What Are the Top Cost Saving Benefits of an MSP? 

In today’s highly volatile contingent workforce and staffing augmentation market, controlling cost from supplier sourcing and contingent resources is a paramount concern for many organizations navigating within the current economy.  A seasoned Managed Services Provider (MSP) is a great solution for companies to outsource this process and create more visibility within this space. 

Before Jumping into Cost Saving Specifics - What is an MSP? 

A Managed Services Provider or MSP is an organization that your company partners with to help oversee and manage all aspects of your contingent workforce program.  The levels of involvement may vary depending on a company’s overall program needs, but generally the MSP will be able to scale services as needed to cover all types of classifications and streamline workflows of your contingent workforce processes.  The MSP is essentially a funnel that all your contingent workforce needs, communications, and processes flow through – whether that be with suppliers, vendors, and any staff augmentation companies providing your organization the resources and services – to make sure there is consistency, cost savings, and visibility within the program. 

Based on the above model, there are multiple areas an MSP can create instant impact and cost savings for your organization. 

One key element to controlling cost when utilizing an MSP is to have the program be structured in a Supplier Funded model.  This means that the MSP’s fee (which will be a percentage fee on all invoiced items through the consolidated invoicing processes provided by your MSP) is taken from the remittance to your suppliers.  In simple terms, the presence of an MSP shouldn’t increase your supplier spend or result in additional cost to your organization.  The suppliers are essentially held at current cost initially to your organization and are covering the MSP’s fee through a slight reduction in the payments they ultimately receive from invoicing. 

The following breakdown will show you an example of how this works: 

Supplier Worker (40 hr x 100.00/hr bill rate) = $4,000 invoice total for that week’s hours 

MSP Fee: 3% 

End client Billed: $4,000 (consolidated through the MSP’s invoicing workflows) 

End Client pays: $4,000 to MSP 

MSP Remits to Supplier: $3880.00 

As previously mentioned, the key benefit to the Supplier Funded model is that you as the end client shouldn’t be impacted from a cost perspective by the existence or implementation of as MSP for supplier sourcing oversight. 

Controlling Supplier Bill Rates and Mark-Ups 

One of the most impactful ways that an MSP can control overall contingent workforce spend within a client’s program is to institute hard cost control guidelines for all supplier sourcing.  There are a variety of ways that this can be accomplished.  Below is a listing of a few of the most common cost controls that TCWGlobal uses within our MSP programs, but it is important to note that there is no one size fits all solution.  Your MSP should be highly flexible in this area to determine what makes the most sense for your program given all the variables to consider (change management, adoption, desired goals, stakeholder impact, supplier impact, etc.): 

• Bill Rate Caps: theses serve as hard ceilings on what bill rates cannot to be exceeded 

• Standardized Mark-Up caps: By standardizing Mark-up caps this sets limits on what the suppliers within the program can charge, but leaves flexibility as to the rate that can be paid to the contingent resource 

• Vertical Mark-Up Caps w/ Bill Rate Caps: these involve a hybrid approach with two caps controlling cost and ideally driving suppliers to either pay workers at higher rates with lower margin or control margin lowering client spend impacts 

• Standardized Rate Cards: this will result in set costs for known roles within the program 

• Tiering Mark-up Reductions:  preferred partners have set rate reductions in turn for advanced release on requisitions within the program 

Supplier Optimization 

Once the proper pricing structure has been implemented, its on the MSP to properly conduct analysis of the supplier pool working within your organization’s program to ensure you have the best possible suppliers operating with it and providing the talent needed to fill your contingent workforce needs.  The MSP should be utilizing the preferred pricing model established with your organization to hold suppliers accountable to pressing the desired cost savings.  This should be coupled with assessments of placement performance on metrics such as submission rates, interview to hire ratios, average cost/mark-ups, etc. to best determine the suppliers that are top performers.  Additionally, these metrics should be used to help drive the competitive bid processes within the program which will result in suppliers competing against one another to drive down cost and provide the best candidates they can source for open requisitions at your organization.  This is an ongoing process for the MSP over the duration of the program’s growth but is a critical pillar of the partnership between the MSP and client when it comes to effectively managing the contingent workforce program. 

Additional Cost Saving Measures 

There are a variety of additional cost saving measures that can be put in place to help drive down supplier sourcing costs for your organization, but they should be discussed with your MSP to best identify those that fit your program.  These should be customized to your organization’s overall goals for the program as some may be more impactful than others.  Below is a small sampling of some standard items to consider: 

• Tenure Discounts- a set mark-up or bill rate reduction is contractually outlined that come into play at a set duration on engagement 

• Overtime/Double Time Rate Reductions- the multiplier for overtime or double time is adjusted to make these premium hours less impactful cost wise. 

• Payrolling Transitions- upon a given timeframe supplier workers can be transitioned to a preferred payrolling partner at a significant rate reduction 

• Standardized Conversion Terms- set and reduced conversion terms both from a rate and engagement duration standpoint to improve your ability to hire sourced talent directly from your contingent workforce in a cost-effective manner.  

As noted, these are just a sampling of options, but your MSP should be as flexible as needed to help build out strategies and cost savings measures within the program.  Often these may be phased in to the program over an extended period of time to help support the program’s growth while continuing to advance cost saving measures. 

 Soft Cost Saving Measures 

One of the biggest impacts comes in harder to define areas of your business around cost avoidance, increased efficiencies, and elimination of redundancies in oversight. 

• Cost Avoidance- this can be a somewhat abstract term but the ability for your MSP to provide solid market rates from a stellar supplier pool helps to drive down overall cost impacts.  Additionally, strong constraints about the types of worker classifications and services provided around classifications like Independent Contractors is paramount to preventing unwanted costs to your organization. 

• Increased Efficiencies- As an MSP becomes better aware of your organization’s desired contingent workforce program needs and goals, the workflows and system solutions provided to your organization should help to streamline and maximize the use of contingent labor.  These items have a cost savings impact in general time and resource allocation within your organization in the contingent workforce space. 

• Elimination of Redundancy- the MSP should be your outsourced partner in managing all aspects of your contingent workforce.  This can allow you to establish solid delineated roles for the MSP and for your internal teams dealing with contingent workforce management.  This can lead to eliminating redundant processes and roles/responsibilities, freeing up your team members and end users to be as productive as possible by taking the contingent workforce issues or concerns totally off they’re plate.    

Throughout this article, we’ve covered aspects of cost savings that an MSP can provide your organization.  However, as previously mentioned, there is no one size fits all answer to your specific MSP goals and needs.  You want to make sure you are partnering with a seasoned MSP that can customize services and offerings to be most impactful and beneficial to you.  If you have any questions about how TCWGlobal’s MSP team can step in and help you optimize your Contingent Workforce Program - reach out to us and set up a call for more information and next steps!