The evolution of the British Armed Forces’ global supply chains has been ongoing for a number of years driven by a range of factors. Not least amongst these has been pressure from the Treasury to reduce expenditure while improving service. Then there has also been the re-structuring of both front-line and land based forces and the naval base reviews. At the same time, the Ministry of Defence has been concerned to rationalise its substantial estate of properties, bringing with this further implications for its supply chain model, and, most recently, the government has declared its intention to substantially reduce the number of civil servant jobs.
During this time, The Ministry of Defence has acted on the imperative for logistics transformation, undertaking major organisational and cultural changes to start achieving this. In 2000 for example, it established the Defence Logistics Organisation (DLO) with the mission to sustain UK military capability, current and future, across the Army, Navy and RAF. The DLO states that its task is to deliver agreed outputs to its customers at greatly reduced costs – a reduction of output costs by 20 per cent before March 2006 – while maintaining a first-class service to the front line. However, the DLO has had to grapple with the apparent conflict between the financial cost of change and the requirement to reduce expenditure and its response to this challenge has involved, amongst other measures, a relatively radical step change in Armed Forces supply – the development of partnerships with lead logistics providers that can offer global supply chain management operations integrated across the three Forces.
If the challenge and the response sound familiar to logisticians, that is because they are. In so many respects, the issues faced by the MoD are very similar to those being met by other sectors with global supply chains: matters of cost versus service and the application of best practice to successfully manage integrated endto- end supply chain operations. While the MoD has used third party logistics companies to provide silo activities in the past – Exel, for instance, has worked with the Department for 20 years – the model for broad-based collaboration with a 3PL is still to be comprehensively established.
Driving forward a culture of change
The achievement of recent years has been to drive forward a culture of change, acknowledging that efficient acquisition, management and distribution of logistics is a key priority and understanding that modern IT-enabled systems together with professional management and global resources can yield rapid cost and manpower advantage. As the defence sector has re-engineered its supply chains to move away from the just in case principle and to switch from ‘push’ to ‘pull’ supply chain dynamics in which the front-line customers define the demand, so the need to manage inventory and have effective information flows has grown. As a result, the benefits of partnership with an international logistics provider have multiplied.
The MoD’s Defence Transport & Movements Agency (DTMA) took a significant step in this direction last year when it decided to appoint a single freight-forwarding supplier to handle surface and airfreight forwarding to any MoD location in the world. This move was described at the time by the DLO Director General (Defence Supply Chain) Major General Malcolm Wood, as: ‘The rationalisation of global freight forwarding not only to save the MoD money but also to enable us to more effectively track and trace commercial freight, streamline business processes and ultimately improve the service we provide to the Armed Forces.’
The new Global Freight Transport Services (GFTS) contract, which was awarded to Exel, was the result of a number of Strategic Defence Reviews that concluded that the MoD would benefit from integrating and streamlining its multi-agency, tri-service environment. The objectives were to improve and augment support to the MoD’s military distribution around the world and to support the Military re-supply chain with material procured from overseas governments and contractors. The main areas of activity included time-definite transportation of MoD stores, equipment and transit baggage, customs clearance of all imports and exports into the UK, packing and holding of equipment sourced from the USA, full track and trace for all consignments, packing and assembly as required and the provision of management information as well as the supply of specific items to particular locations such as the Falkland Islands.
A single point of control
The experience of global logistics in other sectors was highly relevant in managing this substantial and varied operation. For example, a ‘control tower’ was established, similar to those designed by Exel for major retail clients with extended supply chains. Such ‘towers’ act as a single point of control, delivering centralised command with full visibility for multi-site networks, improved purchasing and scheduling of sub-contracted haulage, optimisation of activity and improved vehicle utilisation, standardisation of processes and common Key Performance Indicator (KPI) reporting. At a tactical level, the ‘Control Tower’ organises freight movements to meet the order placed and co-ordinates with suppliers to arrange optimal pick-up; at an operational level, it provides tracking and tracing of product movements and events along the supply chain and optimises transport movements to achieve additional savings that typically can reduce the cost based by up to 10 per cent. In the case of the GFTS contract, the DTMA has its own substantial fleets of aircraft and ships and it made sense to bring them into the supply chain operation, dovetailing one set of services into another to gain maximum efficiency before additional commercial transport solutions were sought. A single, total IT solution was provided which was accessible by the DTMA and its customers via a bespoke MoD web portal. Management information, used for analysis on an ongoing basis, is also a vital output of this IT architecture.
The GFTS operation is the largest ever UK government international transport contract and, not surprisingly, its implementation was not without lessons to be learnt on the way. However, constant analysis and review between the partners involved is ensuring continuous improvement and the delivery of real benefits to the DTMA. It has been one, very significant, development for the MoD; now the Ministry is actively putting others in place.
Prior to the creation of the DLO, the MoD had separate supply chains for each of its Armed Forces. Whilst they are now under common management, the integration of them into a truly single supply chain is still underway and the full confidence of the end user has yet to be established. Consequently, the MoD launched The Future Defence Supply Chain Initiative (FDSCi) in 2002, which is due to come into effect in November 2005. Instead of multiple agencies separately serving the Army, Navy and RAF, there will be just one logistics provider serving them. The MoD is seeking both in-house and outsourced partnering proposals to drive forward major cultural change in order to improve supply chain quality while unlocking new efficiencies and substantial cost savings.
Private sector logistics skills
The immediate task for the successful proposal (internal or external) will be to introduce some of the private sector logistics management skills and know-how that are fundamental to well-functioning supply chains in other sectors, from ware-house management to transport scheduling and, most critically, putting in place management information processes and systems that will give the MoD control down to each line item and deliver whole life costs for everything purchased. An outsourced logistics provider will thus become a key enabler and should, in the medium term, have the skills sets and proven record in other industries to introduce a full range of inventory management tools, tracking systems, consolidation and other value-added services to act as a major catalyst to the MoD’s objectives.
The defence industry is a complex matrix but increasingly this complexity is being managed through partnerships with outsourced specialists. Already, the dividends are apparent. By 2003 for example, the DLO had exceeded its target of reducing stock levels by £3 billion and had, in fact, delivered a £4.5 billion stock saving. The DLO is a formidable organisation – its resource budget puts it into the FTSE 100 in terms of turnover and its unequivocal need to deliver on its supply chains is paramount. The potential today is to apply the ‘smartest’ logistics practices to deliver what is required on time for a reduced cost to the front line anywhere in the world.
Steve Ashmore is managing director for Exel’s Industrial Sector Europe and can be contacted at email@example.com
- The DLO states that its task is to deliver agreed outputs to its customers at greatly reduced costs – a reduction of output costs by 20 per cent before March 2006 – while maintaining a first-class service to the front line
- The issues faced by the MoD are very similar to those being met by other sectors with global supply chains
- The MoD’s Defence Transport & Movements Agency (DTMA) took a significant step in this direction last year when it decided to appoint a single freight-forwarding supplier
- A ‘control tower’ was established, similar to those designed by Exel for major retail clients with extended supply chains