27 April 2022

Direct Sourcing Contingent Labor: What Exactly is it?

Wayne Burgess
Wayne Burgess

An increasing number of businesses are more dependent on externally-sourced workers than ever before. 

While a lot of businesses rely on staffing agencies to fill those needs, many organizations are now implementing direct sourcing strategies to augment the contingent workforce that they hire through vendors - and instead, build their very own talent pool using their own recruiting teams.

In this blog, we take a look at what exactly direct sourcing contingent labor is, how it can benefit your organization and whether a vendor management system (VMS) can support your direct sourcing strategy.

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So, what is direct sourcing of contingent labor?

Direct sourcing contingent labor is a method of identifying and hiring suitable candidates for your open job vacancies by sourcing and building your own pool of talented freelance, contingent, consultant, and temporary talent.

This is different from the typical contingent workforce hiring model, which relies on staffing agencies placing externally-sourced workers into your organization. 

With direct sourcing, the organization will completely source, manage, engage, onboard, offboard and re-engage all workers internally. Some companies even have their own recruiting teams focused on direct sourcing contract hires, in addition to their existing staffing agency program.

The differences between direct sourcing vs. traditional contingent workforce staffing 

There are two primary differences between a direct sourcing strategy and hiring contingent workers through multiple staffing agencies.

  1. Building an internal talent pool
    While in traditional contingent workforce staffing companies engage staffing agencies to fulfill their contingent talent requirements, a direct sourcing strategy sees the employer build their own internal talent pool of contingent workers who can be engaged directly on an ongoing as-needed basis. 

  2. Use of the employer brand
    Rather than just leaning on staffing agencies to source contingent workers, a direct sourcing strategy uses the employers' brand as a value proposition to attract contingent workers for certain projects and jobs. 

Does direct sourcing replace the use of staffing agencies in contingent workforce management?

Direct sourcing generally just makes up one part of a company’s contingent workforce management program. Organizations still partner with staffing agencies to fill their workforce targets, but they augment that process with their own directly sourced talent pool.

To reduce the risk of worker misclassification or co-employment in a direct sourcing program, all workers should still be payrolled through a third-party employer or record employer instead of on the direct sourcing companies’ books. 

What are the benefits of direct sourcing?

Direct sourcing isn’t a complete solution for your contingent workforce program, it’s a way to augment the staffing agency services that you are already using. Here are just a few ways in which your business can benefit from a direct sourcing strategy:

✔️ Faster hiring: With direct sourcing, companies aren’t relying on staffing agencies to source top talent. Instead, they already have an engaged talent pool to dip into. This talent pool, however, may take some time to build. Until you build a pool of talented workers who know your brand and want to work with you, direct sourcing is probably a slower hiring process.

✔️ Reduced costs: Staffing agencies require markup on their services. You have to pay for their employees, the work they do, and the expertise they provide. By direct sourcing, you are cutting out your need to use staffing vendors in some instances. By sourcing contingent workers directly, you’ll be saving money on staffing agency fees. However, this is only true if the cost of recruiting and managing the candidates doesn’t outpace the agency fees. In many cases, companies end up spending more due to overheads and distractions that damage the success of the direct sourcing program.

✔️ Build stronger relationships with top talent: The ability to attract and retain permanent employees has long been a talent management goal, but why hasn’t that translated to the contingent workforce? The ability to attract and repeatedly engage independent talent on nothing more than your own brand name, and without the help of staffing agencies, is surely a big win for organizations that want to build a more flexible and agile workforce. 

Does VMS software support direct sourcing? 

With companies now creating their very own recruiting teams focused solely on direct sourcing contract hires, these businesses need a way of managing their directly sourced workers. 

Traditionally, a vendor management system (also known as VMS, VMS software, and VMS solution) allows organizations to manage their entire externally-sourced workforce, as well as consolidate their staffing agencies, all on one centralized system. 

This gives businesses complete visibility and control over their contingent workforce management program.

To maintain that visibility, even when implementing a direct sourcing strategy, it’s crucial that your vendor management system supports direct sourcing. This will allow you to better manage both your contingent workers sourced through staffing agencies, as well as those sourced internally by your direct sourcing strategy.

Want to learn more about direct sourcing and how it can be managed in your vendor management system? Get in touch with Conexis VMS today.

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Wayne Burgess

Wayne Burgess

Prior to starting Conexis, Wayne was a tireless champion for clients within Accenture’s Procurement practice with specific experience across the Services and Contingent Labour spectrum. Wayne has run programs from as small as $5m to as big as $2bn. Wayne has deep consulting and operational delivery experience. He is a talented leader of organizations and has a proven track record of driving significant customer value.

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