FDA Develops Strategy to Improve Asset Management Process

Case Type: organizational behavior; operations strategy; supply chain optimization.
Consulting Firm: KPMG Advisory first round full time job interview.
Industry Coverage: government, public sector.

Case Interview Question #01117: The Food and Drug Administration (FDA or USFDA) is a federal agency of the United States Department of Health and Human Services, one of the United States federal executive departments. The FDA is responsible for protecting and promoting public health through the control and supervision of food safety, tobacco products, dietary supplements, prescription and over-the-counter (OTC) pharmaceutical drugs (medications), vaccines, biopharmaceuticals, blood transfusions, medical devices, electromagnetic radiation emitting devices (ERED), cosmetics, animal foods & feed and veterinary products.

Headquartered in unincorporated White Oak, Maryland, the FDA has 160 offices and stores inventory in 40 warehouses across the country. Each office has its own property management and inventory processes, allowing the offices to access inventory from any of the 40 warehouses. The agency has difficulty tracking assets, and estimates that only 10% of all assets are tracked in its tracking system. The agency also estimates that 2% of all assets are now permanently lost.

What is a long-term strategy to improve the asset management process within the FDA?

Possible Answers:

Candidate should first ask clarifying questions about the issues and then form a framework to attack the problem, including systems, offices and warehouses.

Additional Information to be given upon request:

(1) Inventory consists of assets such as cars, other motor vehicles, laptops, printers, and other office equipment.
(2) Property management IT systems vary across offices, and project management systems are inconsistently used from office to office.
(3) Property management IT systems are inconsistent across warehouses.
(4) There is no barcoding of assets (no tracking number is assigned to any assets that enter the system). Assets are associated with an employee’s name and have no other identifiable marking.
(5) Assets that are not currently in use are rarely entered into the property management system, making it likely that an office will order a brand new assets when there are unused assets elsewhere in the agency.
(6) Equipment is occasionally traded and leased between offices. It is unclear which office owns the equipment (for accounting purposes) and which office currently has possession of the assets.
(7) An individual office can order from any of the 40 warehouses regardless of whether it is the most cost effective.
(8) Many warehouses are small in size and were created with little thought to the cost effectiveness of the warehouse. Approximately 10 large warehouses exist and the remaining 30 are small.

Prompt #2: What information do you want to gather to understand and analyze the current organizational issues?

Possible answers include:

(1) Who has procurement authority?
* Procurement authority varies by office. Offices exist in silos and there is little communication between offices.
* Offices have grown over the years, and many offices now have overlapping procurement responsibilities. For example, one office has a designated Head of Procurement, but many supervisors bypass the Head of Procurement.

(2) What are current processes in place to obtain and track assets?
* The employee fills out a purchase order (in hard copy) and hands the it to the office’s designated Head of Procurement or to their immediate supervisor.
* The purchase order is almost always approved for purchase and is rarely checked against existing inventory. When the asset arrives, it generally goes directly to the person who ordered it without being entered into the office’s system by the Head of Procurement.
* Once the asset is delivered to the employee, it is rarely tracked and employees are not held accountable for these assets when they leave the agency.

(3) Process to trade assets within offices
* No process is in place and no guidelines exist.

(4) Current IT systems in place across the different offices and warehouses to track the assets
* The agency does not have a top-down communication system to coordinate the purchase and tracking of assets throughout the agency.
* Some offices use a homegrown database to track assets.

(5) Who has the ability to champion this project within the agency?
* The Chief of Procurement who resides at the agency level.
* Within individual offices, the champion and affect change varies.

(6) Location of current records so the assets currently in use can be moved to an automated system
* Varies by office and they will be difficult to locate.

Prompt #3: How would you obtain the information you just outlined?

Possible answers include:

* Review the existing procurement policy.
* Obtain an organizational chart to understand who has procurement authority at the overall agency level and within the individual offices.
* Interview key stakeholders to understand their perspective of the process and the current challenges the agency faces with the existing process.
* Interview Head of Procurement within several offices to understand how process varies by office (should also talk to employees who complete purchase orders and stakeholder in the warehouse).
* Review existing purchase orders to understand redundancies in equipment ordered and to understand which warehouse locations offices are receiving the assets from.
* Review existing system with IT champion.

Prompt #4: What is your final recommendation?

Candidate should come up with one or two options (short term and long term). Possible answers include:

* Centralize purchase authority.
* Improve coordination among offices and warehouses to reduce redundancies in personnel and assets.
* Revamp procurement guidelines and enforce those guidelines to track equipment throughout agency.
* Implement policy that equipment must be returned to procurement pool before it is loaned or leased.
* Implement database that spans offices and warehouses so there is real time information regarding inventory levels and asset location within agency.
* Centralize the warehouses and reduce number of warehouses from 40 to a more reasonable number. Start by closing some of the 30 smaller warehouses and consolidating to the 10 main warehouses. Understand which warehouses are centrally located and close any that are redundant (based on location).
* Outsource procurement to a private entity to close warehouses altogether. If this is recommended, candidate should mention that a centralized approval and tracking system is still needed within the agency.

Performance Evaluation

Expected:
* Candidate will ask about the current procurement process and the loaning of equipment.
* Candidate will quickly identify that the procurement process is done on a largely ad-hoc basis and recommend structuring this process.

Good:
* Candidate will consider not just the process and technology involved, but also the human capital aspects and
* Candidate will understand that getting agency buy-in is key to executing a strategy within the U.S. federal government.

Excellent:
* Candidate may explore ideas involving the centralization of the warehouses to eliminate redundancies.
* Candidate may explore ideas involving the recovery of existing assets and how to enter and track those in the system.