While many hoped labor and skill shortages would be behind us, the reality is that these issues remain and will likely become perennial challenges for businesses. In the US, seven in ten employers cannot find qualified employees to fill vacancies. An extensive Korn Ferry report predicts that by 2030, more than 85 million jobs will be unfilled due to a lack of skilled people, costing $8.5 trillion in unrealized annual revenues. Staffing and skill challenges are here to stay, and it is paramount that enterprises pursue effective strategies to overcome them.
The Rise of Contingent Labor
Companies are increasingly ameliorating labor challenges by leveraging external contingent and project-based labor alongside their permanent workforce. Organizations hire individuals, such as independent contractors, freelancers, consultants, and temporary workers, to fill critical skills gaps and complete specific projects or tasks. According to a report from the US Bureau of Labor Statistics, in July 2023, 4.3 percent of the workforce held contingent jobs, a 0.5 percent increase from 2017. In addition to contingent workers, the report found that alternative work arrangements were also on the rise, with 11.9 million people – or 7.4 percent of total employment – working as independent contractors.
Nevertheless, a contingent labor strategy can get expensive if not managed effectively. Research from Ardent Partners found that, on average, professional services spend comprises between 45 percent and 65 percent of an organization’s total non-employee spending (including staffing, freelancers, contractors, gig workers, etc.). HR and procurement leaders are under the highest pressure in twenty years to control costs while maintaining workforce quality. Regrettably, many are unaware that the answers to their toughest workforce challenges are already in their data. By leveraging workforce data effectively, HR and procurement leaders can transform raw data into actionable insights, enabling smarter, faster, and more strategic workforce management decisions.
The Benefits of Workforce Data and a Vendor Management System
Businesses address labor challenges by extracting key insights from their workforce data that can be actioned in the process. This data enables hiring managers and program teams to identify hidden cost savings, uncover strategic opportunities, source high-quality contingent talent, and automate time-consuming manual processes, thereby freeing HR and procurement teams to focus on high-impact initiatives. Of course, the obvious question that follows is: how can organizations harness their existing workforce data?
A vendor management system (VMS) platform can provide HR and procurement staff with visibility into all extended workforce processes, including workers, suppliers, and spend. These platforms often come with pre-configured templates, workflows, and reports, providing relevant personnel with a succinct breakdown of budget, headcount, and expenses, which helps identify skill deficiencies and eliminate overbilling or misbilling mistakes. Leading VMS platforms can likewise benchmark a sourcing program’s performance, including the performance of suppliers and individual hiring managers. Other common key performance indicators that best-in-class platforms provide include cost savings, time to fill, Talent Redeployment Percentage, and compliance considerations (tenure, background checks, pay parity, etc.).
A mature VMS platform enables businesses to augment their sourcing strategy with other technologies and methods, gaining an edge in sourcing high-quality contingent talent. For example, leading VMS platforms can integrate with and accommodate various sourcing approaches for contingent labor, including talent pools, marketplaces, and staffing providers. Whereas manually evaluating many candidates can be a time-consuming and onerous task, leveraging a VMS platform to source from multiple channels and employ AI to vet the best candidates enables enterprises to evaluate more candidates quickly and thoroughly while sourcing talent from different geographies or with niche skills that may be hard to find.
Best Practices for Managing and Scouring Contingent Labor
Enterprises need to know where all non-full-time labor resides within their talent ecosystem. Although it depends on the businesses, most external labor forces account for a substantial portion (up to 50 percent) of many companies’ labor costs. VMS platforms can capture data to shed light on this otherwise shadow workforce. Once this data is captured, enterprises must properly classify talent before incorporating their external workforce into their larger workforce planning operations. Data analysis through a VMS platform supports proactive workforce planning, helping businesses measure variables like time and cost to determine which projects and tasks should be handled by the full-time workforce versus contingent labor.
It is also crucial for HR and procurement leaders to set goals and desired outcomes from the start of any contingent labor plan. To maximize success, leaders must outline the cost savings they hope to achieve, the skill sets the organization needs to augment, performance KPI’s, and risk mitigation strategies. Likewise, HR and procurement leaders should establish a cross-functional steering committee to collaborate on said plan. This committee must be committed to consistent and transparent communication. Additionally, it is essential to identify both early- and later-stage wins—publishing and celebrating these wins will help foster stakeholder buy-in and boost team morale.
Seeking Help from a Managed Service Provider
As organizations increasingly recognize the importance of evaluating the entire talent ecosystem—including full-time and contingent workers—VMS platforms and data analysis have become essential tools in modern workforce planning. These technologies empower HR and procurement teams to vet candidates more effectively, control labor costs, and discover high-quality talent at scale.
However, implementing these solutions and managing the required organizational changes can be complex, particularly given the numerous departments that interact with contingent labor. To overcome these challenges, companies often turn to Managed Service Providers (MSPs), which offer the expertise and structure necessary to streamline implementation, navigate change management, and assume overall responsibility for managing a best-in-class external labor program. By leveraging an MSP, organizations can tap into the domain expertise and experience of a firm with a broad reach, resulting in a safer and more efficient approach to optimizing their workforce strategy and achieving long-term talent goals.
