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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 10:00 a.m. EDT: 

Tuesday, July 25, 2006: 

DOD's High-risk areas: 

Challenges Remain to Achieving and Demonstrating Progress in Supply 
Chain Management: 

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

GAO-06-983T: 

GAO Highlights: 

Highlights of GAO-06-983T, 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 Department of Defense (DOD) maintains a military force with 
unparalleled logistics capabilities, but it continues to confront 
decades-old supply chain management problems. The supply chain can be 
the critical link in determining whether our frontline military forces 
win or lose on the battlefield, and the investment of resources in the 
supply chain is substantial. Because of weaknesses in DOD’s supply 
chain management, this program has been on GAO’s list of high-risk 
areas needing urgent attention and transformation since 1990. Last 
year, DOD developed a plan to resolve its long-term supply chain 
problems in three focus areas: requirements forecasting, asset 
visibility, and materiel distribution. In October 2005, GAO testified 
that the plan was a good first step. 

GAO was asked to provide its views on DOD’s progress toward (1) 
implementing the supply chain management improvement plan and (2) 
incorporating performance measures for tracking and demonstrating 
improvement, as well as to comment on the alignment of DOD’s supply 
chain management improvement plan with other department logistics 
plans. 

This testimony is based on prior GAO reports and ongoing work in this 
area. It contains GAO’s views on opportunities to improve DOD’s ability 
to achieve and demonstrate progress in supply chain management. 

What GAO Found: 

Since October 2005, DOD has continued to make progress implementing the 
10 initiatives in its supply chain management improvement plan, but it 
will take several years to fully implement these initiatives. DOD’s 
stated goal for implementing its plan is to demonstrate significant 
improvement in supply chain management within 2 years of the plan’s 
inception in 2005, but the time frames for substantially implementing 
some initiatives are currently 2008 or later. While DOD has generally 
stayed on track, it has reported some slippage in the implementation of 
certain initiatives. Factors such as the long-standing nature of the 
problems, the complexities of the initiatives, and the involvement of 
multiple organizations within DOD could cause the implementation dates 
of some initiatives to slip further. 

DOD has incorporated several broad performance measures in its supply 
chain management improvement plan, but it continues to lack outcome-
focused performance measures for many of the initiatives. Therefore, it 
is difficult to track and demonstrate progress toward improving the 
three focus areas of requirements forecasting, asset visibility, and 
materiel distribution. Although DOD’s plan includes four high-level 
performance measures that are being tracked across the department, 
these measures do not necessarily reflect the performance of the 
initiatives and do not relate explicitly to the three focus areas. 
Further, DOD’s plan does not include cost metrics that might show 
efficiencies gained through supply chain improvement efforts. In their 
effort to develop performance measures for use across the department, 
DOD officials have encountered challenges such as a lack of 
standardized, reliable data. Nevertheless, DOD could show near-term 
progress by adding intermediate measures. These measures could include 
outcome-focused measures for each of the initiatives or for the three 
focus areas. 

DOD has multiple plans aimed at improving aspects of logistics, 
including supply chain management, but it is unclear how these plans 
are aligned with one another. The plans were developed at different 
points of time, for different purposes, and in different formats, so it 
is difficult to determine how all the ongoing efforts link together to 
sufficiently cover requirements forecasting, asset visibility, and 
materiel distribution and whether they will result in significant 
progress toward resolving this high-risk area. Also, DOD’s supply chain 
management improvement plan does not account for initiatives outside 
the direct oversight of the Office of the Secretary of Defense, and DOD 
lacks a comprehensive strategy to guide logistics programs and 
initiatives. DOD is in the process of developing a new plan, referred 
to as the “To Be” roadmap, for future logistics programs and 
initiatives. The roadmap is intended to portray where the department is 
headed in the logistics area, how it will get there, and what progress 
is being made toward achieving its objectives, as well as to link 
ongoing capability development, program reviews, and budgeting. 
However, until the roadmap is completed, GAO will not be able to assess 
how it addresses the challenges and risks DOD faces in its supply chain 
improvement efforts. 

[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-983T]. 

To view the full product, 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 Department of Defense's 
(DOD) efforts to resolve long-standing problems in supply chain 
management. DOD maintains a military force with unparalleled logistics 
capabilities and can claim success in meeting the challenges to 
supplying the warfighter. For example, by early 2005, DOD moved more 
than 2 million short tons of cargo, including equipment, spare parts, 
and supplies, several thousand miles to the Persian Gulf in support of 
Operation Iraqi Freedom. At the same time, there are pervasive, decades-
old problems in DOD's supply chain management that need to be addressed 
and resolved. The Under Secretary of Defense for Acquisition, 
Technology, and Logistics, as well as other senior DOD officials, has 
shown a commitment to improving supply chain management. The continued 
active involvement of this Subcommittee is important to focusing 
attention on this issue and encouraging DOD to demonstrate progress. 

The fundamental premise of supply chain management is the operation of 
a continuous, unbroken, comprehensive, and all-inclusive logistics 
process, from initial customer order for materiel or services to the 
ultimate satisfaction of the customer's requirements. Supply chain 
management in DOD consists of processes and activities to purchase, 
produce, and deliver materiel--including ammunition, spare parts, fuel, 
food, water, clothing, personal equipment, and other items--to a force 
that is highly dispersed and mobile. In 2005, the Army alone had some 
260,000 soldiers serving in 120 foreign countries. Altogether, DOD 
manages more than 4 million separate types of items that are procured 
from thousands of suppliers. The challenges to successfully improving 
management of this vast and complex supply chain network are 
formidable. Challenges may include fragmentation in the way supply 
chain management is understood and applied, failure to develop true 
integration of supply chain processes, organizational resistance, lack 
of buy-in from top managers, lack of or slow development of needed 
measurement systems, and lack of integrated information systems linking 
participants in the supply chain. Private industry, it should be noted, 
also faces these types of challenges to improving their own supply 
chains.[Footnote 1] 

Why is effective supply chain management important for DOD? There are 
two primary reasons. First, supply support to the warfighter affects 
readiness and military operations. In fact, the supply chain can be the 
critical link in determining whether our front-line military forces win 
or lose on the battlefield. Second, given the high demand for goods and 
services to support ongoing U.S. military operations, the investment of 
resources in the supply chain is substantial. For example, DOD 
estimated that the annual costs of supplies and associated operations 
were expected to be about $50 billion for fiscal year 2005. In 
addition, DOD's inventory was valued at approximately $80 billion at 
the end of that fiscal year. Over the next 6 years, DOD also plans to 
invest about $54 billion in aircraft, trucks, ships, and other mobility 
assets to deploy and supply its forces. In addition, the Secretary of 
Defense recently stated that one of his top priorities between 2006 and 
2008 is improving effectiveness and efficiency across the department, 
including creating a culture of efficiency and eliminating waste. These 
are issues that we have identified as critical to improving supply 
chain management. 

Because of weaknesses we have identified through our work, DOD's supply 
chain management is on our list of 26 high-risk government programs 
that need urgent attention and transformation to ensure that our 
national government functions in the most economical, efficient, and 
effective manner possible. Last year, with the encouragement of the 
Office of Management and Budget (OMB), DOD developed a supply chain 
management improvement plan aimed at putting DOD on a path toward 
resolving long-term supply chain problems and, eventually, removal from 
our list of high-risk programs. More specifically, with the plan's 
inception in July 2005, DOD hoped to produce significant improvements 
over the next 2 years. This month marks approximately the midpoint of 
that 2-year period, which ends in July 2007. The plan encompasses 10 
initiatives to address three key areas of the supply chain management 
process: requirements forecasting, asset visibility, and materiel 
distribution. (Attachment 1 provides a description of the initiatives 
and shows the focus area or areas that they are intended to address). 
The requirements forecasting initiatives in the plan aim to improve 
inventory management by reducing low-usage inventory, increasing the 
availability of high-usage and critical inventory, more accurately 
identifying war reserve stocks, forecasting wartime demand, and 
identifying items with long procurement lead times. The plan's 
initiatives that affect asset visibility seek to improve DOD's ability 
to provide timely and accurate information regarding the location, 
quantity, condition, movement, and status of materiel assets across the 
department. Finally, the materiel distribution initiatives were 
included to improve the timely and seamless flow of materiel in support 
of deployed forces. We have frequently identified systemic weaknesses 
in these three areas as impeding effective supply chain management. 

During the Subcommittee's October 2005 hearing on this subject, I 
stated that DOD's plan addressing supply chain management was a good 
first step toward putting DOD on a path toward resolving long-standing 
supply chain management problems, but that the department faced a 
number of challenges and risks in fully implementing its proposed 
changes across the department and measuring progress.[Footnote 2] That 
bottom-line view remains the same today. Since October, DOD has 
regularly updated its supply chain management improvement plan, added 
more details, and has made progress implementing individual initiatives 
by generally meeting the milestones laid out in its plan. However, as 
DOD moves forward, we believe that there are opportunities to further 
improve DOD's ability to show progress toward resolving long-term 
supply chain problems. 

As requested, my comments today will focus on DOD's progress in: (1) 
implementing the supply chain management improvement plan and: (2) 
incorporating performance measures for tracking and demonstrating 
improvement. In addition, you also asked me to comment on the extent to 
which DOD's supply chain management improvement plan is aligned with 
other logistics plans across the department that address aspects of the 
supply chain. My testimony is based on previous GAO reports and 
testimonies and our preliminary observations from an ongoing engagement 
requested by this Subcommittee on DOD's efforts to resolve long- 
standing problems in its supply chain management process. To obtain our 
preliminary observations, we have met on a regular basis with DOD 
officials and staff from OMB to discuss the overall status of the plan, 
the implementation of the plan's individual initiatives, and 
performance measures; and we have reviewed relevant documents, such as 
current DOD and military service logistics plans and strategies. This 
work is being performed in accordance with generally accepted 
government auditing standards. 

Summary: 

Since October 2005, DOD has continued to make progress implementing the 
10 initiatives in its supply chain management improvement plan, but it 
will take DOD several years to fully implement these initiatives under 
current schedules. DOD has sought to demonstrate significant 
improvement in supply chain management within 2 years of the plan's 
inception in 2005; however, the department may have difficulty meeting 
its short-term goal. Some of the initiatives are still being developed 
or piloted and have not yet reached the implementation stage, others 
are in the early stages of implementation, and some are not scheduled 
for completion until 2008 or later. While DOD has generally stayed on 
track, it has reported some slippage in the implementation of certain 
initiatives. Given the long-standing nature of the problems being 
addressed, the complexities of the initiatives, and the involvement of 
multiple organizations within DOD, we would expect to see further 
slippage in the future. We have also previously identified challenges 
to implementation such as maintaining long-term commitment for the 
initiatives and ensuring sufficient resources are obtained from the 
organizations involved, including the military services and the Defense 
Logistics Agency (DLA). 

While DOD has incorporated several broad performance measures in its 
supply chain management improvement plan, the department continues to 
lack outcome-focused performance measures for many of the initiatives. 
Therefore, it is difficult to track and demonstrate DOD's progress 
toward improving its performance in the three focus areas of 
requirements forecasting, asset visibility, and materiel distribution. 
Performance measures track an agency's progress toward achieving goals, 
provide information on which to base organizational and management 
decisions, and are important management tools for all levels of an 
agency, including the program or project level. Outcome-focused 
performance measures show results or outcomes related to an initiative 
or program in terms of its effectiveness, efficiency, impact, or all of 
these. DOD's plan includes four high-level performance measures, such 
as customer wait time, that are being tracked across the department, 
but these measures do not necessarily reflect the performance of the 
initiatives and do not explicitly relate to the three focus areas. In 
addition, DOD's plan lacks outcome-focused performance measures for 
many of the specific initiatives. Further, DOD still has not included 
cost metrics in its plan that might show efficiencies gained through 
supply chain improvement efforts, either at the initiative level or 
overall. Although DOD officials have made efforts to develop supply 
chain management performance measures for implementation across the 
department, they have encountered challenges such as a lack of 
standardized, reliable data. Consequently, DOD lacks a means to track 
and assess progress toward improving efficiency and eliminating waste 
in supply chain management. However, DOD could show near-term progress 
by adding intermediate measures. These measures could include outcome- 
focused measures for each of the initiatives or for the three focus 
areas. 

DOD has multiple plans aimed at improving aspects of logistics, 
including supply chain management, but it is unclear how all these 
plans are aligned with one another. In addition to the supply chain 
management improvement plan, current DOD plans that address aspects of 
supply chain management include DOD's Logistics Transformation 
Strategy, Focused Logistics Roadmap, and Enterprise Transition Plan; 
and DLA's Transformation Roadmap. These plans were developed at 
different points of time, for different purposes, and in different 
formats. Therefore, it is difficult to determine how all the ongoing 
efforts link together to sufficiently cover requirements forecasting, 
asset visibility, and materiel distribution and whether they will 
result in significant progress toward resolving this high-risk area. 
Also, the DOD supply chain management improvement plan does not account 
for initiatives outside the direct oversight of the Office of the 
Secretary of Defense (OSD) that may have an impact on supply chain 
management. Until DOD clearly aligns the supply chain management 
improvement plan with other department plans and ongoing initiatives, 
supply chain stakeholders will not have complete visibility and 
awareness of actions DOD is taking to resolve problems in the supply 
chain. Moreover, DOD lacks a comprehensive, integrated, and 
enterprisewide strategy to guide logistics programs and initiatives. To 
address this concern, OSD is working with the military services, DLA, 
and other stakeholders to develop a new strategic plan for future 
logistics programs and initiatives. Referred to as the "To Be" roadmap, 
this plan is intended to portray where the department is headed in the 
logistics area, how it will get there, and what progress is being made 
toward achieving its objectives, as well as to institutionalize a 
continuous assessment process that links ongoing capability 
development, program reviews, and budgeting. According to DOD 
officials, the initiatives in the supply chain management improvement 
plan will be incorporated into this roadmap. The first edition of the 
"To Be" roadmap is scheduled for completion in February 2007, in 
conjunction with the submission of the President's Budget for Fiscal 
Year 2008. However, until it is completed, we will not be able to 
assess the extent to which the roadmap aligns and integrates DOD's 
various supply chain improvement efforts. 

Background: 

For 16 years, DOD's supply chain management processes, previously 
identified as DOD inventory management, have been on our list of high- 
risk areas needing urgent attention because of long-standing systemic 
weaknesses that we have identified in our reports. We initiated our 
high-risk program in 1990 to report on government operations that we 
identified as being at high risk for fraud, waste, abuse, and 
mismanagement. The program serves to identify and help resolve serious 
weaknesses in areas that involve substantial resources and provide 
critical services to the public. The department's inventory management 
of supplies in support of forces was one of the initial 14 operational 
areas identified as high risk in 1990 because, over the previous 20 
years, we had issued more than 100 reports dealing with specific 
aspects and problems in DOD's inventory management. These problems 
included excess inventory levels, inadequate controls over items, and 
cost overruns. As a result of this work, we had suggested that DOD take 
some critical steps to correct the problems identified. Since then, our 
work has shown that the problems adversely affecting supply support to 
the warfighter--such as requirements forecasts, use of the industrial 
base, funding, distribution, and asset visibility--were not confined to 
the inventory management system, but also involved the entire supply 
chain. In 2005, we modified the title for this high-risk area from "DOD 
Inventory Management" to "DOD Supply Chain Management." In the 2005 
update, we noted that during Operation Iraqi Freedom, some of the 
supply chain problems included backlogs of hundreds of pallets and 
containers at distribution points, millions of dollars spent in late 
fees to lease or replace storage containers because of distribution 
backlogs and losses, and shortages of such items as tires and radio 
batteries. 

Removal of the high-risk designation is considered when legislative and 
agency actions, including those in response to our recommendations, 
result in significant and sustainable progress toward resolving a high- 
risk problem.[Footnote 3] Key determinants include a demonstrated 
strong commitment to and top leadership support for addressing 
problems, the capacity to do so, a corrective action plan that provides 
for substantially completing corrective measures in the near term, a 
program to monitor and independently validate the effectiveness of 
corrective measures, and demonstrated progress in implementing 
corrective measures. 

Last year, with the encouragement of OMB, DOD developed a plan for 
improving supply chain management that could reduce its vulnerability 
to fraud, waste, abuse, and mismanagement and place it on the path 
toward removal from our list of high-risk areas. This plan, initially 
released in July 2005, contains 10 initiatives proposed as solutions to 
address the root causes of problems DOD identified in the areas of 
forecasting requirements, asset visibility, and materiel distribution. 
By committing to improve these three key areas, DOD has focused its 
efforts on the areas we frequently identified as impeding effective 
supply chain management. For each of the initiatives, the plan contains 
implementation milestones that are tracked and updated monthly. 

DOD Continues to Implement Its Supply Chain Management Improvement 
Plan, but Full Implementation Will Take Several Years: 

Since October 2005, DOD has continued to make progress implementing the 
initiatives in its supply chain management improvement plan, but it 
will be several years before the plan can be fully implemented. 
Progress has been made in implementing several of the initiatives, 
including its Joint Regional Inventory Materiel Management, Readiness 
Based Sparing, and the Defense Transportation Coordination Initiative. 
For example: 

* Within the last few months, through its Joint Regional Inventory 
Materiel Management initiative, DOD has begun to streamline the storage 
and distribution of defense inventory items on a regional basis, in 
order to eliminate duplicate materiel handling and inventory layers. 
Last year, DOD completed a pilot for this initiative in the San Diego 
region and, in January 2006, began a similar transition for inventory 
items in Oahu, Hawaii. 

* Readiness Based Sparing, an inventory requirements methodology that 
the department expects to enable higher levels of readiness at 
equivalent or reduced inventory costs using commercial off-the-shelf 
software, began pilot programs in each service in April 2006. 

* Finally, in May 2006, the U.S. Transportation Command held the 
presolicitation conference for its Defense Transportation Coordination 
Initiative, a long-term partnership with a transportation management 
services company that is expected to improve the predictability, 
reliability, and efficiency of DOD freight shipping within the 
continental United States. 

DOD has sought to demonstrate significant improvement in supply chain 
management within 2 years of the plan's inception in 2005; however, the 
department may have difficulty meeting its July 2007 goal. Some of the 
initiatives are still being developed or piloted and have not yet 
reached the implementation stage, others are in the early stages of 
implementation, and some are not scheduled for completion until 2008 or 
later. For example, according to the DOD supply chain management 
improvement plan, the contract for the Defense Transportation 
Coordination Initiative is scheduled to be awarded during the first 
quarter of fiscal year 2007, followed by a 3-year implementation 
period. The War Reserve Materiel Improvements initiative, which aims to 
more accurately forecast war reserve requirements by using capability- 
based planning and incorporating lessons learned in Operation Iraqi 
Freedom, is not scheduled to begin implementing an improved 
requirements forecasting process for consumable items[Footnote 4] as a 
routine operation until October 2008. The Item Unique Identification 
initiative, which involves marking personal property items with a set 
of globally unique data elements to help DOD track items during their 
life cycles, will not be completed until December 2010 under the 
current schedule. 

While DOD has generally stayed on track, DOD has reported some slippage 
in meeting scheduled milestones for certain initiatives. For example, a 
slippage of 9 months occurred in the Commodity Management initiative 
because additional time was required to develop a departmentwide 
approach. This initiative addresses the process of developing a 
systematic procurement approach to the department's needs for a group 
of items. Additionally, the Defense Transportation Coordination 
Initiative experienced a slippage in holding the presolicitation 
conference because defining requirements took longer than anticipated. 
Given the long-standing nature of the problems being addressed, the 
complexities of the initiatives, and the involvement of multiple 
organizations within DOD, we would expect to see further milestone 
slippage in the future. In our October testimony, we also identified 
challenges to implementation such as maintaining long-term commitment 
for the initiatives and ensuring sufficient resources are obtained from 
the organizations involved. Although the endorsement of DOD's plan by 
the Under Secretary of Defense for Acquisition, Technology, and 
Logistics is evidence of a strong commitment to improve DOD's supply 
chain management, DOD will have to sustain this commitment as it goes 
forward in implementing this multiyear plan while also engaged in 
departmentwide business transformation efforts. Furthermore, the plan 
was developed at the Office of the Under Secretary of Defense level, 
whereas most of the people and resources needed to implement the plan 
are under the direction of the military services, DLA, and other 
organizations such as U.S. Transportation Command. Therefore, it is 
important for the department to obtain the necessary resource 
commitments from these organizations to ensure the initiatives in the 
plan are properly supported. 

Supply Chain Improvement Plan Lacks Outcome-focused Performance 
Measures for Many of the Initiatives: 

While DOD has incorporated several broad performance measures in its 
supply chain management improvement plan, the department continues to 
lack outcome-focused performance measures for many of the initiatives. 
Therefore, it is difficult to track and demonstrate DOD's progress 
toward improving its performance in the three focus areas of 
requirements forecasting, asset visibility, and materiel distribution. 
Performance measures track an agency's progress made towards goals, 
provide information on which to base organizational and management 
decisions, and are important management tools for all levels of an 
agency, including the program or project level. Outcome-focused 
performance measures show results or outcomes related to an initiative 
or program in terms of its effectiveness, efficiency, impact, or all of 
these. To track progress towards goals, effective performance measures 
should have a clearly apparent or commonly accepted relationship to the 
intended performance, or should be reasonable predictors of desired 
outcomes; are not unduly influenced by factors outside a program's 
control, measure multiple priorities, such as quality, timeliness, 
outcomes, and cost; sufficiently cover key aspects of performance; and 
adequately capture important distinctions between programs. Performance 
measures enable the agency to assess accomplishments, strike a balance 
among competing interests, make decisions to improve program 
performance, realign processes, and assign accountability. While it may 
take years before the results of programs become apparent, intermediate 
measures can be used to provide information on interim results and show 
progress towards intended results. In addition, when program results 
could be influenced by external factors, intermediate measures can be 
used to identify the programs' discrete contribution to the specific 
result. For example, DOD could show near-term progress by adding 
intermediate measures for the DOD supply chain management improvement 
plan, such as outcome-focused performance measures for the initiatives 
or for the three focus areas. 

DOD's supply chain management improvement plan includes four high-level 
performance measures that are being tracked across the department, but 
these measures do not necessarily reflect the performance of the 
initiatives or explicitly relate to the three focus areas. DOD's supply 
chain materiel management regulation requires that functional supply 
chain metrics support at least one enterprise-level metric.[Footnote 5] 
In addition, while not required by the regulation, the performance 
measures DOD has included in the plan are not explicitly linked to the 
three focus areas, and it has not included overall cost metrics that 
might show efficiencies gained through supply chain improvement 
efforts. The four measures are as follows: 

* Backorders--number of orders held in an unfilled status pending 
receipt of additional parts or equipment through procurement or repair. 

* Customer wait time--number of days between the issuance of a customer 
order and satisfaction of that order. 

* On-time orders--percentage of orders that are on time according to 
DOD's established delivery standards. 

* Logistics response time--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.[Footnote 
6] 

The plan also identifies fiscal year 2004 metric baselines for each of 
the services, DLA, and DOD overall, and specifies annual performance 
targets for these metrics for use in measuring progress. For example, 
one performance target for fiscal year 2005 was to reduce backorders by 
10 percent from the fiscal year 2004 level. Table 1 shows each 
performance measure with the associated fiscal year 2005 performance 
targets and actuals and whether the target was met. 

Table 1: Supply Chain Performance Measures (Fiscal Year 2005): 

Performance measure: Backorders; 
Target: 514,800; 
Actual: 642,000; 
Target met/Not met: Not Met. 

Performance measure: Customer wait time; 
Target: 18 days; 
Actual: 21 days; 
Target met/Not met: Not Met. 

Performance measure: On-time orders[A]; 
Target: 75%; 
Actual: 48%; 
Target met/Not met: Not Met. 

Performance measure: Logistics response time[A]: Army; 
Target: 27 days; 
Actual: 57 days; 
Target met/Not met: Not Met. 

Performance measure: Logistics response time[A]: Navy; 
Target: 27 days; 
Actual: 28 days; 
Target met/Not met: Not Met. 

Performance measure: Logistics response time[A]: Air Force; 
Target: 27 days; 
Actual: 36 days; 
Target met/Not met: Not Met. 

Performance measure: Logistics response time[A]: DLA; 
Target: 27 days; 
Actual: 13 days; 
Target met/ Not met: Met.  

Source: GAO analysis. 

[A] Data includes the continental United States only. 

[End of table]

As table 1 shows, DOD generally did not meet its fiscal year 2005 
performance targets. However, the impact to the supply chain as a 
result of implementing the initiatives contained in the plan will not 
likely be reflected in these high-level performance metrics until the 
initiatives are broadly implemented across the department. In addition, 
the high-level metrics reflect the performance of the supply chain 
departmentwide and are affected by other variables; therefore, it will 
be difficult to determine if improvements in the high-level performance 
metrics are due to the initiatives in the plan or other variables. For 
example, implementing Radio Frequency Identification--technology 
consisting of active or passive electronic tags that are attached to 
equipment and supplies being shipped from one location to another and 
enable shipment tracking--at a few sites at a time has only a very 
small impact on customer wait time. However, variables such at natural 
disasters, wartime surges in requirements, or disruption in the 
distribution process could affect that metric. 

DOD's plan lacks outcome-focused performance metrics for many of the 
specific initiatives. We noted this deficiency in our prior testimony, 
and since last October, DOD has not added outcome-focused performance 
metrics. DOD also continues to lack cost metrics that might show 
efficiencies gained through supply chain improvement efforts, either at 
the initiative level or overall. In total, DOD's plan continues to 
identify a need to develop outcome-focused performance metrics for 6 
initiatives, and 9 of the 10 initiatives lack cost metrics. For 
example, DOD's plan shows that it expects to have radio frequency 
identification technology implemented at 100 percent of its U.S. and 
overseas distribution centers by September 2007, but noted that it has 
not yet identified additional metrics that could be used to show the 
impact of implementation on expected outcomes, such as receiving and 
shipping timeliness, asset visibility, or supply consumption data. Two 
other examples of initiatives lacking outcome-focused performance 
measures are War Reserve Materiel, discussed earlier, and Joint Theater 
Logistics, which is an effort to improve the ability of a joint force 
commander to execute logistics authorities and processes within a 
theater of operations. Although the plan contains some performance 
metrics, many have not been fully defined or are intended to show the 
status of a project. Measures showing project status are useful and may 
be most appropriate for initiatives in their early stages of 
development, but such measures will not show the impact of initiatives 
on the supply chain during or after implementation. DOD officials noted 
that many of the initiatives in the supply chain management improvement 
plan are in the early stages of implementation and that they are 
working to develop performance measures for them. For example, an 
official involved with the Joint Theater Logistics initiative stated 
that the processes necessary for each joint capability needed to be 
defined before performance metrics could be developed. The recently 
issued contract solicitation for the Defense Transportation 
Coordination Initiative contains a number of performance measures, such 
as on-time pickup and delivery, damage-free shipments, and system 
availability, although these measures are not yet included in DOD's 
supply chain management improvement plan. Additionally, we observed 
that DOD's plan does not identify departmentwide performance measures 
in the focus areas of requirements forecasting, asset visibility, and 
materiel distribution. Therefore, it currently lacks a means to track 
and assess progress in these areas. 

Although DOD has made efforts to develop supply chain management 
performance measures for implementation across the department, DOD has 
encountered challenges in obtaining standardized, reliable data from 
noninteroperable systems. The four high-level performance measures in 
DOD's plan were defined and developed by DOD's supply chain metrics 
working group. This group includes representatives from the services, 
DLA, and the U.S. Transportation Command, and meets monthly under the 
direction of the Office of the Under Secretary of Defense. For example, 
the working group developed a common definition for customer wait time 
which was included in DOD guidance.[Footnote 7] The DOD Inspector 
General has a review underway to validate the accuracy of customer wait 
time data and expects to issue a report on its results later this 
summer. One of the challenges the working group faces in developing 
supply chain performance measures is the ability to pull standardized, 
reliable data from noninteroperable information systems. For example, 
the Army currently does not have an integrated method to determine 
receipt processing for Supply Support Activities, which could affect 
asset visibility and distribution concerns. Some of the necessary data 
reside in the Global Transportation Network while other data reside in 
the Standard Army Retail Supply System. These two databases must be 
manually reviewed and merged in order to obtain the information for 
accurate receipt processing performance measures. 

DOD recognizes that achieving success in supply chain management is 
dependent on developing interoperable systems that can share critical 
supply chain data. The Business Management Modernization Program, one 
of the initiatives in DOD's supply chain improvement plan that has been 
absorbed into the Business Transformation Agency,[Footnote 8] is 
considered to be a critical enabler that will provide the information 
technology underpinning for improving supply chain management. As part 
of this initiative, DOD issued an overarching business enterprise 
architecture and an enterprise transition plan for implementing the 
architecture.[Footnote 9] We previously reported that Version 
3.1[Footnote 10] of the business enterprise architecture reflects steps 
taken by DOD to address some of the missing elements, inconsistencies, 
and usability issues related to legislative requirements and relevant 
architecture guidance, but additional steps are needed.[Footnote 11] 
For example, we said that the architecture does not yet include a 
systems standards profile to facilitate data sharing among 
departmentwide business systems and promote interoperability with 
departmentwide information technology infrastructure systems. 
Furthermore, we also stated that the military services' and defense 
agencies' architectures are not yet adequately aligned with the 
departmental architecture. 

DOD Has Multiple Plans Addressing Supply Chain Management, but 
Alignment Among Them Is Unclear: 

DOD has multiple plans aimed at improving aspects of logistics, 
including supply chain management, but it is unclear how all these 
plans are aligned with one another. In addition to the supply chain 
management improvement plan, current DOD plans that address aspects of 
supply chain management include DOD's Logistics Transformation 
Strategy, Focused Logistics Roadmap, and Enterprise Transition Plan; 
and DLA's Transformation Roadmap. 

In December 2004, DOD issued its Logistics Transformation Strategy. The 
strategy was developed to reconcile three logistics concepts--force- 
centric logistics enterprise, sense and respond logistics, and focused 
logistics--into a coherent transformation strategy. The force-centric 
logistics enterprise is OSD's midterm concept (2005-2010) for enhancing 
support to the warfighter and encompasses six initiatives, one of which 
includes "end-to-end distribution." Sense and respond logistics is a 
future logistics concept developed by the department's Office of Force 
Transformation that envisions a networked logistics system that would 
provide joint strategic and tactical operations with predictive, 
precise, and agile support. Focused logistics, a concept for force 
transformation developed by the Joint Chiefs of Staff, identifies seven 
key joint logistics capability areas such as Joint Deployment/Rapid 
Distribution. 

In September 2005, DOD issued its Focused Logistics Roadmap, also 
referred to as the "As Is" roadmap. It documents logistics-enabling 
programs and initiatives directed toward achieving focused logistics 
capabilities. It is intended to provide a baseline of programs and 
initiatives for future capability analysis and investment. Seven of the 
10 initiatives in the DOD supply chain management improvement plan and 
some of the systems included in the initiative to modernize the 
department's business systems--under the Business Transformation 
Agency--are discussed in the Focused Logistics Roadmap. 

In September 2005, DOD's Enterprise Transition Plan was issued as part 
of the Business Management Modernization Program. The Enterprise 
Transition Plan is the department's plan for transforming its business 
operations. One of the six DOD-wide priorities contained in the 
Enterprise Transition plan is Materiel Visibility, which is focused on 
improving supply chain performance. The Materiel Visibility priority is 
defined as the ability to locate and account for materiel assets 
throughout their life cycle and provide transaction visibility across 
logistics systems in support of the joint warfighting mission. Two of 
the key programs targeting visibility improvement are Radio Frequency 
Identification and Item Unique Identification, which also appear in the 
supply chain management improvement plan. 

The Defense Logistics Agency's Fiscal Year 2006 Transformation Roadmap 
contains 13 key initiatives underway to execute DLA's role in DOD's 
overarching transformation strategy. The majority of the initiatives 
are those that affect supply chain management, and several are found in 
DOD's supply chain management improvement plan. For example, the 
Integrated Data Environment, Business Systems Modernization, and 
Reutilization Modernization Program initiatives found in DLA's 
Transformation Roadmap are also in the department's supply chain 
management improvement plan under the initiative to modernize the 
department's business systems. 

These plans were developed at different points of time, for different 
purposes, and in different formats. Therefore, it is difficult to 
determine how all the ongoing efforts link together to sufficiently 
cover requirements forecasting, asset visibility, and materiel 
distribution and whether they will result in significant progress 
toward resolving this high-risk area. Moreover, DOD's supply chain 
management improvement plan does not account for initiatives outside 
OSD's direct oversight that may have an impact on supply chain 
management. The initiatives chosen for the plan were joint initiatives 
under the oversight of OSD in the three focus areas of requirements 
forecasting, asset visibility, and materiel distribution. However, the 
U. S. Transportation Command, DLA, and the military services have 
ongoing and planned supply chain improvement efforts in those areas 
that are not included in the plan. For example, the U.S. Transportation 
Command's Joint Task Force - Port Opening initiative seeks to improve 
materiel distribution by rapidly extending the distribution network 
into a theater of operations. Furthermore, DLA is implementing a 
National Inventory Management Strategy, which is an effort to merge 
distinct wholesale and retail inventories into a national inventory, 
provide more integrated management, tailor inventory to services' 
requirements, and reduce redundant inventory levels. Another example is 
the Army's efforts to field two new communications and tracking 
systems, the Very Small Aperture Terminal and the Mobile Tracking 
System, to better connect logisticians on the battlefield and enable 
them to effectively submit and monitor their supply requisitions. DOD 
officials told us they would be willing to consider adding initiatives 
that impact the three focus areas. Until DOD clearly aligns the supply 
chain management improvement plan with other department plans and 
ongoing initiatives, supply chain stakeholders will not have a 
comprehensive picture of DOD's ongoing efforts to resolve problems in 
the supply chain. 

Although we are encouraged by DOD's planning efforts, DOD lacks a 
comprehensive, integrated, and enterprisewide strategy to guide 
logistics programs and initiatives. In the past, we have emphasized the 
need for an overarching logistics strategy that will guide the 
department's logistics planning efforts.[Footnote 12] Without an 
overarching logistics strategy, the department will be unable to most 
economically and efficiently support the needs of the warfighter. To 
address this concern and guide future logistics programs and 
initiatives, DOD is in the process of developing a new strategic plan-
-the "To Be" roadmap. This plan is intended to portray where the 
department is headed in the logistics area, how it will get there, and 
monitor progress toward achieving its objectives, as well as 
institutionalize a continuous assessment process that links ongoing 
capability development, program reviews, and budgeting. According to 
DOD officials, the initiatives in the supply chain management 
improvement plan will be incorporated into the "To Be" logistics 
roadmap. 

The roadmap is being developed by a working group representing the four 
services, DLA, the U.S. Transportation Command, the U.S. Joint Forces 
Command, the Joint Staff, the Business Transformation Agency, and the 
Office of the Secretary of Defense. The working group reports to a 
Joint Logistics Group comprised of one-star generals and their 
equivalents representing these same organizations. Additionally, the 
Joint Logistics Board, Defense Logistics Board, and the Defense 
Logistics Executive (the Under Secretary of Defense for Acquisition, 
Technology, and Logistics) would provide continuous feedback and 
recommendations for changes to the roadmap. Regarding performance 
measures, the roadmap would link objective, quantifiable, and 
measurable performance targets to outcomes and logistics capabilities. 
The first edition of the "To Be" roadmap is scheduled for completion in 
February 2007, in conjunction with the submission of the President's 
Budget for Fiscal Year 2008. Updates to the roadmap will follow on an 
annual basis. Efforts to develop the "To Be" roadmap show promise. 
However, until it is completed, we will not be able to assess how the 
roadmap addresses the challenges and risks DOD faces in its supply 
chain improvement efforts. 

Concluding Observations: 

DOD faces significant challenges in improving supply chain management 
over the coming years. As it develops its "To Be" roadmap for 
logistics, DOD would likely benefit from including outcome-focused 
performance measures demonstrating near-term progress in the three 
focus areas of requirements forecasting, asset visibility, and materiel 
distribution. With outcome-focused performance measures, DOD will be 
able to show results in these areas that have been long identified as 
systemic weaknesses in the supply chain. While we recognize the 
challenge to developing outcome-focused performance measures at the 
department level, DOD could show near-term progress with intermediate 
measures. These measures could include outcome-focused measures for 
each of the initiatives or for the three focus areas. To be most 
effective, the roadmap also would reflect the results of analysis of 
capability gaps between its "As Is" and "To Be" roadmaps, as well as 
indicate how the department intends to make this transition. DOD would 
also benefit by showing the alignment among the roadmap, the supply 
chain management improvement plan, and other DOD strategic plans that 
address aspects of supply chain management. Clearer alignment of the 
supply chain management improvement plan with other department plans 
and ongoing initiatives could provide greater visibility and awareness 
of actions DOD is taking to resolve problems in the supply chain. In 
the long term, however, a plan alone will not resolve the problems that 
we have identified in supply chain management. Actions must result in 
significant progress toward resolving a high-risk problem before we 
will remove the high-risk designation. 

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

Staff Contacts and Acknowledgements: 

For further information regarding this testimony, please contact me at 
202-512-8365 or solisw@gao.gov. Individuals making contributions to 
this testimony include Tom Gosling, Assistant Director; Michael 
Avenick; Susan Ditto; Marie Mak; Thomas Murphy; Janine Prybyla; and 
Matthew Spiers. 

[End of section] 

Attachment 1: Initiatives in DOD Supply Chain Management Improvement 
Plan: 

Initiative: Radio Frequency Identification; 
Description: Technology consisting of active or passive electronic tags 
that are attached to equipment and supplies that are shipped from one 
location to another and enable shipment tracking; 
Focus area: Visibility: X; 
Focus area: Forecasting: X; 
Focus area: Distribution: X. 

Initiative: Item Unique Identification; 
Description: Marking of personal property items with a machine-readable 
Unique Item Identifier, or set of globally unique data elements, to 
help DOD value and track items throughout their life cycle; 
Focus area: Visibility: X; 
Focus area: Forecasting: X; 
Focus area: Distribution: [Empty]. 

Initiative: Joint Regional Inventory Materiel Management; 
Description: Streamlining of the storage and distribution of materiel 
within a given geographic area in order to eliminate duplicate materiel 
handling and inventory layers; 
Focus area: Visibility: X; 
Focus area: Forecasting: X; 
Focus area: Distribution: X. 

Initiative: Readiness Based Sparing; 
Description: An inventory requirements methodology that produces an 
inventory investment solution that enables higher levels of readiness 
at an equal or lower cost; 
Focus area: Visibility: [Empty]; 
Focus area: Forecasting: X; 
Focus area: Distribution: [Empty]. 

Initiative: War Reserve Materiel Improvements; 
Description: An improved war reserve requirements forecasting process; 
Focus area: Visibility: [Empty]; 
Focus area: Forecasting: X; 
Focus area: Distribution: X. 

Initiative: Commodity Management; 
Description: Process of developing a systematic procurement approach to 
the entire usage cycle of a group of items; 
Focus area: Visibility: X; 
Focus area: Forecasting: X; 
Focus area: Distribution: [Empty]. 

Initiative: Joint Theater Logistics; 
Description: Improving the ability of a joint force commander to 
execute logistics authorities and processes within a theater of 
operations; 
Focus area: Visibility: X; 
Focus area: Forecasting: [Empty]; 
Focus area: Distribution: X. 

Initiative: Joint Deployment and Distributions Operations Center; 
Description: Provides Combatant Commands with a joint theater logistics 
capability (supply, transportation, and distribution) for command and 
control of forces and materiel moving into and out of the theater; 
Focus area: Visibility: X; 
Focus area: Forecasting: [Empty]; 
Focus area: Distribution: X. 

Initiative: Defense Transportation Coordination Initiative; 
Description: Long-term partnership with a coordinator of transportation 
management services to improve the reliability, predictability, and 
efficiency of DOD materiel moving within the continental United States 
by all modes; 
Focus area: Visibility: [Empty]; 
Focus area: Forecasting: [Empty]; 
Focus area: Distribution: X. 

Initiative: Business Management Modernization Program; 
Description: Departmentwide initiative to advance business 
transformation efforts, particularly with regard to business systems 
modernization; 
Focus area: Visibility: X; 
Focus area: Forecasting: X; 
Focus area: Distribution: X. 

Source: GAO analysis. 

[End of table] 

FOOTNOTES 

[1] Deputy Under Secretary of Defense, Supply Chain Integration, DOD 
Supply Chain Management Implementation Guide, (McLean, Va.: Logistics 
Management Institute, 2000). 

[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). 

[3] GAO, Determining Performance and Accountability Challenges and High 
Risks, GAO-01-159SP (Washington, D.C.: November 2000). 

[4] Consumable items are items that are discarded after use rather than 
repaired. Examples include food, clothing, hardware, and medical 
supplies.

[5] DOD 4140.1-R, DOD Supply Chain Materiel Management Regulation (May 
23, 2003). 

[6] DOD maintains spare parts at two levels of inventory. Wholesale-
level inventory represents inventory managed centrally, while retail-
level inventory represents inventory held for use at maintenance 
activities or operational units. 

[7] DOD Instruction 4140.61, Customer Wait Time and Time Definite 
Delivery (December 14, 2000). 

[8] The Business Transformation Agency leads and coordinates business 
transformation efforts across the department. The Business Management 
Modernization Program's mission is to advance departmentwide business 
transformation efforts, particularly with regard to business systems 
modernization. 

[9] The enterprise architecture, or modernization blueprint, provides a 
clear and comprehensive picture of an entity, whether it is an 
organization (e.g., federal department or agency) or a functional or 
mission area that cuts across more than one organization (e.g., 
financial management). This picture consists of snapshots of the 
enterprise's current "As Is" operational and technological environment 
and its target or "To Be" environment, as well as a capital investment 
roadmap for transitioning from the current to the target environment. 
These snapshots further consist of "views," which are basically one or 
more architecture products that provide conceptual or logical 
representations of the enterprise. 

[10] Version 3.1 is a minor update to its business enterprise 
architecture released on March 15, 2006. 

[11] GAO, Business Systems Modernization: DOD Continues to Improve 
Institutional Approach, but Further Steps Needed, GAO-06-658 
(Washington, D.C.: May 15, 2006). 

[12] GAO, Defense Logistics: Strategic Planning Weaknesses Leave 
Economy, Efficiency, and Effectiveness of Future Support Systems at 
Risk, GAO-02-106 (Washington, D.C.: Oct. 11, 2001). 

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