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[H.A.S.C. No. 106–5]



FOR FISCAL YEAR 2000—H.R. ????






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FEBRUARY 25, 1999


House of Representatives,
Committee on Armed Services
Military Readiness Subcommittee,
Washington, D.C. Thursday, February 25, 1999.

    The subcommittee met, pursuant to notice, at 1:22 p.m., in room 2118, Rayburn House Office Building, Hon. Herbert H. Bateman (chairman of the subcommittee) presiding.


    Mr. BATEMAN [presiding]. The subcommittee will please come to order.

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    I apologize to members of the subcommittee and to the witnesses and anyone else adversely affected by the fact that we are getting started a little later than scheduled or desired. But, the time has come and I hope we can now proceed to business.

    I would like to welcome everyone to this Military Readiness Subcommittee hearing. Yesterday, the subcommittee held a hearing that began our review of the President's Fiscal Year 2000 budget request and the adequacy of that budget request to sufficiently support the critical readiness needs of our Armed Forces.

    This hearing looks at an area of the military that is often forgotten when we discuss readiness. However, I am convinced that it is a critical segment of the readiness equation. I am talking about the logistical support and sustainment of our military forces.

    Today's hearing will, in part, look at the processes currently used by the military to manage logistics, especially the purchase, storage and distribution of spare parts within the military services. In addition, we expect the witnesses to address their ongoing efforts to improve the visibility of the military's entire inventory.

    The committee is aware of the many challenges that are associated with the purchase, storage, and distribution of the myriad of supplies and parts required of a large military force, especially a force that is expected to go to war with little or no notice. However, reports that the DOD has large inventories in excess of current needs while at the same time experiencing shortfalls in some inventory items where they are needed makes me wonder about the procedures in place to manage the true needs of the military.

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    I have become particularly concerned when I became aware of the problems created by the lack of spare parts at the military unit level. The readiness implications for these units and the personnel who must maintain the equipment is staggering. From visiting with units in the field I know it takes a tremendous effort by maintenance personnel to maintain equipment to the standards necessary to go to war.

    The absence of adequate parts only makes the problem more difficult and, sometimes, impossible. When parts are not available, personnel often must take parts from other like pieces of equipment to get at least one up and going. This process, called ''cannibalization'' of parts, creates additional workload for the maintenance personnel and often creates additional problems in that some 25 percent of these exchanges of parts results in additional breakage and additional maintenance work.

    The shortages of parts have a direct impact on the readiness status of our combat forces. We continue to hear reports that indicate the mission capable rates of key combat systems continue to slip throughout the military. For example, the Air Force aircraft mission capable rate has fallen from 84.6 percent in 1990 to 74.3 percent in 1998. This slippage in mission capable rates has been the direct result of the lack of spare parts. Specifically, total non-mission capable rates caused by a lack of supply of spare parts has increased steadily from 6.4 percent to 13.9 percent between fiscal years 1990 and 1998.

    It is my belief that a large part of the problem comes from an inadequate amount of money being made available to purchase the parts but, I also believe that problems still exist with the visibility of the inventory of parts that do exist in the warehouse or somewhere else in the distribution pipeline.
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    The General Accounting Office believes that the vulnerability of in-transit inventory to waste, fraud, and abuse is an area of great concern. In February 1998, GAO reported that DOD did not have receipts for about 60 percent of its 21 million shipments to end-users in fiscal year 1997. Later work done by GAO shows that over the last 3 years, the Navy alone reportedly wrote off as lost over $3 billion in inventory in transit. The committee is aware that DOD has had many difficulties in obtaining timely and accurate information on the location and status of equipment and supplies. The continuing lack of adequate visibility of the materials and supplies substantially increases the risk that millions of dollars will be spent unnecessarily to acquire more items than will be needed if a clearer, more accurate picture existed of items in the inventory and in transit.

    My ultimate concern, however, is when a unit is preparing for combat, it may be affected by the absence of a critically needed part. Today, we hope to learn about DOD's effort to develop a total asset visibility program for tracking on a continuous basis all equipment, supplies, and spare parts as well as requisitions.

    It disturbs me that we first heard of the development of the total asset visibility program as early as 1995 and we are now told it may be as late as 2004 before we see implementation. We know that current business practices in the private sector enable a customer to order supplies as they are needed and receive them within hours. Why it is taking so long for DOD to develop an asset visibility system that can be accessed and utilized by all services and agencies remains a mystery, and I hope our witnesses can enlighten us today.

    Another area I hope our witnesses will enlighten us on is the current status of DOD's effort to comply with the language in last year's committee report, H.R. 105–532, which required DOD to review and report to the committee by December 1, 1998 on its efforts to improve DOD's information technology management program. Of particular concern to me because of the many computer systems associated with the logistics community is DOD's plan to perform the required vulnerability assessments and operational testing for year 2000 compliance and contingency plans. It is my hope that we will be assured that adequate tests are being conducted and that we are on schedule to ensure the continuous flow of spare parts and supplies in the year 2000.
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    We have two panels today. The first is made up of representatives from the General Accounting Office. Mr. Henry L. Hinton, Jr., the Assistant Comptroller General will address GAO's assessment of DOD's logistics capabilities and shortfalls in the area of logistics inventory. Also from GAO in the first panel is Mr. Jack Brock, Director, Information Management Issues, who will speak on DOD's efforts to take adequate steps to ensure all information technology systems will function properly in the year 2000. We certainly look forward to their testimony.

    The second panel, which consists of representatives from DOD and the military services, will provide us DOD's perspective on the issues I have outlined as well as additional areas in which we have asked them to comment.

    Before we get to hearing from our panel, I would like to yield to my friend and colleague from Virginia, Mr. Sisisky, for any statement that he may choose to make.


    Mr. SISISKY. Thank you, Mr. Chairman. I join Chairman Bateman in welcoming our distinguished witnesses to today's Readiness Subcommittee hearing on military logistics capabilities and/or shortfalls. Mr. Ortiz, the Readiness Subcommittee ranking member, is not available due to illness today but he would have expressed his appreciation for this hearing being conducted.
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    It is my understanding that the motivation for this hearing today is to receive information that will help us to better understand what the Department is doing to improve its logistics operations. That is to say what is purchased, in what quantity, how it is purchased, how it is secured, and how it is distributed. In that regard, I look forward to your testimony.

    Mr. Chairman, I also know that while the matters we will discuss here today are important to the Department, our understanding of this complex matter is essential for us in our oversight role. As such, I want to reserve as much time as possible so that we can receive the testimony from our witnesses and so that all of our Members present can ask questions after the presentations have been made and I yield back the balance of my time.

    Mr. BATEMAN. Thank you, Mr. Sisisky, and I apologize to all for the length of my opening statement. I would extend the opportunity to any other members if they had one to——

    Mr. SISISKY. I didn't mean anything by that——

    Mr. BATEMAN [continuing]. Do that at this time——


    Mr. BATEMAN [continuing]. And if they would prefer, of course, they could be submitted for the record.

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    If there are none, then, Mr. Hinton, we look forward to hearing from you.


    Mr. HINTON. Thank you, Mr. Chairman. I appreciate the opportunity to testify today on the Department's logistics capability and shortfalls. In addition to Mr. Brock who is joining also, also joining us is Mr. Warren who has headed up a lot of the work that we have done in the logistics area. And, with your permission, I would like to have our statement entered into the record and I will summarize it.

    Mr. BATEMAN. Without objection.

    Mr. HINTON. You asked us to look at inventory issues as they relate to DOD's operations and readiness. My testimony today will focus on the results of our recent work pertaining to the status of DOD's secondary inventory and some key issues that we have identified.

    Our work, Mr. Chairman, continues to show weaknesses in DOD's management practices that are detrimental to the economy and efficiency of operations and cause operational problems for DOD. DOD continues to maintain large inventories that may be as much as 60 percent in excess of its current needs. It has made some progress in reducing these inventories but further reductions are needed.
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    Additionally, other action is needed to avoid unnecessary new purchases. DOD spends approximately $13 billion a year on new inventory items. While new purchases may be initiated to meet justified requirements, those requirements frequently change after items are ordered but affected orders are not always canceled. We have found that, as of September 30, 1997, DOD did not need about $1.5 billion or 18 percent of the inventory that it had ordered to meet current requirements. Not canceling these orders further exacerbates DOD's excess inventory condition and also prohibits spending on other priority defense needs.

    Despite having items in excess of its current needs, DOD can also be faced with situations of inventory shortages and other related supply problems that can adversely affect operational requirements. In our ongoing review of Air Force supply management, we found that shortages in aircraft spare parts caused a degradation in mission capable rates—as you referred to, Mr. Chairman—for key aircraft, including the B–1B, C–5 and the F–16. Shortages of spare parts occurred because of inaccurate forecasting of inventory requirements and some other management weaknesses.

    The vulnerability, as you have mentioned, of in-transit inventory to waste, fraud, and abuse is another area of concern. In February 1998, we reported the DOD did not have receipts for about 60 percent of the 21 million shipments to end-users in fiscal year 1997. Further, in examining in-transit issues in the Navy, we found that weaknesses continued to exist in exercising control over the inventory in transit. As you mentioned, over the last 3 years, the Navy wrote off as lost over $3 billion in inventory in transit, including some classified and sensitive items such as aircraft-guided missile launchers, some military night vision devices, and some communication equipment.
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    For many years, DOD has had difficulties in obtaining timely and accurate information on the location, movement, status, and identity of units, personnel, equipment and supplies, and the capability to better manage those assets using information. To address this problem, the DOD gave renewed emphasis to its Total Asset Visibility program for tracking equipment, supplies, and spare parts as well as requisitions on a continuous basis. However, DOD does not expect to fully implement this program until 2004—exactly the point, Mr. Chairman, that you raised. It has been a moving target since the early 1990's.

    Program implementation problems have resulted largely from long-standing management issues that have hindered other management initiatives. These include cultural resistance to change, service parochialism, and the lack of outcome-oriented goals, performance measures and management accountability.

    DOD must take a short-and long-term approach to solving its inventory management problems consistent with the requirements of the Government Performance and Results Act. In the short term, DOD needs to emphasize the efficient operation of its existing inventory systems. In the longer term, DOD must establish goals, objectives, and milestones for changing its culture and adopting new management tools and practices.

    Since 1991, we have issued 11 reports that identified significant opportunities, building on best private sector practices, to improve logistics operations and lower costs. DOD has introduced some best practices but more could be done and the Department is moving in that direction, which I think is a positive note.

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    In addition, DOD has recognized the need for improvements in the inventory management area and addressed the issue in implementing requirements of the Results Act. One performance goal included in DOD's recently issued performance plan for the year 2000 is to streamline the defense infrastructure by redesigning the Department's support structure and pursuing business practice reforms.

    Among the indicators that we see in the plan that DOD would track are logistics response time, material asset visibility and accessibility, and reduction of supply system inventory of repair parts and finished goods. We encourage DOD to take more aggressive actions to correct systemic problems so that its inventory management problems will not continue well into the next century. And, corrective actions must be built on the strong underpinnings of management information systems capable of providing reliable and timely information needed for management decisionmaking.

    With that backdrop, Mr. Chairman, I would like to turn it over to Mr. Brock, who will speak to the information management issues that we have.

    [The prepared statement of Mr. Hinton can be found in the appendix.]

    Mr. BATEMAN. Thank you very much, Mr. Hinton.

    Mr. Brock.

    Mr. BROCK. Thank you, Mr. Chairman. I would also summarize my statement and also request your permission that it be put in the record.
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    Mr. BATEMAN. Without objection.

    Mr. BROCK. Every year, Mr. Chairman, the Department spends $10 to $11 billion a year on information systems and tens of billions of dollars a year or more on information technology for weapons systems. A massive amount of the budget goes into these information systems and that money is significant in itself. But, even more significant are the types of activities that these information systems drive.

    I think it is fair to say that every facet of the Department's operation is largely influenced and even controlled to some degree by information technology. And so, the wiser you spend these technology dollars, the more bang you get for your buck and that directly impacts readiness.

    Now, a few years ago, we put the Department's information management on our high-risk list; we don't think they are doing a very good job. We don't think they follow their controls, we don't think they have visibility over projects, there are no performance measures, and there seem to be cultural barriers—as Mr. Hinton referred to—between the various services that limit effective coordination and cooperation in selecting the right types of systems and monitoring those systems and making sure that they are effective.

    As a result, GAO, through a number of reports, has identified specific systems that have failed, sometimes to the tune of $500 million or more, or systems that didn't live up to expectations or processes—such as in the telecommunications—where there are vast inefficiencies with duplicate networks, duplicate ways of communicating, and just poor controls over the processes in themselves. The Department has generally agreed with our findings in our reports, and I think have agreed that changes need to be made in those processes.
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    Last year, the full committee, I think at the urging of the subcommittee, said, you know, we agree with you, GAO, and you asked the Department a series of questions that were really designed to say, how are you implementing the Clinger-Cohen Act? That gets to the heart of it. The Clinger-Cohen Act was enacted about 3 years ago and it really addresses issues throughout government.

    DOD is not alone in facing these problems. And, they said, you need to manage information better. You need to have processes that look at expenditures, rather than as expenses, but as investments. You need to have ways of controlling these investments. You need to have ways of monitoring performance. You need to make sure that you have a chief information officer that is in place to make sure that this money is being spent wisely and the results, in fact, meet expectation and the results support mission program goals. That's the objective of Clinger-Cohen.

    Three years after the fact, the Department is still trying to implement Clinger-Cohen. They are running a little bit late. Your committee report, last year, requested that the Department address seven issues. First of all, the status of their overall management information technology strategic plan.

    Second, performance measures and plans for implementing those performance measures.

    Third, barriers to achieving the goals of information management strategic plan and performance measures.
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    Fourth, policies and directives for implementing IT management reforms that were required with the Clinger-Cohen Act.

    Fifth, actions taken to integrate the Clinger-Cohen Act into DOD's planning program and budgeting system.

    Sixth, actions taken on GAO recommendations on our migration report—and I will discuss that in just a few moments.

    And, then, last, DOD's plans to perform vulnerability assessment and operating testing for year 2000 compliance or contingency plans.

    Now, the Department did, in fact, respond to you on the first six of those items and will be responding to you later. And I think that Dr. Langston addresses the seventh point today on the year 2000.

    You further asked the GAO review this plan and comment on it and talk about its adequacy. And, that, sir, is what I am going to do briefly this afternoon.

    I would just like to highlight the results of a few of these points. I won't get into all of them. They are all identified in our statement. But, I would like to say, before getting into that, that we have a lot of confidence in Dr. Langston and his team. We think they did a credible job in preparing this plan. We think they are sincere in their efforts. And, we believe that the processes and the steps that they are developing, if implemented, will go a long ways toward correcting the problems that GAO has identified in its high-risk report and its individual reports. However, DOD has a history of good plans, good intentions, and good processes which are not implemented. And, we hope that is not the case here and we have some specifics about that, as well.
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    Just to highlight a few of the items, first of all is DOD's strategic information reform management [IRM] plan. A good strategic plan is really the backbone for many of the Department's activities. And for that strategic plan to be effective, it needs to be linked to the Department's overall missions and goals. It needs to provide for resources. It needs to have control mechanisms that can be established and put in place that will allow the Department to, in fact, reach those objectives laid out in the plan. We have reviewed the plan. The Department has a plan and it is a pretty good plan. If implemented, again, it should facilitate the Department's information management.

    We have three levels of concern with the plan. First of all, the latest draft has deleted the outcome and outcome performance subsections that are linked to individual goals. This is pretty critical. If you don't measure what you want to achieve, it is very difficult to determine if you are meeting the goals, if you are reaching the goals, if there is a gap that you need to cover, and it is very difficult for people, such as yourselves, to provide adequate oversight over how those goals are being reached.

    Second, the plan does not identify resources that are needed to reach the goals, to carry out the plan. And, again, without a commitment to resources, without an identification of the resources, and without a plan on how to spend those resources, it is difficult to achieve the goals.

    And finally, the subordinate plans of the services that support the overall plan also don't identify resources, nor does the Army plan, in fact, correlate the Department level plan. It is almost like an outlier.
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    Another item that I would like to discuss that are in your requirements are the very important efforts to implement performance measures and to establish an ''investment portfolio'' approach to managing or to make better IT decisions.

    And, by ''portfolio'' we mean, rather than manage the Department a system at a time and make decisions a system at a time, you look at like systems, like processes and what is required to support those processes; and, in fact, you develop a portfolio of activities, processes or systems that support that. And, by looking at those activities in that fashion. You begin to eliminate stovepipes that arise when you look at one system at a time. I think in the past, the Department's management control activities have been more focussed on individual systems, as opposed to this ''portfolio'' approach.

    We think that the Department's efforts in this regard in establishing a model of a ''portfolio'' management process and a model for developing performance measures are very good. In fact, a member of my staff participates with the Department on an advisory board to overview the investment control processes. And, in fact, the lack of measures and processes have been a major barrier in making sure that the right projects are selected and that results are matching expectations. So, again, we are very supportive of what the Department is doing.

    However—and this is a big however—it has been 3 years, as I mentioned earlier, since the enactment of Clinger-Cohen. We feel these processes should have gotten off the ground earlier, and we are concerned about the length of time it has taken the Department to implement the processes. Further, they still have to be integrated in the Department's real decisionmaking process—and that is the planning program and budgeting system. And that is going to be difficult to do.
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    Further, we have a concern that in your requirements that you asked the Department to talk about overcoming barriers to implementing real change. And, the Department's, I think, one paragraph response to that, by implementing many of these processes, in fact, these barriers would be overcome. We disagree. In fact, in our reports, we stated that barriers to change have, in fact, been the major impediment to the Department's making real changes in its management control processes and we are not confident that, by merely adopting new processes, the Department will, in fact, be able to overcome the barriers.

    Finally, in response to the recommendations, we made a number of recommendations 2 years ago in what I consider to be a milestone report, and that is where we commented on the Department's control processes for its so-called ''migration systems.'' And, these migration systems were when the Department was essentially selecting the best of breed of their many duplicate systems. They were going to restructure some of these systems, update them, et cetera. And, they, in fact, would become the backbone systems for many of the Department's business processes.

    We found that there were absolutely no controls for the most part—I will be careful about absolutely but there were very few controls—that were in place, that were being followed, even though there was a process for that for approving these systems. We found after reviewing these that the Department was making decisions on which migration systems to push forward with no assurances at all that the best systems were being selected, no assurances at all that cost efficiencies would be realized, and no assurances at all that business processes would be improved.

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    We recommended that the Defense require its components to rank the development and the systems justifications and to complete those on an expedited basis. We also recommended that the CIO certify these adjustments and include an analysis of operational alternatives that clearly demonstrate that continuing with migration would be the best solution for improving performance and reducing cost in functional areas. We also recommended that economic analyses be developed that showed the rate of return on investment or other mission benefits that justify further investment in those processes. And finally, we recommended that documentation be developed that shows that the systems would, in fact, comply with applicable Defense technical standards and data standards.

    The Department concurred with most of these recommendations, although not all of them. Your report requested the status of the Department in taking action on our recommendations. And, they have not taken action. They have not completed action on any of the recommendations about a year and a half after the report.

    And, our recommendations were aimed not only at bringing meaningful change to the Department's decisionmaking and oversight environment for migration systems but to actually facilitate its implementation of the Clinger-Cohen Act and to rectify the weaknesses that really pervade the whole, broad spectrum of IT efforts, including management of its telecommunications, its computer systems, and the Year 2000 program.

    I would like to spend just a few seconds, sir, talking about the Year 2000 program. If you read the quarterly reports the DOD submits to OMB, you will note two things: first of all, that the Department is running behind the OMB for system remediation; and second, that they are making a great deal of progress in catching up. In fact, one of the earlier barriers to the Department getting going was that it was managing its Y2K program just like it was managing its other information management programs. There were no controls, there were no centralized reporting, and there were cultural barriers that really optimized completion of a Y2K program within hundreds of individual components throughout the Department.
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    One of the great strides that the Department has made over the past year, I think, has been the energizing of the top management to get behind the Year 2000 program. I attend Dr. Hamre's regularly scheduled meeting on Year 2000, he has all of his top executives sitting there; and I can say, with a lot of confidence, that they have overcome many of the cultural barriers in dealing with the significant problem. I don't think they have all the management processes in place they need to deal with it, but they have overcome some of the organizational inertia that has plagued the Department since the start.

    We think that the Department can learn a lot of lessons from this and apply the lessons learned from addressing the Year 2000 program to the lessons of managing information technology across the board.

    So, to conclude, I would like to say that we believe the Department is making progress to improve its management processes but it is unlikely that these initial steps will develop into meaningful, tangible reform over its information management processes and achieve real impact over the selection and control of its technology investment without confronting fundamental management issues that continue to plague the Department. These issues center around the very real cultural barriers that limit effective management initiatives within the Department and the lack of well-defined processes, discipline management, and sustained top management attention required to overcome these barriers.

    That concludes my summary, Mr. Bateman.

    [The prepared statement of Mr. Brock can be found in the appendix.]
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    Mr. BATEMAN. Thank you very much, Mr. Brock and Mr. Hinton.

    Mr. Warren, do you have a statement that you——

    Mr. WARREN. No——

    Mr. BATEMAN [continuing]. Would like to make at this time?

    Mr. WARREN. No, sir.

    Mr. BATEMAN. Thank you all.

    You made reference to the fact that the Clinger-Cohen legislation that you referred to is not just applicable to the Department of Defense but to all of the Federal Government. How would you rate the Department of Defense in terms of their compliance with the rest of the government generically or other agencies of the government?

    Mr. BROCK. We find it mixed. I would dare say that we have no single model agency that has completely and effectively implemented Clinger-Cohen, and that is a real concern to us. I would say, though, that we can identify many agencies that are much further along than the Department in implementing a meaningful investment control process over the technology budget that they have.

    Mr. BATEMAN. I'll defer to Mr. Sisisky. He has to leave so I will let him have his opportunity.
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    Mr. SISISKY. I would like to ask unanimous consent to ask some questions about repair parts and about Y2K for the record, if you will.

    Mr. BROCK. Sure.

    Mr. SISISKY. Did I hear you say a $500 million system failed.

    Mr. BROCK. Yes, I did.

    Mr. SISISKY. Was that hardware or software? What was it?

    Mr. BROCK. That was primarily a software process. That was in the material management. In fact, we did a report—I believe it was for this committee—about 2 years ago on that system.

    Mr. SISISKY. Had we thrown out the old system?

    Mr. BROCK. It was a replacement for an old system and——

    Mr. SISISKY. You still had the backup, didn't you?

    Mr. BROCK. They are still developing the replacement system.

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    Mr. SISISKY. So, what is happening while it is being developed?

    Mr. BROCK. I am going to defer to Micky McDermott of my staff who is following up on that.

    Mr. MCDERMOTT. Sir, we are following up for your committee right now on the material management system. Another system which had problems was the depot maintenance system, and we are looking at both of those systems now through this budget cycle.

    Mr. SISISKY. But you are operating a system.

    Mr. MCDERMOTT. Sir, the system——

    Mr. SISISKY. The only system in place is what I was talking about.

    Mr. MCDERMOTT. Yes, sir; they tried to consolidate the system into one system for the Department and they went back to the separate systems for each service.

    Mr. SISISKY. Now, do we have anybody that is in control of computers in the Department of Defense? In other words, that would sign off on a purchase. We are talking about $10 billion a year. We are talking about a lot of money, I think.

    Mr. BROCK. The Department at the time we were doing this review had various control processes where, for example, if you were going to move Support 1 Logistics System to replace a number of other logistics systems, the principal staff assistant (PSA) would have to sign off that this was, in fact, the most expedient way of conducting business. The DISA would have to say that the system in consideration would have to meet all technical standards. The Department's program and analyses sections would have to do a cost-benefits study to look at that.
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    And what we found on these systems is that, in no case, for the 250 systems that went through the then-CIO, none of them were looked at to see if the PSAs had certified these systems, very few of them had had any meaningful cost-benefit analysis done, and there was no documentation—or very limited documentation—on DISA's part that, in fact, they were reviewing these systems for compliance with technical standards.

    Mr. SISISKY. I am sorry that I have to go but I do. This isn't DBOF's fault, is it?


    Mr. BATEMAN. Everything is D-BOF's fault.


    Mr. BATEMAN. Several times in the course of your testimony you made reference to cultural values or cultural obstacles to things being done. I don't think I understand that well enough. It is a very, very general term. Tell me what is really involved in this cultural phenomena that has been the impediment to greater efficiency.

    Mr. BROCK. In the systems development—and I know that Mr. Hinton has, I think, a similar view in the inventory and logistics areas—because frequently we find that the principal staff assistants that have control over a function actually have no control over the dollars that go into the building of the systems. Those dollars belong to the services. And, there is a resistance to changing processes within a particular service or a component that might, in fact, optimize the whole but suboptimize the lower portion.
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    So, as a result, we see very similar systems that are being developed—or that have been developed—throughout the Department that essentially provide the same function and that attempts to consolidate these systems are difficult, frequently don't work, and there is a strong resistance to using anything that you didn't build or develop yourself.

    Mr. WARREN. Mr. Bateman——

    Mr. BATEMAN. Yes.

    Mr. WARREN [continuing]. An example would be in the Total Asset Visibility area. You know, one of the goals there was to allow all of the services to be able to look across each other's assets to determine in time of need how they might be able to use the assets of the other service.

    Mr. BATEMAN. Yes.

    Mr. WARREN. There seems to be—as part of the problem in terms of getting Total Asset Visibility fully implemented—a reluctance to have that complete visibility into——

    Mr. BATEMAN. Yes.

    Mr. WARREN [continuing]. Each other's systems to the point, in particular, that then items might be moved from, say, the Navy to the Air Force and vice versa. So, there is a natural resistance to say that, yes, we built this system that can identify our inventory and where our inventory is; however, we are not so sure that we want to give that visibility across all the other services and perhaps lose some of that. And the natural inclination is to say, we don't want to give it up because we, in fact, may need it at some point in time for ourselves. So, it is that dynamic that often works out.
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    Mr. BATEMAN. Thank you, Mr. Warren.

    Next, let me now call on Mr. Pickett.

    Mr. PICKETT. Thank you, Mr. Chairman.

    I am not certain that I am clear about exactly where you have made your investigation. Just a couple of days ago, we had Mr. Money from Secretary Hamre's office who apparently is in charge of the security aspect of computer systems and the systems operating assurance of computer systems. Did you all look at anything that they are doing?

    Mr. BROCK. For this specific review, that was not one of the questions that the committee posed but we do have ongoing work now that we are initiating, looking at the computer security issues within the Department of Defense. Two years ago, we issued a report on the vulnerabilities within the Department.

    Mr. PICKETT. Yes.

    Mr. BROCK. Since that time, I think the Department has probably been among the leaders within the Federal Government on addressing computer security issues.

    Mr. PICKETT. OK. Can you tell us, then, from the whatever it is that you did examine, how many dollars are we speaking of annually that are applied to computer programming and computer hardware?
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    Mr. BROCK. For business systems—and these would include things like logistics, payroll finance systems, communications systems, things like that—the Department spends about $11 billion a year. We don't have a good number for the embedded technology—the embedded software and hardware that were part of some of the weapons systems and things like that—but that is reported to be in the $40 to $45 billion a year range.

    Mr. PICKETT. Do you have a breakdown between what is software and what is hardware?

    Mr. BROCK. No, that is not available to us.

    Mr. PICKETT. It seems to me that that would be a very important matter to try to sort out because to some extent I think we can quantify the hardware and what hardware would be in a competitive market. But, there are many, many indicators that there is a huge, huge, huge waste in the Department as far as programming services are concerned.

    You had mentioned the $500 million fiasco and I think that is the tip of the iceberg. I think that there may be even worse examples of money being thrown away in computer programs that were never used. I don't know how we would get at this but I have a very uneasy feeling about the whole thing and you are talking about billions of dollars here and nobody seems to be minding the store as to what we are buying and why we are buying it.

    Mr. BROCK. Most of the concerns in the reports that we have done have centered around two things and it is typically not a hardware issue. In terms of whether the system is effective or operates efficiently, that is typically a software issue. But, just as frequently, we find out that the system is being designed to do the wrong thing or that the function that the system is designed to support has not really been examined.
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    We recently issued a report on the Defense Civilian Personnel System which, in the prototype, appears to be working very well. But, the Department didn't take in adequate opportunities to see if they could reengineer the existing process. As a result, they are putting on fairly nice software on a process that was dictated by the individual services in how many field offices they wanted to support. So, in this case, the hardware and the software might work but they might well have chosen a less expensive process that would have provided the same or better level of service to individuals within the Department.

    Mr. PICKETT. Is there any central point in the Department that oversees the expenditure of dollars for computer programming and computer hardware?

    Mr. BROCK. Each service as well as the Department, at the Department level, has control processes in place that are designed to scrub down individual systems, to scrub down procurements, and to monitor their performance. And, as I was discussing in our review of migration systems, it is frequently the failure of these processes to work. The Department doesn't lack for processes but it is frequently the failure of these processes to work properly that allow poor decisions to be made on individual systems.

    Mr. PICKETT. Is this something that begs for some overall supervision such as from the Secretary's office to have one central point that is establishing standards that are going to be observed in all of the service departments?

    Mr. BROCK. I think just as we are finding out in the Year 2000 problem, where the direct involvement of the deputy secretary has gone a long ways toward overcoming some of these barriers, that the only effective way of overcoming these barriers is to have more direct involvement on both a consistent and a persistent basis by the senior management within the Department.
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    Mr. PICKETT. So, you are saying yes——

    Mr. BROCK. Yes——

    Mr. PICKETT [continuing]. The answer is yes.

    Mr. BROCK. Yes.

    Mr.HINTON. Mr. Picket, we also see that too as we have looked at the Defense Reform Initiatives that Secretary Hamre and Secretary Cohen have been very actively involved in working through the Department. There is a lot of momentum behind that; they are trying to improve the efficiency and economy of the business operations of the Defense Department and I think, through their leadership, they are making progress and, hopefully, in time you will see a lot more improved business processes in the Department to include what Jack was just mentioning here.

    Mr. BROCK. And one of the things that was intended by the passage of the Clinger-Cohen Act was to establish a strong Chief Information Officer within each Department. An ongoing concern that we have had within DOD is whether or not the Chief Information Officer has the necessary authorities and power to, in fact, act as a surrogate for the Secretary, if necessary.

    The other issue we would have with the Chief Information Officer, which we would point out in our migration report that, in addition to being the CIO, he is also a Principal Staff Assistant with responsibilities for a lot of program activities, especially communications and intelligence, as well as having responsibility for DISA with the mega-centers and the telecommunications that the DISA controls as well. So, that individual wears many, many hats.
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    Mr. PICKETT. OK, Mr. Chairman. Let me have just one follow up.

    Mr. BATEMAN. Sure.

    Mr. PICKETT. I am not trying to put words in your mouth, but what I understand that you just said is that the Chief Information Officer approach in the individual services is not working and what we need is a central oversight authority in the Office of the Secretary of Defense.

    Mr. BROCK. I think, to be very careful here, I think that the CIO functions—one, each service now has CIOs; they do have a council; they do meet. They are making some progress. They are making real contributions to the processes they are doing now.

    The concern that we have is going beyond developing the processes and implementing those processes. And, these are where the cultural barriers we talk about—where we think there needs to be a little more muscle, a little bit more ''umph,'' to make sure that the processes can be enforced.

    Mr. PICKETT. Where is the muscle and ''umph'' going to come from if it doesn't come from higher up?

    Mr. BROCK. It has to come from high up. I agree with you, sir.

    Mr. PICKETT. OK. I think you just finally answered my question.
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    Mr. BATEMAN. All right. I would ask unanimous consent that the statement of Mr. Hansen be made a part of the record.

    [The prepared statement of Mr. Hansen can be found in the appendix.]

    Mr. BATEMAN. With that, we call on Mr. Riley for any questions he may have.

    Mr. RILEY. Thank you, Mr. Chairman.

    Mr. Brock, Mr. Hinton, you made reference a moment ago to cultural barriers. I think both of you addressed that a moment ago. If you would, for me, just define what these cultural barriers are. They evidently seem to be a significant problem.

    Mr. BATEMAN. You get a second crack at that.

    Mr. RILEY. Oh, I was out. I am sorry.

    Mr. BATEMAN. That is all right.

    Mr. WARREN. I gave an example earlier in the total asset visibility area. One of the problems is that the individual services have developed systems that will allow them to look at their inventory and the locations of their inventory and have a pretty good idea of where that is. But, the concept of total asset visibility or joint total asset visibility was that each service must be able to look across and see what the other had and then, in a time of need, be able to use that.
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    The cultural resistance to change is to go to that next step to say, OK, let us share, in a common way, these assets in time of need. So, it is, again, a very natural, I think, reaction on any part of any organization to say: ''Hey, this is our set of assets. We used our money to procure them, and we are not so sure that we want to make them not only visible, but also make them vulnerable to loss to another service when, in fact, maybe we will come down the road 6 months later then need them.''

    So, I don't think it is uncommon to the Department. I think it is a natural inclination. So, that is one of the best examples we have in the logistics area of a culture that is defined to say: ''We are going to take care of our own assets, and even if we are in excess supply, we are not sure if we are going to share some of those with somebody else because we are not sure—maybe they won't have some when we need them.'' So, it is that type of thing, the trust within the system, to say that a joint asset visibility logistic sharing system will, in fact, work.

    I don't think that the individual departments are there to say, well, I am not so sure that will work so, I am going to wait and see perhaps. So, it is that type of thing that is hard to get over in the common sharing of assets.

    I could use another, in terms of maintenance of weapon systems—we are doing better on this inter-service thing of weapon systems maintenance at depots. But, one service sometimes, as John just had to say, ''I am not so sure I want to put my Navy aircraft into an Air Force facility, and vice versa, because perhaps maybe I won't get the highest priority at that facility because it is not managed by someone from the Navy; it is managed by someone from the Air Force.''
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    So, it is those types of things that, as a culture, the Department has just not operated that way over time. They have operated within their own—I think all the Members know there are a whole set of depot systems for each of the services and operate largely independently.

    I do have to caveat that and say there has been sharing and inter-servicing more over the last four to 5 years. But, as a common practice, that is not the common practice. So, those are kind of real-life examples of cultural resistance to change.

    Mr. RILEY. If you can, give me a real-life example of how—or a recommendation on how—we change things.

    Mr. WARREN. What? To change that?

    Mr. RILEY. Yes. To change those cultural barriers.

    Mr. WARREN. I think the kinds of things that we are talking about here today, that there has to be, No. 1, a commitment from the top of the very organization to say that this is now the way that the Department is going to do business. Along with that commitment, there is going to be a fair set of business operating rules, so that the concerns, real, legitimate concerns and fears that you have as operational managers, are not, in fact, going to come to fruition, and we are going to make that stick.

    If you play ball, so to speak, and you provide your assets in a time of need for one service, the other service, in your time of need, is also going to do the same thing. And there is going to be a set of business rules that is going to be driven down from the Secretaries through—the Secretary of Defense—through the individual departments to make that work. I am not sure that that confidence right now is there in these areas where we are looking to have greater joint use of common assets.
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    Mr. RILEY. Thank you.

    Mr. HINTON. Mr. Riley, I would add to what Mr. Warren said. If you have that top-down direction, you need to bring with that: goals, some objectives, some metrics to measure progress to make sure that you are going to get where you need to go as an institution. And, without that, you don't have a way to check your progress to see if you are, indeed, putting the right incentives in to bring the organizational behavior the way you want it.

    Mr. RILEY. Take that one step further, if you can. In Anniston at the Anniston, Army Depot, over the last few years we have been moving to more of a private/public partnership. How do you interface, or how do you link, the private sector with the public sector as far as the ability to share those types of products, that inventory. I can see how you can do it within a depot system itself——

    Mr. HINTON. Right.

    Mr. RILEY [continuing]. But as we expand that into private industry, how do we handle a situation like that?

    Mr. WARREN. I think there are, clearly, some opportunities for that. My understanding is that there have been pilot opportunities. The best recommendation or suggestion I give at this point in time is that we need to do more pilots of that nature to work out what the new business rules need to be to create effective partnerships. Some of the impediments that you are searching for we may not know yet in terms of what they are and then what we need to go to do about in terms of solving them.
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    So, it seems to me, the next logical step, if that is where we want to go as a model, we need to have some pilots who will allow us to give us this kind of shake-down course to say, OK, here is what works, here is what doesn't work. Perhaps there may even need to be some legislative changes around the existing set of laws between how the depots operate in the private sector and use the facility and things of that nature. How that workload will be counted under the 50/50 rule, for example, and the various pieces of legislation that provide the framework for the operation of the depot maintenance activities at this point in time.

    Mr. RILEY. I just get to thinking about a private industry, though, that would have to end up basically buying systems that would be compatible with what the public depots are doing. I am not to sure we can require that.

    Mr. WARREN. Well, or it could go the other way. You could have a partnering arrangement where the private sector would, in fact, provide your new information management technology. And then perhaps the depot would adopt that. And, this is a little bit far off-field, but not too far—I mean, those are some of the issues that will come up as we move into greater use of A–76. If you have a private sector activity win an A–76 competition, will they come in with a whole new information system, for example, to perform whatever that function is? If that is what happens, then what happens to the existing legacy system that is within the Department of Defense at this point in time? So, I think those are issues, really important issues, that need to be worked through as we move toward, kind of, the model you are suggesting.

    Mr. RILEY. Thank you, Mr. Chairman.
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    Mr. BATEMAN. Mr. Sherwood.

    Mr. SHERWOOD. Thank you, Mr. Chairman. I am new to this Congress and new to this committee, but my business experience leads me to believe that when you say ''cultural,'' you mean ''turf'' and turf is always hard to get over.


    But, in business it is one thing and in the military it is something else, because these military men, commanders, are responsible for those kids out on the front lines and flying those planes and they darn well want to know where the stuff is coming from. It is very disturbing to me to think I have heard about all the war stories about the cannibalization of planes and that we don't have the spare parts—and I have a couple of other things to say. I would like to know if you think this terrific shortage of parts in our aircraft has something to do with the failure of the systems you are talking about.

    Mr. HINTON. The work, Mr. Sherwood, we have done, is look at that, particularly in the Air Force, and we found that there are some shortages out there. Part of that has been because of not very good forecasting of the requirements, not forecasting the time it would take to repair some of the components that would need to go into the parts that were being taken off of it. That, in turn, has caused some of the maintenance folks to do the cannibalization that we have heard about.

    There are parts; there are shortages; there are legitimate needs. Some of it may require more money; some of it may require better information to enable the scheduling of the maintenance and those type of things—and better forecasting. So, I think, there is a mixed picture out there that we have got to sort through to find out the real root causes of the problems and address them.
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    Mr. SHERWOOD. Well, I am afraid cannibalization has been around as long as there has been modern military, but we should not condone it ever. You know, it shows the failure in the system. It is worrisome to me that this sounds like nobody is in charge. You will not get these commanders to follow your business systems unless they have the faith from the top that that is the way it is going to be, because they are more loyal to their men than they are to your systems.

    Mr. HINTON. Right.

    Mr. SHERWOOD. We talked a little bit earlier about the depot system and privatization and, I think, being a Tobyhanna man, and we have proven that we are efficient and that we can get the work on our own regard because of our efficiency. I think that we have to modernize the systems that feed that work into those depots and make sure that they have a chance to be efficient because they have the ability to crank up on a minutes notice. Unlike private industry, everything won't go away when there is not a new contract for a little while.

    So, this is pretty disturbing testimony, gentlemen. I would like to see you and the guys in uniform get in a room with none of the rest of us there and get it solved.

    Mr. HINTON. We are working with them.

    Mr. SHERWOOD. Thank you.

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    Mr. BATEMAN. Thank you, Mr. Sherwood, and Mr. Hinton, Mr. Brock, Mr. Warren, thank you. I am quite confident that when I have had more time to visit your written reports and when I have had an opportunity to hear the witnesses on the second panel that I would like the benefit of some further discussion and perhaps some questions that we will be submitting for you.

    Mr. BATEMAN. With that, I thank you very much for being a part of our first panel and I think, then, we need to move on to our second panel. But, we will certainly be in touch.

    Mr. BROCK. Thank you.

    Mr. BATEMAN. The committee will come to order.

    It is my pleasure now to recognize and identify the members of the second panel. We are pleased to have with us Mr. Marvin Langston, the Deputy Assistant Secretary of Defense and Chief Information Officer and Mr. Langston, we look forward to hearing from you and how that new responsibility is working. We are also pleased to have Lieutenant General Henry T. Glisson, Director of the Defense Logistics Agency; Lieutenant General John G. Coburn, Army Deputy Chief of Staff for Logistics; Lieutenant General John Handy, Air Force Deputy Chief of Staff for Logistics; Vice Admiral James Amerault, Deputy Chief of Naval Operations for Logistics; and Brigadier General Harold M. Nashburn, Marine Corps Deputy Chief of Staff for Installations and Logistics. Gentlemen, we are pleased to have you and Mr. Langston, you may proceed.

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    Mr. LANGSTON. Thank you, Mr. Chairman. I would request that my statement be submitted for the record.

    Mr. BATEMAN. Without objection.

    Mr. LANGSTON. I will summarize for you, basically, what is happening and what we are working on. With respect to Mr. Pickett's question earlier, I think the buck has stopped with Mr. Money. Mr. Money is the Chief Information Officer for the Department. And, it also is a reflection of the top-down concern for this issue that you have been discussing for the past several minutes with respect to information technology.

    Secretary Cohen and Dr. Hamre were very concerned about putting in place a strong Chief Information Officer and wrapping their arms around the concerns that you have addressed. You heard, as was referenced, Mr. Money, the other day, talking about his information superiority organization. That organization includes the functional areas of: command and control, communication systems, intelligence systems, all of the end-to-end sensor systems within the Department, the Chief Information Officer responsibilities, as well as the information assurance responsibilities that are parallel to that Chief Information Officer responsibilities. So I believe, that as of June, when this new organization was formed and stood up, that the Department has begun to address the issues that you are citing.

    I would tell you quickly that the Chief Information Officer's responsibilities, in particular, which I manage for Mr. Money, are prioritized in the order of year 2001 because year 2000 is the most immediate and most pressing need that we have. I will talk a little bit more about that.
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    Second, our concern is to stand up what we call a global networked information enterprise—meaning, that we need to put in the enabling tools to support all of the functional areas and war-fighting areas and war-fighting support areas for the Department. And we need to do it in a way such that we are controlling that information grid and that we are providing the resources in a properly accounted-for way to support all of the decisions that make that grid possible.

    The third area of responsibility that we have is—and is cited by the Clinger-Cohen Act—is for process change. We are very, very concerned about the process change; and, of course, we believe that logistics is an area where the Department has perhaps more to gain in process change than many of our other areas. And we are working very closely with the logistics communities to help make that change possible.

    The fourth area of concern, which Mr. Brock suggested, is that we need to institutionalize these changes. It is not enough to stand up an organization and put processes in place. It is important that those processes remain in place. And that generally means that we have to affect the resourcing of the budgeting processes that back up the changes that we are putting in place, and we are working very hard to do that.

    To just talk a little bit about year 2000 and why I believe year 2000 is a good example of why Dr. Hamre's changes are having an affect on the Department. Let me just point out a couple of things that have happened in the year 2000 area.

    It is true that the Department of Defense has been rated as having a slow start in the year 2000 area. That is not to say that we have not been working on it since 1994, and even prior to that in some cases. But, the work, up until this past August, has primarily been focused on systems. In other words, each of the services and agencies have been focused on how to repair the systems that we are supporting the year 2000 problem and make those repairs complete and fielded in a way that supported all of the missions of the Department.
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    It was recognized by Secretary Cohen and Dr. Hamre, in the August timeframe, that this problem was a bigger problem than that of fixing systems, which, was generally left to the responsibility of information technology managers. At that time, Secretary Cohen tasked his Chairman of the Joint Chiefs and all of his unified commanders to treat the year 2000 problem as a war and as a problem that it was their responsibility to make sure that they had mission capability no matter what happened with year 2000 systems. And, so, likewise, Dr. Hamre tasked all of his functional Under Secretaries—that is, logistics, medical, intelligence, communications, personnel—that they needed to treat the year 2000 problem as an operational problem in their own right, and that they had to be responsible to make sure that they could support the war-fighting operation of the Department.

    So, since that time, the senior leadership's interest in engagement in the problem has dramatically improved. At the same time, the rate of repair of the systems has improved because everyone has put additional pressures on management attention to the repair of the systems. We currently have over 81 percent of our systems repaired based on a self-defined deadline of December of this past year. The OMB requirement is that we have all of our systems repaired by March of this year. At that time, we anticipate having 93 percent of our systems repaired and fielded.

    Further than that, we are moving into a period of time that the operational commanders and the functional leaders have defined as end-to-end and operational evaluation periods. So what is actually happening is we are stringing together combinations of systems that represent mission capability, either mission capability for the operational commanders or functional capability for the functional owners, and ensuring ourselves that those functional capabilities and mission capabilities can sustain the rolling of the clocks for the year 2000 problem.
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    In fact, that process began in January for north american aerospace defense [NORAD] and for our nuclear commander control systems. That particular area is undergoing a end-to-end operational evaluation again right now. We have more of these tests scheduled throughout the year with the majority of them completing in March and the June timeframe to ensure ourselves that we will be prepared for the year 2000 situation. The end result of where this has been going in the year 2000 is that Dr. Hamre has become convinced that we will have the capability to support all of the Nation's national security missions and requirements, independent of the year 2000 repairs that are ongoing, and that we will be there to support the Nation. I believe that that is correct and I believe that we are in good shape.

    Now, I will wrap up my comments just by referencing one of the points that Jack Brock made. We have been working closely with GAO, as he suggested. We have OMB; we have Congressional staffers; we have people from wherever there is interest to attend these year 2000 meetings to keep it a completely open process. In addition, because we have introduced this notion of ''mission threads'' and end-to-end testing of these mission and functional threads, Mr. Koskinen, the President's year 2000 Director, has gone back to the other Federal agencies and asked them to do end-to-end testing in a similar fashion because of the importance of it in terms of supporting and knowing that we have mission capability in the year 2000 problem.

    Likewise, however, that puts us in a mode of defining for ourselves, for the first time, processes and systems associated with processes in a more rigorous fashion than we have done in the past. And Jack Brock's suggestion to Mr. Money and myself was that we should consider carrying those processes forward, past the year 2000, as management controls for managing our IT systems in the Department. I think that his suggestion is a very good suggestion. We are working to move that idea forward, and, of course, there is a very large amount of process, as he suggested, in the Department within our planning programming budgeting system. So, to move in a new idea like that and make it an operational idea will take a lot of work, but we are going to work very hard on that.
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    With that, sir, I would turn it over to the other panel members and answer any questions that you have.

    [The prepared statement of Mr. Langston can be found in the appendix.]

    Mr. BATEMAN. Thank you very much, Mr. Langston.

    Let me apologize for having mis-identified Major General Higginbotham. My original witness list was as read, but was inaccurate, and we welcome, instead, Major General Higginbotham.

    Next, we will hear from Lieutenant General Henry T. Glisson. General Glisson, we will be pleased to hear from you.

    General GLISSON. Thank you, Mr. Chairman. I have a short opening statement, if I may.

    I really do appreciate the opportunity to appear before the subcommittee and to discuss a little bit about the Defense Logistics Agency, or DLA's role on the joint war-fighting team and address our effort to ensure that America's war fighters are always logistically prepared, but, equally important, that we do so in the most cost-effective way possible. While I have a more thorough statement for the record, today, what I would like to do in my opening comments is emphasize four areas which I hope will be reinforced by the testimony today.
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    First, DLA has become, I think, a warrior-focused integral member of the flight war-fighting team. Our traditional role, as many might remember, as a large CONUS-based wholesaler, I would tell you, has dramatically changed. Our mission today takes us to the forefront, around the world, providing logistical support wherever we have war-fighters serving.

    We are the primary provider today of all food, clothing, medical, fuel, and many of the repair parts used by our Armed Forces. It takes teamwork to ensure mission accomplishment for our Armed Forces; and, in partnership with the military services and industry, we are working really, really hard to get it right. I know that mission accomplishment, as they do, in the lives of our soldiers, sailors, airmen, and Marines, depends on us getting it right, and that is why it is so important.

    Second, I would say that DLA is no longer just a manager of supplies; rather, we are becoming a broker of suppliers, in fact, DOD supply chain manager. As a consequence, you will find us at the forefront of the revolution in business affairs and acquisition reform. As a catalyst for change, you will see us involved with the services on a host of activities that we think are transforming the way that we do logistics. And I will tell you that some are evolutionary and some are revolutionary. All of us at the table collectively embrace these shifts to commercial business practices and systems which enable us to reduce operating costs, provide world-class responsive, affordable support and services, and enhanced readiness in war-fighting capability. I would also tell you, though, it is a delicate balance to get that right and to make sure that you have got the right amount in each of those sectors.

    While we certainly don't have an error-free record in this transformation, I think you will note real progress, passion, and a commitment to change. I think you will also find, in the aggregate, that we have had far more successes than failures as we have taken this journey.
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    Third, these types of revolutionary changes require different business rules and partnership arrangements with our suppliers. While we have made significant progress already in the medical subsistence and clothing and textile commodities, I would be the first to tell you that repair parts are much tougher and far more diverse than those three commodity areas.

    So both DLA, industries, and the services are still learning how to optimize its efforts. I am confident you will see major breakthroughs in the coming months and years as we implement our strategic sourcing plan in this new area. It has great potential, but it is one that we have to navigate very, very carefully.

    Finally, our blueprint for confronting these logistics challenges and reshaping DLA for the next millennium is really focused in four areas. First, is to have the right organizational structure in place. Second, modernize business systems. Third, strategic sourcing of material. Fourth, the training of a world-class workforce. These are the same areas world-class organizations have focused on to make them relevant for the 21st century. Over the course of our current budget cycle, I think you will see a major change in progress in transforming DLA to a more efficient combat-support agency.

    In closing, I would like to state that DLA continues to work very hard to enhance readiness and to provide support to the war-fighter. It is a journey to which we are totally committed and one which I am proud to be a part of, and I truly believe we are making a difference.

    Mr. Chairman, that concludes my statement. I request it be submitted for the record, and I will be pleased to answer any question.
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    [The prepared statement of Gen. Glisson can be found in the appendix.]

    Mr. BATEMAN. Thank you, General Glisson. Your complete statement will be made a part of the record.

    Now, I am happy to turn to Lieutenant General John G. Coburn, the Deputy Chief of Staff of Logistics of the United States Army. General Coburn.

    General COBURN. Mr. Chairman, I have a prepared statement which I would ask that you submit, for the record.

    Mr. BATEMAN. Without objection.

    General COBURN. Mr. Chairman, distinguished members of the committee, I appreciate the opportunity to appear before you this afternoon and discuss your Army's logistics posture. Let me start by thanking you, and the rest of the committee, for all of the efforts you consistently make on behalf of our soldiers, for they truly do deserve your support.

    In regard to that, the Army leadership knows that it is this committee, over the last 5 years, that has plussed-up our readiness accounts and that supported our higher pay raises. Our soldiers are being well served by your foresight, and we thank you for that.

    Now, the last time I testified before this committee, I told you that our readiness rates are high. That remains the case and, in my judgment, that is due to a tremendous amount of logistics initiatives and a large amount of logistics re-engineering that we have done, not only in the Army, but across the services, and due, in no small part, to the great soldiers who maintain our equipment and the hard work that they consistently are called on to do.
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    I must say, however, that it is getting harder and harder to maintain because our equipment is aging. The mean time between players is decreasing and the cost to maintain that aging equipment continues to increase. I also told you that our ability to deploy continues to improve, and that continues to be the case, thanks to the Air Force for the C–17 and the Navy for the large medium speed roll on/roll off [LMSR]. We are much more ready to deploy now than we were in 1990 when Saddam overran Kuwait.

    However, we do have some significant shortcomings. For example, our management information systems are old. You have heard a lot about that this afternoon; I am sure we will talk more about it. We have a shortfall in modernization. I think you are aware of that. And, we have unfunded requirements such as depot maintenance and sustainment systems technical support. So, overall, our readiness rates are high. We can deploy; we can sustain; we can fight; we can win, but, however, as stated, we do have some significant shortcomings.

    I look forward, Mr. Chairman, to your questions.

    [The prepared statement of Gen. Coburn can be found in the appendix.]

    Mr. BATEMAN. Thank you, General Coburn.

    Vice Admiral James Amerault.

    Admiral AMERAULT. Mr. Chairman, members of the committee, I would like to thank you for this opportunity to appear before you today to discuss Navy logistics capabilities and challenges that we face today.
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    I would like to ask that my written statement be entered in the record and I would like to summarize, sir.

    Mr. BATEMAN. Without objection.

    Admiral AMERAULT. Sir, I have been the Deputy Chief of Naval Operations for Logistics for about 6 months. In that time, I have enjoyed being at the helm of the logistics organization second to none in its eagerness to satisfy the customer. That customer is the shipboard sailor or aviator. Day one readiness and sustainment at sea have always been the hallmarks of Navy logistics.

    I have spent many years as a forward-deployed customer of our logistics system, serving on eight ships and commanding two, plus a destroyer squadron and two battle groups. I think I have real experience in sea-based logistics from the tip of the spear as a customer.

    Our Navy logistics capability, that is the ability to answer the call immediately and to remain deployed indefinitely, has set us apart and assured our continued success at sea in both peacetime and war. I am proud of what our professional logisticians have accomplished, but we are revolutionizing our logistics processes today to provide even better support to drive down costs and take advantage of best practices employed in the commercial sector when and where they make sense.

    I am not satisfied, however. I believe that the opportunity is here to do even more. We will continue to leverage technology, to substitute speed and information for mass, and provide better customer support and decrease costs. Support of the war-fighter, however, must be our primary goal.
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    There are many challenges facing the logistics community today. I would like to, first, discuss the spare parts support, a key element of logistics and one of the primary concerns of our customers. There are not as many spare parts carried in ships as were in 1990. We have made sound business decisions to reduce the amount of a float inventory. However, better forecasting models, communications, and asset visibility make these reductions possible. Wholesale and local inventories have also been reduced. We are reviewing all that we have done in this area to be sure we didn't go too far and to make sure that the changes that we have made are appropriate.

    Let me emphasize that aviation spares are our top priority. Since April, 1998, we have had 23 of our top experts working on aviation maintenance and supply readiness. They focused on 18 aviation issues encompassing metrics, airframes, engines, personnel, spares, and funding. They report to a 4-Star Fleet Commander-in-Chief. This effort has support from every echelon in the Navy as we balanced our forward-deployed readiness on the back of non-deployed readiness and other tradeoffs in modernization, maintenance of real property, and shore-station support. We have counted on your help in the past to fill in at critical times, and I want to thank you very much for that support and hope that it will continue.

    Today, as we move Navy logistics into the 21st century, we have labeled our efforts ''high yield.'' We are shedding outdated management philosophies and adopting the best practices such as electronics commerce, web-based inventory visibility, and direct vendor delivery. Speed and information, coupled with expanded private-sector access, and long-term business relationships, are replacing a previous emphasis on stockpiles and inventory, organic infrastructure, and ownership.
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    Navy was the first service to begin customer-centric logistics war games designed specifically to assess logistics capabilities. We have now evolved this to a joint concept called focused-logistics war game. We are proud to be the host of a first biennial series of games in October 1999 at our War College. The product of these analytical exercises will be improved interoperability and communication, adoption of best-of-breed logistics practices, and organizational streamlining.

    The final area I would like to discuss is timely and critical, Y2K. The Navy logistics community is fully committed to ensuring a smooth transition into the millennium. The vast majority of our logistics systems have been made Y2 compliant; but as we have gone beyond looking at our logistics information systems in examining these Y2K preparations, we are also concerned with the base operating support area. For all 100 Navy sites and installations, we are developing plans to minimize the potential impact of vital service degradations should our local commercial providers fall short in their own Y2K preparation, especially at our overseas sites.

    In Navy logistics, we are acutely aware of our responsibility for the mission success of our war-fighters. We operate in a unique environment replete with time, distance, and accessibility challenges. A submarine commander, for example, does not have the luxury of daily Fed Ex flights while on patrol. Sustainment at sea will always remain a top priority. Our challenge is to continue to identify and use the best practices and logistics to provide our products and services through the most effective medium and at the best value, while maintaining the robust, forward presence that you require. It is not an easy task. Most of the systems and practices we are changing are decades old. But we are committed and, with your help, our customers will receive nothing less than the best. Thank you, sir.
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    [The prepared statement of Adm. Amerault can be found in the appendix.]

    Mr. BATEMAN. And, now, our next witness is Lieutenant General John Handy, the Deputy Chief of Staff for Installations and Logistics of the Air Force. General Handy.

    General HANDY. Thank you, Mr. Chairman and distinguished members of the committee. It is a great honor to be here today. I respectfully request that you submit my written statement for the record.

    Mr. BATEMAN. Without objection.

    General HANDY. And, I stand by for any questions, sir.

    [The prepared statement of Gen. Handy can be found in the appendix.]

    Mr. BATEMAN. That may set the record for brevity, I think?


    That record is normally held, I think, by the Marine Corps. General Higginbotham.

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    General HIGGINBOTHAM. Absolutely. Mr. Chairman, distinguished members of the committee, thank you for the opportunity to come and appear before you today to tell you about your Marine Corps and our logistics transformation efforts that are underway today.

    In an earlier panel we heard a lot about change in culture, and so I really would like to just make two points about that. That wasn't really part of what I wanted to initially say in my introductory comments, but I feel like I would like to address that, nevertheless.

    Change, for the sake of change, at least in my view, is just not going to get you there. And, so, in the case of the Marine Corps, what is driving change for us is our future operational concepts. Now, how are we going to fight in the future. And so for our Naval services, that is operational maneuver from the sea. And so, operational maneuver from the sea means that we are going to deploy or employ forces, and also sustain them, for well over the horizon.

    So, we have got future operational platforms that are going to come online that is going to help us get there. We have got super-setter ships that are under development, and some are already online. We are hoping to have fast, lighter reach, continue to use the LCAC. We have got the triple AV, or advanced amphibious assault vehicle, coming online, the MV–22 coming online, but we will be critical from a logistics perspective, also, as maritime prepositioned force of the future. And so, that will then serve as that sea-based platform.

    So, to make operational maneuver from the sea a reality, you have to be able to provide sea-based logistics. If you can't do that, you are dead in the water, so we can't do that. What we will have to be able to do is that we have got to have an architecture that will provide data, so we can share that across, you know, the chain—the supply chain itself interoperability, information, and communications. That, in itself, means asset visibility, decision support systems, so we can forecast and we can model. And so that is the kind of things that we in the Marine Corps need to be doing if we are going to be able to make that a reality, and certainly we have a plan that is going to get us there.
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    At the same time, during the discussion about change in culture, there was mentioned about change really starts at the top. Having attended all of Dr. Michael Hammer's courses on process reengineering and change, I also know that that is really the case. And I am sure that members of this committee have heard from my—our Commandant during previous testimony, and so, believe me, change really starts at the top at the Marine Corps. And we have got a plan. So it is that plan that I look forward to being able to talk to you about this afternoon.

    I also have an advance statement that I would like to enter into the record.

    [The prepared statement of Gen. Higginbotham can be found in the appendix.

    Mr. BATEMAN. It certainly will be, General, and thank you. We thank all of you for being here. Let me start with the observation that there is a marked difference between what we are hearing from the first panel and what we are hearing from the second panel. And I will be the first to have to admit that I have not read all of the GAO reports to which they made reference.

    I don't know whether you gentleman have read all of the reports, but I am interested in having you, not necessarily today—I don't know if that is fair—but I would like to have a reaction from you as to the recommendations made in those reports and what, and the comments that your Department of agencies have made with respect to them. Have you accepted them? And if you have accepted them, have they been implemented? Are they being implemented? Or do you disagree with the recommendations, and if you disagree, why you disagree? I am not going to approach this from the context that anything negative GAO says is correct. But I want your reactions, very frank reactions to wherein they have pointed out goals which can approve our operations and your systems, or where you think they are in error in their analysis of your systems.
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    Admiral, it boggles my mind to hear it said that the Navy has written off $3 billion or $5 billion in inventory that—because they can't find it or don't know where it is. Do you accept the accuracy of that figure? Has that, in fact, been done?

    Admiral AMERAULT. That has been done in a way, sir, but I don't accept the premise of the argument. We have not lost $3 billion worth of equipment or parts or anything else.

    Mr. BATEMAN. I thought you were entitled to the opportunity to explain that, because it is a very dramatic statement.

    Admiral AMERAULT. If we had lost $3 billion of that kind of thing in 3 years, about a billion dollars a year, when we inspect our ships, which we do, for the accuracy of their storeroom spares and so forth, which, in order for a ship to get an excellent grade, it must be 98 percent; and we have a very difficult time having the ships in the fleet make that standard. So I am absolutely convinced that we have not lost $3 billion worth of equipment or parts.

    In addition to that, in some of that—some of that equipment is being talked about, much of it is retrograde equipment that is being sent to defense reutilization and marketing office [DRMO] for—to be gotten out of the Federal Government, if you will.

    In addition to that, there is an upside to that report. We do have a problem with receipting for materials. We know that. This report has pointed that out. We have had that problem in the past, several years ago, and we thought we had it corrected. We are working right now to look at all of the aspects of that report to fix it. We are looking at it, exactly as the gentleman from GAO mentioned—in the short term and in the long term.
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    In the short term, the first thing we are doing is we are looking at particularly the confidential or very critical materials. We have found that we have been able to find most of that equipment on the first look. And we have only—this report is not old it is fairly new; so far, of the 350 items that we have looked at—been able to look at in this short time, we found over 90 percent of those items.

    We also have looked into putting in some short-term fixes to the receipting procedures, and then we are forming a team to look at a total reengineering of this aspect of our supply system. I think we learned from this having been brought up some years as a problem that those short-term fixes didn't fix, so we are not looking at a long-term solution which would involve reengineering the entire process.

    But I would like to assure you that we are not looking for dollars to replace any of that $3 billion worth of inventory; therefore, I don't think that it is lost.

    Mr. BATEMAN. Well, that is encouraging.


    We want you to have all the dollars you need for whatever spare parts you need, but we are not interested in having to provide them because you had them and lost them. So, that is gratifying.

    Reference was made to a software fix that cost $500 million and didn't work. And I guess because it didn't work, the original system was left in place. Who's system was that? Does anybody know which particular system they had in mind or who was responsible for it?
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    Mr. LANGSTON. Sir, I have been in this job since June, and my understanding is I think they are referring to a program that we had in the past called CIM, Corporate Information Management. And there were some centralized logistics programs that were put place and given relatively large amounts of dollars over a several year period to try and replace some of the logistics, wholesale and retail systems. Several of those systems or maybe one or two, I don't know how they referred to them, did not come to fruition after a significant amount of money had been spent on them. The services and the DLA at the time requested that they terminate those programs and move on in a different way. I think that is what the GAO report refers to, but I have not gone back and looked into them for you. I am sorry.

    Mr. BATEMAN. Well, there was also reference made to the fact that at the Department of Defense level, there is no way to look across services to account for inventory that may be in ample supply in one service which could help meet the needs of some other service. Do any of you see that as being a problem? Yes, Admiral?

    Admiral AMERAULT. Yes, sir, I would like to take that one, sir. We are working in the Navy very mightily at attaining what they call total asset visibility. We believe we have achieved 98 percent of that for our various inventory items. I would say that all of the consumable items that are now in the services all belong to DLA. It boggles my mind that DLA does not have total visibility of all that across the services.

    Other types of inventory, wholesale inventory, are reparable parts that are pretty unique to service aircraft in particular or service systems in particular. I know in the Navy our commonality of aircraft that we operate with the Air Force is not that high. I would suspect that it would behoove us not to develop a system just for the sake of being able to look across parts that might be expensive when we don't need to.
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    Now, on the other hand, if it is helpful to allow visibility of those assets in order to get them into the transportation system at the right time and so forth, I think we are all for that. I don't think the commonality is such that we are worried too much about someone else using our parts. But I won't speak for everybody.

    Mr. BATEMAN. General Glisson, do you have a comment?

    General GLISSON. Yes, sir. As the inheritor of mostly consumables in the Armed Forces, I would—my comment be that we do, in fact, have visibility over the consumables; and, in fact, through the joint total asset visibility work that we have been doing, I would tell you the services can look inside of each other's stocks, and they have visibility over those.

    Now, the business rules was the other part of that, which they talked about. And there is work ongoing on that. But I don't think it is a question that we can't see what each has. In fact, I would be real surprised if we didn't know what each other had in both of those categories. We have the capability today in each of the CINCdoms around the world to draw from all of the service systems and to provide asset visibility, even within theater, and that started in Europe several years ago, and we have now deployed that to most all of the other areas of the world. And that was a fairly, that is a fairly robust system. And so I would—I think we are in pretty good shape on that today.

    General COBURN. Mr. Chairman, if I might comment as well. We strongly support joint total asset visibility. That's exactly why we have this program called Global Combat Support System Army. That's the purpose of it, so the CINC can see what assets he has.
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    I think that each of the services has a good visibility program. Now, speaking for the Army per se, we didn't have total asset visibility in Vietnam. We abandoned tons of excess. We didn't have it in the Gulf. We opened—I think the report said 20,000 containers. We probably opened twice that amount. Never mind all the plates and so on that we didn't have visibility over.

    But we have gotten much better visibility in Bosnia. And the way that works is we have something called a little Automated Manifest System [AMS] card. It looks like a credit card. And the supplies that go in a particular box are printed out on that card. It goes inside the box. The box goes inside a container. The container has a radio frequency tag on the outside of it. The containers then go through fixed level interrogators so that we know where the containers are and what's inside. Once they get into a yard or a holding area, then there is hand held interrogators that go out and do the same kind of thing.

    We have got over 20,000 of those radio frequency tags out there right now. So I guess I would say that tremendous progress has been made in this area of asset visibility. We are not there yet. But we are a long ways from where we were. And I can tell you that the Army's got over 95 percent easily.

    Mr. BATEMAN. General Handy, do you have a comment?

    General HANDY. Sir, I feel compelled to make it unanimous after the discussion from the GAO folks that in terms of a cultural problem, I don't know anything that this group isn't working harder on than sharing information, working together, teaming to solve this particular problem, both as individual services and as teammates to solve the overall problem. So I don't want to say we are there yet, but it is not for a lack of trying, and it is certainly not a cultural problem.
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    General HIGGINBOTHAM. Mr. Chairman, may I make a statement as well?

    Mr. BATEMAN. Oh, certainly, you may, General.

    General HIGGINBOTHAM. The OSD goal for asset visibility is 90 percent by the year 2000. And it is still 95 percent by the year 2005. There is a big difference between asset visibility and asset visibility with access. And so it is access is what we really need. And so we need to have the business rules in place, accounting systems, that will allow you to go in, not only have that visibility, but to access it, be able to pay for, you know, and distribute it and so on.

    And so right now, in existence is the Joint Total Asset Visibility in Theater program, and so when our forward deployed Marine expeditionary units, as they are forward deployed, they can go in and they can take a look at assets within that theater. But they don't necessarily have access to it, nor are there business rules there to be able to make that a reality. So that is the leap that we have got to be able to make in order to make that a reality. And, again, it goes back to what we are doing in Operation Maneuver from the sea, we have got to have not just theater visibility, but visibility across all the services in every theater.

    Mr. BATEMAN. Thank you, General. Mr. Riley.

    Mr. RILEY. Thank you, Mr. Chairman. General Handy, let me compliment you on your opening statement.
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    Brevity sometime is at a premium here. Gentlemen, let me ask you a question, and I know you have a very difficult job. I can't imagine the logistical problems that you go into every day. But within all of your services, are all of your parts, all your parts, are they bar coded? Do you have bar coding available on all your parts?

    Admiral AMERAULT. Yes, sir. I think that is the percentage of visibility of the assets that we are talking about. We believe we have, as I say, in the Navy 98 percent and upwards of that. And I think the other services are comparable.

    Mr. RILEY. This brings up one of the problems that I have, and if you have 98 percent visibility, then you should know where the $3 billion that we can't find is?

    Admiral AMERAULT. Yes, sir.

    Mr. RILEY. But there seems to be a contradiction in terms. If you have 98 percent visibility of the parts, then how do you end up with $3 billion worth of parts that has been written off or you can't find? I mean, maybe I am missing something here. I don't see how you can have both. If you have 98 percent visibility, you know where every part is. And if you know where that part is, how do you come up $3 billion short?

    Admiral AMERAULT. When I was talking about total asset visibility, I am talking about those parts that have been receipted after having been in transit. The material that is being talked about is material in transit. We have had some difficulty in receipt procedures, as I mentioned. We are going back to engineer that. When something is accurately receipted, we have visibility of it.
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    Mr. RILEY. OK, and if I understand then—walk me through this. If you have, I think the testimony was 60 percent variance in your receipting?

    Admiral AMERAULT. I don't know whether that was their testimony, sir.

    Mr. RILEY. I don't know if that was for the Navy or across all of the services.

    Admiral AMERAULT. Yes, sir, that was for all the services——

    Mr. RILEY. If you have 60 percent variation in receipts, then I have a very hard time understanding how you can say that you have 98 percent visibility, because you don't have receipts for 60 percent of the——

    Admiral AMERAULT. Yes, sir. Some of these are not receipts in a storeroom or in inventory, sir. Some of these are accounting receipts. In other words, it could be a tape that is at the DFAS that has the accounting money value receipts that has not been put into the system in DFAS and so forth. So, this is not all what is an inventory or an accuracy of inventory situation. Some of it is—it is mostly an accounting situation.

    Mr. RILEY. Well, as the Chairman so rightly stated a moment ago, it is almost like I am hearing polar opposite testimony today on the first panel and the second panel. After the first panel, I was somewhat depressed, disillusioned, disenchanted about the whole state of our military readiness and also our supplies. I have a—I have a problem. The—you said a moment ago, that over the last two or 3 years that you had made major moves in management practices to private industry-type practices and you thought you had gone—might have even gone too far. And then the testimony is, we are $3 billion short or lost. We have 60 percent non-receipts. Admiral, I would have to say that I don't think you have gone far enough.
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    Mr. BATEMAN. Let me interrupt, if I may, Mr. Riley, just to read two sentences from Mr. Hinton's written statement. On page one, he makes reference to DOD continues to maintain large inventories that may be as much as 60 percent in excess of current needs. On the next page is where he makes reference to in February 1998, we reported that DOD did not have receipts for about 60 percent of its 21,000,000 shipments to end users in fiscal year 1997. These are the express statements made. Tell me whether or not you take issue with the accuracy of the statement or with what I would take the meaning of the terminology that is employed? Are they right or are they wrong? Or am I reading this—more into this than should be read?

    Admiral AMERAULT. Yes, sir. On the receipts side as far as the Navy part of that. And we are not that entire 60 percent or what have you. We do have difficulty in receipting procedures, as I have mentioned. We are working on those. But as far as the fact that that material has arrived, I would take issue with the statement.

    Mr. BATEMAN. Well, in other words, you are saying somebody didn't do the proper paperwork——

    Admiral AMERAULT. Paperwork, yes sir.

    Mr. BATEMAN. But the material——

    Admiral AMERAULT. Yes, sir.

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    Mr. BATEMAN. Went where it was supposed to and ended up in the hands of the person who was supposed to receive it?

    Admiral AMERAULT. Yes, sir. And we are working on answers to that—to that report. That's a new report, and I don't think we even have the final report, just the draft.

    Mr. BATEMAN. OK. Well, that is the reason for my saying, I want your comments upon what is in the GAO report——

    Admiral AMERAULT. Yes, sir.

    Mr. BATEMAN. That their witnesses discussed today.

    Admiral AMERAULT. Yes, sir.

    Mr. BATEMAN. This reference to as much as 60 percent in excess of current needs. Does anyone challenge that you have got 60 percent more than you need in terms of materiel and inventory items?

    General GLISSON. Mr. Chairman, let me just offer you my insight into that from the Defense Logistics Agency point of view. The report is relatively new, and we are looking at it now. But I would tell you that we don't necessarily agree on the terminology, the definition of what excess is defined. From the GAO definition of excess, I think as we interpret that, that means requirement objective, which, for them, is what you would buy today. As we in the acquisition business define excess, it is not just what you buy today—in fact, we may have stock that would meet that definition of excess, but we wouldn't consider it excess. And I will give you some examples. We may have contingency stocks which is above whatever that requirement objective is, because we know we need to keep it and hold. We may have erratic demand on items that we don't get a requirement for but once every 6 years. But you need that to keep a shift from going down, or you need it to keep an aircraft from going down. And it doesn't make much sense to turn it in. So, I think that during the discussion with GAO, as we go through it, we will get to those kinds of things.
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    Do we still have areas which they consider excess which might be valid? My take on what the inventory that I hold is that is probably true. We have made great progress in reducing that inventory value. In fact, on the consumable items alone, we have gone from well over $10 billion down to about $6.5 billion. The real area, and that is the area I talked about in my opening remarks, has to do with spare parts. That's the last bastion, if you will, the last frontier of the majority of the stuff I would tell you we still hold. And that is an area that I think we have to be very careful on, and it goes back to that balance I talked about on what you'd shift to commercial practices, and what you hold internal for war fighting purposes; because if you have even one soldier short or any Marine who dies because you couldn't get a part there on time, you'd never forgive yourself. You're in the logistics business. And so we want to be careful as we do that. So maybe we are not moving at the rate of speed that we ought to.

    But I recall in 1993, I had just arrived in Philadelphia, and there were three GAO reports; and I know all of the gentleman very, very well and have high respect for them. And one's on subsistence. One was on medical, and one was on clothing and textile. It read very much like the report today.

    And they were right at that point in time about the speed at which the Department was taking on those challenges. And those reports caused us to move forward in a way that accelerated that change process. We didn't get it right when we first started in, and we learned—it took us about three to 5 years to work through that. I say we are probably at about the same stage on spare parts. It is more critical than some of the others because you just can't go out and buy some of the things for our weapon systems like you can buy food or clothing. So we have got to be careful on this, and the pace at which we do that I think is one that we need to be judicious about.
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    So I think that is my take on where they are coming from.

    General HANDY. Mr. Chairman, if I might add to that. I agree totally with what General Glisson said. And I have great respect for the GAO, but I do not agree with their definition of excess. We have two retention levels, and I think are very, very important that I think Tom covered. One is, of course, the economic retention level for obvious reasons. And the other one is for contingencies.

    Let me tell you a little bit about where we have come from. In 1989, we had about $18.9 billion of inventory at the wholesale level. Today, we have got $9.5 billion. There is not a division in our Army today that has more than 5,000 lines of ASI, authorized stockage items, at their level. And contrast that to—and I am talking about heavy divisions as well—contrast that to 10,000 to 11,000 a few years ago. We have cut the amount of spares in half at the unit level, the prescribed load list.

    And I think there is a great danger in depending too much on this just in time inventory. I personally don't believe in it. I think that we can't afford to have the old stockpiles of equipment we used to have—in other words, some have referred to as just in case inventory. But neither can we afford to have just in time inventory. What we have to do is get it just about right. And I think that is what we are all striving for. So, I think there is great goodness in that GAO report, and we need to take the goodness and build on that. But I would not agree with totally with their definition of excess or where we are.

    Mr. BATEMAN. Well, as I have indicated earlier, the committee would be well served if you would take for the record, when you have had a chance to digest, to really get into this report, your commentary, especially on any recommendations that they have made and the extent to which you agree with them and are implementing them. And if there are assertions in the report that you don't regard as being accurate or which don't realistically reflect the needs of your services, we would like to have those comments, too. General Handy?
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    General HANDY. Mr. Chairman, I would agree wholeheartedly with what both Generals Glisson and Coburn and Admiral Amerault have had to say. It is a common definition to all services. And so that disconnect in the GAO report will affect us all.

    The one part of the report with regards to inventory that is worth singling out is their comments specifically about the Air Force shortfalls. And we do have a very specific shortfall, a very identifiable shortfall, a very specific $381 million—and I say that because it is an each item accountability that we have currently in our unfunded priority list on the Hill now. And so that is a very specific inventory item we are trying to attack.

    Mr. BATEMAN. $381 million is the number?

    General HANDY. Yes, sir.

    Mr. BATEMAN. And it is not included the budget request that is before us?

    General HANDY. Not in the request, no, sir.

    Mr. BATEMAN. Anyone else have any items they need to make mention of, of that nature? General?

    General HIGGINBOTHAM. Sir, I would like to make a comment if I may. We do have too much inventory. In 1995, we had probably somewhere in the neighborhood of 2 to 3 months of inventory. Today, we are probably sitting at six weeks of inventory. And where we want to go by the 2000 period is a tailored inventory.
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    Recently, what we did we went out to industry and academia to help us in what we called an Integrated Logistics Capability Effort. And initially, what we were trying to do is take a look at information technology, life cycle management, and trying to leverage best commercial practices as they would apply—business process improvements. And so, out of that would then fall an acquisition strategy, you know, for our IT systems. Part of that of discussion also though kind of took us into the subject of inventory. And so what they helped us do is to create a model—and the model consisting of quadrants. And so you put your sustainment in different quadrants. One, of course, is critically based—you know, high dollar items such as certain kinds of engines; routine that you can buy anywhere; bottleneck items that are military unique, but you probably need most of them down at the routine; leveraged items that are probably a little more critical, but yet you can get them on a worldwide basis. The fact is that in many cases, we were treating sustainment just about all the same. And so we weren't putting them in those kind of quadrants. And so, at the same time, we are having RAND help us get there.

    And so really what we are looking at doing by the year 2005, we want to reduce our inventory by 50 percent. And, again, the reason we want to do that is to make sea-based logistics a reality, because we cannot afford to have these large inventories, because the inventory, again, is going to be sea-based. So we are driving into that direction.

    And at the same time, OSD has given us all goals to achieve in our case, on our secondary item inventory levels. In 1997, we were sitting at $445,000,000. The goal by year 2000 is $250,000,000. That's a 45 percent reduction. We are already on that track.

    Mr. BATEMAN. Thank you, General. General Handy, returning to your $381,000 shortfall in spare parts, could you furnish the committee a memorandum on what is included in that——
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    General HANDY. Yes, sir. I can. I would be happy to.

    [The information referred to can be found in the appendix.]

    Mr. BATEMAN. What those items are? I interrupted the gentleman from Alabama, Mr. Riley.

    Mr. RILEY. Thank you, Mr. Chairman. Gentlemen, again, you seem like you have a handle on where you want to go. I would encourage you to do it because the numbers that we heard earlier takes away from the readiness not only of our military, but the soldier and the sailor. And that is something that we can't do.

    But on a more pleasant note, this committee probably more than anything else has dealt with the difference between privatization and depots at least in my short term here. It has been a very contentious issue. It has become something that even within our Congress has divided along demographic lines. I would like each one of your opinion on what your perception is as far as partnering; and I say this because of what, General Coburn, General Wilson had been able to accomplish at the Anniston Army Depot.

    Over the last two or 3 years, we have been able to assimilate the two. Today, at Anniston, I think we have Boeing, General Dynamics, UDLP, Allied Systems all working within the depot system. And it makes perfect sense to me. And then, you know, I would like to compliment you, General, for all the hard work that you have put into this. But we have got some programs down there now, specifically the AIM 21 program that is working very, very well. You know, I am not too sure that we have to have these, again, polar opposite views on depot and privatization.
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    [Ringing cell phone.]

    I am going to throw this thing away.


    That's General Coburn calling.


    So I guess my question is, as we move forward in this debate, because we do have excess infrastructure in all of our places, all of our depots, you know, I would like to know one, General, you know, what's your assessment of the partnering arrangements that is going on in Anniston. How they've worked. Have they been cost effective? Have they been efficient? Is this something that we need to continue to pursue? In my mind, it makes perfect sense to do this. And then I would like to have a comment from each one of the services on what steps you have already taken in a partnering effort and essentially what you think of the program?

    General COBURN. Mr. Congressman, you are right. Anniston is, indeed, a model that we can follow. You mentioned some of the partnerships. There is about 12 down there. And you gave General Wilson, and I credit; but actually that credit is not placed in the right place. That AIM–21 program, as you know, you beat me up last year on that, and had it not been for you, that program wouldn't be there in the first place. And I say that in all sincerity, and I will say that for the record.
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    Having said that, the whole business of partnership is really a win-win situation. It is really the answer to excess capacity. Once we workload our depots, then what we have to do is reduce our excess capacity in any way that we can. And that is what we are trying to do. We got the AIM–21 program, which I think some of you know is our program to modernize our M–1 tanks. What we do is we take that tank apart down at Anniston, take the components out, then we overhaul the components wherever it makes the most sense to do that, either in industry or at Anniston. We ship it up to Lima, Ohio. General Dynamics puts it back together. It is really a win-win situation. What it does is it reduces the O&S costs. It keeps our industrial base alive. It provides workload to our depot. But most important, it provides a like-new tank to a soldier. That's what we are trying to do. Now, I could carry that even further and go one; and you would get tired of what I had to say about partnering because we are doing so much of it, and there is so many good things going on.

    We could take it to the ammunition plants, for example. And I would encourage you to go out to Crane Army Ammunition Plant sometime. You'll find out there that we had an ammunition plant that wanted to close, couldn't do it. And so what we did is we turned it over to a facilities contractor, who, in turn, brought in 52 tenants. It cost the Army nothing—no overhead. They are making everything out there from dog food to blue jeans. We have got 52 tenants. Took the old powder bag factory, converted that blue to jeans. And, of course, if you ever need that again, you can convert back easily because of the type of commodity that it is.

    So I think that there are lot of win-win situations around like that, and it is an area that I think we just have to pay an awful lot of attention to. It solves an awful lot of problems for both sides.
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    And I guess I have said too much, so I will stop at that.

    Mr. BATEMAN. Glad to hear from you, General, at any time. General Handy?

    General HANDY. Sir, similarly in the Air Force, as you I am sure well know, both at Robbins with Lockheed, the public-private partnership, with Boeing at our other depots, and with initiatives at Ogden and dozens of other smaller examples, we are finding win-win situations just like General Coburn and General Wilson are finding in the Army. It is an aggressive way to solve problems. We share best practices. Those things we do really well in the public sector are shared with the private sector and back and forth. And so, I would say we are very willing and witting partner to the same method of doing business.

    Admiral AMERAULT. Yes, sir, likewise in the Navy we are very much into partnering with private industry. And I think the point that I would emphasize is where it makes sense and where it is the right thing to do and where they can do something better and cheaper than we can that doesn't have a dramatic effect on our readiness or the war fighter at the front.

    Some examples are that we now have direct vendor delivery are the clothing issues at bootcamp, for instance. We don't then have to own a large inventory of various sizes and so forth, for new recruits. That clothing company can do that better, quicker. They have a better data base for that sort of thing, and they deliver it at much less cost than we could do that—much less wastage and so forth.
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    Likewise, we have a direct vendor delivery system at our Naval Aviation Depot at North Island in California, in which we do get certain bin stocks of small pieces and piece parts and so forth that are directly fed to that activity so that the bins are kept stocked and so forth.

    I think it makes a lot of sense to do those things. On the other hand, we certainly—it is very obvious we wouldn't have direct vendor delivery of piece parts to an aircraft carrier at sea. We just couldn't do something like that. So it—where it makes sense, where it makes a savings, and where they can do it better, we are all for it, sir.

    General HIGGINBOTHAM. We are about to commit $309 million for an upgrade of our amphibious assault vehicle—what we call reliability, availability, maintainability, reverted back to standard. And so that vehicle now is 27 years old, and, of course, it is got—we have got to extend the life cycle out to about 36 years of age until the triple AV program comes on line. And so what our logistics bases has done is that they have created a partnership with United Defense limited partnership [LP] as an example where they are leveraging their management capability, their technical support, but also their vendor base. And so that is just one example of what they are doing on logistics bases at Albany today.

    We are also starting a service life extension program for our light armored vehicle here very soon. That will extend it out to 2005, and we will probably create the same kind of relationship as well.

    One of the reasons I think that we have got shortages of spares today is because of problem years with how we did acquisition, and so how we manage life cycle management. And that is the reason in the Marine Corps that we have created a separate materiel command that has cradle to grave responsibility for life cycle management. And so with new items of equipment coming on line, what we really want to be able to do here is to be able to involve the contractor or the vendor in the life cycle management of that piece of equipment, called contractor logistics support. And so that I think will help us a lot.
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    An example of a—of how the acquisition system did not work for us in the past involves a 60 millimeter mortar that we procured the tube in 1984 at the cost of a little bit over $1,700. Last year, at our Second Marine Expeditionary Force at Camp Lejeune, they went in and surveyed all their tubes, and they found that they all need to be replaced. And now the vendor had to retool, and it cost us roughly $15,000 a tube. And so that is why we need to have this civilian occupational specialty [COS] structure, you know, created.

    Also, I want to just say something about Defense Logistics Agency and the vendor relationship that we have both with DLA and also separate vendors. We are really trying to flatten our supply chain. And so we kind of refer to it as a pregnant, you know, supply chain; that there is bumps, you know, in it. And so we are trying to flatten that out and deal more directly with specific vendors. And so several years ago, we had great success with both subsistence and dental—and/or rather medical prime vendors. And a few years ago, our recruit depot in Parris Island came forward to DLA and said look, we have had great success with this. Can you do the same thing for us in facilities maintenance—the kind of parts you need to maintain facilities? And so we took that on, and I happened to be in DLA at the time. And so now, 2 years later, that is a great success story. And so that is just one of many initiatives. But as a result of that prime vendor relationship, the cost to procure is one-third of what it was initially. And so we have gone from order ship time, from 20 to 28 days, down to 7 to 10 days. And so while the individual cost has gone up, the overall cost to procure has gone down. So we have taken out that overhead, full time equivalents, you know, to manage all that overhead.

    The real key here, though, is that 67 percent of the business goes to small businesses. We were really concerned about that. Now, last year, while in Okinawa, I found the order ship time in Okinawa an average of 68 days. So you can imagine the inventory that you must maintain, you know, with that being the case. Lumber was a 180 days. So what we now have done is that we have taken on all of DLA's prime vendor and electronic data interchange [EDI] initiatives on the island of Okinawa, and so they are serving as a benchmark for all of the Marine Corps today. And just 2 weeks ago, I took a team from DLA, and also our headquarters, and we visited all of our sites on the west coast and also Hawaii talking to the senior leadership about these innovative initiatives so that we can get these rolled out this coming year. We are going to do the same thing on the east coast here within another month or so.
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    And so I might also add is that what we are doing in Okinawa is a great example of regionalization of the joint effort because our footprint in the Marine Corps is only $44 million; and I was really concerned that we really could not get industry involved in that effort because the dollar value wasn't there. The other services came on line, and that footprint went from $44 million to $172 million. And that is why industry is now coming out.

    Automotive repair parts, that prime vendor initiative, is already underway. We have gone from that average of 68 days down to 7 to 11 days. You're paying for premium transportation, but when you consider repair cycle time and the fact that you have now taken out that inventory, it is a more cost effective, efficient way to do business.

    So we are rolling out these initiatives as fast as we can. General Glisson said if I would make that kind of comment, he would give me a hundred dollar bill. But we truly have a strategic alliance with DLA and these vendors, and it is helping us a lot.

    Mr. RILEY. Well, since we gave you the opportunity to make the statement, we should get at least $50 of your earnings.


    Let me ask one other question, Mr. Chairman, if you will indulge me.

    General Coburn, there has been a lot of discussion here on the AIM–21 program about whether we will have 75 or 90 tanks coming through. Do you have a number?
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    General COBURN. The number is 90, Mr. Congressman; and we have a requirement for 135, however.

    Mr. RILEY. OK, thanks. Thank you, Mr. Chairman. Thank you, gentlemen.

    Mr. BATEMAN. Thank you, Mr. Riley, and I thank all the members of the panel. And we do have some questions that will be submitted for the record on behalf of Mrs. Fowler, who is at another meeting and unable to have been at this hearing, but who does have some questions. And there may be others. But thank you all very much for your testimony, and for what you do. And we will look forward to having your responses to the questions submitted for the record. Thank you all.

    [Whereupon, at 3:30 p.m., the subcommittee was adjourned.]


February 25, 1999
[This information is pending.]