August 2, 2019

Who manages the supply chain in a contingent workforce program?

Dennis Bongers
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Contingent workforce management (CWM) programs are fundamentally constructed to manage a process.  That process is the procuring and managing of non-employee talent into your organization.  One of the foundational elements of that process is the source of the talent, primarily the suppliers who bring them in or at least payroll the individuals. Prior to implementing a CWM program, your organization would have dealt directly with each supplier. So now in the new world, a key question during the design stage of a program is: Who should manage the supply chain? Should it be the Managed Service Provider (MSP) or should you continue to do it yourselves?

Yes, that is a loaded question. It assumes the need for a binary response, when in reality it does not have to be. Supply Chain Management has different elements for which you can make different choices. You may decide to hand over the administrative part of contracting to your MSP and keep the responsibility to select and performance manage suppliers yourself. You can make different rules for different categories of workers or for different tiers of suppliers. You may also agree to review the model over time and adjust as the relationship with your MSP matures.

Start by asking yourself strategic questions like “Who should select the suppliers?” and “Who should manage their performance?” Worry about contractual relationships second. Whilst it is important to decide who should contract with whom and who should be the operational contact for the suppliers, those are things that will follow later and may depend on legal requirements or practicality. To help you with the bigger decision, start with asking yourself smaller questions such as:

  • What is legally possible? Some countries don’t allow subcontracting. Make sure you fully understand the do’s and don’ts in the countries you operate in before you make any decisions.
  • Who has the strongest buying power? Do suppliers want to work for you or for the MSP organization who can introduce them to other accounts as well? The answer will highly depend on your brand and spend profile, but also on the MSP you choose.
  • Can you identify the best suppliers for you in the market on your own?
  • Do you have the capabilities to optimize a contingent workforce supply chain? Do you know how to define the right tiering rules, supplier mark-ups, and key performance indicators? Do you know how to use transactional and non-transactional data effectively to evaluate individual supplier performance?
  • Do you have the capacity to do all of the above and have regular business reviews with your suppliers to coach them to better performance?
  • What do you want to happen to your supply base if and when the MSP is replaced in the future?

In reality, you need to find the right balance between direct and indirect control over you supply base.  Think of supply chain management as a continuum. If you want more direct control over your suppliers, you will give less controls to the MSP. The relationship with the MSP becomes like a partnership where you share responsibilities. If you want to be able to put hard targets and associated financial penalties on the MSP, you need to give them more authority and control. You may see this as a way to get the most out of your MSP provider and their expertise. If the MSP is more accountable for the performance of your contingent worker program, you need to give them the opportunity to manage the supply chain as they see fit. In other words, if you want to agree hard targets with your MSP, you need to allow them to design and manage a supply chain that will help them achieve those targets. Conversely, if you want to keep direct control over your supply base, you cannot hold your MSP accountable in the same way.

Just remember, one size does not fit all. There may be a lot of upside to outsourcing all or parts of supply chain management, but break it down into pieces and make the decisions that are right for your organization.

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