DOD’s current policy calls for each military service to determine its requirements and acquire sufficient war reserve materiel for the execution of current wartime scenarios and to be able to sustain these operations until being re-supplied. Thus, in developing their plans, the services must consider the availability of spare parts in their peacetime operating stocks, their war reserve spare parts inventories, and from the industrial base, and then estimate what additional materiel they need to buy. The Army’s industrial base and stationing strategies and DOD’s regulations reflect the importance of the industrial base in supporting wartime operations and require the services to rely on the industrial base to the maximum extent possible. In addition, the Army is required to maintain a viable capability to monitor and assess the health of the industrial base and identify potential risks. The U.S. Army Materiel Command is responsible for determining the Army’s requirements for war reserve spare parts, as well as the Army’s estimate of what private industry can be expected to provide during wartime, in order to derive the war reserve spare parts shortfall. It receives technical expertise from the Army Materiel Systems Analysis Agency in determining its war reserve requirements and an estimate of what can be expected from private industry. The Command’s major subordinate commands are responsible for purchasing specific types of materiel, such as aviation, tank, automotive, and communications parts, and they have a limited number of industrial base specialists who can be assigned to provide data for assessments. Figure 1 illustrates the steps that the Army follows to determine its war reserve shortfall. To plan how much war reserve materiel it needs to buy, the Army develops estimates of when spare parts will be available from the industrial base during wartime so that it can determine how much war reserve materiel it needs to buy and put into its war reserve inventory. In preparing its estimates, the Army first calculates the total amount of war materiel that it needs to support current wartime scenarios. Specifically, it calculates its requirements by using a computer model that considers several factors, such as spare parts usage and breakage rates. Next, it determines the amount of peacetime and war reserve inventories that are available to meet that requirement. The Army then applies the amount it estimates the industrial base can be expected to provide during wartime. The remaining amount is considered the total spare parts shortfall. The total shortfall can then be divided into the amount for which Congress has authorized funding, any amounts budgeted for future years, and an additional amount the Army has not yet requested from Congress. As table 2 shows, in preparation for its fiscal year 2003 budget submission to Congress (part of the fiscal year 2003-2007 out-of-cycle Program Objective Memorandum), the Army calculated that it required $3.30 billion for its wartime spare parts. Of this amount, it estimated that $1.93 billion worth of spare parts would be available from peacetime and war reserve inventories. Another $0.13 billion expected to be available from private industry was applied. The resulting total spare parts shortfall was $1.24 billion. Of this amount, the Army has been funded $0.11 billion for fiscal years 2000-2002 and expects to request $0.47 billion in fiscal years 2003-2007. Overall the Army reports a total spare parts shortfall of approximately $0.66 billion. The Army’s approach for assessing wartime spare parts industrial base capability still does not use current data from industry. Rather, the Army’s assessments of industry’s capability to produce spare parts in wartime depend on historical data and lead-time factors that the Army develops itself. Without current data on industry’s capability, assessments could be unreliable, resulting in reduced readiness due to critical spare parts shortfalls in wartime or inflated and costly war reserve spare parts inventories in peacetime. Moreover, the Army’s budget requests to Congress for war reserve spare parts risk being inaccurate. In the past, the Army collected data directly from private industry through paper questionnaires to industry representatives that were up to 22 pages long. It stopped this practice primarily because of the poor response rates. According to Army Materiel Command officials, industry representatives said they saw no apparent direct benefit from filling in the lengthy questionnaires and, moreover, felt they should be compensated for their time and effort. We were told that command officials themselves do not believe that collecting current data from industry is cost-effective. Now, rather than collecting current data from private industry, the Army uses data that it acquired several years ago from private industry to create lead-time factors for estimating its wartime industrial base capability. These factors are based on out-of-date industry data. Furthermore they were developed from a limited range of spare part items but were applied to all parts needed for war. For example, in developing its fiscal year 2003 budget submission to Congress, the Army used a formula with wartime lead-time factors that were derived from estimated accelerated peacetime administrative lead times and production lead times. These accelerated lead-time factors of 85 and 61 percent, respectively, were based on data obtained prior to 1998 for specific items, such as howitzers, that were managed by the Army Tank and Automotive Command’s Rock Island facility. According to an Army document, this method of calculating lead times fails to account for variations that exist from item to item and can lead to unrealistic industrial base capability estimates. For example, a 1998 Army study found that 44 of 86 parts assumed to be supported by industry could not be and that 176 of 218 parts that were assumed not to be supported by the industrial base were. Partly in response to the recommendation in our prior report, the Army has several initiatives underway to improve its industrial base capability assessments, but these initiatives continue to focus on historical, rather than current industry data. In one initiative, the Army is developing a new approach to calculate its wartime spare parts requirements, in part, from data collected from private industry during 1998. In another, the Army Materiel Command has designed a tool—called the Industrial Base Hub— that brings together in one Web-based automated system a broad range of existing industrial base data. The data consist of war reserve requirements, producer capabilities, contract awards and actions, contractor businesses, and commercial businesses and finances. The Industrial Base Hub relies on historical data rather than on current data from industry. In a third initiative, the Army Materiel Systems Analysis Agency has proposed periodically collecting data on production lead times for the 100 costliest spare parts, which account for 70 percent of the total dollar value of the entire wartime spare parts requirement. The Army Materiel Systems Analysis Agency believes that collecting current data periodically from the private manufacturers of the top 100 costliest spare parts could be a reasonable way to get a cost-effective, reliable industrial base offset estimate. The Army could improve the reliability of its industrial base assessments by considering several key attributes present in DLA’s industrial base assessment program. These include the collection of up-to-date industry data, the timely analysis of data to develop current and reliable industrial base assessments, and the use of analytical data to create management strategies aimed at reducing spare parts costs and the risk of shortfalls. To improve its management of spare parts for the services, and thus reduce costs and inventory, DLA re-engineered its industrial base capability assessment program. DLA’s assessment program, called the Worldwide Web Industrial Capabilities Assessment Program, was started in the fall of 1999. It consists of a data collection tool and an analytical tool, which is used to create management strategies. (See appendix I for a more detailed description.) The data collection tool provides the capability to gather new and updated information directly from private companies via the Internet. Company representatives voluntarily respond to a series of on-line survey questions that, depending on how answered, are self- tailored to that company to simplify and speed up the survey process. Private companies provide information on what spare part items they can provide (or are willing to provide); what quantities they can produce; how long it will take to produce them under different scenarios (e.g., normal or crisis conditions); and what potential bottlenecks (e.g., availability of certain materials, or equipment constraints) exist that could limit the production of certain spare parts. DLA validates this information as part of its assessment process before acting on the information. The program’s analytical tool provides analysts with immediate access to the automated data collected from industry. This provides the capability to develop timely and reliable assessments of industry’s ability to provide various spare parts in peacetime as well as wartime. In addition, it provides the capability to use the analytical data to identify actual or potential parts availability problems (e.g., items with unusually long lead times or items that are involved in bottlenecks) and, based on this information, to create a management strategy for resolving these problems, for example, by changing its acquisitions procedures or targeting investments in material and technology resources to reduce production lead times. Although DLA’s industrial base assessment program is relatively new, it provides a number of examples that illustrate the effectiveness of collecting current data directly from the industrial base. Table 3 shows the impact on production lead time when it is based on up-to-date industry data. For example, clamp couplings for tanks, aircraft, and aircraft engines have a production lead time of 35 days during a crisis (surge) situation rather than a lead time of 156 days (lead time of record) previously estimated by DLA for normal, or peacetime, situations. This more reliable information could result in greater economy in purchasing decisions. For example, private industry says it can provide a resilient mount within 70 days during a crisis rather than in the 163 days that DLA previously estimated. The war reserve requirement for this item occurs during the first 3 months of a war. The reduction in production lead time from 163 to 70 days means that the third month could be covered with a savings of $4,810 by not buying the items.