DOD Supply Chain Management

Why It's High Risk

The availability of spare parts and other critical items provided through DOD's supply chains affects the readiness and capabilities of U.S. military forces. Effective supply chain management is critical to supporting military forces in Afghanistan, Iraq, and elsewhere. DOD’s supply chains also represent a substantial investment of resources:

• DOD estimates that its logistics operations, including supply chain management, cost about $194 million in fiscal year 2009, and
• DOD’s secondary inventory (including spare parts and other support items) was valued at more than $91 billion at the end of that fiscal year.

As a result of weaknesses in DOD supply chain management, this area has been on GAO's list of high-risk federal government programs since 1990. Key weaknesses have included:

• problems in meeting warfighter requirements for critical items;
• ineffective and inefficient inventory management, including unneeded spare parts and problems in accurately predicting demand for spare parts; and
• a lack of a comprehensive, integrated strategy for addressing and resolving supply chain management problems.

Three focus areas for improvement are (1) requirements forecasting, (2) asset visibility, and (3) materiel distribution.

^ Back to topWhat We Found

DOD’s senior leaders have demonstrated support for improving supply chain management, and the department has people and resources it can draw from at the military services, Defense Logistics Agency (DLA), U.S. Transportation Command, and other DOD components to reduce supply chain risks. Further, DOD has taken positive steps to improve both the management of supply inventories and responsiveness to warfighter requirements. However, DOD has not yet fully met three criteria for removing this high-risk designation. These pertain to its

• corrective action plan,,
• program for monitoring and independently validating the effectiveness and sustainability of corrective measures, and
• ability to demonstrate progress in having implemented corrective measures.

Despite the positive steps it has taken, DOD continues to face a number of challenges in addressing systemic weaknesses that remain in the three focus areas for improvement.

Requirements Forecasting: DOD’s ability to match supply inventories with requirements has been a continuing challenge due, in part, to difficulties in accurately forecasting demand.

The military departments and DLA have accumulated and retained billions of dollars in spare parts inventories that are excess to current requirements. Key factors include

• inaccurate demand forecasting;
• ineffective or inefficient inventory management practices; and
• a lack of goals and metrics for assessing and tracking the cost efficiency of inventory management.

GAO found in May 2010 that DLA had substantial amounts of spare parts inventory beyond current needs and projected demand, including an annual average inventory excess (spare parts identified for potential reutilization or disposal) of about $1 billion from fiscal year 2006 to 2008.

In 2010, DOD submitted to Congress a plan for improving inventory management practices and reducing excess inventory. This plan is an important step for improving DOD’s inventory management, but effective implementation will be of critical importance.

Asset Visibility and Materiel Distribution: DOD undertook a massive logistics effort to coordinate the movement of forces and equipment out of Iraq and support a troop increase in Afghanistan, but it continues to face problems in the focus areas of asset visibility and materiel distribution, such as a lack of interoperability among information technology systems and problems with management of shipping containers. GAO’s review of supply support for troops in Afghanistan found that DOD continues to be challenged by:

• a lack of full visibility over supply and equipment movements into and around Afghanistan,
• limited storage capacity at logistics hubs in Afghanistan,
• difficulties in synchronizing the arrival of units and equipment in Afghanistan, and
• lack of coordination, as well as competing logistics priorities, in a coalition environment.

Weaknesses in asset visibility and distribution have persisted due, in part, to the lack of a detailed corrective action plan describing root causes and detailed steps to be taken. In 2010, DOD released its Logistics Strategic Plan to provide high-level strategic direction for supply chain management and other logistics improvements. The plan provides unifying themes for improvement efforts and lists several initiatives related to asset visibility and distribution, among other issues. However, the plan lacks key information to guide and integrate improvement efforts. For example, the plan

• does not identify the scope of DOD's logistics problems or gaps in logistics capabilities, and
• lacks milestones and other information for the initiatives listed.

DOD also does not have management tools for monitoring and validating the effectiveness of corrective measures and demonstrating progress. For example, the Logistics Strategic Plan highlights the need for performance management, but this plan lacks performance benchmarks and targets to track effectiveness and efficiency. While needed performance measures have been identified for inventory management, several are yet to be developed. In addition, the Logistics Strategic Plan does not clearly link stated performance measures to the asset visibility and distribution initiatives.

DOD’S information systems for managing inventory also have weaknesses. For example, the Army has been instituting a new $2.6 billion system, the Logistics Modernization Program, intended to help reduce inventory and improve demand forecast planning, but the Army has yet to achieve these envisioned benefits because data issues have prevented using the system as intended.

^ Back to topWhat Needs to Be Done

DOD will need to sustain top leadership commitment and long-term institutional support and obtain necessary commitments for its initiatives from the military services and other DOD components.

DOD needs detailed corrective action plans for implementing supply chain improvements in the Logistics Strategic Plan, specifically in the focus areas of asset visibility and distribution. These plans, when developed, should:

• address root causes and effective solutions, and
• contain elements of effective strategic planning, such as goals and performance measures.

DOD will need to fully implement a program for monitoring and independently validating the effectiveness and sustainability of corrective actions.

Progress should be demonstrated in all three of the key focus areas, including implementing its new plan for improving inventory management.

DOD should build upon the performance management framework described in the Logistics Strategic Plan, ensuring that it has fully developed and implemented the processes and management tools needed to guide and integrate various improvement efforts and achieve its goals.

Outcome-based performance measures are critical for demonstrating progress, and effective measures have certain characteristics such as baseline or trend data for assessing performance, measurable targets for performance, and timeframes for achieving goals.

DOD has identified some performance measures for its supply chain management, but lacks measures for the focus areas of asset visibility and materiel distribution, as well as cost-related measures.

DOD will need to ensure that its information systems can provide reliable data to support its performance measures in order to evaluate supply chain effectiveness and efficiency.

Specific actions needed and recommendations from prior GAO products that remain to be implemented include:

• developing additional information and elements for supporting and implementing its Logistics Strategic Plan that are necessary for it to serve as a comprehensive, integrated strategy to guide and track supply chain improvements;
  GAO-10-929T  
• implementing its inventory management improvement plan, including improving demand forecasting procedures and other management practices that have led the military departments and DLA to accumulate inventory in excess of current requirements;
  GAO-11-240R,   GAO-10-469  
• developing, implementing, and monitoring outcome-oriented performance and cost metrics for supply chain management initiatives;
  GAO-10-929T,   GAO-07-234  
• enhancing data quality in the Army’s Logistics Modernization Program;
  GAO-11-139,   GAO-10-461  
• developing and implementing a coordinated and comprehensive management approach to guide and oversee efforts across the department to improve distribution and supply support for U.S. forces in a joint theater.
  GAO-07-807  

^ Back to topKey Reports

Warfighter Support

Operation Iraqi Freedom

DOD's High-Risk Areas

DOD's High-Risk Areas

DOD's High-Risk Areas

Budget and Spending

Defense Logistics

Defense Logistics

Defense Logistics

Defense Logistics

Defense Inventory

More Reports