Misalignment in the Contingent Workforce – Overcoming the Challenge

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Spend Matters research suggests that misalignment is one of the greatest challenges in managing today's services supply chains. Specifically, the misalignment of stakeholders, goals and incentives must be overcome for programs to improve their overall ability to deliver goal-oriented outcomes at the most efficient costs.

The existing ecosystem is not necessarily helping as much as it could. Managed services providers (MSPs) generally need to improve at strategic sourcing compared to the tactical provisioning of resources. In this regard, MSPs are in essence business process outsourcing firms (BPOs), and this is the same problem that procurement and procurement BPOs have – i.e. moving from serving in a role that might be best described as a "tactical concierge" to delivering strategic supply management and ongoing innovation.

Creating true alignment in the services supply chain requires numerous efforts converging into one. Price transparency – not just into bill rates and pay rates, but also into the total cost and working capital impact of programs on lower tier suppliers – is key.

As one example, indirectly “paying” for services procurement programs by having MSP and VMS provider markup lower-tier suppliers is one of the symptoms of misalignment because companies tend to under value (and under utilize) what they do not pay for directly. Even in cases where companies cannot self-fund VMS and MSP programs, alternatives exist such as creating a rebate structure with suppliers that can flow back to the organization or a captive entity that can then fund the VMS and MSP out of the proceeds, which will likely accept terms to make a program cash flow neutral. Alternatively, early payment programs with supplier aggressive discounts, which smaller staffing firms are likely to embrace, can offset much of the costs of self-funded VMS and MSP programs as well.

This analysis is based on the Spend Matters research study, Applying Supply Chain Rigor to Contingent Workforce Management, which is available for limited period of time for free download in the Spend Matters research library.

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