Defense Logistics: Better Strategic Planning Can Help Ensure DOD's Successful Implementation of Passive Radio Frequency Identification
Published: 2005-09-12T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Department of Defense (DOD) has had problems with tracking and identifying inventory for many years, most recently in Operation Iraqi Freedom. One of several tools DOD is using to address these inventory problems is radio frequency identification (RFID). RFID technology consists of passive or active tags that are attached to equipment and supplies that are shipped from one location to another. Although DOD did not begin official implementation of passive RFID technology until January 1, 2005, DOD has been using active RFID technology since the early 1990s and began developing policy and pilot testing passive RFID in 2003. As of January 1, 2007, all commodities, excluding bulk commodities, are to have passive RFID tags. Full implementation of passive RFID is estimated to cost hundreds of millions of dollars. This report (1) provides information on the status of passive RFID implementation, (2) addresses the extent to which DOD has developed a strategic approach for implementing passive RFID, and (3) highlights challenges DOD recognizes it faces in implementing passive RFID and any plans developed by DOD to mitigate these challenges.
section_title: What GAO Found
paragraphs: Since 2003, DOD and the components have taken actions to begin using a potentially promising technology, known as passive RFID, throughout their supply chain operations. These actions include development of policy and guidance and the use of pilot projects and initial implementation to test the technology's application to their business processes. In addition, infrastructure and funding have been provided, but this has been minimal because implementation did not officially begin until January 2005. Future funding requirements are expected to increase sharply as full implementation proceeds--from $6.6 million as of January 2005 to about $472 million projected from fiscal years 2006 through 2011. This $472 million projection does not include the cost of system interoperability, which officials believe will be the most expensive element of implementation. Full implementation of passive RFID in supply operations is not anticipated until 2016 or beyond. While DOD has taken a number of actions to direct the implementation of passive RFID, it has not yet developed a comprehensive strategic management approach that incorporates sound management principles. The planning by DOD and its components lacks or only partially incorporates several key management principles needed to effectively guide, monitor, and assess implementation. The development of a comprehensive strategic management approach that fully incorporates these principles could provide decision makers with a framework to guide RFID implementation efforts and the means to determine whether these efforts are achieving the desired results. This affects both DOD and its components because the components are developing implementation plans to support DOD's RFID policy. DOD has identified several challenges that will need to be resolved before passive RFID can be fully implemented, but it has not yet developed a mitigation plan to address these challenges. Some challenges relate to the fact that passive RFID is a new and evolving technology, while other challenges derive from operational issues and obtaining adequate funding. Furthermore, certain regulatory and administrative obstacles remain. Until DOD and the components identify actions to mitigate these implementation challenges, their progress in resolving these challenges may be impeded.

section_title: Letter
paragraphs: The Department of Defense (DOD) has had problems with tracking and  identifying inventory for many years. Since at least 1990, we have  considered DOD’s inventory management to be a high-risk area because  inventory management systems and procedures are ineffective. Continued  lack of visibility over inventory and equipment shipments increases  vulnerability to undetected loss or theft and substantially heightens the  risk that millions of dollars will be spent unnecessarily. Furthermore, it  potentially compromises cargo security and the readiness of the  warfighters. DOD has been using active radio frequency identification  (RFID) technology for over a decade as a tool to help resolve this problem.  More recently, DOD has also begun to use passive RFID technology. Both  passive and active RFID technologies are part of a family of automatic  information technologies used to enable hands-off identification of cargo  and inventory. RFID technology consists of active or passive electronic  tags that are attached to equipment and supplies that are shipped from one  location to another. Full implementation of RFID technology into DOD’s  supply chain will require an investment estimated to cost hundreds of  millions of dollars.
DOD’s use of active and passive RFID technology is evolving. DOD began  using active RFID in the early 1990s as a tool to help resolve visibility  problems experienced during Operations Desert Shield and Desert Storm.  Active RFID technology is intended to provide nearly real-time, in-transit  visibility of shipments. During Operation Iraqi Freedom, active technology  was used to track parts and supplies shipped to and within theater,  although not entirely successfully because some of the same visibility  problems that occurred during Operations Desert Shield and Desert Storm  were repeated, as we have previously reported and other DOD and  military service after-action studies have documented.
DOD has just begun implementing passive RFID, envisioned to ultimately  work in conjunction with active RFID, to better enable inventory  management and accountability. Passive RFID, which appears to be  promising, is an emerging technology for both commercial and defense  applications, and DOD logistics leadership views it as a key factor in  transforming DOD logistics. Passive RFID is intended to facilitate  accurate, efficient, hands-free data capture of shipping contents to  improve item-level visibility. In October 2003, DOD developed initial RFID  policy establishing business rules and requirements for implementing  passive RFID technology in an integrated DOD supply chain enterprise.  DOD’s final RFID policy, dated July 30, 2004, directs the implementation of  passive RFID technology for solicitations issued on or after October 1,  2004, for delivery of materiel on or after January 1, 2005. As part of this  implementation process, DOD stipulated that its vendors and two of its  distribution depots be required to use passive RFID technology as of  January 1, 2005. DOD met the January 1, 2005, date through its initial  implementation of passive RFID at the Defense Logistics Agency’s (DLA)  San Joaquin, California, and Susquehanna, Pennsylvania distribution  depots.
This report addresses the status of DOD’s passive RFID implementation  and was prepared under the authority of the Comptroller General and is  being addressed to the committees of jurisdiction. We focused on passive  RFID because of its newness and potential high costs, and because it is  just beginning to be implemented throughout DOD. We are providing you  with this report because of your oversight responsibilities for defense  issues. It addresses three key objectives: (1) to provide information on the  status of passive RFID implementation in DOD, (2) to identify the extent  to which DOD has developed a strategic approach for implementing  passive RFID technology, and (3) to highlight a broad spectrum of  challenges that DOD recognizes it faces with the ongoing implementation  of passive RFID technology and any plans developed by DOD to mitigate  these challenges.
For this report, we obtained and analyzed DOD’s and various DOD military  components’ RFID guidance; readily available literature that describes the  technology; funding, expenditures, and future projections data and  requirements; and infrastructure being used and required for implementing  the technology throughout DOD. We also reviewed studies initiated by  DOD or its various military components. We interviewed knowledgeable  officials from the Office of the Secretary of Defense, the four military  services, DLA, the U.S. Transportation Command, the Joint Forces  Command, and members of Joint Staff directorates. Additionally, we  observed passive RFID technology being used at DLA’s distribution depot  in Susquehanna, Pennsylvania and at the Navy Ocean Terminal in Norfolk,  Virginia. Because DOD is just beginning to implement passive RFID  technology, we did not verify the data provided and considered the data  sufficiently reliable for the purposes of this review. We conducted our  work from July 2004 through August 2005 in accordance with generally  accepted government auditing standards. Our scope and methodology are  discussed in further detail in appendix I.
subsections: section_title: Background
paragraphs: RFID technology is one type of automatic identification technology.  Automatic identification technology is a suite of commercial  technologies—including bar codes, smart cards, magnetic stripes, and  radio frequency identification—that provides a range of capabilities that  enable the automatic capture of source data and enhance the ability to  identify, track, document, and control deploying and redeploying forces,  equipment, personnel, and sustainment cargo. Anticipated potential  benefits of RFID include providing (1) near real-time, in-transit visibility  for all classes of supplies and materiel; (2) “in the box” content-level detail  for all classes of supplies and materiel; (3) quality, nonintrusive (hands- off) identification and data collection that enables enhanced inventory  management; and (4) better item-level visibility. RFID tagging of DOD  materiel is applicable to all items except bulk commodities such as bulk  liquids, sand, and gravel.
At the most basic level, RFID is a data input system that consists of (1) a  transponder, generally referred to as a tag; (2) a tag reader, also known as  an interrogator, that reads the tag using a radio signal; (3) centralized data  processing equipment; and (4) a method of communication between the  reader and the computer. The reader sends a signal to the tag, which  prompts the tag to respond with information about the container or item  to which it is attached. The information is forwarded to central data  processing equipment, which can then be used to get detailed information  about the container or item, such as the shipping date or the date received.  The information contained in the central data processing equipment can  provide visibility over inventory items throughout the supply chain. DOD’s  final RFID policy, issued on July 30, 2004, includes business rules for  implementing two types of RFID tags—active and passive.
Active RFID technology, which is more mature than passive technology, is  used on containers or pieces of equipment for tracking shipments and  their contents while in transit. Active RFID tags, which generally use a  battery, have transmitters that transmit information when interrogated  through radio signals that are read electronically. Active tags are more  expensive than passive tags and are used for tracking major items and  containers over long distances.
Passive RFID is the newer technology and its use in DOD is evolving.  Ultimately, this technology, which appears to be promising, will be used to  enable better inventory management and accountability. Passive RFID  tags are applied to cases, pallets, and item packaging. Passive tags do not  have batteries and store only a limited amount of information. To be  activated, these tags require strong radio frequency signals from reader  devices to enable the tags to send back the information stored on them.  Once the radio signal is received, a small amount of the reader’s signal  power is temporarily stored and then used to generate the tag response.  However, because of the tags’ limited energy, the radio frequency signal  strength emitted by them is at a low level, thus limiting the distance— generally 3 to 10 feet—from which the tags can be read. We reported in  our May 2005 report that, under perfect conditions, the tags can be read  from a range up to about 20 feet. Passive tags are much lighter and less  expensive than active tags, ranging from about $0.20 to several dollars  each, in comparison with about $100 each for active tags. DOD is testing  the passive technology through pilot projects and initial implementation to  assess its application to existing business processes. DOD’s RFID policy,  issued on July 30, 2004, requires (1) the department and its various military  components to begin to implement passive RFID and immediately expand  active RFID technology and capability within the DOD supply chain, and  (2) suppliers to affix passive RFID tags on certain commodities for  solicitations issued on or after October 1, 2004, for materiel delivered on  or after January 1, 2005.
Passive and active RFID tags physically differ from one another, as figure  1 shows. Even though passive and active RFID technologies require  similar types of equipment and function in a similar manner, the  equipment is not interchangeable between the two technologies because  they serve different purposes and use different radio frequencies. For  more detail about the equipment necessary for passive and active RFID  technology, see appendix II.
Although passive RFID is an emerging technology for both commercial  and defense applications, DOD logistics leadership views it as a key factor  in transforming DOD logistics. DOD envisions using passive RFID  technology to facilitate accurate, hands-off data capture in support of its  logistics business processes in an integrated DOD supply chain enterprise.  DOD anticipates that the application of passive RFID technology will  provide efficient and accurate item/content visibility for better inventory  management. DOD’s goal for passive RFID is to provide nonintrusive  identification of shipping contents to improve item-level visibility, and its  goal for active RFID is to provide nearly real-time, in-transit visibility for  most classes of supplies and materiel. Figure 2 depicts how DOD could  use both passive and active RFID as items are physically moved from the  manufacturers and suppliers to the warfighter.
As the defense logistics executive responsible for RFID implementation,  the Under Secretary of Defense (Acquisition, Technology, and Logistics)  issued DOD’s final RFID policy on July 30, 2004. Certain other DOD  military components also have specific responsibilities in the RFID  implementation process. The DOD Logistics Automatic Identification  Technology Office, for example, is the DOD focal point for coordinating  overarching guidance for the use of automatic identification technology  within the department. The Army Program Executive Office, Enterprise  Information Systems, Product Manager Joint–Automatic Identification  Technology Office is the DOD procurement activity for automatic  identification technology equipment—including equipment and  infrastructure—and it maintains a standing contract for equipment  integration, installation, and maintenance. This office is also responsible  for maintaining contracts for the purchase of passive RFID tags. DLA is  the procurement activity and single manager for active RFID tags. Finally,  the U.S. Transportation Command, as the distribution process owner, is  responsible for directing and supervising execution of the strategic  distribution system for moving and distributing supplies.
section_title: DOD and Its Military Components Have Taken Actions to Implement Passive RFID Technology
paragraphs: DOD and its military components have developed RFID policy, and DOD  has provided guidance to suppliers and military components for  implementing passive RFID technology. DOD also is using pilot projects  and has begun initial implementation at several receiving and conveyor  locations to better understand this technology and test its application to  their business processes. Although the military components have begun  acquiring and funding the infrastructure needed for passive RFID  implementation, existing infrastructure is minimal because  implementation did not begin until January 1, 2005. Consequently, DOD is  just beginning to purchase equipment for passive RFID technology  implementation, and it projects a sharp increase in expenditures as full  implementation proceeds.
subsections: section_title: DOD Has Developed Policy and Guidance and the Military Components Are Developing Plans to Implement Passive RFID Technology
paragraphs: Since 2003, the Office of the Under Secretary of Defense (Acquisition,  Technology, and Logistics) has developed policy and guidance to  implement a potentially promising technology, known as passive RFID  into their supply chain operations. The military services, DLA, and U.S.  Transportation Command also have developed or are developing plans and  guidance to support passive RFID implementation. DOD’s RFID policy and  the military components’ implementation plans are evolving, and the  department has taken several actions to provide additional guidance to  suppliers and military components for implementing passive RFID. Figure  3 identifies the dates of several major policy and guidance actions that  DOD has taken or plans to take to implement passive RFID into its supply  chain processes. Although DOD plans to begin implementing the use of  passive RFID to all classes of all commodities, excluding bulk  commodities, shipped to all locations by January 1, 2007, it will be fiscal  year 2016—and beyond for the Army—before passive RFID will be fully  implemented into supply chain operations, according to Navy and Army  funding projections.
The initial RFID policy, issued by the Under Secretary of Defense  (Acquisition, Technology, and Logistics), required suppliers to put passive  RFID tags on pieces, parts, cases, or pallets by January 2005. A DOD news  release officially announced the RFID policy in late October 2003. In early  2004, the initial RFID policy was updated. The updated policy provided an  initial set of business rules for the implementation of passive RFID and  laid out the requirement to plan for a January 1, 2005, implementation of  the passive RFID business rules.
In late July 2004, the Under Secretary issued the final RFID policy. This  policy finalized the business rules for the implementation of passive RFID  and prescribed the implementation approach for DOD suppliers and  vendors to use to apply passive RFID tags. The final policy establishes a  mandatory requirement on solicitations issued on or after October 1, 2004,  for suppliers to use passive RFID tags for deliveries that take place on or  after January 1, 2005. This requirement applies to shipments of materiel in  four supply classes that are delivered to two of DOD’s distribution  depots—San Joaquin, California, and Susquehanna, Pennsylvania—in  accordance with the supplier implementation plan of the policy. In late  August 2004, the Under Secretary of Defense (Acquisition, Technology,  and Logistics) issued a Logistics Decision Memorandum approving initial  implementation of passive RFID at strategic distribution depots, strategic  aerial ports, and maintenance depots. Starting January 1, 2006, the final  RFID policy expands the requirement for suppliers to tag six additional  supply classes and 32 additional shipping locations. Commencing January  1, 2007, all classes of all commodities, excluding bulk commodities,  shipped to all locations are to be affixed with passive RFID tags.
According to the final policy, the Defense Logistics Board is to review the  internal implementation plan, benefits, compliance requirements, and  requisite budget requirements annually, based on an assessment of the  implementation to date.  As part of this review process, in late August 2004  the Under Secretary of Defense (Acquisition, Technology, and Logistics)  met with the Defense Logistics Board to discuss DOD’s strategy for RFID  implementation and to obtain the board’s agreement on future funding for  both active and passive RFID. Additionally, a defense logistics executive  decision memorandum issued in March 2005 stated that Defense Logistics  Board members agreed that implementation of RFID across the  department had the potential to greatly enhance visibility of the supply  chain. The memorandum further stated that the business case analysis  developed by DLA was compelling, and directed the secretaries of the  military departments to move forward with passive and active RFID  implementation. While we reviewed the contents of DOD’s business case  analysis, we did not assess its methodology and validity.
The final RFID policy also states that the Army’s Program Executive Office  Enterprise Information Systems continue development of a multivendor  contract to support the purchase of passive RFID technology and to  leverage the purchasing power of the department. Additionally, DOD’s  policy requires military components to prepare passive RFID  implementation plans to support the DOD vision.
To meet the requirements of the final DOD RFID policy, in September 2004  DOD developed a departmentwide RFID Concept of Operations as an  outline for the military services and other military components to follow in  implementing RFID technology into DOD logistics and to articulate the  specific uses of passive RFID throughout the DOD supply chain. The  document outlines the scope, objectives and goals, assumptions and  constraints, and project framework for DOD’s implementation of RFID.
DOD has taken other actions to provide guidance and policy to DOD  military components and external partners. For example, DOD has  established Web sites such as www.dodait.com and www.dodrfid.org for  suppliers, DOD military components, and others to use to access RFID  information, specifications, and updates to policy and guidance. DOD has  also established Integrated Process Team Working Groups to discuss  issues involving RFID and the implications of RFID for current business  processes, new technology concerns, and strategic planning and  implementation. DOD has hosted several conferences on RFID  implementation instructions and training for suppliers and DOD military  components.
In response to DOD’s policy and concept of operations guidance, the  military components are developing implementation plans to support  DOD’s policy and vision for passive RFID technology. As of January 2005,  the Navy and DLA have completed passive RFID implementation plans.  While the U.S. Transportation Command does not have a formal passive  RFID implementation plan, its business process plan contains elements of  DOD passive RFID guidance and requirements. The Army and Marine  Corps have draft implementation plans, and the Air Force had just begun  development of its plan at the time of this review.
section_title: DOD Is Using Pilot Projects and Initial Implementations to Test the Application of Passive RFID Technology
paragraphs: DOD is using several pilot projects and has begun initial implementation at  several receiving and distribution facilities to better understand passive  RFID technology and test its application to their business processes.  Examples of these pilot projects and initial implementations are listed in  table 1 below. These pilot projects involve DLA and each military service  and are small in scope, and generally have involved selected supply items,  such as meals-ready-to-eat or individual protective clothing. One of these  pilot projects, the Navy’s ocean terminal project, which began in  November 2003, successfully transitioned into an initial passive RFID  implementation by May 2004. Since that time, the Navy’s Fleet Industrial  Supply Center, Ocean Terminal Division, has abandoned its legacy hand- held scanning processes in favor of the passive RFID documentation  procedures, which document shipments by scanning RFID tags as they  pass through reader devices. Furthermore, DOD’s operational guidance  required DLA to initially implement passive RFID by January 1, 2005, by  enabling two of its distribution depots to receive selected passive RFID  tagged items. As of late December 2004, DLA had completed this initial  implementation at three receiving locations and one conveyor location in  the Susquehanna, Pennsylvania depot and at three receiving and two  conveyor locations in the San Joaquin, California depot. As of June 2005, a  DLA official told us that surveys are being conducted to determine the  number and location of future passive RFID infrastructure requirements.  Reports regarding the results of some of the completed pilot projects cite  lessons learned that focus largely on the technical aspects of implementing  the passive technology. For example, a meals-ready-to-eat pilot project,  conducted in May 2004, was designed to simulate the process as products  moved from vendor to depot to the delivery of the product to the unit  level. This demonstration illustrated ways in which passive RFID could be  implemented in the DLA supply chain. According to the reported results  for this pilot, the most important benefit from the demonstration was the  experience gained from the physical implementation of an RFID system  within a DOD environment. Lessons learned centered on the technology’s  systems integration, application software, frequency coordination, and the  immaturity of the passive RFID technology. Regarding the technology’s  immaturity, the report stated that the passive RFID hardware and software  were currently too immature for many production operations.
Phase I of the protective equipment project tracked pallets and cases of  Joint Service Lightweight Integrated Suit Technology (JSLIST) suits using  passive RFID tags. The project evaluated the passive technology’s  implementation at three locations representing different functional areas  of the JSLIST supply chain: vendor (shipping), DLA Distribution Center  (receiving and shipping), and Army customer (receiving). The Phase I  report stated that in March 2004 the first shipment of 29 pallets of RFID  tagged suits was successfully distributed among the functional areas using  a RFID-enabled receiving process. Lessons learned from the protective  equipment project also indicated that passive RFID tag and reader  technology is immature and that the receiving processes, data elements,  and data entry procedures are not well known or documented at DLA  distribution centers. We did not evaluate the results of these reports.
section_title: Existing Passive RFID Infrastructure Is Minimal, and Expenditures Are Projected to Increase Sharply as Full Implementation Proceeds
paragraphs: As of January 2005, the DOD military components owned and operated  very little passive RFID infrastructure. DOD is just beginning to test and  implement passive RFID technology for managing its inventory because  passive RFID implementation did not officially begin until January 1, 2005.  Passive RFID expenditures to date have largely been in connection with  pilot projects, so DOD military components have spent a minimal amount  of money on passive RFID technology. The passive RFID infrastructure  owned by major DOD military components is shown in table 2. Future cost  projections of implementing passive RFID in DOD’s supply chain  operations are estimated to be significantly higher than current  expenditures as full passive RFID implementation proceeds. Additionally,  the projected cost for passive RFID implementation—about $437 million  from fiscal years 2006 through 2011—includes costs for purchasing  passive RFID equipment such as tags, readers, and writers, and costs  associated with installation and maintenance, but does not include the  cost of system interoperability, which officials estimate to be the most  expensive element of implementation.
DOD military components have spent a minimal amount of money on  passive RFID technology because passive RFID technology is new and  DOD is just beginning to implement this technology in its supply chain  processes. Current expenditures have largely been in connection with  pilot projects. As of January 2005, DOD and its military components had  spent about $7.4 million on passive RFID technology. As shown in table 3,  the Army and the Marine Corps had not spent any money on pilot testing  passive RFID as of January 2005. The Marine Corps does possess some  passive RFID infrastructure; however, according to Marine Corps officials,  that infrastructure was acquired and paid for by the Office of the Secretary  of Defense (OSD). As of January 2005, DLA had spent the most on passive  RFID infrastructure in its pilot testing and initial implementation at two of  its distribution depots, in San Joaquin, California, and Susquehanna,  Pennsylvania.
Future cost projections of implementing passive RFID in DOD’s supply  chain operations are estimated to be significantly higher than current  expenditures. In response to OSD’s final RFID implementation policy,  major DOD military components have projected significant increases in  passive RFID funding for fiscal years 2006 through 2011. Although passive  RFID testing and implementation in the DOD supply chain had cost $7.4  million as of January 2005, from fiscal years 2006 through 2011 the DOD  military components project costs of about $437 million on passive RFID  implementation, as shown in table 4. The figures provided by DLA  represent actual budgeted amounts, while other component officials  emphasized that the projections they provided were estimates and did not  represent actual figures in the budget. The Marine Corps and Air Force did  not provide any cost projections for passive RFID.
Although the total projected cost for passive RFID implementation is  estimated at about $437 million over fiscal years 2006 through 2011, this  total does not include the cost of system interoperability. Officials  estimate system interoperability to be the most expensive element of  implementation because of the various systems that will need to be  integrated to exchange automated shipping and receiving data from the  use of passive RFID technology. According to DOD, system  interoperability entails the ability of systems, units, or forces to provide  data, information, materiel, and services and to accept the same from  other systems, units, or forces and to use the data, information, materiel,  and services so exchanged to enable them to operate effectively together.  Interoperability includes both the technical exchange of information and  the end-to-end operational effectiveness of that exchange of information  as required for mission accomplishment. DOD envisions a seamless  integration between passive and active RFID technology; however, such a  seamless integration cannot take place unless the information captured by  the RFID technology can flow though interoperable logistics information  systems. According to Navy and Army projections, it will be fiscal year  2016—and beyond for the Army—before passive RFID will be fully  implemented into supply chain operations. The Marine Corps and Air  Force did not know their funding needs for implementing passive RFID.  As of January 2005, there was no estimate as to how much full  interoperability will cost. System interoperability is just one of many  challenges DOD must overcome before full implementation can occur  throughout DOD’s supply chain process.
section_title: DOD’s Implementation of Passive RFID Technology Lacks a Comprehensive Strategic Management Approach
paragraphs: While DOD has taken a number of actions to guide and direct the  implementation of passive RFID into the supply chain process, passive  RFID could be more efficiently and effectively implemented if DOD  developed a comprehensive strategic management approach to ensure that  implementation efforts are guided by sound management principles.  Sound management principles, such as those used by leading  organizations and embodied in GPRA, include identification of general and  long-term goals and objectives, a description of specific actions,  performance measures to evaluate actions, recognition of key external  factors, comprehensive schedules and milestones, identification of  resources and annual cost estimates, accountability for implementation,  and evaluation of the overall program with specific processes to allow for  adjustments and changes. Combined with effective leadership, these  principles provide decision makers with a framework to guide program  efforts and the means to determine if these efforts are achieving the  desired results. We compared the contents of DOD’s and available military  components’ implementation plans with these key management principles.  Table 5 shows the results of the analysis for passive RFID.
As table 5 shows, many of these key management principles are missing or  are only partially incorporated into existing passive RFID implementation  policy and operational guidance for both DOD and its military  components. While DOD has incorporated some of these key management  principles—for example, by establishing business rules for passive RFID  to explain how RFID will affect supply chain operations and processes— DOD has not fully incorporated all of these principles into a  comprehensive strategic management approach to manage the  implementation of passive RFID into the DOD logistics supply chain. In  turn, the DOD military components are also unable to develop  comprehensive plans to support DOD-wide passive RFID implementation  due to the lack of an overarching DOD comprehensive strategic  management plan. Among the key management elements that are missing  or only partially present are (1) general and long-term goals and  objectives, (2) a description of specific actions to support goals and  objectives, (3) performance measures to evaluate specific actions, (4)  schedules and milestones for meeting deadlines, (5) identification of total  resources needed and annual cost estimates for passive RFID  implementation into the supply chain, and (6) evaluation of the overall  program with specific processes to allow for adjustments and changes.
The following discussion focuses on the key principles that are missing or  only partially present in DOD’s and its military components’ planning and  operational guidance for passive RFID.
General and long-term goals and objectives. Key management  principles include having clearly defined general and long-term program  goals and objectives with specific expected results and annual goals that  relate back to the overall goals and objectives to guide implementation.  OSD has identified general passive RFID broad and descriptive goals and  objectives, such as to (1) implement knowledge-enabled logistics through  fully automated visibility and management of assets in support of the  warfighter; (2) ensure readiness for the forces and sustainability of the  operations; (3) increase warfighter/customer confidence in the reliability  of the DOD supply chain; (4) improve process efficiency of sourcing and  delivery by improving shipping and receiving subprocesses; (5) improve  product lifecycle management (i.e., warranties/configuration  management); (6) employ mature and emerging supply chain technologies  to optimize effective in-transit and asset visibility within the DOD supply  chain; (7) enable an adaptive supply chain with sense and respond  capabilities; and (8) use RFID to facilitate accurate, hands-off data capture  in support of business processes in an integrated DOD supply chain  enterprise as an integral part of a comprehensive suite of automatic  identification technology. The Army, Marine Corps, Navy, and DLA goals  and objectives, included in their respective RFID implementation plans,  are also general and descriptive in nature. The OSD and component  general and descriptive goals and objectives do not define specific  expected results, such as integration of automatic information systems,  and no annual goals are identified, as suggested by the principle. A  hierarchical relationship among and between OSD’s and the military  components’ goals and objectives is also lacking. The U.S. Transportation  Command’s implementation plan for passive RFID did not contain any  goals or objectives.
Description of specific actions to support goals and objectives.
Good management practices call for a description of specific actions to  support goals and objectives. OSD has described, in some detail, specific  actions related to operational processes where passive RFID technology is  expected or mandated to be used. OSD’s planning also includes an  expectation for the automated information systems that support logistics  activities to be RFID compatible. However, the following specific actions  are not consistently present throughout OSD’s policy or the military  components’ implementation plans: obtaining necessary workforce skills,  considering human resource issues, identifying major capital resources  (for example, RFID-specific equipment such as read stations and write  stations), identifying major technological resources, and obtaining needed  information resources. The presence of such specific actions is important  for evaluating the achievement of organizational visions, missions, goals,  and objectives, and could provide the basis for monitoring corrective  actions that may be needed. Inclusion of such actions could assist DOD  and the military components to better develop a strategic focus for passive  RFID implementation and to ensure goals and objectives are achieved.
Performance measures to evaluate specific actions. Successful  organizations develop performance measures to evaluate specific actions  for programs. OSD policy does not include performance measures to  assess specific actions developed for passive RFID implementation. The  Army and Navy implementation plans contain a basic set of measures  designed to determine what progress the Army and Navy are making in  achieving OSD’s and their overall goal of improved logistics. For example,  measures the Army identified include quantitative improvement for in- transit visibility, the read rate (accuracy) of tags, and the amount of  inventory reduced by the RFID technology. While these performance  measures evaluate specific actions and support OSD goals and objectives,  the planning does not include interim steps or specific details of how the  measures will be taken or further identification of what targets the Army  and Navy must achieve in order to be successful. Neither DLA, the U.S.  Transportation Command, nor the Marine Corps included any  performance measures in their respective passive RFID implementation  plans.
Comprehensive schedules and milestones for meeting deadlines.
Leading organizations incorporate comprehensive schedules and  milestones for meeting deadlines to monitor the progress of a program.  For passive RFID, the Army, Navy, OSD, and DLA had short-term  schedules, but these plans were only 2-year schedules based on supporting  OSD guidance. Key management principles recommend that these  schedules and milestones span a 5-year period. The Marine Corps and U.S.  Transportation Command had no schedules and milestones listed for  passive RFID in their implementation plans.
Identification of total resources needed and annual cost estimates.
Good management practices call for the identification of total resources  needed and annual cost estimates. For passive RFID, OSD and its military  components have established a framework for resource and annual cost  estimation. For example, OSD states that the cost of implementing RFID  into the DOD supply chain would be funded with Operations and  Maintenance Fund or Working Capital Fund processes. The Navy’s plan  identifies annual and total resources needed; however, total resources  needed—including annual cost estimates—are not present in OSD’s plan  or in the plans of the other military components. Without detailed  resource planning, DOD and its military components cannot be certain  that the passive RFID investments they are making are the right  investments to meet their needs, and that implementing passive RFID  would result in a sound return on their investments.
Evaluation of an overall program with specific processes to allow  for adjustments and changes. Successful organizations implement the  evaluation of an overall program with specific processes to allow for  adjustments and changes. For passive RFID, OSD identified evaluation  methods to monitor progress toward achieving the general goals and  objectives of DOD-wide RFID implementation. For example, OSD’s final  RFID policy states that the Defense Logistics Board is to review internal  implementation plans, benefits, compliance requirements, and requisite  budget requirements annually based on an assessment of the  implementation to date. This review is to include an updated analysis of  implementation success as well as to provide guidance for the expansion  of RFID capabilities into additional applications and supply chain  functional processes. Although OSD identified evaluation methods to  monitor progress towards achieving general goals and objectives, no  specific process is in place to reexamine and revise the general goals and  objectives themselves. The Navy also acknowledged the need for  evaluation, but it did not explain how this evaluation would occur. DLA,  the U.S. Transportation Command, the Army, and the Marine Corps did  not include any evaluation methods in their passive RFID implementation  plans. The U.S. Transportation Command’s participation in passive RFID  pilot programs is mentioned, but no process for evaluating RFID  implementation is stated.
While DOD and its military components have made strides in developing  policy and guidance to implement passive RFID, their early planning does  not go far enough to protect the government’s interest as investment in the  technology continues. Because the military components are developing  implementation plans to support DOD’s RFID policy, the development of a  comprehensive strategic management approach that fully incorporates  these key management principles could provide decision makers in both  DOD and the military components with a framework to guide RFID  implementation efforts and the means to determine whether these efforts  are achieving the desired results.
section_title: DOD Has Identified Several Challenges for Passive RFID
paragraphs: DOD officials have identified a broad spectrum of challenges concerning  passive RFID that remain to be resolved before passive RFID technology  can be fully implemented into DOD operations, but their RFID  implementation planning does not include any actions to mitigate these  challenges. Among the challenges facing DOD as it implements passive  RFID are those in four distinct categories. First, passive RFID technology  is a new technology that is evolving. Consequently, electronic product  code (EPC) standards—which identify specific information about items— are being revised, development of newer generation tags is creating  uncertainty about upgrades and replacement of equipment, concerns have  been raised about the industrial base’s ability to meet the demand for tags  and equipment, and training must be provided. Second, the performance  capabilities of the technology are still being determined, creating  operational issues concerning systems integration, the fragility of tags, the  percentage of accurate read rates, and spectrum frequency. Third, the  return on investment from passive RFID has been difficult to determine  and without the data needed to create a business case analysis, the  military services have been reluctant to provide funding for  implementation. Fourth, certain regulatory and administrative  requirements remain, including the implementation of a Defense Federal  Acquisition Regulation Supplement rule (acquisition rule) and the  approval of a multivendor contract for passive RFID purchases. In  addition, although DOD and its military components have identified these  passive RFID implementation challenges, they have not yet identified  actions to mitigate these challenges.
subsections: section_title: Technology Is Evolving
paragraphs: The EPC standards for passive RFID tags were being revised at the time of  our review to provide increased capabilities, and as of August 2005 these  revised standards had been published and were awaiting approval from  the International Standards Organization. These new standards,  designated EPC UHF GEN 2 (Generation 2), call for a radio frequency  range of Ultra-High Frequency (UHF) 860-960 MHz, with a minimum read  range of 3 meters—about 10 feet. The Generation 2 specifications were  published in December 2004, but equipment and tags using these  specifications were not available as of May 2005. DOD’s RFID policy for  placing tags on cases, pallets, and item packaging of shipped goods calls  for the phasing out, over an anticipated 2-year period, of the tags currently  in use once equipment operating under the new tag specifications is  available. The current policy requiring the use of existing passive tags on  items shipped after January 2005 has caused component officials to  question the rationale for making an investment in tags and equipment,  such as readers and printers, that will have to be replaced or upgraded in a  short period of time to comply with the Generation 2 standards and tag  format.
In our May 2005 report concerning governmentwide use of RFID  technology, we identified a potential concern about whether the demand  for passive RFID tags and equipment may eventually exceed the industrial  base’s ability to supply them. Specifically, we stated that the increasing  demand for passive RFID tags may eventually outstrip the supply and that  the 30 percent damage rate during production will likely contribute to  future shortages. Army representatives expressed similar concerns about  the industrial base’s ability to supply passive tags and equipment in  sufficient quantities to meet the implementation demand anticipated by  both the military and commercial sectors. Thus, the infrastructure, such as  RFID readers and write-stations, which are needed to support passive  RFID technology, could be unavailable as implementation progresses. For  example, DOD’s and Wal-Mart’s schedules for implementing passive RFID  technology are similar, which could drive the near-term demand for tags  and other equipment to exceed supply levels. Wal-Mart, the largest U.S.  retailer, is requiring all of its suppliers to adopt RFID technology standards  as of January 2006. As of January 18, 2005, according to Wal-Mart officials,  57 of the 100 suppliers scheduled to implement RFID in January 2005 were  shipping tagged cases and pallets and that some of the 200 suppliers  scheduled to begin shipping tagged cases and pallets in 2006 were already  doing so. Army representatives also pointed out, however, that once  Generation 2 standards are finalized, additional industrial base sources are  expected to emerge to meet and surpass the public- and private-sector  market demand.
Additionally, training is an ongoing challenge to passive RFID  implementation. As in any new technology or operating system, the end  users must be trained both to recognize RFID and to use it. Such training  is especially important when dealing with inventory assets for DOD  personnel operating in a combat setting. While the services have  acknowledged this lack of training and are working to correct it, concerns  remain about passive RFID training, as the following examples illustrate.
The Air Force has provided passive RFID training to personnel in selected  areas, associated with their pilot projects, but it has not institutionalized  this training in its training curriculum.
The Army has updated its training curriculum to include active RFID  training into its business processes. In addition, its reserve forces get the  same training as the active forces, and several reserve classes have already  received training in active RFID technology. However, the Army is  presently considering how to incorporate passive RFID training into its  curriculum. At the time of our review, no official passive RFID training  was in place.
The Navy provides passive RFID technology training through contractor  support in conjunction with its active RFID training on Early Entry  Deployment System Kits; these kits provide the capabilities of  writing/reading/uploading tags, access to regional servers, and printing  labels.
The Marine Corps anticipates using contractor support for passive RFID  training in conjunction with its active RFID training on Early Entry  Deployment System Kits, as well as including this training into its training  center curriculum.
U.S. Transportation Command officials pointed out that they are  attempting to train all shippers, transportation consignees, and supply  receivers to correctly use the single RFID format and data standard that  DOD adopts. The requirements and standards for this are being developed  and mandated by OSD/Joint Chiefs of Staff offices. As the distribution  process owner, the U.S. Transportation Command is responsible for  improving the overall efficiency and interoperability of distribution-related  activities.
Overall, DOD and its military components acknowledged that passive  RFID implementation will require significant training to ensure proper use  throughout the military supply chain.
section_title: Performance Capabilities of Passive RFID Technology Are Still Being Determined
paragraphs: Three performance capability issues also lead to challenges for DOD in  implementing passive RFID technology. The first is that of systems  integration, which enables interoperability of automatic information  systems among the military components so these systems can work  together and facilitate active and passive system interaction. Furthermore,  common systems and standards for interoperability need to be  established. For example, an Air Force official explained that because  DLA and each of the services are developing their own plans to  incorporate passive RFID into existing business processes, there is a  possibility that implementation in each service could be different, leading  to limited interoperability among the services. If passive RFID  implementation is not interoperable among the services, this could lead to  inefficiencies that could be avoided if interoperability had been built into  the services’ passive RFID implementation plans as these plans developed.
A second performance capability issue concerns the accuracy of passive  RFID tag read rates. Army officials told us that within DOD and private  industry there is a concern about the level of accuracy for reading tags.  For example, results of some read-rate experiences within DOD and  commercial industry have been reported at approximately 90 percent  accuracy for passive RFID tags placed on individual cases and pallets. This  is “not yet good enough” for Army-wide implementation, according to  officials in the Army Program Executive Office, Enterprise Information  Systems, Product Manager Joint–Automatic Identification Technology  Office. The 10 percent tag misread rate could be attributed to the  placement of the tags on an item or to the quality of the tags. For instance,  Navy tests have shown that inaccurate tag readings can occur when  metals, packages containing liquids, or extremely dense material are  tagged. In addition to the problems in reading individual tags, the  technology is not yet sufficiently sophisticated to read all tagged items on  fully loaded pallets within acceptable accuracy rates. For example, Navy  officials found problems reading tags on items in the middle of a pallet  versus those on the periphery. According to a Navy official, testing in  October 2004 regarding the Navy ocean terminal pilot project identified an  85 percent accuracy read rate for tagged items on fully loaded pallets. The  Air Force has experienced considerably lower accuracy read rates,  ranging from 32 to 65 percent, according to a briefing presented by an Air  Force official on February 10, 2005. Private industry has experienced this  problem as well. According to Wal-Mart officials, as of January 18, 2005,  the accuracy of its read rate for tagged items on fully loaded pallets was 66  percent and stated that reading all cases on a fully loaded pallet remains  the biggest challenge. Our May 2005 report corroborates reliability  problems with reading tags—and an inability to read tags in some  instances—associated with conditions such as close proximity of multiple  tagged items, environmental conditions, and reading tags at high speeds.  Furthermore, some tags have been found to be fragile, which could be a  result of manufacturing and production techniques, according to an Army  official. The fragility of passive RFID tags is further corroborated by a  research group’s survey of RFID tag vendors. We reported in May 2005  that this survey found that up to 30 percent of chips for passive RFID tags  are damaged during production when they are attached to their antenna,  and an additional 10 to 15 percent are damaged during the printing  process.
A third area of performance capability involves spectrum frequency.  Obtaining radio frequency spectrum permissions outside the continental  United States is an implementation issue. Foreign governments can  impose requirements on the type of RFID reader technology to be used,  and must grant permission for use of spectrum frequencies in their  countries. Army officials told us that the military does not use RFID  technology in countries that do not grant frequency permission. Currently  there is no worldwide frequency standard for passive RFID tags. For  example, the allowed UHF frequency spectrum in the United States,  Europe, and Japan ranges from 860 to 960. However, the International  Organization for Standardization is considering possible worldwide  frequency standards for passive RFID tags because of the impact an  absence of standards could have on the commercial application of RFID  tags. Furthermore, an Army official told us that Germany’s frequency  spectrum for active RFID will change in 2006. Consequently, radio- frequency-dependent equipment may have to be upgraded or replaced.  Army officials are considering the use of region- or country-specific RFID  readers operating with locally approved frequencies to address this issue.
section_title: Concerns Exist about the Unknown Return on Investment for Passive RFID
paragraphs: The military services have expressed concern about the unknown return  on investment for passive RFID, which has led to reluctance to provide  funding for passive RFID. Studies have been conducted to determine a  return on investment, although these studies have had mixed results.  Without data to determine a business case analysis that would  demonstrate a return on investment from using passive RFID technology,  the military services have been reluctant to provide funding to support it.  For example, in commenting on DOD’s draft RFID policy, Air Force  officials stated that DOD directed investment in passive RFID  infrastructure without first building a business case to document the  savings. Without seeing documented savings, the Air Force considered  that it would face tremendous challenges in supporting the initial  investment.
Navy officials commented similarly that without a compelling business  case it is unable to proceed with investments and implementation as it  needs to do. DOD’s operational guidance states that the military  components will plan for a January 1, 2005, implementation of passive  RFID, although DOD’s RFID policy does not require implementation by the  military components to begin until January 1, 2006. Navy officials  expressed their concern that this 2005 goal was not supportable because  the Navy had not planned or budgeted for enabling passive RFID at its key  supply system locations. Navy officials stated that a compelling business  case was needed to help balance their total resource requirements against  passive RFID’s projected benefits. They also explained that ultimately they  need a better understanding of the savings that investment in passive RFID  can provide.
Furthermore, in commenting on DOD’s draft RFID policy, the Office of the  Army’s Deputy Chief of Staff for Logistics pointed out several concerns  impacting the Army’s implementation of passive RFID technology. First,  funding for passive RFID technology would be challenging because DOD’s  RFID policy was issued in the middle of a budget cycle and the schedule  for implementing RFID was not synchronized with the budget cycle  process. Second, in order to justify funding necessary to implement  passive RFID, the Army needed to conduct business process analyses,  pilot projects, and site surveys, as well as to procure equipment and  develop and conduct training to support RFID. Third, while DOD’s RFID  policy states that the cost of implementing and operating RFID technology  is to be considered a normal cost of transportation and logistics, and it  should be funded through routine operation and maintenance, working  capital funds, or capital investment processes, such use of working capital  funds would increase operating costs and surcharges until the potential  RFID benefits offset them. Those costs would, in turn, be passed on to  customers through higher prices that would have to be paid from  appropriated funds. Finally, the Army is transitioning from its legacy  Standard Automated Management Information System to a replacement  system, the Single Army Logistics Enterprises System. Army officials have  not determined if adopting passive RFID in its legacy systems is a sound  investment strategy. They elaborated that because the Army is fielding its  new Single Army Logistics Enterprises System, expensive and time- consuming changes to its legacy system may not be cost effective.
Regarding costs and benefits of implementing passive RFID, we reported  in May 2005 that organizations need to determine whether the increased  visibility provided by RFID technology will outweigh the costs associated  with its implementation. The military components and OSD have  conducted some studies to develop a business case for use of RFID,  although these studies have had mixed results. For example, the Center of  Naval Analysis published a cost and benefits study in June 2004, but  concluded that the option preferable to current full investment would be  to wait until passive RFID technology is more mature because they had no  hard data to use to estimate benefits. However, according to a January  25, 2005, DLA briefing, the bottom-line results of a DOD business case  analysis found that “there is a reasonable to good expectation that  implementation of Passive RFID across DOD will provide an economic  return on investment in the near term and an excellent expectation of  economic returns in the long term.” This DOD business case analysis was  issued in April 2005 and was conducted pursuant to an August 30, 2004,  logistics decision memorandum directing DLA to work with the Deputy  Under Secretary of Defense (Logistics and Materiel Readiness) to  document the investment and cost benefits of implementing passive RFID.  DOD recognized that this business case analysis is an initial and  abbreviated analysis due to time constraints. The DOD business case  analysis presented two results, which it characterized as optimistic and  pessimistic. The optimistic result estimated savings of $1.781 billion, while  the pessimistic result estimated savings of $70 million. In a March 10, 2005,  Logistics Decision Memorandum, the Under Secretary of Defense  (Acquisition, Technology, and Logistics) stated that this business case was  compelling and directed the Secretaries of the military departments to  move forward with passive and active RFID implementation as justified by  the DOD business case. While we did not assess DOD’s business case for  implementing passive RFID because it was released after we completed  our field work, we believe that it represents a step in the right direction.  Lastly, Army officials informed us that the Army’s Logistics  Transformation Agency is conducting a business case analysis involving  passive RFID, but this analysis was still being conducted as of May 2005.
section_title: Regulatory and Administrative Requirements Need to Be Approved
paragraphs: DOD faces two additional challenges in implementing passive RFID as a  result of regulatory and administrative processes. The regulatory challenge  faced by DOD is one of ensuring consistency in the contractual  requirements its vendors must follow in affixing or applying passive RFID  tags on the products DOD purchases. DOD’s July 30, 2004, RFID policy  includes a requirement that passive RFID will be mandatory in  solicitations issued on or after October 1, 2004, for delivery of materiel on  or after January 1, 2005. To implement this action, DOD has proposed a  rule to amend the Defense Federal Acquisition Regulation Supplement  (DFARS) for passive RFID. This proposed rule was published in the  Federal Register on April 21, 2005, for a 60-day comment period. The  proposed rule is limited in scope, specifying that passive RFID tagging will  be required on only four supply classes, excluding bulk commodities, and  only applies to shipments of those classes of items that are delivered to  two specific defense distribution depots—Susquehanna, Pennsylvania, and  San Joaquin, California. As DOD continues implementation, it will need  similar DFARS amendments that apply to its remaining supply classes and  shipping locations. For example, DOD’s RFID policy expands the  requirement for passive RFID tagging as of January 1, 2006, to six  additional supply classes and 32 additional shipping locations, and as of  January 1, 2007, to all supply classes (except bulk commodities) shipped  to all locations. Consequently, DFARS may need to be further amended to  accommodate implementation of DOD’s expanded policy requirements.  Until additional DFARS amendments are in place, the contract language  regarding vendors’ placement of passive RFID tags on all products  purchased by and shipped to DOD may not be standardized. Without  additional DFARS rules, supply contracts could be subjected to individual  contract clauses regarding passive RFID, which could result in  inconsistencies among contracts across DOD and its military components.
The administrative challenge concerns establishing agreements with  vendors to provide EPC-compliant technology through multivendor  contract mechanisms, which can include the use of blanket purchase  agreements, to leverage the purchasing power of the department for  passive RFID infrastructure purchases. DOD designated the Army  Program Executive Office, Enterprise Information Systems, Product  Manager–Automatic Identification Technology Office as the DOD  procurement agent for automatic identification technology equipment,  including RFID equipment and infrastructure. As such, the office is to  establish and maintain a multivendor contract for equipment, equipment  integration, installation, and maintenance. While DOD policy requires that  passive RFID implementation begin on January 1, 2005, the absence of a  multivendor contract obligated the services and DLA to individually  purchase passive RFID equipment in order to conduct the services’ pilot  projects and meet DLA’s commitment to enable two of its depots— Susquehanna, Pennsylvania, and San Joaquin, California—to receive and  process passive RFID-tagged shipments from vendors. In addition,  according to an official in the Army Program Executive Office, a total of  five blanket purchase agreements are to be established for passive RFID.  As of April 12, 2005, the Automatic Identification Technology Office had  established one blanket purchase agreement for passive RFID tags. It is  still in the process of establishing the remaining four blanket purchase  agreements for acquiring passive RFID equipment. According to Army  officials, the delay in establishing the multivendor contract can be  attributed to the fact that Army and DOD officials were working to define  requirements and develop an Independent Government Cost Estimate, a  process that they consider to be part of the normal contracting process.  Until other multivendor contracts are established, the DOD military  components may be unable to leverage the purchasing power of the  department to realize economy and efficiency benefits. In response to  DOD’s comments on a draft of this report, we were informed that as of  August 11, 2005, three blanket purchase agreements have now been  awarded, and only two agreements remain to be established and are  expected to be established in the near future.
section_title: DOD and Its Military Components Have Not Yet Identified Actions to Mitigate Passive RFID Implementation Challenges
paragraphs: Although the Marine Corps and Army draft passive RFID plans and the  Navy and DLA passive RFID plans identify challenges and external factors  affecting implementation, which is a key element of GPRA, most of these  plans do not identify any actions for mitigating passive RFID  implementation challenges. The OSD and U.S. Transportation Command  plans do not identify passive RFID implementation challenges. Based on  our discussions with DOD officials, the underlying cause of these various  challenges is the newness and evolving nature of the technology. However,  officials noted that the current challenges they face will be resolved in  time and are to be expected with the integration of any new technology.  We recognize that the identification of such challenges is a positive and  essential step, but identification does not go far enough to ensure their  resolution in an efficient and effective manner. Until DOD and the military  components identify actions to mitigate these implementation challenges,  their progress in resolving these challenges will be impeded.
section_title: Conclusions
paragraphs: Although much more needs to be done, incorporating passive RFID  technology into the DOD supply chain offers the promise of a technology  that may begin to help address the long-standing problems of inadequate  asset visibility throughout DOD and the military services. While DOD and  its military components have made strides in developing policy and  guidance to implement passive RFID, their early planning does not go far  enough to ensure that Congress is sufficiently informed of the investments  that will be required and that the department can achieve its goals with  this technology. In particular, neither the department nor its military  components have developed comprehensive strategic management  approaches to ensure that implementation efforts fully incorporate key  management principles, such as those used by leading organizations and  contained in the Government Performance and Results Act. These  principles can provide decision makers with a framework to guide  program efforts and the means to determine if these efforts are achieving  the desired results. Although DOD and its military components have  incorporated some of these key management principles in their RFID  policy and guidance, many of these principles are missing or are only  partially present. Without an improved management approach, DOD and  its military components may, in the long term, continue to invest heavily in  passive RFID without knowledge of which and how much infrastructure,  and at what cost, will be needed to meet overall goals, objectives, and  strategies. In addition, some key challenges slowing progress toward full  implementation of RFID include (1) the newness and unproven state of  passive RFID technology, (2) difficulty with demonstrating a sound  business case and return on investment for passive RFID technology, and  (3) lack of a DOD-wide needs assessment that identifies, by location, the  infrastructure, maintenance support, and funding resources needed to  fully implement passive RFID technology in the DOD supply chain  processes. As the department and the military components continue to  implement passive RFID without a comprehensive strategic management  approach that identifies the challenges impeding implementation and ways  to overcome those challenges, DOD and its military components will not  have a means of measuring the progress of implementation and developing  defensible budget requests, or of taking corrective actions as necessary in  competitive budget environments.
section_title: Recommendations for Executive Action
paragraphs: We recommend that the Secretary of Defense take the following three  actions:    Direct the Under Secretary of Defense (Acquisition, Technology, and  Logistics) to expand its current RFID planning efforts to include a DOD- wide comprehensive strategic management approach that will ensure that  RFID technology is efficiently and effectively implemented throughout the  department. This strategic management approach should incorporate the  following key management principles:    an integrated strategy with goals, objectives, and results for fully  implementing RFID in the DOD supply chain process, to include the  interoperability of automatic information systems;    a description of specific actions needed to meet goals and objectives;    performance measures or metrics to evaluate progress toward    schedules and milestones for meeting deadlines;  identification of total RFID resources needed to achieve full  implementation; and    an evaluation and corrective action plan.
Direct the secretaries of each military service and administrators of other  DOD military components to develop individual comprehensive strategic  management approaches that support the DOD-wide approach for fully  implementing RFID into the supply chain processes.
Direct the Under Secretary of Defense (Acquisition, Technology, and  Logistics), the secretaries of each military service, and administrators of  other military components to develop a plan that identifies the specific  challenges impeding passive RFID implementation and the actions needed  to mitigate these challenges. Such a plan could be included in the strategic  management approach that we recommend they develop.
section_title: Agency Comments and Our Evaluation
paragraphs: DOD provided written comments on a draft of this report. The department  concurred with our recommendation for each of the military services and  administrators of other DOD military components to develop individual  comprehensive management approaches for implementing RFID, but did  not concur with our other two recommendations.
DOD did not concur with our recommendation to expand its RFID  planning efforts to include a comprehensive management approach to  ensure efficient and effective implementation. The department commented  that RFID is a critical transformational technology that will be  implemented across the department over the next several years. The  department stated that its approach is to build the rollout for passive RFID  from the bottom up. The department asserted that it has already set forth  the goals, objectives, performance measures, and milestones sufficient to  guide the planning activities of the military services, DLA, and the U.S.  Transportation Command, and that these activities have plans in  development. The department stated that it will work with these activities  to ensure that RFID is efficiently and effectively implemented throughout  the department, to ensure implementation is funded, and to evaluate the  benefits being achieved and report progress as part of the department’s  supply chain management improvement plan. We disagree. DOD’s July  2004 RFID policy does not represent a sound strategic approach because it  lacks a number of key management principles necessary for good program  management. Specifically, we found that the policy (1) contains only  general and descriptive goals and objectives that do not define specific  expected results, and no annual goals are identified, as suggested by the  principle; (2) describes specific actions related to operational processes  but does not provide specific actions related to things such as obtaining  necessary workforce skills, considering human resource issues, identifying  major capital resources, identifying major technological resources, and  obtaining needed information resources, which could provide the basis for  monitoring corrective actions that may be needed; (3) does not include  performance measures to assess the progress of implementation actions  for passive RFID; and (4) contains only short-term schedules rather than  comprehensive schedules and milestones for meeting deadlines. Despite  DOD’s assertion in its comments that it already has sufficient guidance to  ensure that RFID is efficiently and effectively implemented throughout the  department, implementation of the technology is adequately funded,  benefits are being achieved, and progress is being reported as part of the  department’s supply chain management improvement plan, we continue to  believe that the incomplete incorporation of these key management  principles in DOD’s RFID policy may impede DOD’s ability to achieve  these things. The lack of clear, comprehensive, and integrated  performance goals and measures has handicapped DOD efforts for several  undertakings, including business management transformation, critical  spare parts shortages, installation preparedness, and depot  maintenance. We continue to believe that DOD needs to develop a more  comprehensive strategic management approach to guide the  implementation of RFID technology throughout the department.
The department concurred with our recommendation for each of the  military services and other DOD military components to develop  individual comprehensive management approaches for implementing  RFID. In its comments, the department said that the services, DLA, and  U.S. Transportation Command have RFID implementation plans in varying  stages of development. The department stated that OSD will direct that  these plans be completed by September 30, 2005, and that these plans will  incorporate the key management principles cited in our report and will  correct deficiencies cited in our report. The department noted that it  would be premature to expect detailed implementation plans until RFID  funding is solidified. We believe that this approach will satisfy the intent of  our recommendation if, prior to the military components developing their  plans, the Under Secretary of Defense (Acquisition, Technology, and  Logistics) takes additional actions to develop a DOD-wide comprehensive  strategic management approach that would then be supported by the plans  developed by the military components.
The department did not concur with our recommendation to develop a  plan to identify challenges impeding passive RFID implementation and  actions needed to mitigate those challenges. The department stated that  the challenges outlined in our report have either already been mitigated or  represented a misunderstanding on our part. In essence, the department’s  comments suggest that the passive RFID challenges identified in our draft  report have been basically resolved. We do not believe this to be the case.  We recognize that passive RFID is an evolving technology and that the  department is continuing to address the challenges associated with  implementing passive RFID technology. However, we continue to believe  that the challenges identified in the report remain, and that the department  needs to develop a mitigation plan to address these challenges.  Specifically, our responses to DOD’s comments about the individual  challenges identified in the draft report are as follows.
DOD stated that the audit incorrectly states that new standards are  currently being developed to “meet DOD’s RFID policy requirements.” The  department commented that the specification for the Electronic Product  Code RFID tags being required by DOD is already published and products  compliant to this specification are available on the market today. DOD  also stated that the audit incorrectly states that the new standard will  “define the DOD approved format for EPCs.” The department said that the  approved format for DOD was published in May 2005 and that the new  Generation 2 standard, although already developed, is still awaiting  International Standards Organization (ISO) approval. DOD stated that any  concerns expressed in the audit to the contrary appear unfounded. We  disagree with DOD’s assertion that the concerns expressed in the report  are unfounded. Nonetheless, we have clarified the language in the report  to respond to DOD’s technical concerns about our description of the  development status of the new Generation 2 EPC standard. As discussed  in the report, we found that the military components are reluctant to  purchase passive RFID infrastructure knowing that the standard is going  to change and that they might need to modify existing equipment or  purchase new equipment to be compliant with the new EPC standard.  Because the new Generation 2 EPC standard has not yet been approved  and equipment and tags using the new standard were not available as of  May 2005, we continue to believe that the military components’ concern is  valid and that it may not be the best use of scarce resources to fund  purchases of equipment necessary for implementing passive RFID until  equipment operating under the new tag specifications is available.
The department stated that the audit conjectures that the industrial base  will not have the capacity to supply sufficient quantities of tags and  equipment to meet requirements. The department stated that it had not  found this to be the case. DOD further stated that the audit appeared to  base this concern on some anecdotal comments made during some  interviews. DOD also commented that it recognized that the department  needed to consider lead times as new products come to the market. We  concur that lead times are necessary for evolving technologies such as  passive RFID, and we acknowledge in our report that these challenges will  be resolved over time and are to be expected with the integration of any  new technology. Nonetheless, we continue to believe that this is a valid  concern that is not solely based on anecdotal comments made during  some interviews. While this concern was expressed during some  interviews conducted in the course of this audit, it was further  corroborated in our May 2005 report, in which we reported that the  increasing demand for passive RFID tags may eventually outstrip the  supply and that the 30 percent damage rate during production will likely  contribute to future shortages.
The department stated that the report identifies training as a challenge,  and that DOD already has plans to address that challenge. DOD stated that  the RFID implementation plans developed by the services, DLA, and U.S.  Transportation Command will address training; that the Defense  Acquisition University is developing computer-based training for internal  stakeholders; and that training is being provided to DOD’s Procurement  Technical Assistance Centers. DOD commented that its training strategy  will be refined and intensified as implementation continues. In our report,  we recognize the planned efforts to provide training by the military  components. We also believe that these actions cited by DOD recognize  the necessity for passive RFID training throughout the department.  However, until such training is formalized into the various training  curriculums and personnel become proficient in the use of RFID  technology and its capabilities, training remains a concern for passive  RFID implementation. As recognized by DOD in identifying the need to  refine and intensify its training strategy, we believe training will be a  continuing challenge as DOD addresses the need to train new personnel  and to refresh training of experienced personnel.
The department states that systems interoperability is already being  facilitated because the military components share a common approach,  the Advance Shipment Notice (ASN), for passing RFID information. We  continue to believe that interoperability is a challenge. An ASN is a  notification issued by a supplier prior to shipment that provides the  recipient with advance notice describing in detail what is being shipped.  While the ASN provides helpful information, we do not believe that the  ASN effectively addresses the interoperability concern. As we stated in our  draft report, DOD identifies system interoperability as the ability of  systems, units, or forces to provide data, information, materiel, and  services and to accept the same from other systems, units, or forces and to  use the data, information, materiel, and services so exchanged to enable  them to operate effectively together. We also stated in our draft report that  interoperability includes both the technical exchange of information and  the end-to-end operational effectiveness of that exchange of information  as required for mission accomplishment. DOD envisions a seamless  integration between passive and active RFID technology; however, such a  seamless integration cannot take place unless the information captured by  the RFID technology can flow through interoperable logistics information  systems. Effective implementation of passive RFID requires  interoperability of automatic information systems among the military  components so these systems can work together and facilitate active and  passive system interaction. Common systems and standards for  interoperability need to be established. If passive RFID implementation is  not interoperable among the military components, this could lead to  inefficiencies that could be avoided if interoperability had been built into  the military components’ passive RFID implementation plans as these  plans developed.
The department stated that the low read rates cited in our audit were  based on older pilot projects reading all cases on a pallet. The comments  noted that pallet and case tags on a conveyor are consistently read at 100  percent and stated that the audit does not mention this fact. The  department stated that the draft report implied that the read rates were  too low for implementation and responded that this simply was not true.  The department stated that the use of the ASNs mitigated low read rates  because the ASN contains the nested relationship of all cases on the pallet  and that the reading of just one tag enables determining all other tags on  the shipment. We continue to believe that for DOD to use passive RFID  technology as intended, the accuracy of passive RFID read rates is critical  to expeditiously verify that individual items were actually received. While  read rates of tags on individual pallets and cases may be 100 percent, as  stated by the department, our report focused on the technology not yet  being sufficiently sophisticated to read all tagged items on fully loaded  pallets with acceptable accuracy rates. As stated in our report, our audit  found problems reading tags on items in the middle of a pallet versus  those on the periphery as follows: the Navy experienced an 85 percent  accuracy read rate for tagged items on fully loaded pallets in its terminal  pilot project, reported in October 2004; the Air Force has experienced 32  to 65 percent accuracy read rates for fully loaded pallets, reported on  February 10, 2005; and even Wal-Mart reported that as of January 18, 2005,  it has experienced only 66 percent accuracy of its read rate for tagged  items on fully loaded pallets and stated that reading all cases on a fully  loaded pallet remains the biggest challenge. These read rate figures were  the most recent figures that were available to us at the time of our audit,  and we believe that the dates of these data are sufficiently recent to  demonstrate that this concern will continue for some time. Furthermore,  while the ASN provides details pertaining to individual shipments— including a list of the contents of a shipment of goods as well as additional  information relating to the shipment such as product description, physical  characteristics, type of packaging, and configuration of goods within the  transportation equipment—the ASN basically serves as a verification  control mechanism to validate the contents of shipments received. The  ASN is not a new type of control mechanism. In April 2005, the existing  Material Inspection Receiving Report—which basically served the function  of a packing slip—was expanded to contain RFID tag data. We believe that  the ASN should continue to be used as a control to ensure that shipments  sent by suppliers are actually received, but we believe that the ASN does  not mitigate nor should it serve as a replacement for the need to read the  passive RFID tags on all of the items received to ensure that what the ASN  says was sent is what was actually received.
DOD stated that one worldwide frequency standard is not required as  recommended in the audit and will not occur. DOD stated that passive  RFID technology as adopted can operate anywhere along the UHF band  and a foreign country only needs to open up a portion of that band for  RFID technology to be able to operate. The department also stated that  readers are designed to operate at the country-approved spectrum.  However, as discussed in our draft report, we did not advocate a  worldwide standard. In our draft report, we noted that there was no  worldwide frequency standard, and stated that a worldwide standard was  being considered by the International Organization for Standardization,  but we did not recommend that such a worldwide standard be developed.  The concerns identified in the report were that the United States would  need to obtain frequency spectrum permissions from foreign governments  to be able to use RFID reader technology in their countries, and that  foreign governments can impose requirements on the type of readers that  can be used. We continue to believe that these are implementation issues  because DOD will need to ensure that its procedures in place for  requesting frequency spectrum permissions are followed, track any special  requirements imposed by foreign governments, and identify and respond  to changes in a country’s spectrum. For example, in our draft report, we  pointed out that Germany’s spectrum for active RFID will be changing in  2006, so radio frequency-dependent equipment operating under the old  spectrum may need to be upgraded or replaced.
The department stated that the concerns raised in the audit about  unknown return on investment were dated because the DOD business case  analysis has now been completed. DOD also stated that the Navy business  case has been superseded by a more recent business case analysis that did  find a return on investment. We believe that DOD’s new business case  analysis, issued in April 2005, is a step in the right direction, and we  referred to the findings of this new business case analysis in our report.  We continue to believe, however, that return on investment remains a  strong concern among the military components and the DOD business  case still needs to be adapted into the development of individual business  case analyses by the military components that they can use to integrate the  technology into their respective business processes. Our initial review of  the department’s business case analysis leads to reservations regarding the  potential benefits it portrays because of the wide disparity between the  optimistic and pessimistic results. As stated in our report, the DOD  business case analysis presented two results, which it characterized as  optimistic and pessimistic. The optimistic result estimated savings of  $1.781 billion, while the pessimistic result estimated savings of $70 million.  Although DOD recognized that this business case is an initial and  abbreviated analysis due to time constraints, DOD stated that this business  case was compelling and directed the secretaries of the military  departments to move forward with passive and active RFID  implementation as justified by the business case. In addition, DOD’s  business case is a departmentwide analysis and was developed to  determine a gross benefit to the department. Until a return on investment  can be demonstrated by the military components, the military components  may continue to be reluctant to provide funds necessary for successful  implementation. As stated in our report, we did not assess the  methodology and validity of the DOD business case analysis, primarily  because it was released after we concluded our field work.
The department stated that the DFARS clause is nearing completion and  will be followed by subsequent DFARS clauses as DOD phases in  implementation. DOD also stated that the concern raised in the audit  about “inconsistencies among contracts across DOD” is not an issue  because very few contracts have been let in the interim. DOD explained  that the purpose of the proposed DFARS clause was to standardize  contract clauses across the department. We continue to believe that the  development and approval of DFARS clauses remain a valid concern. As  described in our draft report, the existing proposed rule is limited in  scope, applying only to four supply classes delivered to two distribution  depots. We stated in our draft report our concern that as DOD continues  passive RFID implementation, it will need additional DFARS amendments  as RFID tagging requirements expand to DOD’s remaining six supply  classes and 32 additional shipping locations as of January 1, 2006, and to  all supply classes (except bulk commodities) shipped to all locations as of  January 1, 2007. DOD’s comments acknowledge that they will need  subsequent DFARS clauses as DOD phases in implementation. We concur  with DOD that the purpose of the DFARS clause is to standardize contract  clauses across the department; however, until additional DFARS  amendments are in place, the contract language regarding vendors’  placement of passive RFID tags on all products purchased by and shipped  to DOD may not be standardized. Until DFARS clauses are approved for all  supply classes and shipping locations, supply contracts could be subjected  to individual contract clauses, which could result in inconsistencies  among contracts across DOD and its military components. Just because  few contracts have been awarded to date, as DOD stated in its comments,  does not, in our opinion, mean that there will continue to be few contracts  awarded until such time as additional DFARS amendments to cover the  remaining supply classes and shipping locations are approved. The fact  that the proposed DFARS clause covering only a portion of supply classes  and locations still has not been completed but was anticipated to have  been completed in October 2004 is indicative that the DFARS concern is  likely to continue for some time.
The department stated that the discussion of multivendor contracts was  dated because since the audit, awards have been made for tag, reader,  printer, and integration software/services. DOD also commented that  blanket purchase agreements are not mandatory and are just one tool for  procurement of RFID equipment, which can be and has been purchased  without the use of such agreements. As stated in our draft report, the  administrative challenge concerns establishing agreements with vendors  to provide EPC-compliant technology to leverage the purchasing power of  the department for passive RFID infrastructure purchases. As of August  11, 2005, we were informed by officials in the Army Program Executive  Office, Enterprise Information Systems, Product Manager–Automatic  Identification Technology Office that three of five blanket purchase  agreements had been established. These agreements are for tags, fixed and  transportable readers, and technical engineering services. The remaining  two blanket purchase agreements, for printers and multiprotocol handheld  readers, are anticipated to be established soon. However, until the  remaining multivendor contracts are awarded, we continue to believe that  the establishment and award of contract mechanisms such as blanket  purchase agreements are administrative challenges and the DOD military  components may be unable to leverage the purchasing power of the  department to realize economy and efficiency benefits.
DOD’s comments are printed in appendix III. DOD also provided technical  comments, which we have incorporated as appropriate.
We are sending copies of this report to the appropriate congressional  committees; the Secretary of Defense; the Secretaries of the Army, Air  Force, and the Navy; the Commandant of the Marine Corps; the  Commander, U.S. Transportation Command; and the Director, Defense  Logistics Agency. We will also make copies available to others upon  request. In addition, the report will be available at no charge on the GAO  Web site at http://www.gao.gov.
Please contact me on (202) 512-8365 or solisw@gao.gov if you or your staff  have any questions concerning this report. Contact points for our Offices  of Congressional Relations and Public Affairs may be found on the last  page of this report. GAO staff who made major contributions to this report  are listed in appendix IV.
section_title: Appendix I: Scope and Methodology
paragraphs: To determine the status of the Department of Defense’s (DOD)  implementation of passive Radio Frequency Identification (RFID)  technology, we relied on information gathered through our visits and  interviews with key personnel within the Office of the Secretary of  Defense; the Defense Logistics Agency; the U.S. Transportation Command;  the Joint Forces Command; the Logistics and Command, Control,  Communications and Computer Systems Directorates within the Office of  the Joint Chiefs of Staff; the Army Program Executive Office, Enterprise  Information Systems, Product Manager–Automatic Identification  Technology Office; and pertinent logistics offices within the Departments  of the Air Force, Navy, and Marine Corps. We reviewed DOD’s overall  RFID implementation policy, its concept of operations guidance for DOD  military components and suppliers and pertinent articles, and we obtained  briefing documents to understand DOD’s strategy for implementing RFID  technology into its supply chain processes. We also obtained and reviewed  historical RFID infrastructure and cost data and obtained, to the extent  available, DOD military components’ future infrastructure and funding  requirements to fully implement the technology into the DOD supply chain  operations. Because DOD is just beginning to implement passive RFID  technology, we did not verify the data provided and considered the data  sufficiently reliable for the purposes of this review. Additionally, we  visited and observed the use of RFID technology at the Defense Logistics  Agency’s Defense Distribution Depot in Susquehanna, Pennsylvania, and  the Norfolk Ocean Terminal pilot initiative at the Navy’s Fleet and  Industrial Supply Center in Norfolk, Virginia.
To identify the extent to which DOD has developed a strategic approach  for implementing passive RFID technology, we obtained and analyzed  DOD’s and various DOD military components’ passive RFID guidance. We  assessed this guidance by comparing its content to key management  principles, such as those used by leading organizations and contained in  the Government Performance and Results Act of 1993, to determine  whether DOD’s planning contained key management attributes that are  necessary to guide and monitor implementation of the technology.
To determine the broad spectrum of challenges DOD faces with  implementation of RFID technology, we relied on analysis of data gathered  through visits and interviews with and briefings provided by key personnel  from the DOD organizations identified above. We also conducted a  literature search to understand the RFID technology and the applications  of it for commercial and defense purposes. We obtained and reviewed  RFID technology studies initiated by DOD or its military components. We  also obtained and analyzed DOD military components’ comments  regarding DOD’s overall RFID policy and concept of operations guidance.
We conducted our work from July 2004 through August 2005 in  accordance with generally accepted government auditing standards.
section_title: Appendix II: Examples of Passive and Active RFID Equipment
section_title: Appendix III: Comments from the Department of Defense
section_title: Appendix IV: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Acknowledgments
paragraphs: In addition to those named above, Renee S. Brown, James A. Driggins, K.  Nicole Harms, Jeffrey R. Hubbard, Shvetal Khanna, Louis V. Modliszewski,  Kenneth E. Patton, Charles W. Perdue, Keith A. Rhodes, Dudley C. Roache,  Jr., David A. Schmitt, Yong Song, and Cheryl A. Weissman also made  significant contributions to this report.