In the most basic sense, companies engage a managed services provider (MSP) to oversee their contingent workforce because they realize they can capture significant cost savings by outsourcing to someone with specialized expertise. It’s true, engaging an MSP can relieve an HR department from the labor-intensive processes associated with fielding a contingent workforce, but there’s much more to a successful MSP than efficient sourcing. Let’s look at some of the cost savings benefits commonly associated with a successful MSP as well as some of the risk avoidance benefits not as frequently examined.
The cost savings most frequently discussed are those low hanging fruits, the hard cost savings. The lion’s share of hard cost savings come from the expertise the MSP brings to the process of rate benchmarking. An MSP makes the following comparisons in the benchmarking process:
- Historical rates versus engaged rates for like/kind skill sets
- Direct source rates versus competitive bid rates
- Approved supplier rates versus non-approved rates
- Market rates versus competitive bid
The MSP also reduces hard costs by replacing high-cost and direct source contractors with those sourced via competitive bid. In some cases, the MSP will renegotiate on behalf of the client to capture negotiated rate savings and by securing volume discounts, right-to-hire conversion fees, elimination of third-party suppliers and other areas where rates can be negotiated down.
Beyond hard cost savings, a successful MSP also delivers soft cost savings which, while a little harder to quantify, are no less significant. These soft cost savings are harder to estimate because they represent costly events which the MSP helps the customer to avoid. These include all the liability and risk avoidance strategie. Soft cost savings are based on the reduction of risks associated with the use of contingent workers like co-employment claims, improper worker classification penalties, workers’ comp, general and automotive liability claims, and even costly intellectual property theft. Left unaddressed, all of these risks can add up to serious costs to your organization.
On top of these regulatory compliance issues—in the absence of an MSP—these tasks would fall to internal personnel to address on top of their regular workload. Outsourcing the entire process to an MSP ensures these tasks receive the proper attention while also reducing administrative costs. The MSP can help reduce man-hours dedicated to workforce management (or even reduce headcount) in areas including HR, accounts payable/invoice processing, bids and proposals and more. Plus, the MSP typically provides invoice auditing services which helps avoid unauthorized payments, rate increases or other charges.
Overall, the MSP is exceptional at driving both hard and soft cost savings through the efficiencies it brings to the process and the metrics and controls it brings to bear on preventing costly compliance issues. To find out if an MSP is right for your contingent workforce plan, contact nextSource today for an assessment.
This post provided by nextSource contributing writer, Jarret Gardner, vice president of business development.