1. The Fundamentals of
Managed Service Provider
(MSP) Programs
Part 2: Sourcing Models
kellyservices.com
Part 2 of 3
2. Introduction / 3
01 Is it a Sourcing Model, or an MSP? / 4
Master Vendor Sourcing Model / 5
Primary Supplier Sourcing Model / 6
Structured Tiers Sourcing Model / 6
Vendor Neutral (Open Bidding) Sourcing Model / 7
02 Hybrid MSP – the Strategic Sourcing Model / 8
Conclusion / 11
About the Author / 12
Table of Contents
2
3. 3
Introduction
This is the second of a three-part series designed to outline key components of a Managed Service
Provider (MSP) program. The papers will collectively discuss how companies today are deploying
an MSP program to help transform their human capital investment.
Two of the major stakeholders most often engaged in this strategy are Procurement and Human
Resources—Aberdeen®
research indicates that when these two groups work together effectively, an
MSP delivers significantly higher cost savings than MSPs without this vital collaboration between
HR and Procurement1
.
The approach taken in this series will be to address common questions about MSP programs, and
to provide a framework that allows for informed decision making. Regrettably, the complexity of
available solutions, confusing messages from the marketplace, and an array of strange acronyms
can make this process exceedingly difficult for organizations just beginning this journey.
As such, each of these papers will incorporate perspectives from the staffing and workforce
solutions outsourcing industry as related topics are presented and discussed. Numerous references
throughout each paper are attributed to three well-respected sources: Staffing Industry Analysts®
(staffingindustry.com), Forrester Research®
(forrester.com), and Aberdeen (aberdeen.com).
The series will explore three key areas:
• Part 1 – Explains what an MSP can do for your company—and why it’s important
• Part 2 – Demonstrates how your sourcing model can integrate with MSP strategy
• Part 3 – Articulates the business case for MSP and helps to determine your readiness
The following covers the second of those three areas – Sourcing Models. Be sure to read parts
one and three for additional observations on achieving effective talent management through MSP
solutions.
One final caveat
This information should prove valuable to procurement and human resources personnel as they
plan and prepare for the future. However, it also presents real value to stakeholders, whose
operations may be impacted by the MSP program and leadership from many other areas,
including finance, IT, or operational functions that may ask:
“What strategies can we deploy to manage the cost, technical competency, and risk inherent in
utilizing external labor?”
1
Aberdeen Group, Contract Labor Management – January 2009, page 17
4. 4
While there is no firm rule, generally speaking, the use of sole-sourcing bidding models
decreases with the use of higher-skill positions.
Is it a Sourcing Model, or an MSP?
01
5. This section will describe the four most common sourcing models that companies use to procure
external labor:
| Master Vendor (sole-sourcing)
| Primary Supplier
| Structured Tiers
| Vendor Neutral (Open Bidding)
According to industry data, most companies have more than one sourcing model in place, taking
a hybrid approach2
. This is discussed further on page nine. While there is no firm rule, generally
speaking, the use of sole-sourcing bidding models decreases with the use of higher-skill positions3
.
The definitions for each model, as described by Staffing Industry Analysts (SIA)4
, are provided in
call-out boxes on each page for your reference. This information will be used to demonstrate how
these sourcing models can be integrated to form a holistic MSP strategy. The most critical value of
this section is to show how an MSP can execute multiple sourcing models to deliver results.
Master Vendor Sourcing Model
Also termed sole-source, the contingent labor Master Vendor
program has been around for decades. It is frequently
utilized to procure Industrial (30 percent) and Administrative
skill categories (24 percent)5
. This is a sole-source model in
which the Master Vendor fills all orders, subcontracting only
those orders they cannot fill by using their own network of
preapproved suppliers.
Pros
The sole-source approach works best when skill sets are
readily available in the market, since the supplier is expected
to fill most orders with little subcontracting. It enables vendor
consolidation and increases visibility, while providing for
additional supplier resources (on-site, change management,
program improvement), standardized workflow processes, and
simplified problem resolution.
Cons
This model seldom works when sourcing for highly skilled
positions, due to scarce resources in the market coupled with limited use of subcontractors.
Subcontracting, which is often found in this model, is illegal in some countries.
SIA DEFINITION OF
MASTER VENDOR:
Contingent Worker
recruiting opportunities
serviced by a single Master
Vendor that in turn may
subcontract some jobs.
5
Is it a Sourcing Model, or an MSP?
01
2
Staffing Industry Analysts, Contingent Workforce Sourcing Model Benchmarks 2007, pg iv
3
ibid, pg 13
4
ibid, pg 1
5
ibid, pg 13
Client’s Administrative
Industrial positions
Master
Tier II
• Easiest to fill
• Pay/markup structure
• High volume
6. Primary Supplier Sourcing Model
The Primary Supplier sourcing model is widely adopted to staff
a range of skills—the top two being Healthcare (47 percent)
and Office/Clerical (45 percent)6
. The model is similar to Master
Vendor, but is not sole-source. In this case, several primary
suppliers are utilized, each with their own set of subcontractors.
Pros
Similar to Master Vendor, this approach delivers pricing discounts
and additional supplier resources. It also delivers the added
benefit of providing clients with direct access to more suppliers—
thus increasing their ability to source highly skilled positions.
Cons
The Primary Supplier sourcing model can increase a company’s
administrative costs because they must directly engage with more
suppliers—in what can be a highly transactional environment.
This may mean multiple ordering tools, on-boarding rules,
invoicing streams and supplier reports. In addition the client
takes on more responsibilities for change management, program
improvement, process design, and problem resolution. Finally,
there is often little to no visibility to subcontractors and their
compliance to program requirements.
Structured Tiers Sourcing Model
Structured Tiers are also used to source highly skilled contingent
labor, though most predominately for Finance (38 percent) and
IT (36 percent)7
. This model is similar to a Primary Supplier,
except the client directly engages with the Tier II network. The
shift from Master through Primary to Structured Tier sourcing
models reflects a correlation between the difficulty in filling
positions, and the need to directly manage the supply base to
ensure that talent is found.
Pros
Direct engagement with the recruitment providers can improve
hiring metrics.
Cons
Unfortunately, this model can often reduce access to supplier-
funded resources, at the same time the client is taking on more
administrative responsibilities, because of an increased number
of suppliers.
SIA DEFINITION OF
primary supplier:
Contingent Worker
recruiting opportunities
distributed to a select
handful of staffing
agencies, which in turn may
subcontract some jobs.
SIA DEFINITION OF
structured tiers:
Contingent Worker
recruiting opportunities
are distributed to specific
groups of staffing agencies
in a formalized order.
6
Is it a Sourcing Model, or an MSP?
01
6
Staffing Industry Analysts, Contingent Workforce Sourcing Model Benchmarks 2007, pg 13
7
ibid, pg 13
Wide range of
client’s positions
Primaries
Tier II
• Less easy to fill
• Pay/markup structure
• High volume
Client’s Finance
IT positions
Tiers
Tier II
• Harder to fill
• Pay/markup structure
• Moderate volume
7. Vendor Neutral (Open Bidding) Sourcing Model
From a contingent labor perspective, this sourcing model gained acceptance in the mid-1990s
when IT resources were scarce and companies where having difficulty finding resources at
a reasonable market price. Enterprise procurement tools lacked focus on the acquisition of
contingent labor, leaving a technology gap in the marketplace.
During the late 1990s, a few VMS firms entered the marketplace. Their technology automated the
Open-Bid sourcing model, and gave companies a way to efficiently engage with many staffing
agencies. While several staffing firms at that time offered an MSP solution, the VMS firms took
this open-bid model further, positioning themselves as independent from staffing agencies, and
commercialized the Vendor Neutral concept.
Pros
This model is frequently and quite effectively used to source Healthcare (37 percent), Technical/
Engineering (35 percent), and IT (29 percent) positions8
.
Cons
This model may not work well for some highly transactional skill
sets. Hiring managers may wish to work directly with suppliers
and circumvent the program. While there was some initial
reluctance to this model—for fear that staffing suppliers would
withhold their best candidates, that is no longer a concern and it
is important to note that in the United States this model is now
widely accepted and common place.
On Vendor Neutrality
Over the past few years the term MSP has gained acceptance
as a strategy to manage external labor, separating the client-
facing service from VMS tool functionality. In a recent SIA survey
three of America’s largest staffing providers, including Kelly®
,
indicated they each have at least $1B spend under management
in vendor-neutral programs9
. In fact, nine of the top 10 vendor-
neutral MSP providers are either owned by a staffing firm or
the subsidiary of a staffing firm—thus validating that staffing
firms can be vendor-neutral.
SIA DEFINITION OF
open bidding:
Staffing agencies bid on
individual contingent
worker opportunities
based upon quality, price,
and availability. Often
implemented via a reverse
auction process.
SIA DEFINITION OF
MSP:
MSP is a company that takes
on primary responsibility for
managing an organization’s
contingent labor program.
An MSP may or may not be
independent of a staffing
supplier. Typical responsibilities
include overall management,
reporting and tracking, supplier
selection and management,
order distribution, and
consolidated billing.
7
Is it a Sourcing Model, or an MSP?
01
8
Staffing Industry Analysts, Contingent Workforce Sourcing Model Benchmarks 2007, pg 13
9
SIA 2010 VMS and MSP Supplier Competitive Landscape Report Summary, pg 24
Client’s Professional
Technical positions
VMS Companies
Open Bidding
Tier II
• Hardest to fill
• Bill rate structure
• Low volume
8. 8
Hybrid MSP – the Strategic Sourcing Model
02
Typically a hybrid program would include elements of vendor-neutral and Master Vendor
programs. This integrated sourcing model approach elevates the MSP to a more
strategic level.
9. The graphic below illustrates one perspective of a Hybrid MSP, which is the blending of different
sourcing model attributes to manage the complete contingent workforce spectrum. Typically a
hybrid program includes elements of vendor-neutral and Master Vendor programs10
.
This is especially important due to the fact, as noted earlier on page five, most organizations use
more than one sourcing model. This strategy enables the program(s) to manage the entire spectrum
of contingent allowing procurement and HR to remove themselves from transaction management
and elevate their role to strategic oversight. They can outsource program accountability to the MSP,
and turn their attention to HR and Procurement transformational initiatives. The ability to integrate
multiple sourcing models into one efficient model and simultaneously shift their focus to oversight is
a key reason many companies have elevated their MSP to a more strategic level.
9
Hybrid MSP – the Strategic Sourcing Model
02
10
SIA 2010 VMS and MSP Supplier Competitive Landscape Report Summary, pg 4
• Easiest to fill
• Pay/markup structure
• High volume
• Less easy to fill
• Pay/markup structure
• Moderate volume
• Harder to fill
• Bill rate structure
• Low volume
• Hardest to fill
• Bill rate structure
• Low volume
D
Tier II
C
Master
Tier II
Primaries
Tier II
Tiers
Tier II
Open Bidding
B
A
External Labor Strategy
Wide range of
client’s positions
Client’s Administrative
Industrial positions
Client’s Finance
IT positions
Client’s IT Project
Services Spend
VMS Technology
Outsource Contingent Labor MSP
10. An explanation of components A, B, C, and D from the graphic on page nine are provided below:
A The client’s contingent labor strategy is developed by conducting a thorough assessment
of their skill needs—either for a site, a division, a country, or globally. More detail on this
process is provided in Part 3 of this series. Many companies now include broader workforce
classifications such as IT project work, retiree populations, and consulting firms, among others.
B Next, and often concurrently, the client explores their VMS and MSP options, as these
decisions often go hand-in-hand. For technology, they look at VMS tool features, financial
viability, development roadmap, integration costs, client references, and MSP flexibility—or
the ability to change MSPs, but keep the VMS tool. Forrester Research has an excellent article
exploring this and related topics that organizations may wish to consider11
. At the same time,
and because some VMS tool companies also provide MSP services, companies explore their
MSP options. They consider the MSP’s supplier management resources, financial viability,
global infrastructure, program staff expertise and VMS flexibility—or the ability to change
VMS tools, but keep the MSP.
C Next they assess their sourcing models to procure the skills, often working closely with the
MSP to determine the best model. Sometimes the MSP will make the decision on which
suppliers to utilize.
D Lastly, recruitment characteristics are continuously evaluated for changing market conditions,
which can influence modifications needed to the sourcing models.
recruitment
characteristics are
continuously evaluated for
changing market conditions,
which can influence
modifications needed to the
sourcing models.
10
Hybrid MSP – the Strategic Sourcing Model
02
11
Forrester Research, Simplifying Staff Augmentation with CWM Solutions, 20 March 2009
11. 11
Conclusion
In summary, some key points with regard to MSP sourcing models include:
1. Most organizations utilize more than one sourcing model to find talent. An MSP strategy
provides an integrated approach to bring all sourcing models under one common platform
and management structure.
2. Creating a Hybrid MSP Strategic Sourcing Model means HR and Procurement remove
themselves from transaction management and shift their attention to HR and Procurement
transformation initiatives.
3. The Master Vendor sourcing model is commonly used for administrative and industrial skills.
It’s efficient and effective for this purpose, but it usually fails when used to source more
complex skills. In addition, it may not be scalable due to country legislative limitations.
4. The Primary Supplier sourcing model is the most commonly used, with nearly 40 percent of
companies saying they have one in place to acquire certain skills. But while it provides more
direct access to a broader range of suppliers, it carries higher administrative costs, as well as
reduced visibility and supplier resources.
5. A Structured Tiers model is most often used to source Finance and IT talent. Like Primary
Supplier, it enables direct relationships with an even wider range of suppliers. But it carries an
even higher administrative cost, with few supplier resources and further reduced visibility.
6. Vendor Neutral/Open Bidding is a sourcing model that became widely adopted when VMS
firms entered the market in the 1990s. It is most frequently used to source Healthcare,
Engineering, and IT talent. Be careful not to confuse this sourcing model with the much
broader capabilities of a VMS tool, to integrate and automate many sourcing models in one
MSP program.
7. As the industry has matured most have come to recognize that MSP service can be provided
by both technology AND staffing firms—without jeopardizing neutrality. In fact, some of the
largest MSPs are staffing firms.
8. The Hybrid MSP enables organizations to outsource their program to an MSP who can design
multiple sourcing models into one program strategy. This enables firms to procure a wide
range of skills sets, using a range of sourcing models.
12. 12
About the Author
Tim Meehan, Vice President, Global Solutions and Services
Tim Meehan is vice president, global solutions and services at Kelly Services®
, a leading workforce
solutions provider. He currently leads a team of people that consult with Americas-based
firms interested in enhancing their contingent labor workforce strategy. Mr. Meehan recently
returned from assignment in Asia where he held a similar capacity, working with Kelly®
clients
headquartered in APAC to develop their workforce strategies. Prior to that, he led a regional sales
team tasked with developing new client relationships in the southeastern United States.
Mr. Meehan joined Kelly in 2002 with nearly 10 years of staffing industry experience. During his
time with Kelly he has deployed innovative workforce models to Fortune 100®
firms, many in
the banking, finance, transportation, and automotive industries. Prior to his work in the staffing
industry he held significant leadership roles within the printing industry.
Mr. Meehan was born in New Jersey and earned a Bachelor’s degree in Political Science from
Seton Hall University. Upon graduation he moved to California and earned a Master’s degree in
Business Administration from the University of Southern California. Mr. Meehan moved to Dallas
in the early 1990s and, along with his wife and two grown daughters, calls Texas home today.
