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SUPPLEMENTAL ARTICLE

Meet Changing Talent Demands

Author(s):

Deborah K. Beavin
Deborah K. Beavin is the chief procurement officer for Humana Inc. in Louisville, Kentucky.

May 2012, Inside Supply Management^® Vol. 23, No. 4

An organized supply management process with extensive analysis helps shed light on contingent labor cost details at Humana.

As Sanford I. Weill, the great financier and philanthropist, once said, "Details create the big picture." In early 2010, Humana completed its most recent contingent labor spend evaluation and, thanks to the experience, we learned firsthand the truth in Weill's observation.

Across Humana's non-IT and nonmilitary-related spend, we had historically embraced a managed service provider (MSP) model — a relationship in which one company is positioned to manage all contingent labor needs for the enterprise. In doing so, Humana elected to adopt a supplier-neutral approach, creating the opportunity for the MSP to fill positions with candidates from its own company and that of others. This, ideally, created a richer pool of possible resources.

In 2010, in response to growth in several segments of our business, we anticipated an increase in our contingent labor needs. Thus, we knew we needed to be proactive in creating the right supplier partnerships to ensure our changing needs would be met, especially because contingent labor needs can be cyclical or urgent in nature.

Fortunately, several elements worked in our favor when we decided to refine our contingent labor sourcing process to set the stage for future needs. At the time we began our spend evaluation, resource availability and pricing trends had created a buyer's market for many roles. Additionally, our internal business partners strongly supported this initiative and demonstrated a solid commitment to work collaboratively to improve our contingent labor demand management practices.

Six Steps to Achieving Effective Labor Sourcing

With strong stakeholder alignment and a dedicated team aligned to this effort, our six-step procurement process (see box below) was set in motion with three clear objectives: 1) identify and secure the most competitive pricing for market-specific roles with resource providers capable of responding to dramatic shifts in supply and demand, 2) create a structure and process to support a fluctuating demand with appropriate controls, and 3) implement vendor management systems (VMS), integrated with our procure-to-pay applications, to streamline and simplify the contingent labor management process.

Internal analysis. The six-step procurement process began with a thorough analysis of our historical spend, with the prior year as a baseline. After evaluating the data by role and supplier, we found that 72 percent of our contingent labor spend in 2009 had been managed directly through our MSP (tier-one supplier) with the remaining 28 percent of the spend flowing through 39 other contingent labor suppliers (tier-two suppliers managed by our MSP). Drilling down into the types of contingent labor services purchased, we found notable inconsistencies in job titles, job descriptions and mark-up rates. In preparation for the sourcing process, using historical spend data and additional business leader insight, we expanded the number of job titles from 24 to 39, introducing meaningful differentiation within the job descriptions for ease in finding qualified candidates.

External analysis. We next examined external market and industry trends, leading us to anticipate an overall increase in the need for healthcare and professional contingent labor. For contingent labor roles other than healthcare and professional workers, supply was expected to grow with a complementary softening in price. This called for exceptional partnerships with several strong sources for healthcare and professional resources and a thoughtful, competitive approach for all roles. When considering the factors influencing our success, we saw a need to drive greater transparency and granularity in the sourcing process — which became the third step in our six-step procurement process.

Sourcing process. We decided to evaluate the resource providers based on the elements of their proposed bills to identify the cost components of their balanced, competitive rates. To this end, bill rates were segmented into three parts: 1) fees paid to the contingent labor associate (the burden rate), 2) the selling, general and administrative (SG&A) cost for the resource provider, and 3) the resource provider's mark-up in price. This strategy provides greater transparency to the current market rate for a specific contingent labor role in a given market, while delivering a clearer view of the resource providers' operating costs and targeted margin.

To secure the best value (of which price was one element), Humana compared the MSP and the VMS offerings. Through a series of iterations in the sourcing process, the field narrowed for MSPs, resource providers and VMSs — transitioning from eight MSPs to one, 42 resource providers to 26 primary (tier-one) resource providers and 15 secondary (tier-two) resource providers, and nine VMSs to one.

Negotiations and contracts. During the negotiations and contracting process, we finalized bill rates for job titles by location and confirmed tier-one and -two designations, ensuring appropriate diversity inclusion, among other considerations. Clear service level agreements (SLAs) were also established to drive the desired quality across all the participants in this process — MSP, resource providers and VMS source.

Implementation. As the implementation process began, it required a great deal of coordination and strong project management. We had to establish the relationships between the resource providers and the MSP, part of which was helping the resource providers understand the expectations of their relationships with Humana, and overseeing the implementation and integration of our VMS and procure-to-pay applications. Our team's ability to identify and enact the ideal levels of ownership and accountability during the implementation phase was key to our success.

Category management. With the supplier partners, tools and processes in place, an oversight and assessment of the ongoing relationship is performed on a quarterly basis as part of the category management practice. Given the nature of the services being provided, the working relationship among the key stakeholders requires an almost daily connection. The formal reviews allow us to take time to more formally assess performance to service level expectations, volume and spend trends, as well as consider new opportunities to further maximize value.

Managing Demand and Unbundling the Elements of Price

One crucial driver in this effort was the ability to effectively manage demand. The elements of demand were identified by determining staffing needs through forecasting and stakeholder collaboration and communication, developing the request for the contingent labor associate, requesting responses to the identified need, selecting and onboarding the candidate and managing the relationship with the resource provider (including the payment process). As shown in the box below detailing our demand management process, the internal stakeholder team reviewed the process flow and identified specific action to move closer to the ideal.

As in most key projects, communication was absolutely vital to "giving legs" to this effort. This was true for all the supplier partners — the MSP, all resource providers and the VMS source — as well as any parties influencing or influenced by this process. Contingent labor associates, managers in need of contingent labor, and those engaged in supporting the process all needed to be engaged and informed. Today, communication remains essential to reinforce processes and expectations, while allowing all parties to assess progress and course-correct as necessary.

Humana learned a great deal during this process. As we adopted our six-step procurement process, having a methodology to drive the desired discipline, rigor and flexibility to meet the changing needs of the business was an important factor in bringing everything to fruition. Some of the major factors that contribute to our successful ongoing management of contingent spend include:

• Our detailed spend baseline enables clear understanding of Humana's spend by supplier and job title.
  
  
• Specification rationalization led to an increase in specifications and details regarding job titles and descriptions.
  
  
• Unbundled pricing enables price evaluation based on the elements of cost, to drive the greatest value with the best-fit resource providers.
  
  
• Multiple rounds of competitive assessments makes rate compression possible.
  
  
• Our continued dedication to demand management focuses on process, technology and policy to improve contingent labor management and desired oversight.

In retrospect, there are a few things we would have done differently — for instance, reducing the complexity of the competitive evaluation for the resource providers by having a single supplier mark-up as opposed to separate SG&A and supplier mark-up percentages. Also, we would begin the five demand management practices earlier in the process to allow even greater time for review and associate engagement.

Unbundling the elements of price made a tremendous impact, not only for the bottom-line cost but also for the insight gained through this view. This was a "peel the onion" experience. As we peeled off each layer (in other words, uncovered all needs and price elements), we continued to refine the roles and drive the level of detail necessary to understand the bundle. Ensuring we have knowledge of contingent labor associates' rates helps determine potential assignment retention in light of the market.

If the rate paid to the temp labor associate is not competitive, there is a much greater chance of attrition. We want competitive pricing for Humana (for example, rate to associate plus mark-up) and the temp labor associate to achieve stability and market equitability. The mark-up and SG&A cost provide insight into the efficiency and effectiveness of each of the resource providers.

Thanks to this six-step process, we've developed a meaningful contingent labor management process capable of meeting the ongoing needs of the enterprise, while fostering the necessary supplier partnerships to bring the process to life. The level of granularity in the detail we sought was the game changer for this experience and something certainly worth repeating. We are no longer trying to see the future through a murky, undefined view. Having access to the crucial details is providing much-needed light for the path ahead.

For more information, send an e-mail to author@ism.ws.

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