Defense Logistics:

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

GAO-12-883R: Published: Aug 3, 2012. Publicly Released: Aug 3, 2012.

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What GAO Found

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

The implemented DSO efforts have improved some segments of DOD’s materiel distribution system, but these efforts were not intended to address all challenges that DOD faces in materiel distribution and that we have identified in our past work. When DSO began in 2009, the department emphasized two overarching goals: (1) achieve $500 million in cost avoidances and (2) improve shipment delivery times by 25 percent by 2012. With regard to the first goal, DOD has reported cost efficiencies through increasing utilization of containers, pallets, and aircraft; shifting more cargo to larger containers; and positioning supplies closer to overseas customers. According to DOD, these efficiencies led to over $490 million in cost avoidances. With regard to the second goal, DOD reported better shipment delivery times for a limited number of customers. For example, TRANSCOM’s process improvement effort led to better delivery times on 31 (6 percent) of DOD’s approximately 500 shipping lanes. TRANSCOM and DLA have been institutionalizing some improvements from the four ongoing DSO efforts into their business operations. For example, DLA has revised its model for determining the types and amount of inventory to position at forward locations to factor in transportation costs. The institutionalization of these improvements could result in additional efficiencies to DOD’s materiel distribution system. In addition, following DOD’s initial implementation of DSO, the Distribution Process Owner Executive Board set a new goal in February 2012 for DSO to achieve another $500 million in cost avoidances by the end of fiscal year 2015, and TRANSCOM is pursuing new initiatives to meet this updated goal. Although DOD has achieved some positive results from its DSO efforts, the initiative was not developed with the intent to address all challenges that DOD faces in its materiel distribution system, including some that we have identified in our prior work on supply support to the warfighter. For example, DOD reported better delivery times for some customers in three geographic combatant commands as a result of DSO, but often did not meet its delivery standards for shipments to those commands. Additionally, DSO was designed to improve the distribution operations of TRANSCOM and DLA, which does not include tactical movement of supplies and equipment within theaters of operation, such as Afghanistan.

Why GAO Did This Study

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

Since 1990, GAO has identified DOD supply chain management as a high-risk area, with materiel distribution as one focus area for improvement. Our prior work, for example, has identified challenges DOD faced in distributing materiel to the warfighter in Iraq and Afghanistan, which contributed to shortages of some critical items and limited DOD’s ability to track the status and location of cargo shipments. In its high-level logistics and supply chain management plans, DOD highlighted the need to improve materiel distribution and identified various improvement initiatives, but in our prior work we found that these high-level plans did not specify how DOD would integrate, guide, and measure the outcomes of these various improvement initiatives. In July 2011, we recommended that DOD develop a comprehensive corrective action plan for improving materiel distribution, and we identified key elements that we believe should be included in such a plan to maximize its usefulness. However, DOD did not concur with that recommendation, citing ongoing improvement efforts as sufficient. In particular, DOD highlighted Distribution Process Owner Strategic Opportunities (DSO) as one such effort. According to the department, DSO began in 2008 and its main goals are to dramatically reduce enterprise-level distribution costs and improve distribution service levels to the warfighter. DSO comprises five distinct improvement efforts, including four that have been implemented and are ongoing and one, strategic network optimization, that is still in development and is now considered a stand-alone effort. Within DOD, U.S. Transportation Command (TRANSCOM) and the Defense Logistics Agency (DLA) have had key roles and responsibilities for developing and implementing DSO.

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

What GAO Recommends

We are not making any new recommendations in this report.

For more information, contact Cary B. Russell at (202) 512-5431 or russellc@gao.gov.

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