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

Challenges Remain to 

Achieving and 

Demonstrating Progress in 

Supply Chain Management 

Statement of Williams M. Solis, Director 

Defense Capabilities Management 

For Release on Delivery

Expected at 10:00 a.m. EDT 

Tuesday, July 25, 2006

 

GAO-06-983T 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

July 25, 2006

DOD'S HIGH-RISK AREAS 

Challenges Remain to Achieving and 

Demonstrating Progress in Supply Chain 

Management 

Highlights of GAO-06-983T, testimony 

before the Subcommittee on Oversight of 

Government Management, the Federal 

Workforce, and the District of Columbia, 

Committee on Homeland Security and 

Governmental Affairs, U.S. Senate 

The Department of Defense (DOD)

maintains a military force with 

unparalleled logistics capabilities, 

but it continues to confront 

decades-old supply chain

management problems. The supply 

chain can be the critical link in

determining whether our frontline 

military forces win or lose on the

battlefield, and the investment of 

resources in the supply chain is 

substantial. Because of weaknesses 

in DOD’s supply chain 

management, this program has 

been on GAO’s list of high-risk 

areas needing urgent attention and 

transformation since 1990. Last

year, DOD developed a plan to

resolve its long-term supply chain 

problems in three focus areas:

requirements forecasting, asset 

visibility, and materiel distribution. 

In October 2005, GAO testified that 

the plan was a good first step. 

GAO was asked to provide its 

views on DOD’s progress toward 

(1) implementing the supply chain 

management improvement plan 

and (2) incorporating performance 

measures for tracking and 

demonstrating improvement, as

well as to comment on the 

alignment of DOD’s supply chain 

management improvement plan 

with other department logistics 

plans. 

This testimony is based on prior 

GAO reports and ongoing work in 

this area. It contains GAO’s views 

on opportunities to improve DOD’s 

ability to achieve and demonstrate

progress in supply chain 

management. 

Since October 2005, DOD has continued to make progress implementing the 

10 initiatives in its supply chain management improvement plan, but it will 

take several years to fully implement these initiatives. DOD’s stated goal for 

implementing its plan is to demonstrate significant improvement in supply 

chain management within 2 years of the plan’s inception in 2005, but the 

time frames for substantially implementing some initiatives are currently 

2008 or later. While DOD has generally stayed on track, it has reported some 

slippage in the implementation of certain initiatives. Factors such as the 

long-standing nature of the problems, the complexities of the initiatives, and 

the involvement of multiple organizations within DOD could cause the 

implementation dates of some initiatives to slip further. 

DOD has incorporated several broad performance measures in its supply 

chain management improvement plan, but it continues to lack outcomefocused performance measures for many of the initiatives. Therefore, it is 

difficult to track and demonstrate progress toward improving the three focus

areas of requirements forecasting, asset visibility, and materiel distribution.

Although DOD’s plan includes four high-level performance measures that are 

being tracked across the department, these measures do not necessarily 

reflect the performance of the initiatives and do not relate explicitly to the 

three focus areas. Further, DOD’s plan does not include cost metrics that 

might show efficiencies gained through supply chain improvement efforts. In 

their effort to develop performance measures for use across the department, 

DOD officials have encountered challenges such as a lack of standardized, 

reliable data. Nevertheless, DOD could show near-term progress by adding 

intermediate measures. These measures could include outcome-focused 

measures for each of the initiatives or for the three focus areas.

DOD has multiple plans aimed at improving aspects of logistics, including 

supply chain management, but it is unclear how these plans are aligned with 

one another. The plans were developed at different points of time, for 

different purposes, and in different formats, so it is difficult to determine 

how all the ongoing efforts link together to sufficiently cover requirements 

forecasting, asset visibility, and materiel distribution and whether they will

result in significant progress toward resolving this high-risk area. Also, 

DOD’s supply chain management improvement plan does not account for 

initiatives outside the direct oversight of the Office of the Secretary of 

Defense, and DOD lacks a comprehensive strategy to guide logistics 

programs and initiatives. DOD is in the process of developing a new plan, 

referred to as the “To Be” roadmap, for future logistics programs and 

initiatives. The roadmap is intended to portray where the department is 

headed in the logistics area, how it will get there, and what progress is being 

made toward achieving its objectives, as well as to link ongoing capability 

development, program reviews, and budgeting. However, until the roadmap 

is completed, GAO will not be able to assess how it addresses the challenges 

and risks DOD faces in its supply chain improvement efforts. 

www.gao.gov/cgi-bin/getrpt?GAO-06-983T.

To view the full product, click on the link 

above. For more information, contact William 

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

I am pleased to be here today to discuss the Department of Defense’s 

(DOD) efforts to resolve long-standing problems in supply chain 

management. DOD maintains a military force with unparalleled logistics 

capabilities and can claim success in meeting the challenges to supplying 

the warfighter. For example, by early 2005, DOD moved more than 2 

million short tons of cargo, including equipment, spare parts, and supplies, 

several thousand miles to the Persian Gulf in support of Operation Iraqi 

Freedom. At the same time, there are pervasive, decades-old problems in 

DOD’s supply chain management that need to be addressed and resolved.

The Under Secretary of Defense for Acquisition, Technology, and 

Logistics, as well as other senior DOD officials, has shown a commitment 

to improving supply chain management. The continued active involvement 

of this Subcommittee is important to focusing attention on this issue and 

encouraging DOD to demonstrate progress. 

The fundamental premise of supply chain management is the operation of

a continuous, unbroken, comprehensive, and all-inclusive logistics 

process, from initial customer order for materiel or services to the 

ultimate satisfaction of the customer’s requirements. Supply chain 

management in DOD consists of processes and activities to purchase, 

produce, and deliver materiel—including ammunition, spare parts, fuel, 

food, water, clothing, personal equipment, and other items—to a force that 

is highly dispersed and mobile. In 2005, the Army alone had some 260,000 

soldiers serving in 120 foreign countries. Altogether, DOD manages more 

than 4 million separate types of items that are procured from thousands of 

suppliers. The challenges to successfully improving management of this 

vast and complex supply chain network are formidable. Challenges may 

include fragmentation in the way supply chain management is understood 

and applied, failure to develop true integration of supply chain processes, 

organizational resistance, lack of buy-in from top managers, lack of or 

slow development of needed measurement systems, and lack of integrated

information systems linking participants in the supply chain. Private 

industry, it should be noted, also faces these types of challenges to 

improving their own supply chains.1

Why is effective supply chain management important for DOD? There are 

two primary reasons. First, supply support to the warfighter affects 

 1

 Deputy Under Secretary of Defense, Supply Chain Integration, DOD Supply Chain 

Management Implementation Guide, (McLean, Va.: Logistics Management Institute, 2000). 

Page 1 GAO-06-983T 
readiness and military operations. In fact, the supply chain can be the 

critical link in determining whether our front-line military forces win or 

lose on the battlefield. Second, given the high demand for goods and 

services to support ongoing U.S. military operations, the investment of 

resources in the supply chain is substantial. For example, DOD estimated 

that the annual costs of supplies and associated operations were expected 

to be about $50 billion for fiscal year 2005. In addition, DOD’s inventory 

was valued at approximately $80 billion at the end of that fiscal year. Over

the next 6 years, DOD also plans to invest about $54 billion in aircraft, 

trucks, ships, and other mobility assets to deploy and supply its forces. In 

addition, the Secretary of Defense recently stated that one of his top 

priorities between 2006 and 2008 is improving effectiveness and efficiency 

across the department, including creating a culture of efficiency and 

eliminating waste. These are issues that we have identified as critical to 

improving supply chain management. 

Because of weaknesses we have identified through our work, DOD’s 

supply chain management is on our list of 26 high-risk government 

programs that need urgent attention and transformation to ensure that our 

national government functions in the most economical, efficient, and 

effective manner possible. Last year, with the encouragement of the Office

of Management and Budget (OMB), DOD developed a supply chain 

management improvement plan aimed at putting DOD on a path toward 

resolving long-term supply chain problems and, eventually, removal from 

our list of high-risk programs. More specifically, with the plan’s inception

in July 2005, DOD hoped to produce significant improvements over the 

next 2 years. This month marks approximately the midpoint of that 2-year 

period, which ends in July 2007. The plan encompasses 10 initiatives to 

address three key areas of the supply chain management process: 

requirements forecasting, asset visibility, and materiel distribution. 

(Attachment 1 provides a description of the initiatives and shows the focus 

area or areas that they are intended to address). The requirements 

forecasting initiatives in the plan aim to improve inventory management by

reducing low-usage inventory, increasing the availability of high-usage and 

critical inventory, more accurately identifying war reserve stocks, 

forecasting wartime demand, and identifying items with long procurement 

lead times. The plan’s initiatives that affect asset visibility seek to improve 

DOD’s ability to provide timely and accurate information regarding the 

location, quantity, condition, movement, and status of materiel assets 

across the department. Finally, the materiel distribution initiatives were 

included to improve the timely and seamless flow of materiel in support of 

deployed forces. We have frequently identified systemic weaknesses in 

these three areas as impeding effective supply chain management. 

Page 2 GAO-06-983T 
During the Subcommittee’s October 2005 hearing on this subject, I stated

that DOD’s plan addressing supply chain management was a good first 

step toward putting DOD on a path toward resolving long-standing supply 

chain management problems, but that the department faced a number of 

challenges and risks in fully implementing its proposed changes across the 

department and measuring progress.2

 That bottom-line view remains the 

same today. Since October, DOD has regularly updated its supply chain 

management improvement plan, added more details, and has made 

progress implementing individual initiatives by generally meeting the 

milestones laid out in its plan. However, as DOD moves forward, we 

believe that there are opportunities to further improve DOD’s ability to 

show progress toward resolving long-term supply chain problems. 

As requested, my comments today will focus on DOD’s progress in 

(1) implementing the supply chain management improvement plan and 

(2) incorporating performance measures for tracking and demonstrating 

improvement. In addition, you also asked me to comment on the extent to

which DOD’s supply chain management improvement plan is aligned with 

other logistics plans across the department that address aspects of the 

supply chain. My testimony is based on previous GAO reports and 

testimonies and our preliminary observations from an ongoing 

engagement requested by this Subcommittee on DOD's efforts to resolve 

long-standing problems in its supply chain management process. To obtain 

our preliminary observations, we have met on a regular basis with DOD 

officials and staff from OMB to discuss the overall status of the plan, the 

implementation of the plan’s individual initiatives, and performance 

measures; and we have reviewed relevant documents, such as current 

DOD and military service logistics plans and strategies. This work is being 

performed in accordance with generally accepted government auditing 

standards. 

Since October 2005, DOD has continued to make progress implementing 

the 10 initiatives in its supply chain management improvement plan, but it

will take DOD several years to fully implement these initiatives under 

current schedules. DOD has sought to demonstrate significant 

improvement in supply chain management within 2 years of the plan’s 

inception in 2005; however, the department may have difficulty meeting its

short-term goal. Some of the initiatives are still being developed or piloted 

and have not yet reached the implementation stage, others are in the early 

Summary 

 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). 

Page 3 GAO-06-983T 
stages of implementation, and some are not scheduled for completion until 

2008 or later. While DOD has generally stayed on track, it has reported 

some slippage in the implementation of certain initiatives. Given the longstanding nature of the problems being addressed, the complexities of the 

initiatives, and the involvement of multiple organizations within DOD, we 

would expect to see further slippage in the future. We have also previously 

identified challenges to implementation such as maintaining long-term 

commitment for the initiatives and ensuring sufficient resources are 

obtained from the organizations involved, including the military services 

and the Defense Logistics Agency (DLA). 

While DOD has incorporated several broad performance measures in its 

supply chain management improvement plan, the department continues to

lack outcome-focused performance measures for many of the initiatives. 

Therefore, it is difficult to track and demonstrate DOD’s progress toward 

improving its performance in the three focus areas of requirements 

forecasting, asset visibility, and materiel distribution. Performance 

measures track an agency’s progress toward achieving goals, provide 

information on which to base organizational and management decisions, 

and are important management tools for all levels of an agency, including

the program or project level. Outcome-focused performance measures 

show results or outcomes related to an initiative or program in terms of its 

effectiveness, efficiency, impact, or all of these. DOD’s plan includes four 

high-level performance measures, such as customer wait time, that are 

being tracked across the department, but these measures do not 

necessarily reflect the performance of the initiatives and do not explicitly 

relate to the three focus areas. In addition, DOD’s plan lacks outcomefocused performance measures for many of the specific initiatives. 

Further, DOD still has not included cost metrics in its plan that might 

show efficiencies gained through supply chain improvement efforts, either 

at the initiative level or overall. Although DOD officials have made efforts 

to develop supply chain management performance measures for 

implementation across the department, they have encountered challenges 

such as a lack of standardized, reliable data. Consequently, DOD lacks a 

means to track and assess progress toward improving efficiency and

eliminating waste in supply chain management. However, DOD could 

show near-term progress by adding intermediate measures. These 

measures could include outcome-focused measures for each of the 

initiatives or for the three focus areas. 

DOD has multiple plans aimed at improving aspects of logistics, including 

supply chain management, but it is unclear how all these plans are aligned 

with one another. In addition to the supply chain management 

improvement plan, current DOD plans that address aspects of supply 

Page 4 GAO-06-983T 
chain management include DOD’s Logistics Transformation Strategy, 

Focused Logistics Roadmap, and Enterprise Transition Plan; and DLA’s 

Transformation Roadmap. These plans were developed at different points 

of time, for different purposes, and in different formats. Therefore, it is 

difficult to determine how all the ongoing efforts link together to 

sufficiently cover requirements forecasting, asset visibility, and materiel 

distribution and whether they will result in significant progress toward 

resolving this high-risk area. Also, the DOD supply chain management 

improvement plan does not account for initiatives outside the direct 

oversight of the Office of the Secretary of Defense (OSD) that may have an

impact on supply chain management. Until DOD clearly aligns the supply 

chain management improvement plan with other department plans and 

ongoing initiatives, supply chain stakeholders will not have complete 

visibility and awareness of actions DOD is taking to resolve problems in 

the supply chain. Moreover, DOD lacks a comprehensive, integrated, and 

enterprisewide strategy to guide logistics programs and initiatives. To 

address this concern, OSD is working with the military services, DLA, and 

other stakeholders to develop a new strategic plan for future logistics 

programs and initiatives. Referred to as the “To Be” roadmap, this plan is 

intended to portray where the department is headed in the logistics area, 

how it will get there, and what progress is being made toward achieving its

objectives, as well as to institutionalize a continuous assessment process 

that links ongoing capability development, program reviews, and 

budgeting. According to DOD officials, the initiatives in the supply chain 

management improvement plan will be incorporated into this roadmap. 

The first edition of the “To Be” roadmap is scheduled for completion in 

February 2007, in conjunction with the submission of the President’s 

Budget for Fiscal Year 2008. However, until it is completed, we will not be 

able to assess the extent to which the roadmap aligns and integrates 

DOD’s various supply chain improvement efforts. 

For 16 years, DOD’s supply chain management processes, previously 

identified as DOD inventory management, have been on our list of highrisk areas needing urgent attention because of long-standing systemic 

weaknesses that we have identified in our reports. We initiated our highrisk program in 1990 to report on government operations that we 

identified as being at high risk for fraud, waste, abuse, and 

mismanagement. The program serves to identify and help resolve serious 

weaknesses in areas that involve substantial resources and provide critical 

services to the public. The department’s inventory management of supplies 

in support of forces was one of the initial 14 operational areas identified as 

high risk in 1990 because, over the previous 20 years, we had issued more

than 100 reports dealing with specific aspects and problems in DOD’s 

Background 

Page 5 GAO-06-983T 
inventory management. These problems included excess inventory levels, 

inadequate controls over items, and cost overruns. As a result of this work,

we had suggested that DOD take some critical steps to correct the 

problems identified. Since then, our work has shown that the problems 

adversely affecting supply support to the warfighter—such as 

requirements forecasts, use of the industrial base, funding, distribution, 

and asset visibility—were not confined to the inventory management 

system, but also involved the entire supply chain. In 2005, we modified the 

title for this high-risk area from “DOD Inventory Management” to “DOD 

Supply Chain Management.” In the 2005 update, we noted that during 

Operation Iraqi Freedom, some of the supply chain problems included 

backlogs of hundreds of pallets and containers at distribution points, 

millions of dollars spent in late fees to lease or replace storage containers 

because of distribution backlogs and losses, and shortages of such items 

as tires and radio batteries. 

Removal of the high-risk designation is considered when legislative and 

agency actions, including those in response to our recommendations, 

result in significant and sustainable progress toward resolving a high-risk 

problem.3

 Key determinants include a demonstrated strong commitment to 

and top leadership support for addressing problems, the capacity to do so, 

a corrective action plan that provides for substantially completing 

corrective measures in the near term, a program to monitor and 

independently validate the effectiveness of corrective measures, and 

demonstrated progress in implementing corrective measures. 

Last year, with the encouragement of OMB, DOD developed a plan for 

improving supply chain management that could reduce its vulnerability to 

fraud, waste, abuse, and mismanagement and place it on the path toward 

removal from our list of high-risk areas. This plan, initially released in July

2005, contains 10 initiatives proposed as solutions to address the root 

causes of problems DOD identified in the areas of forecasting 

requirements, asset visibility, and materiel distribution. By committing to 

improve these three key areas, DOD has focused its efforts on the areas 

we frequently identified as impeding effective supply chain management. 

For each of the initiatives, the plan contains implementation milestones 

that are tracked and updated monthly. 

 3

 GAO, Determining Performance and Accountability Challenges and High Risks, 

GAO-01-159SP (Washington, D.C.: November 2000). 

Page 6 GAO-06-983T 
Since October 2005, DOD has continued to make progress implementing 

the initiatives in its supply chain management improvement plan, but it 

will be several years before the plan can be fully implemented. Progress 

has been made in implementing several of the initiatives, including its 

Joint Regional Inventory Materiel Management, Readiness Based Sparing,

and the Defense Transportation Coordination Initiative. For example: 

• Within the last few months, through its Joint Regional Inventory 

Materiel Management initiative, DOD has begun to streamline the 

storage and distribution of defense inventory items on a regional 

basis, in order to eliminate duplicate materiel handling and 

inventory layers. Last year, DOD completed a pilot for this 

initiative in the San Diego region and, in January 2006, began a 

similar transition for inventory items in Oahu, Hawaii. 

DOD Continues to 

Implement Its Supply 

Chain Management 

Improvement Plan, 

but Full 

Implementation Will 

Take Several Years 

• Readiness Based Sparing, an inventory requirements methodology 

that the department expects to enable higher levels of readiness at 

equivalent or reduced inventory costs using commercial off-theshelf software, began pilot programs in each service in April 2006. 

• Finally, in May 2006, the U.S. Transportation Command held the 

presolicitation conference for its Defense Transportation 

Coordination Initiative, a long-term partnership with a 

transportation management services company that is expected to 

improve the predictability, reliability, and efficiency of DOD 

freight shipping within the continental United States. 

DOD has sought to demonstrate significant improvement in supply chain 

management within 2 years of the plan’s inception in 2005; however, the 

department may have difficulty meeting its July 2007 goal. Some of the 

initiatives are still being developed or piloted and have not yet reached the 

implementation stage, others are in the early stages of implementation, 

and some are not scheduled for completion until 2008 or later. For 

example, according to the DOD supply chain management improvement 

plan, the contract for the Defense Transportation Coordination Initiative is

scheduled to be awarded during the first quarter of fiscal year 2007,

followed by a 3-year implementation period. The War Reserve Materiel 

Improvements initiative, which aims to more accurately forecast war 

reserve requirements by using capability-based planning and incorporating 

lessons learned in Operation Iraqi Freedom, is not scheduled to begin 

implementing an improved requirements forecasting process for 

Page 7 GAO-06-983T 
consumable items4

 as a routine operation until October 2008. The Item 

Unique Identification initiative, which involves marking personal property 

items with a set of globally unique data elements to help DOD track items 

during their life cycles, will not be completed until December 2010 under

the current schedule. 

While DOD has generally stayed on track, DOD has reported some 

slippage in meeting scheduled milestones for certain initiatives. For 

example, a slippage of 9 months occurred in the Commodity Management 

initiative because additional time was required to develop a 

departmentwide approach. This initiative addresses the process of 

developing a systematic procurement approach to the department's needs 

for a group of items. Additionally, the Defense Transportation 

Coordination Initiative experienced a slippage in holding the 

presolicitation conference because defining requirements took longer than 

anticipated. Given the long-standing nature of the problems being 

addressed, the complexities of the initiatives, and the involvement of 

multiple organizations within DOD, we would expect to see further 

milestone slippage in the future. In our October testimony, we also 

identified challenges to implementation such as maintaining long-term 

commitment for the initiatives and ensuring sufficient resources are 

obtained from the organizations involved. Although the endorsement of 

DOD’s plan by the Under Secretary of Defense for Acquisition, 

Technology, and Logistics is evidence of a strong commitment to improve 

DOD’s supply chain management, DOD will have to sustain this 

commitment as it goes forward in implementing this multiyear plan while 

also engaged in departmentwide business transformation efforts. 

Furthermore, the plan was developed at the Office of the Under Secretary 

of Defense level, whereas most of the people and resources needed to

implement the plan are under the direction of the military services, DLA, 

and other organizations such as U.S. Transportation Command. Therefore, 

it is important for the department to obtain the necessary resource 

commitments from these organizations to ensure the initiatives in the plan 

are properly supported. 

 4 Consumable items are items that are discarded after use rather than repaired. Examples 

include food, clothing, hardware, and medical supplies.

Page 8 GAO-06-983T 
While DOD has incorporated several broad performance measures in its 

supply chain management improvement plan, the department continues to

lack outcome-focused performance measures for many of the initiatives. 

Therefore, it is difficult to track and demonstrate DOD’s progress toward 

improving its performance in the three focus areas of requirements 

forecasting, asset visibility, and materiel distribution. Performance 

measures track an agency’s progress made towards goals, provide 

information on which to base organizational and management decisions, 

and are important management tools for all levels of an agency, including

the program or project level. Outcome-focused performance measures 

show results or outcomes related to an initiative or program in terms of its 

effectiveness, efficiency, impact, or all of these. To track progress towards 

goals, effective performance measures should have a clearly apparent or 

commonly accepted relationship to the intended performance, or should 

be reasonable predictors of desired outcomes; are not unduly influenced

by factors outside a program’s control, measure multiple priorities, such as 

quality, timeliness, outcomes, and cost; sufficiently cover key aspects of 

performance; and adequately capture important distinctions between 

programs. Performance measures enable the agency to assess

accomplishments, strike a balance among competing interests, make 

decisions to improve program performance, realign processes, and assign

accountability. While it may take years before the results of programs 

become apparent, intermediate measures can be used to provide 

information on interim results and show progress towards intended 

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

factors, intermediate measures can be used to identify the programs’ 

discrete contribution to the specific result. For example, DOD could show 

near-term progress by adding intermediate measures for the DOD supply 

chain management improvement plan, such as outcome-focused 

performance measures for the initiatives or for the three focus areas. 

Supply Chain 

Improvement Plan 

Lacks Outcomefocused Performance 

Measures for Many of 

the Initiatives 

DOD’s supply chain management improvement plan includes four highlevel performance measures that are being tracked across the department, 

but these measures do not necessarily reflect the performance of the 

initiatives or explicitly relate to the three focus areas. DOD’s supply chain 

materiel management regulation requires that functional supply chain

metrics support at least one enterprise-level metric.5

 In addition, while not 

required by the regulation, the performance measures DOD has included 

in the plan are not explicitly linked to the three focus areas, and it has not

included overall cost metrics that might show efficiencies gained through 

supply chain improvement efforts. The four measures are as follows: 

 5

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

Page 9 GAO-06-983T 
• Backorders—number of orders held in an unfilled status pending 

receipt of additional parts or equipment through procurement or 

repair. 

• Customer wait time—number of days between the issuance of a 

customer order and satisfaction of that order. 

• On-time orders—percentage of orders that are on time according 

to DOD’s established delivery standards. 

• Logistics response time—number of days to fulfill an order placed 

on the wholesale level of supply from the date a requisition is

generated until the materiel is received by the retail supply 

activity.6

The plan also identifies fiscal year 2004 metric baselines for each of the

services, DLA, and DOD overall, and specifies annual performance targets 

for these metrics for use in measuring progress. For example, one 

performance target for fiscal year 2005 was to reduce backorders by 10 

percent from the fiscal year 2004 level. Table 1 shows each performance 

measure with the associated fiscal year 2005 performance targets and 

actuals and whether the target was met. 

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

Performance measure Target Actual Target met/Not met

Backorders 514,800 642,000 Not Met

Customer wait time 18 days 21 days Not Met 

On-time ordersa75% 48% Not Met

Logistics response timea

 Army 27 days 57 days Not Met 

 Navy 27 days 28 days Not Met 

 Air Force 27 days 36 days Not Met 

 DLA 27 days 13 days Met 

Source: GAO analysis.

a

Data includes the continental United States only. 

 6 DOD maintains spare parts at two levels of inventory. Wholesale-level inventory

represents inventory managed centrally, while retail-level inventory represents inventory 

held for use at maintenance activities or operational units.

Page 10 GAO-06-983T 
As table 1 shows, DOD generally did not meet its fiscal year 2005 

performance targets. However, the impact to the supply chain as a result 

of implementing the initiatives contained in the plan will not likely be 

reflected in these high-level performance metrics until the initiatives are 

broadly implemented across the department. In addition, the high-level 

metrics reflect the performance of the supply chain departmentwide and 

are affected by other variables; therefore, it will be difficult to determine if 

improvements in the high-level performance metrics are due to the 

initiatives in the plan or other variables. For example, implementing Radio 

Frequency Identification—technology consisting of active or passive 

electronic tags that are attached to equipment and supplies being shipped

from one location to another and enable shipment tracking—at a few sites 

at a time has only a very small impact on customer wait time. However, 

variables such at natural disasters, wartime surges in requirements, or 

disruption in the distribution process could affect that metric. 

DOD’s plan lacks outcome-focused performance metrics for many of the 

specific initiatives. We noted this deficiency in our prior testimony, and 

since last October, DOD has not added outcome-focused performance 

metrics. DOD also continues to lack cost metrics that might show 

efficiencies gained through supply chain improvement efforts, either at the 

initiative level or overall. In total, DOD’s plan continues to identify a need 

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

the 10 initiatives lack cost metrics. For example, DOD’s plan shows that it

expects to have radio frequency identification technology implemented at 

100 percent of its U.S. and overseas distribution centers by September 

2007, but noted that it has not yet identified additional metrics that could 

be used to show the impact of implementation on expected outcomes, 

such as receiving and shipping timeliness, asset visibility, or supply 

consumption data. Two other examples of initiatives lacking outcomefocused performance measures are War Reserve Materiel, discussed 

earlier, and Joint Theater Logistics, which is an effort to improve the 

ability of a joint force commander to execute logistics authorities and 

processes within a theater of operations. Although the plan contains some 

performance metrics, many have not been fully defined or are intended to 

show the status of a project. Measures showing project status are useful 

and may be most appropriate for initiatives in their early stages of 

development, but such measures will not show the impact of initiatives on

the supply chain during or after implementation. DOD officials noted that 

many of the initiatives in the supply chain management improvement plan

are in the early stages of implementation and that they are working to 

develop performance measures for them. For example, an official involved

with the Joint Theater Logistics initiative stated that the processes 

necessary for each joint capability needed to be defined before 

Page 11 GAO-06-983T 
performance metrics could be developed. The recently issued contract 

solicitation for the Defense Transportation Coordination Initiative 

contains a number of performance measures, such as on-time pickup and 

delivery, damage-free shipments, and system availability, although these 

measures are not yet included in DOD’s supply chain management 

improvement plan. Additionally, we observed that DOD’s plan does not 

identify departmentwide performance measures in the focus areas of 

requirements forecasting, asset visibility, and materiel distribution. 

Therefore, it currently lacks a means to track and assess progress in these 

areas. 

Although DOD has made efforts to develop supply chain management 

performance measures for implementation across the department, DOD 

has encountered challenges in obtaining standardized, reliable data from 

noninteroperable systems. The four high-level performance measures in 

DOD’s plan were defined and developed by DOD’s supply chain metrics 

working group. This group includes representatives from the services, 

DLA, and the U.S. Transportation Command, and meets monthly under the 

direction of the Office of the Under Secretary of Defense. For example, the 

working group developed a common definition for customer wait time 

which was included in DOD guidance.7

 The DOD Inspector General has a 

review underway to validate the accuracy of customer wait time data and 

expects to issue a report on its results later this summer. One of the 

challenges the working group faces in developing supply chain 

performance measures is the ability to pull standardized, reliable data

from noninteroperable information systems. For example, the Army 

currently does not have an integrated method to determine receipt 

processing for Supply Support Activities, which could affect asset visibility 

and distribution concerns. Some of the necessary data reside in the Global 

Transportation Network while other data reside in the Standard Army 

Retail Supply System. These two databases must be manually reviewed 

and merged in order to obtain the information for accurate receipt 

processing performance measures. 

DOD recognizes that achieving success in supply chain management is 

dependent on developing interoperable systems that can share critical 

supply chain data. The Business Management Modernization Program, one 

of the initiatives in DOD’s supply chain improvement plan that has been 

 7

 DOD Instruction 4140.61, Customer Wait Time and Time Definite Delivery (December 

14, 2000). 

Page 12 GAO-06-983T 
absorbed into the Business Transformation Agency,8

 is considered to be a 

critical enabler that will provide the information technology underpinning 

for improving supply chain management. As part of this initiative, DOD 

issued an overarching business enterprise architecture and an enterprise 

transition plan for implementing the architecture.

9

 We previously reported 

that Version 3.110 of the business enterprise architecture reflects steps 

taken by DOD to address some of the missing elements, inconsistencies, 

and usability issues related to legislative requirements and relevant

architecture guidance, but additional steps are needed.11 For example, we 

said that the architecture does not yet include a systems standards profile 

to facilitate data sharing among departmentwide business systems and 

promote interoperability with departmentwide information technology 

infrastructure systems. Furthermore, we also stated that the military 

services’ and defense agencies’ architectures are not yet adequately 

aligned with the departmental architecture. 

DOD has multiple plans aimed at improving aspects of logistics, including 

supply chain management, but it is unclear how all these plans are aligned 

with one another. In addition to the supply chain management 

improvement plan, current DOD plans that address aspects of supply 

chain management include DOD’s Logistics Transformation Strategy, 

Focused Logistics Roadmap, and Enterprise Transition Plan; and DLA’s 

Transformation Roadmap. 

 

DOD Has Multiple 

Plans Addressing 

Supply Chain 

Management, but 

Alignment Among 

Them Is Unclear 

 8

 The Business Transformation Agency leads and coordinates business transformation 

efforts across the department. The Business Management Modernization Program’s

mission is to advance departmentwide business transformation efforts, particularly with 

regard to business systems modernization. 

9

 The enterprise architecture, or modernization blueprint, provides a clear and 

comprehensive picture of an entity, whether it is an organization (e.g., federal department 

or agency) or a functional or mission area that cuts across more than one organization 

(e.g., financial management). This picture consists of snapshots of the enterprise’s current

“As Is” operational and technological environment and its target or “To Be” environment,

as well as a capital investment roadmap for transitioning from the current to the target 

environment. These snapshots further consist of “views,” which are basically one or more 

architecture products that provide conceptual or logical representations of the enterprise. 

10 Version 3.1 is a minor update to its business enterprise architecture released on March

15, 2006. 

11 GAO, Business Systems Modernization: DOD Continues to Improve Institutional 

Approach, but Further Steps Needed, GAO-06-658 (Washington, D.C.: May 15, 2006). 

Page 13 GAO-06-983T 
In December 2004, DOD issued its Logistics Transformation Strategy. The 

strategy was developed to reconcile three logistics concepts—forcecentric logistics enterprise, sense and respond logistics, and focused 

logistics—into a coherent transformation strategy. The force-centric 

logistics enterprise is OSD’s midterm concept (2005-2010) for enhancing 

support to the warfighter and encompasses six initiatives, one of which 

includes “end-to-end distribution.” Sense and respond logistics is a future 

logistics concept developed by the department’s Office of Force 

Transformation that envisions a networked logistics system that would 

provide joint strategic and tactical operations with predictive, precise, and 

agile support. Focused logistics, a concept for force transformation 

developed by the Joint Chiefs of Staff, identifies seven key joint logistics 

capability areas such as Joint Deployment/Rapid Distribution. 

In September 2005, DOD issued its Focused Logistics Roadmap, also 

referred to as the “As Is” roadmap. It documents logistics-enabling 

programs and initiatives directed toward achieving focused logistics 

capabilities. It is intended to provide a baseline of programs and initiatives 

for future capability analysis and investment. Seven of the 10 initiatives in 

the DOD supply chain management improvement plan and some of the 

systems included in the initiative to modernize the department’s business 

systems—under the Business Transformation Agency—are discussed in 

the Focused Logistics Roadmap. 

In September 2005, DOD’s Enterprise Transition Plan was issued as part of

the Business Management Modernization Program. The Enterprise 

Transition Plan is the department’s plan for transforming its business 

operations. One of the six DOD-wide priorities contained in the Enterprise 

Transition plan is Materiel Visibility, which is focused on improving supply 

chain performance. The Materiel Visibility priority is defined as the ability 

to locate and account for materiel assets throughout their life cycle and 

provide transaction visibility across logistics systems in support of the 

joint warfighting mission. Two of the key programs targeting visibility 

improvement are Radio Frequency Identification and Item Unique 

Identification, which also appear in the supply chain management 

improvement plan. 

The Defense Logistics Agency’s Fiscal Year 2006 Transformation Roadmap 

contains 13 key initiatives underway to execute DLA’s role in DOD’s 

overarching transformation strategy. The majority of the initiatives are 

those that affect supply chain management, and several are found in 

DOD’s supply chain management improvement plan. For example, the 

Integrated Data Environment, Business Systems Modernization, and 

Reutilization Modernization Program initiatives found in DLA’s 

Page 14 GAO-06-983T 
Transformation Roadmap are also in the department’s supply chain 

management improvement plan under the initiative to modernize the 

department’s business systems. 

These plans were developed at different points of time, for different 

purposes, and in different formats. Therefore, it is difficult to determine 

how all the ongoing efforts link together to sufficiently cover requirements 

forecasting, asset visibility, and materiel distribution and whether they will

result in significant progress toward resolving this high-risk area. 

Moreover, DOD’s supply chain management improvement plan does not 

account for initiatives outside OSD’s direct oversight that may have an 

impact on supply chain management. The initiatives chosen for the plan 

were joint initiatives under the oversight of OSD in the three focus areas of

requirements forecasting, asset visibility, and materiel distribution. 

However, the U. S. Transportation Command, DLA, and the military 

services have ongoing and planned supply chain improvement efforts in 

those areas that are not included in the plan. For example, the U.S. 

Transportation Command’s Joint Task Force – Port Opening initiative 

seeks to improve materiel distribution by rapidly extending the 

distribution network into a theater of operations. Furthermore, DLA is 

implementing a National Inventory Management Strategy, which is an 

effort to merge distinct wholesale and retail inventories into a national 

inventory, provide more integrated management, tailor inventory to 

services’ requirements, and reduce redundant inventory levels. Another 

example is the Army’s efforts to field two new communications and 

tracking systems, the Very Small Aperture Terminal and the Mobile 

Tracking System, to better connect logisticians on the battlefield and 

enable them to effectively submit and monitor their supply requisitions. 

DOD officials told us they would be willing to consider adding initiatives 

that impact the three focus areas. Until DOD clearly aligns the supply 

chain management improvement plan with other department plans and 

ongoing initiatives, supply chain stakeholders will not have a 

comprehensive picture of DOD’s ongoing efforts to resolve problems in 

the supply chain. 

Although we are encouraged by DOD’s planning efforts, DOD lacks a 

comprehensive, integrated, and enterprisewide strategy to guide logistics 

programs and initiatives. In the past, we have emphasized the need for an

overarching logistics strategy that will guide the department’s logistics 

Page 15 GAO-06-983T 
planning efforts.12 Without an overarching logistics strategy, the 

department will be unable to most economically and efficiently support 

the needs of the warfighter. To address this concern and guide future 

logistics programs and initiatives, DOD is in the process of developing a 

new strategic plan—the “To Be” roadmap. This plan is intended to portray 

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

and monitor progress toward achieving its objectives, as well as 

institutionalize a continuous assessment process that links ongoing 

capability development, program reviews, and budgeting. According to 

DOD officials, the initiatives in the supply chain management 

improvement plan will be incorporated into the “To Be” logistics roadmap. 

The roadmap is being developed by a working group representing the four 

services, DLA, the U.S. Transportation Command, the U.S. Joint Forces 

Command, the Joint Staff, the Business Transformation Agency, and the 

Office of the Secretary of Defense. The working group reports to a Joint 

Logistics Group comprised of one-star generals and their equivalents 

representing these same organizations. Additionally, the Joint Logistics 

Board, Defense Logistics Board, and the Defense Logistics Executive (the 

Under Secretary of Defense for Acquisition, Technology, and Logistics) 

would provide continuous feedback and recommendations for changes to

the roadmap. Regarding performance measures, the roadmap would link 

objective, quantifiable, and measurable performance targets to outcomes 

and logistics capabilities. The first edition of the “To Be” roadmap is 

scheduled for completion in February 2007, in conjunction with the 

submission of the President’s Budget for Fiscal Year 2008. Updates to the 

roadmap will follow on an annual basis. Efforts to develop the “To Be” 

roadmap show promise. However, until it is completed, we will not be able

to assess how the roadmap addresses the challenges and risks DOD faces 

in its supply chain improvement efforts. 

DOD faces significant challenges in improving supply chain management 

over the coming years. As it develops its “To Be” roadmap for logistics, 

DOD would likely benefit from including outcome-focused performance 

measures demonstrating near-term progress in the three focus areas of 

requirements forecasting, asset visibility, and materiel distribution. With 

outcome-focused performance measures, DOD will be able to show results 

in these areas that have been long identified as systemic weaknesses in the 

Concluding 

Observations 

 12 GAO, Defense Logistics: Strategic Planning Weaknesses Leave Economy, Efficiency, 

and Effectiveness of Future Support Systems at Risk, GAO-02-106 (Washington, D.C.: Oct. 

11, 2001). 

Page 16 GAO-06-983T 
supply chain. While we recognize the challenge to developing outcomefocused performance measures at the department level, DOD could show 

near-term progress with intermediate measures. These measures could 

include outcome-focused measures for each of the initiatives or for the 

three focus areas. To be most effective, the roadmap also would reflect the 

results of analysis of capability gaps between its “As Is” and “To Be” 

roadmaps, as well as indicate how the department intends to make this 

transition. DOD would also benefit by showing the alignment among the 

roadmap, the supply chain management improvement plan, and other 

DOD strategic plans that address aspects of supply chain management. 

Clearer alignment of the supply chain management improvement plan with 

other department plans and ongoing initiatives could provide greater 

visibility and awareness of actions DOD is taking to resolve problems in 

the supply chain. In the long term, however, a plan alone will not resolve 

the problems that we have identified in supply chain management. Actions 

must result in significant progress toward resolving a high-risk problem 

before we will remove the high-risk designation. 

Mr. Chairman and Members of the Subcommittee, this concludes my 

prepared remarks. I would be happy to answer any questions you or other 

Members of the Subcommittee may have. 

Staff Contacts and 

Acknowledgements 

For further information regarding this testimony, please contact me at 202-

512-8365 or solisw@gao.gov. Individuals making contributions to this 

testimony include Tom Gosling, Assistant Director; Michael Avenick; 

Susan Ditto; Marie Mak; Thomas Murphy; Janine Prybyla; and Matthew 

Spiers. 

Page 17 GAO-06-983T 
Page 1 GAO-06-983T 

Attachment 1: Initiatives in DOD Supply 

Chain Management Improvement Plan 

Initiative Description Focus area

Visibility Forecasting Distribution

Radio Frequency Identification Technology consisting of active or passive electronic tags 

that are attached to equipment and supplies that are 

shipped from one location to another and enable shipment 

tracking. 

X X X

Item Unique Identification Marking of personal property items with a machinereadable Unique Item Identifier, or set of globally unique 

data elements, to help DOD value and track items 

throughout their life cycle. 

X X

Joint Regional Inventory 

Materiel Management 

Streamlining of the storage and distribution of materiel 

within a given geographic area in order to eliminate 

duplicate materiel handling and inventory layers. 

X X X

Readiness Based Sparing An inventory requirements methodology that produces an 

inventory investment solution that enables higher levels of 

readiness at an equal or lower cost. 

X

War Reserve Materiel 

Improvements 

An improved war reserve requirements forecasting 

process. 

X X

Commodity Management Process of developing a systematic procurement approach

to the entire usage cycle of a group of items. 

X X

Joint Theater Logistics Improving the ability of a joint force commander to execute 

logistics authorities and processes within a theater of 

operations. 

X X

Joint Deployment and 

Distributions Operations 

Center 

Provides Combatant Commands with a joint theater 

logistics capability (supply, transportation, and distribution) 

for command and control of forces and materiel moving into 

and out of the theater. 

X X

Defense Transportation

Coordination Initiative 

Long-term partnership with a coordinator of transportation 

management services to improve the reliability, 

predictability, and efficiency of DOD materiel moving within 

the continental United States by all modes. 

X

Business Management 

Modernization Program 

Departmentwide initiative to advance business 

transformation efforts, particularly with regard to business 

systems modernization. 

X X X

Source: GAO analysis.

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