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The Public Accounts Committee publishes its 32nd Report of this Session which, on the basis of evidence from the Ministry of Defence, examined the management of defence inventory.

Richard Bacon MP, member of the Committee of Public Accounts, yesterday said:

"It is unacceptable that the Ministry of Defence is wasting significant amounts of public money buying equipment and supplies that it doesn’t need. It is particularly galling at a time when funding is tight and when one considers that the National Audit Office has been warning about these issues for over 20 years.

"While it is perfectly understandable that the Department would want to ensure troops on the front line have the equipment they need, it is simply not good enough for the MOD to blame the Treasury for not incentivising it to deal with the issue. The MOD should set targets to reduce unnecessary ordering and regularly review its progress to see where else money could be saved.

"With stock returning from Afghanistan and soon from Germany, the problem is likely to get worse unless the MOD acts now to get rid of the £3.4 billion stockpile of supplies it has identified as no longer being needed. It needs to act fast as some central depots for non-explosive items are already 90 per cent full.

"The MOD is spending over £1 billion on a new inventory system but any system is only as good as the information put into it, while currently the Department lacks information on the inventory it holds and thus does not know the true scale of the problem it faces.

"Before getting its new system up and running, the Department needs to perform a full cleansing and reconciliation exercise, to ensure it doesn’t waste even more public money.

"The MOD is now considering the outsourcing of inventory management but going ahead with this now, before the MOD has a firm grip on the true situation it faces, risks paying far more than necessary to outsource. Unless the Department is extremely careful, outsourcing could prove to be an expensive cop-out.

"In the meantime, the MOD needs to address the skills gap it is facing. Around 20 per cent of inventory management posts are vacant and 13 per cent of those in post don’t have appropriate qualifications for their roles. The Department must identify where skills gaps are holding it back and work with the Cabinet Office to recruit staff with the skills required."

Richard Bacon was speaking as the Committee published its 32nd Report of this Session which, on the basis of evidence from the Ministry of Defence, examined the management of defence inventory.

Serious problems

We welcome the honest acceptance by the Ministry of Defence (the Department) of the serious problems it faces in the management of its inventory. The Department has recognised that it is wasting significant amounts of public money buying more inventory—its store of supplies and spares—than it uses. Between April 2009 and March 2011, the Department purchased 38% more raw material and consumable inventory, such as clothing or ammunition, than it used, at a value of £1.5 billion.

The Department has also not consistently disposed of stock it 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.

The National Audit Office identified the need for the Department to improve its management of inventory as long ago as 1991, but the root causes of the problem have not been addressed. The Department has failed to provide effective incentives or accountability for those responsible for ordering, retaining, and disposing of inventory. A lack of investment in information systems and professional inventory skills is also limiting the Department’s visibility of the problems, and its ability to manage its inventory efficiently.

Internal controls

The Department accepts it has much to do but told us that it has already introduced its own internal control measures to prevent over-ordering of inventory, some of which are showing early signs of success. The Department told us that it is on track to reduce spending on inventory by £300 million in 2012-13, and that it plans to reduce it by £500 million a year within the next three years. It also plans to reduce by 35% the volume of stock it holds to relieve pressure on central depots in advance of the anticipated return of inventory from Afghanistan and Germany.

The Department’s problems with inventory management are long-standing and past promises of improvement have not materialised. We welcome the Department’s honesty in acknowledging the slow progress it has made historically and the need to make sure past mistakes do not continue. The Department has established support at senior levels to tackle the problems with its management of inventory and we are cautiously encouraged that it is now starting to get a grip on this long-standing problem.

However, if the Department is to be successful this time it must also drive change through the inventory management system and address the root causes of ordering and holding excess stock.