The Ministry of Defence has made significant progress in reducing stocks but there is considerable scope for further reductions. Reducing stock should lead to financial savings, Sir John Bourn, Head of the National Audit Office, reported to Parliament today. If the MOD disposed of 10 per cent of its slow moving stock, it could save around £80 million a year.
Much stock has been disposed of – for example the MOD’s review of the top 1,000 high value items held by the three Services has resulted in stock reductions of more than one quarter, valued at £595 million, and by June 1999 Air had disposed of £355 million stock and reduced the value of other stock by a further £400 million. The MOD has reported to Parliament that by April 2001 it had exceeded its stock reduction target by £600 million. But because of weaknesses in the measurement regime the NAO is not able fully to validate performance. The MOD has taken account of these problems in setting new targets for overall stock reductions of 5 per cent in both 2001-02 and 2002-03.
For two thirds of items worth £12 billion the MOD has enough stock to last more than 10 years based on current forecasts of consumption. This indicates scope for further stock reductions beyond those currently targeted. For some items there will be good reasons why stock is slow moving, particularly in peacetime, and some items relate to equipments where all the relevant spares were included when equipments were first bought. However, we have identified a number of cases of potential over stocking where the MOD needs to keep its requirements under review – for example the MOD owns 4,000 radiation detection devices worth £10 million that are obsolete. And £2.7 billion of the slow moving stock is consumables where many items are readily available from industry. The MOD has recognised the need to change fundamentally the purchase of consumable items and has established the Non Project Procurement Office to do so. In its first year of operation it generated savings of £40 million on new contracts valued at £350 million.
We found examples of good practice in stock management by the MOD that can be disseminated more widely. For example partnership with industry over marine diesel engines’ repair has lead to stock reductions of £5 million.