Defense Inventory: Opportunities Exist to Improve the Management of DOD's Acquisition Lead Times for Spare Parts
Published: 2007-03-02T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: GAO has identified the Department of Defense's (DOD) management of its inventory as a high-risk area since 1990 due to ineffective and inefficient inventory systems and practices. Management of inventory acquisition lead times is important in maintaining cost-effective inventories, budgeting, and having material available when needed, as lead times are DOD's best estimate of when an item will be received. Under the Comptroller General's authority to conduct evaluations on his own initiative, GAO analyzed the extent to which (1) DOD's estimated lead times varied from actual lead times, and (2) current management actions and initiatives have reduced lead times as compared to past years. To address these objectives, GAO computed the difference between the components' actual and estimated lead times, and compared component initiatives to reduce lead times for 1994-2002 to 2002-2005.
section_title: What GAO Found
paragraphs: The military components' estimated lead times to acquire spare parts varied considerably from the actual lead times experienced. The effect of the lead time underestimates was almost $12 billion in spare parts arriving more than 90 days later than anticipated, which could negatively affect readiness rates because units may not have needed inventory. If orders had been placed earlier, readiness rates could potentially have been improved. While having spare parts arrive earlier than estimated could potentially improve readiness, the effect of lead time overestimates resulted in obligating almost $2 billion more than 90 days earlier than necessary. The Army underestimated lead times, the Defense Logistics Agency (DLA) overestimated lead times, and the Air Force and Navy both overestimated and underestimated lead times. The variances were due to problems such as miscoding late deliveries as not representative of future delivery times, lack of recorded lead time data, data input errors, estimates that did not reflect improvements made in actual lead times, and the use of standard default data instead of other data that may have been obtainable. Absent actions to address these problems, lead time estimates will continue to vary from actual lead times and will contribute to inefficient use of funds and potential shortages or excesses. The Under Secretary of Defense for Acquisition, Technology, and Logistics (USD (AT&L)) and the components' actions and initiatives to reduce lead times from 2002 to 2005 were less effective overall than previous efforts from 1994 to 2002. From 2002 to 2005, DOD-wide lead times were reduced by an average of 0.9 percent annually as compared to an average reduction of 5.6 percent annually from 1994 to 2002, potentially leading to an additional $2.7 billion in lead time requirements, tying up money that could have been obligated for other needs. The higher rate of reduction from 1994 to 2002 can be attributed to three areas of focus: streamlining internal administrative processes, oversight from USD (AT&L), and developing strategic relationships with suppliers. However, from 2002 to 2005, USD (AT&L) no longer provided active oversight such as establishing lead time reduction goals, reporting metrics, reporting the impact of specific initiatives, or estimating the financial impact of reduced lead times, as had been done previously. Until steps are taken to renew management focus on reducing lead times, the components may continue to experience spare parts shortages and increased inventory levels to cover lead times.

section_title: Letter
paragraphs: The Department of Defense (DOD) maintains a military force with diverse  capabilities but continues to confront a pervasive, decades-old supply  chain management problem that relates to retaining the appropriate  amount of inventory. The fundamental premise of supply chain  management is the operation of a continuous, unbroken, comprehensive,  and all-inclusive logistics process, from initial customer order for materiel  or services to the ultimate satisfaction of the customer’s requirements.  Supply chain management in DOD consists of processes and activities to  purchase, produce, and deliver materiel to a force that is highly dispersed  and mobile. Supply support to the warfighter affects readiness and military  operations. In fact, the supply chain can be the critical link in determining  whether our frontline military forces win or lose on the battlefield. Given  the high demand for goods and services to support ongoing U.S. military  operations, the investment of resources in the supply chain is substantial.  DOD reported that, as of September 30, 2005, it owned about $80 billion of  secondary inventory of spare parts. This represents a $17 billion, or 27  percent, increase since fiscal year 2001, when the department reported  about $63 billion in inventory.
Critically important to maintaining cost-effective inventories, budgeting,  and having materiel available when it is needed is the development of  successful processes that identify and manage acquisition lead times for  the purchase of parts for equipment and weapon systems. Acquisition lead  time, also known as procurement lead time, measures the length of time  between the initiation of a procurement action and the receipt of items  into the supply system. DOD’s management of its acquisition lead times  affects whether DOD and its military components have the right quantities  of the right items at the right locations at the right time to meet customer  needs. Generating lead time estimates is a protracted and complex process  that requires DOD inventory managers to project, in some cases, parts  usages over several years, which can decrease forecast accuracy and  reduce DOD’s flexibility to react to changes in demand. Additionally, long- standing data problems, internal control weaknesses, and  noninteroperable business systems within DOD further complicate the  process of generating accurate acquisition lead time estimates.
Since 1990, we have reported on weaknesses in DOD’s supply chain  management in our high-risk reports. In 1994, we reported that DOD had  made only limited progress in reducing acquisition lead times because its  initiatives had been unevenly implemented by the military components.  We recommended that DOD renew emphasis on implementing lead time  reduction initiatives, review and update certain lead time data, and give  consideration to buying items directly from the manufacturers instead of  from contractors. DOD partially concurred with each of our findings and  recommendations. In addition to our review, a 1998 DOD Inspector  General report reviewed initiatives underway at that time to improve  acquisition lead times. The report concluded that the military components  had made progress in reducing acquisition lead times and pointed out that  reducing acquisition lead times decreases inventory levels and associated  inventory holding costs, thus freeing up funds for other uses. The DOD  Inspector General report contained no recommendations.
Because of the potential effects of DOD’s management of acquisition lead  times on readiness and inventory expenditures and because of the  continued weaknesses in DOD’s supply chain management that we had  identified, we performed this engagement under the Comptroller General’s  authority to conduct evaluations on his own initiative. We are providing  this report to you because of your committee’s oversight responsibilities.  Our objectives were to determine the extent to which (1) DOD’s estimated  lead times varied from the actual lead times experienced, and (2) current  management actions and initiatives have reduced lead times as compared  to past years.
To compare and analyze the estimated to actual lead times, we (1)  obtained and reviewed the military components’ regulations and directives  on the policies, procedures, and processes used in computing and  maintaining acquisition lead times and interviewed relevant officials; (2)  obtained from each of the military components the estimated and actual  acquisition lead time values for all of the more than one million orders  valued at almost $19 billion of spare parts that they received during fiscal  year 2005; and (3) computed the differences between the estimated and  actual lead time for each order. Each order’s variance was then  categorized according to how closely the estimate approximated the  actual lead time, ranging from no variance to more than 90 days off as we  believe this interval was an appropriate measure to use in our analyses.  We then calculated overall statistics to show the extent to which the  military components accurately estimated the actual lead times. We also  calculated the effect in dollars for spare parts where the estimates were  longer or shorter than the actual lead times. We assessed the reliability of  DOD’s acquisition lead time data by obtaining information from the  components’ management of their data reliability procedures. We  determined that the data obtained from DOD’s automated systems were  sufficiently reliable for the purposes of this report. Further, to compare  the management actions and initiatives to reduce lead times, we reviewed  relevant documents regarding efforts, policies, and initiatives to reduce  lead times and interviewed officials from the Office of the Under Secretary  of Defense for Acquisition, Technology, and Logistics (USD (AT&L)) and  each of the military components. We conducted our review from  November 2005 through November 2006 in accordance with generally  accepted government auditing standards. For more detailed information  on our scope and methodology, see appendix I.
subsections: section_title: Background
paragraphs: The basic challenge of inventory management is having the proper amount  of items on hand when required—neither too much nor too little. If  inventory levels are too low, DOD and its components may experience  supply shortages and be unable to satisfy customer demands. This could  result in DOD undertaking costly and often wasteful efforts to recover  from being out of stock. If inventory levels are too high, money is invested  on items that may never be used. Additionally, a series of unnecessary  expenditures is incurred for more warehouses, transportation, and  personnel; storage and distribution facilities become more crowded;  maintenance workloads may increase; and inventory excesses are  generated which eventually may have to be disposed of, perhaps at a  severe financial loss.
Inventory levels are influenced by the amount of time between the  initiation of a procurement action and the receipt of the item into the  supply system. This time frame is known as acquisition lead time, and it  consists of two parts: administrative and production lead times.  Administrative lead time is the time interval from the initiation of a  procurement action to the contract award, while the production lead time  is the interval from the contract award to delivery of the items. Since  acquisition lead times are the components’ estimates as to when an item  will arrive, varying from that expectation results in consequences when  items arrive too early or too late.
To promote accuracy and completeness in the management of acquisition  lead times, having appropriate policies, procedures, and instructions is an  important component of an agency’s internal control framework. As  discussed in GAO’s Internal Control Standards guidance, we identified that  other important activities related to information processing systems,  performance measures and indicators, and the recording and classification  of transactions and events are also necessary. Inventory management and  oversight is the shared responsibility between the USD (AT&L) and the  military components. USD (AT&L) has overall responsibility for the  development of acquisition policies for monitoring the overall  effectiveness and efficiency of the DOD acquisition system. The  components are responsible for implementing the materiel management  policies and activities. The DOD Supply Chain Materiel Management  Regulation states that the military components should aggressively pursue  the lowest possible acquisition lead times, and in coming up with lead time  estimates, they may use contractor information, historical information  from representative procurements, technical documentation, or the best  judgment of acquisition personnel. It also establishes for the military  components overarching guiding principles, assigns responsibility, defines,  and provides guidelines for developing acquisition lead time, and states  that they should identify and track deviations from normal historical or  projected patterns in such areas as demand, stock levels, and lead times.
The military components have an inventory management agency that  purchases and delivers items and services to the warfighter. The primary  inventory agencies that provide this support to the warfighter are (1) the  U.S. Air Force Materiel Command, (2) the U.S. Army Materiel Command,  (3) the Defense Logistics Agency, and (4) the Naval Inventory Control  Point. Table 1 shows the primary logistics agencies and their inventory  management centers.
To implement DOD’s acquisition lead time policy, each of the military  components developed their own procedures for managing acquisition  lead times, and as such, each used slightly different methodologies to  calculate their estimated administrative lead time and production lead  time values.
section_title: Actual Lead Times Varied Considerably from Estimated Lead Times for All Components
paragraphs: The military components’ acquisition lead time estimates to acquire spare  and repair parts varied considerably from the actual lead times  experienced. More specifically, estimated lead times for all of the  components rarely approximated actual lead times, with only 5 percent of  the deliveries we reviewed having actual acquisition lead times that were  within 1 week of the estimated lead time. While each of the military  components had instances of both underestimated and overestimated lead  times, the Army’s acquisition lead time estimates were generally  understated, while DLA’s estimates were generally overstated. The Air  Force’s and the Navy’s estimates were both overstated and understated.
subsections: section_title: Acquisition Lead Time Estimates for All Components Rarely Approximated Actual Lead Times
paragraphs: For the more than one million spare part deliveries we reviewed, the  military components’ estimated acquisition lead times rarely approximated  the actual lead times and were generally either understated or overstated.  DOD’s Supply Chain Materiel Management Regulation provides guidance  for developing materiel requirements based on customer expectations  while minimizing the investment in inventories. In addition, accurate lead  time estimates are critically important in enabling the military components  to have the proper amount of inventory on hand. However, as table 2  shows, 5 percent of the deliveries, totaling about $700 million, had actual  acquisition lead times that were within a week of the estimate. The  combined value of the lead time underestimates for all the components  resulted in slightly over $12 billion in spare and repair parts arriving more  than 90 days later than expected, which may have negatively affected  equipment readiness and overall rates because units may not have had the  necessary inventory to support and sustain ongoing military operations. If  lead time estimates had been more accurate, orders could have been  placed and funds obligated earlier, and in some instances readiness rates  could potentially have been improved. Further, the combined value of the  lead time overestimates resulted in the military components obligating  almost $2 billion more than 90 days earlier than necessary, which could  add to excess on-hand inventories, although spare parts that come in early  could potentially improve readiness.
We reviewed the two parts of acquisition lead time, administrative lead  time and production lead time, and found that each of the military  components more accurately estimated the administrative portion than the  production portion. However, for administrative lead time, the military  components’ estimates fell within the 1-week range only about 20 percent  of the time while production lead time estimates matched the actual  production lead times within the 1-week range just over 10 percent of the  time. Officials explained that the accuracy of their administrative lead time  estimates was better than their production lead time estimates because  they have more management control over their internal processes than  over external contractor practices. Officials stated that variability always  exists when generating lead time estimates, but they agreed that improved  and more reliable lead time estimates can contribute to lower levels of  inventory. They also stated that understated lead time estimates can result  in backorders or part shortages which may impact a unit’s readiness if the  needed spare parts are not available when expected, and overstated  estimates result in prematurely obligating funds that could have been used  for other military needs and can unnecessarily increase inventory levels  and associated costs.
section_title: Army Tended to Underestimate Lead Time Estimates
paragraphs: The Army tended to underestimate their acquisition lead times and receive  items later than expected. Of the 9,380 Army deliveries we reviewed, more  than 58 percent of their actual acquisition lead times were more than 90  days longer than their estimated lead times. This represented about $10.6  billion worth of inventory arriving later than expected. Additionally,  almost 12 percent had actual acquisition lead times that were more than 90  days shorter than their estimated lead times and that resulted in about  $900 million of premature obligations, as shown in table 3.
The variances between the Army’s actual and estimated lead times  occurred, in part, because of miscoding of late deliveries as not  representative of future delivery times, lack of accurate lead time data in  one of its computer systems, and data input errors. Of the data we  examined, most of the underestimates occurred within the Army Aviation  and Missile Life Cycle Management Command within the Army Materiel  Command. This command develops, acquires, fields, and sustains aviation,  missile, and unmanned vehicle systems. When this command cannot  obtain items, such as landing gear, helicopter blades, and aircraft access  doors in accordance with expectations, it can have immediate and serious  ramifications on the operational readiness of many units. We found  production lead times in 3,863 orders, for items valued at $10.3 billion of  the $10.6 billion we analyzed, where the actual lead times were more than  90 days later than the estimated lead times. According to our analyses of  the command’s deliveries received in fiscal year 2005, nearly 63 percent  arrived more than 90 days later than expected. Army officials stated that  some of the variances between actual and estimated lead times occurred  because some actual lead times were miscoded as nonrepresentative by  the command’s acquisition personnel, who initially believed that certain  delivery delays would be short-lived and were not representative of future  deliveries. Once Army officials realized the delays were not short-lived,  they said that item managers made some adjustments for particular  affected items. Army guidance states that lead times should be computed  using the most recent representative procurement. However, it does not  give clear guidance on when to decide if continuing late contractor  deliveries should be considered representative, and any adjustments made  to particular affected items would not prevent similar situations from  occurring in the future. As a result, actual lead times can be miscoded and  excluded from lead time updates, which makes subsequent estimates  inaccurate.
Army officials acknowledged that this command has experienced a  problem in meeting supply demands for several years, especially after  Operation Iraqi Freedom began, because of the surge in demand for their  items. The high demand depleted much of the Army’s on-hand supply of  inventory more quickly than anticipated and replacing the items was  difficult since many aviation-related items had long lead times for  replacement. At the same time, the Army was unable to order some items  as quickly as needed because it lacked sufficient available funds to  obligate and process orders. However, Army officials stated that many  manufacturers were operating at their highest capacity and placing orders  more quickly would not have resulted in the companies actually producing  the additional items any faster.
Officials from the U.S. Army TACOM Life Cycle Management Command in  Warren, Michigan made similar statements to explain the lateness of some  of their deliveries. They agreed that they had experienced delays in getting  items from certain contractors due to the high level of demand. They also  acknowledged budgetary constraints during the years of our sample that  resulted in hiring freezes and other personnel challenges that added to  their workload and hindered their ability to process contracts and orders  and to periodically review, validate, and make corrections to any  inaccurately recorded lead time estimates.
Army officials also attributed inaccuracies in lead times to input errors  that item managers were unable to detect and correct. At the Army’s  Communications-Electronics Life Cycle Management Command, lead time  data are not automatically maintained or updated in the Logistics  Modernization Program, which was designed to improve Army  maintenance logistical and financial operations, and officials had to  manually input the data from the command’s older computer system.  However, according to Army officials, the heavy workloads of item  managers have not allowed them to validate these data to detect and  correct any lead time data input errors.
Absent actions by the Army, across each of its Life Cycle Management  Commands, to determine when deliveries are representative and should be  used to update lead time values, maintain and update lead time data in its  new computer system, and validate data input to detect and correct errors,  late deliveries and parts shortages will likely continue.
section_title: DLA Tended to Overestimate Lead Time Estimates
paragraphs: DLA tended to overestimate its acquisition lead times and receive items  sooner than expected. Of the 1,031,779 DLA deliveries we reviewed,  almost 40 percent had actual acquisition lead times that were more than 90  days shorter than their estimated lead times. This resulted in about $568  million being obligated earlier than necessary and inventory arriving  earlier than expected. Conversely, only about 3 percent of DLA’s deliveries  had actual acquisition lead times that were more than 90 days longer than  their estimated lead times, totaling approximately $319 million, as shown  in table 4.
DLA manages almost every consumable item the military services need to  operate, and according to officials, many of these items have been placed  on long-term contracts, thus allowing faster order processing. Since the  deliveries from the contractors were also faster, there have been reduced  overall acquisition lead times. Even though DLA uses a methodology for  computing and maintaining lead time estimates that is more heavily  weighted toward the recent actual lead times than the existing ones on  file, the process did not compute revised estimates that accurately  reflected the rapid improvements being made through their lead time  initiatives. Additionally, DLA officials stated that they emphasized  business practices that encouraged earlier deliveries as opposed to later  ones. They went on to state that the storage and handling costs were  minimal, although we were unable to confirm this statement, and being  able to meet customers’ needs by having the necessary items on hand was  most important to them. With the emphasis on meeting or beating the  estimated lead times, there is reduced incentive for DLA to adjust its lead  times to more precisely reflect actual lead times experienced. Absent  actions by DLA to review and revise the methodology and inputs it uses in  calculating lead time estimates so that the estimates more precisely reflect  its actual experiences, DLA will continue to obligate funds earlier than  necessary and have early delivery of items.
section_title: Air Force Tended to Underestimate and Overestimate Lead Time Estimates
paragraphs: The Air Force tended to both underestimate and overestimate its  acquisition lead times, receiving a significant amount of items both sooner  and later than expected. Of the 18,335 Air Force deliveries we reviewed,  more than 42 percent had actual acquisition lead times that were more  than 90 days longer than estimated. This resulted in about $528 million  worth of inventory that arrived later than estimated. At the same time,  about 24 percent had actual acquisition lead times that were more than 90  days shorter than estimated, which resulted in about $272 million of  premature obligations, as shown in table 5.
A sample of 30 Air Force deliveries selected from the ones with the  greatest variances between actual and estimated lead times provided an  explanation for some of these variances. In over half of the sampled late  deliveries, the item managers at the air logistics centers had used their  standard default lead time values for the estimates. It is the Air Force’s  standard procedure to use the standard default administrative lead time  value for spare parts that have not been bought in more than 5 years, but  Air Force guidance does not direct the use of default production lead  times for spare parts that have not been purchased for more than 5 years.  However, many items we reviewed used the standard default production  lead time value because, according to officials, it was an easy estimate for  item managers to use given their workload. In these cases, the default  values greatly understated the actual lead times and resulted in later  arrivals of deliveries to the air logistics centers, which may have negatively  impacted their operational units’ mission readiness if those items had not  been available when needed. Officials said that these default values may  not be the best information available, and there might be other  information obtained or generated for use in place of the default values.  One possibility might be contacting the supplier to determine the current  lead time. They noted that the use of these default values could also be an  explanation for the overstated lead times as well as the understated lead  times. Absent actions by the Air Force to review and validate its default  lead time estimates and consider other options for better lead time data,  mostly for infrequent buys, parts shortages or early obligation of funds will  likely continue.
section_title: Navy Tended to Underestimate and Overestimate Lead Time Estimates
paragraphs: The Navy tended to both underestimate and overestimate its acquisition  lead times, receiving a significant amount of items both sooner and later  than expected. Of the 19,304 Navy deliveries we reviewed, just over 39  percent had actual acquisition lead times that were more than 90 days  shorter than estimated. As a result, about $165 million worth of inventory  arrived earlier than expected and the funds for this inventory were  obligated prematurely. In addition, about 28 percent had actual lead times  that exceeded their estimates by more than 90 days, which resulted in  almost $561 million of items arriving later than anticipated, as shown in  table 6.
Navy officials stated that they believe these variances are acceptable and  reasonable due to the variability in generating lead times, especially for  ship parts that are bought infrequently. They said that updating the lead  time estimates more often would not make the forecasts more accurate  because there are not enough observations per item to update more often.  We did not evaluate whether more frequent updating of the lead time  estimates would improve their accuracy. However, some of the variances  between the Navy’s actual and estimated lead times occurred because of  data input errors. We found input errors in a sample of 30 Navy deliveries  selected from the ones with the greatest variances between the estimated  and actual lead times that affected the estimates’ accuracy. For example,  in two cases, the lead time estimates were incorrectly loaded into the  ordering system used by the inventory control points at 10 times longer  than what the correct estimates should have been, and the error was not  detected. Also, many of the excessive estimated lead times of the sample  items we reviewed could not be explained by Navy officials, who stated  there were conflicting lead time data within their records. Until the Navy  addresses these concerns by reviewing and validating its lead time data  and correcting errors, either parts shortages or early obligation of funds  are likely to continue.
section_title: Management Actions and Initiatives to Reduce Lead Times from 2002 to 2005 Less Effective than Previous Initiatives from 1994 to 2002
paragraphs: USD (AT&L) and the military components’ management actions and  initiatives to reduce lead times from 2002 to 2005 were less effective  overall than previous initiatives from 1994 to 2002. Progress in reducing  lead times varied greatly by service from 2002 to 2005, with DLA and the  Air Force reducing their lead times by about 3.3 and 4.1 percent annually  respectively, while the Navy’s lead times remained the same, and the Army  experienced an increase in lead times by 0.3 percent annually. Of the  various management actions and initiatives taken by the services from  2002 to 2005, some were new and some were continuations of previous  initiatives, with each service pursuing varying combinations of initiatives.  For example, initiatives to streamline administrative processes were  implemented by all military components from 1994 to 2002 and from 2002  to 2005, with DLA and the Air Force more aggressively implementing new  initiatives from 2002 to 2005 than did the Army and Navy. In addition, from  1994 to 2002, enhanced USD (AT&L) oversight contributed to the rapid  pace of lead time reduction; however, from 2002 to 2005, USD (AT&L) no  longer continued to monitor progress made by the components in  reducing lead times, and all components experienced reduced  management oversight. Moreover, while new initiatives to improve  contracting practices were implemented by all military components from  1994 to 2002 and were continued by all components from 2002 to 2005,  from 2002 to 2005 DLA and the Air Force began new initiatives to  strategically manage relationships with suppliers, while the Army and  Navy did not. The military components could have decreased inventory  requirements and saved money if more aggressive lead time reductions  had been realized from 2002 to 2005 as they had been from 1994 to 2002.
subsections: section_title: Slower Rate of Reductions in Lead Times from 2002- 2005 than from 1994-2002
paragraphs: USD (AT&L) and the components’ management actions and initiatives to  reduce lead times from 2002 to 2005 resulted in a slower rate of reduction  in DOD-wide lead times of an average of 0.9 percent annually as compared  to an average reduction of 5.6 percent annually from 1994 to 2002. The  DOD Supply Chain Materiel Management Regulation gives general  guidance stating that the military components should aggressively pursue  the lowest possible acquisition lead times. As shown in table 7, progress in  reducing lead times varied by military component from 2002 to 2005. The  Army experienced an average annual lead time increase of 0.3 percent per  year from 2002 to 2005, as compared to an average yearly reduction of 9.7  percent from 1994 to 2002, in part due to higher demands and supplier  capacity issues. The Navy’s lead times were unchanged from 2002 to 2005,  after decreasing by 2.8 percent from 1994 to 2002. The Air Force reduced  its lead times from 2002 to 2005, but at a lower rate than it did from 1994 to  2002. The Air Force reduced its acquisition lead times by an average of 4.1  percent per year from 2002 to 2005, compared to an average yearly  reduction of 4.5 percent from 1994 to 2002. Similarly, DLA’s acquisition  lead times also decreased at a lower rate from 2002 to 2005 than from 1994  to 2002, being reduced by an average of 3.3 percent per year in the former  as compared to 6.2 percent per year in the latter.
section_title: Military Components Pursued Various Initiatives to Reduce Lead Times with Varying Results
paragraphs: Each of the military components pursued various initiatives to reduce  acquisition lead times during both the 1994-2002 and 2002-2005 time  periods with varying results. The progress of the military components in  reducing lead times varied because each pursued different combinations  of new and continued initiatives and management actions. These  initiatives and actions generally fell into three areas of focus: streamlining  internal administrative processes, improving oversight, and developing  relationships with suppliers, as shown in table 8.
DLA began a number of new initiatives and took several management  actions from 2002 to 2005 that have helped it reduce lead times, and it also  continued several initiatives that it had instituted from 1994 to 2002. This  combination of continued and new initiatives enabled DLA to reduce its  average lead time to 159 days. The Air Force also began a number of new  initiatives and took several management actions to reduce lead times from  2002 to 2005, while continuing several initiatives that it had instituted from  1994 to 2002. This combination of continued and new initiatives enabled  the Air Force to reduce its average lead time from 430 to 379 days from  2002 to 2005. Conversely, although individual Army components began  some new initiatives to reduce lead times, the Army began no new  componentwide initiatives to reduce lead times from 2002 to 2005.  Furthermore, the Army has placed less effort in continuing new initiatives,  which, combined with higher demands and supplier capacity issues, has  resulted in the Army’s average lead time increasing from 305 to 308 days  from 2002 to 2005. Likewise, the Navy also did not begin any new  componentwide initiatives to reduce lead times from 2002 to 2005,  resulting in lead times holding steady at 416 days from 2002 to 2005.
section_title: Initiatives to Streamline Administrative Processes Implemented by All Components
paragraphs: Initiatives to streamline administrative processes were implemented or  continued by all military components from 1994 to 2002 and from 2002 to  2005, with DLA and the Air Force more aggressively implementing new  initiatives from 2002 to 2005 than did the Army and Navy. All components  are working to design new information technology systems that could  potentially improve administrative lead times. For example, DLA has just  transitioned to its newly implemented information technology system,  which officials said will help reduce process times for a number of  transactions, shaving days off of administrative lead time. The components  are also working on noninformation technology solutions. For example,  Air Force officials recently said that they completed an initiative to reduce  clutter on work desks, which involved redesigning all workspaces so that  if an employee is absent, another employee can find any needed document  in the absent employee’s desk within 5 minutes. They attributed this  initiative to preventing bottlenecks that could occur if employees had to  search for needed documents and information, potentially delaying the  acquisition of items. The Army’s information technology initiative has only  been implemented at one of its Life Cycle Management Commands and the  Navy’s is still in the planning stages.
One particular initiative that officials cited as having been effective in  reducing administrative lead times for the Air Force and Army over the  last decade has been the entering of technical data into the inventory  control computer systems for items in stock before a need arises to order  them again. According to officials, from 1994 to 2002, the Army in  particular made significant progress in reducing lead times because of the  entering of technical specification data. Before technical data for items  were entered into computers, engineers often had to delay the acquisition  process while they prepared technical drawings and wrote technical  specifications. These delays ranged from days to several months. By  determining technical specifications before there was a need for an item  and saving these data in the computer system, officials were able to  greatly reduce administrative lead times. They said that already having  them in the system helped reduce lead times even when the technical  specifications subsequently needed changing; however, they added that  they have not completed entering technical specifications for all items.  Although Army engineers have reduced workloads during certain periods  of time when they have fewer orders to process, there are no efforts  underway to enter technical specification data during these periods. An  Army official indicated they were not entering technical specifications for  items where the lead time savings would typically be fewer than 2 weeks,  because such savings are not considered significant by Army officials.  Army officials, however, made this determination without using any  metrics or measures to determine the actual savings or cost of entering  technical specifications for items with savings of fewer than 2 weeks.
section_title: USD (AT&L) No Longer Provided Oversight and Guidance on Lead Times from 2002 to 2005
paragraphs: From 1994 to 2002, enhanced USD (AT&L) oversight and guidance  contributed to the rapid pace of lead time reduction; however, from 2002  to 2005, USD (AT&L) no longer continued to monitor progress made by  the components in reducing lead times, and all components experienced  reduced management oversight. In 1994, we reported that USD (AT&L)  was unaware of the lack of progress made in reducing lead times from  1990 to 1994 because of the absence of adequate oversight information.  We also indicated that the data reported by military components did not  include historical trends to indicate changes in lead time days before and  after the lead time reduction initiatives were begun. Likewise, we reported  that the statistics at that time were not comprehensive enough to tie  specific initiatives to the lead time reductions experienced for individual  initiatives. At the time, however, USD (AT&L) was able to provide a  general estimate of the financial benefit of lead time reductions,  determining that for each day that the DOD-wide average lead time is  reduced, a procurement savings of $10 million can be realized. If the  financial benefits of lead time reductions are the same in 2005 as they  were in 1994, the value of the savings in 2005 dollars would be $12.5  million per day.
On November 23, 1994, USD (AT&L) issued a memorandum to its  components emphasizing the importance of fully implementing its  guidance on reducing acquisition lead times. On March 8, 1995, according  to DOD officials, components were challenged to reduce business process  cycle times by at least 50 percent over the next 5 years (from 1995 to  2000). According to DOD officials, guidance and oversight were then  applied to acquisition lead times through the budget process. However, by  2002, USD (AT&L) officials said they no longer provided active oversight  on acquisition lead time or monitored the progress made by the  components in reducing lead times, because management focus shifted  from reducing lead times to improving performance on more broad  metrics such as backorders. They added that they continued to monitor  other broad metrics from 2002 to 2005 and did not establish lead time  reduction goals or require standardized reporting of metrics designed to  measure reductions in lead times. In addition, with the exception of DLA’s  Strategic Material Sourcing initiative, USD (AT&L) and component  officials said they did not collect data, establish metrics, or measure and  report the impact and costs of any specific initiative on lead times.  Without this information, USD (AT&L) and the components were unable  to provide effective oversight on lead time reduction efforts. Furthermore,  from 2002 to 2005, USD (AT&L) officials said they no longer measured the  financial impact of lead time reductions on inventories. USD (AT&L) and  the components thus have been unable to determine the relative value of  pursuing lead time reductions when determining the best use of their  resources. The inability to determine the financial impact on inventories of  lead time reductions and the projected time saved from the proposed  initiatives impedes the ability of decision makers to make informed  choices as to which initiatives to implement.
According to officials, without active USD (AT&L) oversight, all  components experienced reduced management oversight from 2002 to  2005. Officials from the military components indicated that, because less  emphasis was placed on lead times by USD (AT&L), less emphasis was  placed on lead times at the component level. These officials said that  component managers tend to place enhanced management focus on what  they are held accountable for by USD (AT&L). Component officials  suggested that renewed emphasis on lead time reduction by USD (AT&L),  including the setting of lead time reduction goals, could increase the  components’ management focus on reducing lead times. Until USD  (AT&L) takes steps to exercise oversight as it did from 1994 to 2002, such  as reemphasizing guidance, establishing lead time reduction goals,  collecting data and establishing metrics to measure progress toward  meeting lead time reduction goals, measuring and reporting on the results  of individual initiatives, and measuring the financial impact of lead time  reductions, the components and USD (AT&L) will not have available the  information needed to effectively manage and provide oversight of lead  times, hampering their ability to reduce lead times. Further, without this  information, USD (AT&L) and the components will not be able to  prioritize or reevaluate lead time reduction initiatives, determine the  relative importance of lead time reduction when making contracting  decisions, or determine the cost-effectiveness of lead time reduction  efforts.
Subsequent to September 2005, Air Force and DLA officials said they  began planning and implementing new efforts to improve oversight,  including setting lead time reduction goals, holding managers accountable  for lead times, tracking lead times to ensure that goals were met, and  regularly reporting lead times to managers. In addition, a new metric is  also currently under development by DLA, called attainment to plan,  which measures the ability of item supply planners to have material  available when needed. DLA officials stated that they anticipate increased  focus on lead times will improve performance of this metric. Moreover,  USD (AT&L) officials stated they were working with the military  components to define a DOD-wide lead time metric. They also stated in  August 2006 that they were in the process of awarding a contract to a  private company to evaluate if USD (AT&L) oversight of lead times would  be worthwhile and stated that they currently were providing no oversight.  USD (AT&L) officials indicated that increases in lead times could lead to  increases in backorders, and said that they provide oversight on  backorders.
section_title: Initiatives to Develop Relationships with Suppliers Implemented by Components
paragraphs: Initiatives to develop relationships with suppliers were implemented by all  of the military components from 1994 to 2002. All military components  implemented initiatives to improve contracting practices from 1994 to  2002 and continued them from 2002 to 2005. For example, each  component used initiatives to increase use of long-term contracts to  reduce lead times. According to Navy officials, one example of a  successful initiative begun in the late 1990s was the Navy’s practice of  considering lead times as criteria in contract awards for spare parts.  Whenever issuing a new contract for spare parts, they said that the Navy  sets as a criterion for the bid a 25 percent reduction in the item’s  production lead time, and by adding this as a factor, the Navy is able to  encourage suppliers to reduce lead times.
In addition to continuing these prior initiatives, from 2002 to 2005 the DLA  and the Air Force began new initiatives to strategically develop  relationships with suppliers. According to DLA and Air Force officials,  these new initiatives not only helped reduce lead times by allowing for  streamlined and simplified purchasing of items on long-term contracts, but  also (1) allow for increased information sharing with suppliers, (2) enable  components to leverage their buying power, and (3) empower components  to strategically target key items to ensure their availability.
For example, according to DLA officials, their Strategic Material Sourcing  initiative is intended to improve procurement for 3.6 million items  designated as critical. Items are designated as critical based on a series of  factors, then are grouped into categories, with different acquisition  strategies being used for different categories of items. Of the 3.6 million  items marked as critical, 390,000 were identified for placement on  contracts strategically designed to leverage DLA’s market power to  improve sourcing for these items. By forming alliances with producers of  these items, DLA officials told us they have been able to reduce lead times  by taking advantage of DLA’s buying power and by negotiating contracts  that ensure supply availability in otherwise volatile markets. As of August  2006, one-half of these targeted items were already on strategic long-term  contracts. According to officials, this initiative has thus far generated $247  million in gross savings with over $64 million generated in 2005 alone,  while costing only $5.6 million to implement. These savings do not include  savings from reduced storage costs, nor do they include the future savings  expected as the program continues. This initiative is also unique in that  DLA officials said they are using metrics to measure and report the  effectiveness of the initiative, thereby improving accountability. An  example identified by Air Force officials is the purchase supply chain  management initiative. One of many parts of this initiative aimed at  reducing lead times is the use of Commodity Councils to help improve  acquisition of select items. Commodity Councils are groups of experts in  particular commodity groupings who work together to improve acquisition  of these items. They do so through commodity management, which is the  process of developing a systematic approach to the entire usage cycle for a  group of items. In addition, USD (AT&L) is in the process of implementing  a new initiative to improve commodity management DOD-wide. This new  initiative seeks to emulate the successes of commodity management  programs run by DLA and the Air Force across DOD.
In contrast, the Army and the Navy, while continuing old initiatives, have  not developed new initiatives to develop strategic relationships with  suppliers for critical items. Army and Navy officials indicated that they are  content with the lead time reductions experienced and stated that new  initiatives were not undertaken because of a lack of USD (AT&L) focus  and oversight on lead time reduction. Officials cited ongoing military  operations as one of the primary factors diverting attention away from  reducing lead times. While the Army and Navy continue to benefit from the  lead time reductions generated from past initiatives, until these two  components begin initiatives to develop strategic relationships with  suppliers, they may be unable to realize the potential benefits from  improved supplier relationships and may continue to experience lower  rates of lead time reductions than DLA and the Air Force.
section_title: More Aggressive Lead Time Reductions Could Have Resulted in Decreases in Inventory Requirements and Monetary Savings
paragraphs: The military components could have decreased inventory requirements  and saved money if more aggressive lead time reductions had been  realized from 2002 to 2005, as they had from 1994 to 2002. DOD budget  documents indicate that inventory requirements to cover lead times  increased from $15.6 billion in 2002 to $19.9 billion in 2005. According to  officials, the primary reason for the increase in inventory has been  increased demand due to recent military operations. As a result, even as  lead times were reduced by an average of 0.9 percent a year from 2002 to  2005, requirements to cover lead times rose. If the military components  had been able to continue reducing lead times by an average of 5.6 percent  a year, as they did from 1994 to 2002, the military components’ lead time  inventory requirements would only have risen to $17.2 billion, rather than  to $19.9 billion, as shown in figure 1. The additional lead time  requirements potentially tied up $2.7 billion that could have been obligated  for other needs.
In addition to the potential savings associated with decreased inventory  requirements, if the military components had been able to continue  reducing their lead times at 5.6 percent per year, it would have led to a  significant savings from a reduced need to maintain “safety” inventory,  which is the amount of inventory the military components maintain on- hand to cover supply and demand fluctuations. This level is determined by  a formula that includes a number of factors, including lead times.  Reductions in lead times can significantly impact safety inventories  needed. Due to reduced USD (AT&L) oversight of lead times, we were  unable to determine how reducing lead times would financially impact  procurement costs for safety inventories. However, in 1994 we reported  that if the components could reduce their overall lead times by 25 percent  by 2000, it would lead to a procurement savings of about $910 million.  Until USD (AT&L) and the components take steps to renew their focus on  reducing lead times by aggressively continuing prior initiatives and  implementing successful new initiatives, the components may continue to  experience spare parts shortages and may spend significantly more money  to purchase additional inventory.
section_title: Conclusions
paragraphs: Acquisition lead times are the military components’ estimates as to when  items will arrive, and varying from that expectation increases the  likelihood that the right supplies will not be at the right place at the right  time. When the components understate their lead time estimates, material  shortages and reduced readiness can occur. Without more accurate lead  time estimates, the components will not place orders and obligate funds as  early as necessary, and they may miss opportunities to potentially improve  readiness rates. Conversely, overstated and lengthy acquisition lead time  estimates can cause early obligation of funds as well as increases in on- hand inventories, although spare parts that come in early could potentially  improve readiness. Until the Army reviews and evaluates when deliveries  are representative and should be used to update lead time values,  maintains lead time data in each of its computer systems, and validates  data input, later than expected deliveries and potential parts shortages will  likely occur. In addition, absent actions by DLA to review and revise the  methodology and inputs it uses to compute lead time estimates, DLA will  continue to obligate funds earlier than necessary and have early delivery  of items. Moreover, without taking steps to review and validate default  lead time estimates and consider other options for obtaining better lead  time data, the Air Force will continue to experience early obligation of  funds and potential parts shortages. Finally, until the Navy reviews and  validates its lead time data and corrects errors, parts shortages and early  obligation of funds are likely to continue. Absent actions by all of the  military components to address these problems and institute corrective  procedures, their acquisition lead time estimates will continue to vary  greatly from their actual lead times.
The military components have also slowed their efforts to reduce  acquisition lead times as compared to earlier years. Their current lead time  reduction rate may not be significant enough to offset the costs of growing  requirements. Until USD (AT&L) and the military components take steps  to renew their focus on reducing lead times by continuing prior initiatives  and implementing successful new initiatives to streamline administrative  processes, improve oversight, and develop strategic relationships with  suppliers, they will be unable to significantly reduce lead times as they  were able to do in the past. As a result, the military components may  potentially spend hundreds of millions of dollars to purchase additional  inventory. Increased emphasis on improved lead time estimates and  overall lead time reductions will improve the military components’ ability  to efficiently use available resources.
section_title: Recommendations for Executive Action
paragraphs: To improve the military components’ accuracy in setting acquisition lead  time values, we recommend that the Secretary of Defense take the  following six actions.  1.  Direct the Secretary of the Army to have the Commanding General,  Army Materiel Command, direct the Aviation and Missile Life Cycle  Management Command to establish clear guidelines for item managers  to know when to review and how to determine whether deliveries  should be considered representative and thus used to update lead  times.  2.  Direct the Secretary of the Army to have the Commanding General,  Army Materiel Command, direct the Life Cycle Management  Commands to reemphasize the importance of periodically reviewing  and validating their recorded lead time data to detect and correct data  input errors and other inaccurate information.  3.  Direct the Secretary of the Army to have the Commanding General,  Army Materiel Command, direct Communications-Electronics Life  Cycle Management Command to maintain and update automated lead  time data within its Logistics Modernization Program computer  system.  4.  Direct the Director of DLA to have its supply centers review the  methodology and inputs used to compute its lead time estimates and  revise them to incorporate recent improvements in DLA actual lead  times.   5.  Direct the Secretary of the Air Force to have the Commander, Air  Force Materiel Command, direct its air logistic centers to use better  sources of lead time information, such as supplier estimates, if  available, rather than default values for items that have not been  ordered in the last 5 years.  6.  Direct the Secretary of the Navy to direct the Commander, Naval  Inventory Control Point, to reemphasize the importance of having its  inventory control points periodically review and validate their  recorded lead time data to detect and correct data input errors or  other inaccurate information.
To strengthen DOD’s and the military components’ management of  acquisition lead times, we recommend that the Secretary of Defense direct  the Under Secretary of Defense for Acquisition, Technology, and Logistics  to take the following five actions.  1.  Establish component lead time reduction goals over a 5-year period  from October 2007-2012.  2.  Develop metrics to measure components’ progress toward meeting  lead time reduction goals and require the periodic reporting of these  metrics.  3.  Develop a general estimate of the financial impact of lead time  reductions, and use that as a metric to help components weigh the  importance of lead time reductions.  4.  Direct the components to collect data, establish metrics, and measure  and report the impact of individual lead time reduction initiatives, to  include the cost of each initiative and its estimated cost savings.   5.  Work closely with the Army and Navy to develop joint strategic  relationships with suppliers that would be beneficial in reducing lead  times.
section_title: Agency Comments and Our Evaluation
paragraphs: In written comments on a draft of this report, DOD concurred with eight,  partially concurred with one, and did not concur with two of our  recommendations. For the eight recommendations with which DOD  concurred, the department identified actions and plans that are being  taken to implement these recommendations. We agree that most of the  identified actions are responsive and reasonable to address our concerns,  although in several cases the final actions may not be completely  implemented for several years. However, some of the department’s  comments did not appear to address our concerns. More specifically, for  one of the recommendations with which DOD concurred, we do not  believe that its comments address our recommendation that the Army  maintain and update automated lead time data within its Logistics  Modernization Program computer system. In its comments, DOD said that  this computer system does not provide automatic updates of data for  calculation but it does have information needed to make decisions for  manual implementation. As stated in our report, manual input errors have  contributed to inaccuracies in lead times, and we believe these  inaccuracies will continue if the department relies on manual  implementation. We continue to believe that automated updates and  maintenance of lead time data are needed to improve the accuracy of lead  time estimates. Further, DOD stated in its comments that it already had  actions underway to address our recommendation to develop metrics to  measure progress toward meeting lead time reduction goals. However, the  contract for reviewing lead times is not to be awarded until later in fiscal  year 2007. Since this effort was not underway at the time of our review, we  believe that it is important to recommend that this effort be pursued until  fully implemented.
DOD partially concurred with our recommendation that the Under  Secretary of Defense for Acquisition, Technology, and Logistics develop a  general estimate of the financial impact of lead time reductions, and use  that as a metric to help components weigh the importance of lead time  reductions. DOD stated that to the extent that financial impact can be  estimated, it will be one of the elements considered in a review DOD  expects to conclude in 2008. DOD further stated that the challenge in  estimating the financial impact of lead time reductions was that there are  many other variables, and the effect of individual variables on lead time  estimates cannot be separately identified. We recognize that the Office of  the Under Secretary of Defense for Acquisition, Technology, and Logistics  has concerns about its ability to estimate the financial impact of lead time  reductions, but note that it was able to provide an estimate of $10 million  in financial impact for each day that lead time was reduced when we  published our 1994 report. Moreover, during our review, TACOM officials  informed us that they have the ability to simulate the impact of reductions  in lead times using their requirements determination process system on an  item-by-item basis. The potential savings generated from the simulations  could be helpful in estimating the savings from lead time reduction  initiatives. We further note that the inability to determine the financial  impact of lead time reductions does not provide the needed incentives for  the components to reduce lead times and impedes the ability of decision  makers to make informed choices as to which initiatives to implement.  Therefore, we continue to believe that the recommendation to the Under  Secretary of Defense for Acquisition, Technology, and Logistics is valid.
In addition, DOD did not concur with our recommendation to DLA to have  the supply centers review the methodology and inputs used to compute its  lead time estimates and revise them to incorporate recent improvements  in DLA actual lead times. DOD stated that our review used data primarily  from DLA’s legacy system from 2002 to 2005, which was prior to DLA’s  implementation of its new computer system called Business Systems  Modernization, and stated that consequently the benefits of this new  system and processes were not taken into account in our review. While we  agree that the implementation of this new computer system should  provide DLA with more tools to manage acquisition lead times, according  to DLA’s Cross-Process Policy Memorandum 06-001 dated June 1, 2006, the  basic methodology for automatic adjustments to both administrative and  production lead times remains the same in the new system as under the  legacy system (i.e., each is calculated as a weighted average based on one- third of the existing lead time of record and two-thirds of the actual or  new lead time for the current award). Calculating the lead times in the  same manner but recording the values in a newly implemented computer  system will not improve the accuracy of the lead time estimates.  Therefore, we continue to believe that the recommendation to DLA is  valid.
Moreover, DOD did not concur with our recommendation that the Under  Secretary of Defense for Acquisition, Technology, and Logistics work  closely with the Army and Navy to develop joint strategic relationships  with suppliers that would be beneficial in reducing lead times. The  department stated that it is actively pursuing a joint strategy to develop  strategic relationships, and that to instruct the services to develop  strategic relationships separately with these suppliers would lead to a  duplication of effort and dissipate the department’s leverage. We believe  that DOD misunderstood our recommendation. The joint strategy initiative  that DOD is actively pursuing, according to documentation provided by  DOD, is focused on commodity management, not on developing strategic  relationships to reduce lead times. Our recommendation calls for the  Under Secretary of Defense for Acquisition, Technology, and Logistics to  work closely with the Army and Navy to move beyond simply managing  the acquisition of individual parts, and to form strategic partnerships with  key suppliers for ranges of items in situations where it would be possible  to leverage these relationships to reduce lead times. Documentation from  DOD further states that DOD’s commodity management plan  acknowledges that service initiatives will produce improvements, and that  it respects those initiatives. Our recommendation, for the Under Secretary  of Defense for Acquisition, Technology, and Logistics to work closely with  the Army and Navy to develop similar initiatives to those already  underway by DLA and the Air Force, is not duplicative of ongoing efforts,  but would complement them. Until the Army and the Navy begin initiatives  to develop strategic relationships with suppliers, they may be unable to  realize the potential benefits from improved supplier relationships and  may continue to experience lower rates of lead time reductions than DLA  and the Air Force. Therefore, we continue to believe that the  recommendation to the Under Secretary of Defense for Acquisition,  Technology, and Logistics is valid.
The department’s comments are reprinted in appendix II.
We are sending copies of this report to the Chairmen and Ranking  Minority Members of the Senate Committee on Armed Services; the  Subcommittee on Readiness and Management Support, Senate Committee  on Armed Services; the Subcommittee on Defense, Senate Committee on  Appropriations; the House Committee on Armed Services; the  Subcommittee on Readiness, House Committee on Armed Services; and  the Ranking Minority Member, Subcommittee on Defense, House  Committee on Appropriations. We are also sending copies to the Secretary  of Defense; the Secretaries of the Army, Navy, and Air Force; the Director  of DLA; and the Under Secretary of Defense for Acquisition, Technology,  and Logistics. Copies will be made available to others upon request.  Should you or your staff have any questions concerning this report, please  contact William M. Solis, Director, at (202) 512-8365 or solisw@gao.gov.  Contact points for our Offices of Congressional Relations and Public  Affairs may be found on the last page of this report. Key contributors to  this report are listed in appendix III.
section_title: Appendix I: Scope and Methodology
paragraphs: To address our objectives, we reviewed relevant documents, guidance,  reports, and other information, as available, which related to acquisition  lead times for class IX spare parts and any initiatives the Department of  Defense (DOD) or the military components were undertaking in this area.  We also interviewed cognizant officials within the Office of the Under  Secretary of Defense (Acquisition, Technology, and Logistics); the Defense  Logistics Agency Headquarters; the Army Materiel Command  Headquarters; Headquarters Air Force, the Deputy Chief of Staff,  Installations, and Logistics, Inventory Management and Stockage Branch;   and the Naval Supply Systems Command, Naval Inventory Control Point- Mechanicsburg, Pennsylvania. We also performed additional work at the  Air Force Materiel Command Headquarters at Wright-Patterson Air Force  Base, Ohio, had discussions with officials at the U.S. Army Tank  Automotive and Armaments (TACOM) Life Cycle Management Command  in Warren, Michigan, and obtained data from U.S. Army Communications- Electronics Life Cycle Management Command, U.S. Army Aviation and  Missile Life Cycle Management Command, and the Naval Inventory  Control Point-Philadelphia, Pennsylvania.
To examine the extent to which the military components’ estimated lead  times varied from actual lead times, we obtained and reviewed  information from each military component concerning any relevant  policies, procedures, regulations, instructions, or memorandums about  acquisition lead time development, maintenance, or management. We also  obtained information regarding the processes used by the military  components in generating their acquisition lead times from discussions  with cognizant officials. To test the accuracy of the military components in  estimating the acquisition lead times and the related actual arrival of items  ordered, we requested that each military component provide us with a  data file that contained the following information for class IX spare parts  they each received between October 1, 2004, and September 30, 2005: date ordered, ordered from what company, quantity ordered, date delivered, quantity delivered, where delivered, purchase order number or some other financial related reference, cost per item,  item name,  item NSN,  total cost of order,  forecasted/on-file administrative lead time for item at time of  order,  forecasted/on-file production lead time for item at time of order,  and overall acquisition lead time for item.
For DLA and the Air Force, we obtained data that covered deliveries to all  three of their supply centers and Air Logistic Centers, respectively. In  regard to the Army, we obtained data from three Life Cycle Management  Commands: TACOM, Communications-Electronic, and Aviation and  Missile. We also obtained data from the Naval Inventory Control Points  that are located in Mechanicsburg, Pennsylvania and Philadelphia,  Pennsylvania. We compared the forecasted/on-file estimated lead times for  each delivery with the actual lead times experienced, and then grouped  the variances into five different categories. The categories were the actual  lead time (1) was within plus or minus 1 week from the estimated lead  time, (2) was greater than 1 week to less than 90 days earlier than the  estimated lead time, (3) was 90 or more days earlier than the estimated  lead time, (4) was greater than 1 week to less than 90 days later than the  estimated lead time; and, (5) was 90 or more days later the estimated lead  time. For all of the records in each category, we calculated the percent of  records in each category as compared to the total number of records  reviewed and also calculated their dollar value. We took steps to ensure  the reliability of the data we used in our review. We provided a list of  specific data elements to the Army, Navy, Air Force, and DLA officials. The  military components returned the requested information to us. To assess  the reliability of these data, we reviewed the data for obvious  inconsistency and completeness errors. In addition, we worked with  agency officials to identify any data problems. When we found  discrepancies (such as nonpopulated fields or data discrepancies), we  brought them to the officials’ attention and worked with them to correct  the errors. In addition, we sent an electronic questionnaire with questions  regarding our use of the data and followed up on issues we believed were  pertinent regarding the reliability of the data. Based on these efforts, we  determined that the data were sufficiently reliable for the purposes of our  report.
To examine the extent to which military components’ current management  actions, initiatives, and other programs have reduced lead times and  affected inventory and budget requirements, we obtained and reviewed  information from each military component concerning any relevant  policies, procedures, regulations, instructions, or memorandums regarding  efforts, policies, actions, or initiatives to reduce lead times. We also  interviewed officials within the Office of the Under Secretary of Defense  (Acquisition, Technology, and Logistics); the Defense Logistics Agency  Headquarters; the Army Materiel Command Headquarters; Headquarters  Air Force, The Deputy Chief of Staff, Installations, and Logistics, Inventory  Management and Stockage Branch; and Naval Supply Systems Command,  Naval Inventory Control Point-Mechanicsburg, Pennsylvania. We also  performed additional work at the Air Force Materiel Command  Headquarters at Wright-Patterson Air Force Base, Ohio and had  discussions with officials at the U.S. Army TACOM Life Cycle Management  Command in Warren, Michigan. We further examined budget stratification  data from the Army, Navy, Air Force, and the Defense Logistics Agency.  Using that budget stratification data, we reviewed all items present in the  September 30 budget stratification reports for both 2002 and 2005 to  determine the changes in average acquisition lead time for those items. We  were unable to obtain budget stratification data for the components for  1994, and thus simply reported the results of our 1994 GAO report  evaluating overall lead times for each component. Additionally, we  requested and analyzed the summary budget stratification reports for all  components for September 2002 through September 2005 to determine any  changes in average acquisition lead time and budget requirements from  2002 to 2005. Based on our efforts, we determined that the data were  sufficiently reliable for the purposes of our report.
We conducted our work from November 2005 through November 2006 in  accordance with generally accepted government auditing standards.
section_title: Appendix II: Comments from the Department of Defense
section_title: Appendix III: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Acknowledgments
paragraphs: In addition to the contact listed above, Lawson Gist, Jr., Assistant Director,  Rebecca Beale, Christopher Miller, Terry Richardson, Grant Mallie,  Catherine Hurley, Minette Richardson, Nancy Hess, Art James, Renee  Brown, Gayle Fischer, Kenneth Patton, and Nicole Harms made key  contributions to this report.