KPIs vs. Relationship-Based Services Procurement
One of the main goals of using program KPIs is to support a scientific approach to contingent workforce management. By monitoring workforce performance according to the aims of your organization, you can increase efficiency and consistency across the management process, making more strategic decisions and getting better results from your vendors. But organizations tend to face pushback at the beginning because a metrics-based approach requires accurate and current program data, and a willingness to challenge existing management patterns.
Traditionally, vendor management
and CWM have been treated as a relationship-based industry; where the vendors you work with learn to anticipate your needs and find the right workers for your project in exchange for your loyalty. If you bring in a bunch of metrics and objective data—so the conventional wisdom goes—you’ll frustrate the CIO or hiring manager, upsetting the relationship you’ve painstakingly built with these trusted partners.
In reality, however, contingent workforce metrics have the power to make business more efficient and more profitable for both parties. Managed service providers and other organizations running contingent workforce programs get better insight into which relationships are working toward program objectives, and which relationships are struggling. With timely and accurate program KPIs, program leaders can cut costs and prioritize the most effective suppliers.
Program KPIs are also vital to show the benefits of contingent labor for the organization as a whole, leading to growth of its contingent workforce. Informing stakeholders participating in the program, and those considering future hiring needs, as to the performance of your program, its current suppliers participating, and the business results achieved to date increases the positive word of mouth and organizational reputation needed to sustain your program.
Suppliers win too—at least the good ones—gaining more business and a proven track record, which can be used to continue and expand their relationships. Suppliers will often leverage good program KPIs in their own marketing and business development, which in turn makes for healthier suppliers.
Key Performance Indicators for Beginners
Learning to use KPIs as a strategic resource takes time and experience. There is a huge variety of KPIs, and the choices you make should reflect the goals of your contingent workforce program. For example, if your objective is to staff time-sensitive business roles such as handling launch dates or seasonal peaks in demand, your metrics should focus on responsiveness. You should keep track of how long it takes to respond to requisitions, come back with a list of vetted candidates, and supply the first candidate for an interview. Carefully track things like whether candidates are showing up on time, and note any delays or worker shortfalls.
If your goals have more to do with quality, on the other hand, you’ll need quantifiable ways to grade each assignment, each worker, or both. Your contingent workforce program should track KPIs such as manager satisfaction, contractor eligibility for rehire, percentage of assignments completed as scoped, and percentage of early terminations. You should also pay particular attention to how well the supplier vets each candidate, tracking factors like the percentage of candidates that complete the pre-assignment documentation, along with background checks, drug screenings and other worker suitability controls.
Cost will always be a factor in contingent workforce programs, but this metric should be weighted differently depending on how central it is to your program’s contingent workforce management goals. Organizations should track basic rates as well as the percentage of rate-card compliant workers vs. non-compliant workers. You should also factor in any discount rates or terms in your supplier agreements, including overtime discounts, volume discounts, and early pay discounts.
Initially, your primary goal is getting everyone on board and enthusiastic about the program—this includes suppliers, hiring managers and purchasers. An easy metric to start the process is simply measuring the number of competitive bids versus direct placements. The immediate savings resulting from competitive bidding may be enough to win over more participants, but your metrics should also track adherence to program rules and policies, such as onboarding, offboarding, process agreement and compliance controls. Many companies lack adequate transparency to these critical risk areas of contractor documentation and basic onboarding/offboarding controls, and if tracked effectively, your program can quickly expose and develop resolutions to these vulnerabilities.
To build momentum in the early stages of measurement, you should aim to enforce a standardized workflow, with the goal of improving visibility and reducing errors on common transactions. Simply implementing a standardized competitive bidding process for procurement of contingent workers across the board can be a game-changer, leading to better cost control and more consistent expectations and results, and a more readily scalable contingent workforce program. Better tracking of and adherence to controls is also a big win, dramatically decreasing security and compliance risks.
Make your expectations clear, and hold people accountable for monitoring the work lifecycle, but don’t emphasize penalties or negative consequences at this stage. Give everyone a chance to get used to the new process, preparing your organization to use KPIs more strategically.
Supplier Performance Management
As your contingent workforce program matures, you’ll want to start evaluating suppliers in more depth, with the goal of creating a supplier performance scorecard, which can be used to rate suppliers. You’ll want to keep track of the actions suppliers perform, including:
- Responses to requisitions
- Supplying qualified candidates
- Filled assignments
- Assignments started on time
You should also determine supplier quality by measuring things like time to fill, high-quality versus low-quality work completed, and adherence to program policies and controls. Additionally, basic cost metrics like bill rate, markup and discounts earned will add valuable insight into how your choice of supplier affects spend.
Supplier rationalization is where the true power of KPIs in CWM come into play. Use your supplier performance metrics to eliminate low-performing suppliers, and divide the rest into tiers. You should have at least two categories—primary and alternate suppliers—but you may want to divide them up into more levels depending on the needs of your organization. Tier one status should be rigorously defined in terms of performance, rates and discounts, and supplier placement in this tier should be subject to change based on performance.
Now, it’s time to negotiate with your suppliers. You should ask for volume or early pay discounts from tier two suppliers. This will save your organization money, keep your suppliers competing with each other, and incentivize high performance with the possibility of tier one status. Alternately, you could negotiate with a small group of tier one suppliers for favorable rates in exchange for relying on them for a certain percentage of requisitions.
Supplier rationalization allows your organization to start looking into the future. It simplifies your contingent workforce program, sets it on strong, strategic footing, and provides a model for future growth.
Using KPIs to Grow Your Contingent Workforce Management Program
The same KPIs that let you measure supplier management also help you track the performance of your contingent workforce program as a whole. You’ll be able to look at spend, productivity and performance, and start asking how much your program benefits your organization.
If you’re new to using KPIs to measure your contingent labor force, you may not have discovered the insight you need to tie the value of your CWM program to your company’s bottom line. Most enterprise-class organizations seriously under-utilize contingent laborers, rolling them out in only a small fraction of their divisions. Part of this has to do with complexity; i.e., different national and international regulations can make it tricky to manage a contingent workforce
across national boundaries—particularly in an organization without sufficient visibility and compliance automation. But a big part of it is just a lack of strategic, “big picture” thinking.
IQNavigator can help you with both obstacles. Our decision management capabilities guide organizations through compliance regulations, ensuring each worker is correctly categorized. Combined with automated controls and alerts to warn you of approaching term limits, you’ll be able to quickly adapt to overseas regulatory environments.
We’ll also help you to strategically grow and refine your contingent workforce program. Our Strategic Solutions
team can give you a complete picture of your program, through:
- Spend and Process Analysis
- Value Realization Framework
- CWM Program Risk Assessment
- Return-on-Investment Assessment
Whether you’re just trying to establish baseline metrics or optimizing a worldwide contingent workforce program, we’re there to help you take the next step.
KPIs That Matter Support Organizations That Succeed
No matter how good an organization’s supplier relationships are, a relationship-based model can’t meet the needs of enterprise CWM. Whether you’re trying to save money, meet seasonal demand or boost quality, a scientific approach to workforce analytics
will always yield better performance from your suppliers and contingent laborers.
IQN offers strategic solutions to get your CWM program jump-started on the path to better insight. Follow these links to learn more about our Spend Process Analysis
and Value Realization Framework