Air Force category management: Spend intelligently, not just by year’s end

In part 2 of their look at the Air Force’s procurement innovations, Tim Cooke and Anne Laurent explain why the service’s approach to category management is ...

This article is the second of two examining the Air Force’s super-charged category management.

When the Air Force identified fire protection suits as a target for better management, the priority was improving firefighter safety by standardizing equipment. Market analysis had revealed that assembling fire protection ensembles using boots, helmets, gloves and suits bought from different suppliers was a safety problem. It took more training to learn to properly use equipment from different manufacturers, and that opened the possibility for dangerous errors. Mismatched pieces also could expose firefighters’ skin to chemicals and burns.

Buying from a Defense Logistics Agency contract wound up costing more than necessary because the Air Force wasn’t aggregating its demand. Pricing was based on orders from individual bases rather than on the average of 5,000 ensembles bought every year for 10,500 firefighters Air Force-wide.

Benchmarking fire departments in New York and California showed that they buy standard suits for all their firefighters and develop longstanding relationships with the suppliers. So, Air Force firefighters narrowed down their requirements to an overall ensemble configuration. That led to a reduction from 109 to 14 contract line items and 14 contracts to nine—one for chem-bio boots, five for ensemble pieces, and three for suit care and support. The changes saved $1.1 million in fiscal 2018, alone.

Now, an Air Force directive has made these contracts mandatory, so savings should increase, releasing more funds to buy protective suits and to move to other critical readiness requirements.

In the Air Force’s best-in-class business approach to category management, contracts aren’t the main event. In fact, while the strategy rarely leaves current practice unaltered, it doesn’t always end with changed or new contracts.

Instead, Air-Force-style category management delivers a range of demand-shaping, policy and process improvements aimed at achieving desired outcomes, saving on outlays and redirecting resources to increase readiness and lethality.

Even when category management is focused on improving solutions, it also saves money and improves processes.

The Air Force category management approach can wring efficiency from a mammoth contract like the General Service Administration’s IT Schedule 70.

Agencies come to IT 70 with their individual buys and often end up paying higher prices than they could be. When a company sees an order for 50 printers, it has no idea or expectation that tomorrow another order for 50 or 100 is coming, so it prices according to 50. The Air Force sought to harness the full power of having a bigger contract.

It created a computing blanket purchase agreement (BPA) on IT 70. Every six months, the Air Force puts its entire client computing demand up for bid on the BPA and provides the winner all the Air Force orders for the following six months. The Air Force gives bidders its historical spend data. Eyeing that demand, contractors sharpen their pencils and might even take a loss in the first three months, planning to make it up plus more in the next three because they are confident the orders will be there.

Again, and again, the Air Force has found that the most important lever for spending efficiency is managing demand.

Redirecting demand to substitute products can end inefficient processes and produce human and monetary resource savings, as demonstrated in the case of taxiway lighting. Air Force airfield taxiways need to be lighted at night, and they require a lot of light bulbs. The Air Force was using incandescent bulbs in taxiway fixtures, and they often burned out. Every time one did, a civil engineering troop had to drive a truck out to change the bulb.

Those out-and-backs were creating big manpower and materiel costs. Bases were spending an enormous amount on lighting, not even accounting for the cost of electricity. Shifting demand to substitute LEDs for incandescent bulbs increased bulb life expectancy 100 times, reduced electricity costs by 60%, achieved off-the-charts civil engineering process cost reduction, and is on track to save $4.7 million over 10 years.

Improving outdated or inefficient policies, as in the case of an Air Force elevator maintenance directive, can produce impressive savings by itself. With every base handling its own elevator maintenance contracts, the Air Force Installations Contracting Center (AFICC) had expected that imposing one big contract would be the right way to generate savings. But it turned out that the Air Force hadn’t updated its elevator maintenance policy in 30 or 40 years, even though elevator technology had evolved significantly.

The policy required monthly and quarterly inspections. Because it was an Air Force directive, no base could deviate from it. It wasn’t that costs were so out of line, it was that the policy, and thus the requirement, was out of date. So, AFICC wrote a standardized requirement based on current private sector best practice—some elevators now self-report when they need repairs, for example—and collapsed maintenance costs by 27%.

Follow the Air Force Model

In 2018, then-Acting Defense Secretary Patrick Shanahan directed the other military services to adopt the Air Force’s business-oriented category management approach.

Now, the Army is standing up five categories for an Army-wide program and category management is the number two priority for Army acquisition. AFICC is helping the Defense Health Agency and other federal organizations apply the Air Force approach. Air Force category managers also are cooperating with those leading the governmentwide program.

Government-wide category management performance measures such as increasing spend under management (SUM) and moving up the governmentwide program’s tiers of SUM can be important metrics for some purposes, but they don’t change incentives. They won’t help reinvest money from support to mission. They won’t add rigor to focus category management on the spending that will produce the greatest return on investment, and they won’t correct the mistaken belief that a bigger contract is always better.

By tracking the savings from reducing common spending and apportioning those dollars to successful category management practitioners, the Air Force is attempting to move the incentives from “spend all your money on time” to “spend as intelligently as possible.” With help from financial managers, those who take a business approach like the Air Force’s to category management will be able to free up cash flow to invest in mission capabilities.

The United States must move faster than our adversaries can keep up. This requires thinking critically and seeking mission-focused business opportunities. The Air Force example demonstrates that aligning incentives and protecting and encouraging disruptive thinkers and actors can spread exceptional outcomes governmentwide.

Tim Cooke, the president and CEO of ASI Government LLC, is an award-winning thought leader in federal acquisition policy and practice.

Anne Laurent is the founder of The Acquisition Innovators Hub, LLC, where she publishes the Acquisition Innovators Weekly newsletter.

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