oversight

Defense Logistics: DOD Has Taken Actions to Improve Some Segments of the Materiel Distribution System

Published by the Government Accountability Office on 2012-08-03.

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

United States Government Accountability Office
Washington, DC 20548




    August 3, 2012

    The Honorable Carl Levin
    Chairman
    The Honorable John McCain
    Ranking Member
    Committee on Armed Services
    United States Senate

    The Honorable Howard P. McKeon
    Chairman
    The Honorable Adam Smith
    Ranking Member
    Committee on Armed Services
    House of Representatives

    Subject: Defense Logistics: DOD Has Taken Actions to Improve Some Segments of the Materiel
    Distribution System

    The Department of Defense (DOD) operates a complex, multibillion-dollar distribution system for
    delivering needed supplies and equipment to U.S. forces across the world. DOD's goal in
    operating its global distribution system is to deliver the right item to the right place at the right
    time, and also at the right cost. The materiel distribution system covers multiple legs, from the
    movement of supplies in the continental United States to tactical movement on the battlefield,
    and must be capable of reaching its military customers whether they are located on large, well-
    established bases or at small, remote outposts. As we have reported, the federal government is
    facing serious long-term fiscal challenges, and DOD may confront increased competition over
    the next decade for federal discretionary funds. 1 Given the fiscal environment DOD must
    operate in now and into the future, the distribution of supplies and equipment to the warfighter
    must be performed as effectively and efficiently as possible to ensure the best use of limited
    resources. Strategic guidance issued by the Secretary of Defense in January 2012 emphasized
    that DOD must continue to reduce the cost of doing business, in particular finding further
    efficiencies in overhead, business practices, and support activities. 2

    Since 1990, GAO has identified DOD supply chain management as a high-risk area, with
    materiel distribution as one focus area for improvement. 3 Our prior work, for example, has

    1
     GAO, The Federal Government’s Long-Term Fiscal Outlook: January 2010 Update, GAO-10-468SP (Washington,
    D.C.: March 2010); and 21st Century Challenges: Reexamining the Base of the Federal Government, GAO-05-
    325SP (Washington, D.C.: February 2005).
    2
        Department of Defense, Sustaining U.S. Global Leadership: Priorities for 21st Century Defense (Jan. 5, 2012).
    3
     This high-risk area was originally identified in 1990 as DOD inventory management. In 2005, it was expanded to
    DOD’s management of its entire supply chain, which includes three focus areas for improvement: requirements


    Page 1                                                                             GAO-12-883R Defense Logistics
identified challenges DOD faced in distributing materiel to the warfighter in Iraq and
Afghanistan, which contributed to shortages of some critical items and limited DOD’s ability to
track the status and location of cargo shipments. In its high-level logistics and supply chain
management plans, 4 DOD highlighted the need to improve materiel distribution and identified
various improvement initiatives, but in our prior work we found that these high-level plans did
not specify how DOD would integrate, guide, and measure the outcomes of these various
improvement initiatives. In July 2011, we recommended that DOD develop a comprehensive
corrective action plan for improving materiel distribution, and we identified key elements that we
believe should be included in such a plan to maximize its usefulness. 5 However, DOD did not
concur with that recommendation, citing ongoing improvement efforts as sufficient. In particular,
DOD highlighted Distribution Process Owner Strategic Opportunities (DSO) as one such effort.
According to the department, DSO began in 2008 and its main goals are to dramatically reduce
enterprise-level distribution costs and improve distribution service levels to the warfighter. DSO
comprises five distinct improvement efforts, including four that have been implemented and are
ongoing and one, strategic network optimization, that is still in development and is now
considered a stand-alone effort. Within DOD, U.S. Transportation Command (TRANSCOM) and
the Defense Logistics Agency (DLA) have had key roles and responsibilities for developing and
implementing DSO. Table 1 summarizes the five DSO improvement efforts.

Table 1: DOD’s Five DSO Improvement Efforts
Effort                                Description                                               Status
Process improvement                   Removing unnecessary wait time from distribution          Ongoing
                                      processes across the supply chain
Strategic surface optimization        Increasing container utilization and appropriately        Ongoing
                                      shifting cargo from 20-foot containers to 40-foot
                                      containers
Strategic air optimization            Increasing aircraft utilization and optimizing use of     Ongoing
                                      lift options, such as using commercial (rather than
                                      military) aircraft when appropriate
Supply alignment                      Properly configuring inventory levels at forward          Ongoing
                                      supply depots located nearer to the customer
Strategic network optimizationa       Designing the optimal number, location, and               In development
                                      function of supply chain sites
Source: TRANSCOM and DLA.
a
Strategic network optimization began under DSO and is currently being managed as a stand-alone effort.



forecasting, asset visibility, and materiel distribution. For our most recent update, see GAO, High-Risk Series: An
Update, GAO-11-278 (Washington, D.C.: February 2011).
4
 These include DOD’s Supply Chain Management Improvement Plan (2005), Focused Logistics Roadmap (2005),
Logistics Roadmap (2008), and Logistics Strategic Plan (2010).
5
 Specifically, our recommendation stated that DOD's corrective action plan for materiel distribution should (1) identify
the scope and root causes of capability gaps and other problems, effective solutions, and actions to be taken to
implement the solutions; (2) include the characteristics of effective strategic planning, including a mission statement;
goals and related strategies (for example, objectives and activities); performance measures and associated
milestones, benchmarks, and targets for improvement; resources and investments required for implementation; key
external factors that could affect the achievement of goals; and the involvement of all key stakeholders in a
collaborative process to develop and implement the plan; and (3) document how the department will integrate these
plans with its other decision-making processes; delineate organizational roles and responsibilities; and support
department-wide priorities identified in higher-level strategic guidance (such as the Strategic Management Plan and
Logistics Strategic Plan). See GAO, Defense Logistics: DOD Needs to Take Additional Actions to Address
Challenges in Supply Chain Management, GAO-11-569 (Washington, D.C.: July 28, 2011).


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Because of continuing congressional interest in GAO’s high-risk areas, including DOD supply
chain management, this report was prepared under the authority of the Comptroller General to
conduct evaluations on his own initiative. This report provides an assessment of DOD's
implementation of DSO and the results achieved. Our specific objectives were to assess the
extent to which (1) DOD has developed and implemented DSO consistent with results-oriented
management practices and (2) DSO has made improvements to DOD’s materiel distribution
system and addressed supply chain management challenges identified as part of our work
related to this high-risk area.

To assess the extent to which DOD developed and implemented DSO consistent with results-
oriented management practices, we reviewed key planning documents and met with agency
officials to obtain further information on its management and execution. 6 We assessed the
extent to which these planning documents showed evidence that DOD had incorporated key
characteristics of results-oriented management practices. 7 To conduct our analysis, three team
members concurrently conducted independent assessments of the planning documents to
determine whether the characteristics for each improvement effort were addressed, partially
addressed, or not addressed. Next, the team members compared the three sets of observations
and discussed and reconciled any differences. Once consensus was achieved, assessments for
each improvement effort were rolled up into one comprehensive assessment for each
characteristic. We considered the characteristic addressed when the planning documents
generally incorporated all parts of the characteristic. We considered the characteristic partially
addressed when the planning documents generally incorporated at least one or more parts of
the characteristic. We considered the characteristic not addressed when the planning
documents did not incorporate any part of the characteristic. Because strategic network
optimization is still under development, we reviewed it separately from the implemented efforts.
To assess the extent to which DSO has made improvements to DOD’s materiel distribution
system and has addressed issues identified in our past work, we obtained and analyzed
performance data and reports from TRANSCOM and DLA, including information on cost
avoidances and shipment delivery times. We assessed the reliability of the cost avoidance and
shipment delivery time data by reviewing related data documentation, analyzing the
methodology used to determine DSO improvements, and interviewing and obtaining written
comments from knowledgeable TRANSCOM and DLA officials. We determined that the data
were sufficiently reliable for our purposes to assess the extent to which DSO has made
improvements to DOD materiel distribution. We also reviewed planning documents and
interviewed Office of the Secretary of Defense, TRANSCOM, DLA, and service officials to
determine the scope of DSO improvement efforts across DOD’s materiel distribution system.
Additional information on our scope and methodology is provided in enclosure I.

6
 According to TRANSCOM officials, the two main planning documents for DSO were Distribution Process Owner
Strategic Opportunities Fiscal Year 2008 Report (Sept. 26, 2008) and DPO Strategic Opportunities Recommended
Implementation Plan: Process Improvement, Strategic Surface Optimization, and Strategic Air Optimization (Sept. 30,
2009).
7
 Our prior work has identified six desirable characteristics that help establish a comprehensive, results-oriented
management framework to guide the development and implementation of improvement efforts. The six characteristics
of the results-oriented management framework are: (1) mission statement; (2) problem definition, scope, and
methodology; (3) goals, objectives, activities, milestones, and performance measures; (4) resources and investments;
(5) organizational roles, responsibilities, and coordination; and (6) key external factors that could affect the
achievement of goals. See GAO, Combating Terrorism: Evaluation of Selected Characteristics in National Strategies
Related to Terrorism, GAO-04-408T (Washington, D.C.: Feb. 3, 2004); Depot Maintenance: Improved Strategic
Planning Needed to Ensure That Air Force Depots Can Meet Future Maintenance Requirements, GAO-10-526
(Washington, D.C.: May 14, 2010); and DOD’s 2010 Comprehensive Inventory Management Plan Addressed
Statutory Requirements, But Faces Implementation Challenges, GAO-11-240R (Washington, D.C.: Jan. 7, 2011).


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We conducted this performance audit from November 2011 to August 2012 in accordance with
generally accepted government auditing standards. Those standards require that we plan and
perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe that the evidence obtained
provides a reasonable basis for our findings and conclusions based on our audit objectives.

Results in Brief

DOD incorporated results-oriented management practices into the planning and development of
the four ongoing DSO improvement efforts. Additionally, it appears that DOD is incorporating
those practices into its planning for the fifth effort—strategic network optimization—which is still
under development. On the basis of our assessment of DOD’s key planning documents and
other information for the process improvement, surface optimization, air optimization, and
supply alignment efforts, we found that DOD addressed the six characteristics found in the
framework. For example, DOD identified the main purpose of the improvement efforts, their
scope, and the resources needed to execute individual efforts. Preliminary observations of
DOD's planning for strategic network optimization indicate that agency officials are also
incorporating results-oriented management practices for this effort. For example, DOD has
developed a mission statement and established mechanisms to coordinate with stakeholders.
However, because planning is still underway for strategic network optimization, we were unable
to fully assess the extent to which DOD has used result-oriented management practices to
develop and implement this improvement effort. For example, DOD has not yet decided how to
implement the effort nor developed specific performance measures to assess progress.

The implemented DSO efforts have improved some segments of DOD’s materiel distribution
system, but these efforts were not intended to address all challenges that DOD faces in materiel
distribution and that we have identified in our past work. When DSO began in 2009, the
department emphasized two overarching goals: (1) achieve $500 million in cost avoidances and
(2) improve shipment delivery times by 25 percent by 2012. 8 With regard to the first goal, DOD
has reported cost efficiencies through increasing utilization of containers, pallets, and aircraft;
shifting more cargo to larger containers; and positioning supplies closer to overseas customers.
According to DOD, these efficiencies led to over $490 million in cost avoidances. With regard to
the second goal, DOD reported better shipment delivery times for a limited number of
customers. For example, TRANSCOM’s process improvement effort led to better delivery times
on 31 (6 percent) of DOD’s approximately 500 shipping lanes. 9 TRANSCOM and DLA have
been institutionalizing some improvements from the four ongoing DSO efforts into their business
operations. For example, DLA has revised its model for determining the types and amount of
inventory to position at forward locations to factor in transportation costs. The institutionalization
of these improvements could result in additional efficiencies to DOD’s materiel distribution
system. In addition, following DOD’s initial implementation of DSO, the Distribution Process
Owner Executive Board set a new goal in February 2012 for DSO to achieve another $500
million in cost avoidances by the end of fiscal year 2015, and TRANSCOM is pursuing new


8
 Cost avoidance refers to costs that DOD would have incurred if the DSO initiatives had not been implemented.
Shipment delivery time, also known as logistics response time, measures the time from submission of a requisition for
an item to the delivery of the item to a retail supply organization, such as an Army supply support activity.
9
 Shipping lanes are defined by the location of the military customer, the mode of transportation used to deliver
requisitioned supplies, and the location of the supply source. For example, DOD operates a shipping lane that
delivers repair parts to customers in South Korea by means of U.S. military aircraft from Defense Depots located in
the continental United States.


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initiatives to meet this updated goal. 10 Although DOD has achieved some positive results from
its DSO efforts, the initiative was not developed with the intent to address all challenges that
DOD faces in its materiel distribution system, including some that we have identified in our prior
work on supply support to the warfighter. For example, DOD reported better delivery times for
some customers in three geographic combatant commands as a result of DSO, but often did not
meet its delivery standards for shipments to those commands. Additionally, DSO was designed
to improve the distribution operations of TRANSCOM and DLA, which does not include tactical
movement of supplies and equipment within theaters of operation, such as Afghanistan.

We are not making any new recommendations in this report.

Background

The performance of DOD's materiel distribution system relies on many stakeholders, each with
different responsibilities, systems, and processes. Two key stakeholders are TRANSCOM and
DLA. With annual operating expenses of over $13 billion, TRANSCOM delivers supplies and
equipment to major hubs across the globe and often across oceans, whether by air or by sea. In
fiscal year 2011, TRANSCOM shipped more than 700,000 tons of cargo by air and nearly 800
million cubic feet of cargo by sea. DLA purchases and provides the majority of the spare parts
needed to maintain weapon systems and other military equipment. The agency also supplies
food, water, fuel, and many other necessities. DLA manages 5 million supply items at 26
distribution centers worldwide while processing over 100,000 requisitions for supplies every day.

DOD’s materiel distribution system includes four segments—intracontinental movement,
strategic movement, theater movement, and tactical movement. (See fig. 1.)




10
  The Distribution Process Owner Executive Board is the senior decision-making forum charged with implementing
initiatives in this area. The board is chaired by the TRANSCOM Commander, and members include the Deputy Under
Secretary of Defense for Logistics and Materiel Readiness; General Services Administration; the Director of the Joint
Staff J4; the DOD Deputy Chief Management Officer; and the Director of the Defense Logistics Agency. Other DOD
stakeholders—such as the combatant commands and military services—also provide representatives.


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Figure 1: Four Segments of DOD’s Materiel Distribution System




    •    Intracontinental movement. This segment includes movement from the materiel’s point
         of origin (e.g., DLA warehouse or service installation) to a port of embarkation (e.g.,
         seaport or aerial port in the United States). DLA and the military services normally
         perform distribution functions in this leg.
    •    Strategic movement. This segment, also known as the intertheater leg, includes
         movement from the port of embarkation to the port of debarkation in another geographic
         combatant command’s area of responsibility (e.g., Kuwait aerial port in the U.S. Central
         Command area of responsibility). TRANSCOM normally performs distribution functions
         in this leg.
    •    Theater movement. This segment, also known as the intratheater leg, includes
         movement from the port of debarkation to the point of need, which is a physical location
         designated by the geographic combatant commander as a receiving point for materiel for
         subsequent use or consumption (e.g., a major base in Afghanistan, such as Bagram
         Airfield). The geographic combatant commander is responsible for movement in this leg.
         TRANSCOM can also provide distribution support in this leg.
    •    Tactical movement. This segment includes movement from the point of need to the
         point of employment, which is a physical location designated by the commander at the
         tactical level where materiel consumption occurs (e.g., a forward-operating base in
         Afghanistan). The geographic combatant commander assigns responsibility to a military
         service for movement in this leg.
Two organizations within DOD have important oversight roles and responsibilities for supply
chain management and materiel distribution—the Under Secretary of Defense for Acquisition,
Technology and Logistics, and TRANSCOM. The Under Secretary of Defense for Acquisition,
Technology and Logistics serves as the principal staff assistant and advisor to the Secretary of
Defense for all matters relating to defense logistics, among other duties. The Under Secretary
has also been designated as the department’s Defense Logistics Executive with overall
responsibility for improving and maintaining defense logistics and the global supply chain
system. In addition, in his capacity as the Defense Logistics Executive, the Under Secretary of
Defense for Acquisition, Technology and Logistics has the responsibility, in coordination with the
Chairman of the Joint Chiefs of Staff, to prepare any directives, instructions, and decision
memos, and to suggest legislative changes, in his area of responsibility. TRANSCOM, in
addition to its responsibilities for transporting supplies and equipment in support of military
operations, has been designated as DOD’s Distribution Process Owner with responsibility for


Page 6                                                              GAO-12-883R Defense Logistics
overseeing the overall effectiveness, efficiency, and alignment of DOD-wide distribution
activities. 11 According to the Office of the Secretary of Defense, that role extends to the first
three legs of distribution and does not include the fourth—tactical movement. We have
previously reported that excluding this portion of the distribution process from TRANSCOM’s
Distribution Process Owner responsibilities leaves a fragmented process without any
comprehensive oversight or visibility across all four levels of the distribution system. 12

TRANSCOM—in its role as the Distribution Process Owner—began DSO in 2008 as an effort to
identify opportunities to significantly improve the performance of DOD-wide distribution
processes. This effort was intended to identify an actionable set of opportunities—approximately
five—that would generate substantial cost avoidances and significant improvements in the DOD
supply chain. A DSO project team began a process for identifying potential opportunities to
pursue. The team first developed criteria for defining a potential “strategic opportunity.” Some of
these criteria included falling within the scope of authority granted to the Distribution Process
Owner; being based on strategies and processes proven to generate results in leading supply
chains and applicable in the DOD environment; having a plausible path to implementation; and
being able to produce measurable improvements. The next step in the process was to identify
possible opportunities for improvement. The team identified performance gaps; held
brainstorming sessions with relevant transportation stakeholders; conducted literature reviews;
assessed the feasibility of the opportunities; and analyzed potential cost avoidances and
performance improvements. Using this process, the DSO project team identified over 38
possible opportunities and, by September 2008, had narrowed the list down to five actionable
efforts. In March 2009, the Distribution Process Owner Executive Board approved DSO for
implementation.

Although TRANSCOM initially developed and centrally managed DSO, the responsibility for
implementing the individual efforts evolved. Currently, TRANSCOM is providing oversight for the
first three efforts—process improvement, strategic surface optimization, and strategic air
optimization—and DLA is responsible for overseeing supply alignment. Strategic network
optimization has become a stand-alone effort. DLA, in collaboration with the military services, is
involved in the planning for this effort, which is expected to begin implementation in October
2013. According to DOD officials, the Office of Supply Chain Integration within the Office of the
Under Secretary of Defense for Acquisition, Technology and Logistics is overseeing the effort.

DOD Used Results-Oriented Management Practices to Develop and Implement DSO

Our assessment of planning documents and other information for the four DSO improvement
efforts that have been implemented determined that DOD incorporated results-oriented
management practices into the development and implementation of these efforts. Specifically,
our analysis showed that the process improvement, surface optimization, air optimization, and
supply alignment improvement efforts addressed the six characteristics of a results-oriented
management framework. The results of our assessment of these four implemented efforts are
summarized in table 2. Although development of the fifth DSO effort—strategic network

11
  According to DOD Instruction 5158.06, Distribution Process Owner (DPO) (Sept. 11, 2007), the process owner “has
the responsibility for coordinating, sustaining, and improving processes; coordinating the creation of new processes,
where appropriate; and being accountable for their outcomes. Process owners advocate improvements for and
across all DoD Components for effectiveness, efficiency, and alignment relevant to a particular process.” See also
DOD Directive 5158.04, United States Transportation Command (USTRANSCOM) (Sept. 11, 2007).
12
 GAO, Warfighter Support: DOD Has Made Progress, but Supply and Distribution Challenges Remain in
Afghanistan, GAO-12-138 (Washington, D.C.: Oct. 7, 2011).


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optimization—is still underway, DOD’s planning process to date also appears to be
incorporating results-oriented management practices.

Table 2: Characteristics of Results-Oriented Management Practices Used in Four DSO Improvement Efforts
That Have Been Implemented
Characteristics                                            GAO assessment
(1) Mission Statement: A comprehensive statement           Addressed
that summarizes the main purposes of the plan.
                                                           The four implemented DSO efforts generally
                                                           included comprehensive statements that identified
                                                           the main purposes of each respective plan.
                                                           For example, the process improvement effort’s
                                                           comprehensive statement is to reduce unnecessary
                                                           downtime (namely, delays or redundancies) in end-
                                                           to-end distribution processes that will enable DOD to
                                                           synchronize and optimize elements of its distribution
                                                           system.


(2) Problem definition, scope, and methodology:            Addressed
Presents the issues to be addressed by the plan, the
scope of its coverage, the process by which it was         The four implemented DSO efforts generally
developed, and key considerations and assumptions          identified problems to be addressed (e.g., identifying
used in the development of the plan.                       potential cost avoidances and efficiencies), the
                                                           scope of coverage, and the methodology by which
                                                           each effort was developed.
                                                           For example, the strategic surface optimization effort
                                                           determined that surface transportation of materiel
                                                           was not as efficient as it could be and that if DOD
                                                           better-utilized containers to transport cargo, it could
                                                           potentially save as much as $105 million per year.
                                                           The DSO team identified potential opportunities for
                                                           cargo consolidation and shipment delivery-time
                                                           improvements within the U.S. Central Command,
                                                           the U.S. European Command, and the U.S. Pacific
                                                           Command areas of responsibility.


(3) Goals, objectives, activities, milestones, and         Addressed
performance measures: The identification of goals
and objectives to be achieved by the plan, activities or   The four implemented DSO efforts identified a
actions to achieve those results, as well as milestones    comprehensive goal of achieving $500 million in
and performance measures.                                  cost avoidances and improving shipment delivery
                                                           time by 25 percent by the end of fiscal year 2012.
                                                           Each improvement effort identified specific
                                                           objectives/targets tied to the comprehensive goal,
                                                           including how shipment delivery-time improvements
                                                           will be measured.
                                                           For example, the strategic air optimization effort
                                                           identified objectives of up to $123 million in cost
                                                           avoidances and up to 10 percent improvement to
                                                           shipment delivery times by 2012. In addition, the
                                                           supply alignment effort identified a potential to
                                                           achieve up to $241 million in cost avoidances and a
                                                           5 to 15 percent improvement to shipment delivery
                                                           times.




Page 8                                                                             GAO-12-883R Defense Logistics
Characteristics                                                GAO assessment
(4) Resources and investments: The identification of           Addressed
costs to execute the plan and the sources and types of
resources and investments, including skills and                The four implemented DSO efforts generally
technology and the human, capital, information, and            identified resources and investments needed to
other resources required to meet the goals and                 reach their goals or desired end states.
objectives.                                                    For example, the strategic air optimization effort
                                                               identified a onetime needed investment of up to $15
                                                               million over 3 years to develop and implement
                                                               increased weight and volume utilization of aircraft
                                                               and to institutionalize air optimization processes
                                                               across DOD’s distribution operations.


(5) Organizational roles, responsibilities, and                Addressed
coordination: The development of roles and
responsibilities in managing and overseeing the                The four implemented DSO efforts generally
implementation of the plan and the establishment of            identified key stakeholders or organizations that
mechanisms for multiple stakeholders to coordinate             have roles in coordinating, implementing, or
their efforts throughout implementation and make               executing these efforts.
necessary adjustments to the plan based on                     For example, DLA is the lead organization for the
performance.                                                   supply alignment effort and coordinates with
                                                               stakeholders that include the Defense Distribution
                                                               Centers, the General Services Administration,
                                                               TRANSCOM, and other DOD supply chain
                                                               management officials at locations outside the
                                                               continental United States.


(6) Key external factors that could affect the                 Addressed
achievement of goals: The identification of key
factors external to the organization and beyond its            The four implemented DSO efforts generally
control that could significantly affect the achievement        identified key external factors, such as coordinating
of the long-term goals contained in the plan. These            with stakeholders/organizations that are not under
external factors can include economic, demographic,            the control of the respective effort’s lead
social, technological, or environmental factors, as well       organization (e.g., TRANSCOM or DLA).
as conditions that would affect the ability of the agency      For example, TRANSCOM officials said that as part
to achieve the results desired.                                of their process improvement effort, they needed to
                                                               get cooperation from other DOD or federal
                                                               organizations that play a role in DOD’s distribution
                                                               system. By getting cooperation from the General
                                                               Services Administration for distribution of hazardous
                                                               materials to Afghanistan, DOD was able to improve
                                                               shipment delivery times. Without cooperation from
                                                               organizations outside of TRANSCOM’s direct
                                                               control, officials said that they are limited in the
                                                               amount of shipment delivery time improvements that
                                                               DOD is able to realize.
Source: GAO analysis of DOD data.


Note: The four DSO improvement efforts included in this assessment are process improvement; strategic surface optimization;
strategic air optimization; and supply alignment.


The descriptions of the individual improvement efforts below provide illustrative examples of
how results-oriented management practices were incorporated into the development and
implementation of DSO.




Page 9                                                                                   GAO-12-883R Defense Logistics
Process Improvement Incorporated a Comprehensive Statement and Pilot Testing

The DSO planning team addressed the first and second characteristics of results-oriented
management practices by developing a comprehensive statement describing the purpose of the
process improvement effort, and by refining a methodology to accomplish the effort’s purpose
that was ultimately applied to other locations. The process improvement effort focuses on the
removal of unnecessary wait time from distribution processes. According to DSO planning
documents, unnecessary wait time often develops within supply chain centers as they modify
their formal business practices or adopt informal norms that become standard operating
procedures. Therefore, the purpose of the process improvement effort as identified in DSO
planning documents is to remove unnecessary wait time and rapidly deploy those improved
processes across the supply chain.

As part of their effort to refine the methodology to remove unnecessary wait time, the DSO team
conducted a pilot test in Europe and applied the general methodology from the results of the
pilot to other locations. For example, TRANSCOM officials identified a 2-week delay in
processing orders at a facility that held and shipped hazardous materials to Afghanistan.
Officials said that the amount of time it takes to pack materiel into containers for most orders at
the facility is generally about 20 minutes. However, officials noticed that in some cases, certain
batches of orders would take more than 2 weeks to arrive at the warehouse for the cargo to be
retrieved and packed. In concert with officials at the organization running the facility, the DSO
team assessed the potential causes for the delay and attributed it to some of the order
processing procedures at the facility. Specifically, the standard operating procedure at the
facility was to process orders in batches—that is, when individual orders were received by the
facility, the individual orders would be processed as a group. In some cases, the facility would
receive an individual order that was complicated and required more time to process because of
the nature of the materiel. Because the processing procedures dictated that the orders be
processed in batches, the relatively easy orders would be delayed while the more-complicated
order was processed. To address this concern, rather than having orders sent in batches,
TRANSCOM officials said once an order is processed it is sent to the warehouse for packing
rather than waiting for the entire batch of orders to be processed. As a result of this and other
process improvements, TRANSCOM officials reported that the time it takes to process, pack,
and ship hazardous materials from the facility to Afghanistan had dropped from 36 days in June
2011 to 11 days in April 2012.

Strategic Surface Optimization Identified Clear Goals and Estimated Resources

As part of the planning and implementation of the strategic surface optimization effort, the DSO
team addressed the third and fourth characteristics of results-oriented management practices by
developing goals and identifying resources and investments necessary to achieve these goals.
The strategic surface optimization effort focuses on consolidating cargo in the continental United
States for certain customers into well-utilized, mix-packed 40-foot containers rather than pure-
packed 20-foot containers. 13 Pure packing refers to filling a container with cargo intended to
arrive at a single destination, while mix packing refers to filling a container with a mix of cargo
that is intended for multiple destinations. Mixed containers are often shipped to a regional
location outside of the continental United States, where the container’s contents are unpacked,
sorted, and shipped to their final destination within that region. According to DSO planning
documents, the goal of this effort is to improve the utilization of containers and packing

13
 According to Marine Corps officials, 40-foot containers generally cannot be used for cargo being moved to forward-
operating bases in tactical environments.


Page 10                                                                          GAO-12-883R Defense Logistics
processes, which the planning documents originally estimated could improve the speed of
delivery by up to 5 percent and result in potential cost avoidances of $52 million to $105 million
per year through reduced shipping costs. To implement initiatives within this DSO effort, the
DSO planning documents estimated that the resources and investments necessary to facilitate
the improvement totaled approximately $7 million to $10 million over a 3-year period. According
to the DSO planning documents, this investment would institutionalize the use of 40-foot
containers as a common operating practice for surface shipments. TRANSCOM officials said
that the consolidation of materiel into 40-foot containers saves money and improves delivery
speed at the strategic level. For example, TRANSCOM officials said that, on average, 20-foot
pure-packed containers take 10 days to fill prior to shipping, while 40-foot mix-packed
containers take 1.5 days to fill. In addition, TRANSCOM officials said that 40-foot containers
have twice the capacity of 20-foot containers but only cost slightly more per container to
transport.

Strategic Air Optimization Identified Inefficiencies and Modified Existing Metrics

The DSO team addressed the second and third characteristics of results-oriented management
practices by determining that potential cost avoidances could be achieved through the
increased utilization of pallets on air shipments and by modifying pallet utilization metrics. The
strategic air optimization effort focused on selecting the best mode of air transport service (e.g.,
military versus commercial carriers) on the basis of customer requirements and the amount of
traffic bound for a specific destination. According to DSO planning documents, DOD officials did
not always optimize cost when using air to ship cargo as some planes were not fully utilized.
Increasing utilization of the pallets on aircraft could potentially reduce air transportation costs
and, in some cases, improve the speed of delivery. The DSO planning documents identified
specific goals for initiatives conducted under this DSO effort, such as potentially avoiding up to
$123 million in air cargo costs. To illustrate how the strategic air optimization effort could
improve efficiency and potentially cut costs, TRANSCOM analyzed aircraft utilization at the four
major aerial ports of embarkation in the continental United States 14 and identified that changing
the metrics used to gauge performance could increase pallet utilization. For example,
TRANSCOM officials found that aerial porters at Dover Air Force Base were measuring the
number of pallets being transported on aircraft but not measuring how much materiel was on
each pallet. According to TRANSCOM officials, shifting the focus to building fuller pallets
resulted in 3,200 more tons being shipped on 121 fewer aircraft missions.

Supply Alignment Established Clear Organizational Roles

The DSO team addressed the fifth characteristic of results-oriented management practices by
defining the roles of stakeholders; and addressed the fourth characteristic by developing a
model to determine the appropriate amount of resources needed to implement this effort
globally. The supply alignment effort focuses on adjusting inventory levels at forward supply
depots in order to account for transportation costs. According to DSO planning documents, by
stocking the right types and amounts of inventory at forward supply depots, DOD could
potentially minimize distribution costs and improve customer-service levels. During the
development of specific initiatives in this DSO effort, the DSO planning documents noted that
coordination would be necessary for multiple organizations—such as DLA, TRANSCOM, the
General Services Administration, and the services. To identify the type and quantity of supplies
needed at forward supply depots, DLA developed an Economic Movement Quantity model that

14
 The four aerial ports of embarkation are: Dover Air Force Base, Delaware; Joint Base McGuire-Dix-Lakehurst, New
Jersey; Travis Air Force Base, California; and Naval Air Station Norfolk, Virginia.


Page 11                                                                        GAO-12-883R Defense Logistics
is based on July 2010 demand data for supplies at locations outside the continental United
States. DLA officials stated that implementation of the model’s results began in July 2011 and
involved purchasing additional inventory and repositioning existing inventory, including the
acquisition of $60 million in up-front investments of cash and equipment from TRANSCOM and
the Army.

Preliminary Observations Indicate Planning for Strategic Network Optimization Is Incorporating
Results-Oriented Management Practices

Preliminary observations of DOD's planning for strategic network optimization indicate that
agency officials are incorporating results-oriented management practices. The strategic network
optimization effort is being designed to improve logistics efficiencies in DOD’s distribution
network and reduce transportation costs by storing materiel at strategically located DLA supply
sites (see enc. II). Because planning is still underway for strategic network optimization, we
were unable to fully assess the extent to which DOD has used result-oriented management
practices to develop and implement this improvement effort. Our preliminary observations are
summarized in table 3.

Table 3: Preliminary Observations on DOD's Incorporation of Results-Oriented Management Practices into
the Planning of the Strategic Network Optimization Improvement Effort

Characteristics                                            Preliminary observations
(1) Mission Statement: A comprehensive statement           This effort’s mission statement is to optimize the
that summarizes the main purposes of the plan.             DOD global storage and distribution network while
                                                           continuing to meet customer requirements at the
                                                           best value and provide timely, agile, and effective
                                                           support to the warfighter.


(2) Problem definition, scope, and methodology:            Officials defined the problem as being significant
Presents the issues to be addressed by the plan, the       constraints on supply chain performance including
scope of its coverage, the process by which it was         location, function, and capacity of supply sites and
developed, and key considerations and assumptions          routes. The scope is identified as sourcing, storage,
used in the development of the plan.                       and distribution centers inside and outside the
                                                           continental United States. The methodology
                                                           includes three potential courses of action for
                                                           developing strategically placed sourcing and
                                                           distribution centers inside and outside the
                                                           continental United States, as well as global and
                                                           domestic centers for the disposal of materiel.
(3) Goals, objectives, activities, milestones, and         Objectives include (1) leveraging joint collaboration
performance measures: The identification of goals          across DOD to implement a more efficient strategic
and objectives to be achieved by the plan, activities or   network that supports the warfighter; and (2)
actions to achieve those results, as well as milestones    optimizing the global storage and distribution
and performance measures.                                  network that provides responsive and cost-effective
                                                           service.
                                                           Milestones identified by DLA officials include (1)
                                                           computer simulation of the effort’s model in summer
                                                           2012; and (2) development of DOD budget
                                                           documents that will identify projected cost savings in
                                                           fiscal year 2014.
                                                           DLA officials said that specific performance
                                                           measures are being developed.




Page 12                                                                             GAO-12-883R Defense Logistics
Characteristics                                             Preliminary observations
(4) Resources and investments: The identification of        Resources and investments include onetime
costs to execute the plan and the sources and types of      implementation costs totaling about $52.1 million,
resources and investments, including skills and             according to DLA (Army: $6.4 million; Navy: $0.2
technology and the human, capital, information, and         million; Air Force: $4.1 million; Marine Corps: $1.1
other resources required to meet the goals and              million; and DLA: $40.3 million).
objectives.

(5) Organizational roles, responsibilities, and             Lead organization: DLA
coordination: The development of roles and
                                                            Stakeholders: Collaboration by the Army, Navy, Air
responsibilities in managing and overseeing the
implementation of the plan and the establishment of         Force, and Marine Corps. Stakeholders fund
mechanisms for multiple stakeholders to coordinate          implementation costs and are projected to realize
their efforts throughout implementation and make            savings from this effort.
necessary adjustments to the plan based on
performance.
(6) Key external factors that could affect the              External factors identified by DLA officials that
achievement of goals: The identification of key             could affect the achievement of the effort’s goals
factors external to the organization and beyond its         include (1) adoption of business rules for acquisition
control that could significantly affect the achievement     of materiel by stakeholders; (2) DLA’s reliance on
of the long-term goals contained in the plan. These         the services to provide accurate cost savings data;
external factors can include economic, demographic,         and (3) collaboration with stakeholders outside of
social, technological, or environmental factors, as well    DLA’s control.
as conditions that would affect the ability of the agency
to achieve the results desired.
Source: GAO analysis of DOD data.



In its planning process for strategic network optimization, DOD appears to be addressing the
characteristics of results-oriented management practices. For example, DOD appears to be
addressing the first characteristic by developing a mission statement. According to DOD, the
mission of this effort is to optimize the global storage and distribution network while continuing
to meet customer requirements at the best value and provide timely, agile, and effective support
to the warfighter. Additionally, DOD appears to be addressing the fifth characteristic by
establishing mechanisms for stakeholders to coordinate planning efforts. For example, DLA
officials said that they lead a planning team that meets biweekly, thus enabling stakeholders to
raise and address concerns associated with this effort. Representatives on this team include
officials from TRANSCOM, the Joint Staff, and all the services. In addition, DLA officials said
that the Joint Logistics Board 15 and the Distribution Process Owner Executive Board serve as
governing structures for strategic network optimization and are venues where DOD’s senior
leadership are regularly briefed on its progress and can also raise concerns. Overall, DLA’s
planning and development processes for strategic network optimization appear to be factoring in
input and relevant concerns from its stakeholders, including the services. For example, DLA
initially estimated cost-savings projections 16 to be approximately $596 million across the
services for strategic network optimization for fiscal years 2014 to 2018. However, DLA officials
said that upon further consultation with the services and other DOD components, DLA obtained
revised data and updated its cost savings projections to approximately $476 million.



15
 The Joint Logistics Board is co-chaired by the Assistant Secretary of Defense for Logistics and Materiel Readiness
and the Joint Staff Director for Logistics, J-4.
16
 According to DLA officials, the projected cost savings for the strategic network optimization improvement effort are
estimates of potential reductions from the operations and maintenance budgets for the services and DOD
components.


Page 13                                                                              GAO-12-883R Defense Logistics
Although these examples reflect characteristics of results-oriented management practices, we
were unable to fully assess this effort because planning is still underway. For example, DOD
officials told us that the latest report on the implementation and cost-savings projections for
strategic network optimization is still under review, and a decision on how to implement the
effort has yet to occur. Similarly, DLA officials told us that they were in the process of
developing specific performance measures for strategic network optimization, and that these
measures would incorporate input from the services.

DSO Has Led to Some Improvements but Does Not Address All Materiel Distribution
Challenges

DOD Reported Transportation Cost Avoidances Attributable to DSO

DOD has reported that implementation of DSO resulted in transportation cost avoidances.
When the Distribution Process Owner Executive Board approved implementation of DSO in
2009, it set a goal of achieving $500 million in cost avoidances by the end of fiscal year 2012. 17
As of April 2012, TRANSCOM and DLA reported that the implemented DSO initiatives had led
to over $490 million in transportation cost avoidances. According to DOD, two DSO efforts—
strategic surface optimization and strategic air optimization—resulted in approximately $481
million in cost avoidances, and a third effort—supply alignment—resulted in about $9.5 million in
cost avoidances. DOD has established processes for calculating, validating, and reporting DSO
cost avoidances on a regular basis. For example, according to TRANSCOM, the DSO team
uses a methodology—agreed upon by distribution stakeholders including TRANSCOM, DLA,
General Services Administration, combatant commands, and the services—to calculate cost
avoidances resulting from a DSO initiative. After the cost avoidance has been calculated,
TRANSCOM’s financial office validates the cost-avoidance number or works with the DSO team
to correct it. The DSO team then publishes its cost-avoidance totals in a monthly report.

TRANSCOM and DLA attribute most of their reported cost avoidances to increased use of 40-
foot containers and greater utilization of container capacity in general; increased utilization of
pallet and aircraft capacity; and positioning supplies closer to overseas customers. These
improvements are discussed in greater detail below.

     •   Strategic surface optimization. This improvement effort has led to increased use of
         40-foot containers and greater utilization of container capacity, particularly for some
         cargo shipments to Afghanistan, Iraq, and Kuwait. According to TRANSCOM, 40-foot
         containers are more cost-effective than 20-foot containers; they provide at least double
         the allowable space and 12 percent more allowable weight, while incurring only a slightly
         higher cost per container and significantly less cost per pound or per cubic foot. Since
         implementation began in January 2009, the percentage of 40-foot containers shipped to
         U.S. Central Command has increased between 22 and 100 percent for shipments from
         some DLA and General Services Administration locations. Greater use of 40-foot
         containers, along with more-fully utilizing available space and weight capacity in both 40-
         foot and 20-foot containers, has reduced the average transportation costs per container.
         Overall, the strategic surface optimization effort has resulted in approximately $197
         million in cost avoidances, according to TRANSCOM.


17
 The minutes of the Distribution Process Owner Executive Board’s March 2009 meeting stated that the goals for
DSO were to be achieved by January 2012. However, according to TRANSCOM, the board’s goals were
subsequently understood to be achieved by the end of fiscal year 2012.


Page 14                                                                        GAO-12-883R Defense Logistics
     •   Strategic air optimization. Under this improvement effort, DOD has increased
         utilization of pallets and aircraft for shipments out of the four major aerial ports of
         embarkation in the United States. Since implementation began in August 2010,
         TRANSCOM reports that pallet utilization has increased between 2 to 10 percent at the
         four major aerial ports, while aircraft utilization has increased between 2 to 7 percent.
         More-fully utilizing available capacity of pallets and aircraft at these four locations has
         reduced the average cost per pound for air cargo. Overall, the strategic air optimization
         effort has resulted in approximately $284 million in cost avoidances, according to
         TRANSCOM.
     •   Supply alignment. The supply alignment effort aims to reduce transportation costs by
         optimizing the amounts and types of safety-level supplies 18 located at DLA distribution
         centers outside the United States. By optimizing the amounts and types of safety-level
         stock at forward locations, DLA can deliver those supplies to its overseas customers by
         means of theater transportation assets, and then replenish its stock levels by surface
         transportation from the United States. According to DLA, this process is less expensive
         than delivering supplies to overseas customers by air from the United States. Since
         implementation began in July 2011, DLA reports that supply alignment has allowed DOD
         to avoid transportation costs of approximately $9.5 million.

The implementation of these DSO efforts has reduced some costs for transportation, but other
factors can offset the financial benefits of DSO. According to TRANSCOM, DSO cost
avoidances accrue to the services’ overseas contingency operations budgets and allow the
services to fund other priorities. For example, the supply alignment effort enables DOD to
reduce transportation costs by shipping more cargo on surface routes, which is less expensive
than transporting cargo by air. Additionally, according to TRANSCOM, transportation
efficiencies obtained through implementing DSO initiatives—such as using more 40-foot
containers—could lead to reductions in transportation rates charged to the services and other
customers. However, other factors—including higher fuel prices, expenses incurred by
commercial contractors, and DOD actions to encourage use of military transportation 19—also
affect transportation rates and can offset the financial benefits of DSO. Service officials stated
that it is unclear to what extent DSO has affected transportation rates in recent years, and in
some cases officials have actually seen transportation rates increase. However, they added that
it is possible that the DSO cost avoidances had kept the rates from increasing any further.

TRANSCOM and DLA officials told us that they are institutionalizing into their business
operations some of the improvements from the ongoing DSO efforts. For example, according to
TRANSCOM officials, the command has revised its business processes to better utilize pallet
and container space, and to use more cost-effective 40-foot containers for shipping cargo to
overseas locations. TRANSCOM also has incorporated certain DSO-related metrics into
executive-level briefings to provide visibility to commanders. For example, according to
TRANSCOM officials, these briefings now include aircraft and pallet utilization rates, which were

18
  Safety levels are the amount of stock that is to be kept on hand in case of minor interruptions in the resupply
process or fluctuations in demand.
19
  According to TRANSCOM, DOD sets some air transportation rates according to what commercial companies
charge for similar services, in order to encourage use of DOD-operated air services. Because these rates do not
always cover all transportation costs, DOD uses a dedicated funding account to pay for the difference. Any DSO
initiatives that make these air transportation services more efficient could reduce the amount DOD must pay out of its
dedicated funding account to cover the difference between the actual costs incurred and DOD’s air transportation
rates, but they would not necessarily reduce DOD’s rates.


Page 15                                                                              GAO-12-883R Defense Logistics
not previously tracked and reported. Additionally, DLA has incorporated into its business
operations the revised model it used to optimize the positioning of safety level supplies at
overseas locations. According to DLA officials, the model will continue to assess demand levels
and transportation costs to achieve an optimal design for the positioning of safety-level supplies,
whether they be at overseas distribution centers or sites in the United States. The
institutionalization of these DSO improvements could result in additional cost avoidances and
better delivery performance along some segments of the distribution system. In addition,
following DOD’s initial implementation of DSO, the Distribution Process Owner Executive Board
set a new goal in February 2012 for DSO to achieve another $500 million in cost avoidances by
the end of fiscal year 2015. According to TRANSCOM officials, the DSO team is pursuing new
initiatives to meet this goal, such as minimizing the number of aircraft flights to locations outside
of the United States by consolidating cargo from multiple locations within the United States.

DOD Reported Better Delivery Times for Customers on a Limited Number of Shipping Lanes as
a Result of DSO

DOD also reported that the implemented DSO efforts have contributed to better delivery times
for some customers. When the Distribution Process Owner Executive Board approved
implementation of DSO in 2009, it set a goal of improving shipment delivery times by 25 percent
by the end of the fiscal year 2012. According to DOD, TRANSCOM’s process improvement
effort and DLA’s supply alignment effort led to better delivery times for customers on a limited
number of shipping lanes and from certain overseas distribution centers. These improvements
are discussed in greater detail below.

   •   Process improvement. According to TRANSCOM, the DSO process improvement
       effort, which includes efficiency concepts from the strategic surface optimization and
       strategic air optimization efforts, improved shipment delivery times ranging from 7 to 40
       percent on a limited number of shipping lanes to customers in three geographic
       combatant commands—U.S. European Command, U.S. Pacific Command, and U.S.
       Central Command. TRANSCOM estimates that 31 shipping lanes were affected by this
       improvement effort. These lanes represent a small number—approximately 6 percent—
       of DOD’s 500 shipping lanes worldwide. TRANSCOM officials told us they targeted for
       improvement those shipping lanes that had the greatest potential for increasing delivery
       performance within a geographic combatant command—such as those with poor
       delivery performance and those with distribution partners willing to undergo change.
       TRANSCOM officials cited a number of initiatives under the process improvement effort
       that contributed to improved shipping delivery times across the three geographic
       combatant commands. For example, in an effort to maximize container and pallet
       utilization, as well as reduce the time cargo spends at the source of supply, the U.S.
       European Command adopted new procedures to consolidate cargo bound for different
       customers and to better align its distribution operations with commercial transportation
       schedules. Process improvements in the U.S. Pacific Command included reconfiguring
       warehouse operations to more-quickly receive and process cargo, as well as better
       consolidating cargo into containers at a U.S.-based distribution center. Furthermore, for
       shipments to Afghanistan in the U.S. Central Command, DOD increased the efficiency of
       floor operations and set goals for how quickly shipments should be processed and
       packed at their U.S.-based supply warehouse.
   •   Supply alignment. DLA reported improvements to delivery performance for some
       customers as a result of supply alignment. Specifically, DLA data show average delivery
       times improved for shipments from seven distribution centers outside the continental



Page 16                                                                GAO-12-883R Defense Logistics
           United States. According to DLA, these improved delivery times, ranging from 6 to 43
           percent at the affected distribution centers as of April 2012, resulted from positioning
           some safety-level supplies closer to overseas military customers, rather than from DLA
           centers in the United States.

Since the Distribution Process Owner Executive Board approved DSO for implementation in
March 2009, DOD has placed greater emphasis on achieving cost avoidances through DSO
and less emphasis on reducing shipment delivery times, according to TRANSCOM.
TRANSCOM no longer tracks shipment delivery-time improvements specifically resulting from
DSO, 20 and the Distribution Process Owner Executive Board has not set a new goal for
improving delivery times to coincide with the goal of $500 million in cost avoidances to be
achieved by the end of fiscal year 2015. Although the board did not set a new goal for improving
delivery times, shipment delivery times continue to be a consideration. For example,
TRANSCOM has a metrics branch that regularly analyzes shipment delivery times along the
first three segments of the distribution system, assesses performance against DOD’s time-
definite delivery standards, and coordinates with distribution stakeholders to address
performance gaps as they occur. Additionally, TRANSCOM officials stated that future cost
avoidance initiatives to be conducted as part of the DSO improvement efforts will include an
assessment of delivery times.

DSO Was Not Designed to Address All Challenges DOD Faces in Materiel Distribution

Although DSO has had some positive results, it was not designed to address all challenges that
DOD faces in materiel distribution. In prior reports, we have identified challenges in the
distribution of supplies and equipment to the warfighter, most recently in Afghanistan. 21 For
example, we found that DOD did not always meet time-definite delivery standards for shipments
to Afghanistan. Time-definite delivery is a key metric the department uses to track supply chain
performance over time. According to DOD guidance, time-definite delivery standards are
designed to provide customers with the assurance that, in a specified level of probability, they
will receive items ordered through DOD’s logistics system in a definite period. TRANSCOM
officials stated DOD has set a goal that 85 percent of shipments 22 transported on shipping lanes
to the geographic combatant commands meet established time-definite delivery standards.
However, from December 2009 through March 2011, surface shipments of supplies to
Afghanistan did not once meet this goal for time-definite delivery, and commercial air shipments
from the United States met the goal only six times over that time frame.

As previously stated, DOD has improved delivery performance on a limited number of lanes in
three combatant commands—U.S. European Command, U.S. Pacific Command, and U.S.
Central Command. However, overall time-definite delivery performance for shipments to those
combatant commands is varied. In the 31 months between October 2009 and April 2012, which
includes the time frame of DSO implementation, DOD often did not achieve its goal for meeting

20
  According to TRANSCOM officials, the DSO team tracks the delivery-time improvements resulting from DSO
initiatives for a period of 6 to 10 months following implementation of a process change to confirm that the
improvements are enduring. Because the last major initiative to improve shipment delivery times was concluded in
the summer of 2011, the DSO team is no longer tracking the delivery time effects of DSO initiatives.
21
     GAO-12-138.
22
  According to TRANSCOM, delivery times are tracked for wholesale requisitioned items, primarily supply classes II
(e.g., clothing), IX (e.g., repair parts), III (e.g., packaged petroleum), and IV (e.g., construction materials), with
unplanned direct vendor deliveries removed from the data.


Page 17                                                                             GAO-12-883R Defense Logistics
time-definite delivery standards (see fig. 2). Specifically, on a monthly basis, DOD met the 85-
percent goal twice for the U.S. European Command and seven times for the U.S. Pacific
Command, but did not meet its 85 percent goal for the U.S. Central Command. 23 According to
TRANSCOM officials, several factors affect DOD’s delivery time, including which mode of
transportation is used. For example, surface delivery, while cheaper, is generally much slower
than air delivery. Therefore, shipping more cargo by surface could lead to lower costs but also
longer delivery times.


Figure 2: Percent of Shipments Meeting Time-Definite Delivery Standards




DSO has contributed to improvements in the first three segments of distribution (intracontinental
movement, strategic movement, and theater movement), but was not designed to optimize the
entire distribution system. DSO was specifically designed by TRANSCOM, as the Distribution
Process Owner, to improve the efficiency and effectiveness of the first three distribution
segments, but its scope does not include efforts or initiatives specifically targeting the fourth
segment of distribution—tactical movement. In our report on distribution challenges in
Afghanistan, we found that DOD’s oversight of the distribution of supplies and equipment to the
warfighter across all four distribution legs is fragmented. 24 TRANSCOM officials acknowledged
that because DSO focuses on the first three segments, the ability of DSO to optimize DOD’s
entire distribution system is limited.


23
 According to TRANSCOM officials, while DOD has often not met its overarching 85-percent goal for this time
period, some specific shipping lanes are meeting the goal. For example, according to documents provided by
TRANSCOM, specific shipping lanes to U.S. Central Command—such as commercial air shipments to Afghanistan
and Qatar—met the 85-percent goal in March and April 2012.
24
     GAO-12-138.


Page 18                                                                      GAO-12-883R Defense Logistics
Agency Comments and Our Evaluation

In oral comments on a draft of this report, officials from the Office of the Assistant Secretary of
Defense for Logistics and Materiel Readiness acknowledged that the DSO initiatives do not
address distribution or transportation tracking beyond TRANSCOM’s responsibilities. The
officials also stated that the TRANSCOM-led Joint Deployment and Distribution Enterprise 25
governance structure conducts quarterly performance metric reviews with the combatant
commands and military services to review distribution performance data to the point of use.
According to the officials, these meetings are used to investigate and correct abnormalities that
occur in the tactical segment of the distribution process, which result in the combatant
commands and military services resolving distribution issues affecting multiple components and
providing result-oriented management practices in the tactical distribution segment.

Our review focused on the implementation of DSO and the results achieved, and we did not
assess the activities of the Joint Deployment and Distribution Enterprise governance structure
as part of this review. According to DOD joint doctrine, the department uses the Joint
Deployment and Distribution Enterprise to deliver joint end-to-end movement of forces and
sustainment from point of origin to the designated point of need—the first three legs of
distribution. In our prior report on distribution problems in Afghanistan, we found that
TRANSCOM, which leads the Joint Deployment and Distribution Enterprise, did not have full
oversight of the distribution of supplies and equipment to the warfighter, and only monitored
performance metrics for distribution along the first three legs of the distribution system. 26
Accordingly, we made recommendations in our prior report aimed at providing more
comprehensive oversight of the materiel distribution system, but DOD disagreed. Specifically:

•      We recommended that the department revise the instructions for the Distribution Process
       Owner to provide clear guidance on how TRANSCOM is to oversee the overall
       effectiveness, efficiency, and alignment of DOD-wide distribution activities, to include the
       fourth leg of distribution. The department disagreed, stating that distribution from the theater
       to tactical level (point of need to point of employment) is not the responsibility of
       TRANSCOM.
•      We recommended that the Secretary of Defense direct the U.S. Central Command to direct
       U.S. Forces-Afghanistan to provide regular reports to TRANSCOM on delivery performance
       for shipments within Afghanistan. The department disagreed with the need for U.S. Central
       Command to provide TRANSCOM metrics relating to the fourth leg of distribution for the
       reasons stated above.
•      We recommended that the Secretary of Defense direct the Commander of TRANSCOM to
       incorporate the delivery performance reports from U.S. Forces-Afghanistan into the
       command’s review of distribution metrics, in order for TRANSCOM to measure the
       performance of DOD’s entire distribution system. The department disagreed with the need
       for U.S. Central Command to provide TRANSCOM metrics because it said TRANSCOM
       already tracks time definite delivery standard metrics that include logistics response time.


25
  According to DOD joint doctrine, the Joint Deployment and Distribution Enterprise is the complex of equipment,
procedures, doctrine, leaders, technical connectivity, information, shared knowledge, organizations, facilities, training,
and materiel necessary to conduct joint distribution operations. The Joint Logistics (Distribution) Joint Integrating
Concept states that TRANSCOM, as Distribution Process Owner, has responsibility to coordinate and synchronize
the Joint Deployment and Distribution Enterprise.
26
     GAO-12-138.


Page 19                                                                              GAO-12-883R Defense Logistics
As we previously reported, for TRANSCOM to more effectively coordinate and synchronize the
enterprise to meet joint force commander requirements, it would benefit from having an
awareness of distribution requirements and processes in the fourth leg, from the point of need to
the point of employment. Accordingly, we are encouraged that the department has
acknowledged the need for some level of oversight across all four legs of the materiel
distribution system.

                                              -----
We are sending a copy of this report to appropriate congressional committees and the Secretary
of Defense. The report will also be available at no charge on our website at http://www.gao.gov.

If you or your staff have any questions about this report, please contact me at (202) 512-5431 or
russellc@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs
may be found on the last page of this report. GAO staff who made major contributions to this
report are listed in enclosure III.




Cary B. Russell
Acting Director, Defense Capabilities
  and Management


Enclosures – 3




Page 20                                                             GAO-12-883R Defense Logistics
Enclosure I


                                   Scope and Methodology

To assess the extent to which the Department of Defense (DOD) has developed and
implemented Distribution Process Owner Strategic Opportunities (DSO) consistent with results-
oriented management practices, we reviewed planning documents and other information for the
four implemented DSO efforts—process improvement, strategic surface optimization, strategic
air optimization, and supply alignment. We assessed to what extent these documents
incorporated the six characteristics of results-oriented management practices as identified in
previous GAO reports. Three GAO analysts evaluated and individually assessed each
characteristic for each improvement effort as “addressed,” “partially addressed,” or “not
addressed.” These categories were defined as follows:

   •   Addressed: All parts of the characteristic are generally addressed.
   •   Partially addressed: One or more parts of the characteristic, but not all parts of the
       characteristic, are generally addressed.
   •   Not addressed: No part of the characteristic is addressed.
Upon completion of the individual evaluations, the analysts discussed their assessments,
identified any differences, and reached a consensus in areas where their individual
assessments differed. Once consensus was achieved, assessments for each improvement
effort were rolled up into one comprehensive assessment for each characteristic. For example,
if the assessments for all four improvement efforts were “addressed” for the mission statement
characteristic, then the assessment table (see table 2) would reflect this with the assessment
“addressed” for the mission statement characteristic. Preliminary observations for the strategic
network optimization improvement effort are illustrative examples of planning efforts provided
through interviews with Defense Logistics Agency (DLA) officials and strategic network
optimization planning briefing slides. We did not conduct a formal assessment of the strategic
network optimization improvement effort because this effort is still in the planning stages.
Implementation of the strategic network optimization improvement effort is scheduled for
October 2013.

To assess the extent to which DSO has made improvements to DOD’s materiel distribution
system and has addressed issues identified in our past work, we obtained and analyzed data
and reports from U.S. Transportation Command (TRANSCOM) and DLA on cost avoidance and
shipment delivery times since DSO implementation began in fiscal year 2009, and interviewed
TRANSCOM, DLA, and military service officials to obtain additional information on DSO
improvements. We analyzed TRANSCOM’s monthly DSO cost-avoidance reports that
document cost avoidances resulting from the strategic surface and air optimization efforts;
TRANSCOM briefings and other documents on improvements to shipment delivery times for a
limited number of shipping lanes resulting from the process improvement effort; and DLA’s
monthly reports that document cost avoidances and shipment delivery-time improvements
resulting from the supply alignment effort. We assessed the reliability of the cost avoidance and
shipment delivery-time data by reviewing related data documentation, analyzing the
methodology used to determine DSO improvements, and interviewing and obtaining written
comments from knowledgeable TRANSCOM and DLA officials. We found that TRANSCOM and
DLA calculate cost avoidance and shipment delivery times by using data from multiple sources.
These sources are often operated by DOD organizations outside of TRANSCOM and DLA
control, and those organizations are responsible for maintaining quality control over the data.
Officials stated that the data sources fulfill their need to calculate cost avoidance and shipment
delivery-time improvements, and that any identified data discrepancies are addressed in


Page 21                                                              GAO-12-883R Defense Logistics
Enclosure I


consultation with distribution stakeholders. Thus, we determined that the data were sufficiently
reliable for our purposes to assess the extent to which DSO has made improvements to DOD
materiel distribution. Finally, we obtained and reviewed DSO planning and implementation
documents and interviewed Office of the Secretary of Defense, Joint Staff, TRANSCOM, DLA,
and military service officials to determine the scope of DSO improvement efforts across DOD’s
materiel distribution system.

In conducting our work, we contacted and obtained information from the following organizations:
   •   Office of the Deputy Assistant Secretary of Defense for Supply Chain Integration
   •   Joint Staff, Logistics
   •   TRANSCOM, Strategy, Policy, Programs, and Logistics
   •   DLA, Logistics Operations
   •   Office of the Deputy Chief of Staff of the Army, Logistics
   •   Office of the Chief of Naval Operations, Logistics
   •   Office of the Deputy Chief of Staff of the Air Force, Logistics, Installations, and Mission
       Support
   •   Office of the Deputy Commandant of the Marine Corps, Installations and Logistics

We conducted this performance audit from November 2011 to August 2012 in accordance with
generally accepted government auditing standards. Those standards require that we plan and
perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe that the evidence obtained
provides a reasonable basis for our findings and conclusions based on our audit objectives.




Page 22                                                               GAO-12-883R Defense Logistics
Enclosure II


                                   Strategic Network Optimization
The strategic network optimization effort is designed to improve logistics efficiencies in the
Department of Defense distribution network and reduce transportation costs by storing materiel
at strategically located Defense Logistics Agency (DLA) supply centers. The current plan for this
effort is to designate five major source nodes across the continental United States, which will
distribute materiel to 12 regional storage and distribution centers. These nodes and centers will
be located at existing installations (see fig. 3). In addition, nine source nodes have been
identified outside the continental United States that DLA expects will allow it to more-efficiently
move materiel forward and backward across the global distribution network (see fig. 4).


Figure 3: Planned Locations of Strategic Network Optimization Sites in the Continental United States




Page 23                                                                     GAO-12-883R Defense Logistics
Enclosure II


Figure 4: Planned Locations of Strategic Network Optimization Sites outside the Continental United States




Page 24                                                                     GAO-12-883R Defense Logistics
Enclosure III


                         GAO Contact and Staff Acknowledgments

GAO Contact

Cary B. Russell, (202) 512-5431 or russellc@gao.gov

Staff Acknowledgments

In addition to the contact named above, key contributors to this report were Thomas Gosling,
Assistant Director; Susan Ditto; Jim Melton; Geoffrey Peck; Amie Steele; Michael Willems; and
Richard Winsor.




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Page 25                                                           GAO-12-883R Defense Logistics
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