Applying Six Sigma and e-Sourcing to IT Leasing at Bank of America

When manual processes resulted in lengthy turnaround times and dissatisfaction among internal customers at Bank of America, the bank took its technology leasing program online with a Web-based sourcing solution.

When manual processes resulted in lengthy turnaround times and dissatisfaction among internal customers at Bank of America, the bank took its technology leasing program online with a Web-based sourcing solution.

The consumer and commercial banking operations at Bank of America transact with more than 150 customers per second, but when the bank's staff needed to lease information technology equipment, the turnaround time to get the information they needed to choose a lessor stretched to nearly two weeks. Until, that is, the bank applied Six Sigma principles and e-sourcing tools to its IT equipment leasing processes.

Charlotte, N.C.-based Bank of America, holding nearly a half-trillion dollars in investor assets, has more than 177,000 employees working in 5,790 banking centers in 29 states and the District of Columbia. As recently as a couple of years ago, the bank had a single employee handling its leases for various IT equipment, ranging from copiers and mail equipment to midrange computers and mainframes — in short, any IT-related piece of equipment went through one person.

The lone leasing lead processed dozens of requests for proposals (RFPs) every year — for example, 54 in 2001, 68 in 2002 — using e-mail and "snail mail" to correspond with the equipment lessors. When a leasing request came in from one of Bank of America's internal customers (or "business partners," in the bank's lexicon), the lead would prepare and send out RFPs to the bank's dozen or so regular lessors and wait as the responses trickled back into the bank.

Eventually the lead would collate the responses and pass the lessors' proposed lease rate factors back to the internal customer for a decision. (The lease rate factor is a percentage figure that, when multiplied by the total cost of the piece of equipment in question, produces the periodic lease payment.) All in all, the turnaround time from the moment the internal business partner requested a lease rate factor to the moment the leasing lead could provide that information was averaging 11 days.

Bringing in the Six Sigma Team

"It was extremely slow," says Michelle Selk, a sourcing lead at Bank of America, of the lengthy cycle time to secure a lease rate factor. The result was low satisfaction among the internal business partners. "They just couldn't do their job efficiently because of the delay in the timing," Selk says, adding that the manual processes also made it difficult to track information on the different equipment leases out for bid and those that had been completed.

Selk was a member of Bank of America's Six Sigma group, which has been systematically working its way through the bank's processes in search of new efficiencies. The bank's Six Sigma group began looking at the leasing process a couple years ago after one of its black belts moved from technology and operations to the supply chain management group and wound up heading, among other offices, the leasing department. Aware of the end user discontent with the IT equipment leasing process, the bank moved Selk over to leasing as well to work on a Six Sigma project in the department.

The Six Sigma team began by evaluating the current leasing process and identifying the primary bottlenecks, which, naturally enough, turned out to be the manual RFP processes. As the team began evaluating ways to streamline this process, Selk learned that, in fact, the supply chain management group had been using an e-sourcing solution elsewhere in the bank for about three years to streamline the purchasing of various other goods. After consulting with the Six Sigma black belt, Selk and her team decided to try applying the same solution, from Atlanta-based provider Procuri, to the IT equipment leasing process as well, an initiative that Selk says was possible because all the bank's lessors are included on one master lease.

Getting the Lessors Onboard

With its first e-sourcing event scheduled for January 2003, Bank of America first had to get its lessors onboard with the new online process. Selk says that, at first, the lessors were reluctant to participate in the e-sourcing events. "The big lessors pretty much stated that the relationships would be ruined," she explains, "and that we would be unable to control our lease program because we would be throwing everything out for anyone to bid on. But that's not the case. We realized that there are reasons for not bidding out certain things."

For example, the bank understood that the bidding process would work for standalone equipment, but not for upgrades to equipment, since it would only be logical to have the same vendor that provided a base unit handle the upgrade to that equipment when the time came. "So if it is a mainframe, we will bid it, and then we know that whoever wins that lease is going to also get the upgrades," says Selk.

In addition, the Bank of America team had to invest time in understanding how the process would work from the perspective of the lessor. In particular, the bank's staff needed to be able to provide all the information that the lessors would need to submit an appropriate lease proposal. The bank's team had to break out the hard and soft costs and ensure that all the appropriate information was included in the RFP — for instance, the length of the lease, location of the equipment (for tax purposes) — so that the lessors could calculate the residual value of the deal and make their best offer.

The lessors also were concerned that the online process would not be sufficiently flexible in allowing them to offer special terms to win the bank's business, whether that be particular warranty terms, creative financing or some other incentive. In fact, Selk says that she worked with the lessors to assure them that they need only work through the system to provide these additional details via e-mail within a set timeframe, and all these details would be rolled up into the analysis sheet that the lease team would provide back to the internal customer at the end of the online process.

Saving Time...

Furthermore, as the bank began conducting its online events, the lessors came to realize that the e-sourcing process could make their lives easier, too, since the online events took place at a set hour and for a set period of time. Selk does note that her team did have to tinker a bit with the timeframe for the events before settling on a final format. "We started off at an hour-long auction, but we realized that was too long," she says. "We went to 15 minutes, but that was too short. We came to the half-hour auction, and that seems to be working really well. Everybody knows what time it is. We post it early, and you can put in your best and final bid if you can't show up during that half-hour."

A few of the bank's lessors did initially decline to participate, but they had a change of heart when they lost their equipment leases to competitors, according to Selk, who adds that new companies have been coming to her to participate in the online events as well, building out the base of lessors available to the bank's internal customers. "I just trained a new company, and they were impressed because it's the easiest possible way for them to get their information to us," says Selk. Indeed, lessors have been able to gain access to a greater potential share of the bank's business, since the online process opens up all of the bank's leases to the full pool of prospective lessors.

Bank of America wound up running 28 online events for IT equipment leasing in 2003 and is one track to meet that number this year. The turnaround time on the events has been reduced dramatically, Selk says, cutting down the cycle time from 11 to just a few days, elating the bank's internal customers and racking up considerable process savings for the bank, meeting the project's two primary goals.

Moreover, Selk says that the bank's business users are now able to make more informed decisions about their equipment leases because the Procuri solution allows for collecting and cogently presenting a greater amount of information than was possible previously. "Before [the internal business partners] were only given the winner, the lowest lease-rate factor," she says. "Now they are given everyone's information along with the pluses and minuses. They have more information, and they can make a better-educated decision than ever before."

...and Money

The project has also yielded hard savings, with Selk estimating that the bank saved $570,000 in 2003 on its IT equipment leases. Calculating those savings was somewhat of a challenge, in part because the bank found that benchmarking figures for leasing were difficult to come by. Ultimately, the bank's project team wound up going out to a lessor and asking for a lease rate factor prior to an online event and then comparing that initial figure to the winning bid in order to come up with a savings figure.

Moving forward, the leasing department at the bank is considering applying the e-sourcing process more broadly to its leased equipment. The bank already has done an end-of-lease auction, re-bidding a lease that ordinarily would have been routinely extended for an additional 12 months. That lease wound up going to a different lessor, netting the bank some $30,000 in savings on this deal alone. Elsewhere, the bank is considering putting out for e-sourcing a buyout of a midrange computer and then releasing it so that the bank can get its upgrades at a lower cost.

Asked what advice she might give to a purchasing executive considering applying an e-sourcing solution like Procuri to such an unorthodox category as IT equipment leasing, Selk offers this: "Go for it. And don't accept the initial negative response from everybody. You have to keep telling them that it's going to be OK."