Defense Logistics: DOD Needs to Take Additional Actions to Address Challenges in Supply Chain Management
Published: 2011-07-28T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: DOD estimated that overall spending on logistics, including supply chain management, was more than $210 billion in fiscal year 2010. Because of long-standing weaknesses in supply chain management, GAO has designated DOD supply chain management as a high-risk area and identified three focus areas for improvement--requirements forecasting, asset visibility, and materiel distribution. GAO reviewed the extent to which DOD has developed and implemented (1) corrective action plans that address challenges in the three focus areas, (2) an effective program for monitoring and validating the effectiveness and sustainability of supply chain management corrective actions, and (3) an ability to demonstrate supply chain management progress. GAO prepared this report to assist Congress in its oversight of DOD's supply chain management. GAO reviewed strategic and improvement plans, reviewed documents detailing the performance management framework, and assessed performance measures.
section_title: What GAO Found
paragraphs: DOD has developed and begun to implement a corrective action plan for requirements forecasting, one of the three focus areas GAO identified as needing improvement in supply chain management. However, it does not have similar plans for the focus areas of asset visibility or materiel distribution. Such corrective action plans are critical to resolving weaknesses in these two areas. Such plans should (1) define root causes of problems, (2) identify effective solutions, and (3) provide for substantially completing corrective measures in the near-term, including steps necessary to implement solutions. DOD's Comprehensive Inventory Management Improvement Plan, issued in October 2010 in response to a statutory mandate, includes the elements necessary to serve as a corrective action plan for requirements forecasting. DOD's 2010 Logistics Strategic Plan, and other prior logistics-related plans, do not contain all of the elements needed to serve as corrective action plans for either asset visibility or materiel distribution, such as definition of problems or performance information to gauge progress in achieving outcomes. DOD outlined a performance management framework that is designed to provide guidance and oversight of logistics efforts, including supply chain improvement efforts. GAO's prior work has shown that in order for agencies to address challenges, they need to institute a program to monitor and validate the effectiveness and sustainability of corrective actions. The framework, as outlined in the 2010 Logistics Strategic Plan, offers a new management tool that may enable DOD to manage performance in supply chain management. For example, it calls for an ongoing assessment and feedback process that could help to ensure that improvement efforts are effective. However, DOD has not included key elements for instituting its performance management framework, such as implementing guidance to affected stakeholders, a strategy to communicate results internally and to stakeholders such as Congress, or definition of the roles and responsibilities of senior logistics governance bodies and chief management officers. Until the framework is fully instituted, DOD may not be able to effectively use this new management tool to monitor the effectiveness of corrective actions. DOD and its components track many aspects of the supply chain; however, DOD does not have performance measures that assess the overall effectiveness and efficiency of the supply chain across the enterprise. In order to fully address challenges, agencies must be able to demonstrate progress achieved through corrective actions, which is possible through the reporting of performance measures. In the development of its inventory management improvement plan, a collaborative process was used to define existing and needed performance measures for requirements forecasting. A similar collaborative focus on developing enterprisewide performance measures for asset visibility and materiel distribution has not occurred. The department may have difficulty demonstrating progress until enterprisewide performance measures are developed and implemented in all three focus areas for improving its supply chain management.
section_title: What GAO Recommends
paragraphs: GAO recommends that DOD develop and implement corrective action plans and performance measures for asset visibility and materiel distribution and take steps to fully institute its performance management framework. DOD concurred or partially concurred with two recommendations and did not concur with four, citing ongoing initiatives and existing policy. GAO believes all recommendations remain valid, as further discussed in the report.

section_title: Letter
paragraphs: One of the most complex and vital tasks facing the Department of  Defense (DOD) is managing its supply chain to effectively and efficiently  provide spare parts, food, fuel, and other critical supplies in support of  U.S. military forces. In short, DOD’s goal and challenge are to deliver the  right items to the right place at the right time, and at the right cost. Supply  chain management encompasses the processes and systems for  accomplishing this goal, and many DOD organizations have important  roles and responsibilities, including the Office of the Secretary of  Defense, the military services, Defense Logistics Agency (DLA), U.S.  Transportation Command (TRANSCOM), and the geographic combatant  commands. DOD’s investment in its supply chains is substantial; DOD  estimated that overall spending on logistics, including supply chain  management, amounted to more than $210 billion in fiscal year 2010.
Because of long-standing weaknesses in supply chain management, we  have designated DOD supply chain management as a high-risk area  needing management attention and improvement. We identified three  focus areas for improvement—requirements forecasting, asset visibility,  and materiel distribution.    Requirements forecasting. DOD defines requirements as the need or  demand for personnel, equipment, facilities, other resources, or  services in specified quantities for specific periods of time or at a  specified time. Accurately forecasted supply requirements are a key  first step in efficiently buying, storing, positioning, and shipping items  that the warfighter needs. Matching supply inventories to  requirements has been a continuing challenge for the department. As  a result, the services and DLA have had inventory levels that are  higher than needed to meet current requirements. DOD reported that  it manages more than 4 million secondary inventory items valued at  more than $91 billion as of September 2009. However, DOD reported  that $10.3 billion (11 percent) of its secondary inventory has been  designated as potential excess and categorized for potential reuse or  disposal. According to DOD, another $15.2 billion (17 percent) of its  secondary inventory exceeds the approved acquisition objective and  is being retained because it was determined to be more economical to  retain than to dispose of it or it might be needed in the future. Our  prior reviews of spare parts inventory management at DLA and the  Army, Navy, and Air Force found that problems with accurately  forecasting demand for spare parts were a major factor contributing to  mismatches between inventory levels and requirements.     Asset visibility. DOD describes this focus area as the ability to provide  timely and accurate information on the location, quantity, condition,  movement, and status of supplies and the ability to act on that  information. Limitations in asset visibility make it difficult to obtain  timely and accurate information on the assets that are present in the  theater of operations. DOD faces asset visibility challenges due, in  part, to a lack of interoperability among information technology  systems, problems with the management of shipping containers, and  challenges in instituting new technologies for tracking assets.    Materiel distribution. This focus area is the process for synchronizing  all elements of the logistics system to deliver needed supplies to  support the deployed warfighter. DOD has faced difficult distribution  challenges in Afghanistan due to limited cargo-processing and cargo- receiving capabilities, a lack of full visibility over supply and equipment  movements into and around Afghanistan, and a lack of coordination  and competing logistics priorities in a coalition environment, along  with several other challenges. During operations in Iraq, DOD faced  challenges in coordinating and consolidating distribution and supply  support, such as establishing an effective mechanism that would  enable a joint force commander to exercise appropriate command and  control over transportation and other logistics assets in the theater.  Such distribution and supply support challenges impeded the timely  delivery of supplies and contributed to shortages of items critical to  the warfighter.
Under our criteria for removing a high-risk designation, agencies with  such programs must, among other things, develop and implement  detailed corrective action plans and have an effective approach for  managing performance, which includes a program to monitor and validate  the effectiveness and sustainability of corrective actions and the ability to  demonstrate progress. As we have discussed in prior reports and  testimonies, DOD has taken steps toward addressing supply chain  management weaknesses over the last several years and has made  some progress. In 2010, DOD issued its Logistics Strategic Plan, which  represents the department’s most recent high-level strategy for continuing  to address supply chain management, as well as other logistics issues.
This report addresses DOD’s efforts to improve supply chain  management under its 2010 Logistics Strategic Plan. It was prepared  under the authority of the Comptroller General to conduct evaluations at  his own initiative and is being addressed to the committees of jurisdiction  and to others who have expressed interest in tracking DOD’s efforts to  improve supply chain management. Specifically, this report addresses the  extent to which DOD has developed and implemented (1) corrective  action plans that address challenges in the three focus areas we  identified for improvement, (2) an effective program for monitoring and  validating the effectiveness and sustainability of supply chain  management corrective actions, and (3) an ability to demonstrate supply  chain management progress. The Related GAO Products section at the  end of this report provides additional information on our prior relevant  work.
To assess the extent to which DOD has developed and implemented  corrective action plans that address high-risk challenges in the three  focus areas, we identified existing plans for logistics, supply chain  management, and the three focus areas. We assessed the extent to  which such plans provided a comprehensive, integrated strategy for  improving one or more of the focus areas and included the key elements  of a corrective action plan that we have previously identified. We also met  with officials from the Office of the Deputy Assistant Secretary of Defense  for Supply Chain Integration to determine the status of DOD’s planning  efforts. To assess the extent to which DOD has an effective program for  monitoring and validating the effectiveness and sustainability of corrective  actions, we reviewed the performance management framework identified  in DOD’s 2010 Logistics Strategic Plan. We reviewed the features of the  framework, its implementation status, and the extent the framework  included key elements as identified, for example, in results-oriented  management best practices. We also met with DOD officials to  understand the logistics governance processes and structure. To assess  the extent to which DOD has an ability to demonstrate supply chain  management progress, we reviewed performance measures discussed in  the Logistics Strategic Plan, as well as any existing or planned  performance measures for the three focus areas. As a basis for  evaluating these measures, we reviewed DOD policy, federal standards,  and our prior findings and recommendations on this issue. We also  reviewed ongoing performance measurement initiatives and met with  officials from the Office of the Secretary of Defense and military services  who are involved with those initiatives. We spoke with DOD officials,  including officials from various agencies and offices, to determine what  performance measures they tracked and monitored. Additional  information on our scope and methodology is provided in appendix I.
We conducted this performance audit from February 2010 to July 2011 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evident 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 finding and  conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: DOD defines its logistics mission, including supply chain management, as  supporting the projection and sustainment of a ready, capable force  through globally responsive, operationally precise, and cost-effective joint  logistics support for America’s warfighters. Supply chain management is  the operation of a continuous and comprehensive logistics process, from  initial customer order for materiel or services to the ultimate satisfaction of  the customer’s requirements. It is DOD’s goal to have an effective and  efficient supply chain, and the department’s current improvement efforts  are aimed at improving supply chain processes, synchronizing the supply  chain from end to end, and adopting challenging but achievable  standards for each element of the supply chain.
subsections: section_title: Many DOD Organizations Have Important Roles and Responsibilities for Supply Chain Management
paragraphs: Many organizations within DOD have important roles and responsibilities  for supply chain management, and these responsibilities are spread  across multiple components with separate funding and management of  logistics resources and systems. The Office of the Under Secretary of  Defense for Acquisition, Technology and Logistics serves as the principal  staff assistant and advisor to the Secretary of Defense for all matters  relating to defense logistics, among other duties. The Secretary of  Defense also designated the Under Secretary of Defense for Acquisition,  Technology and Logistics as the department’s Defense Logistics  Executive with overall responsibility for improving and maintaining the  defense logistics and supply chain system. The Assistant Secretary of  Defense for Logistics and Materiel Readiness, under the authority,  direction, and control of the Under Secretary of Defense for Acquisition,  Technology and Logistics, serves as the principal logistics official within  the senior management of the department. Within the Office of the  Assistant Secretary for Logistics and Materiel Readiness, the Deputy  Assistant Secretary of Defense for Supply Chain Integration improves the  integration of the DOD supply chain through policy development and  facilitates component implementation of supply chain management  practices, among other duties.
Each of the military departments is separately organized under its own  Secretary. Subject to the authority, direction, and control of the Secretary  of Defense, the Secretaries of the military departments are responsible  for, among other things, organizing, training, and equipping their forces.  Additionally, according to a DOD directive, each military department  Secretary is responsible for preparing and submitting budgets for their  respective department, justifying approved budget requests before  Congress, and administering the funds made available for maintaining,  equipping, and training their forces. Another important organization in  supply chain management is DLA, which purchases and provides nearly  all of the consumable items needed by the military, including a majority  of the spare parts needed to maintain weapon systems and other  equipment.
During joint military operations, J-4 is the principal joint staff organization  responsible for integrating logistics planning and execution in support of  joint operations. In carrying out this responsibility, the J-4 relies on  various DOD components, including the military services, DLA, and  TRANSCOM, to provide the logistics resources and systems needed to  support U.S. forces. Specifically, DOD’s doctrine governing logistics in  joint operations states that DLA and the military services share  responsibilities as the suppliers of equipment and supplies to the joint  force needed for sustained logistic readiness. It further states that as the  suppliers, they are responsible for delivering the right forces and materiel,  at the right place and time, to give the components of the joint force what  they require, when they need it. TRANSCOM, in addition to its  responsibilities for transporting equipment and supplies in support of  military operations, is designated as the distribution process owner for  DOD. The role of the distribution process owner is to, among other things,  oversee the overall effectiveness, efficiency, and alignment of  departmentwide distribution activities, including force projection,  sustainment, and redeployment/retrograde operations.
DOD also has two senior-level governance bodies for logistics and supply  chain management—the Joint Logistics Board and the Supply Chain  Executive Steering Committee. The Joint Logistics Board reviews the  status of the logistics portfolio and the effectiveness of the defensewide  logistics chain in providing support to the warfighter. The Joint Logistics  Board is co-chaired by the Assistant Secretary of Defense for Logistics  and Materiel Readiness and the Joint Staff Director of Logistics, and has  senior-level participants from the military services, combatant commands,  and DLA. DOD officials stated that the Supply Chain Executive Steering  Committee is another important executive-level governance body for  oversight of improvement efforts. The Executive Steering Committee is  chaired by the Deputy Assistant Secretary of Defense for Supply Chain  Integration and has participants from many of the same DOD  organizations as the Joint Logistics Board.
The department’s Chief Management Officer (CMO) and Deputy CMO  are senior-level officials with broad oversight responsibilities across  defense business operations, which include supply chain management.  They have responsibilities related to the improvement of the efficiency  and effectiveness of these business operations. For example, they  oversee the development and implementation of DOD’s Strategic  Management Plan, which includes supply chain management and other  business operations areas such as business system modernization and  financial management.
section_title: GAO Has Designated DOD Supply Chain Management as a High-Risk Area
paragraphs: DOD maintains military forces with unparalleled combat and support  capabilities; however, it also continues to confront long-standing  management problems related to its business operations that support  these forces. These business operations include—in addition to supply  chain management—financial management, business system  modernization, and overall defense business transformation, among  others. We have identified DOD supply chain management as a high-risk  area due to weaknesses both in the management of supply inventories  and responsiveness to warfighter requirements. Inventory management  problems have included (1) high levels of inventory beyond that needed  to support current requirements and future demands and (2) ineffective  and inefficient inventory management practices. In addition, we have  reported on shortages of critical items and other supply support problems  during the early operations in Iraq, as well as on the numerous logistics  challenges that DOD faces in supporting forces in Afghanistan.
We initiated our high-risk list and biennial updates to focus attention on  government operations that we identified as being at high risk due to their  greater vulnerabilities to fraud, waste, abuse, and mismanagement, as  well as areas that have a need for broad-based transformations to  address major economic, efficiency, or effectiveness challenges. The  high-risk list serves to identify serious weaknesses in areas involving  substantial resources and provide critical services to the public. Solutions  to high-risk problems offer the potential to save billions of dollars, improve  service to the public, and strengthen the performance and accountability  of the U.S. government.
Removal of a high-risk designation may be considered when legislative  and agency actions result in significant and sustainable progress toward  resolving a high-risk problem. Over time, we have removed the high-risk  designations of 21 programs or operations. When we review an  agency’s actions taken to address high-risk challenges, we assess the  actions against five criteria: (1) a demonstrated strong commitment to and  top leadership support for addressing problems, (2) the capacity to  address problems, (3) a corrective action plan that provides for  substantially completing corrective measures in the near term, (4) a  program to monitor and independently validate the effectiveness and  sustainability of corrective measures, and (5) demonstrated progress in  implementing corrective measures. With respect to supply chain  management, we found in our most recent update of the high-risk series  that DOD generally met the first two criteria. That is, DOD demonstrated  top leadership support for addressing its supply chain management  weaknesses, and it has the people and resources necessary to do so. We  found that DOD partially met the other three criteria.
section_title: Prior and Current Strategic Planning for DOD Supply Chain Management
paragraphs: On the basis of our prior work, we have recommended that DOD develop  an integrated, comprehensive plan for improving logistics, to include  supply chain management. Our prior work has shown that strategic  planning is the foundation for defining what an agency seeks to  accomplish, identifying the strategies it will use to achieve desired results,  determining how well it succeeds in reaching results-oriented goals, and  achieving objectives. Combined with effective leadership, strategic  planning provides decision makers with a framework to guide program  efforts and the means to determine if these efforts are achieving the  desired results. Characteristics of an effective strategic plan should  include a comprehensive mission statement; problem definition, scope,  and methodology; goals and objectives; activities, milestones, and  performance measures; resources and investments; organizational roles,  responsibilities, and coordination; and key external factors that could  affect the achievement of goals.
Over the last several years, DOD has issued a series of strategic  planning documents for logistics and supply chain management. For  example, DOD issued the first iteration of its Supply Chain Management  Improvement Plan in 2005 to address some of the systemic weaknesses  highlighted in our reports. DOD subsequently updated that plan on a  periodic basis. Also in 2005, DOD produced its Focused Logistics  Roadmap, which catalogued current efforts and initiatives. In 2008, DOD  released its Logistics Roadmap with the intent of providing a more  coherent and authoritative framework for logistics improvement efforts,  including supply chain management. While these plans have differed in  scope and focus, they have typically included a number of high-level  goals and related initiatives addressing aspects of supply chain  management.
These prior plans represented positive steps toward resolving  weaknesses in supply chain management. However, our reviews of the  plans found that they fell short of providing an integrated, comprehensive  strategy for improving logistics, including supply chain management.  The plans, for example, had some deficiencies that reduced their  usefulness for guiding and overseeing improvements. Among other  things, the plans did not identify the scope of logistics problems or the  capability gaps they sought to address, provide a basis for determining  funding priorities among various initiatives, or clearly link to logistics  decision-making processes.
Most recently, DOD issued its 2010 Logistics Strategic Plan and indicated  a commitment to update this plan annually. The plan, which supersedes  the prior plans issued by the department, identifies four overarching  logistics goals, including one goal that specifically addresses supply chain  management. We testified on this plan in July 2010 and identified some  of the same deficiencies found in previous plans.
section_title: DOD Has Developed and Is Implementing a Corrective Action Plan for One of Three High-Risk Focus Areas Needing Improvement
subsections: section_title: DOD Has a Corrective Action Plan for Inventory Management That Addresses the Requirements Forecasting Focus Area
paragraphs: DOD has developed and begun to implement a corrective action plan for  requirements forecasting, one of the three major focus areas we identified  as needing improvement in supply chain management. Specifically,  DOD’s Comprehensive Inventory Management Improvement Plan, issued  in October 2010 in response to a statutory mandate, includes  developing more accurate demand forecasting as a key improvement  effort for the department. On the basis of our analysis, we believe this  document can serve as a corrective action plan for the requirements  forecasting focus area. Corrective action plans are critical to resolving  weaknesses in high-risk areas. Such plans should (1) define root causes  of problems, (2) identify effective solutions, and (3) provide for  substantially completing corrective measures in the near-term, including  steps necessary to implement solutions.
DOD’s inventory management improvement plan is aimed at reducing  excess inventory and contains nine individual sub-plans that address a  range of inventory management problems. One sub-plan focuses on  improving demand forecasting accuracy and the setting of inventory  levels across the department. We have previously reported that the  mismatch between inventory levels and requirements is due largely to  inaccurate demand forecasts, and DOD acknowledged in its 2010  Logistics Strategic Plan that inaccurate requirements forecasting  continues to be a weakness within its supply chain. The Comprehensive  Inventory Management Improvement Plan addresses all three of the  general elements of a corrective action plan (see table 1). The plan  defines the root causes of problems in demand forecasting, identifies  solutions to improve its demand forecasting processes and procedures,  and provides steps to achieve these solutions.
As we noted earlier, effective strategic planning guides program  improvement efforts and provides the means to determine if these efforts  are achieving the desired results. Characteristics of effective strategic  planning include a comprehensive mission statement; problem definition,  scope, and methodology; goals and objectives; activities, milestones, and  performance measures; resources and investments; organizational roles,  responsibilities, and coordination; and key external factors that could  affect the achievement of goals. We reported in January 2011 that DOD’s  Comprehensive Inventory Management Improvement Plan addresses or  partially addresses all of these characteristics and that it represents an  important step for DOD in its efforts to improve its inventory management  practices. Further, the plan contains an appendix that details how other  DOD strategies, plans, or efforts relate to its various sub-plans.  Additionally, it describes the process that will be used to implement the  plan and monitor progress against performance targets. While this  inventory management improvement plan contains both the elements of a  corrective action plan and characteristics of effective strategic planning,  effective implementation will be critical for achieving expected outcomes.  Implementation will be challenged by several issues, such as aggressive  time lines and benchmarks and implementation of certain automated  business systems.
section_title: DOD Does Not Have Detailed Corrective Action Plans for the Asset Visibility and Materiel Distribution Focus Areas
paragraphs: DOD has not developed corrective action plans for two other supply chain  management focus areas: asset visibility and materiel distribution. DOD  has plans that address aspects of these two focus areas, but officials  could not identify plans for either area that address key problems and  solutions in a comprehensive, integrated manner. Challenges within these  two focus areas are often interrelated and result in impacts on warfighter  support. For example, difficulties or inaccuracies in the visibility over  assets can cause delays in the distribution of supplies to the warfighter.  Until the department develops and implements corrective action plans for  these remaining two focus areas, DOD may have difficulty resolving long- standing weaknesses in supply chain management.
Recent reviews and audits have pointed to continuing problems with  asset visibility and materiel distribution that have affected supply support  to the warfighter. In a recent internal DOD review of joint supply issues in  theater, the department acknowledged it had insufficient visibility of  assets in theater, which can result in potential inventory sources being  overlooked due to lack of visibility or service ownership, as well as  limited visibility of assets while in-transit. In addition, a December 2010  Army Audit Agency report found that despite having policies and  procedures in place for identifying, inspecting, and repairing containers,  personnel in Iraq sometimes did not comply with the policies and failed to  correctly inspect the condition of containers or update this information in  computer systems. As a result, the Army did not have an accurate  accounting of containers that were in good condition for supporting the  ongoing drawdown in Iraq and meeting time frames for that withdrawal. In  a prior review of supply support in Afghanistan, we reported that DOD has  been challenged by several materiel distribution issues, such as the  transportation of cargo through neighboring countries and around  Afghanistan, limited airfield infrastructure, limited storage capacity at  logistics hubs, and difficulties in synchronizing the arrival of units and  equipment. DOD had undertaken some efforts to mitigate these  challenges, such as the expanding cargo areas at some distribution hubs.  Later this year we will report on the extent to which DOD continues to  experience challenges with asset visibility and materiel distribution in  Afghanistan.
The 2010 Logistics Strategic Plan indicates that improving asset visibility  and materiel distribution remain priorities for the department; however,  the plan does not, by itself, constitute a corrective action plan to resolve  supply chain management weaknesses because it lacks detailed  information needed to guide and oversee improvement efforts.  Regarding asset visibility, the Logistics Strategic Plan indicates that two  priorities for the department are implementing a global container  management policy and implementing radio frequency identification.  Similarly, the Logistics Strategic Plan includes improvement initiatives for  materiel distribution. However, the plan does not discuss the root causes  for either asset visibility or materiel distribution weaknesses, identify the  extent to which the weaknesses are present, detail steps for  implementing improvement initiatives and thus achieving solutions, or  contain information (such as milestones, performance information,  benchmarks, and targets) necessary to gauge the department’s progress  in implementing these initiatives and achieving outcomes.
DOD has not developed corrective actions plans for asset visibility and  materiel distribution because senior-level officials considered prior  strategic plans and initiatives sufficient to address high-risk challenges in  these areas. However, there is some indication that DOD may place more  emphasis on developing more comprehensive, integrated plans in the  future. In our review of DOD’s Comprehensive Inventory Management  Plan, we noted that officials from the Office of the Secretary of Defense  and DOD components provided considerable management focus and  coordination across stakeholder organizations to develop that plan. In  addition, during the course of our current review, a senior DOD logistics  official stated that the department began an effort in January 2011 to  more comprehensively review the current state of asset visibility and to  develop a plan to guide future improvements in this focus area. This  official expects that the asset visibility plan would be developed with the  same collaborative approach as was used in the development of the  inventory management plan and that the two plans would be similar in  their degree of detail. Further, the senior official stated that there were  ongoing initiatives in the department that could provide the foundation for  a similar plan for addressing weaknesses in materiel distribution, but that  such an effort had progressed less than the one for asset visibility in  terms of developing a plan for guiding improvements.
Recent actions by the Secretary of Defense indicate that the department  intends to take additional steps aimed at achieving cost efficiencies in  these two focus areas. In a March 14, 2010 memorandum, the Secretary  outlined the steps that DOD plans to take to reduce inefficiencies and  eliminate duplication with respect to in-transit asset visibility. The  memorandum required TRANSCOM to prepare an implementation plan  for approval by the Chairman of the Joint Chiefs of Staff that, among  other things, would designate TRANSCOM as the department’s lead for  improving in-transit asset visibility by synchronizing ongoing improvement  initiatives and eliminating duplication and nonstandard practices among  DOD components. The same memorandum indicated TRANSCOM  should also prepare an implementation plan that, if approved, would  require the military services to coordinate more closely with distribution  partners on decisions regarding distribution. Specifically, the  memorandum noted that the implementation plan would require the  services to use the distribution process owner governance structure to  coordinate decisions that impact distribution and deployment capabilities.
section_title: DOD Has Outlined a Framework for Guiding and Overseeing Improvement Efforts but Has Not Provided Implementation Plans
subsections: section_title: DOD Has Outlined a Performance Management Framework for Guiding and Overseeing Improvement Efforts
paragraphs: In its 2010 Logistics Strategic Plan, DOD outlined a performance  management framework to provide guidance and oversight of logistics  improvement efforts, including supply chain improvement efforts. The  plan states that the framework will be used to measure, track, and report  progress in its improvement efforts. Our prior work has shown that in  order for agencies to address high-risk challenges, they need to institute  a program to monitor and validate the effectiveness and sustainability of  corrective actions.
DOD’s framework consists of a six-step process (see table 2) and offers a  new management tool that may enable DOD to manage performance in  supply chain management. For example, the framework refers to  developing measures and targets that are tied to goals and initiatives, and  it calls for an ongoing assessment and feedback process that could help  to ensure that improvement efforts are effective and staying on track.  Furthermore, the first step of the framework is consistent with the  development of corrective action plans for high-risk areas, as discussed  in the previous section of this report. In addition, the framework replicates  the performance management framework described in the department’s  overarching Strategic Management Plan for business operations. DOD  senior officials within the Supply Chain Integration Office expect the  confluence between the two plans to have a positive, behavior-shaping  influence on DOD organizations.
Although DOD outlined a performance management framework for  logistics, it has not instituted this framework across the logistics  enterprise. We did not find evidence during our review that DOD was  using its logistics framework yet to guide and oversee improvement  efforts.
section_title: DOD Has Not Included Key Elements for Instituting Its Performance Management Framework
paragraphs: The department has not instituted the framework because key elements  have not been fully defined and developed. Specifically, DOD has not (1)  developed and issued implementation guidance; (2) carried out a strategy  for communicating information about supply chain improvement efforts,  performance, and progress; or (3) clearly defined the roles and  responsibilities of senior-level logistics governance bodies and chief  management officials. We have found some of these same weaknesses  with DOD’s overarching performance management framework identified  in the Strategic Management Plan for business operations. Until these  elements are fully defined and developed, DOD may not be in a position  to effectively use this new management tool to monitor and validate the  effectiveness and sustainability of corrective actions.
Other than the general outline of the performance management  framework provided in the 2010 Logistics Strategic Plan, DOD has not  developed and issued detailed implementation guidance to affected  stakeholders. DOD and its components commonly issue directives,  instructions, regulations, and other guidance to direct the implementation  of new policies and programs. DOD officials from the Office of Supply  Chain Integration stated that guidance on the performance management  framework will be issued as necessary based on the results of initial  assessments. However, no guidance has been issued to date, and  procedures do not exist for implementing each of the six steps in the  framework. For example, no guidance exists on the process by which  stakeholders will reach consensus on setting performance targets,  aligning efforts, and assessing and reporting results. The Logistics  Strategic Plan states that strategic planning is a collaborative effort  among the Office of the Secretary of Defense, DOD components, and  other stakeholders. However, the plan does not provide detail describing  how or when this collaboration will occur.
Questions about how DOD intended to implement the Logistics Strategic  Plan were raised during a July 2010 congressional hearing. In questions  for the record submitted to DOD, a senior logistics official was asked to  explain how the department intends to translate the general discussion in  the Logistics Strategic Plan into specific guidance for the service and  agency components. The official responded that the components’  strategic plans will align to departmentwide priorities, and top-level policy  changes will cascade into component-level processes. However, the  response did not discuss how or when that process will occur.
Reporting on performance and progress is identified as a step within the  performance management framework; however, DOD has not carried out  a strategy for communicating its implementation plans and results of its  supply chain improvement efforts. For example, DOD does not have a  communications strategy in place to inform internal and external  stakeholders of current efforts, progress made, remaining problems, and  next steps needed for further progress. Our prior work has shown that a  communication strategy that creates shared expectations and reports  progress is important for results-oriented management and  transformation.
According to the 2010 Logistics Strategic Plan, DOD will develop a  management report to document the department’s assessments of  implementation of its general plan. However, a management report has  not yet been issued, and it is unclear what types of information DOD  intends to include in this management report or how information in the  report will be used by decision makers as part of the performance  management framework. In addition, DOD officials stated that the  management report would be used informally among internal  stakeholders and that they did not plan on sharing the performance report  with external stakeholders such as Congress.
DOD has not clearly defined the supply chain management improvement- related roles and responsibilities of senior-level logistics governance  bodies, CMO, and Deputy CMO in the performance management  framework for logistics. Our prior work on results-oriented management  and organizational transformation cites the importance of establishing  clearly defined roles and responsibilities, and we previously testified that it  was unclear how the 2010 Logistics Strategic Plan will be used within the  existing decision-making and governance structure for logistics to assist  decision makers and influence resource decisions and priorities.
The Logistics Strategic Plan calls for senior-level logistics governance  bodies, including the Joint Logistics Board and Supply Chain Executive  Steering Committee, to oversee implementation of improvements under  the new performance management framework. However, the exact roles  and responsibilities of these bodies are not defined in the plan. DOD  issued a charter for the Joint Logistics Board in 2010 that broadly defines  the roles and responsibilities of the board, and a draft charter exists for  the Supply Chain Executive Steering Committee. However, neither  charter specifically defines or describes the participation of those bodies  in the performance management framework for logistics. For example,  the charters do not clarify how the governance bodies will provide  oversight of the key initiatives in the Logistics Strategic Plan. Moreover, it  is not clear how the bodies will play a role in implementing individual  steps in the framework such as setting targets and monitoring  performance against those targets. Both bodies appear to provide  oversight primarily by periodic briefings, as opposed to systematic  monitoring of performance measures and improvement initiatives. For  example, we found that the Joint Logistics Board provides some oversight  of issues such as the development of a new joint supply support concept,  ongoing and new joint logistics initiatives, and activities of joint groups  and commands. The Supply Chain Executive Steering Committee  maintains visibility over issues such as the development of performance  metrics and some supply chain management initiatives. Although both  bodies have met regularly, our review of records from these meetings  indicate that neither body has exercised comprehensive and systematic  oversight across all key improvement initiatives for supply chain  management. Specifically, our review of the Joint Logistics Board’s 2010  meeting minutes showed that the board discussed and received status  briefings on 4 of the 12 supply chain improvement initiatives identified as  key priorities in the 2010 Logistics Strategic Plan. Similarly, the agendas  of the Supply Chain Executive Steering Committee highlight that the  committee received status briefing on 3 key supply chain improvement  initiatives.
The CMO and Deputy CMO are in a unique position to coordinate  improvement efforts across various business operations, ensure that  business-related plans are aligned, and monitor progress in implementing  these plans, but their roles and responsibilities as they specifically relate  to participation in the performance management framework for logistics  have not been clearly defined. DOD officials have stated that logistics  governance bodies are to oversee improvement efforts within the logistics  enterprise, but DOD Directives provide that the CMO and Deputy CMO  also have responsibilities related to the improvement of the efficiency and  effectiveness of the department’s business operations. However, it is  unclear what roles and responsibilities the CMO and Deputy CMO should  have as part of the performance management framework for logistics in  ensuring that key logistics or supply chain management initiatives that are  deemed priorities for the department realize their intended effectiveness  and efficiency improvements. We have previously reported that additional  opportunities exist for the CMO, assisted by the Deputy CMO, to provide  the leadership needed to achieve business-related goals, including supply  chain management goals. For example, the Deputy CMO stated that  she was not involved in developing or reviewing the Comprehensive  Inventory Management Improvement Plan. Although she did review the  Logistics Strategic Plan, this plan lacked clear performance measurement  information and other detailed information, as noted earlier in this report.  Moreover, successful resolution of weaknesses in supply chain  management depends on improvements in some of DOD’s other  business operations, such as business systems modernization and  financial management. We have previously recommended that DOD  more clearly define how the CMO, Deputy CMO, and the military  departments will reach consensus on business priorities, coordinate  review and approval of updates to plans, synchronize the development of  plans with the budget process, monitor implementation of reform  initiatives, and report on progress, on a periodic basis, towards achieving  established goals.
section_title: DOD Continues to Have Gaps in Its Ability to Measure Performance in Supply Chain Management
subsections: section_title: Effective Performance Measures Are Important for Demonstrating Progress in Programs and Activities
paragraphs: Federal government standards and best practices highlight the  importance of tracking and demonstrating progress in programs and  activities through the development and implementation of performance  measures. Among other things, those standards indicate the importance  of establishing and monitoring performance measures to improve  program effectiveness and accountability for results. Incorporating  outcome-based performance measures is also a best practice for  effective strategic planning, and performance measures enable an  agency to assess accomplishments, strike a balance among competing  priorities, and make decisions to improve program performance, realign  processes, and assign accountability. Further, our prior work has shown  that in order to fully address high-risk challenges, agencies must be able  to demonstrate progress achieved through corrective actions, which is  possible through the reporting of performance measures. Characteristics  of effective performance measures include having baseline or trend data  for performance assessments, setting measurable targets for future  performance, and establishing time frames for the achievement of goals.
DOD logistics plans and policies also acknowledge an important role for  performance measures. The 2010 Logistics Strategic Plan emphasizes  performance management, and the need for performance measures is  embedded in the performance management framework that is outlined in  the plan. In addition, DOD’s supply chain regulation requires that  components use metrics to evaluate the performance and cost of their  supply chain operations; lay out requirements for those metrics; and  direct that metrics address the enterprise, functional, and program or  process level of supply chain operations. The regulation also directs  DOD components to develop data collection capabilities that support  supply chain metrics.
With respect to DOD’s prior logistics strategic planning efforts that have  covered supply chain management and other areas, such as the Logistics  Roadmap, we have recommended that the Under Secretary of Defense  for Acquisition, Technology and Logistics develop, implement, and  monitor outcome-oriented performance measures to assess progress  toward achieving the objectives and goals identified in these plans. We  have also recommended that DOD develop and implement outcome- oriented performance measures that address each of the three focus  areas for supply chain improvement. DOD agreed with these  recommendations, but performance measurement has continued to  challenge DOD’s supply chain management, as discussed below.
section_title: Developing Enterprisewide Performance Measures for Supply Chain Management Has Challenged DOD
paragraphs: DOD and its components track many aspects of supply chain  performance, but DOD does not have performance measures that assess  the overall effectiveness and efficiency of the supply chain across the  enterprise. DOD components individually track aspects of their own  operations using certain performance measures. For example,  TRANSCOM uses logistics response time to measure the time that  passes between submission of a requisition for an item and the delivery  of the item to the supply support activity. DLA uses a perfect order  fulfillment metric to measure how well the end-to-end supply chain  delivers the right part to the customer on time, in the correct quantity, and  with no material deficiencies. The department consistently tracks one  enterprisewide supply chain metric, customer wait time. DOD logistics  officials stated that as of December 2010, they increased the amount of  performance information they regularly submit to the Deputy CMO for  inclusion in the department’s performance budget. These measures  include customer wait time by military service, perfect order fulfillment for  DLA, and two measures related to inventory management. However, our  prior work has found, and DOD has acknowledged, that additional  measures are needed.
In an effort to develop enterprisewide performance measures, DOD  began an initiative in 2007 called the Joint Supply Chain Architecture to  identify a hierarchy of performance measures to track overall  effectiveness and efficiency of the supply chain and to identify areas for  improvement based on industry standards. Led by the Deputy Assistant  Secretary of Defense for Supply Chain Integration and the Director of the  Joint Chiefs of Staff Logistics Directorate, the Joint Supply Chain  Architecture effort is identified in the 2010 Logistics Strategic Plan as a  key initiative intended to promote process standardization, facilitate  process integration, and define the enterprise framework. The Joint  Supply Chain Architecture is based on the Supply Chain Operations  Reference model, a process model that is a long-established best  practice for commercial supply chains and that provides a method to  evaluate and improve supply chains. We found DOD has made progress  with the initiative. The progress includes clarifying some common  concepts across the various DOD supply chains and organizations. For  instance, it details the types of performance information that will feed into  higher-level measures and identifies three possible enterprisewide  measures—customer wait time, perfect order fulfillment, and total supply  chain management cost. The measures focus on speed, reliability, and  efficiency of the supply chain, respectively.
Two of these three measures, customer wait time and perfect order  fulfillment, are not new and predate the Joint Supply Chain Architecture.  DOD directed the implementation of the customer wait time metric as  early as 2000 in a DOD instruction. Perfect order fulfillment is used by  DLA, as noted above, but it is not used by any other DOD components or  at the enterprisewide level. A total supply chain management cost metric  is far from completion, and various officials stated that the  meaningfulness of this measure is uncertain. Time lines for completion of  a total supply chain management cost metric or an enterprisewide perfect  order fulfillment metric have not been established. DOD officials stated  that the current focus of the Joint Supply Chain Architecture effort was to  identify and validate the many data sources from across the supply chain  needed to support the development of enterprisewide metrics.
section_title: DOD Used a Collaborative Process to Identify Performance Measures for the Requirements Forecasting Focus Area
paragraphs: In developing the Comprehensive Inventory Management Improvement  Plan, DOD made considerable progress in identifying departmentwide  performance measures, including measures within the requirement  forecasting focus area, by using a collaborative process involving  stakeholders representing key DOD components. As part of its plan, DOD  established a metrics working group responsible for developing needed  measures that do not exist and set time frames for their use. The plan  identifies two to-be-developed metrics necessary to increase demand  accuracy and reduce the percentage of over-forecasting bias. The two  are to be developed by the end of fiscal year 2012.
A similar collaborative process for defining performance measurement for  asset visibility and materiel distribution has not yet occurred. For  example, implementation of radio frequency identification technology has  been identified as a priority for the department in various strategic  planning documents. However, DOD has not established performance  measures to assess the impact of its implementation, despite the  significant initial investment of resources required to use the technology.  When asked to detail the progress made in passive radio frequency  identification implementation in a recent congressional hearing on  supply chain management, the response of the Principal Deputy Assistant  Secretary of Defense for Logistics and Materiel Readiness included two  examples of improvements, such as a reduction in time to perform  inventory at Tinker Air Force Base. However, DOD has not developed  comprehensive, enterprisewide measures of implementation or results  achieved.
Data quality and a shared approach to performance measurement across  organizations present challenges to DOD’s efforts to establish  enterprisewide performance measures for all three focus areas of supply  chain management. Ongoing efforts to modernize or replace DOD  business information systems, including systems supporting supply chain  management, are intended to improve data quality and data sharing  within DOD components. However, we have found that data-quality  problems persist, and these systems are not designed to routinely share  data across organization boundaries, such as among military  departments. Further, DOD’s information system modernization efforts  have experienced significant delays and cost increases while projected  benefits have not yet been achieved. Our recent review of DOD’s  Comprehensive Inventory Management Improvement Plan revealed  concerns about data reliability and availability that could affect the  department’s efforts in implementing the plan, including delays in  implementing business system modernization. The department is further  challenged because it does not have a common approach to developing  and implementing performance measures that include common  definitions, data sources, and agreement regarding how to measure  attributes of the supply chain across the enterprise. For example, we  found that it could be difficult for the services and DLA to measure  demand forecasting as they all differ in their current approach. These  factors have likewise been a challenge for the Joint Supply Chain  Architecture initiative. For example, one weapons system official  explained that customer wait time may be ambiguous because it can be  calculated differently and with different definitions. Until DOD overcomes  such challenges and establishes enterprisewide performance measures  for assessing supply chain performance in the three focus areas for  improvement identified in our high-risk series, the department may have  difficulty in demonstrating progress resulting from its corrective actions.
section_title: Conclusions
paragraphs: DOD has demonstrated two key ingredients for making further  improvements in supply chain management—namely, top leadership  support and access to the necessary people and resources. Additionally,  DOD through its new inventory management improvement plan has taken  an important step toward improving requirements forecasting, one of the  three focus areas where we have documented supply chain management  weaknesses. Although implementation challenges remain to be  addressed, the plan provides a path forward to improve DOD’s inventory  management practices. The lack of corrective action plans for asset  visibility and materiel distribution results in additional uncertainties  regarding how promptly, effectively, and efficiently DOD will be able to  address its systemic problems in supply chain management.
The new performance management framework outlined in the 2010  Logistics Strategic Plan could be an effective management tool if it is  instituted across the logistics enterprise. However, DOD has not taken  action to provide implementation guidance, an effective communications  strategy that provides transparency and accountability for improvement  efforts, or well-defined and documented roles and responsibilities of key  governance bodies and certain senior positions within its performance  management framework for logistics. The participation of the Joint  Logistics Board and the Supply Chain Executive Steering Committee in  the framework and how these two bodies will provide effective oversight  to all key initiatives for supply chain management is unclear. Further, the  roles and responsibilities of the department’s CMO and Deputy CMO, as  they relate to the performance management framework for logistics and  existing logistics governance bodies, are similarly unclear. Moreover, the  department has not defined how the CMO and Deputy CMO will ensure  alignment of supply chain management improvement plans and  performance management with plans and performance management of  other defense business operations. Without these additional actions,  DOD may not be able to fully implement the framework and use it  effectively as a tool for managing performance.
Performance information is critical for developing and implementing both  effective corrective action plans and the performance management  framework, and DOD has demonstrated an ability to plan for developing  and enhancing performance measurement in the inventory management  area. Developing meaningful, appropriate enterprisewide measures is a  difficult task, especially for an organization the size and scope of DOD.  Continued progress in defining needed performance measures for the  requirement forecasting focus area, combined with the identification,  development, and implementation of performance measures in the asset  visibility and materiel distribution focus areas could highlight progress and  needed management focus in order to address problems in those areas  that span the supply chain enterprise. In the absence of effective  performance measures, DOD cannot be assured that corrective actions  are achieving intended results. Further, without these measures, it will be  difficult for DOD to demonstrate progress to external stakeholders, such  as Congress, and show that resources are invested efficiently.
section_title: Recommendations for Executive Action
paragraphs: We recommend the Secretary of Defense take the following six actions to  improve DOD’s supply chain management and address challenges in this  high-risk area.
To address remaining challenges in asset visibility and materiel  distribution, we recommend that the Secretary of Defense direct the  Under Secretary for Defense for Acquisition, Technology and Logistics to  develop and implement corrective action plans for improving these focus  areas. As these two areas are closely interrelated, DOD may wish to  consider creating a single comprehensive, integrated plan that addressed  both focus areas for improvement. The corrective action plan or plans  should (1) identify the scope and root causes of capability gaps and other  problems, effective solutions, and actions to be taken to implement the  solutions; (2) include the characteristics of effective strategic planning,  including a mission statement; goals and related strategies (for example,  objectives and activities); performance measures and associated  milestones, benchmarks, and targets for improvement; resources and  investments required for implementation; key external factors that could  affect the achievement of goals; and the involvement of all key  stakeholders in a collaborative process to develop and implement the  plan; and (3) document how the department will integrate these plans with  its other decision-making processes; delineate organizational roles and  responsibilities; and support departmentwide priorities identified in higher- level strategic guidance (such as the Strategic Management Plan and  Logistics Strategic Plan).
To institute the performance management framework for guiding and  overseeing supply chain management and other logistics improvement  efforts, we recommend that the Secretary of Defense direct the Under  Secretary of Defense for Acquisition, Technology and Logistics to take  the following three actions:    Develop and issue detailed guidance to affected stakeholders  involved in implementing the performance management framework for  logistics.    Develop and implement a communications strategy for documenting  and reporting on the results of supply chain management  improvement efforts. The strategy should be linked with corrective  actions plans, contain performance measurement information, and  inform both internal and external stakeholders, including Congress.    Revise the existing charter of the Joint Logistics Board and the draft  charter of the Supply Chain Executive Steering Committee to define  and describe how the governance bodies will participate in the  performance management framework for logistics.
We also recommend that the Secretary of Defense clearly define the  CMO’s and Deputy CMO’s roles and responsibilities as they specifically  relate to (1) the performance management framework for logistics,  including the establishment of corrective action plans and related  performance measures; (2) existing governance bodies for logistics; and  (3) the alignment of supply chain management improvement plans and  performance management with those of DOD’s other business operations  areas.
We recommend that the Secretary of Defense direct the Under Secretary  of Defense for Acquisition, Technology and Logistics to use a  collaborative process, involving all key stakeholders, to identify, develop,  and implement enterprisewide performance measures needed to  demonstrate progress in the focus areas of asset visibility and materiel  distribution. These measures should be incorporated into corrective  action plans and the performance management framework.
section_title: Agency Comments and Our Evaluation
paragraphs: In written comments on a draft of this report, DOD stated that it concurred  with the overall intent of the report and specifically concurred or partially  concurred with two of our six recommendations. However, the department  did not concur with four of our recommendations. The Principal Deputy  Assistant Secretary of Defense for Logistics and Materiel Readiness  stated that DOD did not concur with three of our recommendations based  on its ongoing major initiatives and did not concur with one  recommendation that the department stated was addressed in existing  policy.
DOD concurred with our recommendation to issue guidance to all  affected stakeholders involved in implementing the new performance  management framework for logistics that was outlined in the 2010  Logistics Strategic Plan. DOD stated that guidance will be provided to  components and applicable defense agencies in the last quarter of fiscal  year 2011. DOD did not elaborate regarding the nature and scope of  information to be included in this guidance.
DOD partially concurred with our recommendation to revise the charters  of the Joint Logistics Board and the Supply Chain Executive Steering  Committee to define and describe how these governance bodies will  participate in the performance management framework for logistics. DOD  stated that the performance management framework is not explicitly  described in the charters, but that the charters reflect that these bodies  are to provide oversight, coordination, and information-sharing for  logistics initiatives and issues. DOD stated its view that no change is  required for the Joint Logistics Board charter, but the draft charter for the  Supply Chain Executive Steering Committee will be revised to address  reviews that are of performance measures and initiatives designed to  drive logistics improvements. We continue to believe that effective  implementation of DOD’s new performance management framework for  logistics will require departmentwide direction and oversight from its  governance bodies to ensure initiatives are staying on track and that  progress toward goals is being made consistently throughout the  department. As we discussed in our report, we found that neither of the  two governance bodies has exercised comprehensive and systematic  oversight across all the key improvement initiatives for supply chain  management that were outlined in the 2010 Logistics Strategic Plan.  Since DOD does not intend to revise their charters in order to define and  describe how these bodies will participate in the department’s new  performance management framework, then it will be even more important  that their roles and responsibilities be made clear and explicit in the  implementation guidance that DOD says it plans to issue for the  performance management framework.
In disagreeing with our other four recommendations, DOD indicates that  its ongoing involvement in major improvement initiatives, as well as  existing policy, is sufficient for addressing supply chain management  problems. We disagree based on the findings discussed in this report.  Problems in supply chain management, including the three focus areas of  requirements forecasting, asset visibility, and materiel distribution, are  long-standing and complex. Identifying root causes and implementing  effective solutions will require the involvement and coordination of  multiple stakeholders across the department, as well as a strong effort to  monitor, evaluate, and oversee improvements. Our recommendations are  intended to promote a systemic, integrated, and enterprisewide approach  to resolving problems in supply chain management. In addition, the  recommendations are closely linked with criteria and steps that agencies  need to take to successfully institute changes across an enterprise and to  have an area removed from GAO’s high-risk list. As noted in our report,  with the issuance of the Comprehensive Inventory Management  Improvement Plan in 2010, DOD took important initial positive steps to  address challenges in the requirements forecasting focus area, as well as  other areas of inventory management. We believe that a similar approach  could also be effective in addressing challenges in asset visibility and  materiel distribution challenges. Our evaluation of DOD’s comments with  regard to each of these four recommendations follows.
DOD disagreed with our recommendation to develop and implement  corrective action plans for the focus areas of asset visibility and materiel  distribution. DOD stated that it did not agree with our recommendation  because the department is already engaged in major efforts to improve  asset visibility and materiel distribution. While DOD for many years has  had improvement initiatives for certain challenges within these areas, we  continue to believe that developing and implementing a corrective action  plan for each of the remaining focus areas—or a single, integrated plan  covering both areas—is critical to resolving supply chain management  problems with a systemic, integrated, and enterprisewide approach.  GAO’s criteria for removing the high-risk designation—for supply chain  management and other programs—specifically calls for corrective actions  plans that identify the root causes of problems, solutions to these  problems, and steps to achieve these solutions. Moreover, an effective  strategic planning process that results in a high-quality corrective action  plan can provide clear direction to addressing DOD’s weaknesses in  supply chain management.
DOD commented that its involvement in major efforts to improve asset  visibility and materiel distribution negates the need for a corrective action  plan. DOD specifically refers to three efforts—(1) the Distribution  Strategic Opportunities initiative, (2) the Distribution Network Optimization  initiative, and (3) the Comprehensive Inventory Management  Improvement Plan. DOD states that each of these efforts has specific  goals, milestones, and targets, and involves key stakeholders. It is  unclear why DOD, in its written comments, focuses on the first two efforts  to the exclusion of other ongoing initiatives for improving distribution.  During our review, DOD officials did not highlight these efforts as  paramount, nor does the 2010 Logistics Strategic Plan characterize these  as DOD’s most critical key initiatives. On the contrary, the 2010 Logistics  Strategic Plan briefly describes the Distribution Strategic Opportunities  initiative as an effort “to improve distribution across the enterprise” and  includes it among several other initiatives the department has to improve  supply chain processes. The Logistics Strategic Plan provides no other  explanation of this initiative; provides no goals, milestones, or targets  associated with the initiative; and does not show how this initiative will  enable it to achieve high-level outcomes such as operating supply chains  more effectively and efficiently. The plan, moreover, makes no specific  mention of the second effort—the Distribution Network Optimization  initiative—although information provided separately by the department  indicates it is a sub-initiative under the Distribution Strategic Opportunities  initiative.
Furthermore, without a strategic planning process that examines root  problems and capability gaps and results in a corrective action plan, it is  unclear that these initiatives alone are sufficient for addressing all major  challenges in the asset visibility and materiel distribution focus areas. For  example, it is unclear to what extent these initiatives address challenges  in managing supply support in a joint theater of operations. It is also  unclear whether the initiatives are intended to focus on improving asset  visibility. As mentioned above, DOD has demonstrated an ability to carry  out a collaborative strategic planning process resulting in the issuance of  its Comprehensive Inventory Management Improvement Plan. That plan  identifies corrective actions that could, when implemented, effectively  address the requirements forecasting focus area and other aspects of  inventory management. We continue to believe that following a similar  collaborative approach that results in a corrective action plan or plans for  the focus areas of asset visibility and materiel distribution would result in  significant progress in addressing remaining challenges in the supply  chain management high-risk area.
DOD did not concur with our recommendation to develop and implement  a communications strategy for documenting and reporting on the results  of supply chain management improvement efforts. DOD stated that an  additional strategy of documenting and reporting its progress is not  required because the department’s senior logistics leadership is  continuously engaged in communicating its goals and performance to  internal and external stakeholders via governing bodies, public forums,  and formal reporting to Congress. Further, DOD stated that it will continue  to use monthly in-progress reviews of supply chain management  improvement efforts as the communications strategy with the  components. We continue to believe that DOD needs to report on the  results and progress of its logistics and supply chain management  improvement efforts. Such reporting can enhance accountability, help  ensure that all stakeholders are aware of progress being made and areas  needing further attention, and convey consistent directions throughout the  department for follow-on actions. Communication regarding goals and  performance are key steps that DOD identifies as part of the performance  management framework for logistics outlined in the Logistics Strategic  Plan. Further, DOD stated in this plan its commitment to issue a DOD  Logistics Strategic Management Report to document the results of the  assessments performed as part of the performance management  framework. Given DOD’s response to our recommendation, it is unclear  how the department plans to implement these aspects of its performance  management framework. As discussed in this report, a management  report has not yet been issued, and it is unclear what types of information  DOD intends to include in this report and how the information in the report  will be used as part of the performance management framework. Further,  DOD officials stated that the report would be used among internal  stakeholders and they did not plan on sharing the report with Congress.
DOD did not concur with our recommendation to clearly define the CMO’s  and Deputy CMO’s roles and responsibilities as they specifically relate to  (1) the performance management framework for logistics, (2) existing  governance bodies for logistics, and (3) the alignment of supply chain  management improvement efforts with those of DOD’s other business  operations areas. DOD stated that this recommendation is not required  because the Deputy CMO’s roles and responsibilities are sufficiently  documented in DOD guidance. We stated in our report that the CMO and  Deputy CMO have broad responsibilities related to the improvement of  the efficiency and effectiveness of DOD’s business operations. However,  we have previously reported that additional opportunities exist for the  CMO and Deputy CMO to achieve business-related goals, including  supply chain management goals. For example, we reported that the  Deputy CMO was not involved in developing or reviewing the  Comprehensive Inventory Management Improvement Plan. This plan was  described in DOD’s comments on this draft report as one of the three  major ongoing efforts to improve supply chain management. Further,  neither the CMO nor Deputy CMO attends meetings of the Joint Logistics  Board or Supply Chain Executive Steering Committee. Among the  responsibilities of the Deputy CMO are to participate as a member of  senior governance councils, and participation in senior logistics  governance bodies therefore may provide more opportunities for closer  collaboration and involvement of the Deputy CMO in addressing  challenges in supply chain management, especially those challenges that  span business areas. DOD additionally stated in its comments that it did  not concur with our recommendation because the logistics enterprise  reports to the Under Secretary of Defense for Acquisition, Technology  and Logistics, who has oversight and management responsibility for  logistics. Our recommendation does not imply that oversight and  management responsibility for logistics should be shifted to the CMO and  Deputy CMO; however, these individuals are in a unique position to  coordinate improvement efforts across all defense business areas.  Therefore, these individuals need to have a clearly defined role,  consistent with their overarching responsibilities in each business area,  including logistics and supply chain management.
DOD did not concur with our recommendation to use a collaborative  approach to identify, develop, and implement enterprisewide performance  measures needed to demonstrate progress in the focus areas of asset  visibility and materiel distribution. DOD stated that no additional actions  are required because enterprisewide performance measures have been  and continue to be developed using a collaborative process involving all  stakeholders. Further, DOD stated that the performance management  framework is a process rather than a document of performance  management. The department’s comments noted that it is following this  process in a collaborative fashion involving all stakeholders in the  identification, development, and implementation of enterprisewide  performance measures to demonstrate progress in key areas, including  asset visibility and materiel distribution. As noted in our report, DOD used  a collaborative process to define existing and needed performance  measures as part of the development of its Comprehensive Inventory  Management Improvement Plan. We continue to believe that DOD should  follow a similar, collaborative approach for the focus areas of asset  visibility and materiel distribution. Our work has shown that, at this time,  enterprisewide measures for these focus areas do not yet exist. DOD  began an initiative in 2007 called the Joint Supply Chain Architecture to  identify a hierarchy of performance measures. However, the only  enterprisewide performance measure used across the department,  customer wait time, predates this Joint Supply Chain Architecture  initiative. Other enterprisewide measures identified by the initiative are not  fully developed and may be some time from full implementation. We  agree with DOD that the performance management framework is a  process and not a document. Our report does not suggest otherwise. We  recommended that once key performance measures for these focus  areas are defined and implemented, they be incorporated as part of the  process for managing improvement efforts within the performance  management framework.
DOD’s comments are reprinted in their entirety in appendix II. The  department also provided technical comments that we have incorporated  into this report where applicable.
We are sending copies of this report to the appropriate congressional  committees. We are also sending copies to the Secretary of Defense; the  Deputy Secretary of Defense; and the Under Secretary of Defense for  Acquisition, Technology and Logistics. This report will also be available at  no charge on our Web site at http://www.gao.gov. Should you or your  staff have any questions concerning this report, please contact me at  (202) 512-8246 or edwardsj@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page   of this report. Staff who are major contributors to this report are listed in  appendix III.
section_title: Appendix I: Scope and Methodology
paragraphs: To determine the extent to which the Department of Defense (DOD) has  developed and implemented detailed corrective action plans that address  high-risk challenges in the three focus areas we identified for  improvement, we identified existing plans for logistics, supply chain  management, and the three focus areas: requirements forecasting, asset  visibility, and materiel distribution. We assessed the extent to which such  plans provide a comprehensive, integrated strategy for improving one or  more of the focus areas and include the key elements of a corrective  action plan that we have previously identified. Specifically, we evaluated  DOD’s October 2010 Comprehensive Inventory Management  Improvement Plan and determined its applicability as a corrective action  plan for inventory management and the requirements forecasting focus  area by comparing the plan and its elements to criteria from our prior  reports on corrective action plans and effective strategic planning.  Specific criteria on corrective action plans and the elements of effective  strategic planning are discussed in the report. Using these same criteria,  we evaluated the 2010 Logistics Strategic Plan and determined the extent  to which it could serve as a corrective action plan for the areas of asset  visibility and materiel distribution. We met with officials from the Office of  the Deputy Assistant Secretary of Defense for Supply Chain Integration to  discuss features of the 2010 Logistics Strategic Plan and any ongoing  and possible future strategic planning efforts. We reviewed DOD’s  testimony before Congress and written responses to questions for the  record on the plan. We also reviewed prior GAO reports and testimonies  pertaining to DOD supply chain management, including prior strategic  planning efforts.
To assess the extent to which DOD has an effective program for  monitoring and validating the effectiveness and sustainability of corrective  actions, we reviewed the performance management framework identified  in DOD’s 2010 Logistics Strategic Plan. We reviewed the features of the  framework that are aimed at helping DOD to guide and oversee  improvement efforts, and we also determined the implementation status  of the framework. In addition, we assessed the extent that DOD has  included elements needed for instituting the framework across the  department. We based this assessment, in part, on a body of work that  sets forth criteria for results-oriented management and best practices for  organizations that are transforming their management practices and  structures. We also reviewed DOD’s 2009 Strategic Management Plan  and our recently released report on the plan. We compared the  performance management frameworks of the two DOD plans to  determine the degree of congruence between the frameworks. We met  with officials from the Office for Supply Chain Integration to discuss the  performance management framework and oversight structure (including  senior-level logistics governance bodies) and obtain additional insight and  supporting documentation (e.g., agendas and meeting minutes of these  bodies) on the purpose and implementation of the framework. We  reviewed DOD’s recent congressional testimony on the 2010 Logistics  Strategic Plan and written responses to related questions for the record to  determine DOD’s approach and perspective on implementing the plan,  including the performance management framework. In addition, we  reviewed legislation, DOD policies, and other documentation regarding  the chief management officials, including the DOD Chief Management  Officer, the Deputy Chief Management Officer, and military departments’  Chief Management Officers; and our prior work on performance  management.
To determine the extent to which DOD has an ability to demonstrate  supply chain management progress, we reviewed how DOD uses, or  plans to use, performance measures discussed in the 2010 Logistics  Strategic Plan. We also reviewed DOD’s existing or planned performance  measures for the three focus areas of improvement, including measures  discussed in the Comprehensive Inventory Management Improvement  Plan. As a basis for evaluating these measures, we reviewed DOD’s  supply chain management regulation, federal standards and best  practices, and our prior findings and recommendations on this issue.
We discussed existing and planned measures with officials from the  Office for Supply Chain Integration and other DOD components. We also  obtained information from these officials on the development of the Joint  Supply Chain Architecture since a major effort of the initiative is to define  enterprisewide performance measures to track efficiency, effectiveness,  and reliability of the supply chains. We met with officials from the  following weapons systems program offices involved in implementing  Joint Supply Chain Architecture case study programs: Integrated Materiel  Management Center, U.S. Army Aviation and Missile Life Cycle  Management Command, Redstone Arsenal, Alabama; PEO Integrated  Warfare Systems, Washington Navy Yard, Washington, D.C.; Warner  Robins Air Logistics Center, Robins Air Force Base, Georgia; Naval  Inventory Control Point, U.S. Naval Supply Systems Command,  Mechanicsburg and Philadelphia, Pennsylvania. We discussed  performance measures used by these case study programs as well as  DOD efforts to develop enterprisewide performance measures.
We conducted a site visit to the U.S. Transportation Command, Scott Air  Force Base, Illinois, to obtain information and perspectives on  distribution-related initiatives to discuss supply chain improvement efforts  and performance management. In addition, we contacted officials from  the following agencies and offices to obtain information and perspectives  on the 2010 Logistics Strategic Plan, supply chain improvement initiatives  and efforts, and their use of performance measures:    U.S. Joint Forces Command: Operations, Plans, Logistics and  Engineering Directorate, J4 Division, Norfolk, Virginia;    Defense Logistics Agency, Ft. Belvoir, Virginia;    U.S. Army: Office of the Deputy Chief of Staff of the Army, G-4  Logistics, Pentagon, Washington, D.C.;    U.S. Navy: Deputy Assistant Secretary of the Navy, Acquisition and  Logistics Management, Logistics Division, Pentagon, Washington,  D.C.; Chief of Naval Operations Supply, Ordnance and Logistics  Operations, Arlington, Virginia;    U.S. Air Force: Air Staff, Logistics Directorate, Rosslyn, Virginia; and  the Global Logistics Support Center, Scott Air Force Base, Illinois.
We also met with representatives from the Institute for Supply  Management and the Center for Advanced Purchasing Studies Research,  Tempe, Arizona; and the University of Alabama Office for Enterprise  Innovation and Sustainability, Huntsville, Alabama, to obtain industry and  academia’s views and documentation on the Supply Chain Operation  Reference model, industry standards for supply chain management, and  how application of those standards are unique to DOD.
We conducted this performance audit from February 2010 to July 2011 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evident 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 finding and  conclusions based on our audit objectives.
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: Staff Acknowledgments
paragraphs: In addition to the contact named above, Thomas Gosling, Assistant  Director; Jeffrey Heit; Suzanne Perkins; and Pauline Reaves made key  contributions to this report.
section_title: Related GAO Products
paragraphs: High-Risk Series: An Update. GAO-11-278. Washington, D.C.: February  2011.
Defense Business Transformation: DOD Needs to Take Additional  Actions to Further Define Key Management Roles, Develop Measurable  Goals, and Align Planning Efforts. GAO-11-181R. Washington, D.C.:  January 26, 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.
Defense Logistics: Additional Oversight and Reporting for the Army  Logistics Modernization Program Are Needed. GAO-11-139. Washington,  D.C. November 18, 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.
Warfighter Support: Preliminary Observations on DOD’s Progress and  Challenges in Distributing Supplies and Equipment to Afghanistan.  GAO-10-842T. Washington, D.C.: June 25, 2010.
Defense Inventory: Defense Logistics Agency Needs to Expand on Efforts  to More Effectively Manage Spare Parts. GAO-10-469. Washington, D.C.:  May 11, 2010.
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.