How to Cut the Costs of Indirect Labor Spend
  • 7 min read

How to Cut the Costs of Indirect Labor Spend

In most organizations, staffing costs make up some of the largest expenditures. In recent years, the costs of payroll and contracted workers—both in terms of the cost per hire and overall spend of external labour—have exploded. Furthermore, skills shortages in many industries have led to increased staffing vendor fees, making it incredibly difficult to find good talent at a palatable price.

Added to all of these cost burdens is the heady cost of change. Markets, customer demands—and consequentially business models—are changing at a rapid pace. This makes the corporate re-org a permanent fixture on the to-do list of executives. Change costs money. It costs a whole lot more when you have a large demographic of permanent workforce.

At this perilous time for businesses, Cost Reduction has cemented itself back at the top of the priorities list for procurement teams.

Digital technology has been one of the catalysts of change, forcing organizations to change their workforce models and customer value delivery approaches. However, it’s also become a saviour to many. Modern enterprise software platforms are much smarter than they used to be, and they can do more to remove the human-from-the-loop.

Digital Technology is introducing new possibilities to eradicate costs from back-office processes. These new tech stacks, based on cloud computing and big data innovations, are much easier to integrate than their predecessors—resulting in more machine-to-machine integrations and less manual tasks that sap time out of the working day.

So, what tech do you need to cut your indirect labor spend? And is it worth it?

The fact is, no matter how clever your technology is, when finding the best talent to fill your vacancies during a skills shortage, you’re going to need a partner of one form or another. And that means you’ll need a way to manage them.

When VMS first entered the market, they were nothing short of a revelation. A major pivot point in the industry occurred in the early 2000’s when companies including Microsoft, Google, and Amazon started fighting for top spot in the cloud computing industry. Each of these larger players invested billions in new cloud platforms and ecosystems to make the task of creating, managing, analysing, scaling, and securing apps easier for software vendors. While incumbent players ported their existing technologies to the cloud, new entrants have been able to build their solutions on a more modular, mobile friendly, and data-rich framework.

Companies like SimplifyVMS have moved their offerings beyond the traditional scope of a VMS to become modular talent portals that ‘glue’ together the best tech components and fill the voids where technology underperforms. In this way, they allow larger organizations to maximize their systems investments, leverage best-in-class SaaS tools, and streamline M2M automations to minimize the ‘human-in-the-loop’ legacy of VMS deployments.

Opportunities to Cut Costs Painlessly

There are several areas where procurement teams can achieve cost savings in their talent sourcing efforts. These are the major ones:

Exposing ‘Off-Book’ Sourcing Agreements

Before a VMS is installed, it’s actually fairly difficult to gain visibility over the TOTAL SPEND on indirect talent in its various guises. Bring a program under control, and you will expose work being done by outsourcers, consultants, small limited companies, and freelancers that finds its way into the Accounts Payable list. Unless you know it’s going on, you won’t be able to bring the spend under control.

It doesn’t help that talent is frequently hired through various departments, including HR, Procurement, IT, and other Line-of-Business departments, where Hiring Managers take the task of getting work done under their own control.

Creating a cross-functional project team to manage Talent Strategy that adopts a Total Talent Management (TTM) approach, is one way to tighten up the purse strings and prevent unnecessary spend.

Cost of Acquiring Talent

Some vendors charge exorbitant fees. Having the ability to benchmark job categories against industry rates (tied to the territory you operate within and the level of expertise you’re looking for) means that vendors can’t pull the wool over your eyes when it comes to the cost of talent.

Terms

You should expect your VMS to reinforce your payment terms and expose vendors who demand unreasonable payment terms. Additionally, many talent leaders tell us how they’ve been caught out by end-of-contract extensions, where vendors charge Hiring Managers excessive rates when they need their contractor for a few days extra. These ‘invisible costs’ are often lost in ‘cost of doing business’ departmental budgets. A VMS should enforce policies to ensure this type of ‘behind the garage’ dealing doesn’t happen.

Insurances

One cost that often goes unmentioned happens when staffing vendors (the ‘Employer of Record’ for a contractor) fail to furnish appropriate insurances for their people. Travel insurance is one of those classic cases when companies end up shelling out cash to cover costs that staffing firms should be covering themselves.

Productivity and Knowledge Gains

You can look at the very obvious cost economies from paying less for talent and spending less on intermediaries, and for many that might be enough to encourage adoption of new ways of working and new systems.

Personally, I would argue that some of the less tangible rewards of adopting a VMS—and a joined-up approach to cost control over your talent supply chain—are more impactful on the long-term success of your business. Filling vacancies faster and hiring better quality talent means you’re able to make productivity gains and inject new ideas and new thinking into solving old challenges.

Creating an intelligent, energized and diverse workforce that’s able to ebb and flow with changing demands, might just be the biggest reward of bringing your indirect labor program under control.

Displacing FTE Spend

Your payroll may be your biggest operating cost. Bringing control and governance over a talent supply-chain, and improving the supplier blend, creates a more effective ‘engine’ to source the best talent and fill vacancies. The ‘second-phase ball’ of cost savings comes from the migration of work-to-be-done away from the default go-to of high-cost and inflexible full-time employment contracts towards a best-fit approach where FTEs, automation, intermediaries, and contracting options are considered.

Realizing Benefits

Sometimes, cost economies are difficult to reach. Any significant system change normally comes with a bag of practical challenges; such as the cost of installing new methods and tools, undergoing the pain of change, having to commit management time to inward improvements at the cost of spending time improving customer value and experience, etc. Thankfully, that cost of implementation and change isn’t so painful with new VMS solutions.
Unlike their predecessors, vendors like SimplifyVMS don’t charge for implementation or change costs. That’s partly because their tech-stacks are designed on adaptive cloud architectures that are much easier to adapt. There’s a big difference between CONFIGURATION and CUSTOMIZATION. Modern VMS solutions design their systems around the former not the latter, resulting in much faster pace of change, at significantly lower costs.

Final Thoughts

Procurement teams know that change costs money and can become very distracting. Therefore, the most effective change programs are those that deliver quick-wins and can be largely supplier resourced. Modern VMS solutions can be game-changing for this reason because they:

  • are modular which means organizations can take the elements that bring the biggest rewards onboard and save advanced features for later, reducing implementation overheads and complexity, and cutting software costs.
  • are built on modern cloud technology that means they deliver faster time-to-value and reduce the complexities of deployment and ‘shaping to fit’ the way your organization works.
  • adopt a glueware architecture which means they offer deeper integrations with your existing systems (and identity management platform) to minimize manual re-keying tasks, etc. Additionally, this Glue-Ware ethos means use of best-practise SaaS tools to get certain jobs done is actively encouraged. The net result is still a system that ‘feels’ like it’s one platform to Users with a Single-Sign-On.
  • may be supplier funded: Most VMS vendors will offer their products by charging a fee to the staffing vendors to fund some or all of the licensing costs.