McKinsey: Israel Could Save Up to NIS 1.6b Annually on Defense

The efficiency plan drawn up for the Israeli defense establishment by the international consulting firm McKinsey could save taxpayers some NIS 1.62 billion annually. The figure was cited by Defense Ministry director general Pinchas Buchris and the deputy chief of the General Staff, Maj. Gen. Benny Gantz, at a press conference in Tel Aviv yesterday.

The two said Israeli defense officials are committed to the Brodet Committee's recommendations for between 2008 and 2017.

NIS 52.1 billion were allocated to the defense budget in 2009. Under the program drawn up by McKinsey and known in the Israel Defense Forces as "Harvest Time," the IDF can be expected to save a total of between NIS 290 million and 360 million next year. This would rise to between NIS 510 million and NIS 630 million in 2011.

In 2012, savings would increase to between NIS 810 million and NIS 990 million. By 2013 this would be between NIS 1.14 billion and NIS 1.4 billion annually. From 2014 annual savings should amount to between NIS 1.29 billion and NIS 1.62 billion.

The efficiency program, which will be launched this year, will affect the IDF's construction, purchasing and maintenance programs. A steering committee headed by Buchris and Gantz will oversee implementation of the program. All amounts saved will be rerouted toward arming and war preparedness. In 2010 the IDF will begin to work with McKinsey on an efficiency plan focusing on the IDF's workforce. McKinsey will receive NIS 22 million for its services.

The Brodet Committee, which proposed a multiyear budget for the IDF, recommended that defense spending increase between 2008 and 2017 by NIS 100 billion, and that of this amount NIS 30 million would be offset annually by an efficiency program. The program, they said, is only one aspect of an overall efficiency plan.

Saving on construction

McKinsey recommends that the IDF trim between NIS 350 million and NIS 450 million off its construction program, or about 14% of its annual construction budget of NIS 3.3 billion.

According to the report, the cost of building in the IDF is up to twice that in the civilian sector. The difference is caused by a number of defects including the fact that the construction process, from planning to building, is split up among many different arms and lacks unified management and a clear chain of responsibility.

McKinsey recommends that the Defense Ministry and IDF construction branch be shut down and replaced by a new infrastructure branch within the Defense Ministry, staffed by officers and Defense Ministry employees. The report also recommends that many projects be outsourced entirely.

Saving on procurement

According to McKinsey, improving the IDF's purchasing process will save some NIS 800 million to NIS 1 billion annually - about 8% of all purchasing expenses. The IDF makes purchases worth around NIS 12 billion annually (not including armament purchases). This constitutes more than 20% of the entire defense budget. The purchasing system keeps thousands of people busy, including delegations all over the world - the largest center being New York.

The findings show that defense purchasing has not always been marked by clear accountability and economies of scale. The report recommends organizational and procedural changes in the purchasing staff in New York that would include cutting its size by 30%, increasing accountability and supervision, and establishing integrated purchasing teams for the IDF and Defense Ministry. Efforts would also be made to boost the expertise of employees involved in purchasing.

Saving on maintenance

In maintenance, efficiency improvements in the IDF's ground and air forces could save between NIS 140 million and NIS 170 million annually. Maintenance costs account for about NIS 2 billion of the annual defense budget. According to the McKinsey report, although some areas in the IDF's maintenance branch are highly efficient, others could be greatly improved.