Smart procurement

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Smart Procurement Sir Robert WALMSLEY,KCB FEng

I have always expected procurement to be smart. I don't know of anyone who wants anything less. Yet too often in the past, attempts by intelligent and committed staff to carry through complex projects have ended in delays and rising costs. n the United Kingdom defence procurement community our recent history is one of rapid development and change. Much has been achieved under my predecessors, Sir Peter (now Lord) Levene and Sir Malcolm Macintosh. But when the 1997 National Audit Office report showed that our average lateness on major projects remained stubbornly at 37 months, it was clear that we needed to revolutionise our methods. Smart Procurement describes those new methods. It will integrate our efforts and deliver equipment to our armed forces faster, better and cheaper than ever before. We face a greater variety and uncertainty in overall defence security risks. The Cold War, with its deterrent basis, encouraged the deployment of the most advanced (therefore risky and often unreliable) technology as quickly as possible. The focus of yesterday on a major land war in Europe has gone. Today's threats to the world order know no boundaries, and they require armed forces ready to provide a flexible response. Those forces need faster, easier, upgrades to their equipment, allowing them to stay up to date more reliably and more cheaply.

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Integrating logistics and procurement This means a shift in the way we do our business. We need to integrate logistics and procurement, so that we look at the cost of equipment throughout its life, not just at its introduction. We need to reduce the risk of new technology, and

to share the costs of developing it with industry. We need to spend more on early concept and evaluation work, so that we make fewer changes in production - it is simply too costly to start out on a major project and then try to fix it as we go along; and a strategy for updating needs to be built in from the outset. Helped by our consultants, McKinsey, we have identified ways to achieve all this and more.

Integrated Project Teams In the past we have separated our research from our project management, and treated both as separate from through-life support. That will change with the introduction of Integrated Project Teams, (or IPTs) bringing together all the skills that a project needs throughout its life. Cutting through bureaucracy, we will delegate power to the team leaders, giving them the ability to make key decisions about cost and speed to keep projects on time and on budget. For the first time, the team leader will be accountable to a clearly defined customer (that is an individual with money) and not to an organisation without any real resource constraints on the individuals formulating its demands. And we will provide stronger incentives, both to our contractors and to our own staff, to ensure that we share a stake in better, faster, cheaper procurement. This process is well underway; ten projects are already pioneering these new working methods. These pilot teams are working on some of our most important and exciting new acquisitions, including

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the future attack submarine for the Navy, the Apache helicopter (figure 1) for the Army and the new tank busting missile for the RAE Working with the defence industry, these teams are identifying improvements, with some impressive results. By catching one project early in its life cycle the team has discovered ways to reduce the time taken to bring it into service from 14 years to just nine. Inservice projects have also identified costs savings of up to 20%. These are not just dreams - the teams are already drawing up detailed plans that will deliver those impressive targets.

Towards a new procurement organisation The pilot teams' experiences are being fed back to refine our understanding of the new methods, and to guide the development of best practice. By April 1999 the first stage of this learning process will be complete, and we will be ready to extend the Smart Procurement principles throughout the procurement organisation, to be complete around a year later, in 2000. That in turn depends on comprehensive training arrangements for everyone in the acquisition community. Delegation and knowledge is the key to the Integrated Project Teams' success. The team includes all the stakeholders in the project and involves industry at all stages except those where competition is involved. The team leader has the power to balance trade-offs between cost, time and performance, within limits set by the customer.

PUBLIC POLICY future there will simply be an initiation approval, right at the beginning of the project, followed by one major approval, after which the project will go ahead to completion (figure 2). Authority for granting approvals is also being delegated down the management chain. We will be able to concentrate a good deal more time and energy on the concept and assessment phases, exploring different options and reducing risks by testing technology. But the time and bureaucracy involved in bringing a project to completion will be reduced overall. C o n t i n u i t y of responsibility, c r a d l e to g r a v e

Figure I. APACHE - a Smart Procurement Opportunity.

Approval for funding

to team members. The old process, known as the Downey cycle, will be simplified. In the past, a minimum of three separate Committee approvals were needed to bring a project into full development and production. In the

One of the innovations on trial is a new, faster way to gain approval for funding. Like other aspects of Smart Procurement, this will involve much higher levels of responsibility being delegated

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The project team's responsibility for the project will not end, as it has in the past, when the equipment goes into service. The IPT will be responsible for a project from concept to disposal; around the time the equipment goes into service the IPT will move from the procurement area into logistics, and the customer will become the front line Commands, the teeth of the Armed Forces. But the IPT

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Figure 2. Streamlined project process.

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e will still be responsible for the project. The make-up of the team will change over the life-cycle of the project - after all, a major weapons platform can be in service for thirty years or more in some cases, but responsibility for the project will continue, and our knowledge and skill will continue with it. It is a true cradle-to-grave approach to the way we manage the vital tools of defence.

The right skills Throughout all this, it is clear that we will need to recruit and develop staff with the right skills. Our IPTs need staff expert in military needs, in technology, in procurement and logistics, as well as partners from industry. But there is no guarantee of success. Much depends on the calibre of the team leaders and their authority within the team, with industry and with the customer. In future, the leaders of major project teams will be selected by competition and will serve from four to five year in post. In many cases the competition will include industry, as well as MoD and the Armed Forces. This process has already started, and the team leader for the future carrier project will be chosen in this way. We work alongside a rapidly changing defence industry. Corporations have faced the challenges of lower production volumes with collaborative ventures,

mergers and multi-national projects. The adversarial nature of business is shifting into a more collaborative one, sharing risks and sharing benefits. We are leading this shift; ground-breaking agreements are planned which will turn competitors into stakeholders - a far more efficient way of bringing down costs in areas where trading is now so restricted that there is limited scope for competition. Our business is large and varied; around £9 billion each year is spent on defence equipment. Yet nearly a third of that spending is on items already available in the marketplace, standard items or spares, for example, where there is little or no technical risk or where the unit price is low. For these and other low-risk items we have introduced credit card

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buying to make procurement simpler and cheaper. We will also introduce longer-term supply arrangements and electronic bidding, both of which can drive down the cost of buying straightforward items off the shelf. For it is not only on the major projects that we must save money and time.

Conclusion Our methods are changing quickly. But the goal remains constant: to make sure that our armed forces get the right equipment for their task, at the right price for the taxpayer. Smart procurement is integrated procurement, and that the entire acquisition community is committed to doing that task better than ever before. •