Kerry Underhill interview – The Ministry of defence is driving acquisition improvements with category management

“Defence is transforming to be modernised, threat-focused and financially sustainable, ready to counter 21st century challenges, lay new foundations for prosperity and seize opportunities for a Global Britain.”

UK Ministry of Defence (MOD) Director General Commercial, Andrew Forzani, described recently how category management – a best-in-class approach, well-established in industry – is delivering transformative benefits across Whitehall and government departments.

There are many compelling and proven reasons why procurement leaders are making category management a strategic priority. To understand the many facets that inform their decision we have been talking with procurement heads in organisations that understand the total-life benefits of pursuing a category management approach.

“Our role is to support each of the defence organisations to see how category management equals resilient capability investment,” she explains. “We’re understanding the ask, setting their policies, developing their processes and facilitating their training.

Operational capability is at the forefront of our minds. Because the MOD is made up of a whole host of organisations that all buy independently, it makes perfect sense to adopt a category approach to make buying as a whole more efficient, but it requires central focus to enable that change across all organisational boundaries. Our aim is to have everyone working together in a one-team approach to purchasing.”

Importance of implementing a category management approach

The MOD sets out in part of its Defence and Security Industrial Strategy how it aims to work more closely and more strategically with industry in the future, how it aims to enhance its productivity and competitiveness, and how it will ensure its acquisition process and Defence programmes generate social value.

“Category management,” says Underhill, “is a compelling mechanism for delivering that. The MOD at the most senior level is invested in category management to reshape procurement across Defence. We have sponsorship from senior military representatives from across the department, so it’s true to say that from Commercial’s perspective category management is very much a priority alongside procurement reform and strategic supplier partnering. They understand the value to capability that better buying opportunities and process efficiencies can bring, so that we can be a better Defence for the future.”

One of the enabling priorities within Acquisition and Transformation is approvals reform. “Savings are the lifeblood of capability investment, of course. But we need to get newer, better to the frontline faster,” says Underhill. “That’s the mission of Category Management. It’s about making a commitment to the morale of Defence personnel by taking an intelligent, progressive and proven approach. As in most large public sector bodies, administration can mean that getting to the front line often takes longer than it should. So, category management will enable that by getting to market quicker and streamlining the approvals process through improved industry engagement and having approved strategies for procurement.”

Another enabling priority is looking at how they can take an agile approach and employ technology more effectively. “Traditionally the process of acquisition has been unhelpfully mechanical,” she says. “Category management is helping us to inject pace into our system. Alongside this we have cultural behaviours that we need to influence — Defence has a culture of delegating down the line of command. While this gives more control, it has the opposite effect for category management, as we are trying to encourage a one-team way of working. In this way category management is the commercial contribution to more integrated working across Defence. Whilst it seems like a small part of the big Defence machine, it will build momentum for significant cultural shifts away from parochial operating and moving toward the aspiration of the Defence transformation agenda.”

“The considerations for delivering category management align exactly to the transformation portfolio. It requires interoperability, a multi -disciplinary team, and is not something that can be done in silos. All of this is key for value delivery — getting this right has been recognised as the lynchpin and is why we have such strong support.”

“Delivering value, and savings efficiencies, means we can spend more on capabilities, on skills, on materials, and on the things that matter to the people in Defence. There is a lot of financial and non-financial benefit that can come from a good category management approach. For instance, a ship may sit at port for longer than it should in need of a critical part, but category management can help get that ship back into service quicker through better availability of equipment.”

So, there are challenges and rewards to be had from Category Management …

The biggest challenge is that of scale

This Category Management change exercise is one of the biggest and most complex in Europe — and possibly the world.

The change-enabling team is dealing with very different military organisations – air, land and sea – which all work independently for very good reasons. But that makes collaboration more difficult. The team is working across more than 2000 commercial people (and 20,000 across the broader organisation) with a spend volume over the next four years of about £24 billion, commensurate with what you’d expect of a FTSE top 5. Basically, the size is massive and therefore the scale of the change management programme is equally impressive.

Like any programme of this magnitude and diversity it demands, on a personal level, resilient and strong leadership. Having the ability to influence such a broad array of people who often do not wish to embrace change is a huge challenge.

“Cross-functional working is well embedded in the project teams,” explains Underhill, “and that’s a strength. And when that project is within a category, it works really well. But it’s much more difficult when a category crosses multiple projects. So, we are setting up category steering groups and encouraging key stakeholders to be engaged upfront before we commit to developing a strategy. Clearly this is difficult to do at scale – but is a critical step before we move forward.”

How they are tackling these challenges

“The best way to achieve engagement from Defence” says Underhill, “is to employ a military-style approach to conveying category management. We are trying to integrate different parts of Defence and their associated operating models from a military capability standpoint and mesh them with enabling organisations and commercial networks. It’s like docking three very different vessels onto a space station. A multi-domain magic trick.

“We have to communicate to the businesses, in their own language, why this is relevant to them. And this is key, because in Defence we buy everything from pens to tanks, so aligning that extensiveness to category management means we have to understand their needs and be aligned in our vision to ensure we are all heading in the same direction — so adopting language that resonates with everyone is a serious business.

“We have recruited a military person into the team to help with that integration piece: to make sure they understand what we’re talking about and vice versa, and to help map the segments within their projects to categories — because in such a complex and specialised environment messages can get lost in translation. Putting the right people together and embedding someone who understands the language, helping a mutual understanding to grow organically, is another requirement of the enabling team.”

A big part of achieving a common way of thinking is to ensure there is ownership and accountability, both for categories and the businesses. Getting this into their objectives is about investment in people to get them to change their way of working to a whole-team approach. Category management is the new normal for commercial.

“Again, it’s excellent that this drive comes from the top,” she says. “We’ve invested in a comprehensive practitioner-level training package, the tools and templates of which are critical handrails for those who aren’t yet experienced in category management. As we start to be successful and people start to realise the benefits, we start to gain momentum — but it’s important to realise this doesn’t happen overnight. It requires a time investment.

“So, we are happy to say there’s a lot of good progress being made in joining the dots between the different ways of working. We are in the early stages of our category management strategy, but we can already see that by getting the right people talking — the people who are doing the buying talking to the people who are making the demand — realising that they have the same challenges and are actually doing the same thing, they can come up with a common buying profile that is most beneficial to Defence, which has the potential to deliver huge value.”

Value is expected to be threefold

“The rewards Defence expects to see from this multi-domain category integration project are threefold,” explains Underhill. “Money, time and interoperability. But getting there means two enablers must happen:

“Once we have embedded this way of thinking into the DNA of Defence to make it a business-as-usual mission, we will see value delivery through the way future acquisitions are carried out. Already we can see pathfinding, visionary work with the Submarine Delivery Agency, Chief of Defence Logistics and Support’s Joint Support Directorate, the Royal Navy’s commercial team and Army Military Capability Delivery Branch. Armed with category management these units are going to start to change Defence.”

“With good commercial people who understand the market, and have the technical expertise to exploit it, category management will enable a through-life view of our purchases. Rather than acquiring goods or services, without considering the costs of other aspects such as support or maintenance, it will give a total-cost perspective, saving time, money and reducing waste.

“This brings us to sustainability,” she continues, “meeting the UK net-zero target is hugely important for us. We have built that into our training tools so that in the formation of our category strategies we are thinking really clearly about how we align them with our Environmental, Social and Governance goals.”

The measurement of success

The team is tracking performance in a way similar to the large corporates of the private sector. Not only are they looking at 10-year savings, as is the traditional stance, they are also looking at in-year savings and total cost. So, the mechanisms and the review process are much more rigorous than you would find in most public sector organisations, as they have ‘routinised’ reporting and review around value — savings delivery, social value and process efficiencies.

“Management of information is absolutely critical to driving delivery,” she says. “Having data at our fingertips is really starting to turn the dial. When I appear before the reporting board each month, I have progress I can actually pinpoint, and when you have ten change programmes going on at once, this is invaluable.

“Category management may not sound glamourous,’ she says, “but it’s the catalyst to immense change, a singular moment for how defence capability is acquired, assured and advantageous from inception to disposal. It’s not just that it’s the right thing to do for financial reinvestment in frontline capability, it’s the right-thing to ensure taxpayer investment delivers the very best equipment, products and services to our nation’s military, wherever they’re called on to serve.”