The Defense Ministry unveiled a new efficiency plan on Tuesday that will see 30 percent of its New York purchasing mission cut, and which will aim to save the defense establishment $30 billion over the next 10 years through a series of additional cost-cutting measures, including staff retraining and organizational restructuring.
The plan was announced four days after the ministry was castigated by the state comptroller for wasteful spending on lavish hotel suites by an entourage headed by Defense Minister Ehud Barak during a visit to the Paris Air Show in June.
As part of an effort to cut down on superfluous costs, the ministry has hired the McKinsey efficiency consultancy, and activated an enterprise resource planning system, it said.
The decision to employ an independent US consultant came after a commission of inquiry headed by former Treasury official David Bordet was appointed in 2006 to examine ways of curbing the mismanagement of funds by the military.
The commission recommended that the IDF undergo a sweeping efficiency reform, leading the Defense Ministry to issue a tender for a consult to advise it on how to better manage resources.
McKinsey & Company, which won the tender, had to undergo a series of security checks before it was cleared to begin working. "This is why it took until now for reforms to be introduced," a defense source said.
McKinsey was asked by the ministry to examine its spending practices, and to address the question of whether the ministry's New York mission should be scrapped altogether and replaced with American sales agents.
The mission, the Defense Ministry's largest presence abroad, is tasked with making purchases using the $3b. of aid money Israel receives from the US annually. An alternative to the New York mission, which would involve the hiring of US defense sales agents, had been examined, but the ministry concluded that an eight percent commission charged by the American salespeople would make that alternative costlier than maintaining its own Israeli staff in New York.
"According to US law, American defense aid funds can be used by the recipient country in two ways - either through the country's own purchasing mission, or through the employment of American sales agents. In addition to the cost-benefit of having our own mission, we concluded that our staff would be better positioned to select the right products for Israel's needs," a defense source told The Jerusalem Post.
At the end of its review, McKinsey concluded that the mission should be kept in operation but that its personnel should be cut back by 30%. Remaining workers should undergo training to improve their skills, McKinsey added, so that one out of every three dollars allocated to US defense contracts is better spent.
The Defense Ministry's director-general, Brig.-Gen. Pinchas Bucharis, received McKinsey's recommendations and "accepted them in full," ordering the plan "to be put into action immediately," a statement from the ministry said.
Some of the workers to be down-sized will be laid off from the mission by the end of 2010, while the remainder will complete their terms by 2011, the ministry added.
"The efficiency of the New York mission is part of a widespread process by the defense establishment in recent years, which will eventually free resources that will be directed to strengthen the IDF and the abilities of the Ministry of Defense and its staff," Bucharis said on Tuesday.
Aiko Hason, chairman of the ministry's workers organization, warned that he would not "not allow a one-sided efficiency process in which only the workers pay the full price."
"We expect the ministry's management to ensure that the process benefits all sides... meaning training of mission staff," he said.
"This is only part of the program. In the coming months and years, we will merge various bodies, and carry out a host of reforms, including retraining of staff," a Defense Ministry source said in response.
Other international Defense Ministry offices include a five-member team in France, a one-staffer office in Germany, a mission made up of five people in India, one person in Thailand, and one employee in Australia. These small missions are more focused on selling Israeli defense products than making purchases, thereby contributing to the state's revenue, the Defense Ministry source said.