
and initiatives. DOD officials described the "to be" road map as 
portraying where the department is headed in the logistics area and how 
it will get there; monitoring progress toward achieving its objectives; 
and institutionalizing a continuous assessment process that links 
ongoing capability development, program reviews, and budgeting. 
According to DOD officials, the initiatives in the plan will be 
incorporated into the "to be" road map. At this time last year, the 
first edition of the "to be" road map was scheduled for completion in 
February 2007, in conjunction with the submission of the President's 
Budget for Fiscal Year 2008, with annual updates planned. However, DOD 
subsequently put the "to be" road map on hold pending the completion of 
the capabilities portfolio management test. DOD officials have told us 
that the "to be" road map is now scheduled to be completed in summer 
2008. In January,[Footnote 32] we recommended that DOD improve its 
ability to guide logistics programs and initiatives across the 
department and to demonstrate the effectiveness, efficiency, and impact 
of its efforts to resolve supply chain management problems by 
completing the development of a comprehensive, integrated logistics 
strategy that is aligned with other defense business transformation 
efforts. DOD concurred with our recommendation. 

In reviewing DOD's approach to developing and implementing joint 
theater logistics initiatives, we found that the diffused organization 
of DOD's logistics operations, including separate funding and 
management of resources and systems, complicates DOD's ability to adopt 
a coordinated and comprehensive approach. Several recent studies of DOD 
logistics system have reached similar conclusions. Since 2003, a number 
of studies have recommended changes to DOD's organizational structure 
for providing joint logistics and supply support to military 
operations.[Footnote 33] Some of these organizations have noted that 
control over resources is a critical issue to be addressed. For 
example, the Defense Science Board recommended creation of a joint 
logistics command that would combine the missions of U.S. 
Transportation Command, the Defense Logistics Agency, and service 
logistics commands. The Center for Strategic and International Studies 
also suggested the creation of a departmentwide logistics command 
responsible for end-to-end supply chain operations. Regarding resource 
allocation, this study further stated that resources should be 
organized, managed, and budgeted largely along military service lines, 
but in those instances where joint capability needs are not being met 
by the services, the Secretary must turn to joint processes and 
entities. The Lexington Institute, which also recommended creation of a 
U.S. logistics command at the four-star level, concluded that Title 10 
may need to be amended in order to create this command. The Lexington 
Institute also concluded that existing funding mechanisms act as 
disincentives for joint logistics transformation and interoperability. 
The Defense Business Practice Implementation Board, while not agreeing 
with the idea of combining U.S. Transportation Command and the Defense 
Logistics Agency, recommended that DOD elevate leadership for supply 
chain integration by designating a new under secretary of defense who 
would have authority to direct integration activities, including 
control over budget decisions affecting these two components and the 
military services. While we noted that transformational changes such as 
those proposed by these organizations may not be possible without 
amending existing laws, the scope of our joint theater logistics review 
did not include an assessment of these proposals or what changes, if 
any, would require congressional action. 

Also contributing to coordination problems in the area of supply chain 
management have been difficulties in clearly defining the 
responsibilities and authorities of defense components that have a role 
in supply chain operations. For example, although the Secretary of 
Defense in 2003 designated the Commander, U.S. Transportation Command, 
as DOD's distribution process owner--with responsibilities for 
overseeing the overall effectiveness, efficiency, and alignment of DOD- 
wide distribution activities--DOD has yet to issue a directive defining 
the process owner's authority, accountability, resources, and 
responsibility.[Footnote 34] We have recommended that DOD enhance its 
ability to take a more coordinated approach to improving the supply 
distribution system by, among other things, clarifying the scope of 
responsibilities, accountability, and authority between the 
distribution process owner and other organizations.[Footnote 35] 
Although DOD did not concur with this recommendation at the time we 
issued our report in 2005, DOD officials have recently told us they 
plan to issue a directive aimed at more clearly defining the role of 
the distribution process owner. Until this directive is issued, the 
responsibilities and authorities of the distribution process owner 
remain unclear. Echoing this theme, the Defense Business Board in April 
2007 recommended that DOD take steps to clearly identify decision- 
making authority regarding supply chain integration. Specifically, the 
Defense Business Board recommended that DOD define and communicate 
enterprise goals in order to align initiatives; clearly define 
responsibilities and authorities of all players in the supply and 
distribution processes; and allocate responsibility and authority to 
set direction and oversee progress, and make necessary decisions to 
carry out DOD's agreed-upon supply chain management strategy and 
achieve enterprise goals. 

DOD, like much of the federal government, will face critical challenges 
during the 21st century that will test fundamental notions about how 
agencies and departments should be organized and aligned to carry out 
their missions. For example, the department faces challenges in 
accomplishing its transformation goals and making improvements in key 
business areas such as supply chain management. We have suggested that 
decision makers may need to reexamine fundamental aspects of DOD's 
programs by considering issues such as whether current organizations 
are aligned and empowered to meet the demands of the new security 
environment as efficiently as possible and what kinds of economies of 
scale and improvements in delivery of support services would result 
from combining, realigning, or otherwise changing selected support 
functions, including logistics. [Footnote 36] 

Concluding Observations: 

Between now and the next update of our high-risk series in 2009, we 
plan to continue to assess DOD's progress in resolving supply chain 
management problems against the criteria we have established for 
removing a high-risk designation. In addition to monitoring the 
progress of DOD's plan, we plan to conduct audits related to specific 
aspects of supply chain management. As I indicated earlier, a priority 
for the department as it moves forward should be to track and assess 
the outcomes achieved through its initiatives and the progress made in 
resolving supply chain management problems in the three focus areas of 
asset visibility, requirements forecasting, and materiel distribution. 
We will also consider progress made in defense business transformation, 
business system modernization, and financial management because of the 
close linkage between these efforts and DOD's success in improving its 
supply chain management. We look forward to working with the department 
to provide an accurate appraisal of progress toward the goal of 
successfully resolving problems that have hindered effective and 
efficient supply chain management. 

Mr. Chairman, this concludes my prepared remarks. I would be happy to 
answer any questions you or other Members of the Subcommittee may have. 

Contacts and Acknowledgments: 

For further information regarding this testimony, please contact 
William Solis at (202) 512-8365 or solisw@gao.gov. Contact points for 
our Offices of Congressional Relations and Public Affairs may be found 
on the last page of this statement. Individuals making contributions to 
this testimony include Tom Gosling, Assistant Director; Karyn Angulo; 
Larry Junek; and Marie Mak. 

FOOTNOTES 

[1] Part of this growth was caused by inflation. The inflation rate 
over this period as measured by the Gross Domestic Product Price Index 
was a little over 13 percent. 

[2] GAO, DOD's High-Risk Areas: High-Level Commitment and Oversight 
Needed for DOD Supply Chain Plan to Succeed, GAO-06-113T (Washington, 
D.C.: Oct. 6, 2005); and DOD's High-Risk Areas: Challenges Remain to 
Achieving and Demonstrating Progress in Supply Chain Management, GAO-06-
983T (Washington, D.C.: July 25, 2006). 

[3] GAO, High-Risk Series: An Update, GAO-07-310 (Washington, D.C.: 
January 2007). 

[4] GAO, Defense Logistics: Efforts to Improve Distribution and Supply 
Support for Joint Military Operations Could Benefit from a Coordinated 
Management Approach, GAO-07-807 (Washington, D.C.: June 29, 2007). 

[5] The criteria for removing a high-risk designation are contained in 
GAO, Determining Performance and Accountability Challenges and High 
Risks, GAO-01-159SP (Washington, D.C.: November 2000). 

[6] For example, U.S. Transportation Command officials said that the 
operations center was responsible for shifting from the use of airlift 
to sealift to transport supplies, which reduces costly airlift 
requirements and frees up airlift capacity; coordinating the movement 
of personnel from their point of origin to final destination rather 
than through intermediate locations with time-consuming layovers (a 
concept referred to as single ticket); and improving distribution 
management by facilitating the use of pure-packed pallets and 
containers, developing a container management plan, and improving the 
return of Army materiel from the theater. According to data provided by 
U.S. Transportation Command, the activities of this joint deployment 
distribution operations center resulted in total cost avoidance and 
savings of $343 million between fiscal years 2004 and 2007. 

[7] GAO, Defense Transformation: DOD Has Taken Actions to Incorporate 
Lessons Learned in Transforming Its Freight Distribution System, GAO-07-
675R (Washington, D.C.: May 8, 2007.) 

[8] RFID consists of electronic tags that are attached to equipment and 
supplies being shipped from one location to another, enabling shipment 
tracking. 

[9] Item unique identification provides for marking of personal 
property items with a set of globally unique data items to help DOD 
value and track items throughout their life cycle. 

[10] Backorders are the number of orders held in an unfilled status 
pending receipt of additional parts or equipment through procurement or 
repair. Customer wait time measures the number of days between the 
issuance of a customer order and satisfaction of that order. On-time 
orders is the percentage of orders that are on time according to DOD's 
established delivery standards. Logistics response time refers to the 
number of days to fulfill an order placed on the wholesale level of 
supply from the date a requisition is generated until the materiel is 
received by the retail supply activity. 

[11] GAO, DOD's High-Risk Areas: Progress Made Implementing Supply 
Chain Management, but Full Extent of Improvement Unknown, GAO-07-234 
(Washington, D.C.: Jan. 17, 2007). 

[12] Acquisition lead time, also known as procurement lead time, 
measures the length of time between the initiation of a procurement 
action and the receipt of items into the supply system. 

[13] GAO, Defense Inventory: Opportunities Exist to Improve the 
Management of DOD's Acquisition Lead Times for Spare Parts, GAO-07-281 
(Washington, D.C.: Mar. 2, 2007). 

[14] GAO, Defense Inventory: Opportunities Exist to Save Billions by 
Reducing Air Force's Unneeded Spare Parts Inventory, GAO-07-232 
(Washington, D.C.: Apr. 27, 2007). 

[15] Secondary inventory items include reparable components; 
subsystems; and assemblies other than major end items (such as 
aircraft), consumable repair parts, bulk items and materiel, 
subsistence, and expendable end items, including clothing and other 
personal gear. Inventory that is not in DOD's possession but for which 
contracts have been awarded or funds have been committed is considered 
to be on order. 

[16] GAO, Defense Logistics: Improved Oversight and Increased 
Coordination Needed to Ensure Viability of the Army's Prepositioning 
Strategy, GAO-07-144 (Washington, D.C.: Feb. 15, 2007). 

[17] Operational project stocks include items not typically part of 
unit equipment, such as chemical defense equipment, pipeline systems, 
mortuary units, and bare base sets for housing soldiers in austere 
environments. 

[18] Interoperability refers to the ability of different systems to 
communicate effectively, including sharing information. 

[19] GAO, Defense Logistics: DOD Has Begun to Improve Supply 
Distribution Operations, but Further Actions Are Needed to Sustain 
These Efforts, GAO-05-775 (Washington, D.C.: Aug. 11, 2005). 

[20] GAO, Defense Logistics: Preliminary Observations on the 
Effectiveness of Logistics Activities during Operation Iraqi Freedom, 
GAO-04-305R (Washington, D.C.: Dec. 18, 2003). 

[21] Full operational capability means that the system has been 
deployed to all intended locations. 

[22] We conducted this engagement in response to a request from the 
Subcommittee on Readiness and Management Support, Senate Armed Services 
Committee. 

[23] RAND Corporation, Sustainment of Army Forces in Operation Iraqi 
Freedom: Battlefield Logistics and Effects on Operations, Contract No. 
DASW01-C-0003 (Santa Monica, Calif.: 2005). 

[24] Theater sustainment commands provide the Army a single 
headquarters responsible for operational command and control of 
logistics operations throughout the theater. Expeditionary sustainment 
commands, a forward extension of the theater sustainment commands, have 
a primary role of managing regional logistics operations in support of 
the joint task force commander. 

[25] Node management and deployable depot is a Defense Logistics Agency 
initiative to develop a small-scale, rapidly deployable distribution 
center that has the capability to provide consolidated shipping, 
receiving, cross-docking, storage, communication, and order processing. 
Joint regional inventory and material management, identified as one of 
the 10 initiatives in the plan, was discussed earlier in this 
statement. Theater consolidation and shipping points is an effort by 
the Defense Logistics Agency, in coordination with the Army and 
combatant commands, to improve the efficiency and interoperability of 
materiel consolidation and shipping activities. 

[26] Various provisions of Title 10, U.S. Code establish 
responsibilities and authorities for supplying and equipping the armed 
forces. See 10 U.S.C. ßß 3013, 3062, 5013, 5062, 5063, 8013, and 8062. 

[27] Under 10 U.S.C. ß164, unless otherwise directed by the President 
or the Secretary of Defense, the authority, direction, and control of 
the commander of a combatant command with respect to the commands and 
forces assigned to that command include giving authoritative direction 
to subordinate commands and forces necessary to carry out missions 
assigned to the command, including authoritative direction over all 
aspects of military operations, joint training, and logistics. 

[28] Joint Chiefs of Staff, Joint Publication 4-0, Doctrine for 
Logistic Support of Joint Operations (Apr. 6, 2000), p. I-3. 

[29] The other high-risk areas under DOD's approach to business 
transformation are business systems modernization, the personnel 
security clearance program, support infrastructure management, 
financial management, and weapon systems acquisition. 

[30] DOD has identified other actions in addition to portfolio 
management for improving DOD governance. For example, DOD is studying 
ways to establish better strategic direction and exploring options for 
DOD capital resource allocation and funding stability. 

[31] The other three test cases are joint command and control, joint 
net-centric operations, and battlespace awareness. 

[32] GAO-07-234. 

[33] For a listing of these studies and their recommendations, see GAO-
07-234. 

[34] In May 2006, the Deputy Secretary of Defense redesignated the 
Commander, U.S. Transportation Command as DOD's distribution process 
owner. Under this redesignation, the mission of the distribution 
process owner is to oversee the overall effectiveness, efficiency, and 
alignment of DOD-wide distribution activities and to establish concepts 
and operational frameworks relating to the planning and execution of 
DOD transportation operations. 

[35] GAO-05-775. 

[36] GAO, 21st Century Challenges: Reexamining the Base of the Federal 
Government, GAO-05-325SP (Washington, D.C.: February 2005). 

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