Part 2: sourcing modelsBy Jennifer sPicher

The FundamenTals oF managed service Provider (msP) Programs | ParT 2 oF 3

this is the second of a three-Part series designed to outline key comPonents of a managed service Provider (msP) Program in suPPort of a comPanys more comPrehensive strategy for talent suPPly chain management.

p3 Introduction

p4 Sourcing Models

Sole-Source (Master Vendor) Sourcing Model / 6

Primary Supplier Sourcing Model / 7

Structured Tiers Sourcing Model / 8

Vendor Neutral (Open Bidding) Sourcing Model / 9

p12 Integrating Sourcing Models through an MSP

p15 Conclusion

contents

2

Two of the major stakeholders most often engaged in this strategy are Procurement

and Human Resourcesour experience indicates that when these two groups work

together effectively, an MSP program delivers significantly higher value than without this

vital collaboration.

This series addresses common questions about MSP programs, and provides a framework

that allows for informed decision making. The series will explore three key areas:

Explains what an MSP can do for your companyand why its important

Demonstrates how multiple sourcing models can integrate with MSP strategy

Articulates the business case for MSP and helps to determine your readiness

The following covers the second of those three areas: Sourcing Models. Be sure to read parts

one and three for additional observations on achieving effective talent management through

MSP solutions.

This information should prove valuable to procurement and human resources personnel

as they plan and prepare for the future. It also presents real value to stakeholders, whose

operations may be impacted by the MSP program and leadership from many other areas,

including finance, IT, or operational functions that may ask:

What strategies can we deploy to manage the cost, technical competency, and risk

inherent in utilizing external labor?

3

1

2

3

Jennifer sPicher

While there is no firm rule, generally speaking, the use of sole-sourcing bidding models decreases with the use of higher-skill positions.

sourcing models

4

There are five common sourcing models that companies use to procure external labor:

sole source (master vendor)

Primary supplier

structured tiers

vendor neutral (competitive Bid)

hybrid

According to industry data, most companies have more than one sourcing or bidding

model in place, as reflected in the following chart. The use of multiple sourcing models is

not surprising when one considers how supply and demand factors vary across skill sets.

For skill sets that are more difficult to fill, a company will likely increase its supply base

using a more responsive and adaptable talent sourcing approach. In contrast, for skill sets

that have higher supply and availability of talent, a more efficient, transactional sourcing

approach can be effective.

Based on SIA Buyer Surveys conducted in 2007 and 2011, growth of usage occurred

across all sourcing models. However, the use of primaries has grown significantly, with 84

percent of companies using this model to source contingent labor. These trends indicate a

shift toward more complexity and greater variation in the models used by most companies

today, which will lead to more complex solutions, and the demand for more robust

management of these different sourcing strategies.

The definitions for each model, as described by Staffing Industry Analysts (SIA), are

provided in call-out boxes on each page for your reference.

Prevalence of various vendor Bidding models

0%

20%

40%

60%

80%

100% 20eleven

200seven

Sole-SourceOpen BiddingStructured TiersPrimaries

0%

20%

40%

60%

80%

100%

20eleven

200seven

Sole-SourceOpen BiddingStructured TiersPrimaries

2007

2011

20072011

1

2

4

5

3

5

Source: Staffing Industry Analysts buyer surveys conducted in 2007 and 2011.

6sourcing models

sole-source (master vendor) sourcing model

The sole-source contingent labor (Master Vendor) model has been around for decades. It

is frequently utilized to procure industrial (67 percent) and administrative (30 percent) skill

categories. In this sole-source model, the Master Vendor fills all orders, subcontracting only

those orders they cannot fill by using their own network of preapproved suppliers.

Pros: The Master Vendor (sole-source) approach works best when skill sets are readily

available in the market, allowing the client to get a volume-leveraged discount price when

one supplier can fill all the demand. It enables vendor consolidation, increased visibility,

standardized workflow processes, and simplified problem resolution.

cons: This model seldom works when sourcing for highly skilled positions, due to scarce

resources in the market coupled with limited use of subcontractors. Subcontracting, which

is often found in this model, is not legally viable in some countries.

Clients Administrative & Industrial positions Wide range of clients positions

Master Primaries

Tier II Tier II

Easiest to fill

Pay/markup structure

High volume

Hard to fill

Pay/markup structure

High volume

Primary supplier sourcing model

The Primary Supplier sourcing model is widely adopted to staff a range of skillsthe top

two being Information Technology (88 percent) and Engineering/Design (77 percent).

The model is similar to Master Vendor, but is not sole-source. In this case, several primary

suppliers are utilized.

Pros: Similar to Master Vendor, this approach delivers pricing discounts and additional

supplier resources. It also delivers the added benefit of providing clients with direct access

to more suppliersthus increasing their ability to source highly skilled positions.

cons: If an MSP program is not in place, the primary supplier sourcing model can increase a

companys administrative costs because they must directly engage with more suppliersin

what can be a highly transactional environment. This may mean multiple ordering tools,

on-boarding rules, invoicing streams, and supplier reports. In addition, the client takes on

more responsibilities for change management, program improvement, process design, and

problem resolution. Finally, there is often little to no visibility to subcontractors and their

compliance to program requirements.

sia definition of Primary suPPlier:

sia definition of sole source:

Contingent worker recruiting opportunities distributed to a select handful of primary staffing agencies, who in turn may subcontract some jobs.

Contingent worker recruiting opportunities serviced by a single Master Vendor who in turn may subcontract some jobs.

7

8sourcing models

structured tiers sourcing model

Structured Tiers are also used to source highly skilled contingent labor, most predominately

in the Finance/Insurance industry (66 percent). In addition to the Finance and Insurance

industries, this model is prevalent for sourcing skill sets in engineering (57 percent) and IT

(56 percent). This model is similar to a Primary Supplier, except the client directly engages

with the Tier II network. The shift from Master through Primary to Structured Tier sourcing

models reflects a correlation between the difficulty in filling positions, and the need to

directly manage the supply base to ensure that talent is identified.

Pros: Direct engagement with the recruitment providers can improve hiring metrics.

cons: This model can often be more costly to manage, with the client taking on more

administrative responsibilities because of the increased number of suppliers.

vendor neutral (competitive Bid) sourcing model

This sourcing model gained acceptance in the mid-1990s when IT resources were scarce

and companies experienced difficulty finding resources at a reasonable price. Enterprise

procurement tools lacked focus on the acquisition of contingent labor, leaving a technology

gap in the marketplace.

During the late 1990s, a few firms introduced technology that automated the competitive

bid sourcing model, and gave companies a way to efficiently engage with multiple

staffing agencies. With this automation, MSPs became integral to managing the business

processes and policies that bring together the supply base, contract administration,

data analytics, and the technology.

Pros: This model enables broader access to talent and allows the best supplier with the

best candidate to fill each position at competitive rates.

cons: This model may not work well for some highly transactional skill sets. It is not readily

used in the manufacturing sector (19 percent) nor for those primarily purchasing Industrial/

Logistics skills (17 percent).

Clients Finance, Engineering & IT positions

Tiers

Tier II

Harder to fill

Pay/markup structure

Moderate volume

sia definition of oPen Bidding:

sia definition of structured tiers:

Staffing agencies bid on individual contingent worker recruiting opportunities based on quality, price, and availability; often implemented via a reverse auction process.

Contingent worker recruiting opportunities are distributed to specific groups of staffing agencies in a formalized order.

Clients Professional & Technical positions

VMS Companies

Open Bidding

Tier II

Hardest to fill

Bill rate structure

Low volume

9

10

sourcing models

on vendor neutrality

Over the past few years the term MSP has gained acceptance as a strategy to manage

external labor, separating the client-facing service from VMS tool functionality. The 2012 SIA

MSP/VMS Landscape report showed that for 75 percent of MSPs (affiliated or owned by a

staffing firm) that had vendor-neutral spend, less than 10 percent of that spend was through

their own staffing arm. In fact, four of the top five vendor-neutral MSP providers are either

owned by a staffing firm or the subsidiary of a staffing firmthus validating that staffing

firms can be vendor-neutral.

11

12

The ability to integrate multiple sourcing models into one efficient management model, while simultaneously shifting their focus to oversight, is a key factor in why many companies have adopted msP programs as part of their long-term workforce strategy.

integrating sourcing models through an msP

As described earlier, most companies are using more than one sourcing model. Each

sourcing model may have applicability within an organizations contingent workforce

strategy. The sourcing of higher-skilled, professional/technical positions is more likely to

benefit from structured tier or vendor neutral (competitive bid) models to increase the

responsiveness and access, while less technical and easier-to-fill positions are more likely to

leverage a sole-sourcing model.

A managed service provider (MSP) can help to bring any and all of these modelsa hybrid

model approachunder a single strategically managed workforce program. When selecting

an MSP partner, the client should consider the MSPs supplier management resources,

financial viability, global infrastructure, program staff expertise, and its VMS compatibility

and flexibility.

The graphic (right) illustrates how an MSP program can integrate sourcing models

under a single management program to address the full array of contingent talent needs

for an organization.

An MSP enables the management of the entire spectrum of the contingent workforce

on behalf of and in partnership with procurement, HR, and operations. By outsourcing

program accountability to the MSP, the client can turn their attention to more strategic

and transformational initiatives, while alleviating procurement, HR, and operational teams

from transactional oversight. This is a key factor in why many companies have adopted MSP

programs as part of their long-term workforce strategy.

Recruitment characteristics are continuously evaluated for changing market conditions, which can influence modifications needed to the sourcing models.

MSP Program Management

VMS Technology

Administrative & Industrial positions

Easiest to fill

Pay/markup structure

High volume

Wide range of positions

Hard to fill

Pay/markup structure

Moderate volume

Finance, Engineering & IT positions

Harder to fill

Open bidding/Not to exceed bill rates

Low volume

IT Project & Services Spend

Hardest to fill

Open bidding/Not to exceed bill rates

Low volume

A

D

B

Master

Tier II

Primaries

Tier II

Structured Tiers

Tier II

Vendor Neutral

Vendor Neutral

C

13

msP hyBrid Program:

MSP hybrid defines multiple sourcing models within a contingent workforce program. Typically, a hybrid program would include elements of vendor-neutral, as well as master-supplier programs.

In summary, some key points with regard to MSP sourcing models include:

1. Most organizations utilize more than one sourcing model to find talent. An MSP strategy

provides an integrated approach to bring all sourcing models under one common

platform and management structure.

2. Creating an integrated sourcing model via an MSP program means HR and Procurement

remove themselves from transaction management and shift their attention to HR and

Procurement transformation initiatives.

3. The Master Vendor sourcing model is commonly used for administrative and industrial

skills. Its efficient and effective for this purpose, but it usually fails when used to source

more complex skills. In addition, it may not be scalable due to country legislative

limitations.

4. The Primary Supplier sourcing model is the most commonly used, with nearly 40 percent

of companies saying they have one in place to acquire certain skills. But while it provides

more direct access to a broader range of suppliers, it carries higher administrative costs,

as well as reduced visibility and supplier resources.

5. A Structured Tiers model is most often used to source Finance, Engineering and IT

talent. Like Primary Supplier, it enables direct relationships with an even wider range of

suppliers. But it carries an even higher administrative cost, with few supplier resources

and further reduced visibility.

6. Vendor Neutral/Competitive (Open) Bid is a sourcing model that became widely

adopted when VMS firms entered the market in the 1990s. It is most frequently used to

source talent in the Energy/Chemical and Technology/Telecom industries.

7. As the industry has matured most have come to recognize that MSP service can be

provided by both technology AND staffing firmswithout jeopardizing neutrality. In fact,

some of the largest MSPs are staffing firms.

8. The Hybrid MSP enables organizations to outsource their program to an MSP who

can design multiple sourcing models into one program strategy. This enables firms to

procure a wide range of skill sets, using a range of sourcing models.

conclusion

14

integrating sourcing models through an msP

an explanation of components a, B, c, and d from the

graphic on page 13 are provided below:

The clients contingent labor strategy is developed by conducting a thorough

assessment of their skill needseither for a site, a division, a country, or globally.

More detail on this process is provided in Part 3 of this series. The MSP will partner

with the client to structure the program in alignment with their objectives, including

broader workforce classifications such as IT project work, retiree populations, and

consulting firms, among others.

Next, and often in consultation with the MSP, the client will explore VMS options.

For technology, they look at VMS tool features, financial viability, a development

roadmap, integration costs, client references, and MSP compatibility.

Next they assess their sourcing models to procure the skills, often working closely

with the MSP to determine the best model. Sometimes the MSP will make the

decision on which suppliers to utilize.

Lastly, recruitment characteristics are continuously evaluated for changing market

conditions, which can influence modifications needed to the sourcing models.

A

B

C

D

15

managed service

Provider (msP)

A company that takes on primary responsibility for managing an

organizations contingent workforce program and the various sourcing

models within it. Typical responsibilities of an MSP include overall

program management, reporting and tracking, supplier selection and

management, order distribution, and often consolidated billing.

master supplier A staffing supplier that takes overall responsibility for providing

clients with temporary staff. In a master supplier relationship, all

orders will usually go first to the master supplier to either be filled or

distributed to secondary suppliers. Sometimes a master supplier will

not only provide a significant portion of the temporary staff working

at the employers site but also manage an organizations contingent

workforce program. Also known as Master Vendor (See also: Vendor

on Premises).

msP hybrid

Program

In the early days, an MSP hybrid was the way to define multiple

sourcing models within a contingent workforce program management

or MSP. Typically, a hybrid program would include elements of

vendor-neutral as well as master-supplier programs. For example, a

buyer might engage a single provider to act as the sole supplier for

its Light Industrial job requisitions while having multiple providers

competitively bid on IT positions. Now, the hybrid is typically

dropped since it has become commonly accepted that an MSP

includes the management of many different sourcing models within

the program.

Primary suppliers Two or more suppliers that have the majority of a companys staffing

requirements distributed to them, in lieu of, or underneath an MSP

arrangement. They may be on-site and they may or may not be in a

competitive bid situation (See also: Managed Service Provider).

sole supplier A sourcing method in which only one supplier is selected to provide

all services for a customer within a service line, geography, or for an

entire program (See also: Sourcing Model, Master Supplier).

sourcing model The method by which a company identifies, selects, receives, and

pays for contingent workers and related services. Companies may

employ more than one sourcing model within a contingent workforce

program. Sourcing Models can be identified by a companys position

along three independent axes: competitiveness, rate elasticity, and

vendor integration. Competitiveness is the degree to which staffing

agencies are invited to bid against each other with respect to

submission time, candidate quality, and price. Typical options include

sole-source, primaries, structured tiers, and open bidding. Rate

elasticity is the degree to which demand affects rates, with options

including fixed rate cards, pay range plus markup, max bill rates, and

open bill rates. Vendor integration is the degree to which a company

uses external resources, with options including complete program

outsourcing, on-site administrative support, off-site transaction

support, and no use at all.

structured tiers Selection of multiple suppliers in a specific priority, usually based on

pricing level, combined with size and capacity (See also: Sourcing

Model).

16

index

From the SIA Lexicon 2011/12

17

vendor

management

system (vms)

An Internet-enabled, often Web-based application that acts as a

mechanism for business to manage and procure staffing services

(temporary help or in some cases, permanent placement services)

as well as outside contract or contingent labor. Typical features

of a VMS include order distribution, timekeeping, and significant

enhancements in reporting capability over manual systems and

processes.

vendor neutral A term used to describe a model in which a managed services or

VMS technology handles its tasks (e.g. order distribution or candidate

selection) based on client-defined policies that mandate that all

(or a pre-defined set of) staffing suppliers (vendors) be (a) given an

equal opportunity to fill each order, and/or (b) selected for each

order based on the same criteria. Under a vendor-neutral model,

a managed services or VMS provider could not, on its own accord,

push orders to itself or any other staffing vendor. The presumed

advantage of a vendor-neutral model is that the best supplier with the

best candidate will fill each position.

references

Aberdeen Group, Contingent Workforce Management: The Next-Generation Guidebook to Managing the Modern Contingent Workforce Umbrella May 2012

Staffing Industry Analysts, 2011 Contingent Buyer Survey: Vendor Bidding Models and Staffing Agency Rate Structures March 2012

18

index

19

kellyocg.com

All trademarks are property of their respective owners. 2013 Kelly Services, Inc. Y0167B

aBout the author

JENNIFER SPICHER is Vice President & Americas Practice Lead, Contingent

Workforce Outsourcing Solutions with Kelly Outsourcing and Consulting

Group (KellyOCG). She joined KellyOCG in 2009 to help accelerate the

companys growth in strategic accounts. Ms. Spicher is responsible for

solutions design and architecture, implementation and overall program

delivery, as well as customer satisfaction for client programs. She has a wealth of experience

and demonstrated accomplishments in the human capital industry, which has fueled her ability

to consult with clients, understand their needs, and recommend customized solutions to align

with their workforce strategy. Jen was named a 2013 Pro to Know by Supply & Demand

Chain Executive magazine.

aBout kellyocg

KellyOCG is the Outsourcing and Consulting Group of workforce solutions provider, Kelly

Services, Inc. KellyOCG is a global leader in innovative talent management solutions in the areas

of Recruitment Process Outsourcing (RPO), Business Process Outsourcing (BPO), Contingent

Workforce Outsourcing (CWO), including Independent Contractor Solutions, Human Resources

Consulting, Career Transition and Executive Coaching, and Executive Search.

KellyOCG was named to the International Association of Outsourcing

Professionals 2012 Global Outsourcing 100 list, an annual ranking of the

worlds best outsourcing service providers and advisors.

Further information about KellyOCG may be found at kellyocg.com.