oversight

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)

                 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:

info@www.gao.gov

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