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entitled 'Defense Inventory: Opportunities Exist to Improve the 
Management of DOD's Acquisition Lead Times for Spare Parts' which was 
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Report to Congressional Committees: 

United States Government Accountability Office: 

GAO: 

March 2007: 

Defense Inventory: 

Opportunities Exist to Improve the Management of DOD's Acquisition Lead 
Times for Spare Parts: 

GAO-07-281: 

GAO Highlights: 

Highlights of GAO-07-281, a report to congressional committees 

Why GAO Did This Study: 

GAO has identified the Department of Defenseís (DOD) management of its 
inventory as a high-risk area since 1990 due to ineffective and 
inefficient inventory systems and practices. Management of inventory 
acquisition lead times is important in maintaining cost-effective 
inventories, budgeting, and having material available when needed, as 
lead times are DODís best estimate of when an item will be received. 
Under the Comptroller Generalís authority to conduct evaluations on his 
own initiative, GAO analyzed the extent to which (1) DODís estimated 
lead times varied from actual lead times, and (2) current management 
actions and initiatives have reduced lead times as compared to past 
years. To address these objectives, GAO computed the difference between 
the componentsí actual and estimated lead times, and compared component 
initiatives to reduce lead times for 1994-2002 to 2002-2005. 

What GAO Found: 

The military componentsí estimated lead times to acquire spare parts 
varied considerably from the actual lead times experienced. The effect 
of the lead time underestimates was almost $12 billion in spare parts 
arriving more than 90 days later than anticipated, which could 
negatively affect readiness rates because units may not have needed 
inventory. If orders had been placed earlier, readiness rates could 
potentially have been improved. While having spare parts arrive earlier 
than estimated could potentially improve readiness, the effect of lead 
time overestimates resulted in obligating almost $2 billion more than 
90 days earlier than necessary. As the table shows, the Army 
underestimated lead times, DLA overestimated lead times, and the Air 
Force and Navy both overestimated and underestimated lead times. 

Table: Acquisition Lead Time Difference for FY 2005 Deliveries (in 
percentages): 

Air Force; 
>90 days early: 23.8; 
>1 week to 90 days early: 15.7; 
Up to 1 week early - Up to 1 week late: 3.0; >1 week to 90 days late: 
15.2; 
>90 days late: 42.3; 
Total number of deliveries: 18,335. 

Army; 
>90 days early: 11.8; 
>1 week to 90 days early: 9.7; 
Up to 1 week early - Up to 1 week late: 4.6; >1 week to 90 days late: 
15.3; 
>90 days late: 58.5; 
Total number of deliveries: 9,380. 

Navy; 
>90 days early: 39.3; 
>1 week to 90 days early: 17.0; 
Up to 1 week early - Up to 1 week late: 3.0; >1 week to 90 days late: 
12.7; 
>90 days late: 27.9; 
Total number of deliveries: 19,304. 

DLA; 
>90 days early: 39.5; 
>1 week to 90 days early: 45.7; 
Up to 1 week early - Up to 1 week late: 5.0; >1 week to 90 days late: 
6.7; 
>90 days late: 3.0; 
Total number of deliveries: 1,031,779. 

Total; 
>90 days early: 39.0; 
>1 week to 90 days early: 44.4; 
Up to 1 week early - Up to 1 week late: 5.0; >1 week to 90 days late: 
7.0; 
>90 days late: 4.6; 
Total number of deliveries: 1,078,798. 

Source: GAO analysis of components' delivery order information. 

[End of table] 

The variances were due to problems such as miscoding late deliveries as 
not representative of future delivery times, lack of recorded lead time 
data, data input errors, estimates that did not reflect improvements 
made in actual lead times, and the use of standard default data instead 
of other data that may have been obtainable. Absent actions to address 
these problems, lead time estimates will continue to vary from actual 
lead times and will contribute to inefficient use of funds and 
potential shortages or excesses. 

The Under Secretary of Defense for Acquisition, Technology, and 
Logistics (USD (AT&L)) and the componentsí actions and initiatives to 
reduce lead times from 2002 to 2005 were less effective overall than 
previous efforts from 1994 to 2002. From 2002 to 2005, DOD-wide lead 
times were reduced by an average of 0.9 percent annually as compared to 
an average reduction of 5.6 percent annually from 1994 to 2002, 
potentially leading to an additional $2.7 billion in lead time 
requirements, tying up money that could have been obligated for other 
needs. The higher rate of reduction from 1994 to 2002 can be attributed 
to three areas of focus: streamlining internal administrative 
processes, oversight from USD (AT&L), and developing strategic 
relationships with suppliers. However, from 2002 to 2005, USD (AT&L) no 
longer provided active oversight such as establishing lead time 
reduction goals, reporting metrics, reporting the impact of specific 
initiatives, or estimating the financial impact of reduced lead times, 
as had been done previously. Until steps are taken to renew management 
focus on reducing lead times, the components may continue to experience 
spare parts shortages and increased inventory levels to cover lead 
times. 

What GAO Recommends: 

GAO recommends that DOD take actions to improve the accuracy and 
strengthen its management of lead times, such as review lead time data 
to detect and correct errors, review and revise the methodology used 
for setting lead times, set lead time reduction goals, and direct the 
components to measure and report the impact of initiatives to reduce 
overall lead times within each of the military components. In its 
comments, DOD generally concurred with nine and nonconcurred with two 
of our recommendations. 

[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-281]. 

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact William M. Solis at (202) 
512-8365 or solisw@gao.gov. 

[End of section] 

Contents: 

Letter: 

Results in Brief: 

Background: 

Actual Lead Times Varied Considerably from Estimated Lead Times for All 
Components: 

Management Actions and Initiatives to Reduce Lead Times from 2002 to 
2005 Less Effective than Previous Initiatives from 1994 to 2002: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendix I: Scope and Methodology: 

Appendix II: Comments from the Department of Defense: 

Appendix III: GAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: Primary Logistics Agencies and Their Inventory Management 
Centers: 

Table 2: DOD-Wide Difference in Actual and Estimated Acquisition Lead 
Times: 

Table 3: Army Differences between Actual and Estimated Acquisition Lead 
Times: 

Table 4: DLA Differences between Actual and Estimated Acquisition Lead 
Times: 

Table 5: Air Force Differences between Actual and Estimated Acquisition 
Lead Times: 

Table 6: Navy Differences between Actual and Estimated Acquisition Lead 
Times: 

Table 7: Lead Time Reductions from 2002 to 2005 Compared to Lead Time 
Reductions from 1994 to 2002: 

Table 8: Component Initiatives and Management Actions to Reduce 
Acquisition Lead Times from 1994 to 2005: 

Figure: 

Figure 1: Potential Impact of Reduced Lead Time Inventory Requirements: 

Abbreviations: 

DLA: Defense Logistics Agency: 
DOD: Department of Defense: 
USD (AT&L): Under Secretary of Defense for Acquisition, Technology, and 
Logistics: 
TACOM: Tank-Automotive and Armaments Command: 

United States Government Accountability Office: 
Washington, DC 20548: 

March 2, 2007: 

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

The Honorable Ike Skelton: 
Chairman: 
The Honorable Duncan L. Hunter: 
Ranking Minority Member: 
Committee on Armed Services: 
House of Representatives: 

The Department of Defense (DOD) maintains a military force with diverse 
capabilities but continues to confront a pervasive, decades-old supply 
chain management problem that relates to retaining the appropriate 
amount of inventory. The fundamental premise of supply chain management 
is the operation of a continuous, unbroken, comprehensive, and all- 
inclusive logistics process, from initial customer order for materiel 
or services to the ultimate satisfaction of the customer's 
requirements. Supply chain management in DOD consists of processes and 
activities to purchase, produce, and deliver materiel to a force that 
is highly dispersed and mobile. Supply support to the warfighter 
affects readiness and military operations. In fact, the supply chain 
can be the critical link in determining whether our frontline military 
forces win or lose on the battlefield. Given the high demand for goods 
and services to support ongoing U.S. military operations, the 
investment of resources in the supply chain is substantial. DOD 
reported that, as of September 30, 2005,[Footnote 1] it owned about $80 
billion of secondary inventory of spare parts.[Footnote 2] This 
represents a $17 billion, or 27 percent, increase since fiscal year 
2001, when the department reported about $63 billion in inventory. 

Critically important to maintaining cost-effective inventories, 
budgeting, and having materiel available when it is needed is the 
development of successful processes that identify and manage 
acquisition lead times for the purchase of parts for equipment and 
weapon systems. Acquisition lead time, also known as procurement lead 
time,[Footnote 3] measures the length of time between the initiation of 
a procurement action and the receipt of items into the supply system. 
DOD's management of its acquisition lead times affects whether DOD and 
its military components[Footnote 4] have the right quantities of the 
right items at the right locations at the right time to meet customer 
needs. Generating lead time estimates is a protracted and complex 
process that requires DOD inventory managers to project, in some cases, 
parts usages over several years, which can decrease forecast accuracy 
and reduce DOD's flexibility to react to changes in demand. 
Additionally, long-standing data problems, internal control weaknesses, 
and noninteroperable business systems within DOD further complicate the 
process of generating accurate acquisition lead time estimates. 

Since 1990, we have reported on weaknesses in DOD's supply chain 
management in our high-risk reports. In 1994, we reported[Footnote 5] 
that DOD had made only limited progress in reducing acquisition lead 
times because its initiatives had been unevenly implemented by the 
military components. We recommended that DOD renew emphasis on 
implementing lead time reduction initiatives, review and update certain 
lead time data, and give consideration to buying items directly from 
the manufacturers instead of from contractors. DOD partially concurred 
with each of our findings and recommendations. In addition to our 
review, a 1998 DOD Inspector General report[Footnote 6] reviewed 
initiatives underway at that time to improve acquisition lead times. 
The report concluded that the military components had made progress in 
reducing acquisition lead times and pointed out that reducing 
acquisition lead times decreases inventory levels and associated 
inventory holding costs, thus freeing up funds for other uses. The DOD 
Inspector General report contained no recommendations. 

Because of the potential effects of DOD's management of acquisition 
lead times on readiness and inventory expenditures and because of the 
continued weaknesses in DOD's supply chain management that we had 
identified, we performed this engagement under the Comptroller 
General's authority to conduct evaluations on his own initiative. We 
are providing this report to you because of your committee's oversight 
responsibilities. Our objectives were to determine the extent to which 
(1) DOD's estimated lead times varied from the actual lead times 
experienced, and (2) current management actions and initiatives have 
reduced lead times as compared to past years. 

To compare and analyze the estimated to actual lead times, we (1) 
obtained and reviewed the military components' regulations and 
directives on the policies, procedures, and processes used in computing 
and maintaining acquisition lead times and interviewed relevant 
officials; (2) obtained from each of the military components the 
estimated and actual acquisition lead time values for all of the more 
than one million orders valued at almost $19 billion of spare parts 
that they received during fiscal year 2005; and (3) computed the 
differences between the estimated and actual lead time for each order. 
Each order's variance was then categorized according to how closely the 
estimate approximated the actual lead time, ranging from no variance to 
more than 90 days off as we believe this interval was an appropriate 
measure to use in our analyses. We then calculated overall statistics 
to show the extent to which the military components accurately 
estimated the actual lead times. We also calculated the effect in 
dollars for spare parts where the estimates were longer or shorter than 
the actual lead times. We assessed the reliability of DOD's acquisition 
lead time data by obtaining information from the components' management 
of their data reliability procedures. We determined that the data 
obtained from DOD's automated systems were sufficiently reliable for 
the purposes of this report. Further, to compare the management actions 
and initiatives to reduce lead times, we reviewed relevant documents 
regarding efforts, policies, and initiatives to reduce lead times and 
interviewed officials from the Office of the Under Secretary of Defense 
for Acquisition, Technology, and Logistics (USD (AT&L)) and each of the 
military components. We conducted our review from November 2005 through 
November 2006 in accordance with generally accepted government auditing 
standards. For more detailed information on our scope and methodology, 
see appendix I. 

Results in Brief: 

The military components' estimated lead times to acquire spare parts 
varied considerably from the actual lead times they experienced. DOD's 
Supply Chain Materiel Management Regulation[Footnote 7] provides 
guidance for developing materiel requirements based on customer 
expectations while minimizing the investment in inventories. Further, 
accurate lead time estimates are critically important in enabling the 
military components to have the proper amount of inventory on hand. 
However, rarely (5 percent) did the components' acquisition lead time 
estimates come within a week of the actual lead times, while about 44 
percent of the lead time estimates varied either earlier or later than 
the actual lead times by at least 90 days. The combined effect of the 
understated lead time estimates for all the components was slightly 
over $12 billion in spare parts arriving more than 90 days later than 
anticipated, which has the potential for negatively affecting readiness 
rates because units may not have the necessary inventory to support and 
sustain ongoing military operations. If orders had been placed and 
funds obligated earlier, in some instances readiness rates could 
potentially have been improved. Further, the combined effect of the 
overstated lead time estimates for all the components resulted in them 
obligating almost $2 billion more than 90 days earlier than necessary, 
although spare parts that come in early could potentially improve 
readiness. 

* Of the 9,380 Army deliveries we reviewed, we found that 58 percent 
(valued at $10.6 billion) had actual lead times longer than estimated 
by at least 90 days due to such problems as miscoding of late 
deliveries as not representative of future deliveries, lack of lead 
time data in one of its computer systems, and data input errors that 
caused the Army to underestimate lead times and receive items later 
than expected. 

* Conversely, we found that almost 40 percent of the estimated lead 
times for the 1,031,779 DLA deliveries we reviewed[Footnote 8] (valued 
at $568.8 million) were overstated by at least 90 days and did not 
accurately reflect the improvements made in actual lead times because 
the methodology DLA used for computing lead times had not been reviewed 
or revised to reflect recent improvements due to the use of long-term 
contracts. 

* Of the 18,335 Air Force deliveries we reviewed, we found that more 
than 42 percent (valued at $155.2 million) had actual lead times longer 
and about 24 percent had actual lead times shorter than estimated by at 
least 90 days due, in part, to the use of standard default data instead 
of other data that may have been obtainable, such as data from the 
suppliers. 

* Additionally, of the 19,304 Navy deliveries we reviewed, we found 
that about 28 percent had actual lead times longer and almost 40 
percent (valued at $164.9 million) had actual lead times shorter than 
estimated by at least 90 days due to such problems as data input 
errors. 

Absent actions by the military components to address these problems and 
institute corrective procedures, DOD's acquisition lead time estimates 
will continue to vary greatly from the actual lead times and will 
contribute to inefficient use of funds and potential inventory 
shortages or excesses. 

USD (AT&L) and the military components' management actions and 
initiatives to reduce acquisition lead times from 2002 to 2005 were 
less effective overall than previous actions and initiatives from 1994 
to 2002. DOD regulations state that the components should aggressively 
pursue the lowest possible acquisition lead times. However, from 2002 
to 2005, DOD-wide lead times were reduced by an average of 0.9 percent 
annually as compared to an average reduction of 5.6 percent annually 
from 1994 to 2002. The USD (AT&L) and the components' management 
actions and initiatives were more effective from 1994 to 2002 than they 
were from 2002 to 2005 because they placed greater emphasis on three 
areas that contributed to the higher rate of lead time reduction: 
streamlining internal administrative processes, improving oversight, 
and developing strategic relationships with suppliers. First, from 1994 
to 2002, each of the military components began new initiatives to 
streamline administrative processes. While all components continued 
these initiatives from 2002 to 2005, the Army and the Navy reduced 
focus on these initiatives and were less aggressive than the DLA and 
the Air Force in implementing new initiatives to reduce lead times. For 
example, DLA and the Air Force reduced their lead times by an average 
of 3.3 and 4.1 percent annually, respectively, while the Army's average 
lead times increased and the Navy's were unchanged. Second, in 1994, 
USD (AT&L) began providing enhanced oversight to acquisition lead 
times, but by 2002 it was no longer providing active oversight. For 
example, from 2002 to 2005, USD (AT&L) did not establish lead time 
reduction goals, require reporting of metrics to measure reductions in 
lead times, collect data to report the impact and costs of specific 
initiatives on lead times, or measure and provide estimates of the 
financial impact of reduced lead times, as had been done previously. 
USD (AT&L) officials stated that they no longer provided oversight 
because management focus shifted from reducing lead times to improving 
performance on broader metrics, such as backorders. Component officials 
stated that because USD (AT&L) placed less emphasis on lead times from 
2002 to 2005, their organizations also placed less emphasis on lead 
time reductions. Officials suggested that renewed emphasis on lead time 
reduction by USD (AT&L) could increase the components' management focus 
on reducing lead times. Third, all military components were able to 
reduce lead times from 1994 to 2002 by implementing initiatives that 
developed relationships with suppliers, such as using long-term 
contracts and other innovative practices. However, unlike the Air Force 
and the DLA, the Army and the Navy have not begun any new initiatives 
to improve strategic relationships with suppliers to help reduce lead 
times from 2002 to 2005. The military components could have decreased 
inventory requirements and potentially saved hundreds of millions of 
dollars if more aggressive lead time reductions had been realized from 
2002 to 2005, as they had from 1994 to 2002. As a result of the reduced 
rate of lead time reduction from 2002 to 2005, lead time requirements 
are up to $2.7 billion higher than they would have been if the lead 
time reduction rate had remained constant, thus tying up money that 
could have been obligated for other needs. Until USD (AT&L) and the 
components take steps to renew their focus on reducing lead times by 
aggressively continuing prior initiatives and implementing successful 
new initiatives, the components may continue to experience spare parts 
shortages and may spend significantly more money to purchase additional 
inventory. 

To improve the accuracy in setting acquisition lead time values, we are 
recommending that the Army take steps to determine when lead time 
values are representative and should be updated, and update and 
maintain automated lead time data in computer systems; the Army and 
Navy review and validate lead time data to detect and correct errors; 
DLA review and update the methodology used for updating lead times; and 
the Air Force evaluate sources of lead time values. To strengthen 
management of lead times, we are recommending that USD (AT&L) establish 
lead time reduction goals, develop metrics to measure progress in 
meeting lead time reduction goals, develop an estimate of the financial 
impact of lead time reductions, direct the military components to 
measure and report to it on the results and costs of individual 
initiatives to reduce overall lead times, and work closely with the 
Army and Navy to develop joint strategic relationships with suppliers 
that would be beneficial in reducing lead times. 

In written comments on a draft of this report, DOD generally concurred 
with 9 of our 11 recommendations. DOD identified actions that it is 
taking or plans to take to implement these recommendations, and, for 
most of them, we agree that its actions are responsive and reasonably 
address our findings. However, DOD did not concur with 2 of our 11 
recommendations, the first being our recommendation for DLA to review 
and revise the methodology used to update lead times. The department 
stated that we used data from DLA's legacy computer system in our 
review, which did not have the benefit of DLA's newly implemented 
computer system. We believe that our recommendation remains valid 
because the basic methodology for calculating lead times remains the 
same between DLA's old and new computer systems. Therefore, 
improvements in the accuracy of DLA's lead time estimates seem unlikely 
to result from the use of the old methodology in the new computer 
system. DOD also did not concur with our recommendation for USD (AT&L) 
to work closely with the Army and Navy to develop joint strategic 
relationships with suppliers that would be beneficial in reducing lead 
times, stating that it is actively pursuing a joint strategy to develop 
strategic relationships and that to instruct the services to develop 
strategic relationships separately would lead to a duplication of 
effort. We believe that DOD may have misinterpreted our recommendation 
as having these services independently pursue strategic supplier 
relationships without USD (AT&L) oversight. However, our recommendation 
was not for the Army and Navy to develop strategic relationships 
separately but for USD (AT&L) to work closely with them to develop 
these relationships. Therefore, we believe that this recommendation 
remains valid. The department's comments are reprinted in appendix II, 
and our response to its comments appears at the end of this report. 

Background: 

The basic challenge of inventory management is having the proper amount 
of items on hand when required--neither too much nor too little. If 
inventory levels are too low, DOD and its components may experience 
supply shortages and be unable to satisfy customer demands. This could 
result in DOD undertaking costly and often wasteful efforts to recover 
from being out of stock. If inventory levels are too high, money is 
invested on items that may never be used. Additionally, a series of 
unnecessary expenditures is incurred for more warehouses, 
transportation, and personnel; storage and distribution facilities 
become more crowded; maintenance workloads may increase; and inventory 
excesses are generated which eventually may have to be disposed of, 
perhaps at a severe financial loss. 

Inventory levels are influenced by the amount of time between the 
initiation of a procurement action and the receipt of the item into the 
supply system. This time frame is known as acquisition lead time, and 
it consists of two parts: administrative and production lead times. 
Administrative lead time is the time interval from the initiation of a 
procurement action to the contract award, while the production lead 
time is the interval from the contract award to delivery of the items. 
Since acquisition lead times are the components' estimates as to when 
an item will arrive, varying from that expectation results in 
consequences when items arrive too early or too late. 

To promote accuracy and completeness in the management of acquisition 
lead times, having appropriate policies, procedures, and instructions 
is an important component of an agency's internal control framework. As 
discussed in GAO's Internal Control Standards guidance, we identified 
that other important activities related to information processing 
systems, performance measures and indicators, and the recording and 
classification of transactions and events are also necessary.[Footnote 
9] Inventory management and oversight is the shared responsibility 
between the USD (AT&L) and the military components. USD (AT&L) has 
overall responsibility for the development of acquisition policies for 
monitoring the overall effectiveness and efficiency of the DOD 
acquisition system. The components are responsible for implementing the 
materiel management policies and activities. The DOD Supply Chain 
Materiel Management Regulation states that the military components 
should aggressively pursue the lowest possible acquisition lead times, 
and in coming up with lead time estimates, they may use contractor 
information, historical information from representative procurements, 
technical documentation, or the best judgment of acquisition personnel. 
It also establishes for the military components overarching guiding 
principles, assigns responsibility, defines, and provides guidelines 
for developing acquisition lead time, and states that they should 
identify and track deviations from normal historical or projected 
patterns in such areas as demand, stock levels, and lead times. 

The military components have an inventory management agency that 
purchases and delivers items and services to the warfighter. The 
primary inventory agencies that provide this support to the warfighter 
are (1) the U.S. Air Force Materiel Command, (2) the U.S. Army Materiel 
Command, (3) the Defense Logistics Agency, and (4) the Naval Inventory 
Control Point. Table 1 shows the primary logistics agencies and their 
inventory management centers. 

Table 1: Primary Logistics Agencies and Their Inventory Management 
Centers: 

Air Force Materiel Command: 
Ogden Air Logistics Center; 
Oklahoma City Air Logistics Center; 
Warner Robins Air Logistics Center. 

Army Materiel Command: 
Aviation and Missile Life Cycle Management Command; 
Communications-Electronics Life Cycle Management Command; 
U.S. TACOM Life Cycle Management Command. 

Defense Logistics Agency: 
Defense Supply Center Columbus; 
Defense Supply Center Philadelphia; 
Defense Supply Center Richmond. 

Naval Inventory Control Point: 
Naval Inventory Control Point Mechanicsburg; 
Naval Inventory Control Point Philadelphia. 

Source: DOD. 

[End of table] 

To implement DOD's acquisition lead time policy, each of the military 
components developed their own procedures for managing acquisition lead 
times, and as such, each used slightly different methodologies to 
calculate their estimated administrative lead time and production lead 
time values. 

Actual Lead Times Varied Considerably from Estimated Lead Times for All 
Components: 

The military components' acquisition lead time estimates to acquire 
spare and repair parts varied considerably from the actual lead times 
experienced. More specifically, estimated lead times for all of the 
components rarely approximated actual lead times, with only 5 percent 
of the deliveries we reviewed having actual acquisition lead times that 
were within 1 week of the estimated lead time. While each of the 
military components had instances of both underestimated and 
overestimated lead times, the Army's acquisition lead time estimates 
were generally understated, while DLA's estimates were generally 
overstated. The Air Force's and the Navy's estimates were both 
overstated and understated. 

Acquisition Lead Time Estimates for All Components Rarely Approximated 
Actual Lead Times: 

For the more than one million spare part deliveries we reviewed, the 
military components' estimated acquisition lead times rarely 
approximated the actual lead times and were generally either 
understated or overstated. DOD's Supply Chain Materiel Management 
Regulation provides guidance for developing materiel requirements based 
on customer expectations while minimizing the investment in 
inventories. In addition, accurate lead time estimates are critically 
important in enabling the military components to have the proper amount 
of inventory on hand. However, as table 2 shows, 5 percent of the 
deliveries, totaling about $700 million, had actual acquisition lead 
times that were within a week of the estimate. The combined value of 
the lead time underestimates for all the components resulted in 
slightly over $12 billion in spare and repair parts arriving more than 
90 days later than expected, which may have negatively affected 
equipment readiness and overall rates because units may not have had 
the necessary inventory to support and sustain ongoing military 
operations. If lead time estimates had been more accurate, orders could 
have been placed and funds obligated earlier, and in some instances 
readiness rates could potentially have been improved. Further, the 
combined value of the lead time overestimates resulted in the military 
components obligating almost $2 billion more than 90 days earlier than 
necessary, which could add to excess on-hand inventories, although 
spare parts that come in early could potentially improve readiness. 

Table 2: DOD-Wide Difference in Actual and Estimated Acquisition Lead 
Times: 

Total DOD-wide; 
Dollar value (in thousands) of deliveries with variances: >90 days 
early: $1,909,523; 
Dollar value (in thousands) of deliveries with variances: >1 week to 90 
days early: $2,041,190; 
Dollar value (in thousands) of deliveries with variances: Up to 1 week 
early - Up to 1 week late: $699,378; 
Dollar value (in thousands) of deliveries with variances: >1 week to 90 
days late: $2,047,081; 
Dollar value (in thousands) of deliveries with variances: >90 days 
late: $12,023,766; 
Percent of deliveries reviewed with variances: >90 days early: 39.0; 
Percent of deliveries reviewed with variances: >1 week to 90 days 
early: 44.4; 
Percent of deliveries reviewed with variances: Up to 1 week early - Up 
to 1 week late: 5.0; 
Percent of deliveries reviewed with variances: >1 week to 90 days late: 
7.0; 
Percent of deliveries reviewed with variances: >90 days late: 4.6. 

Source: GAO analysis of delivery order information provided by each of 
the military components. 

[End of table] 

We reviewed the two parts of acquisition lead time, administrative lead 
time and production lead time, and found that each of the military 
components more accurately estimated the administrative portion than 
the production portion. However, for administrative lead time, the 
military components' estimates fell within the 1-week range only about 
20 percent of the time while production lead time estimates matched the 
actual production lead times within the 1-week range just over 10 
percent of the time. Officials explained that the accuracy of their 
administrative lead time estimates was better than their production 
lead time estimates because they have more management control over 
their internal processes than over external contractor practices. 
Officials stated that variability always exists when generating lead 
time estimates, but they agreed that improved and more reliable lead 
time estimates can contribute to lower levels of inventory. They also 
stated that understated lead time estimates can result in backorders or 
part shortages which may impact a unit's readiness if the needed spare 
parts are not available when expected, and overstated estimates result 
in prematurely obligating funds that could have been used for other 
military needs and can unnecessarily increase inventory levels and 
associated costs. 

Army Tended to Underestimate Lead Time Estimates: 

The Army tended to underestimate their acquisition lead times and 
receive items later than expected. Of the 9,380 Army deliveries we 
reviewed, more than 58 percent of their actual acquisition lead times 
were more than 90 days longer than their estimated lead times. This 
represented about $10.6 billion worth of inventory arriving later than 
expected. Additionally, almost 12 percent had actual acquisition lead 
times that were more than 90 days shorter than their estimated lead 
times and that resulted in about $900 million of premature obligations, 
as shown in table 3. 

Table 3: Army Differences between Actual and Estimated Acquisition Lead 
Times: 

Army: AMCOM-Aviation; 
Dollar value (in thousands) of deliveries with variances: >90 days 
early: $851,500; 
Dollar value (in thousands) of deliveries with variances: >1 week to 90 
days early: $642,284; 
Dollar value (in thousands) of deliveries with variances: Up to 1 week 
early --Up to 1 week late: $333,998; 
Dollar value (in thousands) of deliveries with variances: >1 week to 90 
days late: $1,193,565; 
Dollar value (in thousands) of deliveries with variances: >90 days 
late: $10,309,932; 
Percent of deliveries reviewed with variances: >90 days early: 11.7; 
Percent of deliveries reviewed with variances: >1 week 90 days early: 
8.0; 
Percent of deliveries reviewed with variances: Up to 1 week early 
- Up to 1 week late: 2.6; 
Percent of deliveries reviewed with variances: >1 week to 90 days late: 
15.1; 
Percent of deliveries reviewed with variances: >90 days late: 62.7. 

Army: CECOM; 
Dollar value (in thousands) of deliveries with variances: >90 days 
early: 36,274; 
Dollar value (in thousands) of deliveries with variances: >1 week to 90 
days early: 29,942; 
Dollar value (in thousands) of deliveries with variances: Up to 1 week 
early --Up to 1 week late: 5,989; 
Dollar value (in thousands) of deliveries with variances: >1 week to 90 
days late: 39,034; 
Dollar value (in thousands) of deliveries with variances: >90 days 
late: 158,066; 
Percent of deliveries reviewed with variances: >90 days early: 17.4; 
Percent of deliveries reviewed with variances: >1 week 90 days early: 
18.1; 
Percent of deliveries reviewed with variances: Up to 1 week early - Up 
to 1 week late: 2.6; 
Percent of deliveries reviewed with variances: >1 week to 90 days late: 
13.9; 
Percent of deliveries reviewed with variances: >90 days late: 47.9. 

Army: TACOM-Warren; 
Dollar value (in thousands) of deliveries with variances: >90 days 
early: 16,364; 
Dollar value (in thousands) of deliveries with variances: >1 week to 90 
days early: 85,646; 
Dollar value (in thousands) of deliveries with variances: Up to 1 week 
early --Up to 1 week late: 88,560; 
Dollar value (in thousands) of deliveries with variances: >1 week to 90 
days late: 86,324; 
Dollar value (in thousands) of deliveries with variances: >90 days 
late: 147,231; 
Percent of deliveries reviewed with variances: >90 days early: 3.5; 
Percent of deliveries reviewed with variances: >1 week 90 days early: 
9.1; 
Percent of deliveries reviewed with variances: Up to 1 week early - Up 
to 1 week late: 22.2; 
Percent of deliveries reviewed with variances: >1 week to 90 days late: 
19.4; 
Percent of deliveries reviewed with variances: >90 days late: 45.8. 

Total; 
Dollar value (in thousands) of deliveries with variances: >90 days 
early: $904,138; 
Dollar value (in thousands) of deliveries with variances: >1 week to 90 
days early: $757,871; 
Dollar value (in thousands) of deliveries with variances: Up to 1 week 
early --Up to 1 week late: $428,547; 
Dollar value (in thousands) of deliveries with variances: >1 week to 90 
days late: $1,318,923; 
Dollar value (in thousands) of deliveries with variances: >90 days 
late: $10,615,229; 
Percent of deliveries reviewed with variances: >90 days early: 11.8; 
Percent of deliveries reviewed with variances: >1 week 90 days early: 
9.7; 
Percent of deliveries reviewed with variances: Up to 1 week early 
- Up to 1 week late: 4.6; 
Percent of deliveries reviewed with variances: >1 week to 90 days late: 
15.3; 
Percent of deliveries reviewed with variances: >90 days late: 58.5. 

Source: GAO analysis of delivery order information provided by Army 
Materiel Command. 

[End of table] 

The variances between the Army's actual and estimated lead times 
occurred, in part, because of miscoding of late deliveries as not 
representative of future delivery times, lack of accurate lead time 
data in one of its computer systems, and data input errors. Of the data 
we examined, most of the underestimates occurred within the Army 
Aviation and Missile Life Cycle Management Command within the Army 
Materiel Command. This command develops, acquires, fields, and sustains 
aviation, missile, and unmanned vehicle systems. When this command 
cannot obtain items, such as landing gear, helicopter blades, and 
aircraft access doors in accordance with expectations, it can have 
immediate and serious ramifications on the operational readiness of 
many units. We found production lead times in 3,863 orders, for items 
valued at $10.3 billion of the $10.6 billion we analyzed, where the 
actual lead times were more than 90 days later than the estimated lead 
times. According to our analyses of the command's deliveries received 
in fiscal year 2005, nearly 63 percent arrived more than 90 days later 
than expected. Army officials stated that some of the variances between 
actual and estimated lead times occurred because some actual lead times 
were miscoded as nonrepresentative by the command's acquisition 
personnel, who initially believed that certain delivery delays would be 
short-lived and were not representative of future deliveries. Once Army 
officials realized the delays were not short-lived, they said that item 
managers made some adjustments for particular affected items. Army 
guidance states that lead times should be computed using the most 
recent representative procurement.[Footnote 10] However, it does not 
give clear guidance on when to decide if continuing late contractor 
deliveries should be considered representative, and any adjustments 
made to particular affected items would not prevent similar situations 
from occurring in the future. As a result, actual lead times can be 
miscoded and excluded from lead time updates, which makes subsequent 
estimates inaccurate. 

Army officials acknowledged that this command has experienced a problem 
in meeting supply demands for several years, especially after Operation 
Iraqi Freedom began, because of the surge in demand for their items. 
The high demand depleted much of the Army's on-hand supply of inventory 
more quickly than anticipated and replacing the items was difficult 
since many aviation-related items had long lead times for replacement. 
At the same time, the Army was unable to order some items as quickly as 
needed because it lacked sufficient available funds to obligate and 
process orders. However, Army officials stated that many manufacturers 
were operating at their highest capacity and placing orders more 
quickly would not have resulted in the companies actually producing the 
additional items any faster. 

Officials from the U.S. Army TACOM Life Cycle Management Command in 
Warren, Michigan made similar statements to explain the lateness of 
some of their deliveries. They agreed that they had experienced delays 
in getting items from certain contractors due to the high level of 
demand. They also acknowledged budgetary constraints during the years 
of our sample that resulted in hiring freezes and other personnel 
challenges that added to their workload and hindered their ability to 
process contracts and orders and to periodically review, validate, and 
make corrections to any inaccurately recorded lead time estimates. 

Army officials also attributed inaccuracies in lead times to input 
errors that item managers were unable to detect and correct. At the 
Army's Communications-Electronics Life Cycle Management Command, lead 
time data are not automatically maintained or updated in the Logistics 
Modernization Program, which was designed to improve Army maintenance 
logistical and financial operations, and officials had to manually 
input the data from the command's older computer system. However, 
according to Army officials, the heavy workloads of item managers have 
not allowed them to validate these data to detect and correct any lead 
time data input errors. 

Absent actions by the Army, across each of its Life Cycle Management 
Commands, to determine when deliveries are representative and should be 
used to update lead time values, maintain and update lead time data in 
its new computer system, and validate data input to detect and correct 
errors, late deliveries and parts shortages will likely continue. 

DLA Tended to Overestimate Lead Time Estimates: 

DLA tended to overestimate its acquisition lead times and receive items 
sooner than expected. Of the 1,031,779 DLA deliveries we reviewed, 
almost 40 percent had actual acquisition lead times that were more than 
90 days shorter than their estimated lead times. This resulted in about 
$568 million being obligated earlier than necessary and inventory 
arriving earlier than expected. Conversely, only about 3 percent of 
DLA's deliveries had actual acquisition lead times that were more than 
90 days longer than their estimated lead times, totaling approximately 
$319 million, as shown in table 4. 

Table 4: DLA Differences between Actual and Estimated Acquisition Lead 
Times: 

DLA; 
Dollar value (in thousands) of deliveries with variances: >90 days 
early: $568,775; 
Dollar value (in thousands) of deliveries with variances: >1 week to 90 
days early: $1,021,343; 
Dollar value (in thousands) of deliveries with variances: Up to 1 week 
early --Up to 1 week late: $221,812; 
Dollar value (in thousands) of deliveries with variances: >1 week to 90 
days late: $481,150; 
Dollar value (in thousands) of deliveries with variances: >90 days 
late: $319,184; 
Percent of deliveries with variances: >90 days early: 39.5; 
Percent of deliveries with variances: >1 week to 90 days early: 45.7; 
Percent of deliveries with variances: Up to 1 week early - Up to 1 week 
late: 5.0; 
Percent of deliveries with variances: >1 week to 90 days late: 6.7; 
Percent of deliveries with variances: >90 days late: 3.0. 

Source: GAO analysis of delivery order information provided by DLA. 

[End of table] 

DLA manages almost every consumable item the military services need to 
operate, and according to officials, many of these items have been 
placed on long-term contracts, thus allowing faster order processing. 
Since the deliveries from the contractors were also faster, there have 
been reduced overall acquisition lead times. Even though DLA uses a 
methodology for computing and maintaining lead time estimates that is 
more heavily weighted toward the recent actual lead times than the 
existing ones on file, the process did not compute revised estimates 
that accurately reflected the rapid improvements being made through 
their lead time initiatives. Additionally, DLA officials stated that 
they emphasized business practices that encouraged earlier deliveries 
as opposed to later ones. They went on to state that the storage and 
handling costs were minimal, although we were unable to confirm this 
statement, and being able to meet customers' needs by having the 
necessary items on hand was most important to them. With the emphasis 
on meeting or beating the estimated lead times, there is reduced 
incentive for DLA to adjust its lead times to more precisely reflect 
actual lead times experienced. Absent actions by DLA to review and 
revise the methodology and inputs it uses in calculating lead time 
estimates so that the estimates more precisely reflect its actual 
experiences, DLA will continue to obligate funds earlier than necessary 
and have early delivery of items. 

Air Force Tended to Underestimate and Overestimate Lead Time Estimates: 

The Air Force tended to both underestimate and overestimate its 
acquisition lead times, receiving a significant amount of items both 
sooner and later than expected. Of the 18,335 Air Force deliveries we 
reviewed, more than 42 percent had actual acquisition lead times that 
were more than 90 days longer than estimated. This resulted in about 
$528 million worth of inventory that arrived later than estimated. At 
the same time, about 24 percent had actual acquisition lead times that 
were more than 90 days shorter than estimated, which resulted in about 
$272 million of premature obligations, as shown in table 5. 

Table 5: Air Force Differences between Actual and Estimated Acquisition 
Lead Times: 

Air Force: Ogden, Utah; 
Dollar value (in thousands) of deliveries with variances: >90 days 
early: $84,826; 
Dollar value (in thousands) of deliveries with variances: >1 week to 90 
days early: $31,463; 
Dollar value (in thousands) of deliveries with variances: Up to 1 week 
early - Up to 1 week late: $6,816; 
Dollar value (in thousands) of deliveries with variances: >1 week to 90 
days late: $24,778; 
Dollar value (in thousands) of deliveries with variances: >90 days 
late: $62,539; 
Percent of deliveries with variances: >90 days early: 40.1; 
Percent of deliveries with variances: >1 week to 90 days early: 15.7; 
Percent of deliveries with variances: Up to 1 week early - Up to 1 week 
late: 3.3; 
Percent of deliveries with variances: >1 week to 90 days late: 12.0; 
Percent of deliveries with variances: >90 days late: 28.9. 

Air Force: Oklahoma City; 
Dollar value (in thousands) of deliveries with variances: >90 days 
early: 141,986; 
Dollar value (in thousands) of deliveries with variances: >1 week to 90 
days early: 123,750; 
Dollar value (in thousands) of deliveries with variances: Up to 1 week 
early - Up to 1 week late: 23,475; 
Dollar value (in thousands) of deliveries with variances: >1 week to 90 
days late: 114,317; 
Dollar value (in thousands) of deliveries with variances: >90 days 
late: 362,827; 
Percent of deliveries with variances: >90 days early: 18.8; 
Percent of deliveries with variances: >1 week to 90 days early: 16.0; 
Percent of deliveries with variances: Up to 1 week early - Up to 1 week 
late: 3.2; 
Percent of deliveries with variances: >1 week to 90 days late: 16.9; 
Percent of deliveries with variances: >90 days late: 45.1. 

air Force: Warner Robins; 
Dollar value (in thousands) of deliveries with variances: >90 days 
early: 44,852; 
Dollar value (in thousands) of deliveries with variances: >1 week to 90 
days early: 27,081; 
Dollar value (in thousands) of deliveries with variances: Up to 1 week 
early - Up to 1 week late: 3,198; 
Dollar value (in thousands) of deliveries with variances: >1 week to 90 
days late: 16,081; 
Dollar value (in thousands) of deliveries with variances: >90 days 
late: 103,004; 
Percent of deliveries with variances: >90 days early: 22.3; 
Percent of deliveries with variances: >1 week to 90 days early: 14.5; 
Percent of deliveries with variances: Up to 1 week early - Up to 1 week 
late: 2.0; 
Percent of deliveries with variances: >1 week to 90 days late: 13.1; 
Percent of deliveries with variances: >90 days late: 48.1. 

Air Force: Total; 
Dollar value (in thousands) of deliveries with variances: >90 days 
early: $271,665; 
Dollar value (in thousands) of deliveries with variances: >1 week to 90 
days early: $182,293; 
Dollar value (in thousands) of deliveries with variances: Up to 1 week 
early - Up to 1 week late: $33,489; 
Dollar value (in thousands) of deliveries with variances: >1 week to 90 
days late: $155,176; 
Dollar value (in thousands) of deliveries with variances: >90 days 
late: $528,370; 
Percent of deliveries with variances: >90 days early: 23.8; 
Percent of deliveries with variances: >1 week to 90 days early: 15.7; 
Percent of deliveries with variances: Up to 1 week early - Up to 1 week 
late: 3.0; 
Percent of deliveries with variances: >1 week to 90 days late: 15.2; 
Percent of deliveries with variances: >90 days late: 42.3. 

Source: GAO analysis of delivery order information provided by the Air 
Force Materiel Command. 

[End of table] 

A sample of 30 Air Force deliveries selected from the ones with the 
greatest variances between actual and estimated lead times provided an 
explanation for some of these variances. In over half of the sampled 
late deliveries, the item managers at the air logistics centers had 
used their standard default lead time values for the estimates. It is 
the Air Force's standard procedure to use the standard default 
administrative lead time value for spare parts that have not been 
bought in more than 5 years, but Air Force guidance does not direct the 
use of default production lead times for spare parts that have not been 
purchased for more than 5 years.[Footnote 11] However, many items we 
reviewed used the standard default production lead time value because, 
according to officials, it was an easy estimate for item managers to 
use given their workload. In these cases, the default values greatly 
understated the actual lead times and resulted in later arrivals of 
deliveries to the air logistics centers, which may have negatively 
impacted their operational units' mission readiness if those items had 
not been available when needed. Officials said that these default 
values may not be the best information available, and there might be 
other information obtained or generated for use in place of the default 
values. One possibility might be contacting the supplier to determine 
the current lead time. They noted that the use of these default values 
could also be an explanation for the overstated lead times as well as 
the understated lead times. Absent actions by the Air Force to review 
and validate its default lead time estimates and consider other options 
for better lead time data, mostly for infrequent buys, parts shortages 
or early obligation of funds will likely continue. 

Navy Tended to Underestimate and Overestimate Lead Time Estimates: 

The Navy tended to both underestimate and overestimate its acquisition 
lead times, receiving a significant amount of items both sooner and 
later than expected. Of the 19,304 Navy deliveries we reviewed, just 
over 39 percent had actual acquisition lead times that were more than 
90 days shorter than estimated. As a result, about $165 million worth 
of inventory arrived earlier than expected and the funds for this 
inventory were obligated prematurely. In addition, about 28 percent had 
actual lead times that exceeded their estimates by more than 90 days, 
which resulted in almost $561 million of items arriving later than 
anticipated, as shown in table 6. 

Table 6: Navy Differences between Actual and Estimated Acquisition Lead 
Times: 

Navy: Mechanicsburg; 
Dollar value (in thousands) of deliveries with variances: >90 days 
early: $70,792; 
Dollar value (in thousands) of deliveries with variances: >1 week to 90 
days early: $29,343; 
Dollar value (in thousands) of deliveries with variances: Up to 1 Week 
early --Up to 1 week late: $6,772; 
Dollar value (in thousands) of deliveries with variances: >1 week to 90 
days late: $30,950; 
Dollar value (in thousands) of deliveries with variances: >90 more days 
late: $82,430; 
Percent of deliveries with variances: >90 days early: 41.2; 
Percent of deliveries with variances: >1 week to 90 days early: 17.0; 
Percent of deliveries with variances: Up to 1 week early - Up to 1 week 
late: 3.0; 
Percent of deliveries with variances: >1 week to 90 days late: 13.1; 
Percent of deliveries with variances: >90 days late: 25.7. 

Navy: Philadelphia; 
Dollar value (in thousands) of deliveries with variances: >90 days 
early: 94,154; 
Dollar value (in thousands) of deliveries with variances: >1 week to 90 
days early: 50,339; 
Dollar value (in thousands) of deliveries with variances: Up to 1 Week 
early --Up to 1 week late: 8,759; 
Dollar value (in thousands) of deliveries with variances: >1 week to 90 
days late: 60,882; 
Dollar value (in thousands) of deliveries with variances: >90 more days 
late: 478,554; 
Percent of deliveries with variances: >90 days early: 34.9; 
Percent of deliveries with variances: >1 week to 90 days early: 17.1; 
Percent of deliveries with variances: Up to 1 week early - Up to 1 week 
late: 3.1; 
Percent of deliveries with variances: >1 week to 90 days late: 11.8; 
Percent of deliveries with variances: >90 days late: 33.0. 

Navy: Total; 
Dollar value (in thousands) of deliveries with variances: >90 days 
early: $164,946; 
Dollar value (in thousands) of deliveries with variances: >1 week to 90 
days early: $79,682; 
Dollar value (in thousands) of deliveries with variances: Up to 1 Week 
early --Up to 1 week late: $15,531; 
Dollar value (in thousands) of deliveries with variances: >1 week to 90 
days late: $91,832; 
Dollar value (in thousands) of deliveries with variances: >90 more days 
late: $560,984; 
Percent of deliveries with variances: >90 days early: 39.3; 
Percent of deliveries with variances: >1 week to 90 days early: 17.0; 
Percent of deliveries with variances: Up to 1 week early - Up to 1 week 
late: 3.0; 
Percent of deliveries with variances: >1 week to 90 days late: 12.7; 
Percent of deliveries with variances: >90 days late: 27.9. 

Source: GAO analysis of delivery order information provided by Naval 
Inventory Control Points at Mechanicsburg and Philadelphia. 

[End of table] 

Navy officials stated that they believe these variances are acceptable 
and reasonable due to the variability in generating lead times, 
especially for ship parts that are bought infrequently. They said that 
updating the lead time estimates more often would not make the 
forecasts more accurate because there are not enough observations per 
item to update more often. We did not evaluate whether more frequent 
updating of the lead time estimates would improve their accuracy. 
However, some of the variances between the Navy's actual and estimated 
lead times occurred because of data input errors. We found input errors 
in a sample of 30 Navy deliveries selected from the ones with the 
greatest variances between the estimated and actual lead times that 
affected the estimates' accuracy. For example, in two cases, the lead 
time estimates were incorrectly loaded into the ordering system used by 
the inventory control points at 10 times longer than what the correct 
estimates should have been, and the error was not detected. Also, many 
of the excessive estimated lead times of the sample items we reviewed 
could not be explained by Navy officials, who stated there were 
conflicting lead time data within their records. Until the Navy 
addresses these concerns by reviewing and validating its lead time data 
and correcting errors, either parts shortages or early obligation of 
funds are likely to continue. 

Management Actions and Initiatives to Reduce Lead Times from 2002 to 
2005 Less Effective than Previous Initiatives from 1994 to 2002: 

USD (AT&L) and the military components' management actions and 
initiatives to reduce lead times from 2002 to 2005 were less effective 
overall than previous initiatives from 1994 to 2002. Progress in 
reducing lead times varied greatly by service from 2002 to 2005, with 
DLA and the Air Force reducing their lead times by about 3.3 and 4.1 
percent annually respectively, while the Navy's lead times remained the 
same, and the Army experienced an increase in lead times by 0.3 percent 
annually. Of the various management actions and initiatives taken by 
the services from 2002 to 2005, some were new and some were 
continuations of previous initiatives, with each service pursuing 
varying combinations of initiatives. For example, initiatives to 
streamline administrative processes were implemented by all military 
components from 1994 to 2002 and from 2002 to 2005, with DLA and the 
Air Force more aggressively implementing new initiatives from 2002 to 
2005 than did the Army and Navy. In addition, from 1994 to 2002, 
enhanced USD (AT&L) oversight contributed to the rapid pace of lead 
time reduction; however, from 2002 to 2005, USD (AT&L) no longer 
continued to monitor progress made by the components in reducing lead 
times, and all components experienced reduced management oversight. 
Moreover, while new initiatives to improve contracting practices were 
implemented by all military components from 1994 to 2002 and were 
continued by all components from 2002 to 2005, from 2002 to 2005 DLA 
and the Air Force began new initiatives to strategically manage 
relationships with suppliers, while the Army and Navy did not. The 
military components could have decreased inventory requirements and 
saved money if more aggressive lead time reductions had been realized 
from 2002 to 2005 as they had been from 1994 to 2002. 

Slower Rate of Reductions in Lead Times from 2002-2005 than from 1994- 
2002: 

USD (AT&L) and the components' management actions and initiatives to 
reduce lead times from 2002 to 2005 resulted in a slower rate of 
reduction in DOD-wide lead times of an average of 0.9 percent annually 
as compared to an average reduction of 5.6 percent annually from 1994 
to 2002. The DOD Supply Chain Materiel Management Regulation gives 
general guidance stating that the military components should 
aggressively pursue the lowest possible acquisition lead times. As 
shown in table 7, progress in reducing lead times varied by military 
component from 2002 to 2005. The Army experienced an average annual 
lead time increase of 0.3 percent per year from 2002 to 2005, as 
compared to an average yearly reduction of 9.7 percent from 1994 to 
2002, in part due to higher demands and supplier capacity issues. The 
Navy's lead times were unchanged from 2002 to 2005, after decreasing by 
2.8 percent from 1994 to 2002. The Air Force reduced its lead times 
from 2002 to 2005, but at a lower rate than it did from 1994 to 2002. 
The Air Force reduced its acquisition lead times by an average of 4.1 
percent per year from 2002 to 2005, compared to an average yearly 
reduction of 4.5 percent from 1994 to 2002. Similarly, DLA's 
acquisition lead times also decreased at a lower rate from 2002 to 2005 
than from 1994 to 2002, being reduced by an average of 3.3 percent per 
year in the former as compared to 6.2 percent per year in the latter. 

Table 7: Lead Time Reductions from 2002 to 2005 Compared to Lead Time 
Reductions from 1994 to 2002: 

Component: DLA; 
Average lead time in days: FY 1994: 293; 
Average lead time in days: FY 2002: 176; 
Average lead time in days: FY 2005: 159; 
Reduction FY 1994-2002: Total: 39.9%; 
Reduction FY 1994-2002: Average yearly: 6.2%; 
Reduction FY 2002-2005: Total: 9.7%; 
Reduction FY 2002- 2005: Average Yearly: 3.3%. 

Component: Army; 
Average lead time in days: FY 1994: 690; 
Average lead time in days: FY 2002: 305; 
Average lead time in days: FY 2005: 308; 
Reduction FY 1994-2002: Total: 55.8%; 
Reduction FY 1994-2002: Average yearly: 9.7%; 
Reduction FY 2002-2005: Total: -1.0%; 
Reduction FY 2002- 2005: Average Yearly: -0.3%. 

Component: Navy; 
Average lead time in days: FY 1994: 522; 
Average lead time in days: FY 2002: 416; 
Average lead time in days: FY 2005: 416; 
Reduction FY 1994-2002: Total: 20.3%; 
Reduction FY 1994-2002: Average yearly: 2.8%; 
Reduction FY 2002-2005: Total: 0.0%; 
Reduction FY 2002- 2005: Average Yearly: 0.0%. 

Component: Air Force; 
Average lead time in days: FY 1994: 620; 
Average lead time in days: FY 2002: 430; 
Average lead time in days: FY 2005: 379; 
Reduction FY 1994-2002: Total: 30.6%; 
Reduction FY 1994-2002: Average yearly: 4.5%; 
Reduction FY 2002-2005: Total: 11.9%; 
Reduction FY 2002-2005: Average Yearly: 4.1%. 

Component: DOD Total[A]; 
Average lead time in days: FY 1994: 531; 
Average lead time in days: FY 2002: 336; 
Average lead time in days: FY 2005: 327; 
Reduction FY 1994-2002: Total: 36.7%; 
Reduction FY 1994- 2002: Average yearly: 5.6%; 
Reduction FY 2002-2005: Total: 2.7%; 
Reduction FY 2002-2005: Average Yearly: 0.9%. 

Source: GAO analysis of DOD budget stratification data. 

[A] DOD total was collectively determined by averaging all lead times 
and reductions for the individual items from the military components. 

[End of table] 

Military Components Pursued Various Initiatives to Reduce Lead Times 
with Varying Results: 

Each of the military components pursued various initiatives to reduce 
acquisition lead times during both the 1994-2002 and 2002-2005 time 
periods with varying results. The progress of the military components 
in reducing lead times varied because each pursued different 
combinations of new and continued initiatives and management actions. 
These initiatives and actions generally fell into three areas of focus: 
streamlining internal administrative processes, improving oversight, 
and developing relationships with suppliers, as shown in table 8. 

Table 8: Component Initiatives and Management Actions to Reduce 
Acquisition Lead Times from 1994 to 2005: 

Streamlining admin. processes. 

Initiative or Management action: -Information technology; 
DLA: '94-'02: action not undertaken[C]; 
DLA: '02-'05: action underway[A]; 
Air Force: '94-'02: action not undertaken[C]; 
Air Force: '02- '05: action underway[A]; 
Army: '94-'02: action not undertaken[C]; 
Army: '02-'05: action underway[A]; 
Navy: '94-'02: action not undertaken [C]; 
Navy: '02-'05: action not undertaken[C]. 

Initiative or Management action: -Process redesign; 
DLA: '94-'02: action underway; 
DLA: '02-'05: action underway; 
Air Force: '94-'02: action underway; 
Air Force: '02-'05: action underway; 
Army: '94-'02: action underway; 
Army: '02-'05: action underway[B]; 
Navy: '94-'02: action underway; 
Navy: '02-'05: action underway[B]. 

Initiative or Management action: -Lead time reduction teams; 
DLA: '94- '02: action underway; 
DLA: '02-'05: action underway[B]; 
Air Force: '94-'02: action underway; 
Air Force: '02-'05: action underway[B]; 
Army: '94-'02: action underway; 
Army: '02-'05: action underway[B]; 
Navy: '94-'02: action underway; 
Navy: '02-'05: action underway[B]. 

Initiative or Management action: -Pre-loading technical data; 
DLA: '94- '02: action not undertaken; 
DLA: '02-'05: action not undertaken; 
Air Force: '94-'02: action underway; 
Air Force: '02- '05: action underway[B]; 
Army: '94-'02: action underway; 
Army: '02-'05: action underway[A]; 
Navy: '94-'02: action not undertaken; 
Navy: '02-'05: action not undertaken. 

Oversight efforts. 

Initiative or Management action: -Lead time reduction goal; 
DLA: '94- '02: action underway; 
DLA: '02-'05: action not undertaken; 
Air Force: '94-'02: action underway; 
Air Force: '02-'05: action not undertaken; 
Army: '94-'02: action underway; 
Army: '02-'05: action not undertaken; 
Navy: '94-'02: action underway; 
Navy: '02-'05: action not undertaken. 

Initiative or Management action: -Accurate, historical lead times; 
DLA: '94-'02: action underway; 
DLA: '02-'05: action underway; 
Air Force: '94-'02: action underway; 
Air Force: '02-'05: action underway; 
Army: '94-'02: action underway; 
Army: '02-'05: action underway; 
Navy: '94-'02: action underway; 
Navy: '02-'05: action underway. 

Initiative or Management action: -Tracks savings for initiatives; 
DLA: '94-'02: action not undertaken; 
DLA: '02-'05: action underway[A]; 
Air Force: '94-'02: action not undertaken; 
Air Force: '02- '05: action not undertaken; 
Army: '94-'02: action not undertaken; 
Army: '02-'05: action not undertaken; 
Navy: '94-'02: action not undertaken; 
Navy: '02-'05: action not undertaken. 

Initiative or Management action: -Managers held accountable; 
DLA: '94- '02: action underway; 
DLA: '02-'05: action underway; 
Air Force: '94-'02: action underway; 
Air Force: '02-'05: action underway; 
Army: '94-'02: action underway; 
Army: '02-'05: action underway; 
Navy: '94-'02: action underway; 
Navy: '02-'05: action underway[A]. 

Initiative or Management action: -Track results of goals; 
DLA: '94-'02: action underway; 
DLA: '02-'05: action not undertaken; 
Air Force: '94-'02: action not undertaken; 
Air Force: '02-'05: action not undertaken; 
Army: '94-'02: action underway[A]; 
Army: '02-'05: action underway[A]; 
Navy: '94-'02: action underway; 
Navy: '02-'05: action underway[A]. 

Initiative or Management action: -Track results of individual 
initiatives; 
DLA: '94-'02: action not undertaken; 
DLA: '02-'05: action underway[A]; 
Air Force: '94-'02: action not undertaken; 
Air Force: '02-'05: action not undertaken; 
Army: '94-'02: action not undertaken; 
Army: '02-'05: action not undertaken; 
Navy: '94-'02: action not undertaken; 
Navy: '02-'05: action not undertaken. 

Strategic supplier relationships. 

Initiative or Management action: -Direct vendor delivery; 
DLA: '94-'02: action underway; 
DLA: '02-'05: action underway[B]; 
Air Force: '94-'02: action underway; 
Air Force: '02-'05: action underway[B]; 
Army: '94-'02: action underway; 
Army: '02-'05: action underway[B]; 
Navy: '94- '02: action underway; 
Navy: '02-'05: action underway[B]. 

Initiative or Management action: -Strategic supply planning; 
DLA: '94- '02: action not undertaken; 
DLA: '02-'05: action underway; 
Air Force: '94-'02: action not undertaken; 
Air Force: '02- '05: action underway; 
Army: '94-'02: action not undertaken; 
Army: '02-'05: action not undertaken; 
Navy: '94-'02: action not undertaken; 
Navy: '02-'05: action not undertaken. 

Initiative or Management action: -Strategic supplies alliances; 
DLA: '94-'02: action not undertaken; 
DLA: '02-'05: action underway; 
Air Force: '94-'02: action not undertaken; 
Air Force: '02-'05: action underway; 
Army: '94-'02: action not undertaken; 
Army: '02-'05: action not undertaken; 
Navy: '94-'02: action not undertaken; 
Navy: '02-'05: action not undertaken. 

Initiative or Management action: -Long-term strategic contracts; 
DLA: '94-'02: action underway; 
DLA: '02-'05: action underway; 
Air Force: '94-'02: action underway; 
Air Force: '02-'05: action underway; 
Army: '94-'02: action underway; 
Army: '02-'05: action underway; 
Navy: '94-'02: action underway; 
Navy: '02-'05: action underway. 

Initiative or Management action: -Supply chain analysis; 
DLA: '94-'02: action not undertaken[C]; 
DLA: '02-'05: action underway[A]; 
Air Force: '94-'02: action not undertaken; 
Air Force: '02-'05: action underway[A]; 
Army: '94-'02: action not undertaken; 
Army: '02-'05: action not undertaken[C]; 
Navy: '94-'02: action not undertaken; 
Navy: '02-'05: action not undertaken. 

Source: GAO analysis of information from DLA, Air Force, Army, and 
Navy. 

Legend: = initiative or action underway; -- = initiative or action not 
undertaken. 

[A] Initiative or action underway for part of component and/or is not 
being fully implemented. 

[B] Initiative or action already institutionalized and will not 
generate additional lead time reductions. 

[C] Initiative or action planned. 

[End of table] 

DLA began a number of new initiatives and took several management 
actions from 2002 to 2005 that have helped it reduce lead times, and it 
also continued several initiatives that it had instituted from 1994 to 
2002. This combination of continued and new initiatives enabled DLA to 
reduce its average lead time to 159 days. The Air Force also began a 
number of new initiatives and took several management actions to reduce 
lead times from 2002 to 2005, while continuing several initiatives that 
it had instituted from 1994 to 2002. This combination of continued and 
new initiatives enabled the Air Force to reduce its average lead time 
from 430 to 379 days from 2002 to 2005. Conversely, although individual 
Army components began some new initiatives to reduce lead times, the 
Army began no new componentwide initiatives to reduce lead times from 
2002 to 2005. Furthermore, the Army has placed less effort in 
continuing new initiatives, which, combined with higher demands and 
supplier capacity issues, has resulted in the Army's average lead time 
increasing from 305 to 308 days from 2002 to 2005. Likewise, the Navy 
also did not begin any new componentwide initiatives to reduce lead 
times from 2002 to 2005, resulting in lead times holding steady at 416 
days from 2002 to 2005. 

Initiatives to Streamline Administrative Processes Implemented by All 
Components: 

Initiatives to streamline administrative processes were implemented or 
continued by all military components from 1994 to 2002 and from 2002 to 
2005, with DLA and the Air Force more aggressively implementing new 
initiatives from 2002 to 2005 than did the Army and Navy. All 
components are working to design new information technology systems 
that could potentially improve administrative lead times. For example, 
DLA has just transitioned to its newly implemented information 
technology system, which officials said will help reduce process times 
for a number of transactions, shaving days off of administrative lead 
time. The components are also working on noninformation technology 
solutions. For example, Air Force officials recently said that they 
completed an initiative to reduce clutter on work desks, which involved 
redesigning all workspaces so that if an employee is absent, another 
employee can find any needed document in the absent employee's desk 
within 5 minutes. They attributed this initiative to preventing 
bottlenecks that could occur if employees had to search for needed 
documents and information, potentially delaying the acquisition of 
items. The Army's information technology initiative has only been 
implemented at one of its Life Cycle Management Commands and the Navy's 
is still in the planning stages. 

One particular initiative that officials cited as having been effective 
in reducing administrative lead times for the Air Force and Army over 
the last decade has been the entering of technical data into the 
inventory control computer systems for items in stock before a need 
arises to order them again. According to officials, from 1994 to 2002, 
the Army in particular made significant progress in reducing lead times 
because of the entering of technical specification data. Before 
technical data for items were entered into computers, engineers often 
had to delay the acquisition process while they prepared technical 
drawings and wrote technical specifications. These delays ranged from 
days to several months. By determining technical specifications before 
there was a need for an item and saving these data in the computer 
system, officials were able to greatly reduce administrative lead 
times. They said that already having them in the system helped reduce 
lead times even when the technical specifications subsequently needed 
changing; however, they added that they have not completed entering 
technical specifications for all items. Although Army engineers have 
reduced workloads during certain periods of time when they have fewer 
orders to process, there are no efforts underway to enter technical 
specification data during these periods. An Army official indicated 
they were not entering technical specifications for items where the 
lead time savings would typically be fewer than 2 weeks, because such 
savings are not considered significant by Army officials. Army 
officials, however, made this determination without using any metrics 
or measures to determine the actual savings or cost of entering 
technical specifications for items with savings of fewer than 2 weeks. 

USD (AT&L) No Longer Provided Oversight and Guidance on Lead Times from 
2002 to 2005: 

From 1994 to 2002, enhanced USD (AT&L) oversight and guidance 
contributed to the rapid pace of lead time reduction; however, from 
2002 to 2005, USD (AT&L) no longer continued to monitor progress made 
by the components in reducing lead times, and all components 
experienced reduced management oversight. In 1994, we reported that USD 
(AT&L) was unaware of the lack of progress made in reducing lead times 
from 1990 to 1994 because of the absence of adequate oversight 
information.[Footnote 12] We also indicated that the data reported by 
military components did not include historical trends to indicate 
changes in lead time days before and after the lead time reduction 
initiatives were begun. Likewise, we reported that the statistics at 
that time were not comprehensive enough to tie specific initiatives to 
the lead time reductions experienced for individual initiatives. At the 
time, however, USD (AT&L) was able to provide a general estimate of the 
financial benefit of lead time reductions, determining that for each 
day that the DOD-wide average lead time is reduced, a procurement 
savings of $10 million can be realized. If the financial benefits of 
lead time reductions are the same in 2005 as they were in 1994, the 
value of the savings in 2005 dollars would be $12.5 million per day. 

On November 23, 1994, USD (AT&L) issued a memorandum to its components 
emphasizing the importance of fully implementing its guidance on 
reducing acquisition lead times. On March 8, 1995, according to DOD 
officials, components were challenged to reduce business process cycle 
times by at least 50 percent over the next 5 years (from 1995 to 2000). 
According to DOD officials, guidance and oversight were then applied to 
acquisition lead times through the budget process. However, by 2002, 
USD (AT&L) officials said they no longer provided active oversight on 
acquisition lead time or monitored the progress made by the components 
in reducing lead times, because management focus shifted from reducing 
lead times to improving performance on more broad metrics such as 
backorders. They added that they continued to monitor other broad 
metrics from 2002 to 2005 and did not establish lead time reduction 
goals or require standardized reporting of metrics designed to measure 
reductions in lead times. In addition, with the exception of DLA's 
Strategic Material Sourcing initiative, USD (AT&L) and component 
officials said they did not collect data, establish metrics, or measure 
and report the impact and costs of any specific initiative on lead 
times. Without this information, USD (AT&L) and the components were 
unable to provide effective oversight on lead time reduction efforts. 
Furthermore, from 2002 to 2005, USD (AT&L) officials said they no 
longer measured the financial impact of lead time reductions on 
inventories. USD (AT&L) and the components thus have been unable to 
determine the relative value of pursuing lead time reductions when 
determining the best use of their resources. The inability to determine 
the financial impact on inventories of lead time reductions and the 
projected time saved from the proposed initiatives impedes the ability 
of decision makers to make informed choices as to which initiatives to 
implement. 

According to officials, without active USD (AT&L) oversight, all 
components experienced reduced management oversight from 2002 to 2005. 
Officials from the military components indicated that, because less 
emphasis was placed on lead times by USD (AT&L), less emphasis was 
placed on lead times at the component level. These officials said that 
component managers tend to place enhanced management focus on what they 
are held accountable for by USD (AT&L). Component officials suggested 
that renewed emphasis on lead time reduction by USD (AT&L), including 
the setting of lead time reduction goals, could increase the 
components' management focus on reducing lead times. Until USD (AT&L) 
takes steps to exercise oversight as it did from 1994 to 2002, such as 
reemphasizing guidance, establishing lead time reduction goals, 
collecting data and establishing metrics to measure progress toward 
meeting lead time reduction goals, measuring and reporting on the 
results of individual initiatives, and measuring the financial impact 
of lead time reductions, the components and USD (AT&L) will not have 
available the information needed to effectively manage and provide 
oversight of lead times, hampering their ability to reduce lead times. 
Further, without this information, USD (AT&L) and the components will 
not be able to prioritize or reevaluate lead time reduction 
initiatives, determine the relative importance of lead time reduction 
when making contracting decisions, or determine the cost-effectiveness 
of lead time reduction efforts. 

Subsequent to September 2005, Air Force and DLA officials said they 
began planning and implementing new efforts to improve oversight, 
including setting lead time reduction goals, holding managers 
accountable for lead times, tracking lead times to ensure that goals 
were met, and regularly reporting lead times to managers. In addition, 
a new metric is also currently under development by DLA, called 
attainment to plan, which measures the ability of item supply planners 
to have material available when needed. DLA officials stated that they 
anticipate increased focus on lead times will improve performance of 
this metric. Moreover, USD (AT&L) officials stated they were working 
with the military components to define a DOD-wide lead time metric. 
They also stated in August 2006 that they were in the process of 
awarding a contract to a private company to evaluate if USD (AT&L) 
oversight of lead times would be worthwhile and stated that they 
currently were providing no oversight. USD (AT&L) officials indicated 
that increases in lead times could lead to increases in backorders, and 
said that they provide oversight on backorders.[Footnote 13] 

Initiatives to Develop Relationships with Suppliers Implemented by 
Components: 

Initiatives to develop relationships with suppliers were implemented by 
all of the military components from 1994 to 2002. All military 
components implemented initiatives to improve contracting practices 
from 1994 to 2002 and continued them from 2002 to 2005. For example, 
each component used initiatives to increase use of long-term contracts 
to reduce lead times. According to Navy officials, one example of a 
successful initiative begun in the late 1990s was the Navy's practice 
of considering lead times as criteria in contract awards for spare 
parts. Whenever issuing a new contract for spare parts, they said that 
the Navy sets as a criterion for the bid a 25 percent reduction in the 
item's production lead time, and by adding this as a factor, the Navy 
is able to encourage suppliers to reduce lead times. 

In addition to continuing these prior initiatives, from 2002 to 2005 
the DLA and the Air Force began new initiatives to strategically 
develop relationships with suppliers. According to DLA and Air Force 
officials, these new initiatives not only helped reduce lead times by 
allowing for streamlined and simplified purchasing of items on long- 
term contracts, but also (1) allow for increased information sharing 
with suppliers, (2) enable components to leverage their buying power, 
and (3) empower components to strategically target key items to ensure 
their availability. 

For example, according to DLA officials, their Strategic Material 
Sourcing initiative is intended to improve procurement for 3.6 million 
items designated as critical. Items are designated as critical based on 
a series of factors, then are grouped into categories, with different 
acquisition strategies being used for different categories of items. Of 
the 3.6 million items marked as critical, 390,000 were identified for 
placement on contracts strategically designed to leverage DLA's market 
power to improve sourcing for these items. By forming alliances with 
producers of these items, DLA officials told us they have been able to 
reduce lead times by taking advantage of DLA's buying power and by 
negotiating contracts that ensure supply availability in otherwise 
volatile markets. As of August 2006, one-half of these targeted items 
were already on strategic long-term contracts. According to officials, 
this initiative has thus far generated $247 million in gross savings 
with over $64 million generated in 2005 alone, while costing only $5.6 
million to implement. These savings do not include savings from reduced 
storage costs, nor do they include the future savings expected as the 
program continues. This initiative is also unique in that DLA officials 
said they are using metrics to measure and report the effectiveness of 
the initiative, thereby improving accountability. An example identified 
by Air Force officials is the purchase supply chain management 
initiative. One of many parts of this initiative aimed at reducing lead 
times is the use of Commodity Councils to help improve acquisition of 
select items. Commodity Councils are groups of experts in particular 
commodity groupings who work together to improve acquisition of these 
items. They do so through commodity management, which is the process of 
developing a systematic approach to the entire usage cycle for a group 
of items. In addition, USD (AT&L) is in the process of implementing a 
new initiative to improve commodity management DOD-wide. This new 
initiative seeks to emulate the successes of commodity management 
programs run by DLA and the Air Force across DOD. 

In contrast, the Army and the Navy, while continuing old initiatives, 
have not developed new initiatives to develop strategic relationships 
with suppliers for critical items. Army and Navy officials indicated 
that they are content with the lead time reductions experienced and 
stated that new initiatives were not undertaken because of a lack of 
USD (AT&L) focus and oversight on lead time reduction. Officials cited 
ongoing military operations as one of the primary factors diverting 
attention away from reducing lead times. While the Army and Navy 
continue to benefit from the lead time reductions generated from past 
initiatives, until these two components begin initiatives to develop 
strategic relationships with suppliers, they may be unable to realize 
the potential benefits from improved supplier relationships and may 
continue to experience lower rates of lead time reductions than DLA and 
the Air Force. 

More Aggressive Lead Time Reductions Could Have Resulted in Decreases 
in Inventory Requirements and Monetary Savings: 

The military components could have decreased inventory requirements and 
saved money if more aggressive lead time reductions had been realized 
from 2002 to 2005, as they had from 1994 to 2002. DOD budget documents 
indicate that inventory requirements to cover lead times increased from 
$15.6 billion in 2002 to $19.9 billion in 2005. According to officials, 
the primary reason for the increase in inventory has been increased 
demand due to recent military operations. As a result, even as lead 
times were reduced by an average of 0.9 percent a year from 2002 to 
2005, requirements to cover lead times rose. If the military components 
had been able to continue reducing lead times by an average of 5.6 
percent a year, as they did from 1994 to 2002, the military components' 
lead time inventory requirements would only have risen to $17.2 
billion, rather than to $19.9 billion, as shown in figure 1. The 
additional lead time requirements potentially tied up $2.7 billion that 
could have been obligated for other needs. 

Figure 1: Potential Impact of Reduced Lead Time Inventory Requirements: 

[See PDF for image] 

Source: GAO analysis of DOD's summary budget stratification data. 

[End of figure] 

In addition to the potential savings associated with decreased 
inventory requirements, if the military components had been able to 
continue reducing their lead times at 5.6 percent per year, it would 
have led to a significant savings from a reduced need to maintain 
"safety" inventory,[Footnote 14] which is the amount of inventory the 
military components maintain on-hand to cover supply and demand 
fluctuations. This level is determined by a formula that includes a 
number of factors, including lead times. Reductions in lead times can 
significantly impact safety inventories needed. Due to reduced USD 
(AT&L) oversight of lead times, we were unable to determine how 
reducing lead times would financially impact procurement costs for 
safety inventories. However, in 1994 we reported that if the components 
could reduce their overall lead times by 25 percent by 2000, it would 
lead to a procurement savings of about $910 million. Until USD (AT&L) 
and the components take steps to renew their focus on reducing lead 
times by aggressively continuing prior initiatives and implementing 
successful new initiatives, the components may continue to experience 
spare parts shortages and may spend significantly more money to 
purchase additional inventory. 

Conclusions: 

Acquisition lead times are the military components' estimates as to 
when items will arrive, and varying from that expectation increases the 
likelihood that the right supplies will not be at the right place at 
the right time. When the components understate their lead time 
estimates, material shortages and reduced readiness can occur. Without 
more accurate lead time estimates, the components will not place orders 
and obligate funds as early as necessary, and they may miss 
opportunities to potentially improve readiness rates. Conversely, 
overstated and lengthy acquisition lead time estimates can cause early 
obligation of funds as well as increases in on-hand inventories, 
although spare parts that come in early could potentially improve 
readiness. Until the Army reviews and evaluates when deliveries are 
representative and should be used to update lead time values, maintains 
lead time data in each of its computer systems, and validates data 
input, later than expected deliveries and potential parts shortages 
will likely occur. In addition, absent actions by DLA to review and 
revise the methodology and inputs it uses to compute lead time 
estimates, DLA will continue to obligate funds earlier than necessary 
and have early delivery of items. Moreover, without taking steps to 
review and validate default lead time estimates and consider other 
options for obtaining better lead time data, the Air Force will 
continue to experience early obligation of funds and potential parts 
shortages. Finally, until the Navy reviews and validates its lead time 
data and corrects errors, parts shortages and early obligation of funds 
are likely to continue. Absent actions by all of the military 
components to address these problems and institute corrective 
procedures, their acquisition lead time estimates will continue to vary 
greatly from their actual lead times. 

The military components have also slowed their efforts to reduce 
acquisition lead times as compared to earlier years. Their current lead 
time reduction rate may not be significant enough to offset the costs 
of growing requirements. Until USD (AT&L) and the military components 
take steps to renew their focus on reducing lead times by continuing 
prior initiatives and implementing successful new initiatives to 
streamline administrative processes, improve oversight, and develop 
strategic relationships with suppliers, they will be unable to 
significantly reduce lead times as they were able to do in the past. As 
a result, the military components may potentially spend hundreds of 
millions of dollars to purchase additional inventory. Increased 
emphasis on improved lead time estimates and overall lead time 
reductions will improve the military components' ability to efficiently 
use available resources. 

Recommendations for Executive Action: 

To improve the military components' accuracy in setting acquisition 
lead time values, we recommend that the Secretary of Defense take the 
following six actions. 

1. Direct the Secretary of the Army to have the Commanding General, 
Army Materiel Command, direct the Aviation and Missile Life Cycle 
Management Command to establish clear guidelines for item managers to 
know when to review and how to determine whether deliveries should be 
considered representative and thus used to update lead times. 

2. Direct the Secretary of the Army to have the Commanding General, 
Army Materiel Command, direct the Life Cycle Management Commands to 
reemphasize the importance of periodically reviewing and validating 
their recorded lead time data to detect and correct data input errors 
and other inaccurate information. 

3. Direct the Secretary of the Army to have the Commanding General, 
Army Materiel Command, direct Communications-Electronics Life Cycle 
Management Command to maintain and update automated lead time data 
within its Logistics Modernization Program computer system. 

4. Direct the Director of DLA to have its supply centers review the 
methodology and inputs used to compute its lead time estimates and 
revise them to incorporate recent improvements in DLA actual lead 
times. 

5. Direct the Secretary of the Air Force to have the Commander, Air 
Force Materiel Command, direct its air logistic centers to use better 
sources of lead time information, such as supplier estimates, if 
available, rather than default values for items that have not been 
ordered in the last 5 years. 

6. Direct the Secretary of the Navy to direct the Commander, Naval 
Inventory Control Point, to reemphasize the importance of having its 
inventory control points periodically review and validate their 
recorded lead time data to detect and correct data input errors or 
other inaccurate information. 

To strengthen DOD's and the military components' management of 
acquisition lead times, we recommend that the Secretary of Defense 
direct the Under Secretary of Defense for Acquisition, Technology, and 
Logistics to take the following five actions. 

1. Establish component lead time reduction goals over a 5-year period 
from October 2007-2012. 

2. Develop metrics to measure components' progress toward meeting lead 
time reduction goals and require the periodic reporting of these 
metrics. 

3. Develop a general estimate of the financial impact of lead time 
reductions, and use that as a metric to help components weigh the 
importance of lead time reductions. 

4. Direct the components to collect data, establish metrics, and 
measure and report the impact of individual lead time reduction 
initiatives, to include the cost of each initiative and its estimated 
cost savings. 

5. Work closely with the Army and Navy to develop joint strategic 
relationships with suppliers that would be beneficial in reducing lead 
times. 

Agency Comments and Our Evaluation: 

In written comments on a draft of this report, DOD concurred with 
eight, partially concurred with one, and did not concur with two of our 
recommendations. For the eight recommendations with which DOD 
concurred, the department identified actions and plans that are being 
taken to implement these recommendations. We agree that most of the 
identified actions are responsive and reasonable to address our 
concerns, although in several cases the final actions may not be 
completely implemented for several years. However, some of the 
department's comments did not appear to address our concerns. More 
specifically, for one of the recommendations with which DOD concurred, 
we do not believe that its comments address our recommendation that the 
Army maintain and update automated lead time data within its Logistics 
Modernization Program computer system. In its comments, DOD said that 
this computer system does not provide automatic updates of data for 
calculation but it does have information needed to make decisions for 
manual implementation. As stated in our report, manual input errors 
have contributed to inaccuracies in lead times, and we believe these 
inaccuracies will continue if the department relies on manual 
implementation. We continue to believe that automated updates and 
maintenance of lead time data are needed to improve the accuracy of 
lead time estimates. Further, DOD stated in its comments that it 
already had actions underway to address our recommendation to develop 
metrics to measure progress toward meeting lead time reduction goals. 
However, the contract for reviewing lead times is not to be awarded 
until later in fiscal year 2007. Since this effort was not underway at 
the time of our review, we believe that it is important to recommend 
that this effort be pursued until fully implemented. 

DOD partially concurred with our recommendation that the Under 
Secretary of Defense for Acquisition, Technology, and Logistics develop 
a general estimate of the financial impact of lead time reductions, and 
use that as a metric to help components weigh the importance of lead 
time reductions. DOD stated that to the extent that financial impact 
can be estimated, it will be one of the elements considered in a review 
DOD expects to conclude in 2008. DOD further stated that the challenge 
in estimating the financial impact of lead time reductions was that 
there are many other variables, and the effect of individual variables 
on lead time estimates cannot be separately identified. We recognize 
that the Office of the Under Secretary of Defense for Acquisition, 
Technology, and Logistics has concerns about its ability to estimate 
the financial impact of lead time reductions, but note that it was able 
to provide an estimate of $10 million in financial impact for each day 
that lead time was reduced when we published our 1994 report. Moreover, 
during our review, TACOM officials informed us that they have the 
ability to simulate the impact of reductions in lead times using their 
requirements determination process system on an item-by-item basis. The 
potential savings generated from the simulations could be helpful in 
estimating the savings from lead time reduction initiatives. We further 
note that the inability to determine the financial impact of lead time 
reductions does not provide the needed incentives for the components to 
reduce lead times and impedes the ability of decision makers to make 
informed choices as to which initiatives to implement. Therefore, we 
continue to believe that the recommendation to the Under Secretary of 
Defense for Acquisition, Technology, and Logistics is valid. 

In addition, DOD did not concur with our recommendation to DLA to have 
the supply centers review the methodology and inputs used to compute 
its lead time estimates and revise them to incorporate recent 
improvements in DLA actual lead times. DOD stated that our review used 
data primarily from DLA's legacy system from 2002 to 2005, which was 
prior to DLA's implementation of its new computer system called 
Business Systems Modernization, and stated that consequently the 
benefits of this new system and processes were not taken into account 
in our review. While we agree that the implementation of this new 
computer system should provide DLA with more tools to manage 
acquisition lead times, according to DLA's Cross-Process Policy 
Memorandum 06-001 dated June 1, 2006, the basic methodology for 
automatic adjustments to both administrative and production lead times 
remains the same in the new system as under the legacy system (i.e., 
each is calculated as a weighted average based on one-third of the 
existing lead time of record and two-thirds of the actual or new lead 
time for the current award). Calculating the lead times in the same 
manner but recording the values in a newly implemented computer system 
will not improve the accuracy of the lead time estimates. Therefore, we 
continue to believe that the recommendation to DLA is valid. 

Moreover, DOD did not concur with our recommendation that the Under 
Secretary of Defense for Acquisition, Technology, and Logistics work 
closely with the Army and Navy to develop joint strategic relationships 
with suppliers that would be beneficial in reducing lead times. The 
department stated that it is actively pursuing a joint strategy to 
develop strategic relationships, and that to instruct the services to 
develop strategic relationships separately with these suppliers would 
lead to a duplication of effort and dissipate the department's 
leverage. We believe that DOD misunderstood our recommendation. The 
joint strategy initiative that DOD is actively pursuing, according to 
documentation provided by DOD, is focused on commodity management, not 
on developing strategic relationships to reduce lead times. Our 
recommendation calls for the Under Secretary of Defense for 
Acquisition, Technology, and Logistics to work closely with the Army 
and Navy to move beyond simply managing the acquisition of individual 
parts, and to form strategic partnerships with key suppliers for ranges 
of items in situations where it would be possible to leverage these 
relationships to reduce lead times. Documentation from DOD further 
states that DOD's commodity management plan acknowledges that service 
initiatives will produce improvements, and that it respects those 
initiatives. Our recommendation, for the Under Secretary of Defense for 
Acquisition, Technology, and Logistics to work closely with the Army 
and Navy to develop similar initiatives to those already underway by 
DLA and the Air Force, is not duplicative of ongoing efforts, but would 
complement them. Until the Army and the Navy begin initiatives to 
develop strategic relationships with suppliers, they may be unable to 
realize the potential benefits from improved supplier relationships and 
may continue to experience lower rates of lead time reductions than DLA 
and the Air Force. Therefore, we continue to believe that the 
recommendation to the Under Secretary of Defense for Acquisition, 
Technology, and Logistics is valid. 

The department's comments are reprinted in appendix II. 

We are sending copies of this report to the Chairmen and Ranking 
Minority Members of the Senate Committee on Armed Services; the 
Subcommittee on Readiness and Management Support, Senate Committee on 
Armed Services; the Subcommittee on Defense, Senate Committee on 
Appropriations; the House Committee on Armed Services; the Subcommittee 
on Readiness, House Committee on Armed Services; and the Ranking 
Minority Member, Subcommittee on Defense, House Committee on 
Appropriations. We are also sending copies to the Secretary of Defense; 
the Secretaries of the Army, Navy, and Air Force; the Director of DLA; 
and the Under Secretary of Defense for Acquisition, Technology, and 
Logistics. Copies will be made available to others upon request. Should 
you or your staff have any questions concerning this report, please 
contact William M. Solis, Director, at (202) 512-8365 or 
solisw@gao.gov. Contact points for our Offices of Congressional 
Relations and Public Affairs may be found on the last page of this 
report. Key contributors to this report are listed in appendix III. 

Sincerely yours, 

Signed by: 

William M. Solis: 
Director, Defense Capabilities and Management: 

[End of section] 

Appendix I: Scope and Methodology: 

To address our objectives, we reviewed relevant documents, guidance, 
reports, and other information, as available, which related to 
acquisition lead times for class IX spare parts and any initiatives the 
Department of Defense (DOD) or the military components were undertaking 
in this area. We also interviewed cognizant officials within the Office 
of the Under Secretary of Defense (Acquisition, Technology, and 
Logistics); the Defense Logistics Agency Headquarters; the Army 
Materiel Command Headquarters; Headquarters Air Force, the Deputy Chief 
of Staff, Installations, and Logistics, Inventory Management and 
Stockage Branch; and the Naval Supply Systems Command, Naval Inventory 
Control Point-Mechanicsburg, Pennsylvania. We also performed additional 
work at the Air Force Materiel Command Headquarters at Wright-Patterson 
Air Force Base, Ohio, had discussions with officials at the U.S. Army 
Tank Automotive and Armaments (TACOM) Life Cycle Management Command in 
Warren, Michigan, and obtained data from U.S. Army Communications-
Electronics Life Cycle Management Command, U.S. Army Aviation and 
Missile Life Cycle Management Command, and the Naval Inventory Control 
Point-Philadelphia, Pennsylvania. 

To examine the extent to which the military components' estimated lead 
times varied from actual lead times, we obtained and reviewed 
information from each military component concerning any relevant 
policies, procedures, regulations, instructions, or memorandums about 
acquisition lead time development, maintenance, or management. We also 
obtained information regarding the processes used by the military 
components in generating their acquisition lead times from discussions 
with cognizant officials. To test the accuracy of the military 
components in estimating the acquisition lead times and the related 
actual arrival of items ordered, we requested that each military 
component provide us with a data file that contained the following 
information for class IX spare parts they each received between October 
1, 2004, and September 30, 2005: 

* item name, 

* item NSN, 

* date ordered, 

* ordered from what company, 

* quantity ordered, 

* date delivered, 

* quantity delivered, 

* where delivered, 

* purchase order number or some other financial related reference, 

* cost per item, 

* total cost of order, 

* forecasted/on-file administrative lead time for item at time of 
order, 

* forecasted/on-file production lead time for item at time of order, 
and: 

* overall acquisition lead time for item. 

For DLA and the Air Force, we obtained data that covered deliveries to 
all three of their supply centers and Air Logistic Centers, 
respectively. In regard to the Army, we obtained data from three Life 
Cycle Management Commands: TACOM, Communications-Electronic, and 
Aviation and Missile. We also obtained data from the Naval Inventory 
Control Points that are located in Mechanicsburg, Pennsylvania and 
Philadelphia, Pennsylvania. We compared the forecasted/on-file 
estimated lead times for each delivery with the actual lead times 
experienced, and then grouped the variances into five different 
categories. The categories were the actual lead time (1) was within 
plus or minus 1 week from the estimated lead time, (2) was greater than 
1 week to less than 90 days earlier than the estimated lead time, (3) 
was 90 or more days earlier than the estimated lead time, (4) was 
greater than 1 week to less than 90 days later than the estimated lead 
time; and, (5) was 90 or more days later the estimated lead time. For 
all of the records in each category, we calculated the percent of 
records in each category as compared to the total number of records 
reviewed and also calculated their dollar value. We took steps to 
ensure the reliability of the data we used in our review. We provided a 
list of specific data elements to the Army, Navy, Air Force, and DLA 
officials. The military components returned the requested information 
to us. To assess the reliability of these data, we reviewed the data 
for obvious inconsistency and completeness errors. In addition, we 
worked with agency officials to identify any data problems. When we 
found discrepancies (such as nonpopulated fields or data 
discrepancies), we brought them to the officials' attention and worked 
with them to correct the errors. In addition, we sent an electronic 
questionnaire with questions regarding our use of the data and followed 
up on issues we believed were pertinent regarding the reliability of 
the data. Based on these efforts, we determined that the data were 
sufficiently reliable for the purposes of our report. 

To examine the extent to which military components' current management 
actions, initiatives, and other programs have reduced lead times and 
affected inventory and budget requirements, we obtained and reviewed 
information from each military component concerning any relevant 
policies, procedures, regulations, instructions, or memorandums 
regarding efforts, policies, actions, or initiatives to reduce lead 
times. We also interviewed officials within the Office of the Under 
Secretary of Defense (Acquisition, Technology, and Logistics); the 
Defense Logistics Agency Headquarters; the Army Materiel Command 
Headquarters; Headquarters Air Force, The Deputy Chief of Staff, 
Installations, and Logistics, Inventory Management and Stockage Branch; 
and Naval Supply Systems Command, Naval Inventory Control Point- 
Mechanicsburg, Pennsylvania. We also performed additional work at the 
Air Force Materiel Command Headquarters at Wright-Patterson Air Force 
Base, Ohio and had discussions with officials at the U.S. Army TACOM 
Life Cycle Management Command in Warren, Michigan. We further examined 
budget stratification data from the Army, Navy, Air Force, and the 
Defense Logistics Agency. Using that budget stratification data, we 
reviewed all items present in the September 30 budget stratification 
reports for both 2002 and 2005 to determine the changes in average 
acquisition lead time for those items. We were unable to obtain budget 
stratification data for the components for 1994, and thus simply 
reported the results of our 1994 GAO report evaluating overall lead 
times for each component. Additionally, we requested and analyzed the 
summary budget stratification reports for all components for September 
2002 through September 2005 to determine any changes in average 
acquisition lead time and budget requirements from 2002 to 2005. Based 
on our efforts, we determined that the data were sufficiently reliable 
for the purposes of our report. 

We conducted our work from November 2005 through November 2006 in 
accordance with generally accepted government auditing standards. 

[End of section] 

Appendix II: Comments from the Department of Defense: 

Deputy Under Secretary Of Defense For Logistics And Materiel Readiness: 
3500 Defense Pentagon: 
Washington, DC 20301-3500: 

Mr. William Solis: 
Director, Defense Capabilities and Management: 
U.S. Government Accountability Office: 
Washington, DC 20548: 

Feb 5 2007: 

Dear Mr. Solis: 

This is the Department of Defense (DoD) response to the GAO draft 
report GAO-07-281, "Defense Inventory: Opportunities Exist to Improve 
the Management of DoD's Acquisition Lead Time For Spare Parts" dated 
December 20, 2006 (GAO Code 350760). The GAO draft report provides 11 
recommendations, 6 of which are actions required by the Military 
Services and DLA and 5 of which are actions recommended for the 
USD(AT&L). The DoD concurs with 8, partially concurs with 1, and 
nonconcurs with 2 of the recommendations in the report. Actions being 
taken on each of the recommendations are identified in the enclosure. 

As indicated in the GAO report, the Military Services and DLA reduced 
acquisition lead times each of the years GAO reviewed (FY 2002 - FY 
2005). These reductions were achieved through DoD component initiatives 
even though the Department and industrial base are operating in a surge 
capacity in support of the Global War on Terror. We concur with 5 of 
the 6 recommendations to the Military Services and DLA. We nonconcur on 
the recommendation for DLA to have its supply centers to review and 
revise lead times because the DLA information used in forming the 
recommendation was from the DLA legacy system and did not consider 
improvements realized by implementation of the DLA Enterprise Resource 
Planning solution, Business Systems Modernization. 

Recommendations in the report directed to the USD(AT&L) identify 
actions that the Department already had underway prior to the review. 
As we indicated at the initial meeting with GAO, the Supply Metrics 
Group was formed in 2005 to develop and monitor key supply metrics 
within the Department, and Acquisition Lead Time is one of these 
metrics. Additionally, the Supply Metrics Group had already initiated a 
request for a lead time review to determine if there is a need for 
additional lead time reduction initiatives. This review is funded and 
the contract will be awarded in FY 2007. We nonconcur with the 
recommendation for the Army and Navy to develop its own strategic 
relationships. All of the Military Services and DLA have been fully 
engaged in our Commodity Management initiative that establishes joint 
teams to look at all aspects of a commodity supply chain, including 
joint strategic relationships with suppliers. Single Military Service 
initiatives run counter to our Base Realignment and Closure Supply and 
Storage efforts. 

Detailed comments on the draft report recommendations are included in 
the enclosure. The DoD appreciates the opportunity to comment on the 
draft report. 

Signed by: 

Jack Bell: 

Enclosure: 
As stated: 

GAO Draft Report - Dated December 20, 2006 GAO Code 350760/GAO-07-281: 

"Defense Inventory: Opportunities Exist to Improve the Management of 
DoD'S Acquisition Lead Time For Spare Parts" 

Department Of Defense Comments To The Recommendations: 

Recommendation 1: The GAO recommended that the Secretary of Defense 
direct the Secretary of the Army to have the Commanding General, Army 
Materiel Command direct the Aviation and Missile Life Cycle Management 
Command to (a) establish clear guidelines for item managers to know 
when to review and how to determine whether deliveries should be 
considered representative and thus used to update lead times. (Pages 36-
37/GAO Draft Report): 

DOD Response: Concur. Army Materiel Command (AMC) is working with the 
Life Cycle Management Commands, Rand, IBM and University of Alabama to 
document these processes and establish appropriate guidelines in 
strategic sourcing efforts across AMC. Full implementation and 
compliance will be completed by the end FY 2008. 

Recommendation 2: The GAO recommended that the Secretary of Defense 
direct the Secretary of the Army to have the Commanding General, Army 
Materiel Command direct the Life Cycle Management Command to re- 
emphasize the importance of periodically reviewing and validating their 
recorded lead time data to detect and correct data input errors and 
other inaccurate information. (Page 37/GAO Draft Report): 

DOD Response: Concur. Army continues to work data quality issues across 
all areas and have specified Acquisition Lead Time (ALT) calculation 
data for special emphasis. The Army's created the Single Army Logistics 
Enterprise (SALE) initiative to implement the most efficient and 
effective means of integrating strategic, operational, and tactical 
logistics functions into a fully integrated, end-to-end Army logistics 
enterprise solution. Improved visibility provided under SALE should 
enable managers to clearly see issues and impacts of data quality. SALE 
will be fully implemented across the LCMC by the end of FY 2010. 

Recommendation 3: The GAO recommended that the Secretary of Defense 
direct the Secretary of the Army to have the Commanding General, Army 
Materiel Command direct Communications-Electronics Life Cycle 
Management Command to maintain and update automated lead time data 
within its Logistics Modernization Program computer system. (Page 37/ 
GAO Draft Report): 

DOD Response: Concur. Army Logistics Modernization Program (LMP) does 
not provide automatic updates of data for calculation of ALT, but LMP 
does maintain and provide managers with the information they need to 
make these decisions for manual implementation. LMP implementation will 
be complete FY 2010. 

Recommendation 4: The GAO recommended that the Secretary of Defense 
direct the Director, Defense Logistics Agency to have its supply 
centers review the methodology and inputs used to compute its lead time 
estimates and revise them to incorporate recent improvement in DLA 
actual lead times. (Page 37/GAO Draft Report): 

DOD Response: Nonconcur. Data examined by GAO was primarily legacy 
system data from 2002 to 2005 and does not reflect the changes 
incorporated into the recently completed Defense Logistics Agency (DLA) 
implementation of its new Enterprise Resource Planning (ERP) called 
Business Systems Modernization (BSM). The transition to BSM was 
completed in December 2006 with most of the DLA managed items 
transitioning into BSM during the 2006 calendar year. Therefore, the 
benefits of the new system and processes, including more accurate 
management of acquisition lead times, were not part of the examination 
GAO completed in their review. 

Recommendation 5: The GAO recommended that the Secretary of Defense 
direct the Secretary of the Air Force to have the Commander, Air Force 
Material Command to direct its air logistics centers to use better 
sources of lead time information, such as supply estimates, if 
available, rather than default values for items that have not been 
ordered in the last 5 years. (Page 37/GAO Draft Report): 

DOD Response: Concur. By February 2007, the Air Force will direct the 
Air Force Material Command to direct the air logistics centers to use 
better sources of lead time information as the GAO recommended. 

Recommendation 6: The GAO recommended that the Secretary of Defense 
direct the Secretary of the Navy to direct the Commander, Naval 
Inventory Control Point to re-emphasize the importance of having its 
inventory control points periodically review and validate their 
recorded lead time data to detect and correct data input errors or 
other inaccurate information. (Pages 37-38/GAO Draft Report): 

DOD Response: Concur. The Navy has in place a robust set of acquisition 
lead time forecasting and review processes as presented during the 
audit. By February 2007, the Navy will reiterate requirements to ensure 
routine application of its review tools. 

Recommendation 7: The GAO recommended that the Secretary of Defense 
direct the Under Secretary of the Defense for Acquisition, Technology 
and Logistics to establish component lead time reduction goals over a 5-
year period from October 2007-2012. (Page 38/GAO Draft Report): 

DOD Response: Concur. As GAO indicated, lead times are being reduced 
but at a slower pace than in previous years. Lead time is currently a 
component level metric and reduction goals are set by each component. 
However, DoD is already in-process of developing a Department level 
metric and conducting a lead time review that will include an 
assessment of the need for additional lead time reduction goals and 
metrics. The need for additional goals will be determined upon 
completion of the assessment. Assessment is to begin 3rd quarter FY 
2007 with a 6 month estimated completion date. 

Recommendation 8: The GAO recommended that the Secretary of Defense 
direct the Under Secretary of the Defense for Acquisition, Technology 
and Logistics to develop metrics to measure components' progress toward 
meeting lead time reduction goals and require the periodic reporting of 
these metrics. (Page 38/GAO Draft Report): 

DOD Response: Concur. As GAO indicated, lead times are being reduced 
but at a slower pace than in previous years. Lead time is currently a 
component level metric and reduction goals are set by each component. 
However, DoD is already in-process of developing a Department level 
metric and conducting a lead time review that will include an 
assessment of the need for additional lead time reduction goals and 
metrics. The need for additional goals will be determined upon 
completion of the assessment. Assessment is to begin 3rd quarter FY 
2007 with a 6 month estimated completion date. 

Recommendation 9: The GAO recommended that the Secretary of Defense 
direct the Under Secretary of the Defense for Acquisition, Technology 
and Logistics to develop a general estimate of the financial impact of 
lead time reductions, and use that as a metric to help components weigh 
the importance of lead time reductions. (Page 38/GAO Draft Report): 

DOD Response: Partially concur. The DoD components already realize the 
importance of accurate lead times and, as GAO pointed out, lead times 
dropped over the timeframes they reviewed. However, DoD is in process 
of developing a Department level metric and conducting a lead time 
review that will include an assessment of the need for additional lead 
time reduction goals and metrics. To the extent that financial impact 
can be estimated, it will be one of the elements considered in the 
review. As we indicated to GAO during the review, the challenge with 
estimating financial impact of lead time reductions is that there are 
many other variables, such as demand variability, that effect safety 
level and the impact of the individual variables on the forecast cannot 
be separately identified. Assessment is to begin 3rd quarter FY 2007 
with a 6 month estimated completion date. 

Recommendation 10: The GAO recommended that the Secretary of Defense 
direct the Under Secretary of the Defense for Acquisition, Technology 
and Logistics to direct the components to collect data, establish 
metrics, and measure and report the impact of individual lead time 
reduction initiatives, to include the cost of each initiative and its 
estimate cost savings. (Page 38/GAO Draft Report): 

DOD Response: Concur. As GAO indicated, lead times are being reduced 
but at a slower pace than in previous years. Lead time is currently a 
component level metric and reduction goals are set by each component. 
However, DoD is in-process of conducting a lead time review that will 
include an assessment of the need for additional lead time reduction 
goals and metrics. If the assessment results in additional initiatives, 
the DoD Components will be requested to measure and report the impact 
of the reduction initiatives. Assessment is to begin 3rd quarter FY 
2007 with a 6 month estimated completion date. 

Recommendation 11: The GAO recommended that the Secretary of Defense 
direct the Under Secretary of the Defense for Acquisition, Technology 
and Logistics to work closely with Army and Navy to develop joint 
strategic relationships with suppliers that would be beneficial in 
reducing lead times. (Page 38/GAO Draft Report): 

DOD Response: Nonconcur. All Services and DLA share a common group of 
key suppliers, with a high degree of commonality in many of the items 
purchased. To instruct the Services to develop strategic relationships 
separately with these suppliers would lead to duplication of effort and 
dissipation to the Department's leverage. DoD is actively pursuing a 
joint strategy to leverage DoD's buying power, manage its supplier 
base, and to build relationships with key suppliers to improve supply 
chain performance, and this is the stated direction of the Base 
Realignment and Closure implementation as well. The Department will 
achieve optimal results by speaking to its supply base about common 
objectives with one voice, and this recommendation works against that. 

[End of section] 

Appendix III: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

William M. Solis, (202) 512-8365: 

Acknowledgments: 

In addition to the contact listed above, Lawson Gist, Jr., Assistant 
Director, Rebecca Beale, Christopher Miller, Terry Richardson, Grant 
Mallie, Catherine Hurley, Minette Richardson, Nancy Hess, Art James, 
Renee Brown, Gayle Fischer, Kenneth Patton, and Nicole Harms made key 
contributions to this report. 

FOOTNOTES 

[1] This was the most up-to-date information available during our 
review. 

[2] DOD's secondary inventory consists of a wide variety of parts that 
includes communication and detection equipment; electrical and 
electronic equipment components; engines, turbines, and their 
components; aircraft components and accessories; instruments and 
laboratory equipment; aircraft and airframe structural components; fire 
control equipment; guided missiles; electric wire and power and 
distribution equipment; medical supplies; and clothing and textiles. 

[3] Hereafter, we will refer to the term as acquisition lead time. 

[4] For purposes of this report, DOD's military components are defined 
as the Army, Navy, Air Force, and the Defense Logistics Agency (DLA). 

[5] GAO, Defense Supply: Acquisition Leadtime Requirements Can Be 
Significantly Reduced, GAO/NSIAD-95-2 (Washington, D.C.: Dec. 20, 
1994). 

[6] Department of Defense Inspector General, Initiatives to Improve 
Acquisition Lead Time, Report Number 99-037 (Nov. 23, 1998). 

[7] Office of the Deputy Under Secretary of Defense for Logistics and 
Materiel Readiness, Department of Defense Supply Chain Materiel 
Management Regulation, DOD 4140.1-R (May 2003). 

[8] The majority of the items we reviewed belonged to DLA, which 
manages more than 5 million items. These items tend to be smaller, less 
expensive consumable products as compared to the items managed by the 
military components. 

[9] GAO, Internal Control Management and Evaluation Tool, GAO-01-1008G 
(Washington, D.C.: August 2001). 

[10] Army Regulation 710-1, Centralized Inventory Management of the 
Army Supply System (Sept. 6, 2005). 

[11] Air Force Materiel Command Manual 23-1, Requirement for Secondary 
Items (D200A, D200N) (Jan. 5, 2007). 

[12] GAO/NSIAD-95-2. 

[13] Backorders are orders that are held in an unfilled status pending 
receipt of additional parts or equipment through procurement or repair. 
DOD's supply chain management improvement plan specifies annual 
performance targets for backorders for each of the components and DOD 
overall. 

[14] Safety level inventory is the quantity of materiel required to be 
on hand to permit continued operation in the event of a minor 
interruption of normal replenishment or fluctuation in demand. 

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