Beware the Auction Effect

AuctioneerContingent workforce program managers are tasked with many things when it comes to managing a contingent worker program. We measure performance of the suppliers based on metrics and also look at the managed service provider to ensure service levels are being maintained. When metrics slip, or feedback comes in from managers about performance issues, it is our job to see that those issues are addressed and resolved.

When I first joined my current company, it had just gone through an RFP and rolled out a new staffing program, which I was hired to run. As the program progressed, one complaint from internal stakeholders was that we didn’t have enough suppliers for all the skill sets we needed. The suppliers, meanwhile, also had complaints about our rate card being way too low. Because we had just benchmarked the rate card and added several new suppliers, I needed to figure out what was going on.

One thing I noticed was the response ratios among our preferred suppliers were low; they were cherry-picking the requirements they wanted to respond to. This shed some light on the managers’ complaints of not having enough suppliers — only a handful of our suppliers were responding to reqs on average, so of course my managers would say that the list needed more suppliers.

When I approached my suppliers about their response rates, they pointed to my rate card. They claimed to be trying, but were unable to get workers willing to commit to being submitted for a rate that would work within our rate card range.

Turning to the rate card to figure out if we were indeed missing the mark despite our benchmarking efforts, I noticed that the rate card issues were concentrated in areas where we had a lot of suppliers with the same staffing capabilities. I spoke with some of the suppliers, who said that they could get the candidate to commit to them on the phone, but they would never get the formal right-to-represent email. Another scenario was with the contingents themselves being contacted by multiple suppliers and dictating their pay rates and giving the right to submit to the supplier that would meet their demands.

Essentially we had a situation that I’m calling “the auction effect.” Yes, contingent workers’ pay rates are going to go up as the market heats up. But my program was actually adding to this by having too many suppliers in the mix: The number of suppliers in my program was dramatically increasing their rates faster than the natural market.

Having many of the same types of suppliers in a shallow market causes them to all call the same two or three available candidates and therefore cause an artificial increase in the pay rate. The increase may only be a few dollars, but in today’s programs where margins are tight, those increases add up and cause rate card issues.

My advice to program managers is to watch just how many suppliers you do add to your list. Try not to add suppliers as much as possible, utilize the ones you have already and push them to do better. If they don’t work out, trade them for new ones. Keep an eye on the numbers of suppliers you have in the shallow candidate markets of your programs, don’t get yourself in the situation where the competition among suppliers to make a profit costs you money in the long term. If you’re hearing that your rates are too low, do some digging. Check to make sure you’re not a victim of the auction effect.

This post first appeared in Contingent Workforce Strategies 3.0, January 9, 2013.

Daniel Khublall
Daniel Khublall manages the contingent worker program for TIAA-CREF, a financial services organization. Follow him on LinkedIn or Twitter.

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