Cost savings on MSP programmes are typically driven though:

• Competitive fees
• Volume rebates
• Maximising direct delivery
• Negotiating supplier rates
• Rationalising worker pay rates
• Continuous improvement & efficiencies

While cost savings across all these areas are typically much larger when a programme is in its infancy, with only marginal gains able to be achieved as the programme matures, it is important that providers are constantly assessing each of these elements to ensure the Managed Service Provider (MSP) delivers sustainable value and achieves ongoing savings where possible.

Competitive fees

A long-term MSP needs to continuously review its headline fee structure to ensure it represents value in the current market. It is very important to ensure the commercial value of the programme  is reflective of market conditions, encompassing macro factors, as well as competitive market dynamics. Tenure discounts are also an effective and commonly-deployed means to ensure longevity of a particular contractor’s assignment see diminishing returns for the provider, and in turn lower costs for the client.

Volume rebates

Volume rebates can be used to provide a financial ‘kick back’ to a client where agreed annual financial thresholds are exceeded. This therefore means both provider and client would benefit from over-performance, by way of gain share.

Maximising direct delivery 

Maximising direct delivery, and avoiding over-reliance on a wider supply chain of external suppliers, is a key way that MSP programmes can deliver year on year savings as a programme matures. It can take some time for MSP providers to build the teams, processes, client relationships and knowledge to achieve very high levels of direct delivery. However, increasing direct delivery can yield high savings for the client, due to the lower mark-ups typically applied to candidates sourced by the MSP provider vs external suppliers. It can also be very effective in ensuring third party services providers and Statement of Work (SoW) services are being utilised only in the correct and appropriate circumstances, as opposed to being seen as a solution for the MSP’s failure to deliver resources.

Supplier negotiations

Negotiating and rationalising supplier agreements is integral to cost control through an MSP provision. While the majority of savings in this area will be achieved at the beginning of a programme, effective supplier management is required to ensure fee agreements remain in line with market rates, whilst also ensuring suppliers remain motivated and engaged.

Rationalising worker pay rates

Candidate pay rates represent by far the largest cost within an MSP programme. Ensuring that the worker pay is in line with market rates and that you are receiving optimal value from all your contingent workers must always be a key priority. 

Initiatives that can be implemented to achieve savings across your contingent workforce include:

• Rate card to standardise worker pay rates
• Tenure management, reducing the length of time workers are engaged on a project
• Worker swap out, replacing highly paid skilled workers for lower skilled, cheaper resources at appropriate stages of a project
• Enforced furlough, mandating a number of enforced furloughed days to drive savings across the year
• Day rates are a better way to control additional spend on overtime than hourly rates

Continuous improvement and efficiencies

Ensuring quality & efficiency of your workforce strategy should be at the forefront of your strategy with your provider – to look beyond tangible cost savings and centralise business growth and success.

Examples of efficiency gains that will have an indirect impact on costs include:

• Improving time to hire, and time to productivity
• A strong emphasis on proactive workforce planning
• Contractor retention
• Proactive alumni engagement and management
• Ensuring the programme has robust governance metrics (SLAs and KPIs), including service credits for underperformance

James Parnell and Graham Day are on hand to talk about your workforce strategy!