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entitled 'Defense Inventory: The Army Needs a Plan to Overcome Critical 
Spare Parts Shortages' which was released on June 27, 2003.

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Report to the Chairman, Subcommittee on Defense, Committee on 
Appropriations, House of Representatives:

United States General Accounting Office:

GAO:

June 2003:

Defense Inventory:

The Army Needs a Plan to Overcome Critical Spare Parts Shortages:

GAO-03-705:

GAO Highlights:

Highlights of GAO-03-705, a report to the Chairman, Subcommittee on 
Defense, Committee on Appropriations, House of Representatives 

Why GAO Did This Study:

Prior reports and studies have identified major risks in the 
Department of Defenses (DOD) management, funding, and reporting of 
spare parts spending programs. Spare parts shortages adversely affect 
the U.S. Armys operations and can compromise the readiness of weapon 
systems. To address these issues, Congress has fully funded DODs 
requests for spare parts spending and in some instances increased 
funding for additional spare parts. Yet, the Army continues to 
experience spare parts shortages. The Committee requested that GAO 
evaluate (1) the Armys strategic plans for reducing spare parts 
shortages, (2) the likelihood that key initiatives will reduce such 
shortages, and (3) the Armys capability to identify the impact on 
readiness of increased investments for spare parts.

What GAO Found:

The Armys logistics strategic plan provides strategic goals, 
objectives, and milestones for force transformation efforts, but does 
not specifically address the mitigation of critical spare parts 
shortages. The Armys Transformation Campaign Plan, published in 
April 2001, serves as a mechanism to move the Army from its present 
posture to a more strategically deployable and responsive force. The 
plan prescribes specific goals and milestones to support the 
transformation process. However, it lacks objectives and performance 
measures it could use to show progress in mitigating critical spare 
parts shortages.
 
The Armys six servicewide logistics initiatives are aimed at 
enhancing readiness by improving internal business processes that 
would increase supply availability. However, they were not designed to 
mitigate spare parts shortages. These processes include those that 
acquire, repair, and distribute spare parts. Recognizing that the 
Armywide initiatives were not designed to specifically focus on 
mitigating critical shortages, the Army recently started a new 
initiative to address individual spare parts shortages that affect key 
weapon systems readiness. However, this initiative is not part of the 
Armywide logistics improvement efforts, and therefore it is not 
coordinated with other initiatives and its results are not linked with 
the overall goals and performance measures. Absent this coordination 
and linkage, any systemic problems that the initiatives identifies may 
not be elevated to the Armywide initiatives for resolution and its 
benefit may be limited to improving the availability of only a few 
parts.

The Army has the means to link funding to weapon system readiness, and 
reports this in its budget justification documents, but it does not 
report to Congress how additional investments in spare parts would 
increase readiness. The Army Materiel Systems Analysis Activity can 
use models to indicate the investment needed to reach a desired level 
of supply availability, along with the possible corresponding increase 
in readiness, and it has provided such information to Army units. 
Additionally, the Army has used consultants to project the impact of 
additional funding on the readiness of specific weapon systems and 
provided this to the Army Vice Chief of Staff. For example, the 
Logistics Management Institute projected that an additional investment 
of $331 million for additional spare parts would increase the overall 
readiness of the Apache and Blackhawk helicopters by approximately 2.6 
percent.

What GAO Recommends:

GAO recommends that the Secretary of Defense:

* Modify or supplement the Transformation Campaign Plan or the 
Armywide initiatives to include a focus on mitigating critical spare 
parts shortages.

* Implement, with a specific completion milestone, the Office of the 
Secretary of Defenses recommendation to report the impact of parts 
funding on equipment readiness.

In written comments, DOD generally concurred with the intent of the 
recommendations but not all specific actions.

[End of section]

Contents:

Letter:

Results in Brief:

Background:

Strategic Plan Addresses Transformation, but Not Mitigation of Critical 
Spare Parts Shortages:

Armywide Initiatives Improve Logistics Business Processes, but Are Not 
Focused on Mitigating Critical Spare Parts Shortages:

Army Can Identify Readiness Impact of Additional Investment and Needs 
to Report This to Congress:

Conclusions:

Recommendations for Executive Action:

Agency Comments and Our Evaluation:

Scope and Methodology:

Appendix I: Army Recapitalization Systems:

Appendix II: Army Working Capital Fund Fiscal Year 2004/2005 Biennial 
Budget Estimates Supply Management:

Appendix III: Comments from the Department of Defense:

Appendix IV: GAO Contacts and Staff Acknowledgments:

Tables:

Table 1: Framework for the Army's Transformation Campaign Plan:

Table 2: Army Major Logistics Initiatives:

Table 3: Operating Requirements by Weapon System Category:

Table 4: Operating Requirements by Weapon System Category:

Figure:

Figure 1: Army Logistics Strategic Guidance:

Abbreviations:

DOD: Department of Defense GPRAGovernment Performance Results Act:

United States General Accounting Office:

Washington, DC 20548:

June 27, 2003:

The Honorable Jerry Lewis 
Chairman, 
Subcommittee on Defense 
Committee on Appropriations 
House of Representatives:

Dear Mr. Chairman:

The Army is now involved in a major effort to transform its forces to 
be more deployable and responsive during the 21st century. Equipment 
readiness is necessary to support this transformed force posture, and 
adequate supplies of spare parts are critical to equipment readiness. 
The Army is generally meeting or exceeding the Department of Defense's 
(DOD) overall supply performance goal of having parts available 85 
percent of the time when they are requested. However, the Army 
continues to experience a shortage of critical spare parts--those that 
affect readiness for aviation and ground weapon systems--despite 
spending $4.9 billion from its annual operations and maintenance 
appropriations and supplemental funding totaling $225 million since 
fiscal year 2001.[Footnote 1] While recognizing that spare parts 
shortages will never be eliminated, it is reasonable to expect the 
services to place a priority on efforts to mitigate (reduce) those 
shortages that adversely impact readiness. This priority should be 
inherent in their overall planning and stewardship of funds they 
request from Congress and their accountability for making spare parts 
investment decisions that provide a good readiness return. Since 1990, 
we have identified DOD's inventory management as high risk, because 
management systems and procedures were ineffective and wasteful. In our 
January 2003 Performance and Accountability Series, we wrote that DOD 
was experiencing equipment readiness problems because of a lack of key 
spare parts, and we recommended that DOD take actions to address those 
shortages.[Footnote 2] As recently as August 2002, DOD recognized the 
need to overcome critical spare parts shortages and recommended changes 
to improve the readiness of weapon systems.[Footnote 3]

This report is one of a series of reports[Footnote 4] that responds to 
your request that we identify ways to improve the availability of high 
quality spare parts for aircraft, ships, vehicles, and weapon systems. 
As agreed, this report focuses on Army strategic planning efforts and 
initiatives to mitigate critical spare parts shortages. More 
specifically, we focused our review on the following questions:

1. Does the Army's strategic plan address the mitigation of critical 
spare parts shortages--those that adversely affect readiness? [Footnote 
5]

2. Will key Army logistics initiatives likely mitigate spare parts 
shortages that affect readiness?

3. Does the Army have the ability to identify the impact on readiness 
of increased investments for spare parts?

To accomplish these objectives, we analyzed Army strategic plans and 
major initiatives identified by the Army that pertain to logistics and 
supply support. We interviewed officials at Army Headquarters, Army 
Materiel Command, Army Aviation and Missile Command, Tank and 
Automotive Command, and the Army Materiel Systems Analysis Activity. 
Our criteria for evaluating the Army's strategy and initiatives 
included the Government Performance Results Act (GPRA) of 1993, 
previous GAO reports, and appropriate DOD reports and 
guidance.[Footnote 6]

Results in Brief:

The Army's logistics strategic plan provides strategic goals, 
objectives, and milestones for force transformation efforts, but does 
not specifically address the mitigation of critical spare parts 
shortages. In April 2001, the Army published its Transformation 
Campaign Plan, which serves as a mechanism for integrating and 
synchronizing the necessary actions to move the Army from its present 
posture to a more strategically deployable and responsive force. The 
plan prescribes specific goals and milestones to support the 
transformation process. However, it lacks objectives and performance 
measures it could use to show progress in mitigating critical spare 
parts shortages. For example, the plan describes how the Army is to 
provide logistical support to deploy and sustain its forces across a 
full spectrum of operations, but without a strategic planning focus on 
improving the availability of critical spare parts, the Army cannot 
ensure that it is investing in those items that would give them the 
greatest readiness return on investment and taking other actions needed 
to reduce the critical spare parts shortages that impact readiness.

The Army's six servicewide logistics initiatives are aimed at enhancing 
readiness by improving internal business processes that would increase 
supply availability. However, they were not designed to mitigate spare 
parts shortages. These processes include those that acquire, repair, 
and distribute spare parts. For example, the Single Stock Fund is a 
business process reengineering initiative, ongoing since 1997, that 
provides worldwide visibility and access to national inventories down 
to the installation level. This initiative improves visibility and 
access to spare parts, spare parts requirements determination, and 
measures progress based on the successful linkage of various 
inventories. Recognizing that the Armywide initiatives were not 
designed to specifically focus on mitigating critical shortages, the 
Army recently started a new initiative to address individual spare 
parts shortages that affect key weapon systems readiness. However, this 
initiative is not part of the Armywide logistics improvement effort, 
and therefore it is not coordinated with other initiatives and its 
results are not linked to the Army's overall goals and performance 
measures. Absent this coordination and linkage, any systemic problems 
that the initiative identifies may not be elevated to the Armywide 
initiatives for resolution and its benefit may be limited to improving 
the availability of only a few parts.

The Army has the means to link funding to weapon system readiness, and 
reports this in its budget justification documents, but it does not 
report to Congress how additional investments in spare parts would 
increase readiness. The Army Materiel Systems Analysis Activity uses 
models to indicate the investment needed to reach a desired level of 
supply availability along with the estimated increase in readiness, and 
on request it has provided such information to Army units. In addition, 
the Army has used consultants to project the impact of additional 
funding on the readiness of specific weapon systems and has provided 
the projections to the Army Vice Chief of Staff. For example, the 
Logistics Management Institute projected that an additional investment 
of $331 million for additional spare parts would increase the overall 
readiness of the Apache and Blackhawk helicopters by approximately 2.6 
percent. Army officials warn that there is no direct correlation 
between additional investments in spare parts and readiness due to 
factors such as maintenance capacity and training requirements. 
However, the projected impact of additional investments for parts on 
supply availability and readiness would be valuable information for 
Congress when they decide how to allocate resources. The value of 
providing such information was recognized in an August 2002 DOD report, 
which directed that readiness impact be included as part of the 
calculation for spare parts purchases.[Footnote 7] However, DOD did not 
specify when the Army should begin reporting this information to 
Congress.

Given the critical nature of spare parts shortages and their impact on 
readiness as well as the Army's need to make good investment decisions, 
we are recommending that the Secretary of Defense direct the Secretary 
of the Army to include a focus on mitigating crucial spare parts 
shortages with goals, objectives, milestones, and quantifiable 
performance measures in the Transformation Campaign Plan or Armywide 
initiatives. We are also recommending that the Army provide 
decisionmakers with information that links investments in spare parts 
inventories to weapon system readiness targets. In written comments on 
a draft of this report, DOD generally concurred with the intent of our 
recommendations, but not all suggested actions. DOD said the Army would 
address spares shortages through its supply management processes, 
metrics would be tracked in the Army's Strategic Readiness System, and 
initiative milestones would be added to the Transformation Campaign 
Plan.[Footnote 8] However, the Army would not be modifying the 
Transformation Campaign Plan or the Armywide logistics initiatives to 
focus on spare parts shortages as we had recommended. We endorse the 
Army's effort to add metrics to its readiness system and milestones for 
its initiatives to the Transformation Campaign Plan, but continue to 
believe that effectiveness of the Army's efforts would be improved if 
its overall plan or initiatives included goals, objectives, and 
milestones for mitigating critical spare parts shortages. DOD also 
stated that it would be linking spare parts investments to individual 
weapon system readiness in future budgets submissions when the required 
data becomes available. However, we remain concerned that DOD has not 
set a deadline for fully reporting this information. The Department's 
comments and our evaluation are on page 17 of this report.

Background:

The Army's vision for the 21st century mandates a land force that can 
operate in joint, combined, and multinational formations to perform a 
variety of missions, ranging from humanitarian assistance and disaster 
relief to major theater wars. The Army's vision also requires that it 
be capable of putting a combat force anywhere in the world within 96 
hours. To meet these objectives, the Army states that it must transform 
into a more deployable and strategically responsive force. This 
transformation process also dictates that the Army reengineers its 
logistics processes to increase responsiveness to its combat units and 
to provide the spare parts needed to maintain equipment readiness.

In recent years, Congress has provided increased operations and 
maintenance funding for DOD to enable military units to purchase spare 
parts from the supply system as needed. For example, during fiscal 
years 1999-2002, Congress provided supplemental funding totaling $1.5 
billion, of which the Army received $170 million in 1999, $25 million 
in 2001, and $200 million in 2002 to address spare parts shortages that 
were adversely affecting readiness. The Army now projects that it will 
spend over $7 billion during fiscal years 2003-05 to purchase spare 
parts for its combat and support systems. The Army Chief of Staff's 
list of programs that need more funding indicates that the Army needs 
an additional $415 million to sustain the forces in fiscal year 2003 
and $263 million to sustain them in fiscal year 2004 and according to 
an Army official, to support operations Enduring Freedom and Iraqi 
Freedom. A portion of these amounts would be used to purchase spare 
parts, but the Army did not provide a breakout of how the funds will be 
allocated.

In July 2001, we reported that spare parts shortages in the Army were 
adversely affecting operations, maintenance, and personnel.[Footnote 
9] For example, we reported that safety concerns and the lack of spare 
parts in 1999 prevented the Chinook and Apache helicopters from meeting 
their mission-capable goals. To compensate for the lack of spare parts, 
maintenance personnel used parts cannibalized from other equipment, an 
inefficient practice that doubles the time needed for a single 
maintenance effort. We also reported that the Army had major 
initiatives under way to improve the availability of spare parts as 
part of an overall strategy to revolutionize its logistics processes. 
The initiatives included improving demand forecasts for spare parts, 
increasing the visibility and access to spare parts Armywide, and 
reducing the time it takes to receive parts after they have been 
ordered. At that time, we did not assess the extent to which the 
initiatives might mitigate spare parts shortages.

DOD is also concerned about the adverse impact that spare parts 
shortages have on the readiness of weapon systems. In an August 2002 
report on its inventory management practices, DOD stated a desire to 
improve supply management accountability by linking investments in 
spare parts to readiness results in order to ensure that resources are 
focused on optimal readiness gains. DOD noted that the models it uses 
to determine inventory purchases are generally biased toward the 
purchase of low-cost items with high demands instead of the items that 
would improve readiness the most.[Footnote 10] The report recommended 
that the services improve their ability to make inventory investment 
decisions based on weapon system readiness. It also recommended that 
the services' requests for funds to increase inventory investments be 
justified based on the corresponding increase in weapon system 
readiness.

Strategic Plan Addresses Transformation, but Not Mitigation of Critical 
Spare Parts Shortages:

The Army's current strategic plan provides strategic goals, objectives, 
milestones, and performance measures for force transformation efforts. 
However, it does not address how the service expects to mitigate 
critical spare parts shortages that degrade equipment readiness. As 
shown in figure 1, the Army published two plans during 2000 that were 
subsumed into a single plan in April 2001. These plans provided 
guidance for transforming the Army's logistics to support forces that 
will be more agile and responsive.

Figure 1: Army Logistics Strategic Guidance:

[See PDF for image]

[End of figure]

The Army's Strategic Logistics Plan, published in May 2000, was 
designed to implement the guidance in the Army Chief of Staff's vision 
for its forces in the 21st century. This plan outlined the major 
logistical requirements for achieving a joint, combined, or 
multinational force that can be used for a variety of missions, ranging 
from humanitarian assistance to major theater wars. For example, a 
major goal of the plan was to achieve total asset visibility, which was 
intended to give inventory managers information on the location, 
quantity, condition, and movement of parts worldwide. Total asset 
visibility would therefore allow managers to access and redistribute 
parts in the Army's inventory to meet immediate spare parts 
requirements.

In March 2000, DOD issued the Defense Reform Initiative 54, which 
required each military service to submit an annual logistics 
transformation plan. The Army's effort was published in July 2000 as 
the Army Logistics Transformation Plan. The purpose of this plan was to 
document, on an annual basis, the planned actions and related resources 
for implementing the Army Strategic Logistics Plan. Generally, the 
logistics transformation plan outlined the interrelated activities 
necessary to support DOD's four intermediate objectives: (1) establish 
customer wait time[Footnote 11] as a supply performance measure; (2) 
adopt a priority system that provides assets to the commander by the 
required delivery date; (3) achieve accurate total asset visibility of 
existing spare parts; and (4) field a Web-based system that provides 
seamless, interoperable, real-time logistics information.

In April 2001, the Army published its Transformation Campaign Plan, an 
all-encompassing document that serves as a mechanism for integrating 
and synchronizing the necessary actions to move the Army from its 
present posture to a future force that will be more strategically 
deployable and responsive. The plan contains specific goals and 
objectives to provide logistical support to deploy and sustain its 
forces across a full spectrum of operations, and it incorporates the 
criteria for an effective strategy contained in GPRA.[Footnote 12] 
Furthermore, according to Army officials, the Army monitors the 
progress of its efforts to ensure that logistics decisions, goals, and 
milestones complement and support the entire transformation progress. 
For example, one strategic goal contained in the plan requires the Army 
to be able to deploy a combat brigade in 96 hours. The plan dictates 
that the Army measures its ability to deploy combat brigades by 
employing major decision points at which senior leaders will evaluate 
progress and decide whether adjustments need to be made to the original 
combat brigade deployment strategy. However, there are no such 
strategic goals, objectives, or performance measures in this Army plan 
relating to monitoring and resolving critical spare parts shortages.

As shown in table 1, the plan contains 14 lines of operation--or broad 
responsibilities--that describe closely related activities designed to 
meet specific transformation objectives by established milestones.

Table 1: Framework for the Army's Transformation Campaign Plan:

Major transformation tasks: Ensure a Trained and Ready Army; Supporting 
lines of operation: (1) Strategic Requirements and Planning.

Supporting lines of operation: Major transformation tasks: (2) 
Modernization and Recapitalization.

Supporting lines of operation: Major transformation tasks: (3) Manning 
and Investing in Quality People.

Supporting lines of operation: Major transformation tasks: (4) Maintain 
Unit Readiness and Training.

Supporting lines of operation: Major transformation tasksTransform 
Operational Army: (5) Training and Leader Development.

Major transformation tasks: Transform Operational Army; Supporting 
lines of operation: (6) Joint/Army Strategy and Concepts.

Supporting lines of operation: Major transformation tasks: (7) Army 
Doctrine.

Supporting lines of operation: Major transformation tasks: (8) 
Operational Force Design.

Supporting lines of operation: Major transformation tasks: (9) 
Deploying and Sustaining the Force.

Supporting lines of operation: Major transformation tasksTransform 
Institutional Army: (10) Develop and Acquire Advanced Technology.

Major transformation tasks: Transform Institutional Army; Supporting 
lines of operation: (11) Management of Force Programs.

Supporting lines of operation: Major transformation tasksSupport the 
Forces: (12) Installations.

Major transformation tasks: Support the Forces; Supporting lines of 
operation: (13) Strategic Communications.

Supporting lines of operation: Major transformation tasksSupporting 
lines of operation: (14) Resourcing.

Source: U.S. Army's Transformation Campaign Plan.

[End of table]

Logistics requirements are addressed by line 9 in the plan, "Deploying 
and Sustaining the Force." Specifically, this line of operation 
addresses how to transform Army support elements to make the service 
more strategically responsive and reduce the cost for logistics without 
reducing war-fighting capability.

Armywide Initiatives Improve Logistics Business Processes, but Are Not 
Focused on Mitigating Critical Spare Parts Shortages:

The Army's key logistics initiatives were designed to improve internal 
business processes, but not specifically mitigate critical spare parts 
shortages. Its ongoing six servicewide initiatives are primarily 
focused on improving logistics business processes in the areas of (1) 
procurement and repair of spare parts, (2) inventory management, and 
(3) supply operations thereby improving supply availability. However, 
we could not determine the extent to which they have reduced critical 
spare parts shortages. The Army recently started a separate, non-
Armywide readiness enhancement initiative that includes an effort to 
mitigate critical spare parts shortages.

Armywide Initiatives Are Aimed at Improving Logistics Overall:

The Army's six major initiatives are expected to improve overall 
logistical support for its units by focusing on improving logistics 
processes in order to be more responsive and effective in meeting 
customer needs. Table 2 summarizes the Army's initiatives by focus area 
along with the expected improvements to logistics operations.

Table 2: Army Major Logistics Initiatives:

Focus areas: Procurement and repair: 

Initiatives: Partnership Program; 
Expected improvement: Increase supply performance by providing parts 
directly from vendors to supply customers.

Initiatives: Recapitalization Program; Expected improvement: Reduces 
the demand for spare parts through modernizing and overhauling 17 major 
weapon systems.

Initiatives: National Maintenance Program; Expected improvement: 
Improves the repair of spare parts with uniform repair standards.

Focus areas: Inventory management; 

Initiatives: Single Stock Fund; 
Expected improvement: Improves inventory management by creating 
visibility and access to Armywide assets.

Initiatives: Logistics Modernization Program; Expected improvement: 
Makes inventory management more effective by modernizing and 
integrating about 30 legacy logistics databases.

Focus areas: Supply operations; 

Initiatives: Distribution Management; 
Expected improvement: Improves overall supply operations to reduce the 
time it takes to deliver spare parts to supply or maintenance 
customers.

Source: GAO.

[End of table]

Spare Parts Procurement and Repair Initiatives Expected to Improve 
Supply Performance and Reduce Demand:

The Army's Partnership, Recapitalization, and National Maintenance 
Program initiatives are intended to improve the parts supply process, 
reduce demand through modernization of major weapon systems, and 
provide uniform repair standards. The expected improvements are being 
measured in a variety of ways, but none measure or track increases in 
supply availability and readiness rates. Without such measures, we 
could not determine the extent to which the initiatives have 
significantly reduced critical spare parts shortages.

The Army is forming partnerships with manufacturers to provide spare 
parts and technical assistance directly to the applicable maintenance 
depot in order to improve depot-level repair of selected weapon systems 
and to improve the depot's performance in supplying repaired parts. The 
Army has formed partnership agreements with General Electric Aircraft 
Engines, Sikorsky Aircraft Corporation, Boeing, Parker-Hannifin, 
Honeywell, Rolls Royce, and Bell Helicopters. Some of these companies 
have agreed to provide spare parts and technical assistance directly to 
the Corpus Christi Army Depot, where depot-level repair is performed 
for the Apache and Chinook helicopters. According to an Army official, 
these agreements are beneficial for the Army as well as the industry 
partners. The Army improves repair operations and saves money by 
obtaining hard-to-get, sole-source parts and technical assistance for a 
negotiated cost, and the industry partner is able to keep production 
lines open by relying on steady demands from the Army. The Army 
official said that the partnership initiatives have resulted in 
significant improvements to its depot repair operation. For example, 
the average elapsed time before the engine in the Apache and Blackhawk 
helicopters would fail has improved from about 400 hours to about 1,140 
hours. Moreover, the repair-cycle time for components in the 
partnership program has decreased from 360 to 95 days, thereby 
decreasing the demand for spare parts by providing units with more 
reliable equipment and achieving more efficient supply performance. The 
Army's Recapitalization Program is expected to return 17 selected 
legacy weapon systems to like-new condition by rebuilding[Footnote 13] 
and upgrading[Footnote 14] them at maintenance depots over time as 
funds become available. Specifically, the Recapitalization Program is 
intended to (1) extend the service life of the equipment; (2) reduce 
operating and support costs; (3) improve reliability, maintainability, 
safety, and efficiency; and (4) enhance capabilities. The Army began 
recapitalizing a limited number of the weapon systems in fiscal year 
2002, with full-scale operation beginning in fiscal year 2003 (see app. 
I for a list of systems). In fiscal year 2003, the Army fully funded 
the initial spare parts requirements of the Recapitalization Program, 
investing at least $419.7 million of its operations and maintenance 
funding to run the program. An Army official said that about $200 
million was taken from the Recapitalization Program to help with the 
Iraq war, but the program will be reimbursed from the supplemental 
appropriation. According to Army officials, recapitalizing Army weapon 
systems will initially increase the demand for spare parts because new 
parts will be used for equipment that is cycled through the rebuilding 
and upgrading process. However, in the long term, the like-new 
equipment should be more reliable and the demand for spare parts should 
decrease.

The National Maintenance Program is expected to establish, by fiscal 
year 2005, a single national standard for the repair of equipment 
components and spare parts. The program's overhaul standard is 
generally higher than the variety of standards held by individual 
repair units, and consists of restoring components and spare parts to a 
nearly like-new condition. This condition includes the restoration of 
the part's original appearance, performance, and life expectancy. The 
National Maintenance Program is intended to help sustain the weapon 
systems that have undergone overhauls and rebuilds through the Army's 
Recapitalization Program. In fiscal years 2001 and 2002, the Army 
obligated $70 million and $16 million, respectively, for the 
development of maintenance standards and program support. The Army has 
completed overhaul standards for 521 items and is expected to complete 
standards for the remaining 272 items by fiscal year 2005. The expected 
benefit of the National Maintenance Program is that a single higher 
repair standard for components and spare parts will enhance weapon 
system readiness and reduce the demand for spare parts.

Inventory Management Initiatives Are Designed to Improve Visibility and 
Customer Support:

The Army is improving inventory management through its Single Stock 
Fund and Logistics Modernization Program initiatives, which are 
intended to provide better visibility over spare parts in the 
inventory, improved spare parts requirements determination, and an 
enhanced inventory distribution process. Like the procurement and 
repair initiatives discussed above, these initiatives do not measure 
progress in reducing critical spare parts shortages that impact 
readiness.

In response to a recommendation in our 1990 report,[Footnote 15] the 
Army approved a business process reengineering initiative called the 
Single Stock Fund in November 1997. The Single Stock Fund is aimed at 
improving inventory management by (1) providing worldwide visibility 
and access to spare parts down to the installation level, (2) 
consolidating separate national and installation level inventories into 
a single system, and (3) integrating logistics automated information 
systems and financial automated information systems. The Single Stock 
Fund streamlines and where needed, eliminates multiple financial 
transactions that have previously caused numerous inefficiencies in 
duplicate automated legacy systems. The visibility of worldwide supply 
items allows managers to calculate worldwide spare parts requirements 
and increases the volume of inventory that is available for 
redistribution to meet priority readiness requirements. For example, 
the Secretary of the Army testified in 2003 before the Senate Armed 
Services Committee that from May 2000 through November 2002, the Single 
Stock Fund made it possible to redistribute inventory valued at $758 
million. He further stated that the Single Stock Fund reduced customer 
wait time by an average of 18.5 percent.

The Logistics Modernization Program is aimed at improving inventory 
management by modernizing the Army's 30-year-old national and retail 
logistics automated business processes and practices. The Logistics 
Modernization Program is intended to provide an automated system with 
real-time capabilities for managing wholesale and retail inventories by 
modernizing and integrating about 30 legacy logistics databases. The 
program includes about 47 new forecasting methodologies to enable 
managers to better forecast demands for spare parts. The Logistics 
Modernization Program's integrated automated systems should reduce 
supply-cycle time[Footnote 16] and provide managers with the ability to 
better support customers by tracking spare parts requisitions from the 
time the requisition is submitted until the customer receives the part. 
Moreover, the program is to work in tandem with the Single Stock Fund 
to provide worldwide visibility of supply assets in real time. The Army 
Materiel Command plans to roll out the Logistics Modernization Program 
over the next several years, with the first phase of implementation 
scheduled in early 2003. The program's measures of success include 
reducing supply-cycle time, but not supply availability and equipment 
readiness.

Supply Operations Initiative Is Designed to Reduce Spare Parts Delivery 
Time:

The Army is also trying to improve its supply operations and reduce the 
time it takes to deliver spare parts to customers through the 
Distribution Management initiative. Distribution Management[Footnote 
17] is an Armywide initiative established in 1995 to improve supply 
operations by developing a faster, more flexible, and efficient 
logistics pipeline. The initiative's overall goal is to eliminate the 
unnecessary steps in the logistics pipeline that delay the flow of 
parts through the supply system. Distribution Management currently uses 
two teams--the Distribution Process Improvement Team and the Repair 
Cycle Process Improvement Team--to monitor progress and spearhead 
continuous improvements within their respective areas of 
responsibility. However, the extent to which supply availability has 
been improved is not clear because neither team tracks this as measures 
of success.

The Distribution Process Improvement Team promotes initiatives to 
improve the Army's inventory distribution processes, including customer 
response, inventory planning, warehouse management, transportation, 
and supply. For example, the team initiated dollar-cost banding, a new 
stock determination algorithm that has improved inventory performance. 
Traditionally, Army units have used a "one-size-fits-all" approach for 
determining whether or not to stock a particular spare part. 
Consequently, an item not currently stocked would need nine requests in 
the prior year to be stocked on the shelf, regardless of its 
criticality to equipment readiness. This criterion was applied equally 
to a 10-cent screw and to a $500,000 tank engine. The dollar-cost 
banding approach, however, allowed inventory managers to stock a 
mission-critical item with only three requests, rather than nine. The 
Army has credited this concept with decreasing customer wait time and 
increasing equipment readiness.

The Repair Cycle Process Improvement Team strives to improve the Army's 
maintenance processes through such initiatives as the equipment 
downtime analyzer, a computer system that links supply and maintenance 
performance to equipment readiness. The analyzer examines equipment 
maintenance operations and the supply system to identify problem areas 
as well as the functions that are working well in the maintenance 
process. This capability enables managers to quickly diagnose the root 
of the problems and to develop solutions to help maximize the future 
effectiveness of the maintenance process. For example, in one case, the 
apparent reason for a tank not being mission ready for 18 days was that 
the maintenance personnel were waiting for the supply system to provide 
a part. The equipment downtime analyzer revealed the following: (1) 
because the supply system initially provided the wrong part, a second 
part had to be ordered; (2) because maintenance personnel did not 
initially realize that the part was needed, a third part was ordered 
late; and (3) maintenance personnel finally decided, on day 18, to stop 
waiting for the part to be delivered by the supply system and took 
action to obtain it from another tank that was not mission ready in 
order to complete the maintenance process.

A Separate Army Initiative Explicitly Addresses Critical Spare Parts 
Shortages:

Although the Army is generally meeting or exceeding it overall supply 
performance goal of having parts available 85 percent of the time when 
they are requested, the Army continues to experience critical spare 
parts shortages that affect equipment readiness. For example, in a July 
2001 report on Army spare parts shortages, we identified 90 components 
or assemblies for the Apache, Blackhawk, and Chinook helicopters for 
which the Army was experiencing critical spare parts 
shortages.[Footnote 18] The Army began a new initiative, separate and 
apart of the Armywide initiatives, to take management action on 
individual critical spare parts shortages. However, because it is not a 
part of the Armywide initiatives, it is not clear how it will be 
effectively integrated with them to maximize mitigating critical spare 
parts shortages and improve readiness.

The new Army initiative to address spare parts shortages that are most 
essential to equipment readiness, entitled the "Top 25 Readiness 
Drivers," began in October 2002. For each of its 18 major combat 
systems, the Army, on an ongoing basis, has been identifying the top 25 
components or spare parts that are key to the systems' readiness. Of 
the total 450 spare parts, the Army had identified as critical to 
equipment readiness in February 2003, 291 or 65 percent of the parts 
were stocked below the required level. Twenty-nine percent or 132 of 
these parts were in the Army's lowest inventory category--those for 
which there is less than 1 month supply. Major commands report the 
inventory status of these spare parts to the Army Materiel Command, who 
in turn presents a consolidated report to the Army Deputy Chief of 
Staff for Logistics every 2 weeks. A review group headed by the Deputy 
Chief of Staff for Logistics initiates possible actions that can be 
taken to mitigate the most severe spare parts shortages among the top 
spare parts or components.

This new Army initiative is a movement in the right direction to 
address critical spare parts shortages; however, it remains unclear the 
extent to which this initiative will mitigate critical spare parts 
shortages and improve equipment readiness. The initiative's 
effectiveness may be limited because its efforts and results are not 
linked to or coordinated with the goals and metrics of the Army's other 
initiatives as part of an overall approach to mitigating critical spare 
parts shortages in the future.

Army Can Identify Readiness Impact of Additional Investment and Needs 
to Report This to Congress:

While the Army has the means to link funding to a corresponding level 
of readiness and reports this information in budget justification 
documents (see app. II), it does not report how additional funding 
requests for spare parts might impact readiness to decisionmakers such 
as Congress. The Office of the Secretary of Defense has recommended 
that the services provide such information when requesting additional 
funds in the future.

The Army has reported that its models correlate the impact of 
investments in spare parts on supply availability.[Footnote 19] 
However, because of various other factors such as maintenance capacity 
and training requirements that affect equipment status, the models can 
only estimate the impact of the additional investment on weapon system 
readiness. The Army Materiel Systems Analysis Activity uses the Supply 
Performance Analyzer Model and the Selected Essential-Item Stockage for 
Availability Method Model to determine the investment needed to reach a 
weapon system's desired supply availability rate. Information from 
these models has been supplied to individual units to assist in 
inventory investment decisions. In addition, the Army used an outside 
consultant to analyze the impact additional investment in spare parts 
would have on readiness. For example, to support a briefing to the Army 
Vice Chief of Staff in March 2001, the Logistics Management Institute 
completed an analysis for the Army showing that an additional $331 
million for spare parts would increase the mission-capable rate for the 
Apache and Blackhawk helicopters by 2.6 percent. According to Army 
officials, the correlation between additional investments in spare 
parts and readiness is not exact because other factors such as 
maintenance capacity and training requirements impact readiness.

Despite having the means to determine how additional funding might 
affect readiness, the Army does not provide such analyses to Congress 
as part of its funding requests. For example, in the justification for 
the fiscal year 2002 budget, the Army requested and received $250 
million to purchase additional spare parts. Moreover, the Army sent 
correspondence to the House Committee on Armed Services showing that an 
additional $675 million was needed for spare parts during fiscal year 
2002. However, in neither case did the Army provide analysis to 
Congress showing how the additional funding might affect readiness. The 
June 2002 Financial Management Regulations provided a template for 
reporting the funds to be spent on spare parts by weapon system as part 
of the budget submission. The benefit of reporting such a link was 
cited in an August 2002 Office of the Secretary of Defense study that 
recommended that future requests for additional funds to increase spare 
parts inventories be justified in budget documents submitted to 
Congress based on the corresponding increase in weapon systems 
readiness.[Footnote 20]

Conclusions:

The Army's Transformation Campaign Plan serves as a mechanism to 
transform the Army's forces from its present posture to a more 
strategically deployable and responsive force. The plan prescribes 
specific goals and milestones to support this transformation process, 
but it lacks specific focus on mitigating spare parts shortages. In 
addition, the Armywide initiatives to improve the procurement and 
repair of spare parts, inventory management, and supply operations do 
not focus on mitigating critical spare parts shortages. Without a 
strategy or Armywide initiatives focused on the mitigation of critical 
spare parts shortages and their impacts on equipment readiness, the 
Army cannot ensure that it has appropriately addressed shortages in 
those parts that would give them the greatest readiness return. 
Furthermore, while some of the Army's logistics initiatives might 
increase the availability of spare parts in general, the lack of 
specific and effective measures of performance will limit the Army's 
ability to ascertain progress in mitigating spare parts shortages that 
are critical to equipment readiness. Finally, the Army has the means to 
determine how funding might impact parts availability and equipment 
readiness as part of its stewardship and accountability for funds, but 
has not provided this information to Congress when it requests 
additional funding. Without such information that links additional 
spare parts funding to readiness and provides assurance that 
investments are based on the greatest readiness returns, Congress 
cannot determine how best to prioritize and allocate future funding.

Recommendations for Executive Action:

We recommend that the Secretary of Defense direct the Secretary of the 
Army to:

* modify or supplement the Transformation Campaign Plan, or the 
Armywide logistics initiatives to include a focus on mitigating 
critical spare parts shortages with goals, objectives, milestones, and 
quantifiable performance measures, such as supply availability and 
readiness related outcomes and:

* implement the Office of Secretary of Defense recommendation to 
report, as part of budget requests, the impact of additional spare 
parts funding on equipment readiness with specific milestones for 
completion.

Agency Comments and Our Evaluation:

In written comments on a draft of this report, DOD generally concurred 
with the intent of both recommendations, but not the specific actions 
we recommended. DOD's written comments are reprinted in their entirety 
in appendix III.

In concurring with the intent of our first recommendation, DOD 
expressed concern that because spare parts shortages are a symptom of 
imperfect supply management processes, its improvement plans must focus 
on improving these processes rather than on the symptoms. According to 
DOD, the Army's Transformation Campaign Plan correctly focuses on 
transforming the Army's forces and equipment from its present posture 
to a more strategically deployable and responsive objective force. 
Furthermore, DOD also stated that the Armywide logistics initiatives 
correctly focus on improving procurement, repair of spare parts, 
inventory management, and supply operations. DOD also noted it has/is 
taking several actions. The "Top 25 Readiness Drivers" initiative, 
which addresses specific stock numbers that affect its major weapon 
systems, has been added to the metrics in the Army's Strategic 
Readiness System. Milestones for logistics initiatives would be added 
to the Army's Transformation Campaign Plan. Also, spares shortages will 
be tracked in the Strategic Readiness Systems and logistics initiatives 
will be tracked in the Transformation Campaign Plan. Therefore, DOD 
does not agree that the Army needs to modify its Transformation 
Campaign Plan or the Armywide logistics initiatives to focus on spare 
parts shortages.

We do not believe that these actions alone are sufficient to meet our 
recommendation. We endorse the Army's efforts to add related metrics to 
its Strategic Readiness System and milestones for its logistics 
initiatives to the Transformation Campaign Plan. Further, our report 
recognizes that the Army's plan focuses on improving the Army's force 
transformation efforts and that improving logistics processes is part 
of the solution to mitigating spare parts shortages. However, the 
intent of our recommendation was for the Army to include in its 
Transformation Campaign Plan or servicewide initiatives a focus on 
mitigating critical spare parts shortages. As our report clearly points 
out, without a focus on mitigating critical spare parts shortages with 
goals, objectives, and milestones included in the strategic plan or 
Armywide initiatives, we believe there is increased likelihood that the 
Army's progress will be limited because it efforts may be ineffective 
or duplicative in mitigating spare parts shortages that are critical to 
equipment readiness. Therefore, we believe implementation of our 
recommended actions is necessary to ensure improved readiness for 
legacy and future weapon systems.

In concurring with the intent of our second recommendation, DOD stated 
that the Army would begin implementing the recommendation by providing 
mission-capable rates during the upcoming mid-year budget review 
consistent with the June 2002 updated budget exhibit in the Financial 
Management Regulation. DOD also states that the Army will fully comply 
with the August 2002 inventory management study reporting 
recommendation when the required data becomes available.

We support the Army's effort to report mission-capable rates for its 
weapon systems. However, we are concerned that the Army has not set a 
deadline for fully implementing the recommendation. Providing this 
valuable information to Congress in a timely manner is an important 
step in placing a priority on efforts needed to mitigate spare parts 
shortages as part of the Army's overall stewardship of funds and 
accountability for making spare parts investment decisions that provide 
a good readiness return. We have therefore modified our second 
recommendation to include a provision that the Army establish 
milestones for fully implementing the recommendation from the August 
2002 inventory management report.

Scope and Methodology:

To determine whether the Army's strategic plans address mitigating 
spare parts shortages, we obtained and analyzed Army planning documents 
that pertained to spare parts or logistics. We focused our analysis on 
whether these strategic plans addressed spare parts shortages and 
included the performance plan guidelines identified in GPRA. We 
interviewed officials in the Office of the Army Deputy Chief of Staff 
for Logistics, and the Army Transformation Office to clarify the 
content and linkage of the various strategic plans.

To determine the likelihood that Army initiatives will achieve their 
intended results and contribute to the mitigation of spare parts 
shortages to improve readiness, we obtained and analyzed service 
documentation and prior GAO reports on major management challenges and 
program risks and on the Army's major initiatives that relate to spare 
parts or supply support. We focused our analysis on whether the 
initiatives addressed spare parts shortages and the need for 
quantifiable and measurable performance targets as identified in GPRA. 
We also interviewed officials in the Supply Policy Division, Army 
Deputy Chief of Staff for Logistics; Army Materiel Command; Army 
Aviation and Missile Command; Army Tank and Automotive Command; and 
Combined Arms Support Command. We obtained and analyzed Army data 
pertaining to spare parts availability, spare parts back ordered, and 
specific spare parts that are affecting equipment readiness.

To determine the extent to which the Army identifies how additional 
investments in spare parts affect supply support and readiness, we 
obtained and analyzed documentation on the Army's needs for additional 
funding to purchase spare parts. We analyzed the Army's budget 
justification for the funding needed for spare parts for the years 2004 
and 2005. We obtained the results of prior analyses showing how 
additional funding might affect readiness. However, we did not 
independently validate or verify the accuracy of the Army's models that 
show the relationship between funding, supply performance, and 
readiness.

We also visited and interviewed officials at the Army Materiel Systems 
Analysis Activity and considered DOD's recommendations in its August 
2002 Inventory Management Report.

We performed our review from August 2002 through March 2003 in 
accordance with generally accepted government auditing standards.

We are sending copies of this report to the Secretary of Defense, the 
Secretary of the Army, and other interested congressional committees 
and parties. We will also 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.

Please contact me on (202) 512-8365 if you or your staff has any 
questions concerning this report. Major contributors to this report are 
included in appendix IV.

Sincerely yours,

William M. Solis, 
Director 
Defense Capabilities and Management:

Signed by William M. Solis:

[End of section]

Appendix I: Army Recapitalization Systems:

Aviation:

Apache AH-64 A and AH-64 D Longbow Helicopters:  
Black Hawk UH-60 Helicopter:  
Chinook CH-47 Helicopter:

Combat:

Patriot Ground Support Equipment 
M1 Abrams Tank 
M2/M3 Series Bradley Fighting Vehicles 
M992 Field Artillery Ammunition Supply Vehicle 
Multiple-Launch Rocket System 
M113 Family of Vehicles:

Combat Support:

M48/M60 Armored Vehicle Launched Bridge 
AN/TPQ-36 Fire Finder 
Small Emplacement Excavator 
M9 Armored Combat Earthmover:

Combat Service Support:

Heavy Expanded Mobility Tactical Truck 
M88A1/A2 Hercules Recovery Vehicle 
High Mobility Multipurpose Wheeled Vehicle 
AN/ASM-190 Electronic Shop Shelter:

[End of section]

Appendix II: Army Working Capital Fund Fiscal Year 2004/2005 Biennial 
Budget Estimates Supply Management:

Table 3: Operating Requirements by Weapon System Category:

Dollars in millions.

Weapons system/category: 

Chemical Defense Equipment: FY 2002: 76.8; Material readiness  
indicator[A] (percent): NA[B]; FY 2003: 119.3; Material readiness; 
indicator[A] (percent): NA.

Other Armament, Munitions and Chemicals: FY 2002: 92.0; Material 
readiness indicator[A] (percent): NA; FY 2003: 103.4; Material 
readiness indicator[A] (percent): NA.

AH-64: FY 2002: 300.2; Material readiness indicator[A] (percent): 77; 
FY 2003: 578.5; Material readiness indicator[A] (percent): 75.

UH-60: FY 2002: 409.2; Material readiness indicator[A] (percent): 75; 
FY 2003: 861.0; Material readiness indicator[A] (percent): 80.

OH-58D: FY 2002: 98.7; Material readiness indicator[A] (percent): 83; 
FY 2003: 190.1; Material readiness indicator[A] (percent): 75.

CH-47D: FY 2002: 217.0; Material readiness indicator[A] (percent): 60; 
FY 2003: 657.4; Material readiness indicator[A] (percent): 75.

T701C Engines: FY 2002: 147.1; Material readiness 
indicator[A] (percent): NA; FY 2003: 151.2; Material readiness 
indicator[A] (percent): NA.

Air Delivery/Aviation/Troop Equipment: FY 2002: 172.9; Material 
readiness indicator[A] (percent): NA; FY 2003: 121.7; Material 
readiness indicator[A] (percent): NA.

Mobile Subscriber Equipment: FY 2002: 31.0; Material 
readiness indicator[A] (percent): NA; FY 2003: 67.6; Material 
readiness indicator[A] (percent): NA.

Night Vision Equipment: FY 2002: 45.4; Material readiness 
indicator[A] (percent): NA; FY 2003: 103.1; Material 
readiness indicator[A] (percent): NA.

Batteries: FY 2002: 49.8; Material readiness indicator[A] (percent): 
NA; FY 2003: 70.4; Material readiness indicator[A] (percent): NA.

Other Communications/Electronics: FY 2002: 279.0; Material 
readiness indicator[A] (percent): NA; FY 2003: 494.9; Material 
readiness indicator[A] (percent): NA.

Multiple Launch Rocket System: FY 2002: 25.0; Material 
readiness indicator[A] (percent): 94; FY 2003: 47.7; Material 
readiness indicator[A] (percent): 90.

PATRIOT: FY 2002: 96.9; Material readiness indicator[A] (percent): 96; 
FY 2003: 140.1; Material readiness indicator[A] (percent): 90.

Other Missile Systems: FY 2002: 89.8; Material readiness 
indicator[A] (percent): 96; FY 2003: 74.8; Material 
readiness indicator[A] (percent): 90.

M1 Series Tank: FY 2002: 505.4; Material readiness 
indicator[A] (percent): 86; FY 2003: 798.3; Material 
readiness indicator[A] (percent): 90.

M88 Recovery Vehicle: FY 2002: 87.8; Material readiness 
indicator[A] (percent): 84; FY 2003: 134.8; Material 
readiness indicator[A] (percent): 90.

M109 Howitzer: FY 2002: 30.8; Material readiness indicator[A] 
(percent): 93; FY 2003: 36.3; Material readiness indicator[A] 
(percent): 90.

M198 Howitzer: FY 2002: 5.1; Material readiness indicator[A] 
(percent): 96; FY 2003: 8.5; Material readiness indicator[A] 
(percent): 90.

M113: FY 2002: 58.1; Material readiness indicator[A] (percent): 92; FY 
2003: 62.6; Material readiness indicator[A] (percent): 90.

Bradley Fighting Vehicle: FY 2002: 117.1; Material readiness 
indicator[A] (percent): 94; FY 2003: 181.1; Material 
readiness indicator[A] (percent): 90.

High Mobility Multipurpose Wheeled Vehicle: FY 2002: 76.4; Material 
readiness indicator[A] (percent): 94; FY 2003: 82.6; Material 
readiness indicator[A] (percent): 90.

Tires: FY 2002: 52.9; Material readiness indicator[A] (percent): NA; 
FY 2003: 82.0; Material readiness indicator[A] (percent): NA.

Other Tank & Automotive: FY 2002: 177.9; Material readiness indicator
[A] (percent): NA; FY 2003: 268.7; Material readiness 
indicator[A] (percent): NA.

Total: FY 2002: 3,242.3; FY 2003: 5,436.3; 

Source: DOD.

[A] The material readiness indicator, according to an Army official, is 
the percentage of the total weapon system fleet that is expected to be 
mission ready.

[B] NA means not applicable.

[End of table]

Table 4: Operating Requirements by Weapon System Category:

Weapon System/Category: Chemical Defense 
Equipment; FY 2004: 111.9; 
Material readiness indicator[A] (percent): NA[B]; 
FY 2005: 121.3; Material readiness indicator[A] 
(percent): NA.

Weapon System/Category: Other Armament, Munitions 
and Chemicals; FY 2004: 106.2; Material readiness indicator[A] 
(percent): NA; FY 2005: 105.1; Material readiness
indicator[A] (percent): NA.

Weapon System/Category: AH-64; FY 2004: 501.3; Material readiness 
indicator[A] (percent): 75; FY 2005: 481.0; 
Material readiness indicator[A] (percent): 75.

Weapon System/Category: UH-60: 
FY 2004: 662.2; Material readiness 
indicator[A] (percent): 80; FY 2005: 615.1; 
Material readiness indicator[A] (percent): 80.

Weapon System/Category: OH-58D: 
FY 2004: 133.3; Material readiness 
indicator[A] (percent): 75; FY 2005: 147.2; 
Material readiness indicator[A] (percent): 75.

Weapon System/Category: CH-47D: 
FY 2004: 481.2; Material readiness 
indicator[A] (percent): 75; FY 2005: 517.9; 
Material readiness indicator[A] (percent): 75.

Weapon System/Category: T701C Engines: 
FY 2004: 119.4; Material readiness 
indicator[A] (percent): NA; FY 2005: 125.9; 
Material readiness indicator[A] (percent): NA.

Weapon System/Category: Air Delivery/Aviation/
Troop Equipment; FY 2004: 120.5
Material readiness indicator[A] (percent): NA
FY 2005: 90.3; Material readiness 
indicator[A] (percent): NA.

Weapon System/Category: Mobile Subscriber 
Equipment; FY 2004: 44.8; 
Material readiness indicator[A] (percent): NA; FY 
2005: 27.2; Material readiness indicator[A] 
(percent): NA.

Weapon System/Category: Night Vision Equipment; 
FY 2004: 66.7; Material 
readiness indicator[A] (percent): NA; FY 2005: 
60.5; Material readiness indicator[A] (percent): 
NA.

Weapon System/Category: Batteries: 
FY 2004: 34.4; Material readiness 
indicator[A] (percent): NA; FY 2005: 31.2 
Material readiness indicator[A] (percent): NA.

Weapon System/Category: Other Communications/
Electronics; FY 2004: 366.2; 
Material readiness indicator[A] (percent): NA; FY 
2005: 379.0; Material readiness indicator[A] 
(percent): NA.

Weapon System/Category: Multiple Launch Rocket 
System; FY 2004: 51.1; 
Material readiness indicator[A] (percent): 90; FY 
2005: 50.9; Material readiness indicator[A] 
(percent): 90.

Weapon System/Category: PATRIOT
FY 2004: 132.6; Material readiness 
indicator[A] (percent): 90; FY 2005: 127.3; 
Material readiness indicator[A] (percent): 90.

Weapon System/Category: Other Missile Systems; 
FY 2004: 82.3; Material 
readiness indicator[A] (percent): 90; FY 2005: 
93.4; Material readiness indicator[A] (percent): 
90.

Weapon System/Category: M1 Series Tank
FY 2004: 770.6; Material readiness 
indicator[A] (percent): 90; FY 2005: 816.1; 
Material readiness indicator[A] (percent): 90.

Weapon System/Category: M88 Recovery Vehicle; 
FY 2004: 136.8; Material 
readiness indicator[A] (percent): 90; FY 2005: 
131.4; Material readiness indicator[A] (percent): 
90.

Weapon System/Category: M109 Howitzer
FY 2004: 37.2; Material readiness 
indicator[A] (percent): 90; FY 2005: 35.0 
Material readiness indicator[A] (percent): 90.

Weapon System/Category: M198 Howitzer
FY 2004: 11.2; Material readiness 
indicator[A] (percent): 90; FY 2005: 10.9 
Material readiness indicator[A] (percent): 90.

Weapon System/Category: M113; 
FY 2004: 66.5; Material readiness indicator[A] 
(percent): 90; FY 2005: 70.4; 
Material readiness indicator[A] (percent): 90.

Weapon System/Category: Bradley Fighting Vehicle; 
FY 2004: 208.6; Material 
readiness indicator[A] (percent): 90; FY 2005: 
229.7; Material readiness indicator[A] (percent): 
90.

Weapon System/Category: High Mobility Multipurpose 
Wheeled Vehicle; FY 2004: 83.2
Material readiness indicator[A] (percent): 90
FY 2005: 85.9; Material readiness 
indicator[A] (percent): 90.

Weapon System/Category: Tires
FY 2004: 69.1; Material readiness 
indicator[A] (percent): NA; FY 2005: 71.8 
Material readiness indicator[A] (percent): NA.

Weapon System/Category: Other Tank & Automotive; 
FY 2004: 308.8; Material 
readiness indicator[A] (percent): NA; FY 2005: 
301.4; Material readiness indicator[A] (percent): 
NA.

Weapon System/Category: Total
FY 2004: 4,706.0; FY 2005: 4,726.0; 

Source: DOD.

[A] The material readiness indicator, according to an Army official, is 
the percentage of the total weapon system fleet that is expected to be 
mission ready.

[B] NA means not applicable.

[End of table]

[End of section]

Appendix III: Comments from the Department of Defense:

DEPUTY UNDER SECRETARY OF DEFENSE FOR LOGISTICS AND MATERIEL READINESS 
3500 DEFENSE PENTAGON WASHINGTON, DC 20301-3500:

JUN 11 2003:

Mr. William Solis, Director:

Defense Capabilities and Management U.S. General Accounting Office:

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

Dear Mr. Solis:

This is the Department of Defense (DoD) response to the GAO draft GAO-
03-705, DEFENSE INVENTORY: The Army Needs a Plan to Overcome Critical 
Spare Parts Shortages, dated May 12, 2003 (GAO Code 350248).	The DoD 
generally concurs with the intent of the recommendations.

Detailed comments on the draft report recommendations are included in 
the enclosure. The DoD appreciates the opportunity to comment on the 
draft report.

Sincerely,

Allen W. Beckett Principal Assistant:

Signed by Allen W. Beckett:

Enclosure:

DRAFT REPORT (GAO-03-705/Code 350248):

"DEFENSE INVENTORY: The Army Needs a Plan to Overcome Critical Spare 
Parts Shortages":

DEPARTMENT COMMENTS:

RECOMMENDATION 1: The GAO recommends that the Secretary of Defense 
direct the Secretary of the Army to modify or supplement the 
Transformation Campaign Plan or the Armywide logistics initiatives to 
include a focus on mitigating crucial spare parts shortages with goals, 
objectives, milestones, and quantifiable performance measures, such as 
supply availability and readiness related outcomes. (p. 16/GAO Draft 
Report):

DOD RESPONSE: Concur with intent. Spare parts shortages are a symptom 
of imperfect supply chain management processes. Improvement plans must 
focus on improving these processes rather than on the symptoms. The 
Army's Transformation Campaign Plan (TCP) correctly focuses on 
transforming the Army's forces and equipment from its present posture 
to a more strategically deployable and responsive objective force. The 
Army-wide logistics initiatives correctly focus on improving 
procurement, repair of spare parts, inventory management, and supply 
operations. The Secretary of the Army has established the Strategic 
Readiness System (SRS) to provide Army-wide metrics. The SRS is 
available to tactical and logistics leaders. The "Top 25 Readiness 
Drivers" which addresses specific stock numbers affecting the Army's 
major weapon systems has been added to the SRS. The "Top 25" is also a 
metric for the Commander U.S. Army Materiel Command. Therefore, we do 
not agree with directing the Army to modify the Transformation Campaign 
Plan or the Army-wide logistics initiatives to focus on spare parts 
shortages. Spares shortages will continue to be tracked in the SRS and 
logistics initiatives in the TCP. Milestones for logistics initiatives 
will be added to the Army TCP, Line of Operation 9, Deploying and 
Sustaining the Force. Estimated completion date is September 2003.

RECOMMENDATION 2: The GAO recommends that the Secretary of Defense 
direct the Secretary of the Army to implement the Office of Secretary 
of Defense recommendation to report, as part of budget requests, the 
impact of additional spare parts funding on equipment readiness. (p. 
17/GAO Draft Report):

DOD RESPONSE: Concur with intent. In June 2002, the OUSD(C) updated the 
SM-3B budget exhibit, which is a weapon system breakout showing 
readiness type data, requiring this information as part of the annual 
budget estimate submission. The OUSD(C) recognized the fact that the 
data provided may not be entirely complete until modernized systems are 
in place. Army has started this process. During the mid-year review, 
the Army Working Capital Fund, Supply Management Army budget call 
requested "mission capable rates as provided in the monthly readiness 
report or unit status reports" as part of the justification package. 
Since the FMR already requires the Army to implement the recommendation 
from the August 2002 study as data becomes available, no further 
direction is required and action consistent with this recommendation is 
complete.

[End of section]

Appendix IV: GAO Contacts and Staff Acknowledgments:

GAO Contacts:

Richard G. Payne (757) 552-8119 George O. Morse (757) 552-8108:

Acknowledgments:

In addition to those named above, Robert L. Coleman, Alfonso Q. Garcia, 
Susan K. Woodward, Robert K. Wild, Cheryl A. Weissman, Barry L. 
Shillito, and Charles W. Perdue also made significant contributions to 
this report.

FOOTNOTES

[1] These figures are based on the Army's OP-31 Budget exhibit about 
which GAO recently reported concerns. U.S. General Accounting Office, 
Defense Inventory: Better Reporting on Spare Parts Spending Will 
Enhance Congressional Oversight, GAO-03-18 (Washington, D.C.: Oct. 24, 
2002).

[2] U.S. General Accounting Office, Major Management Challenges and 
Program Risks: Department of Defense, GAO-03-98 (Washington, D.C.: Jan. 
2003).

[3] Office of the Secretary of Defense, Inventory Management Study 
(Washington, D.C.: Aug. 2002).

[4] U.S. General Accounting Office, Defense Inventory: The Department 
Needs a Focused Effort to Overcome Critical Spare Parts Shortages, 
GAO-03-707 (Washington, D.C.: June 27, 2003); U.S. General Accounting 
Office, Defense Inventory: Air Force Plans and Initiatives to Mitigate 
Spare Parts Shortages Need Better Implementation, GAO-03-706 
(Washington, D.C.: June 27, 2003); U.S. General Accounting Office, 
Defense Inventory: Navy Logistics Strategy and Initiatives Need to 
Address Spare Parts Shortages, GAO-03-708 (Washington, D.C.: June 27, 
2003); U.S. General Accounting Office, Defense Inventory: Several 
Actions Are Needed to Further DLA's Efforts to Mitigate Shortages of 
Critical Parts, GAO-03-709 (forthcoming); U.S. General Accounting 
Office, Defense Inventory: Air Force Item Manager Views of Repair Parts 
Issues Consistent With Issues Reported in the Past, GAO-03-684R 
(Washington, D.C.: May 21, 2003).

[5] For this report, critical spare parts are defined as those parts 
that directly affect the readiness of weapon systems. For example, the 
Army periodically identifies parts as "top drivers" of weapon 
readiness, such as a rotor blade for the Apache helicopter.

[6] Public Law 103-62, August 3, 1993.

[7] Office of the Secretary of Defense, Inventory Management Study 
(Washington, D.C.: Aug. 2002). 

[8] The Army Strategic Readiness System links resources to readiness 
and translates strategy into measurable objectives.

[9] U.S. General Accounting Office, Army Inventory: Parts Shortages Are 
Impacting Operations and Maintenance Effectiveness, GAO-01-772 
(Washington, D.C.: July 31, 2001).

[10] Office of the Secretary of Defense, Inventory Management Study 
(Washington, D.C.: Aug. 2002).

[11] The total elapsed time between a customer's request and receipt of 
the requested item. 

[12] GPRA requires establishment of a performance plan covering any 
program activity set forth in the agency's budget that contains 
objectives and quantifiable and measurable performance targets designed 
to assess the success of the particular program. 

[13] Rebuilding overhauls a system to like-new condition with near zero 
time and near zero miles.

[14] Upgrading rebuilds and improves a system to increase capability.

[15] U.S. General Accounting Office, Army Inventory: A Single Supply 
System Would Enhance Inventory Management and Readiness, GAO/
NSIAD-90-53 (Washington, D.C.: Jan. 25, 1990).

[16] Supply-cycle time measures the time for materiel to complete the 
entire supply cycle, including acquisition, distribution, 
transportation, warehousing, and delivery.

[17] Formerly Velocity Management.

[18] GAO-01-772.

[19] We did not validate the accuracy of these models.

[20] Office of the Secretary of Defense, Inventory Management Study 
(Washington, D.C.: Aug. 2002).

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