Volume Discounting for Large Vendor-Neutral Programs

business chartsSome of you may remember Andy Rooney from the TV how 60 Minutes. He always started his bit at the end of the show with the phrase, “Did you ever wonder?”

Well, I’ve been having some “did you ever wonder” moments lately when looking at the volume discount schedules in agreements with some of our MSP/VMS program customers.

I understand the reasoning behind volume discount language in single source or limited source engagements, but I do question if these volume discounts are driving the intended behavior in programs where there are a large numbers of suppliers who compete to fill orders in a vendor neutral environment.

Large MSP/VMS programs typically already have other cost control measures in place besides volume discounts. In my experience it is common for gross margins in these programs to be about 10 points lower than industry average prior to the volume discounts being taken, so cost savings is already being achieved without the volume discount.

These programs strive to encourage the supplier behavior they want by scoring them based on various performance measurements. Suppliers that present the best candidates, quickly, and at the best price get the highest scores and the most hires. This sounds fair to me.

So is it logical for top performing suppliers to be financially penalized for performing well? Isn’t that what volume discounts do?

In programs where volume discounts are in play, the better performing suppliers are typically required to rebate an escalating percentage of revenue under these rebate schedules.

Shouldn’t the best performing suppliers in very competitive environments be rewarded, instead of being penalized by having their gross margins further reduced at those accounts? Maybe their bill rates should be raised by a percentage or two when they achieve milestones?

Can you see how many suppliers would perceive an escalating rebate as a disincentive? Do you think this is a regressive penalty on high performers in these large, competitive programs? It would be interesting to hear from others involved in the contingent workforce program management world about their perspective on this. I’m not so sure Andy Rooney would have cared, but I do wonder about it!

 

Don Dewar
Don Dewar is vice president, national sales, at inSync Staffing. He can be reached at don.dewar (at) insyncstaffing (dot) com.

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1 comments
tdepotter
tdepotter

Don,

I agree with you.  From the MSP perspective, volume discounts are counter-intuitive to the fulfillment strategy of speed, quality and cost.  There are many options MSP's provide clients when investigating cost reduction initiatives.  Volume discounts being one that is very difficult to manage from the MSP perspective as well. 

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