A Perspective on Contingent Labor Management in Refining

Transcription

1 A Perspective on Contingent Labor Management in Refining 1

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3 Objective and background Widely across the energy industry there has been an effort to optimize the use of contingent labor because of cost pressures: ongoing and increased emphasis on risk and safety; and the focus on talent. Energy supermajors spend US billions on contingent labor, and it s considered a top 5 spend category. Yet, most energy companies manage this by accident. In the past few years, the industry has begun to address where contingent labor is used and how to better manage contingent labor spend, population and associated risks. All international oil companies (IOCs) have eisting and ongoing efforts to improve the use of contingent labor, from rationalizing vendors, tightening controls and integrating metrics and reporting to implementing managed service provider arrangements to administer spend. In our eperience, downstream organizations heavily rely on contingent labor in disciplines across the site, including mechanical, process, technical, engineering and health, safety, security and environment (HSSE). Contingent labor is a critical issue for all components of the integrated supply chain, including upstream, midstream, downstream and corporate functions. A shortage of available talent in key locations, changing regulatory environments and increasing focus on HSSE issues is causing the energy industry to carefully investigate and implement contingent labor solutions. Accenture s eperience and industry analysis both indicate that through the adoption of field tested robust solutions, companies can reduce contingent labor costs by approimately 8 percent in year one and up to 25 percent year over year. The intent of this document is to provide an overview of how peer organizations are identifying opportunities to optimize contingent labor management processes and review how contingent labor management can be translated into value for IOC s downstream operations. To this end, the document first summarizes key lessons from leading energy companies, including research on how to approach contingent labor usage to enhance benefit. Finally, key opportunities for downstream operations to consider are described, demonstrating how IOCs can approach and manage eternal labor to unlock top and bottom line business value. 3

4 Contingent labor contet This paper is focused on the large numbers of supplemental/ temporary workers, broadly known in the industry as contingent labor. Most companies use contingent labor for various efficiency and cost savings. In a recent study conducted by Accenture, 64 percent of respondents cite the fleibility to adjust to changing demand patterns as a benefit of using contingent labor. 1 Additionally, 63 percent say contingent workers give them the ability to acquire skills on a perproject basis, 48 percent believe that contingent workers can help the company acquire highly specialized skills and 39 percent cite cost savings as a key benefit. As a result of the prevalent use of contingent workers, this supplemental or contingent workforce is essential to the success of downstream operations, but not always subject to the same level of consistent diligence and management oversight as a employee. This is an opportunity for IOCs in terms of both direct cost and, just as importantly, in terms of the direct impact on long term HR planning, risk management and organizational performance. What is contingent labor? Contingent labor should be thought of in terms of a spectrum. The right end of the spectrum starts with temporary workers defined as independent contractors, supplemental agency workers, interns/ part-timers and staff augmentation consultants. From there, the spectrum continues on to the midpoint and left end with managed services (fee-for-service), outsourced engagements and turnkey operations. In the refinery setting, contingent labor specifically covers the use of contractors to support activities both in the field and office worker/administrative settings. All refinery disciplines (e.g., mechanical, technical, process, engineering, HSSE) utilize contractor support to varying degrees across normal operations, routine maintenance, turnarounds and capital projects. These contractors are utilized to support activities requiring specialized skills that are not maintained on staff, as well as to provide fleibility to supplement the on-staff manpower. The table on the net page summarizes the activity roles that we most often see contract workers supporting to varying degrees within refineries. Force field analysis of contractor usage Field inefficiencies Program / inspection and tanks Risk aversion Easy to add contractor resources Metrics / stewardship Backlogs More is better Break ins Initiatives Attrition Leadership pressure Metrics Budget pressure Efficiency initiatives Accountability model Permitting/density Shift consistency P-S-E effectiveness Negative forces Positive forces Source: Accenture. 4

5 Frequent uses of contingent labor/contractors in refineries (illustrative) Discipline Activity roles Ops Routine TAR* Cap projects Mechanical General contractors (e.g. pipefitter, boilermakers, scaffolding, electrical, laborers) Specialized contractors core (e.g. machinery, instrumentation, industrial cleaning) Technical Process HSSE General Specialized contractors non-core (e.g. air conditioning, etc.) Supervisors Planners Schedulers Instrumentation analyzers Mechanical engineers Waste field labor Material coordinators Warehousemen Cost controls/admin Cost engineers Timekeepers Field inspectors QA/QC Field engineers Engineering associates Project managers Industrial vacuum trucks Unit support (e.g. coke handling systems, washing services, chemical injection/management) Technical writer Training support Air monitoring inspectors Security General environmental support (e.g. hazardous material management) Training support Admin support Data entry Lab assistants Procurement buyers Contract management Source: Accenture. TAR = turnaround 5

6 What processes does the end-to-end contingent labor management lifecycle cover? The end-to-end contingent labor management lifecycle covers the processes, tools and metrics required to effectively and efficiently plan, hire, manage and sustain the use of contractors within an organization. To manage effectively requires points of close integration across the business, procurement, finance and HR. In refining, effective contingent labor management covers the management of both contractor/supplier companies as well as the contract laborers they bring onsite. High-level overview of key CLM processes Business demand Contractor / supplier management Strategic supplier selection by category Rate card normalization / negotiation Supplier scorecarding Major sourcing events to fulfill demand Spot sourcing events to fulfill demand Eternal resource allocation planning Contract labor pool management Worker selection Worker selection coordination (e.g. front office / engineers) Onboarding (badging, site training) Certification / qualification tracking On-site tracking Worker performance management Offboarding Reporting / performance management analytics Invoice auditing / rate verification Supplier performance analytics Cost / spend analytics Worker performance analytics SLA / KPI monitoring Retain in house by client Best strategically led by client/administered by service Eecuted by a service provider Source: Accenture. 6

7 Why is optimizing the use of contingent labor important in energy? In energy, market forces over the past few years have compelled organizations whether supermajor, independent or an oilfield services provider to reconsider their approach to contingent labor. These market forces include the pressure on the price of energy commodities, the pressure of increased labor costs on capital projects, major safety incidents both in upstream and downstream, the rapidly aging workforce and general lack of qualified resources for the highly technical labor required by energy organizations. While the impetus for a downstream organization includes all of the above, the primary drivers are focused on cost and efficiency due to the increased strains on margins and importance of improving reliability and uptime at refineries. In Focus: Value of effective contractor management in refining Deliver increasing operational efficiency by carefully managing costly resources Enhance manufacturing agility to deal with high volatility and pricing fluctuations Optimize resource utilization to comply with stricter environmental regulations Operate safely with lower manpower Properly staff resources needed to increase reliability of aging equipment Manage loss of operating knowledge associated with turnover of a rapidly aging workforce While there are many benefits supporting the use of contingent labor and service contractors for the comple and routine work of running a refinery, there is an equal amount of risk. Accenture has found that many energy companies are not organized and do not have the processes in place to adequately manage the cost or safety risk of contingent labor. Below are the potential risks associated with downstream operations use of contingent labor, as well as the key areas for improvement that, if implemented, would deliver cost savings and safety improvements. Striking balance between effective and efficient (with constant focus on safety) The lack of transparency on contingent labor spend brings associated financial risk. If there is no standardized way of managing contingent labor, there are likely limited controls in place to help confirm that a contingent worker is not being over- or underpaid. The cost opportunity also etends to several aspects of contracting, procurement operations and supplier management. For eample, effective contingent labor management processes can identify efficiencies through supplier sourcing or re-negotiation, rate card management (e.g., competitive rate management), discount terms, rate card compliance management and overall supplier relationship/performance management (capturing ongoing savings incentives). Finding the right contractor staff, onboarding them quickly and ensuring that they are compliant with all work permitting requirements, adequately trained, paid on time and leave in a controlled manner are all activities currently diffused throughout the business. This leads to a process that is time consuming to administer and a workforce that is almost impossible to consistently manage effectively, much less strategically. The challenge facing oil and gas companies is how to manage this process in a more integrated, end-toend manner to enable the right contractors to be identified and brought on board efficiently and cost-effectively. Additionally, it is in a company s interest to make the decision upfront as to whether an employee should fill the role as part of a longer-term HR strategy to build internal capability. Accenture research also suggests that the majority of safety incidents emanate from contingent labor, with a direct correlation between number of contract laborers, eperience at the site/with the industry (typically less than 6 months) and the number of incidents. Regulatory and compliance Regulatory risk comes in two main forms: (a) Companies employing supplemental laborers who are not properly trained and qualified to do the work they are hired to do; (b) Front line managers who are not properly trained to manage their supplemental staff differently from employees. These two scenarios can pose tremendous risk to organizations. In many cases, there is no single point of accountability for the screening, documenting, qualifying and compliance assurance of this eternal labor population because it is diffused within the business. In the absence of a single point of accountability, we have found that this can contribute to poor contractor behavior, including scenarios such as stacking teams with junior workers or more senior consultants and supplementing workers that are not always qualified for their assigned work or only returning because they are known (and well liked) by the front line managers. In addition, this can lead to scenarios where workers who are qualified for a specific activity remain and transition to roles for which they are not qualified. 7

8 Further, Accenture finds that clients do not routinely screen or audit for contractors job training/safety certifications, even if these assurance processes are done routinely for employees. This can be especially harmful in critical activities within a refinery that depend on contract workers to deliver specialized skills, such as high compleity welding jobs. This is a particularly thorny issue in certain U.S. states such as California. Senate Bill 54 in the California Assembly will require operators to develop and track contingent labor training much more closely and further increase labor costs and penalties for non-compliance. Operators and suppliers should be watching this closely because laws in California have in the past been adopted by other regulatory friendly states. An additional regulatory risk stems from changes in employment law that increase the levels of rights a worker can accrue with increased years of service. Downstream operations typically lack the information systems and processes to control the tenure of contingent workers and this could epose the company to co-employment risk and liabilities, including the full range of benefits of an employee. Organizational capability One of the core challenges associated with effectively managing contingent labor is ensuring usage is appropriately integrated into the refinery s overall workforce planning efforts. Clients routinely come to Accenture for support in answering critical questions around appropriately using contractors as part of the broader organization. This includes answering challenging questions around aligning the appropriate staffing level balance, determining what skills should be organically built or acquired versus continuing to rent from the market and defining contract strategies around the use of contractors. The refinery s ability to build the right staff can be challenging without the right data. Without accurate, routine data covering both the staff and contractor population, it is at best a challenge (and sometimes impossible) to answer those questions with accuracy. Clients are often forced to settle for directionally correct data to make important workforce strategy decisions. A secondary challenge is managing the culture. The larger the percentage of contingent laborers in a workforce, the more difficult it will be for the organization to influence and enforce a common corporate culture. Additionally, many of the initiatives rolled out to improve performance, such as performance management or training to employees, are often not applied to contractors as consistently, therefore diluting their impact. Given that many contractors continue to support the refinery for several years, this can erode safety and corporate culture over time. Operating model A key to sustaining the total value of contingent labor is setting up and maintaining dialogue and alignment among the key groups: procurement and supply chain, human resources and business (maintenance and operations). These groups play in different, yet related spaces all touching the contingent labor population. When connected and acting as a governing body, you can further work the root issues and sustain desired behaviors. Procurement and supply chain focused on strategic suppliers, optimal tools, reporting and keeping the suppliers in line with contracts and policies. Human resources focused on what capability contingent labor is servicing, keeping alignment with overall talent strategy and workforce planning. Maintenance and operations focused on the need for utilization of contingent labor in a timely, safe, and cost effective way. 8

9 Opportunities to optimize downstream contingent labor Based on the considerations above, downstream operations have a compelling opportunity to improve the end-to-end management of its contingent labor workforce. Accenture proposes a field tested set of activities that can provide an immediate jump to advanced contingent labor management practices and identify year one cost reductions of 8 percent to 15 percent, as well as corresponding improvements in safety. Specifically, we see three opportunities that our downstream operations clients can mobilize around to capture more top and bottom line business value: (1) Contingent labor optimization, focused on introducing process improvements at each refinery/plant; (2) Contingent labor management office business services, focused on providing integrated demand management and supporting analytics across downstream; and (3) Partial Contingent Labor services, focused on complementing an internal team with sourcing, analytics and recruitment services. Contingent labor optimization Scope: Identify and implement opportunities to optimize the use of contractors at each refinery/plant. Focus on efficiencies in the use of contractors across all disciplines within the refinery, as well as potential points of integration across maintenance, turnarounds and capital projects. Represents an 8 percent year one savings and up to 15 percent beginning in year two and becoming sustainable. Main source of potential benefits will come from leveraging multi-craft roles and reducing overhead by ingraining a general contractor mentality across the refinery. Relevant client eperience in refining A mid-size refinery in the west coast selected Accenture to assist in determining opportunities and a roadmap to reduce the overall contractor spend by 10 percent without jeopardizing safety, quality, reliability or productivity. The objective was also to define the key issues and steps needed to achieve a sustainable, reduced level of contractor usage. With Accenture s support, the client: Identified potential savings of ~12 percent of contractor spend, 80 percent of which could be achieved within a year Carried out a procurement analysis and identified additional ~1 percent in savings through rate and contract negotiations Conducted a Kaizen event that developed more than 100 ideas for improvement that were distilled into the highest priority projects 9

10 What and how: Confirm a seasoned owner at each site responsible for driving the contingent labor management process and supporting improvement activities. Implement field tested category practices and process improvements to reduce costs/ waste associated with lack of supplier and resource management. For eample, identify opportunities to leverage general management contractors that are able to best utilize fleible resources across business requirements. Implement service enhancements such as supplier rationalization/renegotiation for key contingent labor skill pools, site training assurance, ongoing analytics, productivity benchmarking, coordinated off boarding and repurposing to accelerate resource mobilization, rate card normalization and a continuous improvement loop between contractor and the owner organization. Design/confirm an operating model that will support effective decision making across the new category practices, as well as enable business processes to optimize cost efficiencies and organizational capabilities. Specifically, focus on ensuring clear accountabilities and interfaces between all the functions involved in the end-to-end contractor management lifecycle, with particular focus on need identification, planning and sustaining. Implement supplier and worker service levels (and supporting processes) for compliance and training to reduce regulatory risk. Design and implement improvements for reviewing and onboarding the labor provided by service providers, ensuring they meet all contractual obligations. Identify opportunities to break barriers between maintenance, turnarounds and capital projects through identification of key roles where there is an opportunity to share at and across supervisor/ foreman levels. Effective contingent labor management can reinforce Operating Management Systems and Operational Ecellence intent for employees and contractors. Capturing more business value is the focus of the optimization activities noted above. In addition, a secondary business value for downstream operations can be achieved through creating a dedicated organizational capability focused on integrated workforce planning, managing the onsite contract worker labor pool and deeper cost/spend analytics. Contingent labor management office (CLMO) business service for downstream Scope: Establish a Contingent labor management office shared service to epand and sustain the contingent labor management focus. The CLMO will be responsible for demand management, integrated scheduling, contract worker population management, cost/spend analytics and standardized supplier management practices. What and how: Define and set up a downstream high value business shared service to include demand management, integrated scheduling and total contract worker population management. Business units / projects Contingent labor management (CLM) program Governance: Program management office (PMO) Category strategy Change management: communications and change management support Procurement operations / managed service provider (MSP) Technology: vendor management system (VMS) Source: Accenture. Supplier relationship management Supply / demand planning Develop cost/spend analytics, worker performance analytics and supplier performance analytics that would combine to provide downstream operations with a complete data set required to inform strategic contingent labor decisions. Enhance current capabilities of human resources, supply chain and operations by providing reliable, quality data to make strategic and tactical sourcing and workforce planning decisions. Standardize supplier management practices to improve better contractor management that would enable a safer environment for downstream assets, employees and business partners. The CLMO takes the value captured by contingent labor optimization and makes it sustainable while epanding the cost savings opportunities beyond a traditional contingent labor program. Partial Contingent Labor service Clients build their organization capability to manage and administer their contingent labor populations powered by digital capabilities and analytics to fully understand their spend, population and risk on an consistent basis along with sourcing and recruiting support which include social media branding and campaigns designed specifically for these local labor pools. Market intelligence Contract management Suppliers 10

11 In summary, contingent labor optimization serves as the foundational building blocks to value creation and risk reduction that can be further scaled and sustained through the establishment of the contingent services at the asset to sustain the realized value established during optimization. Further analysis of downstream operations contingent labor spend and processes will identify tangible cost and timing targets. This will serve as a lever to help differentiate downstream operations use of contingent labor in the future, enabling both the efficient management of costs and effective management of talent. 11

12 Endnotes 1 Accenture 2013 Skills and Employment Trends Survey: Perspectives on the Contingent Workforce. About Accenture Accenture is a global management consulting, technology services and outsourcing company, with more than 305,000 people serving clients in more than 120 countries. Combining unparalleled eperience, comprehensive capabilities across all industries and business functions, and etensive research on the world s most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$30.0 billion for the fiscal year ended Aug. 31, Its home page is Copyright 2014 Accenture. All rights reserved. Accenture, its logo, and High Performance Delivered are trademarks of Accenture. This document is produced by consultants at Accenture as general guidance. It is not intended to provide specific advice on your circumstances. If you require advice or further details on any matters referred to, please contact your Accenture representative.