The Growing Influence of Procurement

April 12, 2007
Supply chain management techniques honed during the past decade and supported by increasingly sophisticated systems can bring discipline and cost savings to staffing practices. At companies where human resources does not step up to manage the contingent workforce, procurement will.

    The 2001 recession touched off a round of scrutiny of all costs, including costs for staffing services and all forms of contingent labor. In many companies, procurement expanded its role in controlling labor costs.

    "Before, local managers called in contingent labor and paid for it out of some part of existing budgets," says Ron Mester, CEO of Staffing Industry Analysts Inc. "So HR had no idea of the amount of companywide use of contingent labor or the cost. Procurement started asking how much the company was spending on temporary labor, and HR did not have a clue."

    When the costs were finally identified and totaled, the results were often shocking. "In some large companies, contingent labor costs may run into several hundred millions of dollars a year," Mester says.

    Particularly since the recession, purchasing and supply chain managers have been taking a more active role in sourcing contingent labor, notes Don Palmer, vice president of field operations at Matrix Resources.

    "When the decision is more strategic, HR may take the leadership role," he says. "But at the end of the day, contingent labor is a cost-savings tool, and cost savings are the specialty of the purchasing function."

    Palmer reports that among Matrix’s client companies, purchasing takes the lead in pricing decisions. For diversity and co-employment issues, HR is more involved. "We are also seeing more direct contact with IT and the functions within our client companies that are actually using the contract labor," he reports.

    "HR may prefer not to deal with temporary labor because it involves negotiating rates and contracts and work that looks more like procurement," Mester says.

    A 2006 survey from Staffing Industry Analysts indicates that procurement takes the lead in supplier selection at 55 percent of the companies, up from 36 percent in 2004.

    At 40 percent of the companies, procurement takes the lead role in spending authority, up from 37 percent in 2004. At highly centralized companies, however, HR maintains a lead role in contingent labor management at 70 percent of the firms.

    Vendor management systems, which are designed for contingent labor management, provide greater visibility and more accurate cost analysis. Twenty-seven percent of large companies use VMS and 26 percent plan to implement VMS within the next year, according to a 2006 survey by Staffing Industry Analysts.

    This high rate of VMS adoption is clearly driven by existing shortcomings in contingent labor management practices. A 2006 Aberdeen Group survey of firms that use contract labor found that 48 percent of the companies are concerned with reducing the time for candidate sourcing and filling requisitions. Forty percent reported that they need greater visibility into rates and processing costs, and 36 percent said they need assistance in compliance and verifying qualifications.

    Aberdeen reports that centralized programs, vendor consolidation and automated tracking systems can push companies toward best practices that include higher fill rates, faster fill times, complete compliance and substantial cost savings.

Workforce Management, February 26, 2007, p. 27 -- Subscribe Now!

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