<DOC>
[109 Senate Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:24440.wais]
S. Hrg. 109-272
FROM FACTORY TO FOXHOLE: IMPROVING DOD LOGISTICS
=======================================================================
HEARING
before the
OVERSIGHT OF GOVERNMENT MANAGEMENT,
THE FEDERAL WORKFORCE AND THE DISTRICT
OF COLUMBIA SUBCOMMITTEE
of the
COMMITTEE ON
HOMELAND SECURITY AND
GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
ONE HUNDRED NINTH CONGRESS
FIRST SESSION
__________
OCTOBER 6, 2005
__________
Printed for the use of the Committee on Homeland Security
and Governmental Affairs
U.S. GOVERNMENT PRINTING OFFICE
24-440 WASHINGTON : 2006
_____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512ÿ091800
Fax: (202) 512ÿ092250 Mail: Stop SSOP, Washington, DC 20402ÿ090001
COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
SUSAN M. COLLINS, Maine, Chairman
TED STEVENS, Alaska JOSEPH I. LIEBERMAN, Connecticut
GEORGE V. VOINOVICH, Ohio CARL LEVIN, Michigan
NORM COLEMAN, Minnesota DANIEL K. AKAKA, Hawaii
TOM COBURN, Oklahoma THOMAS R. CARPER, Delaware
LINCOLN D. CHAFEE, Rhode Island MARK DAYTON, Minnesota
ROBERT F. BENNETT, Utah FRANK LAUTENBERG, New Jersey
PETE V. DOMENICI, New Mexico MARK PRYOR, Arkansas
JOHN W. WARNER, Virginia
Michael D. Bopp, Staff Director and Chief Counsel
Joyce A. Rechtschaffen, Minority Staff Director and Chief Counsel
Trina D. Tyrer, Chief Clerk
OVERSIGHT OF GOVERNMENT MANAGEMENT, THE FEDERAL WORKFORCE AND THE
DISTRICT OF COLUMBIA SUBCOMMITTEE
NORM COLEMAN, Minnesota, Chairman
TED STEVENS, Alaska CARL LEVIN, Michigan
TOM COBURN, Oklahoma DANIEL K. AKAKA, Hawaii
LINCOLN D. CHAFEE, Rhode Island THOMAS R. CARPER, Delaware
ROBERT F. BENNETT, Utah MARK DAYTON, Minnesota
PETE V. DOMENICI, New Mexico FRANK LAUTENBERG, New Jersey
JOHN W. WARNER, Virginia MARK PRYOR, Arkansas
Andrew Richardson, Staff Director
Richard J. Kessler, Minority Staff Director
Nanci E. Langley, Minority Deputy Staff Director
Tara E. Baird, Chief Clerk
C O N T E N T S
------
Opening statements:
Page
Senator Voinovich............................................ 1
Senator Akaka................................................ 4
WITNESSES
Thursday, October 6, 2005
Kenneth J. Krieg, Under Secretary of Defense for Acquisition,
Technology, and Logistics, U.S. Department of Defense.......... 7
Hon. Clay Johnson III, Deputy Director for Management, Office of
Management and Budget.......................................... 10
William M. Solis, Director, Defense Capabilities and Management,
Government Accountability Office............................... 11
Alphabetical List of Witnesses
Johnson, Hon. Clay III:
Testimony.................................................... 10
Prepared statement........................................... 39
Krieg, Kenneth J.:
Testimony.................................................... 7
Prepared statement........................................... 27
Solis, William M.:
Testimony.................................................... 11
Prepared statement........................................... 41
APPENDIX
Questions and answers submitted for the record from Mr. Krieg.... 54
FROM FACTORY TO FOXHOLE: IMPROVING DOD LOGISTICS
----------
THURSDAY, OCTOBER 6, 2005
U.S. Senate,
Oversight of Government Management,
the Federal Workforce and the
District of Columbia Subcommittee,
of the Committee on Homeland Security
and Governmental Affairs,
Washington, DC.
The Subcommittee met, pursuant to notice, at 2:30 p.m., the
Hon. George V. Voinovich, Chairman of the Subcommittee,
presiding.
Present: Senators Voinovich and Akaka.
OPENING STATEMENT OF SENATOR VOINOVICH
Senator Voinovich. Good afternoon. The hearing will please
come to order.
Today's hearing is entitled, ``From Factory to Foxhole:
Improving DOD Logistics,'' examines a somewhat arcane yet
vitally important issue that affects the men and women of our
Armed Forces.
This is the fourth Subcommittee hearing Senator Akaka and I
have held on the Government Accountability Office's high-risk
list and the third in our ongoing investigation into the
management challenges facing the Department of Defense. As you
know, the Department is the leading agency with eight areas on
the high-risk list. In addition, there are six government-wide
high-risk areas that DOD shares with all Federal agencies.
Senator Akaka and I will be focusing our Subcommittee
agenda on two of the DOD high-risk areas. Our first is the
personnel security clearance process, which is an issue DOD
shares with the Office of Personnel Management. Today's hearing
topic, supply chain management, is the second area where we
will be dedicating our time and resources to guarantee that
necessary improvements are made.
Unfortunately, during Operation Iraqi Freedom, GAO found
several examples of a mismanaged supply chain, including (1) a
$1.2 billion discrepancy in the material shipped to, and
received by, the Army; (2) cannibalized equipment because of a
lack of spare parts; and (3) a war reserve that did not
adequately supply the warfighter with enough body armor,
lithium batteries, up-armored kits for Humvees, and meals-
ready-to-eat. This is surprising to me because I thought we had
a stockpile of these meals. Based on these findings, I do not
think anyone would disagree that the Department must improve
the way it supplies the men and women of the Armed Services
with critical life-supporting gear.
In Ohio, I spoke with a constituent who said they were
sending telescopic lenses for rifles to Iraq, because the
soldiers did not have them. I think it is a tragedy that
important supplies like this were not available at a time when
it was needed. I understand that things have substantially
improved since that time.
My interest in investigating and improving the Department's
supply chain management process is governed by two important
principles. First, with a budget of over $420 billion, which is
a little less than we borrow each year to run the Federal
Government. Second, with $77 billion worth of items in its
inventory, the Department must be a better steward of the
taxpayers' money. In fact Secretary Rumsfeld has estimated that
the Department wastes 5 percent, or $20 billion a year, on
redundant or outdated business practices.
We've got something on the floor of the Senate today where
we--in terms of a system that deals with taking care--it's
supposed to be a computerized system where people can book
airlines, and I just couldn't believe it, $500 million, 7 years
and it still doesn't work. So there's some problems there and
I'm sure we'll get into some of those systems.
More importantly however, inefficient, ineffective and
redundant steps within the supply chain have a direct and
immediate impact on our soldiers on the battlefield. This is
why we are here today. In other words, the current system
impedes the Department's ability to deliver the right items at
the right time to the right place for the warfighter.
Even though today's hearing title implies a much broader
focus, we must not lose sight of the fact that the supply chain
management process, which is a key component of the
Department's logistics program, has been on the GAO's high-risk
list since 1990. That's 15 years. That's just too long for a
process of this magnitude and importance to be mismanaged.
Therefore, I'd like our witnesses to know that I am
committed to working with them to ensure that the necessary
improvements are made in the supply chain area, and that it is
eventually removed from the high-risk list. Then we'll set off
the fireworks and have a big party. I'd like to do it before
this President leaves office. Do you hear me?
Fortunately, the Department is taking steps in the right
direction. In July, the Department unveiled a plan to improve
their supply chain management process. The plan contains a
matrix consisting of 10 specific business practices that can be
measured against three strategic goals, which include
improvements in (1) asset visibility; (2) forecasting; and (3)
distribution.
I commend the Department for developing the supply chain
management plan in an open and collaborative manner with GAO
and OMB. When you get GAO, OMB, and the Department all working
together, that's a sign that you've got something really good
underway.
I would like to express my appreciation to OMB Deputy
Director for Management, Clay Johnson, for facilitating this
process. Clay, I want to thank you publicly for all the time
that you have put into this plan. You have been very
conscientious and I couldn't ask for any more from you. Thank
you once again.
And I applaud the Bush Administration for the no-nonsense
approach that you've taken on management issues. You don't get
credit for this, but this is the first administration that
really has a management agenda: You rate agencies by giving
them a green, red, and yellow.
Mr. Johnson. You're getting a green so far on this.
[Laughter.]
Senator Voinovich. However, now that the plan is developed,
the Department must begin the more difficult task of
implementation. As Chairman of the Oversight of Government
Management Subcommittee I will conduct continued oversight on
this issue. I want to make it clear that Senator Akaka and I
are committed. We may not be having frequent hearings, but
we're going to have frequent visits to monitor the progress
that's being made. So often we get more out of meetings than
when we have a public hearing.
My goal today is to develop a clear understanding of the
benchmarks and metrics that will be used to measure successful
supply chain management improvements. I hope that in the
testimony today it is clear that you have agreed on the metrics
to judge the progress. In other words, here's the baseline. I
just listed several things that aren't the way they're supposed
to be. Here's the benchmarks, and how are we going to judge
them as we move along whether or not we're making progress?
Mr. Solis, I really think, it is important that GAO
continues looking at this issue. I think it's real important
that everybody understands what the issues are, including this
Subcommittee, so that a year from now, we are all on the same
page. I think it's real important that we agree on what the
metrics should be in terms of their performance.
Our review will also include the ability for DOD, OMB, and
GAO to continually collaborate on the implementation of the
plan. It is evident that this triad created the momentum for
writing the Department's supply chain management plan, and
continued collaboration will enable you to establish and
maintain a framework of accountability necessary for successful
implementation. Again, Mr. Solis, it would be nice if you keep
working together as you go along on this issue. Too often, I
think sometimes--and I don't know what the rules are--but you
represent us but it's good to touch base and so forth.
Mr. Solis. We do plan to continue that relationship with
OMB and DOD.
Senator Voinovich. Great. In addition, the unique
partnership between DOD, OMB, and GAO has broader implications
for outlining progress in each high-risk program area.
Therefore, I applaud OMB and GAO for having the foresight to
apply the DOD supply chain management model to the entire high-
risk list by requiring affected agencies to development
improvement plans. I'm optimistic that this exercise will have
a positive impact on the performance of the 25 areas listed on
the high-risk list.
Perhaps improvements will lead to the elimination of more
than three high-risk areas, thereby surpassing the number of
programs removed on this year's list. We congratulate you,
Clay. If I had your job and I took the high-risk list and
brought it down I would brag about it. So I think that if we
can keep working on it, hopefully it really will be beneficial.
Before I yield to Senator Akaka, I would like to thank each
of our witnesses today, especially Under Secretary Krieg for
his dedicated service to the Department, which began in 2001.
Mr. Krieg came from the private sector, joined the Federal
Government--and I'm not taking any shots at anybody that has
left, but so often people come into the Department, start to
really find out what's going on and then they go back to the
private sector.
Mr. Krieg, I mentioned this to you when I met you in my
office, I'm very grateful to you that you decided to stay on
and take on this responsibility, because your performance is
going to be so much better because you've got the experience
under your belt from being in the Department of Defense. I
would also like to thank your wife Ann and your two children
Alan and Meredith because of the sacrifices they make.
We had a meeting this morning with the Army Corps of
Engineers and I never got a chance to thank them. We've got
this Katrina thing out there and we keep hearing criticisms of
FEMA and this group and that group. And these people are out
there 24/7, busting their backs, trying to do their job. You
see on television criticism. Some of them haven't seen their
wives or their kids for a long period of time. I think that,
Senator Akaka, I'm going to introduce a resolution on the floor
of the Senate--I know we have differences of opinion, you and I
don't, but in terms of Katrina, maybe we do. But the fact of
the matter is I don't think we disagree that there are some
very dedicated Federal workers that are out there doing the
job, and we ought to let them know how much we appreciate what
they're doing for our country.
Finally, Mr. Krieg, I'd like to congratulate Alan Estevez
from your staff for winning the Service to America Medal in
National Security. This is the first Partnership for Public
Service that I've missed and I would have loved to have seen
you present that to him that night.
I now yield to my good friend and colleague, Senator Akaka.
I think this is really important. As Ranking Member of the
Armed Services Readiness Subcommittee, he has a vast background
on the managerial intricacies of the Department of Defense, and
I'm sure, Senator Akaka, because of that position you've got
staff people that are really familiar with this area. I wanted
to say that I'm going to use your encyclopedic knowledge to
help in making sure that we do as good a job as we can in terms
of oversight in regard to this very important issue for our
country.
Senator Akaka.
OPENING STATEMENT OF SENATOR AKAKA
Senator Akaka. Thank you very much, Mr. Chairman. It is no
secret that it is a pleasure for me to partner with the
Chairman. We have worked together very well. Our Chairman heads
one of the most important Subcommittees, Government Management
and the Federal Workforce, which is the essence of our
government. So what we are doing together is trying to do all
we can to improve whatever government. And I join him in
working on that. And since he has mentioned Katrina, I just
want you to know I just returned last night from Louisiana,
where I visited with Chairman Domenici and Ranking Member
Bingaman of the Committee on Energy and Natural Resources. The
three of us went there to look at the aftermath of Katrina and
Rita, and I am saying this just to emphasize the comment that
the Chairman made. I came away feeling that there are a lot of
heroes in that area who sacrificed their time, even their
lives, in saving people. I was able to speak to some of these
people, and I saw a different view of what is there.
However, we need to take the next steps in recovery, and
one area is in the energy field by trying to bring the energy
back up because it affects our whole Nation.
Mr. Chairman, last month the Nation learned a painful
lesson about the importance of logistics, and, again, this came
up in our visit, too. After Hurricane Katrina struck, the
National Guard responded with the largest domestic mobilization
in history. Unfortunately, the Guard was under-equipped.
According to Lieutenant General Blum, Chief of the National
Guard Bureau, the Guard lacked sufficient trucks, radios, and
night vision goggles to do their job properly. At the same
time, food, water, and ice that had been pre-positioned in the
region was stuck in warehouses. This is history.
The Federal response to Katrina underscored three
challenges of logistics: Asset visibility, forecasting, and
distribution.
Commanders must have the ability to: (1) see exactly what
assets they have and where the assets are located; (2)
accurately predict future needs; and, (3) quickly move supplies
from factory to foxhole. Defense logistics requires balancing
the roles of supplier to the warfighter with accountability to
the taxpayer.
DOD logistics has been on the Government Accountability
Office High-Risk List since 1990, under various names, and the
GAO has issued more than 72 reports in this area. While much
more remains to be done, there have been some improvements.
One improvement has been in distribution. In Operation
Desert Storm, it took months to move supplies into the region
before the invasion. Once the supplies got there, it was often
difficult to determine what had been delivered. We heard many
stories of troops tearing apart truckloads of supplies looking
for particular items that they needed.
In Operation Iraqi Freedom, we were able to move supplies
into the region more quickly, and once we got there, we had
much better accountability for what we had. One reason for the
improved accountability was the increased use of Radio
Frequency Identification, or RFID, to track these supplies.
This is a critical improvement, and one that we need to
continue to develop.
Shortages of critical supplies, however, continue. In
Desert Storm, we learned about shortages of desert camouflage
uniforms and boots. In Operation Iraqi Freedom, we learned
about the shortages of chem-bio suits, armored Humvees, and
body armor.
It is just plain wrong that family members of those
fighting in Iraq and Afghanistan needed to purchase, in many
cases, critical safety gear for loved ones. We included a
provision in last year's Defense Authorization bill requiring
DOD to reimburse Service members, up to $1,100 per item, for
protective equipment. The law required the Secretary of Defense
to develop regulations for reimbursement by February 25, 2005,
yet these regulations were not issued until yesterday, while
the Senate was considering Senator Dodd's amendment to expand
this program. The amendment we approved yesterday will help to
ensure that our warfighters have needed protective equipment.
Such problems are why we are discussing DOD's strategic
plan today.
Mr. Chairman, I am very pleased that the Office of
Management and Budget and the GAO are working with DOD on the
broad issue of defense logistics and have developed a
measurable plan for improvement.
The presence today of Mr. Johnson, who has been such a big
help, Mr. Krieg, and Mr. Solis demonstrates the commitment to
the request we made of OMB at our hearing last February that
there be a clear strategy to review high-risk programs and get
DOD off the high-risk list. I do want to add that I am
especially pleased that Mr. Johnson has taken our request
seriously, and I understand that all areas on the high-risk
list are under close review by OMB. And I want you to know,
Clay, that I really appreciate what you are doing.
Again, I want to thank our witnesses as well as their
staffs for bringing all of this about and helping us improve
the system.
Thank you very much, Mr. Chairman.
[The prepared statement of Senator Akaka follows:]
PREPARED STATEMENT OF SENATOR AKAKA
Thank you, Mr. Chairman. It is a pleasure partnering with you once
again as we examine another high-risk government program. As you know,
I also serve as the Ranking Member of the Armed Services Readiness
Subcommittee, so this hearing is of particular interest to me.
Last month, the Nation learned a painful lesson about the
importance of logistics. After Hurricane Katrina struck, the National
Guard responded with the largest domestic mobilization in history.
Unfortunately, the Guard was under-equipped. According to Lt. General
Blum, Chief of the National Guard Bureau, the Guard lacked sufficient
trucks, radios, and night vision goggles to do their job properly. At
the same time, food, water, and ice that had been pre-positioned in the
region was stuck in warehouses.
The Federal response to Katrina underscored three challenges of
logistics:
<bullet> Asset Visibility,
<bullet> Forecasting, and
<bullet> Distribution.
Commanders must have the ability to: (1) see exactly what assets
they have and where the assets are located, (2) accurately predict
future needs, and (3) quickly move supplies from factory to foxhole.
Defense logistics requires balancing the roles of supplier to the
warfighter with accountability to the taxpayer.
Department of Defense (DOD) logistics has been on the Government
Accountability Office (GAO) High-Risk List since 1990, under various
names, and the GAO has issued more than 72 reports in this area. While
much more remains to be done, there have been some improvements.
One improvement has been in distribution. In Operation Desert
Storm, it took months to move supplies into the region before the
invasion. Once the supplies got there, it was often difficult to
determine what had been delivered. We heard many stories of troops
tearing apart truckloads of supplies looking for particular items that
they needed.
In Operation Iraqi Freedom, we were able to move supplies into the
region more quickly, and once we got there, we had much better
accountability for what we had. One reason for the improved visibility
was the increased use of Radio Frequency Identification, or RFID, to
track supplies.
This is a critical improvement, and one that we need to continue to
develop.
Shortages of critical supplies, however, continue. In Desert Storm,
we learned about shortages of desert camouflage uniforms and boots. In
Operation Iraqi Freedom, we learned about shortages of chem-bio suits,
armored Humvees, and body armor.
It is just plain wrong that family members of those fighting in
Iraq and Afghanistan needed to purchase, in many cases, critical safety
gear for loved ones. We included a provision in last year's Defense
authroization bill requiring DOD to reimburse Service members--up to
$1,100 per item--for protective equipment. The law required the
Secretary of Defense to develop regulations for reimbursement by
February 25, 2005, yet these regulations were not issued until
yesterday, while we were considering Senator Dodd's amendment to expend
this program. The amendment we approved yesterday will help to ensure
that our warfighters have needed protective equipment.
Such problems are why we are discussing DOD's strategic plan today.
I am pleased that the Office of Management and Budget (OMB) and the
GAO are working with DOD on the broad issue of defense logistics and
have developed a measurable plan for improvement.
The presence today of Mr. Johnson, Mr. Kreig, and Mr. Solis
demonstrates the commitment to the request we made of OMB at our
hearing last February that there be a clear strategy to review high-
risk programs and get DOD off the high-risk list. I do want to add that
I am especially pleased that Mr. Johnson has taken our request
seriously, and I understand that all areas of the high-risk list are
under close review by OMB.
Thank you, Mr. Chairman.
Senator Voinovich. Thank you, Senator Akaka. That was a
wonderful statement.
We are fortunate to have three great witnesses today.
Gentleman, it is the custom of this Subcommittee to swear in
all witnesses. If you will stand, do you swear that the
testimony you are about to give is the truth, the whole truth,
and nothing but the truth, so help you, God?
Mr. Krieg. I do.
Mr. Johnson. I do.
Mr. Solis. I do.
Senator Voinovich. Our witnesses this afternoon include Ken
Krieg, Under Secretary of Defense for Acquisition, Technology,
and Logistics. Mr. Krieg, we are honored to welcome you today;
Hon. Clay Johnson, Deputy Director for Management at the Office
of Management and Budget, who has been before the Subcommittee
on many occasions. We really appreciate you being here today to
show your concern for this issue; and William Solis, who is the
Director of Defense Capabilities and Management at the
Government Accountability Office. Mr. Solis, I am glad to have
you here today. I have a great deal of respect for Comptroller
General David Walker, but I like to see the people in the
Government Accountability Office that handle the issue to
testify before the Subcommittee because you are where the
rubber meets the road.
Mr. Krieg, if you will start the testimony.
TESTIMONY OF KENNETH J. KRIEG,\1\ UNDER SECRETARY OF DEFENSE
FOR ACQUISITION, TECHNOLOGY, AND LOGISTICS, U.S. DEPARTMENT OF
DEFENSE
Mr. Krieg. Thank you, Senator. Chairman Voinovich, Senator
Akaka, I know you are committed, as I am, to providing our
warfighters with the best logistics support possible. That is
why I am very pleased to take the opportunity to be here today
to begin to outline the work that we have had going on in the
Department and that OMB, GAO, and DOD are working together on
supply chain logistics.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Kreig appears in the Appendix on
page 27.
---------------------------------------------------------------------------
The need to improve the DOD supply chain is clearly based
on the strategic need. First, we need increased speed and
agility in our military response, which means that our
logistics processes must be as rapid and agile as our
warfighters on the front line. Second, we need to adjust our
sustainment to meet the needs of a coalition force that is much
more mobile and distributed than ever before. This demands that
we work more closely with both our customers and our suppliers
to create more reliable and secure distribution systems.
Finally, we need clear accountability for resources and
outcomes. We need this particularly in logistics, which is
funded primarily through operations and maintenance money and
is distributed to every DOD facility and every DOD
organization.
Achievement of these objectives will enable DOD to
transform its competitive advantage into a truly offensive
weapon. This process will be driven by outcome performance and
enabled by transparent accountability.
Let me assure you that I have heard and the Department has
heard your interest in this issue. We are developing and
implementing an individual plan of action in partnership with
OMB and GAO that we hope will produce--I believe will produce
the type of results that will remove DOD's supply operations
from the high-risk list. This is not a list that anyone wants
to be No. 1 on. We are also pursuing leading-edge commercial
procurement practices; we are actively developing an integrated
logistics transformation strategy; and we are improving our
support to deployed forces with increased supply availability,
reduced supply times, and smaller, more agile operational
supply lines.
I would like in just a couple of minutes to briefly
summarize our current logistics posture and then follow up with
highlights of the next steps.
The current state of DOD logistics is strong and improving,
particularly in terms of our core business, which is to project
and sustain U.S. military power.
Thanks in part to continued support from Congress, we have
historically materiel availability to meet the warfighter
needs. There are still problems, but overall the system is
performing very well.
We also have historically low back orders and cost recovery
rates in organizations like the Defense Logistics Agency.
When we look at the DOD supply chains, we can see that we
are dealing with a huge business that has two fundamental
responsibilities: First--and I share your views on these--we
provide our warfighters--we need to provide our warfighters
with the best support possible; and, second, we need to ensure
that the taxpayers are receiving the best value for their
money.
To that end, we have made several logistics improvements to
enhance both efficiency and accountability from 2001 to today.
As you both noted, and obviously we are here today, we have
built a set of initiatives that have accountabilities, that
have metrics and that have timelines, and that are focused on
improving asset visibility, forecasting and managing demand,
and then improving distribution.
To improve asset visibility, we have implemented, as
Senator Akaka noted, Radio Frequency Identification on all
loaded ocean containers and air pallets moving through our
distribution system into Iraq and Afghanistan. We will continue
to expand our program, and I would note, Senator Voinovich,
that is the program that Alan Estevez led, and led to his award
the other night. When combined with item unique identification,
or every item has a number, if you will, and integrated in
supply data management systems, we will lead DOD into an era of
asset visibility across the enterprise.
We are committed to employing best-in-class, not just in
the Department of Defense, but best-in-class supply chains and
supply chain practices. For example, for items in five key
areas--food, fuel, medicines, clothing, and common shop
materials--we use the commercial supply chains, hold very
limited inventory inside the Department of Defense, and are
realizing 24- to 48-hour turnaround times, response times. For
those more military-unique items, we are moving towards
consolidated purchasing and strategic buying practices,
consistent with OMB guidance.
We have improved that notion of factory-to-foxhole
distribution capabilities by expanding the role of the
Commander of U.S. Transportation Command to include
synchronization of both the front-end and end-to-end
distribution, not just port to port.
More broadly, we have also implemented life cycle
management and systems and notions like performance-based
logistics for new weapons programs. These efforts place assets
back in the hands of our warfighters much faster and will allow
us to reduce inventory.
The last thing I would note, before getting to the next
steps, is that we are committed inside the Department to
growing our people in this area. Obviously, the intellectual
property that drives these kind of systems is so valuable, and
I know of this Subcommittee's hard work in that area. We thank
you for that, and we hope that we will live up to the kind of
standards you have set for us.
Finally, I would like to touch on a few of our major
initiatives. First, we have put some benchmarks and some
measures into the performance plan, but we continue to look to
the best of industry to provide benchmarking to improve our
performance.
Next, we plan to accelerate and expand several strategic
initiatives, as I said, life cycle management, performance-
based logistics, and Radio Frequency Identification.
We also plan to build on successful application of our
commercial supply chains and apply similar practices for war
reserve consumable materials as well. This will enable us to
draw upon the commercial market for surge requirements while
also reducing our need to hold war reserve inventory.
We also plan to develop strategic performance goals for our
key logistics capabilities that will guide both capital
investment and process improvement.
Finally, I would like to note that we sent to you last
week, which I am sure you have not had time yet to go through,
our Enterprise Transformation Plan, which lays out the data
strategies that support the kind of business processes we are
talking about here, and obviously data is a huge enabling
factor in driving better performance throughout the system. We
have plans, but the challenge is to turn these plans into
action and those actions into outcomes. I believe our strategic
actions are responsive to the needs of our customers, and we
also need to be responsive to our ultimate funders, the
American taxpayers, and consistent with the recommendations of
GAO and OMB, and aligned with the intent of this Subcommittee.
Thank you for having us. Thank you for staying in tune with
us. Thank you for the challenges you will put in front of us in
the years ahead. I look forward to working with you.
Senator Voinovich. Thank you very much, Mr. Krieg. Mr.
Johnson.
TESTIMONY OF HON. CLAY JOHNSON III,\1\ DEPUTY DIRECTOR FOR
MANAGEMENT, OFFICE OF MANAGEMENT AND BUDGET
Mr. Johnson. Mr. Chairman, Senator Akaka, thank you for
having me. I just have a few remarks. I am delighted to be here
to say some really good things about the work that DOD has done
on supply chain management.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Johnson appears in the Appendix
on page 39.
---------------------------------------------------------------------------
They have developed a plan to address the risks associated
with supply chain management, which involves so much money at
the Department of Defense, and a plan that can be used as a
model for how the Department of Defense can and should and will
address the risks in all the other high-risk areas, and how the
rest of the government should lay out their plans for
addressing the risks in their areas. It is a really fine plan.
And one of the keys to its success, I think, is there are lots
of metrics, there are lots of clear identification of what
success means. Success will be when they have taken it from
this level, that level, the response times from this to that.
Very clear goals, measurable performance goals, and also a very
clear definition of what has to be done by March of next year
and September of the following year and so forth, and by whom
and what is their phone number and what is their E-mail
address. So lots of clarity and lots of accountability. Those
are two of the four things that we have proclaimed as important
in getting anything done, particularly in the management area,
but it is probably true in life, that you need to have a real
clear definition of success. You need to have clear
accountability for a very clear action plan, for a detailed
action plan, detailed management, true definition of success,
and clear, unadulterated commitment to make it happen. All four
of those components exist at the Department of Defense from the
Secretary on down, and I have no doubt that Ken and his team
are going to do a wonderful job of implementing this plan and
show the rest of the Federal Government and Congress what is
possible, how much method can be brought to the supply chain
management madness at the Department of Defense.
We talked earlier about the 25 items on the high-risk list.
For 6 of the 25 items, there are plans that have been worked on
by the owner of the initiative with GAO, and a general plan has
been agreed to, and it is in place, and the agencies are
responsible for implementing that plan. For another 7 of the
high-risk list items, there is a plan that has been developed.
GAO is looking at that and addressing final issues and so
forth.
For another 9 high-risk items, there is a plan in
development. It has not been finalized to the point where it
can be brought into GAO, but GAO has been involved in initial
discussions on those plans.
There are two items that we are not yet tracking, and there
is one item that we are not intending to track. That is the
U.S. Postal Service.
But, anyway, there is lots of progress, lots of activity
across the Federal Government to look at these high-risk list
items. But the supply chain management at the Department of
Defense is--one plan has been wonderfully laid out. There is
strong commitment, and I think it will be very interesting, as
you said, sir, over the next 3 years, 3-plus years, before this
President leaves, to see just how much can be accomplished,
because I think there is a lot to be accomplished, and a lot
will be accomplished, and I think DOD will be the better for
it, but all the other high-risk list items will be better for
it also.
Senator Voinovich. That is very impressive, and we look
forward to working with you, Clay. Again, if there are things
that you need from us, you should let us know.
Mr. Solis.
TESTIMONY OF WILLIAM M. SOLIS,\1\ DIRECTOR, DEFENSE
CAPABILITIES AND MANAGEMENT, GOVERNMENT ACCOUNTABILITY OFFICE
Mr. Solis. Mr. Chairman, Senator Akaka, I appreciate the
opportunity to be here today to discuss supply chain management
within the Department of Defense and, more specifically, DOD's
plans to begin resolving problems and show progress toward the
long-term goal of removing supply chain management from the
list of high-risk areas.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Solis appears in the Appendix on
page 41.
---------------------------------------------------------------------------
At the outset, I would like to thank the Subcommittee for
its continued encouragement of OMB's effort to work with the
agencies over the next several years to reduce risk in each of
the 25 areas. The active involvement of this Subcommittee is
essential to ultimately ensuring DOD's progress in addressing
and resolving its high-risk areas, while enhancing public
confidence in DOD's stewardship of the hundreds of billions of
dollars of taxpayer funds it receives each year.
The message this afternoon is focused on two main points:
First, I will discuss why we have listed DOD's supply chain as
a high-risk area; and, second, our assessment of DOD's plan to
improve supply chain processes.
In summary, Mr. Chairman, DOD's plan is a good first step
in improving supply chain management in support of the
warfighter. Notwithstanding this positive first step, the
Department faces challenges and risks in successfully
implementing its proposed changes across DOD and measuring
progress.
With regard to my first point, for 15 years DOD's supply
chain management processes have been a high-risk area needing
urgent attention. In 1990, we began a program to report on
government operations that were at high risk for fraud, waste,
abuse, and mismanagement. The program serves to identify and
help resolve serious weaknesses in areas that involve
substantial resources and provide critical services to the
public. That year, we identified the Department's inventory
management of supplies in support of forces as high risk due to
a long history of problems such as excess inventory levels,
inadequate controls over items, and cost overruns of logistics
systems. Since then, our work has shown that the supply
problems adversely affecting the warfighter--such as
requirements forecasts, use of the industrial base, funding,
distribution, and asset visibility--were not confined to the
inventory management system, but involved the entire supply
chain.
Many of these problems reoccurred in OIF. For example, we
noted that due to distribution and asset visibility issues, a
backlog of material accumulated at distribution points and
vehicles were cannibalized due to unavailability of parts. We
also noted a $1.2 billion discrepancy between material shipped
to the theater of operations and material acknowledged as
received.
In regard to my second point, DOD's plan to improve supply
chain management, as I mentioned, provides a good start and
framework for addressing some of the long-term systemic
problems. However, the Department faces many challenges and
risks in its efforts to improve the supply chain. Successful
resolution of these problems will require DOD to diligently
complete parts of the plan, fully implement the changes across
the Department, and measure progress. In addition, resolution
of these problems will require investment in needed information
technology, a critical enabler that will provide the essential
underpinning to improving supply chain processes.
We used five criteria to assess DOD's plan: Does it include
a strong commitment by top leadership? Does it have sufficient
capacity, that is, people and resources? Does the plan contain
corrective actions, a program to monitor these actions, and a
means of measuring progress? I will briefly touch on each one
of these.
First, in regard to the strong commitment by top
leadership, the formulation of DOD's plan and its endorsement
by Ken Krieg is evidence of a strong commitment by top DOD
leadership. However, it is important for DOD to sustain this
leadership as it goes forward in implementing this multiyear
plan. Because improving supply chain management may be one of
several high-risk areas DOD will be addressing at one time, it
may take the involvement of the Deputy Secretary of Defense or
a Chief Management Official to ensure that a long-term
departmentwide commitment is sustained.
Second, in regard to capacity, DOD has the people and other
resources to draw upon to resolve its supply chain management
problems, but most of them are under the direction of the
military services and DLA. Therefore, it is important for the
Department to obtain the necessary resource commitments from
these organizations.
Third, in regard to the corrective action plan, DOD's plan
for improving supply chain management addresses root causes for
problems in three key areas--requirements forecasting, material
distribution, and asset visibility--that we frequently
identified as impeding effective supply chain management.
However, we are concerned about the time frames for completing
some of the plan's initiatives. For example, DOD's milestones
for implementing and improving information technology systems
under it, Business Management Modernization Program are not
specifically linked to improvements in the three focus areas,
and until all these initiatives are substantially implemented
across the Department, we will not know whether they provide
effective solutions.
Fourth, in regard to program monitoring, while DOD's plan
cites a general methodology for evaluating progress, the
Department has not provided all the information needed for this
to occur. For example, DOD has not specified all the metrics
and systems to be used to track progress. Until it does, DOD
cannot assure comprehensive monitoring of progress within the
Department or validation by independent groups.
Last, in regard to DOD's ability to demonstrate progress in
implementing corrective measures, DOD has the ability to
demonstrate some progress in implementing the initiatives.
However, it has not identified all of the metrics necessary to
demonstrate how the initiatives are affecting supply to the
warfighter. In addition, while DOD's plan identified some
viable overall supply chain management performance metrics,
such as level of backorders and the amount of customer wait
time, it does not have cost baselines or cost performance
targets. Until DOD tracks the additional cost metrics and
supply performance targets needed, it will be difficult to
convincingly demonstrate progress in improving supply chain
management.
That concludes my statement. I would be happy to answer any
questions.
Senator Voinvoich. Thank you very much, Mr. Solis.
I will begin the questioning in reference to the last thing
you said, Mr. Solis.
Mr. Krieg, in the area of metrics and systems in place to
monitor progress. Would you respond to what he just mentioned
in terms of the feeling that maybe we are not yet there with
the plan?
Mr. Krieg. Sure. I believe--and we have begun this work--
that we will get continually smarter both about what matters
and how you measure it, and then how closely you can track it
and perform. So we have begun--we started with the baseline of
the way the private sector thinks about success in supply
chains--customer wait times, back orders, those kinds of
issues. Many of those related to the way the Defense Logistics
Agency does business with consumables and supply.
And so we have started to build those out. We contract some
of them. Some of them we contract with some depth. But there
are others that we do need to build, and we have recognized
that. Part of the Enterprise Transformation Plan talks about
the data strategies that will support an ever growing ability
to track and see and understand. Second, part of the work we
have got under way in the Quadrennial Defense Review, which is
our once every 4 years looking at strategy driving changes in
the way we do work inside the Department of Defense, we have
added a business practices portion to it this year. One of
those business practices--and I co-chair that group with Duncan
McNabb, who has been J-4, the Joint Logistics Director inside
the Joint Staff. Duncan and I have been working on the supply
chain. And so we have committed that we are going to go out to
the next generation of benchmarking to really build the kinds
of measures that will have us understand the relationship
between what we say we are going to do and what the outcomes
are.
So I would say we have the given capabilities to do this, a
recognition that data strategies and data systems providing
that information as opposed to going out and asking for
individual goals every time you want to know something, is
clearly the management approach that we are headed on.
Senator Voinovich. Do you think it is possible to have
performance metrics in place in 3 or 4 months?
Mr. Krieg. I think what you will see, sir, is that there
will be a growing set of metrics and a growing set of
competencies as we learn how to go get data and we learn how to
tie together the various pieces in terms of outcome. So I
believe in 3 or 4 months we will show----
Senator Voinovich. I am interested in making sure the
Department has metrics in place to measure their success. I
have always said, if you can't measure it, don't do it.
Mr. Krieg. What gets tracked gets done.
Senator Voinovich. Exactly. The other thing I would like to
discuss is cost savings. People have been asking me why am I
spending all this time on supply chain management, because they
know it is going to be a major commitment. Do you have a cost
baseline? Do you know how much money can be saved? Do you know
what you are spending now? If this plan is implemented, are we
going to be able to show taxpayer savings? In other words, we
are working harder and smarter and doing more with less, doing
more for the warfighter.
Mr. Krieg. The answer to your full question is no, I don't
know exactly what that is, but, yes, I believe that there is
opportunity, and that is exactly, right, getting a common
resource baseline, understanding--the answer is we can account
for and we can show you in the budget lots of ways of looking
at logistics. We are going to try to--we are going to come
within the Department, and then along with these gentlemen
within the government, to a common way of looking at this.
What is the point? The point is everyone is doing things
differently, and so you have to go together across the
enterprise. We have got that work underway. I believe that is
one of the really important parts to tying inputs, what we put
in the budget, to outputs, what are the measures of success.
When you can do that, then you have the tools to really measure
performance and drive outcomes.
Senator Voinovich. When I was Mayor of Cleveland, we did a
comprehensive management study called the Operations
Improvement Task Force. It took us 6 months to complete the
study. We then went back to look at how much we saved the city.
I understand it is not going to be easy to evaluate the
Department in this manor but it is very important to understand
financial savings to be able to measure success.
Mr. Krieg. I think the key to success there is not a one-
time study to see what it looks like, but make it a part of the
way you manage, and that is how it becomes the forefront in
people's minds over time.
Senator Voinovich. Senator Akaka and I have been working on
human capital issues for sometime now and have made it a
priority in the Federal Government. Could you share with us the
steps you have taken to incorporate human capital concepts into
the plan, including the evaluation of your core competencies of
your employees, succession planning in the event of
retirements? I am really concerned about the issue of senior
people taking early retirement.
Could you comment on how you are identifying core
competencies you need and what kind of succession plans are in
place for those employees retiring?
Mr. Krieg. Let me tell you that today it is not in the plan
you see in front of you because that was not the way we
defined--that was not the way the high-risk plan defined the
problem. That being said, the three of us committed that there
was more to working on supply chain over time than just this
plan.
I agree with you, and so as I look at the organizations
that comprise this--for example, I think one of the most
advanced in thinking through this is the Defense Logistics
Agency. It is now tracking its workforce, understanding--using
combinations of client surveys and all the kinds of tools you
would use to really build down the business process and human
capital strategies and link those together over time.
I would not contend that the entire Department of Defense
supply chain is that advanced, but I believe that it is
absolutely critical that we bring the human skills and human
competencies along in order to perform over time.
As you have noted so many times, if you look at the average
age of the Department of Defense workforce, it is 47\1/2\, 49,
50--it depends on how one looks at that--with an extensive
average age of service. It is time to begin using--to drive
that as a key performance responsibility of management, and I
do believe that tools like the National Security Personnel
System will have the tools. Now it is up to us----
Senator Voinovich. Mr. Krieg, if you were to do an analysis
of your workforce to determine if you are lacking in core
competencies to determine retirement perspectives. Who would do
this for you?
Mr. Krieg. First of all, I would ask Frank Anderson, who is
the President of the Defense Acquisition University, to pull
this together using the--bringing the whole community together,
the acquisition technology and logistics workforce. So we have
started that.
But I will tell you that looking down into the details, it
will be part of charging each of the large management leaders
like Keith Lippert in the Defense Logistics Agency with being
able to do that. So we are going to try to set standards at the
Department of Defense level; then put those managers in
leadership positions in charge of understanding their data,
understanding their performance, and getting back to us.
So that is the technique we are going to use. It is a large
workforce, and so managing it all from central, we need to set
the standards, we need to set the requirements, and then we
need to hold people accountable in that process.
Senator Voinovich. I want you to know I am very interested
in this area, and I will continue to follow-up with talking to
you on this issue. As I have said before, we need qualified
people to get the job done.
Mr. Krieg. Yes, sir.
Senator Voinovich. Mr. Krieg, with all of the processes you
plan to put in place, I am interested in seeing how you are
going to ensure that they become part of the culture of DOD. I
plan to stay on top of this issue, to make sure that long after
you leave the Department the processes that we are discussing
today are institutionalized.
I have gone way beyond my time. Senator Akaka.
OPENING STATEMENT OF SENATOR AKAKA
Senator Akaka. Thank you very much, Mr. Chairman.
I want to thank our witnesses for their testimony, but
before I begin my questions, I would like to make a few
observations.
It seems to me that defense logistics and its problems are
longstanding, complicated, and directly tied to poor
information systems, which is why I am pleased there is
committed leadership by DOD and by OMB on this issue. However,
previous attempts at improvement have failed because the plans
were not institutionalized. Only through high-level commitment
and strong oversight by Congress and OMB will this plan
succeed.
I also want to mention what the Chairman just talked about,
human capital. It is true, as he said, that we will be facing a
huge problem in the near future when the baby-boomers begin to
retire. And we really need to work on that together.
These are questions I have for Mr. Solis and Mr. Krieg. Mr.
Krieg, you have testified about the expanded role of U.S.
Transportation Command, TRANSCOM, in the distribution process.
However, in August 2005, GAO reported that DOD has yet to
finalize plans to define the role of TRANSCOM as the
distribution process owner, or DPO, to improve the efficiency
of the distribution process.
Mr. Solis, can you please explain the importance of
TRANSCOM to DOD logistics and describe the problems that GAO
has found in this area?
Mr. Solis. Senator, I would be glad to. During the initial
phases of OIF, distribution and visibility, but particularly
distribution, were some major issues in terms of not only
getting the equipment and supplies in, but then distributing
them to the tip of the spear, so to speak. In September 2003,
the Secretary of Defense, recognizing this problem, designated
TRANSCOM as the distribution process owner. With that, around
December 2003, to my recollection, the initial joint
distribution operations center was set up over in the Gulf. And
since that time, it has been operating, and the flow of
supplies has improved greatly.
Our concern has been that distribution has been an ongoing
problem going back to Operation Desert Shield and Desert Storm.
And until that gets solved and codified and institutionalized
into doctrine, for example, for the next operation, even though
everybody around the table has agreed that this is a good way
to operate, you may have different players, different
personalities involved, and people aren't going to know that
this is the way that we did it before and it was successful.
Until you institutionalize that, until you put it in the
training and doctrine, that is where we see the problem for the
next operation.
Senator Akaka. Thank you for that response.
Mr. Krieg, what is the current status of the DPO directive?
And when can we expect it to be finalized?
Mr. Krieg. I can't give you an answer to the last question
as to when, but let me tell you the status. Many of the
decisions we made as we were going through this was to not
write the directive until you had enough experience to know
what it was that you were writing the directive about. There
were lots of drafts that floated around, but we decided to keep
that last step open until we had gotten more confidence on
notions like the joint distribution approach--and I am going to
apologize, I am not going to get the acronym right--the JD-DOC,
making the joint logistics commander in the theater really
responsible for seeing things. Those kinds of things are now
coming into place. I was just with General Schwartz, the new
commander. We were just making a joint briefing and discussion
with the deputy as part of the Quadrennial Defense Review
Business Practices that I co-chair, supply chain,
institutionalizing the DPO, the distribution process center,
and incorporating these new concepts that have been developed
during wartime into doctrine are key goals that we have set out
for ourselves.
So I would expect--we are committed to doing that. We
believe it is the right thing to do. Innovation in wartime is a
key opportunity. Our challenge is to make the way you do
business in wartime the way you try to build it into your
structure. And so we agree with that approach.
Senator Akaka. I am glad to hear that and of your plans to
bring that about.
Mr. Solis, one of the reasons that DOD logistics was
identified as high-risk is because of the excess inventory
level. While supply inventory levels are down from 1990, they
have been increasing again in recent years and are currently at
$77 billion.
My questions are: How much confidence does GAO have in the
inventory numbers? And can you explain the reason for any
doubts, if you may have them?
Mr. Solis. Senator, as you know, over the years we have not
had the ability to render opinions on DOD's financial
statements, and I don't think that is any different today. I
think the number itself, it is what it is, and that is the best
number that is available at this point in time. But in terms of
saying that is an absolute right number given the financial
management problems that the Department has had and to say that
is a good number, I don't think we could absolutely say that.
Senator Akaka. As followup, Mr. Solis, how does GAO plan to
monitor implementation of the plan and validate results?
Mr. Solis. A couple of different things that we plan to do.
One, obviously, we will look at each one of these initiatives
in terms of where they are in terms of their progress as we go
throughout the next year and a half or so. We will be sitting
down with Ken's folks, going through the metrics, the expected
outcomes, to see where they are at on that.
We also will be doing individual jobs which will look at
the supply chain in total rather than just individual
initiatives. And as you are aware, every 2 years we report out
on the status of the high-risk series, which will be due in
January 2007.
So that is kind of our general game plan to follow-up on
this, and we also have engaged the Department of Defense IG and
the audit services of the individual Services to also cooperate
and work with us on making sure that we have covered a number
of things in terms of the high-risk area.
Senator Akaka. Mr. Johnson, although my time is up, let me
ask how OMB will remain engaged on the implementation of this
plan? And when can we expect to see results?
Mr. Johnson. Well, on this particular supply chain plan, we
talked about sitting down with DOD and the DOD branch at OMB
and getting an update on what we have done and what we were
supposed to do within the last 6 months and what did we do and
how does it look and do we need to recalibrate where we are
trying to go or action plan, or whatever. And so we will do
that.
We are available, I know DOD is available, GAO is available
to keep you all informed in whatever fashion you all deem most
appropriate about DOD's progress on this. But we intend to stay
in touch with them, and also then use their example to instill
the same sort of discipline and follow-up with all the other
high-risk areas.
Senator Akaka. Thank you. My time has expired, Mr.
Chairman.
Senator Voinovich. Thank you, Senator Akaka.
Mr. Krieg, it is my understanding that each Service and
Agency within DOD has its own supply chain management education
programs. Since the Department's supply chain management plan
includes the development of a joint theater logistics program,
will DOD create a joint logistical training program to ensure
that the military and civilian employees in each of the
Services are trained under the same curriculum? And if so,
should these be combined under the distribution process
ownership program established by the Secretary of Defense?
Mr. Krieg. Let me take that one for the record and get back
to you with exactly where we are and where we are going,
because I am not up to speed on that in particular. But,
obviously, the more you move to a common business process, a
data approach, and the more you have a common data system, then
the way you train people and how you grow them should move in
the same direction.
So as a matter of principle, I would say yes, but I have
not worked the training part of this yet, training and
education part of this year to know--to be able to tell you
where we are.
I don't know, Bill, if you have a sense.
Mr. Solis. Senator, I know it has been a concept that has
been discussed in terms of, for example, getting the Defense
Acquisition University involved in that concept. I don't know
that it has gone any further than the discussion phase. I know
in my discussions with the folks at TRANSCOM, they have been
pushing this kind of a concept of a joint logistician, which,
again, I think is, at best, in discussion and it may be at the
conceptual stages at this point. But I think it is worth
pursuing given the fact that if you go to a joint theater
logistics management process or model, I think everybody needs
to understand how you are going to work in a joint environment,
particularly as it pertains to logistics.
Senator Voinovich. My understanding is that each have a
different system. Is that corrent?
Mr. Solis. They are using different systems, yes. I think--
again, I am going back to OIF. I know even within the Marine
Corps there were two different supply systems, which caused a
lot of problems. I think they have corrected that now. I think
there are some differences in each of the supply systems.
Senator Voinovich. And the concept here would be that they
would be universally the same?
Mr. Krieg. I think if we can separate information system
from data level, I think our notion is that you want to move to
common data. Whether you put it in a single information system
for all the Department of Defense, which is a fairly complex
program management and development, or whether you want to have
a limited number of systems that produce common data, thereby
reducing the risk in implementation, it would tend toward the
latter part, than to try to get one information system, because
all the way across the Department of Defense as the exact same
system, those are challenges to build them that way.
Senator Voinovich. The thing is, and this is probably
elementary, and you will say, ``Why did you ask me this
question?'' But we had the Army and we had the Marines and we
had the National Guard and we had the Reserves, and the other
Services. It seemed like when I talked to our guys from Ohio
that were there, they had their own stuff in terms of what they
needed.
Is there any communication back and forth between the
Services as to the up-armor Humvees, for example? How does that
all work?
Mr. Krieg. I do think there is--as we move to this joint
theater distribution concept, where the joint logistics
commander is integrating the needs of the various organizations
in the field and then helping set the demand pattern and the
flow pattern back to the United States and on back in the
supply chain, you will begin to move that forward. There is a
lot of communications among them, but there are also specific
needs of each of the individual units and each of the
individual Services. So you want to figure out how to get a
common supply chain that can manage the differences, can allow
a Service--because they have different equipment. So you want
to be able to integrate the supply chain but still manage the
different needs of the different Services in the field. So that
is at least the concept, and I do believe over the last couple
of years, there has been a significant improvement in the
concept of joint theater logistics and its implementation. I
don't know what you have seen, Bill.
Mr. Solis. Yes, in terms of Humvees and the up-armor
Humvees, the requirements that come out are coming out as
theater requirements. They are not, as far as I know they are
coming out for specific Services, but they are also coming out
as theater requirements.
Senator Voinovich. One of the big criticisms that I have
heard about Iraq is that we really didn't understand the
religions and curtural views of the people. But seting that
aside, the preparation of going to war in Iraq and having the
necessary supplies available to carry out the mission is an
essential part of planning for war. Before we undertake these
missions, we should have a pretty good idea of what it is that
we need to be successful.
In doing this, we have to assess what the various Services
need. For example who determines how many up-armor Humvees each
Service needs? Rather than having the individual Services
purchase their own, should we have one group purchase for all
of them?
That is what we are trying to do, bring some sense to this
and get systems in place so that we can do this efficiently?
Last night, we had a vote on the floor of the Senate for
additional funding for up-armor Humvees. I voted for it, which
I ordinarily never do because I don't want to spend more money.
I was at a meeting sometime ago with Secretary Rumsfeld, to
discuss up-armor Humvees. He said, ``Well, we are doing the
most we can at 250 a month.'' And I said, ``I know the people
that manufacture these things, and they can do 450 a month.''
Here is the Secretary of Defense, and he doesn't know what the
capacity is out there to get the job done.
In my opinion, we could have delivered these Humvees a lot
sooner had somebody really known what the details were in terms
of the capacity to manufacture and deliver them.
With continued oversight I am hopeful that we are going to
get this done.
Mr. Krieg. We will be glad to come show you the details of
how that proceeded and what we learned from it. I would note
that--and I am not trying to defend where we were with up-armor
Humvees--it is important to understand the way we think about
this that the needs in operation, the needs will evolve and
change. The clear challenge, particularly in the kinds of wars,
the kinds of events we will deal with in the future, the clear
challenge of the supply chain is to be agile so we can react
quickly to changes in need, changes in demand, and, therefore,
changes in supply. That is going to be more the future than it
was the past, and that is clearly the kind of challenge we
ourselves have put in front of us, is to be able to react
quickly. That is why understanding demand, being able to track
it----
Senator Voinovich. In terms of demand, do you turn to the
war fighter in the field to determine what is needed to get the
job done?
Mr. Krieg. You want to push demand as far forward as
possible. That is the clear lesson from business, the clear
lesson here. And integrating operations planning and supply
chain planning as part of the way you do business is one of the
core challenges as we go forward.
Senator Voinovich. Is there a section in the Defense
Department that anticipates contingencies?
Mr. Krieg. It won't tell you everything, trust me, but,
yes, that is what planners try to do. They try to anticipate
contingencies. They try to think through what the needs will
be. They try to work back and say does the supply chain there
perform. And making that supply chain more responsive is
clearly one of the key challenges in a world where the
competition is ever changing, if you will, and the need to
change quickly is part of the strategic requirement.
Mr. Solis. Senator, if I could add one other thing, as we
noted in the plan, one of the high problem areas or root cause
areas has been requirements for forecasting, and that has been
a continual problem, whether it is during peacetime or during
operations. And we noted in some cases where things like
batteries or tires were sorely underestimated even in terms of
initial needs because requirements had not been updated. And so
I think that process is something that needs to continually be
looked at, whether it is for tires, batteries, up-armor
Humvees. In the case of up-armor Humvees, there was a change in
theater requirement. In other cases where you had standing war
reserve materials, some of those were woefully inadequate in
terms of updating the models and things of that nature.
So those requirements need to be constantly updated to make
sure that the warfighter has what they need when they need it.
Senator Voinovich. It would seem to me that within the
logistics area you would have experienced people who had been
through the mill, had previous experience, that would be asking
the right questions of the people who are supposed to be
coordinating supply chain management.
Mr. Solis. And some do, and I think, again, from some of
the work that we did recently--and we issued a report in April
of this year--we looked at, again, things like batteries or
wartime models. Some of those models had not been updated since
1999, and some of the uses for batteries had expanded beyond
what was being used in 1999 from about, I don't know, 10 items
to about 50 or 60 different items. And so when they went to
war, the demand had shot up tremendously based on an old model.
So I think it is incumbent to make sure that we are always
making sure that the requirements are as up-to-date whether it
is for peacetime usage, war material usage, or whatever.
Senator Voinovich. Senator Akaka.
Senator Akaka. Thank you, Mr. Chairman.
Mr. Krieg, let me ask you a question that has bothered me
for a while, and hopefully you have an answer. What do you see
as the root cause or causes of the logistics problems that have
plagued DOD for so many years, and how does the plan address
these causes?
Mr. Krieg. Well, several things, and I think we have talked
about a number of them.
First of all, you need to understand what you have. So item
visibility is really important so you know what you have and
where it is.
Second, you need to understand what it is you are going to
need so that demand forecasting is really critical.
Third, you have got to be able to link all of the people
who are participating in what you want to have--what you now
have and what you can produce so that they can all see that
flow.
I think that is the kind of plan--that knowledge of what
you have, the knowledge of what you are going to need, and the
knowledge of what you can produce--bringing those three
together and the roles and responsibilities to make that happen
are what supply chain is all about. And I do believe that we
have tried in this plan at least to begin building those areas
out.
As Mr. Solis said, is this plan the end? No. This plan is
the beginning, and we will learn as we go through it. But I
think those are at least three of the key areas.
Senator Akaka. Would anyone else want to add to that list?
Mr. Solis. I would echo that. Of course, in our plan we
said three: Forecasting, visibility, and distribution. But in
the largest context for us for the high risk, it has also been
accountability and sustained commitment. And I think what I do
like about the plan is that for each one of these items,
initiatives, there is a name and an E-mail address clearly
indicated for each one of those initiatives. So there is
accountability. There are people that we can go to and say, OK,
where are we with this?
The other thing, I think, though, is sustained commitment,
and I think we have that here. The question comes up--and I
hope Mr. Krieg would stay around for a long time. Can that
commitment be sustained after Mr. Krieg leaves? And I think
that it is incumbent upon all the high-risk areas in terms of
really dealing with the issue.
Senator Akaka. And I liked what you had said earlier, that
we need to update whatever information we have on these items.
Mr. Krieg, how does this plan relate to the DOD logistics
transformation strategy and the commercial benchmarking road
map?
Mr. Krieg. I would say that this part of the plan, this
part of the high-risk series, is a part of the broader
logistics road map. If you think about our overall logistics
and supply chain responsibilities, we really have three kinds
of economies we work in. We have a large-item, large capital
management economy--the depots, the big weapons systems, the
maintenance and sustainment of those systems. We have commodity
supplies that the Defense Logistics Agency does. And then we
have the way we distribute and sustain in an operation. All
three of those are a little different. All three of them are
dependent--success in operations is dependent on all three of
them working together.
So this concentrates on the inventory management part of
the supply chain. The overall logistics transformation strategy
would then bring in those other areas. And then I think lastly,
adding to it, a part of continuous process improvement. How do
you continually get better? How do you tighten your performance
characteristic and make it more efficient? So we use a
technique--we are beginning to build a technique out inside the
Department--it is already alive and well in many parts of the
Department--called Lean Six Sigma. It is a common commercial
technique that allows you to both shorten your process, make
your process more efficient, and then make your results more
effective, quality management. And it puts both those
techniques together, and I think it will be a critical part of
driving this kind of change over time.
Senator Akaka. My last question is something that the
Chairman and I have thought about and are always trying to find
an answer. I would like to address this to Mr. Solis, although
if any of you want to comment on it, that is fine, too.
So here is the question: Are there areas in the improvement
plan that are outside the span of control of Mr. Krieg? And how
would the creation of a CMO, or chief management officer,
affect the implementation of the plan?
Mr. Solis. As I mentioned earlier, I think the one thing
that a CMO does in this case is give you sustained management,
as we have mentioned, for a 7-year period to make sure that you
have sustained look-sees at the process of improving supply
chain management.
I think the thing with the CMO also, it does give the
strategic point of view in terms of making sure that while Mr.
Krieg is implementing some things over here, to make sure that
we have things at the DOD level, at the Secretary level, that
meet the goals of the Department as well.
So I think it is important at some point maybe to consider
having a CMO to make sure that those things are taken care of.
Senator Akaka. Mr. Krieg.
Mr. Krieg. We have had wonderful conversations about this,
as I have with the Comptroller General as well. As I think the
Deputy sent a note up here or testified in his hearing, we are
going to look at that issue. We will consider it as time goes
on, and we can talk about individual views over time as we work
on this. But I think in my view, the Department of Defense,
when it functions well, does have a chief operating officer. I
believe it is the Deputy Secretary of Defense. I believe the
Acting Deputy Secretary of Defense--you all can work on that
part--does believe that he is accountable for that and does
believe that it is his responsibility to look across all the
tools of the Department.
That being said, we also work with several important groups
that help us do that--the Defense Business Systems Management
Committee. You asked about commitment of the DOD management to
information processes and information systems. The Deputy
chairs that. It has got all the senior leaders--me, the Service
Secretaries, Marty Schwartz at TRANSCOM, Keith Lippert at DLA--
who come in and are working on this and we meet once a month on
it.
I have a Defense Logistics Board that looks within that
context at logistics, Norty Schwartz, Keith Lippert, the Vice
Chiefs. We are all committed to work this issue.
And so while one person is important to have the leadership
drive, it is important in an area as complex as this one to
have all the parts of the leadership team pulling together
because the changes are significant, they do cross--and in
order to be really successful, there needs to be cultural and
sustained ownership by those who are going to be there
regardless of who the individual sitting in whatever the top
box is.
And so I think there is a lot we need to do, and I do
believe that we are trying to put the kinds of broad-scale
management tools and broad-scale management efforts in so we
can integrate these kinds of changes over time.
Senator Akaka. Without leaving the Hon. Clay Johnson out,
do you have any comments on this?
Mr. Johnson. No, sir. [Laughter.]
Senator Akaka. Thank you. Mr. Chairman, my time has
expired.
Senator Voinovich. Thank you, Senator Akaka.
I have additional questions, but I will submit them to you
in writing. I would like to finish this by saying that I am
really interested in the metrics of this plan. Mr. Solis, has
GAO determined what metrics you would use to measure whether or
not we are making progress on the plan that has been put
together?
Mr. Solis. Well, specifically what I was talking about or
referencing in the metrics themselves--and Ken shared or his
folks shared some of the commercial benchmarks and also what is
in the plan--give kind of a pulse check of the general health
of the supply chain. What my comments were really going to, if
you look at some of the initiatives that are there right now,
for example, RFID, some of the expected outcomes that are
listed, you talk about improved asset visibility, reduction of
costs, things of that nature. But when you go to the metrics
that are associated with that initiative, basically what you
see are implementation dates. So you don't really have a sense
of--you have the expected outcomes, but you don't have the
associated metrics that would say this has worked or is not
working from an outcome basis.
So we are not prescribing necessarily what metrics to use,
but what we are looking for is an outcome-based metric that
would say here is how you are doing with this initiative.
Senator Voinovich. Well, I would appreciate if you would
continue to work with DOD so that a few months from now we
could say that we have an agreement on the metrics to measure
success. If there is a difference of opinion, then, of course,
we will talk about it.
Mr. Solis. Right, and I think we plan to, and we recognize
that some of this is still in process, but that was our initial
observation on the metrics.
Senator Voinovich. Another issue is the human capital side
of supply chain management. I really think it is important that
you institutionalize what you are doing.
I am also interested in looking at what the private sector
is doing in this area. I do understand that there is probably
not a private organization in the country that can even touch
the Defense Department. But are there any companies--I guess
probably a Wal-Mart, that buy a lot of product and are
constantly at how they distribute things. In fact, I heard a
story that Sam Walton went bankrupt twice, and then he hired
some guy that worked for the Army who went to work for him and
put this logistics thing into place. That is when he started to
make some money.
But the question I have is: How long does it really take to
do this transformation that we are talking about doing so that
we are realistic about the goals that we are setting in terms
of getting this done?
Mr. Krieg. I think it is a multiyear effort. If a company
were to come from where we are and try to implement it, I don't
think the chairman of that corporation would say he would get
it done in 2 years. I think he would say it is a 5-, 6-, or 7-
year effort. But I know we are not going from zero either. So
we are at a running start, if you will, as we enter. But it is
a complex--I like to think--as I look at the Department of
Defense, we are the size and complexity of a good-size country.
And at our current size, we would be 24, 25, or 26 in the rank
of countries in terms of gross domestic product. And we are
that complex.
So thinking through how one makes that kind of change on
that kind of scale is an awesome task, and you have to hit the
right things and build momentum over time.
Senator Voinovich. Well, I think that gets back to the CMO
bill that Senator Akaka and I introduced this year. I used to
say when I ran for Mayor of Cleveland that there is not a
Republican way here or a Democratic way, there is a right way
and a wrong way on management issues.
It seems to me that we need someone in the DOD who is there
for a long period of time to oversee this tremendous
transformation. Roger Kelick worked at DOD during the Clinton
Administration. Mr. Kreig, you know Roger? During his time, he
did a lot of good work, and after the Clinton Administration he
was gone. I am concerned that if we are going to make the kind
of changes that we want to make, I think we have to start to
re-evaluate how we get things done in the country.
We had a hearing several years ago, that focused on, is the
government organized in a way to deal with the 21st Century. We
have to start thinking about different ways of doing things. We
have got to make certain adjustments. Any organization that
doesn't change with the times--look at any major corporation
today--if they continued to operate the way they did 10 years
ago, they would be out of business.
I think that we need to change the thinking that we have
always done it this way. There needs to be some thought given
to a Chief Management Officer to handle the management issues.
Someone who is there for a termal period, who is interested in
getting it done right.
I think the Administration would do a great favor to the
country if they started to look at how we do things and
determine if we are flexible enough and are we making
adjustments to deal with some of the problems that we are going
to be confronted with in this century?
Mr. Johnson. There was an editorial in the Wall Street
Journal last week. Dan Henninger was talking about Katrina, but
his premise was more of the same is unacceptable. And you are
asking that question about everything we do, not about Katrina.
And it is a very good question.
Senator Voinovich. Thank you very much for testifying
today.
The hearing is adjourned.
[Whereupon, at 4:10 p.m., the Subcommittee was adjourned.]
A P P E N D I X
----------
[GRAPHIC] [TIFF OMITTED] T4440.001
[GRAPHIC] [TIFF OMITTED] T4440.002
[GRAPHIC] [TIFF OMITTED] T4440.003
[GRAPHIC] [TIFF OMITTED] T4440.004
[GRAPHIC] [TIFF OMITTED] T4440.005
[GRAPHIC] [TIFF OMITTED] T4440.006
[GRAPHIC] [TIFF OMITTED] T4440.007
[GRAPHIC] [TIFF OMITTED] T4440.008
[GRAPHIC] [TIFF OMITTED] T4440.009
[GRAPHIC] [TIFF OMITTED] T4440.010
[GRAPHIC] [TIFF OMITTED] T4440.011
[GRAPHIC] [TIFF OMITTED] T4440.012
[GRAPHIC] [TIFF OMITTED] T4440.013
[GRAPHIC] [TIFF OMITTED] T4440.014
[GRAPHIC] [TIFF OMITTED] T4440.015
[GRAPHIC] [TIFF OMITTED] T4440.016
[GRAPHIC] [TIFF OMITTED] T4440.017
[GRAPHIC] [TIFF OMITTED] T4440.018
[GRAPHIC] [TIFF OMITTED] T4440.019
[GRAPHIC] [TIFF OMITTED] T4440.020
[GRAPHIC] [TIFF OMITTED] T4440.021
[GRAPHIC] [TIFF OMITTED] T4440.022
[GRAPHIC] [TIFF OMITTED] T4440.023
[GRAPHIC] [TIFF OMITTED] T4440.024
[GRAPHIC] [TIFF OMITTED] T4440.025
[GRAPHIC] [TIFF OMITTED] T4440.026
[GRAPHIC] [TIFF OMITTED] T4440.027
[GRAPHIC] [TIFF OMITTED] T4440.028
[GRAPHIC] [TIFF OMITTED] T4440.029
[GRAPHIC] [TIFF OMITTED] T4440.030
[GRAPHIC] [TIFF OMITTED] T4440.031
[GRAPHIC] [TIFF OMITTED] T4440.032
<all>