For generations, organisations have relied on contingent labour as a source of support during periods of fluctuating workforce demands.
This trend has become more prevalent than ever, with an estimated 1.65 million temporary workers in the United Kingdom as of April 2023 compared with just over 1.45 million in January 2020.
As the number of contingent workers continues to rise, organisations will continue to depend on these types of workers to navigate challenging periods and contribute to their business objectives.
These employees – including temporary agency workers, independent contractors, Statement of Work (SOW) consultants, human cloud workers, and various other temporary "gig" workers – play a crucial role as a valuable labour pool for organisations facing skill gaps, increasing operational demands, dynamic workforce changes, and numerous other challenges.
But how do you manage these types of workers effectively for greater success?
When it comes to managing contingent workers, you have three primary options: Preferred Supplier List (PSL), Managed Service Provider (MSP), and ad hoc supply arrangements.
These options vary in terms of their level of control, structure, and oversight; and each approach has its own set of advantages and disadvantages, making it crucial for you to understand their differences and to choose the most suitable option that aligns with your unique workforce needs and long-term goals.
In this blog post, our aim is to give you an unbiased comparison of the pros and cons of PSL, MSP, and ad hoc supply arrangements for managing contingent labour and to leave the decision-making up to you.
Preferred Supplier List (PSL)
This is a curated list of pre-approved staffing agencies or vendors from which you source contingent labour.
Pros:
- Helps consolidate the number of vendors or suppliers you work with, making it easier to manage relationships, contracts, and performance. This can save time and resources by reducing administrative overhead.
- By carefully selecting and vetting suppliers to include on your PSL, you can ensure a certain level of quality in the contingent labour you receive. Suppliers on the PSL have typically undergone a selection process, including assessments of their capabilities, compliance, and track record.
- With a PSL in place, you have pre-approved suppliers ready to provide workers when needed. This can expedite the hiring process and reduce time to fill positions, as you don’t have to start the vendor selection process from scratch each time.
- By establishing ongoing relationships with suppliers on the PSL, you can build stronger partnerships. This can lead to improved pricing, better terms, and more favourable conditions for sourcing contingent labour.
Cons:
- Relying solely on a PSL means you may miss out on new, innovative suppliers who could provide unique talent or specialised skills. It’s important to regularly evaluate the PSL and consider adding new suppliers to ensure you have access to a diverse range of talent.
- A PSL can introduce some rigidity into the sourcing process. If your organisation’s needs change, or if you require niche or specialised skills not covered by the suppliers on the PSL, you may face challenges finding suitable candidates quickly.
- By narrowing down the number of suppliers through a PSL, you may inadvertently limit competition among vendors. This could decrease their motivation to innovate or offer competitive pricing, potentially impacting the quality and cost-effectiveness of contingent labour.
- While a PSL can simplify vendor management, it still requires ongoing maintenance and oversight. Maintaining the list, evaluating supplier performance, and managing contracts involves administrative tasks that require time and resources.
Managed Service Provider (MSP)
An MSP is a third-party company that acts as a single point of contact for managing the sourcing, engagement, and administration of your contingent labour.
Pros:
- MSPs have deep expertise in managing contingent labour programs. They understand the market, industry best practices, and have access to a wide network of suppliers. This expertise can help optimise your contingent labour program and improve overall efficiency.
- MSPs often negotiate better rates and terms with suppliers due to their industry knowledge and the volume of business they bring. They help optimise labour spend, track and control costs, and identify areas for savings through consolidation, standardisation, and process improvements.
- Contingent labour management involves legal and regulatory complexities. MSPs are well-versed in compliance requirements and can help ensure that your organisation adheres to the relevant laws and regulations. They can also manage risks associated with misclassification, co-employment, and other labour-related issues.
- MSPs can quickly scale up or down the contingent labour workforce based on your needs. They have the infrastructure and resources to handle fluctuations in demand, enabling you to adapt more easily to changing business conditions.
- By outsourcing the management of contingent labour to an MSP, you can offload administrative burdens such as sourcing, screening, onboarding, payroll, and contract management. This allows you to focus on your core business activities.
Cons:
- Outsourcing contingent labour management to an MSP means relinquishing some control over the hiring process. You may have less direct oversight and involvement in the selection of candidates, which could impact the cultural fit and alignment with your organisational goals.
- While MSPs often negotiate better rates, their services come at a cost. The fees charged by MSPs can vary, and you need to carefully evaluate the financial implications to ensure that the benefits outweigh the expenses.
- Implementing an MSP solution may require integrating their systems and processes with your existing systems, such as HR or procurement software. This can pose technical challenges and require coordination between different teams and stakeholders.
- Relying solely on an MSP for managing your contingent workers can introduce a single point of failure. If your MSP encounters issues or fails to deliver on expectations, it could disrupt your contingent labour program. It’s important to establish clear service-level agreements (SLAs) and to have contingency plans in place.
- MSPs work with multiple clients and may not fully understand or align with your unique culture, values, and goals. This can impact their ability to find contingent workers who are a good fit for your organisation.
Ad Hoc Supply Arrangements
Ad hoc supply arrangements refer to managing contingent labour on a project-by-project basis, without formalised agreements or pre-selected vendors.
Pros:
- With an ad hoc approach, you have the freedom to engage with various suppliers or sources of contingent labour based on your immediate needs. This can provide access to a wider range of talent, specialised skills, or niche expertise that may not be available through a pre-approved supplier list.
- Without a formal agreement or contract, you have the opportunity to negotiate pricing and terms directly with suppliers for each engagement. This flexibility can potentially lead to cost savings and competitive pricing, especially if you have multiple suppliers bidding for the same job.
- Ad hoc arrangements allow for faster response times when you need contingent workers urgently or when requirements change frequently. You can explore different options and engage workers as needed without being bound by contractual obligations or predefined processes.
- By engaging with different suppliers on a case-by-case basis, you have the chance to experiment with new approaches, suppliers, or talent sources. This can foster innovation and help identify new strategies or solutions that may not have been considered within a more rigid supplier framework.
Cons:
- Without a formalised supplier management process, there may be inconsistencies in the quality of contingent workers. Each engagement requires evaluating and vetting new suppliers, which can result in variations in talent quality, skill levels, and compliance standards. This can impact the overall consistency and reliability of the contingent labour you receive.
- Managing ad hoc arrangements can be administratively burdensome. Each engagement requires sourcing, screening, onboarding, and contract management, which can be time-consuming and resource-intensive. Without a streamlined process, administrative overheads can increase.
- Ad hoc arrangements may increase the risk of compliance issues, such as misclassification of workers, co-employment risks, or non-compliance with labour regulations. Without a consistent approach to supplier selection and management, ensuring compliance with legal requirements can become more challenging.
- Ad hoc arrangements often result in transactional relationships with suppliers, lacking the depth and strategic alignment that can be fostered through long-term partnerships. This may limit opportunities for collaboration, knowledge sharing, and supplier development.
- While ad hoc arrangements may offer flexibility in pricing negotiations, they may not provide the same level of cost savings or efficiency gains that can be achieved through long-term supplier relationships. The lack of volume commitments or consolidated spend may limit your ability to negotiate favourable terms or achieve economies of scale.
As with any business decision, selecting the right approach for managing your contingent workforce depends on the specific needs and priorities of your organisation.
Ultimately, you must carefully evaluate your objectives, budget, scalability requirements, and risk tolerance before deciding on the most suitable method for managing your contingent workers.
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