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HCMWorks Insights

Contingent workforce MSP: flexible workers costing too much?

Posted by HCM Works on 21 Feb 2016

The flexible workforce, or contingent workforce, is a great way to gain fast access to the talent you need to meet rising demand and fill skills gaps in your organization. But that flexibility comes at a cost. A cost that is often unnecessarily higher than it should be.

The sources of these cost inefficiencies are numerous and executives are encouraged to explore various ways to drive them out when possible:

Staffing vendor markups

Staffing vendors provide a valuable service, offering a streamlined sourcing solution for fast access to talent. But in exchange, employers are paying hefty markups on the hourly rates charged for that talent.

How do they get away with it? Well, sometimes it’s simply because employers don’t truly understand how much they’re paying or that markups can be negotiated. Other times, employers are scrambling to fill a position quickly and so are prepared to pay whatever the staffing vendor demands. And sometimes the talent they're looking for is rare and in high demand.

But there are other reasons why you may be paying heavy markups. Here are the two most common:

  • Vendor favoritism – Sometimes, hiring managers become complacent, working almost exclusively with one or two vendors. With no real competition – and no centralized oversight by HR or Procurement – staffing vendors may be inclined to charge a higher markup. 
  • Fragmented buying power – On the other hand, if you’re working with too many staffing vendors (retained by numerous hiring managers in disparate locations throughout your organization), you run the risk of diluting your buying power and, as a result, limiting your ability to negotiate a more favorable markup.

A sound contingent workforce management strategy should focus on striking a balance between too many and too few staffing vendors. The idea is to create healthy competition amongst a handful of reliable staffing vendors that will vie for most, if not all, of your assignments.

This strategy can be facilitated and supported through the use of a Vendor Management System, or VMS, and potentially a Managed Services Program, or MSP.  A vendor management system is essentially a repository for all your contingent workforce procurement data allowing you to increase your contingent workforce visibility and control.

Paying above fair market rates

The challenge that many organizations face – particularly those that have not implemented a contingent workforce MSP and a VMS – is an unclear or fragmented view of what the current going rate should be for the various classes of workers they retain. Here again, a solid contingent workforce strategy will help these organizations gain a clearer view of the fair market rates for any given resource, helping to ensure they’re not paying a premium for the workers they retain.

Overlooking other sources of quality talent

Staffing vendors don’t have to be your go-to source of non-permanent workers. Here again, it's really a question of striking a balance. Using past employees, including retirees and other permanent workers, in addition to workers you've engaged with on a contingent basis in the past, can form a solid proprietary pool of high-quality talent.

That’s why a solid contingent workforce management strategy should include creating and diligently maintaining a database of all the permanent and contingent workers you’ve successfully engaged with in the past, classified and categorized for easy access. This database can also contain candidates that you’ve identified as potential high-value talent for the future through referrals and other sources.

As you know, alumni workers understand how your business operates and can hit the ground running with little prep time and minimal onboarding. So a well-maintainted alumni database gives you ready access to these high-quality workers so you can fill non-permanent positions fast, while at the same time cutting costs.

Contingent workforce management is not about technology

Sure, technology plays a key role in implementing a contingent workforce management strategy. It helps to ensure that you’re optimizing costs and driving out inefficiencies. Most managed services programs are based on vendor management systems (VMS) that enable you to effectively consolidate all your contingent talent in one centralized location. 

There’s much more to contingent workforce management and managed services programs, however, than technology. An effective MSP is a combination of strategy, vision, processes and practices, a profound understanding of how the contingent workforce marketplace functions and an intimate knowledge of the legal and regulatory landscape that surrounds non-permanent workers. 

No longer an enterprise-only solution

Not so long ago, only large enterprise could benefit from the cost-savings, visibility and efficiency that a contingent workforce MSP can provide. But recently that’s all changed. It’s now a viable choice for medium enterprise, providing ready access to quality talent, better visibility on contingent headcount and spend, as well as significant cost savings for your organization. Best of all, these programs are typically vendor-funded for the most part, so the barriers to setting up and running a program are lower than they once were. 

Want to ensure you’re paying fair rates for your flexible workforce? Need some help? Ask one of our contingent workforce consultants how HCMWorks can help you build a roadmap for greater visibility and control. Request a no-obligation discovery call to learn more.

Related content

• Contingent workforce accounting – your 5 biggest challenges 
• 3 contingent workforce cost savings strategies
• What is a managed services provider?


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