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5 Emerging Trends Asset-Intensive Companies Can Expect from Their Contractor Engagements – Part Two

5 Emerging Trends Asset-Intensive Companies Can Expect from Their Contractor Engagements – Part Two

Why should you care about blue-collar contractor trends?

 

This is part 2 of our series which delves into five emerging trends asset-intensive companies can expect from their contractor workforce in 2024. 


In Part 1, we highlighted the first two trends which touch on the following:


  1. Global contractor shortages are driving up costs and reducing quality.
  2. The elimination of degree requirements by companies outside the asset-intensive space acting as an indirect competitor for workers considering a career in the trades.
 

Trend #3

 

Contractor and services management programs forming alongside the well-established contingent labor programs.


When it comes to the management of external labor, contingent (staff augmentation) labor and white-collar service workers under an SOW have significant coverage. Part of this can be attributed to the rise of the Vendor Management Solutions (VMS) that provide comprehensive coverage of the labor engagement processes under these two external worker types. 


Another factor contributing to the success of contingent labor and SOW programs can be attributed to cohesive partnerships between HR, where internal hiring is managed, and Procurement, where contracts are handled. Both of these stakeholder groups work well to oversee these types of external engagements as contingent labor and white-collar services are similar in recruitment and hiring as compared to internal hires. 


This same sentiment is not necessarily true when it comes to HR and/or Procurement managing blue-collar contractors though, primarily because the way these contractors are engaged and managed is significant in their differences to contingent and professional services.


For several years there has been a trend of companies reporting the desire for visibility and control over service and contractor workers. Despite the desire being there, there has been limited success in implementing these programs through HR and/or Procurement sponsors. 


To give a picture of how bleak the success has been in implementing programs to properly manage services and contracts, an industry analyst with SIA estimates that only about 7% of programs boasting programs actually have their service SOWs properly governed within a contingent labor program (Source). Add to this the virtually non-existent program management of blue-collar contractors and it becomes clear that there is a thriving need in the market for management coverage of these external engagements.


Contractor labor and complex external service agreements have been largely unattended to in terms of program management due in part to the lack of software solutions that bridge the gap between procurement and operations leaders. Operations leaders need software that addresses the specific needs of their contractor engagements: complex time management, pricing, and billing scenarios with frequent need for high-volume/high-skill worker engagements. 


The software would also need to provide compliance boundaries and oversight as required by Procurement without alienating operational users. To that end, there are currently very few solutions on the market that address these specific contractor needs, although Contractor Management Solutions – such as our AES/32 solution offering – are gaining traction with large asset-intensive companies. 


With the adoption of Contractor Management software and the accompanying increases in visibility and management, we are very likely to see the formation of governance programs that have similarity to their well-established counterparts in contingent labor and professional services.


Trend #4

 

Companies moving away from Vendor Management Solutions (VMS) for contractor coverage. 


In a report by the Staffing Industry Analysts, >80% of companies see between 0-10% in cost savings year-over-year after the implementation of a VMS, and yet the global NPS (net promoter score) for VMS is -39 for 2023. This suggests a high level of dissatisfaction with VMS, despite companies seeing some degree of savings after implementing one (Source). 


What is causing VMS users to be dissatisfied with the solutions? A large part of this dissatisfaction might be contributed to the VMS’s surprisingly low adoption for the management of service workers on an SOW despite the heavy adoption for contingent labor. 


The 2023 survey conducted by SIA found that only 17% of VMS clients have adopted SOW management as part of their contingent labor programs (Source), despite several years of favorable stats showing that companies want their services under management.


So, what does this mean for contractors supporting asset-intensive companies? With software solutions for contractor management gaining traction the market, such as our AES/32 solution, we are likely to see an increase in the demand for comprehensive management over contractors and accompanying engagements. 


With the introduction of software to aid in contractor visibility, cost and time management, and billing, asset-intensive companies will be able to make informed decisions in their contractor engagements with stronger negotiation power. 


The visibility and centralized management are likely to be alluring to companies who have successful contingent labor programs in place and realize that their VMS does not support contractor labor and services in asset-intensive industries well. If this trend does take off, the market is likely to see better definition and solutions for contractor management programs.

 

Trend #5

 

AI being leveraged as a cost-savings channel by asset-intensive companies to support their contractor engagements. 


AI has been one of the biggest buzzwords flying around almost every industry on the market since the end of 2022. If you have seen any of the expected trends regarding AI and the workforce – internal or external – you may have some hesitations on seeing it implemented due to the hype and fear of workers being replaced by AI. 


When it comes to contractors though, AI has serious potential to support the engagements and even improve staffing challenges. With an expected increase in costs to manage contractor projects due to a lack of available skilled laborers, inflated insurance for risk mitigation, and longer project timelines, companies will be looking for new ways to save money.


This is where AI can really shine for asset-intensive companies. AI has the potential to optimize project management by identifying bottlenecks and risks, offer intelligent asset-management, provide enhanced safety monitoring, reduce planning and design times, and produce intelligent resource allocation plans (Source). 


With this technology being applied as a complementary component to contractor engagement management, asset-intensive companies have potential to create new channels for cost-savings while maintaining full engagement with the contractors supporting their operations.


Closing thoughts on the contractor trends for 2024


As with any emerging trend, only time will tell how things will actually shake out in the market. In spite of some anticipated challenges in the form of rising costs, skilled contractor shortages, and increased project complications, we are ultimately optimistic about the future of contractor management. 


Market adoption of Contractor Management Solutions and the accompanying improvement in visibility, management, and potential for savings could be a real game-changer in how asset-intensive companies engage with external labor. 


NHD’s analysts will continue to monitor the trends taking place in this space and provide more coverage as they emerge.

 

 

About NHD

For over 30 years, NHD has been providing an intelligent, all-in-one solution that bridges the gap between your company and your external workforce in the full source-to-pay cycle.

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What Our Customers Say

Global Process Owner Global Chemical Manufacturing Company

AES/32 has provided such a wide array of reporting and transparency that we have had wins in almost every area, some monetarily and others with functionality.

Maintenance Leader USA Fortune 500 Chemical Company

Fully integrating and digitalizing Contractor Management is no easy task – but AES/32 has proven to be worth it in the short time it’s been in use. The dashboard view of work completed and payments due shows what’s on track and bottlenecks for intervention. Returns will multiply significantly as we scale up the number of contractors over time across multiple sites.

AES/32 Process Owner Global Chemical Manufacturing Company

Our Purchasing group has also expressed that with AES/32, we have a much better picture of category spend, leading to better negotiations, leading to cost savings ultimately.

Procurement Leader Global Chemical Manufacturing Company

Naturally, better control comes with improved compliance. AES/32 made it easier to estimate, analyze, order, validate and pay against the contract.

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