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A Permanent Strategy for Temporary Hires

As contingent workers become an essential part of the total workforce, more companies are adopting an integrated supply chain approach that cuts costs and boosts flexibility.

April 12, 2007
Related Topics: Contingent Staffing, Recruitment
The sleeper deal of 2006 in workforce management was Nike Inc.’s multimillion-dollar three-year contract with Kelly Services to manage all of Nike’s contingent workers in the United States. Nike plans to complete a global rollout within two years.

    Under the new exclusive managed staffing provider agreement, Kelly will provide a comprehensive talent acquisition and management solution, including contingent labor and demand and supplier management, supported by IQNavigator’s services procurement software platform. The agreement also includes permanent employee recruiting for Nike’s retail stores.

    "This model is the first human capital supply chain endeavor that captures all elements of nonpermanent employment," says Dan Hanyzewski, Nike’s global director of staffing. "Parts of the program may move toward full recruitment process outsourcing and we may extend the approach into the permanent workforce."

    The agreement is rapidly evolving to incorporate more services.

    "In two years, the program will look very different. I can guarantee that," says Joan Brancheau, senior vice president and general manager of strategic customer relationships at Kelly. "We’re not afraid to push each other forward."

    The beauty of the Nike/Kelly deal is twofold. First, it positions Nike to acquire and manage all parts of its workforce on an integrated basis. Second, it moves Nike’s HR practices closer to a supply chain management approach, with a hard focus on costs, visibility, accountability, stringent supplier management and greater flexibility in how it sources and deploys contingent and permanent employees.

    Companies determined to make their staffing patterns fully responsive to market changes are using more contingent workers and employing two tools to cut costs and maximize flexibility. Master staffing or master service providers (MSPs) handle all aspects of contingent staffing and manage a subset of staffing vendors under a master contract with the client company. Vendor management systems (VMS) are procurement applications that automate requisitions, payments, record keeping and compliance and allow companies to evaluate and control vendor costs and performance.

    High-performing companies like Nike now view contingent labor as a critical ongoing complement to a core of permanent employees. The challenge is to develop a strategic, centralized approach to managing the entire global workforce and all labor costs as a whole.

Managing the whole
    Almost 3 million staffing-agency temporary and contract employees report for work each day in the U.S., at a cost of $73 billion a year, according to the latest data from the American Staffing Association. An additional 11.1 million independent contractors work at thousands of U.S. companies. Conservative estimates put contingent employees at 12 percent of the total U.S. workforce.

    Nike brings in 3,700 temporary workers a year as part of its global workforce of 28,000. "The drivers behind our use of temporary labor stem from the complexity of the business, cyclical needs and expansive growth, plus our ongoing strategic initiatives," Hanyzewski says.

    Nike employs 7,000 workers at its headquarters in Beaverton, Oregon, with the rest scattered around the world in stores, distribution centers and manufacturing facilities.

    With annual revenue of $15 billion, revenue growth clocking in at 9 percent annually and earnings per share up 18 percent in 2006, Nike is expanding all components of its workforce. "Our perception is that the global integrated approach will play out," Hanyzewski reports. "There is a lot of pressure around metrics and labor costs as a percentage of sales, especially in component manufacturing and distribution."

    Nike has long used a substantial complement of temporary labor for component manufacturing, distribution work and professional services, including IT, finance and marketing. Before it signed the Kelly deal in July 2006, Nike had a supplier relationship with Adecco, which managed a portfolio of multiple vendors with its own proprietary technology.

    "Pricing was based on what the market would bear," Hanyzewski recalls. "Our expenditures were sufficiently significant to warrant due diligence on this practice, focused on costs, visibility and accountability."

    Nike was determined to end its reliance on a proprietary technology.

    "We also wanted the opportunity to take a global approach and to mitigate the risk associated with any co-employment issues arising from our use of temporary labor," Hanyzewski says.

    Under the Kelly contract, Nike has direct control over vendor selection and applies rigid criteria. "In addition, instead of being tied to a proprietary technology, we selected with Kelly the best-in-class platform, IQNavigator7," Hanyzewski says. "The platform is independent of and can extend beyond any relationship we have with Kelly." IQNavigator provides 24/7 tech support.

Controlling costs and terms
    Kelly keeps a staff of 70 to 90 people on the account, including 30 to 40 on site with Nike—an indication of the complexity of the deal. Nike and Kelly took three years to design the program and sign the contract.

    "We were very proscriptive and creative in constructing a stringent service level agreement," Hanyzewski says. "It addresses hard-dollar savings and provides an inordinate amount of visibility on a quarterly basis, plus economic incentives if Kelly exceeds the goals and economic disincentives if it does not meet expectations."

    Nike expects excellence, Brancheau notes. "No company works for Nike for very long unless they are at the top of their game. We knew that when we took the contract."

    Kelly Services, based in Troy, Michigan, operates in 30 countries, employs more than 700,000 workers a year and reported 2006 revenue of $5.6 billion, up 6.7 percent for the year.

    "The Nike deal is very significant," Brancheau reports. "We have a lot of large-company arrangements, but Nike’s is one of the most progressive."

    The most innovative aspect of the deal is its provision for comprehensive talent acquisition. "Nike is looking to expand the deal into a workforce management tool," Bran¬cheau says. "It wants to know that it has access to more than its share of the labor pool. All companies must become creative about how they use all forms of labor—temporary, contract, free agent and part-time and full-time permanent. The Nike program is designed to capture all types of work."

    Kelly is working to pull Nike’s independent contractors, which could include anyone from an electrician to an IT professional, into the program. It takes the orders, sources the contractors, evaluates their qualifications, confirms their status as independent contractors and assists in onboarding.

    "Every type of labor is tracked in the system, no matter what form it takes," Brancheau says.

    Managed staffing provider contracts are a growing trend among Kelly clients, driven by security concerns, compliance issues, costs, the desire for tighter control over spending and the shortage of skilled labor for specific positions. Half of the requests for proposals Kelly receives are for managed service providers, and half of the existing manager service provider contracts Brancheau works with include recruitment process outsourcing.

    "The only thing holding back the MSP/RPO combination is the need for technology that pulls them together, and I think we’ll see that soon," Brancheau says. "We have other clients in the Fortune 200 that are moving in this direction."

Finding the right mix
    The rapid growth of contingent labor represents the determination of companies to align the workforce with rapid changes in business conditions.

    "Every industry is faced with increasing uncertainty in their ability to predict competition, shifts in markets, new technology and labor supply," says Ron Mester, CEO of Staffing Industry Analysts Inc. "Contingent workers help alleviate the problem."

    Another increasingly important driver is access to the talent pool. "For workers, contract employment used to be employment of last resort," Mester notes. "Now, a growing segment of the workforce chooses contingent work. CIOs will tell you that they have to use contract labor to tap the best talent."

    The five fastest-growth professions for contingent work are in the IT sector, according to Staffing Industry Analysts. Half of the spending for contingent labor is now for professional skills sets such as accounting and finance, health care, legal professionals and IT. Companies in the high-tech, health care and accounting industries already use high levels of contingent labor, and the portion is rapidly rising.

    Using greater quantities of contingent labor for skilled positions imposes new demands on workforce management.

    "The best staffing strategies are core group strategies that manage permanent employees, contingent labor and outsourced and offshored labor as a whole," says Don Palmer, vice president of field operations at Matrix Resources Inc., an Atlanta-based staffing solutions provider with a heavy concentration in the tech sector.

    "Some of our clients are executing on this with forethought and cost-effectiveness," Palmer says. The ones that are best equipped to do this use managed service providers and vendor management systems or, among the largest companies, their own systems, he says. "But to execute this integrated approach takes the highest level of coordination, and only a handful of companies have achieved it," Palmer says.

    In March 2006, Matrix signed an agreement with EarthLink, which has been reshaping its mix of core, contingent and outsourced labor since 2003. The Internet service provider, with $1.3 billion in annual revenue and 5.3 million subscribers, is moving to a new staffing model as part of a broader change in corporate strategy.

    "EarthLink is evolving into a total communications company," says Laura Stanley, director of talent acquisition and employment branding for the company. "As the new business evolves, our use of contingent labor may expand. We wanted to put best practices in place to optimize resources and be ready to expand if necessary."

    The massive workforce change at EarthLink occurred when the ISP industry hit thin margins and unbearable levels of volatility in 2003. EarthLink closed eight U.S. contact centers and eliminated 2,687 jobs from 2003 to 2005, and outsourced all contact center, credit and collections work to companies in the U.S., India and the Philippines.

    EarthLink’s remaining 2,200 employees now form a core group, supported by U.S.-based contingent labor and outsourcing providers. The company’s new business lines require new skill sets, including subject-matter experts who can be tapped as contract labor. EarthLink brings in 50 to 100 temporary and contract workers on an average day, with the majority of the positions in IT, administration, finance and marketing.

    "A year ago, our CFO and head of HR looked at our use of temporary and contract labor and put together a team to analyze usage," Stanley says. "The goal was to move to a more formalized, centralized approach."

    EarthLink put out an RFP to staffing companies for managed service providers and received 12 responses. It selected Matrix, which now coordinates a group of 25 subvendors for EarthLink, including some of the vendors that provided staffing for EarthLink before the Matrix deal.

    Before Matrix took over EarthLink’s staffing, vendor markup ranged from 50 percent to 80 percent. Under the new, exclusive two-year agreement, Matrix provides all temporary labor for EarthLink with a markup with a markup that is considerably less.

"The markup is below average because we can focus our resources and have a guaranteed return," Palmer says.

    Matrix keeps a full-time client account manager on site at EarthLink. That person collects contingent labor requests, speaks directly with EarthLink managers about the requirements, contacts subvendors to meet the needs and assists EarthLink with some permanent hires. "We put intensive TLC into this contract," Palmer notes.

    EarthLink and Matrix expect to complete vendor management service implementation by the end of the first quarter. The system will consolidate invoicing and reporting and tie it to EarthLink’s finance and HR departments. Stanley says the managed service provider arrangement provides a consistent process, improved visibility and substantial cost reductions.

    "We are seeing a move toward MSPs, particularly at large companies that take a more strategic approach to contingent labor," Palmer says. Recruitment process outsourcing is a logical extension of managed service provider contracts, "and on an informal basis we see this as a growing trend," he says.

    In addition to the managed service provider and hybrid managed service provider/ recruitment process outsourcing trends, Palmer reports that some clients bring in Matrix to supply both contingent workers and new permanent hires to meet a peak need. When the push ends, the permanent hires stay and the contract workers move on.

    "This is a growing trend because clients see high value in this arrangement," Palmer says. "The original permanent workforce can continue on, undistracted by the peak need, and we provide plug-and-play for the surge."

    Palmer says that the already significant trend toward hiring contract workers as permanent employees continues to grow at a sharp rate.

    With contingent labor now approaching 20 percent of the workforce in high-growth industries such as pharmaceuticals and technology, the new centralized managed service provider/vendor service management approach will continue to evolve as a best practice for workforce management and cost control.

Workforce Management, February 26, 2007, p. 25-32 -- Subscribe Now!

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