Best Practices in Contingent

Labor Acquisition
Copyright 2010 Ariba, Inc. All rights reserved. 24
Best Practices in Contingent Labor Acquisition
What You Need to Know about Contingent Workforce Procurement
In just 20 years, the percentage of contingent labor in the United States has grown from
6% in 1989 to more than 27% in 2009 and is obviously a force to be reckoned with.
1
This is a perfect storm created through the combination of corporates quest to be
more agile by moving fixed spend to variable and the interest of nearly all generations
X, Y, millennium and baby boomersto have more-flexible lifestyles. This paper details
best practices around contingent labor acquisition that are being used by Best-in-Class
companies. Exploring the topics outlined below can deliver significant cost savings,
streamlined processes, reduced risk and increased spend under management.
Why address contingent labor?
Should you automate?
What should you look for in an automated system?
How to get started
Investment considerations
Looking ahead
Why Contingent Labor Spend Management? (Benchmarks)
Reduce Costs
According to a recent Aberdeen study, Best-in-Class companies achieve 16% cost
savings vs. the 5% average and 16 times higher than the bottom 30%. The cost
reductions take the form of hard costs, such as active contract compliance and discount
enablement, as well as soft costs such as allocation of resources to more-strategic areas.
Compliance and Risk
In the same Aberdeen study, top performers have a 92% compliance rate to contingent
labor policies (federal, state and internal). Contrast this to the 68% average performer
and it is 88% superior over the bottom third.
Compliance unlocks negotiated savings
While many companies are proud of having driven rates down through sourcing
activities and negotiations, as much as 50% of negotiated savings never reach the
bottom line because of the lack of compliance (Figure 1). Sourcing only provides the
potential for savings and if the requisition doesnt go to the right supplier or if the right
price is not invoiced, no savings are realized. Additionally it may be an obstacle for
future negotiations if it is determined you cant deliver on committed spend to the
contract vendor.
Ultimately a compliance engine in the form of an eProcurement system, more commonly
called a Vendor Management System (VMS) when referencing contingent labor, must
be in place to ensure maximum savings as well as to avoid costs/penalties by complying
with numerous federal and local labor regulations.
Best-in-Class companies
achieve 16% cost savings
vs. the 5% average
Aberdeen Group
As much as 50% of
negotiated savings never
reach the bottom line
because of the lack of
compliance.
Copyright 2010 Ariba, Inc. All rights reserved. 5
Best Practices in Contingent Labor Acquisition
Time-to-Fill
With the proper programs in place, Best-in-Class organizations have an average time-
to-fill of 7.2 days vs. 12 days for average performers.
In a little-celebrated benefit around Time-to-Fill, companies can also experience an
increased top line. By applying the right resources to the job as rapidly as possible,
products/services can be designed, marketed, sold, manufactured and shipped quicker
and with increased quality.
Spend Visibility
You cant manage what you cant see and many companies are limited in their visibility
around contingent labor spend to merely the vendor level. And yet this is one of the
cornerstones to managing any category. An ability to report on meaningful taxonomies
is essential to moving forward. According to Aberdeen, 86% of Best-in-Class Companies
have well-established classifications around contingent labor.
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This means understanding not only how your workforce breaks down into classes such
as professional, admin and industrial/warehouse, but further segmentation into
subcategories all the way down to the individual job description. This refinement will
enable you to develop intelligent workforce strategies including more-effective sourcing,
finance and procurement activities.
Half of Negotiated Savings
is lost without Best Practice
eProcurement
Negotiated
Savings
From
Sourcing
(ex. 20-25%)
Realized
Savings
Without
eProcurement
(ex. 11-12%)
Lost
Savings
via
Leakage
(ex. 9-13%)
Operating
Efficiencies
(ex 3-5%)
Figure 1
Best-in-Class organizations
have an average time-to-fill
of 7.2 days vs. 12 days for
average performers.
Aberdeen Group
Copyright 2010 Ariba, Inc. All rights reserved. 46
Best Practices in Contingent Labor Acquisition
How Are VMS and MSP Linked?
A VMS is a technology solution designed to facilitate the requisitioning and tracking of
temp labor. A Managed Service Provider (MSP) is a company that takes on the
primary responsibility for managing an organizations contingent workforce program.
3
A
VMS and MSP are frequently paired together but in fact it is important to decouple the
two. Having done your homework initially, you are probably more likely to change out
your MSP in a few years than the VMS which becomes part of your organizations
procurement infrastructure. Having to change both at the same time would be
extremely disruptive. This isnt to say that you cant run an evaluation in parallel or even
to have both an MSP and a VMS from the same vendor. But if you choose one vendor,
make sure that there are two separate contracts and programs that are not dependent
on each other.
Who Should Automate?
Research has concluded that many organizations would benefit from automating the
contingent labor requisition process. In fact, Best-in-Class companies are 34% more
likely to automate their contingent labor processes.
4
Staffing Industry Analysts
recommends that companies with over $50M in annual spend on temporary staffing
should look at implementing a VMS. Additional considerations include
5
:
A need for centralized visibility on multiple location spending including areas such
as: suppliers and how rates compare across business units
Providing a method to manage and track the requisition and approval process
A large supplier base vs. only one or two preferred vendors
An inordinate amount of time spent coordinating between multiple suppliers
Internal cost savings have stagnated
All-in-One or Dedicated?
Just a few years ago, many of us had in our home offices a scanner, a printer, a fax
machine, a copier and maybe even a photo printer. With a big footprint and lots of
cables not to mention multiple driver problems, many of us now have all-in-one printers.
It may not have all the bells and whistles, but will take care of 99 percent of your needs
with a lot less space, hassles and cost.
What does this have to do with contingent labor? A VMS system is designed for
procurement of services, specifically hourly labor. There are thousands of other goods
and services your company probably purchases, from office supplies and machinery to
print services and consulting. It would be rather impractical to have an ordering system
for each. An application that can handle goods, temp labor, 1099 contractors,
consulting, print services, market research, MRO and even invoice against contract
where no PO is issued, is the ultimate solution. This reduces the total cost of ownership
around implementation, maintenance and integration as well asmore importantly
By consolidating all of the
programs and systems into
one point of contact, a single
system of record, we were
able to drive visibility,
transparency, [and] improve
our user experience.
Travelers Insurance
Copyright 2010 Ariba, Inc. All rights reserved. 7
Best Practices in Contingent Labor Acquisition
increased user adoption. Having to train your organization on multiple systems is
time-consuming and confusing. Unless you have very unique requirements, an all-in-one
eProcurement solution may be practical and cost effective.
Integration with Other Systems
Integration is critical to a total solution, including your goods procurement system as
well as ERP, enterprise security and other systems. A VMS should ideally seamlessly
integrate with an entire spend management suitecovering the procurement lifecycle,
from spend visibility and sourcing to contract and supplier management.
Initially this begins with gaining visibility into your contingent workforce spend from
which sourcing activities such as an RFP can be created. RFP responses then can be
effortlessly transferred into your contract management system in the form of rate cards,
discounts and even complex formulas that can calculate tiers and other volume
considerations. This is essential to ensuring pricing compliance during the requisition
process in the VMS rather than a post-mortem after the fact. Next, beyond simply
electronically submitting a timecard and invoice, an integrated Invoice/Payment system
can facilitate the invoice management and approval process along with electronic
payment. And finally managing your suppliers and associated risk factors closes the
spend management loop. The synergy around these solutions along with a robust
supplier network will provide for added flexibility and adoption leading to increased
savings (figure 2).
Invoice/
Payment
Sourcing
Integration with Spend Management and Other Systems
Contract
Management
eProcurement
Goods and
other
Services
Supplier
Management
Spend
Visibility
ERP &
Other
Systems
Figure 2
A VMS should seamlessly
integrate with other spend
management applications.
Copyright 2010 Ariba, Inc. All rights reserved. 68
Best Practices in Contingent Labor Acquisition
Standardized Job Description Catalog
Forrester Research concluded, A VMS that includes a service catalog of predefined
positions and skills can make order entry faster and ensure that you and your suppliers
are talking a common language.
6
It absolutely helps to communicate requirements
clearly and quickly to your suppliers plus there are some additional benefits to a
standardized catalog.
1. Minimal time (and hassle) required for internal resources to create the catalog. You
should be able to modify the standard job catalog at your discretion.
2. Quicker to implement so faster time to value, saving time and money.
3. Perhaps most importantly, visibility into your spend.
a. Having the specifics around spend helps define your sourcing activity, and may
determine which staffing supplier you select as a primary.
b. Highly granular job descriptions are the key to the right fit and therefore
acquiring the best value. For example: are you engaging an inordinate number
of Credit Collection III clerks when class II will do the job?
Is Vendor Neutrality Important?
Absolutely. If you decide to use a VMS vendor affiliated with a staffing company, there
is the potential for the VMS to give the staffing company an unfair advantage at your
expense. The safest bet is to choose a VMS which does not have any staffing
relationship. If they do have an affiliation, make sure they can prove that a low
percentage of staff are being sourced from that firm.
Other Criteria
There are basics that all VMS systems have such as requisition functionality and time
and expense tracking that we wont belabor here. You should review the usability of
basic functionality since many users (and contingent workers) may not be familiar with it
on a routine basis. In addition, look for the following:
Local regulatory compliance The application should contain legal compliance for
the country using it.
Identification of out-of-compliance events Alerts the requester during the
requisition process and through reports such as exceeding on-site days around
co-employment.
Robust workflow/approval The ability to set up complex workflow based on your
organizations requirements. This should apply for both pre- and post-candidate
submission if required.
Feedback mechanisms Performance surveys and blacklists for worker evaluation.
SaaS maturity If selecting an on-demand solution, has the SaaS vendor been
SAS70 certified?
Security For a SaaS application, is the supplier WebTrust certified?
A VMS that includes a
service catalog of predefined
positions and skills can make
order entry faster and ensure
that you and your suppliers
are talking a common
language.
Forrester Research
Copyright 2010 Ariba, Inc. All rights reserved. 9
Best Practices in Contingent Labor Acquisition
Configuration and flexibility A system should have the ability to adapt to your
requirements. (See the section below on SaaS or CD?)
Support Given the global nature of most companies today, 24-hour support is
critical as well as support in an appropriate language.
Financial Viability Does the vendor have a diverse portfolio of solutions that
revenue comes from to better weather economic storms?
7
Supplier Collaboration The VMS vendor should be able to provide supplier
support and training.
What will it Cost?
The short answer to this isit depends on your spend and your implementation.
Typically your cost will be associated with the amount of your spend. Implementation
issues, including the method of solution delivery, are covered in more detail below.
Vendor Funded
Vendor-funded software is frequently encountered when an MSP is sourcing contingent
labor for their client. They may provide their own VMS or will work with a client to secure
a solution. Instead of the customer paying subscription fees directly to the software
supplier, the MSP simply applies a mark-up to the customer invoice on the labor
supplied. (This is in addition to their own markup for running the MSP operation.) The
MSP then passes the VMS markup back to the software supplier.
The benefits are the customer does not have to write a big check initially and the actual
software costs are hidden in the labor costs. Combined, these can eliminate the need
for a specific software budget. At issue is visibility and how much do you pay in the long
run? Alternatively you may wish to raise the visibility and pay the subscription direct to
the VMS.
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SaaS (Software as a Service) or CD?
Simply put, CD is installed on your premises, behind your firewall. The responsibility for
maintenance and upgrades rests on the clients shoulders. SaaS, on the other hand, is
installed on servers which are the responsibility of the application provider and
maintained and upgraded as part of a subscription fee.
While security was formerly a concern, nowadays a decision frequently boils down to
whether or not you require configuration vs. customization. Configuration can be
accomplished through tools, frequently by the client themselves. Customization
requires code to be written and is the most common reason for a company to choose
CD over SaaS. Below are some pros and cons around CD vs. SaaS for you to consider.
Copyright 2010 Ariba, Inc. All rights reserved. 8 10
Best Practices in Contingent Labor Acquisition
CD vs. SaaS Delivery
Implementation and Integration
Integration and implementation costs are critical to perform an effective assessment.
Integration can be the source of significant hidden costs
9
and may not be included in a
proposal. Completing the simple table below (table 2) should assist in your evaluation.
Also ensure that the vendor has the experience interfacing with your systems through
thorough reference checking.
VMS Investment Calculation
*Vendor funding, markup on hourly rate
Pro Con
CD Can be customized
Perpetual license sometimes
available
Perpetual license is expensive
Still paying maintenance
Implementations more costly
and longer
Upgrades need to be
scheduled
SaaS Upgrades are immediate
No hardware maintenance
Implementations are quick
Can be allocated to an
operations budget
Configurations are relatively easy
Configured not customized
Subscription vs. Perpetual
license
Table 1
Company A Company B Company C
Annual Subscription Fee
Hidden Costs*
Support & Maintenance
Total Recurring Costs for
36 months (Recurring
costs x 3)
Implementation
Integration to other systems
Total Cost over 36 months
(Total Recurring plus
Setup)
A
n
n
u
a
l

R
e
c
u
r
r
i
n
g
C
o
s
t
s
S
e
t
u
p
Table 2
Copyright 2010 Ariba, Inc. All rights reserved. 11
Best Practices in Contingent Labor Acquisition
Where Do You Start?
10 Steps to Best-in-Class
Below are some fairly basic elements that are worth noting to ensure your contingent
program is successful.
1. Determine if your organization is a candidate for a VMS.
2. Create a savings goal and, with it, get executive sponsorship.
3. Dont just get buy in. Become partner with hiring managers, staffing vendors, HR
and Procurement. Listen to them, this will pay off in the long run.
4. Establish one system of record throughout the enterprise, for visibility, transparency
and improved user experience.
5. Create a competitive environment using collaboration within a VMS.
6. Look internally for opportunities to streamline. Standardize and optimize your
processes before you implement a solution. Remember, automating a bad process
just allows problems to occur more quickly.
7. Name it! Promote it! Branding your program can enhance the adoption and will
provide continuity if you ever decide to change your VMS.
8. Employ a standardized job description catalog, A VMS that includes a service
catalog of predefined positions and skills can make order entry faster and ensure
that you and your suppliers are talking a common language.
10
Additionally it will
speed implementation time not having to create job descriptions on your own.
9. Protect your financial interests buyers need to ensure that a VMS and MSP are
financially responsible, which starts by getting audited financial statements prior to
selecting a VMS or MSP.
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10. Actively track program performance and share with vendors.
Looking Ahead
After many companies have tackled goods procurement, they set their sights on
contingent labor, but whats the next challenge? What else does your organization buy?
Acquiring temp talent does not occur in a procurement vacuum. There are a myriad of
additional services and goods your company purchases every day. Consider how
contingent labor fits into your overall procurement strategy, including categories such as:
Temp Labor
Contractors
Consulting
Print
Market Research
Promotional Items
Call Center
Direct Mail
Legal
Projects
SOW
Installations
Facilities
Snow Removal
Security
Clinical Trials
R&D
Engineering
Janitorial Services
MRO
Landscaping
Advertising
Non-PO services
Indirect Goods
Internal pressures in
companies to cut costswill
drive increased client interest
in using services
procurement tools to manage
the purchases of consulting
and outsourced services,
not just temporary workers.
Aberdeen 2008
eProcurement Benchmark
Report
Copyright 2010 Ariba, Inc. All rights reserved. 10 10
Best Practices in Contingent Labor Acquisition
Solution vendors should provide guidance around not only how these categories should
be integrated into your ecosystem, but also deliver a flight plan that shows how you can
best prioritize and effectively phase in each category. Be careful not to be locked into
an eProcurement solution that can help you manage only contingent labor. The optimal
choice will enable you to procure indirect goods and all types of services.
Additional Resources
Myths, Pitfalls and Realities around Services Procurement, White Paper
http://www.ariba.com/resourcelibrary/views/resource_library_asset_brief.cfm?asset_id=564
Contingent Labor: Agility and Savings, Webinar Contingent Workforce Trends
along with real-life insight from Travelers Insurance as well a discussion of Total
Workforce Management by Kelly Services
http://www.ariba.com/programs/saveonservices.cfm
1
Aberdeen Group, January, 2009
2
Ibid
3
Lexicon of Contingent Workforce-Related Terms, Staffing Industry Analysts, July 2009
4
Aberdeen Group, January, 2009
5
Selecting Vendor Management Systems: Differentiating Criteria, Forrester, April 14, 2009
6
Ibid
7
Ibid
8
Ariba, Myths, Pitfalls and Realities around Services Procurement, 2009
9
Selecting Vendor Management Systems: Differentiating Criteria, Forrester, April 14
10
Ibid
11
American Staffing Association, July 24, 2009