On the long march to improvement

3 July 2002
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04 July 2002

The Ministry of Defence's bold decision to use e-procurement for 90 per cent of purchases shouldn't hide the need for the department to look at its own practices, says Robin Parker

When a purchaser's supply chain leads to the war zones of Kosovo and Afghanistan, they have every right to consider the exact price of nuts and bolts a secondary concern.

Yet even with that proviso, the holes discovered recently in the Ministry of Defence's (MoD) inventory data are staggering.

The National Audit Office (NAO) found that the ministry not only cherishes a collection of radiation detectors worth £10 million - now unfortunately obsolete - but also that it put a price tag of £83 million on a pile of brass nuts actually worth little more than £1.

The warning is the latest in a long line of criticisms of defence procurement, attitudes to which even some within the ministry itself recently admitted "defy logic".

UK defence purchasers have been increasingly under the spotlight since the strategic defence review three years ago. By splitting responsibility for buying "cheaper, faster and better" between the Defence Procurement Agency and the Defence Logistics Organisation, the new structure has been welcomed as a step to centralise the ministry's procurement network, far ahead of anything the US has attempted.

Hard targets for improvement include a demand for purchasers to produce savings of nearly £1.5 billion by 2005.

This joined-up thinking is hindered, however, by a poor record in spreading word of successes and failures internally, for which it has come under continuous attack.

The NAO said in November that the £1.8 billion contract for Bowman army radios suffered because no accurate benchmarking was available, while a "lessons learnt" database of procurement contracts was found to contain no data from deals that did not go out to tender.

The latest accounts will be familiar to the US military, reliant on its "iron mountain" of weapons, spare parts and ammunition kept at the front line, traditionally deployed without anyone knowing how much stock there was, or where. The US Marine Corps teamed up with supply management training specialists at Penn State University and consultants at Sapient Corporation to become more efficient and professional, an approach now paying rich dividends.

Smart move

The UK's smart acquisition strategy is unprecedented in scale, requiring a rethink of the MoD's entire approach to procurement by forming a closer and less adversarial relationship with the private sector.

The influential House of Commons public accounts committee has suggested this transition has been far from plain sailing and that defence purchasers often let suppliers dictate price levels.

It's not that the MoD is necessarily stuck in its ways. It is one of the strongest advocates, for example, of the government's controversial private finance initiative (PFI).

Given the complexity and security demands of military supplies, and the long service expected of them, the risk management and long-term maintenance promised by PFI seems a natural fit.

But the results have been distinctly mixed. Just weeks after a £290 million, 20-year deal for tank transporters scooped a top prize at the Public Private Finance 2002 awards comes the news that a massive air tanker project has been delayed by 15 months.

The setback to the ministry's largest PFI deal is a prime example of the fraught terrain in which it operates.

In the face of such failures, the MoD's plan to step up e-commerce and bring 90 per cent of its procurement online seems bold to say the least.

Given the constant warnings about getting procurement databases in order, the ambitious move has the danger of putting the cart before the horse.

In linking directly to Exostar, the defence and aerospace e-marketplace, the MoD will potentially add 2,000 new companies to its supply base, giving it immense leverage for negotiations.

The gamble could be the ministry's saving grace. Certainly it puts it ahead of much of the public sector, representing a working model for online trading with private industry.

But at the risk of downplaying the initiative's obvious cost and efficiency benefits, it is equally vital for the ministry to address operating practices at its own organisations, particularly as it is under constant scrutiny.

The MoD has a dual obligation to taxpayers' money and national security, and only by getting its house in order will the ministry learn from its mistakes and drive the defence sector forward.


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