|Clothing Procurement in the Defence Forces - Value for Money Review|
Responsibility for the overall procurement, purchasing, financial management and budgetary control of all Defence Forces clothing requirements is delegated to the military authorities by the Secretary General of the Department of Defence, under the provisions of paragraph 36 of Part II of Defence Force Regulation S2. In practice the Deputy Chief of Staff (Support) has responsibility for the clothing procurement system within the Defence Forces while the Secretary General of the Department of Defence is the Accounting Officer for all expenditure.
The Steering Committee adopted the following definition of procurement for the purpose of the review:
“Procurement is the whole process of acquisition from third parties (including logistical aspects) and covers goods, services and construction projects. This process spans the whole life cycle from initial concept and definition of business needs through to the end of the useful life of an asset or the end of a services contract.”11 Gershon, P. (1999) Review of Civil Procurement in Central Government, HM Treasury.
This definition was used as a guide to define the scope of the review and was consistent with the National Public Procurement Policy Framework (2005). Analysis of spending on clothing in the Defence Forces, using a supply positioning matrix, indicated that the appropriate procurement strategy for this category of expenditure should centre on aggregating demand and ensuring efficient transaction costs. Transaction costs were identified as the costs associated with acquiring, using, holding, maintaining and disposing of the goods and services. The scope of the review included an examination of the storage and distribution system in order to fully identify transaction costs. The years 2003 – 2006 were chosen as the period of study.
Each of the terms of reference is now taken in turn and the key findings outlined:
TOR 1. Identify clothing procurement objectives.
TOR 2. Examine the current validity of those objectives and their compatibility with the overall strategy.
The overall objective of clothing procurement was identified as:
To contribute to the operational effectiveness of, and mitigate health and safety risks to, Defence Forces Personnel and Civilian Employees, by identifying, purchasing and distributing clothing assets that are appropriate for the differing roles and tasks assigned, whilst ensuring probity and value for money.
The Steering Group found that objectives were clearly articulated, that the objectives remain valid and that there was clear linkage with the overall strategy.
TOR 3. Define the outputs associated with clothing procurement activity and identify the level and trend of those outputs.
The Steering Group identified three areas of activity within clothing procurement:
Planning, Budgetary Management, Purchasing and Contracts Management
Storage and distribution
The qualitative aspect of Defence Forces clothing is defined by the Clothing Committee with the technical specifications defined with the assistance of a Government Supplies Agency (GSA) specialist. Chief of Staff (Support) Administration instruction L3 clearly identifies the scales of issue of clothing items for military personnel.
Clothing Procurement Cell (CPC) is responsible for Planning, Budgetary Management, Purchasing and Contracts Management. The GSA assists CPC by providing technical expertise and managing tender competitions. Defence Forces Clothing requirements are met through 8-9 contracts, each contract running for three years.
There are two levels of storage and distribution of clothing within the Defence Forces. The Central Stores is Ordnance Clothing and Equipment Stores (OCES), located in the Curragh. This store receives clothing goods from suppliers and issues these goods to 10 regional clothing stores, Air Corps clothing stores and the Naval Service Clothing stores (12 local stores in total) throughout the country. These local clothing stores issue clothing to individuals. In 2006 clothing items valued at €2,798,000 were issued to individuals within the Defence organisation.
TOR 5. Identify the level and trend of costs and staffing resources associated with clothing procurement and thus comment on the efficiency with which it has achieved its objectives.
The costs of clothing procurement inputs includes expenditure on clothing items, the operating costs (staff and utilities) of Defence Forces Clothing Procurement Cell and the storage and distribution system within the Defence Forces. These costs for 2006 were as follows:
|Clothing Procurement Cell Operating Costs||€ 218,000|
|Ordnance Clothing and Equipment Stores (Central Stores) Operating Costs||€ 393,000|
|CCS Air Corps, CSS Naval Service and Regional Clothing Stores Operating Costs ||€1,657,000|
The Steering Group found that the cost of storage and distribution at local level in 2006 (€1,657,000) equated to 53% of the value of clothing items procured in 2006 (€3,100,000). Based on analysis of the relative efficiency of regional clothing stores, CCS Air Corps and CSS Naval Service, (2006 data) the Steering Committee found that there were significant differences in relative efficiency with staff costs varying between 33% and 127% of the value of inventory issued.
The Steering Group found that the inventory turnover ratio for 2006 was 0.47 with €5,827,000 of closing stock. This equates to having over two years worth of inventory on hand. The Steering Group agree that there is a requirement to improve the inventory turnover ratio and noted that achieving a ratio of 1.5 could reduce stock holdings by €3.7 million.
Administration instruction L3 dated 1st September 2006, refers to the requirement for OCES to set a stock policy which defines minimum stock levels and re-order points. The Steering Committee noted that whilst progress is being made, such a policy is not yet in place. The Steering Committee also noted that performance standards with respect to time-scales for availability of clothing items were not defined at regional clothing stores level, possibly resulting in an expectation that all items would be available in stores. The Steering Committee agreed that availability of key operational clothing items and health and safety clothing items was essential but that other clothing items could have specified delivery times. Addressing these issues would lead to more efficient stock management.
The Steering Committee agree that the efficient storage and distribution of clothing is a key factor in ensuring VFM in clothing procurement and that minimising these transaction costs is one of the key strategies for this category of procurement activity. The Steering Committee recommends that a review be carried out to recommend specific, detailed measures for improving the efficiency of the clothing storage and distribution system.
Specifically, this review should:
Make recommendations regarding appropriate inventory levels (stock policies) and inventory turnover ratios.
Make recommendations to reduce the operational costs of storage and distribution including recommendations regarding the optimal distribution of Regional Clothing Stores.
This review should be carried out immediately and its recommendations implemented quickly in order to maximise value for money.
The Steering Committee note that the ability to improve inventory turnover ratios is linked to supplier performance with respect to delivery times and supplier willingness and the cost effectiveness of suppliers holding inventory. This highlights the continued importance of these issues in future contracts negotiations.
TOR 4. Examine the extent that the objectives have been achieved, and comment on the effectiveness with which they have been achieved.
The Steering Committee note that the National Public Procurement Policy Unit’s advocated strategy of aggregation of public sector demand is being pursued through Clothing Procurement Cell’s continued work with the GSA. The Steering Committee agreed that this approach was appropriate for Defence Forces clothing.
The qualitative aspect of Defence Forces clothing is defined by the Clothing Committee with the technical specifications defined with the assistance of a GSA specialist. (The field trialing of certain clothing items by operational units ensures that the focus is firmly on operational functionality for clothing. The Steering Committee agreed that this is an appropriate approach to needs identification.
After initial issue, clothing is replaced on an “as needed” basis as opposed to a periodical issue based on elapsed time. The Steering Committee agreed that this approach is appropriate.
Analysis of draw down of goods versus estimated requirement for completed contracts revealed variances. Monitoring and formal reporting on variances prior to the development of new contracts would assist in the estimates process. A formal mechanism to gather input from Directorate of Human Resource Management, Directorate of Defence Forces Training, Directorate of Engineering and Directorate of Operations, should be developed to allow these Directorates to inform Clothing Procurement Cell of clothing requirements in order to enhance the accuracy of clothing estimates. This could be accommodated in the clothing committee forum.
Analysis of questionnaires issued to unit commanders revealed that an overall majority were satisfied with the clothing procurement system. Qualitative issues that were raised were being addressed by the Clothing Committee, which provided an independent validation of the existing processes and procedures in place.
Respondents identified certain difficulties with item availability. The availability of clothing is linked to the accuracy of clothing estimates, supplier performance with respect to delivery times and inventory management. Addressing storage and distribution issues should resolve these difficulties.
TOR 6. Evaluate the degree to which the objectives warrant the allocation of public funding on a current and ongoing basis and examine the scope for alternative policy or organisational approaches to achieving these objectives on a more efficient and/or effective basis.
The Steering Committee agree that there is a continued need for and requirement to fund the objectives of clothing procurement in the Defence Forces. This is consistent with other military forces throughout the world.
The Steering Committee examined the system in use by An Garda Síochána and found that they have changed over to a system whereby suppliers box and deliver clothing issues for each individual direct to the Garda station where they are based. This has led to reduced inventory management costs.
The Steering Group agree that the action required for enhancing the efficiency and effectiveness of clothing procurement in the Defence Forces centres on storage and distribution as previously described and recommends that the viability of alternative approaches be examined as part of the review to enhance the efficiency of storage and distribution.
TOR 7. Specify potential future performance indicators that might be used to better monitor the performance of clothing procurement.
A selection of suggested performance indicators were identified.
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