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. 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. DOD Has Made Progress in Developing and Implementing the Initiatives in Its Plan, but Current Performance Measures Do Not Fully Demonstrate Results

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. The long- term time frames for many of these initiatives present challenges to the  department in sustaining progress toward substantially completing their  implementation. Since last July, DOD has not added new outcome-focused  performance metrics to its plan. I will briefly highlight some of the  results from these reviews, structured around the three focus areas  covered by DOD’s plan. Requirements Forecasting Problems Exist in Managing Spare Parts and Prepositioned Stocks

In the area of requirements forecasting, the military services are  experiencing difficulties estimating acquisition lead times to acquire spare  parts for equipment and weapon systems. In a separate review of the Air Force’s inventory management practices,  we found continuing problems hindering its ability to efficiently and  effectively maintain its spare parts inventory for military equipment. Senior military commanders in Kuwait attributed these  problems to a lack of interoperability among information technology  systems that makes it difficult to obtain timely, accurate information on  assets in the theater. Challenges Remain in Coordinating and Consolidating Distribution and Supply Support within a Theater

In our review of joint theater logistics, we found that DOD components  have made progress developing and implementing joint theater logistics  initiatives in the areas of distribution and supply support; however, the  department faces a number of challenges that hinder its ability to fully  realize the benefits of these efforts. Transforming and Improving Defense Business Operations Are Integral to Resolving Supply Chain Management Problems

DOD spends billions of dollars to sustain key business operations intended  to support the warfighter, including systems and processes related to the  supply chain and other business areas. As we have previously stated, progress in DOD’s overall approach to  business transformation is needed to confront problems in other high-risk  areas, including supply chain management. Because of the complexity  and long-term nature of business transformation, we have stated that DOD  needs a Chief Management Officer with significant authority, experience,  and a term that would provide sustained leadership and the time to  integrate DOD’s overall business transformation efforts. Improving Supply Chain Management May Involve Reexamining Fundamental Aspects of DOD’s Logistics Governance and Strategy

Our recent review of joint theater logistics raises concerns about whether  DOD can effectively implement this initiative without reexamining  fundamental aspects of the department’s logistics governance and  strategy. In this respect, joint theater logistics may serve as a microcosm  of some of the challenges DOD faces in resolving supply chain  management problems. Moreover, in that report  we recommended that DOD align its approach to joint theater logistics  with ongoing actions the department is taking to reform its logistics  governance and strategy, which are discussed below. Several recent studies of DOD logistics  system have reached similar conclusions. Since 2003, a number of studies  have recommended changes to DOD’s organizational structure for  providing joint logistics and supply support to military operations. As I indicated earlier, a priority for the department as  it moves forward should be to track and assess the outcomes achieved  through its initiatives and the progress made in resolving supply chain  management problems in the three focus areas of asset visibility,  requirements forecasting, and materiel distribution.
Why GAO Did This Study

The availability of spare parts and other critical items provided through the Department of Defense's (DOD) supply chains affects the readiness and capabilities of U.S. military forces. Since 1990, GAO has designated DOD supply chain management as a high-risk area. In 2005, DOD developed a plan aimed at addressing supply chain problems and having GAO remove this high-risk designation. DOD's plan focuses on three areas: requirements forecasting, asset visibility, and materiel distribution. GAO was asked to provide its views on (1) DOD's progress in developing and implementing the initiatives in its plan, (2) the results of recent work relating to the three focus areas covered by the plan, and (3) the integration of supply chain management with efforts to improve defense business operations. GAO also addressed broader issues of logistics governance and strategic planning. This testimony is based on prior GAO reports and analysis. To determine whether to retain the high-risk designation for supply chain management, GAO considers factors such as whether DOD makes substantial progress implementing improvement initiatives; establishes a program to validate the effectiveness of the initiatives; and completes a comprehensive, integrated strategy.

What GAO Found

The most recent update to DOD's plan shows that DOD has made progress developing and implementing its supply chain management improvement initiatives. DOD is generally staying on track for implementing its initiatives, although there have been delays in meeting certain milestones. However, the long-term time frames for many of these initiatives present challenges to the department in sustaining progress toward substantially completing their implementation. The plan also lacks outcome-focused performance measures for many individual initiatives and the three focus areas, limiting DOD's ability to fully demonstrate the results achieved through its plan. Increasing DOD's focus on outcomes will enable stakeholders to track the interim and long-term success of its initiatives and help DOD determine if it is meeting its goals of more effective and efficient supply chain management. GAO's recent work has identified problems related to the three focus areas in DOD's plan. In the requirements area, the military services are experiencing difficulties estimating acquisition lead times to acquire spare parts for equipment and weapon systems, hindering their ability to efficiently and effectively maintain spare parts inventories for military equipment. Challenges in the asset visibility area include lack of interoperability among information technology systems, problems with container management, and inconsistent application of radio frequency identification technology, which make it difficult to obtain timely and accurate information on assets in theater. In the materiel distribution area, challenges remain in coordinating and consolidating distribution and supply support within a theater. Improving defense business operations is integral to resolving supply chain management problems. Progress in DOD's overall approach to business transformation is needed to confront problems in other high-risk areas, including supply chain management. Because of the complexity of business transformation, GAO has stated that DOD needs a Chief Management Officer with significant authority, experience, and a term that would provide sustained leadership and the time to integrate DOD's overall business transformation efforts. GAO's work, pending legislation, and other recent studies indicate a consensus that the status quo is no longer acceptable. GAO's recent review of joint theater logistics raises concerns about whether DOD can effectively implement this initiative without reexamining fundamental aspects of the department's logistics governance and strategy. In this respect, joint theater logistics may serve as a microcosm of some of the challenges DOD faces in resolving supply chain management problems. Moreover, GAO recommended in that report that DOD align its approach to joint theater logistics with ongoing actions the department is taking to reform its logistics governance and develop its logistics strategy. Several recent studies of DOD logistics systems have recommended changes to DOD's organizational structure for providing joint logistics and supply support to military operations.