Spotlight on: Procurement Challenges with Contingent Workers

The benefits of engaging contingent workers are both well documented, and empirical.

These include, amongst others:

• Improved operational performance.
• Decreased labour costs.
• Over time, the ability to make more informed staffing decisions.
• Greater workforce and organisational flexibility.
• Better HR alignment with overall business goals.
• Being able to source and place critical skills, quickly.

But that’s not to say challenges and issues don’t arise with their use. Especially in relation to procurement challenges.

With the right procurement and HR processes and systems in place, hiring managers can mitigate the risks associated with contingent worker engagement, throughout the worker’s lifecycle.

That is, as long as they comply with procurement and company processes for engaging and managing contingent talent (and as you’ll see, this is a MAJOR caveat 🤦🏼‍♀️).

Traditionally, Procurement have been the ‘owner’ of contingent talent (that is, they’re responsible for finding the hiring companies used to source them), while HR have been responsible for employees. However, in today’s business landscape, where hybrid, flexible and agile working are all centre stage, the lines of responsibility have blurred. And without collaboration between the two departments, the outcomes can be disastrous: pricing errors, talent gaps, wasted resources, rogue hiring and chaos.

Some large companies estimate that up to 30 percent of their procurement spend goes toward contingent workers.
Deloitte

Today, we’re looking at two of the major procurement challenges and solutions in the engagement and management of contingent workers. Our goal? To help you overcome the challenges in your procurement process so your workforce and your business can operate optimally.

CHALLENGE #1: RISK

This is the big one. And honestly, it’s the source of most procurement challenges, when it comes to contingent labour.

Organisations across the globe have drastically increased their use of contingent workers. And the reasons are many: critical skills shortages, a need for short-term skills, plugging talent gaps due to worker absences, seasonal hiring needs.

Both the size and the cost of contingent workers has steadily risen. And as baby boomers start to retire (this cohort makes up about one-third of the US workforce), companies have started to bridge skills gaps with contingent workers, where they’re being deployed for both strategic and operational reasons.

The problem here is a chronic ‘unknown’ (in big organisations particularly) of the numbers of contingent workers. This is where procurement challenges typically arise: when hiring managers circumvent procurement processes to hire the skills they need quickly, they put the organisation at risk. These risks include:

• The statutory risk of misclassifying the worker.
• The risk of overpaying for the worker if proper processes aren’t followed or the worker is ‘known’ to the hiring manager.
• The security threat if the worker hasn’t been vetted or managed appropriately (or offboarded formally).
• If the hiring manager is trying to dodge headcount or a hiring freeze, they’ll ultimately increase baseline costs, without qualified, discernible value.
• Competitive risk from the loss of trade secrets, enterprise IP and sensitive company knowledge.
• Risks when contingent workers are involved in critical business functions and interact with clients: this can result in the blurring of lines between ‘contingent worker’ and ‘employee’.

In terms of procurement issues, these are the tip of the iceberg. And there are many additional challenges within each of the risks listed above. It’s a layered, complex situation.

Procurement’s job in most instances, is to ensure contingent workers come into the organisation under an approved framework…

…Where the engagement process is open and transparent.

…Where the contract terms are agreed with all stakeholders.

…Where boundaries exist; from the contractor’s access to data to their last day in the business.

Without the involvement of procurement, the business is at risk. Plain and simple.

SOLUTION FOUND #1: RISK SOLUTIONS

The issues of risk facing your business can be grouped into two key areas:

1. Rogue spending
2. Poor boundary setting.

Firstly, rogue spending. What is it?

Rogue spending mostly occurs when hiring or line managers source, engage and hire contingent workers via channels and processes that aren’t company authorised. Often in these scenarios there are no approvals, no strategic intent, no vetting and no compliant contracts in place. Procurement processes are not observed.

How to overcome rogue spending?

There are four main initiatives to activate.

1. Identify where the spend is happening. This will require departmental analysis for hiring costs or other unplanned costs.
2. Start to track spending more precisely. Knowing how to identify rogue spend, need not be difficult. For example, consider staff vendors that have been paid, who aren’t on your procurement-approved roster. Or look for higher-than-normal hourly bill rates.
3. Centralise your management approach with VMS technology. This will allow full visibility of your entire contingent workforce. It will help line managers to facilitate robust contractor onboarding, as well as help your Procurement team measure the performance of your hiring partners, amongst other valuable functionality.
4. Engage all your line and hiring managers, in a collaborative framework. Involve them in the business strategy and keep them close to business decisions and strategic direction. Make sure everyone involved in sourcing contingent workers, are committed to the shared goals.

How to overcome poor boundary setting?

Establish processes, contract stipulations and finite frameworks around the remit of your contingent workers. Better processes and regulations may include:

• Establishing processes where contingent workers only have access to the information and company files relevant to their roles. This may include briefing line managers and instigating better adoption of approved company processes.
• Setting rules around contingent workers’ involvement directly with clients, or with critical business issues.
• Mandating policies around the limited usage of technology by contingent workers, creating IT walls to protect company secrets and IP.

CHALLENGE #2: A DISCONNECT BETWEEN PROCUREMENT & COMPANY DEPARTMENTS

For highly functioning organisations with slick workforce planning, and a broadly collaborative culture, this challenge may not apply. But in our experience, that scenario is – let’s be frank – rare! 🦄

When departments across the business, aren’t working along the same strategic path, disruption and discord typically follow.

The challenges associated with poor collaboration and communication between Procurement and individual departments are commonly linear where one negative circumstance will result in the realisation of another.

Take this case example:

Company X, a successful Fortune 500, uses contingent labour across multiple departments. These include Finance, IT, Product Development and the PMO. Each department has preferred talent sourcing suppliers and looks for key traits and skills when it comes to their short-term talent.

But the Procurement department in Company X, upon getting briefed on the company’s contingent talent needs, simply goes to market to find talent suppliers.

They’re looking at price, mostly.

They don’t factor in the baseline knowledge typically needed in IT. They aren’t across the live and forthcoming projects of the PMO. They don’t consult with finance about the specialist skills needed at tax time. And they don’t know the esoteric expertise needed for product testing.

They’re simply going to market to find the best deal for finding a talent supplier to source contingent talent.

What happens in this situation? Two things (mainly).

Firstly, hiring managers in IT, Product Development, Finance and the PMO go rogue (as mentioned above, a risk). They use their department spend to bring in talent that haven’t been properly vetted. And they place their company at great risk.

Secondly, the departments use the suppliers appointed by Procurement, as per the company processes. They don’t find the talent they need. They take eons to get to interview stage for contingent workers, and it puts productivity and output at great risk.

All of these outcomes at Company X are negative. But they will also result in further negative consequences. Such as:

• A damaging impact on culture. Department heads will feel they’re not being listened to. Procurement challenges will escalate by gaining a poor internal reputation.
• High attrition of contingent talent. This will give Company X a bad reputation in both the contingent talent market and with suppliers. The former will avoid contracts at Company X. The latter will feel they’ve been briefed incorrectly or were set up to fail.
• Wasted time and resources: from attrition, from a poorly functioning Procurement team, from unnecessary supplier spend and from decreased output and productivity.

SOLUTION FOUND #2: DEPARTMENTAL DISCONNECT SOLUTIONS

The solution here is pretty simple.

Collaboration. And making sure everyone – all stakeholders – are on board to collaborate.

Collaboration between your company departments and Procurement doesn’t need to be complex. Let’s use the example of Procurement at Company X having to find contingent talent suppliers for the IT department. By working with the right people in IT, Procurement can uncover facts such as:

• The suppliers that typically have the best schedule of contingent talent, for the type of IT workers Company X tends to engage. These are often different suppliers than those used to hire permanent talent.
• Suppliers that Company X IT department have used in the past, who the IT team knows will charge a lower fee, based on loyalty.
• Specifics about the jobs contingent workers are asked to perform in IT and briefing the suppliers on the same. Giving Procurement a feel for the roles and types of people that work best in the team.
• Suppliers that have contingent workers the IT department would rehire (saving time and money).
• Providing Procurement with insight into IT’s project plans and upcoming works and sharing their workforce planning strategy. By doing this, Procurement will feel informed and armed with all the right intel to get working for IT.

We’re not saying change is easy, especially if collaboration isn’t inherent to your company culture. So, the solution here may need to be more ‘global’ if your people need to change the way they work (i.e., start working together!).

Challenges in procurement processes and procurement issues that arise when engaging contingent workers will upset productivity and – eventually – the bottom line if these issues remained unaddressed. The solutions aren’t always going to be simple or straightforward to achieve. But the effort will be well worth the return.

Centralising your contingent workforce management with an expert provider like CXC, will help to eradicate procurement challenges. By partnering with CXC, we will ensure your Procurement team can:

• Stop wasting time and resources managing multiple vendors and their respective contracts.
• Improve their efficiency, productivity and output and subsequently reduce costs.
• Access a qualified pool of contingent talent, reducing the time to engage and hire new contingent workers.
• Mitigate the risks associated with contingent workers, especially worker classification, compliance and statutory risk.

With over 30 years’ experience engaging and managing contingent workers, we’ve seen first-hand, the issues faced by Procurement teams. If you’d like to learn more about our experience, you can reach us here.

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