Select Committee on Defence Minutes of Evidence


Examination of Witnesses (Questions 480 - 500)

WEDNESDAY 17 NOVEMBER 2004

AIR CHIEF MARSHAL SIR MALCOLM PLEDGER KCB OBE AFC, MAJOR GENERAL A J RAPER CBE AND MAJOR GENERAL M D WOOD CBE

  Q480  Mr Havard: The NAO report which has come out recently talked about the defence logistics transformation programme, the benefits from that of some £2.1 billion over the years 2007-08. Which major areas are these savings coming from? How are they going to be reinvested in the DLO process, or are they going to be invested somewhere else?

  Major General Raper: I was not clear which report you were referring to.

  Q481  Mr Havard: The National Audit Office report recently said that the savings coming from the defence logistics transformation will be £2.1 billion over a period. If you are making those degrees of savings from your transformation process, how are you going to use them? Which areas are they coming from? Which areas are they going to be reinvested back into or are they going to be stolen by somebody else?

  Major General Raper: I would not dream of talking about the stealing part. If we look at 2007-08, we have to remember that is the sum of a lot of work that started several years ago. It takes account of everything we were doing within the DLO change programme. The DLO change programme, you will recall, had a strategic goal, the balance of which was the £1.262 billion, for delivery by 31 March 2006. If you add on the amount that had already been delivered against that, that takes you up to about £1.8 billion. The end to end review also identified further efficiencies on top of those that had been taken inside the DLO change programme. The DLO change programme specifically looked at activities which the DLO budgetary area, rather than the end to end programme which has clearly taken account of those aspects of logistics which are within the front line commands and the services.

  Q482  Mr Havard: I misled you and everybody else. It was the MoD efficiency review.

  Major General Raper: I thought it was the efficiency review that you are referring to. The issue as far as I am concerned becomes a reporting one because if all of the work we have put into the Transformation programme delivers, it will meet the various targets that have been set for us both internally and externally. The first of those was the strategic goal. The second are those efficiencies from the end to end review which is a further £370 million by 2008 and a stretch target of a further £110 million 2011. Those are the two numbers which go together to give you your £2 billion plus. The efficiency review merely takes account of all of that, which is what we have to report to, back through the efficiency regime.

  Q483  Mr Havard: Some of this spend is used to do some of the things that we heard about earlier on?

  Major General Raper: Some of that is reinvested to improve process within the DLO. The remainder is taken account of as the Department allocates its resources across the piece. Life in the logistic area will not get easier.

  Q484  Mr Hancock: Cheaper?

  Air Chief Marshal Sir Malcolm Pledger: More efficient.

  Q485  Mr Havard: One of the things that immediately came out of our Lessons of Iraq report was the use of urgent operational requirements, particularly in the medical area but in a number of areas. It was a case of having to be done because it had to be done. It raises this difficult question of whether or not we should have stocks. You talk about business space and how it relates to the battle space and whether you have the bridge because you cannot go down to Tesco and buy one. How much of these expected savings will be used to help you to have sufficient stock in these critical areas so that we do not have to have this UOR requirement operating in the same way in any future situation?

  Air Chief Marshal Sir Malcolm Pledger: There are two questions there. The UOR is the means of managing areas because deliberately we cannot provide for every eventuality. The way to do this is to test the scenarios, understand the costs in stock, equipment and commodities of each of those scenarios and then create the core out of that for the most likely. General Raper talked earlier about one of the principles we are developing which is: be ready for the most likely and adjust for the less likely. We will never be able to afford everything for every potential contingent operation. I cannot promise you a future without UORs but I think I can promise you a future where we understand what risks we are going to have to manage in that warning period, because we have identified the stocks we need—you heard earlier about the Primary Equipment Packs—so that these are available to the units at an appropriate readiness. We have identified what they are and will provide for them. Through this process, we are able to apply the resources we are given to those areas that will define readiness and sustain that readiness in these particular operations and manage the excursions from the most likely.

  Major General Raper: The vast bulk of the efficiencies that we will deliver through the programme, in much the same way as when the DLO was set up, were to enable investment in other areas of defence, not specifically within the DLO. We were looking to make the logistic area not only more effective but significantly more efficient.

  Q486  Mr Havard: I have asked this question before and I am becoming a bit of an anorak on this, but the resource accounting and budgeting—it is this question of the Treasury rules and the view, not just within the MoD and other parts of the MoD, about if you keep stocks stocks are expensive. They are dead money on the shelf. The bean counters will tell you that is not an efficient way to run a business. If you are Tesco, it is much easier to deal with this issue because you are shifting the beans off the shelf. You have to have these bridges sat there for all time. The way in which assets are dealt with and the relative rules and mechanisms and then people say, "You have saved a bit of money. Thank you very much" and we have the general cock ups whereas you might think, "We have saved a bit of money over here. We can help ourselves with the penalty we are experiencing on the accounting rules for having to keep these stocks." We are trying to get a bit behind the idea of, if there is your organisation, quite clearly you are making inroads and you are running it more efficiently in a number of ways. Why should you have the disbenefit of losing those efficiencies and not have the benefit of being able to use them properly within our own outfit to make it even better? I am not necessarily your enemy in this regard.

  Air Chief Marshal Sir Malcolm Pledger: Logistics are not products in their own right. We have to take a corporate view of the best means of using the resources that the MoD has. In some instances, that will result in reinvestment in logistics, but it has to be a deliberate, corporate view as to where the resource is best used having delivered the efficiency.

  Q487  Mr Havard: You think all these mechanisms that apply and all the rules and all the processes to decide these sorts of issues are not constructed in a way that is hindering you? That is a leading question but are the rules that the Treasury apply misunderstanding the situation vis a vis the Ministry of Defence as opposed to other organisations that have different requirements and do not have to keep stocks in the same way?

  Air Chief Marshal Sir Malcolm Pledger: I do not think that is right because if we understand our business we should be applying the right resource totals in their various categories to our need. If it is decided that, for whatever reason, we will take the risk in a particular place corporately, at least we will know what that risk is in future and be able to manage it.

  Q488  Mr Havard: Perhaps at some point you would give us a better overview of the general thing about where the savings came from, how they were deployed and investment policy, something that gives us some confidence in the development of things in the way you describe them.[7]

  Air Chief Marshal Sir Malcolm Pledger: We can certainly do that.

  Q489  Mr Hancock: You talked about the corporate approach and I am interested in the MoD efficiency note which suggests you could make £2.1 billion saving. That is a pretty big target to have to meet. How much of an input did you have in setting that target? You have been in the post two years. How will we be able to judge whether or not you have achieved that? Is it not something that we talked about earlier, a repercussion, and you have been set a very big target to have to deliver overall from your operational part of that decision?

  Air Chief Marshal Sir Malcolm Pledger: There is nothing new in terms of estimate within that particular number. These are all the products of our incremental improvement to our processes identified either in the original strategic goal and the means of delivering it, in the end to end study and in future efficiency means. There is no wedge, if you like, in these numbers.

  Q490  Mr Hancock: When does the transformation programme end and you then become another entity? What is the process after the transformation? You save £2.1 billion during the transformation programme. What do we expect following on from that?

  Air Chief Marshal Sir Malcolm Pledger: The transformation is both about effectiveness and efficiency.

  Q491  Mr Hancock: Is that time limited?

  Air Chief Marshal Sir Malcolm Pledger: Once we have the product which is an effective supply chain, we would then want to return to normal, efficiency programmes.

  Q492  Mr Hancock: Is that something you will know when you have found it? You will say, "This is now the optimum supply chain; the transformation programme ceases now"?

  Air Chief Marshal Sir Malcolm Pledger: According to the capabilities paper, we are talking about 2008 as our target.

  Major General Raper: The efficiency targets all come with dates. It is numbers and dates and therefore we clearly have to report against those. We have a benefits tracking system where all of those efficiencies are logged by delivery budget area. That has been looked at by our own internal audit people and the Treasury. It is the mechanism that we use, and which is open to track the delivery of those efficiencies. In terms of the delivery of the effectiveness and the supply chain, for example, we have done work on the blueprint which will enable it to deliver more effectively mosteffectively most of that we would expect to see in place over the next three years. How long will the transformation programme be in place? I would like to think that in four or five years we will not be referring to the transformation programme any more because it will have delivered itskey elements and the remainder will have now become something akin to routine—continuous improvement.

  Q493  Mr Hancock: With your experience of being in   the post now for two years, having this transformation programme in front of you, do you foresee a merger between the DLO and the DPA, given that on your website you acknowledge that the current system does not work very well and there are problems and that collocation is going ultimately to lead surely to that?

  Air Chief Marshal Sir Malcolm Pledger: In terms of an organisational merger, no, I do not see that as a necessity or even a valuable outcome.

  Q494  Mr Hancock: Would it help?

  Air Chief Marshal Sir Malcolm Pledger: What helps enormously is this process designator, to understand that this is an end to end activity that different organisations have to contribute to. Even if we were to put the DPA and the DLO together, you would still not have an end to end arrangement because half of logistic activity currently goes on in the front line. It does not make any sense to me to look at this  organisationally. We have to corral those organisations so that they are contributing to an integrated outcome and their contributions are not fracturing that total arrangement.

  Q495  Mr Hancock: If on your own website you admit that the current set-up does prevent you achieving an effective, through life management options, is there any serious consideration being given to the idea of the merging of the two operations? Would that not in the end allow you to achieve what you say yourself you cannot achieve at the present time?

  Air Chief Marshal Sir Malcolm Pledger: No. What the website also goes on to say is how we are improving and making the same processes across the acquisition community, because that is where the value lies, not in putting two organisations together when they are dealing in different parts of the through life spectrum.

  Q496  Mr Hancock: In the MoD's annual report for 2003/4 they say that a new DLO structure is being introduced progressively from 2005. When do you expect that restructuring to be completed? When do you believe the overall effectiveness of that operation will start to be felt by the three Services?

  Air Chief Marshal Sir Malcolm Pledger: We have already started. This will not be a big bang, one day the old DLO, the next day a new DLO. We already have introduced what we call the domain two stars which are now the single focus with our main front line commands. I can speak for my customers and say they much appreciate that and have seen the added value that comes from it. That has broken one of the barriers in the past which were based on historical arrangements. We are some way towards creating a new series of enablers in common with that sister acquisition community called the DPA. We are currently going through consultation for that series of enablers with the trade unions, which will reveal not only the new structure but also the post mapping for the people within that structure. We are hoping to roll that out by the end of this financial year.

  Q497  Mr Hancock: The restructuring is expected to result in some 3,000 job losses. I would be interested to know how you are planning to manage that scale of job losses and over what timescale do you envisage that will have to happen?

  Air Chief Marshal Sir Malcolm Pledger: We envisage up to 950 posts—I stress "posts"; not necessarily people—this year and up to another 2,000 by 2008.

  Q498  Mr Hancock: What sort of consultation are you having with your current civilian workforce to ensure that that is handled?

  Air Chief Marshal Sir Malcolm Pledger: A huge effort. There are advantages and disadvantages in this. We have been determined from the time we started to consult with the workforce directly as we develop ideas so that they can understand what it means for them. We are not waiting until we have discovered what the outcome is. That has been going on for two years. We have also been doing that systematically with the trade unions throughout that period. I can report to you that the trade unions have found that hugely helpful in understanding the outcome and how therefore they can contribute to an efficient and effective supply chain.

  Q499  Mr Hancock: You are knocking 3,000 posts out of the system. Are you satisfied that the work that has been done already on planning for that, the service you provide, is not going to be diminished by that fairly heavily?

  Air Chief Marshal Sir Malcolm Pledger: I am absolutely confident and it comes back to: this is not doing the same things with fewer people; it is understanding exactly what we are responsible for and complementing it against those roles and responsibilities.

  Q500  Chairman: There are a couple of questions we were going to ask but we will write to you. We were going to ask a question on the clothing contract given by the MoD to a company called Cooneen Watts & Stone. Now they have changed their name to Kowloon Watts & Stone, I think.

  Major General Wood: Your audit adviser had a note on that yesterday.

  Chairman: We have a letter from the Minister and we will study it and write back to you with the last couple of questions.[8] Thank you very much. If this is to be your last appearance before us, I will regret that. Thank you very much for the appearances you have made. You were a little bit irritated in some of the early stages but that is part of appearing before us. If everybody smiles after a meeting with us, we have not done our job properly. All the very best in whatever you wish to do or you are asked to do and thank you very much, gentlemen, for coming here this morning.





7   Ev 169-170 Back

8   Ev 170-72 Back


 
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