Looking out: How external workforces are reducing risks and costs for firms

Companies are having to contend with a tight labour market. This problem is more acute in regional areas and among smaller companies. Finding the right people for the right role now requires more than just placing a job ad online and waiting for an influx of applications.

Instead, businesses are being forced to get a little more creative and flexible in their recruitment efforts, with many turning to the external workforce to help fill the skills gap.

Why is external workforce the most logical move?

An Economist Impact report, by SAP carried out between January and February 2022 indicated that nearly two-thirds of chief supply chain officers are focused on hiring external workers. But what does this approach mean for procurement and the rest of the company?

Insourcing versus outsourcing

By increasing reliance on services procurement and contingent labour, companies can realise critical benefits. Compared with full-time employees, external workforces incur fewer costly overheads, allowing companies the flexibility to scale their workforce as needed or scout for specific expertise that they may not wish to hire full-time, or be challenging to source.

Organisations can also effectively build flexibility in their budgets and capacity, and plan for contingencies as their dependence on the external workforce grows. For instance, there is the opportunity to scale up or down depending on the necessary number of staff required for a project, while avoiding the high costs of retrenching employees in the future.

In some industries, especially highly regulated ones, outsourcing certain tasks to a third-party provider enables organisations to pass risks on to an entity better equipped to handle them.

With greater flexibility comes responsibility

HR and procurement must collaborate closely on processes like identifying labour needs, sourcing talent, securing services, negotiating contracts, and monitoring performance as businesses increasingly rely on the external workforce. It’s also vital for procurement to understand how to balance the skills required and the budget to hire external workers.

In addition to weighing up the costs, procurement must also be mindful of potential risks companies are exposed to when relying on an external workforce. These issues can range from digital security breaches and overcharges to missed milestones and lack of continuity.

Companies will need to boost external workforce transparency, streamline hiring and recruitment, enhance insight, and strengthen flexibility to overcome these challenges.

Leveraging technology to address the talent shortage

As the procurement function finds itself increasingly involved in strategic, value-add type work, there is a growing role for technology, such as AI and automation, to fulfill more of the process-related elements of procurement. Fortunately, there is also technology available that has the potential to enhance procurement with a self-service model where business stakeholders can quickly procure services without involvement from the procurement team.

Transport and Main Roads (TMR), a procurement agency in the Queensland govt and a 2022 SAP Best Run Award finalist, is an example of one firm that is leveraging such systems to alleviate the complexity and improve the efficiency of its former procurement process.

TMR mapped a number of its business processes and found it could shorten discrete process steps. Through the implementation of SAP to deliver a Source-to-Pay system, the admin burden for TMR suppliers was reduced and on-time payment performance improved.

Tech can also be the way forward of opening better avenues for communication between in-house and outsourced workers and improving the visibility of the external workforce for maximised value. Vendor management systems (VMS), for instance, help organisations find and manage external workers such as independent contractors, freelancers and service providers of different kinds, providing greater visibility into the external workforce.

The demand for an external workforce will continue to grow, particularly as supply chain scrutiny continues to intensify. Tech, however, is offering relief to firms that are favouring this option and will help build supply chain resiliency. As firms change, procurement must too.

Chris Willcocks is the Vice President & Head, intelligent spend management at SAP Australia and New Zealand.