Letter to the Chairman from the Secretary
of State for Defence on Smart Procurement and Defence Logistics
The Strategic Defence Review heralded major
improvements in the way in which the Ministry of Defence buys
and maintains equipment, and supports the Armed Forces. I am making
a further announcement today setting out progress on implementing
the Smart Procurement Initiative, in which I know the Defence
Committee continues to take a keen interest. The announcement
will encompass the Defence Procurement Agency (DPA) and the Defence
Logistics Organisation (DLO), headed by the Chief of Defence Logistics,
both of which are due to launch tomorrow.
We are on track to deliver the £2 billion
of savings over 10 years which we promised from Smart Procurement,
and we have identified clear scope for further savings on top
of that. To deliver these savings, it is vital that the DPA and
DLO work together very closely to ensure that procurement and
support aspects are fully taken into account when procurement
decisions are taken.
As I explained when I gave evidence to the Committee
last July, this close working is being achieved in part through
the creation of Integrated Project Teams or IPTs, including staff
from both the procurement and support organisations, as well as
necessary contracts, finance, operational user and—in particular—industry
expertise. You are also aware, not least because of your recent
interest in the Royal Ordnance facility of Bishopton, that we
want to foster an enhanced partnership with industry, to reduce
risk, encourage innovation and increase the competitiveness of
defence industry.
The 10 pilot projects where we have been trialling
Smart Procurement techniques and the IPT concept are already starting
to indicate new savings running to several hundreds of millions
of pounds over their life. They have also identified significant
opportunities to get equipment into service faster, or—for
equipment already in service—improve its availability and
reliability. For example, the Type 23 frigate IPT is looking to
reduce the length of an upgrade programme by 30 per cent and the
VC10 IPT has already identified initiatives to achieve a 10 per
cent increase in serviceability.
Soon after Easter we will launch the first formal
wave of IPTs covering 23 projects or groups of projects in the
DPA and DLO. Over the course of the coming year, the remainder
of projects will migrate to this new structure, with a total of
about 150 Teams forming in all, some 90 in the DPA and 60 in the
DLO. Given the success of the pilot scheme, we can expect both
significant savings and improvements in timeliness of equipment
procurement and availability of existing equipment.
We have set in place the necessary arrangements
for the Procurement Executive to become an Agency from tomorrow,
and are publishing today a Framework Document, a Corporate Plan
and a set of demanding key targets for the coming year, in terms
of getting equipment into service on time and within cost. These
targets are set in the framework of demanding, longer-term targets
published last December in the Public Service Agreement for the
Ministry of Defence. The Chief Executive will be Sir Robert Walmsley,
the current Chief of Defence Procurement.
We have streamlined our internal procedures
for taking decisions on equipment procurement, and will be reconfiguring
the MOD Headquarters to ensure that there is a clear central customer
for equipment.
The Chief of Defence Logistics, General Sir
Sam Cowan, will formally take up his post tomorrow, bringing together
the areas of the Chief of Fleet Support, the Quartermaster General
and the Air Member for Logistics into a single Defence Logistics
Organisation. This will be the largest Joint organisation in Defence,
and accounts for some £4.6 billion of expenditure each year.
The year ahead will see a transition to a fully unified logistics
structure in April 2000. We see real prospects for delivering
an improved service to the front line at lower cost. A significant
proportion of the savings we foresee will come from the Defence
Logistics Organisation applying Smart Procurement techniques.
There will also be savings in downstream support costs, by ensuring
that the whole life costs of equipment are properly considered
when procurement decisions are taken.
There are also prospects for major improvements
in the DLO, for example: in the ways we procure, manage, repair
and store defence munitions; in the procurement and management
of fuels; and in the use of lean support techniques. I hope that
we will be able to make further announcements here in the coming
months. We are also committed to delivering major reductions in
our current holdings of non-explosive stores and to rationalisation
of our stock procurement, leading to reductions of £130 million
a year from 2001-02 onwards.
The logistics area also sees the launch of some
significant new Defence Agencies at the beginning of next month,
including the Defence Aviation Repair Agency, the Defence Transport
and Movements Agency and the Defence Storage and Distrubution
Agency, together with a new division for the storage and processing
of Defence munitions, all of which we announced in the SDR last
summer. Again, these Agencies have been set demanding new targets
for service delivery and efficiency improvements.
31 March 1999
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