Report to Congressional Committees

United States General Accounting Office

GAO

July 2002 DEFENSE

INVENTORY

Improved Industrial

Base Assessments for

Army War Reserve

Spares Could Save

Money

GAO-02-650
Page i GAO-02-650 Defense Inventory

Letter 1

Results in Brief 1

Background 3

Army Industrial Base Assessments Do Not Use Current Industry

Data 5

Opportunities Exist to Improve the Reliability of the Army’s

Industrial Base Capability Assessments 7

Conclusions 11

Recommendations for Executive Action 11

Agency Comments and Our Evaluation 11

Scope and Methodology 13

Appendix I Defense Logistics Agency Industrial Base Planning 16

Data Collection Tool 17

Analytical Tool 20

Appendix II Comments from the Department of Defense 21

Appendix III Staff Acknowledgments 24

Tables

Table 1: Industrial Base Assessment Attribute Comparison between

Defense Logistics Agency and Army 2

Table 2: The Army’s Fiscal Year 2003-2007 War Reserve Spare Parts

Plan 5

Table 3: Production Lead times for Selected War Reserve Spare

Parts 8

Table 4: Industrial Base Assessment Attribute Comparison between

DLA and Army 10

Table 5: Program Data Fields and Descriptions 17

Figure

Figure 1: Army’s Steps for Determining War Reserve Spare Parts

Shortfalls 4

Contents
Page 1 GAO-02-650 Defense Inventory

July 12, 2002

Congressional Committees

This report follows up on our May 2001 recommendation that the

Secretary of the Army develop improved estimates of private industry’s

spare parts production capability for meeting currently projected wartime

scenarios.1

 We made this recommendation after we found that the Army

relied on internally generated data rather than on current data from

industry to develop its industrial base capability assessments.2

 The Army

concurred with our recommendation and cited actions it intends to take.

Improvements to industrial base capability assessments could lead to

increased readiness and to reduced costs for unneeded wartime spare

parts inventories

In this report, we address whether (1) the Army has begun to collect and

use current industrial base data and (2) opportunities exist to improve the

reliability of the Army’s industrial base capability assessments.

To accomplish this review, we interviewed Army officials who are

responsible for estimating the requirements and developing budgets for

war reserve spare parts and for assessing what portion of those

requirements private industry is capable of providing. We also talked with

officials from the Defense Logistics Agency about its industrial base

assessment program.

The Army’s approach for assessing wartime spare parts industrial base

capability still does not use current data from industry. Instead, the Army

uses historical parts procurement data because its prior efforts to collect

current data from industry were not successful due to poor response rates.

The Army’s assessments depend on historical data and resulting lead-time

factors to project industry’s contribution to satisfying wartime spare parts

 1

 This work was undertaken in response to a mandate in section 364 of the National

Defense Authorization Act for Fiscal Year 2000, which resulted in the report Defense

Inventory: Army War Reserve Spare Parts Requirements Are Uncertain, GAO-01-425

(Washington, D.C.: May 10, 2001).

2

 The industrial base includes both privately owned and government-owned assets. In this

report, we use the term industrial base to refer only to private industry and commercial

sources.

United States General Accounting Office

Washington, DC 20548

Results in Brief
Page 2 GAO-02-650 Defense Inventory

requirements. Without current data on industry’s capability, assessments

could be unreliable, resulting in reduced readiness due to critical spare

parts shortfalls in wartime or inflated and costly war reserve spare parts

inventories in peacetime. Moreover, the Army’s budget requests to

Congress for war reserve spare parts risk being inaccurate. 3

Opportunities exist to improve the Army’s industrial base capability

assessments. After issuing our May 2001 report, we identified a program in

the Defense Logistics Agency that has several attributes reflecting sound

management practices that are required for reliable industrial base

capability assessments. Our analysis of the approach used by the Army

compared to the Defense Logistics Agency’s spare parts industrial base

assessment program revealed that the Army’s approach can be improved

in three areas—data collection, data analysis, and management strategies.

Table 1 highlights the key attributes where there are opportunities to

improve the Army’s assessments, based on the program used by the

Defense Logistics Agency (DLA).

Table 1: Industrial Base Assessment Attribute Comparison between Defense

Logistics Agency and Army

Attribute DLA Army

Data collection

Collects current data from industry Yes No

Uses Internet based survey Yes No

Data analysis

Models current production capability Yes No

Identifies problems for future management actions Yes No

Management strategies

Creates acquisition strategies Yes No

Targets industrial base investments Yes No

Source: GAO’s analysis.

Although DLA’s program is in its early stages of implementation, DLA has

been able to successfully collect current data directly from private

industry on thousands of parts. Further, DLA is analyzing that data to

identify actual or potential parts availability problems. From this analysis,

 3

 War reserves are stocks of materiel amassed during peacetime to meet increased military

requirements following the outbreak of war. The reserves are intended to provide the Army

with interim support to sustain its operations until the Army can be resupplied with

materiel from the industrial base.
Page 3 GAO-02-650 Defense Inventory

it has created management strategies for changing its acquisition

procedures and making targeted investments in material and technology

resources to reduce production lead times. For example, DLA identified an

unusually long lead time of 360 days for an electronic part that, with a

targeted investment, it was able to reduce to 30 days, saving

approximately $600,000.

We are making recommendations to the Secretary of Defense for the Army

to create management strategies for improving wartime spare parts

availability that can save money, improve readiness, and provide more

realistic budget requests to Congress. The Department of Defense (DOD)

partially concurred with our recommendations because it did not agree

with details about how the attributes we cited could enhance the Army’s

current process for assessing industrial base capabilities. Its concerns

principally centered on the need for the Army to have flexibility in

implementing the program and the additional resources required to

maintain more accurate data. As discussed in the agency comments

section of this report, we continue to believe our recommendations

provide an opportunity to enhance the Army’s program while allowing this

flexibility.

DOD’s current policy calls for each military service to determine its

requirements and acquire sufficient war reserve materiel for the execution

of current wartime scenarios and to be able to sustain these operations

until being re-supplied.4

 Thus, in developing their plans, the services must

consider the availability of spare parts in their peacetime operating stocks,

their war reserve spare parts inventories, and from the industrial base, and

then estimate what additional materiel they need to buy. The Army’s

industrial base and stationing strategies and DOD’s regulations reflect the

importance of the industrial base in supporting wartime operations and

require the services to rely on the industrial base to the maximum extent

possible.5

 In addition, the Army is required to maintain a viable capability

to monitor and assess the health of the industrial base and identify

potential risks.6

 4

 DOD Directive 3110.6, War Reserve Materiel Policy, November 9, 2000.

5

 DOD 4140.1-R, DOD Materiel Management Regulation, May 1998.

6

 This requirement comes from the Army’s 2001 Industrial Base Strategy and its Stationing

Strategy.

Background
Page 4 GAO-02-650 Defense Inventory

The U.S. Army Materiel Command is responsible for determining the

Army’s requirements for war reserve spare parts, as well as the Army’s

estimate of what private industry can be expected to provide during

wartime, in order to derive the war reserve spare parts shortfall.7

 It

receives technical expertise from the Army Materiel Systems Analysis

Agency in determining its war reserve requirements and an estimate of

what can be expected from private industry. The Command’s major

subordinate commands are responsible for purchasing specific types of

materiel, such as aviation, tank, automotive, and communications parts,

and they have a limited number of industrial base specialists who can be

assigned to provide data for assessments. Figure 1 illustrates the steps that

the Army follows to determine its war reserve shortfall.

Figure 1: Army’s Steps for Determining War Reserve Spare Parts Shortfalls

Source: GAO’s analysis.

To plan how much war reserve materiel it needs to buy, the Army

develops estimates of when spare parts will be available from the

industrial base during wartime so that it can determine how much war

reserve materiel it needs to buy and put into its war reserve inventory. In

preparing its estimates, the Army first calculates the total amount of war

materiel that it needs to support current wartime scenarios. Specifically, it

calculates its requirements by using a computer model that considers

several factors, such as spare parts usage and breakage rates. Next, it

determines the amount of peacetime and war reserve inventories that are

available to meet that requirement. The Army then applies the amount it

estimates the industrial base can be expected to provide during wartime.

The remaining amount is considered the total spare parts shortfall. The

total shortfall can then be divided into the amount for which Congress has

authorized funding, any amounts budgeted for future years, and an

additional amount the Army has not yet requested from Congress.

 7

 The Army uses the term industrial base offset to mean its estimate of what private

industry can be expected to provide during wartime.
Page 5 GAO-02-650 Defense Inventory

As table 2 shows, in preparation for its fiscal year 2003 budget submission

to Congress (part of the fiscal year 2003-2007 out-of-cycle Program

Objective Memorandum), the Army calculated that it required $3.30 billion

for its wartime spare parts. Of this amount, it estimated that $1.93 billion

worth of spare parts would be available from peacetime and war reserve

inventories. Another $0.13 billion expected to be available from private

industry was applied. The resulting total spare parts shortfall was

$1.24 billion. Of this amount, the Army has been funded $0.11 billion for

fiscal years 2000-2002 and expects to request $0.47 billion in fiscal years

2003-2007. Overall the Army reports a total spare parts shortfall of

approximately $0.66 billion.8

Table 2: The Army’s Fiscal Year 2003-2007 War Reserve Spare Parts Plan

Dollars in billions

Subtotal Total

Calculated costs of required wartime spare parts 3.30

Peacetime inventory on hand 0.63

War reserve inventory on hand +1.30

 Inventory to be available 1.93 -1.93

Remaining unfilled requirement 1.37

Estimated amount from private industry -0.13

Estimated amount still needed to fulfill requirement (spare

part shortfall)

1.24

Funding for fiscal years 2000-02 -0.11

Expected funding for fiscal years 2003-07 -0.47

Shortfall remaining 0.66

Source: Fiscal Years 2003-07 Program Objective Memorandum for the Army.

The Army’s approach for assessing wartime spare parts industrial base

capability still does not use current data from industry. Rather, the Army’s

assessments of industry’s capability to produce spare parts in wartime

depend on historical data and lead-time factors that the Army develops

itself. Without current data on industry’s capability, assessments could be

unreliable, resulting in reduced readiness due to critical spare parts

shortfalls in wartime or inflated and costly war reserve spare parts

inventories in peacetime. Moreover, the Army’s budget requests to

Congress for war reserve spare parts risk being inaccurate.

 8

 We did not attempt to verify the validity of the requirements estimates.

Army Industrial Base

Assessments Do Not

Use Current Industry

Data
Page 6 GAO-02-650 Defense Inventory

In the past, the Army collected data directly from private industry through

paper questionnaires to industry representatives that were up to 22 pages

long.9

 It stopped this practice primarily because of the poor response rates.

According to Army Materiel Command officials, industry representatives

said they saw no apparent direct benefit from filling in the lengthy

questionnaires and, moreover, felt they should be compensated for their

time and effort. We were told that command officials themselves do not

believe that collecting current data from industry is cost-effective.

Now, rather than collecting current data from private industry, the Army

uses data that it acquired several years ago from private industry to create

lead-time factors for estimating its wartime industrial base capability.

These factors are based on out-of-date industry data. Furthermore they

were developed from a limited range of spare part items but were applied

to all parts needed for war. For example, in developing its fiscal year 2003

budget submission to Congress, the Army used a formula with wartime

lead-time factors that were derived from estimated accelerated peacetime

administrative lead times and production lead times.10 These accelerated

lead-time factors of 85 and 61 percent, respectively, were based on data

obtained prior to 1998 for specific items, such as howitzers, that were

managed by the Army Tank and Automotive Command’s Rock Island

facility. According to an Army document,11 this method of calculating lead

times fails to account for variations that exist from item to item and can

lead to unrealistic industrial base capability estimates. For example, a 1998

Army study found that 44 of 86 parts assumed to be supported by industry

could not be and that 176 of 218 parts that were assumed not to be

supported by the industrial base were.

Partly in response to the recommendation in our prior report, the Army

has several initiatives underway to improve its industrial base capability

assessments, but these initiatives continue to focus on historical, rather

than current industry data. In one initiative, the Army is developing a new

approach to calculate its wartime spare parts requirements, in part, from

 9

 DOD Form 2737, Industrial Capabilities Questionnaire.

10 Administrative lead time is defined as the interval between initiation of procurement

action and letting of contract or placing of order. Production lead time is defined as the

time interval between the placement of a contract and receipt into the supply system of

materiel purchased.

11 This document, an engineering change request (XLGWRA13713), dated December 15,

1999, proposes changes to this estimating method.
Page 7 GAO-02-650 Defense Inventory

data collected from private industry during 1998. In another, the Army

Materiel Command has designed a tool—called the Industrial Base Hub12—

that brings together in one Web-based automated system a broad range of

existing industrial base data. The data consist of war reserve requirements,

producer capabilities, contract awards and actions, contractor businesses,

and commercial businesses and finances. The Industrial Base Hub relies

on historical data rather than on current data from industry. In a third

initiative, the Army Materiel Systems Analysis Agency has proposed

periodically collecting data on production lead times for the 100 costliest

spare parts, which account for 70 percent of the total dollar value of the

entire wartime spare parts requirement. The Army Materiel Systems

Analysis Agency believes that collecting current data periodically from the

private manufacturers of the top 100 costliest spare parts could be a

reasonable way to get a cost-effective, reliable industrial base offset

estimate.

The Army could improve the reliability of its industrial base assessments

by considering several key attributes present in DLA’s industrial base

assessment program. These include the collection of up-to-date industry

data, the timely analysis of data to develop current and reliable industrial

base assessments, and the use of analytical data to create management

strategies aimed at reducing spare parts costs and the risk of shortfalls.

To improve its management of spare parts for the services, and thus

reduce costs and inventory, DLA re-engineered its industrial base

capability assessment program. DLA’s assessment program, called the

Worldwide Web Industrial Capabilities Assessment Program, was started

in the fall of 1999. It consists of a data collection tool and an analytical

tool, which is used to create management strategies. (See appendix I for a

more detailed description.) The data collection tool provides the capability

to gather new and updated information directly from private companies

via the Internet. Company representatives voluntarily respond to a series

of on-line survey questions that, depending on how answered, are selftailored to that company to simplify and speed up the survey process.

 12 The Industrial Base Hub is composed of three components: Industrial Base Automated

Rating System, Industrial Base Activity System, and Industrial Base Information System.

Opportunities Exist to

Improve the

Reliability of the

Army’s Industrial

Base Capability

Assessments

DLA’s Assessment Program
Page 8 GAO-02-650 Defense Inventory

Private companies provide information on what spare part items they can

provide (or are willing to provide); what quantities they can produce; how

long it will take to produce them under different scenarios (e.g., normal or

crisis conditions); and what potential bottlenecks (e.g., availability of

certain materials, or equipment constraints) exist that could limit the

production of certain spare parts. DLA validates this information as part of

its assessment process before acting on the information.

The program’s analytical tool provides analysts with immediate access to

the automated data collected from industry. This provides the capability to

develop timely and reliable assessments of industry’s ability to provide

various spare parts in peacetime as well as wartime. In addition, it

provides the capability to use the analytical data to identify actual or

potential parts availability problems (e.g., items with unusually long lead

times or items that are involved in bottlenecks) and, based on this

information, to create a management strategy for resolving these

problems, for example, by changing its acquisitions procedures or

targeting investments in material and technology resources to reduce

production lead times.

Although DLA’s industrial base assessment program is relatively new, it

provides a number of examples that illustrate the effectiveness of

collecting current data directly from the industrial base. Table 3 shows the

impact on production lead time when it is based on up-to-date industry

data. For example, clamp couplings for tanks, aircraft, and aircraft engines

have a production lead time of 35 days during a crisis (surge) situation

rather than a lead time of 156 days (lead time of record) previously

estimated by DLA for normal, or peacetime, situations.

Table 3: Production Lead Times for Selected War Reserve Spare Parts

Weapon system Spare part item

Industry

surge

lead timea

Lead time of

recordb

Helicopters, aircraft engines Resilient mount 70 163

Communications satellite terminal Centrifugal fan 56 109

Communications Tube axial fan 45 125

Tanks, aircraft, and aircraft engines Clamp coupling 35 156

Aircraft Clamp coupling 35 65

Aircraft and support equipment Clamp coupling 35 49

a The surge production lead-time estimate, based on industry’s response to DLA’s survey, refers to

the best possible production lead time (in days) for an item in a crisis situation which is date of

contract award to date of receipt of first significant delivery.

Benefits of DLA’s

Assessment Program
Page 9 GAO-02-650 Defense Inventory

b

 The production lead time of record estimate is a computed new average production lead time (in

days) that factors in the latest actual production lead time, the number of days from contract award to

date of contract delivery and subsequently the receipt date of first significant delivery, and the old

production lead time of record in the system. It is designed for normal, or peacetime, situations.

Source: DLA Worldwide Web Industrial Capabilities Assessment Program.

This more reliable information could result in greater economy in

purchasing decisions. For example, private industry says it can provide a

resilient mount within 70 days during a crisis rather than in the 163 days

that DLA previously estimated. The war reserve requirement for this item

occurs during the first 3 months of a war. The reduction in production lead

time from 163 to 70 days means that the third month could be covered

with a savings of $4,810 by not buying the items.13 Likewise, the war

reserve requirement for the centrifugal fan spreads over the first 6 months

of a war with the bulk occurring during the last 3 months. The lead-time

reduction from 109 days to 56 days means that months 2-6 could be

covered with a savings of $62,560 by not buying the items.

Additional benefits from the assessment program stem from evaluating

currently collected and analyzed information to identify potential

problems with production and create various management strategies to

resolve them. For example, by identifying an unusually long lead time for a

cesium lamp and examining the reasons for this, DLA was able to

ultimately reduce the lamp’s lead time of 360 days to only 30 days. The

lamp is used on several types of Navy, Marine Corps, and Air Force

aircraft in electronic counter measure systems to defeat infrared missiles.

The lamp cartridge, which is a critical element used in these systems, is

made of exotic materials and operates at extreme temperatures and power

levels.

An industrial capabilities assessment concluded that the lead time of

record for this item was 360 days. Negotiations with the vendor, however,

reduced this to 300 days. The lead time of 300 days is due to the use of

highly technical processes and several long-lead-time materials in its

production. Because of the unique nature of the cesium lamp, additional

measures were needed to reduce the lead time further. As part of a

targeted investment, DLA awarded a contract to preposition and rotate

long-lead materials and partially finished components, resulting in a

further 270-day reduction in lead time to 30 days. As a result, DLA is

 13 DLA calculated the savings based on the number of units that would not need to be

purchased for war reserves multiplied by the cost per unit.
Page 10 GAO-02-650 Defense Inventory

spending $530,000 for this investment, compared with the $1.1 million it

would cost to purchase and store an equivalent amount of finished

product to meet war reserve requirements, saving approximately $600,000.

The Army’s approach for assessing wartime spare parts industrial base

capability can be improved. A comparative analysis of DLA’s program to

the Army’s approach shows opportunities to improve, specifically in the

areas of data collection, data analysis, and management strategies. Table 4

compares the DLA and Army industrial base assessment approaches for

the three key attributes.

Table 4: Industrial Base Assessment Attribute Comparison between DLA and Army

Attributes DLA Army

Data collection

Collects current data from industry Yes No

Maintains a deliberate, ongoing program to collect current data Yes No

Conducts follow-up to encourage participation Yes No

Uses Internet based survey rather than paper Yes No

Saves input time through a self tailoring survey instrument Yes No

Uses a unique classification strategy to group industry items Yes No

Data analysis

Incorporates current data into Internet based analytical tool Yes No

Allows immediate access to current industry data Yes No

Uses current and historical data to model industry capability Yes No

Identifies item shortfalls for further analysis Yes No

Management strategies

Meets requirement to assess industrial base capability Yes No

Creates acquisition strategies Yes No

Targets industrial base investments Yes No

Reduces lead times and saves money Yes Unknown

Links results of analysis to its strategy Yes No

Source: GAO’s analysis.

By focusing on the above attributes, DLA’s industrial base capability

assessment program has become an improved, simplified, time-saving

process for companies to provide current production capability data. For

example, the process uses a streamlined Internet based data collection

tool that industry representatives say is an improvement over the old

paper process. Also DLA uses follow-up letters and phone calls to

encourage use of the online data collection tool. Companies can then

participate with DLA in creating management strategies to reduce lead

times, which can reduce required war reserve inventories.

Army Industrial Base

Capability Assessments

Can Be Improved
Page 11 GAO-02-650 Defense Inventory

Industrial base capability assessments designed to have current data such

as DLA’s create opportunities for sound decision making regarding the

planning for and purchase of Army war reserve spare parts. The Army’s

approach to industrial base capability assessments lacks key attributes

that include the collection of current industry data, the analysis of that

data and the creation of management strategies for improving wartime

spare parts availability. Out-of-date data could result in reduced readiness

and inflated or understated war reserve spare parts funding requests

within budget submissions to Congress. Without a process that provides

such analysis, the Army cannot identify long lead times and create

management strategies to reduce lead times and thus the amount of

inventory needed.

In order to improve the Army’s readiness for wartime operations, achieve

greater economy in purchasing decisions, and provide Congress with

accurate budget submissions for war reserve spare parts, we recommend

that the Secretary of Defense direct the Secretary of the Army to have the

Commander of Army Material Command take the following actions to

expand or change its current process consistent with the attributes in this

report:

• establish an overarching industrial base capability assessment process that

considers the attributes in this report;

• develop a method to efficiently collect current industrial base capability

data directly from industry itself;

• create analytical tools that identify potential production capability

problems such as those due to surge in wartime spare parts demand; and

• create management strategies for resolving spare parts availability

problems, for example, by changing acquisition procedures or by targeting

investments in material and technology resources to reduce production

lead times.

DOD partially concurred with the overall findings and recommendations.

However, it nonconcurred with specific points in several of our

recommendations relating to the need to improve the capability of the

Army’s approach to assessing industrial base capabilities. Our evaluation

of the Department’s specific comments on each recommendation follows.

DOD agreed with the overall point of our first recommendation that it

establish an overarching industrial base assessment process relying on the

most accurate information available. However, it did not concur that the

Army should change its current process to be consistent with attributes of

Conclusions

Recommendations for

Executive Action

Agency Comments

and Our Evaluation
Page 12 GAO-02-650 Defense Inventory

the DLA program. It stated that the Army’s current system already applies

many of these attributes and must have the flexibility to do so in its own

manner consistent with its specific requirements and resources. As we

reported, our analysis shows the Army’s program does not have all the key

attributes such as collecting current industrial base capability data from

industry. Furthermore, we considered the Army’s need for flexibility in

managing and executing its program when developing our

recommendation by stating that the Army should be consistent with—not

necessarily mirror the attributes of DLA’s program. Therefore, we

continue to believe our recommendation is appropriate.

DOD agreed with the underlying premise of our second recommendation

that the most accurate data lead to the most accurate estimates. However,

it stated that we provided no evidence that more current data would result

in a more accurate forecast of industry’s capability to provide parts for

war. As pointed out in our report, DLA provided examples of how it could

save money by using current data it collected from industry, such as over

$62,000 on the centrifugal fan. Furthermore, we noted that a study done by

the Army in 1998 showed that data collected at that time about actual

industrial base capability significantly disagreed with the Army’s estimated

industrial base capability. The department also did not agree to a

comprehensive data collection effort because keeping more current data

does not warrant additional resources and stated that it will direct the

Army examine the feasibility of attempting to proactively collect

production data for a limited number of items. We recognized the potential

for such an initiative in our report and stated that the Army Materiel

Systems Analysis Agency believes that periodically collecting current data

on the top 100 costliest spare parts could be a reasonable approach.

Although this is a good first step, a comprehensive effort to collect current

industrial base capability data directly from industry is basic to the

recommendation’s underlying premise and is a best practice. Therefore we

continue to believe that our recommendation has merit.

DOD concurred with the point of our third recommendation that there is a

need to identify potential production capability problems such as those

resulting from a wartime surge in demand for spare parts. However, it did

not agree that the Army does not have such a process. While the Army’s

approach may have many analytical features, it does not provide specific

analyses of production capability. Such analyses contribute to identifying

possible production capability problems and could enhance the Army’s

management decisions. Therefore, we continue to recommend that the

Army create such analytical tools. Furthermore, in response to DOD’s

comment about the need to validate survey data on production capability
Page 13 GAO-02-650 Defense Inventory

before taking action, we added information to our report stating that DLA

does validate its industry surveys as part of its process.

With regard to our fourth recommendation, DOD concurred with the

concept that management strategies are needed to resolve spare parts

availability problems. But, it disagreed with the implication that the Army

has no such strategies. While the Army does have some processes at the

individual command level that identify and address spare parts availability

problems, we did not find an overarching process to create management

strategies designed to reduce lead times and inventories. Therefore, we

continue to believe that our recommendation is appropriate.

To determine whether the Army is using current industrial base data for

assessing wartime spare parts industrial base capability, we interviewed

Army officials responsible for war reserve spare parts planning,

requirements development, and estimation of industrial base capability in

the Office of the Army Deputy Chief of Staff for Logistics in Washington,

District of Columbia; the Army Materiel Command in Alexandria, Virginia;

the Army Aviation and Missile Command at Redstone Arsenal, Alabama;

and the Army Materiel Systems Analysis Agency at Aberdeen Proving

Grounds, Maryland.

To determine whether opportunities exist to improve the reliability of the

Army’s industrial base capabilities assessments, we compared the Army’s

approach to key attributes of the DLA’s program by interviewing DLA

officials in the Supplier Assessment and Capability Division at Fort

Belvoir, Virginia, and the Defense Supply Centers in Richmond, Virginia,

and Columbus, Ohio, that are responsible for an industrial base data

collection and analysis activity using information from private industry to

improve spare parts management. We also reviewed the processes used by

the Army and DLA to assess industrial base capability.

We performed our review between October 2001 and May 2002 in

accordance with generally accepted government auditing standards.

We are sending copies of this report to the Secretary of Defense and the

Secretary of the Army. 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.

Scope and

Methodology
Page 14 GAO-02-650 Defense Inventory

Please contact me on (202) 512-8412 if you or your staff has any questions

concerning this report.

David R. Warren, Director

Defense Management Issues
Page 15 GAO-02-650 Defense Inventory

List of Congressional Committees

The Honorable Carl Levin

Chairman

The Honorable John W. Warner

Ranking Minority Member

Committee on Armed Services

United States Senate

The Honorable Daniel Inouye

Chairman

The Honorable Ted Stevens

Ranking Minority Member

Subcommittee on Defense

Committee on Appropriations

United States Senate

The Honorable Bob Stump

Chairman

The Honorable Ike Skelton

Ranking Minority Member

Committee on Armed Services

House of Representatives

The Honorable Jerry Lewis

Chairman

The Honorable John P. Murtha

Ranking Minority Member

Subcommittee on Defense

Committee on Appropriations

House of Representatives
Appendix I: Defense Logistics Agency

Industrial Base Planning

Page 16 GAO-02-650 Defense Inventory

The Defense Logistics Agency’s (DLA) industrial base assessment program

operates within the Supplier Assessment and Capability Division in the

Acquisition Management and Logistics Policy Directorate. Among the

division’s objectives are: (1) to provide information tools to assess the

capabilities of suppliers and (2) to identify potential readiness shortfalls

and mitigate them through various business practices such as investing in

long-lead materials and by taking advantage of manufacturing

commonalities.

To achieve these objectives, the division has developed a variety of tools

to assess the supplier base in each of its major product categories—

weapon systems and hardware, construction, medical supplies,

subsistence items, and clothing and textiles. Using these tools, DLA is able

to evaluate suppliers’ capabilities to provide items in both peacetime and

wartime, to take actions to mitigate quantifiable risks, and to examine

broad industrial base issues and trends, using statistically valid

information. The tools allow assessments to be made by individual item or

grouped by items, product family, sector or subsector, weapon system or

platform, or supplier.

One of these tools, the Worldwide Web Industrial Capabilities Assessment

Program, was designed for assessing supplier resources available to the

Defense Department. The program is an automated, interactive, Webbased program that allows the gathering of information from industrial

suppliers and the use of this data to assess the industrial sector’s

capabilities for supplying various items. It also enables information to be

analyzed in a wide variety of formats in order to identify strategies

directed toward reducing costs and providing wartime readiness.

Developed in 1997, the Worldwide Web Industrial Capabilities Assessment

Program replaced the old data collection process, which relied on mass

mailings of lengthy (up to 22 pages), cumbersome questionnaires that

suppliers had to fill out by hand. The response rate from industry was

typically too low to allow any statistically relevant analysis. In addition,

the narrative answers to key questions were incompatible with computer

analysis, and thus the information that industry provided could not be

acted upon.

The development of the program changed both the way information is

collected from industrial suppliers and the way that information is used to

conduct industrial base assessments and analyses.

Appendix I: Defense Logistics Agency

Industrial Base Planning
Appendix I: Defense Logistics Agency

Industrial Base Planning

Page 17 GAO-02-650 Defense Inventory

The data collection tool was built specifically for industrial base

assessments. It resides on a Web site that can be easily accessed by

industry representatives. It uses an interactive survey format to collect

information directly from a company about its ability to supply certain

items. A company’s representative checks in and fills out, or updates, a

survey questionnaire for each item or group of items that is supplied.

Depending on how a user answers a question, the questionnaire

automatically adjusts itself to remain as short as possible but still collect

the essential information that is needed for analysis. The survey

information is saved in a permanent database, which eliminates the need

for a company to reenter information when it is updated.

The program identifies each item by the supplier’s own part number

grouped by an industry standard classification code. This simplifies input

of information for multiple items that might use the same production line

or equipment. It requests a wide range of information about the industry’s

ability to supply an item, including high and low estimates of production

time, capacity, potential constraints and bottlenecks, and inventory onhand. See table 5 for a list of the data fields.

Table 5: Program Data Fields and Descriptions

Data field Description of data

Previous year (production data) The actual quantity of the item (in units) produced during the previous calendar year.

Current year (production data) The actual/estimated quantity of the part produced at the responding manufacturing site

during the current calendar year.

Next year (production data) The projected quantity of the item (in units) to be produced during the next calendar year.

Low estimate (production for U.S.

government end use)

Estimate the minimum amount of the portion of current production (in percent) of the item

that will be sold directly to the U.S. government or included in some other product that is

sold to the U.S. government. If you have precise knowledge of the final use of the surge

item, the minimum and maximum estimates will be identical.

High estimate (production for U.S.

government end use)

Estimate the maximum amount of the portion of current production (in percent) of the item

that will be sold directly to the U.S. government or included in some other product that is

sold to the U.S. government. If you have precise knowledge of the final use of the surge

item, the minimum and maximum estimates will be identical.

Constraints (surge data) Specify the major constraints to larger production quantities.

First article test Needed for items requiring Department of Defense (DOD) certification. Clicking yes

means your facility has been approved by DOD to manufacture items with rigid

specifications.

Technical data package Clicking yes indicates you possess the technical drawings/specifications for the item.

Current lead time The current minimum time between order and delivery of a listed part.

Priority lead time The estimated time between order and delivery of a listed part (supplied from new

production, not finished inventory), if the part were given priority treatment over all other

production.

Finished inventory Average inventory of finished parts under normal operating conditions.

Data Collection Tool
Appendix I: Defense Logistics Agency

Industrial Base Planning

Page 18 GAO-02-650 Defense Inventory

Data field Description of data

Production resource category The survey focuses on five production resource categories: production equipment, test

equipment, tooling, skilled labor, and materials. For each listed part, provide bottleneck

and throughput data for those categories that were identified in the “Constraints” section

as limiting increased production of the part.

Bottleneck The specific production equipment, tooling, test equipment, labor, or material that would

limit output of a part in response to a sudden substantial increase in demand.

Maximum throughput during one hour of

operation

The maximum units of a part that can be processed through a specific bottleneck during

one hour of operation.

Materials special definition For material bottlenecks, provide the maximum number of this part that can be produced

from the average “on hand quantity” of the specified bottleneck material. This answer

should be consistent with the average inventory reported for materials in the capacity

section of this tool. If Average On-Hand Inventory was reported equal to 0, provide

number of material bottleneck required to produce one unit of the surveyed item.

Quantity of item The estimated quantity of the item that can be processed through the identified bottleneck

during one hour of utilization.

Critical resources The piece of equipment that would be the first bottleneck limiting increased output of the

item. (Ignore bottlenecks that are not the direct result of equipment constraints and ignore

competing demands for the equipment used to produce items other than the item.)

Quantity from inventory The amount of units of the item that could be produced using only materials currently in

inventory. Assume that all applicable materials currently in inventory could be dedicated

to production of the item. In other words, ignore any conflicting material needs for the

production of other items. If the current inventory levels are abnormally high or low, base

your calculations on an average inventory level. Include any finished quantities of the item

currently/normally held in inventory in the total.

Number of equipment/staff Provide the unit count for each type of equipment, tooling, or skilled labor category. For

skilled labor, express the unit count in terms of full-time equivalents. “Full-time equivalent”

is the number of hours entered in the “Current capacity” column. For example, if “Current

capacity” is a 40-hour workweek, two half-time employees who work 20-hour workweeks

should be counted as one full-time equivalent.

Current capacity The hours per week that constitute 100 percent utilization of the listed production

resource under normal operating conditions. For skilled labor, this number should be

normal weekly hours for a full-time employee.

Capacity utilization The current utilization rate (in hours per week) of the listed production resource.

Utilization for government end use The average hours per week the listed production resource is utilized to produce items for

government end use. Your response should include both items sold directly to the U.S.

government and items included in other products sold to the U.S. government. If you do

not track final use of some or all items produced with this production resource, provide

your “best guess.”

Surge capacity The maximum hours of operation per week (sustainable over several months) that the

listed production resource could be utilized under emergency conditions.

Normal lead time (current lead time) If a customer placed an order with you today for a quantity of the item, how many days

from today would you promise delivery (from new production, not from off-the-shelf)?

Lead time to bring new capacity on-line What is the “order-to-first production” lead time for the listed production resource. If you

were to order/hire the production resource today, how soon (in days) would you expect

this production resource to be operational?

Shortest lead time to bring new capacity

on-line

What is the shortest “order–to-first production” lead time for the listed production

resource, if your order for this production resource were given top priority. (In other words,

assume that your order would be placed at the top of your supplier’s delivery queue.) If

you were to order/hire the production resource today, how soon (in days) would you

expect this production resource to be operational?

New item production In response to an emergency need, the length of time it would take to produce that item

after receiving the technical data (in days). Assumptions: (1) the item is similar in
Appendix I: Defense Logistics Agency

Industrial Base Planning

Page 19 GAO-02-650 Defense Inventory

Data field Description of data

complexity to the item addressed in your previous responses and (2) the item can be

produced using the same production equipment, test equipment, and skilled labor

currently used for production of that item.

Surge lead time Given crisis planning what is your best possible production lead time (PLT) for this item?

Facility name This is the legal name for the location about which information is being provided. Include

all qualifiers such as division and subsidiary.

Street address The street address includes the post office box number, if used, as well as a physical

street address.

City The city (mailing) address for the facility.

State The state address for the facility. Use the standard, two-character abbreviations for

states. Use the province name if Canadian.

Zip code Nine-digit zip codes are preferred for U.S. addresses, and 10-digit codes are preferred for

Canadian addresses.

Country USA or Canada.

DUNS number This is a nine-character number assigned by Dun & Bradstreet Financial Services that

identifies corporate entities.

CAGE code CAGE is the abbreviation for Commercial and Government Entity. This five-character

alphanumeric identifier is assigned by the government to companies doing business with

the government. (The CAGE Code was formerly known as FSCM.)

DODAAC number This is the DOD Activity Address Code for the DCMC representative (DCMAO or DPRO).

The DODAAC listing is contained in DOD 4000.25-6-M, DOD Activity Address Directory.

Name Enter your name.

Job title Enter your job title.

Telephone number Enter your telephone number, including area code.

Enter the extension number in the extension field.

Fax number Enter your fax number, including area code.

Email address Enter your email address.

Company name If known, include qualifiers such as divisions and subsidiary.

Street address The street address includes the post office box number, if used, as well as a physical

street address.

City The city (mailing) address for the key supplier.

State The state (mailing) address for the key supplier. Use the standard two-character

abbreviations for states. Use the appropriate mailing designation instead of state if the

supplier is foreign.

Zip code Nine-digit zip codes are preferred for U.S. addresses, and ten-digit zip codes are

preferred for Canadian addresses; use the appropriate mailing designation instead of the

zip code if the supplier is foreign.

Country The country where the key supplier resides.

Material name Identify the material/item supplied by this supplier.

Part number/grade of material Enter a unique identifier for the material/item.

Inventory Your facility’s average inventory of the material or pass through item.

Unit of measure The standard measure of material or item quantity, such as “each,” “100-ct box,”

“pounds,” “100-lb ingot,” “55-gal barrel,” etc.

Material lead time (normal) The current order-to-delivery lead time (days) for this material/item.

Monthly supply (normal) The average monthly supply of the material or part acquired from this vendor under

normal conditions or the average quantity ordered if ordered only on intermittent demand

or periodically.

Material lead time (surge) The order-to-delivery lead time (days) for this material/item, if your supplier were required

to place your order at the top of the order queue.
Appendix I: Defense Logistics Agency

Industrial Base Planning

Page 20 GAO-02-650 Defense Inventory

Data field Description of data

Maximum monthly supply (surge) Your estimate of the maximum monthly supply of the material or item that could be

acquired from this vendor under emergency conditions. Assume your order for the

material or item would be given priority treatment by your vendor.

Delete Deletes the connection between the material bottleneck or PTI and company listed on the

row.

Contact name Enter the name of your contact person with the company.

E-mail address Enter the contact’s email address.

Phone number Enter the contact’s phone number.

Source: Worldwide Web Industrial Capabilities Assessment Program survey instrument.

While the data collection tool interfaces with industry via the Web to

gather data, the analytical tool, also Web-based, is a centralized tool that is

available to all approved personnel regardless of location. The analytical

tool allows analysts to assess what is needed in the way of industrial items

and what the industrial base is capable of providing. It does this by

combining the current information supplied by industry with existing DLA

legacy data (e.g., item purchase histories, and previous item shortfalls).

Analysts can use this integrated database to examine information at

various levels (e.g., individual item, family groups, sector and subsector,

weapon system and platform, or supplier) and to graphically depict this

information in a range of formats and export the data to external files for

further complex analysis. They can create statistically valid samples of

discrete data to analyze. With this information, they are able to identify

acquisition strategies that take advantage of similar manufacturing

processes and affect changes in peacetime buying practices as a low-cost

way of providing wartime readiness.

Analytical Tool
Appendix II: Comments from the Department of Defense

Page 21 GAO-02-650 Defense Inventory

Appendix II: Comments from the Department

of Defense
Appendix II: Comments from the Department of Defense

Page 22 GAO-02-650 Defense Inventory
Appendix II: Comments from the Department of Defense

Page 23 GAO-02-650 Defense Inventory
Appendix III: Staff Acknowledgments

Page 24 GAO-02-650 Defense Inventory

Key contributors to this report were Richard Payne, Paul Gvoth, Leslie

Gregor, Douglas Mills, and Nancy Benco.

Appendix III: Staff Acknowledgments

Acknowledgments

(350069)
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