Optimizing Rates Only Happens With Real Competition

162487076There has been much talk about metrics that can help optimize rates in an efficient contingent workforce program. But true rate optimiziation only occurs when there is real competition and real consequences among the suppliers. Naturally, the ability to do both relies on the existence of quality data coming from the MSP.

Quality notwithstanding, there are data points that need to be monitored that may not necessarily flow through the technology the client has chosen. This could be a manager’s usage of statement of work consultants, the life-cycle tracking of candidates that came in as exceptions (candidates given the permission to exceed the rate card guidelines), or any other form of what we call “avoidance behavior.” Managers and staffing firms can be creative in the ways they get around what they believe to be aggressive rate cards or markups.

That is why in principle, we recommend rate cards where rates are capped at a point which our research shows will be tolerated as a likely market rate.  In that setting, suppliers know their upper most parameters but not the point where the most aggressive rates could come in at.  Ideally, suppliers who submit candidates in the spirit of the job description at the lowest rate should get their candidates advanced before the others.  The advantage of this model is that it hides the pay rate and stops suppliers from being belligerent in pay rate negotiations.  That said, mark-ups can work well in low-end jobs where pay rates can be fixed, volume is high and quality is not of the utmost concern.

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Our goal is to work with our supplier pool and our clients so that all parties have an understanding of the other’s needs. And then having them support our rate reduction efforts. Though it’s overused, the key word here is “partner”. We have seen the best and worst of both worlds.  Companies that work with their staffing firms as trusted partners, building up relationships over time, not nickel and diming and constantly questioning the supplier’s behavior.  We also see the opposite where companies hold a negative perception of  suppliers, wanting to know exactly how much was made on every transaction, threatening bad behaviors but not rewarding the good.

If you want to be an employer of choice, getting great people from your suppliers at the right price, start by monitoring your own consumption of labor and partner with your MSP to track the right metrics, ready to elevate suppliers who give you the best people at the best price, and lowering or removing the opportunities for suppliers who don’t partner well.

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Ron Hetrick

Ron Hetrick
Ron Hetrick is director of labor market analytics, Allegis Global Solutions.

Ron Hetrick

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