With a streamlined end-to-end logistics process, a defense ministry reduced costs without sacrificing the quality of its armed forces’ operational capabilities.
Defense logistics support—the activities involving the movement and maintenance of armed forces—accounted for nearly half of a European defense ministry’s annual operating expenditures. The ministry wanted to reduce those costs without sacrificing the quality of the armed forces’ operational capabilities in the air, land, and maritime environments. To that end, ministry leaders asked McKinsey to help develop and implement a series of recommendations that would streamline its end-to-end logistics processes.
Working closely with a client team consisting of both civilian and military personnel, we began by establishing a cost baseline for the ministry’s logistics operations. We then conducted detailed analyses of the ministry’s current logistics strategy, processes, and performance management in an effort to diagnose issues related to cost, quality, lead time, and inventory performance.
Based on this analysis, we helped design a new end-to-end logistics process. In total, we proposed more than 60 changes to the current process, with potential savings in the hundreds of millions of dollars. We defined the organizational and quality implications of the new process, identified key challenges that may arise during and after implementation, and developed an implementation plan as well as a tool to help the client track the benefits of the new process. We also quantified the improvement potential in costs, lead times, and availability. This first phase of the project took 6 months.
We then supported the transition to implementation. To confirm the size of the benefits, test how quickly they could be realized, and build the client’s capabilities for implementing the recommendations independently, we began a series of pilot projects. Our expectation was that the pilots would take 18 months, but in one-third of that time we were able to confirm our initial savings estimates.
Following the pilot phase, the ministry began full-scale implementation. We continued to work with the client on the maintenance and support of platforms including helicopters; light vehicles and armored personnel carriers; minesweepers, destroyers, and submarines; and fast jets and transport aircraft.
Within a year of implementation, the ministry had captured several hundred million dollars in net efficiency gains, equivalent to 2 percent of its total spending on logistics support. One year later, the ministry reported that net efficiency gains had increased to more than half a billion dollars.
The government’s audit office reviewed the ministry’s work in improving its logistics-support models. The results of that review, which were made public, were highly positive, confirming that the ministry had reduced costs dramatically while maintaining—and even, in certain cases, improving—performance.