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Logistics Planning: Opportunities for Enhancing DOD's Logistics Strategic Plan (Letter Report, 12/18/96, GAO/NSIAD-97-28).

GAO reviewed the Department of Defense's (DOD) logistics strategic plan
to identify opportunities for increasing the likelihood of implementing
the plan's goals and objectives successfully.

GAO found that: (1) DOD's plan gives direction to improvements that are
needed to reduce the costs of its logistics system (i.e., reducing
logistics cycle times, developing a seamless logistics system, and
streamlining the logistics infrastructure) and lays out specific
objectives and strategies to produce these improvements; (2) DOD could
build on its plan and increase the likelihood of implementing its goals
and objectives successfully, as well as be better prepared for
implementing the requirements of the Government Performance and Results
Act, if the plan linked its action plans to resources so that both DOD
managers and Congress can make more informed decisions on the value and
priority of logistics system improvements; better linked the services'
and the Defense Logistics Agency's (DLA) plans to DOD's plan; and
identified interim approaches that can be developed and implemented when
milestones of a priority strategy, aimed at achieving the plan's overall
goals and objectives, have been extended; and (3) DOD's success in
bringing these elements together hinges on its top-level managers'
continued and visible support of efforts to remove institutional
cultural barriers.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  NSIAD-97-28
     TITLE:  Logistics Planning: Opportunities for Enhancing DOD's 
             Logistics Strategic Plan
      DATE:  12/18/96
   SUBJECT:  Logistics
             Strategic planning
             Military inventories
             Inventory control systems
             Defense cost control
             Federal agency reorganization
             Defense budgets
             Property and supply management
IDENTIFIER:  DOD Strategic Logistics Plan
             DOD Continuous Acquisition and Life-Cycle Support Initiative
             DOD Corporate Information Management Initiative
             CIM
             CALS
             DOD Planning, Programming, and Budgeting System
             
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Cover
================================================================ COVER


Report to the Secretary of Defense

December 1996

LOGISTICS PLANNING - OPPORTUNITIES
FOR ENHANCING DOD'S LOGISTICS
STRATEGIC PLAN

GAO/NSIAD-97-28

Logistics Planning

(709164)


Abbreviations
=============================================================== ABBREV

  CALS -
  CIM -
  DOD -
  DLA -
  GPRA -
  PPBS -

Letter
=============================================================== LETTER


B-272661

December 18, 1996

The Honorable William J.  Perry
The Secretary of Defense

Dear Mr.  Secretary: 

The Department of Defense (DOD) has recognized that its logistics
system, designed decades ago to support the U.S.  military in a
global conflict, is slow, complicated, redundant, and costly.  With
the end of the Cold War and the advent of budgetary limitations,
DOD's logistics system must now support a smaller, highly mobile,
high-technology force with processes that are as efficient as
possible.  Thus, in 1994, DOD developed a logistics strategic plan
with the goal of developing a better, faster, more reliable, highly
mobile, less costly response capability to deliver logistics material
and services to the user.  We reviewed DOD's logistics strategic plan
to identify opportunities for increasing the likelihood of
implementing the plan's goals and objectives successfully. 


   BACKGROUND
------------------------------------------------------------ Letter :1

DOD uses its secondary inventories, such as spare parts, clothing,
and medical supplies, to support its operating forces worldwide. 
However, its logistics system to acquire, store, and deliver these
materials has frequently been criticized as cumbersome, inefficient,
and costly.  DOD's inventory management problems have been
long-standing, characterized by the expenditure of billions of
dollars on excess supplies and the failure to acquire sufficient
tools and expertise to manage them effectively.  DOD's culture has
historically encouraged maintaining excessive inventories rather than
managing with just the right amount of stock, and DOD has been slow
to adopt new management practices, technologies, and logistics
systems.  Lately, however, DOD has taken several steps, such as
developing a prime vendor for medical, food, and clothing supplies,
to help change this culture. 

In fiscal year 1994, DOD developed a logistics strategic plan, which
it has updated annually, to provide an integrated logistics roadmap
to support its warfighting strategy.  The plan, which is prepared by
the Office of the Deputy Under Secretary of Defense (Logistics) and
approved by the Under Secretary of Defense (Acquisition and
Technology), indicates senior leaders' commitment and support, which
are important in overcoming barriers to changing DOD's culture.  Its
current plan states that DOD is striving to cut secondary inventories
from the current $70 billion to
$53 billion or less by October 2001, or about 24 percent, and
occupied storage space from 631 million cubic feet to 375 million
cubic feet or less, or about 40 percent.  DOD's data appear to
indicate that, for the most part, DOD is on target in achieving these
outcomes by the end of the decade.  DOD also hopes to reduce
logistics response times by one-third from its fiscal
year 1996 first-quarter average by September 1997, and to reduce the
average age for backordered items to 30 days by October 2001. 

DOD's plan can further serve as a fundamental building block to
creating a results-oriented organization as envisioned by the
Government Performance and Results Act (GPRA) of 1993, which requires
federal agencies, including DOD as a total entity, to develop
strategic plans no later than September 30, 1997, for a 5-year
period.  In previous work, we have found that leading organizations
that successfully implement results-oriented management have
established clear hierarchies of performance goals and measures
throughout all levels of their organizations.  GPRA was designed to
create a new results-oriented federal management and decision-making
approach that requires agencies to clearly define their missions, set
goals, link activities and resources to goals, measure performance,
and report on their accomplishments.  In crafting GPRA, Congress
recognized that agencies must be alert to the environment in which
they operate; in their strategic plans, they are required to identify
the external factors that could affect their ability to accomplish
their missions. 

The cost of DOD's logistics system is larger than the budgets of some
federal agencies that are required to submit their strategic plans to
Congress under GPRA.  Although DOD is required to develop and submit
a DOD-wide plan to Congress, the GPRA approach to strategic planning
is, in our opinion, a useful technique for larger efforts, such as
DOD's logistics system. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :2

DOD's plan gives direction to improvements that are needed to reduce
the costs of its logistics system (i.e., reducing logistics cycle
times, developing a seamless logistics system, and streamlining the
logistics infrastructure) and lays out specific objectives and
strategies to produce these improvements.  DOD could build on its
plan and increase the likelihood of implementing its goals and
objectives successfully, as well as be better prepared for
implementing the requirements of GPRA, if the plan (1) linked its
action plans to resources so that both DOD managers and Congress can
make more informed decisions on the value and priority of logistics
system improvements; (2) better linked the services' and the Defense
Logistics Agency's (DLA) plans to DOD's plan; and (3) identified
interim approaches that can be developed and implemented when
milestones of a priority strategy, aimed at achieving the plan's
overall goals and objectives, have been extended.  DOD's success in
bringing these elements together hinges on its top-level managers'
continued and visible support of efforts to remove institutional
cultural barriers. 


   DOD'S LOGISTICS STRATEGIC PLAN
------------------------------------------------------------ Letter :3

Recognizing that it needed an integrated logistics roadmap to support
its warfighting strategy into the next century, DOD developed a
strategic plan in 1994 to improve its logistics system.  The plan
does a good job setting out a vision of what DOD expects the
logistics system to do, that is "provide reliable, flexible,
cost-effective and prompt logistics support, information, and
services to the warfighters; and achieve a lean infrastructure."
DOD's vision is guided by several principles, which its plan
highlights, such as the

  -- need for near real-time information on material and logistics
     support capabilities,

  -- need for both performance metric and performance measurement
     methods, and

  -- use of process reengineering and investment to reduce the
     operational and support cost burden on defense resources without
     reducing readiness. 

The plan recognizes that the future logistics environment will
require greater mobility, visibility of key assets, and more dynamic
workload management to provide a rapid response to changing
requirements and improved and accurate management information to
better control logistics resources as defense budgets decline.  The
plan also points out that streamlining to a leaner logistics system
can be achieved through greater integration of business and
production processes but that performance of logistics processes must
be continually assessed to identify opportunities for improvement
through the adoption of new initiatives. 

DOD's fiscal year 1996-97 edition of its plan reiterates the 1994
plan's goals and aims to achieve them by 2001.  According to DOD's
plan, its overall goals are to (1) reduce logistics cycle times, (2)
develop a seamless logistics system, and (3) streamline the logistics
infrastructure.  The plan also sets forth the objectives and
strategies for addressing these goals.  In all, the plan lists a
total of 95 specific strategies, including the identification of 12
priority strategies, such as the total asset visibility, battlefield
distribution, and continuous acquisition and life-cycle support
(CALS) strategies.  The strategies are to help accomplish the plan's
goals and, as a result, "achieving world-class capabilities, while
reducing the cost of DOD's logistics system."


   DOD HAS OPPORTUNITIES TO
   ENHANCE IMPLEMENTATION OF THE
   PLAN'S GOALS
------------------------------------------------------------ Letter :4

DOD reported that it has made progress in achieving all three of its
goals.  DOD recognized, however, that implementing certain strategies
was often more complex than originally anticipated and that while
most strategies included specific milestones, many actions do not
happen just once but continue.  As a result, DOD has adjusted its
approaches to some of the strategies and its projected completion
dates for others.  DOD can further improve its planning process by
(1) linking its priority strategies to resources, (2) better linking
the services' and DLA's plans to its logistics strategic plan, and
(3) identifying interim approaches when milestones of a priority
strategy have been extended. 


      LINKING STRATEGIES AND
      ACTION PLANS TO RESOURCES
---------------------------------------------------------- Letter :4.1

Although DOD's plan indicates that staffing and financing
requirements are to be aligned to the planning, programming, and
budgeting system's (PPBS) cycle, it does not indicate the magnitude
and source of resources that are required to implement many of its
strategies, particularly the priority strategies.  By including the
resources to carry out the plan's strategies, DOD could help ensure
that a strategy based on priorities, and agreed to by those who must
approve the resources to implement them, guides management actions
and shapes the budget consistent with the direction and outcomes it
wishes to achieve. 

In this connection, logistics managers for one of DOD's priority
logistics strategies--the CALS strategy--have not identified, either
in DOD's plan or the CALS implementation plan, the magnitude and
source of resources that are required to implement its many
initiatives.  CALS, which began in 1985, is intended to automate and
integrate acquisition, engineering, manufacturing, and logistics data
on weapons.  If successfully implemented, this effort is expected to
allow for more efficient management of weapon systems information by
converting into digital format millions of technical manuals and
engineering drawings used throughout a weapon's life cycle, linking
databases, and providing access to users within and outside of DOD
for managing this information.  CALS managers acknowledged that there
is no single point of funding accountability for implementing CALS
and that DOD also does not know the total cost associated with this
effort.  Because CALS funding comes from many sources, such as weapon
system budgets and CALS-related system budgets, CALS managers further
indicated that it is difficult to arrive at an estimated total cost
to implement CALS. 

We and the DOD Inspector General have reported over the years
problems associated with implementing CALS.  We recognize that it is
difficult to arrive at a cost for CALS, but until resource
requirements for CALS are clearly identified and tied to the PPBS
cycle, DOD will continue to have difficulty implementing CALS. 


      LINKING THE SERVICES' AND
      DLA'S PLANS TO DOD'S
      LOGISTICS STRATEGIC PLAN
---------------------------------------------------------- Letter :4.2

Effective strategic planning helps guide members of an organization
to envision their future and develop the necessary procedures and
operations to achieve that future.  Therefore, it is equally
important that DOD's plan cascade through all its organizations so
that responsible elements of those organizations work toward
attaining the same goals.  However, the Executive Steering Group,
which is responsible for directing implementation of the plan,
assessing progress, setting priorities, and developing plan updates,
has not required the services and DLA to develop logistics strategic
plans that link their individual goals and strategies to DOD's plan. 
Consequently, the services' goals, objectives, and strategies do not
always support DOD's plan. 

We did note that DLA is the only major defense agency to take the
initiative to ensure that the goals and strategies of its corporate
plan (similar to a strategic plan) link directly to DOD's plan.  The
Army's and the Air Force's logistics plans have evolved over the last
several years to better reflect DOD's goals and objectives.  The Navy
has only recently begun to develop its first logistics strategic plan
and expects to complete it by the end of the year.  In our opinion,
this is an opportune time for the Navy to ensure its plan ties
directly to DOD's goals and objectives. 


      IDENTIFYING INTERIM
      APPROACHES
---------------------------------------------------------- Letter :4.3

During this review, we noted that DOD's plan did not contain interim
approaches that could be developed and implemented when milestones of
a priority strategy have been extended.  Interim approaches are
particularly important in cases where other strategies outlined in
the plan are interrelated and dependent on the success of the
priority strategy, such as the corporate information management (CIM)
initiative, to accomplish their goals and objectives.  To illustrate,
in 1989, DOD introduced the CIM strategy to improve business
practices and the use of information technology and to eliminate
redundant systems in medical, civilian payroll, and material
management.  According to DOD's plan, CIM's milestones have been
extended an additional 5 years because of operational difficulties.\1
But, the plan does not describe any interim approaches to achieve the
objectives of the CIM strategy and continue furthering the goals and
objectives of other priority strategies that depend on CIM to be
successful. 

There are several interrelated strategies in DOD's plan that depend
on CIM for success, such as the joint battlefield distribution, the
joint total asset visibility, and the in-transit visibility
strategies.  CIM migration systems are required to provide the
communication links for transmitting logistics data to managers.  For
example, the joint battlefield distribution strategy, which is
intended to improve delivery of supplies to fighting units, depends
on improved battlefield communications and real-time asset
information, which CIM was expected to provide, to be successful. 

Similarly, the joint total asset visibility strategy is ultimately
dependent on CIM migration systems to help it provide timely,
accurate information on the location and movement of personnel,
equipment, and supplies.  Likewise, in-transit visibility, intended
to track the identity, status, and location of cargo in transit, is
also dependent on both total asset visibility and CIM migration
systems to communicate the data.  Therefore, until CIM migration
systems are fully implemented, these dependant strategies may
experience considerable difficulty achieving their goals and
objectives. 

These issues are in line with similar issues that we reported in
September 1996 on problems with the development of materiel
management systems, which are a part of the CIM initiative.\2 In that
report, we stated that DOD had made a major change in its materiel
management migration system policy and that it did so before critical
steps were taken that would help ensure good business decisions were
made and that risks were minimized.  We concluded that DOD (1) may
likely deploy systems that will not be significantly better than
those already in place and (2) could waste millions of dollars
resolving problems that result from a lack of developing and
implementing a clear and cohesive strategy.  We stated that, before
proceeding with any new strategy, DOD needs to take the necessary
steps to fully define its approach, plan for risks, ensure adequate
oversight, and complete testing of new systems. 

We also recently reported that weaknesses in the materiel management
information system strategy were evident in the migration information
systems strategies for the depot maintenance and transportation
business areas, putting even more millions of information technology
investment dollars at risk.\3 For example, for depot maintenance
systems, we found that even if the migration effort was successfully
implemented as envisioned, the planned depot maintenance standard
system would not dramatically improve depot maintenance operations
principally because there were problems with the system that delayed
reengineering efforts to make the improvements.  For the
transportation area, we found that had DOD followed its own
regulations and calculated investment returns on its transportation
migration selections, it would have found, based on data available
when the systems were selected, that two of the systems would lose
money. 

We concluded that many of these systems' problems may have been
prevented if DOD had employed a strategic information resources
planning effort beforehand.  Such planning would have helped DOD
focus on meeting the objectives intended to dramatically improve
operations for these areas rather than incrementally improving them. 
Strategic planning for information resources is supported by the
Clinger-Cohen Act of 1996, which Congress recently passed, in part,
to provide for the cost effective and timely acquisition, management,
and use of effective information technology solutions.\4 Moreover,
strategic information resources planning is a critical step in the
development of a strategic business plan, such as DOD's logistics
strategic plan. 


--------------------
\1 We have reported on several occasions fundamental weaknesses in
CIM that have delayed its full implementation.  See Defense
Management:  Impediments Jeopardize Logistics Corporate Information
Management (GAO/NSIAD-95-28, Oct.  21, 1994) and Defense Management: 
Stronger Support Needed for Corporate Information Management
Initiative to Succeed (GAO/AIMD/NSIAD-94-101, Apr.  12, 1994). 

\2 Defense IRM:  Critical Risks Facing New Materiel Management
Strategy (GAO/AIMD-96-109, Sept.  6, 1996). 

\3 Defense IRM:  Strategy Needed to Align Logistics Improvement
Efforts With Business Objectives (GAO/AIMD-97-6, Nov.  14, 1996). 

\4 This act was formerly known as the Information Technology
Management Reform Act of 1996, Division E of Public Law 104-106,
February 10, 1996. 


   RECOMMENDATIONS
------------------------------------------------------------ Letter :5

To build on DOD's existing strategic planning efforts and to have a
better chance of achieving the major logistics system improvements
that its plan envisions, we recommend that the Secretary of Defense
direct the Deputy Under Secretary of Defense for Logistics to (1)
ensure that future logistics plans include a recognition of the
magnitude of the investment that is required to accomplish the plan's
goals, objectives, and strategies and (2) issue specific guidance to
the Secretaries of the Army, the Navy, and the Air Force and the
Director of DLA instructing the services and DLA on how to link their
goals and budgets to the DOD logistics strategic plan's overall goals
and strategies. 


   AGENCY COMMENTS AND OUR
   EVALUATION
------------------------------------------------------------ Letter :6

In its comments on a draft of this report, DOD generally agreed with
the thrust of our report and partially concurred with our
recommendations.  DOD stated that the resourcing process for the
logistics strategic plan needs to be strengthened, but it believed it
is presently impractical to include the magnitude of the investment
made to implement the plan's goals, objectives, and strategies in the
plan itself.  DOD stated that it relies on PPBS to cost and resource
the plan's priority strategies.  It pointed out that, under the
current PPBS process, the magnitude of the investment of the plan's
various alternatives is generally not known until the PPBS process is
completed, long after the plan is issued. 

DOD acknowledged, however, that resourcing the plan's requirements
through PPBS may not be the best way for ensuring its accomplishment,
but presently, there is not a better alternative.  DOD's explanation
has some merit, and we recognize the inherent difficulties it faces
in identifying investment requirements for the plan that must compete
with other requirements for scarce resources.  However, we believe
that future plans still need to recognize that trade-offs between and
among the priority strategies must be made from time to time, often
necessitating a reevaluation of the financial resources that are
currently needed or will be available to fund them.  In this regard,
GPRA will require federal agencies, including DOD, to develop plans
that link activities and resources to goals, starting next year. 
However, for purposes of the logistics strategic plan itself, we have
revised our recommendation to encourage DOD to include a recognition
of the difficulties involved in making these financial trade-offs in
its plan, and DOD agreed to ensure that the next edition of the plan
includes language to that effect. 

DOD also stated that it will ensure the next edition of the plan
includes specific guidance to the military services and DLA on
linking their plans to DOD's plan.  DOD pointed out that the Deputy
Under Secretary of Defense for Logistics cannot issue specific budget
guidance on which DOD requirements will be funded or not.  Although
we agree, the intent of our recommendation was not to be interpreted
as a budget driven issue; rather, we are trying to alert DOD to one
of the principles of effective strategic planning that will be
strongly encouraged under GPRA.  That is, DOD will need to ensure
that lower level units focus their efforts on supporting the goals of
the next level and, ultimately, to DOD's overall corporate goals. 
Without this basic tenet, organizations like DOD, which do not make
sufficient progress toward achieving their goals, may neither know
why the goals were not met nor what changes are needed to improve
performance.  DOD's comments are included in appendix I. 


   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :7

We reviewed and analyzed DOD's logistics strategic plan to determine
whether it was characteristic of generally accepted models that
focused on the process of strategic planning.  In analyzing DOD's
plan, we applied fundamental strategic planning practices identified
from our review of literature on this topic, including our prior
reports that addressed the implementation of strategic management
processes in government agencies.  We also discussed the adequacy of
DOD's logistics strategic planning efforts with a consultant (a
retired high-ranking military officer) who is on our Logistics
Advisory Panel.  In addition, we reviewed selected services'
logistics strategic plans to determine the extent to which their
individual goals and objectives matched those contained in DOD's
plan. 

We selected six top-priority strategies contained in the plan to
assess how well DOD was carrying out the plan's goals, objectives,
and strategies--total asset visibility, CIM, mobility requirements
study bottom-up review, battlefield distribution, CALS, and
in-transit visibility strategies.  Specifically, we spoke to
officials responsible for developing the plan and monitoring its
implementation.  We also reviewed pertinent documents such as
implementation plans, charters, status reports, and other related
information.  We did not independently verify the accuracy of this
information. 

In conducting our review, we held discussions with officials in the
Office of the Deputy Under Secretary of Defense for Logistics
(Materiel and Distribution Management); the Office of the Under
Secretary of Defense for Acquisition and Technology; the Office of
the Joint Chiefs of Staff; the Offices of the Air Force and Army
Deputy Chiefs of Staff for Logistics, Washington, D.C.; DLA, Fort
Belvoir, Virginia; the U.S.  Transportation Command, Scott Air Force
Base, Illinois; and the Office of the Chief of Naval Operations and
the Naval Supply Systems Command, Arlington, Virginia. 

We conducted our review from September 1995 through July 1996 in
accordance with generally accepted auditing standards. 


---------------------------------------------------------- Letter :7.1

We are sending copies of this report to the appropriate congressional
committees; the Secretaries of the Air Force, the Army, and the Navy;
the Directors of DLA and the Office of Management and Budget; and
other interested parties.  We will make copies available to others
upon request. 

Please contact me on (202) 512-8412 if you or your staff have any
questions concerning this report.  The major contributors to this
report are listed in appendix II. 

Sincerely yours,

David R.  Warren, Director
Defense Management Issues




(See figure in printed edition.)APPENDIX I
COMMENTS FROM THE DEPARTMENT OF
DEFENSE
============================================================== Letter 



(See figure in printed edition.)



(See figure in printed edition.)


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix II


   NATIONAL SECURITY AND
   INTERNATIONAL AFFAIRS DIVISION,
   WASHINGTON, D.C. 
-------------------------------------------------------- Appendix II:1

Charles I.  Patton, Jr., Associate Director
Kenneth R.  Knouse, Jr., Assistant Director
Nancy T.  Lively, Evaluator
Marjorie L.  Pratt, Evaluator


   NORFOLK FIELD OFFICE
-------------------------------------------------------- Appendix II:2

Frank R.  Marsh, Evaluator-in-Charge
Sandra D.  Epps, Evaluator


*** End of document. ***







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