Companies are doubling down on contractors. A survey by supply chain analyst firm Verdantix and Avetta revealed 88% of companies expect to maintain or grow their use of contractors and suppliers with 18% of those companies expecting 10 percent or greater growth next year.
An NPR/Marist poll says half of the entire U.S. workforce could consist of independent contractors within the next decade compared to 20% today.
However, using more contractors can have unexpected costs for labor and management. Avetta, one of the leading providers of supply chain risk management tools, created a cost savings calculator that considers your exact needs and estimates the cost savings you can capture in improved safety and internal program costs.
Calculating Supply and Demand
Knowing precise costs is critical because the outlook for the supply chain workforce shows major challenges in the years ahead for both large and small companies. As baby boomers retire and the unemployment rate drops, experts suggest the labor market will tighten significantly. In fact, the supply gap for qualified workers in manufacturing is expected to grow to 2.4 million unfilled manufacturing jobs by 2028, putting at risk as much as $2.5 trillion in economic activity.
Until recently, companies used contractors primarily to reduce costs, but that has been changing. Now, a contractor workforce drives business value. More organizations view contractors as the “extended enterprise” of valuable business partners that drive service and product innovation. Wall Street actually rewards companies with more contractors and fewer full-time employees.
Invisible Costs
While relying on contractors can decrease workforce costs, it also exposes organizations to higher levels of risk, increasing long-term costs and potentially decreasing reputation. Some of the potential liabilities include financial fraud, workplace mishaps, regulatory breaches, supply-chain breakdown and even loss of life.
In addition, according to the Verdantix study, growth in contractors creates more challenges for managers. Those difficulties include multiple contractors performing simultaneous activities, inconsistent safety practices among suppliers and contractors, and the high turnover rate among contractors. In fact, 63% report that churn is a “significant” oversight challenge.
Even with technological advances such as SaaS-based systems and improved worldwide communications, more than half of companies are still using spreadsheets or paper-based systems to manage their contractor workforce. Verdantix found about half of companies are using spreadsheets—more than 50% for reporting and analysis, and 45% for job hazard analysis. Another 27% use paper-based systems, increasing the chance that critical safety and performance information will be lost or misplaced.
Some companies created “home-grown” technology solutions, but require a significant amount of design, programming and testing to develop and improve. The benefit of company-owned solutions is they get the exact features they want, but the time and cost of building out those features can outweigh the benefits. Product enhancement cycles can take months and sometimes years to scope, design, build and test. An Avetta white paper called The ROI of Contractor Management, focuses on these different types of systems and the benefits of each.
A Simpler Solution
While 61% of executives believe digital technology is the answer, only a handful are using it. That’s where SaaS solutions come in. A pre-built, SaaS solution, curated from the input and experience of tens of thousands of customers already using it provides both a comprehensive contractor management system and substantial cost savings.
A SaaS-based contractor management program enables companies to initiate a more comprehensive review of supplier and contractor data. This information is not stored in silos but captured in a centralized platform, which allows you to review each contractor and their associated audit trails continually. You are instantly notified of non-compliant and underqualified contractors. Instead of scrambling to detect risks, you can proactively manage and prevent them.
Avetta clients report savings of 75% in administrative expenses and an ROI of between 265% and 350% by investing in the program. These cost reductions arise from increased efficiency, elimination of manual effort and errors, and higher visibility. But this is only a part of the savings a good contractor management solution can fetch you—improved compliance, safer workers, zero penalties, and a better reputation.
One company reported annual operational savings of $60,000 per facility. Another reported a reduction of total recordable incident rate (TRIR) for all U.S. contractors by 74%. A company in the U.S. with just 200 contractors in just a few locations can save more than $500,000 per year.
Do you have a smaller operation? You can still have up to 75% of your administrative costs. Enterprises with multiple locations using thousands of contractors worldwide can easily save millions of dollars.
Check out the Avetta calculator here: https://www.avetta.com/calculator.
While savings are impressive, the cost of life can’t be outweighed by the cost of compliance. The single biggest argument for investing in a comprehensive contractor management program comes from the fact that it enables the well-being of people who work with your organization.