Special Report: Contingent Workforce Optimisation

• Contingent labour is being used in greater capacity in many industries as the benefits become more widely recognised.
• Organisations that have deployed an MSP have had savings of 5% - 20% on the cost of contingent labour within the first year of implementation.
• Managing the full scope of activities related to contract labour is a complex task that has an impact on many stakeholders.

The economic downturn has fuelled some historic changes to the employment landscape.  Toni Jackson, Director of Outsourcing Services - Asia Pacific with Kelly Outsourcing and Consulting Group, observes that one of the most immediate and enduring revolves around utilisation of contingent labour.

The contingent workforce typically encompasses the full range of non-permanent, external staff - temporary contractors, independent contractors, freelancers and consultants. Across the globe, contingent labour is being used in greater capacity in many industries as the benefits become more widely recognised.

The economic downturn and the need for business to scrutinise outlays across all areas have hastened a process of reviewing human capital needs. It has brought more careful examination of contingent labour as a means of improving efficiency and lowering labour costs.

Those firms that experience cyclical fluctuations or whose operations are project-by-project in nature are among the most likely to benefit from a more efficient approach to managing the external supply base.

Corporate leaders who can react quickly to market changes and who can hire the best and most qualified people are the best-placed strategically to outperform their competitors. And yet it’s possible for companies of all sizes to decrease the total cost of their contingent workforce while maintaining or increasing overall quality.

Visibility and transparency

Unfortunately, if there is limited visibility into the total cost of the contingent workforce or if management is ‘siloed’, then firms may be missing out on significant cost savings. Often, this labour category is not managed in a holistic way, or not managed at all.

In many organisations, there is a somewhat surprising volume of labour that is not sourced through formalised channels. Individual managers and business centres develop relationships and sourcing channels that are decentralised and not subject to normal rigours and processes.

From a procurement perspective, this runs counter to best practice that is applied to other areas of acquisition.

In order to gain control over the total procurement function, it’s important to first understand and optimise labour coming through both formalised channels as well as the ‘back door’.

The MSP concept and benefits

One of the key ways of doing this is through a formalised approach such as a managed service provider (MSP).

The use of an MSP and its associated technology - the vendor management system (VMS) - is a relatively new concept in the Asia Pacific region. However, for those organisations that have deployed an MSP, there have been savings of 5% - 20% on the cost of contingent labour within the first year of implementation, primarily through vendor consolidation and rate management.

For procurement managers, the use of an MSP can have wide-ranging benefits, including:

• Improved access to quality talent;
• Lower labour rates;
• Enhanced data and measurement;
• Improved procurement cycles;
• Improved compliance and reduced risk; and
• Enhanced responsiveness to employees and suppliers.

The MSP approach will see multiple labour supply vendors managed under an overarching structure which focuses on performance-based metrics. It encourages competition among the labour supply community and the achievement of quality and cost benefits for the client organisation.

The MSP model is one that has been typically applied to the contingent labour category; however, that is also evolving. There are now broader areas of human capital that are benefiting from a more rationalised approach to procurement. These include independent contractors, statement of work, services and project-based work. These are also areas where there are large potential cost savings.

It is really only through this visibility across the spectrum of labour acquisition that managers can be certain of having appropriate control. One of the advantages of an MSP is that the metrics extend across all elements of the labour supply chain to deliver critical information to managers. It helps them understand and exercise control over previously underreported aspects of the labour force.

Cost-saving has certainly been the driver for growth in the MSP market, but there are risk mitigation drivers too, such as latent availability, control of spend, reporting and contractor mobilisation and background screening.

Best practice in MSP programmes

In the experience of KellyOCG, we believe ‘best practice’ MSP programmes are those where the hiring managers, HR, suppliers and procurement are all working in concert with a shared set of goals and objectives. For most companies, this vision sounds like the impossible dream since each of these groups has its own distinctive personality, culture and view of contingent workers.

Asking HR and procurement to work together may seem like trying to mix oil and water. For a start, they don’t even speak the same language. HR uses terms such as ‘talent’, ‘recruiting’ and ‘compensation’. Procurement, on the other hand, uses terms such as ‘services procurement’, ‘labour-based categories’, ‘labour-related spend’ and ‘spend under management’. One of the advantages of an MSP is that it standardises the approach to labour procurement so that there is shared understanding across all functional divisions of what is actually happening.

It’s also important to recognise the reality of task allocation across the various functional divisions in most organisations, and the way this impacts management of labour. Supply chain managers typically have little experience in the contingent labour category, shared, for the most part, between HR, finance, procurement and the individual managers who engage contractors. Frequently, the supply chain group does not have the time or resources to monitor the staffing industry, pay rates, and the labour market generally, or the capacity to deal with the myriad human issues central to the use of external labour.

The complexity of managing the contingent labour workforce will vary enormously depending on such things as the scope (specific or company-wide), geographic areas (regional, national, global), roles (technical, administrative, professional), and the level of detailed knowledge and ‘engagement’ that is required within the organisation.

Put simply, the scope and complexity of the management of contingent labour means that new approaches and new skill sets have had to be developed to effectively oversee this growing category of work.

Providers of MSP programmes such as KellyOCG deliver programmes to large and medium-sized companies worldwide. They have built a successful track record of vendor-neutral solutions that have delivered tangible business benefits to its clients. From the outset, organisations must accept that while the cost savings can be overwhelming, an MSP programme should not be entered into overnight and must be approached with a firm idea of how to create long-term value.

For more information, contact:

Kumar Bhaya
kumar_bhaya@kellyservices.com.sg 
+65 6334 9176