Direct Sourcing: The Next Big Thing?

looking aheadIt seems like a no-brainer. Your company uses a large number of contingents. You are continually sourcing for the same skills, the same locations, and have a talent management strategy that says certain roles will always be sourced by contingent workers for flexibility and cost savings. Why not tap into the pool of people you have already worked with to fill new roles as they arise?

In addition, the much talked-about “gig economy” has been facilitated by the rapid growth of freelancer management sites. These allow independent contractors and their potential clients can find each other without benefit of staffing company in the middle.

So, who needs staffing suppliers?

Some clients are asking themselves just that question. VMS and MSP programs have become well established in virtually all companies with significant contingent labor usage, so the early benefits of rate card standardization, vendor optimization, and other cost savings measures have already been tapped. Clients are looking deeper for greater opportunities to optimize their contingent workforce and push for even greater savings. Enter “Direct Source” solutions. These solutions promise to tap into a client’s pool of previously-engaged workers to identify people who have an established track record at the company – and do it at a reduced markup. These solutions may combine this labor pool with the freelancer sites, referrals, applicants for full-time roles, and other sources of candidates to maximize flow for the client’s roles. Acting as payroll provider, the direct source solution then can offer the candidates at a lower markup than staffing suppliers who utilize more high-touch, labor-intensive methods of sourcing and screening talent in the open market.

Is there a catch? Well, yes. From the MSP perspective, I can see a few potential hurdles to this model, such as:

  • Tenure limits. Many programs will “max out” a good contingent worker once found, moving them from project to project and role to role as long as the policy allows. By the time the worker is eligible to return, there’s a good chance they are on another project – or have moved on to a full-time role.
  • Recruiting requirements. Whatever the source of candidate profiles, in order to fill most roles there’s no substitute for human interaction to determine fit for the particular role, availability, rate match, and other factors. The direct source provider still needs to pay staff to accomplish this, limiting the cost savings possible.
  • Supplier buy-in. The Direct Source model depends on a continuous flow of new contingents to form a database that will later be mined for future direct placements. Those contingents will come from traditional staffing vendors. The risk is that these vendors could fear that their opportunity to maximize their investment in search, screening, and relationship-building with their own workers will be undermined if they lose the opportunity to re-market their best people. The best suppliers may become less committed to clients that go this route.

In summary, improved technology and client demand for greater efficiencies in procurement of contingent labor will drive more interest in solutions like Direct Sourcing. Managers do a certain amount of self-sourcing in most MSP programs now, providing clients with a valuable low-cost channel for bringing in contingent labor. Direct sourcing may evolve into a viable complement to the current mix of staffing vendors and self-sourcing. However, as with any new solution, unanticipated consequences and difficulty of execution may result in the solution falling short of its initial rosy promise. Clients are advised to proceed with eyes wide open.

Interested? To hear more about this topic and other trends in the Contingent Workforce landscape, please come to “Transforming the Contingent Workforce Ecosystem Into a Competitive Advantage,” hosted by PrideOne in New York City on July 13.

Kate Goss

Kate Goss
Kate Goss is a managing director of PrideOne, the managed service provider division of Pride Global.

Kate Goss

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