How to Target Labour Cost Savings Through Contingent Workforce Programmes

The global workforce is in a constant state of evolution. With indication that economic growth is slowing, along with fears of an impending recession and costs on the rise, business leaders are under pressure to do more with less. The global contingent workforce management market is expected to reach $325.7 trillion by 2028, and as organisations worldwide expand their contingent labour spend they are looking to workforce solutions partners to drive labour cost savings.

A managed service provider (MSP) partner can certainly help you make sense of it all. As an experienced MSP, Allegis Global Solutions (AGS) has worked with many companies to align market rates, improve sourcing and, ultimately, control labour costs through proper workforce classification, bill rate analysis and spend capture. Here are a few cost challenges commonly faced by companies, and how an extended workforce strategy can help recoup labour cost savings in a challenging economic landscape.

5 Contingent Labour Cost Savings Missteps and How to Fix Them

1. Challenge: Making sense of the labour market, including supply and demand

With talent being one of the key elements to success in today’s labour market, paying attention to market analytics for your region is critical. This data can help your organisation make informed decisions regarding the sourcing and pricing of contingent labour through market research and comparative analysis.

Solution: Know the state of your labour market

Knowing what industries are hiring versus scaling back, variations in the market across roles and locations, and other factors can help you determine what you can expect from suppliers in terms of pricing. Utilising local market analytics can provide stronger insight into individual markets — helping your organisation to operate more cost effectively.

For instance, a recent AGS report on Australia’s labour market  provides the following insight:

• The average GDP growth rose to a decade-high of 3.6% in 2021-22. This growth drove a tight labour market in Australia, where the number of job openings were nearly equal to the number of potential candidates.
• Between March 2020 and December 2022, the number of employed people in Australia increased, and the unemployment rate decreased to 3.5%.

A workforce solution provider, like AGS, can help you keep a pulse on your local market and provide real-time updates and insights to enable you and your hiring manager to make an informed decision.

2. Challenge: Trying to force savings with below market pricing

Because of the large labour demand and low supply, companies trying to force savings in overly aggressive ways will simply see spend bubbling up in other areas. Extensive over-rate-card exceptions, rate creep, pre-identified workers, programme avoidance and the misuse of statement of work (SOW) all contribute to overspend. While large volume can buy companies a bit of pricing flexibility from their supply base, pricing should be aligned to the market to drive good sourcing behaviours.

Solution: Align your rates to market

Setting targets for your supply base and building engagement with those suppliers who consistently show they are good partners is a more effective way to drive labour cost savings rather than trying to force savings with below market pricing. Likewise, it is best practice to drive supplier engagement through balanced competition, agreed delivery standards and visibility of performance.

3. Challenge: Using strategies that don’t work with human capital

When methods historically reserved for non-human resources, such as reserve auction or low markup management, are used to force labour cost savings, they often lead to negative supplier and hiring manager behaviour — ultimately increasing spend. These methods can often lead to the exact opposite behaviours that organisations are trying to instill (e.g., suppliers becoming subpar instead of strategic business partners).

Solution: Allow trusted suppliers to negotiate wages and rates as needed

Instead of forcing suppliers into the same bucket, allow them to do what they do best — manage their own margins and workers as needed to best serve your account, while ensuring they are hitting the realistic labour cost savings targets set in place. It is also key to ensure compliance with your established rate card.

4. Challenge: Not paying attention to pockets of spend

Unmonitored pockets of spend, such as business units that are excluded from rate management or the programme altogether, can often result in overspend in an organisation. This can be avoided by enlisting procurement solutions through a strategic sourcing provider like AGS. Having a strategic adviser can help you get clear insight into services procurement spend.

Solution: Mandate your programme and boost extended workforce visibility

Programmes that are optional or exclude business units mean pockets of potential savings are being left on the table. Establish a best-in-class, mandated programme with a PMO that engages with your hiring managers to drive programme use. For further workforce visibility into the use of the extended workforce, look to a procurement solutions provider who can also illustrate the talent procured through SOW services.

5. Challenge: Using flat rate cuts or assuming workers can be reduced to rate card

Lumping all contingent workers into a single category, reducing by the same percentage amount, or assuming that rate cards are accurately aligned to the market often leads to companies ineffectively cutting rates. Taking a one-size-fits-all approach to workers can lead to missed opportunities, overly aggressive cutting and possibly attrition.

Solution: Cut rates intelligently (if needed)

To apply a rate cut correctly, it is always good to complete a thorough analysis with a subject matter expert who understands the scope of the roles and in turn the correct market pricing for that role. These insights can help identify gaps for rate cuts and where to hold rates steady.

As our global economy continues to ebb and flow, now is the time to partner with a workforce expert and establish a framework to target cost savings. With the projected expansion of the global workforce in the coming years, strategically investing in contingent labour programmes can help you drive those savings now and in years to come.

That being said, it is imperative to choose an MSP that truly understands how to drive savings, can help you steer clear of pitfalls and help build a best-in-class programme with pricing that drives savings through positive supplier and manager behaviours.