Procurement Contract Labor and the differences with procurement temporary labor providers supply chain temp staff matrix

Source One is a consulting firm that provides strategic sourcing services and procurement advisory solutions to companies around the globe.  One of the ways we provide support to internal corporate procurement and sourcing teams is through the use of contracted labor when companies have a need for on-site short term support.   However, we find it’s not always easy for organizations to engage with providers such as ours for this type of labor; and we find that it is often due to a fundamental misunderstanding between contracted labor and temp labor.  More specifically, there is often confusion about what you get and how costs are modeled for traditional temporary labor versus contract labor.  This is often due to HR being involved in the mix and/or having a rigid procurement process for the onboarding of procurement temp/contingent labor.   This post is intended to help arm you for the conversation/negotiation that you might need to have in order to ensure you get the RIGHT resources in place to fit your temporary procurement talent needs.

While the below is very oversimplified, let’s try to look at it at a high level. We’ll try to break down three of the most common ways that procurement contingent labor costs are modeled.

  • Temporary Labor – Temp works are typically employed by a temp agency for limited periods of time.  While these individuals are sometimes also called “contractors,” the reality is they are usually employees of a temp agency, and the agency itself pays them their salaries and benefits. In many cases, these types of resources are able to purchase benefits from their employers.   Temp staffing firms typically charge a markup on top of the wage rate (inclusive of overhead charges and taxes) in order to establish the “bill rate” that the temp staffing provider charges. Many times, temp labor providers can provide help for as little as a one month period.
  • Independent Contractors - Independent Procurement Contractors are typically individuals who work for themselves and handle billing directly to their clients.  They are often much more experienced and specialized in the procurement space, and as such bill at a higher rate.  In most cases, these contractors bill as 1099 workers; and in some cases might bill through a third party agency or have their own LLC set up for billing purposes.  They typically seek out engagements that will last 3 months plus.

  • Consulting Firm Managed Services – Consulting Managed Services firms typically have their own highly experienced and specialized procurement resources.   These resources are managed by the consulting firm and may consist of employees or employees and sub-contractors.    The rates are often similar or slightly higher than those of independent contractors, but may have the additional flexibility of getting down to an hourly rate (vs daily, weekly, or monthly).  Consulting firms will typically not be transparent with their cost margins and markups, similar to independent contractors.
Now let’s take a look at the differences in the types of workers and procurement positions each type of supplemental procurement solution provider may provide, and the pros and cons of each procurement labor supplement solution:
  • Temporary Labor – Typically, temp labor firms are providing resources that are of a more tactical skill set than alternative procurement providers.   More specifically, they tend to be acceptable places to turn when you need transactional jobs; such as placing purchase orders or reviewing inventory cycles; but should not be relied upon for category strategy, analytical or negotiation skills.   While the cost of this type of labor is often the cheapest, it often would create more harm than good to deploy this type of solution into areas that have large spend or strategic spend.  Think about it rationally, and it makes sense.   Good procurement professionals are in very high demand right now, and the pay scale is increasing.    To find individuals that are ready on a moment’s notice for a low cost means that you are getting a low skill, junior, or unreliable resource; or someone who is temporarily in-between positions and could leave the temp position at any time to pursue greener pastures.   Additionally, typically a temp provider provides no management responsibility or supervision of the resource; and instead relies on you to manage them. 
    • Pro: Low Cost, Rapid Deployment, Quick to Scale
    • Con: Low Skill, Tactical Focused Only, High Turnover, High Degree of Management Require
  • Independent Contractors – If you only have a need to fill a singular position, and you don’t see that role expanding; and independent contractor might be right for you.  Typically independent contractors are highly capable, self-managing, more experienced, and bring a particular focus and subject matter expertise in a particular subject/category.  However, some have a tendency to chase the next big gig; meaning turnover is a risk, they don’t have the ability to scale (since they are one individual) and they have the most time consuming interview, onboarding and ongoing financial/billing management costs.
    • Pro: Highly Specialized Subject Matter Expertise, Self- Managing, Reliable, Accountable for Results
    • Con: Can Be Expensive, Moderate Risk of Turnover, Typically Seek Longer Term Gigs, Can Be Very Time Consuming to Find, Onboarding and Interviewing Can be Time Consuming, Can’t Scale Beyond Their Own Small Network of Other Contractors
  • Consulting Firm Managed Services – Often, the best of all worlds is to use a managed services firm to supplement your procurement or sourcing team.  Though, admittedly, this can be a bit confusing as well.  A managed services firm can help provide resources utilizing their own staff in an offsite capacity; but can also place individual contractors on-site for you.   This means that they can not only place a named individual onsite, but they can provide access to a broader team; often on an hourly basis.  That broader team can do things like provide back office analytical support; expertise and subject matter experience in categories outside of the onsite individual’s own capabilities; and can generally help ramp up and down more quickly.  Consulting firms also typically assume greater responsibility and accountability for their teams than a traditional temp labor firm.  You also can rely on them to prescreen candidates and have confidence in the reliability and work product of the on-site people they would place; which is something you can’t always say when you individually bring in direct independent contractors.  And, consulting firms typically have knowledge bases, templates, previous project results, tools and technologies that will help their team perform faster and better than your internal team could typically do on their own. 
    • Pro: Self Managing, access to institutional knowledge and category benchmark data, multiple SMEs and Skills, can get to hourly instead of daily or monthly commitments; can flex up and down quickly via offsite support, they remove the individual interview component of hiring a contractor.
    • Con: Not as cheap as a traditional temp worker (but returns a high turn on investment).
The above is very much an oversimplification of the temporary procurement labor landscape; but it gives you a better understanding on how to build a business case with your HR team and controllers of budget on why you probably should not be chasing low cost temp labor.    

One major problem when HR departments, MSPs, or VMS staffing solutions get involved is that they want to have negotiations with your temp labor provider on controlling markups.  While this is a valid sourcing strategy for traditional temp labor firms; it simply does not apply to independent contractors or consulting firms.   Your task will be to help communicate why you may need to deviate from this type of thinking; and show them that the total Return on Investment of more experienced labor is much more important than keeping an ultra-low hourly rate for support.    

The below decision matrix can help you understand some of the key decision points in selecting a procurement labor provider:

And this table gives you an idea on which type of procurement temp labor provider you should be utilizing based on the job requirement:

And of course, the easiest way to solve your staffing and procurement temp labor and contractor needs is to simply call Source One.

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William Dorn

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