Key Issues > High Risk > DOD Supply Chain Management
High Risk Medallion

DOD Supply Chain Management

We are removing this high-risk area because the Department of Defense (DOD) has made sufficient progress on the remaining seven actions and outcomes we recommended for improving supply chain management. Congressional attention, DOD leadership commitment, and our collaboration contributed to this successful outcome.

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DOD manages about 4.9 million secondary inventory items, such as spare parts, with a reported value of $92.9 billion as of September 2017. Effective and efficient supply chain management is critical for (1) supporting the readiness and capabilities of the force and (2) helping to ensure that DOD avoids spending resources on unneeded inventory that could be better applied to other defense and national priorities. We define supply chain management as including three segments—inventory management, asset visibility, and materiel distribution.

DOD Supply Chain Management has been on our High-Risk List since 1990—starting with inventory management—because of inefficient and ineffective management practices leading to excess inventory. In 2005, we added asset visibility and materiel distribution to this high-risk area due to weaknesses identified during operations in Iraq and Afghanistan, including backlogs of hundreds of pallets and containers at distribution points.

In 2017, we removed inventory management from this area because DOD made key improvements, such as reducing on-order excess inventory by about $600 million and addressing each of our high-risk criteria, resulting in demonstrable and sustained improvements.

DOD Supply Chain Management

Why High-Risk Area is Being Removed

From 2014 to 2017, we identified 18 actions and outcomes DOD needed to implement in order for its supply chain management to be removed from our High-Risk List. In our 2017 High-Risk Report, we reported that DOD had made progress in addressing 11 actions and met the criteria of leadership commitment, capacity, and action plan for asset visibility and materiel distribution.  However, DOD needed to take additional actions to fully implement the remaining seven actions and outcomes related to the monitoring and demonstrated progress criteria. (See fig. 2.)

Figure 2: Segments of GAO’s Department of Defense’s Supply Chain Management High-Risk Area

Segments of GAO’s Department of Defense’s Supply Chain Management High-Risk Area

We are removing DOD Supply Chain Management from the High-Risk List because, since 2017, DOD has addressed the remaining two criteria (monitoring and demonstrated progress) for asset visibility and materiel distribution by addressing the seven actions and outcomes identified in our 2017 High-Risk Report.


DOD Supply Chain Management

Asset Visibility

Since our 2017 High-Risk Report, DOD has continued to meet the criteria of leadership commitment, capacity, and action plan for asset visibility. Further, DOD has fully addressed the three remaining actions and outcomes we outlined in 2017 in order to mitigate or resolve long-standing weaknesses in asset visibility. Consequently, DOD has met the monitoring and demonstrated progress criteria for asset visibility to remove this area from our High-Risk List. 

Leadership commitment: met. Senior leaders have continued to demonstrate commitment through their involvement in groups such as the Supply Chain Executive Steering Committee—senior-level officials responsible for overseeing asset visibility improvement efforts—and through the Asset Visibility Working Group, which identifies opportunities for improvement and monitors the implementation of initiatives by issuing its Strategy for Improving DOD Asset Visibility (Strategy) in 2014, 2015, and 2017.

Capacity: met. DOD continues to demonstrate that it has the capacity—personnel and resources—to improve asset visibility. For example, DOD’s 2015 and 2017 Strategies advise the components to consider items such as staffing, materiel, and sustainment costs when documenting cost estimates for the initiatives in the Strategy, as we recommended in January 2015.

Action plan: met. A provision in the National Defense Authorization Act for Fiscal Year 2014 required DOD to submit to Congress a comprehensive strategy and implementation plans for improving asset tracking and in-transit visibility. In January 2014, DOD issued the Strategy and accompanying implementation plans, which outlined initiatives intended to improve asset visibility. DOD updated its 2014 Strategy in October 2015 and in August 2017.

Importantly, since 2017 DOD addressed the three remaining actions and outcomes related to the monitoring and demonstrated progress criteria through updates to and implementation of the Strategies (see table 1).

Table 1: Status of Asset Visibility Remaining Action Items Required to Remove Supply Chain Management from GAO’s High-Risk List

Action items

Action item status

High-risk category

1. Incorporate the attributes of successful performance measures (e.g., clear, quantifiable, objective, and reliable), as appropriate, in subsequent updates to the Strategy for Improving DOD Asset Visibility

Met

Monitoring

2. Take steps to incorporate into after-action reports information relating to performance measures for the asset visibility initiatives

Met

Monitoring

3. Demonstrate sustained progress in implementing initiatives that result in measurable outcomes and progress towards realizing the goals and objectives in the Strategy for Improving DOD Asset Visibility

Met

Demonstrated progress

Source: GAO analysis and prior GAO report. | GAO-19-157SP

Monitoring: met. DOD provided guidance in its 2017 update to the Strategy for the military components to consider key attributes of successful performance measures during metric development for their improvement initiatives. As appropriate, the military components have followed the guidance and provided high-level summary metrics updates to the Asset Visibility Working Group. In addition, DOD has taken steps to monitor asset visibility by incorporating into after-action reports, as appropriate, information relating to performance measures. These after-action reports serve as closure documents and permanent records of each initiative’s accomplishments.

Demonstrated progress: met. DOD has demonstrated sustained progress by completing 34 of the 39 initiatives to improve asset visibility and continues to monitor the remaining 5 initiatives. These initiatives have supported DOD’s goals and objectives, which include: (1) improving visibility efficiencies of physical inventories, receipt processing, cargo tracking, and unit moves; (2) ensuring asset visibility data are discoverable, accessible, and understandable to support informed decision-making across the enterprise; and (3) increasing efficiencies for delivery accuracy and cycle times. Also, the Asset Visibility Working Group meets regularly to identify opportunities to further improve asset visibility within DOD.

DOD has taken the following actions to demonstrate sustained progress: (1) created an integrated single portal system providing 7,500 users access to near-real-time, in-transit visibility of eight million lines of items of supply and transportation data; and (2) increased its visibility of assets through radio-frequency identification (RFID), an automated data-capture technology that can be used to electronically identify, track, and store information contained on a tag. There are two main types of RFID tags, passive and active, which show whether assets are in-storage, in-transit, in-process, or in-use. Passive tags, such as mass transit passes, do not contain their own power source and cannot initiate communication with a reader; while active tags, such as an “E-Z pass,” contain a power source and a transmitter, and send a continuous signal over longer distances.

DOD closed nine initiatives from its Strategies by implementing RFID technology. For example, the Marine Corps implemented long-range passive RFID for visibility and accountability of items, resulting in improvements that include an increased range for “reading” an item—from 30 feet to 240 feet—and reduced inventory cycle times from 12 days to 10 hours. Also, the Navy reported that the use of passive RFID technology to support the overhaul of its nuclear-powered attack submarines enabled the Navy to better track parts, resulting in 98 percent fewer missing components and an average cost avoidance of $1.3 million per boat.

Additionally, according to DOD, the use of RFID tags to provide visibility of sustainment cargo at the tactical leg resulted in $1.4 million annual cost savings. Further, DOD reported that the migration of the active RFID enterprise from a proprietary communication standard to a competitive multivendor environment reduced the cost of active RFID tags by half, resulting in an estimated $5.7 million annual reduction in costs.


DOD Supply Chain Management

Materiel Distribution

Since our 2017 High-Risk Report, DOD has continued to meet the criteria of leadership commitment, capacity, and action plan for materiel distribution. Further, DOD has fully addressed the four remaining actions and outcomes we outlined in 2017 in order to mitigate or resolve long-standing weaknesses in materiel distribution. Consequently, DOD has met the monitoring and demonstrated progress criteria for materiel distribution to remove this area from our High-Risk List. 

Leadership commitment: met. Senior leaders continue to demonstrate commitment through their involvement in groups such as the Supply Chain Executive Steering Committee—senior-level officials responsible for overseeing materiel distribution corrective actions—and through the Distribution Working Group, which helped develop the Materiel Distribution Improvement Plan (Improvement Plan) in 2016.
Capacity: met. DOD has continued to demonstrate that it has the personnel and resources, such as key organizations and the associated governance structure, to improve materiel distribution. The Improvement Plan recognizes that additional resources will be required to accomplish its corrective actions and close any identified performance gaps within the time frame specified.
Action plan: met. In 2016, DOD developed its corrective action plan to address the department’s materiel distribution challenges. The Improvement Plan details specific goals and actions to better measure the end-to-end distribution process, ensure the accuracy of underlying data, and strengthen and integrate distribution policies and the governance structure.
Importantly, since 2017, DOD has fully addressed the four remaining actions and outcomes related to monitoring and demonstrated progress to mitigate or resolve long-standing weaknesses in materiel distribution (see table 2).

Table 2: Status of Materiel Distribution Remaining Action Items Required to Remove Supply Chain Management from GAO’s High-Risk List

Action items

Action item status

High-risk category

1. Make progress in developing Department of Defense’s (DOD’s) suite of distribution performance metrics, improving the quality of data underlying those metrics, and sharing metrics information among stakeholders.

Met

Monitoring

2. Integrate distribution metrics data, including cost data, from the combatant commands and other DOD components, as appropriate, on the performance of all legs of the distribution system, including the tactical leg.a

Met

Monitoring

3. Refine existing actions in the Materiel Distribution Improvement Plan or incorporate additional actions based on interim progress and results, and update the Materiel Distribution Improvement Plan accordingly.

Met

Monitoring

4. Demonstrate that the actions implemented under its Materiel Distribution Improvement Plan improve its capability to comprehensively measure distribution performance, identify distribution problems and root causes, and identify and implement solutions.

Met

Demonstrated progress

Source: GAO analysis and prior GAO report. | GAO-19-157SP

a The tactical leg is the last segment of the distribution system between the supply points in a military theater of operations and the forward operating bases and units.

Monitoring: met. DOD has monitored materiel distribution by making progress in developing its suite of distribution performance metrics, improving the quality of their underlying data, and sharing metrics information with stakeholders. For example, in January 2017, DOD developed a suite of performance metrics that provides a comprehensive picture of the distribution process, including whether supplies are delivered on time and at sufficient quantity and quality. Also, DOD implemented checklists to assess the quality of data underlying each performance metric based on relevance, accuracy, comparability, and interpretability.

The checklists and their standards assist in identifying root causes and addressing areas where performance data quality may be lacking. DOD has also incorporated internal control requirements in its supply chain management guidance to increase confidence in the performance data. Additionally, DOD has revised its policy documents to require stakeholders to routinely capture and share distribution performance metrics, including cost data, and the department maintains websites to provide current performance information to distribution stakeholders.

DOD has also incorporated distribution metrics, as appropriate, on the performance of all legs of the distribution system, including the tactical leg (i.e., the last segment of the distribution system). We previously reported on DOD’s deficiencies to accurately assess its distribution performance at the tactical leg, such as missing delivery dates for shipments in Afghanistan. Since that time, the geographic combatant commands have been tracking metrics at the tactical leg, including required delivery dates, to determine the movement and causes of delays for shipments, and have been sharing distribution performance information with the U.S. Transportation Command (TRANSCOM) through their deployment and distribution operations centers. DOD is implementing a cost framework to incorporate transportation costs for all legs of the distribution system, which will provide an additional metric for distribution stakeholders to assess the efficiency of the system. The first phase of the cost framework began operating in August 2018 and is expected to be fully implemented in 2019.

DOD is making progress in refining its Improvement Plan and is incorporating additional actions based on interim progress and results. Since DOD issued the Improvement Plan in September 2016, the agency has (1) documented the results and monitored the status of each corrective action, (2) revised completion dates as needed, and (3) periodically provided decision makers with summary action charts, plans, and milestones. DOD is also updating its instruction on management and oversight of the distribution enterprise to clarify the roles and responsibilities of all distribution stakeholders. DOD officials have not determined a date for when this instruction will be issued.

Demonstrated progress: met. DOD has demonstrated sustained progress in improving its capability to comprehensively measure distribution performance, identify distribution problems and root causes, and implement solutions. DOD has implemented 10 of 18 corrective actions in its Improvement Plan and is on track to implement the remaining 8 by September 2019. Because of this progress, DOD’s monthly shipment reports have assessed performance against enhanced metrics across the distribution system. For example, in December 2017, TRANSCOM investigated performance standards for truck deliveries from its Defense Logistics Agency warehouses in Bahrain to customers in Kuwait due to frequent delays in shipments. TRANSCOM determined that inadequate time for clearing customs in Kuwait resulted in an unrealistic delivery standard.

TRANSCOM, in coordination with distribution stakeholders, adjusted the delivery standard to adequately account for the in-theater customs process. In addition, TRANSCOM, in partnership with the Defense Logistics Agency and the General Services Administration, developed and implemented initiatives focused on distribution process and operational improvements to reduce costs and improve distribution services to the warfighter. According to DOD, these efforts have resulted in at least $1.56 billion in distribution cost avoidances to date. 

DOD has demonstrated commendable, sustained progress improving its supply chain management. This does not mean DOD has addressed all risk within this area. It remains imperative that senior leaders continue their efforts to implement initiatives and corrective actions to maintain visibility of supplies, track cargo movements, meet delivery standards, and maintain delivery data for shipments. Continued oversight and attention are also warranted given the recent reorganization of the Office of the Under Secretary of Defense for Acquisition and Sustainment and the resulting change in the oversight structure of Supply Chain Management. We will therefore continue to conduct oversight of supply chain management at DOD.

Monitoring After Removal

DOD has demonstrated commendable, sustained progress improving its supply chain management. This does not mean DOD has addressed all risk within this area. It remains imperative that senior leaders continue their efforts to implement initiatives and corrective actions to maintain visibility of supplies, track cargo movements, meet delivery standards, and maintain delivery data for shipments. Continued oversight and attention are also warranted given the recent reorganization of the Office of the Under Secretary of Defense for Acquisition and Sustainment and the resulting change in the oversight structure of Supply Chain Management. We will therefore continue to conduct oversight of supply chain management at DOD.

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  • portrait of Diana Maurer
    • Diana Maurer
    • Director, Defense Capabilities and Management
    • maurerd@gao.gov
    • (202) 512-9627