Examination of Witnesses (Questions 460
- 479)
WEDNESDAY 12 JANUARY 2000 (Afternoon)
SIR ROBERT
WALMSLEY, KCB, GENERAL
SIR SAM
COWAN, KCB, CBE AND
MR NICK
WITNEY
460. Can you give us a figure comparing the
administrative costs including personnel and their office space
for the DLO compared with the three single service organisations
that they are succeeding? What is the saving on administration?
(General Sir Sam Cowan) The best way to cover that
is on numbers of people because that is where the operating costs
are. I did not set a numbers total on this because I did not want
to adopt a sort of slash and burn mentality. The setting up of
the Defence Logistics Organisation, given its size, has been a
very rapid process and also I am aware that the three defence
service logistic areas have been through quite a lot of change
and cuts and reductions, so I decided that initially, as I was
building up the new structure, to do it on a process driven system,
subject to some conditions which I will outline in a minute. Just
carrying out a pure analysis, we are starting on 1 April with
about just over 600 fewer people than we had in the old, combined
structure. Over the next year, we will be carrying out a careful
analysis of those numbers in each of the business areas to make
certain that in some areas we are not over-insuring against what
we thought we would need and in other areas we may have under-provision
in numbers. I thought that it would be right to take that hard
look when the system was up and running, rather than when it was
just a theoretical model. I hope that gives you some idea. There
is a 600 reduction as we start, but I think the numbers will come
down because a number of the ideas inherent in the lean support
projects will inevitably lead to reductions in numbers. They will
be driven not just by any arbitrary reduction in people but trying
to drive down the total cost of support.
Chairman: That is a very refreshing approach.
I wish others would take it rather than deciding on the numbers
and then redefining the task to suit the financial cuts and the
numbers. I hope your ideas catch on.
Laura Moffatt
461. I wonder if I could refer you to paragraph
44 because most of my questions in the Defence White Paper are
around that particular paragraph. I know that the General has
kindly outlined many of the new ways of working but I am not sure
I caught exactly a particular issue that I am interested in, the
two chains of logistics to supply front line services which I
believe should have been in place by 2001 and 2003. Are they still
on line?
(General Sir Sam Cowan) Yes. That is the intention.
462. It has not slipped at all. It is good to
hear that. In that paragraph it clearly says that additional funding
for deficiencies in weapon systems and spares was required. How
much was required for the deficiencies?
(General Sir Sam Cowan) In the case of that specific
reference to the Royal Air Force, I am responsible for a major
part of the programme. My part of the programme will be complete
by probably the end of the financial year 03/04. The majority
of it will be complete by 02/03 and it has already started to
have an impact. That is such matters as buying additional engines
for aircraft, additional spares, additional night vision goggles,
additional avionics equipment, additional capacity to make certain
that we can repair these aircraft and these helicopters under
field conditions. That amounts to about £90 million.
463. That is substantial.
(General Sir Sam Cowan) A substantial enhancement.
I did take a check on this 2006 figure because it is not one that
I recognise. I am working to a different timescale and I was informed
that that figure relates to something which I am not responsible
for. It is something under the hand of the Royal Air Force Strike
Command, to do with the enhancements to their tactical communications
wing, which will take that amount of time, I am told, because
of its complexity and wider manning implications. It is not an
area which I am directly responsible for but I did check that
because it is three years longer than the programme that I am
going to be looking at.
464. That is interesting. Thank you for highlighting
that because I was going to ask you which bits of kit were involved
and you have kindly named them. I must admit what was of more
interest to me and was not mentioned there was the other two services.
If there was difficulty in sustaining the RAF, I believe that
we felt that there were difficulties in the other two services
as well. Why are they not mentioned?
(General Sir Sam Cowan) This is really a question
relating to last year's White Paper and the SDR outcome. I can
only answer it rather speculatively because I do not have the
White Paper of 12 months ago to hand.
Mr Blunt
465. There was not one.
(General Sir Sam Cowan) There was an SDR document.
466. This is the first White Paper of this government.
(General Sir Sam Cowan) Thank you, but there was a
document issued under the signature of the Secretary of State
which gave the results of this Strategic Defence Review. I think
there is a reasonable explanation. Of course the Army is very
much orientated around deployment and work in the field. It is
a new characteristic of this post-cold war world that, rather
than the majority of our Air Force being stationed in stations
in Germany, there is a great deal of deployment that now takes
place of operational squadrons. Those have to be maintained outside
peace time infrastructure and of course the greater use and activity
of the aircraft in operational theatres led the Strategic Defence
Review analysis to say that the Royal Air Force needs specific
enhancement in order to preserve its ability to sustain operations
over a longer period of time and also to meet the new defence
review requirement to make certain that we could sustain two simultaneous,
medium term deployments.
Laura Moffatt
467. We are obviously very pleased to hear that.
Thank you for that explanation. Do you see any conflict here with
what is stated in the MoD memorandum[1]
about having a reduction in the inventory of £2 billion held?
How do you square that?
(General Sir Sam Cowan) That again originated
from the Strategic Defence Review and I am responsible for delivering
the removal of £2 billion-worth of stock over the next couple
of years. I have already achieved over 50 per cent of that.
468. Where from?
(General Sir Sam Cowan) From a careful analysis of
the inventory. Do not forget, a lot of this inventory was bought
many years ago for a very different defence scenario. I can assure
you that this stock will be removed because it has not moved and
therefore it should have been removed some years ago with no operational
detriment whatsoever. We are getting new relationships with our
suppliers, so even though I may not hold the stock it will be
available on demand under contract from the commercial world,
which is efficient in terms of managing the inventory and also
enables me to deliver this stock reduction. I can assure you that
the £2 billion target worth of stock will be removed to the
timescale stated without any detriment to my ability to support
front line outputs.
469. I am having trouble trying to visualise
what this stock may be. What are we talking about?
(General Sir Sam Cowan) It is all the stuff that has
been bought over the last 20, maybe 25, years to support the tanks
and the aircraft and all the ships that we have in service and
continue to have in service. There is a natural reluctance among
what used to be called equipment support managers to get rid of
kit. It tends in the past to have sat around. "We bought
it. It is not costing us anything, so we may as well hold it just
in case." Under resource accounting and budgeting, not only
are all these assets available but they are now exposed and I
have to pay a six per cent interest accruals charge, so I am very
interested in what we are holding. I am utterly unimpressed with
people who say to me, "Well, we know the kit has gone out
of service but we bought it some years ago and it would be a shame
to throw it away."
470. It sounds like my mother!
(General Sir Sam Cowan) I hope I am dealing properly
with your very good question. It is very fundamental to this change
of attitude and a new culture.
471. I wonder how you assign a £2 billion
value to it if it is of absolutely no value to you.
(General Sir Sam Cowan) That is a very good point.
Nevertheless, in terms of the old accounting system, it is held
on my balance sheet according to the price that was paid. Various
adjustments then were made from that time, so although it is £2
billion it is a matter of considerable regret to me that I am
not getting £2 billion paid into my budget for getting rid
of this. We are getting a certain amount and the Disposal Agency
has been very efficient in getting rid of it but at scrap value.
Mr Colvin
472. How much is saleable?
(General Sir Sam Cowan) A fair proportion of it is
but not at the price which we paid.
Chairman
473. There was an ammunition war stocks review.
Has it reported yet and, if it has, is it likely to yield more
or less ammunition to be held?
(General Sir Sam Cowan) That work is underway led
by one of the centre department organisations. I am obviously
very interested in it because, under the new arrangements, there
has to be a customer, somebody in the Ministry of Defence, who
takes responsibility for interpreting the new guidelines on stock
that we should be holding in terms of war reserve, including ammunition.
I know that the work is at quite an advanced stage but to my knowledge
it is not complete yet.
474. You have no idea when it is likely to be
completed?
(General Sir Sam Cowan) I think within the next six
months. Nick, are you aware of that?
(Mr Witney) Later on this year, yes.
Mr Hancock
475. I am very interested in what you have been
saying because I grew up not so much at sea but in the surrounding
area, full of anchors and chains lying across acres and acres
of open fields. It took the best part of 40 years to get those
moved and the land actually put to some use. I have more than
a degree of sympathy for what you are saying, but I am interested
in the way in which you target things. You, Sir Robert, mentioned
targets and General Cowan has as well. I would be interested to
know what you consider to be a target.
(Sir Robert Walmsley) In terms of savings do you mean?
476. Yes, and how you go about setting these
targets and how realistic they are to be delivered. How do we
know that you are not short changing us by setting hopelessly
simple targets to meet for yourselves, for example?
(Sir Robert Walmsley) We employed consultants to help
us formulate the prescription for smart procurement, most obviously
through Integrated Project Teams. When you bring a lot of people
together in a team who have previously held contributing but nevertheless
separate responsibilities, quite often each of them holds back
so to speak in the total enterprise a little bit of resource for
himself. What the consultants told us was that the absolute world
standard, when you brought together an Integrated Project Team
with all these formerly contributing but nevertheless in some
way competing interests together, the absolute bench mark figure
for a saving, is around five per cent. We therefore look at each
Integrated Project Team as it is formed up and what you find is
that, with a requirement specialist in there, interacting directly
with the other team members, with industry being more open, we
have been able to get rid of these little "come in handy"
parts of the resource that each person was holding back. What
that means is that I think a hard target of five per cent is a
good aiming point. A stretch target needs to be something far
more visionary and it is also a fact that if you do not aim high
you do not get high, so you should aim high for stretch targets,
but there is a huge difference in the way we assign people hard
and stretch targets. Hard targets you expect to see taken into
the budget. The way we work it is we do not therefore start off
with an absolute figure in mind, although this five per cent bench
mark is not a bad one. We say to the team, "You have all
come together. Let's see your ideas" and basically attribute
them to hard targets or stretch targets. You have ten weeks of
this breakthrough process, having trained the leader and trained
the team, with consultant support, to try to turn those targets
into real prescriptions for delivering them. If they cannot turn
them into prescriptions for delivering them and get them agreed
with all those who have to contribute to the delivery, they will
not become a hard target. If they do, they do become a hard target.
The budget is adjusted accordingly. Stretch targets will take
far longer. This is not of course a once and for all. Again, it
is very much something that the team must get used to. It is this
cultural point that we have been making. It is a new way of doing
business, gain sharing with industry, which is a very real example
of something that we are not doing as well as we had hoped, but
it seems to me to have a tremendous potential for actually incentivising
industry to do better, because they might make more money, as
long as they pass some of the savings back to us.
477. How do you yourselves get on in delivering
your 20 per cent reduction in the Procurement Agency's target?
(Sir Robert Walmsley) That 20 per cent is against
the administrative cost of running the Agency. The way the target
breaks down is that we have been given four years to do that from
the Strategic Defence Review. I expect to achieve the first ten
per cent of reduction by 31 March this year. I certainly expect
to get the next ten per cent by March 2002. We may well do that
second ten per cent a bit earlier, but we are going to get there.
478. What about you, General, with regard to
the targets you have set for your operations in the three services?
I was not altogether convinced with the answer you gave to Laura
Moffatt.
(General Sir Sam Cowan) A better way of dealing with
Mrs Moffatt's answer is that the £2 billion is a double target.
Two billion pounds is the real target which is 20 per cent by
value.
479. I was going back a bit further to what
you were going to end up with as an organisation and what you
could deliver for the armed forces of this country, a lean, mean,
fighting force which should be equipped for a period of time and
you could deliver this to ministers when they wanted it at their
disposal. Are you going to meet that target?
(General Sir Sam Cowan) Absolutely. For the fundamental
target I believe I can be accountable in a way that I could not
have been accountable under cash because fundamental to what I
am doing is the introduction of a resource accounting budget for
the first time, specifying outputs in a very specific and quantifiable
way, which capture the total cost of delivering that spare, not
just what it costs in terms of cash to buy the spare, but the
total cost of all the processes which contributed to that spare
actually being delivered at the point of need. As I mentioned,
I have three equipment support areas between which my 50 IPTs
are divided and they have customer/supplier agreements being worked
up with the front line commands— Commander in Chief Fleet,
Commander in Chief Land, Commander in Chief Strike—and their
supporting commanders, which specify in output terms what I am
responsible for delivering in terms of material and commodity
support during the next year. These CSAs deal with timeliness,
quality, quantity and cost. Although this is ground breaking work,
and this is the first year in which these CSAs have actually been
written with the degree of rigour that is necessary, a great deal
of progress still has to be made. I am satisfied that they are
bringing a degree of accountability and also a change in the relationship
between front line command and the support area in a discipline
that might not have been there before and, advantageously, is
very much putting the customer—in my case, Commander in
Chief Fleet, Strike and Land—in the driving seat in terms
of determining his priorities based on the amount of resource
that we have available to support what he specifies as his needs.
The delivery of those outputs as specified in those CSAs absolutely
makes me accountable.
1 See p. 145. Back
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