Note: Where available, the PDF/Word icon below is provided to view the complete and fully formatted document
"Logistics and Defence: coping with change". Keynote address to LOGCON '98, Canberra, 30 March 1998



Download WordDownload Word

image

 

Minister for Defence Industry, Science and Personnel

The Hon Bronwyn Bishop MP

 

"Logistics and Defence: Coping with Change"

 

Keynote address to LOGCON '98

 

Canberra

30 March 1998

 

Good morning ladies and gentlemen, and welcome to LOGCON'98, the theme of which is "Logistics: coping with change".

 

Change is with us and our natural inclinations make us change resistant.

 

But to survive in today's world, we need to cope with change and if we want to do more than survive, if we want to excel - we need to embrace change.

 

The Defence Reform Program is just one of the measures that this Government has put in place to address the need for change in Defence. The DRP is changing not only the structure of Defence but, more importantly, the way that it does business.

 

And my Strategic Defence Industry Policy will take it further.

 

Over the next two days you will be discussing some of these changes in depth. But this morning I would like to say a few words covering some of the sessions of the conference:

 

• Logistics a t the sharp end

 

• Follow-on support

 

• Acquisition Logistics

 

Underlining these issues are what I see as the key philosophical changes that a change of government has brought about.

 

LOGISTICS AT THE SHARP END

 

Recent years have seen the introduction into service of increasingly more sophisticated weapon platforms and military equipment. There have been changes to operational doctrine and tactics, to organisational and command structures, and even to the make up of the service population.

 

There is no doubt that these changes to combat capability will significantly impact on the way support is delivered.

 

Standardisation and interoperability of operations have been swept up in the new Commander Australian Theatre (COMAST) structure. The logistics arrangements of the three Services are being brought together in the new Support Commander Australia (SCA) organisation.

 

Because of the increasing complexity of military hardware placing greater demands on the materiel maintenance support function it is becoming less desirable and less possible to repair equipment in the Area of Operations. We cannot hold the range of repair parts, special tools and test equipment necessary to conduct significant levels of maintenance in the combat area.

 

Responding to this change ADF maintenance doctrine now reflects a policy of component or module exchange in the Area of Operations. Damaged modules are being repaired by civil industry in the support base.

 

This accordingly reduces the need for uniformed technicians and also allows for a reduced stockpile of repair parts, enhances the mobility of combat forces due to a reduced logistics tail and greater equipment availability It also reduces the wastage inherent in duplicated military and civilian support facilities.

 

Of course for such a system to work, the ADF and industry must understand each other's needs - there needs to exist a justified expectation that each will carry out its allotted role, and importantly each needs access to the other's data and systems.

 

Drawing support for the ADF from the civil infrastructure is not just a matter of efficiency. There is considerable strategic and economic advantage in better engaging the Nation in its own defence and developing the required expertise in country - necessarily often involving foreign firms.

 

For this to occur a paradigm shift is required - this government has given a new strategic direction to Defence and we now must be able to deploy. That dictates a new direction for acquisition and logistics.

 

Traditionally the ADF has viewed capability as limited to those things it owns or controls, and the engagement of the wider support base has been largely limited to a relatively arms length relationship with the contractors who support the ADF directly.

 

This ignores the real depth of the ADF's support needs and works against involving our supporting contractors in the business of Defence in any substantial and integral sense. As part of my Strategic Defence Policy for Industry, I expect to see a culture develop in Defence that fosters Australian industry as an integral aspect of all the capabilities of the ADF.

 

One of the aims of the new National Support Division is to encourage the adoption of a much broader view of capability, and of self-reliance. One that includes both Australian industry and organic ADF support elements, harmonised to produce a greater over all national outcome than would otherwise be the case.

 

FOLLOW-ON SUPPORT AND CSP

 

This then brings me to the issue of follow-on support. In recent years we have seen a number of initiatives in this area, in particular the Commercial Support Program - privatisation by other means.

 

To date 20 CSP activities involving platform and systems repair and maintenance have been let for a total value of $906m. Thirteen activities have been let to commercial contractors while seven went to in house options. These activities include Navy Port Services, military vehicles, specified weapons maintenance in WA, PC9 maintenance and others.

 

In fact the current state of defence procurement is leading defence industry to consolidate and seek new kinds of work. Tenix Defence Systems securing the Albury Wodonga Military Area Logistics and Base Support Function contract is a good example.

 

The Defence Efficiency Review recommended a reduction of around 3,100 civilian positions and some 4,700 military positions from administrative and support functions. About half the military positions will be re-established in combat and combat-support areas.

 

The review recommended that at least a further 5,900 civilian and 7,000 military positions would be market tested for commercial support. Approximately 85% of these 13,000 positions have been identified as being in the area of logistics and regional support. Future activities also include explosive ordnance and F-111 support activities. - all aimed at enhancing our warfighting capability

 

International developments in this field are worth watching. The US's Logistics Civil Augmentation Program (LOGCAP) has been used since 1992 with civilian contractors performing selected engineering and logistic support services in deployments offshore. LOGCAP has been used in Somalia, Rwanda, Croatia and Bosnia.

 

In the 8 area deployments since 1992, the value of work contracted out is estimated to be over A$550m with savings to the US of over $A200m. The US is also giving serious consideration to industry proposals to maintain frontline weapons systems in assuming total nose-to-tail, depot level maintenance support. I also understand that the potential use of civilians for selected tasks is currently under consideration by the UK MoD.

 

Such proposals raise serious legal, readiness and cost issues. They also raise very valid issues as to our ability to remain interoperable with our allies.

 

In Australia's case the employment of contract staff in an Area of Operations is a significant and complex legal issue - in particular our obligations under the Laws of Armed Conflict - which is currently receiving a good deal of Departmental focus. Our advice is that provided contract staff are not involved in combat or direct combat support functions and can be protected to the maximum extent feasible then there should be no impediment to their employment.

 

While some efficiencies will be achieved simply through the process of commercialisation, the DER also recognised that significant efficiencies would flow from a major rationalisation of business practices, functions and facilities.

 

This Government's Defence Reform Program has put in place the machinery to bring about such rationalisation. In particular, we have promoted the adoption of joint logistic arrangements where operationally feasible and cost effective. The most significant example of this has been the creation of a single joint Support Command.

 

In keeping with Government guidance, CDF has tasked the Support Commander with optimising materiel support arrangements for the ADF. This involves:

 

• removing, as far as practicable, the duplication of activities;

 

• integrating and standardising processes;

 

• introducing valid performance measures;

 

• devolving authority and accountability, and

 

• avoiding excess ive levels of risk averse behaviour.

 

The amalgamation of the three Service Support/Logistics Commands will result in a number of efficiencies. Not only will there be staff and inventory savings, but efficiencies through:

 

• developing, in consultation with industry, an integrated distributio n system for the ADF,

 

• market testing of all non-core activities, and

 

• ensuring that Support Command exercises appropriate influence over the development of through life support arrangements during the conceptual and acquisition phases of the materiel cycle.

 

ACQUISITION LOGISTICS

 

In your final session you will be looking at the acquisition phase of the materiel cycle. Under the DRP the Department's capital equipment acquisition function has been rationalised. The first step has been the creation of the new Defence Acquisition Executive will allow for clearer management authority over resources assigned to the acquisition function, and clearer accountability for acquisition processes and outcomes.

 

The pre-DRP Acquisition organisations were largely focussed on equipment users in the three Services and Defence. The prevailing culture in these areas was preoccupied with the relative performance of hardware at the expense of such issues as self-reliant through life support.

 

The second step involves reorienting acquisition towards equipment suppliers and industry issues.

 

There are substantial benefits in setting up arrangements for the through life support of equipment as part of the initial acquisition contract. One example is the Lead-in-Fighter project where Defence has signed a life-of-type contract with British Aerospace which covers both the acquisition of 33 Hawk aircraft and the provision of in-service support. As British Aerospace will be supporting the aircraft for 25 years, they are making design decisions now to improve the in-service supportability of the aircraft.

 

I realise that there are differences of opinion as to whether through-life support (TLS) is best placed directly with the original equipment manufacturer (OEM) or whether it should be tendered out to industry as a whole and competed on the initial acquisition. The analogy of servicing a car is often used, questioning what owner takes the car back to the manufacturer/factory for a service rather than competing the service with other providers.

 

That analogy would be fine given the existence of a large customer base that could adequately allow for the existence of a wide range of service providers. But here we are dealing in most parts with just one customer, Defence.

 

I frequently say that Defence as a monopoly purchaser is a distorter of markets. Which is why the Government intervenes where necessary to offset distortions and remove impediments to expansion and sustainability.

 

I cannot stress enough that the principles of free enterprise are still paramount. Competition remains a key determinant of procurement policy.

 

We need to ensure that our acquisition and support policies are best structured in a way that allows the maintenance of a strong industrial base able to sustain the ADF in peace and war. And that means a defence industry comprised of firms which can afford to lose a government contract and still stay in business.

 

By linking through life support and initial acquisition we best sustain the investment placed in Australia. We also ensure that project managers are more closely involved in, and have a better understanding of, through life support issues rather than just in the initial equipment acquisition.

 

But as we increasingly use life-of-type contracts for our major acquisitions and further expand the CSP process, the responsiveness of the contractor assumes even more importance. We need to ensure that CSP contractors are able to respond to short term contingency requirements.

 

Hence the way we write our contracts takes on a whole new significance and will entail the use of commercial law firms and strict performance measures with resulting incentives and penalties.

 

The failure of the Labor Government to ensure a sound and tough commercial contract adequately protecting the Commonwealth in both JORN and the Submarine projects must not be repeated.

 

STRATEGIC INDUSTRY POLICY

 

Defence is the largest purchaser of goods and services on behalf of the Commonwealth. Of the total $10 billion annual Defence budget, support expenditure, including repair and maintenance, fuel and the provision of stores, amoun ts to about $3 billion. Around 89% of this amount is spent in Australia. A further $2.5 billion is spent on capital equipment and facilities of which about 62% is spent in Australia.

 

Realisation of the wide and disparate nature of Defence purchasing means that we need a holistic and strategic approach to industry policy. The absence of this approach dictated the need for a new direction to industry policy. It called for change. Which is why I am preparing a new statement on Strategic Defence Policy for industry.

 

With the Defence Reform Program underway, the policy is not about another major review of processes and internal structures. It is about three focussing on three key issues: policy, culture and communication. The constant theme that underlines these issues is change.

 

Communication and consultation has been of paramount importance. There have been over 80 formal responses to the policy review. And the Steering Committee and Secretariat have consulted directly with over 60 companies, industry associations, State Governments, other Federal Government Departments and Defence stakeholders.

 

In the past, Defence's policy for industry was based on the need to buy equipment. This equipment-focussed approach could not be sustained.

 

We now need to develop a relationship between Defence and Industry in which both are partners in the development, acquisition and support of the capabilities which we need to defend Australia. These capabilities will consist of integrated systems of equipment, people, training and logistics support.

 

Most importantly to those of you in the field of providing logistic support to Defence, the policy will apply to Defence purchasing of goods and services generally, not to major capital equipment alone.

 

Defence cannot just work with those firms which build ships, planes and tanks. Increasingly it must engage the myriad of firms which supply such services as training, facilities management, base support and logistics.

 

Obviously we will always need to deal with foreign firms because of the capabilities we need to acquire. But noting again Defence's monopolistic characteristics as a purchaser we needed some rules to ensure Australia and her defence are properly served. The so-called Bishop Procurement Rules. Simply these rules are that a company's long term commitment to Australia is demonstrated through:

 

• significant investment in facilities and plant;

 

• significant employment of Australian citizens;

 

• successful participation in major defence contracts;

 

• significant levels of R &D investment in Australia and development of indigenous IP;

 

• demonstrated independence of action; and

 

• nuturing of Australian SMEs.

 

CONCLUSION

 

Good logistic support dictates the success or otherwise of military operations. The organisation behind that support must be flexible enough to move with the times, and that means managing change.

 

It is often stated that modern armies cannot be structured to fight the last war. By the same token we can't afford to have equipment supported by yesterday's logistics train.

 

The ADF has a sound track record in the field of logistics. But the ADF is not a business. Its purpose is to promote the security of Australia, and to protect its people and interests.

 

This Government's focus on core functions for the ADF will see a corresponding increase in reliance on industry for support across the spectrum of defence business. Industry will deliver a much greater share of Australia's military capabilities in peace and war as a service provider, manufacturer and supporter of defence systems.

 

So we need to ensure that the new platforms and systems we are in the process of procuring are both economically and effectively supported well into the 21st century.

 

We all know that Defence spends more money in operating and supporting its equipment than it does in buying it. We also know that we rely on new and more efficient logistics practices to fund new weapons buys. I am pleased therefore to see a conference that is dedicated to addressing change to give the Australian people the best and most cost effective logistic support possible.

 

 

 

jy