Improve Your. Process. BY john dobriansky

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1 Improve Your Acquisition Process With Lean Six Sigma BY john dobriansky 14 Contract Management May 2008

2 While Lean Six Sigma can be applied to numerous categories of contracting, this article examines its use in improving and streamlining the processes of simplified and commercial item acquisitions. Contract Management May

3 LSS is a structured methodology that emphasizes efficiency and quality and that may have substantial cost and process benefits when applied to your organization's routine simplified acquisition and commercial item acquisition for supplies. Introduction Process improvement in acquisition and contracting is not a new concept. Regulations to streamline the acquisition process came in the 1990s with the Federal Acquisition Reform Act (FARA) and the Federal Acquisition Streamlining Act (FASA). These are two prime examples of process improvement driven by legislation and codified into statute. These acts were accompanied by the morewith-less business strategy that included a considerable reduction in the government acquisition workforce. The largest negative impact, which the federal government is still recovering from, is the almost 50 percent loss of professional positions in the 1102 series for the contracting profession. The resulting number of well-publicized, major government acquisition programs that are well over cost, well over schedule, and not meeting mission requirements has grown dramatically. The fact remains that there are too few seasoned and experienced contracting professionals senior procurement analysts and contracting officers (COs) to effectively manage the many large, complex government acquisition programs. Acquisition workforce issues aside, in order to improve the acquisition process to compensate, the real question that begs to be asked is, What is new today in process improvement strategy for streamlining acquisition and contracting processes? Enter Lean Six Sigma Lean Six Sigma (LSS) is a methodology designed to reduce waste and improve quality in your processes. LSS is not acquisition- and contracting-specific. Rather, it has its roots in manufacturing with worldclass companies such as Toyota and General Electric. LSS combines the quality enhancements of Six Sigma with the improvement efficiency of Lean and is now being applied to service sector functions as well. Also, LSS is well-integrated within the Department of Defense (DOD). For example, the U.S. Army has an LSS organization directed by Deputy Under Secretary of the Army (Business Transformation) Michael Kirby. 1 As previously stated, LSS combines the Lean and Six Sigma methodologies. Lean methods attack waste, with the goal being the elimination of seven particular types of waste. 2 These include: 1 Transportation Moving material and/ or products from one place to another; 2 Inventory Material and/or products waiting to be processed; 3 Motion Excess movement and/or poor ergonomics; 4 Waiting Delays caused by shortages, approvals, or downtime; 5 Overproduction Producing more than is needed; 6 Over-processing Adding more value than the customer is willing to pay for; and 7 Defects/Rework Time and materials used to correct mistakes. 3 Six Sigma is defined as a prescriptive management infrastructure system to execute organizational strategy and consists of: Executive leaders and process owners trained and actively engaged in the process, Projects selected specifically to support organization objectives, A defined organization and set of roles, Change acceleration as a critical enabler of results that stick, and 4 Critical mass of resources deployed. LSS combines these two methods and is a structured methodology that can be applied to both manufacturing and services environments. 5 For major projects, LSS applies a phased approach consisting of five phases: 1 Define Identify the ongoing problem or opportunity; 2 Measure Calculate the as-is processes; 3 Analyze Perform analyses in order to develop solutions for resolving problems or to achieve opportunity; 4 Improve Implement a pilot of solution which, once completed, will implement improvement solutions to the process; and 5 Control Implement control plans to maintain gains. 6 How does LSS work for contracts and acquisition? The types of contracts and acquisitions to apply LSS include those in these specific contracting categories: Simplified acquisitions, Commercial item acquisitions, Supply acquisitions, Information technology acquisitions, and Complex systems and services acquisitions. While each type should be considered as a separate and divisible project, this article will only cover LSS application for simplified and commercial item acquisitions. 16 Contract Management May 2008

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5 Lean Six Sigma for Simplified Acquisitions and Commercial Item Acquisitions Simplified acquisitions are covered under the Federal Acquisition Regulation (FAR) Part 13. Commercial item acquisitions are covered under FAR Part 12. Commercial item acquisition are a preference under FASA. Commercial items cover items sold, other than real property, to the general public and which may be readily modified through technological advancement to meet government needs. From a transactional volume perspective, simplified and commercial item acquisitions embrace roughly 80 percent of federal acquisitions in any given year. Additionally, these types of acquisitions may be complex in nature. A sizeable percentage of complex services acquisitions fall within these two categories. However, there is a substantial percentage of repetitive, routine supplies and hardware acquisitions that are not complex in nature, and LSS may be well applied to these types of acquisitions as well. The goal of LSS application should result in improvement of quality of repetitive supply acquisitions. This may be accomplished through reductions in variation that may cause unnecessary complexity. The application of LSS, from a process improvement perspective, should be conducted carefully. LSS should not be used as a tool to apply factory conveyer belt methods to processing simplified acquisitions. Contracts and acquisitions involve a complex interaction with suppliers, requirements personnel, financial and budget personnel, COs and contract specialists, legal personnel, and accounting personnel. This complex interaction must be respected and managed with particular recognition paid to the importance of human capital, which is what makes the interaction work in the first place. Many simplified and commercial item acquisitions appear to be on the surface noncomplex and seem like they won t take up a large amount of time when in actuality, they turn out to be quite the opposite. This can be true particularly in specialized areas such as information technology simplified and commercial item acquisitions where loosely defined requirements can lead to significant amounts of human capital and time spent on revisions to acquisition packages. The first priority of LSS is the development of a project charter. In short, the project charter defines the scope and objectives of the project. For simplified and commercial item acquisitions, the project charter should show routine supply acquisitions as being in-scope. Within the overall project scope, the charter would define objectives of the project on a summary basis. An example of a project objective for simplified and commercial items acquisitions would be a 15-percent cost reduction enabled through contractor competition. The 15-percent cost reduction objective may be further refined in terms of negotiated cost savings or cost avoidance in LSS project phases subsequent to that of the project charter development. The project charter will present the business case for the project. The charter should describe and summarize the terms of what is currently going on for a particular class of acquisitions (in this case, simplified supply acquisitions or commercial item supply acquisitions). The charter should also provide how simplified and commercial item supply acquisitions are currently being accomplished and by whom. The LSS project charter should identify a problem or opportunity derived from the present state of affairs with your organization s acquisitions. This opportunity statement will be verified during the Measure phase of the LSS project. Another key attribute of a good project charter is to define what is in-scope and what is out of scope. What is in-scope should be defined based upon the current state of how your organization s simplified and commercial item supply acquisitions are conducted. Specifically, this includes your organization s: Requirements generation; Acquisition plan development; Statement of work development; Purchase requisition generation; Contract development and generation; Delivery/task order generation; Purchase order generation; and Post-award administration including receiving, invoice processing, payments, and close-out. What is out of scope is dictated by statutory, regulatory, and business necessity requirements, including: Competition, 18 Contract Management May 2008

6 Source selection, Contract development and negotiation, and Legal and inspector general reviews. The Define Phase Once the project charter is drafted, it is time to move into the first phase of LSS: the Define phase. This phase expands upon the project charter and helps validate the project s objectives. It further validates the scope of the project. For example, you should ask whether your LSS project includes the requirements generation process, which it should as this process has a significant impact on the entire acquisition process and life cycle for this class of acquisitions. Also, you should ask if the project scope includes the post-award administration process. For this class of acquisitions, simplified or commercial item supply, including the post-award administration process may represent too large of a scope. In fact, initial LSS project charters typically encompass a scope of work that is too broad to achieve. By answering these and other questions, you will be engaging in the first phase of LSS. The Define phase also contributes to the validation of the LSS project objectives outlined in the project charter. The objectives can be defined in a number of ways and usually include outcomes such as: Cost savings, Cost reduction, Reduction of cycle time, Reduction of time constraints, Additional resources requirements, and Process improvement changes. The Define phase should also help to add detail and succinctness to the usually broad project objectives defined in the initial project charter. After all, the project charter is, in effect, a living document and will change periodically. The Measure Phase Once the Define phase is complete, the second phase is the Measure phase. Specific to simplified and commercial item supply acquisitions, the Measure phase will measure processes such as time and cost involved with requirements generation, contract award, and contract closeout. The initial measurements will be based upon the current, as-is process scenarios. The measurements developed should represent a capability baseline and not a commentary on the state of your organization s simplified and commercial item supply acquisition processes. Once the capability baseline is established, the Measure phase is complete and it is time to move on to the next LSS phase the Analyze phase. Contract Management May

7 The Analyze Phase This phase focuses on processes that are key in order to get your organization s simplified and commercial item supply acquisitions accomplished. While a baseline is established in the Measure phase (which is designed to measure processes), the Analyze phase must establish a current process baseline that will answer the questions of who, what, where, when, and how. Building the process baseline helps to identify the root causes or problems that are hindering the current simplified and commercial item acquisition processes from meeting customer mission needs. The analysis should encompass the entire simplified and commercial item acquisition process including how customer requirements can be better developed for insertion into the process. Potential solutions to the root causes and problems identified in your current simplified and commercial items acquisition processes should be developed by your LSS team. Some of the more well known facilitation, diagrammatic and statistical tools used by the LSS team during the Analyze phase include brainstorming, flow diagrams, control charts, and regression Analysis Once the root causes and problems are identified, you must then review processes for improvement. Ask these questions: Are there duplicative review and approval processes for purchase requisitions (PRs) prior to the PRs arriving at the contracts department? Can the number of people approving purchase requisitions be consolidated to achieve better processing? How do we develop, accomplish, and put into practice an improved and streamlined purchase requisition approval process? Can this be accomplished through new routing procedures within existing automated contract and procurement systems? Finally, can this be accomplished through new policies and procedures promulgated through your organization? The Improve Phase After all this is accomplished, the next step is the Improve phase. Program, financial, and other organizations involved in developing and approving acquisition packages and purchase requisitions before their arrival at the contracting office may need to streamline review and approval in order to achieve improved process benefits. Additionally, better planning and execution will need to be initiated by these organizations. For example, purchase requisitions for similar supply requirements should be consolidated in order to achieve the significant cost savings from enterprise consolidated contracting. This will pre-empt the all too common process where requisitions are generated for the same or similar items on an ad-hoc basis as funding comes in. These organizations will also need to realize the additional time required in order to carry out large enterprise consolidated contracts. The resulting cost savings will be substantial and well worth the wait. Without critical stakeholders in the acquisition process supporting and buying in to simplified and commercial item supply acquisition process improvements, the results of your LSS project will be disappointing at best. The Control Phase Process improvements need to be initiated, developed, and promulgated on an organizationwide basis through the development of new policies, procedures, directives, and systems. During the Control phase of LSS, you need to develop, implement, and promulgate an organizationwide improvement control plan. The objective of the control plan s development, promulgation, and implementation is to ensure that your process improvements are implemented and maintained over time. If this can be accomplished, you will have a successful simplified and commercial item supply acquisition LSS project. To maintain these process improvements, your project should be concluded with occasional LSS team project follow-up and oversight. Summary LSS is a structured methodology that emphasizes efficiency and quality, and that may have substantial cost and process benefits when applied to your organization s routine simplified acquisitions and commercial item acquisitions for supplies. In order to have a successful LSS project, there are five key factors that need to be followed: 1 Defining the opportunity from both your organization s and customer s perspectives, 2 Searching for key factors that have the biggest impact on process performance and that determine root causes, 3 Understanding the process and its performance, 4 Developing improvement solutions for the key factors identified, and 5 Implementing the solution and control plan. If you follow these factors and effectively implement the LSS process, there is a great probability that considerable cost savings and process improvements will be obtained for your organization s simplified supply acquisitions and commercial item supply acquisitions. CM About the Author JOHN DOBRIANSKY, CPCM, FELLOW, is a senior procurement analyst with the U.S. Department of Agriculture. Previously, Mr. Dobriansky exercised leadership as a senior contracting officer with the DOD. Mr. Dobriansky is the vice president for programs for the NCMA Washington, DC Chapter. He is also a recognized author on professional topics for the acquisition, contracting, and program management communities. The views expressed in this article are those of the author and do not represent the views of the U.S. Department of Agriculture. Endnotes 1. U.S. Army Business Transformation Knowledge Center Contract Management May 2008