Change Is In The Air

By George Cahlink

June 1, 2002

When it put customers on its radar screen, the FAA Logistics Center began cutting costs and speeding up repairs on air traffic systems.

T wo years ago on Easter weekend, John Zalenchak, the Federal Aviation Administration's manager of air traffic facilities in New England, had one of the toughest tasks in aviation. A hard-driving storm had dumped 4 inches of rain on Massachusetts. And on Saturday morning, gusty predawn winds had knocked out the antenna and damaged the main radar system at Boston's Logan International Airport, the ninth busiest in the country. Air traffic was nearly at a standstill. "In essence we were faced with building a new radar system from the ground up," recalls Zalenchak. "We had the whole eastern air traffic corridor at its knees."

With scores of flights being canceled, diverted and delayed every hour, Zalenchak telephoned managers at the FAA Logistics Center in Oklahoma City, Okla., and asked how soon they could get a new system transported, installed and running in Boston. The Oklahoma facility is the agency's repair and distribution center for all air traffic control system parts. Similar repair efforts at other airports had taken more than a week, Zalenchak was told, and the best estimates predicted the radar system would be off-line for five days. As air travelers waited, employees at the logistics center scrambled to find the 63 components needed to build an AS-9 radar system from scratch.

Within an hour of Zalenchak's call, parts were being pulled from test equipment and others were being refurbished. Each part had to be tested before being sent to Boston. By midnight, less than 24 hours after Zalenchak's call, all the parts, including a 5-ton, 36-foot-by-17-foot antenna array, were tested and packed onto a C-17 cargo plane borrowed from the Air Force for the urgent mission. The next morning, the new radar equipment arrived at Logan, along with a handful of logistics center workers to help with the installation. Working around the clock in 40-degree temperatures and steady rain, FAA regional facility service employees, the logistics center crew and local airport personnel had the new radar installed, tested and in use by 8 o'clock Monday night-two and a half days ahead of schedule.

"Typically, there were established processes that would have been followed, and it may have taken a week minimum to restore service. This is indicative of the improved service the logistics center provides," says Zalenchak.

Elaine Downey, manager of the logistics center's Radar Products Division, says such a feat would have been impossible without recent reforms that have streamlined the center's operations and realigned them along product lines and customer needs rather than functions, such as engineering and supply management. "In the past, when we had these types of outages, four different [division] managers would have been involved, so the coordinating that took us less than an hour would have taken us all day," she says.

Like the Defense Department's repair depots, the FAA's Logistics Center was derided inside and outside the agency throughout much of 1990s as a costly and inefficient government distribution center that could be better managed by the private sector. Parts weren't always in stock, repairs often took weeks and the center had not taken an inventory of its 20 million items in two decades. In 1997, Congress created the National Civil Aviation Review Commission to look at the problem, appointing Norman Mineta, now Transportation secretary, to lead it. The panel recommended that the FAA outsource all logistics work. Five years ago, many of the center's 600-plus workers expected to be out of work early in the 21st century.

Today, calls to close the center have stopped. In addition to reorganizing operations, a new management team has created annual financial profit-and-loss statements and made responsive customer service-as in the Logan repair-the rule, not the exception. Other agencies and the General Accounting Office say the logistics center is a prime example of how a moribund organization can be revived by establishing clear performance standards and encouraging employees to find ways to do their jobs more efficiently. "FAA's Logistics Center saw the need for operating like a private sector business and envisioned the organizational and operational changes required to do that," GAO said in a September report (GAO-01-1070). As a result, the center's workers are collecting annual performance bonuses, not unemployment checks.

Gary Grice, deputy regional director for the National Weather Service in Fort Worth, Texas, says his agency was so impressed by the turnaround that it invited the director of the logistics center, Norman Bowles, to speak at leadership training seminars. "They encouraged their staff to develop a vision," he says.

GOOD AT SAYING NO

Bowles came to the logistics center in 1996, after several policy jobs in Washington. He says employees were working hard but not providing good service.

A customer survey of FAA field operations showed the center consistently fell short of expectations. "The only area [where] we were performing higher than expected was in customer courtesy. Our customers were saying, 'You're really nice when you tell us you can't help us,'" Bowles says. Employees were unaware of their deficiencies, he adds, because the center had no measure of customer satisfaction. Meanwhile, the center's inventory and accounting systems were so flawed that GAO cited them as key reasons the Transportation Department, FAA's parent agency, couldn't get a clean audit until 2000. The center consistently failed to meet a federal requirement to conduct a wall-to-wall inventory every three years, and it had no cost-accounting systems to track parts and services.

Finances were a low priority, because the center operated as a "free issue" system. The center had an annual budget of about $120 million to buy more than 45,000 air traffic control system parts and to provide services on demand to more than 6,000 FAA field technicians. Technicians didn't care about the cost of parts and services, because they weren't being charged, Bowles says. As a result, field units were ordering repairs rather than tapping their own budgets to buy new systems, he says. In one case, the center spent $28,000 to repair a single black-and-white air traffic system display, even though a new color monitor would have cost only $7,000. The center's structure proved just as inefficient as its funding scheme. Employees were grouped into six divisions based on functions-engineering, supply management, nails management, logistics automation, quality assurance, and storage and transportation. Repairing an air traffic system required pulling employees from as many as three divisions, each with different priorities. It was not unusual for an equipment specialist in a repair shop to request technical drawings of a system and wait five days for the engineering division to process the request.

"We were a typical bureaucratic organization. If we had remained the way we were, we probably would have ceased to exist," says Ed Andrews, an assistant division manager at the center.

BETTER DAYS

Turning around the center, says Bowles, has required boosting its performance and shifting to a "pay-as-you-go" process in which customers pay for the services and parts they order. Without improving service, the center would have risked losing customers once they had to pay for its work. Bowles set a goal of turning around performance in 1997 and 1998 and then converting to the new funding system from 1999 to 2001.

Bowles restructured the center to look like a private company, with six divisions based on major products and services-distribution, radar products, aircraft products, product services, automation and communications products, and navigating/landing/weather products. Now, for example, all the center's radar workers, whether they are engineers or inventory managers, work in the same division. But the transition wasn't seamless. When directors of the old divisions were reassigned to the new ones, employees were wary. "People were skeptical about receiving support from new managers," says Danna Wolf, assistant manager of the center's Product Services Division, noting that many workers believed managers in the new divisions would favor employees they had worked with previously and would offer little guidance to employees who came from different divisions.

What's more, focusing on customer needs was a challenge for employees accustomed to the old system. "We had employees who knew processes, not products," says Bowles.

Bowles sought to alleviate such parochialism by assigning transitional supervisors to each new division. Those supervisors are still in place to continue promoting a customer-focused culture. "Nobody defined what our jobs would be. We were just told to help the group get off the ground and be successful," says Wolf, one of the Radar Product Division's transitional supervisors.

She says employees became receptive to change after the supervisors began acting on employees' ideas. For example, employees pushed for contract specialists to be assigned to each new division, rather than being kept in a separate organization focused solely on acquisition. They convinced center leaders that putting contract and program employees in the same organization would lead to quicker turnaround times on purchase orders. "In the past, when we had problems, we would have had to get people from different buildings with different managers together, and it was often difficult to act. Under one team, everyone who needs to be at a meeting is there, and issues get resolved," says Wolf, now an assistant manager of the center's product services division.

The organizational changes have reduced the time it takes to:

Andrews concedes that the changes did not occur overnight. "We were dealing with a culture that was nearly 52 years old. There was a lot of aggravation in making the changes," he says. Some employees questioned why they should change if they were ready to retire, other workers doubted whether the reforms would improve service, and many initially viewed the performance measures as a way to judge and punish employees. "There were times I was ready to throw in my hat," says Andrews.

Employees did not begin embracing the changes for a least a year and only after they could see operations were improving. After a while, they realized that performance measures were not being used to punish them but, in fact, could lead to cash and other performance bonuses, Andrews says. "Communication was critical. Employees had to know what was in it for them."

Training is equally critical to helping employees recognize why change is needed, according to Bowles. "I don't believe people are resistant to change," he says. "The difficulty comes when you go into an organization and people don't expect change. If they understand the context of the change and can see what's in it for them, they'll accept it."

All employees have received extensive training focused on customer service and performance and on how those elements relate directly to the center's success and survival. Employees drafted the center's strategic plan, developing performance measures and making recommendations for restructuring. The center established a board of directors, made up of managers from each division. The center could not afford to hire expensive consultants, so employees oversaw the changes they had designed, Bowles says. About 20 percent of employees, all experts in their areas, were pulled from their jobs to work exclusively on tasks such as investigating best practices at private sector and government organizations.

One of those employees, Rick Gracia, manages the center's distribution operations office and oversees 120 employees. After visiting the Defense Logistics Agency's depot in Jacksonville, Fla., he says, employees decided to adopt the Defense agency's trouble-shooting approach to find out why parts listed as being in stock weren't available when customers needed them. Like the Jacksonville depot, the logistics center now has a team that conducts a review whenever an item supposed to be in stock isn't on the shelves. The added attention has cut the logistics center's rate of unavailable stock from 18 for every 1,000 items ordered in 1998 to two for every 1,000 items in 2001, Gracia says.

FINANCIAL FREEDOM

Service improvements paved the way for a fee-for-service system. In 2000, Congress approved the center's revolving fund concept. In fiscal 2001, the center turned its $120 million annual budget over to its customers, so they could buy services and products from the center. The center didn't even retain funding for salaries, which are now paid out of fees from its customers. "We went from a communist system to a free-market system," says Bowles.

Now that customers have to pay for the parts and services they need from the center, they are being more careful about what they ask for, says Bowles. Orders for new parts declined from about 2.2 million in the first six months of fiscal 1999 to just over 1 million in the first six months of fiscal 2001. Customers are better maintaining, tracking and stocking their equipment, Bowles says, making it last longer and reducing their costs.

Despite the decline in orders, the logistics center won't go out of business anytime soon. Bowles says the FAA always will need the center to repair old equipment and systems that no longer are maintained by commercial contractors. The smaller workload has led to some reductions in staff, but the center has not laid off any workers. Since 1996, it has chosen not to fill more than 100 positions left vacant by retirements. Today, the center employs about 540 workers.

The center keeps busy by offering new and expanded services, such as:

BALANCING THE BOOKS

Charging for services is one of the center's most visible changes, but it also has improved its internal financial and inventory management systems. The logistics center completed its first wall-to-wall inventory of 20 million items (with a total value of about $500 million) in fiscal 1999 and scored 95 percent for accuracy. Bowles says the inventory did not pinpoint any significant part shortages, overstocks, or difficulties in locating items, but provided a benchmark for measuring the accuracy of future inventories. To get its financial books in order, the logistics center hired Harley Farmer as comptroller. He is former comptroller of Fleming, one of the nation's largest food distribution companies. He instituted annual financial statements, which provide a breakdown of profits and losses by division, and spearheaded the creation of a data management system that combines information from five different inventory tracking systems into a single report. Farmer says managers can use that information to order and stock parts, and to compile financial statements.

Now that inventory practices have improved and the financial picture is clearer, the center's managers are being held accountable for their performance. Beginning in fiscal 2001, the center offered employees annual bonuses of up to $500, if the center met overall customer service goals for shipping products to the right place, filling orders quickly and controlling costs. In 2001, the center awarded all of its employees bonuses of about $350.

TAKING NOTICE

The FAA Logistics Center's turnaround has not gone unnoticed. A February 2001 report by the Los Angeles-based Reason Public Policy Institute cited the center's shift from a "free issue" system to a "customer-driven, nonprofit corporation" as a model for privatizing the nation's air traffic control system. Congress has talked about privatizing air traffic control operations as a way to cut costs and apply commercial business practices to running that that could create less congestion at the nation's airports.

However, logistics center customers aren't sold on all aspects of the change. Robert Long, the FAA's deputy director for field services, says that although the center is getting parts to the field more quickly than before, the fee-for-service system places a higher priority on keeping down costs than on ensuring that equipment is always up and running.

Under the old financing system, Long says, a field technician might have ordered two replacement parts when a system broke, keeping one on the shelf for backup. Now, he says, cost-conscious technicians order only one part at a time, which can lead to ordering delays if the system breaks down repeatedly.

"There's a concern that the center wants to operate like a business, but we as the government need to operate the air traffic system as effectively as possible. We can't say that just because costs are increasing that we will not provide a product or service," says Long. The FAA is addressing those concerns with an internal review of the new fee system, which is scheduled for completion by the end of the year.

Joseph Slye, an executive consultant for the Treasury Department's Federal Consulting Group, says the logistics center is one of the best examples of how a federal organization can be run like a business. Bowles' experience with the Clinton administration's reinventing government efforts-he served with the National Partnership for Reinventing Government and put in two decades in Transportation Department policy shops-helped him show field managers how much flexibility they have in restructuring their organizations, Slye says. Managers often are unaware that they can unleash change without slogging through the cumbersome process of passing laws or changing departmental policies, he adds.

Bowles says organizational and funding changes such as those at the logistics center, do not always work. But, he says, managers should be willing to pursue changes and risk failure because it allows them more control over their future. "The logistics center has come a long way in five years," Bowles says. "While being out in front doesn't guarantee success, we stand a better chance of keeping our customers satisfied by being a leader, not a follower."


PARTS AND LABORSince refocusing on its customers, the FAA Logistics Center has provided much better service.

The FAA Logistics Center:


By George Cahlink

June 1, 2002

http://www.govexec.com/magazine/2002/06/change-is-in-the-air/10866/