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EXCESSIVE STOCK MANAGEMENT WITHIN THE DEPARTMENT OF DEFENCE
INTRODUCTION
1. In the Auditor-Generals 1996-97 report on the accounts of the South African
National Defence Force (SANDF) it was reported that on 31 March 1997 the
estimated rand value of stores, according to the Department of Defence (DOD), was
R70 billion.
2. In October 1998 the Standing Committee on Public Accounts (SCOPA) issued a resolution commenting on the above findings.
a. The Committee was gravely concerned about the apparent excessive levels of stockholding, estimated at being R 70 billion for the 1996-97 financial year.
b. The Committee recommended that a comprehensive investigation into the stockholdings of the SANDF and if possible other departments with high stock levels, be undertaken by the Auditor-General with special reference to the:
AIM
3. The aim of the document is to inform the Portfolio Committee on Defence about the progress being made by the DOD concerning the management of excessive stock.
SCOPE
4. The following matters are discussed by all the relevant roleplayers.
a. History.
i. Modus Operandi.
b. Current Status within the DOD.
i. ARMSCOR initiative.
c. Current activities within the Services.
d. Conclusion.
HISTORY
5. The DOD took serious note of the above recommendations. To ensure the effective and forceful application of solutions for excessive stock levels in the DOD, it was imperative that all stakeholders be actively involved.
6. The factors leading to the excessive stock position within the DOD were answered to SCOPA and to the Auditor-General in the 1993 report were as follows:
a. Weapon and equipment stockpiling that took place during the arms embargo era.
b. The DOD was in a period of transformation where units were being closed down and amalgamated, bringing about new required stock levels.
c. The force design of the DOD had not been finalised.
7. Modus Operandi. ln order to ensure a common approach in the addressing of the problems it was of utmost importance that meetings be held with each stakeholder individually by the Chief Joint Support to explain the impact of excessive stock levels within the DOD.
a. Meetings were arranged with all stakeholders to discuss the process for the disposal of equipment. During the meetings the best and most cost-effective ways to reduce stock by all were discussed.
b. The Services are responsible to determine their own minimum stock levels according to their force design. Constant management of material by the various Product System Managers ensures that location, stock levels, administration and disposal items are handled on a day-to-day basis. Although this function is working the optimum effectiveness has still to be obtained.
c. Stakeholders were required to draw up plans as to how stock levels in their Divisions will be reduced. These plans are then forwarded to the Chief Logistics who monitors compliance of the plans to policy.
d. Additional to this plans are under way in which armament that have been found to be excessive will be transferred to ARMSCOR who will then be responsible for the disposal of these items. This action enables the DOD to lower its inventory as well as to have control over the items issued to ARMSCOR. ARMSCOR eventually intends raising RM3OO from the sale of excess DOD armament stock.
CURRENT STATUS WITHIN THE DOD
8. During the current financial year 171 disposal plans are being managed by all the Services and Divisions of the DOD with a total monetary value of RB 4,312. These plans are as follows:
a. The SA Army is managing 31 plans to the value of RB 2,445.
b. The SA Air Force is managing 98 plans to the value of RB 1,695.
c. The SA Navy is managing 34 plans to the value of RM 643,2.
d. The SA Military Health Services is managing 8 plans to the value of
RM 29,229.
9. It has been decided that a process will be followed whereby once the DOD has made the final decision to dispose of specific systems, parts there of or items of such systems, will be offered to ARMSCOR for sale.
10. During ARMSCOR's endeavours to market and sell the disposed material, it remained on the DOD's inventory and was physically kept in stock for virtually as long as it took ARMSCOR to market and sell the disposed materiel.
11. For various reasons the marketing of many of these items took very long or no success was achieved in selling it, with the consequence that the excessive stock levels of the Department did not decrease according to expectations.
12. ARMSCOR Initiative. During September 2002, DOD management made the decision that an ARMSCOR managed disposal account was to be established. As soon as the SANDF has approved the final phasing out and disposal of any Category 1 materiel, such items will be transferred from the holding unit's ledger account to the ARMSCOR managed account for disposed items.
13. This transfer will include the physical transfer of such items to an ARMSCOR managed disposal facility, which will normally be part of a DOD facility made available to ARMSCOR for the purpose.
14. Present Situation. Since the implementation of this decision, various facilities have been identified of which two have now been established namely:
a. Main Ordinance Depot Walmanstahl where approximately 2300 vehicles with a total ledger value of more than RM 317 is currently in the process of being transferred to ARMSCOR.
b. 10 Air Depot Thaba Tshwane where various aircraft (Boeing 707) spares with a total ledger value of more than RM 8 are about to be transferred.
c. Total ledger value of the two transactions: RM 325.
15. The following facilities are in the process to be established by ARMSCOR for
Category I materiel still in the process of phasing out and disposal by the Army, Air
Force and Navy. All these actions are planned for the current financial year.
a. AFB Hoedspruit for Mirage aircraft and spare parts.
b. Bloemfontein for SAMIL and other vehicles.
c. Wingfield (Cape Town) for marine equipment and spare parts.
d. Lohathla for SAML vehicles and other equipment.
16. Where ARMSCOR has not established disposal facilities yet, disposed materiel is still made available to ARMSCOR for marketing, as was the situation before the transfer policy was adopted. The finalization of disposal activities by both the DOD and ARMSCOR is therefore not dependent on either process as either can be utilized, depending on the specific situation.
17. Problems Encountered. Amongst others two major problems are prevalent, being;
a. The establishing of a safe and environmentally friendly ammunition disposal facility has become a priority: The problem is as follows:
SA ARMY
18. Current Situation. The SA Army's only approved force structure is that of the transitional force design. Until such time as the affordable structure is approved no responsible down scaling can be done of any serviceable equipment. For this reason only obsolete and beyond economical repair equipment to the book value of RB 2.445 has been programmed for disposal.
19. Approach of Disposal. The main focus of effort concentrated on the Auditor General's concern that in the SA Army's case there is excessive stock in the depots. With this in mind, armoured vehicles, air defence and vehicle platforms were concentrated on to decrease the monetary value of the stock. Other systems will be handled concurrently with the view to decreasing the number of items.
b. Infantry Systems
i. Magazines 12 round x 19649
ii. Magazines 30 round x 85 418
iii. Magazines 50 round x 28 980.
iv. Ram-air parachutes x 2000.
v. Round personnel parachutes x 1500.
vi. R4 Magazines.
c. Artillery Systems
GV2 Systems and spares.
ii. 17 Pounder Guns.
iii. GV1 and various spares.
iv. l2Omm Mortars.
v. 127mm Visarend.
vi. Micro Fix Range Finders.
d. Air Defence Artillery
I. Gun 35mm (Mkl, Mk2 and Mk3) x 100.
(a). PSU (Mkl, Mk2 and Mk3) x 147.
(b). FSU Radar x 64.
(c). FCU PSU x 99.
(d). Suro Simulator.
ii. 2Omm AA GA2 Towed Gun x 117.
iii. SAMIL 20 MPV x 85.
iv. 14.Smm GAZPU-2 x 117.
v. Barrel 14.Smm.
vi. Radar set Dorbyl EL/M2106; Tupperware Radar.
vii. 23mm AA Weapon system.
e. Clothing and General Commodities Nutria.
ii. Nutria insignia.
iii. Cadet Clothing.
iv. Finance corps badges.
v. Obsolete Service Dress.
vi. Obsolete womens uniform
f. B Vehicles
SAMIL vehicles.
ii. SAMIL vehicle spares.
21. General Progress. In general, progress is plan Due to manpower restraints within general disposal targets have moved to the right.
22. Total Value of All Plans.
a. Combat vehicle Systems - R 697,941,900.
b. Infantry systems - R 8,824,666.
c. Artillery System R 9,111,081.
d. Air Defence Artillery R1 ,320,840,000.
e. Clothing and Gen Commodities R 61,966,199.
f. B Vehicles R 347,127,966.
g. TOTAL - R2,445,811,812.
23. Problems Being Experienced. Due to personnel shortages, milestone dates cannot always be adhered to.
24. Future Intent. As soon as the Affordable Force Design has been approved by the Minister of Defence, the SA army will determine surpluses and initiate a second major wave of disposal.
SAAIR FORCE
25. The Air Force Disposal Plan. The Air Force disposal plan has been driven by three imperatives; firstly by the SCOPA requirement to reduce the large inventory of excess and redundant materiel, secondly by the National Treasury Regulations, which stipulate that current inventory holdings should be kept at optimum and economic levels and lastly by the revenue accrued from sales. The latter aspect is of vital importance in bridging shortages in under-funded areas of the Defence budget, both in acquisition programs and in retaining the system integrity of operational systems currently in service.
26. Current Situation. The Air Force disposal plan is preceded by a phase-out plan that is compiled by the various system directors. This plan indicates what equipment currently in service is eventually destined for disposal, and contains details regarding the equipment and intended date of withdrawal from service. The phase-out plan therefore forms the basis of the disposal plans that initiate the process, which culminates in the transfer of equipment to ARMSCOR.
27. Currently the Air Force has a total of ninety-eight disposal plans in place with a ledger value of R1 695 480 014.
28. Current Actions. The equipment currently being addressed in the disposal plans is listed here by type rather than per individual disposal plan;
a. Impala Mk I and II aircraft. Thirty-eight aircraft, of which eleven have been placed on tender in March 2003,
b. Mirage E aircraft. Twenty one aircraft including spare parts. Currently Gabon has indicated an interest in acquiring six of these aircraft, but no finality has been reached on the matter as yet.
c. Cheetah C and D Aircraft. Three Cheetah dual-seat and seventeen single seat aircraft are on disposal. Brazil has indicated an interest in acquiring fourteen of these aircraft, but their decision is still pending a comprehensive evaluation of the aircraft.
d. AIouette Ill Helicopters. Three aircraft plus seven stripped-down airframes. The latter seven airframes were placed on tender in March 03, but have yet to be allocated due to regulatory delays at the National Conventional Arms Control Committee.
e. Boeing 707 Aircraft. Two Boeing 707 aircraft in an unserviceable condition with spare parts are planned for disposal, and a Spanish company has registered an interest in acquiring both these aircraft. Preliminary discussions have been held in order to examine ways of returning the aircraft to a flying condition in order for the sale to proceed. ARMSCOR is now furthering the matter.
f. C-47 TP Dakota aircraft. Two aircraft and one aircraft fuselage, the former two having been recently sold with the finalisation of the sale administration still pending.
g. Other. A large variety of spares, engines, armament and tools contained in 40 disposal plans. The contents of eleven of these plans were placed on tender in March 2003 and are still awaiting finalisation as indicated earlier.
SA NAVY
29. The SA Navy disposal plan. The SA Navy disposal plan is as a result of a SCOPA report stating that it was gravely concerned about the apparent excessive levels of stockholding, where after it was subsequently recommended that a comprehensive investigation into the stockholdings be undertaken by the Auditor-General with a view to establishing minimum stock levels for employment by the SANDF.
30. Current Situation. The SA Navy disposal plan (coupled to milestones indicating start/end dates, values and percentage progress made) is derived from a master phasing-out plan of weapon systems that is compiled and managed by the various System/Commodity Managers. Apart from the weapon systems (Category 1 items), attention is also given to dispose of commercial off the shelf items (Category 2 items) presently lying in the depots.
31. To assist the System/Commodity Managers in this aspect, a Bill of Material (BOM) Project was introduced to reduce inventory stock levels. The process followed was to compile the BOM data to populate the National Codification System by linking items of supply (lOS) to a next higher assembly. lOS, which cannot be linked to an end use bmo the BOM, would therefore be candidates {or disposal.
32. Currently the SA Navy has a total of 34 disposal plans consolidated into 7 groups (sub-plans) to the value of R643 200 105.
33. Current Actions. The following Category I and Category 2 items are contained in the disposal plan:
a. Ordnance Spares at Depots. Seven disposal boards were convened for the following commodities for completion by 30 September 2003:
Explosive Ordnance Disposal/Improvised Explosive Device Disposal (EOD/IEDD).
ii. Mk 44 Torpedoes.
iii. Non Ops Small Arms.
iv. R4 Rifle Accessories.
v. 40/60 Weapon System.
vi. Gun Mountings 40/60 Mk 5.
vii. 2Omm Guns and Mountings.
b. TON Class Minesweepers. The following minesweepers were disposed of as indicated hereunder:
i. Messrs SA Metal and Machinery Co (Pty) Ltd is presently demolishing SAS KIMBERLEY and SAS WINDHOEK.
ii. SAS EAST LONDON and SAS WALVISBAAI have been sold to an international company, for a film being produced on Jacques Costeau's ship (the Calypso).
iii. The Influence Sweep Gear has been handed over the Log Support Formation for the necessary disposal process bmo tender through ARMSCOR.
iv. The inventory for the Minesweepers is still being processed and the completion date for hand-over to the Log Support formation for disposal is 26 March 2004.
c. Warrior Class Strike Craft. The following Strike Craft were handed over to the Log Support Formation for the necessary disposal process bmo tender through ARMSCOR:
i. SAS JANSMUTS.
ii. SAS SHAKA.
iii. SAS SEKUKHUNI.
d. The following Strike Craft will be handed over to the Log Support Formation for the necessary disposal process bmo tender through ARMSCOR on the dates as indicated:
i. SAS RENE' SETHREN: 16 September 2009.
ii. SAS ADAM KOK: 11 May 2005.
iii. SAS lSAAC DYOBHA: 7 July 2006.
iv. SAS GALESHEWE, SAS JOB MASEGO and SAS MAKHANDA:
5 June 2009.
e. The inventory for the Strike Craft will be handed over to the Log Support Formation for disposal on 11 December 2009.
f. Daphne' Class Submarines. Messrs SA Metal and Machinery Co (Pty) Ltd has demolished SAS SPEAR.
i. SAS UMKHONTO and SAS ASSEGAAI will be handed over to the Log Support Formation for disposal bmo tender through ARMSCOR on 13 May 2004 and 11 May 2004 respectively.
ii. The inventory and the weapons (torpedoes) for the Submarines will be handed over to the Log Support Formation for disposal on 14 May 2004.
g. Support Ships. The Diving Support and Torpedo Recovery Vessel SAS FLEUR has been taken out of commission, and will be handed over to the Log Support Formation for disposal bmo tender through ARMSCOR on 12 March 2004.
ii. Deutsche Schlauchbote (DSB's). These inflatable sea boats will be handed over to the Log Support Formation for disposal on 28 November 2003.
iii. Ferrv "Malgoga". This ferry will be handed over to the Log Support Formation for disposal on 29 August 2003.
iv. Delta Boats (Qty 6). These boats will be handed over to the Log Support Formation for disposal on 29 August 2003.
v. Vredenburg Boats (Qty 4). These boats will be handed over to the Log Support Formation for disposal on 18 September 2003.
i. Obsolete Depot Stock. The majority of items have been identified bmo the Bill of Material (BOM) process and disposal schedules will on a continuous basis be forwarded to the Log Support Formation for the necessary disposal requests. To date six disposal schedules have been forwarded to the Log Support Formation.
SAMHS
34. Current Situation. The SAMHS is presently managing a total of eight excessive stock plans.
a. With regard to Nutria Material, Nutria Clothing and Old SAMHS Rank Insignia, these plans have progressed past milestone M4-M5 and are thus no longer within the control of the SAMHS since these have been handed over tot the GOC DOD Log Sup Fmn.
b. In the case of Signals Equipment, the SAMHS has written various letters to C CMIS regarding knowledgeable personnel to assist the SAMHS to identify this Signal Equipment presently in stock at the closing down SAMHS Technical Support Unit (TSU). During the past three to four weeks C CMIS (4 Sigs Unit) personnel have been made available to assist with the identification of this equipment and it is trusted that this equipment will in due course be issued to C CMIS for possible disposal.
35. Currently the SAMHS has a total of 8 disposal plans to the value of RM29,22.
36. General Progress . General progress has been somewhat slow in as far as the process has been handed over to the GOC DOD Log Sup Fmn.
a. It seems as if there is a slump in the progress once the Disposal Schedules have been handed in to the GOC DOD Log Sup Fmn. Regarding the disposal of pharmaceuticals and Medical B-Class items, Chief Logistics was engaged and he concurred that the disposal of these items should be handled primarily within the SAMHS. C Log had written a letter to the SecDef authorizing that such a delegation be issued to the Surgeon General. No such delegation has been issued up to now. It must be mentioned that the disposal of specifically pharmaceuticals presents a high risk as mentioned in the Auditor-General's reports.
b. A large number of disposals regarding specifically pharmaceuticals is presently with the DOD Log Sup Fmn over which the SAMHS has no control. Regarding the vehicles at the SAMHS TSU, this is an ongoing process and the assistance of ARMSCOR has been obtained in order to speed up this process. The value of the vehicles to be disposed of at this unit is not known but will become clearer as the process continues.
c.
Total value of the combined SAMHS disposal plans.
i. Nutria Material - R985 795
ii. Nutria Uniforms - RM 6,2
iii. Vehicles SAMHS TSU - R729 151
iv. Signals Equipment - Unknown
v. Rinkhals Ambulances - RM 19,8
vi. Metro Ambulances RM 1,33
vii. B and D vehicles. SAMHS Training Formation - Unknown
viii. Old SAMHS Rank Insignia - R178 000
ix. Total value: RM 29,22.
d. Problems experienced The biggest problems presently being experienced are the following:
i. A lack of and shortage of knowledgeable personnel to execute the disposal plans.
ii. A lack of and shortage of knowledgeable personnel to identify relevant equipment.
iii. A lack of a delegation to the Surgeon General to control the process of the disposal of pharmaceuticals and other medical B-Class items.
iv. As a result of the fact that the SAMHS TSU is in the process of closing down, as well as the present state of accounting within this unit, these factors seriously hamper the execution of these plans. The fact that no SAMHS Mob Unit has yet been created also has a negative influence on the execution of these plans since the equipment identified for future use has to be moved to a unit that can take over this equipment.
CONCLUSION
37. The success of the management of excessive stock plans of the DOD, lies with the cooperation of all stakeholders. The aggressive management of this matter is therefore only possible if the stock levels are consistently managed by top management and rigorously applied to its fullest by those working on the ground.
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