Supply Siders

kpeters@govexec.com

In an analysis of the Defense Department's inventory of spare parts and supplies, General Accounting Office auditors discovered the Defense Logistics Agency had in stock more than 618 identification markers for use on military aircraft. The problem was, only 103 were needed to meet current and reserve requirements. Nonetheless, despite having more than 500 excess markers, DLA had 100 more on back order.

At 65 cents a pop, the excess markers can hardly be considered scandalous for a department with an annual budget of $260 billion. But they are an indication of a serious problem for the Pentagon. In a February report, "Defense Logistics," GAO found $34 billion of the Defense Department's $69.6 billion inventory of spare parts and supplies exceeded requirements. "Although DoD had reduced its inventory from $77.5 billion since September 30, 1993, about half of the inventory continued to be unneeded," GAO reported.

The department's inventory management problems are so significant, GAO designated it a high-risk area. In its High-Risk Series report, "Defense Inventory Management," also released in February, GAO auditors noted, "DoD has spent billions of dollars on inventory that is not needed to be on hand to support war reserve or current operating requirements and burdened itself with managing and storing the unneeded inventory."

Inventory management problems and their potential impact on future military operations have not escaped the attention of Pentagon officials. Joint Vision 2010, outgoing Chairman of the Joint Chiefs of Staff Gen. John Shalikashvili's blueprint for the military of the 21st century, describes the need for a smaller, more flexible and responsive logistics system.

"The DoD inventory management system affects every soldier, sailor, airman, and Marine and is crucial to their ability to perform their peacetime and wartime roles," said John Phillips, deputy under secretary of Defense for logistics at a May hearing before the Senate Committee on Governmental Affairs. The Pentagon's massive inventory, which is a direct result of the huge military buildup of the 1980s, is too large and inefficiently managed, Phillips said, although he disputed GAO's findings. The Pentagon anticipates future uses for much of the inventory GAO determined was unneeded, he said.

As the military has moved from a Cold War force prepared for a major conventional war in Europe, where troops and materiel were already in place, to a smaller force based in the United States that responds rapidly to crises, often in remote regions of the world, demands on the logistics systems have increased dramatically. They are forcing radical change in the way the Defense Department manages materiel and keeps troops supplied during operations.

To facilitate this shift in requirements, the Defense Advanced Research Projects Agency (DARPA) is developing new technologies to better manage materiel needed to move and supply troops and keep operations running smoothly.

"As a nation, we must be able to project and sustain overwhelming combat power sooner. Or in other words, put the right stuff in the right place at the right time with full knowledge that our inventory of supplies will be smaller," said Brian Sharkey, DARPA's program manager for the Advanced Logistics Program, in a speech introducing DARPA's plans last year. No one understands that need more than the soldiers, airmen, sailors and Marines charged with executing military operations.

Lost and Found

During the Persian Gulf War, the United States shipped 3.5 million tons of materiel to southwest Asia in preparation for what was to become a resounding vindication of U.S. military training and competence. The logistical feat was the equivalent of moving the entire city of Atlanta, complete with its people, food, belongings and cars, halfway around the world, Sharkey said.

For troops on the ground, however, the feat was less than impressive.

U.S supply officials in Saudi Arabia found themselves crawling through huge shipping containers looking for supplies because there was no other way to determine what was inside. Thousands of containers had to be opened, inventoried and resealed after they arrived in the desert, hampering operations and frustrating troops.

Despite the unopposed buildup in the Gulf, host nation support and access to the best port facilities in the world, the operation was inefficient, Sharkey said. "Innumerable things were lost in the sheer quantity after arrival, or, because the user didn't know whether [items were] en route, [they] were sent again and again."

That supply orders could be shipped "again and again" was a testament to the fact that the United States had for years been stockpiling materiel to fight the equivalent of a third world war. But the sheer magnitude of the defense supply system has also become an albatross around the necks of logisticians charged with supporting a smaller, more mobile military with increasingly smaller budgets and personnel.

The Gulf War experience sent a wake-up call through the Pentagon.

"The current approach is to overwhelm the problem with brute force, [but] in doing so, we must incur an enormous expense which can no longer be tolerated," Sharkey said.

Problems in inventory management stem in large part from outdated acquisition systems and procedures. "DLA gets very little information about when demands will hit," Sharkey said. "This makes them plan based on high-level forecasts, and they then get caught by surprise when the planning process finally gets around to low-level planning by the units preparing to deploy and creating more realistic requirements.

"There are also no ties between plans and execution. Because the processing from requisitions to orders is sequential, DLA has no way of feeding back information about availability, trade-offs, or opportunities that it discovers in the course of finding sources or negotiating contracts. They get no information on plan changes and so buy too early, too late, or just plain wrong," he said.

"All these problems are exacerbated by the speed of execution, because 80 percent of the procurement transactions are still manual processes. . . In the worst case, where a requisition comes in that requires a made-to-order buy, it can take nearly half a year," Sharkey said.

Such inefficiency drives up costs and results in excess inventory, based on inappropriate forecasts, he said. To address these problems, DARPA is developing advanced information technologies to fundamentally change the way materiel is acquired, stockpiled and distributed. In Sharkey's vision of future logistics operations, inventories will more accurately reflect requirements, delivery times will be fast and reliable, and logistics and tactical operations will be closely linked to respond to evolving needs on the battlefield in a way that is not now possible. While testing of the Advanced Logistics Program will begin next year, Sharkey estimated it will be at least a decade before DARPA's vision becomes a reality.

In the meantime, the Pentagon is using available technology to more accurately track materiel as it travels through the supply system. Adopting technologies similar to those used in commercial shipping operations, such as placing radio frequency tags on containers for electronic tracking, logisticians can now monitor and manage supply lines from military depots through delivery in the field. As the lead agency for the tracking program, dubbed Total Asset Visibility, the Army tested and is using the technology in Bosnia. The program is now being expanded across the military.

Inventory Management

DLA also has implemented a number of programs to reduce its excess inventory and provide faster delivery of supplies. By relying on direct vendor delivery of medical supplies, pharmaceuticals and some food items, the agency has slashed inventory costs and cut delivery times for those items. For instance, over the last three years DLA's inventory of subsistence food items has been cut by 76 percent, delivery time by 93 percent and operating costs by 31 percent, Phillips said.

Today DLA is in the early stages of a program to track materiel after it has been distributed to the military services. Now, when an order for supplies comes in, if DLA does not have the particular items in stock, it can check Army, Navy and Air Force stocks before ordering new supplies.

"This has given us another place to look for assets," says Robert Vitko, an inventory management specialist at DLA. "If we have the materiel on the shelf, we immediately ship it to them. If we didn't have it in the past, we would have to place it on back order, and go out and either produce it or buy it from some manufacturing firm. Now if we don't have the materiel, we can access the retail world-all the people we have already sold this materiel to-and see if they have it on their shelves."

Essentially, DLA acts as a broker for goods stocked by one of the services. The program is in its early stages and DLA does not yet have visibility into all inventories. Nonetheless, DLA officials estimate the agency already has shipped nearly $50 million worth of materiel from inventories that it once would have had to order.

Training logistics personnel will be critical to the program's success, says Brenda Meadows, an inventory management specialist at DLA, who with Vitko and Karen Townley in DLA's Columbus, Ohio, center developed and implemented the program. Because the services use different procedures for shipping and handling supplies, asking personnel in the Navy to fulfill an order for the Army or Air Force initially proved confusing.

DLA expanded the program to the Marine Corps in July and expects it to grow tremendously. "This is just the tip of the iceberg," Meadows says.

As the so-called "in-storage visibility" program is expanded, it eventually will significantly cut costs and reduce the department's inventory of spare parts and supplies. In 1996 alone, during initial testing, the program recovered implementation costs of about $1 million and offset procurement at more than $20 million, for a 20:1 return on investment, Meadows says.

The Defense Department has been aggressively cutting inventories since 1990. In inflation-adjusted dollars, DoD inventory was $91 billion at the end of FY 1989, $68 billion at the end of FY 1996, and is forecast to decrease to $58 billion by FY 2003, Phillips said at the May hearing. "It is crucial to note that inventory reductions are also exceeding force structure reductions," he added.

In its High-Risk Series report, GAO acknowledged the Defense Department has made some headway in reducing its inventory from Cold War levels, but says it hasn't been enough.

"Unless DoD takes more aggressive actions, its inventory management problems will continue into the next century," GAO found.

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