Moreover, we  found that DOD may not always appropriately consider the manufacturing  arsenals as a source of manufacture in a given situation, because it does  not have clear, step-by-step implementing guidance on how to conduct  make-or-buy analyses to determine whether to procure an item from the  arsenals or the private sector. In response to the manufacturing arsenals’  inability to generate sufficient revenue to recover their operating  expenses, Congress appropriated funds in fiscal years 2014 and 2015 to  help recover the arsenals’ operating expenses and allow them to maintain  competitive rates. Actions to Assign Work Have Not Generated Sufficient Revenue, and DOD May Not Always Appropriately Consider the Manufacturing Arsenals as a Source of Manufacture

The various actions that DOD has taken to assign work to the  manufacturing arsenals, as described above, have not generated  sufficient revenue to recover the arsenals’ operating expenses and do not  ensure that DOD is appropriately considering the arsenals as a source of  manufacture. While DOD’s efforts to assign work have increased  revenue, the increases have been small relative to the manufacturing  arsenals’ operating expenses. Pine Bluff Arsenal: $10 million in fiscal year 2014 and $10 million in  fiscal year 2015. However, unless it identifies and documents these  fundamental elements by including information that would be useful in  determining DOD’s progress toward achieving its stated goals and  objectives, the department is not strategically positioned to sustain the  manufacturing arsenals’ critical capabilities. Because DOD has not identified the manufacturing arsenals’ critical  capabilities or determined the minimum levels of workload needed to  sustain these capabilities, as called for in the strategic plan, DOD is not  positioned to achieve the strategic plan’s other goals and objectives. DOD’s Report Addresses Statutory Reporting Elements, but Additional Information Would Have Made It More Consistent with Relevant Research Presentation Standards

DOD’s September 2014 Report on Manufacturing Arsenal Study met the  statutory requirements to address seven different reporting elements. However, we found that additional information and coordination would  have made the report more consistent with relevant generally accepted  research presentation standards for a defense research study, and  therefore would have helped decision makers to identify and evaluate the  information presented. For the remaining five reporting elements, we found that DOD’s  September 2014 report is not consistent with the relevant presentation  standards for soundness, completeness, and clarity. Additionally, the report does not disclose  that, as previously discussed, DOD has not developed and implemented  a process for identifying the manufacturing arsenals’ critical capabilities. Conclusions

As a result of the decline in demand for materiel, DOD is facing  challenges in assigning work to its three manufacturing arsenals. These critical capabilities help ensure that DOD is  able to respond to national emergencies and obtain products and  services that it could not otherwise acquire from private industry in an  economical manner. After falling  short in prior efforts, DOD has an effort under way to develop a process  to identify critical capabilities and a method for determining the minimum  workload needed to sustain them, but that effort has been delayed. Additionally, had DOD coordinated its results with  participants and stakeholders, they could have provided comments or  corrections to misstatements, as needed. Recommendations for Executive Action

To help DOD ensure that it appropriately considers the manufacturing  arsenals as a source of manufacture and is strategically positioned to  sustain the manufacturing arsenals’ critical capabilities, we recommend  that the Secretary of Defense direct
The Secretary of the Army to  issue clear, step-by-step implementing guidance, such as an  instruction or guidebook, on the process for conducting make-or- buy analyses in a consistent manner and  identify and document fundamental elements—such as steps,  interim milestones, time frames, and resources—for implementing  the Army’s Organic Industrial Base Strategic Plan 2012-2022 and
The Office of the Deputy Assistant Secretary of Defense for  Maintenance Policy and Programs—in coordination with the military  services, as appropriate, to  complete DOD’s ongoing effort to establish a process for  identifying the manufacturing arsenals’ critical capabilities and a  method for determining the minimum workload needed to sustain  these capabilities and develop and issue guidance, such as a DOD instruction, to  implement the process for identifying the manufacturing arsenals’  critical capabilities and the method for determining the minimum  workload needed to sustain these capabilities. Appendix I: Objectives, Scope, and Methodology

This report assesses (1) actions, if any, that the Department of Defense  (DOD) has taken to assign work to the manufacturing arsenals to  generate sufficient revenue to recover their operating expenses; (2) the  extent to which DOD is strategically positioned to sustain the  manufacturing arsenals’ critical capabilities; and (3) the extent to which  DOD’s September 2014 report meets the requirements to address the  statutory reporting elements and is consistent with relevant generally  accepted research presentation standards for a defense research study.
Why GAO Did This Study

DOD's three manufacturing arsenals provide manufacturing, supply, and technical support services for the military services and allies during national emergencies and contingency operations. The Fiscal Year 2014 NDAA required DOD to report to Congress on its arsenals and included a provision for GAO to review DOD's report. This report assesses (1) actions DOD has taken to assign work to the manufacturing arsenals to generate sufficient revenue to recover their operating expenses, (2) the extent to which DOD is strategically positioned to sustain the manufacturing arsenals' critical capabilities, and (3) the extent to which DOD's September 2014 report addresses statutory reporting elements and is consistent with relevant research presentation standards for a defense research study. To conduct this review, GAO analyzed documentation, visited the arsenals, and interviewed relevant DOD officials. GAO assessed DOD's September 2014 report against the statutory elements and generally accepted research standards.

What GAO Found

Since 2012, the Department of Defense (DOD) has taken various actions to assign work to its three manufacturing arsenals—Pine Bluff Arsenal, Rock Island Arsenal Joint Manufacturing and Technology Center, and Watervliet Arsenal Joint Manufacturing and Technology Center—in an attempt to generate sufficient revenue to recover operating expenses following a significant decline in demand for materiel, as well as to maintain manufacturing skills to sustain readiness. For example, the Army directed acquisition programs to assign work to the arsenals consistent with the arsenals' capabilities. While these actions have increased revenue, the increases have been small relative to operating expenses. Further, DOD may not always appropriately consider the arsenals as a source of manufacture, because it has not developed clear, step-by-step implementing guidance on conducting make-or-buy analyses to determine whether to purchase items from an arsenal or the private sector, which potentially limits the arsenals' ability to generate revenue. Because DOD's actions as of September 2014 did not generate sufficient revenue, Congress provided $375 million collectively in fiscal years 2014 and 2015 to help recover the arsenals' operating expenses.
DOD is not strategically positioned to sustain the manufacturing arsenals' critical capabilities, as it has not identified fundamental elements for implementing its strategic plan or identified these capabilities. Such capabilities help ensure that DOD can respond to emergencies and obtain products and services it could not otherwise acquire from private industry in an economical manner. DOD has a strategic plan that includes goals and objectives related to sustaining the arsenals' critical capabilities; however, it has not identified fundamental elements, such as milestones and resources, needed to implement the plan. As a result, DOD lacks information that would be useful in determining progress in achieving the plan's stated goals and objectives for the arsenals. Moreover, DOD's past efforts to identify the arsenals' critical capabilities had shortcomings, such as each arsenal using a unique method to do so. DOD has an effort under way to develop a process for identifying these critical capabilities and determining a minimum level of workload needed to sustain them, but this effort has been delayed to allow for coordination with stakeholders. Until such a process is developed and implemented, for example through an instruction, DOD is not positioned to determine the minimum workload levels needed or to appropriately adjust the arsenals' equipment and personnel level to sustain these capabilities.
DOD's September 2014 Report on Army Manufacturing Arsenal Study met the statutory requirements to address seven reporting elements within the National Defense Authorization Act (NDAA) for Fiscal Year 2014. However, GAO found that additional information would have made the report more consistent with relevant generally accepted research presentation standards for a defense research study and helped decision makers to identify and evaluate information presented in the report. For example, DOD did not disclose that it has not developed a process for identifying the arsenals' critical capabilities. Also, had stakeholders seen the report before it was issued, as called for by the standards, they would have been informed of its results and could have provided comments, as needed, to allow DOD to present a more sound, complete, and clear report.

What GAO Recommends

GAO recommends that DOD issue implementing guidance for make-or-buy analyses; identify fundamental elements for implementing its strategic plan; and develop and implement its process for identifying critical capabilities and the minimum workload level needed to sustain them. DOD concurred with the recommendations but disagreed with some statements in the report. GAO believes the statements are accurate, as discussed in the report.