The Air Force recognized that reductions in spare parts inventories since the early 1990s have negatively affected aircraft readiness indicators such as mission capable rates, not-mission-capable supply, not-mission- capable maintenance, and cannibalizations. Recognizing the need to reverse this trend and that previous attempts to pinpoint specific spare parts shortages were piecemeal, temporary, and lacked adequate personnel to implement, the Air Force began a 5 to7 year logistics transformation effort in 1999 aimed at improving the efficiency and economy of the entire logistics process to enhance support to the warfighter. Rather than focusing on fully eliminating specific spare parts shortages, the Air Force chose to focus on addressing the process disconnects that caused the shortages. This included an end-to-end look at all aspects of the logistics process including commercial supply chain management, supply, maintenance, transportation, logistics planning, and financial management. The Spares Campaign initiated in February 2001 and the Depot Maintenance Reengineering and Transformation (DMRT) effort started in July 2001 were two key parts of the end-to-end review. In total, they identified the need for 84 initiatives, 43 of which related to spare parts. The Spares Campaign focused on supply process deficiencies, and it was intended to improve parts supportability to weapon systems and reverse declining readiness related to spares management. This was considered a major transformation effort and included five teams that reviewed the processes needed to produce spares and identified disconnects and solutions that would improve mission capability and manage cost (see table 1). Each team developed a flowchart showing how it believed processes related to its focus area should function and be managed to improve weapon system availability and cost management. The teams also identified disconnects or barriers preventing the processes from functioning as they should and recommended solutions to correct these disconnects. Twelve major deficiencies were noted, and more than 190 corrective actions were identified, which resulted in 20 initiatives, 19 of which were related to spare parts shortages. As of February 2003, 7 of 19 spare parts initiatives have been started. The DMRT effort, focused on deficiencies in depot maintenance processes. Various teams identified disconnects and barriers in these processes, reviewed Air Force current initiatives that affected depot maintenance, and identified industry best practices and benchmarking, receiving input from Air Force management, major commands, and Air Logistics Centers. More than 300 barriers to depot maintenance operational and financial performance were identified and consolidated into more than 40 major issues organized around 8 overarching focus areas. This resulted in 64 initiatives, 24 of which were related to spare parts. All 24 of the spare parts related initiatives have been started. Table 2 below summarizes the status of the Spares Campaign and DMRT initiatives as of February 2003. Appendix II provides a description of the 31 Spares Campaign and DMRT initiatives that have been started and estimated completion dates. The Air Force Strategic Plan is appropriately structured to provide a framework for mitigating spare parts shortages, but its two subordinate plans are not aligned with it in terms of performance measures. Consistent with sound management principles underlying the Government Performance and Results Act of 1993 (GPRA), the strategic plan includes a mission statement, long-term goals, and performance measures and targets, and some of these elements relate to spare parts shortages. However, the performance measures and targets in the subordinate plans are not consistent with those in the strategic plan or none are stated. This lack of alignment with the Air Force Strategic Plan's performance measures and targets means that the service cannot measure the contribution of the actions it takes in response to the subordinate plans toward overcoming spare parts shortages and be assured that implementing the subordinate plans will mitigate critical spare parts shortages and give the Air Force its greatest readiness return on investment. The Air Force Strategic Plan, issued between April 1998 and May 2000, generally includes an effective strategy consistent with GPRA guidelines, and it generally represents an effective framework for reducing spare parts shortages. The plan applies to the Air Force as a whole and contains a mission statement, strategic goals, and output-related performance measures and targets. Specifically, the strategic plan has three goals: Goal 1 is to ensure a high quality force of people, Goal 2 is to enable commanders to respond to all types of crises, and Goal 3 is to prepare for an uncertain future by pursuing a modernization program. Each goal contains mission critical tasks (such as "Maximize the efficiency of operating and maintaining Air Force resources") along with related performance measures and targets for determining progress toward achieving its strategic goals. Of the three strategic goals, Goal 2 addresses the mitigation of spare parts shortages. It has two mission critical tasks and 19 performance measures, many specifically related to improving spare parts inventories. One mission critical task, to "improve mission effectiveness while minimizing risk," cites the percentage of aircraft that cannot perform their mission because spare parts are not available as a performance measure. It also cites performance targets for each aircraft. For example, the target for the F-15E is 9 percent and for the B-1 it is 22 percent, meaning that percent of the aircraft cannot perform their mission because of spare parts shortages (see appendix III for the not mission capable supply rate targets). The second mission critical task, to "maximize the efficiency of operating and maintaining the Air Force resources," has the elapsed time between when a customer submits an order and receives the part as a performance measure. The major subordinate plans for implementing the Air Force Strategic Plan include goals similar to those in the strategic plan. However, their performance measures and targets are not linked to those in the strategic plan. The subordinate plans are the Logistics Support Plan and the Supply Strategic Plan (see fig. 1). The Logistics Support Plan was developed to provide authoritative, strategic direction and front-end guidance for Air Force logistics capabilities planning. It includes the same goals as the higher plan, and it contains objectives for accomplishing these goals. The plan does not include quantitative or qualitative output-related performance measures and targets that will yield the performance information needed to assess goal accomplishment at either the subordinate or strategic plan levels in order to measure results. Instead, it includes measures that will only yield information about whether or not a specific process was implemented. For example, the completion of combat support doctrine is the performance measure cited for accomplishing the objective to improve combat support to warfighters by developing and applying an Agile Combat Support doctrine. Another nonquantitative or qualitative performance measure was full fielding of identified total asset visibility capabilities for the objective to fully implement total asset visibility. The Supply Strategic Plan was intended to (1) create an integrated process for Air Force supply planning, (2) establish the planning infrastructure to facilitate information exchange throughout Air Force Supply, and (3) improve Air Force Supply's measures of effectiveness. This plan contains five long-term goals that are consistent with the higher plan's goals, and it has 19 objectives, 71 tasks to accomplish these objectives, and a projected end-state for some of these tasks. Some end-states are similar to the strategic plan's output-related performance measures, but do not have corresponding performance targets. For example, one end-state discusses incidents of aircraft being not mission capable due to the lack of spare parts, but it does not specify a target (i.e., the desired percentage of incidences) against which to measure improvement. Other end-states did not discuss performance measures at all. For example, one end-state is completion of the new Air Force Supply Stockage Policy Guide and making it available to supply officers worldwide. Without effective quantitative and qualitative measures that flow from the Strategic Plan structure to the subordinate plans, the Air Force cannot determine the extent to which the implementation of these plans is contributing to its overall strategic goal relating to overcoming spare parts shortages. Furthermore, the Air Force cannot be assured that implementing the subordinate plans will give them the greatest readiness return on their investment. Key logistics initiatives being implemented by the Air Force may help to mitigate spare parts shortages, but their potential effectiveness is limited for several reasons. The Air Force has begun a major logistics transformation effort intended to improve the entire logistics process and identified numerous initiatives to improve its logistics process by addressing deficiencies, barriers, or disconnects. However, it has not implemented 12 of the 43 initiatives it identified as needed to address spare parts shortages nor demonstrated that all key aspects of these 12 have been incorporated into other initiatives underway. In addition, 23 of the 31 initiatives being implemented lack performance measures and targets. The Air Force also chose not to use the results of one of its initiatives, which identified a new consolidated requirement for spare parts; consequently, additional spare parts shortages could occur. Lastly, management problems identified by an Air Force review team in 2002 have hampered implementation of the initiatives, and its new directorate, established in February 2003, has not established a plan or priorities to address these problems. In 2001, the Air Force identified 43 initiatives to improve processes related to spare parts shortages--19 as part of the Spares Campaign and 24 as part of the DMRT. As of February 2003, 31 of the 43 initiatives have been started. The Air Force has started all 24 DMRT initiatives that relate to improving spare parts shortages, but has started only 7 of the 19 initiatives that relate to spare parts shortages arising from the Spares Campaign. Table 3 shows the implementation status of Spares Campaign initiatives. According to the Air Force, it chose to start the seven Spares Campaign initiatives that reflected its highest priorities, provided greatest impact to the logistics processes, and resulted in highest payback to the Air Force. The remaining 12 initiatives have not been started because the Air Force said it did not have the needed personnel and funding. Although the Air Force provided a document showing that some aspects of the remaining initiatives had been embedded into the Ten Focus Initiatives of the Spares Campaign, we could not verify that all of these initiatives had been started. Also, we could not validate that all of the deficiencies, disconnects, or barriers intended to be addressed by the remaining 12 initiatives were actually being addressed. Consequently, some of the process problems identified in the Spares Campaign that cause spare parts shortages may not be addressed, thereby reducing the overall effectiveness of the Air Force's efforts to mitigate spare parts shortages. Twenty-three of the 31 Air Force initiatives that have been started lack output-related performance measures and targets. One of the 23 initiatives, the Material Policy initiative, has revision of all policies as its performance target. The other 22 initiatives were part of the DMRT effort and did not have any performance measure or any performance targets. Air Force officials said they are still trying to develop measures and targets for each of these initiatives. The other eight initiatives--such as the Weapon System Supply Chain Manager, Regional Supply Squadron, and Demand and Repair Workload Forecasting--have output-related measures, including how effective they are in making weapon systems available, the amount of cannibalization done to keep aircraft available, and the amount of aircraft that are not mission capable due to supply or maintenance problems. Without quantitative or qualitative performance-related measures and targets relating to improving spare parts availability, the Air Force lacks the means to determine the extent to which these initiatives have improved readiness by reducing spare parts shortages. One Spares Campaign initiative recently established a new total requirement for spare parts, but the service chose not to request all the funds to meet the requirement. The Spares Campaign's Improve Spares Budgeting initiative created a Spares Requirement Review Board to identify a single, consolidated requirement for spare parts and consumable items. In the past, the Air Force had budgeted for spares based on annual flying-hour requirements with little consideration for the spares needed to meet non-flying-hour requirements, such as the pipeline or safety stock. As a result, the Air Force experienced parts shortages because demands for non-flying-hour spare parts had not been sufficiently budgeted. The review board compiled flying-hour and non-flying-hour requirements into a single, agreed upon requirement to be used for planning, programming, and budgeting. The Air Force's new process yielded a new total spare parts requirement of approximately $5.9 billion for the fiscal year 2004 budget submission. However, in its fiscal year 2004 budget the service chose to only request $5.3 billion. After the service submitted its fiscal year 2004 budget, the Secretary of the Air Force reported $578 million in unfunded spares requirements: $166 million of this was for pipeline and other requirements, and $412 million was for the flying-hour program. The Air Force's decision to request less funding than identified in their most recent requirements determination process raises concerns. Either the Air Force's new spare parts requirements determination process is not a valid basis for future budget decisions, or by not requesting the full amount to meet the requirement, the Air Force has created the potential for additional spare parts shortages that could negatively affect readiness or has created the need for a supplemental budget request. Air Force officials said they took a risk that the $5.3 billion budget request would be sufficient based on the actual flying-hour cost experienced in fiscal year 2002. That year, they said, the flying-hour program was executed at a cheaper rate than budgeted. The Air Force recently established a new directorate to address several management issues that it believes adversely affects its logistics transformation initiatives, but the extent to which this directorate will improve overall management of these initiatives is not clear. In 2002, the Air Force formed a review team composed of retired general officers, senior executives, and industry leaders that assessed initiative implementation plans, identified problems with its logistics transformation efforts, and developed recommendations to solve these problems. The team concluded that a high risk of failure existed for the transformation efforts because (1) the Air Force is not clearly articulating throughout its organization the need for changes, (2) top-level commitment to implementing initiatives is not as strong as needed as evidenced by schedule slippage and lack of funding for initiatives, and (3) clear roles and responsibilities concerning the Spares Campaign are not being addressed. One of the team's recommendations was to merge the Spares Campaign and DMRT efforts into a single, full-time logistics transformation program. In February 2003, the Air Force established the Innovation and Transformation Directorate, a new organization under the Logistics Division, which according to an Air Force briefing, consolidated the two efforts and placed oversight responsibility for all Air Force logistics transformation efforts on top-level leadership within one office. According to the Air Force, some of the first steps for the new directorate will be to review existing Spares Campaign and DMRT initiatives, resolve deficiencies in the two efforts, set aggressive timelines, goals, objectives, and performance measures, and obtain senior leadership approval of their actions. However, according to Air Force officials, the plans and priorities of this new directorate had not been set as of April 2003. Without such plans, priorities, and senior leadership commitment guiding the Air Force's efforts to overcome these problems, the potential benefits from its initiatives to mitigate spare parts shortages that impact readiness may be delayed or possibly not achieved. The Air Force can show that additional funding for spare parts would improve aircraft supply availability if the funds were provided directly to the working capital fund. However, the Air Force does not link funding for spare parts directly to readiness because other factors also affect readiness. In its fiscal year 2004 budget request for spare parts funding, the Air Force included information on how spare parts funding in the working capital fund affected the supply availability for various types of aircraft (see app. I for projected aircraft availability rates). The budget request indicated that spare parts funding of approximately $5.3 billion would allow for aircraft supply availability ranging from 73 percent for the H-60 to 100 percent for the F-111. The Air Force drew this data from its Funding/Availability Multi-Method Allocator for Spares model, which estimates how many and which additional parts (i.e. supply availability) it can procure with different amounts of operating authority. The Air Force said that the model has some weaknesses, but it does provide a good mechanism for projecting aircraft supply availability. One weakness, according to DOD, is that while the model attempts to optimize supply parts availability, it is generally biased towards the purchase of low cost/high-demand items versus those critical spare parts that would most improve mission capable rates. The Air Force can also use this model to show how additional funding could increase spare parts availability by estimating the cost of additional supply availability in 1 percent increments by weapon system. For example, in 2002 the cost for the F-15E to achieve an 88 percent supply availability rate was approximately $237 million. To increase this availability 1 percent would have cost an additional $7 million. Similarly, it cost the Air Force approximately $301 million for the C-5 to achieve an 82 percent supply availability rate. To achieve an additional 1 percent supply availability would have cost an additional $3.6 million. According to the Air Force, additional supply availability results in improved stockage effectiveness and reduced customer wait time, back orders, and cannibalization rates, which all contribute to increased readiness. However, the Air Force cautioned that increased supply availability does not automatically result in increased mission capable (readiness) rates because other factors, such as maintenance and transportation, affect these rates. For example, if maintenance staffing levels at depots are inadequate, then even with 100 percent supply availability, mission capability will not be at its highest possible level. An Air Force strategic goal is to address problems that adversely affect mission accomplishment, such as critical spare parts shortages that reduce readiness. While it has a strategic plan that provides a good management framework, places emphasis on mitigating spare parts shortages, and cites performance measures and targets for assessing progress, the Air Force's potential for successful implementation of the plan is hindered by several problems. Subordinate plans have not adopted the Strategic Plan's readiness-related performance measures and targets; all identified initiatives to deal with the causes of spare parts shortages have not been started or key aspects clearly incorporated into other initiatives; and many of those that have been started lack effective performance measures and targets. Additionally, some management weaknesses could significantly impede successful initiative oversight and implementation. By not adopting specific performance measures and targets related to mitigating the critical spare parts shortages into subordinate plans and initiatives, following through on initiatives to address the causes of parts shortages and determine spare parts requirements, and resolving program management deficiencies, the Air Force has little assurance that its program emphasis and initiatives will improve spare-parts-related readiness. Furthermore, as part of its stewardship and accountability for funds, the Air Force will not be assured that the service's spare parts spending is yielding the best readiness return on investment. We are recommending that the Secretary of Defense direct the Secretary of the Air Force to take the following steps: Incorporate the Air Force Strategic Plan's performance measures and targets into the subordinate Logistics Support Plan and the Supply Strategic Plan. Commit to start those remaining initiatives needed to address the causes of spare parts shortages or clearly identify how the initiatives have been incorporated into those initiatives already underway. Adopt performance measures and targets for its initiatives that will show how their implementation will affect critical spare parts availability and readiness. Direct the new Innovation and Transformation Directorate to establish plans and priorities for improving management of logistics initiatives consistent with the Air Force Strategic Plan. Request spare parts funds in the Air Force's budget consistent with results of its spare parts requirements determination process. In written comments on a draft of this report, the Department of Defense concurred with the intent of all five recommendations, but not all actions. The Department of Defense's written comments are reprinted in their entirety in appendix IV. In concurring with our first, third, and fourth recommendations concerning incorporating and adopting performance measures and targets into subordinate plans and initiatives, the Department of Defense responded that the establishment of the Directorate of Innovation and Transformation, the directorate's efforts to develop a balanced scorecard and supporting metrics, and its draft campaign plans which spell out and track milestones for each initiative were consistent with the direction of the Strategic Plan. We believe that if the Department of Defense follows through with its plans for the new directorate, as laid out in its written response, these planned actions should meet the thrust of our recommendations. The Department of Defense concurred with the intent of our second recommendation related to starting those remaining initiatives needed to address the causes of shortages, but not the specific actions. In its comments the Department of Defense stated the original 19 initiatives have been either consolidated into the Ten Focus Initiatives or overtaken by other events making it unnecessary to separately track progress for each of the individual actions. Based on this action, the Department of Defense concluded that it had complied with this recommendation. We disagree that the department's actions fully respond to our recommendation. The thrust of our recommendation is that the Air Force identify which of the 12 remaining initiatives that were not started were incorporated into the Ten Focus Initiatives and what events have overtaken the others to ensure that all causes of spare parts shortages identified by the Air Force are being adequately addressed. In concurring with our fifth recommendation that the Air Force request spare parts funds consistent with results of its spare parts requirements determination process, the Department of Defense responded that the Air Force's spare parts budget was developed consistent with the new requirements determination process, but the amount of funding requested was constrained. This response confirms our statement that the Air Force has underfunded its spare parts requirements and thereby created the potential for a supplemental budget request or for additional spare parts shortages that could negatively affect readiness. To accomplish our three objectives, we visited the Air Force Headquarters' Logistics Directorate, in Washington, D.C., the Air Force Material Command, in Dayton, Ohio and contractor representatives at Bearing Point (formerly KPMG Consulting) in McLean, Virginia. To determine whether the strategic plans address the mitigation of spare parts shortages, we reviewed the Air Force Strategic Plan, its two subordinate plans--Logistics Support Plan and Supply Strategic Plan-- as well as other strategic planning documents and interviewed officials to determine whether these plans included key actions targeted at mitigating critical spare parts shortages and improving readiness. We also reviewed these plans to determine if performance measures and targets in the subordinate plans were similar and linked to those in the higher-level strategic plan. Additionally, we reviewed these plans to determine whether they included the elements of a strategic plan as defined by the GPRA. To determine the likelihood of whether key initiatives would mitigate spare parts shortages to improve readiness, we interviewed Air Force officials to identify the initiatives that they believe will mitigate spare parts shortages and improve readiness. We obtained and reviewed documents related to the 31 spare-parts-related initiatives that have been started to determine the likelihood of whether they would mitigate spare parts shortages. We evaluated these initiatives to determine whether they included quantifiable and measurable performance targets as described by GPRA that would allow an assessment of how implementation of the initiatives would impact spare parts shortages. We also assessed whether these initiatives included all identified actions needed to overcome the causes of spare parts shortages. In addition, we obtained a briefing and discussed with Air Force officials the results of an Air Force review team's assessment of its logistics transformation efforts that identified management weaknesses. To determine what impact the Air Force could identify from additional funding for spare parts, we interviewed officials and obtained documents related to the Air Force's fiscal year 2004 budget submission. We also discussed with Air Force budget officials their Funding/Availability Multi-Method Allocator for Spares model, which includes projected supply availability rates based on estimated funding amounts and was used to provide the budget information. We performed our review from August 2002 to March 2003 in accordance with generally accepted government auditing standards. We are sending copies of this report to the Secretary of Defense; the Secretary of the Air Force; the Director, Office of Management and Budget; and other interested congressional committees and parties. 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 if you or your staff have any questions concerning this report. Major contributors to this report are included in appendix V. In response to a recommendation in the Inventory Management Study of the Office of the Secretary of Defense, the Air Force included supply availability rates for its weapons systems in its fiscal year 2004 budget submission. As shown in table 4, the Air Force projected aircraft supply availability rates ranging from 73 percent to 100 percent based on requested funding of approximately $5.3 billion. Estimated completion date Feb. 2004 (Weapon system supply chain manager) 3. Standardize use and expand role of regional supply squadron Improve financial management Improve demand & repair workload forecasting Improve spares budgeting (Spares requirement review board) Implement commercial best practices into Air Force supply management. Description Establish and implement a corporate strategy for directing, overseeing, coordinating, improving, and facilitating depot maintenance operations. Develop a maintenance training organization as a single training entity for all depot maintenance training. Build maintenance orientation and technical training plans. Establish program that will train first line supervisory candidates prior to assumption of duties. Train and develop maintenance workers and leaders. Establish performance plans that focus on cost, schedule, performance and quality goals. Motivate work force by establishing incentive programs, which instill a desire to excel. Establish hiring authorities to appoint the best qualified candidates and streamline the staffing process (external & internal). Develop compensation packages competitive with the commercial market. Determine how to employ multi-skilling for best value implementation. Continue to assess impact of data systems on 1st level supervisor's time. Review regulatory mandates assigning additional duties to first levels. Formalize the depot infrastructure strategic planning process. Incentivize infrastructure investment in maintenance and repair. Train the depot workforce in capital purchase program and economic analysis. Improve preventative maintenance program. Remove impediments to broad use of facility and equipment maintenance system. Improve maintenance and repair facility project delivery process. Provide greater flexibility for implementing workload changes. Add surge requirements to infrastructure planning and programming. Create two depot capital investment funding appropriations lines--new system investments and recap of existing systems (legacy). Establish a comprehensive vision for managing information resources Insert devices used to automate data collection on the shop floor to enhance depot productivity. Establish a lab environment across air logistics centers, which will enhance the ability to rapidly test solutions to meet user requirements/ enhancements across depot maintenance systems. Improve stock levels for low demand items through policy changes. Clarify material support policies to better state objectives and establish standards. Goal 2 of the Air Force Strategic Plan cites the percentage of aircraft that cannot perform their mission because spare parts are not available, referred to as not-mission-capable supply, as a performance measure. Table 5 provides the not-mission-capable supply rates for the Air Force's weapons systems. In addition to the names above, Gina O. Ruidera, Alfonso Q. Garcia, Susan K. Woodward, and Barry L. Shillito also made significant contributions to this report.

Summary:
Despite reporting $10.5 billion in appropriations spent on spare parts since fiscal year 2000, the Air Force continues to report shortages of spare parts. The service has taken numerous actions to address these shortages. GAO examined whether the Air Force's strategic plan addresses the mitigation of spare parts shortages, whether key initiatives are likely to mitigate the shortages, and the impact on readiness identified from increased investments for spare parts. The Air Force Strategic Plan generally provides an appropriate framework for mitigating spare parts shortages. However, one of two subordinate plans does not contain performance measures and targets linked to the strategic plan, and the other does not contain any performance targets. Therefore, the Air Force is not in a position to determine if the actions taken pursuant to its subordinate plans overcome spare parts shortages and provide assurance that it is getting the greatest readiness return on its spare parts investment. Key logistics initiatives under the Spares Campaign and Depot Maintenance Reengineering and Transformation (DMRT) efforts may help to mitigate spare parts shortages, but the initiatives' potential effectiveness is limited because of some key problems. First, the Air Force is not starting all identified initiatives that relate to the causes of shortages because it did not have needed personnel and funding. It assessed its logistics processes and identified more than 80 initiatives to solve more than 300 deficiencies; 43 initiatives were to improve processes that affect spare parts shortages, with about half relating to depot maintenance and the other half to supply. Although all depot maintenance-related initiatives have been started, 12 of the supply related initiatives have not been started. Second, 23 of the 31 initiatives lack both output-related performance measures and targets. Without output-related measures and targets to assess the initiatives' impact, the Air Force has little means of determining the extent to which it has successfully mitigated spare parts shortages and improved readiness. Third, the Air Force chose not to use the results of one of its initiatives, which identified a new total spares requirement as the basis for its fiscal year 2004 budget request. This decision resulted in a $578 million unfunded spare parts requirement. Finally, management problems--including failure to articulate the need for change, a lack of top-level commitment, and failure to address organizational issues--have hampered implementation of the initiatives. In February 2003, the Air Force established the Innovation and Transformation Directorate to address these problems, but its plans and priorities have not been set. The Air Force can estimate the impact of increased funding on individual weapon systems' supply availability and has done so. Based on its approximately $5.3 billion fiscal year 2004 spare parts budget request, the Air Force reported that aircraft supply availability would range from 73 to 100 percent. However, it cautioned that higher supply availability does not automatically result in higher mission capable rates because of other factors.