Valero Energy Optimas Award Winner for Innovation

Supply-chain management is nothing new in manufacturing. But the concept–which refers to efficiently bringing parts together and reducing inventory–is only now being applied to the workforce realm. One of the first companies to create a “labor supply chain” is oil refining giant Valero Energy, whose headcount exploded elevenfold over the past six years–from 2,000 employees in 2000 to about 5,000 in 2002 to 22,000 today.

    In January 2004, the San Antonio company launched a computerized system designed to speed up the way it finds talent, reduce costs and better serve an ever-more international company.

    Project designer Dan Hilbert, Valero’s employment manager, says starting up a new refining complex can require the skills of internal and external employees from around the world. “Project managers might be in the United States, combined with outsourced engineers from Canada, plus programmers in India and manufacturing workers in China,” he says.

    The company’s labor supply chain is a system for closely monitoring steps in recruiting and hiring. It begins with an analytic tool that predicts the company’s labor needs based on past experience. It also includes computer screen “dashboards” that show how various components in the chain, such as ads placed on Internet job boards, are performing according to cost, speed, quality and dependability.

    If the dashboard shows “green,” performance is good. If it shows “yellow” or “red.” Valero staffing managers can intervene quickly to fix the problem–which could mean switching from a job board if the site leads to low-quality hires.

    The outcomes are impressive. In 2002, it took 41 pieces of paper to hire someone and more than 120 days to fill an open position. Each hire cost about $12,000. With the labor supply chain in place, little paper is needed to bring someone aboard, the time-to-fill figure is below 40 days and cost per hire dropped to $2,300 last year, Hilbert says. In 2004, Valero’s so-called recruiting efficiency index–a ratio of staffing costs to the amount of compensation added to the firm–was a remarkably low 6.9.

    Part of what fueled the firm’s labor supply chain was high-octane growth through acquisitions. The company ranked 22nd on the Fortune 500 list last year and boasts annual revenue of $75 billion.

    Valero hired Hilbert in 2002 to modernize its staffing. The 50-year-old executive, who has worked as both a recruiter and the CEO of an Internet startup, says his first steps were to map out the staffing department’s processes and quantify its results. “To me it’s just Accounting 101,” he says.

    Hilbert also tried a new way to hire for the staffing department. Rather than add to Valero’s dozen or so full-time recruiters, he tapped temporary workers, contractors and college interns as the workload grew. And it mushroomed: Last year, monthly job openings at refinery operations soared from 25 to more than 150. The additional staffing department workers generally cost about half or less than the $40 to $50 per hour that a permanent Valero recruiter does, and their number has fallen from a peak of seven to two as demand tapered off.

    With contingent workers a dip in productivity might be expected, but the opposite occurred. Hilbert says that’s because everyone took on specialist roles–from recruiters who worked more closely with hiring managers to interns who took pride in finding the perfect niche job boards for postings.

    For using technology and streamlined practices to create one of the first labor supply chains, Valero is the winner of the 2006 Optimas Award for Innovation.
 

Workforce Management, March 13, 2006, p. 23 — Subscribe Now!