Improving defence inventory management
Closed
What the inquiry looked at
“The wide range of supplies and spare equipment required by the UK armed forces for immediate and potential use are collectively described as ‘inventory’. The Ministry of Defence (MoD) holds more than 740 million individual items of inventory, valued at £10.8 billion. The Committee found in February 2013 that the MoD faced serious problems in inventory management. These included the MoD not consistently disposing of stock no longer needed or seeing regular use, and wasting significant amounts of public money buying more inventory than it used. The National Audit Office (NAO) has identified the need for improvement in this area as long ago as 1991, with the MoD inventory management historically suffering from fragmented accountability and processes and ageing IT systems. Following external shocks including the pandemic and the war in Ukraine, the MoD is reconsidering whether it strikes the right balance between efficiency and resilience as it manages its defence inventory. Based on a National Audit Office report on the topic, the Committee will question senior MoD officials on subjects including: How the MoD has addressed the issues it has faced for decades in inventory management since the Committee’s 2013 inquiry; the implications of moving towards greater resilience in its inventory; the effects of the war in Ukraine on military planning and delivery. If you have evidence on these issues, please submit it here by 23.59 on Friday 27 October 2023. Please look at the requirements for written evidence submissions and note that the Committee cannot accept material as evidence that is published elsewhere.”
The committee's words, from the inquiry page on parliament.uk ↗.
What it found
The UK’s armed forces require a wide range of supplies and spares for immediate and potential use; these are described collectively as “inventory”. The Ministry of Defence’s (MoD) inventory management has many long-standing weaknesses, which the Committee has reported on before. Whilst the MoD has taken steps to improve its central logistics and commodity procurement and has removed financial incentives for over-purchasing, it still has problems with its vast legacy IT estate, gaps in its data quality, and inefficient and misaligned organisational processes. It also has large amounts of excess and unserviceable inventory which it is not consistently disposing of.
The MoD has put in place a series of transformation programmes to improve its inventory management, including a digital programme aimed at upgrading its legacy inventory management systems and aligning its organisational processes. We are concerned to hear that so much of the MoD’s plans for improvement rely on the kind of complex transformation which it has had difficulty delivering in the past, particularly as its programmes face skills and personnel shortages at the outset. These challenges have resulted in a stop-gap measure which has given us concern, namely a half a billion pound contract extension that was not subject to a competitive tendering process. The MoD must ensure that these programmes are set up for success so that it can overcome its historic weaknesses and meet the needs of modern warfare.
In terms of the scale of the challenge the MoD faces in inventory management, it holds more than 640,000 types of inventory and more than 740 million individual items at a net book value of £11.8 billion. It spent £1.5 billion buying inventory in 2022–23.
Managing this inventory is a complex and dynamic task, as the MoD must support a wide range of operations and training exercises across the globe.
Recent events, such as covid-19 and the war in Ukraine, have demonstrated that global supply chains are more unstable, and there is now a move from prioritising cost efficiency towards a greater emphasis on resilience in inventory management. To address these challenges, the MoD is reappraising the levels of stock it needs to hold, and how it engages with industry to supply it. Given the deteriorating international security situation, we would like to see a much greater sense of urgency from the MoD in addressing these supply challenges.
What the government said
The government responded on 2 April 2024. The deadline was 19 March 2024.
The government states that it "agrees with the Committee's recommendation" in each of the areas covered, setting target implementation dates between July 2024 and July 2028.
- On the authority of the Chief of Defence Logistics and Support, the government agrees (target date: Spring 2025), citing the Defence Design Review, which has a target to have "completed design work by end of 2024".
- On inventory data and systems, the government agrees to provide the update on Bridging the Gap "within six months of the date of the Committee's report". It also states that corrected figures show "markedly more success" in managing down inventory holdings than was reported.
- On Support transformation, the government states that progress on two programmes is "dependent on" departmental approval to grow the team. If approval is not forthcoming for Future Defence Support Services, this "will trigger an extension" of the current LCST contract.
- On excess inventory, the government agrees (target date: July 2028) and is creating a single centralised disposal team. It states that resilience "is likely to be a limiting factor" and that it "may need to re-assess its stock metrics".
Read the government's response ↗ Read the report ↗ Report an error
How the inquiry ran
Each dot is a dated item listed on this page, from the inquiry's opening on 12 September 2023 to its close on 3 April 2024. The dashed mark is the deadline Parliament records for the government's response.
- Oral evidence 13 Nov 2023
- Report 19 Jan 2024
- Government response 2 Apr 2024
- Correspondence 18 Mar 2024
What it recommended 2 recommendations · 19 conclusions
2Address existing data gaps in MoD's legacy inventory management systems within six months
3Report progress on MoD's Support transformation programmes, skills provision, and industry engagement
4Detail plans for ensuring resilient supply chains through close industry collaboration
5Set out how MoD's future inventory management will properly address medical personnel requirements
6Set out MoD's improved understanding of inventory disposal needs and reduction targets
1Evidence gathered from MoD on its inventory management from Defence Support and DE&S
7MoD inventory management suffers from long-standing issues with fragmented legacy IT systems
8MoD's inventory data quality and system functionality limit a deeper understanding of stock
9MoD's data gaps persist and major contract lacked competitive tendering process.
10MoD undertaking highly complex, multi-billion-pound programmes to transform IT and inventory management.
11MoD's digital transformation track record is patchy, lacking sufficient skilled personnel.
12MoD faces 25% staffing gaps across key Business Modernisation and Support programmes.
13Team Leidos contract for warehousing delivered £403 million in financial efficiencies.
14MoD reassessing inventory management strategy for greater resilience after recent global shocks.
15MoD plans £2.4 billion investment to strengthen defence supply chain resilience.
16Front-line medical personnel experience poor availability and inadequate shelf life of inventory.
17General contract targets masked poor medical inventory performance; shelf-life issue now addressed.
18MoD's medical supply contract incentives improved project numbers but performance remains below required levels.
19MoD reduced inventory value but still holds significant unserviceable or overstocked items.
20Complex reasons for MoD stock build-ups include repairable unserviceable items and strategic contingencies.
21MoD needs better data to inform decisions on inventory disposal, especially for unserviceable stock.
Evidence
Oral evidence sessions 1
- 13 Nov 2023Improving defence inventory management4 witnesses, listed belowparliament.uk ↗
Who gave evidence 4 witnesses
- Andy StartChief Executive (Defence Equipment and Support), Ministry of Defence
- David Williams CBPermanent Secretary, Ministry of Defence
- John FarrowDirector of the Logistics and Support Operating Centre, Defence Equipment and Support
- Vice Admiral Andy Kyte CBChief of Defence Logistics and Support, Ministry of Defence