Delivering on Services Procurement Automation

FedEx streamlines processes for procuring, managing temporary and contingent staffing

Sunnyvale, CA  October 17, 2002  When Federal Express employees absolutely, positively have to hire contract labor, they now can avail themselves of a new system that automates the processes for buying and managing temporary and contingent staffing.

Since 1999 FedEx has been working to completely automate its purchase-to-pay cycles and to take manual ordering, management and payment processes out of all its purchasing activities. The company was an early adopter of Ariba's solution for indirect materials, for example.

The $21 billion company is now expanding its vision to encompass the services side of its spend. "We have been able to manage very successfully the [purchase-to-pay] systems for products, and now we will for services," says Zondra Brown, manager of business systems at FedEx.

The Memphis-based delivery giant is reinventing its processes for dealing with the hiring of temporary and contingent labor to focus on best-in-class purchase-to-pay strategies that are standardized across the carrier's various business areas and 100 percent automated. Brown notes that prior to Elance "about 25 percent of the temp labor process was automated."

Now the company has implemented a solution from software provider Elance in a bid to streamline its services procurement processes and lower its contract labor costs. FedEx went live with the solution at the end of August, just 11 weeks after the company signed the contract with Elance. By mid-September the carrier was into full roll-out across three initial operating companies  FedEx Express, FedEx Services and FedEx Corporate.

Elance said its Web-based Elance 3 solution includes a suite of services procurement and management applications designed to allow enterprises to optimize and gain visibility into services spend, and to streamline services procurement and management. "The Elance tool has allowed us to procure services, manage the selection process of temporary and contingent staffing, manage the timecard and invoice process, as well as automate the invoicing cycle," Brown explained.

Following the roll-out in the three initial business units, FedEx expects to extend its use of the solution in a second phase that will address offshore information technology projects. Beyond that, FedEx will roll Elance 3.0 to the other operating companies and is contemplating using the solution to handle janitorial, facilities, print and lawn care services, although they haven't made a firm decision to go down that road yet. In the end, FedEx's goal is to have 100 percent of its spend in its targeted services commodities go through the Elance system.

Ultimately, all 120,000 FedEx employees potentially could use the services procurement system, but the company expects that somewhere between 5,000 and 10,000 "power users"  typically managers who will frequently use the Elance module, as opposed to someone who might use it on a one-off basis  will be on the system, which is fully integrated into FedEx's Ariba platform. Elance said its system also matches existing FedEx business processes, including integration with existing human resources management, financial accounting and data warehousing systems.

Brown said the company is tracking both hard and soft cost savings from its adoption of the solution. On the hard-cost side, FedEx will be using the solution to compare the hourly rates that the company paid for services before and after Elance, potential savings that can go directly to FedEx's bottom line. On the soft side, Brown said the carrier expects process savings from automating previously manual processes and that those process efficiencies will allow the company to focus resources on other initiatives.

The company plans a full-blown return-on-investment analysis at the end of six months following the implementation and anticipates a full ROI within the first year of using the solution, according to Brown, who noted that FedEx achieved ROI on its Ariba Buyer implementation in under six months.

To ensure that outcome, FedEx has taken a two-pronged strategy in managing the change necessitated by the solution, first by deploying what it views as an end-user-tested interface, and second by providing thorough training and strong help desk support for the company's users. "FedEx focuses attention on effective change management processes, especially when it deals with customers and employees," Brown noted.

The move to Elance fits in with FedEx's broader strategy to adopt enabling technologies, according to Edith Kelly Green, vice president and chief sourcing officer at FedEx Express. "We have always valued the importance of efficient procurement processes, and Elance shares this strategic approach," Kelly Green said.

Services procurement is attracting greater attention as companies look to extend the benefits of process automation to this significant area of their spend, even as spending on services increases with the move toward greater outsourcing. According to the Center for Advanced Purchasing Studies, more than half of today's corporate purchasing budget is spent on outside services, and the Outsourcing Institute has reported that the use of these services is expected to grow at double-digit rates.

Yet few companies know where or how effectively these service expenditures are being spent, and the Standish Group has suggested that as enterprises continue to grow, this lack of visibility into and control over services can lead to low project success rates, lost time, over-billing and late payments.

For more information on professional services procurement, see the article, "It's All About People," the Net Best Thing column in the January 2002 issue of iSource Business.