Over the course of my 16-year career in procurement, there are few categories of spend I have not addressed. From software and office supplies to airline contracts and polystyrene resin, I bought them all. But the fact is procurement of people is different. Many of the tried-and-true elements of successful procurement — supplier margin compression, reverse auctions and benchmarking — often have negative effects on a contingent workforce program’s health. Here’s how.
Cheap can be expensive. Sometimes, global leveraging of your contingent workforce spend just doesn’t work. The fact is human capital for the most part does not cross state lines. Translation: location matters. While you may negotiate a very successful and cost-effective contract at the national or global level, at the end of the day it’s still a branch office delivering those services.
A recruiter takes your requisition assessment and finds a resource in your local region that satisfies that requirement. That recruiter is incentivised by profitability, and while you may be patting yourself on the back for aggressively negotiating that 22% markup on sourced positions, the recruiter’s incentive to fill your role is balanced against another client paying 55% markup.
Cheap is often expensive, and while I’ll be the first to acknowledge that market compression is often a great cost-savings mechanism, it needs to be balanced against the reality that your contract needs to be approved or ratified at the local level. Negotiating rates too low without the proper incentives for local delivery will doom your program to failure, it’s as simple as that.
Reverse auctions. The utilization of reverse auctions for many commodities and categories can be very effective for efficiently sourcing among multiple suppliers. But when it comes to contingent labor, that’s not always the case. Don’t get me wrong, reverse auctions can make sense at times. But in those instances where they have been successful, they are focused on only a single element of the program, such as gross margin, or payrolling markup. Where many program managers go wrong is by reverse auctioning by bill rate and job role. This is incredibly misguided. Often, such an approach misses the fact contingent labor is incredibly dynamic. And the bill rates may fluctuate greatly or the course of a year. Where reverse auctions do work is at the point-of-sale. Many VMS providers incorporate a reverse-auction functionality into the requisition process. This is a great element to include in your process flow and the closest to the actual delivery of the resource and creates a climate where the provider has certainty in delivering against the price negotiated.
Benchmarking. It’s normal in any procurement practice to look to benchmarks as means of comparison for program performance and health. I believe benchmarking companies and programs yield little to no benefit in building a program strategy. Some people disagree. If you take the time to share your concerns with me, we can debate the issue. However, in the end there’s so much variability when it comes to contingent labor that comparing one program to another in about any realm is just impossible.
For example, let’s consider all of the things that affect time to fill. For one, the definition itself may vary from company to company; is it when the requisition is released to the suppliers or sent for approval to the program office? Or take benchmarking rates. If I was buying cardboard, for example, there are benchmarks that tell me what I should be paying based on my stated specifications, but no such benchmarking truly exists for contingent labor. While we are moving toward that point with products like TDX and other benchmarking resources , the fact is material elements such as payment terms, job description variability, discount strategies, footprint and others differ from company to company and supplier to supplier.
At the end of the day, the best sourcing approach is one that recognizes the uniqueness of the category that is contingent labor. Then focus on building a program that is sustainable and best equipped to yield long-term benefits to your organization.