(1998) Smart Procurement Overview

Smart Procurement A Personal View OBJECTIVES: •  To explain what smart procurement represents vis -a-vis traditional methods. •  To place smart procurement in the context of defence procurement techniques. •  To impart an understanding of what smart procurement will mean for those involved. •  The provision of a personal view of smart procurement in the context of the political milieu.

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Jeffrey Peter Bradford Cranfield University

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Smart Procurement - I •  Labour electoral victory 1997. •  Strategic Defence Review to include ‘Smart Procurement initiative’ •  The choice of title - sensitivity or realism ? •  Administrative Jointery with Industry Council.

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Jeffrey Peter Bradford Cranfield University

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Smart Procurement - II •  3 Main aims: New approaches (e.g. through-life systems). Single Integrated Project Teams. Simplifying procedures and tailoring them to the complexity of projects.

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Jeffrey Peter Bradford Cranfield University

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Smart Procurement - III •  Now 3 Tiers for procurement. 1.

Easily supplied items: Boots, cloth etc.

2.

Defence specific: Rifles, Army rations etc.

3. Highly complex platforms: Combat Aircraft, Main Battle Tanks, Ships etc. •  7 Stage Downey cycle reviewed and replaced with 6 stage process. •  Significant 2 EAC approvals instead of 3. •  Single Integrated Project Teams. Partnering. 10/14/08

Jeffrey Peter Bradford Cranfield University

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The environment - I •  Why review Procurement practice ? •  Objective: Reduce acquisition costs by £2 Bn over next decade (Target: FY 2008). (3-4% procurement budget). •  Early 1990s restructuring of US DIB facilitated competitive advantage in export markets. •  Concerns regarding UK strategic production capabilities. •  1997 UK DIB = 23% World exports, 400000 Jobs, 11000 Companies, 10% UK manufacturing base. 10/14/08

Jeffrey Peter Bradford Cranfield University

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The 100 largest defence firms by nationality (1996). 55%

9% Germany Japan United Kingdom 11% France USA 11% 14%

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Jeffrey Peter Bradford Cranfield University

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Environment - II •  Demand related: Cost-effectiveness initiatives versus national industry size. •  Supply related: Governments trying to open markets ? •  NATO, WEU & Standardisation. •  OCCAR - Organisme Conjointte de Co-operation en Materiere d’ARmament. (Fr, It, Gr, UK). •  The threat of globalisation ? •  Industry’s agenda - Mergers following other industries - Oil & Banking. 10/14/08

Jeffrey Peter Bradford Cranfield University

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The UK and Project slippage •  90% by value of British equipment sourced from British companies. 2000 1500 1000

Variance (£m)

500 0

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1993 1994 1995 1996 1997 Jeffrey Peter Bradford Cranfield University

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Trends in type of contract by value

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Jeffrey Peter Bradford Cranfield University

1997-98

1996-97

1995-96

Cost-Plus

1994-95

1993-94

Priced at Outset

1992-93

1991-92

Market forces

1990-91

1989-90

Competition

1988-89

1987-88

1986-87

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

1985-86

Source: HCDC Eighth Report, 1998. Figure 18.

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The Kincaid thesis (1997) - I ‘How can one reduce overhead significantly within the procurement process without removing essential checks and balances ?’ •  Lack of accountability. •  Suffocating checks and balances in MoD. •  Wide spread amateurism. •  Consequence of above = Poor decision making.

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Jeffrey Peter Bradford Cranfield University

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The Kincaid thesis (1997) - II

(1994 survey of army projects (12) - Percentage ISD over-run).

1 1 9 1 0

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100

200

300

Jeffrey Peter Bradford Cranfield University

400

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The Kincaid thesis (1997) - III •  Solutions: •  Accountability & empowerment. •  Effective Scrutiny: An audit team to PUS ? •  Professionalism: Training, incentives & remuneration (proportionate to authority) The above lead to effective decision making. Conclusion: Smart Procurement - Cultural change = DUMB.

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Jeffrey Peter Bradford Cranfield University

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Conclusions •  Threats for Smart Procurement. •  Accountability & closer industry relations. •  Status changes to DERA and its utility to government = ‘what if GKN owns 50% ?’ •  PE as agency & its continued relevance ? •  New cycle as tool for service agendas •  UK economic performance •  Continued politicisation of projects. 10/14/08

Jeffrey Peter Bradford Cranfield University

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