As companies strive to enhance their workforce agility and acquire vital skills in an intensely competitive market, they increasingly engage external talent. Industry analysts report that external workers have grown from 17% of the average company’s total workforce in 2009 to nearly half today.

Controlling the costs of this growing workforce is a significant challenge for HR, procurement, and talent acquisition professionals. To prevent costs from spiraling out of control – or even to achieve substantial cost savings – companies are implementing vendor management systems (VMS) in their contingent workforce programs.

You don’t have to be a big company to save like a big company

Large enterprise organizations typically have the resources to hire specialized internal teams to manage their contingent workforce programs or outsource this work to a managed service provider (MSP). Approximately 80% of these organizations also use a VMS to automate their contingent workforce programs, making them very cost-efficient.

But now that affordable, easy-to-use VMS technology is available for mid-sized companies, you can compete efficiently for contingent talent.

Managing direct and indirect costs

When program managers consider controlling external labor costs, their first consideration is usually how to reduce hourly rates. While billing rates are important, they are only one factor affecting contingent labor costs. To control or optimize contingent workforce costs, managers must address the challenge holistically. This starts with understanding direct and indirect costs.

Typically, a contingent workforce program can achieve direct cost savings of 5 to 15% by implementing a VMS. At the same time, it can save up to 30% on indirect costs. To see how, it is essential to understand all the cost components involved.

Direct cost savings can be achieved by reducing hourly or daily rates and lowering statement of work (SOW)-based project costs. They can also come from volume discounts and early payment reductions negotiated with staffing suppliers.

Significant increases in process efficiency and automation, from approval processing to candidate sourcing, onboarding, reporting, and various cost avoidance measures, can help achieve indirect cost savings.

Effective cost avoidance techniques can include:

Shifting work to a lower-cost location
Leveraging workforce planning and automating low-value tasks
Rationalizing your supplier base to high-performing or lower-margin vendors

The important thing to understand is that all these cost savings, cost control, and cost optimization opportunities come because of the VMS’s ability to collect and analyze your contingent workforce data.

Unlock the power of your workforce data

Armed with data about every worker, every supplier, and every assignment within your VMS, you can determine:

Are you paying market rates for your contingent workers?

Are your hiring managers paying staffing agencies based on negotiated rate cards?

Which of your suppliers are your best performers, and which are not?

Which of your workers may soon become available for an open assignment?

Are your rates consistent across your business?

Are all of you contingent workers being classified correctly

None of this information is readily available in spreadsheet-based contingent workforce programs. To capture this data and turn it into actionable insight, you need a VMS.

How to achieve contingent workforce cost savings using a VMS

You don’t have to be a big company to save like a big company

Managing direct and indirect costs

Direct cost factors

Indirect cost factors

Margins

Onboarding

Unlock the power of your workforce data

Discover how you can save with a cost-effective VMS