Media Response Lines
The Department of National Defence recognizes that the members of the Canadian Armed Forces (CAF) can only do their work when they are supplied with what they need. Strong supply chain management is one of the keys to our continued success, which is why we are taking action to not only respond to the Auditor General's report, but to modernize our system.
Today's complex security environment requires a modern, resilient and adaptable supply chain that can respond to concurrent operations as outlined in Strong, Secure, Engaged. Already, we have made considerable improvements to our management of inventory. We have made improvements to stocktaking, the reporting of inventory costs, and the oversight of supply work. We have also disposed of a lot of old equipment taking up valuable warehousing space.
We also have a number of initiatives underway to improve how we track and warehouse materiel. These include introducing a barcoding capability, and making sure supply chain decisions are based on reliable and complete information. These initiatives will enable better forecasting, positioning, warehousing, and distribution of the items the CAF needs.
Following our initial changes and throughout the implementation of our planned initiatives, we will enhance our data analytics capabilities and rely on real-time data to help ensure we have the right supply chain approach for our ever- evolving force structure, and to help us better predict future needs.
Making sure CAF members are well-supplied is a key capability, and we will continue to do what is required to improve our ability to deliver.
Complexities of the supply chain
We strive to meet all requirements and ensure that all members are well equipped; however, supplying the CAF is a challenging and complex endeavour with many facets.
The first complexity lies in the equipment itself. The CAF requires items as small as a coil or screw, and as big as a ship that can accommodate a crew of more than 200 members. Some are single items – like canteens – while others have many parts and components that must also be considered – like aircraft. Keeping track of such a diverse array of items can be complicated at the best of times, and more so when dealing with items that are produced infrequently, or that have short lifespans like computer chips.
In addition, supplying every location with every piece of equipment that could possibly be required would not be affordable. We must make decisions that balance military capability and acceptable risk in order to respect our allocated budget. For example, we may not keep a spare engine on-hand at every base that uses a specific truck or light armoured vehicle. Instead, we would keep them at central warehouses that are within a certain distance from a group of bases to help enable a speedy delivery.
Furthermore, a number of the items we must supply are limited in their availability. There are fewer companies that make tanks and their components such as tracks, than there are who make more common items such as pencils and car tires. Ensuring we have all the equipment required in the right quantities sometimes means being added to an order list years in advance. We have ensured that these considerations are part of our procurement process right from the onset, but there can still be delays, such as when a number of countries are in need of similar items at the same time.
The Department of National Defence has one of the largest footprints of any Government of Canada department or agency. We must be able to supply locations across Canada, as well as all over the world when members are overseas. This brings the added complexity of how to transport items. As much as we try to be ready for any possible event, transportation can cause delays when unexpected requests occur. Each transport also includes costs that must be considered, and we always try to find the most economical solution when time is not a pressing factor. For example, we fly our aircraft on a regular basis, and so having these aircraft deliver parts between bases during pre-scheduled flights does not represent a measurable new cost.
We are also using a number of siloed electronic systems that each manage their respective parts of the storage and distribution process. While each system works well individually, their inability to communicate between each other is problematic to staff and the process. We are in the preliminary stages of implementing a new system to help mitigate this challenge and to provide a better picture of the full supply chain when required.
Finally, defence equipment must be available when required. While some needs can be predicted, changing demands due to unexpected events and commitments means identifying the right quantity of items we need to have on hand is a challenge. While we do set minimum quantity levels and have past experience to base our numbers on, our estimates will always be imperfect, and we continue to adapt to evolving needs.
We know that we are not alone in this challenge, and have heard the same concerns and issues from many of our allies. We continue to work with our partners to share best practices and lessons learned as Canada is not unique in facing these challenges.
- DND processes over 560,000 orders per year and manages over 460 million items. This scale and complexity are much larger than most, if not all commercial operations in Canada.
- For operations overseas, the Canadian Armed Forces is concurrently managing 29,000 types of items across 19 missions in 25 countries. Delivery for these items is made by military aircraft, contracted airlift, sea lift, commercial carriers, and other piggyback logistics. Each method requires specific customs and diplomatic considerations based on the host nation's guidelines.
- Unlike a private company, National Defence has to buy and store much more materiel than it currently needs, to be ready for unexpected scenarios. This level of readiness presents challenges for planning and maintenance.
- Military equipment procurements are also planned based on the current environment and related factors. These can change dramatically over the lifespan of equipment, and directly impact stocking, forecasting, and resupplying metrics.
- Modern military equipment is increasingly complex, requiring us to source components that support equipment from all over the world, adding to delivery times and increasing pressure on companies that supply a number of countries.
- In December 2018, the Deputy Minister and the Chief of Defence Staff recognized the need to improve the operational effectiveness of the supply chain by formally assigning a clear mandate to its leadership to oversee and improve supply chain performance.
- The resultant Defence Supply Chain governance is charged with making tangible and enduring improvements to supply chain performance. This includes the commitments outlined in DND's response to this audit, as well as numerous other activities.
- The supply chain is flexible and able to meet emergency demand, as proven these past few months when emergency procurements were required to support the Government of Canada's response to COVID, and acquiring supplies was done quickly and efficiently.
- This touches a number of subjects from the Minister's mandate letter. Namely:
- Continue to ensure that the Canadian Armed Forces are an agile, multi- purpose and combat-ready military, operated by highly trained, well-equipped women and men, supported by their Government and by fellow Canadians.
- Ensure the Canadian Armed Forces have the capabilities and equipment required to uphold their responsibilities through continued implementation of Strong, Secure, Engaged, including new procurements and planned funding increases.
- Ensure the continued effectiveness of Canadian Armed Forces deployments, including Operation IMPACT in the Middle East, Operation NEON in the Asia-Pacific, Operation REASSURANCE in Latvia, and Operation UNIFIER in Ukraine.
- Recent audits include:
- Annual OAG Audits on Public Accounts, where DND has been regularly reporting and tracking activities related to inventory management;
- OAG report in 2008 regarding operations in Afghanistan. There were two related areas of observation in this report: the recommendation to develop supply chain performance metrics, including whether supplies are received in a timely manner appropriate to priority and need, and the recommendation that the department review how it establishes stock levels for the parts it needs, with a view to delivering parts to users in a timely way. While management action plans were fully implemented to address these recommendations, the current audit infers a lack of a tangible improvement over time.
- Our public account audit includes confirmation that we are on track to implement our plan presented to senior management.
Questions and Answers
Q1. How have you improved since your last evaluation?
We have made considerable improvements in stocktaking, pricing, inventory reduction, oversight, and introduction of modernization projects, such as scanning technology. In fact, the OAG has positively highlighted DND's progress on this longstanding issue.
Q2. Concretely, how are you solving these issues?
Already, we have made considerable improvements to our management of inventory. We have made improvements to stocktaking, the reporting of inventory costs, and the oversight of supply work. We have also disposed of a lot of old equipment taking up valuable warehousing space. We are also advancing a number of new management projects, such as procuring standardized barcode scanning technology and new electronic system capabilities, to further improve our performance.
We have committed to the following activities to identify any changes needed:
- Conducting a review of how defence materiel holdings are planned and positioned;
- Conducting a review of how to integrate our multiple electronic systems to enable data to follow equipment through our supply chain, rather than having several different systems that do not talk to one another;
- Conducting a review of how the availability of materiel is measured;
- Continuing the ongoing examination of delivery services within the CAF to determine the most cost-effective approach, including selection of transportation, and
- Communicating with ordering officers to reinforce the correct use of high- priority requests with both the chain of command and the users to curb overuse and misuse of the current system.
We are currently gathering data following progress made to date in order to inform future changes.
Q3. This seems to indicate that the CAF receive their equipment late more than half the time. How can you justify that?
We recognize that there are challenges with the delivery of materiel for a number of reasons. We are working to ensure that this situation improves and have established an action plan with performance indicators to get us there.
Some requests include unreasonable deadlines that do not take into account the distance between the item and the destination. Sometimes a number of orders for one item are received at the same time, requiring us to assign priorities and make decisions regarding which order is filled first.
We continuously work with those ordering equipment and those organizing missions and exercises to provide equipment where it is required in a timely fashion and to reduce this type of situation. We will continue to work with all players within the supply chain, including industry, to improve materiel delivery.
Q4. Does this mean that our members in uniform don't have the equipment they need when on operations and missions?
No. We always ensure that our members have the equipment they need for the success of operations and missions. The issues flagged in this report are largely related to routine, day-to-day CAF activities here in Canada.
For example, for overseas operations, we are currently supporting 20 missions in 25 countries, and processing over 560,000 orders per year. Regardless of where members of the Canadian Armed Forces are serving, we ensure they are equipped to fulfill their mission. Not only do they deploy with the right equipment, but we also intentionally insert redundancy in our supply chain to account for any unforeseen events thereby ensuring soldiers, sailors and aviators have what they need to do their job and be safe while doing it. There is no room for failure on this front.
Q5. Why can't you keep more equipment than required to make sure you always have enough?
We do keep more equipment than we estimate is immediately needed for key commodities.
However, to ensure responsible use of resources and space, we can only keep so much on hand.
Furthermore, much of the equipment we purchase have expiry dates or can become obsolete, which adds a complexity. Buying too much equipment would result in waste of materiel, waste of money, and increased disposal costs.
We continue to evaluate past performance, monitor upcoming commitments, and adjust quantities as required.
Q6. Why can't you keep more materiel at each base or wing?
There are a number of reasons that limit the amount of materiel that can be kept on a base or wing:
- Limited space
- Requirements for secure buildings for certain equipment
- Expiry dates for equipment that is not required on a regular basis
- The prohibitive costs associated with buying enough high-value materiel to store it everywhere.
We continue to work with our staff and members across the country to ensure that they have the equipment they need in the right quantities at their disposal despite these restrictions. One component of this effort is to review items that are held in excess quantities and ensure more is not bought inadvertently, freeing up resources to buy higher priority items.
Q7. Are these problems actually because you don't have enough staff?
Some of these challenges cannot be solved by increasing the number of people alone. We are addressing the issues raised by evaluating whether existing staff have the right training, looking at how to best leverage technology and improving or reinforcing our proven processes. Once these actions are complete, as well as our current analyses, we will be better able to evaluate whether more staff is needed or if efficiencies can be achieved.
Q8. The OAG has previously recommended you develop supply chain performance metrics and review how you establish stock levels for the materiel the CAF needs. Why isn't this already fixed?
Between 2008 and 2010, DND implemented multiple supply chain performance measurements and implemented an industry-standard capability to predict materiel requirements.
In 2014, the materiel management software was replaced with an enterprise-wide system, and these specific performance measurement functions were not retained. Similarly, the tool we adopted to predict materiel requirements fell out of use during this migration. The impacts this had on materiel planning accuracy were not well recognized until recently.
We are still looking to ensure all systems related to the supply management process can talk to one another.
Q9. The department has had the same out-of-stock benchmark for years. Has this been revised? If not, when will it be?
The current out-of-stock benchmark has been used to understand whether the department is getting better or worse at predicting what materiel we need to support the CAF. When originally set, it was based on past performance. We have committed to revisit this benchmark over the coming year to ensure it is appropriately set, and used to make continuous improvements.
Q10. Have you set performance indicators to measure whether materiel was stocked at the right warehouse and whether each warehouse had enough stock?
We have committed to developing performance indicators around whether materiel was assigned to the right warehouses and whether they had enough stock, but understanding how to measure this while allowing flexibility to centrally store materiel will take some effort. We will develop these indicators over the coming year.
Q11. Can you explain what happened in the case of exhibit 3.3 [Trenton exercise example], where items were not delivered for over five months?
It is important to note that the delay in delivery had no impact on the exercise in question. Equipment was found and delivered on time to ensure the exercise was able to go forward.
A number of factors came into play in the delay presented in exhibit 3. First, the request was not done correctly, and was sent to a warehouse that did not have the requested equipment. Second, the warehouse did not notice the error until the requestor followed up months later. While this does not demonstrate any systematic error in the delivery process, it does support our efforts to reinforce policies and training to ensure that similar errors are avoided in the future.
Q12. Will you re-evaluate minimum numbers for stock that are indicated as zero?
Not all materiel in the defence supply chain needs to be stocked in a National Defence warehouse. If the item can be readily purchased locally, it is acceptable to only buy it as it is needed, which means that it is acceptable for the minimum stock level to be at zero.
Additionally, we will be reviewing how materiel is planned in general. This review will include how minimum and maximum order quantities are determined.
Q13. How are orders prioritized?
There are three levels of priority:
- High priority: if materiel is required for a critical operational requirement. For example, troops are leaving to go overseas and require parts to repair a weapons platform that will be deployed.
- Essential: if materiel is not critical, but has a significant impact on operations. For example, a warship is going to sea and requires parts to repair a secondary weapons system
- Routine: for all other requests. For example, ensuring that a wing has the number of spare tires identified as their minimum.
Q14. What is a justification for high-priority ordering?
A high-priority order must meet an immediate need for current operations, missions, and exercises that cannot be filled by alternative equipment.
Q15. How will you ensure that orders are submitted using the right priority?
Each wing, base, and command has designated officers who review the priority given to a request based on criteria established in our policies. We will communicate with our ordering officers to reinforce the policy and ensure it is followed. An upcoming review of how ordering priorities are determined may also help improve this situation.
Q16. The flow chart seems to indicate that there's an extra step for high-profile orders. Shouldn't there be fewer steps?
An additional step in the approval process ensures that high-profile orders are put at the front of the order line, and in some cases justifies the higher costs associated with premium shipment. This is not a time-consuming step and actually helps ensure that these items are delivered more quickly. It also ensures that the right priority is assigned and orders are processed efficiently.
Q17. Will you be doing anything to improve the ordering process?
We will be looking at how ordering priorities are determined and how materiel is shipped. The ordering process itself matches industry-standards according to our software systems.
Q18. How do you transport materiel?
Within Canada, transportation options include:
- The national freight run, by which military drivers and vehicles deliver materiel by road between Canadian locations
- Navy, Army, and Air Forces fleets are used for areas not serviced by the national freight run, or for more timely delivery than can be achieved with the national freight run
- Commercial transport when required, which can include air and sea lifts
Q19. Can commercial transport carry any type of equipment? Are there conditions?
Different types of commercial companies can carry different types of equipment.
A number of standing offers exist that indicate what permissions are available based on the company's security clearance.
Q20. What does it mean to have a request rerouted? Why does it happen?
We try to avoid rerouting and to always store materiel close to where it will be needed, if that is feasible.
A request is rerouted when it cannot be sent from the nearest warehouse because of insufficient quantities on-hand, or because available stock has been set aside for another requirement. This can lead to additional costs and delays, or in some cases the request will be denied because the supply manager has determined stock is needed for a higher priority.
- Mat: ADM(Mat), Troy Crosby
- CJOC: DGSP BGen Carla Harding
- SJS: DGS BGen Chris Zimmer
- Mat PA: Tina Raymond
- ADM(Mat), Troy Crosby
- DGSP, BGen Harding
- ADM(RS), Julie Charron
- a/DGPASP, Véronique Duhamel
- a/ADM(PA), Joe de Mora
- MNDO, Todd Lane
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