de Poel is the CIPS online Knowledge Partner for Temporary Labour How To Optimise The Value Of A Neutral Vendor

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1 How To Optimise The Value Of A Neutral Vendor The background to neutral vendor models With managed services having been in existence for more than twenty years, there are now a range of different models operating in the marketplace. Emerging as a protectionist stance from the recruitment industry, master vendor models were the first to be adopted where one recruitment agency provides the majority or all of the supply. They developed initially through fulfilling key categories of requirement but, once wider sourcing solutions were sought by hirers notably when they spanned critical front-line as well as support function needs realisation dawned that provider options would be limited if searching for companies that had true capability to fulfil the hirer s depth and breadth of needs. It was as a consequence of this broadening of service requirement that alternative models started to emerge ones where a larger range of providers could be involved within the supply chain in order to fulfil all the needs with the appropriate quality of candidates. Some master vendors conceded to requests to expand the supply base and agreed to compete alongside other providers, but they now had to re-examine their value proposition in the advent of neutral vending solutions. The arrival of the pure-play neutral vendor With regard to the term neutrality, it is the absence of any vested interest in supply by the managing agent (or any associated companies) that creates a unique backdrop to the solutions provided. In essence, it removes the potential of the commercial conflict that inevitably arises when providers seek to be part of the supply chain and also assume responsibility for managing it. For a pure-play neutral vendor, its performance therefore rests solely on the capability of the supply chain that it sources and manages. As such, the priority focus will always be to source and maintain the best on-going composite mix of providers for their clients. Priority focus on supply chain composition Supply chain composition will be unique to each hiring organisation and is likely to differ by location and/or business line. Suppliers with proven capability, as historically demonstrated to either the hiring organisation (where they are incumbent suppliers) or the neutral vendor (where additional suppliers are sought for inclusion on the supply chain) should be at the core of the model. Additionally, the number of suppliers engaged should be sufficient to cover requirements (based on the vendor s knowledge of fill ratios in each category of supply) but lean enough to ensure that agencies remain committed to prioritising the account based on a genuine and regular need for their services. Small, local providers should be as valued as larger, established agencies for whatever area of specialism they offer. 1

2 As the supply chain must continue to evolve in line with the hirer s ever changing requirements, the neutral vendor should be constantly assessing the capability of additional suppliers (known or referred) in preparation for any potential need to supplement or replace providers. The identification of appropriate processes by category of supply Whilst the neutral vendor model emerged to address the need of managing the sourcing of a highly diverse mix of skills, some solutions have tried to take a generic approach to the process of securing this wide range of needs an approach which has proved to be fundamentally flawed. The challenges associated with the sourcing of scarce, critical front-line personnel are fundamentally different from those involved in attracting and selecting from a more readily available pool of support function personnel. As such, due consideration should be given to establishing appropriate processes between the stakeholder groups for each category of supply need which should be subsequently tested, adjusted and continually evolved to optimise performance of the solution. All of these process preferences should be allowed for within the overarching model. They should also influence the blend of people and technology through which the provider will manage the resourcing process. Bespoke configuration of technology Once the bespoke process map has been determined to cover all operational needs, the provider s technology can be configured to govern the processes. These governance protocols should cover: All aspects of the commercial agreement (pay, charge, variance protocols, etc.) The bespoke safeguarding requirements of the client (including the protocols for capturing and storing evidence and baring non-compliant workers from being engaged) The real-time management information outputs required by the client The legislative requirements that all contingent hiring processes must comply with (AWR, Pensions auto-enrolment, protocols associated with the use of on-shore intermediaries, etc.) should be embedded as standard into the technology in order to give hirers on-going surety over compliance. Solutions should not be reliant on retrospective checks, as this leaves the hiring organisation potentially exposed. Realising the value of relationships within the service As in most walks of life, differentiation in service provision is largely attributable to the calibre of the people involved and the relationships that they build within the stakeholder community. Within the process of recruitment, the strength of relationships is critical to success. Firstly, the team of people who manage the solution must be just that. The account director, the operational support teams and the supplier management/audit teams must be fully cognisant and 2

3 dedicated to achieving the evolving objectives of the solution. They should be highly visible and accessible to both internal stakeholders and suppliers alike. Where there is a clear benefit in direct relationships to continue between hirers and suppliers (notably to assist in the sourcing of critical front-line personnel), an intermediary solution should not restrict or prohibit interaction. These protocols can be determined on a case by case basis when the initial process mapping is undertaken and continually reviewed to ensure that the levels of interaction remain appropriate and constructive. The relationships between the neutral vendor and its supply chain should be built on openness, integrity, respect and trust and evidence of an understanding of the mutuality of obligations should be clearly witnessed. Optimising the cost of supply There are many issues involved in the challenge of cost optimisation, and all should be considered when agreeing the priority objectives and the commercial construct of the managed solution. Agency labour, for most organisations, is just one element of their contingent labour mix. They will, additionally, have directly sourced contractors and interims and may well also have parttime/seasonal and/or flexible hours workers that they contract with. As such, the agency labour agenda needs to be set into context of the wider contingent labour strategy and the balance of priorities required to realise the true value of each category should be determined from the outset of any engagement with a managing agent. A simple prioritisation template, such as in Figure 1, will assist in this process. Fig1. Contingent resources need/opportunity prioritisation matrix 3

4 Once both parties understand the priorities with regard to the wider contingent labour strategy and the legacy challenges that the organisation has faced - the whole commercial construct for engagement with agencies can be agreed. Invariably, first generation neutral vending solutions should realise in-term savings of between 6-12% of the total pay-bill. Potential for further or longerterm efficiencies, beyond pay rate and agency charge optimisations, should also be articulated by the vendor from the outset, based on evidence of past experience within similar scenarios. Setting a framework for continuous improvement An organisation s ability to provide a route-map towards future potential efficiency gains beyond the immediate financial savings suggests an understanding that a managing agent s task is to continually add value to their clients. Evidence of contract renewals not just into second, but third and fourth generation re-engagement suggests that a programme of continuous improvement is being delivered. A further advantage that an effective neutral vendor brings to bear is that they are not just bringing their cross-client, cross-sector experience into the setting. The successful orchestration of supply chain engagement extends beyond just timely, efficient and high quality supply it also results in suppliers contributing to the improvement debate through the provision of market intelligence, ideas and innovations. Once all three parties the hiring organisation, the neutral vendor and its supply chain are interoperating to this extent, the true value of agency resource has the potential to be realised. 4

5 The information contained in this document has been supplied to you by de Poel who are the CIPS s Non-Permanent Labour Knowledge Partner. CIPS takes no responsibility for any loss or damage in any way arising from your interpretation or use of this information. To find out more about de Poel, visit or call +44 (0) or supportservices@depoel.co.uk To find out more about Chartered Institute of Procurement & Supply visit or call +44 (0) or info@cips.org Easton House, Church Street, Easton on the Hill, Stamford, Lincolnshire, PE9 3NZ 5