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Identifying Contingent Worker Cost Savings Without Affecting Supplier Partners

Jun 8, 2016 1:52:09 PM

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It is not uncommon for an organization to allocate up to 30% of its managed services spend to the contingent workforce. This is why procurement departments seeking deep discounts and tighter cost controls frequently target the suppliers supporting these programs. While procurement organizations continue to look for cost savings, the market has experienced a significant shift in recent years. Today’s environment exhibits lower unemployment and higher overall contingent worker usage. Additionally staffing suppliers are absorbing new costs such as those stemming from the Affordable Care Act and other increased statutory costs.

nextSource suggests examining naturally occurring savings that may already exist within your workforce management programs prior to squeezing your supplier partners for deeper discounts. This is an idea supported by Bryan Peña VP, Contingent Workforce Strategies & Research at Staffing Industry Analysts. Peña remarks, “I believe that identifying the optimal balance of price, service, talent and program possibility is more an art form than a professional discipline.” So how does a workforce manager achieve this goal of balancing cost pressures with mutually beneficial supplier relations?

Competitive Bidding | Achieve the aforementioned pre-existing savings opportunities via competitive bidding processes. This begins with ensuring not all positions are going to just one single supplier (or a small group of preferred suppliers). Soliciting bids from a larger number of suppliers not only helps drive competitive pricing, but also exposes the program to broader pools of talent.   It may seem like a bit more administrative work to run a competitive bidding process, but the payoff can be significant. For example, a hypothetical “Candidate A” was sole sourced, submitted and on-boarded for an assignment of one year at $80.00 an hour. “Candidate B” – identified through a job order that was competitively bid – was on boarded at $76.00 an hour for a net savings to client of $8,320 for the year. If 50% or more are being sole-sourced through one single supplier, the opportunity to capture savings looms a bit larger.

Self-Identified, EOR Savings | Organizations can often effectively source their own talent through worker referrals or via temp-to-hire processes. In most cases, self-sourced workers are on-boarded at a lower markup of between 22-24%, whereas their recruited counterparts incur higher markup rates of between 40-45%.

To identify valuable savings opportunities, review the delta of the EOR markup versus the recruited mark up by job title and location. Frequently, the savings yielded can average between 1-2% of total program spend. That’s a number worth pursuing!

Handling the Increased Administrative Burden | Growing stronger supplier relations at the same time as cutting costs does come at a price. It takes a bit more legwork to run competitive bids and increase self-sourcing. Luckily, there are efficiencies to capture in the administrative sphere as well with the proper systems in place. Consolidated invoicing and supplier payment outsourcing are stock features of today’s Vendor Management System (VMS) solutions. Work with internal AP department resources to analyze and identify the costs of processing an individual invoice, payment to supplier and included Accounts Payable support provided to the supplier. The average cost to process a single invoice is $21.00. Measure the cost difference of processing one invoice per worker (or supplier) per week. Then compare that to the cost of processing a single consolidated invoice.   Cost savings captured via consolidated billing account for 2% of overall program spend for the average program.

These modest shifts in business processes can yield a sum of 4-5% of overall program spend while strengthening your supplier relationships. Why wouldn’t an organization take these simple steps?

 

 

Topics: Blog, MSP/VMS, Procurement Services, EOR Services

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