CPO Strategy
Executive Insights

New Zealand Defence Force: On the procurement frontline…

click here to read this edition

Delivering a successful procurement programme in any industry or enterprise is challenging. Add to that the sensitivity and reliability demanded of a military organisation based in one of the world’s most remote locations, and the challenges become significant.

The New Zealand Defence Force (NZDF) is the organisation which, in partnership with the Ministry of Defence, provides essential support to the delivery of the Government’s national security interests. The person responsible for making sure that everything keeps flying, sailing and rolling at the NZDF is Assistant Chief of Joint Defence Services (Commercial), Paul Howard. Howard looks after all Procurement activity across the NZDF, incorporating both its military and corporate pillars, ranging from maintenance, repair and overhaul (MROs) contracts for major platforms to consultancy support. “We literally get a call to do everything: from Headquarters to the camps and bases, to help them do their procurement,” he explains. “The only thing we don’t buy are major platforms. We actually have a Ministry of Defence here, as well as the Defence Force, and they buy the ships, planes, military vehicles, etc., but it’s us who runs them, including any long-term commercial relationships as well as the nuances of those relationships and contracts.” 

Howard’s department is responsible for an annual spend of around $800m a year, employing a team of procurement professionals and includes the Accounts Receivable and P2P function too. “This is good for us, because it means that we have a bit of a nursery, and a career path, for up and coming buyers.” Howard explains.

Howard has a wealth of experience working for government departments back in the UK and moved to New Zealand in early 2015 looking for a new challenge in a different environment. The procurement landscape at NZDF on Howard’s arrival in late 2015 was largely transactional and in need of major reconfiguration. “It was very process driven,” he explains. “They’d made an attempt at category management and had had a number of reviews. In the previous seven years, prior to my arrival, I think they’d had five different reviews.” 

The reviews, conducted by various consultancies, were also fairly consistent in their summations that the procurement department was a largely transactional function and in need of a more strategic approach. In terms of the implementations suggested by the reviews, Howard believes some were only ‘half done’. “So, I had category managers,” he says, “but when I studied what they were actually doing, some were acting more like contract managers. In some instances, they were producing category strategies and category plans, in splendid isolation from the business sponsor or business owner, or had no buy-in from the business to implement those strategies. In some cases, we would find the operational procurement teams helping the customer put something together to meet their needs but then the category manager would intervene and question whether what they were doing was the right thing or not, in terms of the category strategy. In some extreme cases they would play this out in front of the customer, who was sitting there thinking, ‘What the devil’s going on?’”

Meanwhile, the procurement function was largely process driven with teams slavishly following process to produce contracts but not necessarily providing the necessary commercial acumen to ensure that NZDF was getting the best deals. “What I was finding was that the focus of the team was on quantity, not quality which meant that basic errors occurred followed by significant re-work leading to frustrated customers who saw us a roadblock. In fact, it seemed that the premise of procurement was like a factory in how it had been set up and demonstrated from an organisational point of view, that procurement was perceived as just a process, not a strategic function.”

Howard discovered that a great deal of the critical buying decisions in NZDF were being taken elsewhere in the organisation, often without any input whatsoever from his team until it arrived to go through the procurement assurance process which his team is responsible for. “For example, a business owner, usually having made their mind up about what they were buying and from whom without coming to procurement first, would ask us to ‘assure’ their decision. This would lead to us looking at it and often rejecting it, which led to frustrated customers who were looking for us to tick a box for them, which added to the perception that we were a roadblock, people that just got in the way of the Defence Force doing its business. However, there was a recognition when I was recruited, that things probably needed to change.”

2016 marked something of a watershed for Howard and the NZDF, following the release of the Defence White Paper, which signalled a $21bn investment in capability over the next 10 to 15 years, plus a regeneration of the Estate. The financial outlay included replacing two major aircraft platforms. “We have Hercules and P-3 Orion aircraft for military movements and maritime patrol, respectively. Following nearly 50 years of usage, we were going to buy brand new, latest generation aircraft. Just this year, the NZ Government have announced that we will be replacing our existing Hercules C-130H aircraft with the C-130J Super Hercules, following on from the decision to replace the P-3 Orions with the P-8A Poseidon, and we will also take delivery of our new Maritime Tanker/Fleet replenishment Ship HMNZS Aotearoa in early 2021. We are also buying a new offshore patrol vessel and will be completing a frigate system upgrade in the next few years.”

The programme represented a massive challenge to the procurement team and Howard made it very clear that this was a step change and that procurement in NZDF would need to significantly change in order to enable a successful outcome. “I said to my boss, at the time, ‘When these decisions were being considered, was any thought given to the level of commercial expertise required to ensure we got the best through life-support constructs for these modern complex platforms?’ And the answer was, ‘No, we didn’t but maybe we should have.’ It was a pivotal moment because we were going to have new aircraft and ships turning up in 4-5 years and in Defence terms, that wasn’t a lot of time to get our act together.”

As procurement was then part of the logistics organisation, a military commander (Commander Logistics), was the designated Chief Procurement Officer for the organization and so, Howard had a number of conversations with both the Commander Logistics and Commander’s boss, the Chief of Joint Defence Services. “I decided to have a tough conversation to illustrate that I couldn’t necessarily provide the level of strategic procurement support that the NZDF was going to need. I said to them: ‘You’re going to call on us, and if we stay the same as we are now, we’re not going to be able to do it, because at the moment, we’re not fit for purpose. You’ll probably end up having to go out to the market to get (a lot of) expensive contractors to do this work and your capability simply won’t rise.’”

Around the same time, the New Zealand government had been revising their approach to procurement capability: ‘You can’t make good investments unless you’ve got good procurement people and systems.’ So, a procurement capability index was introduced which assessed a number of elements that assessed a Government Agency’s procurement practice and capabilities. It was all about making sure you have the right people; the right commercial skills and strategic positioning. This assessment, which is carried out annually, also contributes to the NZ Treasury’s Investor Confidence Rating (ICR) which is used to rate NZ government Agencies abilities (A-E) to be able to make substantial investments. “If you’re getting an A or a B rating, then you’re doing really well, which means that you are trusted to spend significant amounts of taxpayers’ money, without necessarily having to go cap in hand to the Treasury every time,” Howard explains. This presented something of a ‘perfect storm’ for change so Howard persuaded the Chief that his team should come out of the logistics organisation, to create a more strategically focused function that understood, and was capable of, developing and delivering a pipeline of strategic procurement projects. In mid-2017, Howard started to report directly into the Chief of Joint Defence Services who is a member of the NZDF Board.

Since then, Howard and his team have made great strides as procurement has pushed itself into a more recognised and strategic position at NZDF. Its PCI (Procurement Capability Index rating) was 2.7 (out of 4) in September 2017. “I think that was reflective of the fact that we didn’t have anything majorly going wrong because we’d fixed quite a few things that were not quite right but in reality, we’d only done some tinkering around the edges. However, I said to my boss, ‘Being “OK”, when you’re just about to spend $21-22bn is probably not where you want to be or should be’ and he agreed.” The PCI at NZDF has since moved up to 3.1 within 12 months and has just been reassessed at 3.35. “That’s actually gone past the target we were set for this year,” he enthuses.

As part of this overhaul, Howard proposed a commercial improvement program and went on a recruitment drive. “I reorganised several of the teams and ceased category management as a concept. I placed our focus back onto the business owners and what they needed and how we were going to give it to them. I didn’t want to continue to  allow them to go off and do commercial activity on their own, as they didn’t have the right level of expertise to do that, so we created the concept of Procurement Business Partners whose roles were to be multi-faceted. We needed to reconnect Procurement with the customer base, so that they understood that we were there to proactively support them; in certain cases, being fairly well embedded into some of their governance and structures. We called them Commercial Portfolio Managers and recruited senior commercial professionals covering Logistics Command, Capability Branch, Estates and Infrastructure and Communications and Information Systems branch. They work with those business units very closely and spend a lot of time onsite with them, sometimes attending their management team meetings, as their Business Partner. I think we’ve done that so successfully that recently one of the portfolios had their awards night and one of my people got nominated for one of their awards. It was a big  effort to reconnect with the business, to genuinely help them get what they need, when they need it and get public value; the other spin off was to help stop them (even if they were unaware) from doing things that were risky for the business such as breaking the NZ Government procurement rules which are based on the trade agreements we have from around the world.”

The first department Howard and his team connected with was ICT, which was busy completely transforming the organisation through a move to cloud-as-a-service. “They wanted to do a big transformation project and were thinking of creating their own procurement team with the assistance of a consulting firm,” Howard explains. “I felt that was a false economy, to pay a consultant to develop a separate team for them, when the money would be better spent on making sure that the existing procurement function developed a commercial business partner approach and a delivery structure that allowed us to get on with the right level of advice.”From ICT, the business partner approach was rolled out to Capability, Logistics and then Estates and Infrastructure. “On a holistic level, we’re still in the throes of doing that improvement program. We are very much looking towards World Class, because I believe it’s very difficult to achieve World Class, especially for a public service organisation because of the lack of a bottom line and the inevitable political shifts that affect the organisation. So, we’re talking about a vision towards World Class, making sure that we are professional in our dealings, and that we’re involved at the very beginning of procurement projects to maximize value. We’re very much moving towards ‘agile or lean procurement’ too, in terms of making sure that we know exactly what it is that we want from the market and that the market is very well appraised of before we actually pull the trigger on the procurement process. We’re not quite there yet, but we’re making great progress

click here to read this edition

Leave a Reply

Your email address will not be published. Required fields are marked *