Changing Labor Demands and the Role of Vendor Management Systems
Date: Monday , February 01, 2010
All signs point to the start of a much-awaited economic recovery worldwide, led by an increase in demand for temporary labor and service providers. In the US, a recent report by the labor law firm Littler Mendelson predicts that contingent labor could rise to as much as 30 to 50 percent of the entire workforce this year. An astonishing 73 percent of the survey respondents plan to add contingent labor in 2010, with nearly one third of them planning increases of 50 percent or more. Similarly, the US Bureau of Labor Statistics reports a continuous growth pattern in temporary work since August 2008.
Known to be one of the leading indicators of economic change, contingent labor and service providers like offshore workers can be deployed rapidly in the wake of a recession. This labor strategy allows companies to meet varying levels of demand without the cost and commitment of hiring full-time workers. Now, more than ever, how well companies manage their temporary workforce will play an important role in their financial and overall business success moving forward from this recession.
Benefits of a Vendor Management System
Recent years have shown a dramatic increase in the use of VMS technology. According to Staffing Industry Analysts’ 2009 Staffing Buyers Survey, 63 percent of the companies surveyed have a VMS in place. The firm expects that number to grow to 81 percent by 2011, an astonishing prediction, given the fact that the industry as a whole is just a decade old.
Overall, there are four proven benefits to using VMS technology as part of a management strategy for labor programs: visibility, compliance, cost control, and improved efficiency. With complete visibility across an entire workforce, companies can more accurately determine where changes and improvements are needed. Time, cost, compliance, quality, and quantity metrics are that much more meaningful when applied company-wide. One healthcare provider reported that through their use of the Fieldglass solution, they were able to reduce cycle times by 75 percent and time-to-fill metrics by approximately 20 percent.
Another important benefit is compliance. With a VMS, companies can incorporate financial oversight and enforce corporate and governmental policies as it relates to the acquisition and management of contingent workers and outside services.
The last two benefits, cost control and improved efficiency, perhaps provide the biggest ROI in this particular economic environment. Using a VMS, companies can enforce budgets, calculate rates and volume discounts, regulate markups and overtime, and eliminate off-contract spending to cut costs immediately. Some cost savings are immediate - a new Fieldglass customer expects to realize $2 million in savings during the first year.
Lastly, with a VMS solution, companies can automate and streamline the requisition process, enhance supplier connectivity and collaboration, and improve overall process standardization. The sum of these allows customers to achieve greater efficiency in their labor programs.
Vendor Management System (VMS) Trends for 2010
There are several expected customer trends for the industry in 2010, including:
* Taking a holistic approach to workforce planning
* Evolution of business intelligence tools that lead to better decision making and improved results
* Program expansion to include projects, offshore and deliverables-based work.
More and more companies are seeing the benefits of a holistic approach to managing labor. Especially, as the market is still quite turbulent the barriers between direct hires, contingent workers, and outsourced services are becoming less distinct as each grouping becomes increasingly important to a company’s success. The macroeconomic realities of a major corporation, including a global marketplace, emphasizes ROI from every department and demands for accountability and the increasing importance of talent as a differentiator in many industries. It has made a more complete understanding of the workforce a necessity. Companies that efficiently manage all the components of their workforces, often referred to as their talent portfolios, will have a competitive edge as the economy recovers.
The decision to reallocate talent from permanent to contingent is not a simple cost decision, and it is not even possible to evaluate without a holistic understanding of the workforce and visibility into realtime costs. With a centralized model, HR can better guide hiring managers to make more informed decisions. In addition, a unified technology platform that allows hiring managers to tap into all types of talent resources from a single starting point - providing guidance based on criteria identified in the work plan - can influence tactical hiring decisions so that the company can better reach its strategic objectives.
Another trend of 2010 is the use of more sophisticated business intelligence tools to optimize labor programs, providing companies with the information necessary to create more strategic and cost-effective workforce programs. In the most recent contract talent research study by the Human Capital Institute (HCI), nearly every respondent stressed the importance of business intelligence. In fact, one respondent went so far as to say that centralized reporting was the single greatest ROI his organization realized in moving from decentralized to centralized contingent workforce management. Quite simply, the HCI report concludes, “Better data leads to better reports, on which to make better decisions.”
While first-generation solutions are already available, business intelligence will continue to evolve in 2010. Decision support capabilities and advanced predictive functionality, such as active guidance, will transform the way companies make sourcing decisions in the future.
The third leading trend for 2010 is the expanded use of VMS technology to manage the procurement of projects, offshore, and deliverables-based work. This trend has in part been driven by the economy. When talking about services spend, ‘The Global Enterprise Application Market Sizing Report, 2008–2013’ by AMR Research suggests that a global recession is the perfect opportunity to put this spend under management, quickly gain efficiencies in workflows, and save more money.”
More and more companies are realizing that better managing services spend is now a necessary step to prepare them for today’s economic changes. In fact, according to a recent Staffing Industry Analysts survey of VMS users, 49 percent of respondents were seriously considering incorporating this spend category into their contingent labor programs in the next two years.
In closing, using a VMS solution will help companies make the most strategic labor decisions in 2010 and put them in the best position for success in our uncertain economy.
The author is Arun Srinivasan, Vice President of Marketing, Fieldglass