Why Procurement Managers need to Look Beyond their Current Contingent Labor Supply to Drive Cost Saving

The mark of a well-functioning procurement department is that it is proactive rather than reactive. While ensuring that the everyday workings of a business are the primary focus of the procurement department, they must also so be well-informed of what the business’s long-term goals are, keeping the big picture in mind.

According to The Deloitte Global CPO Survey 2017, the top objectives, ranked in order of priority  for Chief Procurement Officers (CPOs) are as follows:

• Cost Reduction
• Managing Risks
• Introducing New Products / Services or expanding into new markets
• Increasing cash flow

The importance of cost reduction and increased cash flow is never lost on any manager. It is undeniable that there is a direct link between all of these priorities and the quality of talent hired by the company. However, being able to hire a contingent workforce at scale, efficiently and at a low cost can be a real challenge. When it comes to saving money that is to be spent on contingent labor, a CPO has several considerations to make.

According to Supply Chain Digital, Procurement’s spending insights are a secret weapon in the contingent staffing industry. CPOs are well aware that prices have been squeezed over the last 8 years, with suppliers figuring out ways to be price competitive. A competitive price however, is a short term consideration for a CPO. Yes, price is an important factor, but it is no longer the only thing a supplier can offer a Procurement department when they throw their hat in the contingent labor supply ring to set themselves apart. Procurement is looking for the right price, but hiring people who are able to see through a project to prevent the cost of turnover is equally important.

As illustrated in a 2016 study about The State of Contingent Workforce Management underwritten by SAP Fieldglass, cost reduction becomes a lower priority past the recruitment phase. The biggest challenges faced by Contingent Worker Management (CWM) Programs are as follows:

To achieve the above objectives, a procurement department must consolidate spending to improve margins, increasingly collaborate with suppliers and restructure existing supplier relationships. CPOs must also employ digital strategies that include emerging technologies such as cognitive analytics, crowdsourcing and digital reporting, recognizing that suppliers who themselves are incorporating these techniques are ahead of the curve in their offerings.

The CPO’s Criteria for a Supplier

According to the 2017 version of the same study, the capabilities that CPOs are primarily looking to set up within their CWP programs are as follows:

Suppliers that are able to align with these long term challenges are more likely to succeed with Procurement departments. While working with a prospective supplier, procurement is looking to improve margins by impacting factors that they are unable to optimize on their own:

• Quality- This is the top long term and short term concern for Procurement. It is important that any supplier being considered is able to provide Procurement with high quality candidates that fulfill their non-employee labor needs.
• Price- This is the bottom line and the main reason that Procurement would work with new vendors outside of their current supply base. If a vendor is able to provide them with high quality talent at a lower price, Procurement is likely to consider working with them.
• Time- The shorter the lead time to recruit, onboard and fully install a contingent labor force into an organization, the better. To Procurement, time is money.
• Good Retention- It is important that a vendor is able to prove their expertise in supplying a contingent labor force by demonstrating that the employees they place are likely to stay, perform well and finish the job they were hired for after the recruitment and onboarding process.
• Coverage- Another reason Procurement might consider working with new vendors is that their current supply base is unable to cater to specific geographic locations or provide the right kind of talent that is required in a certain region. In this case, working with a new vendor that is able to supply the right contingent labor in a given region might be considered beyond the current supply base.
• Fresh Market Intelligence- Suppliers that bring with them either a deep understanding or a fresh take on the factors and processes that improve employee retention in the long run can also make a mark in Procurement’s mind as viable strategic partners. This can be done by bringing knowledge of employee preferences, leveraging branding to attract talented non-employees, promoting a self-sourcing relationship with talent and applying strategies to engage millennial talent.
• Technologically Ahead of the Curve- Employing emerging trends like cognitive analytics and crowdsourcing that use cutting edge technology to dramatically improve the recruitment process in combination with digital reporting to provide granular data on points of success and improvement are a strong draw for Procurement. A new vendor that is making use of the latest technologies to monitor and improve their own performance could attract Procurement to look outside their current supply base.

The CPO’s Criteria for an MSP

The above mentioned study further stipulates that “Best-in-class companies still rely on Managed Service Providers (MSPs, 73% vs. 55%) as a steady means of outsourced contingent workforce management. Although the technological advancements within VMS and other platforms may outshine some of the traditional capabilities of MSP services, the truth remains that for both small and large-sized organizations, these solutions remain a valuable source of expertise and management of day-to-day operations. Too, their partnerships with VMS platforms remain an attractive model for those organizations that want both automation and services managed by a third party.”

There are several benefits for Procurement to work with an MSP, according to Staffing News and Trends :

• Working with a specialized MSP reduces the administrative burden for the Procurement department.
• MSPs are able to act as a liaison point between Procurement and suppliers, overseeing the entire process of prospecting qualified candidates from hiring them to onboarding them successfully.
• MSPs tend to have access to a large network of suppliers that they can leverage to ensure that both their clients and prospective candidates have access to top talent at competitive rates.

Which MSP should be chosen for the job?

The MSP market is littered with many well-established players, allowing procurement to take their pick of the bunch. Procurement can choose an MSP based on several criteria according to Yoh:

• If a prospective MSP is able to provide Procurement with a full range of services, it is more likely that it will have an easier integration with the organization and working with Procurement.
• The level of experience and expertise the MSP has in placing contingent labor in the specific industry that Procurement requires, will make it a better fit. It is important that Procurement pays close attention to the qualifications and background of the team the MSP will be dedicating to their organization. An MSP’s level of expertise can be gauged by judging the quality of their reporting capabilities, their past track record of handling other clients through references, as well as their own success as a reputable business.
• What the organization’s current cost of contingent labor is based on their specific mix of contractual labor. The prospective MSP should research the organization to provide them with a custom solution for their specific contingent labor needs.
• How much cost saving can be expected by working with a given MSP is an extremely important consideration. At the end of the day, the reason to use an MSP is that they are able to significantly reduce the organization’s costs.
• How well the quality of the talent provided by the MSP works within the company and whether the individuals placed are able to help the company achieve its long term goals. Working with an MSP is a long-term commitment and they should be viewed as a strategic alliance by Procurement.

The job of a CPO with regard to how they manage their contingent workforce has never been more involved. They must remain vigilant as to the various technological advancements being made in the contingent workforce industry as well as be aware of what external parties can bring to the table in terms of core capabilities and experience as well as how they can align with the CPO’s long term goals for the organization.