[Senate Hearing 111-877]
[From the U.S. Government Publishing Office]
S. Hrg. 111-877
HIGH-RISK LOGISTICS PLANNING: PROGRESS ON IMPROVING DEPARTMENT OF
DEFENSE SUPPLY CHAIN MANAGEMENT
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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 ELEVENTH CONGRESS
SECOND SESSION
__________
JULY 27, 2010
__________
Available via the World Wide Web: http://www.fdsys.gov/
Printed for the use of the Committee on Homeland Security
and Governmental Affairs
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COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
JOSEPH I. LIEBERMAN, Connecticut, Chairman
CARL LEVIN, Michigan SUSAN M. COLLINS, Maine
DANIEL K. AKAKA, Hawaii TOM COBURN, Oklahoma
THOMAS R. CARPER, Delaware SCOTT P. BROWN, Massachusetts
MARK L. PRYOR, Arkansas JOHN McCAIN, Arizona
MARY L. LANDRIEU, Louisiana GEORGE V. VOINOVICH, Ohio
CLAIRE McCASKILL, Missouri JOHN ENSIGN, Nevada
JON TESTER, Montana LINDSEY GRAHAM, South Carolina
ROLAND W. BURRIS, Illinois
EDWARD E. KAUFMAN, Delaware
Michael L. Alexander, Staff Director
Brandon L. Milhorn, Minority Staff Director and Chief Counsel
Trina Driessnack Tyrer, Chief Clerk
Patricia R. Hogan, Publications Clerk and GPO Detailee
OVERSIGHT OF GOVERNMENT MANAGEMENT, THE FEDERAL WORKFORCE, AND THE
DISTRICT OF COLUMBIA SUBCOMMITTEE
DANIEL K. AKAKA, Hawaii, Chairman
CARL LEVIN, Michigan GEORGE V. VOINOVICH, Ohio
MARY L. LANDRIEU, Louisiana SCOTT P. BROWN, Massachusetts
ROLAND W. BURRIS, Illinois LINDSEY GRAHAM, South Carolina
EDWARD E. KAUFMAN, Delaware
Lisa M. Powell, Staff Director
Roger Yee, Legislative Fellow
Evan W. Cash, Professional Staff Member
Jennifer A. Hemingway, Minority Staff Director
Sean M. Stiff, Minority Professional Staff Member
Aaron H. Woolf, Chief Clerk
C O N T E N T S
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Opening statements:
Page
Senator Akaka................................................ 1
Senator Voinovich............................................ 2
WITNESSES
Tuesday, July 27, 2010
Alan F. Estevez, Principal Deputy Assistant Secretary of Defense
for Logistics and Materiel Readiness, U.S. Department of
Defense........................................................ 5
Jack E. Edwards, Director, Defense Capabilities and Management,
U.S. Government Accountability Office, accompanied by William
M. Solis, Director, Defense Capabilities and Management, U.S.
Government Accountability Office............................... 7
Alphabetical List of Witnesses
Edwards, Jack E.:
Testimony.................................................... 7
Joint prepared statement with Mr. Solis...................... 34
Estevez, Alan F.:
Testimony.................................................... 5
Prepared statement........................................... 19
Solis, William M.:
Testimony.................................................... 7
Joint prepared statement with Mr. Edwards.................... 34
APPENDIX
Background....................................................... 52
Questions and responses for the Record from:
Mr. Estevez.................................................. 58
Mr. Edwards.................................................. 71
HIGH-RISK LOGISTICS PLANNING: PROGRESS ON IMPROVING DEPARTMENT OF
DEFENSE SUPPLY CHAIN MANAGEMENT
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TUESDAY, JULY 27, 2010
U.S. Senate,
Subcommittee on Oversight of Government
Management, the Federal Workforce,
and the District of Columbia,
of the Committee on Homeland Security
and Governmental Affairs,
Washington, DC.
The Subcommittee met, pursuant to notice, at 2:31 p.m., in
room SR-418, Russell Senate Office Building, Hon. Daniel K.
Akaka, Chairman of the Subcommittee, presiding.
Present: Senators Akaka and Voinovich.
OPENING STATEMENT OF SENATOR AKAKA
Senator Akaka. Good afternoon everyone. This hearing of the
Subcommittee on Oversight of Government Management, the Federal
Workforce, and the District of Columbia is called to order.
Aloha and welcome to our witnesses and guests. I would like
to thank you all for joining us here today for this hearing,
which is on High-Risk Logistics Planning: Progress on Improving
the Department of Defense Supply Chain Management.
Senator Voinovich and I have held several hearings on the
Department of Defense (DOD) supply chain management, an issue
critical to making sure our brave men and women serving in
Afghanistan, Iraq, and elsewhere have what they need to be safe
and successful. At our most recent hearing in July 2007, DOD
was making progress, but there were still challenges that
needed to be addressed. Three years later, DOD's supply chain
management still remains on the Government Accountability
Office's High-Risk List, where it first appeared in 1990.
It is true that DOD's logistics operations are complex and
extend throughout the world, but we must remain focused on
moving forward to resolve the remaining weaknesses.
Longstanding issues such as inefficient inventory management,
poor responsiveness to war-fighting requirements, and weak
demand forecasting result in high costs.
In May 2010, the Government Accountability Office (GAO)
reported that the Defense Logistics Agency (DLA) had over $1
billion worth of excess spare secondary inventory in fiscal
year 2008. We must exercise better stewardship over taxpayer
money.
Even more importantly, DOD's supply chain management is
essential to our military forces. It is critical that DOD
effectively supply our warfighters, who risk their lives every
day, with the right materiel in the right place at the right
time.
DOD supply chain management still suffers from inadequate
strategic planning. DOD must formulate a comprehensive and
integrated Strategic Plan that addresses all of DOD's current
and future logistics capabilities and challenges. This is vital
to give senior leaders a means to effectively guide logistics
programs across the Department and measure results.
DOD has produced multiple strategic plans over the years
aimed at improving supply chain management. However, it is
unclear how these plans align with each other. The plans also
lack some key elements. For example, at this Subcommittee's
urging, DOD released a Logistics Roadmap in July 2008.
According to GAO, the Roadmap failed to identify the scope of
logistic problems, lacked outcome-based performance measures,
and did not clearly define how the Roadmap would be
incorporated into the overall DOD decisionmaking processes.
In September 2009, Senator Voinovich and I sent a letter to
Deputy Secretary of Defense William Lynn expressing our
continued concerns about DOD's ability to effectively and
efficiently deliver critical supplies to military personnel. We
also noted that DOD still had not included outcome-based
performance measures in the Roadmap more than a year after its
release. DOD responded that the Department was developing a
2010 Logistics Strategic Plan that would update the Roadmap and
address GAO's findings. DOD recently released this plan.
Although it includes specific logistics measures and key
initiatives, I am concerned with how it can be used to achieve
DOD's supply chain management goals.
Despite the remaining challenges, I do commend DOD for
making progress on important issues. For example, the Joint
Regional Inventory Materiel Management Initiative on the Island
of Oahu, in my home State of Hawaii, has proven a success. It
improves support to the warfighter by reducing customer wait
times, providing better asset visibility, eliminating duplicate
inventories, and streamlining delivery of parts to end users.
The principles learned with J-RIMM have now been applied to
other key areas, such as the Inventory Management and Stock
Positioning Initiatives at the Defense Logistics Agency.
Again, I want to thank our witnesses for being here today
to discuss the 2010 Logistics Strategic Plan and what DOD is
doing in working toward removing supply chain management from
GAO's High-Risk List.
Senator Voinovich has championed this issue for many years
and he is due much of the credit for the progress that has been
made. With that, I would like to call on Senator Voinovich for
his opening remarks. Senator Voinovich.
OPENING STATEMENT OF SENATOR VOINOVICH
Senator Voinovich. Thank you, Senator Akaka. Thank you very
much for holding this hearing.
This is, I think, the fourth hearing that we have had in
the Subcommittee on this issue, and over the years, I have met
with people at the Department of Defense and in my office and I
am glad to see that some progress has been made in this. As I
said to Lieutenant General Durbin when he was in to see me
recently, I would really like to know from the time that former
Under Secretary of Defense Ken Krieg was involved just what we
have accomplished. Are we more efficient? Have we saved any
money? Are we working harder and smarter?
I will say this, that last month, I had the opportunity to
travel to Iraq, and while I was in Baghdad, we visited with
Lieutenant General Kenneth Hunzeker and Lieutenant General
Robert Cone, and they briefed the delegation on the gradual
transition of personnel and equipment out of Iraq. I was
encouraged by how the Department is addressing the great
challenge posed by the simultaneous drawdown in Iraq and surge
in Afghanistan. For those tasked with delivering the right
materiel to the right place at the right time, sustaining more
than 100,000 troops in Afghanistan, poses a great challenge to
everyone.
I just saw the route used to get equipment out of Iraq and
to Afghanistan. I can't believe the way they have to go in
order to get it in there, because they can't go through Iran,
so they have to go all over the moon.
As the supply chain increasingly shifts to Afghanistan, the
Department will face a critical test to determine whether the
dangerous logistical gaps that emerged during the early days of
Operation Iraqi Freedom have been closed and whether progress
will continue in the areas of requirements forecasting, asset
visibility, and materiel distribution. Again, I was impressed
that they seemed to know where everything was. They had it
categorized as either going to Afghanistan, coming back to the
United States so that we can do some rehabilitation to it, and
they are going to leave stuff in Iraq.
The Department must have an effective strategic plan that
decisionmakers can use to prioritize, coordinate, fund, and
account for the hundreds of existing supply chain initiatives.
In anticipation of this hearing, Senator Akaka and I sent a
letter to the Department in September 2009 in which we posed a
number of questions about the new Administration's supply chain
management priorities. We focused on shortcomings in the
Logistics Roadmap that were identified by a January 2009, and
Senator Akaka has already mentioned this GAO report.
The response that we got back from Dr. Ashton Carter, Under
Secretary of Defense for Acquisition, Technology and Logistics
indicated that a new DOD Logistics Strategic Plan would soon be
issued and would serve as an update of the existing Roadmap.
And again, I am being repetitious, but we are really interested
to know about the Department's approach to strategic planning
in this area. You had the Roadmap. Now you have the Logistics
Strategic Plan. How do they relate to each other? Mr. Estevez,
you have been around here for a while and I will be interested,
because you were there at the beginning of this, how does this
kind of segue into the Strategic Plan that you folks have put
together?
Finally, I look forward to hearing from the Department
about the measurable improvements in the supply chain
management that have resulted from several years of concerted
effort. I would like you to brag a little bit, Mr. Estevez.
What increased supply chain efficiencies can the Department
demonstrate? What cost savings? Most importantly, though, how
are deployed personnel better able to accomplish their missions
as a result of past logistics planning? These are the real
questions that have to be asked.
I am glad that Mr. Solis will aid in the discussion by
providing insight into how many of the initiatives contained in
the Department's logistics planning documents are being applied
in the field, particularly in Afghanistan.
When we started with this, Secretary Rumsfeld said we would
save about $26 billion if we managed the supply chain right,
and you know that this function has been on the High-Risk List
since 1990. For the new people on board with the Obama
Administration, I have to say that if I were the President of
the United States, one of the things that I would do is look at
this High-Risk List to see how I could impact it and get items
off the list. DOD supply chain management, I think, is one of
the most important things that we need to get off the list and
I am prayerful that you all understand that and you will give
it the very best that you have.
I am pleased that there has been some continuity here,
because one of the things that bothered me, and one of the
things Senator Akaka and I have been trying to do is to get
everybody to put together some kind of a strategic plan over a
5- or 6-year period, because transformation takes a long time.
I know that because I was a mayor and I was a governor. It just
takes a long time. And so often around here, one Administration
comes in, they have a plan. The next generation comes in and
they start all over again. But it appears we have continuity,
and I am going to be really interested to hear from you how
this thing is moving along and where do you see the light at
the end of the tunnel.
Thank you very much, Senator Akaka, for holding this
hearing.
Senator Akaka. Thank you very much, Senator Voinovich.
Now you have heard the history of our work along these
lines, and the reason for the history is it is changing, but we
want to move it as quickly as we can here.
I would like to at this time recognize and introduce our
panel, so it is my pleasure to welcome Alan Estevez, Principal
Deputy Assistant Secretary of Defense for Logistics and
Materiel Readiness, and Jack Edwards, Director of Defense
Capabilities and Management at the Government Accountability
Office. Mr. Edwards is accompanied by William Solis, also
Director of Defense Capabilities and Management in the
Government Accountability Office. Mr. Solis, it is good to see
you again, always.
Mr. Solis. Thank you.
Senator Akaka. It is the custom, as you know, of this
Subcommittee to swear in the witnesses, so I ask you to please
stand and raise your right hands.
Do you solemnly swear that the testimony you are about to
give this Subcommittee is the truth, the whole truth, and
nothing but the truth, so help you, God?
Mr. Estevez. I do.
Mr. Edwards. I do.
Mr. Solis. I do.
Senator Akaka. Thank you. Let the record show that the
witnesses answered in the affirmative.
I want our witnesses to know that although your remarks are
limited to 7 minutes, your full statements will be included in
the record.
Mr. Estevez, will you please proceed with your statement.
TESTIMONY OF ALAN F. ESTEVEZ,\1\ PRINCIPAL DEPUTY ASSISTANT
SECRETARY OF DEFENSE FOR LOGISTICS AND MATERIEL READINESS, U.S.
DEPARTMENT OF DEFENSE
Mr. Estevez. Thank you, Chairman Akaka and Senator
Voinovich. Thank you for the opportunity to appear before you
to discuss the current status of DOD's supply chain management
and logistics processes and to review with you the efforts we
have taken to address areas of risk. As you mentioned, I have
been here for all four of the hearings and we are dedicated to
doing this, like both of you do.
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\1\ The prepared statement of Mr. Estevez appears in the Appendix
on page 19.
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DOD has made significant measurable progress over the past
3 years, since the Department was last before this
Subcommittee, and I believe my testimony today will show our
continued dedication toward implementing a comprehensive end-
to-end logistics strategy that provides effective support for
our deployed warfighters and provides value to the American
taxpayers who pay for that support.
Before I address those areas, I would like to compliment
your respective staffs, your Office of Management and Budget
(OMB), and GAO, who continue to work with us in addressing the
Department's supply chain management. I would also like to
specifically acknowledge from GAO, both Bill Solis and Jack
Edwards. Our collaboration has contributed significantly to the
successful improvements in the Department's supply chain and
logistics support.
The DOD supply chain is unparalleled in its scope of
operations and the complexity of its mission. Over one million
uniformed civilian and contract employees support all aspects
of the Department's supply chain, managing $90 billion in
inventory, processing over 117,000 national orders for materiel
daily, keeping 15,000 aircraft, 285 ships, and 30,000 combat
vehicles capable of fulfilling their mission, and in many cases
performing this mission while deployed in harm's way.
The DOD logistics mission is to provide globally
responsive, operationally precise, and cost effective joint
logistics support for the projection and sustainment of
America's warfighters. Every day, DOD logisticians support
troops forward deployed in some of the world's demanding
environments and are frequently called upon to support
operations on short notice in parts of the world where we have
little or no presence.
Most notably today, DOD logisticians are key enablers to
simultaneously executing the drawdown of our forces in Iraq and
to providing full spectrum support to our mission in
Afghanistan. Since the President announced the Iraq drawdown
time line, we have systemically been responsibly drawing down
our force in Iraq. To date, we have moved out 32,000 pieces of
rolling stock, closed over 300 bases, and are on track to bring
the force down to 50,000 troops by August 31, 2010. This has
been accomplished by simultaneously sustaining and rotating the
remaining force in Iraq, no small feat. At the same time, we
have moved the majority of the 30,000 troops and their
equipment to Afghanistan as the President directed last
December while providing the needed sustainment in food, fuel,
medical supplies, construction materials, clothing, and spare
parts.
I just returned from Afghanistan 2 weeks ago, along with
Dr. Carter, I might add, who was looking at the logistics lay-
down. Every place I visited, the troops and their commanders
reported that, for the most report, they are receiving the
materiel as they need it, when they need it.
Since the troop increase was announced, we have moved over
17,000 relocatable buildings to house our forces. We are
meeting a 1.1 million gallon-a-day demand for fuel for United
States and coalition forces while feeding 435,000 meals a day
to U.S. troops on the ground. In addition to moving the force,
their equipment, and their needed supplies to a landlocked
country, we have also moved approximately 4,000 mine-resistant,
ambush protected all-terrain vehicles (MATVs), and a
significant number of Mine resistant Ambush Protected (MRAP)
variants to protect our forces as they perform their mission.
We are sustaining the readiness of all MATV and MRAP vehicles
at over 90 percent, and that is with battle damage as the major
factor in decreased readiness.
Even with this enormous challenge on our plate, DOD
logisticians were still able and ready to support disaster
relief earlier this year in Haiti.
Since we last appeared before this Subcommittee, we have
issued the DOD Logistics Strategic Plan incorporating our major
supply chain initiatives. This plan is synchronized and
consistent with both the 2010 Quadrennial Review and the DOD
Strategic Management Plan published in July 2009. It
incorporates logistics-related priorities, outcomes, goals,
measures, and key initiatives depicted in the DOD Strategic
Management Plan while adding more detailed information relating
to logistics strategy. Actual progress against each of the
plans' top-level performance targets will be collected and
reported via the DOD Chief Management Officer level dashboard
and reviewed quarterly.
The Logistics Strategic Plan incorporates and builds on our
previous efforts, including the 2005 Supply Chain Improvement
Plan and the 2008 Logistics Roadmap, while simultaneously
guiding our future actions as there are successes and
improvements in the three GAO supply chain high-risk areas:
Forecasting, asset visibility, and distribution.
With respect to forecasting, we have made considerable
progress in plan accuracy with the measurement of forecasting
demand when compared to actual need. The Defense Logistics
Agency (DLA), which satisfies 95 percent of customer demands,
has seen demand forecast accuracy improve by 24 percent for key
items. That is complemented by improvements we have seen in our
readiness-based sparing efforts, which use analytics to
establish inventory levels and locations to maximize readiness.
Using a commercial readiness-based sparing tool, the Navy
is currently determining aviation on-board spares for several
of its aircraft carriers and has noted $216 million in cost
savings per carrier for the six carriers outfitted and a 50
percent reduction in high-priority requisitions. This was
achieved during a 7 percent increase in operational tempo
flight hours.
In the area of asset visibility, we continue to use active
Radio Frequency Identification (RFID) technology, to provide us
with needed visibility for our critical cargo moving to Iraq
and Afghanistan. At DLA's Defense Distribution Depot-San
Joaquim, where we are using passive RFID, we have seen a 62
percent decrease in receiving process errors for small parcel
shipments on passive RFID-enabled receiving lanes, and at Pearl
Harbor, we have seen a ten-day reduction in response time for
our most critical requisitions.
The Distribution Process Center is driving process
improvements that have significantly enhanced overall materiel
distribution for our deployed forces and in the United States.
For example, the Defense Transportation Coordinator Initiative
has produced $91 million in cost avoidance in key
transportation expenses while on-time delivery is running
better than 96 percent.
In closing, as we press forward with executing the
Logistics Strategic Plan, the Department remains committed at
the most senior levels to addressing our supply chain processes
in order to support our warfighters at best value for the
taxpayer. We continue to make real and measurable improvements
to that end.
Again, I thank you, Mr. Chairman and Senator Voinovich, for
the opportunity to testify today on the important issues
associated with the DOD supply chain and logistics and I will
be happy to answer any of your questions.
Senator Akaka. Thank you very much, Mr. Estevez.
Mr. Edwards, will you please proceed with your statement.
TESTIMONY OF JACK E. EDWARDS,\1\ DIRECTOR, DEFENSE CAPABILITIES
AND MANAGEMENT, U.S. GOVERNMENT ACCOUNTING OFFICE, ACCOMPANIED
BY WILLIAM M. SOLIS, DIRECTOR, DEFENSE CAPABILITIES AND
MANAGEMENT, U.S. GOVERNMENT ACCOUNTABILITY OFFICE
Mr. Edwards. Mr. Chairman and Senator Voinovich, thank you
for this opportunity to discuss DOD's progress and challenges
in strategic planning to resolve longstanding problems in the
supply chain management area.
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\1\ The joint prepared statement of Mr. Edwards and Mr. Solis
appears in the Appendix on page 34.
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As you are aware, supply chain management and other
logistics functions are critical to supporting military forces
in Iraq, Afghanistan, and elsewhere. Also, they constitute a
substantial investment of resources. I am here today with my
colleague, Bill Solis, that you mentioned earlier. Our GAO
reviews cover supply chain management and other logistics
areas. Mr. Solis's work tends to focus on the Combatant
Command's and supporting the warfighter in operational
situations. I am responsible for issues such as inventory
management and also weapon system sustainment.
As requested, we will focus on three issues today: One,
DOD's prior strategic planning efforts; two, key elements in
the new plan; and three, opportunities to improve that plan.
Regarding DOD's prior efforts, DOD has issued strategic
plans for logistics and supply chain management since at least
the 1980s. The 2008 Logistics Roadmap that we have been talking
about is one example of such a plan. While it documented goals,
joint capabilities, objectives, and numerous initiatives and
programs, we found that it was missing some elements that we
would expect in a strategic plan. Those missing elements
included things that you just mentioned earlier, such as
outcome-based performance measures and descriptions of problems
and capability gaps. We recommended to DOD that it include
these missing elements in future updates to the Roadmap and DOD
concurred with that, and we have had discussions with them.
Earlier this month, DOD issued its new Logistics Strategic
Plan, our second issue that we would like to discuss. The new
plan identifies the Department's logistics mission and its
vision. It also reiterates Department priorities that have been
stated in important documents such as Quadrennial Defense
Review and in the Strategic Management Plan for business
operations. The Logistics Strategic Plan contains high-level
goals. There are four of those, and for each one of the goals,
it has success indicators, performance measures, and key
initiatives. And the goals and initiatives that are mentioned
in there, many of those we have investigated in the past and we
have identified some of those needing management attention.
While all four goals do touch on supply chain management,
goal four explicitly deals with that issue. The discussion of
goal four very briefly lists four success indicators, three
performance measures, and 12 key initiatives.
Now that we discussed some of what the plan has, let us
move to the third area or third topic, and that is
opportunities that we see that might help move this plan along
a little more. The opportunities fall into two general
categories or types. First, the plan lacks detailed information
on how and when the goals and initiatives will be achieved. For
example, the plan does not identify performance targets or
timetables. It does not include logistics problems or
capability gaps. And also, there is no mention made of what
types of resources are going to be required in order to
implement this plan.
The other area of improvement concerns addressing the
absence of linkages between DOD's DOD-wide Logistics Strategic
Plan and the service-specific and other types of plans and
activities for accomplishing and improving supply chain
management. Similarly, it is not clear how this plan will be
used within DOD's existing logistics governance framework to
help make budgetary and other decisions.
The continued absence of important details from the
Logistics Strategic Plan may make it difficult for DOD to
efficiently implement this plan and to fulfill the Department's
vision of providing a cost effective joint logistics support
for the warfighter.
Mr. Chairman and Senator Voinovich, Mr. Solis and I would
be happy to answer any questions that you have at this time.
Senator Akaka. Thank you very much, Mr. Edwards.
Mr. Estevez, I commend DOD's efforts to improve the
efficiency of its logistics processes, but the recently
released 2010 DOD Logistics Strategic Plan is intended to
provide strategic direction on future logistics improvement
efforts. Would you please describe the plan's goals and key
measures and how the plan will be used by senior leadership in
the logistics decisionmaking process?
Mr. Estevez. I will be happy to, Senator. Thank you. Let me
start off by saying the Logistics Strategic Plan encompasses
the gamut of logistics activities, more than just the supply
chain activity that we are focused on, because it is a holistic
continuum if you look at it. You can't have a good logistics
system unless you have a good supply chain.
It has four goals in it. First, there is support for the
warfighter, support for our deployed forces and what is going
on in our current contingency operations.
Second, related to that is management of the contractor
workforce that we have out there and doing that better in the
future. We all know that we have had some problems in the past
and we believe we have got our arms around that going forward,
but not just for this contingency, for future contingencies
past this one. So we put in a process. We put in planning
processes out at our CoComs, recognizing that we are going to
have a contractor workforce on the battlefield with us going
forward.
Third, is looking at the acquisition process for our
weapons platforms and building in a sustainment capability so
that when you design a platform, you are thinking about the
long-term operating costs of that platform and what you need to
do today in the acquisition process. Acquisition people tend to
focus on it until it is bought and then my folks worry about it
after that. But the design affects the long-term costs, so we
are trying to instill logistics and sustainment thought into
the early part of that process, and Dr. Carter recently signed
out a memo to the service acquisition executives ensuring that
at Defense Acquisition Boards, we will be discussing
sustainment strategies as well as the acquisition strategy for
a particular platform.
And fourth, are the initiatives related to the supply
chain.
Inside that and for each of those, we have what the
measures of our success will be, and then there are initiatives
under each one of those goals. Frankly, under each one of those
initiatives, there will be sub-targets that will relate up to
the higher target.
I co-chair with the Director of Logistics for the Joint
Staff, Lieutenant General Kathy Gainey, something called the
Joint Logistics Board, which brings together the senior
logisticians in the Department of Defense from the service
staffs, from the service Materiel Commands, from U.S.
Transportation Command, and from the Defense Logistics Agency,
and at that board we discuss how we are going forward and the
issues that we need to resolve to make all those things come
into compliance, and then the services manage their budgets and
how they do their business underneath that structure.
Senator Akaka. You last mentioned about the supply chain,
Mr. Estevez. What are some of the major supply chain management
challenges that DOD still needs to address?
Mr. Estevez. Let me start off by saying, and it is going to
be mostly in the area of inventory management and procurement
of that inventory. So our ability to forecast demand needs to
be better. We have a number of initiatives, things like I
discussed in my opening statement, readiness-based sparing, to
do that. We are drafting, as required in last year's National
Defense Authorization Act, a comprehensive Inventory Management
Strategy. We are using that opportunity to actually go after
some focused areas so that management not only of the forecast,
and the forecast should be better at our industrial activities,
at our maintenance depots, in other words, than out in the
deployed force, where things like environment and battle damage
and unintended consequences change the demand plan accuracy.
But collaboration between the buyers, the Defense Logistics
Agency and the Materiel Commands, and the users of that
materiel, that is probably No. 1.
Using our systems, and we have issues in some of our
systems--DLA probably has the best Enterprise Resource Planning
(ERP) that is out there--other services are working to
implement--to gather the data needed to more timely affect
buys, so that we don't buy more than we need. Even though that
materiel may be consumed down the road, it is a lost
opportunity cost that the money could have gone to something
more important. So that is probably the biggest area that I say
that we can really affect big change to the benefit of both the
warfighter and the taxpayer.
The final area we continue to work on is visibility. We
have pretty good visibility, and frankly, I think our inventory
accuracy is as good as anyone out there in the commercial
sector, given the amount of materiel we have and given the fact
that we deploy to places like Helmand Province, where tracking
it can be difficult. But we continue to work those processes,
as well.
Senator Akaka. Thank you. Let me call on Senator Voinovich
for his questions.
Senator Voinovich. I guess the first question I would have
is that you got started with this process. You had the Roadmap.
Now you have the Strategic Plan. The Department has been
criticized in terms of including outcome-based performance
metrics in strategic planning documents and, GAO says, failed
to include adequate outcome-based performance metrics in both
the Roadmap and Logistics Strategic Plan. Why is this the case
and how can this be remedied? Although I can't believe that,
Mr. Estevez, if I said to you, how have you judged your
performance over the last several years and what criteria did
you use? Now, I know that one of the criteria is customer wait
time, but what would you point to to show what metrics were
used to evaluate the performance of your operation in achieving
the goals that were set? And do you have a difference of
opinion with GAO in terms of their analysis of the issue of
metrics that you are using?
Mr. Estevez. Let me start at the top of that, how I would
measure, and as you pointed out, customer wait time has been
our consistent measure throughout. But I would go past that to
readiness and a customer satisfaction metric. So if I look at
our capabilities, if I look at the performance of a logistics
system as what it is doing right now in sustaining our forces
and deploying our forces to Afghanistan, which is about as hard
a place as we could have picked to go to war, short of
Antarctica, maybe----
Senator Voinovich. In fact, this morning on the plane
coming in, I had a public document that shows the circuitous
route you have to go through. It is just amazing. OK. Go ahead.
Mr. Estevez. And there are dangerous countries around there
that we are going through and diplomatically problematic
countries, to say the least. So nonetheless, and let me just
give you an example, in May of this year, the Marines in
Helmand had a fire in their supply support activity, in the
activity that sustains a good chunk of the Marine forces. There
are other ones in Helmand Province. A massive fire destroyed a
big chunk of the materiel that was there. Nonetheless, we were
able to reconstitute that in pretty much no time and we had a 1
percent uptick in readiness while we were doing that
reconstitution to the point where--and I was talking when I was
there 2 weeks ago--to the Marine Logistics Command, a Marine
one-star on the ground, who told me he had to put the brakes on
the logistics system for pushing the supplies to him so that he
could target the supplies he really needed right now and get
them out into the field. That, to me, shows a logistics system
that is working the way it is supposed to work for our deployed
forces. I can likewise give you good stories on Iraq----
Senator Voinovich. Have you ever sat down with anybody that
was in Iraq in the beginning to kind of compare and contrast
the situation that you had there versus what you have in
Afghanistan?
Mr. Estevez. In fact, today, and I guess he wasn't there
right at the beginning, the Director of Logistics for General
Rodriguez, the U.S. Forces Director of Logistics, was also
General Petraeus's Director of Logistics and is still there in
Afghanistan, in Iraq in the 2007 and 2008 time frame. So that
is not the beginning. And certainly I am around many
logisticians who were there and it is leaps and bounds better
than we are doing.
There are a number of reasons for that. Some of those are
political reasons and some of those are just that we are
looking long and that we have learned lessons and we are more
flexible and more adaptable, and that is all good. To me, going
forward, the trick is to codify those good things so that we
incorporate them, recognizing that you don't want to get down
to fighting the last war, the next war, and everything has to
be dynamic. And frankly, if you go to the commercial sector and
look at great supply chains, they have to adapt, as well.
But there is a massive difference between what we were
doing early on and what we are able to do right now in
Afghanistan and what we are doing drawing down, including
putting in depots and looking at those capabilities.
Going back to your measurements, that would be how I would
say, yes, we are doing great. With that said, I would also say
GAO has some legitimate arguments that there are areas we could
do better. I would call those the efficiency areas, more of the
business operations versus direct support for the warfighter.
Again, that is my No. 1 metric.
But I will go back to those things I talked about. Forecast
accuracy, we could do much better and we are driving to do
that. Some of those are not necessarily outcome-based metrics,
so it is customer readiness is the outcome-based metric. I need
a cross-metric underneath that and driving that relationship is
not as easy as one would like in our business.
So, I think you had a third question in there that I may
not have answered.
When I look at the way these plans have been drafted, we
drafted the first plan to address some of the things that were
laid out on the High-Risk List and we are still driving to
those initiatives and they are consistent over time. As you
point out, this is a complex area and transformation is not
overnight. I wish it was, so I wish we could get off this list
more than anyone probably out there right now.
Second, the Roadmap was a list of all initiatives across
the Department, not just the ones directed at that list. They
are encapsulated inside the Strategic Plan. So there is a
continuum of efforts as we move forward, and I personally think
this is a pretty good plan. Mr. Edwards has laid out some areas
where we could improve. We will look at those going forward.
But as I have discussed with him, I would also look at the
initiatives and how we are doing and driving them underneath,
the cost savings that we are garnering, the increases in the
response time, etc., and I think that is what we need to be
measured on.
Senator Voinovich. In my next round of questions, I will
give you an opportunity, Mr. Edwards and Mr. Solis, to comment
on what Mr. Estevez had to say.
Senator Akaka. Thank you. Yes, we will have another round
here.
Mr. Edwards, DOD supply chain management has been on the
GAO High-Risk List for 20 years. DOD, GAO, and this
Subcommittee have been committed to this issue. Can you tell us
what key factors GAO plans to examine when deciding whether to
retain DOD supply chain management in its upcoming High-Risk
List series update?
Mr. Edwards. Thank you, Mr. Chairman. We have mentioned
some of those issues in the past, and also Mr. Estevez has
mentioned some of them. We have had numerous conversations. You
have urged us to talk to one another. Recently, Mr. Estevez and
I met with Beth McGrath, Deputy Chief Management Officer, to
discuss what types of steps might need to go forward. We
recognize that there are some issues that are still out there,
such as visibility over some of the assets, also looking at the
supply chain projections of what are we going to need into the
future. And Mr. Solis will talk about some of the things that
he has recently observed in some of his trips to Iraq and
Afghanistan to complement the things that I am talking about.
But as we move forward, one of the things that we are
particularly looking for, Mr. Estevez has mentioned that they
will be issuing a mandated report that was part of the National
Defense Authorization Act of 2010. In that report, DOD is
required to address eight issues, and among those issues are
some of those very things that originally led DOD to have the
supply chain management or initially, at least, the inventory
part of supply chain management put onto the High-Risk List. So
we hope to see that plan when it comes out and hope that some
of these issues will be addressed.
Mr. Solis. Could I just jump in here just a little bit,
too?
Senator Akaka. Mr. Solis.
Mr. Solis. I think a couple other things, just very
quickly, and I think Mr. Estevez alluded to one. I think we can
focus on Iraq and Afghanistan, and let me say, I think for
Iraq, I think in terms of the briefings that you got, Senator
Voinovich, I am in agreement that I think the drawdown is
moving ahead as scheduled and I think everything from the
disposition of equipment to the movement of personnel, those
things, I think, are on time and moving quite well.
I think Afghanistan, I think from my view and some of the
work that we have done, the preliminary work, granted, it was
back in December, we still have to see how that is going to
turn out. I have some different things in terms of some of the
unit readiness pieces that I have picked up which I testified
about. Again, that was back in December. We are at a different
point in time and we are going to be taking a look at that. So
again, we will be looking at that in terms of making the
assessment of the high risk.
I think the other piece, and I haven't thought this through
completely, but the other thing I think, not only just for
logistics but particularly the supply chain, in terms of the
workforce, that has become a contractor workforce, particularly
for the current operation. When you look at the transportation,
the distribution, that is all becoming very integral in terms
of the fuel and supplies. How is that going to be built into
future operations?
And so I think the kind of thing that Mr. Estevez talked
about in terms of codification of these kinds of things, I
think are the kinds of things that we are going to be looking
for, as well.
Senator Akaka. Mr. Solis, distribution of materiel to
deployed forces in Afghanistan presents distinct challenges due
to the country's location, infrastructure, and its terrain.
Would you please discuss some of these key challenges.
Mr. Solis. And again, as Mr. Estevez alluded to,
Afghanistan is probably the worst nightmare for a logistician
to try to plan an operation, and so by many accounts, they have
done a great job. In terms of some of the challenges going into
this, I mean, there were things like limited visibility over
shipments. I think there is limited RFID capability coming out
of Pakistan. I think on the Northern distribution route,
because of security concerns by other countries, there is
limited visibility over that. It takes a number of days to get
those shipments from the United States through those different
routes. And then when they get within country, there are even
periods of time where they may have to wait outside the gates
because of security considerations. So there is a long stretch
of time just to get the equipment and supplies in.
I think in terms of just working in the North Atlantic
Treaty Organizations (NATO) environment, our priorities are not
necessarily the other NATO countries' priorities in terms of
getting key equipment or key supplies within a particular base.
There were limits on the infrastructure at the air fields,
the ramp space. Some of that was going to be taken care of
during the surge, but there were some other things that were
not going to be addressed during the surge. We still had
reports of some units, and this is going back to the prior
surge, to the spring and the summer, that still had not
received all of its equipment and supplies. Again, we haven't
looked at that going forward, and let me say I have attended
different drills or planning conferences where I think the
Department and the Army and the Marine Corps have sat together
to figure out how they are going to do this. So we are going to
have to take a look at that as to how it is working.
But I think there are a number of challenges. Afghanistan
is so much different than Iraq in terms of those challenges,
but I think there are a number of things that are there that
could limit the ability of the supply chain to work
effectively.
Senator Akaka. Thank you very much, Mr. Solis.
Senator Voinovich, do you have further questions?
Senator Voinovich. Yes, I do.
You have heard the testimony of Mr. Estevez. Your testimony
is very impressive, Mr. Estevez, about what has happened. On a
scale of 1 to 10, Mr. Edwards, going back to, say, 2006 or
2007--you pick the date and tell me where it is--what would you
rate the improvement in their performance in terms of the
supply chain management challenge?
Mr. Edwards. I think I would rather defer this one to Mr.
Solis. He has had a lot more of the time over in Afghanistan
and he is better positioned to answer the specific issue about
how Afghanistan has changed, if that is all right with you,
Senator.
Senator Voinovich. That is fine. I mean, I go back to
anecdotal stuff, when we were buying and selling supplies at
surplus, not having a lot of the equipment that was needed for
the warfighter, etc. That was really awful. So, Mr. Solis, why
don't you share with me what you think is really going on and
if they really wanted to do a better job, where would you focus
in on?
Mr. Solis. Well, let me just start, again, with the plan,
if I may first. The plan itself, I think was alluded to, that
there are metrics out there. In fact, one of the things that I
still think is lacking are overarching metrics. I will give you
one example.
One of the things that is in the plan is cost effective,
yet I can't find anything in the plan----
Senator Voinovich. Wasn't that the same thing you had to
say about the Roadmap?
Mr. Solis. Yes, sir.
Senator Voinovich. OK.
Mr. Solis. And so let me say this. I was pleased to see a
lot of the overarching plan that is there today covers a lot of
the same things that we have recommended that the Department
look into beyond just the supply chain, planning for the use of
contractors in future contingencies, not just Iraq and
Afghanistan, looking at their business processes for urgent
needs, supply chain management. So there are a lot of things
that are very positive in that plan from maybe the priorities.
But it is hard even there to tell which are the largest
priorities. It is hard to tell which ones are going to provide
the most cost effective solutions. For example, I think RFID--
--
Senator Voinovich. I was just going to ask about that.
Mr. Solis [continuing]. Is one that has a dual purpose, an
increase in visibility and potentially providing cost
effectiveness. And we are still looking for some of that. And I
think those are the kinds of things that if they were added to
the plan, and I know those are things that are going to be
added, I think, at some point, according to even the latest
version I see now, I think it would go a long way in terms of
the plan itself. And I think that would be very helpful in
terms of Members of Congress, different folks who have vested
interests, decisionmakers, about how the Department is doing
overall with respect to a lot of the initiatives and the goals
now that they have set out in this plan.
So I think there are still things, there are still some
details, particularly the metrics. I think another one might be
in terms of how they will continue to evaluate this, which is
one of the things that we talk about in any plan, you have to
be able to evaluate it. But again, there are a lot of things
out there in this current plan that I see as positives in terms
of the priorities and the kinds of things that they are going
after. But I don't know--and one more, if I could give--in the
planning part for future contingencies, I think the metric is--
all the contractor equities will be reviewed, but it doesn't
say by when. It doesn't say how it is going to be done. So I
think there are some of these details, and even if it was in an
appendix somehow or something where folks could look at that, I
think that would help a lot.
Senator Voinovich. How often do the two of you talk, Mr.
Estevez and Mr. Solis and Mr. Edwards?
Mr. Solis. We talk quite a bit.
Mr. Estevez. We do talk quite a bit.
Mr. Solis. In fairness, I think we have a running
conversation on different things. We agree and disagree on
different things. I try to tell them where I think things are
moving well. I think, again, the Iraq drawdown is moving pretty
well. I still am not sure about Afghanistan. I mean, I know
there are a lot of positives that are happening there. Don't
get me wrong. But I think in terms of is it as good as it could
be or are we doing the things--everything that we should be
doing, I think that--and we are doing some work that will try
to shed some light on the current efforts.
Senator Voinovich. One of the things that Senator Akaka and
I have done on a couple of instances is we have really worked
with GAO and the agency that GAO is reviewing. I think in the
whole Department of Homeland Security, for example, the
question was, are they moving forward, are they making
progress, in integrating the Department's functions? We had
hearings where DHS said, we are doing one thing and GAO said
DHS was doing another thing and there wasn't a meeting of the
minds. So we have been trying to get them together to kind of
get a consensus on what needs to be done. A more narrow
initiative would be security clearance process, which we are
hoping gets off the GAO High-Risk List.
But the fact is that the agency and GAO have sat down. They
have talked to each other. They have reconciled some
differences. They have a plan. There is a meeting of the minds
as to what needs to be done, and then you have something that
you can look at and there is an agreement on what the metrics
should be. Now, I am sure that is a lot of work, but it seems
to me that if you haven't gone through that exercise, you ought
to begin it and figure out just here is what we are doing, and
you talk to each other and try to get, as I say, some meeting
of the minds in terms of what the metrics are going to be and
what is going to be accomplished, and from my selfish point of
view and Senator Akaka's and the country's, when are you going
to get off the High-Risk List and what is it going to take in
order for it to happen?
Mr. Solis. And I would say again, I think for us, we can
make the recommendations. I can talk to Mr. Estevez.
Ultimately, Mr. Estevez, and the Department have to decide
which route they are going to go.
Senator Voinovich. Yes, and the other thing I am interested
in knowing if you are not able to hit your targets, is it
because you are not getting the budget support that you are
supposed to be getting from the Department, or are we doing
something over here in Congress that is standing in your way.
What are the hurdles that you are having to get over, that if
you didn't have those hurdles, you could be moving at a quicker
pace than you currently are?
Mr. Estevez. Let me just address a couple of things there.
If you go back in time when we first developed the High-Risk
Implementation Plan, Mr. Solis, I, and OMB, crafted that
together, and at one point, we were meeting probably quarterly,
if not more. We are not quite at that point now, though we see
each other quite often. When the Secretary announced his effort
to drive efficiencies in the Department, I asked both of these
gentlemen to come over and meet with me and look for ideas on
where we could do it. So there is definite collaboration going
on inside the Department.
When we agree, that is easy. When we disagree, we disagree
on some of the metrics, we are going to go where the Department
needs to go. And we think we are doing the right thing. So it
is not that I am trying to not do what GAO says. It is where we
have a disagreement over technique.
For some of the things, I would love to get a cost metric.
That is easier said than done, on how you put a cost on
management of inventory inside the Department. It is easy if
you are Wal-Mart. Your hold time versus your sales, it is done.
For us, holding a bunch of inventory that I am holding for war
reserve, I am holding inventory that I bought for economic buy,
so I bought more than we needed over the objective, we are
holding Navy inventory. We have weapons systems that are raging
that we are just going to hold on to. So it is a more difficult
thing.
On the other hand, I would also say in that case, for
example, that I would rather have the inventory that I might
need for that person in Iraq or Afghanistan than not have it.
It is worse not to have it.
So there are areas where we need to work through. We
continue to work with GAO on honing the metrics. As you know,
we made a run at getting off the list back when Ken Krieg was
the AT&L. Mr. Solis and I were over at OMB pushing through
that, didn't quite get there. Nonetheless, my view is the work
that we are doing is not about a list. It really still goes
back to what is right to do for the warfighter or what is right
for the taxpayer. I would love to get off the list at the same
time that we are doing that.
Senator Voinovich. Well, I would encourage you to get
together a little bit more and try to dot the ``i''s and cross
the ``t''s and move ahead, not only for the betterment of the
warfighter, but I think that with the financial situation that
we have in our country today, with this unbelievable national
debt, with budgets that are not being balanced, the American
people finally are realizing that last year, out of every
dollar we spent, we borrowed 41 cents.
I mean, our fiscal situation is really ratcheting up and I
think that in terms of our Defense Department, there is going
to be a lot more scrutiny about what you are doing, how
efficient you are, what are you doing with your budget, with
acquisitions and what are some of the tradeoffs and so forth.
The big light, I think, in the next several years is going to
be more on you than ever before. The more that you can
demonstrate progress, the better. And you have made progress.
The efficiencies that you brought to bear, which are important
to the warfighter, will need to continue.
Second of all, you need to try to identify the cost savings
to the Department that have resulted from supply chain
improvement efforts. For example, we started out with this and
today we are over here. And I don't mean fudge on the numbers,
but to be able to identify, these are specific things that you
can do, even though, as you point out, that may be difficult on
occasion.
Mr. Estevez. And I would say that my guidance from the
Secretary, from Secretary Lynn and certainly from Secretary
Carter, who I see daily, is to do just that. So we will take
you up and I will work with these gentlemen to press forward,
sir.
Senator Voinovich. Thank you.
Senator Akaka. I want to thank you very much.
Let me just follow this up. Of course, there is no question
that whatever the troops need, we need to move them. The supply
chain has to be used and we just hope that it gets there in a
timely manner.
During the last discussion, talking about metrics, let me
just ask this question. Can you tell us how your efforts and
the metrics being used to gauge effectiveness of these actions,
can you explain a little more about that? What do you do with
those metrics?
Mr. Estevez. Sure, and again, different initiatives have
different looks. Every one of them were, every single
initiative to drive cost out versus an initiative to drive
effectiveness. We are calculating the savings. So something
like the Defense Transportation Coordination Initiative (DTCI),
we have identified savings out of the transportation accounts.
Those are real savings that the services accrue. And people are
getting their stuff faster, so that is a true benefit.
Even in areas like movement to Iraq, for every 500 MRAPs
that we move what we call intermodal move--most MRAPs we were
flying in out of Charleston direct into Afghanistan, a fairly
expensive move but important to get those vehicles out there
for the force. Once we had enough on the ground, we moved to
something we called intermodal movement. So we move them
through countries in the Middle East where we then fly them on
a leg. You can turn the airplane that much faster put more on
the ground. It is actually operationally more effective in
getting more MRAPs on the ground, and $55 million for every 500
MRAPs moved.
That is one of the ways, even though in January when we
looked at it and said, to close the force, there is no white
space. How are we going to move all these MATVs, which was the
contract in August, over 4,000 on the ground being used in
Afghanistan today. But we managed to squeeze them into the flow
at a rate that they are out there, plus other MRAPs. We moved
from what we thought was going to be 500 a month to, at some
points, 1,200 a month being fielded in Afghanistan, and
calculating cost savings while they are doing it.
So it is a variety of things, looking at readiness, if it
is a direct readiness output, like the readiness base sparing,
and calculating those cost savings. Now, what happens, of
course, is that in the services, they take those savings and
apply them to other places. I don't necessarily see them in the
logistics budget because that is not where they are. They are
operation and maintenance, or operational and support account
savings. Those monies can be fluctuating. If it is a direct
acquisition program, then we can calculate that, or if it is in
the working capital fund, I can see how that moves around. So
it is tracking those things, customer wait time, readiness,
either savings or cost avoidances would probably be the three
areas that I look most.
Senator Akaka. Well, I want to thank you very much. We have
further questions that we will send to you. But I want to thank
you for appearing here today.
As we have heard, supply chain management is critical and
directly affects our men and women in uniform in the field. The
Department of Defense must continue to improve its ability to
deliver the right materiel to the right place at the right
time. Although much progress has been made in addressing the
DOD supply chain management weaknesses, many challenges remain,
and I am so glad to hear that you continue to talk to each
other.
As always, I want to thank Senator Voinovich, who has been
a leader on this issue. While our time together grows shorter
with each passing week, we have a joint commitment to improve
supply chain management and remove it off the GAO's High-Risk
List.
The hearing record will be open, as I said, for 2 weeks for
additional statements or questions that other Members may have.
This hearing is adjourned.
[Whereupon, at 3:35 p.m., the Subcommittee was adjourned.]
A P P E N D I X
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