The National Audit Office has today published a report on the Ministry of Defence’s management of its inventory – its store of supplies and spares. The report has found that the Department is buying more inventory than it uses and not consistently disposing of stock it no longer needs. The indication is that the money spent on unnecessary levels of stock could be made available to be spent elsewhere.
The planned return of the armed forces from Afghanistan and Germany, when stores from those locations are returned to the UK, will place even more pressure on the little room left in the Department’s central depot space.
According to today’s report, the amount of supplies and equipment held by the Department is increasing. Between the end of March 2009 and the end of December 2011 the total value of the inventory held by the armed forces and in central depots of non-explosives increased by 13 per cent, from £17.2 billion to £19.5 billion. The quantity of inventory items being held by the armed forces and the number of different types of stock have also increased.
The Department is buying more inventory than it uses. It estimates that for raw material and consumable inventory, such as clothing or ammunition, it has spent £4 billion between April 2009 and March 2011, but did not use £1.5 billion (38 per cent) worth. Holding inventory that may not be used imposes a cost on the Department. The NAO estimates that the costs of storing and managing inventory were at least £277 million in 2010-11.
The Department has also not consistently disposed of equipment and supplies which it either no longer needs or does not use regularly. Over £4.2 billion of non-explosive inventory has not moved at all for at least two years and a further £2.4 billion of non-explosive inventory already held is sufficient to last for five years or more. During 2010 and 2011, the MOD identified inventory worth a total of £1.4 billion that could either be sold or destroyed, but it was unable to provide the NAO with information on the value of the stock that had been destroyed.
MOD has already introduced improvements to its management of inventory, some of which are showing success. But the Department’s strategies and performance reporting do not yet focus on effective inventory management and a lack of suitably qualified staff in post may undermine the Department’s efforts. There are also few targets for monitoring the efficiency of inventory management, which encourages over-ordering. The Department has commissioned a review to establish and sustain more cost effective inventory management and plans to implement its recommendations by March 2013.
Amyas Morse, head of the National Audit Office, said today:
“In the current economic climate where the Department is striving to make savings, it can ill-afford to use resources to buy and hold unnecessary levels of stock, and it clearly does so.
“The root cause of excess stock, which the Department is seeking to address, is that management and accountability structures currently fail to provide the incentives for cost-effective inventory management.”
Background Information
- The MOD purchases, holds and uses over 710 million items of inventory across 900,000 different types. These can be explosive, from rifle ammunition to missiles, or non-explosive, ranging from medical supplies and clothing to spare parts for vehicles, ships and aircraft.
- The MOD provided data from a number of its inventory systems for this report. However, problems in obtaining reliable information have limited the analyses. The Department is in the process of replacing these systems to provide greater and more accurate data on its inventory holdings.
- The NAO has previously reported on the use of information to manage the logistics supply chain in March 2011, which is at http://www.nao.org.uk/publications/1011/logistics_supply_chain.aspx
