oversight

Air Force Supply: Management Actions Create Spare Parts Shortages and Operations Problems

Published by the Government Accountability Office on 1999-04-29.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                       United States General Accounting Office

GAO                    Report to the Chairman, Subcommittee
                       on Military Readiness, Committee on
                       Armed Services, House of
                       Representatives

April 1999
                       AIR FORCE SUPPLY

                       Management Actions
                       Create Spare Parts
                       Shortages and
                       Operational Problems




GAO/NSIAD/AIMD-99-77
GAO   United States
      General Accounting Office
      Washington, D.C. 20548                                                         Leter




      National Security and
      International Affairs Division                                                                       Leter




      B-280237                                                                                        Letter

      April 29, 1999

      The Honorable Herbert H. Bateman
      Chairman, Subcommittee on Military Readiness
      Committee on Armed Services
      House of Representatives

      Dear Mr. Chairman:

      This is the second report in response to your request that we review financial management and
      operational issues related to the Supply Management Activity Group of the Air Force Working
      Capital Fund. Our June 1998 report1 discussed the (1) long-standing problems that the
      Department of Defense (DOD), including the Air Force, had in preparing accurate financial
      reports on its working capital fund operations, (2) difficulties that the Air Force had in
      developing prices that the Supply Management Activity Group charged customers, and
      (3) problems that the Air Force Working Capital Fund and the Supply Management Activity
      Group had in managing cash, including the practice of advance billing customers to maintain
      an adequate cash balance. This second report discusses the effectiveness of the Supply
      Management Activity Group in providing inventory items to its customers.

      We are sending copies of this report to Representative Solomon P. Ortiz, Ranking Minority
      Member, Subcommittee on Military Readiness, House Committee on Armed Services; Senator
      John Warner, Chairman, and Senator Carl Levin, Ranking Minority Member, Senate Committee
      on Armed Services; Senator Ted Stevens, Chairman, and Senator Daniel K. Inouye, Ranking
      Minority Member, Subcommittee on Defense, Senate Committee on Appropriations;
      Representative Jerry Lewis, Chairman, and Representative John P. Murtha, Ranking Minority
      Member, Subcommittee on Defense, House Committee on Appropriations. We are also sending
      copies of this report to the Honorable William S. Cohen, Secretary of Defense, and the
      Honorable F. Whitten Peters, Acting Secretary of the Air Force.




      1
      Air Force Supply Management: Analysis of Activity Group’s Financial Reports, Prices, and Cash
      Management (GAO/AIMD/NSIAD-98-118, June 8, 1998).
B-280237




Copies will also be made available to others upon request. If you have any
questions about this report, please call Mr. Greg Pugnetti, Assistant
Director, at (202) 512-6240. Other major contributors to this report are
listed in appendix III.

Sincerely yours,




Jack L. Brock, Jr.
Director, Governmentwide and Defense Information Systems
Accounting and Information Management Division




David R. Warren
Director, Defense Management Issues
National Security and International Affairs Division




Page 2                        GAO/NSIAD/AIMD-99-77 Air Force Supply Management
B-280237




Page 3     GAO/NSIAD/AIMD-99-77 Air Force Supply Management
Executive Summary



Purpose      Congressional committees, as well as Air Force officials, have expressed
             concerns about reported spare parts shortages and the possibility that
             these shortages are causing readiness problems. This report responds to a
             request from the Chairman, Subcommittee on Military Readiness, House
             Armed Services Committee, asking GAO to review the effectiveness of the
             Air Force Supply Management Activity Group in meeting its military
             customers needs. Specifically, the report discusses (1) the extent and
             impact of military customers not receiving aircraft spare parts when
             needed and (2) the reasons why parts were not always available when
             needed.



Background   The Supply Management Activity Group is part of the Air Force Working
             Capital Fund, a revolving fund that relies on sales revenue, rather than
             direct appropriations, to finance its operations. The wholesale division1 of
             this group obligated a reported $3.4 billion in fiscal year 1998 to buy new
             inventory items or pay for the repair of existing items. Working capital
             funds are expected to (1) generate sufficient revenue to cover the full costs
             of their operations and (2) operate on a break-even basis over time—that
             is, not make a profit nor incur a loss. Customers primarily use Operations
             and Maintenance appropriations to pay for inventory items. Payments from
             customers replenish the cash balance in the Air Force Working Capital
             Fund, which is used to finance ongoing operations, such as purchasing new
             items or paying for the repair of broken items. The Air Force Materiel
             Command oversees the operations of the Supply Management Activity
             Group through inventory control points located at its five Air Logistics
             Centers.

             The Air Force is working to improve the efficiency of its logistics systems
             and as part of that effort is making a fundamental shift in the way it
             manages inventory under a program called Agile Logistics.2 In the past, the
             inventory moved through a long, slow process where broken items went
             from bases to storage depots to repair depots and, once repaired, back
             again to the bases. The current concept calls for expedited transportation
             to move broken items from bases to repair depots. Once the items arrive at



             1Items
                  in the wholesale division are managed by the Air Force and generally support aircraft and other
             weapon systems. These include items such as transmitters and landing gears.

             2
                 GAO will report separately on the implementation of the Agile Logistics program.




             Page 4                                     GAO/NSIAD/AIMD-99-77 Air Force Supply Management
                   Executive Summary




                   the repair depot, they are to be promptly fixed and sent back to the bases
                   quickly. Under this concept, the Air Force wants to achieve more timely
                   processing and repair of broken items so it can reduce the amount of
                   inventory it needs to purchase and store.



Results in Brief   Over the last several years, the effectiveness of the supply activity group in
                   meeting customer needs has declined. Key Air Force indicator reports used
                   to monitor supply effectiveness showed that major aircraft not mission
                   capable due to supply problems increased from 6.4 percent in fiscal year
                   1990 to 13.9 percent in fiscal year 1998. GAO specifically reviewed B-1B,
                   F-16, and C-5 aircraft supply problems and found that these problems were
                   causing inefficient maintenance actions, excessive use of spares
                   designated to support deployed operations, and aircrews to be not fully
                   trained. For example:

                   • At two major commands, significant personnel resources were used to
                     remove parts from B-1B, F-16, and C-5 aircraft and to put those same
                     parts on other aircraft in order to keep them mission capable. While the
                     total magnitude of the problem is not known, records at two Air Force
                     commands showed maintenance personnel time involved in this
                     practice equated to about 43 people working 8 hours a day, 5 days a
                     week for 2 years.
                   • Spares packages purchased to support deployed operations were being
                     used to meet day-to-day operational needs. This was particularly the
                     case for the C-5 and B-1B aircraft where usage of items from the
                     packages increased by 14.2 and 13.5 percent, respectively, over a 2-year
                     period.
                   • B-1B and F-16 reports show that only 83 percent of their peacetime
                     flying hour training program was accomplished and Air Force officials
                     cited supply and maintenance problems as major causes. As a result,
                     one squadron reported that some of its aircraft commanders, pilots, and
                     weapons system officers were not combat mission ready.

                   GAO also analyzed selected parts that were most frequently causing supply
                   problems for the B-1B, F-16, and C-5 aircraft. The key reasons contributing
                   to supply problems were (1) weaknesses in forecasting inventory
                   requirements and executing inventory procurement and repair budgets,
                   (2) not achieving Agile Logistics goals, and (3) untimely repair by depot
                   maintenance activities. The inventory forecasting error caused a
                   $500 million shortfall in funding in the fiscal year 1997 supply activity
                   group’s budget. The Air Force also reduced the supply activity group’s



                   Page 5                         GAO/NSIAD/AIMD-99-77 Air Force Supply Management
                        Executive Summary




                        budget by $948 million between fiscal year 1997 and 1999 to reflect Agile
                        Logistics efficiency goals. However, since these efficiency goals were not
                        achieved, fewer items than projected were available for sale to customers.
                        As a result of these actions, even though military units had funds to
                        purchase spare parts, the supply group did not always have sufficient funds
                        to buy new parts or pay for the repair of broken parts that customers
                        needed.

                        The Air Force has studies underway to improve supply effectiveness and
                        has increased funding for the purchase and repair of spares. GAO is making
                        a recommendation to the Secretary of the Air Force to improve the
                        availability of items needed by military units.



Principal Findings

Inventory Problems      Performance data that the Air Force uses to monitor the performance of its
Adversely Affected      Supply Management Activity Group indicate increased instances of aircraft
                        not being mission capable due to supply problems. This situation
Customers’ Operations
                        contributed to several problems for operational units. These included
                        (1) usable parts being removed from one aircraft to keep other aircraft
                        mission capable, (2) mobility readiness spares packages being used to meet
                        day-to-day supply needs, and (3) aircrews not completing annual training
                        requirements. Also, Air Force officials stated that the parts shortage
                        problem could potentially impede their ability to effectively accomplish
                        contingency missions, particularly if several squadrons were required to
                        deploy at the same time.

                        Due primarily to a shortage of spare parts, Air Force aircraft mission
                        capability rates3 have declined in recent years from 84.6 percent in fiscal
                        year 1990 to 74.3 percent in fiscal year 1998.4 As shown in table 1, in fiscal
                        year 1998, major aircraft that were reported not mission capable due to
                        supply problems about doubled the percentage reported in fiscal year 1990.


                        3The  mission capability rate is based on all aircraft that are in a unit’s possession at a specific point in
                        time. On the other hand, the Status of Resources and Training System (SORTS) identifies the current
                        level of selected resources and training status of a unit—that is, its ability to undertake its wartime
                        mission. As a result, a unit could have a low mission capability rate but still be considered able to
                        accomplish its wartime mission.

                        4
                         Reported mission capable rates for major Air Force aircraft do not include data on helicopters,
                        training aircraft such as the T-37, and some low density aircraft such as the SR-71.



                        Page 6                                      GAO/NSIAD/AIMD-99-77 Air Force Supply Management
Executive Summary




Table 1: Reported Total Not Mission Capable Rates Due to Supply Problems for Air
Force Major Aircraft
                                                                Percent of aircraft not mission
Fiscal year                                                   capable due to supply problems
1990                                                                                             6.4
1991                                                                                             8.6
1992                                                                                             9.5
1993                                                                                           10.2
1994                                                                                           10.3
1995                                                                                           10.8
1996                                                                                           11.0
1997                                                                                           12.6
1998                                                                                           13.9
Source: The Air Force’s Multi-Echelon Resource and Logistics Information Network and the Reliability
and Maintainability Information System.


The lack of needed inventory items raised the following concerns:

• Maintenance personnel were performing double work, in some cases, by
  removing parts from one aircraft and then putting them on another. The
  total magnitude of this practice is not known because time spent in
  performing required operational checks was not always reflected in
  base reports. However, Air Combat Command and Air Mobility
  Command records showed that from October 1, 1996, through
  September 1998 maintenance personnel spent about 178,000 hours
  removing inventory items on the B-1B, F-16, and C-5 aircraft to replace
  broken items on other aircraft. This equates to about 43 people working
  8 hours a day, 5 days a week for 2 years. In addition, it took maintenance
  personnel weeks and, in some cases, months to put an aircraft back
  together once parts were removed from the aircraft.
• Mobility readiness spares packages are air transportable supplies to
  support deployed operations. While items from these packages can be
  used to meet unit supply shortages, Air Force officials cautioned that
  the packages need to contain sufficient items to support deployments.
  The percentage of items used from the C-5 and B-1B packages increased
  by 14.2 and 13.5 percent, respectively, between fiscal year 1996 and
  1998.
• Training missions were also impacted by supply and maintenance
  problems. According to Air Combat Command records, B-1B and F-16
  customers flew 79,267 hours, or 83 percent, of their total flying hour
  program dedicated to pilot and aircrew training during fiscal year 1998.


Page 7                                  GAO/NSIAD/AIMD-99-77 Air Force Supply Management
                                        Executive Summary




                                               This is a decrease from the previous year when the Air Combat
                                               Command flew about 90 percent of the flying hours available for
                                               training. Supply and maintenance problems were identified as the key
                                               reasons for this reduction in flying hours due to the lack of aircraft
                                               availability. Further, one B-1B squadron official explained that supply
                                               shortages were a major contributor to (1) 6 of 30 aircraft commanders,
                                               (2) 2 of 13 pilots, and (3) 5 of 41 weapons system officers not meeting
                                               annual training requirements.


Budgeting, Agile Logistics,             GAO judgmentally selected and reviewed B-1B, F-16, or C-5 spare parts that
and Inventory Repair                    were causing aircraft to be not mission capable or were potential supply
                                        problem items. As shown in table 2, for the 155 items reviewed, the key
Problems Were Major
                                        factors causing the support problems can be generally categorized as
Causes of Parts Shortages               weaknesses in forecasting inventory requirements and execution in
                                        procurement and repair budgets; not achieving inventory management
                                        improvements under the Agile Logistics program; and untimely depot
                                        repairs.5 Because of the integrated nature of the supply system there is a
                                        general interrelationship among these causes.



Table 2: Primary Reasons Why Problem Items Were Not Available as of September 1997 and September 1998
                                                                     September 1997                                  September 1998
Cause category                                                   Number                    Percent                 Number                Percent
Forecasting and budgeting                                               57                      36.8                    0                      0.0
Agile Logistics                                                         31                      20.0                   26                     27.1
Untimely repair                                                         53                      34.2                   63                     65.6
Othera                                                                  14                       9.0                    7                      7.3
Total                                                                  155                    100.0                    96                   100.0
                                        a
                                            Primarily technical problems that affect the reliability of an item.


Inventory Requirements                  Problems related to the forecasting of inventory requirements and the
Forecasting and Budgeting               execution of the Supply Management Activity Group’s fiscal year 1997
Problems                                budget resulted in a funding shortfall for 57 of the items reviewed. This
                                        severely limited the group’s ability to buy and repair the items needed by its


                                        5
                                         In our analysis, we considered an item to still be a problem in September 1998 if it caused aircraft to be
                                        not mission capable for more than 100 hours during that month.




                                        Page 8                                         GAO/NSIAD/AIMD-99-77 Air Force Supply Management
                                    Executive Summary




                                    customers. Air Force records show that the primary cause of this funding
                                    shortfall was an inaccurate inventory requirement forecast. As a result, the
                                    fiscal year 1997 budget was about $500 million less than needed to buy new
                                    inventory items and pay for the repair of broken items. Because of funding
                                    shortfalls that resulted from these problems, activity group officials took
                                    action to optimize the use of available funds. The actions included directing
                                    that high priority be given to items that were causing aircraft to be not
                                    mission capable. The effect of this policy was that the number of usable
                                    items available at the base and wholesale levels declined resulting in
                                    shortages of different inventory items, which caused aircraft to be not
                                    mission capable. The Air Force is in process of studying the requirements
                                    forecasting problem and plans to report on its findings in May 1999.

Overly Optimistic Agile Logistics   The Air Force reduced its supply group’s budget in anticipation of savings
Goals                               from the implementation of new logistics processes as part of its Agile
                                    Logistics program. However, for 31 of the 155 items reviewed, supply
                                    problems occurred principally because Agile Logistics process
                                    improvement goals were not achieved. These goals related to improving
                                    processes such as the timely return of broken items to depots and reducing
                                    the time it takes to receive an item once it is ordered by a unit. These and
                                    other process improvements were the basis for a $948-million reduction
                                    over a 3-year period in the Supply Management Activity Group’s budget.
                                    Since these goals were not achieved, the supply group had less funding
                                    than needed to meet customers needs. Consequently, even though
                                    customers had funds to purchase items, the supply group could not provide
                                    them. As a result, units relied on uneconomical maintenance actions to
                                    meet supply needs. These actions included taking parts off of one aircraft
                                    and putting them on another aircraft and using supplies designated for
                                    deployments.

Untimely Repair of Broken           The other major cause of parts shortages in September 1997 was the depot
Inventory Items                     maintenance activities’ inability to accomplish timely repair for 53 items
                                    reviewed. A major reason for this situation was the shortages of
                                    component parts to fix broken repairable items and repair shop personnel.
                                    Although component part shortages have been a long-standing and
                                    well-documented problem, the Air Force Materiel Command has not yet
                                    developed an effective plan to correct the problem. Further, although
                                    manpower shortages were frequently a major constraint, maintenance
                                    activities were being asked to repair the items that were breaking on a daily
                                    basis, as well as, to reduce the reported backlog of work from prior years.
                                    This situation also contributed to Agile Logistics goals not being met.




                                    Page 9                         GAO/NSIAD/AIMD-99-77 Air Force Supply Management
                  Executive Summary




Recommendation    Since GAO is reporting separately on the Agile Logistics program
                  implementation and the Air Force is in the process of reviewing the
                  requirements forecasting process, GAO is making no recommendations on
                  these issues in this report. However, in order for the supply group to
                  provide more timely and responsive support to its customers, the Air Force
                  must resolve the component parts shortage problem. GAO recommends
                  that the Secretary of the Air Force direct the Commander of the Air Force
                  Materiel Command to address this problem by developing (1) a strategy for
                  identifying and correcting the underlying causes of the problem, (2) a
                  systematic process for identifying and focusing management attention on
                  the most critical awaiting parts problem items, (3) a standardized approach
                  that item managers can use to obtain and analyze data on awaiting parts
                  problems, and (4) more reliable data on the number and type of component
                  parts that will be needed to repair broken repairable items.



Agency Comments   In its comments on a draft of this report, DOD concurred with GAO’s
                  recommendation and identified two studies underway that should help the
                  Department identify areas for improvement. Further, additional funding
                  has been provided to purchase additional spare parts critical to future
                  operations. DOD further stated that the above actions plus the
                  implementation of GAO’s recommendation should improve the reliability
                  and accuracy of the Air Force’s supply activity group’s operations.

                  DOD’s comments also stipulated that despite shortfalls in the Agile
                  Logistics program, it has helped the Air Force reduce its supply pipeline
                  from 67 days in fiscal year 1994 to 52 days in 1998. GAO recognizes that the
                  Air Force has initiated numerous process improvements attempting to
                  reduce its processing time, and its fiscal year 1998 budget was predicated
                  on an average pipeline time frame of 52 days. The Air Force reduced its
                  budget based on these predicated savings. Data available to GAO indicated
                  that the supply group’s average actual pipeline time for the fourth quarter
                  of fiscal year 1998 was 87.5 days. GAO noted in this report the Air Force’s
                  inability to achieve the 52-day goal was due largely to a shortage of
                  component parts and items on backorder. The pipeline time associated
                  with a shortage of component parts and backorders accounted for 37.1 of
                  the 87.5 days. DOD’s comments are included in appendix II.




                  Page 10                       GAO/NSIAD/AIMD-99-77 Air Force Supply Management
Contents



Executive Summary                                                                                   4


Chapter 1                                                                                          14
                        Process for Providing Aircraft Spare Parts to Air Force Units              14
Introduction            Air Force Is Changing Its Approach to Managing Inventory                   16
                        Objective, Scope, and Methodology                                          16


Chapter 2                                                                                          20
                        Performance Data Indicate a Steady Decline in the Supply
Inventory Problems        Management Activity Group's Effectiveness                                20
Adversely Affected      Lack of Parts Hindered Peacetime Missions                                  26
                        Conclusions                                                                29
Customer Operations

Chapter 3                                                                                          30
                        Inventory Requirements Forecasting and Budget Problems                     30
Budget, Inventory       Overly Optimistic Agile Logistics Goals                                    33
Management, and         Untimely Repairs Were a Major Cause of Supply Support Problems             36
                        Conclusions                                                                40
Repair Problems Were    Recommendation                                                             41
Primary Causes of       Agency Comments                                                            41
Spare Parts Shortages
Appendixes              Appendix I: Listing of the Reports in This Series                          44
                        Appendix II: Comments From the Department of Defense                       45
                        Appendix III: Major Contributors to This Report                            47


Tables                  Table 1: Reported Total Not Mission Capable Rates Due to Supply
                          Problems for Air Force Major Aircraft                                     7
                        Table 2: Primary Reasons Why Problem Items Were Not Available
                          as of September 1997 and September 1998                                   8
                        Table 2.1: Reported Average Mission Capable Rates for Air Force
                          Major Aircraft                                                           21
                        Table 2.2: Reported Total Not Mission Capable Supply Rates for
                          Air Force Major Aircraft                                                 22
                        Table 2.3: Reported Number of Cannibalizations Per 100 Sorties for
                          the F-16, B-1B, and C-5 Aircraft                                         23
                        Table 2.4: Reported Cannibalization Hours for ACC and AMC B-1B,
                          F-16, and C-5 Aircraft for Fiscal Years 1997 and 1998                    23



                        Page 11                       GAO/NSIAD/AIMD-99-77 Air Force Supply Management
          Contents




          Table 2.5: Use of Mobility Readiness Spares Packages to Satisfy Parts
            Shortages for B-1B, C-5, and F-16 Aircraft That Were Not Mission
            Capable                                                                  25
          Table 2.6: Supply Issue Effectiveness Rates for the B-1B, F-16, and
            C-5 for Fiscal Years 1994 Through 1998                                   26
          Table 2.7: ACC Flying Hours That Were Available and Used for Pilot
            and Aircrew Training in Fiscal Year 1998                                 27
          Table 2.8: AMC Estimated Loss of Revenue From Declined Missions
            for Its C-5, C-17, and C-141 Aircraft From September 1, 1997
            Through August 31, 1998                                                  28
          Table 3.1: Primary Reasons Why Problem Items Were Not Available
            as of September 1997 and September 1998                                  30
          Table 3.2: Primary Causes of Repair Problems as of
            September 1997 and September 1998                                        37


Figures   Figure 1.1: Process of Providing Spare Parts to Customers                  16




          Abbreviations

          ACC        Air Combat Command
          AFMC       Air Force Materiel Command
          ALC        Air Logistics Center
          AMC        Air Mobility Command
          AWP        Awaiting parts
          DLA        Defense Logistics Agency
          DOD        Department of Defense
          GAO        General Accounting Office




          Page 12                       GAO/NSIAD/AIMD-99-77 Air Force Supply Management
Page 13   GAO/NSIAD/AIMD-99-77 Air Force Supply Management
Chapter 1

Introduction                                                                                                           Chapte1
                                                                                                                             r




                          The Chairman, Subcommittee on Military Readiness, House Committee on
                          Armed Services, requested that we conduct a series of reviews on the
                          financial operations and effectiveness of Defense business operations. As
                          part of this series, we reported on the Air Force Supply Management
                          Activity Group’s financial operations in June 1998.1 This report discusses
                          the supply group’s ability to effectively provide inventory items to its
                          customers. Ineffective or inefficient operations in these activities can
                          adversely affect readiness and the use of operations and maintenance and
                          other Defense appropriated dollars.

                          The Air Force Supply Management Activity Group helps to maintain
                          combat readiness and sustainability by supplying the Air Force with items
                          necessary to support troops, weapon systems, aircraft, communications
                          systems, and other military equipment. In doing so, the group is responsible
                          for about two million items, ranging from weapon system spare parts, to
                          fuels, medical and dental supplies and equipment, and uniforms. The
                          Department of Defense (DOD) reported that the supply group generated
                          $10.2 billion in revenue during fiscal year 1998 and had $27.6 billion in
                          inventory at the end of fiscal year 1998.



Process for Providing     The supply group’s operations are financed as part of the Air Force
                          Working Capital Fund. The supply group operates under the revolving fund
Aircraft Spare Parts to   concept of breaking even over time by charging customers the full costs of
Air Force Units           goods and services provided to them as currently defined in DOD’s
                          Financial Management Regulation, Volume 11B, Reimbursable Operations,
                          Policy and Procedures—Defense Business Operations Fund. The supply
                          group receives orders from customers to purchase inventory items.
                          Customers use appropriated funds, primarily operations and maintenance
                          appropriations, to finance these orders. The supply group uses payments
                          from customers to replenish the inventory sold to customers by (1)
                          ordering repair services of existing inventory from industry and DOD depot
                          maintenance activities or (2) buying new inventory items.

                          The supply group procures critical material and makes repair parts
                          available to its customers through five inventory control points: Ogden Air
                          Logistics Center (ALC), Ogden, Utah; Oklahoma City ALC, Oklahoma City,
                          Oklahoma; Sacramento ALC, Sacramento, California; San Antonio ALC,
                          San Antonio, Texas; and Warner Robins ALC, Warner Robins, Georgia. The

                          1
                              Appendix I provides a listing of the reports issued in this series.




                          Page 14                                       GAO/NSIAD/AIMD-99-77 Air Force Supply Management
Chapter 1
Introduction




Air Force is in the process of closing the Sacramento and San Antonio
ALCs based on the 1995 Base Realignment and Closure recommendations.
The five ALCs report to the Air Force Materiel Command (AFMC), located
at Dayton, Ohio.

Air Force spare parts are classified as either consumables or repairables,
and are procured in order to support either peacetime or wartime
operations. Consumable items, which are mostly managed by the Defense
Logistics Agency (DLA), are those items that are discarded when they fail.
Repairable items, managed by the Air Force Supply Management Activity
Group, are those items that can be cost effectively repaired. Peacetime
operating spares are those items that are bought to support peacetime
training and to ensure an adequate force is available for initial wartime
operations (readiness). Mobility readiness spares packages (these
packages replaced the war reserve spares kits) are air transportable
packages of repair parts and maintenance supplies required to support
planned deployed operations until resupply can begin.

The process used to repair failed repairable items begins when unit
maintenance personnel at an Air Force base removes a failed item from the
aircraft. At this point, base maintenance attempts to either repair the item
or obtain a serviceable replacement from base supply. However, if base
maintenance cannot repair the item and a suitable replacement item is not
available, the base must (1) return the broken item to a maintenance depot2
for repair and (2) request a replacement from the appropriate inventory
control point. The inventory control point, in turn, attempts to find a
replacement in its existing wholesale inventory. If a replacement is not
available, the inventory control point must either acquire a new one or
repair a broken one. This process is illustrated in figure 1.1.




2
    Some items are repaired by contractor repair facilities.




Page 15                                      GAO/NSIAD/AIMD-99-77 Air Force Supply Management
                                           Chapter 1
                                           Introduction




Figure 1.1: Process of Providing Spare Parts to Customers




  Customer             Base                          Base Supply           DLA Warehouse              Depot
  Aircraft needs       Maintenance                   Ships the part if     Air Force Supply
  a part.
                                                                                                      Maintenance
                       Removes the                   they have it. If      Management Activity        The Air Force Supply
                       broken part and               they don't have       Group directs DLA          Management Activity
                       orders new part               it, part is ordered   warehouse to               Group pays the Air
                       from base supply.             and broken part       provide items to base      Force Depot
                       Installs new part             is sent to DLA        supply. DLA also           Maintenance Activity
                       when received.                warehouse for         stores broken item in      Group and
                                                     storage.              need of repair until       contractors to fix
                                                                           the Air Force Supply       broken inventory
                                                                           Management Activity        items. Fixed items
                                                                           Group determines           are sent back to DLA
                                                                           that the part needs to     warehouse for
                                                                           be fixed.                  storage until parts
                                                                                                      are ordered by base
                                                                                                      supply.




Air Force Is Changing                      To improve the operations of its logistical activities, including the
                                           management of inventory, the Air Force is implementing a program called
Its Approach to                            Agile Logistics. This program focuses on reengineering the old “batch
Managing Inventory                         processing” approach where repair requirements were determined once a
                                           quarter. The new program is based on a repair-on-demand concept where
                                           decisions are made daily to repair only those items that have been
                                           requisitioned by customers. Under this program, the Air Force plans to
                                           (1) reduce the time required to repair inventory items, (2) reduce inventory
                                           levels, (3) match the repair of items with the demand from customers, and
                                           (4) rapidly move items to and from customers.



Objective, Scope, and                      The objective of our review was to evaluate the effectiveness of the Supply
                                           Management Activity Group. Specifically, this report addresses (1) the
Methodology                                extent to which military customers are receiving aircraft spare parts when
                                           needed to ensure that aircraft are available and capable of carrying out
                                           their assigned mission and (2) the reasons why parts were not always
                                           available to customers when they needed them. This review is a



                                           Page 16                         GAO/NSIAD/AIMD-99-77 Air Force Supply Management
Chapter 1
Introduction




continuation of our work on the activity group’s financial reports, prices,
and cash management practices (GAO/AIMD/NSIAD-98-118, June 8, 1998).

To assess whether the group was providing effective support to its
customers, we obtained and analyzed trend data on the group’s
performance indicators that included (1) mission capable rates for major
Air Force aircraft (the percentage of major aircraft that were capable of
accomplishing their mission), (2) total not mission capable supply
rates for major Air Force aircraft (the percentage of aircraft that were
not capable of accomplishing their mission because of parts problems),
(3) cannibalization rates (the number of times per 100 sorties that a
serviceable part was removed from one aircraft and put on another),
(4) the use of inventory items in the mobility readiness spares packages to
keep aircraft mission capable so they could perform peacetime missions,
and (5) issue effectiveness rates (the percentage of time that the group was
able to satisfy customer requests with stock on hand in base supply).

The data on mission capable rates and total not mission capable supply
rates were originally collected in various logistical systems and
consolidated in the Air Force’s Multi-Echelon Resource and Logistics
Information Network. We did not independently verify this data. However,
we (1) compared the data available at Air Force headquarters, major
commands, and bases to determine if it was consistent and (2) discussed
the accuracy and usefulness of the data with officials and/or managers at
Air Force headquarters, major commands, and bases. We determined that
(1) the data were consistent at the multiple locations that we visited, (2) Air
Force officials and managers use these data to monitor readiness and make
key funding decisions, and (3) these officials consider the data to be
reliable.

To determine why inventory items were not available to customers, we
reviewed 155 individual inventory items for the B-1B, F-16, and C-5 aircraft
that were not available to customers as of September 1997. We selected
these aircraft because they represented different types of aircraft (bomber,
fighter, and cargo) which had lower-than-average mission capable rates for
the respective aircraft types in September 1997. We also reviewed Air Force
reports on the Supply Management Activity Group’s effectiveness and
discussed the group’s support problems with cognizant officials and
managers at the Air Force headquarters, AFMC headquarters, and ALC
levels.




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The inventory items selected for review included the following for each
type of aircraft: (1) the 25 items that caused aircraft to be grounded the
most hours during September 1997, (2) the 25 items that had the most
incidents grounding an aircraft (number of times a certain inventory item
grounded an aircraft) during September 1997, (3) the 15 items that were
cannibalized the most frequently during the fourth quarter of fiscal
year 1997, (4) the 35 items that the major command considered to be the
biggest problems, and (5) the 9 to 10 items that the major commands
identified as likely sustainability problems in the event of a major
contingency. Many of the items we reviewed were included in two or more
of the above categories.

For each of the 155 inventory items, we obtained the views of cognizant
ALC officials and/or item managers on the reasons why items were not
available as of September 1997 and, if an item caused aircraft to be
grounded more than 100 hours in September 1998, the primary cause as of
then. We also obtained documentation on the items’ usage and repair
history. In selecting the items to be reviewed, we focused on items directly
managed by the Supply Management Activity Group’s wholesale division.3
We did not review items managed by DLA since this review focused on the
effectiveness of the Air Force Supply Management Activity Group.

To determine if B-1B, F-16, and C-5 customers could obtain the inventory
items they needed from the Supply Management Activity Group and, if not,
the impact on the customers’ operations, we obtained and analyzed
information on (1) inventory items cannibalized or removed from aircraft
to determine the number of items cannibalized from aircraft as well as the
number of hours involved in removing the inventory items from one
aircraft and installing the items on another aircraft, (2) training received by
aircrews to determine if the lack of aircraft due to inventory shortages
prevented aircrews from receiving planned training, and (3) revenue lost by
the Transportation Working Capital Fund because aircraft were not
available, due to inventory shortages, to perform missions in support of
customers.

We did not perform a review of Air Force’s readiness and the impact parts
shortages would have on contingency missions. However, we interviewed
Air Force wing commanders as well as other officials at Air Force bases to

3
 The supply group’s retail inventory operations encompass items that are managed by the other
services, defense agencies, or government agencies. These non-Air Force entities are the inventory
control points for these items, not the Air Force Supply Management Activity Group.




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determine the impact of the low-mission capability rates due to inventory
and maintenance problems on the Air Force’s ability to accomplish its
wartime mission in the event of two major theater wars.

We performed our review at the

• Headquarters, Office of the Under Secretary of Defense (Comptroller)
  and Air Force, Washington, D.C.;
• Air Force Materiel Command, Wright-Patterson Air Force Base, Ohio;
• Oklahoma City Air Logistics Center, Tinker Air Force Base, Oklahoma;
• Ogden Air Logistics Center, Hill Air Force Base, Utah;
• San Antonio Air Logistics Center, Kelly Air Force Base, Texas;
  Sacramento Air Logistics Center, McClellan Air Force Base, California;
• Warner Robins Air Logistics Center, Robins Air Force Base, Georgia;
• Air Combat Command, Langley Air Force Base, Virginia;
• Air Mobility Command, Scott Air Force Base, Illinois;
• Dover Air Force Base, Delaware;
• Dyess Air Force Base, Texas;
• Ellsworth Air Force Base, South Dakota;
• Moody Air Force Base, Georgia;
• Shaw Air Force Base, South Carolina; and
• Travis Air Force Base, California.

Our review was performed from May 1998 through February 1999 in
accordance with generally accepted government auditing standards.




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                                                                                                                                               r




                              Key performance data on supply operations indicate that the Air Force
                              Supply Management Activity Group’s effectiveness has declined steadily
                              since the early 1990s. Detailed review of supply problems being
                              experienced for the C-5, B-1B, and F-16 aircraft showed negative trends for
                              such things as mission capability, removing usable parts from one aircraft
                              for use on another, and excessive use of spares that are purchased to
                              support deployed operations. Further, some C-5, B-1B, and F-16 units
                              experienced operational problems related to completing required training
                              or accomplishing airlift mission goals. Officials also noted that supply
                              problems could potentially adversely affect their ability to meet
                              contingency operations.



Performance Data              Performance data that the Air Force uses to monitor the performance of its
                              Supply Management Activity Group indicate a negative trend. Specifically,
Indicate a Steady             Air Force performance data indicate increased instances of (1) aircraft
Decline in the Supply         not being mission capable, which was primarily due to supply problems,
                              (2) usable parts being removed from one aircraft to keep other aircraft
Management Activity           mission capable, and (3) mobility readiness spares package assets used to
Group’s Effectiveness         keep aircraft mission capable. The performance data also indicate that the
                              supply group frequently did not have the parts that customers needed.


Reported Mission Capability   The Air Force measures the availability of aircraft through the use of
Rates for Major Aircraft      mission capable rates that represent the reported percent of unit aircraft 1
                              that are capable of performing at least one of their assigned missions.
Have Declined Since the
                              Aircraft that are not capable of accomplishing any of the missions are
Early 1990s                   classified as (1) not mission capable supply if they cannot accomplish the
                              missions because of parts shortages, (2) not mission capable maintenance
                              if they cannot accomplish the missions because of required base-level
                              maintenance, or (3) not mission capable both if both parts problems and
                              required base-level maintenance are preventing the aircraft from
                              accomplishing the missions.




                              1
                               The mission capability rate is based on all aircraft that are in a unit’s possession at a specific point in
                              time. Aircraft that are not available to a unit, such as those that are at a depot undergoing programmed
                              depot maintenance, are not included in mission capable rates. On the other hand, the Status of
                              Resources and Training System (SORTS) identifies the current level of selected resources and training
                              status of a unit—that is, its ability to undertake its wartime mission. As a result, a unit could have a
                              low-mission capability rate but still be considered able to accomplish its wartime mission.




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As summarized in table 2.1, data provided by Air Force headquarters
indicate that the average mission capable rate for Air Force major aircraft2
declined steadily from 84.6 percent in fiscal year 1990 to 74.3 percent in
fiscal year 1998.



Table 2.1: Reported Average Mission Capable Rates for Air Force Major Aircraft
Figures expressed as a percentage
                                                                         Mission capable rates for
Fiscal year                                                                         major aircraft
1990                                                                                               84.6
1991                                                                                               83.4
1992                                                                                               82.7
1993                                                                                               80.8
1994                                                                                               79.3
1995                                                                                               78.7
1996                                                                                               78.5
1997                                                                                               76.6
1998                                                                                               74.3
Source: The Air Force’s Multi-Echelon Resource and Logistics Information Network and the Reliability
and Maintainability Information System.


While Air Force major aircraft experienced a decline in mission capable
rates from fiscal year 1990 through fiscal year 1998, most of that decline
was attributed to supply problems. Specifically, as summarized in table 2.2,
the reported total not mission capable supply rates for Air Force major
aircraft more than doubled from 6.4 percent in fiscal year 1990 to
13.9 percent in fiscal year 1998.




2
 Reported mission capable rates for the Air Force major aircraft do not include data on (1) helicopters,
(2) training aircraft such as T-37, and (3) some low density aircraft such as the SR-71.




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                            Table 2.2: Reported Total Not Mission Capable Supply Rates for Air Force Major
                            Aircraft
                            Figures expressed as a percentage
                                                                                         Total not mission capable supply
                            Fiscal year                                                             rates for major aircraft
                            1990                                                                                             6.4
                            1991                                                                                             8.6
                            1992                                                                                             9.5
                            1993                                                                                           10.2
                            1994                                                                                           10.3
                            1995                                                                                           10.8
                            1996                                                                                           11.0
                            1997                                                                                           12.6
                            1998                                                                                           13.9
                            Source: The Air Force’s Multi-Echelon Resource and Logistics Information Network and the Reliability
                            and Maintainability Information System.




Customers Were Frequently   Because mission capable rates for major aircraft have steadily declined
Removing Good Parts From    since 1990, we selected three aircraft—the B-1B, F-16, and C-5—to obtain
                            additional indicators on the performance of the Supply Management
Aircraft to Keep Other
                            Activity Group. We selected these aircraft because they represented
Aircraft Mission Capable    different types of aircraft (bomber, fighter, and cargo) which had
                            lower-than-average mission capable rates for their respective aircraft types
                            in September 1997.

                            We found that in the last several years, there has been an increase in the
                            removal of usable parts from these aircraft to replace broken parts on
                            other, like aircraft to keep them mission capable. The Air Force refers to
                            this practice as cannibalizing parts. The Air Force performance indicator
                            for this practice is called the cannibalization rate, which is the average
                            number of cannibalization actions per 100 sorties flown. In many cases, a
                            part is cannibalized when base supply cannot deliver a good part when
                            needed and mission requirements demand the aircraft be returned to a
                            mission capable status. Even though bases were cannibalizing parts more
                            frequently in recent years, the aircraft mission capable rates have
                            continued to decline as shown in table 2.1. As table 2.3 shows, the
                            cannibalization rate for Air Combat Command’s (ACC) F-16s and B-1Bs and
                            the Air Mobility Command’s (AMC) C-5 aircraft have increased over the last
                            several years but especially from fiscal year 1995 to fiscal year 1998.



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Table 2.3: Reported Number of Cannibalizations Per 100 Sorties for the F-16, B-1B,
and C-5 Aircraft
Figures represent average cannibalization actions per 100 sorties flown
Fiscal year                                      F-16               B-1B               C-5
1993                                               5.3             55.7               37.9
1994                                               7.8             61.1               30.9
1995                                               8.4             53.5               40.5
1996                                             10.0              66.9               41.4
1997                                             12.8              93.9               45.9
1998                                             12.1              96.3               54.0
Source: Air Combat Command and Air Mobility Command.


Table 2.3 also shows that (1) the cannibalization rate for the F-16 has more
than doubled from fiscal year 1993 through fiscal year 1998, (2) for B-1B
aircraft, maintenance personnel were cannibalizing a part from an aircraft
for almost every one sortie flown during fiscal year 1998, and (3) for C-5
aircraft, maintenance personnel were cannibalizing a part from an aircraft
every time two sorties were flown during fiscal year 1998. While
cannibalizing parts from aircraft is considered a normal part of the
maintenance process and is used as a maintenance tool to work around
parts shortages, maintenance personnel expended a large amount of time
cannibalizing parts. Table 2.4 shows the hours spent in fiscal years 1997 and
1998 by ACC and AMC maintenance personnel cannibalizing B-1B,
F-16, and C-5 parts.



Table 2.4: Reported Cannibalization Hours for ACC and AMC B-1B, F-16, and C-5
Aircraft for Fiscal Years 1997 and 1998
                                                       Cannibalization hours
Type of aircraft                          Fiscal year 1997                 Fiscal year 1998
F-16                                                   35,472                       43,431
B-1B                                                   31,377                       29,342
C-5                                                    19,123                       19,271
Total hours                                            85,972                       92,044
Source: Air Combat Command and Air Mobility Command.


As the above table shows, ACC and AMC expended about 178,000 hours
removing usable parts from one aircraft and putting those same parts
on other aircraft in order to keep them mission capable during fiscal



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                            years 1997 and 1998. This equates to about 43 people working 8 hours a day,
                            5 days a week for the entire 2 fiscal years. However, the total magnitude of
                            the number of hours spent removing parts from aircraft and putting them
                            on other aircraft is not known. For example, the amount of time spent in
                            performing required operational checks to determine if cannibalized parts
                            were working properly once they were installed was not always reflected in
                            base reports on cannibalizations.

                            Cannibalization actions resulting from parts shortages also doubled the
                            workload for these personnel since they had to take parts off of one aircraft
                            and put them on another aircraft. In addition, it took maintenance
                            personnel weeks and, in some cases, months to put an aircraft back
                            together once parts were removed from the aircraft. For example, every
                            time Dover Air Force Base rotated its C-5 aircraft used for
                            cannibalization—about 8 times a year—10 to 15 maintenance personnel
                            worked 12 hour shifts for 10 to 14 days in order to take good parts off the
                            new cannibalization aircraft and rebuild the old cannibalization aircraft.
                            Maintenance personnel at a Dyess Air Force Base B-1B squadron usually
                            worked two, 10-hour shifts to rotate cannibalization aircraft. Data provided
                            by Dyess showed that for the five most recent cannibalized aircraft, it took
                            the squadron anywhere from 10 to 66 days, for an average of 39 days, to
                            rebuild the aircraft. The rebuild time for the squadron at Dyess does not
                            include the time it took to take the parts that were used to rebuild the old
                            cannibalization aircraft off the new cannibalization aircraft—because
                            Dyess did not track this type of information.


Mobility Readiness Spares   Another indication of supply problems is the use of mobility readiness
Package Assets Used to      spares package assets to satisfy peacetime requirements. Mobility
                            readiness spares packages are air transportable packages of repair parts
Keep Aircraft Mission
                            and maintenance supplies required to support planned deployed operations
Capable                     until resupply can begin. However, the Air Force is using these assets to
                            satisfy peacetime critical parts shortages as shown in table 2.5.




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Table 2.5: Use of Mobility Readiness Spares Packages to Satisfy Parts Shortages for B-1B, C-5, and F-16 Aircraft That Were Not
Mission Capable
                                                               B-1B                           C-5                     F-16
                                                       Number         Percent      Number           Percent    Number        Percent
Fiscal year                                            of parts       of total     of parts         of total   of parts      of total
1996                                                        147            1.5          809             3.8      3,613           6.4
1997                                                        780            6.2        3,156            15.1      3,600           5.5
1998                                                      2,006           15.0        4,308            18.0      3,783           5.6
                                           Source: Weapon System Management Information System.


                                           As shown in table 2.5, the use of mobility reserve spares package assets to
                                           sustain aircraft mission capability has increased over the last several years
                                           for the B-1B and C-5. Specifically, the use of such assets to satisfy parts
                                           shortages has worsened for the B-1B and C-5 from fiscal year 1996 through
                                           fiscal year 1998, while the use of the mobility readiness spares package
                                           assets has remained about the same for the F-16 during the same time
                                           period. While DOD policy allows this practice and there are no restrictions
                                           on the number of assets that can be used to support peacetime operations,
                                           Air Force headquarters officials stated that it is imperative that the
                                           packages be maintained at sufficient levels to sustain operations. The
                                           practice of using mobility readiness spares package assets is another
                                           indication that the Supply Management Activity Group is encountering
                                           problems in meeting the needs of its customers. This practice, in effect,
                                           trades off the Air Force’s ability to sustain its forces during wartime for the
                                           ability to prepare its peacetime forces for war.


Base Supply Frequently Did                 Another indicator measuring the effectiveness of the Supply Management
Not Have the Parts That                    Activity Group is the supply issue effectiveness rate, which is the percent
                                           of time that base supply will have a part in stock when a maintenance
Customers Needed
                                           organization needs the part for repairing an aircraft. This indicator is used
                                           to measure how well the customer is supported by the supply group since
                                           base supply cannot possibly stock every part. A high issue effectiveness
                                           rate reflects success in anticipating customer needs while a low rate
                                           reflects poor forecasting of customer needs.

                                           As table 2.6 shows, ACC and AMC data indicate that the supply
                                           effectiveness rate has declined for the (1) B-1B and F-16 from fiscal
                                           year 1994 through fiscal year 1998 and (2) C-5 from fiscal year 1996 through




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                                           fiscal year 1998. Further, the actual rate has been below the standard set by
                                           the two major commands for fiscal years 1996 and 1997.



Table 2.6: Supply Issue Effectiveness Rates for the B-1B, F-16, and C-5 for Fiscal Years 1994 Through 1998
Figures expressed as a percentage
                                                                 B-1B                            F-16                       C-5
Fiscal year                                            Actual           Standard       Actual           Standard   Actual         Standard
1994                                                      67.4                  62        74.9               64         a                a

1995                                                      66.7                  70        74.6               74         a                a

1996                                                      65.3                  70        71.8               74      71.2              75
1997                                                      63.2                  70        70.2               74      69.5              75
1998                                                      59.1                    b       71.6                 b     69.5              75
                                           aInformation   was not available.
                                           b
                                               Standards were not established for fiscal year 1998.
                                           Source: Air Combat Command and Air Mobility Command.


                                           The table combines consumable items, which are primarily managed by
                                           DLA, and repairable items, which are managed by the supply group. When
                                           looking just at repairable items, we found that the issue effectiveness rate
                                           was 46.7 percent and 41.3 percent for the B-1B and 49.3 percent and
                                           48.7 percent for the F-16 in fiscal years 1997 and 1998, respectively. These
                                           figures indicate that bases only have one out of every two repairable items
                                           in stock when maintenance personnel need them to repair aircraft.



Lack of Parts Hindered                     We also selected the B-1B, F-16, and C-5 aircraft to assess the impact of
                                           parts shortages on customers’ operations. Because aircraft were not
Peacetime Missions                         always available due to spare parts shortage problems as well as other
                                           problems, such as aircraft maintenance and deployments, Air Force units
                                           were not able to perform all of their peacetime missions. Specifically, the
                                           lack of spare parts prevented (1) some units from accomplishing all of their
                                           pilot and/or aircrew training and (2) AMC from performing all customer
                                           requested airlift services. Lastly, officials indicated that the shortage of
                                           spare parts has the potential to adversely affect contingency operations,
                                           particularly if several squadrons were required to deploy at the same time.




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Air Force Customers Unable   Because aircraft were not available for flying sorties due to supply
to Perform All Training      problems and other problems such as aircraft maintenance and
                             deployments, some Air Force customers were unable to perform all of their
Missions
                             required training missions. Training is an essential part of Air Force
                             customers’ operations because it provides pilots and other aircrew
                             members with the necessary training to be (1) qualified to fly certain types
                             of aircraft such as the B-1B and (2) proficient at performing certain tasks
                             such as midair refueling at night, following terrain at night, and releasing or
                             firing aircraft weapons as necessary during deployment missions. Table 2.7
                             shows that during fiscal year 1998, B-1B and F-16 customers only flew
                             79,267 hours, or 83 percent, of their total flying hours available for pilot and
                             aircrew training.



                             Table 2.7: ACC Flying Hours That Were Available and Used for Pilot and Aircrew
                             Training in Fiscal Year 1998
                             Description                               F-16    B-1B     Totals    Percent of total
                             Available training hours                76,546   19,343    95,889                100
                             Training hours used                     63,112   16,155    79,267                 83
                             Training hours not used                 13,434    3,188    16,622                 17
                             Source: Air Combat Command information.


                             At Air Force bases we visited, officials confirmed that, in some cases,
                             aircraft were not available for training sorties because of supply problems.
                             For example, at one B-1B squadron, parts shortage problems were cited as
                             a major contributor to aircraft not being available for training. Due to the
                             lack of available aircraft, some aircrew members could not meet their
                             annual training sortie requirements during the training year from July 1,
                             1997, through June 30, 1998. Specifically, aircrew members were not
                             classified as combat mission ready as follows: (1) 6 out of 30 aircraft
                             commanders, or 20 percent, (2) 2 out of 13 pilots, or 15 percent, and
                             (3) 5 out of 41 weapons system officers, or 12 percent. According to the
                             squadron commander, these crew members could not be used on combat
                             missions until they accomplished the required training.

                             Air Force officials at another B-1B base also cited the lack of parts, as well
                             as maintenance problems, as reasons why aircraft were not available and
                             why aircrews did not receive all their needed training. For example,
                             because of unavailable aircraft, the base did not have sufficient B-1Bs to
                             provide aircrews training in tactical formation flying that requires the use



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                                          of two aircraft flying close together in formation. Only four personnel at the
                                          base were qualified in tactical formation flying. Officials said that in the
                                          event of a wartime mission, the aircrews not qualified in tactical formation
                                          flying would have to fly their aircraft so as to maintain a certain distance
                                          from the nearest B-1B, a situation that was described as dangerous in
                                          wartime conditions. Further, this base is also tasked four times a year to
                                          provide four of its aircraft to a B-1B weapons training school at another
                                          base. However, for such a deployment during October 1998, the base could
                                          only send two of the four required aircraft—-the other two aircraft had to
                                          be sent from other B-1B bases. According to an Air Force official, the lack
                                          of spare parts was a major reason why the base could not send two of its
                                          aircraft to the weapons training school.


Parts Shortages Cited as a                An important mission of the transportation activity group, which is part of
Major Contributor to an                   the Air Force’s Working Capital Fund, is to provide strategic airlift services
                                          by moving cargo and passengers worldwide for wartime deployments of
Estimated $64 Million in
                                          fighting forces and peacetime missions to include humanitarian efforts.
Lost Revenue                              These airlift services are provided by the Air Force’s AMC, which, like other
                                          working capital fund activities, relies on sales revenue from services
                                          provided to customers to finance its operations. We found, however, that
                                          because some C-5, C-17, and C-141 aircraft were not available, AMC did not
                                          perform customer airlift services as shown in table 2.8. Although these
                                          aircraft were not mission capable for a variety of reasons such as
                                          maintenance problems, AMC cited parts shortages as a major contributor
                                          as to why the aircraft were not available to perform airlift services.



Table 2.8: AMC Estimated Loss of Revenue From Declined Missions for Its C-5, C-17, and C-141 Aircraft From September 1, 1997,
Through August 31, 1998
                                                                          Estimated
                                                    Missions        flying hours per        Revenue per         Estimated lost
Type aircraft                                       declined                mission          flying hour              revenue
C-5                                                      167                   20.2              $12,605          $42,521,707
C-17                                                      25                   15.8                7,025             2,774,875
C-141                                                    183                   19.1                5,349           18,696,359
Total                                                    375                      NA                 NA           $63,992,941
                                          Source: Air Mobility Command.
                                          NA—Not applicable.




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                              Table 2.8 shows that from September 1, 1997, to August 31, 1998, AMC
                              declined 375 requests from customers to perform airlift services because of
                              unavailable aircraft. Since aircraft were not available to meet these
                              requests, AMC estimated that it lost at least $64 million in revenue. A
                              Mobility Command official stated that they used a conservative estimate of
                              the flying hours per mission to calculate the lost revenue and, therefore, the
                              estimated revenue not earned due to unavailable aircraft is probably
                              understated.


Parts Shortages Also Have     Although we did not perform a review of Air Force’s readiness in terms of
Potential Adverse Impact on   contingency deployments, we found indications at the bases we visited that
                              parts shortages have the potential to adversely impact their ability to
Contingency Missions
                              effectively accomplish contingency missions. Air Force base officials said
                              the impact that parts shortages would have on contingency deployments is
                              difficult to determine and depended on a variety of factors, including the
                              (1) number of squadrons a base would be required to deploy, (2) number of
                              aircraft to be taken, (3) number of sorties to be flown and the duration of
                              the sorties, and (4) location of the deployment. At some bases, officials
                              stated that sending one squadron would not present much of a problem,
                              but that sending two or more would be more difficult to do. Officials at one
                              base stated that parts shortages have a definite impact on their ability to
                              respond to contingency missions. Similarly, officials at another base stated
                              that parts shortages were their most significant problem regarding
                              readiness.



Conclusions                   Mission capability rates reported for major Air Force aircraft have declined
                              significantly over the last 8 years. Further, more specific analysis on three
                              aircraft—the B-1B, F-16, and C-5—shows similar trends as well as
                              significant increases in cannibalization rates and the use of supplies
                              intended to support deployed operations. At some Air Force bases, this
                              situation has adversely affected maintenance operations as well as aircrew
                              training programs. Further, based on discussions with Air Force officials,
                              there are indications these problems could potentially impact contingency
                              missions.




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Problems Were Primary Causes of Spare Parts
Shortages                                                                                                                                         Chapte3
                                                                                                                                                        r




                                        To assess the reasons why spare shortages existed, we judgmentally
                                        selected and reviewed B-1B, F-16, or C-5 inventory items. The 155 items we
                                        selected were (1) causing aircraft to be not mission capable and/or
                                        (2) considered actual or potential problem items by ACC or AMC. This
                                        analysis identified three key factors causing support problems that
                                        generally can be categorized as weaknesses in (1) forecasting inventory
                                        requirements and executing inventory procurement and repair budgets,
                                        (2) not achieving Agile Logistics goals, and (3) repairing items when
                                        needed by customers. Because of the integrated nature of the supply
                                        systems there is a general interrelationship among these causes.

                                        Table 3.1 shows the results of our analysis for the 155 items that were not
                                        available as of September 1997 and for 96 of the 155 items that were still
                                        causing support problems as of September 1998.1



Table 3.1: Primary Reasons Why Problem Items Were Not Available as of September 1997 and September 1998

                                                                          September 1997                              September 1998
Cause category                                                    Number                       Percent            Number                 Percent
Forecasting and budgeting                                                57                         36.8               0                       0.0
Agile Logistics                                                          31                         20.0              26                      27.1
Untimely repair                                                          53                         34.2              63                      65.6
Othera                                                                   14                          9.0               7                       7.3
Total                                                                  155                        100.0               96                    100.0
                                        aPrimarily   technical problems that affect the reliability of an item.




Inventory                               For 57 of the 155 items we reviewed, problems related to the forecasting of
                                        inventory requirements used in developing the supply budget were cited as
Requirements                            the reason why the Supply Management Activity Group could not meet its
Forecasting and                         customers’ needs as of September 1997. This happened primarily because
                                        inventory requirements were understated by 18 percent. Some minor
Budget Problems                         problems related to obligating funds and the timely receipt of obligation
                                        data also contributed to the problems. The Air Force is in the process of
                                        reviewing possible corrective actions.



                                        1
                                         In our analysis, we considered an item to still be a problem in September 1998 if it caused aircraft to be
                                        not mission capable for more than 100 hours during that month.




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Underestimation of         Air Force records indicate that the Supply Management Activity Group
Customers’ Inventory       received about $2.5 billion in fiscal year 1997 obligation authority even
                           though inventory requirements (purchase of new items and repair of
Requirements Resulted in
                           broken items) were estimated at $3 billion. This clearly limited the supply
Support Problems           group’s ability to buy and repair the items its customers needed and was
                           the primary cause of spare parts shortages, as of September 1997, for the
                           155 items we reviewed. It also caused (1) the number of serviceable items
                           available at the base and wholesale levels to decline because items were
                           used but not replenished during fiscal year 1997 and (2) a large backlog of
                           procurement and repair requirements to carry over from fiscal year 1997 to
                           fiscal year 1998.

                           Air Force headquarters officials identified two primary reasons for the
                           differences between the budget estimate and the requirements for fiscal
                           year 1997. First, because of a computer interface problem, about
                           $200 million in procurement and repair requirements were inadvertently
                           left out of the inventory requirements estimate. Second, Air Force officials
                           estimate that the group’s inventory requirements increased by about
                           $300 million between March 1995, when they initially determined their
                           fiscal year 1997 inventory requirements, and March 1996, when the Air
                           Force updated its inventory requirements. For example, documentation
                           provided by Air Force headquarters showed that force structure changes
                           resulted in an expansion in the overhaul program for B-52 engines. This
                           expansion increased the group’s fiscal year 1997 inventory requirements by
                           $26 million which was to be used for the repair of struts and the
                           replacement of inventory items that could no longer be repaired.

                           Because of the differences between the budget and the actual funding
                           needed, supply officials took action in January 1997—less than 4 months
                           into the fiscal year—to ensure the most effective possible use of their
                           available obligation authority. Specifically, they attempted to optimize their
                           obligation authority by directing activities to

                           • repair only high priority requirements, such as items that were causing
                             aircraft to be not mission capable;
                           • repair items on an as-needed basis to avoid repairing unneeded items;
                             and
                           • severely limit the procurement of new repairable items because they
                             believed that repairing items and procuring the component parts needed
                             to accomplish the repairs would have a more positive near-term effect
                             on aircraft mission capable rates.




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                             This approach limited the likelihood that scarce resources would be
                             wasted on the repair or procurement of unneeded items, but it also created
                             supply shortages at the base level. Since repairs were generally limited to
                             high priority requirements, relatively low priority requirements such as
                             replenishing base stockage levels were generally not satisfied. As a result,
                             base supply activities were less likely to have items in stock when units
                             needed them. Further, because repairs were accomplished as the needs
                             arose rather than in anticipation of the needs, it frequently took the supply
                             group longer to provide the items that were needed by units. These factors
                             and the resulting base-level shortages were reasons why, as discussed in
                             chapter 2, the supply group’s issue effectiveness rates were low during
                             fiscal year 1997. Moreover, because these shortages were carried into the
                             next year,2 they also contributed to the low issue effectiveness rates that
                             continued during fiscal year 1998.


Budget Execution Problems    To a minor extent, budget execution problems also prevented supply group
Also Contributed to Supply   managers from fully using their available obligation authority. For example,
                             the supply group’s wholesale division was given about $3.2 billion of
Group’s Fiscal Year 1997
                             obligation authority in fiscal year 1997, 3 but the group reported obligations
Support Problems             of about $3.15 billion—a $50-million difference. While the $50 million
                             represents only 1.5 percent of the supply group’s obligation authority,
                             obligating this money would have made more inventory items available to
                             customers. According to an Air Force budget official, since the Defense
                             Finance and Accounting Service’s accounting systems did not provide
                             September obligation data until 6 or more weeks after the end of the
                             month, supply managers did not know that additional obligation authority
                             was available until after the end of the fiscal year.

                             Similarly, the Air Force would have been in a position to request additional
                             obligation authority if the supply group had timely sales data from the
                             Defense Finance and Accounting Service. Specifically, because (1) DOD
                             established the group’s obligation authority based on projected sales4 and


                             2
                              AFMC officials estimate that, as of September 1997, the supply group needed about $427 million to buy
                             and/or fund the repair of items that were (1) causing aircraft to be not mission capable and (2) needed
                             to fill bases’ authorized stockage levels.
                             3This obligation authority was available to not only purchase new items and repair broken items but
                             also to finance the supply group’s operating costs, such as the salaries of item managers.
                             4
                              The Office of the Under Secretary of Defense (Comptroller) established the supply group’s fiscal
                             year 1997 wholesale budget based on a unit cost target of $0.959, which meant that it was authorized to
                             obligate $0.959 for every $1.00 of projected sales.




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                             (2) the supply group’s actual fiscal year 1997 wholesale sales were about
                             $188 million higher than expected, the Air Force could have used the higher
                             sales level and the customer support problems discussed previously as a
                             basis for requesting additional obligation authority from the Office of the
                             Under Secretary of Defense (Comptroller). However, Air Force
                             headquarters officials stated that managers did not receive timely sales
                             data from the Defense Finance and Accounting Service systems and,
                             therefore, did not know until sometime in fiscal year 1998 that their fiscal
                             year 1997 sales were higher than the budget estimate. As a result, this
                             option was not even considered.


DOD Directed the Air Force   In its fiscal year 2000 budget document for the supply group, the Office of
to Address Its Forecasting   the Under Secretary of Defense (Comptroller) raised concerns about the
                             readiness of all military services and cited a lack of spare parts as a major
Problems
                             contributor to a decline in the mission capability of aircraft. To help
                             improve readiness, about $141 million in obligation authority was added to
                             the supply group’s fiscal year 2000 budget to buy and repair additional
                             inventory items. However, the budget document raised concerns about the
                             Air Force’s ability to use this additional obligation authority to purchase the
                             correct inventory items. Accordingly, the Deputy Secretary of Defense
                             directed AFMC to conduct a review of the process it uses to determine the
                             inventory requirements of its customers.

                             AFMC’s review, which is currently underway, is to identify the underlying
                             causes of the forecasting problems. In doing so, it is to comprehensively
                             evaluate the procedures, methodologies, and practices that the supply
                             group uses to forecast its customers’ requirements. The AFMC Commander
                             is required to provide a report on the review’s findings, conclusions, and
                             any recommendations to both Air Force headquarters and the Office of the
                             Under Secretary of Defense (Comptroller) by May 15, 1999.



Overly Optimistic Agile      The Air Force reduced its supply group’s budget by $948 million over a
                             3-year period in anticipation of savings resulting from process
Logistics Goals              improvements related to the Agile Logistics program. However, for 31 of
                             the 155 items we reviewed, problems occurred because of inventory
                             management weaknesses, including the Air Force’s inability to achieve the
                             Agile Logistics reduced processing time goals. Further, the Air Force’s
                             inability to achieve the reduced processing time goals was a contributing
                             factor for many other problem items. The ultimate result of not achieving
                             these goals was that the supply group had less funding than required to


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                           meet customer inventory needs. This situation is in addition to the
                           requirements forecasting problem discussed in the prior section.


Air Force Reduced Supply   The Air Force’s Agile Logistics program is consistent with DOD’s goals for
Group’s Budget in          improving logistics support5 and is based on three key assumptions:
                           (1) reduced logistics response time,6 (2) seamless logistics systems, and
Anticipation of Savings
                           (3) streamlined logistics infrastructure. It also assumes that the use of
                           current and future technologies will allow units to order spare parts
                           virtually “real time” and that more efficient commercial and military
                           transportation alternatives will make large inventories unnecessary.

                           The Air Force used anticipated Agile Logistics improvements as a basis for
                           reducing the supply group’s buy and repair funding by about $948 million
                           over a 3-year period. Specifically, the Air Force reduced the supply group’s
                           fiscal year 1997 budget by $336 million based on the assumption that total
                           pipeline and logistics response time could be reduced to 57 days (from a
                           fiscal year 1994 baseline of 67 days); reduced it an additional $289 million
                           in fiscal year 1998 based on the assumption that the total time could be
                           reduced to 52 days; and reduced it another $323 million in fiscal year 1999
                           based on the assumption that the total time could be reduced to 41 days.
                           This means, for example, that the activity group’s fiscal year 1997
                           requirement would have been about $336 million higher had it been based
                           on a total pipeline and logistics response time of 67 days (the fiscal
                           year 1994 baseline) rather than the Agile Logistics goal of 57 days.


New Supply Support Goals   Data we obtained showed that Agile Logistics goals were not being
Were Not Achieved          achieved. For example, one ALC indicated that the total pipeline time for
                           the items it managed was about 68 days during fiscal year 1998 (compared
                           to a standard of 52 days) and AFMC headquarters indicated that the
                           Command’s average logistics response time for repairable items during
                           fiscal year 1998 was 44.7 days (compared to a budget goal of 9 days).


                           5DOD’s   conceptual framework for the future of the United States Armed Forces calls for the military
                           services to fuse information, logistics, and transportation technologies in a manner that will allow them
                           to (1) provide rapid crisis response, (2) track and shift assets, even while enroute, (3) deliver tailored
                           logistics packages when and where needed, and (4) ensure the availability of spare parts and other
                           items needed to sustain combat operations. Under this “Focused Logistics” concept, operational units
                           can reduce their logistical “tails” because it is assumed that they will receive timely, continuous, and
                           flexible support from wholesale supply activities.
                           6
                            Logistics response time begins when a unit requests an item that is not available in base supply and
                           that must, therefore, be requisitioned from the wholesale storage activity. It ends when the base
                           receives the item. In this report, when we refer to pipeline times it includes logistics response times.



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Consequently, although we found some problems with the accuracy and
completeness of the data used to monitor actual pipeline times, (1) the
results of our review of the 155 problem items, (2) our discussions with
cognizant Air Force logistics officials, and (3) the relative consistency of
the data that we obtained from Air Force headquarters, AFMC, and the
ALCs, indicate that the untimely processing of repairable items is a
problem that warrants close management attention.

Air Force headquarters officials agree that the untimely processing of
repairable items is a serious problem that has adversely affected the
mission capability of aircraft. Specifically, they stated that the inability to
achieve their depot repair time goal was due largely to a shortage of
component parts needed to repair broken items—a condition called
Awaiting Parts (AWP). Similarly, they stated that the inability to achieve the
logistics response time goal was due primarily to backorder time.7 They
also stated that DOD policy, which they agree with, precludes them from
considering AWP and backorder time when determining funding
requirements. Air Force and DOD officials said that the AWP problem and
backorders are both indications that the supply system is not working as
intended and once the underlying cause(s) of these problems are fixed, any
inventory purchased to support the longer pipeline would become
excessive.

The Air Force’s ability to effectively support its units in the future will
depend, to a large extent, on whether logistics managers throughout the
service are able to do a better job of identifying and correcting the
problems that have prevented them from achieving their Agile Logistics
goals. This is unlikely to happen until (1) accurate and complete data on
pipeline processing times are developed and analyzed consistently
throughout the Air Force, (2) individuals responsible for managing the
various pipeline segments are clearly identified and held accountable, and
(3) commanders and managers throughout the Air Force periodically
monitor the progress that is being made in achieving Agile Logistics goals.
In those instances where goals appear unrealistic or unattainable, budget
estimates must be adjusted accordingly.

We are reporting separately on the Air Force’s problems in implementing
the Agile Logistics program. The report will detail specific implementation


7
 When an item requested by a customer is not available at the wholesale level, it is placed on backorder
until it can be obtained by repairing a broken item or by some other means.




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                        issues the Air Force needs to address and actions the Air Force plans to
                        take.



Untimely Repairs Were   Because it significantly reduces the amount of usable inventory available at
                        the wholesale level, the Air Force’s Agile Logistics program significantly
a Major Cause of        increases the importance of depot maintenance activities’ role in providing
Supply Support          timely and effective support to supply group customers. In many instances,
                        how quickly the supply group can support its customers now depends
Problems                primarily on how quickly depot maintenance activities can complete
                        repairs on broken items. At the same time, because the Agile Logistics
                        program changed depot repair operations from a batch-oriented process
                        where repair requirements were determined once a quarter to a repair-on-
                        demand approach where repair decisions are made daily, it also makes it
                        much more difficult for these maintenance activities to plan their work and
                        operate efficiently.

                        AFMC officials knew in advance that Agile Logistics could adversely affect
                        the efficiency of their depot maintenance operations as previously
                        configured, but believed this potential disadvantage would be more than
                        offset by improved processing times and lower inventory levels.
                        Specifically, they assumed that (1) the shift from a batch repair concept to a
                        repair-on-demand concept would allow them to reduce shop flow times and
                        (2) these and other process improvements would reduce the supply group’s
                        inventory requirements by $948 million.

                        However, as discussed previously, the Air Force has not achieved the Agile
                        Logistics goals. As a result, the budgeted Agile Logistics savings reduced
                        the supply group’s funding, but the effect of these “savings” has been less
                        timely and effective support to customers. The next sections discuss two
                        key factors that have limited depot maintenance activities’ ability to
                        achieve anticipated reductions in their repair times: (1) shortages of
                        component parts and (2) personnel skill limitations. Table 3.2, which is a
                        further breakout of the repair problem cause category shown in table 3.1,
                        shows the extent to which these factors are contributing to untimely
                        repairs.




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Table 3.2: Primary Causes of Repair Problems as of September 1997 and September 1998

                                                                         September 1997                            September 1998
                                                                                    Percent of total                          Percent of total
Cause category                                                   Number                   problem           Number                  problem
Component parts shortages                                               38                       71.7              34                     54.0
Personnel/Skills constraints                                              8                      15.1              21                     33.3
Othera                                                                    7                      13.2               8                     12.7
Total                                                                   53                      100.0              63                    100.0
                                        aIncludes    problems related to test equipment.




Component Parts Shortages               A shortage of the component parts needed to repair broken items—a
Have Been a Major                       condition that, as noted previously, the Air Force refers to as AWP—was
                                        the most frequent cause of untimely repairs for the items we reviewed. This
Impediment to Timely
                                        AWP problem adversely affected the supply group’s ability to support its
Repairs                                 customers because it increased the number of broken items in the supply
                                        pipeline which, in turn, limited the number of usable items that could be
                                        provided to customers.

                                        Our work showed that AWP is a pervasive problem that adversely affected
                                        repairs at both the depot and base levels. For example, one of the biggest
                                        readiness problems for the B-1B bomber during fiscal year 1998 was the
                                        Band 8 Transmitter that was experiencing significant AWP problems.
                                        Specifically, the Air Force’s spares inventory for this item was more than
                                        $40 million (64 items at $644,237 each), but the item nevertheless caused
                                        B-1B aircraft to be not mission capable for a total of 59,925 hours during
                                        fiscal year 19988 because much of this inventory was in an AWP status at
                                        both the depot and base levels. For example, as of July 1998, 26 Band 8
                                        Transmitters were at the repair contractor in an AWP status—16 of which
                                        had been in that status for more than a year. Additionally, 19 transmitters
                                        were in an AWP status at base level, had been in that status for an average
                                        of 139 days, and were awaiting an average of 5.5 component parts each.
                                        Some of the needed component parts were managed by DLA but most were
                                        managed by the Air Force supply group.




                                        8
                                            At any given time more than one part may be causing an aircraft to be not mission capable.




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                              Similarly, the Band 7 Transmitter used on the B-1B, which caused B-1B
                              aircraft to be not mission capable for about 36,400 hours in fiscal year 1998,
                              was also a problem because of untimely depot repairs, in general, and a
                              shortage of the component parts needed to accomplish the repairs, in
                              particular. For example, as of October 1998, 15 of these ALC-repaired items
                              were in an AWP status at the depot level, 12 were in an AWP status for more
                              than a year, and all but three needed more than one component part. In
                              addition, although 10 additional Band 7 Transmitters were in the shop
                              undergoing repairs, 55 component parts were needed in order to complete
                              repairs on them. As was the case with the Band 8 Transmitters, most of the
                              needed component parts were managed by the Air Force supply group.

Studies Have Identified AWP   Recent Air Force studies have identified problems similar to those
Problem                       discussed above and/or have identified some of the underlying causes of
                              the problems. For example, these problems were identified in a survey that
                              AFMC headquarters conducted in early 1998 of item managers who were
                              responsible for problem items. Specifically, when asked if parts shortages
                              were a significant problem, about 56 percent of the 622 item manager
                              responses stated that they were. Similarly, when asked if a shortage of
                              carcasses to repair was a problem, about 11 percent of the responses
                              indicated that it was.

                              However, the Air Force, in general, and AFMC, in particular, have done very
                              little to resolve the AWP problem. For example, as of December 1998,
                              AFMC headquarters had not yet developed (1) a long-term strategy for
                              identifying and correcting the root cause(s) of the AWP problem, (2) a
                              systematic process for identifying and focusing management attention on
                              the most critical AWP problem items, or (3) a standardized approach that
                              item managers can use to analyze data on AWP problems. Further, AFMC
                              officials acknowledged that the AWP problem was due partly to a lack of
                              reliable data on the number and type of component parts that will be
                              needed to repair broken items, but have not developed a specific plan for
                              resolving the problem.

                              Finally, AFMC officials realize that, to effectively manage the AWP
                              problem, the supply group’s material managers must have easy access to
                              the automated data they need to identify and analyze individual AWP
                              problem items. However, presently, data on (1) the number of items that
                              are in an AWP status and (2) the number and type of component parts each
                              item needs must be obtained from several different sources, and even then
                              may not be available in automated format.




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Manpower Constraints Have       A shortage of personnel or skills was another major factor that limited
Caused Maintenance Delays       depot maintenance activities’ ability to repair items in a timely manner. Our
                                recent work on the Air Force’s logistics reform initiatives indicated that
                                one of the key reasons for personnel and skill shortages was that AFMC
                                officials had made little progress in developing the multi-skilled workers
                                that their depot maintenance activities will need in order to operate
                                effectively in a repair-on-demand environment. As discussed below, two
                                additional reasons for personnel and skills shortages were (1) the
                                temporary workload increase that resulted when the supply group carried a
                                large backlog of repair requirements into fiscal year 1998 and (2) the
                                disruptions associated with the on-going closure of two ALCs.

Repair Backlog Caused           Due largely to the budget and funding problems discussed previously, the
Temporary Manpower              Air Force entered fiscal year 1998 with a substantial backlog of repair
Constraints                     work. This, in turn, increased some maintenance shops’ workloads to the
                                point where they could not accomplish all of the work during fiscal
                                year 1998. However, because of funding constraints and the possibility that
                                some shops’ workloads may decrease once the backlog is eliminated, ALC
                                officials decided not to hire full-time maintenance personnel to accomplish
                                most of the additional work. Instead, they used the existing workforce and,
                                where appropriate, overtime to reduce the backlog.

                                This approach allowed the supply group to alleviate, but not eliminate,
                                some of its support problems during fiscal year 1998. For example, the
                                shop that repairs the constant speed drive used in the B-1B aircraft cited
                                insufficient manpower as the reason why it had problems keeping up with
                                repairs for this item. During fiscal year 1998, the shop repaired more items
                                than failed—139 items broke and 169 were repaired. However, the item
                                caused B-1B aircraft to be not mission capable for 7,792 hours during fiscal
                                year 1998 and, as of September 30, 1998, bases still had an outstanding
                                requirement for 13 constant speed drives. On a more positive note, the
                                constant speed drive caused aircraft to be not mission capable for only
                                197 hours in September 1998.

Personnel Turbulence and        Our review of the 155 problem items indicates that the on-going closure of
Productivity Are Problems as    two ALCs and transfer of their workloads to the three remaining ALCs and
ALC Closures Transfer Work to   other sources of repair has already had some impact. Specifically, as of
Other Locations                 September 1998, closure-related personnel and skill shortages were the
                                primary cause of the support problem for eight of the items we reviewed.
                                Further, the closures may become a more significant problem as the
                                workload transfers proceed.



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                         For example, 10 of the problem items we reviewed were part of the C-5
                         Malfunction Detection Analysis Subsystem that was repaired at the San
                         Antonio ALC until the workload was transferred to the Warner Robins ALC
                         in January 1999. The San Antonio ALC was able to reduce the number of
                         hours these 10 items caused aircraft to be not mission capable from 24,130
                         hours in September 1997, to 2,308 hours in September 1998, or about
                         90 percent. However, the San Antonio ALC shop supervisor stated that his
                         shop’s ability to keep up with the repair workload had been adversely
                         affected by the loss of trained maintenance technicians, especially during
                         the first quarter of fiscal year 1999. Further, both the San Antonio and
                         Warner Robins shop supervisors acknowledged that there was likely to be a
                         temporary loss of productivity and efficiency during and immediately
                         following the workload transition. Nevertheless, both supervisors said they
                         were working together to ensure a smooth transition—by taking such
                         action as (1) having Warner Robins personnel train at San Antonio prior to
                         the workload transfers, (2) moving some of the test equipment to Warner
                         Robins prior to the transition date, and (3) having San Antonio personnel
                         visit Warner Robins after the transfer to provide assistance.

AFMC’s Work Force Plan   AFMC officials are taking action to alleviate their depot maintenance
                         manpower problems. For example, by the end of fiscal year 1999, they plan
                         to identify (1) the work force they will need in order to accomplish their
                         depot maintenance workload through the year 2005 and (2) requirements
                         for not only permanent employees, but also the temporary, term, and
                         contract field team employees that will be needed to augment the
                         permanent workforce during unplanned peaks in demand. They also plan
                         to develop an enhanced technical training program to cross train workers,
                         thereby making them more versatile and providing maintenance
                         supervisors the flexibility they need in order to operate effectively in a
                         repair-on-demand environment.



Conclusions              Several factors contributed to the Supply Management Activity Group not
                         being able to achieve its goals for meeting customer needs. Management
                         actions related to forecasting requirements and estimating savings from
                         logistics process improvements resulted in the group having fewer funds
                         than needed to meet customer needs. As a result, even though customers
                         had operations and maintenance funds to purchase inventory, the supply
                         group did not have sufficient obligation authority to buy or repair items
                         needed by customers.




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                  A number of the problems experienced are related to implementation
                  issues associated with the Air Force Agile Logistics program. Since we are
                  reporting separately on the Agile Logistics program implementation and
                  the Air Force is in the process of reviewing the requirements forecasting
                  process, we are making no recommendations on these issues in this report.
                  We will monitor the results of the Air Force study and report to the
                  Subcommittee, as appropriate. Further, if the supply group is to provide
                  more timely and responsive support to its customers, the Air Force must
                  resolve the problem of not having the necessary component parts needed
                  to fix broken repairable items.



Recommendation    We recommend that the Secretary of the Air Force direct the AFMC
                  Commander to implement a comprehensive program to address depot
                  maintenance activities’ AWP problems. As a minimum, the AFMC
                  Commander should develop (1) a strategy for identifying and correcting the
                  underlying causes of the problem, (2) a systematic process for identifying
                  and focusing management attention on the most critical AWP problem
                  items, (3) a standardized approach that item managers can use to obtain
                  and analyze data on AWP problems, and (4) more reliable data on the
                  number and type of component parts that will be needed to repair broken
                  repairable items.



Agency Comments   In its comments, DOD concurred with our recommendation and stated that
                  the Air Force is taking action to improve its supply parts availability.
                  Specifically, additional funding was provided for the purchase of spare
                  parts in fiscal year 1999, and DOD also provided the Air Force with
                  $382 million in additional contract authority to purchase parts to improve
                  parts availability beginning in fiscal year 2000. The Air Force is also
                  conducting two studies to (1) improve the forecasting of inventory items
                  that customers need and (2) help correct the awaiting parts problems. DOD
                  also noted that the aging of aircraft, increased operations tempo, and
                  technical surprises have all contributed to increased demands on the
                  supply system and the Air Force is working to fix the problems noted in the
                  audit.

                  DOD’s comments also stipulated that despite shortfalls in the Agile
                  Logistics program, it has helped the Air Force reduce its supply pipeline
                  from 67 days in fiscal year 1994 to 52 days in 1998. We recognize that the Air
                  Force has initiated numerous process improvements attempting to reduce



                  Page 41                           GAO/NSIAD/AIMD-99-77 Air Force Supply Management
Chapter 3
Budget, Inventory Management, and Repair
Problems Were Primary Causes of Spare
Parts Shortages




its processing time, and its fiscal year 1998 budget was predicated on an
average pipeline time frame of 52 days. The Air Force reduced its budget
based on these predicated savings. Data available to us indicated that the
Supply Group’s average pipeline time for the fourth quarter of fiscal year
1998 was 87.5 days. As noted in our report, the Air Force’s inability to
achieve the 52 day goal was due largely to a shortage of component parts
(called awaiting parts) and items on backorder. The pipeline time
associated with awaiting parts and backorders accounted for 37.1 of the
87.5 days




Page 42                           GAO/NSIAD/AIMD-99-77 Air Force Supply Management
Page 43   GAO/NSIAD/AIMD-99-77 Air Force Supply Management
Appendix I

Listing of the Reports in This Series                                                       AppeInxdi




                DOD Information Services: Improved Pricing and Financial Management
                Practices Needed for Business Area (GAO/AIMD-98-182, Sept. 15, 1998).

                Air Force Supply Management: Analysis of Activity Group’s Financial
                Reports, Prices, and Cash Management (GAO/AIMD/NSIAD-98-118,
                June 8, 1998).

                Navy Ordnance: Analysis of Business Area Efforts to Streamline
                Operations and Reduce Costs (GAO/AIMD/NSIAD-98-24, Oct. 15, 1997).

                Navy Ordnance: Analysis of Business Area Price Increases and Financial
                Losses (GAO/AIMD/NSIAD-97-74, Mar. 14, 1997).




                Page 44                      GAO/NSIAD/AIMD-99-77 Air Force Supply Management
Appendix II

Comments From the Department of Defense                                AppIex
                                                                            ndi




              Page 45   GAO/NSIAD/AIMD-99-77 Air Force Supply Management
                     Appendix II
                     Comments From the Department of Defense




Now on pp. 10, 40.




                     Page 46                          GAO/NSIAD/AIMD-99-77 Air Force Supply Management
Appendix III

Major Contributors to This Report                                                                    AIpIex
                                                                                                          ndi




Accounting and                Gregory E. Pugnetti, Assistant Director
                              Ron L. Tobias, Accountant-in-Charge
Information                   William A. Hill, Senior Accountant
Management Division,          Cristina Chaplain, Communications Analyst
Washington D.C.

San Francisco Field           Eddie W. Uyekawa, Evaluator-in-Charge
                              Karl J. Gustafson, Senior Evaluator
Office                        Christine D. Frye, Senior Evaluator
                              Donald Y. Yamada, Senior Evaluator




(709337 and 511641)   L
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