Why you need to get smarter about sourcing contingent labor

Written by Jack Miles | January 5th, 2015 | Making Cents

The market for temporary and contingent labor is growing dramatically year-over-year -- roughly 7-10%, depending on what segments you look at. This is a trend that is likely to continue for the next five or six years. The Harvard Business Review in 2012 projected that eventually contingent labor will make up about 25% of the global workforce and we are well on our way to that. Companies that want to use contingent labor strategically and cost-effectively need to get a lot smarter about how they source and manage this category. In this two-part series I’ll explain why and offer my thoughts on a methodology for improvement.

This is a tough category to handle and historically procurement hasn’t paid much attention to it. They’ve engaged Managed Service Providers or implemented Vendor Management Systems to improve their performance and considered it handled. Or, they’ve ignored it completely, figuring it wasn’t that big and besides it’s “temporary”, so not worth the effort. Neither approach supports developing the institutional knowledge needed to manage the category effectively.

To be competitive, companies need to be more strategic about using contingent labor. This needs to change. We will see more and longer “temporary” engagements, because there’s been a big shift in the temp and contingent labor market over last decade or so. For a long time, temp positions were mainly clerical or administrative. Then we saw a lot of expansion into the IT area for project-based work. Now globalization and the Internet have opened up temp and contingent opportunities for an even broader range of specialized workers.

New opportunity for companies and workers

It makes sense for companies to hire these people on a temp or contingent basis, because they get access to unique skills they don’t need all the time, and these are expensive people to have around if you can’t keep them active. But it’s not just companies that want this. The workforce does too.

If you look underneath the hood of the slow job recovery numbers, you see a decrease in full-time jobs but an increase in temp and contingent labor. There are a couple things driving that. One is that millennials have now fully arrived in the workforce, and they’re looking for more freedom in work style and time off. The other is the Affordable Care Act.

No matter how you feel about the Affordable Care Act, it opens up the ability for people to get health insurance in other ways besides full-time employment. This creates a certain amount of flexibility that U.S. workers haven’t had before. As the ACA phases in, benefits will no longer be the driver of full-time employment that they have been in the past.

This is a major shift in the workforce, and to employers need to keep up. In general, procurement practices for contingent labor are still pretty unsophisticated, and there are a lot of inefficiencies because there is a real lack of transparency in the marketplace. That makes it challenging to do the research and crunch the numbers, but it can be done. Tomorrow in part 2 I’ll explain how.

Jack Miles is the former Secretary for the Department of Management Services for the state of Florida and served as the Chief Procurement Officer of several Fortune 100 firms. He serves on Coupa Software’s Visionary Council. This article previously appeared on SIG Inside Sourcing Newsletter.