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GAO-12-883R: 

United States Government Accountability Office:
Washington, DC 20548: 

August 3, 2012: 

The Honorable Carl Levin:
Chairman:
The Honorable John McCain:
Ranking Member:
Committee on Armed Services:
United States Senate: 

The Honorable Howard P. McKeon:
Chairman:
The Honorable Adam Smith:
Ranking Member:
Committee on Armed Services:
House of Representatives: 

Subject: Defense Logistics: DOD Has Taken Actions to Improve Some 
Segments of the Materiel Distribution System: 

The Department of Defense (DOD) operates a complex, multibillion-
dollar distribution system for delivering needed supplies and 
equipment to U.S. forces across the world. DOD's goal in operating its 
global distribution system is to deliver the right item to the right 
place at the right time, and also at the right cost. The materiel 
distribution system covers multiple legs, from the movement of 
supplies in the continental United States to tactical movement on the 
battlefield, and must be capable of reaching its military customers 
whether they are located on large, well-established bases or at small, 
remote outposts. As we have reported, the federal government is facing 
serious long-term fiscal challenges, and DOD may confront increased 
competition over the next decade for federal discretionary funds. 
[Footnote 1] Given the fiscal environment DOD must operate in now and 
into the future, the distribution of supplies and equipment to the 
warfighter must be performed as effectively and efficiently as 
possible to ensure the best use of limited resources. Strategic 
guidance issued by the Secretary of Defense in January 2012 emphasized 
that DOD must continue to reduce the cost of doing business, in 
particular finding further efficiencies in overhead, business 
practices, and support activities.[Footnote 2] 

Since 1990, GAO has identified DOD supply chain management as a high-
risk area, with materiel distribution as one focus area for 
improvement.[Footnote 3] Our prior work, for example, has identified 
challenges DOD faced in distributing materiel to the warfighter in 
Iraq and Afghanistan, which contributed to shortages of some critical 
items and limited DOD's ability to track the status and location of 
cargo shipments. In its high-level logistics and supply chain 
management plans,[Footnote 4] DOD highlighted the need to improve 
materiel distribution and identified various improvement initiatives, 
but in our prior work we found that these high-level plans did not 
specify how DOD would integrate, guide, and measure the outcomes of 
these various improvement initiatives. In July 2011, we recommended 
that DOD develop a comprehensive corrective action plan for improving 
materiel distribution, and we identified key elements that we believe 
should be included in such a plan to maximize its usefulness.[Footnote 
5] However, DOD did not concur with that recommendation, citing 
ongoing improvement efforts as sufficient. In particular, DOD 
highlighted Distribution Process Owner Strategic Opportunities (DSO) 
as one such effort. According to the department, DSO began in 2008 and 
its main goals are to dramatically reduce enterprise-level 
distribution costs and improve distribution service levels to the 
warfighter. DSO comprises five distinct improvement efforts, including 
four that have been implemented and are ongoing and one, strategic 
network optimization, that is still in development and is now 
considered a stand-alone effort. Within DOD, U.S. Transportation 
Command (TRANSCOM) and the Defense Logistics Agency (DLA) have had key 
roles and responsibilities for developing and implementing DSO. Table 
1 summarizes the five DSO improvement efforts. 

Table 1: DOD's Five DSO Improvement Efforts: 

Effort: Process improvement; 
Description: Removing unnecessary wait time from distribution 
processes across the supply chain; 
Status: Ongoing. 

Effort: Strategic surface optimization; 
Description: Increasing container utilization and appropriately 
shifting cargo from 20-foot containers to 40-foot containers; 
Status: Ongoing. 

Effort: Strategic air optimization; 
Description: Increasing aircraft utilization and optimizing use of 
lift options, such as using commercial (rather than military) aircraft 
when appropriate; 
Status: Ongoing. 

Effort: Supply alignment; 
Description: Properly configuring inventory levels at forward supply 
depots located nearer to the customer; 
Status: Ongoing. 

Effort: Strategic network optimization[A]; 
Description: Designing the optimal number, location, and function of 
supply chain sites; 
Status: In development. 

Source: TRANSCOM and DLA. 

[A] Strategic network optimization began under DSO and is currently 
being managed as a stand-alone effort. 

[End of table] 

Because of continuing congressional interest in GAO's high-risk areas, 
including DOD supply chain management, this report was prepared under 
the authority of the Comptroller General to conduct evaluations on his 
own initiative. This report provides an assessment of DOD's 
implementation of DSO and the results achieved. Our specific 
objectives were to assess the extent to which (1) DOD has developed 
and implemented DSO consistent with results-oriented management 
practices and (2) DSO has made improvements to DOD's materiel 
distribution system and addressed supply chain management challenges 
identified as part of our work related to this high-risk area. 

To assess the extent to which DOD developed and implemented DSO 
consistent with results-oriented management practices, we reviewed key 
planning documents and met with agency officials to obtain further 
information on its management and execution.[Footnote 6] We assessed 
the extent to which these planning documents showed evidence that DOD 
had incorporated key characteristics of results-oriented management 
practices.[Footnote 7] To conduct our analysis, three team members 
concurrently conducted independent assessments of the planning 
documents to determine whether the characteristics for each 
improvement effort were addressed, partially addressed, or not 
addressed. Next, the team members compared the three sets of 
observations and discussed and reconciled any differences. Once 
consensus was achieved, assessments for each improvement effort were 
rolled up into one comprehensive assessment for each characteristic. 
We considered the characteristic addressed when the planning documents 
generally incorporated all parts of the characteristic. We considered 
the characteristic partially addressed when the planning documents 
generally incorporated at least one or more parts of the 
characteristic. We considered the characteristic not addressed when 
the planning documents did not incorporate any part of the 
characteristic. Because strategic network optimization is still under 
development, we reviewed it separately from the implemented efforts.To 
assess the extent to which DSO has made improvements to DOD's materiel 
distribution system and has addressed issues identified in our past 
work, we obtained and analyzed performance data and reports from 
TRANSCOM and DLA, including information on cost avoidances and 
shipment delivery times. We assessed the reliability of the cost 
avoidance and shipment delivery time data by reviewing related data 
documentation, analyzing the methodology used to determine DSO 
improvements, and interviewing and obtaining written comments from 
knowledgeable TRANSCOM and DLA officials. We determined that the data 
were sufficiently reliable for our purposes to assess the extent to 
which DSO has made improvements to DOD materiel distribution. We also 
reviewed planning documents and interviewed Office of the Secretary of 
Defense, TRANSCOM, DLA, and service officials to determine the scope 
of DSO improvement efforts across DOD's materiel distribution system. 
Additional information on our scope and methodology is provided in 
enclosure I. 

We conducted this performance audit from November 2011 to August 2012 
in accordance with generally accepted government auditing standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe 
that the evidence obtained provides a reasonable basis for our 
findings and conclusions based on our audit objectives. 

Results in Brief: 

DOD incorporated results-oriented management practices into the 
planning and development of the four ongoing DSO improvement efforts. 
Additionally, it appears that DOD is incorporating those practices 
into its planning for the fifth effort--strategic network 
optimization--which is still under development. On the basis of our 
assessment of DOD's key planning documents and other information for 
the process improvement, surface optimization, air optimization, and 
supply alignment efforts, we found that DOD addressed the six 
characteristics found in the framework. For example, DOD identified 
the main purpose of the improvement efforts, their scope, and the 
resources needed to execute individual efforts. Preliminary 
observations of DOD's planning for strategic network optimization 
indicate that agency officials are also incorporating results-oriented 
management practices for this effort. For example, DOD has developed a 
mission statement and established mechanisms to coordinate with 
stakeholders. However, because planning is still underway for 
strategic network optimization, we were unable to fully assess the 
extent to which DOD has used result-oriented management practices to 
develop and implement this improvement effort. For example, DOD has 
not yet decided how to implement the effort nor developed specific 
performance measures to assess progress. 

The implemented DSO efforts have improved some segments of DOD's 
materiel distribution system, but these efforts were not intended to 
address all challenges that DOD faces in materiel distribution and 
that we have identified in our past work. When DSO began in 2009, the 
department emphasized two overarching goals: (1) achieve $500 million 
in cost avoidances and (2) improve shipment delivery times by 25 
percent by 2012.[Footnote 8] With regard to the first goal, DOD has 
reported cost efficiencies through increasing utilization of 
containers, pallets, and aircraft; shifting more cargo to larger 
containers; and positioning supplies closer to overseas customers. 
According to DOD, these efficiencies led to over $490 million in cost 
avoidances. With regard to the second goal, DOD reported better 
shipment delivery times for a limited number of customers. For 
example, TRANSCOM's process improvement effort led to better delivery 
times on 31 (6 percent) of DOD's approximately 500 shipping lanes. 
[Footnote 9] TRANSCOM and DLA have been institutionalizing some 
improvements from the four ongoing DSO efforts into their business 
operations. For example, DLA has revised its model for determining the 
types and amount of inventory to position at forward locations to 
factor in transportation costs. The institutionalization of these 
improvements could result in additional efficiencies to DOD's materiel 
distribution system. In addition, following DOD's initial 
implementation of DSO, the Distribution Process Owner Executive Board 
set a new goal in February 2012 for DSO to achieve another $500 
million in cost avoidances by the end of fiscal year 2015, and 
TRANSCOM is pursuing new initiatives to meet this updated goal. 
[Footnote 10] Although DOD has achieved some positive results from its 
DSO efforts, the initiative was not developed with the intent to 
address all challenges that DOD faces in its materiel distribution 
system, including some that we have identified in our prior work on 
supply support to the warfighter. For example, DOD reported better 
delivery times for some customers in three geographic combatant 
commands as a result of DSO, but often did not meet its delivery 
standards for shipments to those commands. Additionally, DSO was 
designed to improve the distribution operations of TRANSCOM and DLA, 
which does not include tactical movement of supplies and equipment 
within theaters of operation, such as Afghanistan. 

We are not making any new recommendations in this report. 

Background: 

The performance of DOD's materiel distribution system relies on many 
stakeholders, each with different responsibilities, systems, and 
processes. Two key stakeholders are TRANSCOM and DLA. With annual 
operating expenses of over $13 billion, TRANSCOM delivers supplies and 
equipment to major hubs across the globe and often across oceans, 
whether by air or by sea. In fiscal year 2011, TRANSCOM shipped more 
than 700,000 tons of cargo by air and nearly 800 million cubic feet of 
cargo by sea. DLA purchases and provides the majority of the spare 
parts needed to maintain weapon systems and other military equipment. 
The agency also supplies food, water, fuel, and many other 
necessities. DLA manages 5 million supply items at 26 distribution 
centers worldwide while processing over 100,000 requisitions for 
supplies every day. 

DOD's materiel distribution system includes four segments--
intracontinental movement, strategic movement, theater movement, and 
tactical movement. (See figure 1.) 

Figure 1: Four Segments of DOD's Materiel Distribution System: 

[Refer to PDF for image: illustrated world map] 

Intracontinental movement: 
Point of Origin, west coast, U.S.; 
Point of Embarkation, east coast, U.S. 

Strategic movement: 

Point of Embarkation, east coast, U.S.; 
Point of Debarkation, Kuwait. 

Transfer movement: 
Point of Debarkation, Kuwait; 
Point of Need, Afghanistan. 

Tactical movement: 
Point of Need, Afghanistan; 
Points of Employment, forward-operating bases, Afghanistan. 

Source: GAO analysis of DOD joint doctrine. 

[End of figure] 

* Intracontinental movement. This segment includes movement from the 
materiel's point of origin (e.g., DLA warehouse or service 
installation) to a port of embarkation (e.g., seaport or aerial port 
in the United States). DLA and the military services normally perform 
distribution functions in this leg. 

* Strategic movement. This segment, also known as the intertheater 
leg, includes movement from the port of embarkation to the port of 
debarkation in another geographic combatant command's area of 
responsibility (e.g., Kuwait aerial port in the U.S. Central Command 
area of responsibility). TRANSCOM normally performs distribution 
functions in this leg. 

* Theater movement. This segment, also known as the intratheater leg, 
includes movement from the port of debarkation to the point of need, 
which is a physical location designated by the geographic combatant 
commander as a receiving point for materiel for subsequent use or 
consumption (e.g., a major base in Afghanistan, such as Bagram 
Airfield). The geographic combatant commander is responsible for 
movement in this leg. TRANSCOM can also provide distribution support 
in this leg. 

* Tactical movement. This segment includes movement from the point of 
need to the point of employment, which is a physical location 
designated by the commander at the tactical level where materiel 
consumption occurs (e.g., a forward-operating base in Afghanistan). 
The geographic combatant commander assigns responsibility to a 
military service for movement in this leg. 

Two organizations within DOD have important oversight roles and 
responsibilities for supply chain management and materiel distribution-
-the Under Secretary of Defense for Acquisition, Technology and 
Logistics, and TRANSCOM. The Under Secretary of Defense for 
Acquisition, Technology and Logistics serves as the principal staff 
assistant and advisor to the Secretary of Defense for all matters 
relating to defense logistics, among other duties. The Under Secretary 
has also been designated as the department's Defense Logistics 
Executive with overall responsibility for improving and maintaining 
defense logistics and the global supply chain system. In addition, in 
his capacity as the Defense Logistics Executive, the Under Secretary 
of Defense for Acquisition, Technology and Logistics has the 
responsibility, in coordination with the Chairman of the Joint Chiefs 
of Staff, to prepare any directives, instructions, and decision memos, 
and to suggest legislative changes, in his area of responsibility. 
TRANSCOM, in addition to its responsibilities for transporting 
supplies and equipment in support of military operations, has been 
designated as DOD's Distribution Process Owner with responsibility for 
overseeing the overall effectiveness, efficiency, and alignment of DOD-
wide distribution activities.[Footnote 11] According to the Office of 
the Secretary of Defense, that role extends to the first three legs of 
distribution and does not include the fourth--tactical movement. We 
have previously reported that excluding this portion of the 
distribution process from TRANSCOM's Distribution Process Owner 
responsibilities leaves a fragmented process without any comprehensive 
oversight or visibility across all four levels of the distribution 
system.[Footnote 12] 

TRANSCOM--in its role as the Distribution Process Owner--began DSO in 
2008 as an effort to identify opportunities to significantly improve 
the performance of DOD-wide distribution processes. This effort was 
intended to identify an actionable set of opportunities--approximately 
five--that would generate substantial cost avoidances and significant 
improvements in the DOD supply chain. A DSO project team began a 
process for identifying potential opportunities to pursue. The team 
first developed criteria for defining a potential "strategic 
opportunity." Some of these criteria included falling within the scope 
of authority granted to the Distribution Process Owner; being based on 
strategies and processes proven to generate results in leading supply 
chains and applicable in the DOD environment; having a plausible path 
to implementation; and being able to produce measurable improvements. 
The next step in the process was to identify possible opportunities 
for improvement. The team identified performance gaps; held 
brainstorming sessions with relevant transportation stakeholders; 
conducted literature reviews; assessed the feasibility of the 
opportunities; and analyzed potential cost avoidances and performance 
improvements. Using this process, the DSO project team identified over 
38 possible opportunities and, by September 2008, had narrowed the 
list down to five actionable efforts. In March 2009, the Distribution 
Process Owner Executive Board approved DSO for implementation. 

Although TRANSCOM initially developed and centrally managed DSO, the 
responsibility for implementing the individual efforts evolved. 
Currently, TRANSCOM is providing oversight for the first three 
efforts--process improvement, strategic surface optimization, and 
strategic air optimization--and DLA is responsible for overseeing 
supply alignment. Strategic network optimization has become a stand-
alone effort. DLA, in collaboration with the military services, is 
involved in the planning for this effort, which is expected to begin 
implementation in October 2013. According to DOD officials, the Office 
of Supply Chain Integration within the Office of the Under Secretary 
of Defense for Acquisition, Technology and Logistics is overseeing the 
effort. 

DOD Used Results-Oriented Management Practices to Develop and 
Implement DSO: 

Our assessment of planning documents and other information for the 
four DSO improvement efforts that have been implemented determined 
that DOD incorporated results-oriented management practices into the 
development and implementation of these efforts. Specifically, our 
analysis showed that the process improvement, surface optimization, 
air optimization, and supply alignment improvement efforts addressed 
the six characteristics of a results-oriented management framework. 
The results of our assessment of these four implemented efforts are 
summarized in table 2. Although development of the fifth DSO effort--
strategic network optimization--is still underway, DOD's planning 
process to date also appears to be incorporating results-oriented 
management practices. 

Table 2: Characteristics of Results-Oriented Management Practices Used 
in Four DSO Improvement Efforts That Have Been Implemented: 

Characteristic: (1) Mission Statement: A comprehensive statement that 
summarizes the main purposes of the plan. 
GAO assessment: Addressed; 
The four implemented DSO efforts generally included comprehensive 
statements that identified the main purposes of each respective plan. 
For example, the process improvement effort's comprehensive statement 
is to reduce unnecessary downtime (namely, delays or redundancies) in 
end-to-end distribution processes that will enable DOD to synchronize 
and optimize elements of its distribution system. 

Characteristic: (2) Problem definition, scope, and methodology: 
Presents the issues to be addressed by the plan, the scope of its 
coverage, the process by which it was developed, and key 
considerations and assumptions used in the development of the plan. 
GAO assessment: Addressed; 
The four implemented DSO efforts generally identified problems to be 
addressed (e.g., identifying potential cost avoidances and 
efficiencies), the scope of coverage, and the methodology by which 
each effort was developed. 
For example, the strategic surface optimization effort determined that 
surface transportation of materiel was not as efficient as it could be 
and that if DOD better-utilized containers to transport cargo, it 
could potentially save as much as $105 million per year. The DSO team 
identified potential opportunities for cargo consolidation and 
shipment delivery-time improvements within the U.S. Central Command, 
the U.S. European Command, and the U.S. Pacific Command areas of 
responsibility. 

Characteristic: (3) Goals, objectives, activities, milestones, and 
performance measures: The identification of goals and objectives to be 
achieved by the plan, activities or actions to achieve those results, 
as well as milestones and performance measures. 
GAO assessment: Addressed; 
The four implemented DSO efforts identified a comprehensive goal of 
achieving $500 million in cost avoidances and improving shipment 
delivery time by 25 percent by the end of fiscal year 2012. Each 
improvement effort identified specific objectives/targets tied to the 
comprehensive goal, including how shipment delivery-time improvements 
will be measured. 
For example, the strategic air optimization effort identified 
objectives of up to $123 million in cost avoidances and up to 10 
percent improvement to shipment delivery times by 2012. In addition, 
the supply alignment effort identified a potential to achieve up to 
$241 million in cost avoidances and a 5 to 15 percent improvement to 
shipment delivery times. 

Characteristic: (4) Resources and investments: The identification of 
costs to execute the plan and the sources and types of resources and 
investments, including skills and technology and the human, capital, 
information, and other resources required to meet the goals and 
objectives. 
GAO assessment: Addressed; 
The four implemented DSO efforts generally identified resources and 
investments needed to reach their goals or desired end states. 
For example, the strategic air optimization effort identified a 
onetime needed investment of up to $15 million over 3 years to develop 
and implement increased weight and volume utilization of aircraft and 
to institutionalize air optimization processes across DOD's 
distribution operations. 

Characteristic: (5) Organizational roles, responsibilities, and 
coordination: The development of roles and responsibilities in 
managing and overseeing the implementation of the plan and the 
establishment of mechanisms for multiple stakeholders to coordinate 
their efforts throughout implementation and make necessary adjustments 
to the plan based on performance. 
GAO assessment: Addressed; 
The four implemented DSO efforts generally identified key stakeholders 
or organizations that have roles in coordinating, implementing, or 
executing these efforts. 
For example, DLA is the lead organization for the supply alignment 
effort and coordinates with stakeholders that include the Defense 
Distribution Centers, the General Services Administration, TRANSCOM, 
and other DOD supply chain management officials at locations outside 
the continental United States. 

Characteristic: (6) Key external factors that could affect the 
achievement of goals: The identification of key factors external to 
the organization and beyond its control that could significantly 
affect the achievement of the long-term goals contained in the plan. 
These external factors can include economic, demographic, social, 
technological, or environmental factors, as well as conditions that 
would affect the ability of the agency to achieve the results desired. 
GAO assessment: Addressed; 
The four implemented DSO efforts generally identified key external 
factors, such as coordinating with stakeholders/organizations that are 
not under the control of the respective effort's lead organization 
(e.g., TRANSCOM or DLA). 
For example, TRANSCOM officials said that as part of their process 
improvement effort, they needed to get cooperation from other DOD or 
federal organizations that play a role in DOD's distribution system. 
By getting cooperation from the General Services Administration for 
distribution of hazardous materials to Afghanistan, DOD was able to 
improve shipment delivery times. Without cooperation from 
organizations outside of TRANSCOM's direct control, officials said 
that they are limited in the amount of shipment delivery time 
improvements that DOD is able to realize. 

Source: GAO analysis of DOD data. 

Note: The four DSO improvement efforts included in this assessment are 
process improvement; strategic surface optimization; strategic air 
optimization; and supply alignment. 

[End of table] 

The descriptions of the individual improvement efforts below provide 
illustrative examples of how results-oriented management practices 
were incorporated into the development and implementation of DSO. 

Process Improvement Incorporated a Comprehensive Statement and Pilot 
Testing: 

The DSO planning team addressed the first and second characteristics 
of results-oriented management practices by developing a comprehensive 
statement describing the purpose of the process improvement effort, 
and by refining a methodology to accomplish the effort's purpose that 
was ultimately applied to other locations. The process improvement 
effort focuses on the removal of unnecessary wait time from 
distribution processes. According to DSO planning documents, 
unnecessary wait time often develops within supply chain centers as 
they modify their formal business practices or adopt informal norms 
that become standard operating procedures. Therefore, the purpose of 
the process improvement effort as identified in DSO planning documents 
is to remove unnecessary wait time and rapidly deploy those improved 
processes across the supply chain. 

As part of their effort to refine the methodology to remove 
unnecessary wait time, the DSO team conducted a pilot test in Europe 
and applied the general methodology from the results of the pilot to 
other locations. For example, TRANSCOM officials identified a 2-week 
delay in processing orders at a facility that held and shipped 
hazardous materials to Afghanistan. Officials said that the amount of 
time it takes to pack materiel into containers for most orders at the 
facility is generally about 20 minutes. However, officials noticed 
that in some cases, certain batches of orders would take more than 2 
weeks to arrive at the warehouse for the cargo to be retrieved and 
packed. In concert with officials at the organization running the 
facility, the DSO team assessed the potential causes for the delay and 
attributed it to some of the order processing procedures at the 
facility. Specifically, the standard operating procedure at the 
facility was to process orders in batches--that is, when individual 
orders were received by the facility, the individual orders would be 
processed as a group. In some cases, the facility would receive an 
individual order that was complicated and required more time to 
process because of the nature of the materiel. Because the processing 
procedures dictated that the orders be processed in batches, the 
relatively easy orders would be delayed while the more-complicated 
order was processed. To address this concern, rather than having 
orders sent in batches, TRANSCOM officials said once an order is 
processed it is sent to the warehouse for packing rather than waiting 
for the entire batch of orders to be processed. As a result of this 
and other process improvements, TRANSCOM officials reported that the 
time it takes to process, pack, and ship hazardous materials from the 
facility to Afghanistan had dropped from 36 days in June 2011 to 11 
days in April 2012. 

Strategic Surface Optimization Identified Clear Goals and Estimated 
Resources: 

As part of the planning and implementation of the strategic surface 
optimization effort, the DSO team addressed the third and fourth 
characteristics of results-oriented management practices by developing 
goals and identifying resources and investments necessary to achieve 
these goals. The strategic surface optimization effort focuses on 
consolidating cargo in the continental United States for certain 
customers into well-utilized, mix-packed 40-foot containers rather 
than pure-packed 20-foot containers.[Footnote 13] Pure packing refers 
to filling a container with cargo intended to arrive at a single 
destination, while mix packing refers to filling a container with a 
mix of cargo that is intended for multiple destinations. Mixed 
containers are often shipped to a regional location outside of the 
continental United States, where the container's contents are 
unpacked, sorted, and shipped to their final destination within that 
region. According to DSO planning documents, the goal of this effort 
is to improve the utilization of containers and packing processes, 
which the planning documents originally estimated could improve the 
speed of delivery by up to 5 percent and result in potential cost 
avoidances of $52 million to $105 million per year through reduced 
shipping costs. To implement initiatives within this DSO effort, the 
DSO planning documents estimated that the resources and investments 
necessary to facilitate the improvement totaled approximately $7 
million to $10 million over a 3-year period. According to the DSO 
planning documents, this investment would institutionalize the use of 
40-foot containers as a common operating practice for surface 
shipments. TRANSCOM officials said that the consolidation of materiel 
into 40-foot containers saves money and improves delivery speed at the 
strategic level. For example, TRANSCOM officials said that, on 
average, 20-foot pure-packed containers take 10 days to fill prior to 
shipping, while 40-foot mix-packed containers take 1.5 days to fill. 
In addition, TRANSCOM officials said that 40-foot containers have 
twice the capacity of 20-foot containers but only cost slightly more 
per container to transport. 

Strategic Air Optimization Identified Inefficiencies and Modified 
Existing Metrics: 

The DSO team addressed the second and third characteristics of results-
oriented management practices by determining that potential cost 
avoidances could be achieved through the increased utilization of 
pallets on air shipments and by modifying pallet utilization metrics. 
The strategic air optimization effort focused on selecting the best 
mode of air transport service (e.g., military versus commercial 
carriers) on the basis of customer requirements and the amount of 
traffic bound for a specific destination. According to DSO planning 
documents, DOD officials did not always optimize cost when using air 
to ship cargo as some planes were not fully utilized. Increasing 
utilization of the pallets on aircraft could potentially reduce air 
transportation costs and, in some cases, improve the speed of 
delivery. The DSO planning documents identified specific goals for 
initiatives conducted under this DSO effort, such as potentially 
avoiding up to $123 million in air cargo costs. To illustrate how the 
strategic air optimization effort could improve efficiency and 
potentially cut costs, TRANSCOM analyzed aircraft utilization at the 
four major aerial ports of embarkation in the continental United 
States[Footnote 14] and identified that changing the metrics used to 
gauge performance could increase pallet utilization. For example, 
TRANSCOM officials found that aerial porters at Dover Air Force Base 
were measuring the number of pallets being transported on aircraft but 
not measuring how much materiel was on each pallet. According to 
TRANSCOM officials, shifting the focus to building fuller pallets 
resulted in 3,200 more tons being shipped on 121 fewer aircraft 
missions. 

Supply Alignment Established Clear Organizational Roles: 

The DSO team addressed the fifth characteristic of results-oriented 
management practices by defining the roles of stakeholders; and 
addressed the fourth characteristic by developing a model to determine 
the appropriate amount of resources needed to implement this effort 
globally. The supply alignment effort focuses on adjusting inventory 
levels at forward supply depots in order to account for transportation 
costs. According to DSO planning documents, by stocking the right 
types and amounts of inventory at forward supply depots, DOD could 
potentially minimize distribution costs and improve customer-service 
levels. During the development of specific initiatives in this DSO 
effort, the DSO planning documents noted that coordination would be 
necessary for multiple organizations--such as DLA, TRANSCOM, the 
General Services Administration, and the services. To identify the 
type and quantity of supplies needed at forward supply depots, DLA 
developed an Economic Movement Quantity model that is based on July 
2010 demand data for supplies at locations outside the continental 
United States. DLA officials stated that implementation of the model's 
results began in July 2011 and involved purchasing additional 
inventory and repositioning existing inventory, including the 
acquisition of $60 million in up-front investments of cash and 
equipment from TRANSCOM and the Army. 

Preliminary Observations Indicate Planning for Strategic Network 
Optimization Is Incorporating Results-Oriented Management Practices: 

Preliminary observations of DOD's planning for strategic network 
optimization indicate that agency officials are incorporating results-
oriented management practices. The strategic network optimization 
effort is being designed to improve logistics efficiencies in DOD's 
distribution network and reduce transportation costs by storing 
materiel at strategically located DLA supply sites (see enclosure II). 
Because planning is still underway for strategic network optimization, 
we were unable to fully assess the extent to which DOD has used result-
oriented management practices to develop and implement this 
improvement effort. Our preliminary observations are summarized in 
table 3. 

Table 3: Preliminary Observations on DOD's Incorporation of Results-
Oriented Management Practices into the Planning of the Strategic 
Network Optimization Improvement Effort: 

Characteristic: (1) Mission Statement: A comprehensive statement that 
summarizes the main purposes of the plan; 
Preliminary observations: This effort's mission statement is to 
optimize the DOD global storage and distribution network while 
continuing to meet customer requirements at the best value and provide 
timely, agile, and effective support to the warfighter. 

Characteristic: (2) Problem definition, scope, and methodology: 
Presents the issues to be addressed by the plan, the scope of its 
coverage, the process by which it was developed, and key 
considerations and assumptions used in the development of the plan; 
Preliminary observations: Officials defined the problem as being 
significant constraints on supply chain performance including 
location, function, and capacity of supply sites and routes. The scope 
is identified as sourcing, storage, and distribution centers inside 
and outside the continental United States. The methodology includes 
three potential courses of action for developing strategically placed 
sourcing and distribution centers inside and outside the continental 
United States, as well as global and domestic centers for the disposal 
of materiel. 

Characteristic: (3) Goals, objectives, activities, milestones, and 
performance measures: The identification of goals and objectives to be 
achieved by the plan, activities or actions to achieve those results, 
as well as milestones and performance measures; 
Preliminary observations: Objectives include (1) leveraging joint 
collaboration across DOD to implement a more efficient strategic 
network that supports the warfighter; and (2) optimizing the global 
storage and distribution network that provides responsive and cost-
effective service. Milestones identified by DLA officials include (1) 
computer simulation of the effort's model in summer 2012; and (2) 
development of DOD budget documents that will identify projected cost 
savings in fiscal year 2014. DLA officials said that specific 
performance measures are being developed. 

Characteristic: (4) Resources and investments: The identification of 
costs to execute the plan and the sources and types of resources and 
investments, including skills and technology and the human, capital, 
information, and other resources required to meet the goals and 
objectives; 
Preliminary observations: Resources and investments include onetime 
implementation costs totaling about $52.1 million, according to DLA 
(Army: $6.4 million; Navy: $0.2 million; Air Force: $4.1 million; 
Marine Corps: $1.1 million; and DLA: $40.3 million). 

Characteristic: (5) Organizational roles, responsibilities, and 
coordination: The development of roles and responsibilities in 
managing and overseeing the implementation of the plan and the 
establishment of mechanisms for multiple stakeholders to coordinate 
their efforts throughout implementation and make necessary adjustments 
to the plan based on performance; 
Preliminary observations: Lead organization: DLA; Stakeholders: 
Collaboration by the Army, Navy, Air Force, and Marine Corps. 
Stakeholders fund implementation costs and are projected to realize 
savings from this effort. 

Characteristic: (6) Key external factors that could affect the 
achievement of goals: The identification of key factors external to 
the organization and beyond its control that could significantly 
affect the achievement of the long-term goals contained in the plan. 
These external factors can include economic, demographic, social, 
technological, or environmental factors, as well as conditions that 
would affect the ability of the agency to achieve the results desired; 
Preliminary observations: External factors identified by DLA officials 
that could affect the achievement of the effort's goals include (1) 
adoption of business rules for acquisition of materiel by stakeholders; 
(2) DLA's reliance on the services to provide accurate cost savings 
data; and (3) collaboration with stakeholders outside of DLA's control. 

Source: GAO analysis of DOD data. 

[End of table] 

In its planning process for strategic network optimization, DOD 
appears to be addressing the characteristics of results-oriented 
management practices. For example, DOD appears to be addressing the 
first characteristic by developing a mission statement. According to 
DOD, the mission of this effort is to optimize the global storage and 
distribution network while continuing to meet customer requirements at 
the best value and provide timely, agile, and effective support to the 
warfighter. Additionally, DOD appears to be addressing the fifth 
characteristic by establishing mechanisms for stakeholders to 
coordinate planning efforts. For example, DLA officials said that they 
lead a planning team that meets biweekly, thus enabling stakeholders 
to raise and address concerns associated with this effort. 
Representatives on this team include officials from TRANSCOM, the 
Joint Staff, and all the services. In addition, DLA officials said 
that the Joint Logistics Board[Footnote 15] and the Distribution 
Process Owner Executive Board serve as governing structures for 
strategic network optimization and are venues where DOD's senior 
leadership are regularly briefed on its progress and can also raise 
concerns. Overall, DLA's planning and development processes for 
strategic network optimization appear to be factoring in input and 
relevant concerns from its stakeholders, including the services. For 
example, DLA initially estimated cost-savings projections[Footnote 16] 
to be approximately $596 million across the services for strategic 
network optimization for fiscal years 2014 to 2018. However, DLA 
officials said that upon further consultation with the services and 
other DOD components, DLA obtained revised data and updated its cost 
savings projections to approximately $476 million. 

Although these examples reflect characteristics of results-oriented 
management practices, we were unable to fully assess this effort 
because planning is still underway. For example, DOD officials told us 
that the latest report on the implementation and cost-savings 
projections for strategic network optimization is still under review, 
and a decision on how to implement the effort has yet to occur. 
Similarly, DLA officials told us that they were in the process of 
developing specific performance measures for strategic network 
optimization, and that these measures would incorporate input from the 
services. 

DSO Has Led to Some Improvements but Does Not Address All Materiel 
Distribution Challenges: 

DOD Reported Transportation Cost Avoidances Attributable to DSO: 

DOD has reported that implementation of DSO resulted in transportation 
cost avoidances. When the Distribution Process Owner Executive Board 
approved implementation of DSO in 2009, it set a goal of achieving 
$500 million in cost avoidances by the end of fiscal year 2012. 
[Footnote 17] As of April 2012, TRANSCOM and DLA reported that the 
implemented DSO initiatives had led to over $490 million in 
transportation cost avoidances. According to DOD, two DSO efforts--
strategic surface optimization and strategic air optimization--
resulted in approximately $481 million in cost avoidances, and a third 
effort--supply alignment--resulted in about $9.5 million in cost 
avoidances. DOD has established processes for calculating, validating, 
and reporting DSO cost avoidances on a regular basis. For example, 
according to TRANSCOM, the DSO team uses a methodology--agreed upon by 
distribution stakeholders including TRANSCOM, DLA, General Services 
Administration, combatant commands, and the services--to calculate 
cost avoidances resulting from a DSO initiative. After the cost 
avoidance has been calculated, TRANSCOM's financial office validates 
the cost-avoidance number or works with the DSO team to correct it. 
The DSO team then publishes its cost-avoidance totals in a monthly 
report. 

TRANSCOM and DLA attribute most of their reported cost avoidances to 
increased use of 40-foot containers and greater utilization of 
container capacity in general; increased utilization of pallet and 
aircraft capacity; and positioning supplies closer to overseas 
customers. These improvements are discussed in greater detail below. 

* Strategic surface optimization. This improvement effort has led to 
increased use of 40-foot containers and greater utilization of 
container capacity, particularly for some cargo shipments to 
Afghanistan, Iraq, and Kuwait. According to TRANSCOM, 40-foot 
containers are more cost-effective than 20-foot containers; they 
provide at least double the allowable space and 12 percent more 
allowable weight, while incurring only a slightly higher cost per 
container and significantly less cost per pound or per cubic foot. 
Since implementation began in January 2009, the percentage of 40-foot 
containers shipped to U.S. Central Command has increased between 22 
and 100 percent for shipments from some DLA and General Services 
Administration locations. Greater use of 40-foot containers, along 
with more-fully utilizing available space and weight capacity in both 
40-foot and 20-foot containers, has reduced the average transportation 
costs per container. Overall, the strategic surface optimization 
effort has resulted in approximately $197 million in cost avoidances, 
according to TRANSCOM. 

* Strategic air optimization. Under this improvement effort, DOD has 
increased utilization of pallets and aircraft for shipments out of the 
four major aerial ports of embarkation in the United States. Since 
implementation began in August 2010, TRANSCOM reports that pallet 
utilization has increased between 2 to 10 percent at the four major 
aerial ports, while aircraft utilization has increased between 2 to 7 
percent. More-fully utilizing available capacity of pallets and 
aircraft at these four locations has reduced the average cost per 
pound for air cargo. Overall, the strategic air optimization effort 
has resulted in approximately $284 million in cost avoidances, 
according to TRANSCOM. 

* Supply alignment. The supply alignment effort aims to reduce 
transportation costs by optimizing the amounts and types of safety-
level supplies[Footnote 18] located at DLA distribution centers 
outside the United States. By optimizing the amounts and types of 
safety-level stock at forward locations, DLA can deliver those 
supplies to its overseas customers by means of theater transportation 
assets, and then replenish its stock levels by surface transportation 
from the United States. According to DLA, this process is less 
expensive than delivering supplies to overseas customers by air from 
the United States. Since implementation began in July 2011, DLA 
reports that supply alignment has allowed DOD to avoid transportation 
costs of approximately $9.5 million. 

The implementation of these DSO efforts has reduced some costs for 
transportation, but other factors can offset the financial benefits of 
DSO. According to TRANSCOM, DSO cost avoidances accrue to the 
services' overseas contingency operations budgets and allow the 
services to fund other priorities. For example, the supply alignment 
effort enables DOD to reduce transportation costs by shipping more 
cargo on surface routes, which is less expensive than transporting 
cargo by air. Additionally, according to TRANSCOM, transportation 
efficiencies obtained through implementing DSO initiatives--such as 
using more 40-foot containers--could lead to reductions in 
transportation rates charged to the services and other customers. 
However, other factors--including higher fuel prices, expenses 
incurred by commercial contractors, and DOD actions to encourage use 
of military transportation[Footnote 19]--also affect transportation 
rates and can offset the financial benefits of DSO. Service officials 
stated that it is unclear to what extent DSO has affected 
transportation rates in recent years, and in some cases officials have 
actually seen transportation rates increase. However, they added that 
it is possible that the DSO cost avoidances had kept the rates from 
increasing any further. 

TRANSCOM and DLA officials told us that they are institutionalizing 
into their business operations some of the improvements from the 
ongoing DSO efforts. For example, according to TRANSCOM officials, the 
command has revised its business processes to better utilize pallet 
and container space, and to use more cost-effective 40-foot containers 
for shipping cargo to overseas locations. TRANSCOM also has 
incorporated certain DSO-related metrics into executive-level 
briefings to provide visibility to commanders. For example, according 
to TRANSCOM officials, these briefings now include aircraft and pallet 
utilization rates, which were not previously tracked and reported. 
Additionally, DLA has incorporated into its business operations the 
revised model it used to optimize the positioning of safety level 
supplies at overseas locations. According to DLA officials, the model 
will continue to assess demand levels and transportation costs to 
achieve an optimal design for the positioning of safety-level 
supplies, whether they be at overseas distribution centers or sites in 
the United States. The institutionalization of these DSO improvements 
could result in additional cost avoidances and better delivery 
performance along some segments of the distribution system. In 
addition, following DOD's initial implementation of DSO, the 
Distribution Process Owner Executive Board set a new goal in February 
2012 for DSO to achieve another $500 million in cost avoidances by the 
end of fiscal year 2015. According to TRANSCOM officials, the DSO team 
is pursuing new initiatives to meet this goal, such as minimizing the 
number of aircraft flights to locations outside of the United States 
by consolidating cargo from multiple locations within the United 
States. 

DOD Reported Better Delivery Times for Customers on a Limited Number 
of Shipping Lanes as a Result of DSO: 

DOD also reported that the implemented DSO efforts have contributed to 
better delivery times for some customers. When the Distribution 
Process Owner Executive Board approved implementation of DSO in 2009, 
it set a goal of improving shipment delivery times by 25 percent by 
the end of the fiscal year 2012. According to DOD, TRANSCOM's process 
improvement effort and DLA's supply alignment effort led to better 
delivery times for customers on a limited number of shipping lanes and 
from certain overseas distribution centers. These improvements are 
discussed in greater detail below. 

* Process improvement. According to TRANSCOM, the DSO process 
improvement effort, which includes efficiency concepts from the 
strategic surface optimization and strategic air optimization efforts, 
improved shipment delivery times ranging from 7 to 40 percent on a 
limited number of shipping lanes to customers in three geographic 
combatant commands--U.S. European Command, U.S. Pacific Command, and 
U.S. Central Command. TRANSCOM estimates that 31 shipping lanes were 
affected by this improvement effort. These lanes represent a small 
number--approximately 6 percent--of DOD's 500 shipping lanes 
worldwide. TRANSCOM officials told us they targeted for improvement 
those shipping lanes that had the greatest potential for increasing 
delivery performance within a geographic combatant command--such as 
those with poor delivery performance and those with distribution 
partners willing to undergo change. TRANSCOM officials cited a number 
of initiatives under the process improvement effort that contributed 
to improved shipping delivery times across the three geographic 
combatant commands. For example, in an effort to maximize container 
and pallet utilization, as well as reduce the time cargo spends at the 
source of supply, the U.S. European Command adopted new procedures to 
consolidate cargo bound for different customers and to better align 
its distribution operations with commercial transportation schedules. 
Process improvements in the U.S. Pacific Command included 
reconfiguring warehouse operations to more-quickly receive and process 
cargo, as well as better consolidating cargo into containers at a U.S.-
based distribution center. Furthermore, for shipments to Afghanistan 
in the U.S. Central Command, DOD increased the efficiency of floor 
operations and set goals for how quickly shipments should be processed 
and packed at their U.S.-based supply warehouse. 

* Supply alignment. DLA reported improvements to delivery performance 
for some customers as a result of supply alignment. Specifically, DLA 
data show average delivery times improved for shipments from seven 
distribution centers outside the continental United States. According 
to DLA, these improved delivery times, ranging from 6 to 43 percent at 
the affected distribution centers as of April 2012, resulted from 
positioning some safety-level supplies closer to overseas military 
customers, rather than from DLA centers in the United States. 

Since the Distribution Process Owner Executive Board approved DSO for 
implementation in March 2009, DOD has placed greater emphasis on 
achieving cost avoidances through DSO and less emphasis on reducing 
shipment delivery times, according to TRANSCOM. TRANSCOM no longer 
tracks shipment delivery-time improvements specifically resulting from 
DSO,[Footnote 20] and the Distribution Process Owner Executive Board 
has not set a new goal for improving delivery times to coincide with 
the goal of $500 million in cost avoidances to be achieved by the end 
of fiscal year 2015. Although the board did not set a new goal for 
improving delivery times, shipment delivery times continue to be a 
consideration. For example, TRANSCOM has a metrics branch that 
regularly analyzes shipment delivery times along the first three 
segments of the distribution system, assesses performance against 
DOD's time-definite delivery standards, and coordinates with 
distribution stakeholders to address performance gaps as they occur. 
Additionally, TRANSCOM officials stated that future cost avoidance 
initiatives to be conducted as part of the DSO improvement efforts 
will include an assessment of delivery times. 

DSO Was Not Designed to Address All Challenges DOD Faces in Materiel 
Distribution: 

Although DSO has had some positive results, it was not designed to 
address all challenges that DOD faces in materiel distribution. In 
prior reports, we have identified challenges in the distribution of 
supplies and equipment to the warfighter, most recently in 
Afghanistan.[Footnote 21] For example, we found that DOD did not 
always meet time-definite delivery standards for shipments to 
Afghanistan. Time-definite delivery is a key metric the department 
uses to track supply chain performance over time. According to DOD 
guidance, time-definite delivery standards are designed to provide 
customers with the assurance that, in a specified level of 
probability, they will receive items ordered through DOD's logistics 
system in a definite period. TRANSCOM officials stated DOD has set a 
goal that 85 percent of shipments[Footnote 22] transported on shipping 
lanes to the geographic combatant commands meet established time-
definite delivery standards. However, from December 2009 through March 
2011, surface shipments of supplies to Afghanistan did not once meet 
this goal for time-definite delivery, and commercial air shipments 
from the United States met the goal only six times over that time 
frame. 

As previously stated, DOD has improved delivery performance on a 
limited number of lanes in three combatant commands--U.S. European 
Command, U.S. Pacific Command, and U.S. Central Command. However, 
overall time-definite delivery performance for shipments to those 
combatant commands is varied. In the 31 months between October 2009 
and April 2012, which includes the time frame of DSO implementation, 
DOD often did not achieve its goal for meeting time-definite delivery 
standards (see fig. 2). Specifically, on a monthly basis, DOD met the 
85-percent goal twice for the U.S. European Command and seven times 
for the U.S. Pacific Command, but did not meet its 85 percent goal for 
the U.S. Central Command.[Footnote 23] According to TRANSCOM 
officials, several factors affect DOD's delivery time, including which 
mode of transportation is used. For example, surface delivery, while 
cheaper, is generally much slower than air delivery. Therefore, 
shipping more cargo by surface could lead to lower costs but also 
longer delivery times. 

Figure 2: Percent of Shipments Meeting Time-Definite Delivery 
Standards: 

[Refer to PDF for image: multiple line graph] 

Percentage of shipments meeting standard: Goal: 85%. 

Date: October, 2009; 
U.S. European Command: 83%; 
U.S. Pacific Command: 78%; 
U.S. Central Command: 76%. 

Date: November, 2009; 
U.S. European Command: 85% (met goal); 
U.S. Pacific Command: 77%; 
U.S. Central Command: 76%. 

Date: December, 2009; 
U.S. European Command: 82%; 
U.S. Pacific Command: 81%; 
U.S. Central Command: 78%. 

Date: January, 2010; 
U.S. European Command: 73%; 
U.S. Pacific Command: 79%; 
U.S. Central Command: 74%. 

Date: February, 2010; 
U.S. European Command: 82%; 
U.S. Pacific Command: 82%; 
U.S. Central Command: 72%. 

Date: March, 2010; 
U.S. European Command: 76%; 
U.S. Pacific Command: 86% (met goal); 
U.S. Central Command: 74%. 

Date: April, 2010; 
U.S. European Command: 69%; 
U.S. Pacific Command: 85% (met goal); 
U.S. Central Command: 79%. 

Date: May, 2010; 
U.S. European Command: 77%; 
U.S. Pacific Command: 85% (met goal); 
U.S. Central Command: 82%. 

Date: June, 2010; 
U.S. European Command: 70%; 
U.S. Pacific Command: 83%; 
U.S. Central Command: 67%. 

Date: July, 2010; 
U.S. European Command: 73%; 
U.S. Pacific Command: 78%; 
U.S. Central Command: 71%. 

Date: August, 2010; 
U.S. European Command: 81%; 
U.S. Pacific Command: 83%; 
U.S. Central Command: 75%. 

Date: September, 2010; 
U.S. European Command: 81%; 
U.S. Pacific Command: 81%; 
U.S. Central Command: 70%. 

Date: October, 2010; 
U.S. European Command: 78%; 
U.S. Pacific Command: 80%; 
U.S. Central Command: 65%. 

Date: November, 2010; 
U.S. European Command: 79%; 
U.S. Pacific Command: 78%; 
U.S. Central Command: 67%. 

Date: December, 2010; 
U.S. European Command: 73%; 
U.S. Pacific Command: 80%; 
U.S. Central Command: 71%. 

Date: January, 2011; 
U.S. European Command: 67%; 
U.S. Pacific Command: 74%; 
U.S. Central Command: 68%. 

Date: February, 2011; 
U.S. European Command: 75%; 
U.S. Pacific Command: 80%; 
U.S. Central Command: 63%. 

Date: March, 2011; 
U.S. European Command: 86% (met goal); 
U.S. Pacific Command: 81%; 
U.S. Central Command: 72%. 

Date: April, 2011; 
U.S. European Command: 84%; 
U.S. Pacific Command: 81%; 
U.S. Central Command: 77%. 

Date: May, 2011; 
U.S. European Command: 77%; 
U.S. Pacific Command: 82%; 
U.S. Central Command: 74%. 

Date: June, 2011; 
U.S. European Command: 70%; 
U.S. Pacific Command: 86% (met goal); 
U.S. Central Command: 74%. 

Date: July, 2011; 
U.S. European Command: 78%; 
U.S. Pacific Command: 84%; 
U.S. Central Command: 71%. 

Date: August, 2011; 
U.S. European Command: 82%; 
U.S. Pacific Command: 83%; 
U.S. Central Command: 70%. 

Date: September, 2011; 
U.S. European Command: 82%; 
U.S. Pacific Command: 85% (met goal); 
U.S. Central Command: 71%. 

Date: October, 2011; 
U.S. European Command: 75%; 
U.S. Pacific Command: 84%; 
U.S. Central Command: 71%. 

Date: November, 2011; 
U.S. European Command: 74%; 
U.S. Pacific Command: 83%; 
U.S. Central Command: 77%. 

Date: December, 2011; 
U.S. European Command: 68%; 
U.S. Pacific Command: 77%; 
U.S. Central Command: 73%. 

Date: January, 2012; 
U.S. European Command: 73%; 
U.S. Pacific Command: 79%; 
U.S. Central Command: 77%. 

Date: February, 2012; 
U.S. European Command: 80%; 
U.S. Pacific Command: 86% (met goal); 
U.S. Central Command: 74%. 

Date: March, 2012; 
U.S. European Command: 83%; 
U.S. Pacific Command: 86% (met goal); 
U.S. Central Command: 78%. 

Date: April, 2012; 
U.S. European Command: 81%; 
U.S. Pacific Command: 82%; 
U.S. Central Command: 80%. 

Source: GAO analysis of DOD data. 

[End of figure] 

DSO has contributed to improvements in the first three segments of 
distribution (intracontinental movement, strategic movement, and 
theater movement), but was not designed to optimize the entire 
distribution system. DSO was specifically designed by TRANSCOM, as the 
Distribution Process Owner, to improve the efficiency and 
effectiveness of the first three distribution segments, but its scope 
does not include efforts or initiatives specifically targeting the 
fourth segment of distribution--tactical movement. In our report on 
distribution challenges in Afghanistan, we found that DOD's oversight 
of the distribution of supplies and equipment to the warfighter across 
all four distribution legs is fragmented.[Footnote 24] TRANSCOM 
officials acknowledged that because DSO focuses on the first three 
segments, the ability of DSO to optimize DOD's entire distribution 
system is limited. 

Agency Comments and Our Evaluation: 

In oral comments on a draft of this report, officials from the Office 
of the Assistant Secretary of Defense for Logistics and Materiel 
Readiness acknowledged that the DSO initiatives do not address 
distribution or transportation tracking beyond TRANSCOM's 
responsibilities. The officials also stated that the TRANSCOM-led 
Joint Deployment and Distribution Enterprise[Footnote 25] governance 
structure conducts quarterly performance metric reviews with the 
combatant commands and military services to review distribution 
performance data to the point of use. According to the officials, 
these meetings are used to investigate and correct abnormalities that 
occur in the tactical segment of the distribution process, which 
result in the combatant commands and military services resolving 
distribution issues affecting multiple components and providing result-
oriented management practices in the tactical distribution segment. 

Our review focused on the implementation of DSO and the results 
achieved, and we did not assess the activities of the Joint Deployment 
and Distribution Enterprise governance structure as part of this 
review. According to DOD joint doctrine, the department uses the Joint 
Deployment and Distribution Enterprise to deliver joint end-to-end 
movement of forces and sustainment from point of origin to the 
designated point of need--the first three legs of distribution. In our 
prior report on distribution problems in Afghanistan, we found that 
TRANSCOM, which leads the Joint Deployment and Distribution 
Enterprise, did not have full oversight of the distribution of 
supplies and equipment to the warfighter, and only monitored 
performance metrics for distribution along the first three legs of the 
distribution system.[Footnote 26] Accordingly, we made recommendations 
in our prior report aimed at providing more comprehensive oversight of 
the materiel distribution system, but DOD disagreed. Specifically: 

* We recommended that the department revise the instructions for the 
Distribution Process Owner to provide clear guidance on how TRANSCOM 
is to oversee the overall effectiveness, efficiency, and alignment of 
DOD-wide distribution activities, to include the fourth leg of 
distribution. The department disagreed, stating that distribution from 
the theater to tactical level (point of need to point of employment) 
is not the responsibility of TRANSCOM. 

* We recommended that the Secretary of Defense direct the U.S. Central 
Command to direct U.S. Forces-Afghanistan to provide regular reports 
to TRANSCOM on delivery performance for shipments within Afghanistan. 
The department disagreed with the need for U.S. Central Command to 
provide TRANSCOM metrics relating to the fourth leg of distribution 
for the reasons stated above. 

* We recommended that the Secretary of Defense direct the Commander of 
TRANSCOM to incorporate the delivery performance reports from U.S. 
Forces-Afghanistan into the command's review of distribution metrics, 
in order for TRANSCOM to measure the performance of DOD's entire 
distribution system. The department disagreed with the need for U.S. 
Central Command to provide TRANSCOM metrics because it said TRANSCOM 
already tracks time definite delivery standard metrics that include 
logistics response time. 

As we previously reported, for TRANSCOM to more effectively coordinate 
and synchronize the enterprise to meet joint force commander 
requirements, it would benefit from having an awareness of 
distribution requirements and processes in the fourth leg, from the 
point of need to the point of employment. Accordingly, we are 
encouraged that the department has acknowledged the need for some 
level of oversight across all four legs of the materiel distribution 
system. 

We are sending a copy of this report to appropriate congressional 
committees and the Secretary of Defense. The report will also be 
available at no charge on our website at [hyperlink, 
http://www.gao.gov]. 

If you or your staff have any questions about this report, please 
contact me at (202) 512-5431 or russellc@gao.gov. Contact points for 
our Offices of Congressional Relations and Public Affairs may be found 
on the last page of this report. GAO staff who made major 
contributions to this report are listed in enclosure III. 

Signed by: 

Cary B. Russell: 
Acting Director, Defense Capabilities and Management: 

Enclosures - 3: 

[End of section] 

Enclosure I: Scope and Methodology: 

To assess the extent to which the Department of Defense (DOD) has 
developed and implemented Distribution Process Owner Strategic 
Opportunities (DSO) consistent with results-oriented management 
practices, we reviewed planning documents and other information for 
the four implemented DSO efforts--process improvement, strategic 
surface optimization, strategic air optimization, and supply 
alignment. We assessed to what extent these documents incorporated the 
six characteristics of results-oriented management practices as 
identified in previous GAO reports. Three GAO analysts evaluated and 
individually assessed each characteristic for each improvement effort 
as "addressed," "partially addressed," or "not addressed." These 
categories were defined as follows: 

* Addressed: All parts of the characteristic are generally addressed. 

* Partially addressed: One or more parts of the characteristic, but 
not all parts of the characteristic, are generally addressed. 

* Not addressed: No part of the characteristic is addressed. 

Upon completion of the individual evaluations, the analysts discussed 
their assessments, identified any differences, and reached a consensus 
in areas where their individual assessments differed. Once consensus 
was achieved, assessments for each improvement effort were rolled up 
into one comprehensive assessment for each characteristic. For 
example, if the assessments for all four improvement efforts were 
"addressed" for the mission statement characteristic, then the 
assessment table (see table 2) would reflect this with the assessment 
"addressed" for the mission statement characteristic. Preliminary 
observations for the strategic network optimization improvement effort 
are illustrative examples of planning efforts provided through 
interviews with Defense Logistics Agency (DLA) officials and strategic 
network optimization planning briefing slides. We did not conduct a 
formal assessment of the strategic network optimization improvement 
effort because this effort is still in the planning stages. 
Implementation of the strategic network optimization improvement 
effort is scheduled for October 2013. 

To assess the extent to which DSO has made improvements to DOD's 
materiel distribution system and has addressed issues identified in 
our past work, we obtained and analyzed data and reports from U.S. 
Transportation Command (TRANSCOM) and DLA on cost avoidance and 
shipment delivery times since DSO implementation began in fiscal year 
2009, and interviewed TRANSCOM, DLA, and military service officials to 
obtain additional information on DSO improvements. We analyzed 
TRANSCOM's monthly DSO cost-avoidance reports that document cost 
avoidances resulting from the strategic surface and air optimization 
efforts; TRANSCOM briefings and other documents on improvements to 
shipment delivery times for a limited number of shipping lanes 
resulting from the process improvement effort; and DLA's monthly 
reports that document cost avoidances and shipment delivery-time 
improvements resulting from the supply alignment effort. We assessed 
the reliability of the cost avoidance and shipment delivery-time data 
by reviewing related data documentation, analyzing the methodology 
used to determine DSO improvements, and interviewing and obtaining 
written comments from knowledgeable TRANSCOM and DLA officials. We 
found that TRANSCOM and DLA calculate cost avoidance and shipment 
delivery times by using data from multiple sources. These sources are 
often operated by DOD organizations outside of TRANSCOM and DLA 
control, and those organizations are responsible for maintaining 
quality control over the data. Officials stated that the data sources 
fulfill their need to calculate cost avoidance and shipment delivery-
time improvements, and that any identified data discrepancies are 
addressed in consultation with distribution stakeholders. Thus, we 
determined that the data were sufficiently reliable for our purposes 
to assess the extent to which DSO has made improvements to DOD 
materiel distribution. Finally, we obtained and reviewed DSO planning 
and implementation documents and interviewed Office of the Secretary 
of Defense, Joint Staff, TRANSCOM, DLA, and military service officials 
to determine the scope of DSO improvement efforts across DOD's 
materiel distribution system. 

In conducting our work, we contacted and obtained information from the 
following organizations: 

² Office of the Deputy Assistant Secretary of Defense for Supply Chain 
Integration: 

² Joint Staff, Logistics: 

² TRANSCOM, Strategy, Policy, Programs, and Logistics: 

² DLA, Logistics Operations: 

² Office of the Deputy Chief of Staff of the Army, Logistics: 

² Office of the Chief of Naval Operations, Logistics: 

² Office of the Deputy Chief of Staff of the Air Force, Logistics, 
Installations, and Mission Support: 

² Office of the Deputy Commandant of the Marine Corps, Installations 
and Logistics: 

We conducted this performance audit from November 2011 to August 2012 
in accordance with generally accepted government auditing standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe 
that the evidence obtained provides a reasonable basis for our 
findings and conclusions based on our audit objectives. 

[End of section] 

Enclosure II: Strategic Network Optimization: 

The strategic network optimization effort is designed to improve 
logistics efficiencies in the Department of Defense distribution 
network and reduce transportation costs by storing materiel at 
strategically located Defense Logistics Agency (DLA) supply centers. 
The current plan for this effort is to designate five major source 
nodes across the continental United States, which will distribute 
materiel to 12 regional storage and distribution centers. These nodes 
and centers will be located at existing installations (see figure 3). 
In addition, nine source nodes have been identified outside the 
continental United States that DLA expects will allow it to more-
efficiently move materiel forward and backward across the global 
distribution network (see figure 4). 

Figure 3: Planned Locations of Strategic Network Optimization Sites in 
the Continental United States: 

[Refer to PDF for image: illustrated U.S. map] 

Source node: 
Oklahoma City, Oklahoma; 
Red River, Texas; 
San Joaquin, California; 
Susquehanna, New York; 
Warner Robins, Georgia. 

Storage and distribution center: 
Albany, Georgia; 
Anniston, Alabama; 
Barstow, California; 
Cherry Point, North Carolina; 
Corpus Christi, Texas; 
Hill, Utah; 
Jacksonville, Florida; 
Norfolk, Virginia; 
Puget Sound, Washington; 
Richmond, Virginia; 
San Diego, California; 
Tobyhanna, Pennsylvania. 

Source: DOD. 

[End of figure] 

Figure 4: Planned Locations of Strategic Network Optimization Sites 
outside the Continental United States: 

[Refer to PDF for image: illustrated world map] 

Pearl Habor, Hawaii; 
Rota, Spain; 
Europe (Germany); 
Bahrain; 
Korea; 
Guam; 
Sasabo, Japan; 
Okinawa, Japan; 
Yokosuka, Japan. 

Source: DOD. 

[End of figure] 

[End of section] 

Enclosure III: GAO Contact and Staff Acknowledgments: 
GAO Contact: 

Cary B. Russell, (202) 512-5431 or russellc@gao.gov: 

Staff Acknowledgments: 

In addition to the contact named above, key contributors to this 
report were Thomas Gosling, Assistant Director; Susan Ditto; Jim 
Melton; Geoffrey Peck; Amie Steele; Michael Willems; and Richard 
Winsor. 

[End of section] 

Footnotes: 

[1] GAO, The Federal Government's Long-Term Fiscal Outlook: January 
2010 Update, GAO-10-468SP (Washington, D.C.: March 2010); and 21st 
Century Challenges: Reexamining the Base of the Federal Government, 
GAO-05-325SP (Washington, D.C.: February 2005). 

[2] Department of Defense, Sustaining U.S. Global Leadership: 
Priorities for 21st Century Defense (Jan. 5, 2012). 

[3] This high-risk area was originally identified in 1990 as DOD 
inventory management. In 2005, it was expanded to DOD's management of 
its entire supply chain, which includes three focus areas for 
improvement: requirements forecasting, asset visibility, and materiel 
distribution. For our most recent update, see GAO, High-Risk Series: 
An Update, GAO-11-278 (Washington, D.C.: February 2011). 

[4] These include DOD's Supply Chain Management Improvement Plan 
(2005), Focused Logistics Roadmap (2005), Logistics Roadmap (2008), 
and Logistics Strategic Plan (2010). 

[5] 

Specifically, our recommendation stated that DOD's corrective action 
plan for materiel distribution should (1) identify the scope and root 
causes of capability gaps and other problems, effective solutions, and 
actions to be taken to implement the solutions; (2) include the 
characteristics of effective strategic planning, including a mission 
statement; goals and related strategies (for example, objectives and 
activities); performance measures and associated milestones, 
benchmarks, and targets for improvement; resources and investments 
required for implementation; key external factors that could affect 
the achievement of goals; and the involvement of all key stakeholders 
in a collaborative process to develop and implement the plan; and (3) 
document how the department will integrate these plans with its other 
decision-making processes; delineate organizational roles and 
responsibilities; and support department-wide priorities identified in 
higher-level strategic guidance (such as the Strategic Management Plan 
and Logistics Strategic Plan). See GAO, Defense Logistics: DOD Needs 
to Take Additional Actions to Address Challenges in Supply Chain 
Management, GAO-11-569 (Washington, D.C.: July 28, 2011). 

[6] According to TRANSCOM officials, the two main planning documents 
for DSO were Distribution Process Owner Strategic Opportunities Fiscal 
Year 2008 Report (Sept. 26, 2008) and DPO Strategic Opportunities 
Recommended Implementation Plan: Process Improvement, Strategic 
Surface Optimization, and Strategic Air Optimization (Sept. 30, 2009). 

[7] 

Our prior work has identified six desirable characteristics that help 
establish a comprehensive, results-oriented management framework to 
guide the development and implementation of improvement efforts. The 
six characteristics of the results-oriented management framework are: 
(1) mission statement; (2) problem definition, scope, and methodology; 
(3) goals, objectives, activities, milestones, and performance 
measures; (4) resources and investments; (5) organizational roles, 
responsibilities, and coordination; and (6) key external factors that 
could affect the achievement of goals. See GAO, Combating Terrorism: 
Evaluation of Selected Characteristics in National Strategies Related 
to Terrorism, GAO-04-408T (Washington, D.C.: Feb. 3, 2004); Depot 
Maintenance: Improved Strategic Planning Needed to Ensure That Air 
Force Depots Can Meet Future Maintenance Requirements, GAO-10-526 
(Washington, D.C.: May 14, 2010); and DOD's 2010 Comprehensive 
Inventory Management Plan Addressed Statutory Requirements, But Faces 
Implementation Challenges, GAO-11-240R (Washington, D.C.: Jan. 7, 
2011). 

[8] Cost avoidance refers to costs that DOD would have incurred if the 
DSO initiatives had not been implemented. Shipment delivery time, also 
known as logistics response time, measures the time from submission of 
a requisition for an item to the delivery of the item to a retail 
supply organization, such as an Army supply support activity. 

[9] Shipping lanes are defined by the location of the military 
customer, the mode of transportation used to deliver requisitioned 
supplies, and the location of the supply source. For example, DOD 
operates a shipping lane that delivers repair parts to customers in 
South Korea by means of U.S. military aircraft from Defense Depots 
located in the continental United States. 

[10] The Distribution Process Owner Executive Board is the senior 
decision-making forum charged with implementing initiatives in this 
area. The board is chaired by the TRANSCOM Commander, and members 
include the Deputy Under Secretary of Defense for Logistics and 
Materiel Readiness; General Services Administration; the Director of 
the Joint Staff J4; the DOD Deputy Chief Management Officer; and the 
Director of the Defense Logistics Agency. Other DOD stakeholders--such 
as the combatant commands and military services--also provide 
representatives. 

[11] According to DOD Instruction 5158.06, Distribution Process Owner 
(DPO) (Sept. 11, 2007), the process owner "has the responsibility for 
coordinating, sustaining, and improving processes; coordinating the 
creation of new processes, where appropriate; and being accountable 
for their outcomes. Process owners advocate improvements for and 
across all DoD Components for effectiveness, efficiency, and alignment 
relevant to a particular process." See also DOD Directive 5158.04, 
United States Transportation Command (USTRANSCOM) (Sept. 11, 2007). 

[12] GAO, Warfighter Support: DOD Has Made Progress, but Supply and 
Distribution Challenges Remain in Afghanistan, GAO-12-138 (Washington, 
D.C.: Oct. 7, 2011). 

[13] According to Marine Corps officials, 40-foot containers generally 
cannot be used for cargo being moved to forward-operating bases in 
tactical environments. 

[14] The four aerial ports of embarkation are: Dover Air Force Base, 
Delaware; Joint Base McGuire-Dix-Lakehurst, New Jersey; Travis Air 
Force Base, California; and Naval Air Station Norfolk, Virginia. 

[15] The Joint Logistics Board is co-chaired by the Assistant 
Secretary of Defense for Logistics and Materiel Readiness and the 
Joint Staff Director for Logistics, J-4. 

[16] According to DLA officials, the projected cost savings for the 
strategic network optimization improvement effort are estimates of 
potential reductions from the operations and maintenance budgets for 
the services and DOD components. 

[17] The minutes of the Distribution Process Owner Executive Board's 
March 2009 meeting stated that the goals for DSO were to be achieved 
by January 2012. However, according to TRANSCOM, the board's goals 
were subsequently understood to be achieved by the end of fiscal year 
2012. 

[18] Safety levels are the amount of stock that is to be kept on hand 
in case of minor interruptions in the resupply process or fluctuations 
in demand. 

[19] According to TRANSCOM, DOD sets some air transportation rates 
according to what commercial companies charge for similar services, in 
order to encourage use of DOD-operated air services. Because these 
rates do not always cover all transportation costs, DOD uses a 
dedicated funding account to pay for the difference. Any DSO 
initiatives that make these air transportation services more efficient 
could reduce the amount DOD must pay out of its dedicated funding 
account to cover the difference between the actual costs incurred and 
DOD's air transportation rates, but they would not necessarily reduce 
DOD's rates. 

[20] According to TRANSCOM officials, the DSO team tracks the delivery-
time improvements resulting from DSO initiatives for a period of 6 to 
10 months following implementation of a process change to confirm that 
the improvements are enduring. Because the last major initiative to 
improve shipment delivery times was concluded in the summer of 2011, 
the DSO team is no longer tracking the delivery time effects of DSO 
initiatives. 

[21] GAO-12-138. 

[22] According to TRANSCOM, delivery times are tracked for wholesale 
requisitioned items, primarily supply classes II (e.g., clothing), IX 
(e.g., repair parts), III (e.g., packaged petroleum), and IV (e.g., 
construction materials), with unplanned direct vendor deliveries 
removed from the data. 

[23] According to TRANSCOM officials, while DOD has often not met its 
overarching 85-percent goal for this time period, some specific 
shipping lanes are meeting the goal. For example, according to 
documents provided by TRANSCOM, specific shipping lanes to U.S. 
Central Command--such as commercial air shipments to Afghanistan and 
Qatar--met the 85-percent goal in March and April 2012. 

[24] GAO-12-138. 

[25] According to DOD joint doctrine, the Joint Deployment and 
Distribution Enterprise is the complex of equipment, procedures, 
doctrine, leaders, technical connectivity, information, shared 
knowledge, organizations, facilities, training, and materiel necessary 
to conduct joint distribution operations. The Joint Logistics 
(Distribution) Joint Integrating Concept states that TRANSCOM, as 
Distribution Process Owner, has responsibility to coordinate and 
synchronize the Joint Deployment and Distribution Enterprise. 

[26] GAO-12-138. 

[End of section] 

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