Pima County, Arizona, courthouse

CommonApplying operations management concepts in the service sector

CulturesBY TERRY FINEFROCK, CPIM

Applying operations management concepts in the service sector

APICS magazine September/October 2008 43

ike many operations professionals, I started my career in the hard-product manufacturing sector. Along the way, I became well-versed in cross-

functional manufacturing operations management and performance improvement, with an emphasis in procure-ment, materials, supply chain, logistics, production, and information systems management.

My 25-year progression through a variety of manufac-turing sectors eventually led me to my current position on the management team of Pima County, Arizona, where I am jointly responsible for public procurement functions for this 900-square-mile county.

At first, the culture shock was significant. I found the organization and its practices to be vastly foreign. Yet, it didn’t take long to recognize numerous parallels and oppor-tunities to apply my experience and the APICS body of knowledge in order to add value to both the organization and community.

When I joined the Pima County procurement department, local media outlets were pursuing story after story about the county’s less-than-effective contract results, poor vendor performance, lack of internal controls and visibility, service issues, and long procurement and time-to-contract periods. The procurement function was loosely managed as a division of the finance department and was considered to be a low-value-added task and, sometimes, a nuisance. Requisitions for materials and services were submitted as hard-copy documents via interoffice mail and were manually tracked using a homegrown Microsoft Access database.

The changes began when a county administrator decided to organize procurement as an autonomous department. Additionally, a new procurement director was hired and tasked to renovate the undesirable performance. In order to analyze the problems and identify and implement effec-tive solutions, an improvement team of appropriate and knowledgeable staffpeople was formed. After some discus-sion, we agreed to use an alloy of the six sigma define-measure-analyze-improve-control (DMAIC) improvement process (see sidebar) and balanced scorecard principles, which focus on core competencies aligning with operational objectives in order to achieve financial and organizational mission objectives.

Our first step was to define what organizational values and services the procurement function was expected to provide and the statutory procurement and contracting processes. Examples of expected output and service included competitive unit prices, reasonable requisition to contract cycle times, provision of visibility to client departments regarding requisition contract status, and the elimination of events that cause undesirable publicity.

We then outlined performance measures, creating a base-line that enabled us to determine if implemented improve-ments were effective. The measure of requisition to contract cycle times became a key indicator because, when achieved, it satisfied or supported multiple metrics. In addition, a review of professional procurement staff member perfor-

mance identified large variances in individual results and cycle times. We needed to define, document, and train people on preferred or standard process flow for key tasks or operations. Many tasks were identified as adding no or nega-tive value and were eliminated or significantly revised.

The improvement process progressed in a continuous and cyclical manner, and we used this time to identify noncon-formances to the defined processes and results; analyze root causes; and determine and implement actions and tools for enhanced compliance with the defined processes, followed by measurement of the results generated. Procurement-solicitation document templates were developed to support the rapid, comprehensive, and consistent development of solicitation and contract documents. The templates identi-fied variable information and provided options and guid-ance regarding the intent of each section.

Our actions, measurements, and analysis cycles enabled us to confirm constraints and how they could be reme-died. Following is a detailed explanation of our processes and results.

Improve staff competency and retention

To avoid unwanted publicity and to assure that solicitations were conducted in a fair and ethical manner, it was necessary for our procurement professionals to exercise good judgment regarding managing client relations, developing appropriate specifications, and selecting the most appropriate process for each solicitation and contract. The public procurement process requires compliance with many laws, policies, and procedures, which take a significant amount of time to learn.

ENTERPRISE

Incremental process improvement can be achieved using the six sigma methodology define-measure-analyze-improve-control (DMAIC). The five phases include the following:1. Define the processes that—if conformed to—will

generate the desired performance.2. Measure the performance levels generated by

current processes. 3. Analyze data and create a process map to deter-

mine probable root causes for nonconformances and performance gaps.

4. Improve the target processes by implementing solutions to fix and prevent problems.

5. Control actions to assure conformance with the revised processes. In addition, it is necessary to repeat steps 2 through

5 until desired performance levels are achieved and remain consistent.

Fıvep h a s e s

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44 September/October 2008 APICS magazine

Staff members often were overwhelmed and underpaid rela-tive to current market value for the newly expected levels of performance. This led to a high amount of turnover, exacerbating the difficulty we were experiencing regarding achieving desired performance.

Thus, we upgraded the position requirements, grade, and compensation of our professional contracting positions to a four-year degree, six years of procurement experience, and public procurement process practice; plus, professional procurement or APICS certification were preferred. Although direct compensation was set slightly below the private sector, we offered superior employment stability and health care and retirement benefits. Because our primary objective was retention, we did not want direct compensation to be the primary reason for a professional to join Pima County.

We also completely redesigned our offices to support and convey the professional performance standards we desired. Office configurations were made more efficient by colocating staff members who work together to perform tasks.

Better integration and measurement

The manual requisition submission and tracking process was identified as a major constraint to productivity and reduced cycle times. Information and reporting were difficult to acquire, which resulted in frequent communication and integration issues that created frustration, delays, and lost productivity.

As a result, a new Internet-based system was imple-mented—similar to an enterprise resources planning solu-tion—which integrated the work flow and tracking required to complete requisition creation, approval, procurement and contracting, issue, and receipt, as well as payment of orders. The system was available to all qualified staff members, and the new records brought about significantly improved reporting. The solution also supports structured query language and direct export to Microsoft Word or Excel, which greatly reduces the effort required to measure, report, and generate management information.

The system included the capability to create and display cascading, department-to-division-to-employee metric

charts and reports; organizational announcements; and so on, which all users can configure and display on their portals. In addition, the tool enabled the e-mailing of digital contract and purchase order documents to suppliers and clients, thus reducing postage, paper, and labor costs.

Finally, the system is programmed to send e-mail messages to the appropriate suppliers when we are seeking particular products or services. This has increased participa-tion and competition.

Client training and collaboration

Requesting clients are required to specify the key attributes and performance specifications for their purchased materials and service needs. These terms are used to solicit offers and form the basis for the resulting contracts. Close integration of activities and the timely development and enhancement of these data were critical to the efficient completion of the procurement process. Measurement and analysis of the requi-sition cycle time nonconformances found that satisfactory specifications and lack of or incorrect knowledge regarding client and procurement department roles were root causes for many performance and service issues.

Pima County procurement professionals also developed and offered training to all client departments on roles, sources, procurement law, and requirements, as well as on how specifications affect the procurement process, price, and quality of the materials and services procured. A docu-ment questionnaire with guidelines also was posted to the county’s Intranet. The results were dramatic: Cycle time performance from February 2004 to May 2006 of items greater than 90-days old is illustrated in Figure 1.

Blanket contracts

Pima County’s former system allowed for only one depart-ment per order, resulting in a mentality that a contract was “owned” and to be used by only one division. Thus, there were numerous requests and contracts for the same or similar materials and services; contracts officers were assigned work and requisitions on a rotating basis, making it difficult to

Figure 1 Average cycle times of requisitions greater than 90-days old

Month

Aver

age

requ

isiti

ons

per m

onth

0

10

20

30

40

50

60

70

272625242322212019181716151413121110987654321

70

26

161620

15

25

3832

5349

34

11 14 10 8 50.31.42.81.50.2000.813

Average number of requisitions

APICS magazine September/October 2008 45

detect existing contracts that could be used by a department to satisfy a request; and the county experi-enced suboptimal unit prices and additional indirect maintenance expense and effort.

Today, our system facilitates the identification of existing and multiple contracts that can be combined and provided by one supplier. These blanket contracts enable the absorption of supplier fixed and overhead costs; result in lower unit prices; and make it possible for client departments to quickly acquire the materials and services required to complete their work, thereby accelerating the delivery of value to the community. In all, 90 percent of the expenditures using contracts established by procurement in 2007 were made via blanket contracts.

Benchmarking

We identified advanced practices and performance statistics by competing for the National Purchasing Institute Achievement of Excellence in Procurement (AEP) competition and the

National Institute for Governmental Purchasing Outstanding Agency Award (OAA). Candidates respond to a series of comprehensive ques-tions, which are intended to help identify best practices and eval-uate competencies, standards, and performance. We found the anal-ysis required to generate the essen-tial information to be an excellent method for identifying additional improvement opportunities.

The first year we participated in these national competitions, we earned recognition and receipt of both the AEP and OAA awards. Using the feedback from these competitions, we improved our

processes and performance and, in 2007, were ranked sixth among all counties in the AEP competition.

Terry Finefrock, CPIM, is the chief contracts and procurement manager for Pima County Procurement in Pima County, Arizona. He may be contacted at terry.finefrock@pima.gov.

To comment on this article, send a message to feedback@apics.org.

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