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The Fundamental s of Managed Service Provider (MSP) Progr ams | Part 2 of 3

Part 2:
sourcing
models
By Jennifer Spicher

contents

This is the second of a three-part series


designed to outline key components
of a Managed Service Provider (MSP)
program in support of a companys
more comprehensive strategy for
Talent Supply Chain Management.

p3

Two of the major stakeholders most often engaged in this strategy are Procurement

Introduction

and Human Resourcesour experience indicates that when these two groups work
p4

Sourcing Models

together effectively, an MSP program delivers significantly higher value than without this

Sole-Source (Master Vendor) Sourcing Model / 6

vital collaboration.

Primary Supplier Sourcing Model / 7

This series addresses common questions about MSP programs, and provides a framework

Structured Tiers Sourcing Model / 8

Vendor Neutral (Open Bidding) Sourcing Model / 9

p12

Integrating Sourcing Models through an MSP

p15

Conclusion

Jennifer Spicher

that allows for informed decision making. The series will explore three key areas:

Explains what an MSP can do for your companyand why its important

Demonstrates how multiple sourcing models can integrate with MSP strategy

Articulates the business case for MSP and helps to determine your readiness

The following covers the second of those three areas: Sourcing Models. Be sure to read parts
one and three for additional observations on achieving effective talent management through
MSP solutions.
This information should prove valuable to procurement and human resources personnel
as they plan and prepare for the future. It also presents real value to stakeholders, whose
operations may be impacted by the MSP program and leadership from many other areas,
including finance, IT, or operational functions that may ask:
What strategies can we deploy to manage the cost, technical competency, and risk
inherent in utilizing external labor?

100%

2011
2007

80%

sourcing models

20eleven
200seven

60%

While there is no firm rule, generally speaking, the use of sole-sourcing


bidding models decreases with the use of higher-skill positions.

40%

20%

0%

There are five common sourcing models that companies use to procure external labor:

Primaries

Structured Tiers

Open Bidding

Sole-Source

Prevalence of Various Vendor Bidding Models


100%

Sole Source (Master Vendor)

Primary Supplier

Structured Tiers

Vendor Neutral (Competitive Bid)

2007
2011
80%

20eleven
200seven

60%

40%

Hybrid
20%

According to industry data, most companies have more than one sourcing or bidding
model in place, as reflected in the following chart. The use of multiple sourcing models is
not surprising when one considers how supply and demand factors vary across skill sets.

0%

Primaries

Structured Tiers

Open Bidding

Sole-Source

For skill sets that are more difficult to fill, a company will likely increase its supply base
using a more responsive and adaptable talent sourcing approach. In contrast, for skill sets

Source: Staffing Industry Analysts buyer surveys conducted in 2007 and 2011.

that have higher supply and availability of talent, a more efficient, transactional sourcing
approach can be effective.
Based on SIA Buyer Surveys conducted in 2007 and 2011, growth of usage occurred
across all sourcing models. However, the use of primaries has grown significantly, with 84
percent of companies using this model to source contingent labor. These trends indicate a
shift toward more complexity and greater variation in the models used by most companies
today, which will lead to more complex solutions, and the demand for more robust
management of these different sourcing strategies.
The definitions for each model, as described by Staffing Industry Analysts (SIA), are
provided in call-out boxes on each page for your reference.

Sourcing Models

SIA DEFINITION OF
sole source:

Sole-Source (Master Vendor) Sourcing Model

Primary Supplier Sourcing Model

The sole-source contingent labor (Master Vendor) model has been around for decades. It

The Primary Supplier sourcing model is widely adopted to staff a range of skillsthe top

Contingent worker
recruiting opportunities
serviced by a single
Master Vendor who in
turn may subcontract
some jobs.

is frequently utilized to procure industrial (67 percent) and administrative (30 percent) skill

two being Information Technology (88 percent) and Engineering/Design (77 percent).

categories. In this sole-source model, the Master Vendor fills all orders, subcontracting only

The model is similar to Master Vendor, but is not sole-source. In this case, several primary

those orders they cannot fill by using their own network of preapproved suppliers.

suppliers are utilized.

Pros: The Master Vendor (sole-source) approach works best when skill sets are readily

Pros: Similar to Master Vendor, this approach delivers pricing discounts and additional

available in the market, allowing the client to get a volume-leveraged discount price when

supplier resources. It also delivers the added benefit of providing clients with direct access

one supplier can fill all the demand. It enables vendor consolidation, increased visibility,

to more suppliersthus increasing their ability to source highly skilled positions.

SIA DEFINITION OF
PRIMARY SUPPLIER:

Contingent worker
recruiting opportunities
distributed to a select
handful of primary
staffing agencies,
who in turn may
subcontract some jobs.

standardized workflow processes, and simplified problem resolution.


Cons: If an MSP program is not in place, the primary supplier sourcing model can increase a
Cons: This model seldom works when sourcing for highly skilled positions, due to scarce

companys administrative costs because they must directly engage with more suppliersin

resources in the market coupled with limited use of subcontractors. Subcontracting, which

what can be a highly transactional environment. This may mean multiple ordering tools,

is often found in this model, is not legally viable in some countries.

on-boarding rules, invoicing streams, and supplier reports. In addition, the client takes on
more responsibilities for change management, program improvement, process design, and
problem resolution. Finally, there is often little to no visibility to subcontractors and their
compliance to program requirements.

Clients Administrative & Industrial positions

Wide range of clients positions

Master

Primaries

Tier II

Tier II

Easiest to fill

Hard to fill

Pay/markup structure

Pay/markup structure

High volume

High volume

Sourcing Models

SIA Definition of
Structured Tiers:

Structured Tiers Sourcing Model

Vendor Neutral (Competitive Bid) Sourcing Model

Structured Tiers are also used to source highly skilled contingent labor, most predominately

This sourcing model gained acceptance in the mid-1990s when IT resources were scarce

Contingent worker
recruiting opportunities
are distributed to
specific groups of
staffing agencies in a
formalized order.

in the Finance/Insurance industry (66 percent). In addition to the Finance and Insurance

and companies experienced difficulty finding resources at a reasonable price. Enterprise

industries, this model is prevalent for sourcing skill sets in engineering (57 percent) and IT

procurement tools lacked focus on the acquisition of contingent labor, leaving a technology

(56 percent). This model is similar to a Primary Supplier, except the client directly engages

gap in the marketplace.

with the Tier II network. The shift from Master through Primary to Structured Tier sourcing
models reflects a correlation between the difficulty in filling positions, and the need to
directly manage the supply base to ensure that talent is identified.

During the late 1990s, a few firms introduced technology that automated the competitive
bid sourcing model, and gave companies a way to efficiently engage with multiple
staffing agencies. With this automation, MSPs became integral to managing the business

Pros: Direct engagement with the recruitment providers can improve hiring metrics.

processes and policies that bring together the supply base, contract administration,

SIA DEFINITION OF
open bidding:

Staffing agencies bid on


individual contingent
worker recruiting
opportunities based
on quality, price, and
availability; often
implemented via a
reverse auction process.

data analytics, and the technology.


Cons: This model can often be more costly to manage, with the client taking on more
administrative responsibilities because of the increased number of suppliers.

Pros: This model enables broader access to talent and allows the best supplier with the
best candidate to fill each position at competitive rates.
Cons: This model may not work well for some highly transactional skill sets. It is not readily
used in the manufacturing sector (19 percent) nor for those primarily purchasing Industrial/
Logistics skills (17 percent).

Clients Finance, Engineering & IT positions

Clients Professional & Technical positions

Tiers

VMS Companies

Tier II

Open Bidding

Harder to fill

Tier II

Pay/markup structure
Moderate volume

Hardest to fill
Bill rate structure
Low volume

Sourcing Models

On Vendor Neutrality
Over the past few years the term MSP has gained acceptance as a strategy to manage
external labor, separating the client-facing service from VMS tool functionality. The 2012 SIA
MSP/VMS Landscape report showed that for 75 percent of MSPs (affiliated or owned by a
staffing firm) that had vendor-neutral spend, less than 10 percent of that spend was through
their own staffing arm. In fact, four of the top five vendor-neutral MSP providers are either
owned by a staffing firm or the subsidiary of a staffing firmthus validating that staffing
firms can be vendor-neutral.

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11

Integrating Sourcing
Models through an MSP
The ability to integrate multiple sourcing models into one efficient
management model, while simultaneously shifting their focus to
oversight, is a key factor in why many companies have adopted
MSP programs as part of their long-term workforce strategy.

MSP Hybrid Program:

As described earlier, most companies are using more than one sourcing model. Each
sourcing model may have applicability within an organizations contingent workforce

MSP hybrid defines


multiple sourcing models
within a contingent
workforce program.
Typically, a hybrid
program would include
elements of vendorneutral, as well as mastersupplier programs.

strategy. The sourcing of higher-skilled, professional/technical positions is more likely to

MSP Program Management


A

benefit from structured tier or vendor neutral (competitive bid) models to increase the

Administrative &
Industrial positions

Wide range
of positions

Finance, Engineering
& IT positions

IT Project &
Services Spend

responsiveness and access, while less technical and easier-to-fill positions are more likely to
leverage a sole-sourcing model.

VMS Technology

A managed service provider (MSP) can help to bring any and all of these modelsa hybrid
model approachunder a single strategically managed workforce program. When selecting
an MSP partner, the client should consider the MSPs supplier management resources,

Master

Primaries

Tier II

Tier II

Structured Tiers

Vendor Neutral

Recruitment
characteristics are
continuously evaluated
for changing market
conditions, which can
influence modifications
needed to the
sourcing models.

financial viability, global infrastructure, program staff expertise, and its VMS compatibility

Tier II

Vendor Neutral

and flexibility.
The graphic (right) illustrates how an MSP program can integrate sourcing models
under a single management program to address the full array of contingent talent needs
for an organization.

Easiest to fill

Hard to fill

Harder to fill

Hardest to fill

Pay/markup
structure

Pay/markup
structure

Open bidding/Not
to exceed bill rates

Open bidding/Not
to exceed bill rates

High volume

Moderate volume

Low volume

Low volume

An MSP enables the management of the entire spectrum of the contingent workforce
on behalf of and in partnership with procurement, HR, and operations. By outsourcing
program accountability to the MSP, the client can turn their attention to more strategic
and transformational initiatives, while alleviating procurement, HR, and operational teams
from transactional oversight. This is a key factor in why many companies have adopted MSP
programs as part of their long-term workforce strategy.

12

13

Integrating Sourcing Models through an MSP

conclusion
An explanation of components A, B, C, and D from the
graphic on page 13 are provided below:
A

In summary, some key points with regard to MSP sourcing models include:
1. Most organizations utilize more than one sourcing model to find talent. An MSP strategy

The clients contingent labor strategy is developed by conducting a thorough

provides an integrated approach to bring all sourcing models under one common

assessment of their skill needseither for a site, a division, a country, or globally.

platform and management structure.

More detail on this process is provided in Part 3 of this series. The MSP will partner
with the client to structure the program in alignment with their objectives, including
broader workforce classifications such as IT project work, retiree populations, and
consulting firms, among others.

2. Creating an integrated sourcing model via an MSP program means HR and Procurement
remove themselves from transaction management and shift their attention to HR and
Procurement transformation initiatives.
3. The Master Vendor sourcing model is commonly used for administrative and industrial

Next, and often in consultation with the MSP, the client will explore VMS options.

skills. Its efficient and effective for this purpose, but it usually fails when used to source

For technology, they look at VMS tool features, financial viability, a development

more complex skills. In addition, it may not be scalable due to country legislative

roadmap, integration costs, client references, and MSP compatibility.

limitations.

Next they assess their sourcing models to procure the skills, often working closely

4. The Primary Supplier sourcing model is the most commonly used, with nearly 40 percent

with the MSP to determine the best model. Sometimes the MSP will make the

of companies saying they have one in place to acquire certain skills. But while it provides

decision on which suppliers to utilize.

more direct access to a broader range of suppliers, it carries higher administrative costs,
as well as reduced visibility and supplier resources.

Lastly, recruitment characteristics are continuously evaluated for changing market


conditions, which can influence modifications needed to the sourcing models.

5. A Structured Tiers model is most often used to source Finance, Engineering and IT
talent. Like Primary Supplier, it enables direct relationships with an even wider range of
suppliers. But it carries an even higher administrative cost, with few supplier resources
and further reduced visibility.
6. Vendor Neutral/Competitive (Open) Bid is a sourcing model that became widely
adopted when VMS firms entered the market in the 1990s. It is most frequently used to
source talent in the Energy/Chemical and Technology/Telecom industries.
7. As the industry has matured most have come to recognize that MSP service can be
provided by both technology AND staffing firmswithout jeopardizing neutrality. In fact,
some of the largest MSPs are staffing firms.
8. The Hybrid MSP enables organizations to outsource their program to an MSP who
can design multiple sourcing models into one program strategy. This enables firms to
procure a wide range of skill sets, using a range of sourcing models.

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15

Index
Managed Service

A company that takes on primary responsibility for managing an

Sole Supplier

Provider (MSP)

organizations contingent workforce program and the various sourcing

all services for a customer within a service line, geography, or for an

models within it. Typical responsibilities of an MSP include overall

entire program (See also: Sourcing Model, Master Supplier).

A sourcing method in which only one supplier is selected to provide

program management, reporting and tracking, supplier selection and


management, order distribution, and often consolidated billing.

Sourcing Model

The method by which a company identifies, selects, receives, and


pays for contingent workers and related services. Companies may

Master Supplier

A staffing supplier that takes overall responsibility for providing

employ more than one sourcing model within a contingent workforce

clients with temporary staff. In a master supplier relationship, all

program. Sourcing Models can be identified by a companys position

orders will usually go first to the master supplier to either be filled or

along three independent axes: competitiveness, rate elasticity, and

distributed to secondary suppliers. Sometimes a master supplier will

vendor integration. Competitiveness is the degree to which staffing

not only provide a significant portion of the temporary staff working

agencies are invited to bid against each other with respect to

at the employers site but also manage an organizations contingent

submission time, candidate quality, and price. Typical options include

workforce program. Also known as Master Vendor (See also: Vendor

sole-source, primaries, structured tiers, and open bidding. Rate

on Premises).

elasticity is the degree to which demand affects rates, with options


including fixed rate cards, pay range plus markup, max bill rates, and

MSP Hybrid

In the early days, an MSP hybrid was the way to define multiple

open bill rates. Vendor integration is the degree to which a company

Program

sourcing models within a contingent workforce program management

uses external resources, with options including complete program

or MSP. Typically, a hybrid program would include elements of

outsourcing, on-site administrative support, off-site transaction

vendor-neutral as well as master-supplier programs. For example, a

support, and no use at all.

buyer might engage a single provider to act as the sole supplier for
its Light Industrial job requisitions while having multiple providers

Structured Tiers

Selection of multiple suppliers in a specific priority, usually based on

competitively bid on IT positions. Now, the hybrid is typically

pricing level, combined with size and capacity (See also: Sourcing

dropped since it has become commonly accepted that an MSP

Model).

includes the management of many different sourcing models within


the program.

Primary Suppliers

Two or more suppliers that have the majority of a companys staffing


requirements distributed to them, in lieu of, or underneath an MSP
arrangement. They may be on-site and they may or may not be in a
competitive bid situation (See also: Managed Service Provider).

From the SIA Lexicon 2011/12

16

17

index

Vendor

An Internet-enabled, often Web-based application that acts as a

Management

mechanism for business to manage and procure staffing services

System (VMS)

(temporary help or in some cases, permanent placement services)


as well as outside contract or contingent labor. Typical features
of a VMS include order distribution, timekeeping, and significant
enhancements in reporting capability over manual systems and
processes.

Vendor Neutral

A term used to describe a model in which a managed services or


VMS technology handles its tasks (e.g. order distribution or candidate
selection) based on client-defined policies that mandate that all
(or a pre-defined set of) staffing suppliers (vendors) be (a) given an
equal opportunity to fill each order, and/or (b) selected for each
order based on the same criteria. Under a vendor-neutral model,
a managed services or VMS provider could not, on its own accord,
push orders to itself or any other staffing vendor. The presumed
advantage of a vendor-neutral model is that the best supplier with the
best candidate will fill each position.

References
Aberdeen Group, Contingent Workforce Management: The Next-Generation Guidebook to
Managing the Modern Contingent Workforce Umbrella May 2012
Staffing Industry Analysts, 2011 Contingent Buyer Survey: Vendor Bidding Models and Staffing
Agency Rate Structures March 2012

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About the Author


Jennifer Spicher is Vice President & Americas Practice Lead, Contingent
Workforce Outsourcing Solutions with Kelly Outsourcing and Consulting
Group (KellyOCG). She joined KellyOCG in 2009 to help accelerate the
companys growth in strategic accounts. Ms. Spicher is responsible for
solutions design and architecture, implementation and overall program
delivery, as well as customer satisfaction for client programs. She has a wealth of experience
and demonstrated accomplishments in the human capital industry, which has fueled her ability
to consult with clients, understand their needs, and recommend customized solutions to align
with their workforce strategy. Jen was named a 2013 Pro to Know by Supply & Demand
Chain Executive magazine.
About KellyOCG
KellyOCG is the Outsourcing and Consulting Group of workforce solutions provider, Kelly
Services, Inc. KellyOCG is a global leader in innovative talent management solutions in the areas
of Recruitment Process Outsourcing (RPO), Business Process Outsourcing (BPO), Contingent
Workforce Outsourcing (CWO), including Independent Contractor Solutions, Human Resources
Consulting, Career Transition and Executive Coaching, and Executive Search.
KellyOCG was named to the International Association of Outsourcing
Professionals 2012 Global Outsourcing 100 list, an annual ranking of the
worlds best outsourcing service providers and advisors.
Further information about KellyOCG may be found at kellyocg.com.

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