Department of the Navy Lean Six Sigma: a financial journey: a total team effort to employ Lean Six Sigma concepts pays dividends.

What Is Lean Six Sigma?

If one looks up the term lean in Webster's dictionary, there will be several definitions, none of which will fit the meaning used in the concept of Lean Six Sigma (LSS). In the business world, the term lean usually refers to changing practices and procedures to become more efficient and effective. Sigma is a Greek letter used to describe variability; it serves as an indicator of the likelihood that errors will occur. The term Six Sigma[TM] derives from the number of standard deviations used in statistics to describe the amount of variability for 100 percent of the population.

The concept of LSS may be defined simply as a methodology to implement or change processes that yield effectiveness and efficiencies and quantify those changes. Although this is certainly a short definition and thus may leave one with the impression that LSS is a minimal commitment, this is far from actuality. The implementation of LSS requires a lot of dedication from leadership, hard work by team members, and adequate time to prove that the change in processes meets the objective.

LSS focuses on value--with a heavy emphasis on eliminating "waste." Value generally is defined by the customer and must meet the following criteria:

* Add form or a feature to the product or service

* Be in demand by the customer, who is willing to pay extra for it

* Add a competitive value

Waste is human activity that uses resources but does not create value. The seven types of waste are overproduction, waiting, transport, extra processing, inventory, motion, and defects. LSS combines the two most important business improvement trends of the twenty-first century: making work faster by using various Lean principles, and making work better by using Six Sigma.

The methodology employed in LSS is a project-focused approach consisting of five phases known as the DMAIC model:

* Define--Identify customer needs and what is to be improved

* Measure--Baseline and target performance and validate measurement systems

* Analyze--Identify variations and screen potential causes

* Improve--Identify improvements and statistically validate improvements

* Control--Document, monitor, and sustain gains

As with most overarching methods, LSS uses terminologies that define key roles in implementing the approach, defined as follows:

* Executive Leadership--Owns the vision, gives direction, tracks business results, leads change, and allocates resources.

* Value Stream Champion--Owns the Rapid Improvement Plan and the redeployment plan and tracks financial results.

* Green Belt--Leads and supports Rapid Improvement Events (small to moderate projects). This is a fulltime role during the event.

* Black Belt--An expert on LSS principles and tools; leads larger projects and coaches Green Belts. This is a fulltime position.

* Master Black Belt/Sensei--Trains Black Belts and Green Belts and leads complex projects. This is a fulltime position.

* Lean Champion--Heads the Lean office and captures Lean metrics. This person owns the lean deployment and communication plans.

Those terms are just a sample of the lexicon used in LSS. Other important terms are the following:

* Value Stream Mapping--Defines existing processes and possible waste reduction opportunities

* Kaizen Event--An intensive project that can be done in 3 to 5 days, rather than the typical LSS project that takes 3 to 6 months

* Just Do Its--Quick implementation opportunities requiring limited coordination

Some of the terms used have a definite Far East flavor. This is due mainly to the fact that the Toyota Motor Company was an early implementer of LSS, having worked on lean methods from as early as the 1950s. Since that time, a number of companies, regardless of size and revenue, have adopted LSS as the preferred methodology to improve business practices.

In the Department of the Navy (DON), we are adopting LSS as well. Support has come from our senior leadership to include various assistant secretaries and our most senior flag officers. The wave of LSS is catching hold in many of our disciplines, and we find that partnering across communities is also very effective and educational.

We in the financial management community are riding the wave and are very excited about the projects that are under way. Some of our projects are short events, with quick return on the investment; others may take more time to map through issues and test the concepts. The following are a few of the LSS efforts that are ongoing at our three major system commands: Naval Sea Systems Command (NAVSEA), Naval Air Systems Command (NAVAIR), and the Space and Naval Warfare Command (SPAWAR).

NAVSEA's Financial Journey

The NAVSEA financial management community began its Lean journey as a result of the command's Executive Planning Session (EPS), which was conducted in November 2004. Since NAVSEA is responsible for executing over $24 billion in obligational authority, senior leaders identified funds processing as a value stream to be considered. In response to the EPS, three major subvalue streams were selected for further analysis: Procurement Requests for NAVSEA headquarters' contracts; other funding documents, primarily work requests, to working capital fund activities; and funding documents for University Affiliated Research Centers (UARC). Each of these value streams was analyzed by a separate team of personnel from various elements within NAVSEA.

Each team produced a map of current processes that identified each step or action as value added, non-value added but required, or non-value added. Each team then formulated a group of projects including those that would take up to six months, shorter-term five-day events, and Just Do Its.

NAVSEA's first LSS project was the UARC effort. The goal was to reduce cycle time and work-in-process (WIP) by 50 percent. The implementing team created a rapid improvement plan to bridge the current state to the future state. Once the improvements identified in the Rapid Improvement Plan have been implemented, it is estimated that the goal of reducing cycle time and WIP by 50 percent will be exceeded. There also will be an increased capacity that permits the addition of new workload without hiring personnel and precludes a need in the future to use tiger teams [official inspection teams called in to investigate a problem] to reduce WIP.

The funding document team has established objectives for the shorter-term events and is collecting and analyzing data. In addition, the longer-term efforts are being reviewed; the plan is to implement new processes starting October 1, 2006. In addition to the funding documents processed to field organizations, there also are funds used for contracts managed by NAVSEA.

A team conducted a value stream analysis of the overall procurement request and contracting process with the objective of standardizing the requirements generation process in order to reduce the cycle time and the rework currently associated with contract awards. Specific initiatives arose from the analysis to standardize the generation process and the content of procurement requests. The command is scheduling additional events to demonstrate the effectiveness of these changes.

NAVAIR's Efforts with LSS

NAVAIR has also been very busy implementing the concepts of LSS. In the long-standing aviation tradition of coming up with "catchy" names, NAVAIR's LSS program is called AIRSPEED. NAVAIR has a number of events ongoing that directly or indirectly affect the financial community both at headquarters and at field activities. One of particular note is the foresight to deploy, on a test basis, the Enterprise Resource Planning (ERP) system used by NAVAIR to another command, NAVSEA.

Specifically, NAVAIR manages the Electromagnetic Aircraft Launch System (EMALS), which is planned for the next-generation carrier. Although NAVAIR manages the development efforts, the funding is embedded in the carrier line item until fiscal year 2006. NAVSEA has issued money earmarked for EMALS program management and execution to NAVAIR Lakehurst. That funding then was treated as incoming customer funds at the site level, and only those NAVAIR personnel authorized, at both headquarters and Lakehurst, had visibility into the ERP system to manage and execute the funds. The NAVSEA headquarters program office wasn't able to use the powerful planning tools within ERP to track program execution against respective schedules.

Now the NAVAIR portion of the funding is allocated directly, and the appropriate NAVSEA user can access the ERP and de velop project and budget structures to plan and execute the funding as intended. Also, since NAVSEA is the budget submitting office for the EMALS program, it can run the needed reports directly from the ERP to answer financial data calls for mid-year or year-end reporting requirements associated with funds allocated that fiscal year.

An ability to access the ERP has enabled the NAVSEA comptroller, various business financial managers within program offices, and other members of the acquisition team to improve financial management--and also gives another command a sneak peek into the type of functionality it will receive from the Navy ERP. The current ERP system is the financial building block on which the Navy ERP system is being built. Many of the processes that the command's ERP currently executes are being further refined and incorporated into the Navy ERP solution.

SPAWAR Tri-Annual Reviews

When the Department of Defense (DoD) reaffirmed the tri-annual requirement for review of commitments and obligations, SPAWAR saw the need to augment its process to achieve improved review performance. SPAWAR has greatly improved its tri-annual review performance by implementing a standard tool across the SPAWAR enterprise, sharing financial systems information across echelons and performing organizations, using innovative techniques to clear aged commitment and obligation balances, and communicating the value of tri-annual reviews. The command plans further improvements as well.

The mandated requirement is to review commitments and obligations for timeliness, accuracy, and completeness and to report results to component senior financial managers three times each fiscal year. The intent is that these reviews will prevent problem disbursements and potential violations of the Antideficiency Act and will bring the component closer to achieving clean financial statements. Although this is an excellent goal, the reviews can be cumbersome and time-consuming and cannot be effectively accomplished solely within a comptroller organization. As we have learned with many transformational initiatives, support from other communities, like program and contract offices, is also required. But getting people in these other disciplines to see the benefit of these reviews has been challenging.

Historically, program offices focus on obligating funds and then receiving the services or goods. The review of expenditures typically has not been an area of interest for most program offices, which instead defer to comptrollers and the Defense Finance and Accounting Service (DFAS) to deal with expenditure issues. After all, by the time some expenditures occur, program offices could have dealt with three or more years of new funding.

Today, however, with the growing interest in clean financial statements and budget reductions based on both low obligation rates and poor expenditure rates, program offices have a more vested interest in the tri-annual reviews. The SPAWAR comptroller built on this interest, developing methodologies for the reviews. The office developed a three-year compliance plan with a focus geared to getting the best return on investment with respect to reuse of funding. Education and training of employees were required on systems such as the Mechanization of Contract Administration Services (a DFAS system that provides contract payment data) and with employees both internal and external to SPAWAR, such as administrative contracting officers, procurement contracting officers, and contracting officer representatives. Additionally, the SPAWAR System Center Charleston developed a Web-based data collection tool that provided an automated means for executing local tri-annual reviews. This tool is now being implemented at NAVSEA Navy Working Capital Fund field activities.

SPAWAR employed a total team approach, and the effort is reflecting a payoff.

In addition to the monetary effect, there are also other benefits from the tri-annual reviews. A contracting officer representative's ability to identify contract funds available for reuse has enabled earlier initiation of final rate negotiations with the Defense Contract Audit Agency and, thereby, shorten the routinely lengthy timeline for final contract closeout. In summary, these successes benefit both SPAWAR program initiatives and the Navy in maximizing use of limited financial resources that otherwise would have been lost. This, too, should bring the DON closer to achieving auditable financial statements.

A Long Journey, But Worth the Investment

LSS is a long journey that certainly will find some potholes and bumps along the way. Many of our DON commands are at the beginning of the journey, but they are making great progress. The communication and understanding of processes garnered by all participants are so valuable and worth the time, even if a process cannot be "Leaned" in a significant way. The DON looks forward to continued success stories and the opportunity to share these stories within and outside DoD. For further success stories, please visit the .following Web site: http://www.finance. hq.navy.mil/fmdPep_Success.

Denise Bar is the director of the Financial Management Division in NAVSEA's Corporate Operations Directorate.

Joseph (Russ) Russell is the Head of the Financial Systems Department, Comptroller, Naval Air Systems Command.

Loretta Finamore works for the Space and Naval Warfare Systems Command, Comptroller Directorate. She is a member of ASMC's San Diego Chapter.