United States General Accounting Office

GAO Report to Congressional Requesters

March 1998 DEFENSE

INFRASTRUCTURE

Savings From

Cataloging

Consolidation are

Uncertain

GAO/NSIAD-98-71

GAO United States

General Accounting Office

Washington, D.C. 20548

National Security and

International Affairs Division

B-278308 

March 6, 1998

The Honorable Robert Borski

The Honorable David L. Hobson

House of Representatives

On March 25, 1997, the Department of Defense (DOD) announced its

decision to centralize and, ultimately, consolidate DOD cataloging

operations in Battle Creek, Michigan. According to DOD, “centralizing”

cataloging operations entails transferring existing military service and

defense agency cataloging operations to Battle Creek, and “consolidating”

entails organizing them under one command using standardized cataloging

processes and systems. Battle Creek was selected by a DOD Steering

Committee and Working Group following an assessment of five candidate

sites.1 DOD estimates that, by centralizing and consolidating operations, it

will be able to reduce the number of full-time equivalent civilian

employees performing cataloging functions from 907 to 753 and save

$7.1 million (in fiscal year 1996 dollars) annually.

As you requested, this report addresses (1) the likelihood that DOD’s

decision will result in the estimated personnel reductions and savings,

(2) challenges DOD may face when implementing the consolidation effort,

and (3) proposals made by two employee groups that state that DOD could

achieve even greater personnel reductions and savings by centralizing and

consolidating cataloging operations in other locations (instead of in Battle

Creek, Michigan).

Background “Cataloging” is the process of naming, describing, classifying, and

numbering items that are repetitively purchased, stocked, and distributed

by DOD. The purpose of cataloging is to enable customers to acquire the

appropriate item and prevent duplicate items from entering the supply

system. DOD officials estimate that approximately 2,000 to 2,200 employees

are involved in cataloging.2 DOD reports that its catalog currently consists

of seven million items and the military services and defense agencies

reportedly spend $72.8 million annually (in fiscal year 1996 dollars) to

maintain it. Each military service and defense agency separately catalogs

1

DOD’s site selection criteria considered cost of operation and quality of life.

2

DOD officials estimate that 2,000 to 2,200 personnel perform cataloging tasks on a full- or part-time

basis. The total amount of time these personnel devote to cataloging equates to 907 full-time equivalent

personnel.

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those items it manages. Cataloging is primarily performed at the 14

military service and defense agency locations listed in table 1.3

Table 1: Main Military Service and

Defense Agency Cataloging Sites

Army Logistics Support Activity

Huntsville, Ala.

Army Aviation and Missile Command

Huntsville, Ala.

Army Tank and Automotive Command

Warren, Mich.

Army Communications Electronics

Command

Fort Monmouth, N.J.

Army Chemical Armament Logistics Agency

Rock Island, Ill.

Marine Corps Logistics Base

Albany, Ga.

Navy Inventory Control Point

Philadelphia, Pa.

Navy Inventory Control Point

Mechanicsburg, Pa.

Air Force Cataloging and Standardization

Center

Battle Creek, Mich.

Defense Industrial Supply Center

Philadelphia, Pa.

Defense Supply Center Columbus

Columbus, Ohio

Defense Supply Center Richmond

Richmond, Va.

Defense Personnel Support Center

Philadelphia, Pa.

Defense Logistics Services Center

Battle Creek, Mich.

DOD’s most recent effort to centralize and consolidate cataloging

operations came about as a result of the report by the 1995 Commission on

Roles and Missions of the Armed Forces,4

 which recommended reducing

the cost of DOD’s support infrastructure through increased outsourcing and

better management. Materiel management was specifically identified as an

area for outsourcing and, within this area, the commission recommended

outsourcing cataloging.

Following the Commission’s report, each of the services looked at materiel

management to identify potential candidate programs for outsourcing and

similarly concluded that cataloging was a good candidate. The Defense

Logistics Agency (DLA) began a catalog reengineering project to examine

the overall cataloging business process, and both the Army and the Navy

separately started business case analyses for materiel management

functions, including cataloging. In early 1996, the Deputy Under Secretary

3

Various other agencies also perform cataloging functions but these agencies account for only a small

percent of reported cataloging transactions.

4

Directions for Defense, Report of the Commission on Roles and Missions of the Armed Forces

(May 24, 1995).

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of Defense for Logistics proposed a DOD-wide study (business case

analysis) of cataloging operations within DOD that would bring the

assessments then under way by the services and DLA into one

comprehensive assessment.5

DOD’s business case analysis assessed four ways to manage cataloging

operations: (1) maintaining the status quo, (2) contracting them out (using

a commercial firm to provide cataloging services), (3) consolidating them,

and (4) centralizing and consolidating them. For each alternative, the

analysis assumed a 7-year implementation period (starting in fiscal 

year 1997 and ending in fiscal year 2003) and that personnel reductions

would all take place in fiscal year 1999. Estimated savings both during the

7-year implementation period and after implementation are primarily labor

cost savings. Table 2 presents the results of the analysis.

Table 2: Estimated Costs and Savings

of Alternatives for Managing

Cataloging Operations (fiscal 

years 1997-2003)

In millions of fiscal year 1996 dollars

Alternative

Cost during

implementation

Savings during

implementation

Annual savings

after

implementation

Status quo $305.3 N/Aa N/Aa

Consolidating 279.8 $25.5 $3.8

Centralizing and

consolidating

274.8 30.5 7.1

Contracting out $276.1 $29.2 $11.1

aNot applicable.

Source: DOD Cataloging Business Case Analysis.

The results of the business case analysis were briefed to the Deputy

Secretary of Defense in August 1996. DOD officials decided that, while

contracting out appeared to offer the greater annual recurring savings,

centralizing and consolidating cataloging posed fewer risks. However, the

officials decided that contracting pilot tests would be conducted where it

made sense. On August 30, 1996, DOD asked DLA to take the lead in

implementing required actions in support of centralizing and consolidating

cataloging. Within DLA, the Defense Logistics Services Center was given

responsibility for implementation.

5

DOD Cataloging Business Case Analysis, KPMG Peat Marwick LLP (Aug. 8, 1996).

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Results in Brief It is uncertain that the estimated personnel reductions and savings will

occur. DOD’s estimates are based on several assumptions that either will

not necessarily occur or have changed since DOD made the estimates. DOD

based the estimates, for example, on an assumption of what a

standardized cataloging process may look like but has not settled on an

actual design of the centralized and consolidated system. Detailed studies

to document existing cataloging processes are still ongoing and will be

important for determining how cataloging processes can be separated

from other materiel management functions. DOD also assumed that an

ongoing system development project to develop a standardized cataloging

system would be successful and thus did not consider any system

development costs in estimating savings. However, DOD has since halted

work on that system, and costs to develop a new one are uncertain.

DOD faces significant challenges in implementing the consolidation. Prior

DOD cataloging consolidation efforts incurred problems that will need to be

taken into consideration in developing detailed implementation plans for

consolidation. First, separating cataloging from other service provisioning

and materiel management functions may be difficult and could negatively

affect cataloging operations during the transition.6

 Second, DOD may lose

much of its cataloging experience because of the reluctance of

experienced catalogers to relocate. A DLA official stated that DLA has begun

developing plans that address these risks and that no cataloging functions

will be transferred to Battle Creek until these plans are complete.

However, these plans were not available for our review. Third, planning

for the new standardized cataloging process and the necessary

standardized cataloging system will not be completed until after catalogers

are moved to Battle Creek. DOD also plans, in conjunction with the move,

to reduce the number of catalogers to levels envisioned only after process

reengineering and consolidation of cataloging have occurred. DOD officials

believe the move will increase the likelihood of catalogers adapting to the

as yet unplanned new processes and systems. However, senior officials

responsible for service cataloging operations have expressed concerns

about the risks inherent in proceeding without detailed plans to guide the

consolidation.

Until a standardized cataloging process is developed, it is not possible to

determine the reasonableness of the employee groups’ proposals

concerning further staff reductions.

6

“Provisioning” is the process of ensuring effective spare parts support for new weapons and

equipment.

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Until DOD’s Plans Are

Finalized, Personnel

Requirements and

Savings Will Remain

Uncertain

DOD’s 1996 business case analysis projected that DOD could potentially

reduce the number of full-time equivalent catalogers from 907 to 753 and

save approximately $7.1 million annually by centralizing and consolidating

its cataloging operations. The staff projections, however, are based on

assumptions about what a standardized cataloging process might look like

rather than on actual plans for reengineered processes. DOD also assumed

that a standardized provisioning and cataloging system under development

at the time the business case analysis was conducted would meet its

cataloging system needs and did not recognize costs to develop such a

system. The system DOD was counting on, however, has been terminated.

Development costs for a new system are uncertain. Until DOD completes its

planning on a design for the new cataloging process and develops a cost

estimate for the new standardized system, it has no firm basis for

projecting staff requirements and savings from centralizing and

consolidating cataloging operations.

Standardized Design Is

Needed as a Basis for

Projecting Savings

Differences exist among the services and defense agencies both in their

approaches to cataloging and the extent to which cataloging tasks are

integrated into other functions. Some differences are organizational (such

as the Air Force’s operating a consolidated cataloging process while the

other military services and agencies do not), and some involve process

differences (such as the degree to which cataloging tasks are integrated

into other materiel management and acquisition processes). The Navy, for

example, no longer has stand-alone cataloger positions. Instead, its

cataloging tasks are performed in conjunction with other provisioning,

procurement, and integrated logistics data management actions.

Standardizing these diverse cataloging processes is essential to operating

in a consolidated environment.

DOD has not yet decided how a standardized cataloging process would

work. Its projection that 753 full-time equivalent employees will be needed

for a centralized and consolidated operation is an estimate based on the

assumption that the new standardized process will not differ markedly

from some of the best practices currently in use and that these best

practices can be adopted by the other services and agencies. Accordingly,

DOD identified the best practices currently in use and, using productivity

data for the best practices, extrapolated that data to the total DOD

workload to approximate the staff requirements for a new standardized

process. DOD’s business case analysis acknowledges that this methodology

does not dictate the way that cataloging functions would be performed in

a real consolidated environment, but DOD officials stated that they believe

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it provides a good estimate of the resources that will be needed. We do not

agree that this provides an adequate basis for making staff reductions.

More information on DOD’s methodology is provided in appendix I.

Staffing Requirements Are

Uncertain

DOD’s business case analysis methodology provides a good starting point

for more detailed analysis and planning. However, sufficient uncertainties

about future processes make the analysis a questionable basis for making

actual personnel reductions in the absence of more detailed planning.

Because DOD has not yet developed its new cataloging business process, its

staff requirements are subject to change. In October 1997, for example, a

senior-level cataloging committee recommended that DOD exempt two

cataloging functions from consolidation—item management coding and

nuclear cataloging. DLA officials report that these two cataloging functions

involve 26 full-time equivalent catalogers. Because 26 catalogers will

remain at their present work sites, this will reduce expected personnel

savings. DOD has not yet made a decision on the committee’s

recommendation.

Other changes in DOD’s staffing requirements may come from individual

service and defense agency requests to exempt some cataloging activities,

or portions of activities, from centralization and consolidation. For

example, in October 1997, the Commander of the Navy Inventory Control

Point formally requested that DLA exempt 62 of the 92 positions the Navy

was scheduled to lose from its cataloging operations. According to the

Navy’s request, cataloging activities are integrated into other materiel

management processes, and it is not possible to separate them without

disrupting other processes and creating redundancies between the Navy

and the new centralized cataloging facility. The Navy also pointed out that

the business case analysis found that its integrated process was the most

efficient, responsive process for the two largest cataloging functions—new

item introduction and data management. Thus, the Navy is reluctant to

risk disrupting its cataloging process until DLA determines if consolidation

offers greater efficiencies than the Navy’s integrated processes. DLA

catalogers have asked for exemptions for 39 personnel performing data

maintenance activities, and the other military services and defense

agencies may seek exemptions for some of their personnel as well. Were

all of these waiver requests valid, they would negate a major portion of the

savings expected to occur through cataloging consolidation. A DLA official

said that these requests will be addressed when DLA develops the

individual service and defense agency business plans, but he expects that

most requests for exemptions will likely be denied.

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DLA is in the preliminary stages of planning how it will standardize

processes and meet its system needs but intends to move existing

cataloging services to Battle Creek in three groups. Catalogers from (1) the

Army, the Air Force, and the Defense Supply Center-Columbus would

move in 1998; (2) the Defense Supply Center-Richmond and the Marine

Corps in 1999; and (3) the Navy, the Defense Industrial Supply Center, the

Defense Personnel Support Center, and the Defense Special Weapons

Agency in 2000. Catalogers from the Air Force and the Defense Logistics

Services Center are already located in Battle Creek. After the move the

services and defense agencies would continue to operate using their

unique cataloging processes and systems. Meanwhile, DLA would begin the

task of developing a common process. Detailed studies of the individual

service and defense agency cataloging processes that DLA officials describe

as a first step in reengineering cataloging processes began in October 1997,

and a DLA official estimates that these studies will take approximately

2 years to complete. These studies will document how (1) each of the

services’ and agencies’ existing processes work and (2) cataloging

processes would be separated from other materiel management processes.

Presumably such studies would also determine whether consolidation is

the preferred option from a cost and operational standpoint compared

with some current approaches where cataloging is integrated into other

materiel management processes.

Cost to Standardize

Cataloging Systems Is

Unknown

The military services and defense agencies maintain separate logistics data

management systems, and these systems provide the data needed to

perform cataloging functions. According to cataloging managers at the

sites visited, the system differences are significant and a cataloger from

one service or agency would be unable to perform cataloging functions

using another service’s or agency’s logistics data management systems. To

consolidate operations, DOD will need to develop a standardized system

that can handle the differing service and defense agency item management

processes. However, DOD did not consider costs for a standardized

cataloging system in its estimate for a centralized and consolidated

cataloging operation. Such costs could materially affect the projected

savings from consolidating cataloging operations.

At the time the business case analysis was conducted, DOD was in the

midst of developing a standardized system called the Provisioning and

Cataloging Technical Support System (PCTSS). This system was being

developed by the Joint Logistics Services Center to standardize a

cataloging and provisioning system for logistics data management across

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DOD. According to DOD, approximately $48 million was spent on

development, and the business case analysis estimated that completing the

cataloging portions of the PCTSS system would cost $139 million. However,

a contractor official told us that system completion costs were not

included in the analysis because of the assumption that the costs for

completing the system would be incurred with or without consolidation.

The contractor’s assumptions were valid at the time the business case

analysis was completed, but in late 1996, DOD terminated development of

the PCTSS system. With the demise of PCTSS, DOD will need a new

development effort for a standardized cataloging system. System

development costs have not yet been estimated. The team leader for DLA’s

cataloging and transition office believes that the $139 million estimate in

the business case analysis is excessive but has not offered an alternative

estimate. As a first step DLA hired a contractor to review the former PCTSS

development effort and to determine what is usable and what must be

redone. DOD officials also stated that whatever the development costs are,

they would be offset by the costs that would have been incurred in

maintaining the myriad of existing systems. However, DOD could not

provide us with data to support this position. Further, we believe that to

fully assess costs DOD would need to evaluate the expected life-cycle costs

of the two approaches. Without a full assessment of costs and savings, DOD

cannot fully determine the extent to which savings will exceed costs and

the amount of time that would be needed for savings to offset the costs

associated with this consolidation effort.

DOD Faces

Significant Challenges

in Centralizing and

Consolidating

Operations

Although DOD has not yet developed a standardized cataloging process or

determined how it will meet its needs for a standardized cataloging

system, it has decided to relocate catalogers to Battle Creek, and reduce

the number of catalogers to be relocated to a level envisioned after the

processes and systems are standardized. According to the business case

analysis, centralizing catalogers under one command will increase the

likelihood of catalogers adopting to the new processes and procedures.

However, DOD’s prior experiences in consolidating cataloging operations

show that consolidating entails risks that if not adequately addressed can

significantly degrade cataloging services. A DLA official told us they are

preparing plans that address these risks. However, at the conclusion of our

review the plans had not been completed.

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Questions Exist About

Separating Cataloging

From Other Functions

Senior officials at the two DLA and two military service cataloging sites we

visited expressed concerns about consolidating cataloging operations

without a clearly defined business process to guide the consolidation.

According to these officials, many cataloging processes are integrated with

other processes, and separating them without a clear understanding of

how a new process will work could affect customers and create additional

costs and inefficiencies. For example, Navy officials report that cataloging

data maintenance is generally done by a weapon system equipment

specialist, item manager, or other noncataloging person in conjunction

with other provisioning, procurement, or logistics data management

actions. While the Navy would have to give up positions to a centralized

cataloging activity, supply center personnel will still be required to

determine and originate the appropriate data changes. They suggest that

cataloging centralization will result in some redundancy between the

service and the centralized cataloging activity. The Deputy Director of the

Defense Supply Center-Columbus similarly maintains that removing some

functions from the inventory control point may have negative effects on

some processes and could result in increased response times.

A DOD official stated that, in the short term, centralizing cataloging

personnel before reengineering cataloging processes could result in

inefficiencies and added costs. However, the official said these

inefficiencies would disappear when the processes were reengineered.

The official also said that centralizing before reengineering is justified

because prior efforts to consolidate had met with resistance and an

inability to develop consensus between the services and defense agencies

on a common approach to cataloging. This official also said that

centralizing cataloging under one command is key to further efforts to

achieve an integrated and consolidated cataloging operation. We believe

that, while consolidating into one command may be necessary to

overcome service parochialism, a sound decision should be predicated on

a clear understanding of the new process and its expected costs and

benefits, including confirmation of the feasibility and benefits of

separating integrated cataloging functions from the services that include

cataloging as part of the services’ overall provisioning processes.

Cataloger Experience Was

Lost in Previous

Consolidations

DOD’s prior experiences in consolidating cataloging operations indicates a

high risk of losing substantial cataloger experience and that such moves

must be carefully managed. For example, in 1976 when the Air Force

consolidated its cataloging and standardization operations in Battle Creek,

it suffered a significant loss of cataloging experience from catalogers who

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were unwilling to relocate. According to an Air Force history of the move,

only 87 of 574 persons slated to relocate made the move, and no

supervisory cataloging personnel relocated.7

 The history reports that

personnel problems were so severe that all other problems paled beside

them. Air Force cataloging productivity suffered during the first year of

operations and only high-priority work was accomplished. Routine work,

such as revising existing catalog data, was put aside until the second year

of operation. The Air Force reports that it ultimately resolved its problems

and was able to reduce its cataloging and standardization infrastructure by

69 percent. The Army was able to fill 90 percent of its authorized positions

when it partially consolidated its cataloging operations in Huntsville,

Alabama, in 1994, but officials report they lost a significant amount of

cataloger experience because many people swapped jobs to avoid moving.

Sixty percent of those transferring had little or no cataloging experience

and had to be trained on the job. Army officials also state that insufficient

management personnel transferred to ensure effective supervision of

employees, and productivity following the move dropped severely for

more than a year.

DOD Actions Also Create

Risk

DOD is adding to its risk by reducing the number of catalogers before

cataloging processes are standardized. DOD’s business case analysis found

that 907 full-time equivalent persons are required to maintain existing

cataloging processes and projected that 753 persons would be needed

after cataloging processes were consolidated. However, DLA plans call for

transferring only 753 full-time equivalent persons to Battle Creek where

initial operations would be centralized but not consolidated. Senior

service and defense agency representatives told DOD that they could

operate existing systems at those levels, but no additional assessments

were made to indicate how the existing processes would be maintained

with fewer staff. Cataloging managers at the inventory control points we

visited expressed serious reservations about the ability to operate existing

processes at reduced staffing levels.

The impact of DOD’s decision to reduce the staffing for its centralized

cataloging activity to 753 full-time equivalent positions may also be much

greater than it appears. If only 753 full-time equivalent personnel of the

2,200 personnel involved in cataloging are transferred, approximately

66 percent of the experience base would be lost. While DOD’s business case

analysis assumed that the 753 transferred catalogers would be able to

7

The Centralization of Cataloging and Standardization at Battle Creek, Office of History, Air Force

Logistics Command, Study No. 396, Sept. 1980.

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perform all cataloging tasks of their service or agency, this is an

assumption that may be questionable if cataloging tasks are as integrated

into other processes as cataloging managers claim.

DOD is aware of the potential loss of technical knowledge from catalogers

that do not wish to relocate but states that the strategy of moving

personnel over a 3-year period will allow time to replace or train new

personnel. Additionally, some catalogers will become available as the

Defense Logistics Services Center and the Air Force Cataloging and

Standardization Center, already located in Battle Creek, reduce their

staffs.

DOD Reports That Its

Plans Will Address Known

Risks

DOD originally planned to move the first group of catalogers to Battle

Creek in October 1997 but has since postponed the move until at least

April 1998. According to a DLA official, DLA now intends to leave all

cataloging functions at their current work locations until DLA completes

detailed plans for separating and moving each services’ and agencies’

cataloging processes and connectivity plans for their automation systems.

At the conclusion of our review, these plans were still being developed.

Prospects for

Additional Staff

Reductions Are

Uncertain

We reviewed proposals from employee groups from Philadelphia,

Pennsylvania, and Columbus, Ohio, who have expressed the view that

cataloging operations could be performed at their respective locations

with fewer staff than DOD plans for the centralized facility in Battle Creek.

Until a standardized process for cataloging is developed, however, it is not

possible to determine the reasonableness of either DOD’s or the employee

groups’ staffing projections.

Employees of the Naval Inventory Control Point-Philadelphia, the Defense

Personnel Support Center-Philadelphia, the Defense Industrial Supply

Center-Philadelphia, and the Defense Supply Center-Columbus, maintain

that DOD cataloging operations could be performed using fewer employees

if processes currently in use at their respective locations were adopted.

Specifically, the Philadelphia group believes that cataloging operations

could be run using 431 full-time equivalent employees and Columbus

believes cataloging operations could be run using 472 full-time equivalent

employees. Our analysis of both groups’ projections, however, found that

the methodologies were not based on reengineered cataloging processes.

Instead, both groups assumed that their processes could be adopted by the

other services and agencies. However, because cataloging tasks are

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embedded in numerous other materiel acquisition and provisioning

processes and developing a standardized process will be a complex task,

the extent to which ongoing processes could be adopted as is assumed in

the proposals is not known.

Conclusions Many uncertainties exist regarding what personnel reductions and savings

will occur from DOD’s planned centralization and consolidation of its

cataloging operations. To estimate savings, DOD first needs a detailed plan

showing how a standardized cataloging process will work and an estimate

of the development costs for a standardized cataloging system. Until these

steps are completed, the personnel reductions and expected savings from

centralizing and consolidating cataloging operations are uncertain.

DOD’s prior experiences in centralizing and consolidating cataloging

operations show that separating cataloging processes from other materiel

management processes is a complex task. To avoid interruptions to

cataloging services, implementation should be predicated on a sound plan

that addresses the known risks and defines how a standardized cataloging

process will work and existing processes will be separated from other

integrated processes.

DOD began preliminary studies of the services’ and agencies’ cataloging

processes in late 1997 as a first step toward developing a standardized

process. These studies will take approximately 2 years to complete. Until

these studies are completed and DOD has developed a detailed design for a

consolidated system, there is a high risk of DOD’s disrupting cataloging

services by centralizing cataloging personnel.

Recommendations We recommend that, before cataloging personnel are transferred to Battle

Creek, Michigan, the Secretary of Defense direct the Director of DLA to

develop a clearly defined plan for standardizing the cataloging processes.

We also recommend that DOD develop a full assessment of the costs and

savings of the consolidation and determine the time required for savings to

offset the implementation costs.

Agency Comments

and Our Evaluation

DOD provided written comments on a draft of this report and they are

included in their entirety in appendix II along with our evaluation of them.

DOD partially concurred with our recommendation that a clearly defined

plan for standardizing the cataloging processes should be developed

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before cataloging personnel are moved to Battle Creek and did not concur

with our recommendation that it should develop a full assessment of the

costs and savings of consolidation.

DOD reported that it started developing a business plan for each location

for the transition of cataloging to Battle Creek prior to our audit and is

working on establishing a standardized cataloging system. Additionally,

DOD stated that we incorrectly reported that it has not considered the

lessons learned from prior consolidation efforts. DOD also stated that it had

already conducted a business case analysis and that representatives from

each of the military services and defense agencies supported the cost and

personnel data and savings the study identified. DOD believes that

conducting another business case analysis would needlessly delay any

effort to consolidate and centralize and would not necessarily ensure more

accurate cost and savings data because assumptions in the follow-on

business case analysis could easily change over time as well.

Our draft report recognized that DOD has started developing some business

plans for transferring catalogers to a central cataloging facility, including

connectivity plans for the existing computer systems and plans for

separating and moving each services’ and agencies’ cataloging processes,

and we did not mean to imply that DLA was ignoring lessons learned from

prior consolidations. However, at the time of our review none of the plans

had been completed or were available for us to review. In the absence of

plans, we identified those areas that we believe needed to be addressed,

particularly those historical problem areas from prior cataloging

consolidations. Further, it is not clear to us to what extent each of the

services endorse the savings estimate from the business case analysis. Our

report points out questions and uncertainties about savings identified by

service level officials associated with service cataloging activities. These

uncertainties are underscored by the requests for exemptions to the

planned personnel reductions.

The intent behind the plan called for in our recommendation is not the

business plan DOD refers to in its comments. We were referring to the need

for DOD to develop a plan that details how a consolidated cataloging

process will work and the costs of developing a standardized cataloging

system. As we stated in the report, DOD plans to move catalogers to Battle

Creek where they would continue to operate using the service-unique

cataloging processes and systems. DLA would then complete the task of

developing a common process and system. However, without detailed

plans on how a consolidated process will work and a clear identification

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of the costs of developing a standardized system, DOD cannot be certain of

its resource needs or the costs of implementation and has no assurance

that it will achieve its objective of reducing infrastructure and saving

money. A well-informed decision should be based on clearly identified

resource needs and implementation costs, particularly given the relatively

small annual savings projected.

Advance planning is also critical to selecting the most cost-effective

cataloging option. For example, the business case analysis found that the

Navy’s cataloging processes for the two largest cataloging tasks—data

maintenance and new item introduction—were the most efficient, and the

Navy reports that this efficiency stems from integrating the processes, not

consolidating them. By centralizing prior to completing planning, however,

the possibility that integrating these functions may be the preferred option

is not addressed.

DOD also misunderstands our second recommendation that it develop a full

assessment of the costs and savings of consolidation. We did not mean to

imply that DOD should conduct another business case analysis of

cataloging prior to proceeding. Rather, we meant that DOD should clearly

identify costs based on its current implementation plan. The business case

analysis was not an implementation plan, and many of its assumptions are

no longer valid. For example, the plan assumed that all personnel

reductions would take place in fiscal year 1999. However, this is not what

DOD currently plans. Similarly, at the time of the analysis no decision had

been made on where cataloging operations would be centralized. Since

that time DOD has decided to centralize in Battle Creek and cost estimates

for renovating work space can be firmed up, as can estimates of the

number of personnel who will be displaced, moved, and trained. Most

importantly, system development cost data needs to be assessed.

Scope, and

Methodology

To assess DOD’s cost and savings projections, we reviewed DOD’s business

case analysis and implementation plans. We reviewed DOD’s estimation

methodology, potential problems that may affect current cost and

schedule estimates, and the causes of previous schedule slippages and

cost increases. We discussed DOD’s planning and estimated costs and

savings with KPMG, the contractor who conducted the analysis; officials

from the Office of the Deputy Under Secretary of Defense for Logistics;

the Defense Logistics Agency, Ft. Belvoir, Virginia; the Defense Logistics

Services Center, Battle Creek, Michigan; the Air Force Cataloging and

Standardization Center, Battle Creek, Michigan; the Army Logistics

Page 14 GAO/NSIAD-98-71 Defense Infrastructure
B-278308 

Support Activity, Huntsville, Alabama; the Army Aviation and Missile

Command, Huntsville, Alabama; the Defense Supply Center, Columbus,

Ohio; the Navy Inventory Control Point, Philadelphia, Pennsylvania; the

Navy Inventory Control Point, Mechanicsburg, Pennsylvania; the Defense

Industrial Supply Center, Philadelphia, Pennsylvania; and the Defense

Personnel Support Center, Philadelphia, Pennsylvania. Our tentative

findings were also discussed with the Assistant Deputy Secretary of

Defense for Materiel and Distribution.

Our information on DOD’s planning to support its consolidation effort was

obtained from the Air Force history of its 1976 consolidation and

discussions of lessons learned from the consolidation with officials at the

Air Force Cataloging and Standardization Center. Our information on

lessons learned from the Army’s 1994 experience in partially consolidating

its cataloging operations in Huntsville, Alabama, was obtained from

discussions with the Army’s Cataloging Branch Chief, Logistics Support

Activity, Huntsville, Alabama, who was involved in managing the Army’s

consolidation in Huntsville. We also discussed the risks of collocating and

consolidating the cataloging function with senior officials at each of the

sites we visited during our assessment of DOD’s plans.

Our information on the proposals made by two employee groups that state

that DOD could achieve even greater personnel reductions and savings by

consolidating cataloging operations in other locations (instead of Battle

Creek, Michigan) was obtained from employees at the Navy Inventory

Control Point, Philadelphia, Pennsylvania; the Defense Industrial Supply

Center, Philadelphia, Pennsylvania; the Defense Personnel Support Center,

Philadelphia, Pennsylvania; and the Defense Supply Center, Columbus,

Ohio. We analyzed both groups’ staff projections and discussed our

conclusions with them. We also discussed the Philadelphia and Columbus

employees’ assertions about staffing needs with officials at the Defense

Logistics Services Center and the Office of the Deputy Under Secretary of

Defense for Logistics.

We performed our review from September 1997 to January 1998 in

accordance with generally accepted government auditing standards.

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

Minority Members of the Senate Committees on Armed Services and on

Appropriations and the House Committees on National Security and on

Appropriations; the Secretaries of Defense, the Army, the Navy, and the

Page 15 GAO/NSIAD-98-71 Defense Infrastructure
B-278308 

Air Force; the Commandant of the U.S. Marine Corps; and the Director of

DLA. Copies will be made available to others upon request.

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

concerning this report. Major contributors to this report were 

Barry W. Holman, Glenn D. Furbish, and David F. Combs.

David R. Warren, Director

Defense Management Issues

Page 16 GAO/NSIAD-98-71 Defense Infrastructure
Page 17 GAO/NSIAD-98-71 Defense Infrastructure
Contents

Letter 1

Appendix I 

The Department of

Defense’s

Methodology for

Identifying Alternative

Staff Requirements

20

Appendix II 

Comments From the

Department of

Defense

21

Tables Table 1: Main Military Service and Defense Agency Cataloging

Sites

2

Table 2: Estimated Costs and Savings of Alternatives for

Managing Cataloging Operations

3

Abbreviations

DLA Defense Logistics Agency

DOD Department of Defense

PCTSS Provisioning and Cataloging Technical Support System

Page 18 GAO/NSIAD-98-71 Defense Infrastructure
Page 19 GAO/NSIAD-98-71 Defense Infrastructure
Appendix I 

The Department of Defense’s Methodology

for Identifying Alternative Staff

Requirements

Department of Defense (DOD) officials assumed that the new reengineered

cataloging process would be similar to current processes. By using

productivity data for the best practices currently in use and extrapolating

that data to the total DOD workload, they approximated the staff

requirements for the new standardized process. The following steps were

used:

1. Actual cataloging costs for 11 common cataloging functions were

identified for each military service and defense agency and a service or

defense agency was identified that performed each function most

economically.

2. Using cost data from the most economical process, DOD projected

function costs for the other services and agencies. For example, the Navy

introduced new items most economically at an average of $77 per item.

Estimated costs for new item introduction for the other services and

defense agencies were computed by multiplying the number of new items

they introduced by $77.

3. Estimated function costs were then adjusted upward for risk based on

the perceived difficulty of implementation. Low-risk tasks were adjusted

by 25 percent, medium by 50 percent, and high by 75 percent.

4. A total process cost for each alternative was then computed by adding

the individual function costs. DOD’s existing cataloging process costs were

$72.8 million annually. Process costs in a consolidated environment were

projected to be $64.6 million annually. Process costs in a centralized and

consolidated environment were projected to be $60.5 million annually.

5. Staffing requirements for the alternatives were then determined based

on the projected savings for each alternative. To illustrate, a centralized

and consolidated process would save DOD an estimated 17 percent

($60.5/$72.8 = 0.83). A 17-percent reduction in the existing cataloger

workforce leaves 753 catalogers needed for a centralized and consolidated

operation (907 x 83% = 753).

Page 20 GAO/NSIAD-98-71 Defense Infrastructure
Appendix II 

Comments From the Department of Defense

Note: GAO comments

supplementing those in the

report text appear at the

end of this appendix.

See comment 1.

Page 21 GAO/NSIAD-98-71 Defense Infrastructure
Appendix II 

Comments From the Department of Defense

Now on p. 12.

See comment 2.

Now on p. 12.

See comment 3.

Page 22 GAO/NSIAD-98-71 Defense Infrastructure
Appendix II 

Comments From the Department of Defense

See comment 4.

Page 23 GAO/NSIAD-98-71 Defense Infrastructure
Appendix II 

Comments From the Department of Defense

GAO Comments 1. Our draft report included statements by Defense Logistics Agency (DLA)

officials that they have begun developing plans that address these risks.

We highlighted previous problems to emphasize their importance or the

need for a plan to deal with future risks, not to suggest that DOD was not

aware of these problems. However, at the conclusion of our fieldwork in

November 1997, no plans had been completed or were available for review

that showed how DLA intended to deal with these known risk areas.

2. The business plans DOD refers to in its official comments are not those

intended by the recommendation. DOD’s plans are those discussed in

comment 1. We are referring to the need for DOD to develop a plan that

details how a consolidated cataloging process will work and the costs of

developing a standardized cataloging system. DOD does not currently

intend to complete this plan until after catalogers are centralized, but not

consolidated, in Battle Creek. However, as stated in our report, without

this plan DOD can neither identify its resource needs nor the cost of

implementing its decision. Given the relatively small annual savings

involved, we believe this information is critical to a well-informed

decision.

3. We did not recommend that DOD conduct another business case analysis.

Rather, we recommended that DOD develop a full assessment of the costs

and savings of the consolidation and determine the time required for

savings to offset the implementation costs. DOD’s business case analysis is

not an implementation plan and does not clearly identify the costs of

implementation. Instead, it projected costs based on numerous

assumptions, many of which are no longer valid. DOD now has considerably

more information regarding centralization at its disposal and should

update its information before it proceeds. In particular, DOD should

identify the costs for standardizing its cataloging systems.

4. DOD’s comment does not accurately reflect our recommendation. We

recommended that DOD have the then-ongoing defense review being

conducted by the National Defense Panel also examine the savings and

risks associated with inventory control point consolidation. We do not

necessarily agree that the consolidation of cataloging is the one area that

makes the most sense, given service concerns about their ability to easily

separate cataloging from their integrated provisioning processes. DOD’s

detailed documentation of existing cataloging processes should provide

greater insight into the feasibility and desirability of breaking apart such

integrated functions.

(709292) Page 24 GAO/NSIAD-98-71 Defense Infrastructure
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