“Road guards are people who try to keep you from making changes. Some have root rot because they have been in place so long. But I like to change and improve things!” states Jim Jones, head of reengineering at Warner Robins Air Logistics Center (ALC). The Center’s personnel currently are working on 12 improvement projects, one of which is activities-based costing (ABC). The 20,000 military and civilian force is now working with MEVATEC, an outsourcer’s crew with about 5,000 contractors. Through ABC, they look at processes, the activities that flow those processes, and the resources consumed for those activities. They continue with activities-based management (ABM), which considers how to improve the processes.
“ABC/M helps me see how I can do an activity better,” says Jones. “If it’s a non-value-added effort, I could more wisely spend my money somewhere else. We ask, ‘Is this a priority; or do I want to lower the priority, and what effect would it have if I did that?’ You can find out if what you are doing is what you should be doing and why it costs so much.”
Improving a Process
Once a process that needs to be changed is identified, implementation of the improved process must include metrics to measure whether the improvement is successful after it is changed. Jones says ROIs show the value of what they are doing and whether the improvements, in fact, bring about the benefits that were expected. They measure the differences between how long it took to do the old process vs. the changed process, as well as a cost comparison of the old and the new. He says at least a year’s worth of data (before and after the change) is necessary to avoid aberrations in particular months. “Some of our ROIs are as high as 15-1 and as low as 3.5-1,” says Jones. “But how would you like to make $3.50 for every dollar you invest?
Jones says that people need to understand that ABC/M is a tool. It is not a silver bullet. He compares the program to peeling back onions to see if they are hot and will burn your eyes, or if they are sweet Vidalias. “This tool is a 3-5 year program. We started in 1998. We have already identified the costs, the activities, the high-cost drivers, and now are in the process of peeling back the onion skin to see what we have. If you have a process with high-cost drivers that also is non-value-added, is not a Vidalia!”
Successes and Lessons Learned
The Department of Defense, which has set aggressive pursuit of ABC/M implementation in its maintenance depots as a goal for 2000, has visited Warner Robins to look at its successes and lessons learned.
Along with several Robins ALC incidents of realigned resources and manpower, ABC aided the 78th Air Base Wing in identifying high-cost functions. They have reduced annual sewage treatment plant operation costs by $300. When they identified high-cost functions in the mailroom, they reengineered the processes and added an automated mail sorting function. In doing so, they reduced operation costs by 60 percent.
The importance of choosing the right supplier cannot be overemphasized, according to Jones. In addition to helping the ALC teams with ABC/M, the supplier made recommendations as to how to change the mailroom process and what technology to implement. “If you don’t have good support,” says Jones, “you won’t be successful.”
One of the lessons learned thus far in the program is that it requires a significant amount of training to bolster the culture/change management effort before trying to change the process. MEVATEC, ALC’s supplier, has expertise in this area; and Jones says that they have done many things to try to help the culture issue. “It just takes longer than you would anticipate.”
They also learned that Jones’ original estimate for the implementation phase was too aggressive. He thought ABC could be done in a year but admits he overlooked the other responsibilities of the personnel. “That’s one of the pitfalls that can cause ABC not to be successful,” he explains. “People expect too much too soon. This is a long-term effort.”
Jones says that the end result of ABC/M should be the most efficient Center they could possibly have. “If we find that we are not the best at doing something that a contractor can do better, then we will take that process and A76 it for outsourcing.” He points out that when something is outsourced at Robins, those people are attritioned to other jobs at the Center and retrained. Those eligible for retirement usually retire at that time. “Neither the government nor any company can be the best and cheapest at everything they do.”
In defense, cheaper is not always better. Obviously the fighter in a jet cares more about a deterrent that helps him get away from missiles than he does about the cost of electronic warfare. This is another benefit of ABM. It goes beyond the costing analysis and provides managers with the capability to make educated decisions and helps them analyze whether they should be doing what they are doing.
Jones believes their commander made the best decision when he advocated ABC/M. “There are those who say they can’t afford to do this. But he said it would save more money than we would spend on it. He said he couldn’t afford not to do it because it results in improved processes and better advantages. And he was absolutely right!”
Lessons from the Outsourcing Primer:
- ABC/M is a valuable tool, but it is not a silver bullet. It is also a long-term (3-5-year) program.
- Training and culture/change management before implementing improvements are key factors for success.
- Metrics and a year’s worth of data are necessary for an ROI to determine the effectiveness of the improved process.
About the Author: Ben Trowbridge is an accomplished Outsourcing Consultant with extensive experience in outsourcing and managed services. As a former EY Partner and CEO of Alsbridge, he built successful practices in Transformational Outsourcing, Managed services provider, strategic sourcing, BPO, Cybersecurity Managed Services, and IT Outsourcing. Throughout his career, Ben has advised a broad range of clients on outsourcing and global business services strategy and transactions. As the current CEO of the Outsourcing Center, he provides invaluable insights and guidance to buyers and managed services executives. Contact him at [email protected].