Quality versus Quantity: Why Having a Gagillion Suppliers on Your VMS is Costing You

Quality versus Quantity: Why Having a Gagillion Suppliers on Your VMS is Costing You

By: Jeff Holmes, Allegis Group Services

More is NOT always better…

One of the biggest mistakes that an organization can make when implementing a Vendor Management System (VMS) is including any, and every, supplier that it has previously done business with to its preferred vendor list.  Yes, you value the relationship.  Sure, they might have active contractors working there today.  The question is, ‘Does any of this mean that they should all be included in your preferred list?’.   Absolutely not!  By adding every relationship you currently have with staffing agencies to support your program, all you are doing is muddying your own waters. 

The laws of supply and demand seem to work in every facet of business.  The problem with having a large number of suppliers is that most recruiting agencies farm from the same candidate pools.  What value does it add to your VMS program to have 40 suppliers all mining the same job boards?  Basically what you’ll see is the same agencies fighting for the same local candidates.  When agencies compete for these people, there are positives and negatives that come from this. 

When competition is involved between suppliers who compete for one person, that candidate will typically be paid a higher wage since there are multiple interests.  The suppliers will fight to represent that candidate, and each will enter a bidding war to obtain his/her services.  Better pay typically equates to longer retention rates, better work, and an overall happier employee.  Sound like a win-win? 

The question lies then, ‘How much pay is too much for a resource?’ 

If your company’s program is on a mark-up system, then you will ultimately pay the price.  35% of $100 per hour is better than 35% of $90 per hour.  In this scenario a supplier could stand to make an additional $20,000 over the candidates pay rate annually.  On the other hand if your company is on a rate card with a ‘not to exceed figure,’ you’ll see that this level of competition, or the ‘bidding war,’ is only increasing that rate to the highest acceptable standards.  

If your company doesn’t have an MSP, a ‘not to exceed’ rate card, or a formalized process to help moderate this, then the chances are you are getting gouged financially right now.  For years competition between candidates and multiple staffing agencies has led to increasing billing rates for employers.  You’ll find that agencies have dictated the markets as it pertains to rates for these types of candidates.  The battle for talent is tight enough today without having this extra layer to pay for.

When your suppliers aren’t fully engaged in your VMS, then your program will fail. 

So how do you fix it? 

The first step is to eliminate the overall number of suppliers on your program based on your budgets.  Whether you have a budget of $500K or $500M, the answer is the same.  Promise your preferred partners more business, and greater chances at a piece of your overall financial spend.  In turn they’ll be much more competitive with their cost, and can afford to take further financial risks for your organization; hence saving you money.  Additionally there won’t be as many instances of suppliers stepping on each other’s toes, and fighting for the same candidates.  Adding a right to represent policy is always helpful, but not foolproof.

Secondly, study your vendor supplier’s delivery models.  Ask them what methods they utilize to uncover talent, and determine if these methods will create value to your organization.  Every squirrel can find a nut sifting through the same stack of leaves.  Find out what other recruiting methods a supplier truly uses to uncover talent, and then only add those who consistently deliver on those methods.  This should be the job of whoever is running your VMS. 

Your preferred vendor list should be made up of only the agencies that create value.  Add in any remaining agencies that have active headcount to your second tier, or legacy supply base.  You don’t have to give them additional business if they are not prepared to efficiently support your talent needs.

Finally, share with your final list of suppliers that you value the relationship.  Tell them that you have eliminated their competition, and you expect them to fight for you; as you have for them.  The symbiosis this will build will do wonders for your bottom line, your overall quality of talent, and to your contractor’s retention. 

About Jeff

Jeff Holmes works with Allegis Group Services as an MSP Program Director for the world’s largest hotel group.  An 11 year veteran of both the staffing and corporate recruiting worlds, he has spent the past 6 years with Allegis Group in a variety of capacities.  Prior to joining AGS in 2010, Holmes spent 5 years as the Recruiting Manager for MarketSource (An Allegis Group Company); revamping the team by designing a scalable recruiting structure, and authoring their go to market recruiting processes and strategies that supported their fortune 1000 clients across North America.

Connect with Jeff on LinkedIn: http://www.linkedin.com/in/jeffaholmes