State of the Nation and How to Fix the World (At Least for Contingent Labor)

Spend Matters welcomes a guest post from Edward EJ Jackson, President of Provade.

There is an interesting statement from the SIA how more than 70% of large companies/Fortune 2000 already use a VMS solution and that they expect growth to occur slowly. There is also a recent statement about how we have now hit $100B in annual spend running through VMS and MSP programs. This implies that the VMS space is quite mature and large companies/F2000 have all engaged well down the path to solving their third party labor spend. However, I believe the reality is quite far from true.

What we know is that there is a greater than estimated $2T of third party labor spend by large companies/F2000. We also know that the SIA estimates about $100B of spend currently running through some 40+ VMS tools and MSP or self managed programs. That is less than 5% of the overall addressable spend. Therefore, if nearly $2T is not running through a VMS tool or MSP or self managed program, can we debate fairly credibly whether VMS is mature and that any meaningful number of companies truly have a material spend under management? I know of F100 companies that spend as much as $1B with a single vendor. The Forbes Top Fortune 500 2012 report came out with 63 companies having annual revenue over $100B. The top three companies (Exxon, Walmart, and Chevron) collectively exceed $1 trillion in annual revenue, dwarfing the total spend in VMS/MSP by tenfold. Just three companies.

So what's the issue? Why are big companies so slow to actually get their solutions enterprise-wide? I think we should step back and look first at how the solutions are bought. VMS is typically done in a 'supplier-funded' model. I don't have any statistics or research to quote, but through my experience and discussions with my industry colleagues, we understand that this is done over 90% of the time. While I am not here to debate the merits of the 'supplier-funded' approach (no CapEx funding, all OpEx with the burden on the suppliers), I will point out it really manifests that today's typical buyers of VMS/MSP are lower level without the spending authority and mandate to truly buy. The buyers do not have the authority to get budget to pay and the supplier-funded approach is a start now, rather than no start model.

OK, so what is the panacea to solve this problem? Well, my answer will get big groans. If it were a large convention, masses would head to the doors demanding refunds. To me, it is the cliché 'Executive Support' that is missing. To be specific, we need the CFO engaged. The dollars are too big. The spend is too great. The risk exposure is too large. For a meager $100B, or to put it in real context, $0.1T of $2T+ of annual spend, actually being fully managed is abysmal. We can do better. There is a huge ROI and EPS story, as well as keeping the compliance risk bogeyman at bay. It is time for management to...well, manage!

- Edward EJ Jackson, President, Provade

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