We have a new research paper available for download – “Contingent Labour Review: Key Procurement Priorities – Setting the scene for change”.
This is a paper where the word “research” really means something. It wasn’t just our own Spend Matters views or analysis, but came from combining our ideas with half a dozen detailed interviews with senior procurement folk, each of whom had a particular knowledge of and interest in the Contingent Labour spend category. That included senior category managers and heads of Indirect Procurement, from organisations spanning pharmaceutical, the public sector, energy, food and drink, and travel/ transportation industries.
We have taken their views on the procurement of contingent labour, in terms of both how they see current market and issues, and a more forward looking perspective, and combined that with our own thoughts. Indeed, we ended up with so much material, Comensura, the sponsors of the paper, decided we should publish it in two parts – part 1 is out now, part 2 will follow fairly quickly.
Comensura is a specialist supply management firm that manages the supply of temporary and contractor labour into large organisations in the public, private and not-for-profit sectors. We’re grateful for their support – but they did not influence our paper, other than feeding some of their own thoughts into the mix (and I have to say, the folk we work with at the firm are genuinely very thoughtful and informed about the future of the industry).
Anyway, you can read for yourself by downloading the paper here, free on registration. And we’ll have some excerpts here over coming days to give you a sample of what you can expect from the full paper (the quotes in italics come directly from our interviewees).
Key Procurement Priorities: Setting the scene for change
Procurement Maturity and Value Levers
As this spend category has grown, procurement managers have gradually become more aware of the cost drivers and the priorities for more effective management of expenditure, however, the level of procurement maturity in this category still varies considerably between organisations. “Responsibility for the contingent labour spend and supplier (agency) relationships has sat very much in the operational areas. But procurement is now picking it up as a priority and we’re having a really good look at it.”
The development of that maturity and greater interest and involvement from procurement often looks something like this:
Level 1 – In the first stage, an organisation appoints a category manager or managers for the first time to look specifically at contingent labour. There is a tendency to focus on driving down the margin charged by the agencies and perhaps harmonising the margins across agencies. Whilst for many firms, that generates some useful savings, ultimately it can only go so far; a certain point will be reached where the agency is making a fair market return. The agency margin is also only a relatively small element of the total cost; it may be 10% or even less of the total fees paid by the end employer, and is rarely more than 20%. So the vast majority of cost is tied up in the fees paid to the worker. “Margins are very low in the manufacturing agency market – that’s just not where the money is.”
Level 2 – As category managers move up the maturity curve, they generally focus next on the efficiency of the process; how could the time and effort needed to find and bring contingent labour into the organisation, and the administration needed through their employment, be minimised? Indeed, this is still a major driver – “we are looking at how to reduce the time it takes to find and get the right people into the organisation,” said one of our interviewees. In a fast-paced production environment, “improving service levels from agencies and risk reduction are the top priorities.” One response from buyers has been to take advantage of the external support available, and both VMS providers and MSPs have focused on supporting that objective of greater efficiency in the process.
Download the Paper now to find out about “value levers” at levels 3 ,4, 5 and 6!