DOD is one of the largest and most complex organizations in the world to manage effectively. While DOD maintains military forces with unparalleled capabilities, it continues to confront pervasive, decades-old management problems related to its business operations—which include outdated systems and processes—that support these forces. These management weaknesses cut across all of DOD’s major business areas, such as human capital management, including the department’s national security personnel system initiative; the personnel security clearance program; support infrastructure management; business systems modernization; financial management; weapon systems acquisition; contract management; and last, but not least, supply chain management. All of these areas are on our high-risk list for DOD. DOD relies on a number of individual processes and activities, known collectively as supply chain management, to purchase, produce, and deliver items and services to the warfighter. Its goal for supply chain management is to deliver the “right items to the right place at the right time” for the warfighter in support of deploying and sustaining military capabilities as described in the National Military Strategy. The department relies on working capital (revolving) funds maintained by the defense and service logistics agencies to finance the flow of these items to the forces. Working capital funds allow these agencies to purchase needed items from suppliers. Military units then order items from the logistics agencies and pay for them with annually appropriated operations and maintenance funds when the requested items—either from inventory or manufacturers—are delivered to the units. There are two primary reasons why it is important for DOD to have effective supply chain management. 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 scope of the supply requirements to support U.S. military operations, the investment of resources in the supply chain is substantial. While DOD maintains military forces with unparalleled capabilities, timely supply support is critical to sustaining these forces as they are trained and deployed to protect our national security. For example, to support Operation Iraqi Freedom (OIF), DOD moved more than 2 million tons of cargo—including equipment, spare parts, supplies, and other items— thousands of miles to the Persian Gulf. Conversely, supply shortages can adversely affect the readiness of weapon systems. During OIF, for example, shortages of items such as track shoes prevented large numbers of Abrams tanks and Bradley Fighting Vehicles from operating during the summer of 2003. In another case, tire shortages caused units to strip and leave otherwise good vehicles as well as supplies behind. Shortages of supply items also could hurt the morale of those who employ the weapon systems and raise concerns about forces’ safety with their families. Furthermore, DOD has a significant investment in inventory and spends billions for supplies each year. For example, at the end of fiscal year 2004, DOD had approximately $77.4 billion worth of items in its inventory, an increase of over $15 billion since fiscal year 2001, when DOD had approximately $62.3 billion worth. DOD estimates that the annual costs of supplies and associated operations for fiscal year 2005 are expected to be $51.4 billion, or about 12 percent of DOD’s $419 billion requested budget. Unless the department has a sound management plan and acts to invest resources to buy and provide supplies to units, improve the supply system, as well as invest in essential information systems, the risk of fraud, waste, abuse, and mismanagement remains high at a time when DOD is challenged to maintain a high level of military operations while competing for resources in an increasingly fiscally constrained environment. We recognize that improving DOD’s supply chain management may not save money in the near term because of necessary investments in information technology and other enablers. However, improved systems with timely and reliable data should lead to more effective investment of resources in the future and thereby avoid future costs. For 15 years, DOD’s supply chain management processes 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. In 1990, we began a program to report on government operations that we identified at high risk for fraud, waste, abuse, and mismanagement. This 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 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.” Since 1995 we have issued over 70 reports on various deficiencies in DOD’s supply chain management system. Our assessment of these reports shows that DOD generally concurred with our recommendations. Furthermore, these reports had several common themes, including DOD’s need for accurate supply requirements forecasts, an effective distribution system, and visibility over assets in inventory and while in transit. Moreover, in our prior reports, we have noted problems with the information technology systems supporting the supply chain. For example, DOD has not been able to achieve total asset visibility for over 30 years in part because the department has lacked necessary integration among its many inventory management information systems and has not corrected long-standing data accuracy and reliability within its existing systems. In addition, DOD’s nearly 2,000 logistics business systems have suffered from duplication, limited interoperability, and unnecessarily costly operations and maintenance. GAO has not been alone in criticizing these aspects of DOD’s supply chain management. DOD and audit organizations such as the Department of Defense Office of Inspector General and the Army Inspector General have also issued studies and reports addressing the supply systems’ problems. DOD defines requirements as the need or demand for personnel, equipment, facilities, other resources, or services in specified quantities for specific periods of time or at a specified time. Accurately forecasted supply requirements are a key first step in buying, storing, positioning, and shipping items that the warfighter needs. However, in our April 2005 report on the effectiveness of logistics in support of OIF, we described how DOD had not modeled wartime demands for supplies as required to accurately forecast warfighter requirements. As a result, we found that DOD underestimated the demand in Iraq for some items, such as armor vehicle track shoes, lithium batteries, meals-ready-to-eat, and tires, and forces experienced supply shortages of these items. Distribution is the process for synchronizing all elements of the logistics system to deliver the “right things” to the “right place” at the “right time” to support the warfighter. In our April 2005 report, we describe several instances where the joint distribution system did not support the forces in Iraq. We attributed these instances to conflicts in doctrine about the authority over distribution, improper packaging of shipments, insufficient transportation equipment and supply personnel in theater, and the inability of the information systems to support the requisition and shipment of supplies into and through Iraq. For example, we found that DOD was not able to effectively distribute sufficient quantities of items such as body armor, meals-ready-to-eat, tires, and generators for Marine Corps amphibious vehicles because of problems with supply chain management. DOD describes asset visibility as the ability to provide timely and accurate information on the location, quantity, condition, movement, and status of supplies and the ability to act on that information. For over 30 years, the department has been attempting to improve the visibility over its inventory as well as items in transit, and we have repeatedly reported problems with its efforts. The continued lack of visibility over inventory and shipments increases vulnerability to undetected loss or theft; substantially increases the risk that millions of dollars will be spent unnecessarily; and if items are not delivered when needed, may impair warfighter readiness. We have recently reported on DOD’s problems with existing inventory systems being unable to share data on a near real-time basis and concerns related to tracking critical supplies for Iraq. For example, in December 2003 we reported a discrepancy of $1.2 billion between the amount of material shipped to Army activities in Iraq and the amount of material that those activities acknowledged they received. Since then, in an April 2005 report we reported that the lack of visibility over items in transit significantly affected distribution. For example, incomplete identification tags attached to shipments resulted in the loss of some body armor protection plates, delays in getting meals-ready-to-eat, and the Marine Corps’ ability to only verify the receipt of 15 of 140 amphibious assault vehicle generators that were shipped. Improving asset visibility should not only improve data for supply managers’ decisions, but should also improve the warfighter’s trust in the supply system. DOD’s plan to improve supply chain management provides a good start and framework for addressing long-term systemic weaknesses in DOD’s supply chain management and for focusing the multiyear effort that will be needed to improve supply support to the warfighter. Notwithstanding this important, positive first step, the department faces many challenges and risks in its efforts to improve the supply chain.