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Is The Procurement Function Prepared To Mitigate Contingent Workforce Risk?.

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In this guest post, Procurement Leaders invites Ernst & Young's Niul Burton to share his perspective on Contingent Workforce Management (CWM) risk and what procurement can do to tackle it. 

In response to the struggle to find resources to meet the increasingly complex global business environment, more companies are embracing the “contingent workforce” model through the use of various strategies, including staff augmentation, project-based work and outsourcing models. It is estimated that one in every four workers is employed on a contingent basis. A recent Ardent Partners study indicates that US$3.3 trillion is spent on external labour annually. Many procurement teams now manage contingent and outsourced labour programs. It is imperative that the procurement function understand and assess the inherent risks of this population when considering these telling trends.

Risk Classification

The inherent risks involved with managing a contingent workforce can be broadly segmented into four categories. These categories illustrate a range of supplier risks that may have a detrimental impact on performance due to a failure to adequately manage a contingent labour workforce.

Operational Risk

Failure to adequately manage a contingent workforce can directly impact the continuity of business operations in multiple ways, including delays in production due to staffing shortages, the loss of retained knowledge and an inability to control quality.

Financial Risk

Failure to adequately manage a contingent workforce can produce significant commercial risk through penalties/fines, as well as cost inefficiencies associated with onboarding/off-boarding a highly fluid workforce, unfavorable contractual terms and a lack of buying-channel optimisation.

Compliance Risk

Failure to manage a contingent workforce can lead to significant regulatory and sustainability risks. Affordable Care Act failures in the US can cost as much as $2,000 per incident, multiplied by every full-time employee within the business. Various Department of Labor rules may subject the company to overtime, leave and retirement plan obligations. Certain regional jurisdictions require contingent workers to receive the same pay and benefits as full-time employees after a certain length of service. These jurisdictions may also impose significant taxes or limitations on the use of non-naturalised employees.

Information Risk

Failure to adequately manage a contingent workforce can lead to confidential data risks and negative company exposure. Today, we live in a world of constant security breaches, as well as intellectual property and private information theft. Each of these events can damage a brand.

Procurement's Response

To manage these risk categories, procurement is frequently required to define the risk universe, assess the potential impacts and address the risk scenarios. It has the opportunity to monitor the contingent workforce population and influence risk mitigation strategies. These performance-improving responses can increase control of a company's labour supply risk segmentation:

  • Develop a cross-functionally integrated and centralised process for managing a company's contingent workforce.
  • Define, build and agree upon contract language, policies and service-level agreements (SLAs) necessary to monitor and govern company relationships with third-party workers.
  • Implement an enterprise-wide operating model with a specific focus on oversight and governance to facilitate enhanced management of suppliers and spend, buying-channel optimisation and interdependencies between other business functions. A vendor management system (VMS) would enable an organisation to rapidly make informed decisions and perform risk-management activities within the operating model.
  • Incorporate a managed services provider (MSP) and outsource labour procurement management to a specialty company — and thus provide an insulating layer of protection from co-employment issues and operational performance management.

Simply put, forewarned is forearmed. By being aware of contingent labour's risk exposure and the associated cost of risk, the procurement organisation can be ready to respond when called upon to evaluate external workforce needs and requirements.

Niul Burton is principal for Ernst & Young. 

This contributed article has been written by a guest writer at the invitation of Procurement Leaders. Procurement Leaders received no payment directly connected with the publishing of this content.


Niul Burton
Posted by Niul Burton

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