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 military forces. 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. The Under Secretary of Defense (Acquisition, Technology, and Logistics) has been designated by the Secretary of Defense as the department’s Defense Logistics Executive, with authority to address logistics and supply chain issues. Officials within the Office of the Assistant Deputy Under Secretary of Defense for Supply Chain Integration completed the first iteration of the plan in July 2005 and have updated it several times since then based on information provided by designated lead proponents for the individual initiatives. DOD has shared its plan externally with Congress, OMB, and our office. OMB has characterized the plan as a model for other federal agencies to use in developing their own plans to address their high- risk areas. The plan has three focus areas: requirements forecasting, asset visibility, and materiel distribution—issues that we have identified based on GAO audits since 1995 as critical to improving DOD supply chain management. Accurately forecasted supply requirements are a key first step in buying, storing, positioning, and shipping items that the warfighter needs. 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 this information. 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. Our prior work has identified problems in these three focus areas, as well as other aspects of supply chain management. DOD’s plan identifies joint theater logistics as an initiative that will improve both asset visibility and materiel distribution. Joint theater logistics is intended to enhance the ability of a joint force commander to direct various logistics functions, including distribution and supply support activities, across the theater and, for several years, has been part of DOD’s planned transformation of logistics capabilities. Joint theater logistics is one of seven future logistics capabilities that DOD has grouped under “focused logistics.” DOD has broadly defined joint theater logistics as an adaptive ability to anticipate and respond to emerging theater logistics and support requirements. In general, when legislative and agency actions result in significant and sustainable progress toward resolving a high-risk problem, we remove the high-risk designation. Key determinants include a demonstrated strong commitment to and top leadership support for addressing problems, the capacity to do so, a corrective action plan, and demonstrated progress in implementing corrective measures. From 1990 through 2007, we removed 18 areas from the high-risk list. Our decisions on removing supply chain management from the high-risk list will be guided by whether DOD (1) sustains top leadership commitment and long-term institutional support for the plan; (2) obtains necessary resource commitments from the military services, the Defense Logistics Agency, and other organizations; (3) makes substantial progress implementing improvement initiatives across the department; (4) establishes a program to demonstrate progress and validate the effectiveness of the initiatives; and (5) completes the development of a comprehensive, integrated strategy for guiding supply chain management improvement efforts across the department. The most recent update to the plan in May 2007 shows that DOD, over the past year, has made progress in developing and implementing its improvement initiatives. We noted this progress in the January 2007 update of our high-risk series. Specific examples of progress made include the following: DOD has established joint deployment distribution operations centers in each geographic combatant command. In early 2004, DOD established the first of these operations centers in Kuwait, under U.S. Central Command, after distribution problems arose during the initial stages of Operation Iraqi Freedom. DOD has since expanded this organization to its other geographic combatant commands. These operations centers can help joint force commanders synchronize the arrival of supplies into a theater and assist in other aspects of distribution and supply support. They are designed to incorporate representatives from DOD components, such as U.S. Transportation Command, the Defense Logistics Agency, and the military services, who can provide a knowledgeable connection to logistics supply centers in the United States and facilitate the distribution of supplies to the theater. The expansion of these operations centers to all the geographic commands was based on the success of the first operations center in Kuwait, which has been credited with improving the management of supplies moving across the distribution system and achieving cost savings. DOD has reported initial success with an initiative aimed at streamlining the storage and distribution of common items for multiple military service locations through the use of Defense Logistics Agency hubs. The objectives of this initiative, called joint regional inventory and material management, include eliminating duplicate materiel handling and inventory layers. DOD has met key milestones in this initiative and recently completed the pilot program in Hawaii. U.S. Pacific Command officials stated that they had reduced redundant service-managed inventories, the number of times they handle parts, and customer wait times over the course of the pilot. They estimated that the services had reduced their inventory levels by more than $10 million. In March 2007, the Defense Logistics Agency was tasked to be the lead proponent for continued worldwide implementation of joint regional inventory and material management. DOD also made progress toward improving transportation management of military freight. Before the end of this fiscal year, U.S. Transportation Command plans to award a contract to a third-party logistics provider, or 3PL, to coordinate the movement of freight shipments within the continental United States. This effort, called the defense transportation coordination initiative, is aimed at improving the reliability, predictability, and efficiency of moving freight among DOD’s depots, logistics centers, and field activities. In a recent report on this initiative, we stated that DOD had taken numerous actions to incorporate the lessons learned from a prior prototype program and, moreover, had taken positive steps to adopt best practices employed by other public and private organizations to transform their culture. Still, the long-term success of this effort remains uncertain given the challenges in undertaking organizational transformation and because the program is still in its early stages. Despite the progress indicated by the development and implementation of these initiatives, the recent update of DOD’s plan indicates some delays in achieving certain milestones. For example, the radio frequency identification (RFID) initiative experienced a slippage from December 2006 to September 2007 in its milestone to implement passive RFID at the first 25 percent of Defense Logistics Agency’s distribution centers located outside the continental United States. This milestone was adjusted based on lessons learned from the implementation of RFID at sites within the continental United States. Also, the item unique identification initiative experienced a slippage of a year, from January 2007 to January 2008, for the milestone on demonstrating integration with international entities, because required ratification from the North Atlantic Treaty Organization was delayed. Schedule delays such as these may be expected given the long-standing nature of the problems being addressed, the complexities of the initiatives, and the involvement of multiple organizations. Furthermore, some of these initiatives are in the early stages of implementation, with full implementation several years away. The long- term time frames for many of these initiatives present challenges to the department in sustaining progress toward substantially completing their implementation. Since the last hearing before this Subcommittee in July 2006, we have not seen significant changes in how DOD proposes to measure the impact of its initiatives in its plan. The plan, as before, contains four performance metrics—backorders, customer wait time, on-time orders, and logistics response time. While these four measures capture broad aspects of DOD’s supply chain performance, they can be affected by variables other than the initiatives themselves. For example, natural disasters, wartime surges in requirements, or disruption in the distribution process could each result in increased backorders, longer customer wait time, fewer on- time orders, and slowed response time, regardless of DOD’s initiatives. Consequently, changes in these high-level metrics might not be directly attributable to the initiatives in the plan. While it may take years before the results of programs become apparent, intermediate metrics can be used to provide information on interim results and show progress toward intended results. In addition, when program results could be influenced by external factors, intermediate metrics can be used to identify the program’s discrete contribution to the specific result. As we noted last July, the results of DOD’s initiatives would be more apparent if DOD applied more outcome-oriented performance metrics for many of the individual initiatives and for the three focus areas. Outcome- oriented performance metrics show results or outcomes related to an initiative or program in terms of effectiveness, efficiency, impact, or all of these. Since last July, DOD has not added new outcome-focused performance metrics to its plan. DOD also continues to lack cost metrics that might show efficiencies gained through these supply chain efforts, either at the initiative level or overall. In total, DOD’s plan identifies a need to develop outcome-focused performance metrics for 6 initiatives, and 9 out of 10 initiatives lack cost metrics. We recommended in January that DOD develop, implement, and monitor outcome-focused performance and cost metrics for all the individual initiatives in the plan as well as for the plan’s focus areas of requirements forecasting, asset visibility, and materiel distribution. In response to our recommendation, DOD asserted that it had developed and implemented outcome-focused performance and cost metrics for logistics across the department, but it also acknowledged that more work needed to be done to link the outcome metrics to the initiatives in the plan as well as for the focus areas.