How procurement teams can achieve significant economies in their indirect staffing spend without upsetting the apple cart?
The Cost of Talent
In most organizations, staffing costs are one of the biggest bills. In recent years, the costs of payroll and of contracted workers—both in terms of the cost per hire and overall spend of external labour—have exploded. Furthermore, labor skills shortages in many industries and disciplines have increased recruitment fees from intermediaries that have become a necessary evil to find the best talent at a palatable price.
Added to all of these cost burdens is the heady cost of change. Markets, customer demands—and consequentially business models—are changing at a much higher tempo. This makes the ‘corporate re-org’ a permanent fixture on the to-do list of executives. Change costs money. It costs a whole lot more when you have a large full-time workforce demographic.
At this perilous time for businesses, Cost Reduction has cemented itself back to the number one position on the priorities list for procurement teams.
New Ways to Skin Cats
Fortunately, while digital technology has been one of the catalysts of change (forcing organizations to change their workforce models and customer value delivery approaches), it’s also become a saviour to many. Modern enterprise software platforms are much cleverer than they used to be, and they can do more to ‘remove the human-from-the-loop.’
Digital Technology is injecting new possibilities to eradicate costs from back-office processes. These new tech-stacks based on cloud computing and big data innovations, are much easier to integrate than their predecessors—which results in more machine-to-machine integrations and less ‘swivel-chair’ type manual tasks that sap time out of the working day and drive bosses crazy.
So, what tech do you need to cut your indirect labor spend? And is it worth it?
New Ways to Herd Cats
The fact is, no-matter how clever your technology, finding the best talent to fill your vacancies in a world short on skills, you’re going to need partners of one form or another. That means you’ll need a way to manage them.
Vendor Management Systems (VMS) have been around for over three decades and, as you’d imagine, they’ve improved over time. Back in the day, companies had to work with spreadsheets to manage their supplier lists and do best to perform financial oversight over payment terms, rates and spend. When VMS solutions entered the market in the pre-Y2K dawn of the industry, they were nothing less than a revelation. But that was then, and the latest VMS solutions are a step above these early-years systems.
A major pivot point in the industry occurred in the early 2000’s when companies including Microsoft, Google and Amazon started fighting for top spot in the cloud computing industry. Each of these larger players invested billions in new cloud platforms and ecosystems to make the task of creating, managing, analysing, scaling and securing apps easier for software vendors. While incumbent players ported their existing technologies to the cloud, new entrants (essentially, any VMS born post 2010) have been able to build their solutions on this more modular, mobile friendly, and data-rich exoskeleton.
Companies like SimplifyVMS have moved their offerings beyond the traditional scope of a VMS to become modular talent portals that glue together the best technology components and fill the voids where technology underperforms. In this way, they allow larger organizations to maximize their systems investments, leverage best-in-class SaaS tools and streamline machine-to-machine automations to minimize the ‘human-in-the-loop’ legacy of VMS deployments.
Opportunities to Cut Costs Painlessly
There are several areas where procurement teams can achieve cost savings in their talent sourcing efforts. We summarize the major ones here:
Exposing ‘Off-Book’ Sourcing Agreements
Few organizations can come up with ‘a figure’ as to how much they spend on their contracted workforce, monthly. Before a VMS is installed, it’s actually very difficult to gain visibility over the TOTAL SPEND on indirect talent in its various guises. Bring a program under control and you will expose work being done by outsourcers, consultants, small limited companies and freelancers that finds its way into the Accounts Payable list. Unless you know it’s going on, you won’t be able to bring the spend under control.
It doesn’t help that talent is often hired through various departments across an organization including HR, Procurement, IT and other Line-of-Business departments when Hiring Managers take the task of getting work done under their own control. Creating a cross-functional project team to manage Talent Strategy that adopts a Total Talent Management (TTM) approach, is one way to tighten up the purse strings and prevent spend from leaking out.
Cost to Acquire Talent
Some vendors charge exorbitant fees. Having the ability to benchmark job categories against industry rates (tied to the territory you operate within and the level of expertise you’re looking for) means that vendors can’t pull the wool over your eyes when it comes to the cost of talent.
You should expect your VMS to reinforce your payment terms and expose vendors who are demanding unreasonable payment terms. Additionally, many talent leaders tell us how they’ve been caught out by end-of-contract extensions, where vendors charge Hiring Managers ’cheeky rates’ when they need a contractor for an extra few days. These sort of ‘invisible costs’ are often lost in ‘cost of doing business’ departmental budgets. A VMS should enforce policies to ensure this type of ‘behind the garage’ dealing doesn’t happen.
One cost that often goes unmentioned happens when staffing vendors (the ‘Employer of Record’ for a contractor) fail to furnish appropriate insurances for their people. Travel insurance is one of those classic cases when companies end up shelling out cash to cover costs that staffing firms should be covering themselves.
Productivity and Knowledge Gains
You can look at the very obvious cost economies from paying less for talent and spending less on intermediaries, and for many that might be enough to encourage adoption of new ways of working and new systems. Personally, I would argue that some of the less tangible rewards of adopting a VMS—and a joined-up approach to cost control over your talent supply chain—are more impactful on the long-term success of your business. Filling vacancies faster and hiring better quality talent means you’re able to get jobs done faster (productivity gains) and you can inject new ideas and new thinking into solving old challenges. Creating an intelligent, energized and diverse workforce that’s able to ebb and flow with changing demands, might just be the biggest reward of bringing your indirect labor program under control.
Displacing FTE Spend
Your payroll may be your biggest operating cost. Bringing control and governance over a talent supply-chain, and improving the supplier blend, creates a more effective ‘engine’ to source the best talent and fill vacancies. The ‘second-phase ball’ of cost savings comes from the migration of work-to-be-done away from the default go-to of high-cost and inflexible full-time employment contracts towards a best-fit approach where FTEs, automation, intermediaries, and contracting options are considered.
Sometimes, cost economies are difficult to reach. Any significant system change normally comes with a bag of practical challenges; such as the cost of installing new methods and tools, undergoing the pain of change, having to commit management time to inward improvements at the cost of spending time improving customer value and experience, etc. Thankfully, that cost of implementation and change isn’t so painful with new VMS solutions.
Unlike their predecessors, vendors like SimplifyVMS don’t charge for implementation or change costs. That’s partly because their tech-stacks are designed on adaptive cloud architectures that are much easier to adapt. There’s a big difference between CONFIGURATION and CUSTOMIZATION. Modern VMS solutions design their systems around the former not the latter, resulting in much faster pace of change, at significantly lower costs.
Final Thoughts – Not Upsetting the Apple Cart
The best procurement teams know that change costs money and can be very distracting. Therefore, the most effective change programs are those that deliver quick-wins and can be largely supplier resourced. Modern VMS solutions can be game-changing for this reason. They:
- Are modular; which means you don’t need to eat the whole pizza in one go. Organizations can take the elements that bring the biggest rewards onboard and save advanced features for later, reducing implementation overheads and complexity, and cutting software costs.
• Are built on modern cloud technology that means they deliver faster-time-to-value and architectures reduce the complexities of deployment and ‘shaping to fit’ the way your organization works.
• Adopt a Glue-Ware architecture which means they offer deeper integrations with your existing systems (and identity management platform) to minimize manual re-keying tasks, etc. Additionally, this Glue-Ware ethos means use of best-practise SaaS tools to get certain jobs done is actively encouraged. The net result is still a system that ‘feels’ like it’s one platform to Users with a Single-Sign-On.
• May be supplier funded: Most VMS vendors will offer their products by charging a fee to the staffing vendors to fund some or all of the licensing costs.
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