Background to the report

The UK’s armed forces require a wide range of supplies and spares for immediate and potential use; these are described collectively as ‘inventory’. The Ministry of Defence (MoD) holds around 520,000 types of inventory and around 460 million individual items at a net book value of £11.8 billion. It spent £1.5 billion buying inventory in 2022-23.

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This inventory falls into three categories: Guided Weapons, Missiles and Bombs (GWMB), Capital Spares, such as wheels and windscreens, and Raw Materials and Consumables (RMC). Managing this inventory is a complex and dynamic task, as the MoD must support a wide range of operations and training exercises across the globe and must be responsive to where these may place sudden demands for items.

The objective of inventory management is to balance the risk of having insufficient inventory to support operational capabilities with the costs of holding it. The optimal level to hold will change over time, and the MoD is currently reappraising the levels of inventory it holds, as well as how it engages with industry to supply it. In its Supply Chain Strategy, the MoD set out how it believes that its approach to inventory management currently overemphasises attempting to reduce cost over other factors, such as resilience and performance, particularly in light of increasing global instability.

Events such as the war in Ukraine and the COVID-19 pandemic have demonstrated that supply chains optimised for cost savings can be vulnerable where sudden surges in demand or disruptions to supply emerge. To address these challenges, the MoD intends to improve its Support function to be “resilient by design” and ensure that it has the people and equipment it needs in the right places, able to deploy quickly and efficiently. It calls this “support advantage”.

However, the MoD’s inventory management has many long-standing weaknesses, which we have reported on before. In our 2012 report, Managing the Defence Inventory, we found that the MoD was buying more inventory than it was using and was not consistently disposing of inventory it no longer needed. To achieve its future ambitions, the MoD has published a Support Strategy, which sets out its vision for what it wants the Support function to be in the future and why change is necessary. This is supported by a plan of activities across the Support function including organisational and digital transformation programmes. The MoD has identified the characteristics that it wants the Support function to demonstrate by 2035.

Scope of the report

Our report examines whether the MoD is achieving value for money in the management of its inventory, with reference to the issues we have found in our previous work. To do this, we evaluate the extent to which the MoD has addressed its long-standing challenges with its inventory management and assess how well set up it is to achieve its future strategic ambitions set out in its Support and Supply Chain strategies. Our scope includes the work of the whole department, including its constituent bodies, as inventory management functions are carried out by many different organisations.

Our report is in two parts:

  • Part One examines the strategic context and structure of the MoD’s inventory management, and the systemic issues and challenges that the MoD encounters across its inventory management. We then examine the transformation initiatives that the MoD has put in place to overcome these challenges and meet its strategic ambitions for inventory management.
  • Part Two examines how these issues and challenges affect inventory management in practice, through a series of specific examples, such as the management of the MoD’s medical inventory and RMC commodities; how it identifies and disposes of inventory it no longer needs; and the inventory-related challenges of supporting equipment platforms. Through our fieldwork, we have found that these examples most clearly illustrate the consequences of the MoD’s approach to inventory management.

Conclusions

The MoD manages a vast inventory worth £11.8 billion across a complex and dispersed enterprise. Growing global instability, and the greater deployed presence envisaged in the Integrated Review, are making it ever more important that the MoD has the inventory it needs, in the right places and amounts.

While the MoD has taken steps to improve its logistics and commodity procurement, and removed financial incentives for over-purchasing, many long-standing weaknesses with its inventory management remain. These include its inefficient and poorly aligned activities and ageing legacy IT, which it has been slow to address. These weaknesses stand in the way of the MoD’s ambitions for inventory management set out in its Support Strategy. As a result, despite some improvements, the MoD is not yet set up to deliver value for money from its inventory management.

The MoD has started a number of transformation initiatives which provide opportunities to move towards realising effective, efficient and resilient inventory management. However, the scale of the change needed is substantial. If MoD does not prioritise the required resources to do this, it will frustrate its ability to build resilience and deploy the people and equipment it needs in the right places. It will also lose the opportunity to reduce waste and achieve cash savings or release resources for other priority expenditure.

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Publication details

Press release

View press release (13 Sep 2023)

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