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entitled 'Defense Management: New Management Reform Program Still 
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Report to the Committee on Armed Services, U.S. Senate:



United States General Accounting Office:



GAO:



December 2002:



DEFENSE MANAGEMENT:



New Management Reform Program Still Evolving:



Highlights of GAO-03-58, a report to the Committee on Armed Services, 

United States Senate



DEFENSE MANAGEMENT: New Management Reform Program Still Evolving 



Why GAO Did This Study:



The Secretary of Defense announced a new business transformation 

program 

in 2001 with the intent of improving the effectiveness and 

efficiency of 

Department of Defense business operations. Concerned that the 

previous 

administration’s Defense Reform Initiatives (DRI) could not be 

successful 

without many years of sustained effort, the Senate Committee on 

Armed 

Services issued a September 2001 report directing GAO to assess

which 

DRI initiatives have been carried forward. In completing this 

assessment, 

GAO also examined the management structure and types of 

initiatives 

contained in the new business transformation program. Also at 

the request 

of the Committee, more detailed information on the status of 

the 

logistics reform and electronic business/electronic commerce 

initiatives 

is provided in the GAO report.



GAO interviewed officials involved with the former DRI initiatives, 

as 

well as officials operating at all levels of the new business 

transformation 

program. In commenting on a draft of this report, DOD concurred 

with GAO’s 

findings.



What GAO Found:



Most former DRI initiatives are continuing, although not always 

under the 

direct oversight of the new business transformation structure. 

According 

to DOD, 5 initiatives have been completed and 35 are still 

ongoing in some 

form. In general, the ongoing initiatives are being managed 

under the 

applicable functional area of responsibility, without specific 

oversight 

and tracking by a central management reform office. Nonetheless, 

the new 

management structure—led by the Senior Executive Council and the 

Business 

Initiative Council—does oversee some former DRI initiatives, 

such as 

financial management reform and public-private competitions 

under the 

Office of Management and Budget’s Circular A-76.



While similar in some respects, DOD officials have stressed 

that the 

new business transformation management structure is not 

considered to 

be a replacement for the previous DRI management structure. 

Important 

differences exist between the management approaches of the 

former and 

current reform programs. For example, the new management 

structure has 

higher senior-level management involvement and focus on 

decision making, 

but less emphasis on specific savings targets. 



To date, most new reform program initiatives have been 

intentionally 

small in scope in order to produce benefits in fiscal 

year 2003. The 

new program has begun to consider some larger efforts, 

such as 

alternatives to A-76. GAO believes the new business 

transformation 

program has the potential to be an effective mechanism 

for reform given 

the high-level management membership and emphasis on 

interservice 

participation. However, DOD’s efforts are still evolving, 

and it is too 

soon to tell how effective the new reforms will be. Moreover, 

like the DRI, 

the new management program does not yet have an overarching 

plan tying 

key reform efforts together in an integrated fashion.



[See PDF for image]



[End of figure]



http://www.gao.gov/cgi-bin/getrpt?GAO-03-58



To view the full report, including the scope

and methodology, click on the link above.

For more information, contact Barry W. Holman, Director, 

Defense 

Capabilities and Management, at (202) 512-8412 or 

holmanb@gao.gov.



Defense Management:



GAO-03-58:



Contents:



Letter:



Results in Brief:



Background:



Scope and Methodology:



Agency Comments:



Briefing Section I: Status of Defense Reform Initiatives:



Briefing Section II: Management Structures:



Briefing Section III: Types of Initiatives:



Briefing Section IV: Conclusions:



Appendix I: Status of Defense Logistics Reform Efforts:



Appendix II: Status of Defense Electronic Business/Electronic Commerce 

Reform Initiatives:



Appendix III: Summary Table of Defense Reform Initiatives:



Appendix IV: Status Report of the Defense Reform Initiatives:



Appendix V: Summary Table of Business Initiative Council 

Initiatives:



Appendix VI: Defense Business Practice Implementation Board Members:



Appendix VII: Comments from the Department of Defense:



Appendix VIII: Staff Acknowledgments:



Related GAO Products:



Tables:



Table 1: Status of DRI Logistics Initiatives:



Table 2: Status of Future Logistics Enterprise Initiatives:



Table 3: Status of DRI Electronic Business Initiatives:



Abbreviations:



AT&L: Acquisition, Technology and Logistics:



BIC: Business Initiative Council:



DMC: Defense Management Council:



DOD: Department of Defense:



DRI: Defense Reform Initiative:



IT: information technology:



OSD: Office of the Secretary of Defense:



PKI: public key infrastructure:



QDR: Quadrennial Defense Review:



SEC: Senior Executive Council:



United States General Accounting Office:



Washington, DC 20548:



December 12, 2002:



The Honorable Carl Levin

Chairman

The Honorable John W. Warner

Ranking Minority Member

Committee on Armed Services

United States Senate:



The Defense Reform Initiative, announced by the Secretary of Defense in 

November 1997, represented an important set of actions aimed at 

improving the effectiveness and efficiency of Department of Defense 

(DOD) business operations. The current Secretary of Defense announced 

his own management reform program in 2001, referred to as the DOD 

Business Transformation program, also with the intent of improving the 

effectiveness and efficiency of the department’s business operations.



The Senate Committee on Armed Services’s September 12, 2001, report 

accompanying the legislation to authorize the department’s fiscal year 

2002 appropriations expressed the view that reform of the department’s 

business practices will not be successful without many years of 

sustained effort continuing through several administrations. The report 

cited the desire to ensure that valuable initiatives had not been 

dropped in the transition from one administration to the next, and it 

sought to determine to what extent those initiatives were being 

continued under the new management reform program. Accordingly, the 

report tasked the department with making a determination concerning 

which of the previous Defense Reform Initiatives should be continued 

and incorporated into the new management reform program. The department 

provided us with its February 28, 2002, status report of its 

determination on the status of the former Defense Reform Initiatives.



The Senate report also directed us to review the department’s 

determinations and report on our findings. Accordingly, this report 

discusses (1) what Defense Reform Initiative efforts have been carried 

forward and how their progress is being tracked, (2) how the management 

structure of the DOD Business Transformation program compares with that 

of the Defense Reform Initiative, and (3) what types of initiatives are 

contained in the DOD Business Transformation program. Additionally, at 

the request of your offices, we provide more detailed information on 

the status of the logistics reform and electronic business/electronic 

commerce initiatives in appendixes I and II.



Results in Brief:



The Department of Defense indicates that most Defense Reform 

Initiatives are being incorporated into the new management reform 

program. In its February 2002 status report, the department indicated 

that 5 initiatives had been completed and that 35 were still ongoing in 

some form (see apps. III and IV). In general, the ongoing initiatives 

are being managed under the applicable functional area of 

responsibility, without specific oversight and tracking by a central 

management reform office as was previously done. For example, logistics 

reform efforts that were included in the Defense Reform Initiative 

program have been subsumed into related initiatives under the Deputy 

Under Secretary of Defense for Logistics and Materiel Readiness. DOD’s 

Business Transformation program’s management structure is not 

specifically tracking these initiatives. However, the new management 

structure is overseeing some former Defense Reform Initiatives, such as 

financial management reform and public-private competitions under the 

Office of Management and Budget’s Circular A-76.



Both the Defense Reform Initiative and DOD’s Business Transformation 

programs were created to improve the effectiveness and efficiency of 

the department’s business operations. In this regard, both programs 

established management structures to implement and support their reform 

efforts. While similar in some respects, department officials have 

stressed that the new management structure is not considered to be a 

replacement for the previous Defense Reform Initiative management 

structure, including its Defense Management Council and the Defense 

Reform Initiative program office. Important differences exist between 

the management approaches of the former and current management reform 

programs, such as the level of decision-making authority and emphasis 

on savings. For example, the new program’s Business Initiative Council 

has the authority to approve Department of Defense-wide initiatives to 

improve the department’s business operations compared to the former 

Defense Management Council, which acted primarily as an oversight body. 

Also, the focus of the new business transformation program is on 

effectiveness of actions, with the belief that efficiencies and savings 

will ultimately result, whereas the former Defense Reform Initiative 

sometimes established specific financial savings targets.



Additionally, thus far, most of the DOD Business Transformation 

program’s initiatives have been smaller in scope than those included 

under Defense Reform Initiative efforts. (See app. V for a listing of 

initiatives approved by the Business Initiative Council.) According to 

department officials, many of the initial efforts were intentionally 

small and selected to produce benefits in fiscal year 2003. However, 

the new business transformation program has begun to consider some 

larger efforts, such as alternatives to Circular A-76. Given the high-

level membership and significant amount of interservice participation, 

we believe the new management program has the potential to be an 

effective mechanism for reform. However, because the department’s 

efforts are still evolving, it is too soon to tell how effective this 

approach will be in transforming the business operations of the 

department. Moreover, like the Defense Reform Initiative, DOD’s 

Business Transformation program has not yet developed an overarching 

plan tying key reform efforts together in an integrated fashion. This 

could become more important as the department initiates broader, 

interrelated efforts.



The department concurred with our findings in its written comments on a 

draft of this report.



Background:



In November 1997, the then Secretary of Defense issued his Defense 

Reform Initiative (DRI) report outlining a plan for reforming the 

department’s business operations. The report included a variety of 

initiatives to reengineer business practices, consolidate 

organization, eliminate unneeded infrastructure through additional 

base closures, and conduct public-private competitive sourcing studies 

for commercial activities. These initiatives were expected to help 

achieve infrastructure reductions and business process improvements. 

After the DRI was announced, the Department of Defense expanded the 

scope of the DRI effort to include several additional initiatives such 

as acquisition, financial management, and logistics reform.



DOD established a management oversight structure to help sustain the 

direction and emphasis of the DRI effort. This structure included (1) a 

Defense Management Council--chaired by the Deputy Secretary and 

consisting of key civilian and military leaders--to oversee the DRI 

efforts and advise the Secretary on new reform efforts, (2) a 

Coordinating Group to provide assistance and advice to the Management 

Council, and (3) a Defense Reform Office to track implementation of the 

initiatives and identify areas where management’s attention was needed. 

The services and Defense agencies, which are ultimately responsible for 

implementing the initiatives, also established small offices or points 

of contact to receive and collect information about DRI. However, the 

department did not develop an integrated reform strategy and action 

plan to guide the program’s implementation, a limitation we have found 

in prior reform efforts.



The current Secretary of Defense, in 2001, announced his management 

reform program, referred to as the DOD Business Transformation program. 

This resulted in the creation of two top-level committees, the Senior 

Executive Council and the Business Initiative Council, to help improve 

business practices and transform the military and to oversee the 

implementation of the new reform program. The Secretary also created an 

advisory group of outside experts known as the Defense Business 

Practice Implementation Board.



The Senior Executive Council was established to help guide efforts 

across the department to improve business practices. It is chaired by 

the Secretary of Defense and is comprised of the Deputy Secretary of 

Defense, the service secretaries, and the Under Secretary of Defense 

for Acquisition, Technology and Logistics. The Senior Executive Council 

was established to function as a board of directors for the department.



The Business Initiative Council, headed by the Under Secretary of 

Defense for Acquisition, Technology and Logistics, includes among its 

membership the service secretaries and the Vice Chairman of the Joint 

Chiefs of Staff. Recently, membership was expanded to include the Under 

Secretary of Defense (Comptroller) and the Under Secretary of Defense 

for Personnel and Readiness. The Business Initiative Council was 

established to encourage the military services to explore new money-

saving business practices to help offset funding requirements for 

transformation and other high priority efforts.



The Defense Business Practice Implementation Board consists of business 

leaders from the private sector to help advise the department on its 

efforts to improve business practices. A list of these business leaders 

is provided in appendix VI.[Footnote 1]



Scope and Methodology:



To determine the status of the DRI initiatives, we reviewed and 

analyzed DOD’s February 2002 status report, using it as our basis for 

determining the current status of the former DRI initiatives. While we 

did not conduct an in-depth review of each initiative, we did confirm 

the accuracy of a number of the initiatives contained in DOD’s report. 

We also met with representatives from the Offices of Logistics and 

Materiel Readiness and the Chief Information Officer to discuss the 

logistics and electronic business/electronic commerce reform efforts.



To compare the new business transformation program management structure 

with the DRI management structure, we relied heavily on our prior work 

in this area (see Related GAO Products at the end of this report). We 

also met with officials responsible for the new business transformation 

program to discuss the management structure and obtain relevant 

documentation. We reviewed documents applicable to the intent, purpose, 

and structure of the DOD Business Transformation program.



During our work, we interviewed officials who had been heavily involved 

in the former DRI, as well as officials operating at all levels of the 

new business transformation program. These included the former director 

of the DRI Office, the points of contact for several former DRI 

initiatives, the Executive Secretary of the Senior Executive Council, 

the current and past leaders of the Business Initiative Council 

Executive Steering Committee, leaders for several of the Process/

Functional Boards, and champions for a few of the current business 

transformation initiatives.



We conducted our review from February 2002 through September 2002 in 

accordance with generally accepted government standards.



Agency Comments:



The Director of the Office of the Under Secretary of Defense’s Defense 

Procurement and Acquisition Policy provided written comments on a draft 

of this report, which are reprinted in their entirety in appendix VII. 

In its comments, DOD concurred with our findings in the draft report.



We are providing copies of this report to the Chairmen and Ranking 

Minority Members of the Committee on Armed Services, House 

of Representatives; Subcommittee on Defense, Committee on 

Appropriations, U.S. Senate; Subcommittee on Defense, Committee 

on Appropriations, House of Representatives; Subcommittee on Oversight 

of Government Management, Restructuring, and the District of Columbia, 

Committee on Governmental Affairs, U.S. Senate; and Subcommittee on 

National Security, Veterans’ Affairs and International Relations, 

Committee on Government Reform, House of Representatives. We are also 

sending copies of this report to the Secretary of Defense; the 

Secretaries of the Army, Navy, and Air Force; the Commandant of the 

Marine Corps; and the Director, Office of Management and Budget.



We will make copies available to others upon request. In addition, the 

report will be available at no charge on the GAO Web site at http://

www.gao.gov.



If you or your staff have questions regarding this report, please 

contact me on (202) 512-8412 or holmanb@gao.gov. Other major 

contributors to this report are listed in appendix VIII.



Barry W. Holman

Director, Defense Capabilities and Management



[Signed by Barry W. Holman



[End of section]



Status of Defense Reform Initiatives:



The Department of Defense (DOD) indicates that most Defense Reform 

Initiative (DRI) efforts are being carried forward--that is, 

incorporated into the new management reform program. According to a DOD 

official in the Office of the Under Secretary of Defense for 

Acquisition, Technology and Logistics, those initiatives not included 

in the department’s February 2002 report were generally no longer 

ongoing or no longer being tracked by the former DRI Office at the time 

of the transition to the new administration. Of the 40 initiatives 

identified in its February report, 5 were categorized as completed and 

35 were categorized as ongoing in some form. (See app. III for a 

summary table of Defense Reform Initiatives. App. IV contains DOD’s 

February 2002 status report in its entirety.):



Our analysis shows that most of the ongoing initiatives are not managed 

with specific oversight and tracking under the umbrella of a central 

management reform program/office. Rather, they continue to be managed 

under the applicable functional area of responsibility. For example, 

some of the logistics reform efforts included in the DRI program have 

been subsumed into related initiatives under the Deputy Under Secretary 

of Defense for Logistics and Materiel Readiness, but their progress is 

not being specifically tracked by the new business transformation 

program. However, there are some initiatives that are being monitored 

under the new management structure. Two key examples are financial 

management reform and public-private competitions under the Office of 

Management and Budget Circular A-76. Responsibility and accountability 

for financial management reform are vested with the DOD Comptroller, 

but the effort is being overseen by the Senior Executive Council (SEC) 

and, as such, is receiving high-level visibility under the DOD Business 

Transformation program. The department’s A-76 program has been subsumed 

into a larger effort, which is seeking to identify a range of 

alternatives to A-76 centered on noncore functions that DOD and the 

services do not necessarily need to perform in-house. Both SEC and the 

Business Initiative Council (BIC) are involved in this effort to 

identify noncore functions.



Our analysis also shows that the DRI initiatives are continuing to 

exhibit varying degrees of change under the new business transformation 

program. For example, while the objectives of the DRI logistics 

initiatives generally continue under the new business transformation 

program, the framework for achieving these objectives has changed 

completely. Conversely, the framework that was put in place under DRI 

to achieve the goals of the electronic business/electronic commerce 

program remains relatively unchanged.



DRI identified three broad logistics initiatives aimed at improving the 

effectiveness and efficiency of business operations, reducing overall 

logistics costs, and improving customer service. These initiatives 

directed the department to develop a logistics strategic plan, 

implement the logistics strategic plan using component transformation 

plans, and improve the logistics value to the warfighter.



The department developed several versions of a logistics plan, and each 

of the service and agency components produced implementation plans. 

While we identified weaknesses in these efforts, we recognized they 

were a positive and necessary step toward achieving the goals set by 

the DRI program.



In September 2001, the current DOD leadership announced a new logistics 

initiative program, designated the Future Logistics Enterprise, which 

refocused top-level logistics reform on six issues. They are (1) pursue 

depot maintenance public-private partnership, (2) use condition based 

maintenance, (3) adopt total life-cycle system management, (4) pursue 

end-to-end distribution, (5) establish new executive agents, and 

(6) enhance enterprise integration.



Many of the objectives identified in the DRI program are continued in 

varying degrees under the current Future Logistics Enterprise, though 

not specifically under the auspices of SEC or BIC. A key difference 

under the new business transformation program is the departure from 

previous efforts to develop a comprehensive, integrated logistics 

strategic plan, with the military components developing complementary 

implementation plans. Nonetheless, several of the objectives of the 

strategic planning initiative, such as minimizing logistics costs and 

modernizing logistics processes, do continue, even though the approach 

may have changed. DOD has carried forward the DRI goal of 

implementing customer wait time as a departmentwide logistics metric, 

and it now uses customer wait time as the sole measure of logistics 

performance. However, the capability to capture and report customer 

wait time is still under development. The DOD definition of customer 

wait time--the elapsed time from order to receipt when a customer 

orders an item--is broader than what the department is currently able 

to measure.



See appendix I for more detail on the logistics reform efforts.



The department identified and began implementing a number of specific 

electronic business/electronic commerce initiatives that it believed 

would help modernize selected business practices. These include an 

architecture, a strategic plan, an implementation plan, an electronic 

mall to provide personnel with one-stop shopping via the Internet, and 

methods for safeguarding electronic data.



However, in July 2000, we reported that DOD had made little progress in 

the area of electronic commerce.[Footnote 2] Specifically, we found 

that although a strategic plan was in place, other key implementation 

issues had not been addressed. Efforts to develop a departmentwide 

implementation plan had ceased, and work on an electronic commerce 

systems architecture was lagging. While the electronic mall was 

available to DOD shoppers, it was incomplete with several pieces under 

development. Although DOD launched many initiatives to improve security 

over its information, the public key infrastructure program was seen as 

crucial to providing the necessary safeguards and was not expected to 

be implemented for several years.[Footnote 3]



Currently, these electronic business efforts are not formal initiatives 

under the new management structure, but they are receiving high-level 

attention within the department under the direction of the Chief 

Information Officer. The electronic business architecture is under 

development, but the future direction is uncertain pending development 

of a financial management enterprise architecture. The strategic plan 

is being updated, and a new version is expected sometime in fiscal year 

2003. There is currently no effort underway for a departmentwide 

implementation plan, but the services continue to operate their 

separate programs with oversight provided by the DOD Electronic 

Business Board of Directors. Additionally, in February 2002, the BIC 

approved an effort to implement a virtual information technology 

marketplace for hardware, software, and selected services, which 

complements the DRI electronic mall initiative. Moreover, the 

electronic business area is receiving attention as one of the five 

governmentwide initiatives in the President’s Management Agenda for 

fiscal year 2002. The initiative, referred to as Expanded Electronic 

Government, specifically includes a public key infrastructure element 

as part of an effort to safeguard data.



See appendix II for more detail on the electronic business/electronic 

commerce reform efforts.



[End of section]



Management Structures:



The DRI program was established with an organizational framework to 

give structure and guidance to the reform effort. The framework 

consisted of the Defense Management Council (DMC), a coordinating group 

to support DMC, and a DRI Office to track implementation and identify 

issues that needed management attention. Points of contact called focal 

points were established in the services and Defense agencies.



DMC was expected to act as an internal board of directors. Membership 

included the Deputy Secretary of Defense (chair), the four Under 

Secretaries of Defense, the Vice Chairman of the Joint Chiefs of Staff, 

three military service Under Secretaries, four military service Vice 

Chiefs, the General Counsel, and the Director of the DRI Office.



A coordinating group, comprised of senior level representatives from 

the military services and the Office of the Secretary of Defense, was 

established to support DMC. The Director for Program Analysis and 

Evaluation, located in the Office of the Secretary of Defense, acted as 

executive director and served as the primary interface with DMC, 

helping to decide which issues to bring to it. The coordinating group 

met weekly to provide advice and assistance to DMC, draft policy 

statements, and provide a forum for the services and Defense agencies 

to discuss concerns, deal with ongoing DRI activities, and resolve 

problems.



The DRI Office was created to monitor progress and identify areas 

where management attention was needed. Intentionally kept small--up 

to eight people--it was tasked to track implementation of initiatives, 

obtain information on progress and potential problems, develop status 

reports, and look beyond DRI to identify other reform opportunities and 

marshal support.



Focal points were either small offices or points of contact established 

by the services and Defense agencies to receive and collect information 

about the DRI initiatives. The focal points did not manage initiatives, 

but they had a role in expediting actions and seeing that specific 

initiatives were addressed in their organizations.



The high-level management attention and oversight structure established 

by the department, particularly during the early stages of the program, 

had a positive effect on the implementation of DRI. Strong support and 

leadership from the then Secretary and Deputy Secretary of Defense, for 

example, gave the DRI a high priority within the department. Through 

its organizational framework, DOD tried to institutionalize and provide 

a centralized, sustained emphasis on the former DRI. The Defense 

Management Council and the DRI Office were established to provide the 

type of management attention and oversight necessary for successful 

reform by effectively communicating the reason for the change, setting 

the overall scope and agenda, and establishing policy. One of the 

direct communication tools DOD developed was the Defense Reform 

Initiative Directive. These directives, reviewed by DMC and issued by 

the Deputy Secretary of Defense, communicated specific goals and 

objectives, milestones, and decisions for selected initiatives. A total 

of 54 Defense Reform Initiative Directives were issued between November 

1997 and March 2000.[Footnote 4]



DOD also developed performance contracts to improve oversight of 

Defense agencies that provide numerous products and services to the 

military services and to other Defense agencies. These performance 

contracts were formal agreements delineating improvement goals related 

to cost, productivity, quality, and responsiveness to customers. 

According to a DOD official, emphasis on performance contracts 

continues; however, they have evolved into customer support agreements, 

which means customers will now be more involved in developing the goals 

and metrics for the Defense agencies.



DOD developed a departmentwide strategic plan, the Quadrennial Defense 

Review (QDR), which set DOD’s general direction for 4 years. Then, in 

1998, the Secretary directed organizations at all levels of the 

department to review their strategic plans and mission objectives to 

ensure they were linked to the QDR and DRI goals and objectives.



In an effort to overcome typical budget shortfalls for management 

reform initiatives, DOD directed the services and Defense agencies to 

construct budgets and programs consistent with the corporate-level 

goals in the QDR. Budget guidance included DOD’s mission statement and 

strategic goals, including the goal to “fundamentally reengineer the 

department.”:



The DRI included a variety of reform or reengineering initiatives, many 

of which were already ongoing before they were brought under the DRI 

umbrella. These included a series of 17 Management Reform Memoranda, 

which had been issued in early 1997 by the Deputy Secretary of Defense. 

To varying degrees, DRI gave each of those initiatives increased 

visibility and top-level support within the department and, in many 

instances, imposed new goals and milestones for accomplishing their 

objectives.



The Defense Management Council played an effective role in getting DRI 

started. For example, it helped establish goals, objectives, and time 

frames for completing many of the initiatives; supported the need for 

reform throughout the department; and helped ensure that staff at all 

levels understood the significance and purpose of DRI.



As we previously reported, DMC might have been more effective in 

serving as the Secretary’s Board of Directors had the DMC members been 

able to (1) work in a more collaborative fashion on major 

departmentwide issues, (2) establish priorities among the numerous 

reform initiatives, (3) enhance the DMC’s decision-making role and 

authority, and (4) obtain better information on the initiatives’ 

status. In April 1999, we recommended that the Secretary of Defense 

establish a comprehensive, integrated strategy and action plan for 

reforming the department’s major business operations and support 

activities.[Footnote 5] Then again in a July 2000 report, we reiterated 

that recommendation, stating that an integrated strategy and action 

plan could help DOD maintain program momentum and continuity during any 

transition in department leadership.[Footnote 6]



DOD Directive 5105.66 created the SEC on July 10, 2001. The SEC mission 

is to advise the Secretary of Defense in the application of sound 

business practices in the military departments, Defense agencies, and 

other DOD components. SEC is intended to be the principal mechanism to 

evaluate such practices and develop and implement proposals for 

improvement. Such proposals, or special efforts, may initially be 

developed under the purview of SEC and then referred to either BIC or 

the applicable functional area for implementation.



The Defense Business Practice Implementation Board (the Board) reports 

to SEC. Its mission is to make recommendations to SEC on strategies 

for implementing best business practices of interest to DOD in matters 

relating to management, acquisition, production, logistics, personnel 

leadership, and the defense industrial base. The Board is to consist of 

20 members and ad hoc consultants as necessary (see app. VI) and is 

subject to renewal every 2 years.



The stated mission of BIC is to improve efficiency of DOD business 

operations by identifying and implementing business reform actions that 

allow savings to be reallocated to higher priority efforts. Membership 

is similar to SEC.



The Steering Committee is responsible for developing project 

guidelines, plans, and direction and ensuring that individual reforms 

are integrated. It is composed of designated service three-star flag 

and general officers, selected executives from the Office of the 

Secretary of Defense, and a Joint Chief of Staff warfighter liaison.



The Joint Integration and Support Team (the Team) provides the 

necessary analysis, coordination, facilitation, and support needed for 

a project. The Team is comprised of BIC Executive Directors from the 

Office of the Secretary of Defense, Joint Staff, the services, and 

their supporting staff.



Seven multiservice/department process/functional boards conduct the 

actual reform work efforts within the framework of the guidelines, 

assessment methodologies, and information requirements of the Steering 

Committee. Among other things, these boards develop action plans that 

identify resource requirements, integration efforts with other reforms, 

policies, directives, and training, where applicable.



The BIC, the Steering Committee, and the functional boards are 

replicated at the individual service level.



The SEC assists the Secretary of Defense in determining broad policy 

and implementing initiatives relating to the efficient organization and 

management of the department. It identifies opportunities to achieve 

improved efficiency and effectiveness in DOD operations, such as 

improved business practices and consolidation of managerial functions 

and activities. A senior Defense official acknowledges, however, that 

given the high level of membership, the lines between ongoing 

management responsibility and the management reform agenda may 

sometimes appear blurred. Formal SEC meetings are held monthly.



The directive that created SEC required it to “consult with members of 

the business and the academic communities to seek innovative methods 

to resolve management problems, reengineer business practices, and 

streamline operations.” To fulfill this requirement, a formal advisory 

board, the Defense Business Practice Implementation Board, was created 

and met for the first time on March 15, 2002. It plans to meet 

quarterly, and has met three times to date and covered a variety of 

issues, such as human capital transformation and financial performance 

metrics.



The SEC and BIC memberships overlap considerably. Four of the six 

members of the SEC also sit on the seven-member BIC. Such a 

considerable overlap in membership provides a direct line of 

communication between the two councils and ensures consistency between 

the intent and implementation of business transformation initiatives. 

In addition, the Executive Secretary of the SEC also attends BIC 

meetings and acts as a liaison.



According to its charter, the BIC “will establish the overall DOD 

business reformation objectives and strategic direction, champion the 

implementation of this initiative across DOD, and hold the 

participating organizations responsible and accountable for positive 

results and stated outcomes.” The BIC approves the business reform 

initiatives.



The BIC charter provides for a phased approach, with the initial focus 

aimed at near-term reform actions. The four phases are:



1. Scoping of the Business Initiative (July 2001-September 2001): 

recommend and implement near term “quick hits” that were expected to 

result in some budgetary savings in fiscal year 2003 and recommend 

longer-term initiatives.



2. Exploration of Long-Term Initiatives (October 2001-March 2002): 

begin to implement longer-term initiatives and define metrics to be 

used to measure effectiveness of reforms, including feedback from the 

warfighter and achievement of projected savings.



3. Implementation of Long-Term Opportunities (April 2002-September, 

2002): commence execution phase for long-term reform and provide 

reports and results regarding progress and outcomes of reform actions.



4. Continuation of Reform Implementation (October 2002-March 2003): 

follow-on work to the previous phase and document and present final 

report of BIC efforts to the Under Secretary of Defense for 

Acquisition, Technology and Logistics.



Lead responsibility for each phase of the effort rotates among the 

military departments, with the Navy leading the first phase, followed 

by the Air Force and the Army for subsequent phases. The lead military 

department is primarily responsible for maintaining the forward-motion 

of the BIC efforts. The intent is to ensure that all participating 

military departments share in leading the BIC efforts and provide a 

climate for the exchange of good ideas. The leadership role lasts 

approximately 6 months.



The BIC establishes the overall DOD business reformation objectives 

and strategic direction, champions the implementation of this 

initiative across DOD, and holds the participating organizations 

responsible and accountable for positive results and stated outcomes. 

The Business Initiative Executive Steering Committee, the Joint 

Integration and Support Team, and the Process/Function Boards support 

the BIC work.



The SEC has a higher-level membership than the former Defense 

Management Council and a much smaller membership as well--6 members 

instead of 17. Unlike the DMC, the SEC does not have any military 

members--all are currently civilians. According to DOD officials, one 

lesson learned from the DMC was that in order for members to be 

effective, they had to be willing to focus on departmentwide solutions, 

putting aside their individual service and agency interests as 

necessary. According to a high-ranking DOD official, the service 

secretaries understood that they would be expected to work for the 

Secretary of Defense as well as their own service organizations.



There appears to be less emphasis on a formal program construct than 

with the DRI structure, which relied heavily on a central management 

office (DRI Office) and formal Defense Reform Initiative Directives and 

Management Reform Memoranda. In contrast, a senior Defense official 

told us that much of the coordination and cooperation within the DOD 

Business Transformation program seems to be based on relationships and 

personality rather than on formal program structure. Additionally, 

there is a higher level of personal accountability. Each level in the 

management structure is accountable to the next level, up to the 

service secretaries and, ultimately, to the Secretary of Defense.



To date, the business transformation program has focused on the 

effectiveness of reforms with the belief that efficiencies and savings 

will ultimately result rather than on initially focusing on specific 

savings targets. Under DRI, projected savings from the Base Realignment 

and Closure and A-76 initiatives were taken from the budget and put 

toward higher priority efforts. Department officials told us that the 

business transformation program has not programmed projected savings 

into future budget plans from its new initiatives and remains undecided 

whether to focus on savings being retained in the implementing office 

or shifted elsewhere, such as to support force transformation. 

Furthermore, DOD officials acknowledge that savings from some 

initiatives, while expected, may be difficult to quantify. 

Additionally, a senior Defense official told us that not all 

initiatives require budgetary savings to be an objective--they can be 

approved on the basis of good business practice. However, we believe 

this could change as the initiatives move from being “quick hits” to 

longer term, which require more investment dollars.



The DOD Business Transformation program structure includes a formal 

advisory board to make recommendations to SEC on implementing best 

business practices of interest to the department. This is quite 

different than the DRI program. While DRI had working groups that 

included some individuals from the private sector, it did not provide 

for a private sector board to advise and help formulate the reform 

program as a whole.



The new program is still evolving--SEC and BIC were established in July 

2001 and the events of September 11, 2001, changed the focus of both 

councils, at least for a time. Like the DRI program before, the current 

program may also change focus. At this point, it is difficult to 

determine where the change in focus might occur.



[End of section]



Types of Initiatives:



Briefing Section IV: Conclusions:



DOD issues press releases to announce business reform initiatives 

approved by BIC. The first press release, issued October 15, 2001, 

announced the initial round of approved initiatives. The press release 

announcing the sixth round of approved initiatives approved on 

September 4, 2002, was issued on October 15, 2002. Early initiatives 

were dubbed “quick hits” by DOD and defined as “those that have 

positive influence/benefit in FY03.” They were smaller in scope than 

the DRI efforts, owing in part to the short time frame to accomplish 

the initiatives by fiscal year 2003 and because DOD already had the 

authority and ability to implement the initiatives. A list of 

initiatives approved in each round is shown in appendix V.



BIC initiatives may come from a variety of sources, such as the 

services, their major commands, the functional boards, BIC itself, and 

even SEC, although DOD officials stated most are generated from the 

bottom-up. Initiatives originating at the lower levels of the 

management structure were identified in different ways. For example, 

the Air Force sent out a general servicewide request for initiatives, 

while the Navy reviewed Defense Science Advisory Board reports for 

potential initiative candidates. The functional boards included 

brainstorming sessions as part of their periodic meetings and also 

formed integrated product teams to help identify initiatives.



The SEC is responsible for the oversight of broader initiatives and 

recently directed each military service and Defense agency to 

participate in the development of a core-competency based approach for 

determining the source of services required. Such sources could include 

current DOD employees, other federal agencies, and private-sector 

contracts and/or partnerships. The premise behind this approach is for 

DOD to focus its energies and talents on core functions and transition 

the noncore competencies to alternative sources, initially through 

pilot programs. These pilot programs, referred to as pioneer projects, 

were approved in the May 31, 2002, round of BIC initiatives. This was 

in keeping with the phased approach of the BIC, which started with 

near-term initiatives and is progressing toward long-term 

opportunities. DOD is still in the early stages of initiating this 

effort.



In an effort to reform DOD’s business processes, the Secretary of 

Defense established two top-level councils, empowering both to 

make decisions that have the potential to transform DOD. The councils’ 

structures include senior level management from the various services 

with decision-making authority. The joint membership and leadership 

efforts of the councils are intended to ensure that all the services 

and Defense agencies are engaged in changing the way DOD does business. 

The Secretary also established a private sector advisory council in the 

form of the Defense Business Practice Implementation Board to tap 

management reform innovations and ideas from outside the 

federal government.



The department’s efforts are still evolving, and consequently, it is 

too soon to tell how effective this approach will be in transforming 

DOD’s business operations. We believe this new management program has 

the potential to be an effective mechanism for reform, given the high-

level membership and significant amount of interservice participation. 

However, like the former DRI program, the DOD Business Transformation 

program has not yet developed an overarching plan tying all the 

individual reform efforts together. Although the Business Initiative 

Council Charter suggests one was anticipated, it states,



“The BIC efforts will be conducted within a total systems approach, 

with individual reforms identified, reviewed, and executed within the 

context of an integrated business model for DOD. This approach will 

also allow for an assessment of the overall extent of the proposed 

changes to ensure that DOD has the capacity and resilience to 

effectively integrate the cumulative impact of the various functionally 

oriented changes.”:



As the new program takes on broader initiatives, the development of an 

overarching integrated plan could take on increased importance, 

particularly where initiatives become more interrelated and up-front 

investments are required.



We have previously recommended that the department establish a 

comprehensive, integrated strategy and action plan for reforming its 

major business processes and support activities.[Footnote 7] We believe 

that recommendation is in line with the plan cited in the BIC Charter.



[End of section]



Appendix I: Status of Defense Logistics Reform Efforts:



The Defense Reform Initiative (DRI) program had three broad logistics 

initiatives, two of which dealt with aspects of strategic planning. 

Subsequently, the Department of Defense (DOD) restructured its 

logistics improvement initiatives, discontinuing the framework for 

reform begun under the DRI process. Many of the objectives identified 

in the DRI are continued in varying degrees under current departmental 

improvement initiatives--though not specifically under the oversight of 

the new Senior Executive Council (SEC) or Business Initiative Council 

(BIC). A key difference under the DOD Business Transformation program 

is the departure from previous efforts to develop a comprehensive, 

integrated logistics strategic plan, with the military components 

developing complementary implementation plans. At the same time, many 

other previously initiated service-led logistics reform efforts 

continue. Providing logistics support that is economical and responsive 

has been identified by us as a major management challenge facing the 

department, as reported in our periodic Performance and Accountability 

reports covering 21 federal agencies.



DRI Logistics Reform Initiatives:



The DRI, begun in 1997, was aimed at improving the effectiveness and 

efficiency of DOD business operations. This effort included three broad 

logistics improvement initiatives:



* development and implementation of a logistics strategic plan to 

provide a vision and set of objectives for improving logistics support 

to the warfighter;



* submission of annual logistics transformation plans by DOD components 

to document how these organizations were to reach the goals and 

objectives laid out in the logistics strategic plan; and:



* improvement of the value of logistics to the warfighter by reducing 

logistics response time, increasing total asset visibility,[Footnote 8] 

and reducing supply inventories.



DOD identified 11 associated objectives that represent the specific 

actions it would undertake to implement the three DRI logistics 

improvement initiatives. Table 1 provides the objectives of each DRI 

logistics initiative, along with its associated metrics and milestones. 

This table also characterizes the extent to which the initiatives are 

continued under current logistics improvement initiatives.



Table 1: Status of DRI Logistics Initiatives:



Initiative objective: I-Develop Logistics Strategic Plan; Metrics: See 

below; Milestones: See below; Extent to which prior efforts continued 

under current logistics improvement initiatives: DOD-wide strategic 

plan is no longer directed, although several planning efforts 

continue.



Initiative objective: Optimize support to the warfighter by baselining 

existing mission-capable rates, and then establishing and moving toward 

achieving higher target rates; Metrics: Mission-capable rates; 

Milestones: Establish baseline and target rates by 2001, and achieve 

improvement through the end of fiscal year 2006 with components 

reporting progress annually; Extent to which prior efforts continued 

under current logistics improvement initiatives: The Office of the 

Secretary of Defense (OSD) no longer tracks mission-capable rate 

metrics but continues to focus on support to the warfighter by using 

weapon system performance metrics such as weapon system availability. 

The services continue to track mission capable rate goals and status.



Initiative objective: Improve strategic mobility to meet warfighter 

requirements by increasing cargo airlift, sealift surge, and afloat 

preposition capacity to meet current DOD guidance; Metrics: Ton-miles/

square footage/containers; Milestones: Eliminate all shortfalls by 

end of fiscal year 2006; Extent to which prior efforts continued under 

current logistics improvement initiatives: This specific objective is 

not carried over into new OSD logistics initiatives. However, the U.S. 

Transportation Command has a strategic plan that includes metrics and 

milestones for resolving projected shortfalls and that no longer calls 

for eliminating all shortfalls by the end of fiscal year 2006. It 

currently estimates being able to meet the sealift shortfall by fiscal 

year 2003 and the airlift shortfall by 2018.



Initiative objective: Improve strategic mobility to meet warfighter 

requirements by developing a measurement approach and appropriate 

targets for mobility infrastructure and mobility process improvements; 

Metrics: Not developed; Milestones: Develop an improvement plan by the 

end of 2001 and achieve improvement goals by the end of fiscal year 

2006; Extent to which prior efforts continued under current logistics 

improvement initiatives: This specific objective is not carried over 

into new OSD logistics initiatives. However, the U.S. Transportation 

Command has a strategic plan that includes metrics and milestones for 

improving the mobility infrastructure and processes by the end of 

2006.



Initiative objective: Refine the definition of customer wait time, 

develop appropriate measures, and implement as the departmentwide 

logistics metric; Metrics: Number of days from customer order to 

delivery (for total supply chain); Milestones: Develop definition and 

measurement by end of fiscal year 2001 and fully implement measurement 

for all selected segments by the end of fiscal year 2006; Extent to 

which prior efforts continued under current logistics improvement 

initiatives: This objective, and its associated metric and 2006 

milestone, continues under the current OSD logistics improvement 

initiatives.



Initiative objective: Fully implement total asset visibility across DOD 

to allow users to view information on the identity and status of 

Defense materiel and assets and to complete business transactions using 

this information; Metrics: Visibility into the location of assets; 

Milestones: Determine methods, asset information requirements, and 

associated measures by the end of fiscal year 2000 and implement 100 

percent of requirements by the end of fiscal year 2006; Extent to 

which prior efforts continued under current logistics improvement 

initiatives: This objective is no longer continued under current OSD 

logistics initiatives.



Initiative objective: Reengineer and modernize applicable logistics 

processes and systems by developing modernization plans by the end of 

fiscal year 2001 and by increasing the proportion of modernized 

logistics business systems according to those plans; Metrics: 

Percentage of systems modernized; Milestones: Develop modernization 

plans by the end of 2001 and increase the proportion of modernized 

logistics business systems according to those plans by the end of 

fiscal year 2006, with components reporting annually against targets; 

Extent to which prior efforts continued under current logistics 

improvement initiatives: While this objective continues under the new 

OSD logistics initiative, the approach has changed. Milestones have 

been established for initial and midterm tasks--such as reviewing 

ongoing information system development efforts--but new metrics and 

milestones for full program implementation have not yet been 

developed.



Initiative objective: Minimize logistics costs while meeting 

warfighter requirements by reducing the overall costs of logistics 

support for selected weapon systems; Metrics: Logistics costs; 

Milestones: Reduce the overall costs of logistics support for selected 

fielded weapon systems by 7 percent by fiscal year 2000, by 10 percent 

by fiscal year 2001, and by 20 percent by the end of fiscal year 2005; 

Extent to which prior efforts continued under current logistics 

improvement initiatives: This objective, and its associated metrics and 

milestones, continues under the current OSD logistics initiatives.



Initiative objective: II-Implement Logistics Strategic Plan using 

Component Transformation Plans; Metrics: See below; Milestones: See 

below; Extent to which prior efforts continued under current logistics 

improvement initiatives: Logistics transformation plans have been 

discontinued.



Initiative objective: Each DOD component submits a logistics 

transformation plan that documents how the component plans to reach 

the goals and objectives laid out in the DOD Logistics Strategic Plan; 

Metrics: Not fully developed; Milestones: Submit plans annually to OSD 

beginning in fiscal year 2000; Extent to which prior efforts continued 

under current logistics improvement initiatives: This objective is not 

being continued, and the components are not preparing transformation 

plans to support a coordinated DOD-wide logistics transformation 

strategy.



Initiative objective: III-Improve Logistics Value to the Warfighter; 

Metrics: See below; Milestones: See below; Extent to which prior 

efforts continued under current logistics improvement initiatives: 

Initiative as structured in the DRI has†significantly changed or been 

discontinued, but the general goal of improving support to the 

warfighter continues under current OSD initiatives.



Initiative objective: Reduce logistics response time; Metrics: Number 

of days from customer order to delivery (for wholesale portion of 

supply chain); Milestones: Obtain orders from the wholesale system in 

24 days in fiscal year 1999, and 18 days in fiscal year 2000; Extent 

to which prior efforts continued under current logistics improvement 

initiatives: This objective continues under the current OSD logistics 

initiatives; however, OSD is now using as a metric the number of days 

from customer order to delivery for the total supply chain. Current 

measurements are limited to spare and repair parts and do not include 

other classes of supply.



Initiative objective: Increase total asset visibility; Metrics: 

Percentage of inventories that are visible to all integrated material 

managers; Milestones: Achieve 80 percent visibility of asset 

inventories in fiscal year 1999 and 90 percent in fiscal year 2000; 

Extent to which prior efforts continued under current logistics 

improvement initiatives: This objective does not continue under the 

current OSD logistics initiatives.



Initiative objective: Reduce supply inventories; Metrics: Adjusted 

acquisition value of DOD’s secondary item inventories; Milestones: 

Reduce secondary item inventories to an adjusted value of $56 billion 

by fiscal year 2000; Extent to which prior efforts continued under 

current logistics improvement initiatives: This objective does not 

continue under the current OSD logistics initiatives.



Source: GAO analysis of DOD data.



[End of table]



Under DRI, the department had recognized two broad approaches 

for addressing critical logistics shortfalls--strategic planning and 

implementation and optimizing support to the warfighter. As a result of 

its DRI improvement initiatives, the department then developed several 

versions of a logistics strategic plan and each of the components 

produced plans intended to support the implementation of goals and 

objectives in the DOD plan. We have recommended improvements to DOD’s 

strategic planning process, including the development and 

implementation of a logistics strategic plan in several reports since 

the mid-1990’s.[Footnote 9] While we identified weakness in these 

efforts, we recognized that they were a positive step since the 

implementation of effective strategic planning is essential to the 

comprehensive transformation of logistics structures, processes, and 

supporting information systems to improve customer service and reduce 

support costs. Further, regarding the need to improve support to the 

warfighter, DOD recognized three significant problems impacting 

successful, timely, and economical support--logistics response time, 

total asset visibility, and inventory reduction.



Various DOD organizations and activities were involved in pursuing 

aspects of the DRI logistics improvement efforts. The department 

produced several reports on its progress in implementing the logistics 

improvement initiatives, with the last report completed in 2001. 

Concluding that logistics strategic planning was on track, the report 

stated, “although logistics reform is relatively new compared with 

acquisition reform, progress has been achieved within the past 18 

months, and the Department has developed an overarching logistics 

strategic plan in August 1999 that provides vision and a set of 

objectives for meeting the logistics challenges of the 21st century.” 

However, the report acknowledged that the components’ transformation 

plans showed programs that were “underfunded, not cohesive, lacked 

specific performance metrics and milestones, and had no clear 

relationship to DOD strategic objectives.” Also, regarding the effort 

to improve logistics value to the warfighter, the report indicated that 

the services had achieved the three metrics established for this 

initiative.



New Reform Focus:



With the change in administration in 2001, DOD’s new leadership began 

formulating a new approach for dealing with problems within the 

department. Regarding logistics issues, in September 2001, the current 

Deputy Under Secretary of Defense for Logistics and Materiel Readiness 

announced a management improvement program, which discontinued the 

three DRI initiatives and refocused the department’s top-level 

logistics improvement efforts. DOD officials stated that these new 

logistics initiatives, designated the Future Logistics Enterprise, 

would be the focus of the department’s logistics support improvement 

efforts during the current administration. However, the officials 

stated that the tenets of the DRI logistics initiatives have been 

incorporated into the department’s Future Logistics Enterprise or into 

other logistics improvement efforts within DOD.



The Future Logistics Enterprise is comprised of six new objectives. 

Table 2 summarizes the objectives with the associated metrics and 

milestones. The table also describes the extent to which current 

efforts are a continuation of prior DRI improvement initiatives.



Table 2: Status of Future Logistics Enterprise Initiatives:



Objective: Pursue depot maintenance public-private partnerships to 

achieve greater facility utilization, reduce cost, and realize greater 

investment in organic depots by empowering DOD depots to develop 

partnerships with the commercial sector; Metrics: Metrics are under 

development. Potential metrics include the value of private-sector 

investment in DOD depots and increased workload at DOD depots resulting 

from public-private partnerships. Officials said it will be sometime in 

early 2003 before the metrics will be finalized; Milestones: Not yet 

developed; Extent to which current logistics improvement initiatives 

continue prior DRI efforts: This was not an objective addressed by 

DRI.



Objective: Use more accurate condition-based maintenance data to 

predict failures and maintenance requirements, reduce unnecessary 

maintenance, and increase operational availability and readiness; 

Metrics: Not yet developed; Milestones: Not yet developed; Extent to 

which current logistics improvement initiatives continue prior DRI 

efforts: This was not an objective addressed by DRI.



Objective: Adopt a total life-cycle approach to weapon system 

management to achieve effective performance and optimum readiness while 

reducing operations and support costs, in order to meet warfighter 

weapon systems performance requirements; Metrics: Not yet developed 

for measuring collective success of this objective. DOD plans to 

develop metrics by February 2004; Milestones: Near-term milestones 

were established for six areas: (1) establish the framework and 

structure for the effort, including DOD policy and guidance by December 

2002; (2) change the business processes within the current logistics 

environment and revise financial mechanisms by December 2005; 

(3) marshal resources to support the initiative, including the public 

and private supplier bases, new workforce, and investment funds by 

October 2003; (4) synchronize this effort with other initiatives by 

November 2002; (5) enhance existing and implement new oversight 

mechanisms for weapon system sustainment by December 2003; and 

(6) institutionalize this new acquisition and support concept 

throughout DOD by December 2003; Extent to which current logistics 

improvement initiatives continue prior DRI efforts: This objective 

continues the general DRI objective to optimize logistics support to 

the warfighter by requiring the use of performance measurements such as 

weapon systems availability and reliability.



Objective: Pursue end-to-end distribution to streamline supply support 

to the warfighter by providing materiel, including retrograde, from the 

source of supply or point of origin to the point of use or disposal, as 

defined by the combatant commander.[A]; Metrics: Customer wait times: 

number of days from customer order to delivery (for total supply 

chain); Milestones: Reduce the time for spare and repair parts from 18 

days in 2001 to 17 days in 2002, and to 16 days in 2003. Unclear 

whether milestones will be established for other commodities; Extent 

to which current logistics improvement initiatives continue prior DRI 

efforts: This objective continues the DRI objective to reduce customer 

wait time.



Objective: Establish new executive agents determination process to 

assign responsibility to a service or Defense agency for providing 

common services (i.e., bulk fuel or area decontamination) and to 

improve planning to ensure that the needed resources are available; 

Metrics: Not yet developed; Milestones: Not yet developed; Extent to 

which current logistics improvement initiatives continue prior DRI 

efforts: This was not an objective addressed by DRI.



Objective: Enhance enterprise integration by building on service and 

Defense Logistics Agency software integration efforts and reduce 

information system support costs by streamlining and changing current 

DOD business processes and practices so that they are supported by 

commercially available software; Metrics: Not yet developed; 

Milestones: Not yet developed. Near-term milestones are in 

development; Extent to which current logistics improvement initiatives 

continue prior DRI efforts: This objective continues the DRI objective 

to reengineer and modernize logistics systems, but takes a different 

approach.[B].



[A] This effort is also supposed to ensure a smooth transition from 

peacetime to wartime distribution processes and to resolve conflicting 

demands for airlift and sealift that currently exist between deploying 

forces and sustainment distribution requirements.



[B] DOD reviewed six ongoing systems’ software modernization efforts--

four in the Navy and one each in the Army and the Air Force--resulting 

in seventeen general findings and fourteen follow-on actions to guide 

and expand the enterprise integration effort. Based on the findings and 

recommended actions, DOD is developing a detailed logistics 

architecture for the services to follow in reengineering their 

information management systems.



Source: GAO analysis of DOD data.



[End of table]



While the Future Logistics Enterprise initiatives were originally 

adopted in 2001, many details have yet to be worked out regarding DOD’s 

approach for implementing these initiatives. In some cases, policy is 

still being formulated. For five of the six objectives, the metrics to 

monitor and evaluate the success of the initiatives and milestones for 

achieving improved states are not yet developed or are not fully 

developed. Officials said that, in general, these initiatives are in 

their infancy. DOD has focused on initiating the efforts, setting 

policy for the new initiatives, and exploring potential approaches for 

evaluating progress toward achieving the objectives.



Many Logistics Objectives Continue:



Many of the logistics improvement objectives under the former DRI 

are continuing to varying degrees today. The following discussion 

highlights the metrics and milestones of the DRI objectives shown in 

table 1 and provides an assessment of the extent to which each is 

continued in the current Office of the Secretary of Defense logistics 

improvement initiatives.



* Optimize support to the warfighter: The Office of the Secretary of 

Defense is modifying its approach for evaluating logistics support to 

the warfighter, based on the adoption of its performance-based 

logistics support concept. The new measure should indicate the 

effectiveness of logistics support for specific weapon systems, but it 

does not provide as broad an indicator of the effectiveness of the 

total logistics support system as the mission-capable rates measure 

adopted under DRI to assess the effectiveness of logistics support to 

the warfighter. To optimize improvements in warfighter logistics 

support, DRI provided that each military component identify existing 

mission-capable rates for its various systems. Using these rates as a 

baseline, the services were to establish a goal of higher mission-

capable rates and move toward achieving these higher rates by fiscal 

year 2006. While operational units will continue to use mission-capable 

rates, according to DOD officials, the adoption of performance-based 

logistics has resulted in the need for measures that will evaluate the 

performance of logistics providers in supporting weapon systems based 

on factors within their control. The process calls for program offices, 

in conjunction with the warfighter, to establish weapon systems-level 

performance metrics--such as system availability and mission 

reliability--based on existing constraints, including available 

funding levels, physical space for maintenance, and information about 

the quality of the weapon system. For example, the F-117 aircraft 

program is evaluated primarily on an aircraft availability measure of 

99 percent for the aircraft system, excluding the engine. While DOD 

officials stated that improved system availability and reliability 

should equate to improved mission-capable rates, the mission-capable 

rates measure is a broader indicator of the health of a system and 

therefore a better indicator of the performance of the logistics system 

in supporting the warfighter.



* Increase strategic mobility capacity: The Future Logistics Enterprise 

includes a general goal to improve strategic mobility capability as 

envisioned by DRI, but the new initiative does not specifically address 

the DRI strategic mobility goals. Nonetheless, other improvement 

initiatives continue to track the strategic mobility shortfall and 

develop approaches for improving mobility infrastructure and processes. 

Strategic airlift shortfalls have been a long-standing defense problem 

affecting the capability of the military services to transport required 

forces and support to the theater of operations in a timely manner. For 

example, when completed in 2001, the Mobility Requirements Study 2005 

identified a strategic airlift carrying capacity requirement of 54.5 

million ton miles. The DRI set a goal of achieving the required 

airlift, sealift, and afloat preposition capacity identified by the 

Mobility Requirements Study by 2006. The department currently estimates 

that it should be able to satisfy this requirement by the end of 2018 

with the acquisition of 180 C-17 aircraft and modernization of 100 C-5 

aircraft.



* Improve strategic mobility processes and infrastructure: While DOD is 

not focusing on strategic mobility shortfalls in its Future Logistics 

Enterprise initiatives, its other logistics improvement efforts 

continue to address these issues. For example, DRI called for 

developing a measurement plan and goals for mobility infrastructure and 

process improvements. The Transportation Command strategic plan 

identifies goals and measures for improving mobility infrastructure and 

processes. The Transportation Command also tracks DOD’s progress toward 

resolving the defense strategic mobility shortfall, although officials 

noted that the requirement is currently being reassessed. It is 

appropriate for the Transportation Command to follow mobility shortfall 

issues. However, it also appears appropriate that (1) the ability of 

DOD to marshal its assets to the required theater of operations in a 

timely manner be identified as a critical logistics goal and (2) such a 

logistics improvement initiative be managed and measured within the 

Office of the Secretary of Defense, which has responsibility for 

setting transportation policy within DOD.



* Reduce customer wait time: DOD has carried forward the DRI goal of 

implementing customer wait time as a departmentwide logistics metric, 

and it uses customer wait time as the sole measure of logistics 

performance reported under the Government Performance and Results 

Act.[Footnote 10] The DRI required the development of a definition and 

measurement of customer wait time and full implementation of the 

selected measurement by the end of fiscal year 2006. The department has 

defined and developed measures for customer wait time, and it is 

pursuing full implementation as part of its Future Logistics Enterprise 

initiative to pursue end-to-end distribution. However, the capability 

to capture and report customer wait time is still under development. 

The DOD definition of customer wait time--the elapsed time from order 

to receipt when a customer orders an item--is broader than what the 

department is currently able to measure. While the long-range goal is 

to use the customer wait-time measure to encompass all wholesale and 

retail transactions associated with customer orders, DOD’s current 

capability is limited to measuring spare and repair parts ordered by 

organizational-level maintenance activities. DOD officials said they 

intend to meet the 2006 goal for full implementation of the broader 

customer wait time definition.



* Increase total asset visibility: Under the new business 

transformation program, DOD shifted its focus from total asset 

visibility to customer wait time. The DRI required the determination of 

appropriate asset visibility measures and the implementation of total 

asset visibility requirements by the end of fiscal year 2006. Office of 

the Secretary of Defense officials said that while they believe total 

asset visibility is a capability that in some instances should enable 

reductions in customer wait time, DOD is not pursuing total asset 

visibility as a part of its Future Logistics Enterprise. However, we 

found that total asset visibility continues to have importance to the 

combat commander by providing the ability to (1) see the flow of 

logistics into the theatre and make lateral transfers as needed, (2) 

reduce the potential for multiple/duplicative requisitions when assets 

do not show up on time, and (3) allow a commander to perform support-

gap analyses on proposed operational plans. We have reported the need 

for gaining total asset visibility as an important tool in managing the 

procurement, distribution, and disposal of defense assets and have 

identified shortfalls in this capability as a factor in making supply 

management a high-risk area in DOD. According to joint staff officials, 

asset visibility is a critical capability that merits continued focus 

and resources to ensure the accomplishment of needed improvement. 

Consequently, a working group--comprised of Office of the Secretary of 

Defense, service, Defense agency, and selected Combatant Command 

membership--has formed to begin crafting a long-term total asset 

visibility strategy. We have previously recommended that DOD develop a 

total asset visibility system.



* Reengineer and modernize logistics processes and systems: The goal of 

updating or replacing logistics systems with modern systems has been 

carried forward under the Future Logistics Enterprise initiative to 

enhance enterprise integration, but the specific measures contained in 

the DRI are not part of the current initiative. The DRI required DOD to 

develop information system modernization plans with annual 

implementation targets and then to implement improvements according to 

those plans by fiscal year 2006, with each military component reporting 

annually on its progress toward modernization. Instead of continuing to 

pursue DRI information system improvement goals, DOD began the 

initiative to enhance enterprise integration in November 2001 with a 

different information systems approach. The new logistics information 

system’s objective is to achieve a common operating environment built 

on ongoing service and Defense Logistics Agency software integration 

efforts and reduce system support costs. The department began by 

reviewing six ongoing Enterprise Resource Program efforts within the 

services to identify best business practices to be considered for 

adoption agencywide. Based on the results of the review, DOD is 

developing a detailed logistics architecture for the services to follow 

in reengineering their information management systems. Whether the 

initiative to enhance enterprise integration will result in the same 

changes anticipated by DRI is not yet known because specific measures 

are only now being developed to support the desired enterprise 

integration end-state in 2015.



* Minimize logistics costs while meeting warfighter requirements: The 

goal to reduce logistics support costs for selected weapon systems has 

continued under the Under Secretary of Defense for Acquisition, 

Technology and Logistics functional area of responsibility within the 

department. DRI required the reduction of logistics support costs from 

a 1997 baseline for selected weapon systems by 7 percent by fiscal year 

2000, by 10 percent by fiscal year 2001, and with a stretch goal of 

20 percent by the end of 2005. To comply with the requirement, DOD used 

an ongoing effort to address the rising cost of sustaining weapon 

systems. This effort, called Reduction of Total Ownership Costs, tested 

approaches for reducing the weapons systems logistics sustainment costs 

in 10 weapons system pilot programs from each military department. This 

effort set goals to reduce the overall costs of logistics support for 

selected systems by fiscal year 2006. The ownership cost reduction 

effort is not specifically part of the Future Logistics Enterprise; 

however, according to program officials, the pilot programs have 

achieved some ownership cost reduction results, and the lessons learned 

are available to weapon system program offices in their ongoing efforts 

to reduce ownership costs.



* Develop component logistics transformation plans: DOD discontinued 

the DRI objective that required the components to prepare annual plans 

to serve as the primary vehicle for aligning the military component 

initiatives, attaining resources, and documenting the approach for 

achieving the goals and objectives as identified by the logistics 

strategic plan. In requiring the components to develop logistics 

transformation plans based on strategies and objectives established in 

a DOD-wide plan, the department recognized the need to implement a more 

coordinated approach to logistics support planning. While we identified 

disconnects in the transformation plans, the strategic planning process 

was designed to identify disconnects so that they might be resolved. 

Further, our review of the services’ transformation plans found other 

weaknesses, but we recognized that the plans were a step in the right 

direction. As we have previously recommended, we believe DOD needs a 

logistics strategic plan that is linked to service specific logistics 

plans.[Footnote 11]



* Reducing logistics response time: DOD discontinued the metrics 

and milestones associated with this objective and instead adopted 

customer wait time to measure the effectiveness of logistics support to 

the warfighter. According to DOD officials, customer wait time is a 

broader measure for assessing logistics value to the warfighter. As 

discussed previously, the department is pursuing full implementation of 

measures for customer wait time as part of the Future Logistics 

Enterprise initiative to pursue end-to-end distribution. DOD officials 

said they intend to meet the 2006 goal for full implementation of the 

broader customer wait time definition.



* Reducing inventory levels: The department has discontinued the 

metrics and milestones associated with this objective and has adopted 

customer wait time as a broader measure for assessing logistics value 

to the warfighter. Officials stated that the drive to reach reduced 

inventory levels has resulted in the unintended consequence of parts 

shortages. Officials said DOD is pursuing better inventory practices 

that optimize inventory levels to provide for needed parts with minimum 

holding costs. While we recognize the need to maintain needed 

inventories, we have identified inventory management as a high-risk 

area since 1990.[Footnote 12] We have reported that there are still 

opportunities to improve inventory processes, systems, and practices to 

prevent overbuying based on imprecise or inaccurate inventory 

management data.



[End of section]



Appendix II: Status of Defense Electronic Business/Electronic Commerce 

Reform Initiatives:



In 1997, the Defense Reform Initiative (DRI) called for DOD to 

revolutionize its business operations by adopting best business 

practices, particularly those that promote electronic business 

operations. To accomplish this, the department identified and began 

implementing a number of specific, electronic business initiatives that 

it believed would help modernize selected business practices. The 

electronic business program and the related initiatives that began 

under the DRI rubric are, for the most part, continuing; however, 

management oversight generally has occurred under the responsible 

functional areas rather than under the Senior Executive Council (SEC) 

and the Business Initiative Council (BIC).[Footnote 13] Nonetheless, 

the electronic business area is receiving significant departmental 

attention by the Chief Information Officer since it is one of the five 

governmentwide initiatives--Expanded Electronic Government--of the 

President’s Management Agenda for fiscal year 2002.



DRI Electronic Business Initiatives:



As an outgrowth of DRI, DOD established a Joint Electronic Commerce 

Program in May 1998 to increase the use of electronic business 

practices and associated information technologies that are common in 

private-sector companies, such as using the Internet and commercially 

available computer software to conduct business. In March 1999, DOD 

issued policy guidance for the program. The policy guidance identified 

three essential elements that DOD believed was needed to achieve its 

electronic business goals, including (1) an overarching electronic 

commerce architecture, (2) a strategic plan, and (3) an overarching 

implementation plan.



In June 2000, the department issued DOD Directive 8190.2 establishing 

policy and responsibilities for DOD’s electronic business/electronic 

commerce program. This directive replaced Department of Defense Reform 

Initiative Directive #43--Defensewide Electronic Commerce--as well as 

the March 1999 policy guidance. Directive 8190.2 instructed DOD 

components to plan, develop, and implement electronic business from a 

DOD-wide perspective; describe and adhere to an architecture; and 

implement electronic business security solutions, among other things. 

The Chief Information Officer was designated the primary Principal 

Staff Assistant responsible for the program’s overall policy direction, 

oversight, planning, development, architectures, security, technical 

integration, and implementation of approved DOD-wide initiatives.



In July 2000, we reported on the status of DOD’s electronic commerce 

program.[Footnote 14] At that time, we found that DOD had not yet (1) 

completed a detailed plan to implement its strategic vision, (2) 

developed an electronic commerce architecture, (3) determined how to 

best manage the electronic commerce program, and (4) fully implemented 

key security measures needed for electronic commerce.



Also in July 2000, DOD chartered its Electronic Business Board of 

Directors to recommend improvements to the electronic business vision, 

goals, and direction as well as coordinate implementation of activities 

and monitor metrics. The Board was established to focus primarily on 

cross-functions and cross-component programs, such as departmental 

priorities, departmental performance measures, and architecture/

infrastructure. This board continues to place emphasis on electronic 

business issues, policies, and concerns.



In addition, the Electronic Business Steering Group was recently 

established within the Office of the Under Secretary of Defense 

Acquisition, Technology and Logistics (AT&L) to oversee DOD-wide 

initiatives that fall under AT&L’s purview. It is chaired by the 

Principal Deputy Under Secretary of Defense (AT&L) with membership from 

the AT&L staff and representatives from the Offices of the Chief 

Information Officer and Chief Financial Officer. There is an overlap in 

membership between DOD’s Electronic Business Board of Directors and 

AT&L’s Electronic Business Steering Group.



The Defense Reform Initiative Transition Report 2001 indicated that 

most electronic business initiatives were continuing on-track, but that 

some efforts were identified as needing a reevaluation. In addition, 

DOD’s February 28, 2002, DRI status report (see app. IV) identified 

successes and challenges related to electronic commerce or electronic 

business. Key among these initiatives are an electronic business 

architecture, an electronic business strategic plan, an electronic 

business implementation plan establishing electronic malls, and the 

safeguarding of electronic data.



Current Electronic Business Reform Efforts:



Under the new business transformation program, DOD’s Chief Information 

Officer has responsibility for the Electronic Business/Electronic 

Commerce Program’s overall policy direction, oversight, planning, 

development, architectures, security, technical integrations, and 

implementation of approved DOD-wide electronic business initiatives. 

The Chief Information Officer also provides direction and oversight to 

the Joint Electronic Commerce Program Office, which, among other 

things, ensures the coordination and integration of business processes 

throughout the department, much like it did under the DRI management 

structure.



DRI provided for a number of specific electronic commerce initiatives 

covering aspects of several DOD business processes, such as 

acquisition, logistics, and financial management. However, for this 

report, we focused our review on five key efforts, including the 

development of (1) an architecture, (2) a strategic plan, (3) an 

implementation plan, (4) an electronic mall, and (5) a public key 

infrastructure.[Footnote 15] The first three efforts were developed as 

a result of policy guidance and were viewed by DOD as necessary 

underpinnings for the program’s success. The other two efforts were 

specific Defense Reform Initiatives with associated goals 

and performance measures. Table 3 provides information on each of 

these efforts.



Table 3: Status of DRI Electronic Business Initiatives:



Objective: Electronic Business Architecture: Integrate business 

processes and information systems across the military services and 

Defense agencies; Metrics: Not developed; Milestones: Initial 

architecture development in 3-5 years. Changing requirements, new 

technologies, and improved business practices will cause the initial 

architecture to continually evolve; Extent to which prior efforts 

continued under current program: Work continues on the electronic 

business architecture, overseen by the Defense Information Systems 

Agency and the Defense Logistics Agency. The financial management 

enterprise architecture, overseen by the Comptroller, currently 

overlaps some electronic business architecture efforts.



Objective: Electronic Business Strategic Plan: Identify goals, 

objectives, and strategies DOD will pursue over the next 10 years to 

achieve an electronic business operations environment; Metrics: Plan 

included 3 overall goals supported by 10 objectives that were supported 

by 41 strategies; Milestones: Strategic plan issued May 1999; Extent 

to which prior efforts continued under current program: Plan is being 

updated by the Chief Information Officer as Principal Staff Assistant, 

with expected completion in 2003.



Objective: Electronic Business Implementation Plan: Guide the military 

services and Defense agencies to develop their individual electronic 

commerce programs in a manner consistent with the goals and objectives 

of the strategic plan; Metrics: Not developed; Milestones: Not 

established; Extent to which prior efforts continued under current 

program: In February 2000, DOD decided to abandon efforts to develop a 

DOD-wide plan.



Objective: DOD Electronic Mall: Create a primary source for DOD users 

to acquire commercially available items on-line; Metrics: Total sales, 

items available, catalogs available, and total registered users; 

Milestones: Use purchase cards for all mall purchases by January 1, 

2000; Extent to which prior efforts continued under current program: 

Efforts continue under the oversight of Defense Logistics Agency as the 

Executive Agent. Additionally, the BIC has initiated two efforts that 

expand capabilities of information technology (IT)purchases.



Objective: Safeguarding Electronic Data/Public Key Infrastructure: 

Improve DOD’s ability to safeguard the integrity of data and verify the 

authenticity of transactions; Metrics: Not finalized but officials 

considering distribution of cards and reduction in paperwork; 

Milestones: Begin implementation of a DOD-wide “smart card” program in 

fiscal year 2001; Extent to which prior efforts continued under 

current program: Work continues, managed by the Assistant Secretary of 

Defense for Command, Control, Communications, and Intelligence as the 

DOD Chief Information Officer.



Source: DOD and GAO reports.



[End of table]



The extent to which elements of the DRI objectives continue under 

current reform efforts is discussed more fully in the following 

sections.



Electronic Business Architecture:



The department believes that an architecture is necessary to integrate 

business processes and information systems across the military services 

and Defense agencies. Without such an architecture, DOD runs the risk 

of having the services and Defense agencies develop and implement 

initiatives that are redundant, do not readily share information, and 

do not maximize the department’s investments in information technology.



In July 2000, we reported that although DOD was making efforts to 

develop an electronic commerce architecture, little progress had been 

made. Currently, the Defense Information Systems Agency and the Defense 

Logistics Agency are continuing to work to jointly develop an 

electronic business architecture. An upgrade--version 4.0--is now being 

used by these agencies and may be released DOD-wide later this fiscal 

year. However, further development of this architecture is currently 

uncertain, pending the future direction of a financial management 

enterprise architecture.



In July 2001, the Secretary of Defense directed the development of a 

Defense-wide enterprise architecture, also referred to as the financial 

management enterprise architecture. According to senior DOD officials, 

the scope of this architecture includes all of DOD except the 

warfighter and is intended to seamlessly link the department’s 

reengineered business practices and its financial and management 

information. In April 2002, DOD awarded a $100 million contract to IBM 

to develop this financial management enterprise architecture. Defense-

wide implementation is expected to begin by 2005 and take several years 

to fully implement. The Office of the Comptroller is overseeing this 

effort.



DOD officials acknowledge that there are overlapping efforts between 

the financial management architecture and the electronic business 

architecture. The offices responsible for the development of the two 

architectures have recently begun discussing their separate efforts, 

but it is unclear how the current electronic business architecture may 

be incorporated into this broader enterprise architecture. However, the 

Office of the Chief Information Officer recognizes the need for such 

integration.



Electronic Business Strategic Plan:



In May 1999, DOD released its Electronic Business Strategic Plan, which 

identified the goals, objectives, and strategies that DOD planned to 

pursue over the next 10 years to achieve an electronic business 

operations environment. The strategic plan broadened the scope of 

electronic commerce to include all DOD business processes, not just the 

buying and selling activities traditionally associated with electronic 

commerce. The plan included 41 strategies aimed at achieving broad 

goals, such as improving productivity and promoting cultural changes in 

the department.[Footnote 16] The goals were to be achieved through 

actions such as establishing training programs, partnering with 

industry, and basing new electronic commerce applications on commercial 

standards and practices.



According to DOD officials, the strategic plan is being updated to 

reflect the numerous changes that have occurred in the electronic 

business area since the plan was first issued in 1999. DOD expects the 

update will be completed sometime in fiscal year 2003.



Electronic Business Implementation Plan:



After the strategic plan was issued in May 1999, the joint program 

office prepared two draft implementation plans that the military 

services and Defense agencies reviewed. The departmentwide Electronic 

Business Implementation Plan was intended to support the strategic plan 

and assure that the military services’ and Defense agencies’ individual 

electronic commerce programs would be consistent with the goals and 

objectives of the strategic plan. However, military service officials 

and others were not satisfied with the draft implementation plans, 

primarily because they believed the draft plans were too narrowly 

focused. Further, officials contended the drafts did not describe how 

the strategies outlined in the strategic plan would be implemented, and 

consequently, accountability and milestones for accomplishing the 

strategies were not established. In February 2000, DOD decided to 

abandon efforts to develop an implementation plan primarily because the 

Chief Information Officer and the Joint Electronic Commerce Program 

Office were unable to reach agreement with the military services and 

Defense agencies on the scope and content of an overarching 

implementation plan. At this time, there are no efforts underway to 

develop a departmentwide implementation plan in the near future.



While the services and the Joint Electronic Commerce Program Office 

have continued with separate programs without a joint implementation 

plan, some DOD officials told us they believe the risks associated with 

this condition are mitigated by the oversight provided by the DOD 

Electronic Business Board of Directors. This board has high-level 

representation from the services and Defense agencies, and critical 

issues and decisions related to electronic business within DOD receive 

high-level visibility via this board.



DOD Electronic Mall:



The DOD electronic mall provides users with a simple means to order 

commercially available items on-line from different catalogues through 

a single location. Similar to a new retail business, the primary focus 

of the electronic mall has been to establish itself in the marketplace. 

Since its inception in 1998, electronic mall management has 

concentrated on expanding the number of items offered, catalogs 

available, and customers using the site.



In July 2000, we reported that although the electronic mall was 

available to DOD shoppers, it was not a completed effort, with several 

pieces still under development. DOD wanted to have four “shopping 

corridors” on the mall that would group items under the categories of 

commodities, information technology, services, and training. As of 

March 2000, only the commodities and information technology corridors 

had been established, with most items falling under the commodities 

corridor. Further, commodity sales were lower than expected.



According to a Defense Logistics Agency official, the electronic mall 

has made reasonable progress toward achieving the goals set out in the 

legislation.[Footnote 17] The Army, Navy, and Defense Logistics Agency 

have selected the DOD electronic mall as their electronic ordering 

platform. Consistent with the goal of having the suppliers host the 

catalogs (rather than having the government host catalog data), the DOD 

electronic mall now provides access to many suppliers that have 

electronic catalogs. In fiscal year 2002, 73 commercial catalogs with 

approximately 10 million catalogue listings accounted for sales of 

about $13.7 million. This is up from approximately $175,000 in fiscal 

year 1998 and $2.8 million in fiscal year 2000.



The BIC has also initiated two efforts that affect the procurement of 

IT goods and services. The first effort, “Enterprise Software 

Initiative,” was approved in the BIC’s first round of initiatives in 

September 2001 and was intended to streamline the acquisition process 

for commercial software products. To extend the Enterprise Software 

Initiative to include IT hardware and selected services, BIC approved 

an initiative titled “Virtual IT Marketplace” at its February 6, 2002, 

meeting. This initiative addresses a concern that current Defense 

customers have access to numerous stand-alone alternatives to shop for 

IT products and services. This new DOD initiative would allow DOD 

customers to access this IT corridor either directly through a General 

Services Administration portal or through the DOD electronic mall. The 

Assistant Secretary of Defense for Command, Control, Communications, 

and Intelligence as the DOD Chief Information Officer is overseeing 

this effort. The Virtual IT Marketplace will also provide a software 

assessment management capability to support the Enterprise 

Software Initiative.



Safeguarding Electronic Information/Public Key Infrastructure:



DOD’s electronic commerce goals cannot be fully realized unless it 

improves its ability to safeguard and verify the authenticity of 

electronic data and transactions. DOD has launched many initiatives to 

improve security over information. However, one effort--the public key 

infrastructure (PKI)--is seen as critical because it will provide 

important safeguards. The President’s Management Agenda for fiscal year 

2002 specifically directs federal agencies to undertake a PKI program 

to promote digital signatures for transactions within the federal 

government, between government and businesses, and between government 

and citizens.



PKI is essential to improving security because it allows DOD to ensure 

that (1) the data contained in electronic transactions and messages 

have not been tampered with, (2) systems users can confirm who is on 

the other end of an electronic transaction, (3) the parties involved in 

a transaction cannot later deny that they participated in the 

transaction, and (4) the transaction or message data cannot be accessed 

and read without proper authorization. The program will achieve these 

assurances by giving digital signature and data encryption capabilities 

to DOD personnel.



In July 2000, we reported that the PKI program is not a simple 

undertaking for DOD. The “infrastructure” in the program’s title refers 

to the policies, procedures, systems, facilities, and organizations 

that need to be involved in issuing, managing, and revoking digital 

certificates that vouch for a user’s identity and contain the keys that 

are used to digitally sign and encrypt documents and data. In short, 

PKI is a system of hardware, software, policies, and people that, when 

fully and properly implemented, can provide information security 

assurances that are important to protecting sensitive communications 

and transactions.



The DRI Transition Report 2001 reiterated that the PKI program was a 

very difficult challenge for the department. The necessary technology 

was not mature and technical issues, including interoperability and 

ease of use, had not been fully resolved. Moreover, for the 

infrastructure to work properly, DOD sources noted that the department 

will have to:



* confirm the identity of each user;



* mass distribute programmable “smart cards” that will carry a 

mathematical key and PKI certificate that will enable DOD personnel to 

digitally sign documents and enable the encryption of data;



* ensure that individual computer workstations have the necessary 

“middleware,”[Footnote 18] which allows the hardware to accept the 

smart cards; and:



* enable appropriate DOD software applications to interface with the 

smart cards.



According to department officials, the DOD PKI, based on commercial 

industry standards, is being deployed in phases, introducing new 

features and capabilities in an orderly fashion, consistent with 

commercial technology progression. Each release adds new capabilities 

while maintaining the core functionality that defines a successful PKI. 

DOD is in the process of issuing smart cards; in fact, over a million 

cards have been issued and more are being issued each day. DOD expects 

to have over 3.5 million cards and certificates issued to all eligible 

DOD personnel by October 2003. Middleware is being installed and made 

operational at many DOD locations.



The DOD Office of the Inspector General issued a report in December 

2001, which stated DOD had made progress in implementing the PKI 

program. However, the report also identified several unfunded 

requirements for the program. The unfunded requirements included 

enabling applications to work with PKI, security support for the smart 

card, and middleware development. This is consistent with comments from 

DOD officials, who reported that DOD still needs to issue smart cards, 

put middleware in place, and establish a PKI system of hardware, 

software, and policies.



[End of section]



Appendix III: Summary Table of Defense Reform Initiatives:



[See PDF for image]



Source: DOD February 28, 2002, report.



[End of table]



According to DOD, the following definitions were used to categorize the 

DRI initiatives:



* Completed: The initiative is considered to have been completed, i.e., 

met the goal(s) established.



* Ongoing (as is): The initiative remains active, without change, and 

there are existing efforts to meet the established goal(s) or 

objective(s).



* Ongoing With Revision: The initiative remains active, although the 

target goal(s) or objective(s) has been changed.



* Subsumed: The initiative has been made part of another management 

effort but remains viable.



[End of section]



Appendix IV: Status Report of the Defense Reform Initiatives:



[See PDF for image]



[End of section]



Appendix V: Summary Table of Business Initiative Council Initiatives:



BIC initiatives approved: One-Time Clearance of Priority Placement for 

Scientific and Engineering Positions; Description of initiatives: To 

eliminate unnecessary delays in hiring hard to fill scientific and 

engineering positions by allowing for a one-time clearance of the 

Priority Placement Program.



BIC initiatives approved: Modify 180-Day Waiting Period to Hire 

Retired Military; Description of initiatives: To encourage highly 

qualified retired military personnel to pursue civil service careers by 

changing the DOD policy to allow service secretaries to delegate within 

the components the 180-day waiver authority.



BIC initiatives approved: Management Mix Management Flexibility; 

Description of initiatives: To allow the services to make the most 

efficient use of civilian/contract personnel without predetermined 

constraints/expectations.



BIC initiatives approved: Recovery Auditing; Description of 

initiatives: To use contingency fee auditing services contract to 

identify and recover overpayments in the Working Capital Funds to 

providers of goods and services.



BIC initiatives approved: Raise Below Threshold Reprogramming (BTR) 

Thresholds; Description of initiatives: To raise the thresholds for BTR 

actions by providing program managers greater flexibility to execute 

their programs by increasing the threshold for procurement accounts 

from $10 million to $20 million and by increasing the threshold for 

research and development from $4 million to $10 million.



BIC initiatives approved: Web-Based Invoice/Receipt Processing; 

Description of initiatives: To reduce the incurrence of incorrectly 

prepared or missing receiving reports and to move toward a paperless 

process by using existing automated systems that will allow the Defense 

Finance and Accounting System to pay vendors more quickly and 

accurately.



BIC initiatives approved: Common Range Scheduling Tool; Description of 

initiatives: To enhance coordination of testing schedules across 

multiple sites and to avoid unnecessary scheduling delays by developing 

and implementing a Web-based scheduling tool capable of real or near 

real-time updates.



BIC initiatives approved: Local/Regional Cell Phone Pooling; 

Description of initiatives: To overcome rising cost of cellular 

telephone bills and inefficient phone purchases, negotiate new local or 

regional cell phone contracts to consolidate cell phone users into 

appropriate pools.



BIC initiatives approved: Enterprise Software Initiative (ESI); 

Description of initiatives: To streamline the acquisition process by 

providing best-priced, standards-compliant software products through 

expanding the use of the ESI process as the benchmark acquisition 

strategy by using the current structure of executive agents distributed 

among military departments/Defense agencies, maintaining a flexible 

process to be responsive to customer needs, and extending a software 

asset management framework within DOD to enhance enterprise software-

life cycle management capability.



BIC initiatives approved: Common Flight Clearance Process; Description 

of initiatives: To reduce clearance turnaround time, develop and 

implement a “common” flight clearance process by incorporating the 

latest information technology advancements.



BIC initiatives approved: BIC initiatives approved; December 3, 2001; 

Description of initiatives: Description of initiatives.



BIC initiatives approved: Optimize Professional Continuing Education 

(PCE); Description of initiatives: To streamline professional 

continuing education by allowing the services to determine where PCE 

will take place and which service is best suited to provide PCE.



BIC initiatives approved: Modify Joint Professional Military Education 

(JPME) II Requirements; Description of initiatives: To modify JPME II 

by allowing the course to be less than 12 weeks, removing the mandatory 

sequencing requirements for Joint Specialty Officer designation, and by 

allowing service staff and War Colleges to provide resident and 

nonresident Joint Professional Military Education II.



BIC initiatives approved: Allow for Contracting of Security Guards; 

Description of initiatives: To allow services to contract security 

guards in the continental United States at small locations to provide 

increased flexibility as DOD continues to enhance antiterrorism/force 

protection measures.



BIC initiatives approved: Revise Davis-Bacon Act Thresholds; 

Description of initiatives: To raise the Davis-Bacon Act threshold from 

$2,000 to $100,000.



BIC initiatives approved: Improve Interservice Product Quality 

Deficiency Reporting (PQDR) Business Process; Description of 

initiatives: To develop and implement a methodology to seamlessly share 

PQDR data across all services and agencies.



BIC initiatives approved: Establish Process for Property Conveyance for 

Conservation Purposes; Description of initiatives: To allow DOD to 

convey surplus property to a state or local government, or nonprofit 

conservation organization for natural resource conservation purposes.



BIC initiatives approved: Establish Funding Flexibility within a 

Program; Description of initiatives: To establish transfer flexibility 

“between” appropriations in the “same program” at $30 million or 10 

percent, whichever is less.



BIC initiatives approved: Increase Flexibility of Expired Year Funds; 

Description of initiatives: To avoid the need to request specific 

program legislation when expired appropriations have been exhausted by 

establishing the authority to reprogram expired dollars.



BIC initiatives approved: Increase Expense/Investment Threshold; 

Description of initiatives: To provide field commanders greater 

flexibility in their decision-making process and ability to fund 

critical requirements by increasing the expense/investment threshold 

from $100,000 to $500,000.



BIC initiatives approved: Establish Operations and Maintenance (O&M) 

Close-Out Flexibility; Description of initiatives: To pay for emerging 

but not forecasted must-pay bills by allowing DOD to carryover up to 2 

percent of O&M funding for 1 year.



BIC initiatives approved: Streamline Administrative Coordination 

Process; Description of initiatives: To streamline and simplify the 

procedures used to coordinate documents and actions within DOD.



BIC initiatives approved: Streamline Contract Close-Out Process; 

Description of initiatives: To close out 400 plus completed cost 

contracts that are under $1 million and that are at least 9 years old; 

and by using lessons learned develop new business practices within the 

contract close-out community.



BIC initiatives approved: Streamline Clinger-Cohen Implementation; 

Description of initiatives: To develop a process for the appropriate 

implementation of the Clinger-Cohen Act while avoiding the duplication 

of existing acquisition processes and oversight.



BIC initiatives approved: Eliminate Excise Tax on DOD Tactical 

Vehicles; Description of initiatives: To request exemption from the 

Treasury department from paying the federal retail excise tax on 

military and tactical-wheeled vehicles above 33,000 pounds gross 

vehicle weight.



BIC initiatives approved: BIC initiatives approved; February 6, 2002; 

Description of initiatives: Description of initiatives.



BIC initiatives approved: Commercialize Military-Developed Systems; 

Description of initiatives: To have the private sector purchase up to 

10 C-17 aircraft for its use with the agreement that the aircraft would 

be available to DOD if required in a contingency.



BIC initiatives approved: Commercializing Acquisition: Raise the Truth 

in Negotiations Act (TINA) Thresholds; Description of initiatives: To 

raise the TINA dollar threshold to $7.5 million.



BIC initiatives approved: Virtual IT Marketplace; Description of 

initiatives: To implement a virtual IT marketplace portal to extend the 

DOD Enterprise Software Initiative to include IT hardware and selected 

services using the General Services Administration.



BIC initiatives approved: Streamline the General Officer/Flag Officer 

Nomination Process; Description of initiatives: To simplify the 

nomination process and allow the services to make timely and flexible 

moves of general/flag officers.



BIC initiatives approved: BIC initiatives approved; March 18, 2002; 

Description of initiatives: Description of initiatives.



BIC initiatives approved: Cell Phone Subsidy; Description of 

initiatives: To develop procedures to select and reimburse employees a 

flat payment for official use of their personal cell phone.



BIC initiatives approved: Streamline Technology Readiness Assessments; 

Description of initiatives: To modify the mandatory requirement for 

Technology Readiness Assessments.



BIC initiatives approved: Elimination of Value Engineering Reporting; 

Description of initiatives: To eliminate the annual value engineering 

reporting requirements of the Office of Management and Budget Circular 

A-131.



BIC initiatives approved: Streamline IT Equipment Disposal Process; 

Description of initiatives: To eliminate duplicative IT equipment 

disposal processes.



BIC initiatives approved: BIC initiatives approved; May 31, 2002; 

Description of initiatives: Description of initiatives.



BIC initiatives approved: Pioneer Projects; Description of initiatives: 

To use a variety of sourcing arrangements such as commercial cost 

comparison; divestiture; reengineering; and/or further expansion of 

privatization efforts in order to transition noncore competencies to 

the private sector.



BIC initiatives approved: Buy to Budget; Description of initiatives: To 

allow DOD to purchase increased amounts of major procurements without 

obtaining prior congressional approval.



BIC initiatives approved: Simplify Physical Access Control at DOD 

Installations and Facilities by Using the Common Access Card; 

Description of initiatives: To eliminate the necessity for DOD to issue 

and for personnel to carry additional physical access badges after the 

Common Access Card is issued.



BIC initiatives approved: Eliminate Unnecessary Reports; Description of 

initiatives: To implement a process to routinely evaluate potential 

unnecessary, duplicative, or excessive reporting requirements.



BIC initiatives approved: Embedded Instrumentation; Description of 

initiatives: To establish acquisition policy that requires all systems 

to have an integrated set of embedded instrumentation for diagnostics, 

prognostics, testing, and training if the business case analysis 

considers it reasonable and practicable.



BIC initiatives approved: BIC initiatives approved; September 4, 2002; 

Description of initiatives: Description of initiatives.



BIC initiatives approved: Improve Visibility of Contract Services; 

Description of initiatives: To obtain better visibility of the 

contractor work force by establishing the Army as the DOD pilot to test 

the contractor manpower and cost reporting process.



BIC initiatives approved: Consolidate Defense Agency Overhead 

Functions; Description of initiatives: To examine opportunities for 

potential consolidation of the noncore functions performed by the 

Defense agencies and field activities.



BIC initiatives approved: Reengineer Personnel Security Investigation; 

Description of initiatives: To seek relief from the burdensome and slow 

processes associated with granting personnel security investigations.



BIC initiatives approved: e-Content Enterprise Licensing; Description 

of initiatives: To expand the enterprise agreement methodology in order 

to further leverage the purchasing power of DOD.



BIC initiatives approved: International Electronic Information Release 

policy; Description of initiatives: To determine the best method of 

sharing information between U.S. government offices and foreign 

government organizations for the purpose of conducting foreign military 

sales business, military equipment loans, and cooperative programs for 

the development and production of military equipment.



BIC initiatives approved: Managing for Results; Description of 

initiatives: To link resources consumed by DOD installation activities 

to performance outcomes (results), customer demands, and work outputs 

by using activity-based costing and management tools, performance 

measures, and benchmarks.



BIC initiatives approved: Guaranteed Fixed-Price Remediation (GFPR); 

Description of initiatives: To use GFPR contracts, a new contracting 

method that obligates contractors to guarantee achievement of DOD’s 

environmental cleanup objectives for a fixed price, and the contractors 

use insurance to protect against cost overruns.



BIC initiatives approved: Reengineer Legislative Coordination Process; 

Description of initiatives: To redesign DOD’s procedures for 

formulating, reviewing, and submitting legislative proposals to 

Congress.



BIC initiatives approved: Cost-Effective Multiyear Contracting 

Arrangements and/or Purchase of Military Sealift Command Ships; 

Description of initiatives: To explore alternative approaches for 

acquiring the required capability with the primary objective of 

reducing rates charged to customers while still meeting mission 

requirements.



BIC initiatives approved: Working Capital Fund-Business Practices; 

Description of initiatives: To improve the business practices and 

financial policies of the Defense Working Capital Fund across all 

business areas.



BIC initiatives approved: Provide Adequate Fitness Facilities; 

Description of initiatives: To establish a team with representatives 

from the Office of the Secretary of Defense and the services to explore 

various fitness facilities alternatives that each service could use as 

appropriate for addressing its unique requirements.



BIC initiatives approved: Improve the Speed and Quality of the 

Decision-Making Process within DOD; Description of initiatives: To 

establish a cross-component team to study the reengineering of DOD’s 

decision-making process.



Source: DOD.



[End of table]



[End of section]



Appendix VI: Defense Business Practice Implementation Board Members:



Member: William (Gus) Pagonis (Chair); Affiliation: Executive Vice 

President, Supply Chain, Sears, Roebuck and Company.



Member: Michael Bayer (Vice Chair); Affiliation: Private consultant 

engaged in enterprise strategic planning and mergers and acquisitions.



Member: Neil Albert; Affiliation: Senior Vice President and Director of 

MCR Federal, Inc.



Member: Brad Bends; Affiliation: Vice President, Financial Services, 

KPMG.



Member: Denis Bovin; Affiliation: Vice Chairman, Bear Stearns and 

Company, Inc.



Member: Frederic Cook; Affiliation: Frederic Cook & Company.



Member: Travis Engen; Affiliation: President and CEO, Alcan, Inc.



Member: Steve Friedman; Affiliation: Chairman, Board of Columbia 

University.



Member: Robert Hale; Affiliation: Senior Fellow, Logistics Management 

Institute.



Member: W.N. Johnson; Affiliation: Vice President, Dean of Students, 

Boston University.



Member: James Kimsey; Affiliation: Founding CEO and Chairman Emeritus 

of America Online.



Member: Dana Mead; Affiliation: Retired Chairman, Tenneco, Inc.



Member: Phil Merrill; Affiliation: Board of Capital-Gazette 

Communications.



Member: Richard Perle; Affiliation: Chairman, Defense Policy Board, ex 

officio.



Member: William Phillips; Affiliation: Partner, 

PricewaterhouseCoopers, Washington.



Member: Arnold Punaro; Affiliation: Senior Vice President and Director, 

Federal Business Development, Science Applications International 

Corporation.



Member: William Schneider, Jr; Affiliation: Chairman, Defense Science 

Board, ex officio.



Member: Andrew Siegel; Affiliation: Deutsche Bank.



Member: Frank Sullivan; Affiliation: Frank Sullivan Associates.



Member: Mortimer Zuckerman; Affiliation: Editor-in-Chief, U.S. News & 

World Report.



Member: Observer; Affiliation: Affiliation.



Member: David Walker; Affiliation: Comptroller General of the United 

States.



Member: Mark Everson; Affiliation: Controller, Office of Federal 

Financial Management, Office of Management and Budget.



Source: DOD.



[End of table]



[End of section]



Appendix VII: Comments from the Department of Defense:



OFFICE OF THE UNDER SECRETARY OF DEFENSE:



3000 DEFENSE PENTAGON WASHINGTON, DC 20301-3000:



ACQUISITION, TECHNOLOGY AND LOGISTICS:



14 NOV 2002:



Mr. Barry W. Holman:



Director, Defense Capabilities and Management Team United States 

General Accounting Office:



441 G Street, N.W. Washington, DC 20548:



Dear Mr. Holman:



This is the Department of Defense (DoD) response to the GAO draft 

report, “DEFENSE MANAGEMENT: New Management Reform Program Still 

Evolving,” dated October 11, 2002 (GAO Code 350233/GAO-03-58). While 

the draft report did not contain specific recommendations for the 

Department, I appreciate the opportunity to review the draft report. 

The report is technically accurate and I have no comments to the report 

as written.



If you have any questions, please contact my action officer for this 

action, Mr. Frank Leaming (703-614-7529), email: 

frank.leaming@osd.mil.



Sincerely,



Deidre A. Lee

Director, Defense Procurement and Acquisition Policy:



Signed by Deidre A. Lee



[End of section]



Appendix VIII: Staff Acknowledgments:



Acknowledgments:



Debra McKinney, Nancy Lively, Cheryl Andrew, Julia Denman, 

James Fuquay, James Hatcher, Larry Junek, John Strong, and R.K. Wild 

also made significant contributions to this report.



[End of section]



Related GAO Products:



Defense Reform Initiative: Organization, Status, and Challenges. GAO/

NSIAD-99-87. Washington, D.C.: April 21, 1999.



Defense Infrastructure: Improved Performance Measures Would 

Enhance Defense Reform Initiative. GAO/NSIAD-99-169. Washington, D.C.: 

August 4, 1999.



Defense Management: Electronic Commerce Implementation Strategy Can Be 

Improved. GAO/NSIAD-00-108. Washington, D.C.: July 18, 2000.



Defense Management: Actions Needed to Sustain Reform Initiatives 

and Achieve Greater Results. GAO/NSIAD-00-72. Washington, D.C.: 

July 25, 2000.



Defense Headquarters: Status of Efforts to Redefine and 

Reduce Headquarters Staff. GAO/NSIAD-00-224. Washington, D.C.: 

September 6, 2000.



Defense Logistics: Strategic Planning Weaknesses Leave Economy, 

Efficiency, and Effectiveness of Future Support Systems at Risk. 

GAO-02-106. Washington, D.C.: October 11, 2001.



FOOTNOTES



[1] The Comptroller General of the United States, David M. Walker, 

serves as an observer on this panel.



[2] U.S. General Accounting Office, Defense Management: Electronic 

Commerce Implementation Strategy Can Be Improved, GAO/NSIAD-00-108 

(Washington, D.C.: July 18, 2000).



[3] A public key infrastructure is a system of hardware, software, 

policies, and people that, when fully and properly implemented, can 

provide a suite of information security assurances that are important 

in protecting sensitive communications and transactions.



[4] While Defense Reform Initiative Directives were used to communicate 

specific goals, objectives, milestones, and decisions associated with 

the Defense Reform Initiative program, not every directive resulted in 

a separate initiative.



[5] U.S. General Accounting Office, Defense Reform Initiative: 

Organization, Status, and Challenges, GAO/NSIAD-99-87 (Washington, 

D.C.: Apr. 21, 1999).



[6] GAO/NSIAD-00-108.



[7] GAO/NSIAD-99-87.



[8] Total asset visibility involves the use of automatic identification 

technology to access the location of DOD assets throughout the supply 

and distribution systems.



[9] U.S. General Accounting Office, Logistics Planning: Opportunities 

for Enhancing DOD’s Logistics Strategic Plan, GAO/NSIAD-97-28 

(Washington, D.C.: Dec. 18, 1996), Defense Logistics: Actions Needed to 

Enhance Success of Reengineering Initiatives, GAO/NSIAD-00-89 

(Washington, D.C.: June 23, 2000), and 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).



[10] The Results Act (P.L. 103-62) requires agencies to develop 

periodic strategic and annual performance plans. Among other things, 

the performance plans provide agencies with a vehicle to identify their 

long-term goals and objectives for all major functions and operations, 

the measures they will use to gauge performance, and the strategies 

and resources they will use to achieve their performance goals.



[11] Both we and the department have recognized that the disparate 

approaches to dealing with logistics planning in the past resulted in 

the initiation of some 400 different service-or DOD-sponsored logistics 

improvement initiatives.



[12] Our high-risk status reports are provided at the start of each new 

Congress. Historically, we have designated federal programs and 

operations as high risk because of their greater vulnerabilities to 

fraud, waste, abuse, and mismanagement.



[13] In February 2002, the BIC approved an effort that complements part 

of the DRI electronic mall initiative.



[14] U.S. General Accounting Office, Defense Management: Electronic 

Commerce Implementation Strategy Can Be Improved, GAO/NSIAD-00-108 

(Washington, D.C.: July 18, 2000).



[15] A public key infrastructure is a system of hardware, software, 

policies, and people that, when fully and properly implemented, can 

provide information security assurances that are important in 

protecting sensitive communications and transactions.



[16] Three broad goals were identified in the May 1999 Electronic 

Business/Electronic Commerce Plan. They were to achieve (1) global 

flexibility, increased productivity, and a dynamic working environment 

through the application of electronic business/electronic commerce; (2) 

efficient and effective responses to changing environments by the rapid 

introduction of business process improvements or reengineering and the 

exploitation of electronic business/electronic commerce technologies; 

and (3) cultural changes and shifts from current business practices 

through guidance and the attainment of necessary skills for 

implementation of electronic business/electronic commerce.



[17] Strom Thurmond National Defense Authorization Act for Fiscal Year 

1999, Pub. L. 105-261, Oct. 17, 1998.



[18] Middleware is a layer of software between the network and 

applications that provides services, such as identification, 

authentication, authorization, directories, and security.



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