Smart Procurement (Hansard, 31 March 1999)

§ Mr. George Robertson

The Smart Procurement Initiative launched in our Strategic Defence Review offers major improvements in the way in which the Ministry of Defence buys and maintains equipment, and supports the Armed Forces. Smart Procurement encompasses the Defence Procurement Agency (DPA), the formation of which we are announcing separately today, and the new Defence Logistics Organisation (DLO), headed by the new Chief of Defence Logistics. Both of these new organisations will form on 1 April 1999.

We remain committed 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. The close working relationship between the DPA and DLO, needed to help deliver these savings, is being achieved in part through the creation of Integrated Project Teams or IPTs. These include staff from both the procurement and support organisations, as well as necessary contracts, finance, operational user and—in particular—industry expertise. 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 678W year. In addition to these in year targets the Agency remains committed to achieving savings of at least £2 billion by March 2008 by the application of Smart Procurement techniques.

The first three Targets apply to the range of projects covered by the Major Projects Report, which my Department submits annually to the House. Like the other Targets they are a starting point in what we intend to be a process of continuous improvement. Targets 2 and 3 are compatible with goals set in the 1999–2002 Public Service Agreement (PSA), adapted to enable cumulative performance to be measured. Target 5 also reflects one of the goals featured in the PSA.

The DPA's Key Targets for 1999–2000 are:

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 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.

We have streamlined our internal procedures for taking decisions on equipment procurement, and will be reconfiguring 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 on 1 April 1999, 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 DLO will become a fully unified logistics structure in April 2000. This offers 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.

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We expect the DLO to make significant improvements in our logistic support, for example: in the ways we procure, manage, repair and store defence munitions; in the procurement and management of fuel; and in the use of lean support techniques. We hope to 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.