Transforming DFAS: generating value and eliminating waste in the world's largest finance and accounting operation.

Today's Defense Finance and Accounting Service (DFAS) pays about 6 million people, processes 7.3 million travel vouchers, handles 11.2 million invoices, records 124 million accounting transactions, manages nearly $200 billion in military trust funds, and disburses more than $346 billion every year. (1)

While achieving this mission, the DFAS has steadily reduced the percentage of the Department of Defense (DoD) budget spent on finance and accounting from 0.56 percent in fiscal year (FY) 1999 to about 0.34 percent in FY 2003. The DFAS team has made more of the DoD dollar available for training, equipping, and protecting soldiers, sailors, airmen, and marines while improving products and services.

The challenge ahead for the DFAS is finding new ways to anticipate customer needs while increasing its value to the DoD and to the American taxpayer. To meet this challenge, the DFAS has embarked on a transformation journey based on strategic direction, sound business analyses, and a focus called Lean Thinking.[SM]

An Ever-transforming DFAS

Since its creation, the DFAS has been in the business of transformation. In 1991. the Secretary of Defense formed the DFAS to reduce the cost of business operations and strengthen financial management within the Department. To that end. the DFAS consolidated more than 300 installation-level finance and accounting operations into 26. The agency's workforce has decreased to just slightly more than 15,000 from about 27,000.

Recently, the DFAS has reorganized around core business lines to better align to customer needs It is now a customer-focused, strategy-based, and metrics-driven organization with a growing record of operational excellence committed to quality and results, This status gives the agency a solid foundation from which to move forward on its transformation journey.

Business-driven Transformation

Transformation reaches into every corner of the DFAS enterprise. It is an integrated, leadership-driven approach for reinventing the agency to meet its customer needs and pursue best value by continually increasing effectiveness, efficiency, and productivity: At the DFAS. transformation is a team effort requiring everyone's participation.

"The DFAS team will conquer the challenges of tomorrow by transforming DFAS today," said Thomas R. Bloom. Director of DFAS. "The men and women of America's Armed Forces, decision makers throughout our government, and our defense-industry partners deserve the very best in finance and accounting services. DFAS people will not be satisfied with delivering anything less."

To achieve DFAS' business goals, every function will undergo a Business Case Analysis (BCA). Chosen as a key tool in transformation, BCAs identify where value currently resides and underpin recommendations designed to produce additional value.

BCAs involve six steps:

1. Identify and appoint the team. The team includes functional experts and is supported by legal, personnel, acquisition, financial, and systems experts.

2. Define the scope of the analysis. This step determines the boundaries of the function and its relationship to the DFAS mission and customers.

3. Define the current "as-is" organization. This step creates a detailed picture of the current function under review. It includes resources (that is, personnel, facilities, budget), relationships (internal DFAS, external support, and customers), and key functions (processes, deliverables, and general workload).

4. Conduct market research. Market research varies but can include publishing a Request for Information, contacting companies or industry associations, conducting an industry day, and/or reviewing similar market research efforts.

5. Define and analyze options. Each option is presented separately and includes a basic description; the end result; a discussion of strengths, weaknesses, opportunities, and threats; a cost analysis; personnel impact analysis; and an overall risk assessment. A basic acquisition is also addressed for each alternative.

6. Provide a recommendation. The BCA team makes a recommendation to the DFAS' Transformation Executive Steering Group, which reviews the analysis. If the Steering Group approves the recommendation, that body then forwards the recommendation to the DFAS Leadership Council for consideration. If the Leadership Council concurs, the recommendation then is vetted with appropriate DoD officials before being announced.

BCA recommendations are positioned along a continuum between government-operated and privately operated solutions. There is no "one-size-fits-all" organizational form. On the government-operated end of the continuum is the High-Performance Organization (HPO). An HPO represents moving an organization forward and can involve the realignment, relocation, and restructuring of a function.

On the privately operated end, the agency pursues competitive sourcing options through the Office of Management and Budget's Circular A-76 process to meet the agency's mission.

In both cases, the DFAS retains oversight and responsibility for the function.

The DFAS began conducting BCAs in the spring of 2003. Since then, the agency has completed two BCAs. For Marine Corps Accounting, the outcome resulted in a recommendation to conduct an A-76 competition. For its Vendor Pay function, the DFAS will pursue an HPO. Three other BCAs (Technology Services Organization, Acquisition Services, and Disbursing) currently are in review. In FY 2004, the DFAS will conduct BCAs for Army, Navy, Air Force, and Defense Agency Accounting, as well as the agency's Corporate Communications and Equal Employment Opportunity functions.

According to Mr. Bloom, "We are at a critical point in our transformation journey. With BRAC [Base Realignment and Closure] still ahead and increasing fiscal pressures, the DFAS team is taking advantage of the BCA process to help determine what the DFAS future will be instead of waiting for it to come to us."

Lean Thinking and Transformation

Succeeding in transformation requires more than a new organization. It requires a change in thinking--Lean Thinking. Lean Thinking has helped world-class organizations like Toyota, Pratt and Whitney, and Porsche win and maintain dominance in their respective industries. The underlying concepts have also been applied to service and finance industries. For organizations like these, Lean Thinking has doubled productivity while reducing cycle times and production costs up to 90 percent. (2)

Lean Thinking teaches that there are three types of activities within an organization--activities that generate value, activities that generate no value but are required, and activities that generate no value and are not required. Lean Thinking helps organizations reduce the second and third types of activities to eliminate waste, or "muda." Mr. Bloom notes, "Lean Thinking is a whole new way to think about work. It's going to touch everything that we do."

To help Lean Thinking cascade throughout the DFAS, the agency is training a group of DFAS team members on the principles of Lean Thinking and how to identify and eliminate muda. These people then are expected to share their knowledge throughout the agency.

Delivering Results for DFAS' Customers

Mr. Bloom states that the agency is "committed to becoming the leaders in the federal government in finance and accounting services. Our transformation builds upon a solid strategic foundation with sound business analysis empowered by Lean Thinking to create real results for our customers."

By adopting and implementing this process, the DFAS is becoming more competitive and capable of delivering the best value in finance and accounting services to its customers. In this way, the DFAS is answering the President's call not to be "afraid of competition, innovation, and choice" and to focus on delivering results. (3)

According to Mr. Bloom, "Competition brings out the best in people. At DFAS, competition drives us to be more innovative and aggressive in finding better ways to fulfill our mission. We've already learned valuable lessons from the BCAs we've conducted and are preparing our people to move forward from here."

Endnotes

(1) DFAS Annual Report FY 2002 (January 2003), http://www.dfas.mil/about/ar_index.htm.

(2) James Womack and Daniel T. Jones, Lean Thinking: Banish Waste and Create Wealth in Your Corporation (2003).

(3) President George W. Bush, "The President's Management Agenda." Executive Office of the President and Office of Management and Budget (FY 2002), p. 17.

Related Links

DFAS--http://www.dfas.mil 

President's Management Agenda--http://www.whitehouse.gov/omb/budget/fy2002/mgmt.pdf

The Principles of Lean Thinking[SM]

Lean Thinking originated on the shop floor of a Toyota plant where exicutives sought to create the most efficient organization possible, There are five principles to Lean Thinking:

* The customer defines value. Lean Thinking begins and ends with the customer. Customers determine the value of any activity performed by an organization, Their needs determine requirements and their satisfaction determines success. Lean Thinking lets the voice of the customer be heard.

* Know the value stream. The Value stream includes all of the activities required to deliver a product or service Often drawn as a map, the value stream represents the real "as-is" picture of how work is accomplished.

* Flow promotes value. The principle of flow is the idea that the process of generating value must never stop. Flow runs counter to the concept of batch-and-queue processes. The enemy of flow is departmentalized processes and thinking.

* Customers should pull the product. This principle suggests that real customer demand should drive our work and the delivery of products and services rather than pushing products onto customers who may not need or want them.

* The drive for perfection never stops. Driving for perfection is a life's work because there's always room to improve. This principle suggests that when something is fixed, it's time to fix it again.

The key to Lean Thinking is eliminating "muda," which literally means an activity that creates no value, or waste. Eight types of muda are:

* Overproduction--Making too much of an item

* Inventory--Warehousing resources and goods to use later

* Overprocessing--Adding steps in a process that are not required

* Motion--Moving between tasks without accomplishing "work"

* Defects--Failing to meet customer requirements

* Waiting--Lag time between tasks

* Transportation--Unnecessary shipping during production

* Underutilizing people's talents--Not taking full advantage of the expertise and talents of the team

Armed with the basic principles of Lean Thinking--and an awareness of the types of muda--everyone can fight waste and help create value.

Bryan Hubbard is deputy director of Corporate Communications for the Defense Finance and Accounting Service. His career in professional communications includes serving as director of Corporate Communications for commercial firms, executive producer for well-known Web properties, and public affairs officer in the Secretary of the Air Force Office of Public Affairs.