Defense Logistics: Improvements Needed to Enhance DOD's Management Approach and Implementation of Item Unique Identification Technology
Published: 2012-05-03T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: IUID technology allows DOD to assign a unique number to an item and use that number to manage that item in a variety of logistics processes. In 2003, DOD began implementation of IUID and has estimated that it could improve the accountability and maintenance of its property and equipment and save from $3 billion to $5 billion per year. Also, integrating and sharing UII data across DODs enterprise information systems could enable DOD to track equipment as it moves between its components. GAO evaluated the extent to which DOD has (1) incorporated key elements of best management practices into its framework for IUID implementation, (2) marked items with IUID labels, and (3) developed the capability to share UII data across DOD in its enterprise information systems. GAO reviewed documents, interviewed cognizant officials, and reviewed DOD and GAO key practices for its analysis.
section_title: What GAO Found
paragraphs: The Department of Defense (DOD) has taken some steps to improve its approach to managing and implementing Item Unique Identification (IUID) technology, but has yet to incorporate some key elements of best management practices into its evolving framework for management of IUID implementation. These include internal controls and analysis of return on investment. DOD has included certain internal controls, such as defining key areas of authority for IUID implementation, and it is revising policy to incorporate IUID. However, DOD does not have performance measures, such as reliable schedules for predicting when its enterprise information systems will be able to manage items using IUID data, or a full estimate of IUIDs cost and benefits. Without a management framework that includes such key practices, DOD has faced challenges in implementing IUID technology and may not be well positioned to achieve potential financial and nonfinancial benefits.
DODs data on the number of items already in its inventorylegacy itemsmarked with IUID labels to date is incomplete and DOD lacks assurance that contractors are sufficiently marking newly-acquired items and government-furnished property. The military services mark legacy items and have reported marking more than 2 million items. However, DOD does not have complete information on the total number of legacy items its components have marked and must mark in the future; does not have a full set of quantifiable goals or interim milestones corresponding to its IUID marking criteriasuch as certain items that cost $5,000 or moreand does not use consistent criteria among its components to track progress. Without the components reporting complete and comparable data, DODs ability to assess progress in marking legacy items will remain limited. Also, DOD does not have assurance that contractors are sufficiently marking newly-acquired items and government-furnished property. DOD reported that as of January 2012, over 2,500 contractors had marked or registered over 11 million items. However, DOD does not require the components to examine and report on all types of contracts that should include IUID marking clauses, nor does it have policies and procedures that provide for systematic assessment of the sufficiency of data contained in these items labels. Hence, DOD cannot know the full extent to which contractors are supplying IUID labels with the data needed to track items.
DODs ability to track and share unique item identifier (UII) data across components is hampered by the lack of full integration of data into components enterprise information systems. DOD has made some progress but faces challenges as it proceeds with its integration plans. DOD is revising its supply chain management policy and guidance to include IUID use, but has not fully defined requirements for using UII data, nor developed complete, integrated master schedules for integrating IUID, DOD-wide and within components systems. Such schedules enable agencies to predict the cost and timelines of their systems development. Without such requirements and schedules, DOD cannot adequately predict when the systems will be able to use UII data, or whether DOD will meet its fiscal year 2015 goal for using UII data to manage items throughout their life cycle.
section_title: What GAO Recommends
paragraphs: GAO is making nine recommendations for enhancing DODs implementation of IUID. They include actions to improve DODs management of IUID implementation through best practices; enable the components to report complete data for marking items with IUID labels; and enable the components to share UII data across DOD enterprise information systems. DOD concurred with eight recommendations and partially concurred with one related to updating estimated financial costs and benefits of IUID implementation. DOD stated it will continue to identify such costs, but GAO continues to believe that updating benefits is also important, as discussed more fully in the report.

section_title: Letter
paragraphs: The Department of Defense’s (DOD) inventory contains tens of millions of  items, and it is a DOD priority to provide effective accountability over  equipment and inventory items. One aspect of accountability is asset  visibility, a key component of DOD’s management of its supply chain.  DOD describes asset visibility as the ability to provide timely and accurate  information on the location, quantity, condition, movement, and status of  items in its inventory. Limitations in asset visibility—such as a lack of  interoperability among information technology (IT) systems, or challenges  in instituting new technologies for tracking assets—make it difficult to  obtain this information in a timely and accurate fashion. One of the tools  that DOD plans to use to improve asset visibility is a technology called  item unique identification (IUID). This technology allows DOD to assign a  unique number to an individual item and then use that unique number to  manage that item in a variety of logistics processes. For example,  according to DOD, tracking assets with IUID technology could enhance  logistical efficiency and improve DOD’s visibility of these assets. We have  long reported that DOD supply chain management is a high-risk area, due  in part to ineffective and inefficient inventory management practices and  procedures, and challenges in achieving widespread implementation of  key technologies aimed at improving asset visibility. We have also  previously reported on challenges DOD has faced in instituting new  technologies for improving asset visibility,and processes DOD continues to have difficulties in systematically  identifying and managing individual items throughout their life cycles.
In 2003, the Office of the Under Secretary of Defense for Acquisition,  Technology and Logistics issued DOD’s first policy on IUID technology,  directing DOD components—the Army, Navy, Marine Corps, Air Force,  and Defense Logistics Agency—to include IUID marking requirements in  contracts for certain types of items. In 2004, this office established the  requirement for DOD components to mark items already in their  inventories—known as legacy items—with IUID labels. Contractors and  components mark items with IUID by placing a label on the item. IUID  labels contain information printed on them, and also encoded in a two- dimensional bar code image, referred to as a data matrix. These data  matrices contain various pieces of information that—when combined— make up a globally unique string of numbers referred to as the item’s  unique item identifier (UII). DOD has established criteria for the types of  items that are required to be marked with IUID labels. According to  DOD, it has tens of millions of items in its inventory that meet these  criteria. It is DOD’s goal for its components to share UII data  departmentwide, and the components are to use these data for tracking  these items.
The task force was formed at the direction of the Joint Logistics Board on July 7, 2009,  and was tasked to assess IUID implementation across DOD. The Joint Logistics Board  provides advice and recommendations regarding joint logistics concerns and issues at the  level of the Office of the Secretary of Defense. items with IUID and taken steps to ensure that newly-acquired items and  government-furnished property are sufficiently marked by contractors with  IUID; and (3) developed the capability to share UII data across DOD in its  enterprise information systems.
To determine the extent to which DOD has a comprehensive  management approach for its implementation of IUID, we reviewed  previously published DOD and GAO work to identify best management  and cost-estimation practices. One of the best cost-estimation practices  is that historical data are important for creating credible cost estimates.  Because the task force used historical cost data in development of IUID  cost estimates, we collected and reviewed the components’ estimates of  historical IUID spending. In addition, we collected and reviewed the  components’ fiscal year 2012 budget requests for IUID implementation,  and the task force’s analysis of the potential costs and benefits of IUID  implementation. To determine the extent to which the DOD components  have marked legacy items with IUID and taken steps to ensure that  newly-acquired items and government-furnished property are sufficiently  marked by contractors with IUID, we reviewed DOD’s criteria for IUID  marking and its plans for marking items. We also gathered data on the  number of legacy items in components’ inventories, and how many had  been marked as of October 2011. In addition, we reviewed the Defense  Federal Acquisition Regulation Supplement clauses that require  contractors to mark or register newly-acquired items and government- furnished property, and we gathered data from DOD on contractor- marked items. To determine the extent to which DOD has developed the  capability to share UII data across DOD in its enterprise information  systems, we reviewed our previously published work on best practices for  developing schedules for these systems; reviewed existing schedules  for these systems; and reviewed other system planning documents. We  reviewed a variety of DOD’s IUID implementation efforts and visited  selected sites (based on a non-generalizable, judgmental sample) to  observe key IUID activities; these sites represent each DOD component  and were selected in part based on the type of IUID activity performed at  each. For all our objectives, we interviewed officials knowledgeable about  DOD’s IUID implementation efforts. We assessed the reliability of data  provided by DOD by reviewing existing information about the data and the  systems that produced the data and by interviewing agency officials  knowledgeable about the data to determine the steps taken to ensure the  accuracy and completeness of the data. We have determined that the  data are sufficiently reliable for the purposes of reporting the findings in  this study.
We conducted this performance audit between May 2011 and May 2012  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives. More detailed information on  our scope and methodology is provided in appendix I.
subsections: section_title: Background
subsections: section_title: Criteria and Process for Using IUID Technology
paragraphs: DOD has established criteria for the types of items that are required to be  marked with IUID labels.
For principal end items and contractor-marked secondary items, the  criteria are as follows:  1. all items for which the government’s unit acquisition cost is $5,000 or  more;  2. items for which the government’s unit acquisition cost is less than  $5,000, when identified by the requiring activity as DOD serially  managed, mission-essential or controlled-inventory;  3. when the government’s unit acquisition cost is less than $5,000 and the  requiring activity determines that permanent identification is required; and  4. regardless of value, (a) any DOD serially managed subassembly,  component, or part embedded within an item and (b) the parent item that  contains the embedded subassembly, component, or part.
For secondary items in use or in inventory, the criteria are as follows:  1. all DOD serially managed items including, but not limited to: sensitive,  critical safety, or pilferable items that have a unique item-level traceability  requirement at any point in their life cycle; and all depot-level reparable  items; and  2. any other item that the requiring activity decides requires unique item- level traceability at any point in their life cycle.
In order to use IUID technology, four processes must be completed. First,  each item that qualifies for IUID marking—according to DOD’s criteria—is  labeled. IUID labels often contain some human-readable information,  printed as text on the label. The amount and type of human-readable  information varies, but it often contains key details about the item, such  as its National Stock Number, part number, or serial number. These are  categories that DOD components use to identify items in their inventories.  In certain cases, items do not have labels attached to them, and instead  are labeled through a process known as direct part marking, in which the  human- and machine-readable information are applied directly to the  item. In addition, each individual label contains information about the  item, encoded in a machine-readable, two-dimensional image printed on  the label. Known as a data matrix, this image contains various pieces of  information encoded in a two-dimensional bar code. Figure 1 shows a  data plate with an IUID data matrix in the lower right-hand corner.
When combined, the pieces of information encoded in the data matrix  make up a globally unique string of numbers referred to as the item’s UII  number. To ensure that all items marked with IUID labels are globally  unique, DOD requires that UII numbers be formatted according to  international standards for syntax format. Further, UII numbers must be  entered into DOD’s IUID Registry. The registry is a database intended to  ensure that each UII number is unique. An item’s UII number may be  entered into the registry in one of two ways: the item is marked with an  IUID label and the UII number associated with that label is registered, or  DOD or contractors can establish a “virtual” UII number. According to  DOD guidance, these virtual UII numbers are assigned to an item that  has not yet been marked with an IUID label. The guidance states that a  virtual UII number may be used due to economic or logistical  considerations. For example, a DOD component may virtually mark one  item that is embedded in another item, so that DOD does not have to  remove the embedded item solely to mark the embedded item. For legacy  items already in a component’s inventory, marking and registration are  the responsibility of the component. For items that are not yet in DOD’s  inventory and are being delivered to a component—or for property  furnished by the government to a contractor—it is the responsibility of the  contractor to mark or register items. If the UII number in a data matrix is  improperly formatted, it cannot be used to properly identify the item, and  the data matrix must be replaced.
Second, personnel must electronically read the label’s data matrix, the  two-dimensional bar code in which the item’s UII number is encoded.
There are several types of tools than can be used for this process,  including hand-held scanners and web-based software that can read an  image of a data matrix. Because data matrices cannot be read visually,  electronically reading the matrices is the only way to access the UII data  they contain. Figure 2 shows an electronic scanner being used to read a  data plate with an IUID data matrix.
Third, UII data from a data matrix is passed to an IT system. According to  DOD officials, there are a variety of IT systems that have a requirement to  use UII data, and some of these systems currently have the capability to  store UII data. Examples include the Army’s Property Book Unit Supply  Enhanced, the Navy’s Configuration Data Managers Database–Open  Architecture, the Marine Corps’ Joint Asset Maintenance Integrated  Support System, and the Air Force’s Automated Inventory Management  Tool. DOD officials have explained that some of these systems operate in  “pockets” within the components, and do not share UII data across the  components or DOD-wide. For instance, the Air Force’s Automated  Inventory Management Tool contains UII data that is specific to an Air  Force installation, and does not have the capability to share these data  with other installations. DOD’s goal is for the components to share UII  data across each of their individual IT systems, and DOD-wide, between  components. Within DOD, this type of data sharing is characterized as  “enterprisewide.” In order to accomplish enterprisewide data sharing of  UII data, the components intend to use certain IT systems referred to as  Enterprise Resource Planning systems. These automated systems  consist of multiple, integrated functional modules that perform a variety of  business-related tasks, such as general-ledger accounting, payroll, and  supply chain management. DOD officials have explained that certain  Enterprise Resource Planning systems will provide the capability to share  UII data enterprisewide, and in this report we are focusing on DOD efforts  to integrate IUID with these systems.IT system, such as an Enterprise Resource Planning system, DOD  intends to store UII data and share these data within and across DOD  organizations. In addition, IT systems can use software to analyze these   Once UII data is uploaded into an  data to improve logistics processes, such as property accountability and  maintenance, in DOD’s supply chain.
Fourth, to achieve IUID technology’s potential benefits in many logistics  processes, DOD personnel will have to periodically repeat the previous  steps, including scanning the matrix on an item’s label; uploading the UII  data into an IT system; and then storing, sharing, and analyzing the data  as required by the specific logistics process. For example, in a property- accountability process that we observed, each time a weapon was  checked in or out of an armory, personnel scanned the label’s data  matrix; the matrix’s UII number was uploaded into an electronic property  book; and software then matched the weapon’s UII number with data that  identified the weapon’s owner. For many of the logistics processes in  which IUID could be used, these steps would be repeated throughout an  item’s life cycle.
section_title: Key Organizations Involved in IUID Implementation
paragraphs: It is DOD’s goal for its components to share UII data departmentwide, and  the components are to use these data for unique item tracking. The Office  of the Deputy Under Secretary of Defense for Logistics and Materiel  Readiness—under the Office of the Under Secretary of Defense for  Acquisition, Technology, and Logistics—is the focal point for  implementing IUID capabilities for DOD’s supply chain materiel. As of July  2011,DOD-wide IUID implementation to the Office of the Deputy Assistant  Secretary of Defense for Supply Chain Integration (ODASD).  According to component officials, each component has multiple  organizations carrying out IUID implementation tasks, such as creating  policy and defining requirements; planning and budgeting for  implementation of policy; and executing requirements. In addition,  according to component officials, each component has an office that   that office delegated the responsibility for programmatic lead of  maintains the lead in IUID implementation policy. These respective offices  are:
Army—the Office of Life Cycle Logistics Policy, in the Office of the  Assistant Secretary of the Army for Acquisition, Logistics and  Technology;
Navy—the Office of the Assistant Secretary of the Navy for Research,  Development, and Acquisition;
Marine Corps—the Office of the Director, Logistics Plans, Policies,  and Strategic Mobility, in the office of the Deputy Commandant of the  Marine Corps for Installations and Logistics;
Air Force—the Directorate of Transformation, Deputy Chief of Staff for  Logistics, Installations and Mission Support; and
Defense Logistics Agency—the Office of Logistics Management  Standards.
Also, to facilitate intercomponent communication and collaboration, the  components have established a number of working groups and other  bodies to facilitate coordination on IUID implementation.
section_title: DOD’s IUID Task Force
paragraphs: The Joint Logistics Board determined that there were ambiguities  concerning DOD’s IUID policy, requirements, and proposed value across  DOD, as well as wide variation in the components’ implementation  strategies, execution, and funding of IUID implementation. As a result, in  2009 the board chartered the task force, led by the Assistant Deputy  Under Secretary of Defense for Maintenance Policy and Programs, and  including representatives from the components and the Office of the  Secretary of Defense. The task force had several goals, to include  assessing the value of IUID within DOD’s supply chain, and  recommending changes to policy and guidance to adequately align IUID  implementation with the task force’s evaluation of IUID’s value. The task  force issued a report with recommendations in June 2010 that estimated  financial costs of IUID implementation, as well as financial and  nonfinancial benefits. Specifically, the report stated that DOD could begin  to achieve net financial benefits of IUID implementation in fiscal year  2017. In addition, the task force recommended modifying some of DOD’s  IUID-marking criteria. Subsequently, the Office of the Under Secretary  of Defense for Acquisition, Technology, and Logistics modified DOD’s  IUID marking criteria to implement some of the task force’s recommended  changes, issuing the modification in December 2010. In addition, the  task force issued a revision to its initial estimates, lowering its cost   DOD’s key IUID  estimate. The revision was issued in March 2011.policy issuances and implementation events from fiscal year 2003 to  fiscal year 2011 are summarized in appendix II.
section_title: DOD Has Taken Some Steps toward Developing a Framework for Management of IUID Implementation, but Has Not Yet Incorporated Several Key Elements of a Comprehensive Management Approach
paragraphs: DOD has taken some steps to improve its approach to managing and  implementing IUID technology, but has yet to incorporate some key  elements of best management practices into its evolving framework for  management of IUID implementation. These include internal controls and  analysis of return on investment. According to GAO’s previously  published work, internal controls are important in helping agencies  improve operational processes and implement new technological  developments. Internal controls include an organizational structure that  clearly defines key areas of authority; policies that enforce management  directives; goals; and performance measures. In addition, GAO and  DOD have identified best practices for analyzing a program’s return on  investment. The practices identified by GAO include providing estimates  of all potential costs and the timing of costs. DOD has identified best  practices that include analyzing benefits, and making recommendations,  based on relevant evaluation criteria. DOD has defined key areas of  authority and responsibility for IUID implementation, and is updating  policy to incorporate changes required by the implementation of IUID.  However, DOD has not incorporated other key elements of best  management practices into its evolving framework for management of  IUID implementation. For example, DOD lacks such key information as  quantitatively defined goals for marking legacy items; performance  measures, such as reliable schedules for predicting when its Enterprise  Resource Planning systems will have the capability to manage items  using UII data; and a full estimate of IUID’s cost and benefits. Without a  management framework that includes quantitatively defined goals,  performance measures, and a more complete estimate of all associated  costs and benefits, DOD has faced challenges in implementing IUID  technology and runs the risk of not fully realizing its potential benefits,  including financial benefits by fiscal year 2017.
subsections: section_title: DOD Has Taken Several Steps That Could Improve Its Management of IUID Implementation
paragraphs: ODASD(SCI) and the components have taken some steps that could  improve DOD’s management approach for IUID implementation.  According to the DASD(SCI), his office is in the process of developing a  framework for managing and implementing IUID, which we reviewed. As  of March 2012, this framework consisted of two elements. The first  element is a set of July 2011 briefing slides titled “IUID Game Plan and  Actions Underway.” The slides include a summary of actions that DOD  needs to take in key areas of IUID implementation such as the marking of  items, the use of IUID in business processes, and modifying IT systems  to incorporate IUID. These slides also indicate that ODASD(SCI) is  following some best practices of a comprehensive management  framework. In the slides, DOD clearly defines the Office of the Assistant  Secretary of Defense for Logistics and Materiel Readiness as the DOD  organization responsible for leading IUID implementation activities. As  previously discussed, that office delegated the responsibility to  ODASD(SCI). In addition, the slides discuss DOD policies that enforce  management directives concerning IUID implementation and that are  being updated to incorporate IUID. The second element of DOD’s  framework for managing and implementing IUID is a January 2012  timeline listing several planned implementation actions from fiscal years  2012 through 2017.
The components have also taken some steps toward improving their  management of IUID implementation. The Army and Marine Corps are  using some quantifiable goals—and certain IUID marking criteria—to  track the progress of their legacy marking efforts. In addition, officials  from some components told us that they had inspected some newly- acquired items to determine whether these items were sufficiently marked  with IUID labels. For the items they reviewed, those inspections helped to  detect problems in contractors’ marking of items. Further, the Marine  Corps and Air Force are planning to integrate IUID elements into  implementation schedules for their Enterprise Resource Planning  systems.
section_title: DOD Has Not Fully Incorporated Certain Internal Controls into Its Framework for Management of IUID Implementation
paragraphs: DOD has not fully incorporated internal controls, such as quantifiable  goals or metrics to assess progress, into its framework for management  of IUID implementation. An agency’s establishment of internal controls is  key in helping an agency meet its goals, and we have previously reported  that in the absence of quantifiable targets, it is difficult for officials to  assess whether goals were achieved, because comparisons cannot be  made between projected performance and actual results. DOD has  identified tens of millions of legacy items that meet its IUID marking  criteria, but has not developed a full set of quantifiable goals or metrics to  assess its progress in marking these items. The task force has stated that  DOD will not achieve IUID’s potential benefits unless DOD marks a  “significant” number of these legacy items, and an ODASD(SCI) official  stated that DOD needs to mark a “majority” of these legacy items by fiscal  year 2015. However, the task force and ODASD(SCI) have not  quantitatively defined the terms “significant” or “majority,” respectively.  Further, according to the task force report, the number of legacy items  DOD will mark is an important factor in determining when DOD may begin  to realize IUID’s projected financial benefits. Therefore, without metrics to  quantify its progress in marking legacy items, it is unclear whether DOD  will begin to realize these benefits by fiscal year 2017, the year in which  the task force report projects these benefits may begin.
GAO-11-53 and GAO-08-883T. have adequate schedules for the integration of IUID with their Enterprise  Resource Planning systems.
We have previously reported that an important element of measuring  performance is the collection of data that are complete and consistent  enough to document performance and support decision making. As  previously discussed, DOD has established IUID marking criteria for  different categories of inventory. We found that some components used  these criteria to track their progress in marking legacy items; however,  others did not. The DASD(SCI) stated that he has asked the components  to periodically report on their progress in marking legacy items to his  office. However, he stated that he has not asked the components to use  DOD’s IUID marking criteria in their reporting.
section_title: DOD Has Not Completed a Full Analysis of IUID’s Return on Investment
paragraphs: We have previously reported that another key element of best  management practices is analysis of return on investment. A complete  analysis on the return on investment consists of several best practices  identified in previously published GAO and DOD work. The practices  identified by GAO include providing estimates on all potential costs and  the timing of costs. DOD has identified best practices for analyzing  benefits, and making recommendations, on the basis of relevant  evaluation criteria as a best practice. In addition, GAO has reported that  performing a sensitivity analysis of these estimates demonstrates the  effects on the cost and schedule of an assumption that may no longer be  valid. DOD began implementation of IUID in fiscal year 2003, and in  fiscal year 2009 the task force estimated some costs and benefits of  implementation. The task force report discusses how IUID could improve  DOD’s logistical efficiency and effectiveness. In addition, the report  provides a “rough order of magnitude” assessment of certain costs and  financial benefits of implementation; and projects when DOD may begin  to realize financial benefits. However, the components, ODASD(SCI), and  the task force did not fully follow certain best practices for the estimation  of costs and financial benefits. As a result, DOD does not have a full  analysis of IUID’s potential return on investment.
DOD’s components could not provide complete historical and planned  spending data for IUID implementation, and ODASD(SCI) has not tracked  the components’ spending or budget requests for IUID. According to GAO  best practices for cost estimation, historical data on the cost of a system  is important for projecting a credible estimate of future costs.  Although  the Marine Corps and Air Force provided us with complete estimates of  the amount of money they have spent in their IUID budgets, the Army and  Navy provided incomplete estimates of their IUID spending, and the  Defense Logistics Agency did not provide an estimate. These  components were not able to provide complete estimates because they  do not track IUID spending as a distinct budget category. In addition,  ODASD(SCI) does not track the five components’ historical spending on  IUID.
Although the components were not able to provide complete historical  spending information, according to the information they provided, the  components spent at least $219 million on IUID implementation from  fiscal year 2004 through fiscal year 2011. Officials explained that they  spent this money on a variety of IUID implementation efforts, including the  acquisition of marking equipment, such as IUID label printers and  scanners; the marking of legacy items; and the development of software  to support marking processes. Table 1 summarizes the five components’  reported historical spending on IUID over 8 fiscal years.
GAO-09-3SP.
The components’ total reported spending in fiscal year 2011 dollars is $226.1 million.
The Army provided an estimate of the money spent on IUID  implementation in its depots over this period but, as an official explained,  could not provide an estimate of IUID spending outside of its depots  because it does not track IUID funding as a distinct budget category. The  Navy was also able to report on a portion of its IUID spending that was  executed by one office within the Navy, but Navy officials stated that  because the Navy has not funded IUID implementation in a centralized  fashion, the Navy cannot track how much other Navy offices have spent  in implementing IUID. An official from the Defense Logistics Agency  explained that while the agency does spend money on IUID  implementation, it does not have a distinct budget for IUID  implementation, and so cannot specifically track its IUID costs.
With regard to future spending, the Marine Corps and the Air Force  reported that they requested a total of $19.2 million (Marine Corps: $10.8  million; Air Force: $8.4 million) for IUID implementation in fiscal year  2012. However, the Army and Navy were unable to provide their budget  requests for fiscal year 2012 because they do not budget for IUID  spending as a distinct budget category. According to officials from the  Defense Logistics Agency, an office within the agency submitted a  request for IUID implementation spending, but this request was not  included in the agency’s final fiscal year 2012 budget request.
In addition to the components not fully tracking their spending on IUID  implementation, ODASD(SCI) does not track the components’ spending  on IUID implementation. ODASD(SCI) explained that the office uses a set  of “scorecards” to track the components’ IUID implementation efforts. In  2011, ODASD(SCI) received two sets of scorecards, the first in January  and the second in November. In our review of these scorecards, we found  that the components do not report information on either the amount of  money they have spent on IUID implementation, or the amount of money  that they plan to request for IUID implementation.
In its report, the task force estimates that DOD would need to invest $3.2  billion to realize the benefits of IUID implementation. This estimate  includes several types of costs, such as the cost of marking legacy items  and the labor required to perform various implementation tasks. However,  the estimate does not include the following four costs:
The task force could not completely estimate the costs associated  with how individual logistics processes would need to change to  incorporate the use of IUID technology, because it did not have  sufficient information about these changes. As a relatively new  technology, IUID is not widely used in existing DOD logistics  processes. That means that the components will have to modify  existing processes to use IUID. DOD has made some progress in  defining the type of logistics processes that would need to change to  incorporate IUID. For example, according to ODASD(SCI), DOD  intends to modify 10 different categories of logistics processes, such  as receipt and distribution of items. DOD has made some progress in  planning for such modifications. For example, the Army Materiel  Command has determined that 11 of its logistics processes will  incorporate IUID functionality through one of the Army’s Enterprise  Resource Planning systems. However, according to Army officials, the  Army has not yet defined the distinct steps at which personnel will use  IUID, within its logistics processes. Further, according to DOD  officials, the components have not determined the full number or type  of business processes within these categories that need to be  modified. In addition, in their 2011 scorecard updates, the Army,  Marine Corps, and Air Force reported challenges or concerns with  progress in defining how their business processes will require  modification because of IUID. Without information on the number of  logistics processes that will require modification and the specific steps  that will need to change to accommodate the incorporation of IUID,  the task force could not have completely estimated costs. Several  DOD officials we spoke with agreed with this assessment, explaining  that without this information, the task force was not able to completely  estimate IUID implementation costs.
The task force report states that the task force did not include the cost  of modifying Enterprise Resource Planning systems to share and use  UII data because the functionality to use UII data is inherent in these  systems. However, if DOD is to achieve benefits from IUID, Enterprise  Resource Planning systems must have the ability to share and  analyze UII data, and according to DOD officials the ability to perform  these two functions is not always inherent in these systems. For  example, the core software package for one of the Army’s Enterprise  Resource Planning systems has the capability to accept UII data, but  in its current version this capability is not activated. For the system to  accept UII data, the capability must be activated in a future update.  According to DOD officials, such modifications to Enterprise Resource  Planning systems can incur costs. Navy officials explained that the  task force report does not include the additional cost that would be  required to modify the Navy’s systems to communicate with other  components’ systems, or to analyze UII data to improve logistics  processes. By not including certain costs to modify the relevant  Enterprise Resource Planning systems, the task force may have left  out a substantial set of costs.
The report did not include the full cost of marking newly-acquired  items with IUID. Because the Defense Federal Acquisition Regulation  Supplement contract clauses provide that contractors are responsible  for marking or registering items, contractors are likely to build the cost  of marking items into their contract pricing. Therefore, while contractor  personnel are marking the items in question, this cost is borne by  DOD to the extent that the contractor has built the cost of marking  qualifying items into the costs of the goods or services provided.  According to component officials, the components do not know how  much of a newly-acquired item’s cost is attributable to contractors’  marking of that item. However, according to estimates in the task  force report and provided by the Air Force, contractors’ average cost  to mark a newly-acquired item is about $30 to $50. On the basis of  GAO analysis of information from the DOD registry on the number  and rate of contractors’ registration of newly-acquired items in  January 2012, IUID marking by contractors could result in  approximately $27 million to $45 million in marking costs to the  components per year. This cost is not included in the task force’s  estimate.
As previously discussed, an IUID label on an item may contain  human-readable information, such as the item’s National Stock  Number. In addition, the label has a data matrix that contains  information about the labeled item. For example, the matrix contains  various pieces of information that make up the globally unique string  of numbers referred to as the item’s UII number. Contractors have  delivered items to DOD that have labels with deficient data matrices. If  a label has a deficient data matrix, DOD cannot use the label’s data  matrix to track or manage items. The task force did not include the  cost to the components of fixing these deficient IUID data matrices on  contractor-marked items. Although component officials were not able  to estimate the financial cost of fixing these data matrices, officials  explained that there is productivity loss associated with fixing them.  For example, according to Army and Marine Corps officials, their  verification of a deficient matrix’s missing or incorrect data requires an  average of 10 to 15 minutes, and sometimes requires significantly  more time, when additional research into the item is needed. This  investment of time, multiplied by many thousands of deficient data  matrices, may result in a substantial amount of lost productivity for  DOD components’ personnel.
The task force report assessed the potential benefits of IUID  implementation by examining three categories of logistics processes:  intensive item management, property accountability, and product life  cycle management. According to the task force’s analysis, DOD’s  implementation of IUID is unlikely to result in substantial financial benefit  in the categories of intensive item management or property accountability.  However, the report did discuss potential nonfinancial benefits of IUID  implementation in these two categories. The report states that the use of  IUID in intensive item management could enable strict accountability and  control of DOD’s most critical assets—such as nuclear weapon–related  material—across parts of DOD’s supply chain, enhancing the security and  safety of such assets. Moreover, according to the report, implementing  IUID into property-accountability processes on the enterprise level could  enable DOD to track equipment assets throughout their life cycle. The  report explains that one benefit of tracking on the enterprise level is that  DOD may be able to more quickly address equipment losses. Further,  according to an official from the Office of Defense Procurement and  Acquisition Policy, the use of IUID in DOD’s logistics processes could  lead to improved data quality that may result from automatically entering  data into IT systems, as opposed to manually entering data.
While the report does not estimate substantial savings through the  integration of IUID with intensive item management or property- accountability processes, the report estimates that IUID implementation  could result in annual savings of $3 billion to $5 billion through the  implementation of IUID in a collection of maintenance processes referred  to as product life cycle management. According to our review of the  report and a task force official, the key to achieving savings through  product life cycle management is to track and manage individual items by  a unique identifier. That approach is called serialized item management.  According to DOD officials and the task force report, DOD can achieve  serialized item management by using any type of unique identifier,  including a traditional serial number; a UII number; or a unique identifier  provided by a different type of technology, such as a radio frequency  identification device or a contact memory button.
The task force estimated achieving substantial financial benefits from  product life cycle management, but it used a methodology for estimating  these benefits that may not be appropriate to the scale and complexity of  DOD’s IUID implementation efforts. The IUID task force report states that  projected savings will gradually increase as implementation of IUID  spreads throughout DOD and, by fiscal years 2016 to 2017, DOD may  reach a break-even point at which its annual financial savings would  equal its annual spending for implementation of IUID. After fiscal year  2017, the report projects that DOD may pass the break-even point, and  could begin to realize the annual savings of $3 billion to $5 billion.
To develop its estimate of cost savings through the use of serialized item  management in product life cycle management, the task force used the  following methodology:
Reviewed case studies of five DOD maintenance programs that use  serialized item management. The task force observed that by using   the maintenance programs reduced  serialized item management,costs by an average of 4 to 6 percent in labor and materiel costs for  maintenance, and in the cost to transport items to maintenance  locations.
Next, the task force estimated maintenance costs by adding DOD’s  fiscal year 2008 budget for depot- and field-level maintenance to  DOD’s fiscal year 2009 budget for maintenance transportation, which  together total about $83.2 billion.
Finally, by applying the 4 to 6 percent reduction to $83.2 billion in  annual maintenance costs, the task force estimated that an annual  savings of $3 billion to $5 billion could result from the use of serialized  item management in product life cycle management maintenance  processes.
However, three aspects of this methodology call into question whether it  is reasonable to assume that DOD-wide use of IUID technology in  maintenance processes would lead to the savings estimated by the task  force.
The task force estimated DOD-wide savings on the basis of a limited  number of case studies, and conclusions developed from these  studies may not be applicable to the substantial complexity and size  of the DOD-wide maintenance enterprise. According to the Office of  the Deputy Assistant Secretary of Defense for Maintenance Policy  and Programs, DOD’s maintenance operations support a wide range  of weapon systems including about 280 ships, 14,000 aircraft and  helicopters, 900 strategic missiles, and 30,000 combat vehicles. Our  review of the Task Force report indicates the five case studies  address—in total—five individual weapon systems, whereas DOD  performs maintenance on hundreds of different systems. Moreover,  four of the five case studies address either Air Force or Navy  programs; only one addressed Army programs. Because of the limited  scope of the case studies used by the task force, conclusions based  on these case studies may not apply to the DOD-wide maintenance  budgets that the task force used in its estimation of savings.
The case studies did not address programs that use IUID as the  technology that provides a unique identifier to track items through  serialized item management. Rather, the case studies addressed  programs that use other means of uniquely tracking items, such as  contact memory buttons. Thus, the case studies do not consider costs  that may be specific to IUID technology, such as the cost to purchase  scanners or software to read data matrices, or the cost to replace  deficient IUID data matrices. Because of this, it may be inaccurate to  assume that maintenance programs using IUID technology will  achieve the same type or amount of savings claimed by the case  studies of programs using other technologies.
Even when a logistics program experiences cost savings after  introducing a new technology or process, it can be difficult to link the  savings directly to a specific cause or technology. For example, we  visited an installation that is using a combination of IUID, passive  radio frequency identification, new database software, and a  reorganization of warehouse space to reduce the cost of managing its  supply chain. However, an installation official explained that it was not  possible to determine the extent to which the cost savings were  attributable to a specific change, such as the introduction of IUID. For  this reason, it may have been incorrect for the task force to assume a  link between estimated cost savings and the use of a specific  technology such as IUID.
We have previously reported that every estimate is uncertain because of  the assumptions that must be made about future projections, and  because of this, cost estimators should always perform a sensitivity  analysis that demonstrates the effects on the cost and schedule of an  assumption that may no longer be valid.that DOD could begin to realize financial savings from IUID  implementation after fiscal year 2017, and explains that its cost and  benefit estimates are conditional, depending on a number of  assumptions. However, the task force report does not contain a sensitivity  analysis for either its cost or its benefit estimates. As a result, the task  force’s report does not portray the potential effects of changing key  assumptions on the report’s estimates of cost, financial benefits, or the  time frames in which the report estimates DOD may realize financial  benefits.
The task force report estimates  There is a substantial amount of uncertainty associated with key  assumptions on which the task force report’s estimates are based. For  example, the task force report states that the cost to mark legacy items is  one of the primary drivers of IUID implementation costs. However, as  discussed in more detail later, DOD may face challenges in determining  the total number of legacy items it must mark. The task force’s cost  estimate does not reflect the range of costs associated with marking a  population of legacy items that—according to DOD estimates—may  range between about 60 million and 122 million items. In addition, the  task force’s estimate of financial benefits assumes that the components’  IT systems, including their Enterprise Resource Planning systems, will  have the capability to use UII data for product life cycle management in  2015. However, as discussed later in the report, the components cannot  reliably predict when their Enterprise Resource Planning systems will be  able to use UII data for product life cycle management. The task force’s  estimate of when DOD will begin to realize these benefits does not reflect  the possibility that the components’ Enterprise Resource Planning  systems will not have this capability in fiscal year 2015.
Also, the task force’s estimates of financial benefits assume IUID  implementation across each of DOD’s components. However, as  discussed in more detail later, the Navy, Air Force, and Defense Logistics  Agency are currently not carrying out key IUID implementation efforts. For  example, the Navy is not systematically marking legacy items and the  potential integration of IUID with its Enterprise Resource Planning system  for Supply is unfunded. In addition, the Air Force is not actively integrating  IUID into its Enterprise Resource Planning system. Also, the Defense  Logistics Agency is not marking legacy items. The task force’s estimate of  financial benefits does not consider that some benefits may not be  achieved as a result of DOD’s partial implementation of IUID. Without a  sensitivity analysis of its cost and benefit estimates, the task force report  does not provide DOD leaders with information about how well the  estimates may hold up under reasonable changes to the assumptions on  which the estimates are based.
section_title: DOD and Contractors Have Made Some Progress Marking Items with IUID, but DOD Faces Challenges in Assessing Progress toward Goals and Ensuring That Items Are Sufficiently Marked
paragraphs: DOD components and contractors have been marking items with IUID,  but due to several challenges, it is difficult for DOD to assess its progress  in marking items or ensuring that contractors are sufficiently marking  items. DOD components have reported marking more than 2 million  legacy items, and DOD has identified tens of millions of legacy items  that meet its IUID marking criteria. But, DOD does not have complete  information on the total number of legacy items that its components have  marked and must mark in the future. Moreover, DOD has not developed a  full set of quantifiable goals to assess its progress in marking these items.  Further, DOD has not set interim milestones to determine the  components’ progress in marking items, and DOD’s components do not  use consistent criteria to track progress in legacy item marking. With  respect to newly-acquired items and pieces of government-furnished  property, DOD reports that as of January 2012, more than 2,500  contractors had delivered newly-acquired items to DOD and had  registered over 11.5 million such items and pieces of government- furnished property in DOD’s IUID Registry. However, DOD cannot ensure  that contractors are sufficiently marking all of the items that require IUID  labels, for two reasons: DOD reporting requirements do not provide  assurance that appropriate marking clauses are included in all contracts,  and DOD components do not have systematic processes to assess the  sufficiency of IUID data matrices. As a result, DOD may be unable to  ensure that contractors are marking all newly-acquired items and pieces  of government-furnished property that require IUID labels, and DOD  cannot know the extent to which contractors are supplying IUID data  matrices that the components need to track items with IUID technology.
subsections: section_title: DOD Components Have Made Some Progress in Marking Legacy Items, but Several Challenges Make Progress toward Marking Goals Difficult to Assess
paragraphs: DOD has made some progress in marking legacy items. In late 2004, the  Office of the Under Secretary of Defense for Acquisition, Technology, and  Logistics established the requirement for DOD components to mark  legacy items with IUID labels and for the military services to develop  plans to accomplish such marking. An Army depot began marking legacy  items in 2005, and according to information from DOD’s IUID Registry,  DOD components began registering legacy items in 2006. As of October  2011, the components reported marking more than 2 million legacy items.  However, DOD does not have complete information on the total number  of items to be marked and that have been marked; DOD has not  quantifiably defined its marking goals according to DOD’s IUID marking  criteria; DOD has not set interim milestones to determine the  components’ progress in marking items; and DOD’s components do not  use consistent criteria to track progress in legacy item marking.
The components provided us with estimates of the total number of items  that must be marked in the future, according to DOD’s IUID marking  criteria. According to the components, the total number of items in their  inventories that meet DOD’s IUID marking criteria is about 122 million. In  addition, the components provided us with estimates of the total number  of legacy items they have marked, if estimates were available. As of  October 2011, the Army, Marine Corps, and Air Force reported that they  had marked a total of about 2.7 million legacy items. The Navy and  Defense Logistics Agency did not report the marking of legacy items.
The Army reported that its inventory contains about 15 million items  that meet DOD’s IUID marking criteria, and that it had marked about  1.2 million legacy items.
The Marine Corps reported that its inventory contains about 3.1  million items that meet DOD’s IUID marking criteria, and that it had  marked about 0.3 million legacy items.
The Air Force reported that its inventory contains about 13.3 million  items that meet DOD’s IUID marking criteria, and that it had marked  about 1.2 million legacy items.
The Navy reported that its inventory contains about 60.6 million items  that meet DOD’s IUID marking criteria. However, the Navy could not  provide an estimate of the number of legacy items it had marked.  According to a Navy official, there are “pockets of compliance” within  the Navy, in which certain organizations had marked legacy items with  IUID labels. But the Navy does not have a Navy-wide, systematic plan  or approach to legacy marking; it does not track the number of legacy  items being marked within these pockets; and it characterized its  progress in legacy marking as “minimal.”
The Defense Logistics Agency reported that its inventory contains  about 30.0 million items that meet DOD’s IUID marking criteria.  However, according to the agency, it is not currently marking legacy  items; does not have the capability or required technical information to  mark the legacy items in its inventory; and does not plan to mark  legacy items in the future. For example, the agency does not have  marking equipment. In addition, agency officials explained that the  agency lacks information on how to appropriately mark legacy items  with IUID labels. According to the officials, the other components  must provide this information to the agency, because the components  manage the items that the agency stores in its inventory.
With regard to the total number of items to be marked in the future, some  component officials stated that their estimates are incomplete. For  example, Army officials explained that their estimate does not include  certain classified items because the system they used to estimate the  Army’s legacy item inventory does not interface with systems that track  those classified items. Navy officials stated that their estimate does not  include items that are embedded in other items—such as a circuit board  inside of an aircraft—because of system limitations and the time it would  have taken to include these items in the Navy’s estimate. Further,  Defense Logistics Agency officials explained that their estimate does not  include items that are classified by the components as serially managed.  Moreover, the components’ estimates of legacy items to be marked in the  future do not match the estimate of the total number of legacy items to be  marked according to the task force’s report. According to the report, DOD  has a total of about 60 million legacy items to be marked. However, the  components report that they must mark a total of about 122 million legacy  items, and the Navy alone estimates it has 60.6 million legacy items to  mark in the future. Because the task force’s estimate is 49 percent  smaller than the components’ estimates, DOD may not have complete  information on the total number of legacy items in its inventory that meet  IUID marking criteria, and that it must mark in the future.
As stated above, the components reported to us that they had marked  about 2.7 million legacy items. However, information from the DOD IUID  Registry indicates that about 4.9 million legacy items were registered as   As previously discussed, an item’s UII may be entered  of October 2011.into the registry in one of two ways. First, the item can be marked with an  IUID label, and the UII associated with that label is registered. Second,  DOD or contractors can establish a virtual UII, registering an item before  it is eventually marked with a label. Because the registry’s estimate of  legacy items registered is 45 percent larger than the components’  estimate, it is unclear how many legacy items that DOD has marked.  Table 2 summarizes the components’ estimates of the total number of  legacy items in their inventories that meet DOD’s IUID marking criteria;  the task force’s estimate of the total number of legacy items in the  components’ inventories that meet DOD’s IUID marking criteria; the  components’ estimates of the total number of legacy items they have  marked; and the total number of legacy items recorded in the DOD IUID  Registry.
An agency’s establishment of goals is a key internal control, and we have  previously reported that in the absence of quantifiable targets, it is difficult  for officials to assess whether goals were achieved, because  comparisons cannot be made between projected performance and actual  results. In 2010, the task force recommended that DOD focus its legacy  marking efforts on those items from which DOD could derive the greatest  benefit. According to an ODASD(SCI) official, it is DOD’s goal to complete  the marking of the “majority” of these legacy items by the end of fiscal  year 2015. In addition, according to the task force’s report, DOD’s  marking of a “significant” number of legacy items is one of the keys to  realizing the potential financial benefits of IUID implementation. We have  previously reported that, where appropriate, to more easily assess  agency progress, performance goals should have quantifiable, numerical  targets.DOD’s goals of marking a “majority” of legacy items, or a “significant”  number of legacy items, respectively. Further, while some DOD  components have quantifiable goals for marking certain legacy items,  others do not. As previously discussed, DOD has established IUID  marking criteria for different categories of inventory, such as certain items  with a unit acquisition cost of $5,000 or greater; certain items that are  serially managed; certain items that are controlled (sensitive or  classified); and certain depot-level reparable items. We found that some  components had set quantifiable goals using these criteria. For instance,  the Marine Corps has quantifiable goals for each of the categories  defined by DOD’s IUID marking criteria. The Army has quantifiable goals  for each of these categories except for items that are controlled (sensitive  or classified). Neither the Navy nor the Air Force have established  quantifiable goals defined by DOD’s IUID marking criteria.
Once quantifiable goals have been established, we have previously  reported that metrics for a program’s main efforts—such as interim  milestones and schedules—give decision makers the information needed  to assess progress and estimate realistic completion dates. As previously discussed, we have noted that quantifiable target—such as  interim milestones—can assist organizations in tracking progress toward  their goals. For example, quantifiable interim milestones could assist  DOD in evaluating whether the components are marking legacy items at a  rate that will allow DOD to meet its fiscal year 2015 goal of marking a  “majority” or “significant” number of legacy items in its inventory.
As of January 2012, ODASD(SCI), the task force, and the components  had not fully developed quantifiable interim milestones to track progress  toward DOD’s goals for marking legacy items. Neither ODASD(SCI) nor  the task force had set interim milestones for the number of items that  should be marked in fiscal year 2015, DOD’s target date for marking a  “majority” of legacy items and a “significant” number of legacy items.  Further, while some components have set interim milestones for tracking  their progress in marking certain legacy items, others have not. For  instance, the Air Force has established interim milestones for the marking   but it is still working  of some legacy items, such as class VII equipment,on developing interim milestones for others, such as class II items. The  Marine Corps has established a goal of completing the marking of about  34 percent of its legacy items by December 2012. However, it has  established no interim milestones. Similarly, neither the Navy nor the  Defense Logistics Agency has developed interim milestones.
In January 2012, ODASD(SCI) provided us with an IUID timeline  containing targets that are not quantified. The IUID timeline indicates that  ODASD(SCI) expects the components to be marking legacy items at least  through fiscal year 2017. In addition, ODASD(SCI)’s IUID timeline lays  out fiscal year 2012 targets for the components to determine the number  of items they need to mark, and fiscal year 2013 targets for the  components to report on their legacy marking progress to ODASD(SCI).  According to ODASD(SCI) officials, the office intends for the components  to use the Federal Logistics Information System to eventually provide  quantifiable reports on their legacy marking efforts.DASD(SCI) stated that he has asked the components to develop  quantifiable interim milestones for legacy marking. The components’ use  of the system may provide them with a means to report progress in  regard to these milestones. However, ODASD(SCI) officials stated that  the system does not yet have this capability and they do not yet have an  estimate for when the components could begin their reporting. Until  ODASD(SCI) and the components begin to use such milestones to  assess DOD’s progress in marking legacy items, it is difficult to know  whether DOD’s current number of marked legacy items represents what  DOD intended to achieve, almost 7 years after DOD established the  requirement to mark legacy items.
GAO/GGD-96-118. milestones, and the tracking of progress with categories defined by  DOD’s IUID marking criteria is summarized in table 3.
While legacy items are marked by DOD, newly-acquired items and  government-furnished property must be marked by DOD’s contractors.  DOD has made some progress in ensuring that these types of items are  marked by contractors. According to the DOD IUID Registry, more than  2,500 contractors had registered over 11.5 million newly-acquired items in  the registry as of January 2012. DOD plans to eventually finish marking  its legacy items, but contractors will continue to mark items that are  acquired by DOD, or provided by DOD to contractors, and meet its IUID  marking criteria. According to January 2012 data from the DOD IUID  Registry, the number of newly-acquired items and government-furnished  property already exceeds the number of legacy items. If current marking  trends continue, the ratio of these items to legacy items will continue to  increase, and newly-acquired items and government-furnished property  will continue to make up the majority of DOD’s inventory of IUID-labeled  items. For this reason, the future success of DOD’s IUID implementation  efforts depends on having contractors sufficiently mark newly-acquired  items and government-furnished property with IUID labels. While DOD  has made some progress, it cannot currently ensure that contractors are  sufficiently marking all of the items that require IUID labels, for two  reasons: reporting requirements do not provide assurance that  appropriate IUID-marking contract clauses are included, and DOD’s  inspection efforts are not systematic. Without adequate reporting  requirements regarding the components’ insertion of IUID clauses into  applicable contracts, DOD cannot know the extent to which it is requiring  contractors to mark all items that should have IUID labels. And, without  sufficient inspection of IUID data matrices, DOD cannot know the extent  to which contractors are supplying deficient data matrices.
In order for DOD to use IUID technology to track contractor-marked items  that qualify for IUID marking, DOD and its contractors must take certain  steps to help ensure that qualified items are marked, and that the IUID  marks are usable. These steps are as follows:  in contracts for qualified items, the components must ensure that the  contracts contain appropriate contract clauses and that those clauses  are correctly completed. These clauses require the contractor to mark  or register qualified items;  the contractor must then mark items with an IUID label with a data  matrix that can be read electronically or establish a virtual UII in some  cases; and  the data matrix must contain the necessary information, organized  with the proper data elements and syntax, which must be registered in  DOD’s IUID Registry.
Defense Federal Acquisition Regulation Supplement section 252.211-7003. label and whether that label’s data matrix is formatted according to DOD- wide standards. Officials from several components told us that they had  inspected some newly-acquired items to determine whether these items  were sufficiently marked with IUID labels. For the items they reviewed,  those inspections helped to detect problems in contractors’ marking of  items. Also, since 2009, the Defense Contract Management Agency has  had a surveillance program in place to inspect newly-acquired items and  assess contractors’ compliance with the acquired-items clause.
A DOD memorandum requires that the components report to the Office of  Defense Procurement and Acquisition Policy on only a portion of  contracts that should include the clauses related to IUID. According to  the memorandum, components are required to report on, among other  things, whether the acquired-items clause is present in contracts for  newly-acquired items. However, they are not required to report on  whether the government-furnished property clause is present in contracts  involving government-furnished property. Several components are thus  reporting only on whether they are including the acquired-items clause in  contracts. While the Air Force reports on whether it is including both the  acquired-items clause and the government-property clause in contracts,  the Army, Navy, Marine Corps, and Defense Logistics Agency report only  on whether they are including the acquired-items clause. While certain  components are reviewing contracts for items that cost more than $5,000  or are serially managed, none of the components are reviewing contracts  for items that meet other DOD IUID marking criteria, such as those for  controlled (sensitive or classified) items. Consequently, DOD does not  know the full extent to which the components are complying with the  requirements to include IUID-related clauses in contracts. Without this  information, DOD may be unable to ensure that contractors are marking  all newly-acquired items and pieces of government-furnished property  that require IUID labels.
According to DOD officials, it is a good practice for either a DOD  component or the Defense Contract Management Agency to inspect  items to ensure that contractors have marked items with IUID labels, and  that the labels’ data matrices are not deficient. Inspection of newly- acquired items is important because contractors have been delivering  IUID labels with deficient data matrices that cannot be used by DOD.  However, neither the components nor the Defense Contract Management  Agency have been systematically inspecting the data matrices in IUID  labels applied to items by contractors. According to both the Marine  Corps and the Air Force, more than 10 percent of the newly-acquired  items’ data matrices they examined after receipt of the items from the  contractor have been deficient. For example, one Marine Corps  installation reported that from January 2010 through October 2011, there  were 8 months in which more than 10 percent of newly-acquired items  provided by contractors were marked with deficient data matrices.  Problems include having matrices in which the syntax of the UII data was  incorrect or missing key elements; matrices that could not be  electronically read; and matrices that contained a UII number that had not  been registered in DOD’s IUID Registry.
Although the Marine Corps and Air Force have assessed a portion of the  data matrices on newly-acquired items in their inventories, these  components are not systematically assessing whether contractors are  sufficiently marking these items. For example, the Marine Corps  estimates that it has assessed the sufficiency of contractors’ marking for  about 79 percent of all newly-acquired items’ data matrices in its  inventory. Officials from both the Marine Corps and Air Force explained,  however, that neither has developed a systematic approach for inspecting  these items’ data matrices. According to Army officials, the Army also  lacks a systematic approach to inspecting these items’ data matrices. For  example, the two depots identified by the Army as furthest along in IUID  implementation have not established a policy or set procedures for  assessing the sufficiency of the data matrices of newly-acquired items in  their inventories. Defense Logistics Agency officials explained that  although its personnel do perform various types of inspection and  acceptance procedures on items delivered to its sites, personnel are not  inspecting items’ data matrices. In addition, the Navy does not have a  policy or plans in place to systematically assess newly-acquired items’  data matrices.
According to the Defense Contract Management Agency’s information  memorandum that describes procedures for inspecting contractors’ data  matrices, the agency’s inspectors are to verify the readability of these  matrices if a scanner for reading matrices is available at the inspection  site. However, as previously discussed, the only way to assess the  functionality of a data matrix is to use a tool that can electronically read  the matrix. Because its memorandum does not require inspectors to  electronically read data matrices in all cases, the Defense Contract  Management Agency cannot ensure that the items it inspects have an  IUID label with a data matrix that can be properly read; that the data  matrix contains the necessary UII data, organized with the proper syntax;  and that the item’s UII number is registered in DOD’s IUID Registry.  Furthermore, officials from the Defense Contract Management Agency  said their inspectors rely on contractors to provide the technology to  electronically read data matrices. If contractors do not provide this  technology, inspectors at those manufacturing sites cannot electronically  read and verify the sufficiency of data matrices.
The Office of Defense Procurement and Acquisition Policy and the  components have taken steps to address some of these challenges. For  example, in February 2011, the office issued a DOD standard operating  procedure for assessing the sufficiency of data matrices. Also, through  the Product Quality Deficiency Report process, Marine Corps item  managers are beginning to work with contractors to address the  contractors’ delivery of deficient data matrices. In addition, in the first  quarter of fiscal year 2012, the Air Force began to track the number of  deficient data matrices it is discovering as it assesses the sufficiency of  newly-acquired items’ data matrices. However, unless all of the  components and the Defense Contract Management Agency are  systematically assessing whether contractors are sufficiently marking  newly-acquired items, DOD cannot know the full extent to which  contractors are supplying deficient data matrices.
section_title: DOD Has Made Some Progress in Preparing to Share UII Data Enterprisewide, but Faces Challenges
paragraphs: DOD has made some progress in developing a capability to share UII  data enterprisewide and integrating IUID functionality with its Enterprise  Resource Planning systems. For example, DOD is in the process of  revising key guidance on using IUID technology and UII data across  DOD, and three components are temporarily storing UII data until they  are ready to use these data in their Enterprise Resource Planning  systems. However, DOD faces several challenges in sharing UII data  enterprisewide, and it is unlikely that it will meet a fiscal year 2015 goal to  use UII data for the management of items in enterprise information  systems. Further, DOD cannot reliably predict when it will meet this goal,  because ODASD(SCI) and the components have not fully scheduled for  integrating IUID functionality with the IT systems through which the  components plan to achieve this capability, their Enterprise Resource  Planning systems.
subsections: section_title: To Achieve Key Benefits, DOD Plans to Use IUID Technology in Enterprisewide Logistics Processes by the End of Fiscal Year 2015
paragraphs: It is DOD’s goal for its components to share UII data departmentwide, and  the components are to use these data for unique item tracking. According  to a DOD instruction,Acquisition Policy is to ensure unique IUID identifiers are established to  enable items to be tracked and traced throughout their life cycle in  acquisition and logistics business processes and systems, in an  integrated approach across DOD. Further, a 2011 IUID implementation  schedule from ODASD(SCI) states that certain DOD item management   processes are to be using UII data to manage items by the end of fiscal  year 2015. Specifically, according to the schedule, by fiscal year 2015,  two categories of logistics processes—intensive item management and  product life cycle management—are to use IUID technology.   the Director for Defense Procurement and  As previously discussed, the task force report assessed the potential  benefits of using IUID technology in these logistics processes. In both  cases, the report explains that sharing UII data across DOD is key to  realizing the full benefits of these processes. Regarding intensive item  management, the report states it is clear that DOD requires an  enterprisewide approach to managing critical items and the largest  benefits of managing items intensively would be achieved by using UII  data across the enterprise.
With regard to product life cycle management, the task force report  estimates that DOD could achieve substantial financial benefits through  the use of UII data in this process. In our previous discussion, we  explained that the task force report’s methodology for estimating these  financial benefits may not be appropriate. However, if DOD is to achieve  potential benefits of product life cycle management, the report explains  that benefits would come primarily through analysis of UII data, and that  DOD should expect to see the full benefit of this analysis as its Enterprise  Resource Planning systems begin sharing and using these data. As  previously mentioned, the report states that DOD could begin to achieve  the net financial benefits of IUID implementation in fiscal year 2017.  However, in order to do so, the report assumes that DOD will have the  capability to share and use UII data, enterprisewide, by fiscal year 2015.
section_title: DOD and Its Components Have Made Some Progress in Integrating IUID with Their Enterprise Resource Planning Systems
paragraphs: Since DOD began its IUID technology implementation efforts in fiscal year  2004, it has made some progress in preparing to share UII data  enterprisewide through its Enterprise Resource Planning systems, in two  main areas. First, DOD is in the process of modifying its supply chain  management policy and guidance to incorporate use of IUID technology  and UII data across DOD. Second, three of the components have  developed IT systems to temporarily store data from IUID-labeled items  until these data can be uploaded into Enterprise Resource Planning  systems.
In January 2012, ODASD(SCI) provided us with sections from a draft  revision to the regulation that establishes DOD’s supply chain  management processes and procedures, including sections pertaining to  IUID. The draft sections we reviewed define standards and procedures  for using IUID in DOD Enterprise Resource Planning systems. If  implemented, the revisions would likely help DOD move forward in its  integration of IUID technology and UII data with its IT systems—including  its Enterprise Resource Planning systems—in two ways. First, the draft  revisions would establish standards for acceptable electronic scanners,  which should help ensure interoperability across DOD organizations that  are scanning and uploading UII data from IUID labels’ data matrices.  Second, the draft revisions would require DOD organizations to update  their UII data-sharing capabilities by adopting a system to share UII data,  such as the Defense Logistics Management Standards; according to  DOD officials, this system is replacing an older one that is unable to share  UII data.for that reason essential to IUID implementation.
Because their Enterprise Resource Planning systems are not currently  capable of accepting or storing UII data at a componentwide level, the  Army, Marine Corps, and Air Force have developed IT systems to  temporarily store UII data generated by the labeling of both legacy and  newly-acquired items. However, these systems have limited capabilities  to manage or use UII data. For example, these temporary systems are  not capable of sharing UII data within or between components. As of  January 2012, the Air Force’s temporary system was limited to use on  individual computer workstations, and could not send or receive UII data  from other Air Force or DOD computers. In addition, the Marine Corps  used its temporary system to provide us with information on its inventory  of IUID-labeled legacy items, but the system was not designed to perform  more complex tasks such as analyzing UII data in support of product life  cycle management processes.
section_title: DOD Faces Several Challenges in Integrating IUID and Is Unlikely to Meet Its Fiscal Year 2015 Goal
paragraphs: DOD faces three challenges in sharing UII data enterprisewide and  integrating IUID functionality with its Enterprise Resource Planning  systems. First, ODASD(SCI) and the components have not fully defined  the requirements for using UII data across DOD, or within the  components’ Enterprise Resource Planning systems. Second, as of April  2012, the Air Force and the Navy were not actively integrating IUID with  their Enterprise Resource Planning systems. And third, ODASD(SCI) and  the components have not fully scheduled for integration of IUID  functionality with their Enterprise Resource Planning systems. As a result,  DOD is unlikely to meet its fiscal year 2015 goal to use UII data in  intensive item management and product life cycle management.
Officials from the Army, Marine Corps, Air Force, and Defense Logistics  Agency said that their components had not yet fully defined the  component-specific UII requirements for their respective Enterprise  Resource Planning systems. A Marine Corps official stated that, as of  January 2012, requirements for how the Marine Corps system will  interface with scanners were in draft form. Officials from the Defense  Logistics Agency explained that because the agency manages items on  the basis of the requirements of the other components, it could not  finalize the business rules for using UII data in its system until the other  components had determined their requirements. According to DOD  officials, it is unclear when the requirements or related business rules will  be fully defined and, until they are defined, the components cannot  complete their integration of IUID technology with their IT systems,  including their Enterprise Resource Planning systems.
As of April 2012, the Air Force and the Navy were not actively integrating  IUID with their Enterprise Resource Planning systems. According to Air  Force officials, because of cost overruns and delays in the development  of its Enterprise Resource Planning system, the Office of the Secretary of  Defense and the Air Force are planning to evaluate alternatives to the  system. Because this system is central to the Air Force’s IUID  implementation efforts and the Air Force does not know when a decision  will be made, officials stated that they cannot estimate when—or  whether—the system will be ready to share and use UII data. According  to Air Force officials, the Air Force has a data network that provides the  capability to share UII data within the Air Force, between certain IT  systems. However, they stated that this data network does not currently  have the capability to share UII data with other components, across DOD.  Further, the officials stated that the Air Force’s plan is to eventually share  UII data enterprisewide through its Enterprise Resource Planning system.  In October 2011, senior Navy officials stated that the Navy had no plans  to integrate IUID with its Enterprise Resource Planning system for Supply,  and will not be ready to share or use UII across its systems—or with other  components’ systems—by the end of fiscal year 2015. Further, they  explained that the Navy was not actively integrating IUID with its  Enterprise Resource Planning system for Supply because strict budget  conditions compelled Navy leadership to allocate funds to programs the  Navy considered to be of higher priority than IUID implementation. As of  April 2012, the Navy stated that proposed integration efforts remained  unfunded.
Because neither ODASD(SCI) nor the components have complete  integrated master schedules for the integration of IUID functionality with  their Enterprise Resource Planning systems, DOD cannot reliably predict  when it will be able to use these systems to meet its fiscal year 2015 goal  to use UII data in intensive item management and product life cycle  management. A key internal control is the use of performance measures,  and we have previously reported that such metrics for a program’s main  efforts—including interim milestones and schedules—give decision  makers the information needed to assess progress and estimate realistic  completion dates. In addition, we have reported that a reliable  schedule—such as an integrated master schedule—is crucial to  estimating the overall timeline and cost of IT programs, including  Enterprise Resource Planning systems. An integrated master schedule is  the time-phased schedule DOD and other agencies use for assessing  technical performance. It contains the detailed tasks or work packages  necessary to ensure program execution. Further, we have reported that  without fully integrating the distinct activities that make up an IT program  with such a schedule, an organization will not be able to measure its  progress toward completion and cannot be held accountable for results.
Although the Army has integrated master schedules for its two Enterprise  Resource Planning systems, these schedules lack key elements, such as  distinct activities for IUID integration and detailed processes for  transmission of UII data across the systems. The Air Force has an  integrated master schedule for its Enterprise Resource Planning system,  and this schedule has distinct activities for IUID integration. However, as  previously discussed, the Office of the Secretary of Defense and the Air  Force are in the process of evaluating whether to modify, or cancel and  replace, the Air Force’s Enterprise Resource Planning system. According  to Air Force officials, the system’s current schedule will need to be  revised once the future of the system has been determined. The Marine  Corps has an integrated master schedule for its Enterprise Resource  Planning system, and Marine Corps officials have stated that they plan to  amend the schedule to include distinct IUID activities. However, as of  January 2012, it did not contain them. As discussed previously, the Navy  is not actively integrating IUID with its Enterprise Resource Planning  system for Supply and does not have an integrated master schedule for  integrating IUID with its Enterprise Resource Planning system.  ODASD(SCI) has produced an IUID timeline that contains general targets  for the fielding of IUID-capable Enterprise Resource Planning systems.  However, an ODASD(SCI) official stated that it does not have an  integrated master schedule to coordinate or track the progress of the  components’ efforts to integrate IUID with their Enterprise Resource  Planning systems. Officials from ODASD(SCI) and several components  have reported that they are unsure of when the components’ Enterprise  Resource Planning systems will be able to share UII data within their  networks, a key capability for both intensive item management and  product life cycle management.
Given the challenges ODASD(SCI) and the components face in sharing  UII data enterprisewide and integrating IUID with their Enterprise  Resource Planning systems, DOD likely will face difficulties in meeting its  IUID integration goals. Without fully defined requirements; resolving the  challenges posed by the Air Force and the Navy not actively integrating  IUID with their Enterprise Resource Planning systems; and an integrated  master schedule that includes IUID integration at the component level  and at the DOD-wide level, DOD cannot reliably predict whether it will  meet its goal to use these systems to manage items through intensive  item management and product life cycle management by the end of fiscal  year 2015, or predict when these systems will have this capability.
section_title: Conclusions
paragraphs: Using UII data could enable DOD to improve accountability and  management of equipment and materiel, and increase efficiencies in  maintenance, which could potentially result in cost savings in some  cases. DOD is in the process of developing a framework for managing  and implementing IUID technology, but could benefit from fully  implementing best management practices that would enable the  department to better determine the costs and benefits of IUID  implementation, and progress toward goals. DOD components have  reported marking more than 2 million legacy items, and DOD has made  some progress in ensuring that its contractors are marking newly- acquired items with IUID. As of January 2012, though, DOD’s  implementation of IUID technology faces several substantial challenges.  For example, while the components report marking more than 2 million  items, DOD does not have quantifiable goals or interim milestones that it  can use to assess progress in achieving its fiscal year 2015 goal of  marking a “majority” of legacy items, or the task force’s goal of marking a  “significant” number of legacy items. With regard to items that must be  marked by contractors, in the absence of policies and procedures that  establish a systematic process for assessing the sufficiency of contractor- supplied data matrices, DOD is unable to determine the extent to which  contractors are sufficiently marking items. This limits DOD’s ability to  ensure that it can track those items. Also, DOD has not fully developed  the schedules needed to integrate IUID with existing IT systems, so that  DOD can share UII data enterprisewide. This impedes its successful  integration of IUID technology with these systems by the end of fiscal  year 2015, its stated goal, and prevents the department from determining  when it might achieve this integration. At a time when the nation faces  fiscal challenges, and defense budgets are becoming tighter, DOD  leaders’ lack of key information on IUID implementation could hinder  sound program management and decision making.
section_title: Recommendations for Executive Action
paragraphs: We recommend that the Secretary of Defense direct the Under Secretary  of Defense for Acquisition, Technology, and Logistics to complete its  implementation and management framework for IUID by incorporating  key elements of a comprehensive management approach, such as a  complete analysis of the return on investment, quantitatively-defined  goals, and metrics for measuring progress. To do so, we recommend that  the Secretary of Defense direct the following organizations to take six  actions:
The Under Secretary of Defense for Acquisition, Technology, and  Logistics to update the IUID task force report’s estimates of costs and  benefits by incorporating key elements of a sound investment analysis  including a more complete estimate of all associated costs, an  appropriate methodology for estimating benefits, and a sensitivity  analysis of these estimates.
The Under Secretary of Defense for Acquisition, Technology, and  Logistics, in coordination with the components, develop quantitatively- defined goals for the number of legacy items that may allow DOD to  achieve the Task Force’s estimate of IUID’s potential benefits, by  marking a “significant” number of these legacy items, or meet  ODASD(SCI)’s goal that DOD needs to mark a “majority” of these  legacy items by fiscal year 2015.
The Under Secretary of Defense for Acquisition, Technology, and  Logistics, in coordination with the components, establish quantifiable  interim milestones for marking legacy items that allow DOD to track  progress toward its goals.
The Under Secretary of Defense for Acquisition, Technology, and  Logistics, in coordination with the components, track progress using a  consistent set of criteria, such as DOD’s IUID marking criteria.
The components and the Defense Contract Management Agency  develop policies and procedures that provide for systematic  assessment of the sufficiency of contractor-marked items’ data  matrices.
The Under Secretary of Defense for Acquisition, Technology, and  Logistics require the components to examine and report to the Office  of Defense Procurement and Acquisition Policy on all types of  contracts that should include the acquired-items and government- property clauses.
In addition, to enable DOD to successfully share UII data enterprisewide  and integrate IUID functionality with its Enterprise Resource Planning  systems, we recommend that the Secretary of Defense direct the Under  Secretary of Defense for Acquisition, Technology, and Logistics to  coordinate with the military services and the Defense Logistics Agency to  take the following two actions:
Define the requirements for using UII data across DOD and within the  components’ Enterprise Resource Planning systems.
Develop or revise integrated master schedules for the integration of  IUID technology with the components’ individual Enterprise Resource  Planning systems—and between these systems—across DOD. These  schedules should fully integrate distinct IUID activities.
We also recommend that the Secretary of Defense direct the Secretary of  the Navy to develop a plan to share UII data enterprisewide.
section_title: Agency Comments and Our Evaluation
paragraphs: In commenting on a draft of this report, DOD concurred with eight  recommendations and partially concurred with one recommendation.  DOD’s comments are reprinted in appendix III. DOD also provided  technical comments, which we considered and incorporated where  appropriate.
DOD concurred with our recommendation to develop quantitatively- defined goals for the number of legacy items that may allow DOD to  achieve the task force’s estimate of IUID’s potential benefits. DOD stated  that an IUID working group will identify the target population of items that  qualify for IUID marking in a list of the items’ National Stock Numbers and  DOD will track progress in its marking of individual items on this list  according to component IUID implementation plans that are due to be  submitted to the Assistant Secretary of Defense for Logistics and Materiel  Readiness by September 2012.
DOD concurred with our recommendation to establish quantifiable interim  milestones for marking legacy items that allow DOD to track progress  toward its goals. DOD stated that its IUID working group will establish  interim milestones to track the progress of marking legacy assets as part  of the development of component IUID implementation plans to be  submitted to the Assistant Secretary of Defense for Logistics and Materiel  Readiness by September 2012.
DOD concurred with our recommendation to track progress using a  consistent set of criteria. DOD stated that progress will be tracked using a  consistent set of criteria, once developed by the IUID working group.
DOD concurred with our recommendation to develop policies and  procedures that provide for systematic assessment of the sufficiency of  contractor-marked items’ data matrices. DOD stated that the Defense  Contract Management Agency has risk-based assessment policies and  procedures in place. According to DOD, these include a review of  contracts to determine whether they contain an IUID requirement;  surveillance of a contractor’s IUID marking; and an IUID checklist that  requires agency personnel to examine an item’s data matrix. DOD  explained that agency personnel assess the sufficiency of a data matrix  by electronically reading it with a scanner supplied by a contractor or  through a statement of quality from contractors that the agency has  determined have adequate quality control. We believe that DOD’s  concurrence with our recommendation may lead to the components  improving their capability to systematically assess these matrices, and  that the agency’s policies and procedures may assist its inspectors in  doing the same. However, our review of the policies and procedures  provided by the agency indicate that it does not require inspectors to  assess the sufficiency of data matrices in all cases. For example, if a  contractor does not provide evidence that it has marked items with  sufficient data matrices, and no IUID scanner is available on site, neither  the agency’s 2009 information memorandum describing procedures for  inspecting contractors’ data matrices, nor its IUID checklist, provide an  alternative method for inspectors to assess the sufficiency of items’  matrices. Because of this, we continue to believe that the agency cannot  ensure that the items it inspects have IUID labels with sufficient data  matrices, and that it should continue to develop policies and procedures  that provide for systematic assessment of the sufficiency of contractor- marked items’ data matrices.
DOD concurred with our recommendation for the components to examine  and report to the Office of Defense Procurement and Acquisition Policy  on all types of contracts that should include the acquired-items and  government-property clauses. DOD stated that the components will  provide contract evaluation reports—for items meeting any of DOD’s IUID  criteria, as well as pieces of government-furnished property that meet  these criteria—and report on compliance with the requirements to include  the appropriate Defense Federal Acquisition Regulation Supplement IUID  clauses in contracts.
DOD concurred with our recommendation to define the requirements for  using UII data across DOD and within the components’ Enterprise  Resource Planning systems. DOD stated that the IUID working group will  define DOD-wide IUID functional requirements.
DOD concurred with our recommendation to develop or revise integrated  master schedules for the integration of IUID technology with the  components’ individual Enterprise Resource Planning systems—and  between these systems—across the department. DOD stated that the  components have been tasked to submit revised IUID implementation  plans to the Assistant Secretary of Defense for Logistics and Materiel  Readiness by September 2012. We believe that such plans could assist  DOD in improving its management approach for the implementation of  IUID. However, as previously discussed, an integrated master schedule  has specific characteristics that make it distinct from an implementation  plan. Specifically, an integrated master schedule is a time-phased  schedule that DOD and other agencies use for assessing technical  performance. It contains the detailed tasks or work packages necessary  to ensure program execution. Further, we have reported that without fully  integrating the distinct activities that make up an IT program with such a  schedule, an organization will not be able to measure its progress toward  completion and cannot be held accountable for results. Because of this,  we continue to believe that integrated master schedules should be  developed or revised for the integration of IUID technology with the  components’ Enterprise Resource Planning Systems.
DOD concurred with our recommendation that the Secretary of the Navy  develop a plan to share UII data enterprisewide. DOD stated that the  Navy—participating in the IUID working group—will develop IUID  requirements as part of the working group’s definition of DOD-wide IUID  functional requirements. Regarding the specific requirement for IUID  functionality in the Navy’s Enterprise Resource Planning system—Navy  Enterprise Resource Planning system for Supply—DOD stated that the  Assistant Secretary of Defense for Logistics and Materiel Readiness will  continue to work with the Chief of Naval Operations (Deputy Chief of  Naval Operations ) to develop a plan to  include IUID requirements in this system.
DOD partially concurred with our recommendation to update the IUID task  force report’s estimates of costs and benefits by incorporating key  elements of a sound investment analysis, including a more complete  estimate of all associated costs, an appropriate methodology for  estimating benefits, and a sensitivity analysis of these estimates. DOD  stated that the benefits to DOD of implementing IUID marking are to  improve asset accountability, tracking, and the life cycle management of  targeted items. Further, DOD stated that it will continue to identify costs of  implementing IUID as IUID is implemented across DOD. As previously  discussed, a best practice for analyzing a program’s return on investment  is the estimation of all potential costs, and DOD efforts to continue to  identify costs of IUID implementation may be a positive step in this  direction. According to DOD, another best practice for analyzing a  program’s return on investment is analyzing benefits, and making  recommendations, based on relevant evaluation criteria. DOD has  estimated that IUID implementation could cost $3.2 billion, and the  components report that they have already spent at least $219 million on  implementation efforts. Moreover, DOD has estimated that implementing  IUID technology could save $3 billion to $5 billion per year. As previously  discussed, DOD may have used a methodology for estimating these  benefits that may not be appropriate to the scale and complexity of DOD’s  IUID implementation efforts. For example, the task force estimated DOD- wide savings on the basis of a limited number of case studies, these case  studies did not address programs that use IUID as the technology that  provides a unique identifier to track items through serialized item  management, and even when a logistics program experiences cost  savings after introducing a new technology or process, it can be difficult to  link the savings directly to a specific cause or technology such as IUID.  Given IUID’s potential costs and that DOD’s methodology for estimating  IUID’s potential financial benefits may not be appropriate, we continue to  believe that an estimate of both IUID’s costs and benefits, based on an  appropriate methodology, and a sensitivity analysis of these estimates,  would provide DOD leaders with key information to better enable sound  program management and determine whether continued spending on  IUID is likely to result in a significant return on investment.
We are sending copies of this report to the Secretaries of Defense, the  Army, the Navy, and the Air Force; the Commandant of the Marine Corps;  and the Directors of the Defense Logistics Agency and the Defense  Contract Management Agency. In addition, the report is available at no  charge on the GAO website at http://www.gao.gov.
If you or your staff have any questions about this report, please contact  me at (202) 512-5257 or merrittz@gao.gov. Contact points for our Offices  of Congressional Relations and Public Affairs may be found on the last  page of this report. GAO staff who made key contributions to this report  are listed in appendix IV.
section_title: Appendix I: Scope and Methodology
paragraphs: To determine the extent to which the Department of Defense (DOD) has a  comprehensive management approach for its implementation of item  unique identification (IUID), we reviewed previously published DOD and  GAO work to identify best practices; the IUID implementation framework  documentation provided by the Office of the Deputy Assistant Secretary  of Defense for Supply Chain Integration (ODASD); the DOD IUID  task force’s analysis of the potential costs and benefits of IUID  implementation; and the components’ estimates of historical spending  and fiscal year 2012 budget requests for IUID implementation.
To determine the extent to which DOD components have marked legacy  items with IUID, we reviewed DOD criteria for the types of items to be  marked with IUID labels; reviewed DOD’s plans for marking legacy items;  and gathered data on the number and type of legacy items in  components’ inventories, and how many had been marked as of October  2011. To determine the extent to which DOD has taken steps to ensure  that items are sufficiently marked by contractors with IUID, we reviewed  the Defense Federal Acquisition Regulation Supplement clauses that  require contractors to mark items with labels—or establish virtual unique  item identifiers (UII)—and register the items, and we gathered data from  the components on the quality of contractors’ IUID data matrices.
To determine the extent to which DOD has integrated IUID with its  enterprise information systems, we reviewed our previously published  work on best practices for the planning of large-scale information-  reviewed DOD-wide and component-level policy on  technology efforts;the use of UII data in its information technology systems, which include  DOD Enterprise Resource Planning systems; reviewed DOD-wide and  component-level integrated master schedules for the integration of IUID  technology with these systems, if available; and reviewed other types of  existing schedules and system planning documents.
In addition, we visited selected sites to observe key IUID activities. To  select the sites we used a nongeneralizable, judgmental sample based on  a number of criteria, including DOD component and the type of IUID  activity performed at the site. For all our objectives, we interviewed  officials knowledgeable about DOD’s IUID implementation efforts,  including officials from ODASD(SCI), as well as other officials from the  Office of the Secretary of Defense, the components, and the Defense  Contract Management Agency.
We assessed the reliability of all computer-generated data provided by  DOD for each of our objectives by reviewing existing information about  the data and the systems that produced the data and by interviewing  agency officials knowledgeable about the data to determine the steps  taken to ensure the accuracy and completeness of the data. In the course  of our assessment, we reviewed estimates provided by the components  on the number of legacy items marked and to be marked; deficient data  matrices; and historical and requested IUID spending.
Each of the components provided estimates on either the number of  legacy items marked, or to be marked; several of the components  provided estimates of both. On the basis of our review of the sources  and methodology used by the Army, Marine Corps, and Air Force to  produce estimates of the number of legacy items they have marked,  we determined that these data are sufficiently reliable for the  purposes of reporting the components’ best estimates of the size of  this population of items. The Navy was not able to estimate the  number of legacy items it has marked; the Defense Logistics Agency  reported that it has not marked legacy items. Based on our review of  the sources and methodology used by the Marine Corps and Air  Force to produce estimates of the number of legacy items they must  mark in the future, we determined that these data are sufficiently  reliable for the purposes of reporting on the components’ best  estimates of the size of this population of items. As previously  discussed, the Army, Navy, and Defense Logistics Agency explained  that their estimates on the number of legacy items that must be  marked in the future are not complete. Although not complete, we  determined that the data on legacy items represent the components’  best estimates, and are sufficiently reliable for the purposes of  reporting on the general size of the population of legacy items they  must mark in the future.
The Army, Navy, and Defense Logistics Agency did not provide data  on deficient data matrices; the Marine Corps and Air Force did provide  these data. We reviewed the data sources and methodology used by  the Marine Corps and Air Force to produce data on the number of  deficient data matrices they have discovered through their review of a  portion of data matrices on newly-acquired items in their inventories.  We determined that these data are sufficiently reliable for the  purposes of reporting on the percentage of data matrices that these  components classified as deficient, out of the portion of data matrices  in their inventories that they have assessed for sufficiency.
The Defense Logistics Agency did not provide estimates on either  historical or requested IUID spending; the Army and Navy provided  estimates on historical IUID spending; and the Marine Corps and Air  Force provided estimates of both historical and requested IUID  spending. We discussed with component officials the sources and  methodology they used to produce the data on their historical IUID  spending and fiscal year 2012 budget requests for IUID spending. The  Marine Corps and Air Force provided data on both their historical and  future spending. On the basis of our review of their sources and  methodology for producing these data, we determined that the  spending data provided by the Marine Corps and Air Force are  sufficiently reliable for the purposes of reporting on these components’  historical spending and fiscal year 2012 IUID budget requests. As  previously discussed, Army and Navy officials explained that their  estimates on historical IUID spending are not complete. Although not  complete, we determined that these data represent the best estimates  of the Army and Navy on their historical IUID spending, and are  sufficiently reliable for the purposes of reporting on the historical  spending data that are available.
section_title: Appendix II: Key IUID Policy Issuances and Implementation Events, Fiscal Year 2003 to Fiscal Year 2011
section_title: Appendix III: Comments from the Department of Defense
section_title: Appendix IV: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Kimberly Seay, Assistant  Director; Emily Biskup; Cindy Brown Barnes; Cynthia Grant; Neelaxi  Lakhmani; Jason Lee; Alberto Leff; John Martin; Charles Perdue; Carol  Petersen; Karen Richey; Darby Smith; Chris Turner; Cheryl Weissman;  and Michael Willems made key contributions to this report.
section_title: Related GAO Products
paragraphs: Defense Logistics: DOD Needs to Take Additional Actions to Address  Challenges in Supply Chain Management. GAO-11-569. Washington,  D.C.: July 28, 2011.
High-Risk Series: An Update. GAO-11-278. Washington, D.C.: February  16, 2011.
DOD’s 2010 Comprehensive Inventory Management Improvement Plan  Addressed Statutory Requirements, but Faces Implementation  Challenges. GAO-11-240R. Washington, D.C.: January 7, 2011.
DOD Business Transformation: Improved Management Oversight of  Business System Modernization Efforts Needed. GAO-11-53.  Washington, D.C.: October 7, 2010.
DOD’s High-Risk Areas: Observations on DOD’s Progress and  Challenges in Strategic Planning for Supply Chain Management.  GAO-10-929T. Washington, D.C.: July 27, 2010.
Department of Defense: Additional Actions Needed to Improve Financial  Management of Military Equipment. GAO-10-695. Washington, D.C.: July  26, 2010.
DOD’s High-Risk Areas: Actions Needed to Reduce Vulnerabilities and  Improve Business Outcomes. GAO-09-460T. Washington, D.C.: March  12, 2009.
Defense Logistics: Lack of Key Information May Impede DOD’s Ability to  Improve Supply Chain Management. GAO-09-150. Washington, D.C.:  January 12, 2009.
DOD’s High-Risk Areas: Efforts to Improve Supply Chain Can Be  Enhanced by Linkage to Outcomes, Progress in Transforming Business  Operations, and Reexamination of Logistics Governance and Strategy.  GAO-07-1064T. Washington, D.C.: July 10, 2007.
Defense Logistics: Efforts to Improve Distribution and Supply Support for  Joint Military Operations Could Benefit from a Coordinated Management  Approach. GAO-07-807. Washington, D.C.: June 29, 2007.
DOD’s High-Risk Areas: Progress Made Implementing Supply Chain  Management Recommendations, but Full Extent of Improvement  Unknown. GAO-07-234. Washington, D.C.: January 17, 2007.
DOD’s High-Risk Areas: Challenges Remain to Achieving and  Demonstrating Progress in Supply Chain Management. GAO-06-983T.  Washington, D.C.: July 25, 2006.