VMS: the myth of vendor neutrality

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Opinion piece by Steven Baruch, SVP Adecco Group North America March 2008

Managing a sizable contingent workforce in a large, diverse enterprise has evolved considerably over the past decade. The growing volume and complexity of contingent labor spend paved the way for a technological revolution and traditional staffing companies were slow to react. To fill the void, independent web-based Vendor Management Systems (VMS) emerged to provide procurement applications that automate requisitions, payments, record keeping and compliance, allowing companies to evaluate and control vendor costs and performance.

In January, the bankruptcy of Ensemble Chimes Global, one of the world’s largest providers of vendor management services caused the industry to reconsider the risk/reward ratio of VMS. As companies scrambled to collect hundreds of millions of dollars worth of outstanding bills as a result of this crisis, concerns arose about the risks of placing a great deal of control in a third party’s hands. The risk of outsourcing is evident post-Ensemble Chimes, but issues with the VMS model run deeper.
 
The original VMS value proposition, which included entirely replacing human intermediation with a “technology-only” solution, largely failed to meet expectations. It quickly became clear that experienced program design, deployment, and management services in addition to technology were necessary. This expertise became available as a “value-added service” from many of the companies selling the software platforms. Managed Services Providers (MSPs) — firms that handle all aspects of contingent staffing and manage a subset of staffing vendors under a master contract with the client company — powered by sophisticated VMS platforms, offered both process automation along with capable human intervention.
 
Many of these programs were touted as being independent and neutral of any staffing company, promising to reduce the administrative burden while simultaneously eliminating the “fox in the henhouse” effect. The concern revolves around the fear that a client’s best interests may not always be served when a service provider also staffs a program. A Vendor Neutral Program (VNP), administrated by a disinterested third party, was a solution to address this concern. Unfortunately, while the VNP solution met the commitment of reducing administrative workload, it failed to deliver on its core promise of vendor neutrality.

Myth vs. reality.
It is widely accepted that many orders from VNP programs are actually filled long before they ever get to the complete community of suppliers. The MSP program office, under the guise of neutrality, often works with its favorite vendor partners to better manage demand from key internal customers. They are simply motivated or obligated to do so in order to meet the often daunting Service Level Agreements (SLAs) of the program. The Program Manager will regularly, yet surreptitiously, alert their favorite vendor or vendors to upcoming needs in advance in order to activate their recruiters. The reality is that as soon as the orders actually hit the Program Management Office, a chosen few are already prepared to submit qualified candidates. There is often a limit to the number of candidates a PMO will accept for a given vacancy. And quite telling is the fact that it’s common for that number to be reached within seconds of the distribution regardless of how specialized the position or how tight the current labor market.

Also widespread is the case where hiring managers themselves, often in violation of the tenets of the program, maintain discrete relationships with their favorite vendors. They are alerted directly as needs arise and coordinate the supplier and candidate selection under the radar. From the outside looking in, one would again be perplexed as to the incredible fill speed for otherwise difficult-to-fill positions. It just sounds too good to be true, because in both cases, it is.

So then why all the buzz around vendor neutrality?
There are about 10 billion reasons why — that’s roughly the amount of spend flowing through third-party MSPs. Their business model relies on the disintermediation of the traditional client-supplier relationship and uses neutrality as the burning platform. They heavily propagate the perception of the unscrupulous staffing company and insinuate foul-play because a percentage of every dollar flowing through these “neutral” systems is retained as a fee and becomes their source of revenue.

These companies are motivated to disrupt the relationship between the staffing company and client to create a space for themselves in the value chain. Rather than address the true root cause of insufficient process transparency, these companies have attempted instead to insert themselves in the process. But clients are now learning that they can achieve measurable process visibility without a third party and for many of these service providers, their house of cards is beginning to collapse.

Who gets the talent?
Our current labor market is one in which demand in many geographies and skill categories is surpassing supply. This is particularly true in higher skilled professional categories. Now put yourself in the shoes of a specialty staffing company on the receiving end of a request from a Vendor Neutral Program (VNP). Your recruiting costs have continued to rise with the diminishing supply of talent. And you are receiving far more orders than you have candidates with which to fill them.

  • You get a somewhat random request for a candidate, and along with it receive:
  • No guarantee that you’ll get an order
  • No ability to talk to the hiring manager
  • Only a job description from which to work
  • And a pretty good chance the order request you’ve received has already been filled!

You might still submit a candidate; but would it be your top talent? Now let’s say that you’ve done this exercise 10 times and still haven’t earned a placement. Are you going to continue participating in the process, or are you more likely to disengage? How many suppliers can a client afford to alienate in a tightening labor market? Moreover, how long before the hiring manager works around the system, seeks out their own candidates, and the program collapses?
Back to basics.

The goal is to the get right candidate in the right place at the right time for the right price. If this can be accomplished with full visibility into the program and complete transparency in the process, what’s the value of vendor neutrality? In fact, vendor accountability is far more valuable than vendor neutrality. The ability to hold key vendors accountable to delivering top talent consistently is far more powerful, but requires that suppliers are made a part of the solution, not kept at arms length. The predictability of demand and the specific recruiting costs are key cost and performance drivers on the supply side and must be considered. A program should meet a mutually beneficial equilibrium defined by a clear set of program guidelines. Measurable process integrity will motivate all parties and, as a core foundation of a program, will lead to a more effective workforce solution.

The key to success is having a clearly defined process supported by technology that provides transparent reporting to all key stakeholders. Add to this a community of selected suppliers who are invited into the process and have confidence in the authenticity of the solution. A “three-in-a-box” approach where the client, the MSP and the supplier community are all working in unison to accomplish the goals of the program is the optimal solution.

Supplier partners who provide better talent consistently should be rewarded. Perhaps they are elevated to a higher tier or given preferred vendor status. Those who fail to meet expectations should run the risk of downgrading or de-selection. The key is that everyone is fully aware of the expectations, understands the measures and believes in the integrity of the system. Here true equity, objectivity and accountability (versus false neutrality), can be achieved.

In the end, suppliers are ultimately responsible and accountable for delivering the right talent to an organization via an MSP and as such should be optimized, not neutralized.

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