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Transcript of Sourcing Models
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Part 2: sourcing modelsBy Jennifer sPicher
The FundamenTals oF managed service Provider (msP) Programs | ParT 2 oF 3
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this is the second of a three-Part series designed to outline key comPonents of a managed service Provider (msP) Program in suPPort of a comPanys more comPrehensive strategy for talent suPPly chain management.
p3 Introduction
p4 Sourcing Models
Sole-Source (Master Vendor) Sourcing Model / 6
Primary Supplier Sourcing Model / 7
Structured Tiers Sourcing Model / 8
Vendor Neutral (Open Bidding) Sourcing Model / 9
p12 Integrating Sourcing Models through an MSP
p15 Conclusion
contents
2
Two of the major stakeholders most often engaged in this strategy are Procurement
and Human Resourcesour experience indicates that when these two groups work
together effectively, an MSP program delivers significantly higher value than without this
vital collaboration.
This series addresses common questions about MSP programs, and provides a framework
that allows for informed decision making. The series will explore three key areas:
Explains what an MSP can do for your companyand why its important
Demonstrates how multiple sourcing models can integrate with MSP strategy
Articulates the business case for MSP and helps to determine your readiness
The following covers the second of those three areas: Sourcing Models. Be sure to read parts
one and three for additional observations on achieving effective talent management through
MSP solutions.
This information should prove valuable to procurement and human resources personnel
as they plan and prepare for the future. It also presents real value to stakeholders, whose
operations may be impacted by the MSP program and leadership from many other areas,
including finance, IT, or operational functions that may ask:
What strategies can we deploy to manage the cost, technical competency, and risk
inherent in utilizing external labor?
3
1
2
3
Jennifer sPicher
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While there is no firm rule, generally speaking, the use of sole-sourcing bidding models decreases with the use of higher-skill positions.
sourcing models
4
There are five common sourcing models that companies use to procure external labor:
sole source (master vendor)
Primary supplier
structured tiers
vendor neutral (competitive Bid)
hybrid
According to industry data, most companies have more than one sourcing or bidding
model in place, as reflected in the following chart. The use of multiple sourcing models is
not surprising when one considers how supply and demand factors vary across skill sets.
For skill sets that are more difficult to fill, a company will likely increase its supply base
using a more responsive and adaptable talent sourcing approach. In contrast, for skill sets
that have higher supply and availability of talent, a more efficient, transactional sourcing
approach can be effective.
Based on SIA Buyer Surveys conducted in 2007 and 2011, growth of usage occurred
across all sourcing models. However, the use of primaries has grown significantly, with 84
percent of companies using this model to source contingent labor. These trends indicate a
shift toward more complexity and greater variation in the models used by most companies
today, which will lead to more complex solutions, and the demand for more robust
management of these different sourcing strategies.
The definitions for each model, as described by Staffing Industry Analysts (SIA), are
provided in call-out boxes on each page for your reference.
Prevalence of various vendor Bidding models
0%
20%
40%
60%
80%
100% 20eleven
200seven
Sole-SourceOpen BiddingStructured TiersPrimaries
0%
20%
40%
60%
80%
100%
20eleven
200seven
Sole-SourceOpen BiddingStructured TiersPrimaries
2007
2011
20072011
1
2
4
5
3
5
Source: Staffing Industry Analysts buyer surveys conducted in 2007 and 2011.
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6sourcing models
sole-source (master vendor) sourcing model
The sole-source contingent labor (Master Vendor) model has been around for decades. It
is frequently utilized to procure industrial (67 percent) and administrative (30 percent) skill
categories. In this sole-source model, the Master Vendor fills all orders, subcontracting only
those orders they cannot fill by using their own network of preapproved suppliers.
Pros: The Master Vendor (sole-source) approach works best when skill sets are readily
available in the market, allowing the client to get a volume-leveraged discount price when
one supplier can fill all the demand. It enables vendor consolidation, increased visibility,
standardized workflow processes, and simplified problem resolution.
cons: This model seldom works when sourcing for highly skilled positions, due to scarce
resources in the market coupled with limited use of subcontractors. Subcontracting, which
is often found in this model, is not legally viable in some countries.
Clients Administrative & Industrial positions Wide range of clients positions
Master Primaries
Tier II Tier II
Easiest to fill
Pay/markup structure
High volume
Hard to fill
Pay/markup structure
High volume
Primary supplier sourcing model
The Primary Supplier sourcing model is widely adopted to staff a range of skillsthe top
two being Information Technology (88 percent) and Engineering/Design (77 percent).
The model is similar to Master Vendor, but is not sole-source. In this case, several primary
suppliers are utilized.
Pros: Similar to Master Vendor, this approach delivers pricing discounts and additional
supplier resources. It also delivers the added benefit of providing clients with direct access
to more suppliersthus increasing their ability to source highly skilled positions.
cons: If an MSP program is not in place, the primary supplier sourcing model can increase a
companys administrative costs because they must directly engage with more suppliersin
what can be a highly transactional environment. This may mean multiple ordering tools,
on-boarding rules, invoicing streams, and supplier reports. In addition, the client takes on
more responsibilities for change management, program improvement, process design, and
problem resolution. Finally, there is often little to no visibility to subcontractors and their
compliance to program requirements.
sia definition of Primary suPPlier:
sia definition of sole source:
Contingent worker recruiting opportunities distributed to a select handful of primary staffing agencies, who in turn may subcontract some jobs.
Contingent worker recruiting opportunities serviced by a single Master Vendor who in turn may subcontract some jobs.
7
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8sourcing models
structured tiers sourcing model
Structured Tiers are also used to source highly skilled contingent labor, most predominately
in the Finance/Insurance industry (66 percent). In addition to the Finance and Insurance
industries, this model is prevalent for sourcing skill sets in engineering (57 percent) and IT
(56 percent). This model is similar to a Primary Supplier, except the client directly engages
with the Tier II network. The shift from Master through Primary to Structured Tier sourcing
models reflects a correlation between the difficulty in filling positions, and the need to
directly manage the supply base to ensure that talent is identified.
Pros: Direct engagement with the recruitment providers can improve hiring metrics.
cons: This model can often be more costly to manage, with the client taking on more
administrative responsibilities because of the increased number of suppliers.
vendor neutral (competitive Bid) sourcing model
This sourcing model gained acceptance in the mid-1990s when IT resources were scarce
and companies experienced difficulty finding resources at a reasonable price. Enterprise
procurement tools lacked focus on the acquisition of contingent labor, leaving a technology
gap in the marketplace.
During the late 1990s, a few firms introduced technology that automated the competitive
bid sourcing model, and gave companies a way to efficiently engage with multiple
staffing agencies. With this automation, MSPs became integral to managing the business
processes and policies that bring together the supply base, contract administration,
data analytics, and the technology.
Pros: This model enables broader access to talent and allows the best supplier with the
best candidate to fill each position at competitive rates.
cons: This model may not work well for some highly transactional skill sets. It is not readily
used in the manufacturing sector (19 percent) nor for those primarily purchasing Industrial/
Logistics skills (17 percent).
Clients Finance, Engineering & IT positions
Tiers
Tier II
Harder to fill
Pay/markup structure
Moderate volume
sia definition of oPen Bidding:
sia definition of structured tiers:
Staffing agencies bid on individual contingent worker recruiting opportunities based on quality, price, and availability; often implemented via a reverse auction process.
Contingent worker recruiting opportunities are distributed to specific groups of staffing agencies in a formalized order.
Clients Professional & Technical positions
VMS Companies
Open Bidding
Tier II
Hardest to fill
Bill rate structure
Low volume
9
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10
sourcing models
on vendor neutrality
Over the past few years the term MSP has gained acceptance as a strategy to manage
external labor, separating the client-facing service from VMS tool functionality. The 2012 SIA
MSP/VMS Landscape report showed that for 75 percent of MSPs (affiliated or owned by a
staffing firm) that had vendor-neutral spend, less than 10 percent of that spend was through
their own staffing arm. In fact, four of the top five vendor-neutral MSP providers are either
owned by a staffing firm or the subsidiary of a staffing firmthus validating that staffing
firms can be vendor-neutral.
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12
The ability to integrate multiple sourcing models into one efficient management model, while simultaneously shifting their focus to oversight, is a key factor in why many companies have adopted msP programs as part of their long-term workforce strategy.
integrating sourcing models through an msP
As described earlier, most companies are using more than one sourcing model. Each
sourcing model may have applicability within an organizations contingent workforce
strategy. The sourcing of higher-skilled, professional/technical positions is more likely to
benefit from structured tier or vendor neutral (competitive bid) models to increase the
responsiveness and access, while less technical and easier-to-fill positions are more likely to
leverage a sole-sourcing model.
A managed service provider (MSP) can help to bring any and all of these modelsa hybrid
model approachunder a single strategically managed workforce program. When selecting
an MSP partner, the client should consider the MSPs supplier management resources,
financial viability, global infrastructure, program staff expertise, and its VMS compatibility
and flexibility.
The graphic (right) illustrates how an MSP program can integrate sourcing models
under a single management program to address the full array of contingent talent needs
for an organization.
An MSP enables the management of the entire spectrum of the contingent workforce
on behalf of and in partnership with procurement, HR, and operations. By outsourcing
program accountability to the MSP, the client can turn their attention to more strategic
and transformational initiatives, while alleviating procurement, HR, and operational teams
from transactional oversight. This is a key factor in why many companies have adopted MSP
programs as part of their long-term workforce strategy.
Recruitment characteristics are continuously evaluated for changing market conditions, which can influence modifications needed to the sourcing models.
MSP Program Management
VMS Technology
Administrative & Industrial positions
Easiest to fill
Pay/markup structure
High volume
Wide range of positions
Hard to fill
Pay/markup structure
Moderate volume
Finance, Engineering & IT positions
Harder to fill
Open bidding/Not to exceed bill rates
Low volume
IT Project & Services Spend
Hardest to fill
Open bidding/Not to exceed bill rates
Low volume
A
D
B
Master
Tier II
Primaries
Tier II
Structured Tiers
Tier II
Vendor Neutral
Vendor Neutral
C
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msP hyBrid Program:
MSP hybrid defines multiple sourcing models within a contingent workforce program. Typically, a hybrid program would include elements of vendor-neutral, as well as master-supplier programs.
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In summary, some key points with regard to MSP sourcing models include:
1. Most organizations utilize more than one sourcing model to find talent. An MSP strategy
provides an integrated approach to bring all sourcing models under one common
platform and management structure.
2. Creating an integrated sourcing model via an MSP program means HR and Procurement
remove themselves from transaction management and shift their attention to HR and
Procurement transformation initiatives.
3. The Master Vendor sourcing model is commonly used for administrative and industrial
skills. Its efficient and effective for this purpose, but it usually fails when used to source
more complex skills. In addition, it may not be scalable due to country legislative
limitations.
4. The Primary Supplier sourcing model is the most commonly used, with nearly 40 percent
of companies saying they have one in place to acquire certain skills. But while it provides
more direct access to a broader range of suppliers, it carries higher administrative costs,
as well as reduced visibility and supplier resources.
5. A Structured Tiers model is most often used to source Finance, Engineering and IT
talent. Like Primary Supplier, it enables direct relationships with an even wider range of
suppliers. But it carries an even higher administrative cost, with few supplier resources
and further reduced visibility.
6. Vendor Neutral/Competitive (Open) Bid is a sourcing model that became widely
adopted when VMS firms entered the market in the 1990s. It is most frequently used to
source talent in the Energy/Chemical and Technology/Telecom industries.
7. As the industry has matured most have come to recognize that MSP service can be
provided by both technology AND staffing firmswithout jeopardizing neutrality. In fact,
some of the largest MSPs are staffing firms.
8. The Hybrid MSP enables organizations to outsource their program to an MSP who
can design multiple sourcing models into one program strategy. This enables firms to
procure a wide range of skill sets, using a range of sourcing models.
conclusion
14
integrating sourcing models through an msP
an explanation of components a, B, c, and d from the
graphic on page 13 are provided below:
The clients contingent labor strategy is developed by conducting a thorough
assessment of their skill needseither for a site, a division, a country, or globally.
More detail on this process is provided in Part 3 of this series. The MSP will partner
with the client to structure the program in alignment with their objectives, including
broader workforce classifications such as IT project work, retiree populations, and
consulting firms, among others.
Next, and often in consultation with the MSP, the client will explore VMS options.
For technology, they look at VMS tool features, financial viability, a development
roadmap, integration costs, client references, and MSP compatibility.
Next they assess their sourcing models to procure the skills, often working closely
with the MSP to determine the best model. Sometimes the MSP will make the
decision on which suppliers to utilize.
Lastly, recruitment characteristics are continuously evaluated for changing market
conditions, which can influence modifications needed to the sourcing models.
A
B
C
D
15
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managed service
Provider (msP)
A company that takes on primary responsibility for managing an
organizations contingent workforce program and the various sourcing
models within it. Typical responsibilities of an MSP include overall
program management, reporting and tracking, supplier selection and
management, order distribution, and often consolidated billing.
master supplier A staffing supplier that takes overall responsibility for providing
clients with temporary staff. In a master supplier relationship, all
orders will usually go first to the master supplier to either be filled or
distributed to secondary suppliers. Sometimes a master supplier will
not only provide a significant portion of the temporary staff working
at the employers site but also manage an organizations contingent
workforce program. Also known as Master Vendor (See also: Vendor
on Premises).
msP hybrid
Program
In the early days, an MSP hybrid was the way to define multiple
sourcing models within a contingent workforce program management
or MSP. Typically, a hybrid program would include elements of
vendor-neutral as well as master-supplier programs. For example, a
buyer might engage a single provider to act as the sole supplier for
its Light Industrial job requisitions while having multiple providers
competitively bid on IT positions. Now, the hybrid is typically
dropped since it has become commonly accepted that an MSP
includes the management of many different sourcing models within
the program.
Primary suppliers Two or more suppliers that have the majority of a companys staffing
requirements distributed to them, in lieu of, or underneath an MSP
arrangement. They may be on-site and they may or may not be in a
competitive bid situation (See also: Managed Service Provider).
sole supplier A sourcing method in which only one supplier is selected to provide
all services for a customer within a service line, geography, or for an
entire program (See also: Sourcing Model, Master Supplier).
sourcing model The method by which a company identifies, selects, receives, and
pays for contingent workers and related services. Companies may
employ more than one sourcing model within a contingent workforce
program. Sourcing Models can be identified by a companys position
along three independent axes: competitiveness, rate elasticity, and
vendor integration. Competitiveness is the degree to which staffing
agencies are invited to bid against each other with respect to
submission time, candidate quality, and price. Typical options include
sole-source, primaries, structured tiers, and open bidding. Rate
elasticity is the degree to which demand affects rates, with options
including fixed rate cards, pay range plus markup, max bill rates, and
open bill rates. Vendor integration is the degree to which a company
uses external resources, with options including complete program
outsourcing, on-site administrative support, off-site transaction
support, and no use at all.
structured tiers Selection of multiple suppliers in a specific priority, usually based on
pricing level, combined with size and capacity (See also: Sourcing
Model).
16
index
From the SIA Lexicon 2011/12
17
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vendor
management
system (vms)
An Internet-enabled, often Web-based application that acts as a
mechanism for business to manage and procure staffing services
(temporary help or in some cases, permanent placement services)
as well as outside contract or contingent labor. Typical features
of a VMS include order distribution, timekeeping, and significant
enhancements in reporting capability over manual systems and
processes.
vendor neutral A term used to describe a model in which a managed services or
VMS technology handles its tasks (e.g. order distribution or candidate
selection) based on client-defined policies that mandate that all
(or a pre-defined set of) staffing suppliers (vendors) be (a) given an
equal opportunity to fill each order, and/or (b) selected for each
order based on the same criteria. Under a vendor-neutral model,
a managed services or VMS provider could not, on its own accord,
push orders to itself or any other staffing vendor. The presumed
advantage of a vendor-neutral model is that the best supplier with the
best candidate will fill each position.
references
Aberdeen Group, Contingent Workforce Management: The Next-Generation Guidebook to Managing the Modern Contingent Workforce Umbrella May 2012
Staffing Industry Analysts, 2011 Contingent Buyer Survey: Vendor Bidding Models and Staffing Agency Rate Structures March 2012
18
index
19
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kellyocg.com
All trademarks are property of their respective owners. 2013 Kelly Services, Inc. Y0167B
aBout the author
JENNIFER SPICHER is Vice President & Americas Practice Lead, Contingent
Workforce Outsourcing Solutions with Kelly Outsourcing and Consulting
Group (KellyOCG). She joined KellyOCG in 2009 to help accelerate the
companys growth in strategic accounts. Ms. Spicher is responsible for
solutions design and architecture, implementation and overall program
delivery, as well as customer satisfaction for client programs. She has a wealth of experience
and demonstrated accomplishments in the human capital industry, which has fueled her ability
to consult with clients, understand their needs, and recommend customized solutions to align
with their workforce strategy. Jen was named a 2013 Pro to Know by Supply & Demand
Chain Executive magazine.
aBout kellyocg
KellyOCG is the Outsourcing and Consulting Group of workforce solutions provider, Kelly
Services, Inc. KellyOCG is a global leader in innovative talent management solutions in the areas
of Recruitment Process Outsourcing (RPO), Business Process Outsourcing (BPO), Contingent
Workforce Outsourcing (CWO), including Independent Contractor Solutions, Human Resources
Consulting, Career Transition and Executive Coaching, and Executive Search.
KellyOCG was named to the International Association of Outsourcing
Professionals 2012 Global Outsourcing 100 list, an annual ranking of the
worlds best outsourcing service providers and advisors.
Further information about KellyOCG may be found at kellyocg.com.