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Part 2:
sourcing
models
By Jennifer Spicher
contents
p3
Two of the major stakeholders most often engaged in this strategy are Procurement
Introduction
and Human Resourcesour experience indicates that when these two groups work
p4
Sourcing Models
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
p12
p15
Conclusion
Jennifer Spicher
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?
100%
2011
2007
80%
sourcing models
20eleven
200seven
60%
40%
20%
0%
There are five common sourcing models that companies use to procure external labor:
Primaries
Structured Tiers
Open Bidding
Sole-Source
Primary Supplier
Structured Tiers
2007
2011
80%
20eleven
200seven
60%
40%
Hybrid
20%
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.
0%
Primaries
Structured Tiers
Open Bidding
Sole-Source
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
Source: Staffing Industry Analysts buyer surveys conducted in 2007 and 2011.
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.
Sourcing Models
SIA DEFINITION OF
sole source:
The sole-source contingent labor (Master Vendor) model has been around for decades. It
The Primary Supplier sourcing model is widely adopted to staff a range of skillsthe top
Contingent worker
recruiting opportunities
serviced by a single
Master Vendor who in
turn may subcontract
some jobs.
is frequently utilized to procure industrial (67 percent) and administrative (30 percent) skill
two being Information Technology (88 percent) and Engineering/Design (77 percent).
categories. In this sole-source model, the Master Vendor fills all orders, subcontracting only
The model is similar to Master Vendor, but is not sole-source. In this case, several primary
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
Pros: Similar to Master Vendor, this approach delivers pricing discounts and additional
available in the market, allowing the client to get a volume-leveraged discount price when
supplier resources. It also delivers the added benefit of providing clients with direct access
one supplier can fill all the demand. It enables vendor consolidation, increased visibility,
SIA DEFINITION OF
PRIMARY SUPPLIER:
Contingent worker
recruiting opportunities
distributed to a select
handful of primary
staffing agencies,
who in turn may
subcontract some jobs.
companys administrative costs because they must directly engage with more suppliersin
resources in the market coupled with limited use of subcontractors. Subcontracting, which
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.
Master
Primaries
Tier II
Tier II
Easiest to fill
Hard to fill
Pay/markup structure
Pay/markup structure
High volume
High volume
Sourcing Models
SIA Definition of
Structured Tiers:
Structured Tiers are also used to source highly skilled contingent labor, most predominately
This sourcing model gained acceptance in the mid-1990s when IT resources were scarce
Contingent worker
recruiting opportunities
are distributed to
specific groups of
staffing agencies in a
formalized order.
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
procurement tools lacked focus on the acquisition of contingent labor, leaving a technology
(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.
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
Pros: Direct engagement with the recruitment providers can improve hiring metrics.
processes and policies that bring together the supply base, contract administration,
SIA DEFINITION OF
open bidding:
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).
Tiers
VMS Companies
Tier II
Open Bidding
Harder to fill
Tier II
Pay/markup structure
Moderate volume
Hardest to fill
Bill rate structure
Low volume
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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11
Integrating Sourcing
Models through an MSP
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.
As described earlier, most companies are using more than one sourcing model. Each
sourcing model may have applicability within an organizations contingent workforce
benefit from structured tier or vendor neutral (competitive bid) models to increase the
Administrative &
Industrial positions
Wide range
of positions
Finance, Engineering
& IT positions
IT Project &
Services Spend
responsiveness and access, while less technical and easier-to-fill positions are more likely to
leverage a sole-sourcing model.
VMS Technology
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,
Master
Primaries
Tier II
Tier II
Structured Tiers
Vendor Neutral
Recruitment
characteristics are
continuously evaluated
for changing market
conditions, which can
influence modifications
needed to the
sourcing models.
financial viability, global infrastructure, program staff expertise, and its VMS compatibility
Tier II
Vendor Neutral
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.
Easiest to fill
Hard to fill
Harder to fill
Hardest to fill
Pay/markup
structure
Pay/markup
structure
Open bidding/Not
to exceed bill rates
Open bidding/Not
to exceed bill rates
High volume
Moderate volume
Low volume
Low volume
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.
12
13
conclusion
An explanation of components A, B, C, and D from the
graphic on page 13 are provided below:
A
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
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.
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
Next, and often in consultation with the MSP, the client will explore VMS options.
skills. Its efficient and effective for this purpose, but it usually fails when used to source
For technology, they look at VMS tool features, financial viability, a development
more complex skills. In addition, it may not be scalable due to country legislative
limitations.
Next they assess their sourcing models to procure the skills, often working closely
4. The Primary Supplier sourcing model is the most commonly used, with nearly 40 percent
with the MSP to determine the best model. Sometimes the MSP will make the
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.
14
15
Index
Managed Service
Sole Supplier
Provider (MSP)
Sourcing Model
Master Supplier
on Premises).
MSP Hybrid
In the early days, an MSP hybrid was the way to define multiple
Program
buyer might engage a single provider to act as the sole supplier for
its Light Industrial job requisitions while having multiple providers
Structured Tiers
pricing level, combined with size and capacity (See also: Sourcing
Model).
Primary Suppliers
16
17
index
Vendor
Management
System (VMS)
Vendor Neutral
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
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