Examination of Witness (Questions 380
WEDNESDAY 4 DECEMBER 2002
KCB OBE AFC
380. There has to be a cost, surely? I used
to be asked to make these savings all the time when I was in local
government, and we used to try and save them, but there is always
a cost associated with that; you might have a better efficiency
in procurement target but there was a drop somewhere in the efficiency
of the organisation. I would be surprised if any organisation,
even one as big as the Ministry of Defence, could put forward
a 20% total and say that the overall efficiency of the services
has not declined because of that. Are you able to sit there and
say you can achieve this target at no operational effect on the
(Air Chief Marshal Sir Malcolm Pledger) I think I
would want to go farther and say that against the parameters I
have described in here, against that process review and subsequent
procurement initiatives, output costing regimes, my mission (again,
the mission is in there) is to produce efficient and effective
support in that uncertain world that requires logistic agility
into the future.
Rachel Squire: I would like to ask the
Air Chief Marshal to write to us about who, how and why this 20%
target was set, so that we can then follow it up. I would say,
as a Member of the Committee that has actually seen some of the
effects that setting constant efficiency targets have on the ground
in that respect, I share Mr Hancock's concerns about the overall
effect that that can have on performance, quality and professional
standards. So I think it is an area that we need to follow up.
Chairman: You may not appreciate it but
we are actually trying to be very supportive, in the sense that
the MoD can say that they have made X% efficiency cuts, but we
know that in many cases they are nothing of the sort; they have
made cuts and then they are sophisticated enough to find some
form of justification for the cuts they have made. What we want
to be absolutely certain about is that as a result of any cuts
that have been made, the service actually comes out better at
the end of the process and not 20% worse. I am not saying there
is no inefficiency in the MoDof course there isbut
the Treasury has a formula of arbitrary figures. I think what
we can do is fairly easy and it will get you off the hook for
twelve months, Air Chief Marshal. In twelve months' time, because
yours is such an important job, we will invite you back and the
number one question that Kevan Jones can ask, or Mike Hancock,
or James Cran, or Rachel Squire, will be "What cuts have
you made? Will you prove to us beyond any criticism that you have
achieved efficiency as a result?" We are quite wise to the
wiles of the MoD and we will give you a hard time if you come
up with a formula which we think is merely window dressing to
justify some form of Treasury direct or indirect imposition upon
you. So we can move off this now.
381. Chairman, just so that we are clear that
a note is going to come from the MoD justifying what the methodology
was in setting 20% rather than some other figure. I am afraid
I find it unconvincing just to say that with a large organisation
20% seemed right. I would personally hope that we are going to
get a memorandum from the department telling us why 20%.
(Air Chief Marshal Sir Malcolm Pledger) I have taken
a note of that, Chairman.
382. We are on your side.
(Air Chief Marshal Sir Malcolm Pledger) May I still
say, though, thatand I would be delighted to come back
and report progressI think there is a mechanism in here
to show how we are going to do this, the benefits associated with
it and, therefore, the consistency between what I have described
as effective logistic support in that new environment at better
value for money.
383. You would have to be optimistic to find
that mechanism in that report, Air Chief Marshal. I wondered where
the mechanism was.
(Air Chief Marshal Sir Malcolm Pledger) I am rather
disappointed. Each of these themes comes with priorities and key
Mr Hancock: But you do not know where they started
Chairman: Let us not go back there; we
have got another 20 questions to ask, so I think we had better
384. Good morning. I see in your background
you like flying helicopters. I used to like repairing them but
your choice of Chinook is a bit dodgy.
(Air Chief Marshal Sir Malcolm Pledger) I think you
used to repair mine.
Chairman: You are very lucky you are
in front of us!
385. It is more fun flying one than being here,
I am sure. I am interested in the present tendency when you are
buying defence equipment to have a contract for a combined package
not only for the acquisition but for in-service support. At the
same time, the MoD then go out and have a separate contract with
exactly the same manufacturer for maintenance support. I cannot
understand why it has to be two separate organisations, the DPA
and your own DLO, and why we cannot combine the two and make things
much more efficient. Have you given any thought to that, or can
you explain why we go about these convoluted systems?
(Air Chief Marshal Sir Malcolm Pledger) Could I, perhaps,
try and explain some of the process by which we do this, because
the IPTs, of course, who are responding to the equipment requirement,
in the first place, and procuring that particular solution are
subsequently dually accountable to my organisation. So when they
put their support package together it is what I will call the
mortgage against which they will move across that divide and subsequently
deliver the support solution. So the linkage, the interoperability,
the necessity for the competences and the skills are recognised
in the relationship between the DPA and the DLO right from the
beginning. CDP and I are both firmly committed, therefore, to
developing those skills from both perspectives. We also have arrangements
in place to develop through-life management plans and for whole-life
costings, which starts to get to grips with some of the earlier
questions about base-lines. That has proven its worth already
when equipments that have been procured under Smart Acquisition
move across that divide. So it is no longer one organisation doing
something and another picking up the consequences. That regime,
we believe, has given the win-win of procurement and subsequent
through-life management. It has also made sure that the customer
regime is firmly engaged in setting the right total capability
requirement of that equipment rather than, if I may, just the
procurement aspects of the equipment. Therefore, the risks of
management through life have been reduced by that integrated solution.
In terms of putting them togetherI suppose I smile ruefully
because we were talking about efficiency challenges earlier. Putting
three large organisationsnay, four, because DCSA came in
as wellI would simply say that I see this as a big enough
job as it stands, let alone trying to merge two organisations
when the structures and the processes can gain the benefits that
I have referred to.
386. I did not understand all of your answer
but that is because I am fuzzy-headed this morning. It just seems
strange to me that we cannot, in the long term, draw towards a
single unit when we are dealing with exactly the same manufacturer;
it is not as if there is a choice of manufacturers who can give
through-life support. There would be savings there, in the long-term,
which would help you meet your targets without actually sacking
a lot of workers.
(Air Chief Marshal Sir Malcolm Pledger) I still think,
in terms of combining these, there has to be a line at which we
understand that the management issues associated with an organisation
in real terms suggest that we should not merge. I think that is
where we are at the moment. I think there is another feature,
if I may, and that is that, of course, the risks associated with
those two activities are also slightly differentwell, substantially
different. My responsibility is direct logistic support to military
capability in its employment regime. Therefore, I think it is
legitimate to create some tension between myself and CDP and the
customer such that we clearly understand the balance of risk between
procurement project management and subsequent through-life management
of that support endeavour.
387. Can I go on to the Customer-Supplier Agreements,
which we now use as terminology. The relationship with your equipment-user
customers appears to be encompassed by the Customer-Supplier Agreements
and in the Strategic Plan, on page 12, it appears that you have
mapped out a way to make these much more effective. What is actually
wrong with the Customer-Supplier Agreements at the moment that
you want to change them to make them much more useful?
(Air Chief Marshal Sir Malcolm Pledger) This comes
back to output specifications, it comes back to the culture aspects
we talked about, and it comes back to the requirement for me to
support employment in the SDR New Chapter and indeed in the original
SDR assumptions. We need to have what I will call greater agility
and different systems of support than might have been pertinent
in the old static regime of the Cold War. Those are still developing,
there is no doubt. It will be enormously helpful when we can get
to a better understanding of what I will call the availability
regimes rather than stipulating how we should do our business.
Our customer today does tend to want to tell us how we should
do things rather than what it is he requires to perform his job
in the various elements of capabilitytraining for readiness,
subsequent training for actual employment against a particular
threat, deployment and so on and so forth. We need, as I say,
to make these much more sophisticated in output and support terms
than simply saying "You need to have enough of these on the
shelves such that I can have available immediately the number
of bullets we need". We need to actually plan for this in
a much more output-oriented regime.
388. From your review of the Customer-Supplier
Agreements, have you covered all the sustainability gaps, do you
think? Are you confident on that?
(Air Chief Marshal Sir Malcolm Pledger) I did not
say we were confident, I said we need to create much more sophisticated
and output-oriented against a military capability and the subsequent
employment parameters, and we are not anywhere near that. By going
through this I think we will have a much better handle then on
where those shortfalls really are and how best I can ameliorate
them through some of the savings that I am trying to make in the
process arena, and therefore go back, hopefully, to answer some
of the questions of effectiveness as well as efficiency.
389. Your Strategic Plan also envisages through-life
management plans for all major equipment. Just how close a relationship
do you have with the equipment users when you are devising the
(Air Chief Marshal Sir Malcolm Pledger) What we have
currently is what I will call certain tools and techniques that
both sides understand and have contributed to. The IPTs, in putting
these things together, are constrained to that particular framework.
Then, when trying to devise the through-life solution, of course,
what we have is an approvals regime which involves the customerusersuch
that we understand and agree that the operational risk with doing
things differently is acceptable against the value for money parameters
that we will, again, accrue from those. So we do have an approvals
regime involving that customer.
390. You are quite happy that that is a good
(Air Chief Marshal Sir Malcolm Pledger) No, no, we
need, as I say, to develop this such that his input is much more
sophisticated and is about delivering capability. I think, again,
if you look at the McKinsey Report, they were very concerned about
the uncertain base-lines that the DLO was required to perform
against. It is that area that I am interested in.
391. Could I just check on these agreements,
because the Customer-Supplier Agreements appear to be the in-thing.
How much more efficient and effective is it to have a good customer-supplier
relationship as opposed to an agreement? It seems to me it is
much better to be very cosy with people than to just have a piece
of written paper.
(Air Chief Marshal Sir Malcolm Pledger) I absolutely
agree with you. I would simply say, again, that what you see in
the Strategic Plan is my determination to raise these broad agreements
to the four-star level such that that relationship and that agreement,
against that relationship, will be seen at what I will call the
lower levels who deal on a day-to-day basis and they understand
that this is a handshake not a confrontational "We will deliver
you what we have said" kind of regime. I could not agree
more. It comes back to, if I may, the culture point that was made
right at the beginning.
392. Could we now move on to the issue of surplus
stock. You have got a lot of stock, around £12 billion worth
at any one timemaybe even moreand you have made
big efforts (and this has been noted by the National Audit Office)
up to 2001, and you have set yourself another target of 5% above
that. Talk us through this. What progress are you making? Again,
why 5%? Why not 10%?
(Air Chief Marshal Sir Malcolm Pledger) Perhaps I
could just look back for a moment. We, of course, accepted certain
targets of reductions when the DLO was formed and I think the
NAO has just recognised that we exceeded those targets. It was,
I think, 2.2 billion by the end of 2001. Whilst there is a small
dispute over figures, I think we over-achieved against that by
several hundred millions. That, again, was predominantly a product
of moving from what I will call old regimes, Cold War-type regimesinto
the new environment where those stocks were clearly seen against
the new planning assumptions as over and above the sustainment
levels we needed. So that achievement is now complete. That said,
of course, life moves on, and I do not think it unreasonable that
current targets with the IPTs vary from 5% to 10% in-year to ensure
that the changes that have happened since we started this are
also seen through to fruition. In reality, I think, this year,
at the moment, we are falling slightly short of those targets
for getting incremental improvement, but I would not be too surprised
at that, given what we have achieved already. The way into the
future, though, is to stop making those kinds of what I will call
broad order assumptions. What the Strategic Plan sets us for the
future is a process-oriented approach to what we now call materiel
flow (and you see the figures associated with that). The change
programme that is in place will apportion those numbers, having
applied the techniques to the right places in the organisation
to take us into the future.
393. I wanted to move on farther to ask you
what criteria you set for the candidates for stock reduction?
(Air Chief Marshal Sir Malcolm Pledger) You are talking
about rate of turn and criteria like that?
(Air Chief Marshal Sir Malcolm Pledger) Because McKinsey
said, I think, that we should be looking at those stock items
that have not turned in in about three years, as an illustration.
That is a fine criterion to set, but of course does not then take
into account what I will call the war reserve, the deliberate
long-lead time items that, therefore, we could not provide for
in the preparation time, and does not take into account the fact
that some of our equipments are dependent on obsolete spares.
So those will not turn at the same frequency. Again, what I would
suggest we are doing here is applying those criteria not blindly
but inviting the IPTs to apply them and determine what the outcome
will be; stand fast where they have made those long-lead time
investments or stock investments or obsolete arrangements.
395. How do you deal with what the NAO have
called "a volume of slow-moving stock"? I have to say
I am struck by the fact that in some categories you have got ten
years' worth of holdings which is costing you the thick end of
£1 billion just to store. That would seem to me, if I were
an auditor, one of the areas that I would zoom straight into.
I take it you are, too?
(Air Chief Marshal Sir Malcolm Pledger) Absolutely,
and that is why I say the immediate priorities and the targets
reflect those kinds of concerns. It takes me back, also, into
the CSAs. Just a simple change to a timing or availability regime,
rather than providing directly from stock, for 0.556 mm ammunition
can reduce inventory levels by about 40%. So I come back to a
more sophisticated arrangement with my customer, rather than what
I will call a traditional approach.
396. Let me put the question the other way:
if you were to come back to this rather important meeting in a
year's time and I was to say to you "Do you recall my saying
to you that it would cost you £870 million per annum to hold
these slow-moving issues of stock", do you think you will
be able to say to me that you have been able to reduce that rather
(Air Chief Marshal Sir Malcolm Pledger) I must be
able to, yes.
397. This is getting back to the discussion
we had on the 20% efficiency target. You are telling us you "must";
but what we are asking is: tell us not only how you are going
to do it but why you think you will succeed.
(Air Chief Marshal Sir Malcolm Pledger) If you look
at the priorities, it tells you what we are already embarked upon
to try to achieve that. That is the reason for my confidence that
I will be able to show improvements in those kinds of areas.
398. But you cannot quantify them at the moment?
(Air Chief Marshal Sir Malcolm Pledger) As I say,
this is a process application to what we have. That is why I say
we are trying to do this by process application, by then inviting
the results of that, which I will hold people accountable against,
rather than taking the kinds of guesses that, of course, this
Committee is suggesting is not what I should be doing. It is evidence-based.
I want to create that evidence by applying the tools and the techniques
399. I suppose we have got to come back to this
next year and measure after the event. Could I go on to another
tack here, which is simply this: as the Committee has gone around
the MoD establishment it has been perfectly apparent to us that
there have been shortages of significant pieces of equipment.
I do not want to go into the details of what that happens to be
because journalists will pounce on that and make stories where,
perhaps, there should not be any. However, we have been struck
by the fact that there has been a measure of cannibalisationrobbing
and so on a piece of equipment from one major vehicle, whatever
that may be, to keep another one going. Tell me whether that is
a problem that you recognise and tell me how you deal with it.
(Air Chief Marshal Sir Malcolm Pledger) Cannibalisation
is not a preferred means of working. Nonetheless