United States Government Accountability Office

GAO Testimony 

Before the Subcommittee on Oversight of Government 

Management, the Federal Workforce, and the District of 

Columbia, Committee on Homeland Security and 

Governmental Affairs, U.S. Senate 

DOD’S HIGH-RISK AREAS

Efforts to Improve Supply 

Chain Can Be Enhanced by 

Linkage to Outcomes, 

Progress in Transforming 

Business Operations, and 

Reexamination of Logistics 

Governance and Strategy 

Statement of William M. Solis, Director 

Defense Capabilities Management 

For Release on Delivery

Expected at 2:30 p.m. EDT

Tuesday, July 10, 2007

 

GAO-07-1064T 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

July 10, 2007

DOD’S HIGH-RISK AREAS 

Efforts to Improve Supply Chain Can Be 

Enhanced by Linkage to Outcomes, 

Progress in Transforming Business 

Operations, and Reexamination of 

Logistics Governance and Strategy 

Highlights of GAO-07-1064T, a testimony 

before the Subcommittee on Oversight of 

Government Management, the Federal 

Workforce, and the District of Columbia, 

Committee on Homeland Security and 

Governmental Affairs, U.S. Senate 

The most recent update to DOD’s plan shows that DOD has made progress 

developing and implementing its supply chain management improvement 

initiatives. DOD is generally staying on track for implementing its initiatives, 

although there have been delays in meeting certain milestones. However, the 

long-term time frames for many of these initiatives present challenges to the 

department in sustaining progress toward substantially completing their 

implementation. The plan also lacks outcome-focused performance 

measures for many individual initiatives and the three focus areas, limiting 

DOD’s ability to fully demonstrate the results achieved through its plan. 

Increasing DOD’s focus on outcomes will enable stakeholders to track the 

interim and long-term success of its initiatives and help DOD determine if it 

is meeting its goals of more effective and efficient supply chain management.

GAO’s recent work has identified problems related to the three focus areas 

in DOD’s plan. In the requirements area, the military services are 

experiencing difficulties estimating acquisition lead times to acquire spare 

parts for equipment and weapon systems, hindering their ability to efficiently 

and effectively maintain spare parts inventories for military equipment. 

Challenges in the asset visibility area include lack of interoperability among 

information technology systems, problems with container management, and 

inconsistent application of radio frequency identification technology, which 

make it difficult to obtain timely and accurate information on assets in 

theater. In the materiel distribution area, challenges remain in coordinating 

and consolidating distribution and supply support within a theater. 

Improving defense business operations is integral to resolving supply chain 

management problems. Progress in DOD’s overall approach to business 

transformation is needed to confront problems in other high-risk areas, 

including supply chain management. Because of the complexity of business 

transformation, GAO has stated that DOD needs a Chief Management Officer 

with significant authority, experience, and a term that would provide 

sustained leadership and the time to integrate DOD’s overall business 

transformation efforts. GAO’s work, pending legislation, and other recent 

studies indicate a consensus that the status quo is no longer acceptable. 

GAO’s recent review of joint theater logistics raises concerns about whether 

DOD can effectively implement this initiative without reexamining 

fundamental aspects of the department’s logistics governance and strategy. 

In this respect, joint theater logistics may serve as a microcosm of some of 

the challenges DOD faces in resolving supply chain management problems. 

Moreover, GAO recommended in that report that DOD align its approach to 

joint theater logistics with ongoing actions the department is taking to 

reform its logistics governance and develop its logistics strategy. Several 

recent studies of DOD logistics systems have recommended changes to 

DOD’s organizational structure for providing joint logistics and supply 

support to military operations. 

The availability of spare parts and 

other critical items provided

through the Department of 

Defense’s (DOD) supply chains 

affects the readiness and

capabilities of U.S. military forces. 

Since 1990, GAO has designated 

DOD supply chain management as 

a high-risk area. In 2005, DOD

developed a plan aimed at 

addressing supply chain problems

and having GAO remove this highrisk designation. DOD’s plan

focuses on three areas:

requirements forecasting, asset 

visibility, and materiel distribution. 

GAO was asked to provide its 

views on (1) DOD’s progress in

developing and implementing the 

initiatives in its plan, (2) the results 

of recent work relating to the three 

focus areas covered by the plan, 

and (3) the integration of supply 

chain management with efforts to

improve defense business 

operations. GAO also addressed 

broader issues of logistics 

governance and strategic planning. 

This testimony is based on prior 

GAO reports and analysis.

To determine whether to retain the 

high-risk designation for supply 

chain management, GAO considers

factors such as whether DOD 

makes substantial progress

implementing improvement 

initiatives; establishes a program to 

validate the effectiveness of the

initiatives; and completes a 

comprehensive, integrated strategy. 

www.gao.gov/cgi-bin/getrpt?GAO-07-1064T.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact William Solis at 

(202) 512-8365 or solisw@gao.gov. 
Mr. Chairman and Members of the Subcommittee: 

I am pleased to be here today to discuss the progress made by the 

Department of Defense (DOD) toward resolving long-standing problems 

with supply chain management. The availability of spare parts and other 

critical items that are procured and delivered through DOD’s supply chain 

network affects the readiness and capabilities of U.S. military forces, and 

can affect the success of a mission. In addition, the investment of 

resources in DOD’s supply chains is substantial, amounting to more than 

$150 billion a year according to DOD, and supply inventory levels have 

grown by 35 percent from $63.3 billion in fiscal year 2001 to $85.6 billion in

fiscal year 2006.1

 DOD also invests billions in information technology 

systems that support supply chain management and other business 

operations. Over time, DOD has sought to better integrate its supply chain 

operations to effectively support military forces and to make its supply 

chains more efficient from source of supply to point of consumption. 

However, the challenges to successfully improving management of DOD’s 

vast and complex supply chain network are formidable, and problems with 

supply chain management have yet to be fully resolved. Today’s hearing is

the third time since 2005 that we have testified before this Subcommittee 

on supply chain management.2

 Your active involvement has been and will 

continue to be vital to keeping attention focused on this important aspect 

of DOD’s business and logistics support operations. 

GAO’s audits and evaluations have identified a number of federal 

programs and operations that are high risk because of their greater 

vulnerabilities to fraud, waste, abuse, and mismanagement. In recent 

years, GAO’s high-risk program has increasingly focused on those major 

programs and operations that need urgent attention and transformation in 

order to ensure that our government functions in the most economical, 

efficient, and effective manner possible. We first designated DOD 

inventory management as a high-risk area in 1990 because of ineffective 

and inefficient inventory systems and practices. The problems we found—

based on a large body of work on the management of military supplies—

 1

Part of this growth was caused by inflation. The inflation rate over this period as measured 

by the Gross Domestic Product Price Index was a little over 13 percent.

2

GAO, DOD’s High-Risk Areas: High-Level Commitment and Oversight Needed for DOD 

Supply Chain Plan to Succeed, GAO-06-113T (Washington, D.C.: Oct. 6, 2005); and DOD’s 

High-Risk Areas: Challenges Remain to Achieving and Demonstrating Progress in

Supply Chain Management, GAO-06-983T (Washington, D.C.: July 25, 2006). 

Page 1 GAO-07-1064T 
included on-hand inventory that was not needed to meet required 

inventory levels, inadequate controls over items, and cost overruns. We 

have reported on efforts to address this and other high-risk areas in our 

biennial updates to our high-risk programs since then. In preparing the 

2005 update of the high-risk series, we determined that systemic supply 

problems extended beyond inventory management to other aspects of the 

supply chain, including inaccurate supply forecasts, poor asset visibility, 

and ineffective distribution. We therefore expanded our high-risk 

designation to include the entirety of “DOD supply chain management.” 

Over the years DOD has taken actions toward its goal of integrating and

improving supply chain management. For example, it has revised policies 

and practices aimed at addressing shortcomings identified during 

Operation Iraqi Freedom. It has implemented recommendations made by 

our office and other audit organizations regarding specific aspects of its 

supply chain operations. It has also identified technologies and

commercial best practices that could lead to substantial improvements 

over the long term. Another step has been the development of DOD’s 

supply chain management improvement plan. In 2005, with the 

encouragement of the Office of Management and Budget (OMB) and input 

from our office, DOD developed this plan with the intent of addressing the 

problems that have prompted us to retain this high-risk designation. (We 

subsequently refer to this document as the plan.) DOD’s plan lists 10 

initiatives aimed at making improvements in three focus areas of supply 

chain management—requirements forecasting, asset visibility, and 

materiel distribution. 

DOD officials believe the commitment they have demonstrated to 

resolving supply chain management problems, including developing the 

plan and making progress implementing initiatives, justifies removing this 

area from our high-risk list. In December 2006, the Under Secretary 

formally requested that we consider removing supply chain management 

from our list of high-risk areas. We decided that notwithstanding positive 

steps taken by DOD to address problems, supply chain management 

should remain a high-risk area until DOD can successfully demonstrate 

improvements in requirements forecasting, asset visibility, and materiel 

distribution, and we retained this designation in the 2007 biennial update 

of our high-risk series.3

 3

GAO, High-Risk Series: An Update, GAO-07-310 (Washington, D.C.: January 2007). 

Page 2 GAO-07-1064T 
Today, I would like to provide our perspectives on (1) DOD’s progress in

developing and implementing the initiatives in its plan, (2) the results of 

our recent work relating to the three focus areas covered by the plan, and 

(3) the integration of supply chain management with efforts to transform 

and improve defense business operations. Finally, I will address broader 

issues of logistics governance and strategic planning within DOD. My 

statement is based on previous GAO reports and analysis, including a 

report we are releasing today on DOD’s efforts to develop and implement 

joint theater logistics,4

 one of the initiatives in the plan. In addition, we 

have met regularly with DOD and OMB staff to obtain updates on DOD’s 

plan and information on the specific initiatives. We conducted our work in 

accordance with generally accepted government auditing standards. 

The most recent update to the plan shows that DOD has made progress 

developing and implementing its supply chain management improvement 

initiatives, but the current performance measures in the plan do not fully 

demonstrate results. DOD is generally staying on track for implementing 

its initiatives, although there have been delays in meeting certain 

milestones. Notwithstanding this overall progress and the commitment of 

DOD leadership to resolving supply chain problems, the long-term time 

frames for many of these initiatives present challenges to the department

in sustaining progress toward substantially completing their 

implementation. Moreover, the plan lacks outcome-focused performance 

measures that could gauge the results of many of the individual 

improvement initiatives or demonstrate progress in the three focus areas, 

limiting DOD’s ability to fully demonstrate the results achieved through its 

plan. Increasing the plan’s focus on measurable outcomes will enable 

DOD’s internal and external stakeholders, including Congress and OMB, to 

track the interim and long-term success of DOD’s initiatives and help DOD 

determine if it is meeting its goals of achieving more effective and efficient

supply chain management. 

Summary 

In addition, our recent work has identified continuing problems related to 

the three focus areas in DOD’s plan. 

 4

GAO, Defense Logistics: Efforts to Improve Distribution and Supply Support for Joint

Military Operations Could Benefit from a Coordinated Management Approach, 

GAO-07-807 (Washington, D.C.: June 29, 2007).

Page 3 GAO-07-1064T 
• In the area of requirements forecasting, the military services are 

experiencing difficulties estimating the length of time between the 

initiation of a procurement action and the receipt of spare parts into the 

supply system for equipment and weapon systems. We also found 

continuing problems in the Air Force’s inventory management practices, 

hindering its ability to efficiently and effectively maintain its spare parts 

inventory for military equipment. Specifically, an average of 52 percent 

($1.3 billion) of the Air Force’s secondary on-order inventory was not 

needed to support on-order requirements. Further, about 65 percent 

($18.7 billion) of on-hand inventory was not needed to support required 

inventory levels. We calculated that it costs the Air Force from $15 million 

to $30 million annually to store its unneeded items. Problems also 

continue in managing prepositioned stocks. 

• Our work in the area of asset visibility has indicated numerous challenges, 

from lack of interoperability among information technology systems to 

problems with container management. Limitations in asset visibility 

capabilities make it difficult to obtain timely and accurate information on 

the assets that are present in the theater of operations. 

• With respect to materiel distribution, we have found that challenges 

remain in coordinating and consolidating distribution and supply support 

within a theater. For example, DOD is establishing separate organizations 

to coordinate surface transportation and lacks a single organization with 

authority to integrate and synchronize surface deployment and 

distribution movements. One key challenge has been establishing an 

effective mechanism that would enable a joint force commander to 

exercise appropriate command and control over transportation and other

logistics assets in the theater. 

Further, transforming and improving defense business operations are 

integral to resolving supply chain management problems. As we have 

previously stated, progress in DOD’s overall approach to business 

transformation is needed to confront problems in other high-risk areas, 

including supply chain management. Because of the complexity and longterm nature of business transformation, we have stated that DOD needs a 

Chief Management Officer with significant authority, experience, and a 

term that would provide sustained leadership and the time to integrate 

DOD’s overall business transformation efforts. Our work, pending 

legislation, and other recent studies indicate a consensus that the status 

quo is no longer acceptable. In addition to business transformation, we 

have identified two other DOD high-risk areas that are closely linked with 

supply chain management—modernizing business systems and improving 

financial management. 

Page 4 GAO-07-1064T 
Our recent review of joint theater logistics raises concerns about whether 

DOD can effectively implement this initiative without reexamining 

fundamental aspects of the department’s logistics governance and 

strategy. In this respect, joint theater logistics may serve as a microcosm 

of some of the challenges DOD faces in resolving supply chain 

management problems. We found during our review that DOD has not 

developed a coordinated and comprehensive management approach to 

guide and oversee implementation of joint theater logistics across the 

department. Moreover, we recommended in that report that DOD align its 

approach to joint theater logistics with ongoing actions the department is 

taking to reform its logistics governance and develop its logistics strategy.

Regarding logistics governance, DOD has been testing a new approach to 

managing joint capabilities as a portfolio, but key decisions are still to be 

made on how to implement this approach. In addition, DOD has plans to 

develop an overarching logistics strategy but has delayed completion of 

this strategy until sometime next year. The diffused organization of DOD’s 

logistics operations, including separate funding and management of 

resources and systems, complicates DOD’s ability to adopt a coordinated 

and comprehensive approach. Several recent studies of DOD’s logistics 

system have recommended changes to DOD’s organizational structure for 

providing joint logistics and supply support to military operations. 

DOD relies on a number of individual processes and activities, known 

collectively as supply chain management, to purchase, produce, and 

deliver items and services to military forces. The department relies on 

working capital (revolving) funds maintained by the defense and service 

logistics agencies to finance the flow of these items to the forces. Working 

capital funds allow these agencies to purchase needed items from 

suppliers. Military units then order items from the logistics agencies and 

pay for them with annually appropriated operations and maintenance 

funds when the requested items—either from inventory or 

manufacturers—are delivered to the units. 

The Under Secretary of Defense (Acquisition, Technology, and Logistics) 

has been designated by the Secretary of Defense as the department’s 

Defense Logistics Executive, with authority to address logistics and supply 

chain issues. Officials within the Office of the Assistant Deputy Under 

Secretary of Defense for Supply Chain Integration completed the first 

iteration of the plan in July 2005 and have updated it several times since 

then based on information provided by designated lead proponents for the 

individual initiatives. DOD has shared its plan externally with Congress, 

OMB, and our office. OMB has characterized the plan as a model for other 

Background 

Page 5 GAO-07-1064T 
federal agencies to use in developing their own plans to address their highrisk areas. 

The plan has three focus areas: requirements forecasting, asset visibility, 

and materiel distribution—issues that we have identified based on GAO 

audits since 1995 as critical to improving DOD supply chain management. 

Accurately forecasted supply requirements are a key first step in buying,

storing, positioning, and shipping items that the warfighter needs. DOD 

describes asset visibility as the ability to provide timely and accurate 

information on the location, quantity, condition, movement, and status of 

supplies and the ability to act on this information. Distribution is the 

process for synchronizing all elements of the logistics system to deliver 

the “right things” to the “right place” at the “right time” to support the 

warfighter. Our prior work has identified problems in these three focus 

areas, as well as other aspects of supply chain management. 

DOD’s plan identifies joint theater logistics as an initiative that will 

improve both asset visibility and materiel distribution. Joint theater 

logistics is intended to enhance the ability of a joint force commander to 

direct various logistics functions, including distribution and supply 

support activities, across the theater and, for several years, has been part 

of DOD’s planned transformation of logistics capabilities. Joint theater 

logistics is one of seven future logistics capabilities that DOD has grouped

under “focused logistics.” DOD has broadly defined joint theater logistics

as an adaptive ability to anticipate and respond to emerging theater 

logistics and support requirements. 

In general, when legislative and agency actions result in significant and

sustainable progress toward resolving a high-risk problem, we remove the 

high-risk designation. Key determinants include a demonstrated strong 

commitment to and top leadership support for addressing problems, the 

capacity to do so, a corrective action plan, and demonstrated progress in 

implementing corrective measures.5

 From 1990 through 2007, we removed 

18 areas from the high-risk list. Our decisions on removing supply chain

management from the high-risk list will be guided by whether DOD 

(1) sustains top leadership commitment and long-term institutional 

support for the plan; (2) obtains necessary resource commitments from 

 5

The criteria for removing a high-risk designation are contained in GAO, Determining 

Performance and Accountability Challenges and High Risks, GAO-01-159SP (Washington,

D.C.: November 2000). 

Page 6 GAO-07-1064T 
the military services, the Defense Logistics Agency, and other 

organizations; (3) makes substantial progress implementing improvement 

initiatives across the department; (4) establishes a program to 

demonstrate progress and validate the effectiveness of the initiatives; and

(5) completes the development of a comprehensive, integrated strategy for 

guiding supply chain management improvement efforts across the 

department. 

The most recent update to the plan in May 2007 shows that DOD, over the 

past year, has made progress in developing and implementing its 

improvement initiatives. We noted this progress in the January 2007 

update of our high-risk series. Specific examples of progress made include 

the following: 

• DOD has established joint deployment distribution operations centers in 

each geographic combatant command. In early 2004, DOD established the 

first of these operations centers in Kuwait, under U.S. Central Command, 

after distribution problems arose during the initial stages of Operation 

Iraqi Freedom. DOD has since expanded this organization to its other 

geographic combatant commands. These operations centers can help joint 

force commanders synchronize the arrival of supplies into a theater and

assist in other aspects of distribution and supply support. They are 

designed to incorporate representatives from DOD components, such as 

U.S. Transportation Command, the Defense Logistics Agency, and the 

military services, who can provide a knowledgeable connection to 

logistics supply centers in the United States and facilitate the distribution 

of supplies to the theater. The expansion of these operations centers to all 

the geographic commands was based on the success of the first operations 

center in Kuwait, which has been credited with improving the 

management of supplies moving across the distribution system and 

achieving cost savings.6

DOD Has Made 

Progress in 

Developing and 

Implementing the 

Initiatives in Its Plan, 

but Current 

Performance 

Measures Do Not 

Fully Demonstrate 

Results 

 6

For example, U.S. Transportation Command officials said that the operations center was 

responsible for shifting from the use of airlift to sealift to transport supplies, which reduces

costly airlift requirements and frees up airlift capacity; coordinating the movement of

personnel from their point of origin to final destination rather than through intermediate 

locations with time-consuming layovers (a concept referred to as single ticket); and 

improving distribution management by facilitating the use of pure-packed pallets and 

containers, developing a container management plan, and improving the return of Army 

materiel from the theater. According to data provided by U.S. Transportation Command, 

the activities of this joint deployment distribution operations center resulted in total cost 

avoidance and savings of $343 million between fiscal years 2004 and 2007.

Page 7 GAO-07-1064T 
• DOD has reported initial success with an initiative aimed at streamlining 

the storage and distribution of common items for multiple military service 

locations through the use of Defense Logistics Agency hubs. The 

objectives of this initiative, called joint regional inventory and material 

management, include eliminating duplicate materiel handling and 

inventory layers. DOD has met key milestones in this initiative and 

recently completed the pilot program in Hawaii. U.S. Pacific Command 

officials stated that they had reduced redundant service-managed 

inventories, the number of times they handle parts, and customer wait 

times over the course of the pilot. They estimated that the services had 

reduced their inventory levels by more than $10 million. In March 2007, the 

Defense Logistics Agency was tasked to be the lead proponent for 

continued worldwide implementation of joint regional inventory and 

material management. 

• DOD also made progress toward improving transportation management of 

military freight. Before the end of this fiscal year, U.S. Transportation 

Command plans to award a contract to a third-party logistics provider, or 

3PL, to coordinate the movement of freight shipments within the 

continental United States. This effort, called the defense transportation 

coordination initiative, is aimed at improving the reliability, predictability, 

and efficiency of moving freight among DOD’s depots, logistics centers, 

and field activities. In a recent report on this initiative,7

 we stated that 

DOD had taken numerous actions to incorporate the lessons learned from 

a prior prototype program and, moreover, had taken positive steps to 

adopt best practices employed by other public and private organizations to 

transform their culture. Still, the long-term success of this effort remains 

uncertain given the challenges in undertaking organizational 

transformation and because the program is still in its early stages. 

Despite the progress indicated by the development and implementation of 

these initiatives, the recent update of DOD’s plan indicates some delays in 

achieving certain milestones. For example, the radio frequency

identification (RFID)8

 initiative experienced a slippage from December 

2006 to September 2007 in its milestone to implement passive RFID at the 

first 25 percent of Defense Logistics Agency’s distribution centers located

outside the continental United States. This milestone was adjusted based 

 7

GAO, Defense Transformation: DOD Has Taken Actions to Incorporate Lessons Learned 

in Transforming Its Freight Distribution System, GAO-07-675R (Washington, D.C.: May 8, 

2007.) 

8

RFID consists of electronic tags that are attached to equipment and supplies being shipped 

from one location to another, enabling shipment tracking. 

Page 8 GAO-07-1064T 
on lessons learned from the implementation of RFID at sites within the 

continental United States. Also, the item unique identification initiative9

experienced a slippage of a year, from January 2007 to January 2008, for 

the milestone on demonstrating integration with international entities, 

because required ratification from the North Atlantic Treaty Organization 

was delayed. Schedule delays such as these may be expected given the 

long-standing nature of the problems being addressed, the complexities of 

the initiatives, and the involvement of multiple organizations. 

Furthermore, some of these initiatives are in the early stages of 

implementation, with full implementation several years away. The longterm time frames for many of these initiatives present challenges to the 

department in sustaining progress toward substantially completing their 

implementation. 

Since the last hearing before this Subcommittee in July 2006, we have not 

seen significant changes in how DOD proposes to measure the impact of 

its initiatives in its plan. The plan, as before, contains four performance 

metrics—backorders, customer wait time, on-time orders, and logistics 

response time.10 While these four measures capture broad aspects of 

DOD’s supply chain performance, they can be affected by variables other 

than the initiatives themselves. For example, natural disasters, wartime 

surges in requirements, or disruption in the distribution process could 

each result in increased backorders, longer customer wait time, fewer ontime orders, and slowed response time, regardless of DOD’s initiatives. 

Consequently, changes in these high-level metrics might not be directly 

attributable to the initiatives in the plan. While it may take years before the 

results of programs become apparent, intermediate metrics can be used to 

provide information on interim results and show progress toward intended 

results. In addition, when program results could be influenced by external 

factors, intermediate metrics can be used to identify the program’s 

discrete contribution to the specific result. 

 9

Item unique identification provides for marking of personal property items with a set of

globally unique data items to help DOD value and track items throughout their life cycle. 

10Backorders are the number of orders held in an unfilled status pending receipt of

additional parts or equipment through procurement or repair. Customer wait time 

measures the number of days between the issuance of a customer order and satisfaction of 

that order. On-time orders is the percentage of orders that are on time according to DOD’s

established delivery standards. Logistics response time refers to the number of days to

fulfill an order placed on the wholesale level of supply from the date a requisition is 

generated until the materiel is received by the retail supply activity. 

Page 9 GAO-07-1064T 
As we noted last July, the results of DOD’s initiatives would be more 

apparent if DOD applied more outcome-oriented performance metrics for 

many of the individual initiatives and for the three focus areas. Outcomeoriented performance metrics show results or outcomes related to an 

initiative or program in terms of effectiveness, efficiency, impact, or all of

these. Since last July, DOD has not added new outcome-focused 

performance metrics to its plan. DOD also continues to lack cost metrics 

that might show efficiencies gained through these supply chain efforts, 

either at the initiative level or overall. In total, DOD’s plan identifies a need 

to develop outcome-focused performance metrics for 6 initiatives, and 9 

out of 10 initiatives lack cost metrics. We recommended in January that 

DOD develop, implement, and monitor outcome-focused performance and 

cost metrics for all the individual initiatives in the plan as well as for the 

plan’s focus areas of requirements forecasting, asset visibility, and 

materiel distribution.11 In response to our recommendation, DOD asserted 

that it had developed and implemented outcome-focused performance and 

cost metrics for logistics across the department, but it also acknowledged

that more work needed to be done to link the outcome metrics to the 

initiatives in the plan as well as for the focus areas. DOD stated that these 

linkages will be completed as part of full implementation of each initiative. 

Our recent work has identified continued systemic weakness in aspects of 

DOD’s supply chain management. I will briefly highlight some of the 

results from these reviews, structured around the three focus areas 

covered by DOD’s plan. 

Recent GAO Reviews 

Have Found That 

Systemic Supply 

Chain Management 

Problems Continue 

 11GAO, DOD’s High-Risk Areas: Progress Made Implementing Supply Chain 

Management, but Full Extent of Improvement Unknown, GAO-07-234 (Washington, D.C.: 

Jan. 17, 2007). 

Page 10 GAO-07-1064T 
In the area of requirements forecasting, the military services are 

experiencing difficulties estimating acquisition lead times to acquire spare

parts for equipment and weapon systems.12 Effective processes that 

identify and manage acquisition lead times are of critical importance to 

maintaining cost-effective inventories, budgeting, and having materiel 

available when it is needed. In March 2007, we reported that 44 percent of

the services’ lead time estimates varied either earlier or later than the 

actual lead times by at least 90 days.13 Overestimates and underestimates 

of acquisition lead time contribute to inefficient use of funds and potential 

shortages or excesses of spare parts. We recommended a number of 

actions DOD should take to improve the accuracy and strengthen the 

management of lead times. For example, we made specific 

recommendations directed toward the Army, the Air Force, the Navy, and 

the Defense Logistics Agency with the intent of improving their accuracy

in setting acquisition lead times. DOD mostly concurred with our 

recommendations. 

In a separate review of the Air Force’s inventory management practices,14

we found continuing problems hindering its ability to efficiently and 

effectively maintain its spare parts inventory for military equipment. From 

fiscal years 2002 through 2005, more than half of the Air Force’s secondary 

inventory (spare parts), worth an average of $31.4 billion annually, was not 

needed to support required on-order and on-hand inventory levels. We 

found an average of 52 percent ($1.3 billion) of the Air Force’s secondary

on-order inventory was not needed to support on-order requirements.15

This unneeded on-order inventory indicates that the Air Force did not 

cancel orders or deobligate funds for items that were not needed to 

support requirements. When the Air Force buys unneeded items, it is 

obligating funds unnecessarily, which could lead to not having sufficient 

Requirements Forecasting 

Problems Exist in 

Managing Spare Parts and 

Prepositioned Stocks 

 12Acquisition lead time, also known as procurement lead time, measures the length of time 

between the initiation of a procurement action and the receipt of items into the supply 

system.

13GAO, Defense Inventory: Opportunities Exist to Improve the Management of DOD’s 

Acquisition Lead Times for Spare Parts, GAO-07-281 (Washington, D.C.: Mar. 2, 2007). 

14GAO, Defense Inventory: Opportunities Exist to Save Billions by Reducing Air Force’s 

Unneeded Spare Parts Inventory, GAO-07-232 (Washington, D.C.: Apr. 27, 2007). 

15Secondary inventory items include reparable components; subsystems; and assemblies 

other than major end items (such as aircraft), consumable repair parts, bulk items and 

materiel, subsistence, and expendable end items, including clothing and other personal 

gear. Inventory that is not in DOD’s possession but for which contracts have been awarded 

or funds have been committed is considered to be on order. 

Page 11 GAO-07-1064T 
funds to purchase needed items. The Air Force has continued to purchase 

unneeded inventory because its policies do not provide incentives—such 

as requiring contract termination review for all unneeded on-order 

inventory or reducing the funding available for the Air Force Materiel 

Command by an amount up to the value of the Air Force’s on-order 

inventory that is not needed to support requirements—to reduce the 

amount of inventory on order that is not needed to support requirements. 

In addition, although the percentage of the Air Force’s on-hand inventory 

was reduced by 2.7 percent during these years, about 65 percent 

($18.7 billion) of this inventory was not needed to support required 

inventory levels. We calculated that it costs the Air Force from $15 million 

to $30 million annually to store its unneeded items. We recommended that 

the Air Force improve its policies regarding on-order inventory, revalidate 

the need to retain items that are not needed to meet inventory

requirements and for which there is no recurring demand, and take other 

actions to improve accountability for, and management of, its secondary 

inventory. DOD generally concurred with our recommendations. 

Another area of continuing concern has been the stocks maintained in the 

Army’s prepositioning programs. Prepositioning is one of three ways, 

along with airlift and sealift, that the U.S. military can deliver equipment 

and supplies to field combat-ready forces. The Army drew heavily from its 

prepositioned stocks to support Operations Iraqi Freedom and Enduring 

Freedom, and these sustained operations have taken a toll on the 

condition and readiness of military equipment. In February 2007, we 

reported the Army was changing its overall prepositioning strategy and, in

doing so, faced major strategic and management challenges.16 One of these 

challenges was that despite recent efforts to improve requirements setting, 

the Army had not yet determined reliable requirements for secondary 

items and operational project stocks.

17 Also, the Army does not 

systematically measure or report readiness for the secondary item and 

operational project programs. Without sound requirements or reporting 

mechanisms, the Army cannot reliably assess the impact of any shortfalls, 

determine the readiness of its programs, or make informed investment 

 16GAO, Defense Logistics: Improved Oversight and Increased Coordination Needed to 

Ensure Viability of the Army’s Prepositioning Strategy, GAO-07-144 (Washington, D.C.: 

Feb. 15, 2007). 

17Operational project stocks include items not typically part of unit equipment, such as

chemical defense equipment, pipeline systems, mortuary units, and bare base sets for 

housing soldiers in austere environments. 

Page 12 GAO-07-1064T 
decisions about them. We recommended that the Army develop an 

implementation plan that, among other things, completes ongoing 

reevaluation of the secondary item and project stock requirements as well 

as establishes systematic readiness measurement and reporting of 

secondary items and operational project stock programs. DOD concurred 

with this recommendation. 

Despite the benefits attributed to the joint deployment distribution 

operations center in Kuwait, effective management of supply distribution 

across the theater has been hindered by ongoing problems in achieving 

asset visibility. Senior military commanders in Kuwait attributed these 

problems to a lack of interoperability among information technology 

systems that makes it difficult to obtain timely, accurate information on 

assets in the theater.18 We have previously reported that the defense 

logistics systems used by various components to order, track, and account 

for supplies are not well integrated and do not provide the information 

needed to effectively manage theater distribution and provide asset 

visibility.19 Officials told us their staff must use manual work-arounds to 

overcome the problems caused by noninteroperable information systems 

and estimated that their staff spend half their time pulling data from 

information systems, e-mailing it around for validation or coordination, 

consolidating it on a spreadsheet, and then analyzing it to make 

management decisions. In January 2007, a joint assessment conducted by 

several DOD components at Camp Arifjan, Kuwait, found that separate 

movement control battalions in Kuwait and Iraq use both automated and 

handwritten transportation movement requests to track air and ground 

movements and must consolidate manual and automated data into 

spreadsheets in order to capture the total theater movement picture. 

Neither movement battalion has total visibility over what is occurring in 

both Kuwait and Iraq nor do they have total visibility of the surface 

transportation resources necessary to optimize the distribution of 

resources. 

Effective Management of 

Supplies Is Hindered by 

Problems in Achieving 

Asset Visibility 

 18Interoperability refers to the ability of different systems to communicate effectively, 

including sharing information. 

19GAO, Defense Logistics: DOD Has Begun to Improve Supply Distribution Operations, 

but Further Actions Are Needed to Sustain These Efforts, GAO-05-775 (Washington, D.C.: 

Aug. 11, 2005). 

Page 13 GAO-07-1064T 
In our review of joint theater logistics, we also found continuing problems 

with container management that hinder asset visibility and impede DOD’s 

ability to effectively manage logistics operations and costs, although 

improvements had been made since we last reported on this issue in 

2003.

20 Some challenges that DOD faces with container management 

include the application of RFID on containers in the supply chain, 

compliance with container management processes, and the return of 

commercial containers to maritime carriers. 

In 2004, the Under Secretary of Defense (Acquisition, Technology, and 

Logistics) directed the use of active RFID on all consolidated shipments 

moving to, from, or between overseas locations in order to provide global 

in-transit visibility, and U.S. Central Command has emphasized the need to 

use this technology to improve asset visibility in Iraq and Afghanistan. 

However, according to U.S Central Command officials, DOD continues to

struggle with the application of RFID in the theater supply chain because 

of problems such as containers shipped without RFID tags or with tags 

that are broken, tags with incorrect information, or tags that are rewritten 

but not cross-referenced to the original shipping information. 

Noncompliance with container management processes established by U.S. 

Central Command can also limit asset visibility. For example, the Army’s 

system has not been able to effectively track containers as they pass 

through distribution channels, significantly hampering asset visibility in 

theater because tagged containers can become “lost” in theater, with no 

one able to track the location of the container or its contents. In addition, 

if the container is commercially owned and not returned to the carrier 

within a specified time period, detention charges begin accumulating. 

During our review of joint theater logistics we also found that U.S. 

Transportation Command and the Military Surface Deployment and 

Distribution Command, to improve management and accountability over 

containers and to address the growing detention charges, developed a 

theater container management process and established the container 

management element—a unit responsible for tracking and providing 

management oversight of containers in the theater. In addition, the Army 

decided to purchase, or “buy out,” commercial containers to reduce 

monthly detention charges. Container management element officials told 

 20GAO, Defense Logistics: Preliminary Observations on the Effectiveness of Logistics 

Activities during Operation Iraqi Freedom, GAO-04-305R (Washington, D.C.: Dec. 18, 

2003). 

Page 14 GAO-07-1064T 
us that through a combination of container buyouts and increased 

oversight, detention charges decreased from approximately $10.7 million 

per month in December 2005 to $3.7 million per month in October 2006. 

However, although DOD has been able to reduce monthly detention 

charges on commercial containers, it is still experiencing problems with 

retaining visibility over containers, and its problem with commercial 

container detention charges is shifting from Iraq to Afghanistan. 

In addition, the Army continues to experience problems in developing and 

implementing system initiatives affecting asset visibility. For example, the 

Logistics Management Program, one of the Army’s major business system 

modernization efforts intended to manage its inventory and depot 

maintenance operations, has continued to experience problems with 

accurately recognizing revenue and billing customers, and the accuracy of

its financial reports continues to be questionable. If information contained 

in asset accountability systems is not accurate, complete, and timely, 

DOD’s day-to-day operations could be adversely affected. As of September 

30, 2006, the Army reported that approximately $452 million had been

obligated for this system effort and estimates that it will invest at least 

another $895 million in this program. Also, its schedule to reach full 

operational capability has slipped from fiscal year 2005 to fiscal year 

2010.

21 We have recently reviewed the Army’s progress in achieving asset 

visibility and expect to issue our report by the end of this month.22

In our review of joint theater logistics, we found that DOD components 

have made progress developing and implementing joint theater logistics 

initiatives in the areas of distribution and supply support; however, the 

department faces a number of challenges that hinder its ability to fully 

realize the benefits of these efforts. Unless DOD successfully addresses 

these challenges, the initiatives are not likely to significantly improve the

ability of a joint force commander to harness the diffuse logistics 

resources and systems that exist within the department and effectively and 

efficiently direct logistics functions, including distribution and supply 

support activities, across the theater of operations to accomplish an 

assigned mission. 

Challenges Remain in 

Coordinating and 

Consolidating Distribution 

and Supply Support within 

a Theater

 21Full operational capability means that the system has been deployed to all intended 

locations. 

22 We conducted this engagement in response to a request from the Subcommittee on 

Readiness and Management Support, Senate Armed Services Committee. 

Page 15 GAO-07-1064T 
For example, initiatives to improve the coordination of surface 

transportation assets—mainly trucks—in a theater of operations face 

challenges such as potential duplication of responsibilities, the 

unavailability of information technology tools, and unclear lines of 

command and control. According to a 2005 RAND Corporation study,23

during the initial phase of Operation Iraqi Freedom there was no single 

organization deployed in theater with the authority to rebalance 

transportation assets across the theater and integrate and synchronize the 

surface deployment and distribution movements of materiel in support of 

the commander’s priorities. As part of its modular transformation, the 

Army is creating theater and expeditionary sustainment commands that 

are aimed in part at centralizing control over Army surface transportation 

assets within a theater of operations.24 In a separate initiative, U.S. 

Transportation Command created a new organization, the director of 

mobility forces-surface, to integrate surface deployment and distribution 

priorities set by the joint force commander. 

Army officials raised concerns about whether the theater and 

expeditionary sustainment commands would have the information 

technology tools and personnel necessary to effectively and efficiently 

carry out their missions. They said that these commands were designed to 

be smaller than their predecessors, based on an assumption that certain 

information technology tools would be available to enable the commands 

to operate with fewer personnel. However, some of these information 

technology tools—such as the next generation Mobile Tracking System, 

Battle Command Sustainment Support System, and Transportation 

Coordinator’s Automated Information for Movements System II—have 

experienced problems during their development that have limited their 

capability or have delayed their fielding. According to Army officials, the 

shortcomings in available information tools have resulted in the need for 

additional staff in the theater and expeditionary sustainment commands 

and have required the commands to use manual, ad hoc techniques, which 

 23RAND Corporation, Sustainment of Army Forces in Operation Iraqi Freedom: 

Battlefield Logistics and Effects on Operations, Contract No. DASW01-C-0003 (Santa

Monica, Calif.: 2005). 

24Theater sustainment commands provide the Army a single headquarters responsible for

operational command and control of logistics operations throughout the theater. 

Expeditionary sustainment commands, a forward extension of the theater sustainment 

commands, have a primary role of managing regional logistics operations in support of the 

joint task force commander. 

Page 16 GAO-07-1064T 
are cumbersome and manpower intensive, to validate, coordinate, and 

analyze data for decision making. 

The U.S. Transportation Command-led efforts to establish the director of 

mobility forces-surface have also faced implementation challenges. The 

initial assessment of the director of mobility forces-surface pilot in Kuwait 

by U.S. Transportation Command and U.S. Central Command indicated

that the initiative faces a number of challenges related to command and 

control, availability of information technology tools, securing personnel 

with the expertise and knowledge to use the information technology tools 

that are available, and potential duplication of responsibilities with other 

Army organizations. U.S. Central Command discontinued the pilot in May 

2007 until some of these issues were resolved. In addition, the Army 

reviewed more than 100 proposed responsibilities of the director of 

mobility forces-surface and found that most of these responsibilities are 

already covered by the Army’s theater and expeditionary sustainment 

commands or other commands. 

DOD also has developed initiatives to consolidate and improve storage 

and shipping of materiel, including node management and deployable 

depot, joint regional inventory and material management, and theater 

consolidation and shipping point,25 but such efforts have been 

implemented on a limited scale. During our visits to Kuwait, we found that 

the Defense Logistics Agency and the Army were operating separate 

facilities that have the potential for consolidation, which could result in 

more efficient use of resources. We discussed this issue with senior U.S. 

military officials in Kuwait and with Defense Logistics Agency officials. 

Following these discussions and the completion of our fieldwork, the 

Defense Logistics Agency assessed ways to improve theater distribution 

and made recommendations to consolidate and relocate existing 

operations. Specifically, in April 2007, the Defense Logistics Agency study 

team recommended terminating the theater consolidation and shipping 

point contract, assuming these functions at the defense distribution depot, 

 25Node management and deployable depot is a Defense Logistics Agency initiative to 

develop a small-scale, rapidly deployable distribution center that has the capability to 

provide consolidated shipping, receiving, cross-docking, storage, communication, and

order processing. Joint regional inventory and material management, identified as one of

the 10 initiatives in the plan, was discussed earlier in this statement. Theater consolidation 

and shipping points is an effort by the Defense Logistics Agency, in coordination with the 

Army and combatant commands, to improve the efficiency and interoperability of materiel 

consolidation and shipping activities. 

Page 17 GAO-07-1064T 
and drawing down inventory and operations at the Army general support 

warehouse at Camp Arifjan. 

Finally, various options have emerged for improving the ability of a joint

force commander to exercise command and control over joint theater 

logistics functions. U.S. Joint Forces Command is coordinating the joint 

experimental deployment and support initiative, whose objective is to 

experiment with a range of command and control options that can provide 

logistics coordination, integration, and synchronization to meet the 

combatant commander’s priorities. The initiative builds upon DOD’s joint 

deployment distribution operations center concept and progresses along a 

continuum to include more robust organizational options. However, the 

military services have raised concerns about how their own roles and 

responsibilities for providing logistics support might be affected and have 

opposed expansion of the most robust command and control option that

has emerged—known as the joint force support component command. 

Our discussions with officials from the combatant commands and the 

military services indicated that there are unresolved issues related to 

exercising joint command and control over logistics functions in a theater

of operations. A number of officials had concerns about how organizations 

such as the joint force support component command would be staffed and 

what roles and authorities it would have. Specifically, they mentioned 

statutory requirements for logistics support, directive authority for 

logistics, and operational and financial considerations. The services 

expressed concerns about mandating that they provide staff to the joint 

force support component command, while also fulfilling their Title 10 

responsibilities to man, train, and equip their forces.26 Officials from 

military service components in the geographic combatant commands 

raised the issue of having a service component take direction from a 

separate component command at the same level, rather than from a 

higher-level command, and they were resistant to losing personnel to such 

an organization because the service component commands still have 

tactical logistics responsibilities to fulfill. Some military service officials 

raised questions about the effectiveness of a joint force support 

component command that lacked an ability to exercise directive authority 

for logistics. This authority gives the combatant commander the ability to 

 26Various provisions of Title 10, U.S. Code establish responsibilities and authorities for 

supplying and equipping the armed forces. See 10 U.S.C. §§ 3013, 3062, 5013, 5062, 5063, 

8013, and 8062. 

Page 18 GAO-07-1064T 
shift logistics resources within the theater in order to accomplish a 

mission.27 Officials we interviewed did not believe this authority could be 

delegated below the level of a joint force commander or service 

component commander28 to an entity such as the joint force support 

component command. Thus, they questioned how the joint force support 

component command differs from other logistics command and control 

organizations if the organization can make recommendations to the joint 

force commander but not actually direct the transfer of assets across the 

service components, known as cross-leveling. Readiness and financial

considerations related to exercising directive authority for logistics 

include the military operational risks and trade-offs associated with crossleveling. Assets diverted from one unit to support another unit may affect 

the giving organization’s ability to conduct a future operation, and officials 

raised concerns that logisticians in a separate logistics command may not

fully understand the impact of cross-leveling on the next military mission. 

Additionally, because the services obtain funding for their own assets, 

several officials told us that some form of financial reconciliation must be 

considered when exercising directive authority for logistics. 

DOD spends billions of dollars to sustain key business operations intended 

to support the warfighter, including systems and processes related to the 

supply chain and other business areas. We have reported on inefficiencies 

in DOD’s business operations, such as the lack of sustained leadership and 

a comprehensive, integrated, and enterprisewide business plan. Moreover, 

at a time of increasing military operations and growing fiscal constraints, 

billions of dollars have been wasted annually because of the lack of 

adequate transparency and appropriate accountability across DOD’s 

business areas. 

As we have previously stated, progress in DOD’s overall approach to 

business transformation is needed to confront problems in other high-risk 

Transforming and 

Improving Defense 

Business Operations 

Are Integral to 

Resolving Supply 

Chain Management 

Problems 

 27Under 10 U.S.C. §164, unless otherwise directed by the President or the Secretary of 

Defense, the authority, direction, and control of the commander of a combatant command

with respect to the commands and forces assigned to that command include giving 

authoritative direction to subordinate commands and forces necessary to carry out 

missions assigned to the command, including authoritative direction over all aspects of 

military operations, joint training, and logistics. 

28Joint Chiefs of Staff, Joint Publication 4-0, Doctrine for Logistic Support of Joint 

Operations (Apr. 6, 2000), p. I-3. 

Page 19 GAO-07-1064T 
areas, including supply chain management.29 Because of the complexity 

and long-term nature of business transformation, we have stated that DOD 

needs a Chief Management Officer with significant authority, experience, 

and a term that would provide sustained leadership and the time to 

integrate DOD’s overall business transformation efforts. Without formally 

designating responsibility and accountability for results, reconciling 

competing priorities among various organizations and prioritizing 

investments will be difficult and could impede the department’s progress 

in addressing deficiencies in key business areas. Based on our longstanding body of work, pending legislative language, and the results of 

studies completed by the Defense Business Board and the Institute for 

Defense Analysis, there is a clear consensus that the department needs a 

Chief Management Officer and that the status quo is no longer acceptable.

The two other DOD high-risk areas that are most closely linked with 

supply chain management are modernizing business systems and 

improving financial management. Successful resolution of supply chain 

management problems will require investment in needed information 

technology. The DOD systems environment that supports these operations

is overly complex and error prone, and is characterized by little 

standardization across the department, multiple systems performing the 

same tasks, the same data stored in multiple systems, and the need for 

data to be entered manually into multiple systems. Modernized business 

systems are essential to the department’s effort to address its supply chain

management issues. In its plan, DOD recognizes that achieving success in 

supply chain management depends on developing interoperable systems 

that can share critical supply data. One of the initiatives included in the 

plan is business system modernization, an effort that is being led by DOD’s 

Business Transformation Agency and that includes achieving materiel 

visibility through systems modernization as an enterprisewide priority. 

Regarding financial management, we have repeatedly reported that 

weaknesses in business management systems, processes, and internal 

controls not only adversely affect the reliability of reported financial data, 

but also the management of DOD operations. Such weaknesses have 

adversely affected the ability of DOD to control costs, ensure basic 

accountability, anticipate future costs and claims on the budget, measure 

 29The other high-risk areas under DOD’s approach to business transformation are business

systems modernization, the personnel security clearance program, support infrastructure 

management, financial management, and weapon systems acquisition. 

Page 20 GAO-07-1064T 
performance, maintain funds control, and prevent fraud. In 2005, DOD 

issued its Financial Improvement and Audit Readiness Plan, which is 

intended to provide DOD components with a road map for resolving 

problems affecting the accuracy, reliability, and timelines of financial 

information and obtaining clean financial statement audit opinions. 

However, tangible evidence of improvements in financial management 

remains limited, and DOD recognizes that it will take several years to 

implement the systems, processes, and other improvements needed to

address its financial management challenges. 

Our recent review of joint theater logistics raises concerns about whether 

DOD can effectively implement this initiative without reexamining 

fundamental aspects of the department’s logistics governance and 

strategy. In this respect, joint theater logistics may serve as a microcosm 

of some of the challenges DOD faces in resolving supply chain 

management problems. We found that DOD has not developed a 

coordinated and comprehensive management approach to guide and 

oversee implementation of joint theater logistics across the department. 

Efforts to develop and implement joint theater logistics initiatives have 

been fragmented among various DOD components largely because of a 

lack of specific goals and strategies, accountability for achieving results, 

and outcome-oriented performance measures—key principles of sound 

management. While DOD has broadly defined joint theater logistics as an 

adaptive ability to anticipate and respond to emerging theater logistics and 

support requirements, it has not developed specific goals and strategies 

linked to this vision. In addition, DOD has not assigned accountability for 

achieving results under joint theater logistics and has not developed 

outcome-oriented performance measures that would enable the 

department to know whether its efforts are fully and effectively achieving

a joint theater logistics capability. Without a coordinated and 

comprehensive approach to managing joint theater logistics, DOD lacks 

assurance that it is on the right path toward achieving this capability or 

that individual initiatives will collectively address gaps in logistics 

capabilities. Further, DOD will have difficulty achieving the desired 

improvements in distribution and asset visibility associated with joint 

theater logistics as portrayed in the plan. 

Based on our review, we recommended that DOD develop and implement 

a coordinated and comprehensive management approach to guide and 

oversee efforts across the department to improve distribution and supply 

support for the U.S. forces in a joint theater. This approach should 

encompass sound management principles, including developing specific 

Improving Supply 

Chain Management 

May Involve 

Reexamining 

Fundamental Aspects 

of DOD’s Logistics 

Governance and 

Strategy 

Page 21 GAO-07-1064T 
strategies and goals, assigning accountability for achieving results, and 

using outcome-oriented performance measures. Moreover, in that report 

we recommended that DOD align its approach to joint theater logistics 

with ongoing actions the department is taking to reform its logistics 

governance and strategy, which are discussed below. In considering 

options for implementing this recommendation, we stated that DOD 

should determine whether any changes should be made to DOD’s 

organizational structure and control of resources for joint logistics 

support, and identify the steps needed to make these changes, including 

changes to existing laws, such as Title 10. DOD concurred with our 

recommendation. 

Regarding logistics governance, DOD has been testing a new approach to 

managing joint capabilities as a portfolio.30 In September 2006, the Deputy 

Secretary of Defense selected joint logistics as one of four capability areas 

for testing capabilities portfolio management.31 These experiments were 

initiated in response to the 2006 Quadrennial Defense Review, which 

emphasized DOD’s need to build on capabilities-based planning and 

management. According to DOD officials, the purpose of this test is to 

determine if DOD can make better leadership decisions by managing a 

portfolio of capabilities instead of managing systems and capabilities 

individually. Thus, this portfolio test is intended to enable senior leaders to

consider trade-offs across previously stovepiped areas and to better 

understand the implications of investment decisions across competing 

priorities. Specifically in the joint logistics area, the portfolio includes all 

capabilities required to project and sustain joint force operations, 

including supply chain operations. While DOD officials told us the initial 

results of the test have been completed and have shown that portfolio 

management is an effective means for managing capabilities, they said that 

decisions had not yet been made on how to implement this new 

governance approach. 

The decisions DOD makes on capabilities portfolio management will also 

influence the development of its logistics strategy. In our prior work, we 

have noted that DOD has undertaken various efforts over the years to 

 30DOD has identified other actions in addition to portfolio management for improving DOD 

governance. For example, DOD is studying ways to establish better strategic direction and 

exploring options for DOD capital resource allocation and funding stability. 

31The other three test cases are joint command and control, joint net-centric operations,

and battlespace awareness. 

Page 22 GAO-07-1064T 
identify, and plan for, future logistics needs, but it has lacked an 

overarching, consistent logistics strategy. Last year, the department began

to develop a “to be” road map to guide future logistics programs and 

initiatives. DOD officials described the “to be” road map as portraying 

where the department is headed in the logistics area and how it will get 

there; monitoring progress toward achieving its objectives; and 

institutionalizing a continuous assessment process that links ongoing 

capability development, program reviews, and budgeting. According to 

DOD officials, the initiatives in the plan will be incorporated into the “to 

be” road map. At this time last year, the first edition of the “to be” road 

map was scheduled for completion in February 2007, in conjunction with 

the submission of the President’s Budget for Fiscal Year 2008, with annual

updates planned. However, DOD subsequently put the “to be” road map on 

hold pending the completion of the capabilities portfolio management test. 

DOD officials have told us that the “to be” road map is now scheduled to 

be completed in summer 2008. In January,32 we recommended that DOD 

improve its ability to guide logistics programs and initiatives across the 

department and to demonstrate the effectiveness, efficiency, and impact of

its efforts to resolve supply chain management problems by completing 

the development of a comprehensive, integrated logistics strategy that is 

aligned with other defense business transformation efforts. DOD 

concurred with our recommendation. 

In reviewing DOD’s approach to developing and implementing joint 

theater logistics initiatives, we found that the diffused organization of 

DOD’s logistics operations, including separate funding and management of 

resources and systems, complicates DOD’s ability to adopt a coordinated 

and comprehensive approach. Several recent studies of DOD logistics 

system have reached similar conclusions. Since 2003, a number of studies 

have recommended changes to DOD’s organizational structure for 

providing joint logistics and supply support to military operations.33 Some 

of these organizations have noted that control over resources is a critical 

issue to be addressed. For example, the Defense Science Board 

recommended creation of a joint logistics command that would combine

the missions of U.S. Transportation Command, the Defense Logistics 

Agency, and service logistics commands. The Center for Strategic and 

International Studies also suggested the creation of a departmentwide 

logistics command responsible for end-to-end supply chain operations. 

 32GAO-07-234. 

33For a listing of these studies and their recommendations, see GAO-07-234. 

Page 23 GAO-07-1064T 
Regarding resource allocation, this study further stated that resources 

should be organized, managed, and budgeted largely along military service 

lines, but in those instances where joint capability needs are not being met 

by the services, the Secretary must turn to joint processes and entities. 

The Lexington Institute, which also recommended creation of a U.S. 

logistics command at the four-star level, concluded that Title 10 may need

to be amended in order to create this command. The Lexington Institute 

also concluded that existing funding mechanisms act as disincentives for 

joint logistics transformation and interoperability. The Defense Business 

Practice Implementation Board, while not agreeing with the idea of 

combining U.S. Transportation Command and the Defense Logistics 

Agency, recommended that DOD elevate leadership for supply chain

integration by designating a new under secretary of defense who would 

have authority to direct integration activities, including control over 

budget decisions affecting these two components and the military 

services. While we noted that transformational changes such as those 

proposed by these organizations may not be possible without amending 

existing laws, the scope of our joint theater logistics review did not 

include an assessment of these proposals or what changes, if any, would 

require congressional action. 

Also contributing to coordination problems in the area of supply chain 

management have been difficulties in clearly defining the responsibilities 

and authorities of defense components that have a role in supply chain

operations. For example, although the Secretary of Defense in 2003 

designated the Commander, U.S. Transportation Command, as DOD’s 

distribution process owner—with responsibilities for overseeing the 

overall effectiveness, efficiency, and alignment of DOD-wide distribution 

activities—DOD has yet to issue a directive defining the process owner’s 

authority, accountability, resources, and responsibility.34 We have 

recommended that DOD enhance its ability to take a more coordinated 

approach to improving the supply distribution system by, among other 

things, clarifying the scope of responsibilities, accountability, and 

authority between the distribution process owner and other 

 34In May 2006, the Deputy Secretary of Defense redesignated the Commander, U.S. 

Transportation Command as DOD’s distribution process owner. Under this redesignation, 

the mission of the distribution process owner is to oversee the overall effectiveness, 

efficiency, and alignment of DOD-wide distribution activities and to establish concepts and 

operational frameworks relating to the planning and execution of DOD transportation

operations.

Page 24 GAO-07-1064T 
organizations.

35 Although DOD did not concur with this recommendation 

at the time we issued our report in 2005, DOD officials have recently told

us they plan to issue a directive aimed at more clearly defining the role of

the distribution process owner. Until this directive is issued, the 

responsibilities and authorities of the distribution process owner remain 

unclear. Echoing this theme, the Defense Business Board in April 2007

recommended that DOD take steps to clearly identify decision-making 

authority regarding supply chain integration. Specifically, the Defense 

Business Board recommended that DOD define and communicate 

enterprise goals in order to align initiatives; clearly define responsibilities 

and authorities of all players in the supply and distribution processes; and

allocate responsibility and authority to set direction and oversee progress, 

and make necessary decisions to carry out DOD’s agreed-upon supply 

chain management strategy and achieve enterprise goals. 

DOD, like much of the federal government, will face critical challenges 

during the 21st century that will test fundamental notions about how 

agencies and departments should be organized and aligned to carry out 

their missions. For example, the department faces challenges in 

accomplishing its transformation goals and making improvements in key 

business areas such as supply chain management. We have suggested that 

decision makers may need to reexamine fundamental aspects of DOD’s 

programs by considering issues such as whether current organizations are 

aligned and empowered to meet the demands of the new security 

environment as efficiently as possible and what kinds of economies of 

scale and improvements in delivery of support services would result from 

combining, realigning, or otherwise changing selected support functions, 

including logistics. 36

Between now and the next update of our high-risk series in 2009, we plan 

to continue to assess DOD’s progress in resolving supply chain 

management problems against the criteria we have established for 

removing a high-risk designation. In addition to monitoring the progress of 

DOD’s plan, we plan to conduct audits related to specific aspects of supply 

chain management. As I indicated earlier, a priority for the department as 

it moves forward should be to track and assess the outcomes achieved 

Concluding 

Observations 

 35GAO-05-775. 

36GAO, 21st Century Challenges: Reexamining the Base of the Federal Government, 

GAO-05-325SP (Washington, D.C.: February 2005). 

Page 25 GAO-07-1064T 
through its initiatives and the progress made in resolving supply chain 

management problems in the three focus areas of asset visibility, 

requirements forecasting, and materiel distribution. We will also consider 

progress made in defense business transformation, business system 

modernization, and financial management because of the close linkage

between these efforts and DOD’s success in improving its supply chain 

management. We look forward to working with the department to provide 

an accurate appraisal of progress toward the goal of successfully resolving 

problems that have hindered effective and efficient supply chain 

management. 

Mr. Chairman, this concludes my prepared remarks. I would be happy to 

answer any questions you or other Members of the Subcommittee may 

have. 

For further information regarding this testimony, please contact William 

Solis at (202) 512-8365 or solisw@gao.gov. Contact points for our Offices 

of Congressional Relations and Public Affairs may be found on the last 

page of this statement. Individuals making contributions to this testimony 

include Tom Gosling, Assistant Director; Karyn Angulo; Larry Junek; and 

Marie Mak. 

Contacts and 

Acknowledgments 

Page 26 GAO-07-1064T (351058) 
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