United States General Accounting Office GAO Report to Congressional Committees October 1999 DEFENSE INVENTORY Improved Management Framework Needed to Guide Navy Best Practice Initiatives GAO/NSIAD-00-1 Contents Letter 3 Appendixes Appendix I: Summary of Navy Initiatives 16 Appendix II: Comments From the Department of Defense 24 Appendix III: GAO Contacts and Staff Acknowledgments 26 Related GAO Products 27 Tables Table 1: Department of the Navy Initiatives' Status and Projected Completion Dates 9 Figures Figure 1: Department of the Navy's Supply Chain Cycles 6 Abbreviations DOD Department of Defense Page 1 GAO/NSIAD-00-1 Defense Inventory Contents Page 2 GAO/NSIAD-00-1 Defense Inventory United States General Accounting Office National Security and Washington, D.C. 20548 International Affairs Division B-281459 Leter October 21, 1999 Congressional Committees Section 347 of the Strom Thurmond National Defense Authorization Act for Fiscal Year 1999 requires the secretary of each military department to submit to Congress a schedule for implementing best commercial inventory practices for the acquisition and distribution of secondary inventory items.1 Best commercial inventory practices are defined as practices that enable the military departments to reduce inventory levels while improving the responsiveness of the supply system to user needs. Section 347 further requires that the schedule provide for implementation of such best practices to be completed within 5 years of enactment, or by October 17, 2003. The section also requires us to evaluate the extent to which the secretary of each military department has complied with the act’s requirements. In this report, we discuss our evaluation of the Department of the Navy’s best practices implementation schedule for the acquisition and distribution of secondary inventory items, which the Department of the Navy submitted to Congress on June 16, 1999. In our evaluation, we (1) determined the extent to which the schedule responds to the provisions of the act and (2) identified specific elements of a management framework needed for effective implementation and oversight of the Department of the Navy’s best practice initiatives. Results in Brief The Department of the Navy’s schedule is generally responsive to the act. Specifically, the schedule describes 25 initiatives that address the acquisition and distribution of secondary items managed by the Navy and the Marine Corps. These initiatives are primarily aimed at improving the Navy and Marine Corps planning, sourcing, delivery, and maintenance processes. While some of the initiatives did not include specific time frames to complete implementation, the Secretary of the Navy advised 1 Secondary inventory includes spare parts, clothing, and medical supplies to support Department of Defense (DOD) operating forces worldwide. Page 3 GAO/NSIAD-00-1 Defense Inventory B-281459 Congress that with few exceptions, implementation of the initiatives is expected to be completed by 2003. Though generally responsive to the act’s requirements, the management framework that is outlined in the schedule lacks specific elements that are needed to assess implementation progress, measure success and identify needed changes. As a result, while the schedule describes an overall implementation strategy, it does not provide sufficient information for Congress and Defense managers to measure the progress and results of the initiatives. Also, the management framework contained in the schedule does not provide a clear link to top-level DOD improvement goals or provide details for periodic evaluation of an initiative’s progress. In our prior work, we noted that the lack of such information contributed to DOD’s difficulty in implementing new initiatives. The Government Performance and Results Act offers a model for developing an effective management framework to improve the likelihood of successfully implementing initiatives and assessing results. To ensure that progress and results information is available to Congress and Defense managers, we are recommending that the Secretary of the Navy develop a Results Act management approach for implementing the 25 initiatives. Background To provide consumable and reparable parts for its ships, aircraft, and ground equipment, the Department of the Navy uses an extensive logistics system that is based on management processes, procedures, and concepts that have evolved over time. Reparable parts are expensive items that can be fixed and used again, such as hydraulic pumps, navigational computers, engines, and landing gear. The naval logistics system, often referred to as a logistics pipeline or supply chain, involves several interrelated activities that play a role in providing parts where and when they are needed.2 These activities include the purchase, storage, repair, and distribution of parts, which together require billions of dollars of investments in personnel, equipment, facilities, and inventory. 2 The Navy also relies on this pipeline for consumable parts that are used extensively to fix reparable parts and end items such as ships and aircraft. The Defense Logistics Agency provides most of the consumable parts that Navy repair activities use and handles a large portion of the warehousing and distribution of reparable parts. Page 4 GAO/NSIAD-00-1 Defense Inventory B-281459 The Department of the Navy recognizes that focusing on integrated supply chains can optimize logistics support and improve the management of secondary inventory. Navy analysis has shown that in the private sector, world-class firms have demonstrated superior responsiveness to customer needs through integrated supply chains at about half the cost of their average industry segments. The Department of the Navy has identified four interrelated management cycles in its supply chain: • Planning, which includes the forecasting of demand for items, and supply and distribution planning. • Sourcing, which includes identifying sources of inventory to support acquisition, repair, and other services. • Delivery, which involves ordering, storage, and transportation. • Maintenance, which includes repairing weapon systems and component parts. Figure 1 illustrates these cycles and their interrelationships. Page 5 GAO/NSIAD-00-1 Defense Inventory B-281459 Figure 1: Department of the Navy’s Supply Chain Cycles Planning Planning •Demand and supply planning •Demand and supply planning - Aggregate and prioritize demand; - Aggregate and prioritize demand; assess supply resources; and plan assess supply resources; and plan inventory, distribution requirements, inventory, distribution requirements, production and material. production and material. •Manage planning infrastructure. •Manage planning infrastructure. Maintenance Sourcing Maintenance Sourcing •Execution •Execution -Execute repair, ensure piece parts •Source material for acquisition, repair -Executemaximize repair, ensure piece parts Four •Source material for acquisition, repair support, capacity, test, and Four and services. support, maximize capacity, test, and Supply Chain and services. release. Supply Chain • Manage sourcing infrastructure release. •Manage infrastructure Cycles • Manage sourcing infrastructure •Manage infrastructure Cycles -Organic and commercial quality -Engineering changes, shop planning, -Organic and commercial quality -Engineering changes, shop planning, contracts, vendor payment facilities, and equipment. contracts, vendor payment facilities, and equipment. Delivery Delivery •Order management •Order management •Warehouse management •Warehouse management •Transportation management •Transportation management •Delivery infrastructure management •Delivery infrastructure management Source: Department of the Navy section 347 report to Congress (June 16, 1999). Since 1990, we have identified DOD’s management of secondary inventories as a high-risk area because levels of inventory were too high and management systems and procedures were ineffective.3 In addition, our financial statement audits have identified continuing significant problems with the integrity of DOD’s inventory data. For example, we reported that inaccurate inventory data resulted from weaknesses in the 3 In 1990, we began a special effort to review and report on the federal program areas that we identified as high risk because of vulnerabilities to waste, fraud, abuse, and mismanagement. This effort, which was supported by the Senate Committee on Government Affairs and the House Committee on Government Reform, brought a much- needed focus to problems that were costing the government billions of dollars. Page 6 GAO/NSIAD-00-1 Defense Inventory B-281459 Department’s procedures relied on to maintain visibility over, and conduct physical counts of, on-hand inventories. Until these problems are effectively resolved, DOD’s ability to reliably measure and assess performance will continue to be impaired.4 While DOD has made some improvements, these general conditions still exist and this area remains on our high-risk list.5 We have reported that adopting best business practices in inventory management along with improving the reliability of financial management information are key steps toward solving these problems. Congress has recently taken specific actions to encourage DOD to adopt best commercial practices to improve its inventory management. The National Defense Authorization Act for Fiscal Year 1998 required the Director, Defense Logistics Agency, to develop and submit to Congress a schedule for implementing best commercial practices for the acquisition and distribution of nine categories of consumable-type supplies. The act also required that the schedule provide for the implementation of such practices to be completed by November 2000. As previously noted, the National Defense Authorization Act for Fiscal Year 1999 placed a similar requirement on the secretary of each military department. The military departments’ schedules are to provide for the implementation of such best practices to be completed by October 17, 2003. DOD is working to adopt best practices in its operations. In November 1997, the Secretary of Defense issued the Defense Reform Initiative report, which identified a number of reengineering initiatives aimed at adopting modern business practices to achieve world-class standards of performance. In addition, the DOD performance plan for fiscal year 2000 notes that the inventory supply system is larger than required to support today’s smaller force structure and outlines goals to reduce inventory levels and streamline infrastructure. In March 1999, the Undersecretary of Defense (Acquisition Reform) stated that DOD needed “a revolution in business affairs…that embodies the best of modern business practices, the ability to access the full range and scope of technologies to meet the speed 4 Results Act: DOD’s Annual Performance Plan for Fiscal Year 1999 (GAO/NSIAD-98-188R, June 5, 1998), DOD Financial Management: More Reliable Information Key to Assuring Accountability and Managing Defense Operations More Efficiently (GAO/ NSIAD-99-145, Apr. 14, 1999), and Department of Defense: Status of Financial Management Weaknesses and Actions Needed to Correct Continuing Challenges (GAO/NSIAD-99-171, May 4, 1999). 5 Major Management Challenges and Program Risks: Department of Defense (GAO/OCG-99-4, January 1999). Page 7 GAO/NSIAD-00-1 Defense Inventory B-281459 and agility demanded by the new battlespace, and an absolute commitment to finding the best, most efficient means of delivering goods and services to our warfighters.” Department of the The Department of the Navy’s schedule is generally responsive to the act. Specifically, the schedule describes initiatives that address the acquisition Navy’s Schedule and distribution of secondary items managed by the Navy and the Marine Generally Responds to Corps, and for some initiatives provides general information regarding completion dates. In submitting the schedule to Congress, the Secretary of the Act’s Requirements the Navy stated that with few exceptions, implementation of the initiatives is expected to be completed by 2003. The schedule contains 25 initiatives that are primarily aimed at improving the Department of the Navy’s planning, sourcing, delivery, and maintenance management processes. For example, the Direct Vendor Delivery Program is designed to find alternative commercial methods of supplying inventory items that would lower overall costs, and the Maintenance Cycle Time Reengineering initiative is focused on improving maintenance operations that will result in reduced inventory levels, repair times and repair costs. The schedule describes the status of the initiatives as new, developing, or mature. According to Navy officials, six initiatives are new, that is in the earliest stages of development and generally exploratory in nature. Another 14 initiatives are categorized as developing, which means they have progressed to the point where viability of concept has been proven, business rules are being developed, and the initiatives will be expanded. The remaining five initiatives are considered mature because they have been under way for some time and are considered established business practices. For each initiative, the schedule provides a general description, overall goals, planned actions and related milestones and describes desired outcomes. The schedule also estimates what portion of the existing inventory may be affected by each initiative. Many of the planned actions and milestones listed in the schedule relate to periodic program reviews, not specific implementation dates. For 10 initiatives, the schedule provides general information suggesting completion dates; while for 13 initiatives, specific completion dates could not be determined. For 2 of the 25 initiatives, completion dates were scheduled for after the 5-year time frame required by the act. Table 1 summarizes the information related to initiative status and completion dates. (See app. I for a more detailed description of each initiative.) Page 8 GAO/NSIAD-00-1 Defense Inventory B-281459 Table 1: Department of the Navy Initiatives’ Status and Projected Completion Dates Supply chain cycle targeted for Projected improvement Initiative Status completion date Planning Enterprise Resource Planning New Not indicated Serial Number Tracking Developing Oct. 2003 Long-Term Contracting Mature Not indicated Enhanced Sparing Model Developing 2003 Retention Level Review Mature March 2000 Material Requirement Review Developing Not indicated Sourcing Total Asset Visibility, Navy Mature Sept. 2002 Total Asset Visibility, Marine Corps Mature Not indicated Navy Electronic Commerce Online Developing June 1999 Readiness Support System New Not indicated Contractor Logistics Support, Navy Developing Not indicated Contractor Logistics Support, Marine Corps Developing June 2001 Direct Vendor Delivery Developing Not indicated Electronic Servmart Shopping Developing Dec. 2001 Delivery Customer Wait Time Developing Not indicated One Touch Supply Developing Sept. 1999 Regional Third Party Logistics Providers New Dec. 2000 Third Party Logistics Providers-Retrograde Management Developing Not indicated Prime Vendor, Marine Corps Developing Not indicated Maintenance Organic Industrial Enterprise Logistics Support New Not indicated Maintenance Cycle Time Reengineering New June 2006 Modernization of Maintenance Information Support System Developing Oct. 2005 Manufacturing Resource Planning II Developing Sept. 2000 Rapid Retargeting New Not indicated Logistics Engineering Change Proposals Mature Not indicated Management Though generally responsive to the act’s requirements, the schedule provides a management framework that lacks specific elements that are Framework Is Key to needed to assess implementation progress, measure success, and identify Implementing needed changes. The management framework described in the schedule provides an overall strategy that links the initiatives to three general Initiatives improvement goals and four supply chain functions. In addition, each Page 9 GAO/NSIAD-00-1 Defense Inventory B-281459 initiative contains limited program evaluation and implementation milestones, such as dates for program reviews. The schedule does not provide, however, specific information needed to assess implementation progress, initiative results, or program evaluation plans. The Government Performance and Results Act can provide a model for developing an effective management framework to guide implementation of the initiatives and to provide Congress and DOD managers with information on progress and results. The Schedule Provides a In our past work, we reported that the lack of a management framework Limited Management contributed to DOD’s difficulty in implementing new initiatives. For example, we reported that DOD did not have an adequate management Framework framework to clearly determine the progress being made in realizing the Total Asset Visibility initiative goals and that the initiative’s strategic and implementation plans were inadequate. As a result, DOD managers did not have a clear picture of what the initiative’s implementation status was or how initiatives within each service contributed to achieving overall DOD goals and objectives. In addition, we reported there was confusion over who would use the system and how it would be used.6 The Department of the Navy schedule presents the 25 initiatives within the context of an overall implementation strategy that addresses three improvement goals: enhancing customer support, reducing total ownership costs, and reducing infrastructure. As discussed earlier, this strategy also recognizes the relationship of these initiatives to four principal supply chain management functions and estimates the potential application of the initiatives to current inventory levels. This overall strategy is an important element of a management framework because it recognizes the interrelationship of the initiatives and their systemwide potential, which helps minimize potential conflicts and duplication of efforts. The schedule also indicates senior-level Navy officials will review the status of these initiatives semiannually and provide program updates to the Secretary of the Navy and to the Deputy Under Secretary of Defense for Logistics. However, other framework elements necessary to assess implementation progress and measure success are not included in the schedule. Specifically, the schedule lacks objective and precise outcome measures 6 Defense Inventory: DOD Could Improve Total Asset Visibility Initiative With Results Act Framework (GAO/NSIAD-99-40, Apr. 12, 1999). Page 10 GAO/NSIAD-00-1 Defense Inventory B-281459 that could be used to assess implementation progress and results. For example, for the Organic Industrial Enterprise Logistics Support initiative, the schedule identifies reductions of inventory requirements, total costs in the supply chain, and repair costs as desired outcomes but does not quantify these goals. Without this specific information, it is impossible to determine the magnitude or impact these initiatives may have on overall logistics operations and objective information regarding the initiatives’ implementation progress and achievement of their desired outcomes may not be available to Congress and to Defense managers. Other management framework elements provided in the schedule are limited. Initiative goals and objectives in the schedule are not linked to specific DOD or Department of the Navy strategic logistics goals. Implementation milestones are in some cases very general, which will make it difficult to track implementation progress. Although the schedule contains dates for periodic program reviews for each initiative, it does not identify the general scope, methodology, or key issues to be addressed in these reviews. Results Act Management The Results Act framework generally consists of establishing strategic Framework plans, performance plans, and mechanisms for measuring program progress and results. Such a framework would include (1) establishing broad general initiative goals and objectives, (2) linking these goals to overall DOD goals and objectives, (3) establishing quantifiable performance measures to assess whether the initiatives are achieving desired results, (4) defining levels of accountability and responsibility for implementing the initiatives and identifying the resources that will be required to achieve goals, (5) establishing milestones necessary to measure progress toward full implementation, and (6) defining an evaluation plan for periodically comparing actual results to established goals and objectives. This information would allow Congress and other decisionmakers to measure initiatives’ implementation progress and to determine whether the initiatives are achieving their desired results. In addition to these potential benefits, considering the initiatives as interrelated efforts maximizes their systemwide improvement potential. Our prior work on best inventory management practices has shown that efforts to reengineer a logistics system are more successful when various logistics activities are viewed as a series of interrelated processes rather Page 11 GAO/NSIAD-00-1 Defense Inventory B-281459 than isolated functional areas.7 For example, when one airline began changing the way it purchased parts from suppliers, it considered how those changes would affect mechanics in repair workshops. Additionally, airline officials described how a combination of supply chain improvements could lead to continuous improvements. They described how culture changes, improved data accuracy, and more efficient processes led to reductions in inventories and complexity of operations. These reductions can lead to further efficiencies and process improvements. Conclusions The schedule generally meets the requirements of the act by providing information on 25 initiatives that the Secretary of the Navy has advised Congress that, with few exceptions, are expected to be completed by 2003. In addition, the schedule presents an overall strategy to adopt best practices that is linked to general improvement goals and considers the improvement efforts in a supply chain management context. Executing this strategy and achieving the corresponding goals of reducing inventory levels while improving the responsiveness of the supply system to user needs will depend on the successful implementation of these initiatives. However, the management framework outlined in the schedule lacks specific elements needed to assess implementation progress, measure success, and identify needed changes. The Results Act provides a model for developing a more effective management framework that could provide this information and allow for meaningful evaluations of progress and results. Recommendations To provide a mechanism to improve the potential for successfully implementing the initiatives and measure results, we recommend that the Secretary of Defense direct the Secretary of the Navy to improve the management framework for implementing the 25 initiatives based on the principles embodied in the Results Act. Specifically, this management framework should include • direct links to top-level DOD goals and objectives, including objective and precise outcome measures related to reducing pipeline time, improving customer service, and reducing total inventory, and 7 Inventory Management: DOD Can Build on Progress by Using Best Practices for Reparable Parts (GAO/NSIAD-98-97, Feb. 27, 1998). Page 12 GAO/NSIAD-00-1 Defense Inventory B-281459 • clearly defined initiative goals, quantifiable performance measures, implementation schedule milestones including specific implementation dates, and key issues and methodologies that will be used to periodically assess the overall impact the initiatives have achieved in reducing inventory levels while improving the responsiveness of the supply system to user needs. Agency Comments and In commenting on a draft of this report, DOD concurred with our recommendations and stated that the Department of the Navy’s schedule Our Evaluation will be updated in the first quarter of 2000. This update will provide links between the schedule initiatives and the objectives set forth in DOD’s Logistics Strategic Plan, quantifiable performance measures, and specific initiative milestone dates where practicable. DOD noted, however, that several Navy initiatives are exploratory in nature and until they are tested, proven successful, and funded, implementation—and specific implementation dates—cannot be assured. DOD’s comments are included in their entirety as appendix II. DOD did express concern that the draft report implied that the current management framework for implementing the initiatives is inadequate. DOD stated that the Navy’s current management framework is guided by the DOD Logistics Strategic Plan and the Navy’s High Yield Logistics Strategy and that the initiatives are subject to review within existing chains of command and at appropriate levels. Further, DOD cited results that have been achieved and asserted that such successes would not have been possible without an adequate management framework. We did not conclude that the Navy’s management framework was inadequate. However, we believe it can be improved, particularly in areas related to measuring progress and results. We have revised our conclusion to more clearly reflect our position. Scope and We based our analysis of the extent to which the schedule responds to the requirements of the act on the information in the schedule, discussions Methodology with Navy and Marine Corps officials, and our prior work comparing DOD and private sector logistics practices. In addition to determining whether the schedule responds to the act, we identified areas in which it could be improved to guide initiative implementation and improve management of secondary inventory items. Page 13 GAO/NSIAD-00-1 Defense Inventory B-281459 Specifically, we examined the schedule in terms of outcome-oriented Results Act principles to determine whether the schedule provides an overall strategy for adopting best practices and contains key management information to guide implementation. We did not assess the merits of the initiatives or the initiatives’ likelihood for success. We interviewed officials and obtained information about ongoing and planned initiatives at Department of the Navy Headquarters, Washington, D.C.; the Navy Supply and Navy Inventory Control Point in Mechanicsburg and Philadelphia, Pennsylvania, respectively; the Fleet Industrial Supply Center, San Diego and Naval Aviation Depot North Island, California. We also obtained information from the Marine Corps Headquarters, Logistics and Installations, Navy Annex, Arlington, Virginia; the Marine Corps Logistics Base, Albany, Georgia; and Camp Pendleton, California. In addition, we used information from our related reports that have been issued since 1993. We conducted our review from November 1998 to June 1999 in accordance with generally accepted government auditing standards. We are sending copies of this report to the appropriate congressional committees; the Honorable William Cohen, Secretary of Defense; the Honorable Richard Danzig, Secretary of the Navy; Admiral Jay Johnson, Chief of Naval Operations; General James Jones, Commandant, Marine Corps; Lieutenant General Henry T. Glisson, Director, Defense Logistics Agency; and Jacob Lew, Director, Office of Management and Budget. We will also make copies available to others upon request. Please contact me on (202) 512-8412 if you or your staff have any questions concerning this report. Key contributors to this report are listed in appendix III. David R. Warren, Director Defense Management Issues Page 14 GAO/NSIAD-00-1 Defense Inventory B-281459 List of Congressional Committees The Honorable John Warner Chairman The Honorable Carl Levin Ranking Minority Member Committee on Armed Services United States Senate The Honorable Ted Stevens Chairman The Honorable Daniel K. Inouye Ranking Minority Member Subcommittee on Defense Committee on Appropriations United States Senate The Honorable Floyd Spence Chairman The Honorable Ike Skelton Ranking Minority Member Committee on Armed Services House of Representatives The Honorable Jerry Lewis Chairman The Honorable John P. Murtha Ranking Minority Member Subcommittee on Defense Committee on Appropriations House of Representatives Page 15 GAO/NSIAD-00-1 Defense Inventory Appendix I Summary of Navy Initiatives AA pppen enx dd iix e Is The Department of the Navy’s best practices implementation schedule lists 25 initiatives, including 22 for the Navy and 3 for the Marine Corps, and links the initiatives to the four supply chain cycles that they will affect. These cycles are planning, sourcing, delivery, and maintenance. According to Navy officials, the plan is dynamic and specific milestones and dates will be updated as necessary. This appendix summarizes the information contained in the schedule submitted to Congress on June 16, 1999. Because these initiatives are not centrally managed and tracked by the Department of the Navy, information regarding the current status of each initiative was not readily available and is therefore not presented in this appendix. Planning Initiatives Six initiatives relate to the planning cycle that includes demand forecasting and supply and distribution planning functions. Some of these initiatives are primarily related to information technology, while others deal with evaluations of current inventory policies. For example, the serial number tracking initiative is focused on developing technology to provide integrated maintenance and supply information on specific items in the Navy inventory. The Retention Level Review initiative is designed to reduce inventory by evaluating the amount of secondary material that should be retained based on a prudent level of risk. Enterprise Resource Enterprise resource planning is a new initiative to explore the possibility of Planning replacing existing supply and maintenance software with a complete new resource planning software package. According to the schedule, the concept development milestone was reached in March 1999, and a request for proposal was issued in May 1999. Proposal evaluation, metrics review, and an initial contract award were scheduled during the June-August 1999 period, and periodic program reviews are planned through October 2002. Serial Number Tracking This is a developing initiative to provide integrated maintenance management information systems. The existing maintenance and supply information systems are separate and distinct and collect different types of data. This initiative is designed to gather maintenance and supply data on specific inventory items and use that information to identify logistics deficiencies and develop least cost solutions and increase readiness. According to the schedule, between September 1999 and October 2003, the Navy plans to establish this capability at all levels of aircraft maintenance. Periodic program reviews are also planned during this period. Page 16 GAO/NSIAD-00-1 Defense Inventory Appendix I Summary of Navy Initiatives Long-Term Contracting This is a mature initiative for reducing the amount of time it takes to place and receive an order for a secondary item. Under this initiative, the Navy establishes a long-term contractual relationship with a vendor, that permits the vendor to procure material to reduce production lead times and reduce the Navy’s administrative lead times. The schedule shows the Navy planned to perform a metrics review in July 1999, complete a plan of action with milestones by September 1999, and conduct periodic program reviews through October 2002. Enhanced Sparing Model This initiative is to reduce inventories of spares by improving configuration data management and new modeling techniques. The initial effort will apply to the F/A-18E/F aircraft and selected subsystems during fiscal years 1999-2003. The schedule shows that through October 1999, the Navy plans to establish new allowance requirements, revise allowances, and identify a strategy for improved configuration data management software changes. After that date, milestones call for periodic program reviews through October 2002. Retention Level Review This is a mature initiative designed to evaluate the amount of secondary inventory that the Department of the Navy should retain. The goal is to reduce the amount of inventory the Navy holds while minimizing the risk that it would have to buy inventory that it previously decided was not needed. The schedule states that from July to December 1999, the Navy plans to conduct a metrics review, develop the concept, perform a 6-month program review, and analyze inventory levels. It plans to implement new inventory retention levels in March 2000 and perform annual program reviews through October 2002. Material Requirements Using this developing initiative, the Navy intends to identify the optimum Review amount of spare repair parts and consumables to be carried on combat logistics force ships by making trade-offs between inventory levels and transportation requirements. By reducing order and ship time, the potential exists to reduce inventory requirements without affecting readiness. According to schedule milestones, the Navy planned to identify alternatives between March and May 1999, make recommendations to proceed in October 1999, and perform periodic program reviews through October 2002. Page 17 GAO/NSIAD-00-1 Defense Inventory Appendix I Summary of Navy Initiatives Sourcing Initiatives The schedule lists eight initiatives that relate to the sourcing cycle. The sourcing cycle includes acquiring items, repair services, and managing contracts. Some of these initiatives involve identifying and distributing assets in inventory, while others are designed to find alternative commercial methods of supplying inventory items at lower costs to the Department of the Navy. For example, Navy and Marine Corps total asset visibility initiatives are aimed at achieving visibility in wholesale, retail, and other inventories so that they can be redistributed, if necessary. Under the contract logistics support initiative, the Navy and the Marine Corps award contracts to commercial vendors who provide inventory directly to customers in time to meet their requirements, thus reducing the need for Department of Defense (DOD) resources. Total Asset Visibility--Navy The Total Asset Visibility program is a mature initiative, which began in the early 1990s.1 The program is designed to link inventory information systems to improve asset visibility and provide an inventory redistribution capability. The initiative requires modifications to information systems and new business rules governing inventory redistribution procedures. According to the schedule, the Navy will complete a number of total asset visibility projects by September 2002, and make periodic program reviews through October 2002. Total Asset Visibility-- This is also a mature initiative involving various efforts since 1991 to Marine Corps identify and distribute assets. DOD goals have been incorporated, development and testing of systems and procedures have been conducted, and visibility and redistribution systems have been fielded. Additional milestones in the schedule call for expanding implementation, completing prototype capability design, and performing a full program review in June 2001. Navy Electronic Commerce This developing initiative is to provide an electronic procurement system Online that is simple to use, is accessible through the Internet or other networks, and can be completely paperless. The Navy expects the system to make procurements faster, more accurate, and less expensive. According to the 1 Defense Inventory: DOD Could Improve Total Asset Visibility Initiative With Results Act Framework (GAO/NSIAD-99-40, Apr. 12, 1999). Page 18 GAO/NSIAD-00-1 Defense Inventory Appendix I Summary of Navy Initiatives schedule, the system has been deployed to Naval Inventory Control Point users, to some Navy Fleet Industrial Supply Centers, and to Marine Corps logistics bases. Further deployments were planned through June 1999, and program reviews are scheduled on an annual basis through October 2002. Readiness Support Systems This is a new initiative aimed at simplifying access to a wide variety of new business practices. The Navy intends to establish a single electronic clearinghouse to forward support requests to the correct contractor or DOD organizations. According to the schedule, testing was completed in May 1999, a prototype was to be implemented in August 1999, and periodic program reviews are planned through October 2002. Contractor Logistics Using this developing initiative, which is focused primarily on new Support, Navy acquisition weapon systems, the Navy negotiates a contract with a commercial vendor at or below the total cost of traditional supply support. The vendor is required to buy new inventory or buy out the Navy’s existing inventory and provide material directly to customers. According to the schedule, the Navy has planned various phases and milestones from May to December 1999 related to business case and metrics development and software programming changes to support the initiative. The Navy plans to identify candidates for contractor logistics support in March 2000 and perform periodic program reviews through October 2002. Contractor Logistics This is a developing initiative to use a commercial contractor for logistics Support, Marine Corps support for a major weapon system. The contractor will be responsible for supplying repair parts, providing inventory forecasting, and technical support, and reporting on the status of orders. According to the schedule, the Marine Corps expects to award a sole-source contract with the original equipment manufacturer during the first quarter of fiscal year 2000. The Marine Corps has established milestones for initial operational testing and evaluation in the third quarter of fiscal year 2000, to be followed by quarterly program reviews and implementation of contractor logistics support for the new vehicle in the third quarter of fiscal year 2001. Direct Vendor Delivery This is a developing initiative to award contracts to commercial vendors to provide inventory directly to Navy customers in time to meet their needs, reducing the use of Navy resources. The Navy conducted business case development in May 1999 and planned a metrics review in July 1999. It also Page 19 GAO/NSIAD-00-1 Defense Inventory Appendix I Summary of Navy Initiatives plans to conduct a 6-month review to address barriers to success in October 1999, complete requests for process changes in December 1999, identify candidates for the initiative in March 2000, and perform periodic program reviews through October 2002. Electronic Servmart This is a developing initiative to implement an online ordering system that Shopping allows fleet customers to access and order materials from their computers and make payments using a purchase card. Orders can be delivered to customers or prepared for pickup the next day, eliminating the need for trips to the self-service Servmart stores. According to the schedule, the concept has been implemented at five facilities, and it will be implemented at three additional facilities in September 1999. The Navy plans a 6-month program review to address barriers to success in October 1999. The initiative will be expanded to remaining Fleet Industrial Supply Centers in December 2000 and to other Navy activities in December 2001. Periodic program reviews are scheduled through October 2002. Delivery Initiatives The schedule lists five initiatives under the delivery management cycle. The delivery cycle includes ordering, storage, and transportation of items in addition to managing the delivery infrastructure. Two initiatives deal with information technology systems and the other three use third-party providers for specific inventory items. For example, the Marine Corps’ prime vendor initiative uses contractors to provide market ready or commercial supplies in medical, subsistence, automotive, and other business areas to a wide range of Marine Corps customers. Customer Wait Time This is a developing initiative for speeding up the delivery of parts that are needed for maintenance. The Navy intends to track the time from the ordering of a part to its delivery, develop a strategy for different shore facilities and deployment sites, then optimize the Navy’s investment in spare parts. The schedule indicates a metrics review for July 1999 and periodic program reviews through October 2003. One Touch Supply This developing initiative allows customers to use the Internet to access various Navy databases at different facilities as a means to expedite the ordering and delivery of supplies. A customer can locate stock, input requisitions, perform technical screening, and check on requisition status. Page 20 GAO/NSIAD-00-1 Defense Inventory Appendix I Summary of Navy Initiatives The initiative was started in November 1997, and the Navy planned to add the capability to access Defense Logistics Agency databases in August 1999 and other Navy databases in September 1999. Periodic program reviews are scheduled through October 2003. Regional Third Party This is a new initiative to use a single contractor, rather than many, to Logistics Providers provide customers with inventory that is readily available in the commercial sector. A desired outcome of this initiative is lower inventory levels and related infrastructure. Norfolk/Tidewater, Virginia regional locations under consideration for this initiative include Public Works Center supply, Naval Shipyard shop stores, and in the future, Naval Air Station pre-expended bins. The schedule shows that in March and April 1999 the Navy was to complete a business case analysis and solicit vendor bids. Selection of a third-party provider is scheduled for September 1999 and a 6-month review is planned for October 1999. The strategy is to be assessed, refined, and expanded to other regions and to the Navy supply system between April and December 2000, and program reviews are scheduled through October 2002. Third Party Logistics This developing initiative uses a single third-party logistics provider to Providers−Retrograde reduce the amount of Navy reparable secondary items in the pipeline. The method for achieving this initiative is an A-76 competition in the area of Management transportation. Concept development and vendor solicitations were scheduled for April 1999, and a business case analysis was set for May 1999. A 6-month program review to address barriers to success and potential worldwide implementation is planned for December 1999. Periodic program reviews are planned between April 2000 and October 2002. Prime Vendor, Marine Corps This is a developing initiative to select vendors that can provide market- ready or commercial supplies to a wide range of customers. Prime vendor arrangements normally take advantage of existing commercial distribution networks that can be tailored to the individual customer. The Marine Corps has implemented and/or planned prime vendor programs in nine logistics business areas: subsistence, medical/pharmaceutical/dental, maintenance repair operations, industrial, automotive overseas, fleet automotive support, lumber/wood products, individual clothing and combat equipment, and food service equipment. The number of locations involved varied. The schedule states the Marine Corps plans to develop a future site Page 21 GAO/NSIAD-00-1 Defense Inventory Appendix I Summary of Navy Initiatives implementation plan between August and November 1999 and has ongoing actions to monitor and expand prime vendor opportunities. Maintenance Initiatives The schedule lists six initiatives relating to the maintenance cycle. This cycle includes repairing weapon systems and component parts and managing the maintenance infrastructure. Two of these initiatives are related to reengineering maintenance processes, two are information technology related initiatives, and two are focused on redesigning spare parts. Organic Industrial This is a new initiative to assess commercial industry’s interest in providing Enterprise Logistics industrial support to the aviation depots and to solicit concepts for doing so. The initiative encompasses the entire logistics supply chain for material Support supply support to the Naval Aviation Depots. The Navy schedule calls for completion of a business case analysis and validation of any selected concepts in January 2000, with subsequent implementation of any proven concepts. The projected milestone date for award of an implementation contract is July 2000. Annual program reviews are planned through October 2002. Maintenance Cycle Time This is a new initiative to reengineer selected Navy aviation maintenance Reengineering processes. As a result of a Naval Air Systems Command’s activity based cost analysis, the Navy established separate business process reengineering teams for material management, aviation depot planning and scheduling, and component repair. These teams are to document the current processes, determine what the reengineered processes should look like, and conduct business case analyses to support the merits of revised processes. The schedule calls for implementation of the reengineered processes in October 1999 and completion of aviation depot cellular repair organizations in March 2001 and reengineering initiatives in June 2006. Modernization of This developing initiative is to modernize the Navy information system Maintenance Information used to manage organizational and intermediate-level aviation maintenance activities both ashore and afloat. The schedule indicates that the Navy Support System began fielding the modernized system in fiscal year 1998 and that the system will be installed at a small percentage of maintenance activities by October 1999. Operational testing is scheduled for December 1999. The Page 22 GAO/NSIAD-00-1 Defense Inventory Appendix I Summary of Navy Initiatives system is scheduled to be installed at additional sites by October 2000 and at all sites by October 2005. Manufacturing Resource This is a developing initiative to improve resource planning through the use Planning II of an automated information management system. This system provides planning, scheduling, capacity, and other information to reduce repair cycle time and eliminate excess inventory. The Navy selected its aviation depot in Jacksonville, Florida, as the prototype location, and it plans to expand coverage to the other aviation depots by September 2000. Annual program reviews are planned through October 2002. Rapid Retargeting This new initiative invests in a technology to redesign obsolete components in order to provide new hardware for sea and aviation weapon systems. This concept may be applied to other DOD organizations and agencies that may have a similar requirement. According to the schedule, the Navy has developed criteria for selecting components for the program. Additionally, the schedule called for a review of program metrics in July 1999, a 6-month program review to address barriers to success in October 1999, and subsequent annual program reviews through October 2002. Logistics Engineering This is a mature initiative that uses engineering change proposals Change Proposals sponsored by the Naval Inventory Control Point to introduce enhanced technology, redesign items, or improve repair processes. The objective of this initiative is to reduce or eliminate support costs while maintaining or improving safety and performance. According to the schedule, a memorandum of agreement with fleet customers was scheduled to be completed in March 1999. Also, a metrics review was planned for July 1999, a 6-month program/budget review to address barriers to success was scheduled for October 1999, and periodic program reviews are scheduled through October 2002. Page 23 GAO/NSIAD-00-1 Defense Inventory Appendix II Comments From the Department of Defense Appendix I Page 24 GAO/NSIAD-00-1 Defense Inventory Appendix II Comments From the Department of Defense Now on p. 12. Now on p. 13. Page 25 GAO/NSIAD-00-1 Defense Inventory Appendix III GAO Contacts and Staff Acknowledgments AppendxIi GAO Contacts Charles Patton (202) 512-4412 Robert Repasky (202) 512-9868 Acknowledgments In addition to those named above, Lionel Cooper, Gary Kunkle, Thaddeus Rytel, and William Woods made key contributions to this report. Page 26 GAO/NSIAD-00-1 Defense Inventory Related GAO Products Inventory Management: More Information Needed to Assess DLA’s Best Practice Initiatives (GAO/NSIAD-98-218, Sept. 2, 1998). Inventory Management: DOD Can Build on Progress by Using Best Practices for Reparable Parts (GAO/NSIAD-98-97, Feb. 27, 1998). Defense Inventory Management: Expanding Use of Best Practices for Hardware Items Can Reduce Logistics Costs (GAO/NSIAD-98-47, Jan. 20, 1998). Inventory Management: Greater Use of Best Practices Could Reduce DOD's Logistics Costs (GAO/T-NSIAD-97-214, July 24, 1997). Inventory Management: The Army Could Reduce Logistics Costs for Aviation Parts by Adopting Best Practices (GAO/NSIAD-97-82, Apr. 15, 1997). Defense Inventory Management: Problems, Progress, and Additional Actions Needed (GAO/T-NSIAD-97-109, Mar. 20, 1997). Inventory Management: Adopting Best Practices Could Enhance Navy Efforts to Achieve Efficiencies and Savings (GAO/NSIAD-96-156, July 12, 1996). Best Management Practices: Reengineering the Air Force’s Logistics System Can Yield Substantial Savings (GAO/NSIAD-96-5, Feb. 21, 1996). Inventory Management: DOD Can Build on Progress in Using Best Practices to Achieve Substantial Savings (GAO/NSIAD-95-142, Aug. 4, 1995). (709382) Leter Page 27 GAO/NSIAD-00-1 Defense Inventory Ordering Information The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary, VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. Orders by mail: U.S. General Accounting Office P.O. Box 37050 Washington, DC 20013 or visit: Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (202) 512-6061, or TDD (202) 512-2537. Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (202) 512-6000 using a touchtone phone. A recorded menu will provide information on how to obtain these lists. For information on how to access GAO reports on the INTERNET, send an e-mail message with “info” in the body to: email@example.com or visit GAO’s World Wide Web Home Page at: http://www.gao.gov United States Bulk Rate General Accounting Office Postage & Fees Paid Washington, D.C. 20548-0001 GAO Permit No. GI00 Official Business Penalty for Private Use $300 Address Correction Requested
Defense Inventory: Improved Management Framework Needed to Guide Navy Best Practice Initiatives
Published by the Government Accountability Office on 1999-10-21.
Below is a raw (and likely hideous) rendition of the original report. (PDF)