MoD lambasted for inefficient stock-keeping

29 June 2012

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29 June 2012 | David McAlonan

The UK’s Ministry of Defence (MoD) is wasting money holding unnecessary stocks, the National Audit Office (NAO) has said.

The public spending watchdog published a report this week that criticised the ministry for its record on inventory management. It found the total value of ‘non-explosive’ stocks – including clothing, medical supplies and spares for vehicles, ships and aircraft - increased by 13 per cent to £19.5 billion between March 2009 and December 2011, as the MoD bought more inventory than it used. Furthermore, £4.2 billion of non-explosive stocks – 10 per cent of total inventory value – had not moved in the two years up to March 2011. There are also some items that require disposal.

The report said the fundamental reason for the poor performance is that the MoD’s management and accountability structures do not adequately incentivise the efficient use of stocks. It said staff needed to be targeted on more efficient turnover.

It added that the MoD does not understand the full cost of holding inventory, fails to employ known costs in its daily stock management and lacks suitably qualified staff.

A lack of information on what stock is in store leads to over-ordering to ensure equipment is available when forces need it.

NAO chief Amyas Morse said: “In the current economic climate where the department is striving to make savings, it can ill-afford to use resources to buy and hold unnecessary levels of stock, and it clearly does so.”

Margaret Hodge MP, chairwoman of the Commons' Public Accounts Committee, said in a statement: “With the planned return of armed forces and their inventory from Afghanistan by 2015 and from Germany by 2020, the ministry needs to act quickly to resolve its problems. My committee will want officials to stop wasting taxpayers’ money and implement a more cost-effective management system as soon as possible.”

The NAO said the MoD acknowledges it needs to improve inventory management and has already made some changes. For instance, it has introduced separate budgets on consumable purchases to minimize over-ordering and it now requires the approval of senior management for purchases that exceed £500,000.

Among the watchdog’s recommendations were that the MoD:

• Address its inventory management problems before outsourcing some of its warehousing, distribution and commodity procurement functions;
• expand its financial information and use this to improve decision-making; and,
• develop a coherent and comprehensive strategy for the size, value and composition of necessary stocks.

In response to the criticisms, Peter Luff MP, minister for defence equipment, support and technology, said: “The challenge of managing and maintaining vast amounts of equipment, including explosive materials, around the world should not be underestimated, but I know that the MoD’s assets must be more efficiently managed. That is why we are undertaking a number of initiatives to address this long-standing issue. We are changing the way we buy, store and dispose of equipment stocks and investing in IT systems to help us record the hundreds of thousands of items in our inventory.”

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