The use of information to manage the defence logisitics supply chain - Public Accounts Committee Contents

1  Performance to date delivering supplies to the front line

1.  The military supply chain stretches from the personnel on operations who identify their requirements through to the manufacturers that supply the goods needed to satisfy them.[2] The Ministry of Defence (the Department) spent at least £347 million in 2010-11 transporting supplies overseas to staff carrying out operations, on training or stationed in permanent bases. However, this figure is understated because it does not include the costs of military supply flights.[3] Following the reduction of troop numbers in Iraq, Operation HERRICK in Afghanistan is the Department's largest overseas commitment.[4] The Department has engaged in military operations in Libya since March 2011, which it estimates will cost £260 million if the operations last six months.[5]

2.  In 2010, the Department sent 130,300 individual deliveries into Afghanistan using two main routes: 31% of supplies by tonnage were flown direct from the UK to Camp Bastion in Afghanistan, with the remaining 69% transported by surface routes, usually via Pakistan.[6] Decisions about what supplies are sent and how they are sent are made by operational commanders at the front line. The Department considers these commanders are best placed to identify what supplies are needed and how urgently.[7]

3.  We agree with the Department that the critical issue for the supply chain is ensuring troops are supplied with the kit they need, when they need it. However, such operational considerations should not prevent the Department from monitoring and controlling costs.[8] While the Department collects some data on supply transport spending, it does not have the data required to calculate the full unit cost of individual deliveries - which means that it cannot compare the relative costs of different delivery routes.[9] The Department cannot make informed choices about cost efficiency, or identify financial savings, without good information on how much its activities cost.[10]

4.  The Department does not routinely collect basic data - for example, of the SA80 rifle deliveries the NAO examined, only 8% had a departure date recorded.[11] The Department accepted that its management information systems and underlying IT systems are not adequate for the task.[12]

5.  The failure to collect basic data about where supplies are stored, either in warehouses or in theatre, has directly contributed to the Department's financial accounts being qualified for three consecutive years.[13] The Department told us that the main reason data is not collected properly is due to the limitations of the data systems it uses to store information.[14] Some data systems, such as the Visibility in Transit Asset Logging system which tracks individual deliveries, can provide good data on the movement of supplies if used properly. However, many data systems, such as those used to track supplies in warehouses, are much older and are not fully compatible with other systems across defence - leading to problems knowing what supplies are held where. More importantly, the risk of failure of these warehouse inventory systems is extremely high and was recently rated as 'critical' by the Defence Logistics Board. If these systems fail, then the result could be shortages at the front line within as little as 30 days.[15]

6.  For each operation the Department sets out in Operational Sustainability Statements the levels of supplies it needs to hold in theatre, and targets for how quickly supplies should get there.[16] The targets for getting supplies to theatre vary with the length, complexity and risks of the individual supply chain. For example, the target for sending urgent supplies by air to Afghanistan is five days. The Department is not meeting this target, as in 2010 two thirds of such deliveries were made late.[17] The Department told us that the target is very challenging and may have been set too tightly, but that in any case 50% of items arrive within a week and 90% of items arrive within a month. The Department considers this is sufficient to maintain equipment availability in theatre above 80%, which in turn is enough to meet the demands of operations.[18] Bernard Gray told us that he would take personal responsibility if the supply chain failed in such a way that front line troops were harmed.[19]

7.  One of the main reasons for late delivery of supplies is delays in receiving goods from manufacturers. In the six months to November 2010, over 40% of deliveries from suppliers were 30 days or more overdue.[20] Such delays directly affect supply chain reliability - half of delivery delays in 2010 were caused by the item not being available for dispatch.[21]

8.  The Department told us that some of its contracts contain clauses in order to penalise late deliveries, but there is a very wide variety of contracts and many will not have clauses that incentivise suppliers to deliver on time.[22] The Department suggested that fixed contracts for the regular supply of goods would have scope to incorporate penalties for poor performance. However, it believes that entering into fixed supply contracts of this kind will often not be sensible, given the unpredictable nature of military operations and the difficulty of forecasting needs in advance.[23] For example, the Mastiff armoured vehicle proved more resistant to improvised explosive devices than anticipated, which meant more vehicles were able to be repaired rather than simply replaced - a good outcome overall, but one which meant that more spares were required than initially expected.[24] In general, however, given that forces have been in Afghanistan for 10 years, much routine activity must be capable of being reliably predicted by now.[25]

9.  When supplies and spare parts are not available from suppliers or are not delivered to theatre in time, front line troops often obtain them by cannibalising vehicles and planes. Our previous reports have found cases where RAF Typhoons and Jaguars had been grounded because they had been raided for spare parts for other aircraft.[26] In March 2011 we heard that three Typhoon aircraft had been grounded, which led to some pilots being unable to train for ground attack missions.[27] The Department told us that in its view cannibalisation of assets was not seen as a problem because it was not occurring often in statistical terms (three aircraft out of a fleet of 107). Furthermore, the cost of holding sufficient spares of all types to deliver 100% availability of equipment at all times would not always be justified.[28] However, we remain concerned that the Department does not know whether it would be better value for money instead to ensure its parts supply contracts are operating effectively - rather than relying on the ability to cannibalise existing assets.[29]

10.  Risks to supply routes can arise unexpectedly: for example, the Department told us that it had increased its target for delivering supplies to Afghanistan through Pakistan from 77-87 days to 120 days due to industrial disputes and increasing security risks.[30] The Department conceded that falling confidence in the reliability of the surface delivery route has led them to increase the amount of deliveries sent by air.[31] However, this is not a long-term solution. Some military supplies are simply too bulky to be transported by air, so if the surface delivery routes into Afghanistan were closed then military operations could be seriously affected.[32]

11.  In order to reduce costs and increase the reliability of the supply chain to Afghanistan, the Department has experimented with alternative routes for delivering supplies. For example, the Department is now shipping supplies to Riga, Latvia and then transporting them south by train, although it cannot deliver weapons and ammunition by this route at the moment.[33] It is also operating the Sail-Fly programme which involves shipping supplies to Cyprus then flying them into Camp Bastion.[34] However, without cost data of sufficient detail, the Department is not in a position to make good decisions about the most cost-effective transport routes.[35]

12.  One way in which the Department compensates for deliveries being late is to hold extra stock in theatre. It told us that it holds several days' worth of supplies for many items as a buffer against unexpected events (such as disruption to the supply chain) or new threats.[36] However, the Department acknowledged that holding stock at these levels ran the risk of supplies deteriorating, especially if left out in the open. It further accepted that it would be a good idea to measure deterioration rates, in order to determine whether stocks were being held at cost-effective levels.[37]

2   C&AG's Report, para 1.6 Back

3   C&AG's Report, para 2.1 Back

4   C&AG's Report, para 2.2 Back

5   Ev 19; HC Deb, 23 June 2011, col 24WS Back

6   C&AG's Report, para 2.5 Back

7   Qq 19-20 Back

8   Qq 20-23, 87-88  Back

9   Qq 86-87  Back

10   Q 21  Back

11   Q117  Back

12   Q 94  Back

13   Qq 125-131  Back

14   Qq 87, 94  Back

15   Qq 72, 90, 93  Back

16   Q 8  Back

17   C&AG's Report, para 2.6 Back

18   Qq 6-7, 17  Back

19   Qq 26-27  Back

20   C&AG's Report, para 2.8 Back

21   Q 6  Back

22   Q 149 Back

23   Qq 149-151 Back

24   Q 147 Back

25   Q 148  Back

26   Q 36; Committee of Public Accounts, Thirtieth Report of Session 2010-12, Management of the Typhoon project, HC 860 and Twenty-Sixth Report of Session 2005-06, Assessing and reporting military readiness, HC 667 Back

27   Qq 36, 49  Back

28   Qq 41-51  Back

29   Qq 47-48 Back

30   Qq 57-64  Back

31   Q 77  Back

32   Qq 66-71  Back

33   Qq 66-67  Back

34   Qq 14-15, 55, 88  Back

35   Qq 22, 88  Back

36   Q 8  Back

37   Qq 9-13  Back

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Prepared 19 August 2011