Best Practices -- Labor-Chain Management

March 10, 2005
Managing the workforce with supply-chain strategies yields big benefits.

Sometimes taking an idea out of one context and putting it in another results in a change in thinking so revolutionary, so successful and yet so blindingly obvious that onlookers are left muttering, "Why didn't I think of that?" It doesn't happen often, but in 2004 IBM Corp.'s Integrated Supply Chain group achieved just such a breakthrough by applying its world-class supply-chain management strategies -- traditionally used to deliver components and products to the right place, at the right cost, at the right time -- toward managing its labor pool. Dubbed the Workforce Management Initiative, the strategy saved at least $500 million in its startup phase last year and, once fully automated and operational, is expected ultimately to save $2 billion to $2.5 billion each year.

"What we're trying to do is match skills with opportunities . . . [and to] enable optimal labor deployment," across the business, says Harold Blake, IBM's director of labor optimization, a position created at the initiative's launch. It sounds simple enough, but to get from here to there required fundamental changes in how general managers managed their workforces and a complete restructuring of the systems that housed information about the various labor resources, including data on IBM staffers, subcontractors and alternate workforces.

First, says Blake, "We had to get our general managers to link their labor strategy to their business strategy, to think about what their optimal workforce should look like, not next year based on affordability kinds of targets, but two or three years out. It wasn't something that they typically thought about."

For example, the initiative required general managers to balance the types of labor for optimum value-added and flexibility, such as hiring IBM staffers for such high-value-added jobs as software development and sales, while using sub-contractors or a short-term supplemental employee to do lower-value-added, commoditized work. "Today you can't have 95% of your workforce made up of staffers," declares Blake. "You need more flexibility to manage the ups and downs in the business." At the same time, managers needed to begin to forecast labor supply and demand so they could seamlessly redeploy staff resources across business lines as needs change. Though policies had always been in place to facilitate such staff movement, they had been largely ignored as internal line-of-business commitments took precedence.

Technologically, a new end-to-end labor-supply-chain management system eventually will provide general managers with information about all the available labor pools in a single database -- where before they had to consult five separate databases. Ultimately, says Blake, "We're creating a single marketplace -- a single tool -- for comparing all sources of labor and their associated costs and skills [that will] streamline the process of finding the most appropriate resource for a given job." Key to this marketplace was creating a common language to describe employee skills and talent across the lines of business. Previously, each group, working within its functional silos, had created its own way to describe labor resources -- a "practice leader" in one line of business might be called a "manager" in another. Such inconsistencies were eliminated so managers could quickly and easily identify the resource they need.

Meanwhile, a central workforce management system will enable the general managers to monitor utilization rates and other metrics so they can better plan workforce investments, such as hiring or training staffers or making an acquisition to obtain talent in an emerging business or hot technology. General managers can log on daily to track their progress -- and their compensation is linked to the metrics.

Together, the new thinking and new systems, says Blake, will help IBM manage ups and downs of the business from a workforce point of view. "We believe that as one business gets smaller, another business will be growing, and [this initiative] will significantly improve how we rebalance those skills, as it matches the available person with openings across those functional silos and countries and regions," says Blake. "It will also channel the education budgets to the growth opportunities as well as reduce the restructuring costs."

To date, the reduction in restructuring costs, in fact, has generated a bulk of the savings. Blake points out that many of the projects that IBM undertakes have contractual "cost take-downs" when employees are replaced with automation. Before the initiative, the general manager would let go employees that couldn't be redeployed within a line of business. More important, says Blake, a closer look at the attrition and hiring practices of the past revealed that, "we were hiring the same people we were letting go, and the reason was because we didn't have a way at the time of matching that demand and supply." Now, all the general managers can see in advance when resources will become available and can plan in advance for their redeployment to another line of business.

Another area of savings came in the services business where the increased visibility of resources led to the increase of consultant's utilization rates by 3% to 5%. "It's almost as if the business and opportunities are coming to them, rather than them having to go out and look for it," says Blake. "They're spending less time marketing themselves and more time actually doing work with clients."

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