Human Supply Chain: How to manage it

By Anna Maria Virzi  |  Posted 04-05-2007

Human Supply Chain: How to manage it

Every business day, between 150 and 300 independent contractors work at financial services firm CUNA Mutual Group as software programmers, help-desk assistants, business analysts, project managers and other roles.

Until 2005, titles, responsibilities and pay rates for these workers—negotiated by each hiring manager with an assortment of sourcing and staffing firms—had varied widely from department to department at CUNA Mutual, which underwrites and administers insurance and other products for credit unions, says David Nelson, the company's director of sourcing. As a result, the firm was not getting the best rates for the best talent.

"We were [an example of] how not to do sourcing," Nelson concedes. "We were not managing demand. We did not negotiate our best deals. We did not have visibility into what we were buying. And we did not really have performance management."

So, two years ago, CUNA Mutual scrapped its ad hoc contract-worker hiring practices and deployed services management software from IQNavigator of Denver. Services management software is a narrow product category that falls under the larger umbrella of spend and procurement management. The annual market for such software is about $2 billion and is projected to grow by about 15% a year, says Ben Pring, a research vice president at consultancy Gartner.

In addition to cutting costs, companies using services management software say that it helps ensure compliance with labor and tax laws, establishes a method to measure each contract worker's performance, and automates payment of the workers, according to Kieran Brady, senior vice president of international markets for IQNavigator. The company sells its services management software as a hosted service.

Performance Review

Performance Review

Before Nelson and his team even looked at software, however, they worked with hiring managers to perform an "early discovery," or in-depth review of how the company scouted out, screened and retained contract workers. As a result of this exercise, the sourcing team, hiring managers and others realized that there was an opportunity to more efficiently hire, manage and pay contract workers.

Some of the team's findings from the review included:

  • The company had maintained limited—and piecemeal—information about contract workers. An information-technology manager, in one instance, collected names of workers and hiring managers and maintained them in an Excel file that had to be manually updated and was not easily shared, according to Nelson. It did not include, for example, billing rates or hours worked in a single repository.

  • Salesmen and women from sourcing firms would "troll" CUNA Mutual's hallways, trying to get preferred status or place people in jobs. In effect, the sourcing firms were managing the process instead of CUNA Mutual managers.

  • Performance of workers and sourcing firms was not measured or shared among CUNA Mutual managers, either. So, if one worker failed to meet a manager's expectations, that worker could end up in another department with no history of his track record readily available.

After the review, CUNA Mutual's sourcing team, hiring managers, and information-technology and human-resources staff in early 2005 developed requirements and standard job descriptions for contractors, such as a Java programmer or business analyst. They then used Ariba's QuickSource spend management software to set up a reverse auction, inviting sourcing firms to submit their billing rates for work, based on job descriptions. After bidding, CUNA did due diligence on the sourcing firms, examining each one's processes, technology, background, and the skills and experience of workers available, according to Nelson. Some firms were given "Tier 1" or preferred status, meaning that CUNA Mutual's sourcing team would give those firms first crack at submitting candidates for openings. Others received "Tier 2" status, meaning they would get a shot at filling positions if Tier 1 providers did not come through with a qualified or suitable candidate.

A review of the bids turned up an interesting pattern: Sourcing firms that had previously worked with CUNA Mutual submitted bids that represented cuts of 12% to 14% in billing rates, compared to rates charged at the time in 2005. Firms new to CUNA Mutual came in with billing rates that represented cuts of 30% to 35% from pre-2005 levels, Nelson says.

Using an Excel spreadsheet, CUNA's sourcing team developed a model to aim for an 18% reduction in billing rates by using a mix of incumbents and newcomers, though the plan was to rely more on those firms already doing business with CUNA—a move seen as less risky than working mostly with the less expensive newcomers. Nelson characterized this as a "low-risk, buy quality" approach.

At this point, CUNA Mutual's sourcing team went to business executives to make a case for investing in software to manage the sourcing firms and contract workers. "We could not guarantee that we could maintain those savings unless we had an electronic marketplace," Nelson says.

While CUNA Mutual uses Oracle's PeopleSoft human-resources software to handle payroll and benefits for 5,000 employees, the sourcing team opted to seek software from a niche vendor, instead of an enterprise resource planning vendor. Gartner's Pring says companies looking to deploy services management software are often more comfortable working with a vendor that has domain expertise—and can offer up some TLC—instead of a vendor with a broader portfolio of software tools.

Vendors on CUNA Mutual's finalist list included Peopleclick, Elance and IQNavigator. CUNA's team decided to go with IQNavigator 7.5, a hosted application. "It has the best fit with our processes," Nelson explains. "And we were seeking a tool that could expand to other labor-based services like consulting, training and facility services."

CUNA entered into a five- to seven-year agreement with IQNavigator, paying an up-front fee and annual maintenance costs that Nelson declines to disclose. Companies typically pay 1% to 3%—minus a volume discount—based on the value of services or goods processed through the system, says IQNavigator's Brady, who also declines to discuss CUNA's fees. At 1%, the ongoing annual cost of IQNavigator to CUNA would be $150,000 a year, based on spending $15 million on contract workers.

Nelson estimates that a return on investment came in less than six months and saved at least $400,000 in soft costs, such as reducing the amount of time that managers spend on candidate searches and accounts-payable staff devotes to processing invoices.

Nelson says the deployment required a limited amount of development work—about one to two developers working part-time between nine and 12 weeks—to integrate CUNA's PeopleSoft ERP system with IQNavigator. Specifically, programmers had to write code to allow IQNavigator to import from PeopleSoft a so-called approval hierarchy that indicates whether a manager has the authority to approve the expense of a contract worker.

And IQNavigator had to be programmed to export information such as the contract worker's name, the hiring manager's name and department to the PeopleSoft human-resources application, so that a roster of employees and non-employees is maintained in one place—all in PeopleSoft.

How It Works

How It Works

Now, when someone from CUNA Mutual logs in to IQNavigator, there is a home page or dashboard showing what is going on in the system, based on that person's role. For example, a hiring manager who has requested a business analyst could see if any sourcing firms have submitted the names of candidates along with a profile or resume.

Once a hiring manager offers a job to a contractor, a work order is created within IQNavigator that includes contractual information such as rates and dates of the assignment. The work order is then submitted to the supplier for approval, and it becomes a contractual agreement upon the supplier's acceptance.

The worker or the staffing firm can log in to IQNavigator and submit a time card, and then an invoice is created based on the pre-negotiated rates that appear on the work order. IQNavigator then automatically lets a hiring manager know there is an item awaiting his approval: either via an e-mail notification or on his status item list when signing in to IQNavigator. When an invoice is cleared for approval, it is transmitted to the PeopleSoft general ledger, which then enables an electronic fund transfer to be made to the sourcing firm for payment.

The new system has provided some benefits for sourcing firms as well, according to one CUNA Mutual client. For instance, after a worker has wrapped up an assignment, a CUNA Mutual hiring manager who logs in to IQNavigator is asked to fill out a three-question yes/no evaluation, including: Did the resource perform the duties as outlined in the work assignment? Evaluations, stored in IQNavigator, become part of a supplier's scorecard and are used to determine whether it can be named a Tier 1 supplier.

But the services management software hasn't just provided a grading system for sourcing firms. CUNA can grant its vendors access to the system, and the information in IQNavigator can help them become better vendors, according to one CUNA Mutual client.

Mike Kolpien, director of business development at TeamSoft, a sourcing firm, places five or more contractors with CUNA at any given time to provide Java development or other services. When he logs in to IQNavigator, he learns about open positions at CUNA, and can also submit and track TeamSoft candidates for those opportunities. If a CUNA manager decides to interview and retain a TeamSoft candidate, Kolpien gets an e-mail alert in the IQNavigator application at each step of that process.

"Their managers usually give good details on a position," Kolpien says. "And if they provide good feedback on candidates after an interview, that helps us become a better vendor—and better hit the target when we submit a candidate."

CUNA Mutual's experience using services management software underscores the adage frequently heard among technology managers: It's all about the people, and not the technology. Managing contract workers, as Nelson puts it, represents "a unique supply chain—a supply chain of people."

CUNA MUTUAL GROUP BASE CASE

Headquarters: 5910 Mineral Point Rd., Madison WI 53705
Phone Number: (608) 238-5851
Business: Underwrites, markets and administers insurance and financial products for credit unions and their members.
Director of Sourcing: David Nelson
Financials in 2006: Revenue of $2.85 billion, up by 8% from prior year.
Challenge: Centralize the hiring, payment and evaluation of contract or contingent workers.

BASELINE GOALS:

  • Move from 100% ad hoc or maverick speding for contract workers to zero
  • Reduce billing rates for contract workers by an average of 18%, resulting in a $2.7 million savings
  • Eliminate $400,000 in annual soft costs associated with screening and paying contract workers.