Australian Defence Force

Defence procurement is difficult. High-profile projects in the UK and the US have famously fallen behind and dramatically overspent. But the Australian Defence Force is looking to SRM to make a difference. 

With a total budget of A$34.6 billion (US$27.7 billion), the Australian Department of Defence includes the Royal Australian Navy, the Australian Army and the Royal Australian Air Force, as well as a civilian public sector workforce. The result of such a diverse organisation is complex procurement and supplier relationships. In 2016, an internal review had suggested it needed to better engage with vendors to address difficulties in procurement and service delivery.

The challenges were multiple, says Mike Desmond, Director SRM in the Capability Acquisition and Sustainment Group (CASG) in the Department of Defence. “The complexity and size of the organisation, together with each entity’s unique culture, make it difficult to have a standard procedure in dealing with suppliers. This is in contrast with suppliers, which typically have mature client relationship systems in place. Consequently, suppliers are likely to have a more transparent view of their contracts across the organisation, often creating an imbalance in access to information during supplier engagements,” he says.

To add to this complexity, the Australian Department of Defence frequently collaborates with foreign military forces to capitalise on commonality of capability and economies of scale. Although it helps procure equipment or upgrades that would otherwise be unaffordable to a single nation, the strategy means the development of requirements is often a lengthy process, needing significant investment of resources. Failure to identify and address a number of relevant complexities can jeopardise cost and schedule objectives, Mr Desmond says.

At the same time, the internal organisational priorities of the Department of Defence places an emphasis on securing value for money outcomes, but there are many complexities around the defence budget.

Finally, there is the challenge of internal staffing. Australian Defence Force staff are subjected to posting cycles, where they are rotated through various roles. While this equips individuals with a broader set of skills, the lack of continuity in acquisition and sustainment projects can provide challenges for the customer. “Once relationships are established they have to be rebuilt every few years, potentially discouraging suppliers from investing in them,” Mr Desmond says. 

Assessing the current state of SRM 

With these layers of complexity, finding a consistent approach to managing relationships with suppliers was a daunting task. But State of Flux encouraged the Department of Defence to start with the basics. Using an online survey and face-to-face interviews with internal stakeholders and external suppliers, it began to uncover the “current state of SRM” in Defence. The purpose was to determine its SRM capability and to identify where it lagged behind best practice. It also recommended areas where Defence was most likely to increase SRM maturity.

The assessment identified Defence as a ‘developing’ SRM organisation. It found opportunities in the governance of SRM and the capabilities of staff in managing relationships with suppliers. To improve the SRM skills of their workforce, Defence worked with State of Flux to develop training material, complemented with case studies. The training programme was designed to improve the SRM skills of individuals new to the roles or inexperienced in dealing with the commercial sector or foreign militaries.

A guide for good governance 

To improve governance, the Department of Defence and State of Flux developed an ‘SRM Better Practice Guide’. It sets out supplier management approaches to help staff get the best value from their most important suppliers. “The goal is to provide our SRM practitioners with a reference for a more consistent approach to SRM. It also provides guidance on how to manage suppliers and to focus on the SRM framework to support the organisation’s operations. The process identified examples of good practice across CASG and formalised them as reference models. This would encourage consistency across the organisation and help provide an organisational view in dealing with strategic suppliers,” Mr Desmond says. 

One example of good practice came from the FFG Enterprise, which maintains guided missile frigates for the Royal Australian Navy. The FFG Enterprise comprises the Defence organisation and two strategic suppliers, BAE Systems and Thales Australia. Historically, long-term contracts had been plagued with problems in frigate availability and constant delays in delivery, damaging trust between all parties involved and giving rise to a blame culture.

In 2014, the FFG Systems Program Office decided to develop a charter, a one-page document committing all parties to missions and values. Parties were encouraged to work to capability outcomes rather than absolving responsibilities through contract terms. By publicly signing up to the charter, team leaders shifted the emphasis from short-term outcomes to long-term objectives. Collaboration with and between suppliers improved as did mutual trust, cooperation and commitment. The result was AU$1 million savings per month of cost of ownership, a 44% fall in hourly labour costs and a 27% increase in material availability and seaworthiness. The programme went on to win the International Association for Contract and Commercial Management’s Global Award for Operational Improvement in 2016, and the Essington Lewis Award for major sustainment over $20 million annually and the CASG/Major Company Team of the Year for 2017.

Progressing proof of concept 

With concrete evidence that better management of supplier relationships leads to measurable benefits, State of Flux has delivered the SRM Better Practice guide to CASG, with the organisation set to roll out a ‘proof of concept’ to include activities on a programme and supplier level for implementation to validate the new framework and governance model design. Any learnings will be fed back into the SRM model before it goes live. The Department of Defence and State of Flux are discussing the introduction of a communication and change management exercise to help employees understand the changes and then pilot an SRM programme with one of the strategic suppliers.

Defence procurement can be demanding. But with the right governance in place, the Department of Defence is set to demonstrate how SRM improves outcomes, even in the most complex organisations.