Public Accounts Committee on Nov. 24th, 2016

[RAdm Patrick Finn]

We are aware of some. We also work internationally. Canada has been one of the leaders in setting up an international partnership consultation around inventory management with our closest allies. We are aware of companies that do it. For an enterprise system, we use SAP as the underlying system. We are working very closely with them, as are many of our allies.

In a number of areas, we're leading the way as we try to work our way through this from a military supply chain perspective.

[Phil McColeman, Conservative, Brantford—Brant, ON]

You're suggesting that other militaries—perhaps the U.S., the U.K., or whatever you want to say—are in the same circumstances we are. Their accounting of inventory is totally unsatisfactory at this point in the history of these militaries.

[RAdm Patrick Finn]

Other militaries are having struggles similar to ours, which is again not about so much where they have it and where it is, but the valuation and the accounting process, etc. It is not something many militaries had automated a decade ago, and we recognize collectively that this is a new requirement.

[The Chair, Conservative, Kevin Sorenson]

Thank you very much, Mr. McColeman.

We'll now move to Ms. Lapointe. Welcome to our committee. You have five minutes.

[Linda Lapointe, Liberal, Rivière-des-Mille-Îles, QC]

Thank you, Mr. Chair.

Thank you very much.

I am surprised. Mr. Christopherson has been a member of this committee since 2004. Looking back, he said there is still the same problem.

If your department were a private company and had to draw up its financial statements, it would be unable to obtain a loan or continue receiving money. Fortunately, it is a government organization and it can continue its operations.

I am somewhat removed from this. Are there financial problems or human resources problems? I sit on other committees and, in recent years, the amounts of money were in many cases locked in, in a sense. People were unable to do what they had to do.

[John Forster]

Thank you for the question.

I think it's a number of factors. I don't think there is a single source. Sure, it's a question of resources, so for us to—

[Linda Lapointe, Liberal, Rivière-des-Mille-Îles, QC]

Is it a question of human resources or financial resources?

[John Forster]

Both.

For us to implement an AIT, as Pat indicated, the first costs we looked at were over $1 billion. That's a lot of money.

[Linda Lapointe, Liberal, Rivière-des-Mille-Îles, QC]

Yes.

[John Forster]

That's money that we would have to take from our capital budget, which we use to buy military equipment.

[Linda Lapointe, Liberal, Rivière-des-Mille-Îles, QC]

Is there some resistance to change or to new technologies? There is often resistance in large organizations. Is it a human resources problem in the sense that people do not want to embrace change?

[RAdm Patrick Finn]

I talked about the culture initially. That might be the issue. In an organization that is fully focused on military operations and the related tasks, this might be viewed as secondary.

We talked about the changes that have been made. Inventory management is now recognized much more as a priority among my colleagues. It might indeed be a human resources issue.

To address this issue in the military, we have created a team of logistics specialists who work full time on this. There is a shortage of personnel in many areas of the military, but this area has been recognized as a priority. In the past few years, we have assigned more personnel to it. As to the financial aspect, the technology we are talking about is recognized as a priority. We must go ahead and determine how to proceed.

Two years ago, 640 million items were transferred from one system to the other, which is significant. The information was not current, even when it was entered decades ago. There is a huge volume of information to be corrected.

[Linda Lapointe, Liberal, Rivière-des-Mille-Îles, QC]

I can understand that entering the data could be problematic.

As my colleague said earlier, we could look to what they have done in Great Britain and the United States. There are other NATO countries whose example we could follow. There must be people who can determine the value of their inventory and who know what is happening at all the warehouses.

I know there are logistical problems. These exist in many warehouses around the world. I do not think Canada is the only country with this problem. In government, there is Public Services and Procurement Canada. I cannot believe that this department has the same problem. There must certainly be organizations you could look to as regards best practices.

[RAdm Patrick Finn]

Yes, there are organizations like that in Canada. We said that National Defence accounts for 82% of inventory in Canada. In the federal government, our department is truly unique because of its value. We also have our NATO partners. A number of them have the same problem and we discuss our ways of doing things.

We have made some changes to our information system and our software. The resulting systems are now used elsewhere by our partners. We learn from them and vice versa.

[Linda Lapointe, Liberal, Rivière-des-Mille-Îles, QC]

Do the various departments and Defence have different systems? Could you not use SAP products as the private sector does?

[RAdm Patrick Finn]

Sort of; more and more of our partners are using those products. At our department, we often have to issue calls for tenders. We do not choose who our supplier will be. Once we issued a call for tenders and SAP was chosen.

In Canada and many other countries, including the United States, each branch of the military has its own stock inventory. There is not one complete inventory for the whole of National Defence. There are separate inventories for the navy, air force, ground forces, coast guard, and so forth. Various military forces have multiple systems and work the same way. There is more and more cooperation.

Ten years ago, there was not much talk about the value of military inventories. We had large inventories, but there were not necessarily high in value. In all countries, the value is getting higher and higher. We are on the same path in this regard. Moreover, the plan we created three years ago when I was in a different position was designed to find out how, in an international field where there is little experience, we could work together in the long term to improve the approach to recording inventories.

[Linda Lapointe, Liberal, Rivière-des-Mille-Îles, QC]

Thank you very much.

[The Chair, Conservative, Kevin Sorenson]

Thank you very much, Ms. Lapointe.

We'll go back now.... Actually, we'll just go from one to another.

Ms. Mendès is up next.

[Alexandra Mendes, Liberal, Brossard—Saint-Lambert, QC]

Yes, I'm back. What a surprise!

I understand when you talk about the $1 billion for the technological change that you need to implement eventually, either now or in five years' time, that it's going to be a massive amount of money. It is not something that is going to come cheap.

To follow on my colleague's line of questions, has this been taken into account by the defence department as part of the needs for the department? Is this part of their annual budgeting? Is it something that the department knows is a necessity for the changes you need to implement?

[John Forster]

Absolutely.

The department has a resource management committee that I chair, and the chief of the defence staff is on that. Every major financial proposal goes through that committee to be examined, justified, reviewed. We have an investment plan that is laid out over the next five or 10 years. This will be a key part of it.

When they did the first cut at what was needed at over $1 billion, in terms of doing our due diligence, we said, “Okay, could you look at other cheaper alternative options? Can we phase this in a bit to spread it out, so that we can manage the financial impact?” That is the work that's going on.

That project—

[Alexandra Mendes, Liberal, Brossard—Saint-Lambert, QC]

It's still going on.

[John Forster]

Yes, absolutely.

[Alexandra Mendes, Liberal, Brossard—Saint-Lambert, QC]

That is not—

[John Forster]

Oh, no, absolutely. This is a priority for us.

[Alexandra Mendes, Liberal, Brossard—Saint-Lambert, QC]

If I may, Mr. Forster, I do understand what Mr. Finn was saying about costing not just the acquisition of whatever software or whatever you're going to need. There are the technological advances that probably every six months you'll have to make, and then the updates, the upgrades, that are coming with the speed of technology. Is that part of the $1 billion, or is this going to be more than that?