Workforce Process Outsourcing (WPO): A New Solution to Increased Productivity

Familiar Business Process Outsourcing (BPO)

Business process outsourcing (BPO) is a subset of outsourcing that involves the contracting of operations and responsibilities of specific business functions (or processes) to a third-party service provider.

Most people are familiar with the more common subsets of BPO such as RPO (recruitment), LPO (legal), KPO (knowledge), logistics (3pl) and of course ITO (information technology). BPO is typically categorized into back office outsourcing – which includes internal business functions such as human resources or finance and accounting, and front office outsourcing – which includes customer-related services such as contact center services.

The “New” Outsourcing… Workforce Process

A new form of BPO which is becoming more popular is WPO (Workforce Process Outsourcing) or MPO (Manufacturing Process Outsourcing). WPO involves the contracting of labor where the service provider is responsible to meet service levels at a transactional cost. The WPO provides the labor, management, and some support functions for a cell, department, or entire facility. The business or manufacturer is typically responsible for the facilities, inventory, equipment, quality assurance and logistics. The specific responsibilities are worked out while negotiating the “Statement of Work.”

Traditional Temporary Labor Models vs. WPO Model

Temporary labor has become a mainstay for companies looking to maintain flexibility and control labor cost as well as decreasing employer liability exposure. Temporary labor is a cost plus solution where the staffing provider adds a mark up to the hourly wage. Temporary labor has been effective in maintaining flexibility but has not provided full protection against liability nor is it always an effective cost control strategy. Temporary labor typically is not accountable for productivity or quality. Moreover, the temporary staffing company often does not share the cost of training the temporary workforce. Therefore, the cost of low productivity, bad quality and high turnover is the burden of the manufacturer or business. On the other hand, the WPO model provides liability protection, absorbs the cost and responsibility of training and retention, and assumes responsibility for meeting quality and productivity standards.

A Look at Third Party Logistics (3PLs)

A 3PL is a firm that provides a one stop shop service to its customers of outsourced (or “third party”) logistics services for part, or all of their supply chain management functions. Originally 3PLs focused on logistics which was primarily transportation, warehousing and distribution and charged the client on a cost plus model.

Over the years their clients have started pushing more and more value added services (VAS) down to the 3PL. VAS falls outside of traditional supply chain/logistics expertise and is often labor intensive. Typically it is also billed at cost plus and the 3PL has little incentive to be efficient. If you couple their lack of expertise and resources with the lack of incentive, you end up with a inefficient and costly labor model. Also in the 3PL outsourcing world, manufacturers and businesses lose operational control of having product within their own facilities, inventory systems, and direct line of sight.

Workforce Process Outsourcing (WPO): A Hybrid Providing “Across the Board” Solutions

The WPO is a hybrid of contract staffing/temporary labor and third party logistics married to Scientific Workforce Management1. The WPO leans heavily on lean manufacturing principles and engages internal engineering support to improve productivity and control cost. Since WPO firms bill on a transactional cost per unit basis while meeting stringent SLAs, the cost and quality are far superior to the temp labor model and the 3PL.

Reasons For Using A WPO Provider

1. Greater Flexibility

WPO provides greater flexibility in meeting demand. Companies are no longer paying for labor that is idle or underutilized when production demands wane. It is the WPO provider’s responsibility to manage headcount both up and down. Most managers are reluctant to reduce headcount when demand wanes. Even when temporary labor is utilized, many managers will tend to keep more people than is needed. A WPO has the capability to ramp headcount up and down much more effectively.

2. Fixed Labor Cost

A WPO typically bills at a transactional rate. It could be by the piece, truck, pound, cubic meter or whatever makes sense. This is a great budgeting tool and labor can be forecasted according to production schedules. Many WPOs will work with the sales team to build a costing model they can use to price new business. Most of the time the labor component is an unknown variable that makes it difficult to forecast margins. The WPO will give you a fixed unit cost that helps you lock in your margins and better forecast profitability.

3. Decrease In Employer Liability

The WPO provides another layer of protection against employer liability. The 3PL provides the strongest protection from co-employment since the work is being completed at the 3PLs site and there is limited interaction between the 3PL’s employees and your management. But there is more risk and less control when the work leaves your building as previously explained.

Temporary staffing provides the least protection and the client is often included in any litigation between a temporary employee and the staffing company. Companies must also construct and abide by very stringent guidelines regarding staffers and fulltime employees.

The WPO model allows the client to maintain the work in their facility but restrict any interaction with WPO employees. The WPO provides the floor supervision to direct the work and also the HR support positions for all employee issues. This arrangement establishes a safety harbor.

4. Simplicity

Another benefit of working with the WPO is simplicity. There is no moving of inventory or equipment off site as with a 3PL. Changes to work can be initiated instantly and any inventory or material variances can be adjusted at the site. It is much simpler than managing temps which requires ordering, training, and supervising, as well as managing their hours. The invoice itself is an administrative nightmare whereas the WPO is just a couple of line items which can be easily validated.

5. Improved Quality

The outsourcing of any function generally results in higher quality. If for no other reason, the business will be much more stringent toward the outsourcer to adhere to quality guidelines than they are towards themselves. If the work is out of spec you have recourse from the WPO and there is no cost to you. When the work is done internally and it falls out of spec, the business must assume the cost. It may be tempting to pass it through rather than eat the cost.

6. Reduced Risk

We discussed the reduction of co-employment and employer risk earlier. The use of a WPO is much less risky than outsourcing to a 3PL. The WPO eliminates most of the risk of any work interruption inherent with the 3PL. There are many nightmare stories whereas the 3PL either goes out of business or decides not to honor the contract. No one wants to receive a phone call at 5 p.m. on a Friday, letting you know you can come get your assets including any equipment as well as inventory. Simply changing 3PL providers is a major headache. With a WPO the termination of services can be very seamless. There is no transportation or moving issues and the workers will generally transition to the new WPO provider. Service interruptions are kept to a minimum.

7. Additional Resources

WPOs bring experienced management and engineering resources to the table along with technology as part of their service. These resources free up existing staff to focus on more strategic measures and provide valuable input. The net result is operational improvements that often reach beyond the work cells where the WPO is present.

In summary, Workforce Process Outsourcing (WPO) is a labor and process model that is gaining ground in many business settings, including warehouses, manufacturing, and distribution centers throughout the United States. WPO offers tremendous advantages over Temporary Staffing and Third Party Logistics (3PLs).