Many organizations rely on a diverse mix of vendors and contingent workers to support their business operations and strategic objectives. However, managing these external resources can pose significant challenges in terms of financial, operational, and security performance. Avasant was engaged by a large North American healthcare organization that struggled with this issue.
The organization provides services to more than two million Medicaid and Medicare beneficiaries across six states. The company was growing fast and had expanded its operations across multiple states and regions. It had a decentralized governance model, where each business unit had its own policies, processes, systems, and controls. This allowed for flexibility and autonomy, but it also created challenges in managing the complexity and diversity of the company’s operations.
As the organization grew and expanded its use of contractors and third-party suppliers, it faced some challenges in access oversight and controls around third-party identity and access management. The lack of formal vendor governance, standardized processes, adequate technological support, and internal capacity resulted in compliance risks, operational inefficiencies, and value leakage.
Optimized Governance
To address these challenges, Avasant recommended that the organization redesign its supplier governance model and leverage a vendor and contingent workforce management tool. It is paramount to highlight that the benefits are a result of the combined action of an optimized supplier governance model and the software solution. The governance model provides the foundation on which the vendor and contingent worker management tool can be fully utilized.
The optimized model is a combination of federated and centralized governance operating models. It differs from a solely federated or centralized model because of how it distributes vendor and contingent worker management responsibilities. In a federated model, each business unit maintains its own vendor and contingent worker management standards and processes. In a centralized model, a single centralized entity, typically a vendor management team, maintains all vendor and contingent worker management processes and standards. However, in this model business units own the vendor relationship, but a centralized governance layer manages the administrative and transactional processes, which ensures consistency across the business units.
The hybrid model involves centralizing some vendor and contingent worker processes while maintaining flexibility and coordination between business units. Business units own the vendor relationships, and the centralized supplier governance layer is responsible for all transactional and optimization support. Processes like contract, relationship, financial, performance, vendor risk, and strategic vendor management are all moved under centralized control. While the business units maintain the day-to-day relationships with the vendors and contingent workers. Outsourcing the centralized administrative layer to a governance support specialist like Avasant further reduces the costs and ensures the organization can focus on strategic goals. This model allows for optimal purchasing power, better transformation capacity, and improved adherence to service level agreements (SLAs) with business unit services. By implementing a hybrid model, businesses maintain a reasonable amount of control, while ensuring there is extremely little value leakage. As a result of this governance model, Avasant’s client was able to reduce the burden on business units, improve compliance and risk management, and optimize spending and performance.
Vendor and Contingent Worker Management Software
Vendor and contingent worker management software enables organizations to efficiently manage their external workforce and vendor relationships. Vendor management software (VMS) centralizes vendor information into one platform and allows organizations to comprehensively manage their vendor relationships. It centralizes vendor selection, contract management, performance management, and payment processing by packaging them within one system. In addition, the VMS can create reports and standardized dashboards for managers to make better data-backed decisions about their vendor relationships. By streamlining vendor processes, VMS increases efficiency, reduces manual errors, and allows for better decision-making.
Contingent worker management software (CWMS) is a tool that focuses on an organization’s external workers such as temporary workers and contractors. It aids in managing the external worker lifecycle from onboarding to offboarding. The software assists in the sourcing and hiring process, contract management, and compiles performance and payment information. By centralizing all contingent worker processes into a single platform that integrates with other internal systems, organizations can better manage and evaluate their contingent workforce.
In the graphics below, the transition timeline from decentralized to optimized and the new operating model are shown.
Transition from Decentralized to Optimized:
Operating Model Map:
Operating Model Benefits:
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- Sharing organizational best practices at the enterprise level and instituting strategic supplier processes across BUs.
- Improving access visibility, resource utilization, performance, and purchasing power.
- Optimizing commodity and labor margin.
- Working better with fewer suppliers with high volume services.
- Providing significant insights into spend and cross-functional synergy across BUs.
- Offering optimal purchasing power and better transformation capacity.
- Enabling high scalability with limited deployment risks.
Financial Performance
Optimized governance creates streamlined processes that govern vendors and contingent workers, which eliminates incomplete data, inefficiencies, and value leakage. Enhancing governance with vendor management software and contingent workforce management software (VMS/CWMS) increases an organization’s ability to make decisions accurately and with speed. It serves as a sole source of truth for all vendor and contingent worker data, contracts, invoices, and performance metrics. With a sole source, organizations can avoid duplication, inconsistency, and incompleteness of data, which deteriorates decision making ability. Having a sole source of truth facilitates data-driven decision making allowing the identification and prioritization of cost-saving and value-creation opportunities within the target processes.
The model clearly defines the chain of command in addition to enabling better contract management with VMS/CWMS solutions. The software can automate and help enforce contract management, invoice processing, and payment workflows to reduce errors, disputes, and delays. Better contract management ensures accuracy, timeliness, and compliance of an organization’s contract and payment processes while reducing the risk of over or underpayments, penalties, and litigation.
By leveraging the software, an organization can further integrate and streamline its vendor and contingent workforce processes. Integrating the VMS/CWMS systems with procurement and other internal systems enables strategic sourcing, vendor selection, and contract negotiation in a single data stream. Increased integration streamlines and standardizes procurement and sourcing processes to ensure that organizations select the best vendor and can negotiate the best terms.
Overall, an optimized governance model combined with the benefits of a VMS/CWMS solution improve financial performance by standardizing and streamlining processes, reducing value leakage through better performance and contract management, and drastically improving visibility and integration.
Operational Performance
The optimized governance model lays the foundation for streamlined processes by eliminating the multiple handoffs and inefficiencies that occur in a decentralized model. Combined with VMS/CWMS, other benefits are abundantly apparent. The software boosts productivity and performance by providing role-based dashboards, alerts, and reports. This can help organizations track and manage their tasks, activities, and outcomes, and provide them with timely and relevant insights and recommendations. In addition, the software eliminates manual and redundant tasks which reduce human errors and rework. As a result, there are savings in time, resources, and costs as well as an improvement in the quality and consistency of work products. Tying it all together is an enhanced collaboration and communication environment. This stems from stakeholders having a common platform and workflow which helps organizations facilitate information sharing, coordination, and feedback among their teams thus improving alignment.
The centralization of governance requires increased visibility to improve performance. The VMS/CWMS solution brings real time visibility and analytics into vendor and contingent worker spend, performance, and compliance across the organization. This can help organizations monitor and measure the performance of their external resources against their goals and expectations and identify any issues or gaps. The software improves data quality and consistency by integrating with various data sources and systems. Through continuous improvement features, organizations can capture and apply the lessons learned and new ideas to foster a culture of learning and innovation which pays future dividends.
Once implemented, the software increases agility and flexibility by enabling process automation, customization, and scalability. This can help organizations adapt to changing business needs and market conditions, and tailor their processes and solutions to their specific requirements and preferences. By using software to automate their vendor and contingent worker management processes, organizations can reduce process complexity and cycle time, improve data accuracy and accessibility, and enhance stakeholder engagement.
Security and Compliance Performance
As organizations grow, processes break down and security risk increases. The combination of optimized governance and the advantages of a VMS/CWMS solution can eliminate some of the increased security risk. The VMS/CWMS solution’s strengths of integration, automation, and increased visibility apply to the security and compliance environment as well.
The solution ensures proper access management and identity verification for all vendors and contingent workers which helps organizations monitor and control who can access their data and systems. Increased visibility aids in implementing and enforcing security policies and controls to protect data and systems from unauthorized access, misuse, and breaches. Organizations can better safeguard their data and systems from internal and external threats and respond quickly to any incidents or violations. And for companies operating in intensive regulatory environments, VMS/CWMS tools can help align the organization into compliance with various regulations and standards.
In terms of threat prevention, organizations can rely on this software to enhance the monitoring and auditing of vendor and contingent worker activities to detect and prevent fraud, abuse, and non-compliance. And if a violation is found, the software’s data trail can provide evidence and documentation to support audits, investigations, and remediation actions. This can help organizations prove their compliance and resolve any issues or disputes.
By using software to better track their vendors and contingent workers, organizations can reduce security and compliance exposure and liability, improve security and compliance awareness and culture, and enhance security and compliance performance and reputation.
Conclusion
In conclusion, software supported optimized governance of vendor and contingent worker management can help organizations improve their financial, operational, and security and compliance performance by streamlining and automating their vendor and contingent worker management processes. By implementing this solution, organizations can gain visibility and control over their vendor and contingent worker ecosystem, optimize their spending, improve their efficiency and effectiveness, and mitigate and manage their risks.
By Ethan Sacco, Associate Consultant