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Supplier Relationship Management and delivering Australia’s Guided Missile Frigates

Line of Defence, April 2016

Royal Australian Navy Frigates - on time, every time.Royal Australian Navy Frigates - on time, every time.


The 2016 Australian Defence White Paper (ADWP) commits the Australian Government to forming a new partnership with the Australian defence industry “to ensure Defence gets the equipment, systems and personnel it needs on time and on budget.” This will involve strengthening Defence’s collaboration with industry, cutting red tape and investing in new technologies to help build industry competitiveness.

This, states the White Paper, will require Defence to be a “smart buyer”, which will necessitate a stronger relationship with Australian defence industry to provide expertise in managing projects. The creation of the new Capability Acquisition and Sustainment Group, it asserts, has got this process underway by strengthening Defence’s relationship with industry and simplifying processes, with further procurement streamlining on the way.

Jennie Vickers, Auckland-based Chair of IACCM.Jennie Vickers, Auckland-based Chair of IACCM.Jennie Vickers, Auckland-based Chair of the International Association for Contract & Commercial Management (IACCM), states that this new type of relationship between Defence and industry – described in the White Paper and embodied in the reforms informing it – reflects an ongoing shift towards the values of Supplier Relationship Management (SRM).

Ms Vickers’ insights into this evolution have been informed through IACCM’s selection to provide Supplier Relationship Management (SRM) training to the ADF.

According to Ms Vickers, managing contractual relationships according to SRM is about “putting charters in place, looking at behaviours, building trust, putting the right structures in place.” Teaching SRM, she observes, is not as simple as teaching people communication skills. “It’s not a soft skill, it’s actually pretty hard; its about managing relationships.”

SRM can be defined as a set of principles, processes, and tools that assist organisations to maximise the value of their relationship with suppliers and to minimise risk through the entire supplier relationship life cycle. It involves a clear commitment between the supplier and the buyer, and – where possible – codifying the interactions between them. It’s about joint value creation based on trust, open communication and collaboration.

Values of openness and trust were incorporated into IACCM’s ADF training in a very real sense, with Ms Vickers conducting mixed training sessions attended by both Defence and private sector personnel.


One Defence: the enterprise approach

Commissioned in August 2014, First Principles Review: Creating One Defence was released on 01 April 2015 with the aim of ensuring that Defence would be fit for purpose and able to deliver against its strategy with the minimum resources necessary. The wide-ranging recommendations of the review are still being implemented across Defence, and some of the changes have been more painful than others.

One of the four key features of the ‘One Defence’ approach advocated by the review was “An end-to-end approach for capability development with Capability Managers having clear authority and accountability as sponsors for the delivery of capability outcomes to time and budget supported by an integrated capability delivery function and subject to stronger direction setting and contestability from the centre.”


The 'One Defence' business model.The 'One Defence' business model.


“The centre”, as envisaged by the review, would drive Defence as an integrated organisation “rather than a federation of separate parts.” Reflecting this, a key recommendation was to implement an enterprise approach to the “delivery of corporate and military enabling services to maximise their effectiveness and efficiency.”

This enterprise approach meant having otherwise disparate entities operating in unison for a greater goal, it meant developing tools, data and processes to support the entire enterprise and to provide the ability to capitalise on knowledge from across the organisation.

The enterprise approach appears to have made inroads, both in a macro sense and – if the Royal Australian Navy Guided Missile Frigate Systems Program Office (FFGSPO) is any indication – within key capability delivery areas within the Defence enterprise.


Managing relationships toward the higher intent

According to Captain Greg Laxton, Director of the FFGSPO, “Simply put, an Enterprise is a relational contract. The FFG Enterprise is underpinned by leadership and good governance, rather than by complex paperwork and administrative overheads.”

Captain Greg Laxton, RAN, Director of the FFGSPO.Captain Greg Laxton, RAN, Director of the FFGSPO.“Our mutual obligations are spelled out in the FFG Enterprise Charter, a single page bearing the six signatures of the principals, with our mission proudly stated ‘to provide materially seaworthy FFGs on time, every time’. The Enterprise partners galvanise the entire workforce towards this higher intent.”

“Over the last year as a result of the teaching of SRM competencies,” says Ms Vickers, “they’ve delivered ships on time – and early – to Navy.”

According to CAPT Laxton, FFG Enterprise Governance Board members convene monthly, with senior members from Navy (Frigate Group), Thales, BAE, Maritime Cross Platform SPO, Fleet Support Unit National and FFGSPO. The board is supported by the FFG Executive Management Team, and by a middle management Collaborative Support Team “whose job is to identify opportunities for innovation and resolve rub points.”

“In short,” he says, “it works.”

“The Enterprise relational construct has driven a positive shift in behaviours, with a focus on keeping the FFGs capable right through to life of type. Enterprise members seek to reduce inefficiencies, eradicate unnecessary transactions, and work better together.

“Open and honest communications and clear expectations are paramount, and Enterprise members had their say recently in an organisational cultural survey.”

All this aligns with what Ms Vickers refers to as “behavioural contracting”, which is about buying an outcome and focusing on strong relationships. “When you start shifting focus on outcomes of a project rather than inputs, the results start to become better.”

But shifting the focus to outcomes is challenging. According to IACCM report Top Negotiated Terms 2015, contract management is traditionally based on a presumption of bad faith and that things are quite likely to go wrong. “Hence the dominance of clauses related to liabilities, indemnities, intellectual property, data protection, liquidated damages and confidentiality – which at best represent negative incentives to perform.”

Outcomes-based contracting provides for greater alignment between supplier and buyer interests and a better understanding of expected goals, but this takes more than a better written contract to achieve. Achieving an outcomes focus is dependent upon close collaboration between parties, openness and increased maturity in defining desired results and their measurement – elements that reflect the core principles of SRM.

“The challenges of the future are many,” states CAPT Laxton. “But – if we can deliver seaworthy materiel to the Navy on time every time right through to their withdrawal from service – then we are probably on the right track.”


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