Key Issues > High Risk > DOD Supply Chain Management
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DOD Supply Chain Management

This information appears as published in the 2017 High Risk Report.

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The Department of Defense (DOD) manages about 4.9 million secondary inventory items, such as spare parts, with a reported value of $91.7 billion as of September 2015. Effective and efficient supply chain management is critical for supporting the readiness and capabilities of the force and for helping to ensure that DOD avoids spending resources on unneeded inventory that could be better applied to other defense and national priorities. However, DOD has experienced weaknesses in the management of its supply chain, particularly in the following areas:

  • Inventory management. DOD's inventory management practices and procedures have been ineffective and inefficient. DOD has experienced high levels of inventory that were in excess of requirements and weaknesses in accurately forecasting the demand for inventory items.
  • Materiel distribution. DOD has faced challenges in delivering supplies and equipment, including not meeting delivery standards and timelines for cargo shipments as well as not maintaining complete delivery data for surface shipments.
  • Asset visibility. DOD has had weaknesses in maintaining visibility of supplies, such as problems with inadequate radio-frequency identification information to track all cargo movements.

We added supply chain management to the High-Risk List in 1990. In our February 2015 update, we reported that DOD had made moderate progress in addressing weaknesses in supply chain management, but had not resolved several long-standing problems. For example, DOD had not developed a corrective action plan to address materiel distribution weaknesses or performance metrics based on reliable data to assess performance across the entire distribution pipeline. With respect to asset visibility, DOD had not fully developed performance measures that will effectively ensure that the department's initiatives improve asset visibility.

DOD Supply Chain Management

Since our February 2015 high-risk update, DOD has made progress in addressing all three dimensions of its supply chain management: inventory management, materiel distribution, and asset visibility. For inventory management, DOD has met all five high-risk criteria. For this reason, we are removing inventory management from the supply chain management high-risk area. For materiel distribution, DOD has continued to demonstrate leadership commitment and capacity and has developed a corrective action plan to guide and direct the department's efforts to improve materiel distribution support to the warfighter. However, work remains to fully meet the monitoring and demonstrated progress high-risk criteria. For asset visibility, DOD has continued to meet the leadership commitment criteria and has met the capacity and corrective action plan criteria—the latter in fiscal year 2015 by updating and implementing the Strategy for Improving DOD Asset Visibility (Strategy). However, additional actions are needed to fully meet the remaining two criteria—monitoring and demonstrated progress. In a December 2016 letter from the Under Secretary of Defense for Acquisition, Technology, and Logistics to the Chairman of the Committee on Oversight and Government Reform, U.S. House of Representatives, the department generally agreed with our assessment of progress made and outlined ongoing and planned actions to address the remaining issues.

Materiel Distribution

In October 2014, we provided DOD with a letter that outlined six actions and outcomes that we believe it should address in order to mitigate or resolve long-standing weaknesses in materiel distribution and address the criteria for removal from the High-Risk List. Based on discussions with DOD officials and recent efforts across the department as of November 2016, we believe that DOD has addressed three of the six actions and outcomes. Specifically, DOD has addressed the actions and outcomes associated with the action plan criterion by developing the Materiel Distribution Improvement Plan (Improvement Plan) that contains implementation goals and timelines that will guide its effort to identify gaps and root causes with respect to the performance of the entire distribution pipeline. However, DOD still needs to address the three remaining actions and outcomes from the October 2014 letter that are related to monitoring and demonstrating progress. Additionally, based on our review of DOD's efforts to improve materiel distribution, we are adding an additional action focused on ensuring DOD refines and updates its actions in the Improvement Plan based on interim progress and results, which results in four remaining actions and outcomes that need to be addressed for removal of materiel distribution from the High-Risk List. Going forward, DOD needs to show measureable and sustained positive outcomes addressing the remaining four actions and outcomes.

Monitoring

DOD should

  • make progress in developing its suite of distribution performance metrics, improving the quality of data underlying those metrics, and sharing metrics information among stakeholders;
  • integrate distribution metrics data, including cost data, from the combatant commands and other DOD components, as appropriate, on the performance of all legs of the distribution system, including the tactical leg; and
  • refine existing actions in the Improvement Plan or incorporate additional actions based on interim progress and results, and update the Improvement Plan accordingly.

Demonstrated Progress

DOD should

  • demonstrate that the actions implemented under its Improvement Plan improve its capability to comprehensively measure distribution performance, identify distribution problems and root causes, and identify and implement solutions.

Asset Visibility

Our October 2014 letter to DOD outlined seven actions and outcomes that we believe it should address in order to mitigate or resolve long-standing weaknesses in asset visibility and address the criteria for removal from the High-Risk List. Based on discussions with DOD officials and recent efforts across the department as of January 2017, we believe that DOD has addressed five of the seven actions and outcomes. Specifically, DOD has addressed the actions and outcomes associated with the capacity and action plan criteria by the department providing additional direction to the components on formulating cost estimates and the components implementing that direction in developing its cost estimates for the asset visibility initiatives.

Additionally, DOD linked the goals and objectives of the Strategy with the specific initiatives intended to implement the Strategy, established a mechanism for periodically assessing the initiatives, and implemented numerous initiatives. Based on our review of DOD's efforts to improve asset visibility, we are adding an additional action aimed at improving the monitoring of the individual improvement initiatives, which results in three remaining actions and outcomes that need to be addressed for removal of asset visibility from the High-Risk List. Going forward, DOD needs to show measureable and sustained positive outcomes in addressing these remaining three actions and outcomes.

Monitoring

DOD should

  • assess, and refine as appropriate, performance measures by, for example, incorporating the attributes (e.g., clear, quantifiable, objective, and reliable) of successful performance measures; and
  • take steps to incorporate into after-action reports information relating to performance measures for the asset visibility initiatives.

Demonstrated Progress

DOD should demonstrate sustained progress in having implemented the initiatives that result in measurable outcomes and progress towards realizing the goals and objectives in the Strategy.

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  • portrait of Zina Merritt
    • Zina Merritt
    • Director, Defense Capabilities and Management
    • merrittz@gao.gov
    • (202) 512-5257
  • portrait of Cary Russell
    • Cary Russell
    • Director, Defense Capabilities and Management
    • russellc@gao.gov
    • (202) 512-5431