DOD's High-Risk Areas: Challenges Remain to Achieving and Demonstrating Progress in Supply Chain Management
Published: 2006-07-25T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Department of Defense (DOD) maintains a military force with unparalleled logistics capabilities, but it continues to confront decades-old supply chain management problems. The supply chain can be the critical link in determining whether our frontline military forces win or lose on the battlefield, and the investment of resources in the supply chain is substantial. Because of weaknesses in DOD's supply chain management, this program has been on GAO's list of high-risk areas needing urgent attention and transformation since 1990. Last year, DOD developed a plan to resolve its long-term supply chain problems in three focus areas: requirements forecasting, asset visibility, and materiel distribution. In October 2005, GAO testified that the plan was a good first step. GAO was asked to provide its views on DOD's progress toward (1) implementing the supply chain management improvement plan and (2) incorporating performance measures for tracking and demonstrating improvement, as well as to comment on the alignment of DOD's supply chain management improvement plan with other department logistics plans. This testimony is based on prior GAO reports and ongoing work in this area. It contains GAO's views on opportunities to improve DOD's ability to achieve and demonstrate progress in supply chain management.
section_title: What GAO Found
paragraphs: Since October 2005, DOD has continued to make progress implementing the 10 initiatives in its supply chain management improvement plan, but it will take several years to fully implement these initiatives. DOD's stated goal for implementing its plan is to demonstrate significant improvement in supply chain management within 2 years of the plan's inception in 2005, but the time frames for substantially implementing some initiatives are currently 2008 or later. While DOD has generally stayed on track, it has reported some slippage in the implementation of certain initiatives. Factors such as the long-standing nature of the problems, the complexities of the initiatives, and the involvement of multiple organizations within DOD could cause the implementation dates of some initiatives to slip farther. DOD has incorporated several broad performance measures in its supply chain management improvement plan, but it continues to lack outcome-focused performance measures for many of the initiatives. Therefore, it is difficult to track and demonstrate progress toward improving the three focus areas of requirements forecasting, asset visibility, and materiel distribution. Although DOD's plan includes four high-level performance measures that are being tracked across the department, these measures do not necessarily reflect the performance of the initiatives and do not relate explicitly to the three focus areas. Further, DOD's plan does not include cost metrics that might show efficiencies gained through supply chain improvement efforts. In their effort to develop performance measures for use across the department, DOD officials have encountered challenges such as a lack of standardized, reliable data. Nevertheless, DOD could show near-term progress by adding intermediate measures. These measures could include outcome-focused measures for each of the initiatives or for the three focus areas. DOD has multiple plans aimed at improving aspects of logistics, including supply chain management, but it is unclear how these plans are aligned with one another. The plans were developed at different points of time, for different purposes, and in different formats, so it is difficult to determine how all the ongoing efforts link together to sufficiently cover requirements forecasting, asset visibility, and materiel distribution and whether they will result in significant progress toward resolving this high-risk area. Also, DOD's supply chain management improvement plan does not account for initiatives outside the direct oversight of the Office of the Secretary of Defense, and DOD lacks a comprehensive strategy to guide logistics programs and initiatives. DOD is in the process of developing a new plan, referred to as the "To Be" roadmap, for future logistics programs and initiatives. The roadmap is intended to portray where the department is headed in the logistics area, how it will get there, and what progress is being made toward achieving its objectives, as well as to link ongoing capability development, program reviews, and budgeting. However, until it is completed, GAO will not be able to assess how the roadmap addresses the challenges and risks DOD faces in its supply chain improvement efforts.

section_title: Letter
paragraphs: I am pleased to be here today to discuss the Department of Defense’s  (DOD) efforts to resolve long-standing problems in supply chain  management. DOD maintains a military force with unparalleled logistics  capabilities and can claim success in meeting the challenges to supplying  the warfighter. For example, by early 2005, DOD moved more than 2  million short tons of cargo, including equipment, spare parts, and supplies,  several thousand miles to the Persian Gulf in support of Operation Iraqi  Freedom. At the same time, there are pervasive, decades-old problems in  DOD’s supply chain management that need to be addressed and resolved.  The Under Secretary of Defense for Acquisition, Technology, and  Logistics, as well as other senior DOD officials, has shown a commitment  to improving supply chain management. The continued active involvement  of this Subcommittee is important to focusing attention on this issue and  encouraging DOD to demonstrate progress.
The fundamental premise of supply chain management is the operation of  a continuous, unbroken, comprehensive, and all-inclusive logistics  process, from initial customer order for materiel or services to the  ultimate satisfaction of the customer’s requirements. Supply chain  management in DOD consists of processes and activities to purchase,  produce, and deliver materiel—including ammunition, spare parts, fuel,   food, water, clothing, personal equipment, and other items—to a force that  is highly dispersed and mobile. In 2005, the Army alone had some 260,000  soldiers serving in 120 foreign countries. Altogether, DOD manages more  than 4 million separate types of items that are procured from thousands of  suppliers. The challenges to successfully improving management of this  vast and complex supply chain network are formidable. Challenges may  include fragmentation in the way supply chain management is understood  and applied, failure to develop true integration of supply chain processes,  organizational resistance, lack of buy-in from top managers, lack of or  slow development of needed measurement systems, and lack of integrated  information systems linking participants in the supply chain. Private  industry, it should be noted, also faces these types of challenges to  improving their own supply chains.
Why is effective supply chain management important for DOD? There are  two primary reasons. First, supply support to the warfighter affects  readiness and military operations. In fact, the supply chain can be the  critical link in determining whether our front-line military forces win or  lose on the battlefield. Second, given the high demand for goods and  services to support ongoing U.S. military operations, the investment of  resources in the supply chain is substantial. For example, DOD estimated  that the annual costs of supplies and associated operations were expected  to be about $50 billion for fiscal year 2005. In addition, DOD’s inventory  was valued at approximately $80 billion at the end of that fiscal year. Over  the next 6 years, DOD also plans to invest about $54 billion in aircraft,  trucks, ships, and other mobility assets to deploy and supply its forces. In  addition, the Secretary of Defense recently stated  that one of his top  priorities between 2006 and 2008 is improving effectiveness and efficiency  across the department, including creating a culture of efficiency and  eliminating waste. These are issues that we have identified as critical to  improving supply chain management.
Because of weaknesses we have identified through our work, DOD’s  supply chain management is on our list of 26 high-risk government  programs that need urgent attention and transformation to ensure that our  national government functions in the most economical, efficient, and  effective manner possible. Last year, with the encouragement of the Office  of Management and Budget (OMB), DOD developed a supply chain  management improvement plan aimed at putting DOD on a path toward  resolving long-term supply chain problems and, eventually, removal from  our list of high-risk programs. More specifically, with the plan’s inception  in July 2005, DOD hoped to produce significant improvements over the  next 2 years. This month marks approximately the midpoint of that 2-year  period, which ends in July 2007. The plan encompasses 10 initiatives to  address three key areas of the supply chain management process:  requirements forecasting, asset visibility, and materiel distribution.  (Attachment 1 provides a description of the initiatives and shows the focus  area or areas that they are intended to address). The requirements  forecasting initiatives in the plan aim to improve inventory management by  reducing low-usage inventory, increasing the availability of high-usage and  critical inventory, more accurately identifying war reserve stocks,  forecasting wartime demand, and identifying items with long procurement  lead times. The plan’s initiatives that affect asset visibility seek to improve  DOD’s ability to provide timely and accurate information regarding the  location, quantity, condition, movement, and status of materiel assets  across the department. Finally, the materiel distribution initiatives were  included to improve the timely and seamless flow of materiel in support of  deployed forces. We have frequently identified systemic weaknesses in  these three areas as impeding effective supply chain management.
During the Subcommittee’s October 2005 hearing on this subject, I stated  that DOD’s plan addressing supply chain management was a good first  step toward putting DOD on a path toward resolving long-standing supply  chain management problems, but that the department faced a number of  challenges and risks in fully implementing its proposed changes across the  department and measuring progress. That bottom-line view remains the  same today. Since October, DOD has regularly updated its supply chain  management improvement plan, added more details, and has made  progress implementing individual initiatives by generally meeting the  milestones laid out in its plan. However, as DOD moves forward, we  believe that there are opportunities to further improve DOD’s ability to  show progress toward resolving long-term supply chain problems.
As requested, my comments today will focus on DOD’s progress in  (1) implementing the supply chain management improvement plan and  (2) incorporating performance measures for tracking and demonstrating  improvement. In addition, you also asked me to comment on the extent to  which DOD’s supply chain management improvement plan is aligned with  other logistics plans across the department that address aspects of the  supply chain. My testimony is based on previous GAO reports and  testimonies and our preliminary observations from an ongoing  engagement requested by this Subcommittee on DOD's efforts to resolve  long-standing problems in its supply chain management process. To obtain  our preliminary observations, we have met on a regular basis with DOD  officials and staff from OMB to discuss the overall status of the plan, the  implementation of the plan’s individual initiatives, and performance  measures; and we have reviewed relevant documents, such as current  DOD and military service logistics plans and strategies. This work is being  performed in accordance with generally accepted government auditing  standards.
subsections: section_title: Background
paragraphs: For 16 years, DOD’s supply chain management processes, previously  identified as DOD inventory management, have been on our list of high- risk areas needing urgent attention because of long-standing systemic  weaknesses that we have identified in our reports. We initiated our high- risk program in 1990 to report on government operations that we  identified as being at high risk for fraud, waste, abuse, and  mismanagement. The program serves to identify and help resolve serious  weaknesses in areas that involve substantial resources and provide critical  services to the public. The department’s inventory management of supplies  in support of forces was one of the initial 14 operational areas identified as  high risk in 1990 because, over the previous 20 years, we had issued more  than 100 reports dealing with specific aspects and problems in DOD’s  inventory management. These problems included excess inventory levels,  inadequate controls over items, and cost overruns. As a result of this work,  we had suggested that DOD take some critical steps to correct the  problems identified. Since then, our work has shown that the problems  adversely affecting supply support to the warfighter—such as  requirements forecasts, use of the industrial base, funding, distribution,  and asset visibility—were not confined to the inventory management  system, but also involved the entire supply chain. In 2005, we modified the  title for this high-risk area from “DOD Inventory Management” to “DOD  Supply Chain Management.” In the 2005 update, we noted that during  Operation Iraqi Freedom, some of the supply chain problems included  backlogs of hundreds of pallets and containers at distribution points,  millions of dollars spent in late fees to lease or replace storage containers  because of distribution backlogs and losses, and shortages of such items  as tires and radio batteries.
Removal of the high-risk designation is considered when legislative and  agency actions, including those in response to our recommendations,  result in significant and sustainable progress toward resolving a high-risk  problem. Key determinants include a demonstrated strong commitment to  and top leadership support for addressing problems, the capacity to do so,  a corrective action plan that provides for substantially completing  corrective measures in the near term, a program to monitor and  independently validate the effectiveness of corrective measures, and  demonstrated progress in implementing corrective measures.
Last year, with the encouragement of OMB, DOD developed a plan for  improving supply chain management that could reduce its vulnerability to  fraud, waste, abuse, and mismanagement and place it on the path toward  removal from our list of high-risk areas. This plan, initially released in July  2005, contains 10 initiatives proposed as solutions to address the root  causes of problems DOD identified in the areas of forecasting  requirements, asset visibility, and materiel distribution. By committing to  improve these three key areas, DOD has focused its efforts on the areas  we frequently identified as impeding effective supply chain management.  For each of the initiatives, the plan contains implementation milestones  that are tracked and updated monthly.
section_title: DOD Continues to Implement Its Supply Chain Management Improvement Plan, but Full Implementation Will Take Several Years
paragraphs: Since October 2005, DOD has continued to make progress implementing  the initiatives in its supply chain management improvement plan, but it  will be several years before the plan can be fully implemented. Progress  has been made in implementing several of the initiatives, including its  Joint Regional Inventory Materiel Management, Readiness Based Sparing,  and the Defense Transportation Coordination Initiative. For example:
Within the last few months, through its Joint Regional Inventory  Materiel Management initiative, DOD has begun to streamline the  storage and distribution of defense inventory items on a regional  basis, in order to eliminate duplicate materiel handling and  inventory layers. Last year, DOD completed a pilot for this  initiative in the San Diego region and, in January 2006, began a  similar transition for inventory items in Oahu, Hawaii.
Readiness Based Sparing, an inventory requirements methodology  that the department expects to enable higher levels of readiness at  equivalent or reduced inventory costs using commercial off-the- shelf software, began pilot programs in each service in April 2006.
Finally, in May 2006, the U.S. Transportation Command held the  presolicitation conference for its Defense Transportation  Coordination Initiative, a long-term partnership with a  transportation management services company that is expected to  improve the predictability, reliability, and efficiency of DOD  freight shipping within the continental United States.
DOD has sought to demonstrate significant improvement in supply chain  management within 2 years of the plan’s inception in 2005; however, the  department may have difficulty meeting its July 2007 goal. Some of the  initiatives are still being developed or piloted and have not yet reached the  implementation stage, others are in the early stages of implementation,  and some are not scheduled for completion until 2008 or later. For  example, according to the DOD supply chain management improvement  plan, the contract for the Defense Transportation Coordination Initiative is  scheduled to be awarded during the first quarter of fiscal year 2007,  followed by a 3-year implementation period. The War Reserve Materiel  Improvements initiative, which aims to more accurately forecast war  reserve requirements by using capability-based planning and incorporating  lessons learned in Operation Iraqi Freedom, is not scheduled to begin  implementing an improved requirements forecasting process for  consumable items as a routine operation until October 2008. The Item  Unique Identification initiative, which involves marking personal property  items with a set of globally unique data elements to help DOD track items  during their life cycles, will not be completed until December 2010 under  the current schedule.
While DOD has generally stayed on track, DOD has reported some  slippage in meeting scheduled milestones for certain initiatives. For  example, a slippage of 9 months occurred in the Commodity Management  initiative because additional time was required to develop a  departmentwide approach. This initiative addresses the process of  developing a systematic procurement approach to the department's needs  for a group of items. Additionally, the Defense Transportation  Coordination Initiative experienced a slippage in holding the  presolicitation conference because defining requirements took longer than  anticipated. Given the long-standing nature of the problems being  addressed, the complexities of the initiatives, and the involvement of  multiple organizations within DOD, we would expect to see further  milestone slippage in the future. In our October testimony, we also  identified challenges to implementation such as maintaining long-term  commitment for the initiatives and ensuring sufficient resources are  obtained from the organizations involved. Although the endorsement of  DOD’s plan by the Under Secretary of Defense for Acquisition,  Technology, and Logistics is evidence of a strong commitment to improve  DOD’s supply chain management, DOD will have to sustain this  commitment as it goes forward in implementing this multiyear plan while  also engaged in departmentwide business transformation efforts.  Furthermore, the plan was developed at the Office of the Under Secretary  of Defense level, whereas most of the people and resources needed to  implement the plan are under the direction of the military services, DLA,  and other organizations such as U.S. Transportation Command. Therefore,  it is important for the department to obtain the necessary resource  commitments from these organizations to ensure the initiatives in the plan  are properly supported.
section_title: Supply Chain Improvement Plan Lacks Outcome- focused Performance Measures for Many of the Initiatives
paragraphs: While DOD has incorporated several broad performance measures in its  supply chain management improvement plan, the department continues to  lack outcome-focused performance measures for many of the initiatives.  Therefore, it is difficult to track and demonstrate DOD’s progress toward  improving its performance in the three focus areas of requirements  forecasting, asset visibility, and materiel distribution. Performance  measures track an agency’s progress made towards goals, provide  information on which to base organizational and management decisions,  and are important management tools for all levels of an agency, including  the program or project level. Outcome-focused performance measures  show results or outcomes related to an initiative or program in terms of its  effectiveness, efficiency, impact, or all of these. To track progress towards  goals, effective performance measures should have a clearly apparent or  commonly accepted relationship to the intended performance, or should  be reasonable predictors of desired outcomes; are not unduly influenced  by factors outside a program’s control, measure multiple priorities, such as  quality, timeliness, outcomes, and cost; sufficiently cover key aspects of  performance; and adequately capture important distinctions between  programs. Performance measures enable the agency to assess  accomplishments, strike a balance among competing interests, make  decisions to improve program performance, realign processes, and assign  accountability. While it may take years before the results of programs  become apparent, intermediate measures can be used to provide  information on interim results and show progress towards intended  results. In addition, when program results could be influenced by external  factors, intermediate measures can be used to identify the programs’  discrete contribution to the specific result. For example, DOD could show  near-term progress by adding intermediate measures for the DOD supply  chain management improvement plan, such as outcome-focused  performance measures for the initiatives or for the three focus areas.
DOD’s supply chain management improvement plan includes four high- level performance measures that are being tracked across the department,  but these measures do not necessarily reflect the performance of the  initiatives or explicitly relate to the three focus areas. DOD’s supply chain  materiel management regulation requires that functional supply chain  metrics support at least one enterprise-level metric.  In addition, while not  required by the regulation, the performance measures DOD has included  in the plan are not explicitly linked to the three focus areas, and it has not  included overall cost metrics that might show efficiencies gained through  supply chain improvement efforts. The four measures are as follows:
Backorders—number of orders held in an unfilled status pending  receipt of additional parts or equipment through procurement or  repair.
Customer wait time—number of days between the issuance of a  customer order and satisfaction of that order.
On-time orders—percentage of orders that are on time according  to DOD’s established delivery standards.
Logistics response time—number of days to fulfill an order placed  on the wholesale level of supply from the date a requisition is  generated until the materiel is received by the retail supply  activity.
The plan also identifies fiscal year 2004 metric baselines for each of the  services, DLA, and DOD overall, and specifies annual performance targets  for these metrics for use in measuring progress. For example, one  performance target for fiscal year 2005 was to reduce backorders by 10  percent from the fiscal year 2004 level. Table 1 shows each performance  measure with the associated fiscal year 2005 performance targets and  actuals and whether the target was met.
As table 1 shows, DOD generally did not meet its fiscal year 2005  performance targets. However, the impact to the supply chain as a result  of implementing the initiatives contained in the plan will not likely be  reflected in these high-level performance metrics until the initiatives are  broadly implemented across the department. In addition, the high-level  metrics reflect the performance of the supply chain departmentwide and  are affected by other variables; therefore, it will be difficult to determine if  improvements in the high-level performance metrics are due to the  initiatives in the plan or other variables. For example, implementing Radio  Frequency Identification—technology consisting of active or passive  electronic tags that are attached to equipment and supplies being shipped  from one location to another and enable shipment tracking—at a few sites  at a time has only a very small impact on customer wait time. However,  variables such at natural disasters, wartime surges in requirements, or  disruption in the distribution process could affect that metric.
DOD’s plan lacks outcome-focused performance metrics for many of the  specific initiatives. We noted this deficiency in our prior testimony, and  since last October, DOD has not added outcome-focused performance  metrics. DOD also continues to lack cost metrics that might show  efficiencies gained through supply chain improvement efforts, either at the  initiative level or overall. In total, DOD’s plan continues to identify a need  to develop outcome-focused performance metrics for 6 initiatives, and 9 of  the 10 initiatives lack cost metrics. For example, DOD’s plan shows that it  expects to have radio frequency identification technology implemented at  100 percent of its U.S. and overseas distribution centers by September  2007, but noted that it has not yet identified additional metrics that could  be used to show the impact of implementation on expected outcomes,  such as receiving and shipping timeliness, asset visibility, or supply  consumption data. Two other examples of initiatives lacking outcome- focused performance measures are War Reserve Materiel, discussed  earlier, and Joint Theater Logistics, which is an effort to improve the  ability of a joint force commander to execute logistics authorities and  processes within a theater of operations. Although the plan contains some  performance metrics, many have not been fully defined or are intended to  show the status of a project. Measures showing project status are useful  and may be most appropriate for initiatives in their early stages of  development, but such measures will not show the impact of initiatives on  the supply chain during or after implementation. DOD officials noted that  many of the initiatives in the supply chain management improvement plan  are in the early stages of implementation and that they are working to  develop performance measures for them. For example, an official involved  with the Joint Theater Logistics initiative stated that the processes  necessary for each joint capability needed to be defined before  performance metrics could be developed. The recently issued contract  solicitation for the Defense Transportation Coordination Initiative  contains a number of performance measures, such as on-time pickup and  delivery, damage-free shipments, and system availability, although these  measures are not yet included in DOD’s supply chain management  improvement plan. Additionally, we observed that DOD’s plan does not  identify departmentwide performance measures in the focus areas of  requirements forecasting, asset visibility, and materiel distribution.  Therefore, it currently lacks a means to track and assess progress in these  areas.
Although DOD has made efforts to develop supply chain management  performance measures for implementation across the department, DOD  has encountered challenges in obtaining standardized, reliable data from  noninteroperable systems. The four high-level performance measures in  DOD’s plan were defined and developed by DOD’s supply chain metrics  working group. This group includes representatives from the services,  DLA, and the U.S. Transportation Command, and meets monthly under the  direction of the Office of the Under Secretary of Defense. For example, the  working group developed a common definition for customer wait time  which was included in DOD guidance. The DOD Inspector General has a  review underway to validate the accuracy of customer wait time data and  expects to issue a report on its results later this summer. One of the  challenges the working group faces in developing supply chain  performance measures is the ability to pull standardized, reliable data  from noninteroperable information systems. For example, the Army  currently does not have an integrated method to determine receipt  processing for Supply Support Activities, which could affect asset visibility  and distribution concerns. Some of the necessary data reside in the Global  Transportation Network while other data reside in the Standard Army  Retail Supply System. These two databases must be manually reviewed  and merged in order to obtain the information for accurate receipt  processing performance measures.
DOD recognizes that achieving success in supply chain management is  dependent on developing interoperable systems that can share critical  supply chain data. The Business Management Modernization Program, one  of the initiatives in DOD’s supply chain improvement plan that has been  absorbed into the Business Transformation Agency, is considered to be a  critical enabler that will provide the information technology underpinning  for improving supply chain management. As part of this initiative, DOD  issued an overarching business enterprise architecture and an enterprise  transition plan for implementing the architecture. We previously reported  that Version 3.1 of the business enterprise architecture reflects steps  taken by DOD to address some of the missing elements, inconsistencies,  and usability issues related to legislative requirements and relevant  architecture guidance, but additional steps are needed. For example, we  said that the architecture does not yet include a systems standards profile  to facilitate data sharing among departmentwide business systems and  promote interoperability with departmentwide information technology  infrastructure systems. Furthermore, we also stated that the military  services’ and defense agencies’ architectures are not yet adequately  aligned with the departmental architecture.
section_title: DOD Has Multiple Plans Addressing Supply Chain Management, but Alignment Among Them Is Unclear
paragraphs: DOD has multiple plans aimed at improving aspects of logistics, including  supply chain management, but it is unclear how all these plans are aligned  with one another. In addition to the supply chain management  improvement plan, current DOD plans that address aspects of supply  chain management include DOD’s Logistics Transformation Strategy,  Focused Logistics Roadmap, and Enterprise Transition Plan; and DLA’s  Transformation Roadmap.
In December 2004, DOD issued its Logistics Transformation Strategy. The  strategy was developed to reconcile three logistics concepts—force- centric logistics enterprise, sense and respond logistics, and focused  logistics—into a coherent transformation strategy. The force-centric  logistics enterprise is OSD’s midterm concept (2005-2010) for enhancing  support to the warfighter and encompasses six initiatives, one of which  includes “end-to-end distribution.” Sense and respond logistics is a future  logistics concept developed by the department’s Office of Force  Transformation that envisions a networked logistics system that would  provide joint strategic and tactical operations with predictive, precise, and  agile support. Focused logistics, a concept for force transformation  developed by the Joint Chiefs of Staff, identifies seven key joint logistics  capability areas such as Joint Deployment/Rapid Distribution.
In September 2005, DOD issued its Focused Logistics Roadmap, also  referred to as the “As Is” roadmap. It documents logistics-enabling  programs and initiatives directed toward achieving focused logistics  capabilities. It is intended to provide a baseline of programs and initiatives  for future capability analysis and investment. Seven of the 10 initiatives in  the DOD supply chain management improvement plan and some of the  systems included in the initiative to modernize the department’s business  systems—under the Business Transformation Agency—are discussed in  the Focused Logistics Roadmap.
In September 2005, DOD’s Enterprise Transition Plan was issued as part of  the Business Management Modernization Program. The Enterprise  Transition Plan is the department’s plan for transforming its business  operations. One of the six DOD-wide priorities contained in the Enterprise  Transition plan is Materiel Visibility, which is focused on improving supply  chain performance. The Materiel Visibility priority is defined as the ability  to locate and account for materiel assets throughout their life cycle and  provide transaction visibility across logistics systems in support of the  joint warfighting mission. Two of the key programs targeting visibility  improvement are Radio Frequency Identification and Item Unique  Identification, which also appear in the supply chain management  improvement plan.
The Defense Logistics Agency’s Fiscal Year 2006 Transformation Roadmap  contains 13 key initiatives underway to execute DLA’s role in DOD’s  overarching transformation strategy. The majority of the initiatives are  those that affect supply chain management, and several are found in  DOD’s supply chain management improvement plan. For example, the  Integrated Data Environment, Business Systems Modernization, and  Reutilization Modernization Program initiatives found in DLA’s  Transformation Roadmap are also in the department’s supply chain  management improvement plan under the initiative to modernize the  department’s business systems.
These plans were developed at different points of time, for different  purposes, and in different formats. Therefore, it is difficult to determine  how all the ongoing efforts link together to sufficiently cover requirements  forecasting, asset visibility, and materiel distribution and whether they will  result in significant progress toward resolving this high-risk area.  Moreover, DOD’s supply chain management improvement plan does not  account for initiatives outside OSD’s direct oversight that may have an  impact on supply chain management. The initiatives chosen for the plan  were joint initiatives under the oversight of OSD in the three focus areas of  requirements forecasting, asset visibility, and materiel distribution.  However, the U. S. Transportation Command, DLA, and the military  services have ongoing and planned supply chain improvement efforts in  those areas that are not included in the plan. For example, the U.S.  Transportation Command’s Joint Task Force – Port Opening initiative  seeks to improve materiel distribution by rapidly extending the  distribution network into a theater of operations. Furthermore, DLA is  implementing a National Inventory Management Strategy, which is an  effort to merge distinct wholesale and retail inventories into a national  inventory, provide more integrated management, tailor inventory to  services’ requirements, and reduce redundant inventory levels. Another  example is the Army’s efforts to field two new communications and  tracking systems, the Very Small Aperture Terminal and the Mobile  Tracking System, to better connect logisticians on the battlefield and  enable them to effectively submit and monitor their supply requisitions.   DOD officials told us they would be willing to consider adding initiatives  that impact the three focus areas. Until DOD clearly aligns the supply  chain management improvement plan with other department plans and  ongoing initiatives, supply chain stakeholders will not have a  comprehensive picture of DOD’s ongoing efforts to resolve problems in  the supply chain.
Although we are encouraged by DOD’s planning efforts, DOD lacks a  comprehensive, integrated, and enterprisewide strategy to guide logistics  programs and initiatives. In the past, we have emphasized the need for an  overarching logistics strategy that will guide the department’s logistics  planning efforts. Without an overarching logistics strategy, the  department will be unable to most economically and efficiently support  the needs of the warfighter. To address this concern and guide future  logistics programs and initiatives, DOD is in the process of developing a  new strategic plan—the “To Be” roadmap. This plan is intended to portray  where the department is headed in the logistics area, how it will get there,  and monitor progress toward achieving its objectives, as well as  institutionalize a continuous assessment process that links ongoing  capability development, program reviews, and budgeting. According to  DOD officials, the initiatives in the supply chain management  improvement plan will be incorporated into the “To Be” logistics roadmap.
The roadmap is being developed by a working group representing the four  services, DLA, the U.S. Transportation Command, the U.S. Joint Forces  Command, the Joint Staff, the Business Transformation Agency, and the  Office of the Secretary of Defense. The working group reports to a Joint  Logistics Group comprised of one-star generals and their equivalents  representing these same organizations. Additionally, the Joint Logistics  Board, Defense Logistics Board, and the Defense Logistics Executive (the  Under Secretary of Defense for Acquisition, Technology, and Logistics)  would provide continuous feedback and recommendations for changes to  the roadmap. Regarding performance measures, the roadmap would link  objective, quantifiable, and measurable performance targets to outcomes  and logistics capabilities. The first edition of the “To Be” roadmap is  scheduled for completion in February 2007, in conjunction with the  submission of the President’s Budget for Fiscal Year 2008. Updates to the  roadmap will follow on an annual basis. Efforts to develop the “To Be”  roadmap show promise. However, until it is completed, we will not be able  to assess how the roadmap addresses the challenges and risks DOD faces  in its supply chain improvement efforts.
section_title: Concluding Observations
paragraphs: DOD faces significant challenges in improving supply chain management  over the coming years. As it develops its “To Be” roadmap for logistics,  DOD would likely benefit from including outcome-focused performance  measures demonstrating near-term progress in the three focus areas of  requirements forecasting, asset visibility, and materiel distribution. With  outcome-focused performance measures, DOD will be able to show results  in these areas that have been long identified as systemic weaknesses in the  supply chain. While we recognize the challenge to developing outcome- focused performance measures at the department level, DOD could show  near-term progress with intermediate measures. These measures could  include outcome-focused measures for each of the initiatives or for the  three focus areas. To be most effective, the roadmap also would reflect the  results of analysis of capability gaps between its “As Is” and “To Be”  roadmaps, as well as indicate how the department intends to make this  transition. DOD would also benefit by showing the alignment among the  roadmap, the supply chain management improvement plan, and other  DOD strategic plans that address aspects of supply chain management.  Clearer alignment of the supply chain management improvement plan with  other department plans and ongoing initiatives could provide greater  visibility and awareness of actions DOD is taking to resolve problems in  the supply chain. In the long term, however, a plan alone will not resolve  the problems that we have identified in supply chain management. Actions  must result in significant progress toward resolving a high-risk problem  before we will remove the high-risk designation.
Mr. Chairman and Members of the Subcommittee, this concludes my  prepared remarks. I would be happy to answer any questions you or other  Members of the Subcommittee may have.
section_title: Staff Contacts and Acknowledgements
paragraphs: For further information regarding this testimony, please contact me at 202- 512-8365 or solisw@gao.gov. Individuals making contributions to this  testimony include Tom Gosling, Assistant Director; Michael Avenick;  Susan Ditto; Marie Mak; Thomas Murphy; Janine Prybyla; and Matthew  Spiers.
section_title: Attachment 1: Initiatives in DOD Supply Chain Management Improvement Plan
paragraphs: Technology consisting of active or passive electronic tags  that are attached to equipment and supplies that are  shipped from one location to another and enable shipment  tracking.
Marking of personal property items with a machine- readable Unique Item Identifier, or set of globally unique  data elements, to help DOD value and track items  throughout their life cycle.
Streamlining of the storage and distribution of materiel  within a given geographic area in order to eliminate  duplicate materiel handling and inventory layers.
An inventory requirements methodology that produces an  inventory investment solution that enables higher levels of  readiness at an equal or lower cost.
An improved war reserve requirements forecasting  process.
Process of developing a systematic procurement approach  to the entire usage cycle of a group of items.
Improving the ability of a joint force commander to execute  logistics authorities and processes within a theater of  operations.
Provides Combatant Commands with a joint theater  logistics capability (supply, transportation, and distribution)  for command and control of forces and materiel moving into  and out of the theater.
Long-term partnership with a coordinator of transportation  management services to improve the reliability,  predictability, and efficiency of DOD materiel moving within  the continental United States by all modes.
Departmentwide initiative to advance business  transformation efforts, particularly with regard to business  systems modernization.
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