June 30, 2003
Managing the Temporary Players
By Thomas Hoffman
Like other big, geographically dispersed companies, Shell Oil Products US spent a lot of money on temporary contract labor to fill short-term requirements for everything from accounting to IT consulting.
But while the Houston-based subsidiary of Shell Oil Co. still spends nearly $100 million annually for contract labor, it now takes a more cost-effective approach, thanks to its implementation late last year of a contingent workforce management system.
The Web-based system from Denver-based IQNavigator Inc. helps Shell Oil Products automate its contingent workforce management processes, including supplier qualification, requests for proposals, time-and-expense entries and invoicing.
Prior to the initiative, functional and business departments throughout Shell Oil Products applied a hodgepodge of manual processes to manage temporary and contract labor, says Kim Chapman, team leader for the contingent workforce management project. "We were spending quite a bit of money, and the team was charged with looking at how we could reduce our spending" through improved sourcing and better rates, says Chapman.
The team, which included representatives from Shell Information Technology International Group -- an IT services arm that supports multiple Shell divisions -- set a goal of reducing contingent workforce spending by 8% annually. Thanks to the use of IQNavigator, a set of process improvements and a reduction in the number of labor suppliers it worked with, Shell Oil Products was able to surpass its annual cost savings target in less than two months.
Reducing the number of contingent labor suppliers was one of the first steps. For instance, Shell Oil Products had been working with more than 20 suppliers of temporary administrative personnel, says Chapman. But it's now working with just four preferred suppliers.
By consolidating, Shell Oil Products is in a better position to negotiate labor rates, and there are fewer supplier relationships to manage. The consolidation, as well as automation and process improvements, lets Shell Oil Products get volume and early-payment discounts from its labor suppliers. By virtue of these discounts, the company has cut its payments to new contractors by an average of 28%, Chapman says.
The labor vendors like it, too, because it means they can become preferred providers for all of the divisions of the company, not just one or two.
"It's a vendor's dream. It's still up to you to perform, but now you won't be limited" in the number of corporate divisions you can work with, says Pamela O'Rourke, president of Icon Information Consultants LP, one of the preferred consultants that Shell Oil Products taps for temporary labor.
Getting Suppliers to Pay
One reason Shell Oil Products has gotten such swift returns on its investment is that it's not paying for IQNavigator. The software is paid for by labor suppliers such as Icon Information.
Having suppliers pay access fees for contingent workforce management software "has become the norm in the industry," says O'Rourke. She points to similar arrangements Icon has with J.P. Morgan Chase & Co. and Waste Management Inc., where system access fees typically range from 3% to 5% of an invoice, she says.
A Gartner Inc. report last year labeled IQNavigator a "trendsetter" in this market niche and said the company had an impressive lineup of large customers. But while the use of contingent workforce management systems might be gaining traction in the U.S., it hasn't drawn much interest in Europe, notes Wolfgang Bernhart, a consultant at Arthur D. Little GmbH in Wiesbaden, Germany.
At Shell Oil Products, Chapman says, the biggest challenge was getting different departments to change the way they procure temporary and contingent labor and to be willing to use a smaller number of suppliers.
"We're trying to educate people internally that this is business and that we're trying to get the right people at the right price," says Chapman. "People don't like that kind of scrutiny and aren't always accepting of that level of change."
So it didn't hurt that the company's CEO and chief financial officer sponsored the project.
To help other departments and divisions accept the new approach to hiring contract labor, Chapman and his team "did a lot of change management work," he says. It included holding awareness sessions with suppliers and internal managers and communicating the benefits of the new approach. "Some areas were more receptive than others," says Chapman.
Nevertheless, the project is moving apace. In December, Shell Oil Products' human resources, supply chain and special projects groups were added to the system. The IT division and retail operations units were added in February and March, respectively, followed by the company's transportation division in April and its refining and lubricants businesses in May.
The overhaul has transformed the way Shell does business with labor providers. Says Chapman, "We couldn't have done this five years ago."
