Choosing a Technology Solution to Manage Your Contingency Workforce

If you’re looking for a vendor to manage your contingency workforce, the first crucial step is to understand the difference between a managed service provider (MSP) and a provider offering vendor management services (VMS). A true MSP usually offers five core elements:

  1. Requisition management
  2. Article Continues Below
  3. Vendor management
  4. Contractor time and expense (T&E) capture
  5. Consolidated billing
  6. Business intelligence reporting modules

The VMS will offer the same technology, with the exception of consolidated billing and varying degrees of service. While all MSPs in this space are VMS providers, not all VMS providers are MSPs. Understanding the difference between the full-service MSP and the technology-based VMS will be critical in establishing a solution that will not only save your company money from lower direct supplier costs and streamlined processes, but also help scale your company’s contingency workforce growth. Many MSPs will either offer their solution as a package (all five pieces as one solution) or break out the technology depending on the needs of the customer. Some companies may only want the requisition and reporting modules for instance, while others may want T&E capture and consolidated billing. The Value of Consolidated Billing The first major difference between a MSP and VMS is consolidated billing. An MSP will have the capacity to manage all of your suppliers and sub-tier invoicing and billing. In short, the customer pays the MSP for all approved contractor time and expense, the MSP in turn pays all the suppliers. The benefits are consolidated billing for the customer (cost savings) and consistent and timely payment to the suppliers. Many suppliers have been won over by this model because payments have become timely and predictable. For instance, if a customer pays the MSP within 30 days of invoice, the MSP may contractually pay all suppliers within five business days of receiving that payment. Suppliers are able to forecast payment and receive a consolidated monthly check for all approved contractor time and expense. Now, imagine a Fortune 500 that historically receives thousands (or tens of thousands) of contingency labor invoices for all their contractors only receiving one electronic invoice monthly from the MSP. Most companies will average in the ballpark of $30-$50 in costs to process each invoice. Over time, the cost savings due to consolidated billing for a sizable company could be hundreds of thousands of dollars per year in conservative estimates. One customer I worked with recently estimated the average cost to process one invoice to be over $150.00! Multiply that by 500, 5000, or more, and you are looking at some real savings. Most VMS providers, however, generally do not have the financials to carry the “float,” or the contingency labor spend for most tier-one organizations. Many of the MSPs are either large established staffing companies or divisions of these types of companies, and generally do have the financial backing to manage large contingency labor floats for their customers. It is a lot easier for a large staffing company with, say, $500 million in revenue, to carry a $100 million customer contingency labor spend than a VMS with only $20 million in funding under the belt looking for that next round of funding to manage a large customer spend. This scenario is quite real and should be considered in determining your MSP or VMS. The Value of Service The second difference is service. Most MSPs will provide onsite resources as part of the service that is factored into the pricing. With hundreds or thousands of potential users, many MSPs see the onsite resource at the client’s site as a critical piece for success. The onsite presence will increase the visibility of the MSP and the service levels for the customer during the technology adoption process, the training of users and contractors, the handling of staffing suppliers, the managing of the invoicing/billing process, problem resolution, and generally working with the customer to maintain the entire contingency labor acquisition and management process. But many VMS do not have the bandwidth or financials to carry onsite staff. In many cases, once the technology is deployed, the VMS passes the some of the responsibilities to the customer for the maintenance of the application and the training of users. The VMS model can work very successfully, though, depending on the size of the organization. The needs of a company with 100 contractors onboard is significantly different than those of a Fortune 500 with 10,000 contractors. As the contractor volume expands, so does the need and requirement of higher levels of service to the customer. Just as an MSP probably will not be cost effective for an organization processing only 50 contractors annually, a VMS could be seriously stretched in resources, financials, and operations in the processing of 500 or 5000 contractors for an organization. Evaluate the MSP or VMS service policies and implementation methodology before choosing your vendor. Look at historic hiring volume and try to determine forecasted contigency labor needs before making the jump with either a MSP or VMS. The Vendor Neutral Model Much has been said over the years about the need for a vendor-neutral technology and model. However, many of the top MSPs have naturally grown out of the staffing industry. While these MSPs can offer a host of benefits due to the leveraging of their staffing experience, this scenario does offer its own challenges and complications. Several of the major MSPs will offer the onsite personnel to increase service but also sell the customer on the “primary” relationship ó or having first crack at all contingency labor needs. Depending on the MSP, this model can be very successful for the customer ó or it can fail miserably. Part of the basis of moving towards an MSP for a company is to increase the competitiveness of its supplier base. Utilizing a preferred supplier on all contingency workforce needs can put a customer at risk Now, not all MSPs that derive from the staffing industry promote this model. Some will offer this model if the customer demands it. But they also understand the value of the supplier partnerships. It’s not the technology that ensures the vendor neutrality, it’s the proper management of this process that ensures the integrity. Since this is a client-directed model, the MSP or VMS should be directed as to what suppliers are included in distribution of their contingency labor needs. Find the MSP that will work under your direction and partner with your suppliers whatever the model your organization decides. The MSP may also very well be a supplier to your organization. However, the utilizing of a diverse supplier base will only increase the quality of your contingency labor pool ó and lower your direct supplier costs! The Value of Partnerships As stated above, the power of supplier partnerships can be a powerful force. Many staffing suppliers have historically viewed MSPs and VMSs as a threat. Several MSPs have made great inroads over the past few years by embracing many of the major and niche staffing suppliers as partners. As difficult as some staffing suppliers can be a times, many are truly critical to the growth of your organization. Finding the right MSP or VMS that will embrace your existing supplier base is an important factor in evaluating the right solution. In reality, many of your historical suppliers will eventually fall off due to poor performance. With a MSP or VMS in place, all supplier data will be captured for business intelligence reporting, including supplier performance metrics. Over time, certain suppliers will naturally perform better than others, with quicker response times, higher quality candidates, lower margins, and better customer support. These are the suppliers that you want in your long-term growth plan. The MSP/VMS model rewards those vendors by (through the client-directed process) offering greater access to work a higher volume of contingency labor needs in return for marginal lower supplier costs. This is a natural benefit of this model. Conclusion If the relationship is communicated and managed properly between the MSP/VMS, the customer, and the suppliers, the model can be made to work well. Many staffing suppliers today realize the opportunity in lowering their mark-ups or margins in return for greater opportunity of volume, especially in this economy. In the end, the customer can realize direct lower supplier costs, soft dollar savings through process efficiencies, and an increased contractor quality pool.

J. Gregory Donovan ( has over eight years of experience in HR and recruiting, including particular experience with Applicant Tracking Systems (ATS) technology. His specific areas of expertise include global staffing, recruitment strategies, and HR and e-recruitment solutions. Formerly a founding member of an e-recruitment technology firm, Greg has held various recruitment and consultant roles with such companies as iXL, the John Harland Company, and Geac Software. He holds an MBA from Duquesne University and a B.S. from Penn State University.


Leave a Comment

Your email address will not be published. Required fields are marked *