Kickstarting Process Improvement Initiatives in a DoD Contracting Environment

The Lean Six Sigma (LSS) approach to Process Improvement

by

Kevin Lehigh

Lehigh Technical Solutions

30October 2012

Page 1

Abstract

Mr. Lehigh has refinedtwo techniques that can be used to kick start the correction of process issues in short order. These methods have proven to be highly effective in finding the right opportunities to work, in a variety of client environments such as DoD agencies, DoD contractors and Healthcare organizations. The efficiency of application and the focusing power of these methods deliver returns quickly.

The basic methodscan be found in the literature under the headings of Strategic Multi-generation Project Plan (MGPP)[1] and Kaizen Blast[2],[3]. In this paper these methods are compared todetermine under which circumstances each method applies best. Two real-world examples of application of each method are provided.

Introduction

One example of eachof the two methods is discussed in this paper.

Example 1draws from my previous work with a DoD contractorthat provides services for military commands such asthe Army’s TACOM and CECOM and various Navy contract vehicles that use DoD contractors such as SPAWAR. The work that was done with this particular government contractor was performed shortly after three different companies were mergedto form a larger DoD contractor.

Example 2 stems from work done at various J-codes and PLFAs (primary level field activities) at the Defense Logistics Agency (DLA) headquartered near Fort Belvoir, VA pursuant to creating better projects that align to either HQ or PLFA objectives.

Example 1:

DoD contractor XYZ had many ad hoc and ineffective accounting, HR, contracts, and project execution processes and procedures left over from previous mergers and acquisitions. It was difficult to get invoices paid to their suppliers, to receive payment from customers, and to execute programs without customer complaints. A Kaizen Blast approach was used to identify, prioritize and flush out festering systemic problems and poor practices. The method we used to organize, prioritize and create projects to resolveproblems we call Kaizen Blast.

To guarantee results there should be clear quantitative measures of success, the importance of the project to the organization should be clear, and the project should have the full support and approval of executive management. These three characteristics are needed so that the organization’s leadership sees the importance of the project, provides the needed support and resources, and removes barriers to the success of the project. People are more likely to support a project that they can see is clearly important to the organization.

Project ideas can come from any source such as process assessments, customer and employee surveys and suggestions, benchmarking studies, extensions of existing projects, and so on. Significant productivity improvements result from high impact projects that feature one or more of the following:

  • Reduce Effort to do the same amount of work
  • Reduce Complexity of the work being done
  • Minimize Rework
  • Identify Products with major backlogs—need for more capacity
  • Improve Quality of volume products (small improvements can have huge impact)

If all projects would positively affect at least one of these areas, you will have significant tangible results when they are completed. In the case of service or transactional processes, the key process metrics will typically be accuracy or cycle time control measures. Accuracy includes control of defects in information such as account numbers or financial figures, and directly relates to both customer satisfaction and rework costs.

Reduction of cycle time in business processes is a productivity measure, so it also relates directly to costs and, of course, to customer satisfaction (e.g., time to complete and deliver reports).

Our method starts with the one-on-one interview as a means to capture preliminary issues/symptoms.

In the initial phase we interviewed CXO functional leaders and each LoB VP/GM and his director level reports for about an hour; capturing via pencil and paper everything he/she came up with when asked to answer simple open ended questions such as ‘what is the problem?’ or ‘what keeps you awake at night?’. During the next day or two we scribbled comments on paper that were then categorized according to various functional subheadings such as Accounting, Business Development, HR, contracts, PM, etc. (see table 1 below and refer to the designator column and the key above the table). These functional subheadings represent the area where the ‘gap’ in process performance (such as the delta in the organization’s goal to achieve the stated metric for days-sales-outstanding, days to create a bill, order fulfillment, etc.). In addition to metrics gaps, issues mapped to functional subheadings should address process and customer requirements gaps as well (again refer to table1).

In the 'pre-blast' phase the executive leadership team collected all of the issues from the various Lines of Business (LoB). During the 4hour blast session, we prioritized the issuesusing a common voting technique according to business impact and difficulty to achieve and assigned each issue to one of four functional problem resolution sub-teams. The idea was to resolve the easy issues within a few days and the more complex ones within 3 to 6 months at the most.

Each of the sub-teams, Finance and Accounting, Contracts, Program Management, and Business Development, consisted of key personnel and line managers.Issue resolution work began in the afternoon after the four hour blast event. The sub-teams started on the easiest just-do-it projects and were required to have resolution recommendations for the just-do-its back to the executive leadership team in one week or less.Projects requiring more analysis and solution selection effort were assigned project teams within that same one week period. Each of the four primary teams presented their action plans to the executive leadership team at the end of the afternoon. More complex projects became lean initiatives or six sigma (phased DMAIC) projects.

Key steps in the process are:

  1. Issue affinitization and prioritization
  2. Root Cause Analysis to find salient causes followed by opportunity analysis to solve problems
  3. Team building
  1. Project Chartering
  2. Financial Benefit Analysis used to sum up costs saved and avoided.

Substantial benefits were ultimately obtained with this method. Application of this methodresulted in more than forty issues ranked by complexity and potential benefits that were distilled from more than 165 initial seemingly random complaints.Twelve issues were resolved immediately in the meeting, sixteen were assigned to just-do-it teams and handled within two weeks or less and the five became six sigma projects with charters prepared in the second half of the meeting.

Determining Kaizen Blast Objectives

The issues were collected from the internal customers representing the various LoBs and outside suppliers and customers. This pre blast activity took us a couple of months to gather the necessary data; each interview took an hour; planning and prep took 3½ hours.

Key—Resolution subteams assigned:
A—accounting
BD—business development
C—contracts
PM—project management
HR—human resources
S—CXO level and above management
Issues processed:
Designator
/
LoB Issues/Concerns / Im-pact / Diffi-culty / Rank / Status
A1 / Unavailability and lack of standardization of procedures on cost point processing, approval and signature level approval causes confusion and wasted time. We need processes and we need training on the available tools. / 2
A2 / A/P Invoices from vendors are not getting paid / 2
A3 / Expense Reports are not getting paid to employees / 2
A4 / Customers are not paying us quickly due to AR issues: A/R Measured by DSO (not invoicing, improper DD250s, etc. that keep us from getting paid) / 2
A5 / We lack an Integrated Electronic Time/Travel/Expense system with electronic signature. Currently we have to submit everything via fax or mail. This process seems unnecessarily time consuming … / 2 / 2
A9 / We lack an adequate number of cost codes for trade shows. If there were a better structure for the coding then reporting would be much less time consuming.
BD1 / We lack advanced notice when an opportunity is coming down for a bid. When forced to seek new business, we lack the processes to do so. Segment has provided some services that portend to help do that, but we have not learned how to leverage these effectively. / 3 / 2 / 2
BD4 / Our lack of ability to grow new business organically with new customers causes a lack of customer diversity. [Firefinder at Raytheon] / 3 / 3
BD5 / Currently proposals are written at the expense of my other duties. We need to plan better for future growth. We need a long range vision. / 3 / 2.5
BD6 / The release of old or un-vetted images leaves XYZ open to legal action. Also, by releasing documents with the old branding we can appear unsure of our own brand identity. This can give our customers the impression that we do not know who we are. / 2 / 1 / Q4
BD7 / XYZ is limited by corporate tradeshow guidelines. If the planning and budget were organized earlier TSI would be better able to leverage tradeshow activity. / 1 / 3
PMI / Lack the capability to determine resources needed and how to deploy them effectively / 2 / 2 / 2
PM2 / No access to Timely and Accurate Financial Information: Visual does not provide any access to financial management information. I can’t access any actual vs. budget data. The only information I can get is extracted via a query then dumped into a spreadsheet, manipulated by someone, and then sent to me possibly weeks later..When I am able to beg/borrow financial data it is often out of date. (Polson and other remote sites) / 2??
PM3 / We lack management enforced guidelines that clearly define who is a subcontractor, vendor, or supplier - and when to use which. / 2 / 1 / Q3 / 2
PM4 / We lack a unifying project management system, currently we use several different programs and it takes time and a lot of effort to use them effectively. We need an integrated system that schedules and tracks actual labor, materials, equipment, and dollars against the schedule – something that would tie CostPoint, Deltek, and Microsoft project together – or replace them all / 3 / 2 / T1
C2 / Contract mods take too long so we can’t invoice $25M of my program. If I can’t get the invoice to them in time I have to pay the government back $10K. Per contracts - the review and approval process needs to be analyzed; Review of a contract can go from VP and legal then to the vendor and around and around with small changes before it ever goes to approval. Then approval process takes a long time because it requires too many people. / 2 / 3
C3 / The present contracting process is too time consuming, cumbersome, and ineffective in order to support the LoBs (NDAs, TAs, etc. with vendors and suppliers and negotiating contracts with customers) / 3 / 2 / 2
C4 / Right now too many people have access to make changes in CostPoint. We need less people/right people to have access to alter data. / 3 / 1 / T1
C5 / We lack a database tool with a tickler to alert on at risk contracts, and track contract value, funding, period of performance, Status of Forces Agreement (SOFA), Technical Expert Status Accreditation (TESA), TAs, and NDAs. / 3 / 2 / T1
C6 / We don't have a formal cost management structure for XYZ. Who has the final say? The current process leaves the PM in charge, and this is costing the company money. / 3 / 1 / T2 / 2
HR1 / The on-boarding process is incomplete; i.e. coordinating office, computers, and new employee orientation for new hires—we need a better one / 2 / 2
HR2 / No comprehensive process for exiting employees, a “term alert” process is needed to make upcoming terminations known to a defined set of folks. We need a better exit interview system with analytics. / 2 / 1
HR3 / Repatriation of expats; XYZ employees coming off of international assignments currently don't have priority in the recruiting process. These employees should be placed first over new hires from outside of the company. / 2.5 / 1 / Q1
HR4 / Employee Change in Status (CIS) approvals/routing process requires HR approval, but there is no apparent reason for this requirement. / 2 / 1 / 3
HR5 / Managers and employees are becoming increasingly disgruntled with the quality of management. Management Training for employees being promoted into management positions as well as new hires should be provided during work hours to promote/elevate overall company morale. / 3 / 2 / T2
HR6 / Job classification and categories – We have two people doing very similar work (if not the same) with very different pay and in some cases one is exempt and the other is non-exempt. Our bill rates are not consistent between programs or within programs. We do not have a solid handle or profitability of rates unless I list specific people with actual pay and then that is a document I have to control very closely and cannot push down authority and responsibility. / 3 / 2 / T1
HR8 / We lack HR raise rules, or if they exist they have not been thoroughly communicated to managers. / 2 / 1.5
HR9 / The Appraisal Evaluation system (DTN) is very time consuming for off-site employees w/o a XYZ server or VPN to use. / 3 / 3
S1 / Lack of funding rules (or big rules) that allow segment to purchase an improvement solution / 2 / 1
S2 / When we are a pass-through for another Segment, we should be able to share the profit instead of one Segment taking all profit and the other taking a loss. This would increase cooperation between Segments resulting in more revenue, profit and bookings in the years ahead. / 3 / 3
S3 / There is a lack of understanding of our segment's capabilities and core competencies within the LoBs. There is no system in place to ensure everyone understands our present efforts, or what effort will be required to accomplish our goals and objectives for the future. / 2 / 1
S4 / Segment Support Matrix doesn't support the LOB's needs effectively or responsively. We lack processes within the support matrix i.e. finance, subcontracting, human resources, and legal. / 2 / 2
S5 / Lack of Program/Segment Asset Management System / 2
S6 / Expedite data processing by better preparing for PMR submissions. This process takes time and is more painful that seems necessary. It would be helpful if segment processes were published on a website with glossary of terms and perhaps a frequently asked questions (FAQ) section. In several instances e.g., for PMR preparation I have created guides for those who contribute to the LOB inputs. / 2 / 2
S7 / Information required for recurrent forecasting in support of FOP, scorecard, and PMR reports is drawn from various sources that are independently maintained, and the information drawn must be manually combined each time. To ensure the information that is gathered is accurate I must reconcile differences and attempt to update the sources for synchronization manually. / 2 / 2
S9 / It takes too much time to get budget approval for Capital Equipment Requests (CERs) / 2 / 2
S10 / Top level managers spend way too much time trying to search for the most current information. The lack of a standardized management system is epitomized by our “Management By E-Mail” approach. A systems approach would provide data sources (data base) where information is loaded and then kept current by managers, instead of numerous daily data calls where managers are asked to provide updates to information previously submitted. / 2 / 2
S11 / Our current (remote site) facility is constraining our growth. This is really long term as manufacturers think in terms of revenue per square foot. Significant growth can only occur if there is sufficient space available to build the products. Alternatives to manufacturing as a part of the solution has occurred in our Repair and Return jobs but might be expanded to other service type efforts. / 0 / 0

Table 1 Issues Scorecard for a DoD COTS Solutions/Services Provider

Difficulty:

1 = Push the easy button

2 = Requires new configuration of the system, change in procedure

3 = Barrier exists due to gov’t policy, physical constraint, et.

Impact:

1 = Cost avoidance/savings is not significant

2 = Cost avoidance is significant due to increase in productivity, decline in rework, etc.

3 = Cost savings to bottom line is significant (or perceived to be), or revenue enhancement is significant

Status:

1 = Nothing done yet

2 = WIP

3 = Project complete

Outcomes of the Blast

From the spreadsheet shown above, projects were chosen to work on over the coming quarter; one to two easy projects and one harder project with potentially more impact in each of four functional sub-team areas.

The following high impact projects were chosen:

  1. A4—Stabilize and reduce Days Sales Outstanding (DSO) by 10 days or 15%
  2. PM4—Define relationships between WBS and Control Accounts for Earned Value goals
  3. C4—Two part project
  4. Control data access
  5. Reconcile existing data errors (resolved over 13,000 errors resulting in $4.01M in real cost avoidance internally) that if communicated to others could result in bad decisions resulting in lost/missed opportunities; increased labor costs, inaccurate A/R invoices that get kicked back.
  6. HR6—Job Classification (now in compliance with DoD guidelines for job categories and rates.
  7. S10—Lack of centralized repository to capture data needed for ops reviews

Kaizen Blitz on the Chosen Projects

No belts are necessary for project execution. Projects were assigned to team leads. Two of us that held belts were used by each project team only when necessary for complex tasks in analysis or in setting up and implementing a pilot (BB skills were not really required throughout the life of the project).

Project #1 was judged the best to pursue due to its potential high rate of return. A reduction of 10 days for overall DSO would reduce cash trapped in receivables by over $17M ($16.4M in cash invested + $1.15M in annual intereston $552M projected revenues.

The next three projects (#2, #3, #4) listed above were deemed necessary to fulfill regulatory requirements. Additional benefits that we were interested in achieving were reduction of contracts database errors as already discussed above.

Project #5 stems from reporting requirements for a public company doing business commercially in the U.S. (Sarbanes-Oxley requirements) oras a company doing business with the government (DoD and various governmental agency requirements).