Reducing risk and cost by setting up a master service provider for contingent labour
Due to constantly changing skill requirements in the area of development, the Technology division of a global leisure corporation often resourced projects with highly skilled external consultants. The annual spend on subcontracting these contingent consultants was around US$30 million globally.
Administration of this outsourcing was complex, as up to 40% of the division’s workforce were contractors supplied by 140 different companies - ranging from large agencies to sole traders - located around the world. To complicate matters, there was no consistency across contract terms, confidentiality clauses, insurance or deliverables, and pricing was highly variable. The group recognised that it needed to change its procurement processes if it was going to succeed in reducing costs, risk and liability and simplify administration. Independent insight was needed and the group turned to Occumen, a procurement focussed management consultancy, for expert help.
We agreed with our client that we should implement a ‘vendor neutral’ strategy. This meant that each supplier would have the same contract and charge the same maximum rate for each job, and in addition, would have to meet the quality and service standards stipulated by the Technology division. Once suppliers had been shown to meet these standards, the Technology stakeholders were indifferent to who won any particular contract, hence ‘vendor neutral’.
Occumen developed a structured process to put this strategy in place which initially reduced the number of suppliers from 140 to a shortlist of 30. Each of the shortlisted suppliers received a request for proposal following a full briefing on the group’s new strategy and approach. At this point some declined to participate, while others failed to make the cut because of quality or service issues. 10 suppliers were eventually selected to be part of the solution which was operated by a Master Service Provider (MSP). Subsequently, when a position needed to be filled, each of the 10 suppliers received a statement of work and could bid for the job at or below the maximum rate. This meant that if a supplier had consultants on their books who were not engaged, they could bid at a substantially lower rate without committing themselves to this lower rate for subsequent assignments. It was not obligatory for suppliers to bid for work, but after 12 months the two who supplied the fewest consultants were removed from the list and replaced by new, well qualified suppliers.
The rotation of suppliers each year was essential to maintaining healthy competition as it prevented suppliers from ‘cherry picking’ only the most profitable vacancies.
Controlled competition among a much smaller number of suppliers, together with Occumen’s vendor-neutral approach, quickly translated into significant benefits on both sides of the relationship. In addition, the improved consistency across contracts and deliverables has been very beneficial.
Chief Technology Officer, Global Leisure Corporation
Overall costs were reduced by around 11%, which represented a saving in the region of US$3 million. Other softer benefits included lower risk due to the greater consistency of contract terms and insurance, reduced time to fill positions, and improved productivity from contractors.
Lastly, and most importantly, change in risk management and procurement that began with the Technology division became a benchmark for the rest of the group.
Our goals were to deliver cost savings and to simplify administration across the group’s markets around the world. We were also successful in reducing both the risks and liability associated with this type of subcontractin
Simon Atkinson, Managing Partner, Occumen
Occumen is a management consultancy with global reach. Specialising in procurement transformation, we add long-term value far beyond immediate cost savings. We help transform relationships between a business and its suppliers so that the role of procurement can evolve from a support function to a strategic business partner.
We are successful in delivering lasting change because of the calibre of our consulting teams and because of our collaborative approach. Our partners remain actively involved in all the work we do, whilst our consultants have the interpersonal skills and business acumen to work effectively with senior client managers.
Our clients include multinational corporations and private equity backed businesses. We have worked extensively in the leisure, hospitality, consumer, retail and financial services sectors, and in facilities management and fit-out/refurbishment.