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Crowdstaffing featured as Rising Star and Premium Usability HR platform in 2019

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May 13, 2019

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MSPs: Explaining Supplier Rationalization to Hiring Managers

Part 1 of 2 in a series

“Nine-tenths of tactics are certain, and taught in books: but the irrational tenth is like the kingfisher flashing across the pool, and that is the test of generals.”

-- T. E. Lawrence

The test of generals

T.E. Lawrence, the British archaeologist turned army officer, earned international acclaim as Lawrence of Arabia for his instrumental role as liaison in the Sinai and Palestine Campaign and the Arab Revolt of 1916. During his illustrious and complex military career, Lawrence found himself in the unenviable position of attempting to unite contentious groups under the commands of rival Arab leaders to coordinate their actions against the Ottoman Empire in support of the British strategy.

Lawrence was dispatched to Cairo where he worked with the Hashemite forces in the Arabian Hejaz. He fought alongside Arab irregular troops in extended guerilla operations. He enlisted the assistance of the British Royal Navy. He persuaded Auda ibu Tayi, the enigmatic leader of the Howeitat tribe of Bedouins employed by the Turks, to abandon his service to the Ottoman Empire and join the British-Arab cause. All these things he did -- all these disparate yet related groups he brought together under a common goal, which ultimately led to the creation of a provisional government -- endure today as exemplary accomplishments in the “test of generals.”

And although he died sort of a chump death in a motorcycle accident after surviving years in battle, we can still learn from his other lessons, particularly in relation to MSPs. Really, no kidding. If you consider Lawrence’s role in these Middle Eastern campaigns as an outsourced “manager” of misaligned “suppliers” and their “talent,” all from different “divisions” of the same “organization,” he starts to look a lot like an MSP.


Herding cats

Like T.E. Lawrence, MSPs often have the same unenviable task of getting splintered groups within an enterprise to function in concert toward the realization of mutual aims. In short, herding cats. Bringing order to chaos. Rationalizing that “irrational tenth” that’s never certain or neatly laid out in standard procedures.

This is precisely what MSPs do every day as the centralized hubs in the People, Process and Technology Venn diagram everyone learns about during their first week in the staffing industry. MSPs are the single points-of-contact for interfacing with hiring managers, suppliers and contingent talent. They are the interlocutors, the mediators, the messengers and the police.

  • MSPs monitor rules and policies, enforcing compliance from hiring managers and staffing suppliers.
  • MSPs facilitate the end-to-end contingent labor process from requisitioning to payment.
  • And perhaps most importantly, MSPs manage and optimize the supply chain.

Without an organized workforce management program, hiring managers engage vendors separately to meet specific needs. This scenario, however, is exclusionary. The suppliers don’t become integrated parts of the overall implementation and program maturity strategy. For clients, this can lead to inflated costs, inefficient use of resources, bloated or insufficient numbers of vendors, and inconsistent processes, performance, rates and markups. For the suppliers that get relegated to filling hyper-specific orders, the practice can result in missed opportunities for placing talent in other job categories at potentially more competitive rates to the client, which of course means more opportunities.


Benefits of rationalizing the supplier base

Hiring managers need to understand exactly what takes place during supplier rationalization and what value the process brings to the organization. Benefits from supplier consolidation efforts of this nature come in the forms of cost avoidance, sourcing standardization, compliance, improved visibility and performance reporting, and control through centralized MSP management with substantial reductions in rogue spend. A leaner, higher performing supplier population:

  • Allows for the creation of vendor groups by specialization
  • Reduces administrative costs and time
  • Reduces overall operating costs through more effective spend monitoring
  • Enables standardized rate card controls across the supply base
  • Establishes universal terms, conditions and policies that can easily be enforced by the MSP

When an MSP rationalizes and manages the supply base, it ensures continuity of service, centralization and compliance with established KPIs and SLAs. The process also allows the MSP to uncover and capitalize on cost savings opportunities, and introduce improved process efficiencies by effectively managing services spend.

Additional benefits come from focusing on outlying spend, or tail spend as some in the industry refer to it. Examples include maverick spend outside the client’s procurement policies, unusual or one-time buys that fall outside the program, spend fragmented across departments not covered by the program, and more.

After the first few months of monitoring the program, the MSP looks to rationalize the existing supply base to a number of highly-qualified suppliers capable of fulfilling all contingent labor needs under the established KPIs and contractual requirements. In doing so, the MSP consolidates and aggregates the greatest amount of spend under the smallest number of top suppliers, with the highest volumes.


Rationalizing the supplier base

An effective vendor rationalization process typically sets out to achieve three primary objectives:

  1. Develop the optimal yet leanest mix of suppliers needed to fill the largest program requirements.
  2. Manage supplier costs and rates.
  3. Improve supplier performance, quality, placements, fill-times and other outcomes through a process of continuous assessment and improvement.

In many ways, the selection process mirrors the strategies used by top MSPs when sourcing new suppliers to engage for a program, as we’ve covered in previous articles. A needs analysis is conducted, objectives are defined, suppliers are identified based on past and current performance, and the base is rationalized.

The MSP should consider issuing RFPs to existing and new suppliers (national, local and niche firms), allowing a more diverse group to present their services and pricing. Invite incumbent suppliers to participate in the evaluation and selection process, understanding that some will no longer be able to meet the program’s requirements. This process determines the best suppliers with the best rates for the best quality candidates, which meet the evolving selection criteria:

  • Ability to provide required skill sets – now and in the future
  • Efficient and well-documented candidate recruitment processes
  • Specific experience filling positions in the client’s industry, especially when new or niche job titles have come into play
  • Cultural alignment to the MSP and the client – shared visions and values for the current or transforming environment
  • Demonstrated ongoing executive commitment and solvency
  • Recruiters with industry experience (filling job titles in the client’s industry) and domain experience (filling related job titles in a variety of client industries) for current or projected needs

This is also the time to start thinking about strategic clusters of specialized supplier groups. A completely vendor neutral approach creates the same dilution and oversaturation that inspired the need for rationalization. Vendor neutrality emphasizes performance, levels the playing field for suppliers and makes a great deal of sense in the first iteration of the MSP program, as all the players are learning one another’s capabilities and strengths. As the program matures, however, the MSP and client hiring managers have had time to track performance and identify standout suppliers.  Creating preferred distribution lists and priority tiers across categories (e.g., Professional, Technical, Engineering, Industrial, et al.), with a secondary tier for additional support, will ensure an optimized and cost-efficient program.

As Melissa Finley Neal of Cisco explained: “Our supply base was fragmented and huge — we had 2,500 suppliers. We were looking for a more efficient and cost-effective way to get our work done as well as to pare down our supplier pool.  In the course of many conversations and meetings, we realized our suppliers had suggestions on how we could work better.”

The solution was to consolidate suppliers into fields of specialization during the rationalization process: “Because the supplier is specialized, it has all the resources at hand to get the job done. There is a system in place for knowledge transfer and one for documentation. Should the supplier have attrition, it can replace the worker easily and seamlessly for us. The supplier has the opportunity to dig deeper into the project and communicate that data to our knowledge group, in turn providing better value to us.”


Set supplier partners up for success

As Erika Halverson, LinkedIn’s global contingent workforce program manager, noted: “Suppliers and recruiters want to work with contingent workforce programs where they have a chance to succeed, shine and be heard. Programs where suppliers are treated as commodities and are interchangeable run the risk of having top quality candidates being submitted to other programs because of a better relationship. Markups go a long way but partnership and clarity of program can go further.”

Prior to undertaking a rationalization process -- and before allowing it to become a slash-and-burn exercise -- MSPs must equitably focus on supplier performance and ensure that all supplier partners in the program have been afforded equal opportunities for success:

  • Regular communication occurs, in addition to MSP-curated forums with client hiring managers.
  • The MSP facilitates communication in a timely manner and shares urgent information immediately.
  • The MSP clearly defines the client needs, expectations and drivers for success in the program to each supplier.
  • The MSP ensures that all suppliers understand the program strategy and their parts to play.
  • The MSP clearly, directly and transparently provides critical feedback on scorecards, performance metrics, KPI achievement and SLA adherence.
  • Suppliers are listened to and have dedicated channels for providing their feedback to MSPs.

In part two of this series, we will expand on the rationalization theme by exploring best practices and innovative ways of structuring supplier fulfillment models by job category. Read part 2: MSP Best Practices: Strategic Supplier Fulfillment Models

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