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6 Big Blunders of Vendor Management Programs -- And How to Avoid Them

by Tim Waterloo

The premise is deceptively simple: gain control over staff augmentation administration and costs by implementing a centralized vendor management program. Eliminate that parade of vendors marching through the offices of all your hiring managers and bring those hourly rates down. A no-brainer, right?

Well, think again. It’s not only much more complex than it first seems, but also fraught with peril if it ignores the basic objective of staffing: acquiring good people. Yet surprisingly, many vendor management programs fall short in this fundamental area because of inherently flawed processes. Here are six blunders that I’ve seen result in ineffective programs that hurt the client - and most importantly, how to avoid them.

These pitfalls can happen in any type of vendor management program, as there are numerous names and variations, including:

  • “Preferred Vendor” or “Key Supplier” programs
  • “Managed Staffing” programs
  • “Vendor-Managed” or “Vendor-on-Premises” programs

While recognizing that each is different, the blunders apply universally - so for simplicity, this article will categorize all of them as “vendor management programs” (VMPs).

Big Blunder #1: Forgetting the Big Picture

As mentioned above, most programs zero in on reducing costs or internal administration headaches - undeniably important goals. But what’s the elemental reason you use staffing firms to begin with? To find good talent. Yet many VMP’s are structured in a way that stifles this - and by the time it becomes evident, it’s too late. For example, many programs will close a job requirement after receiving “x” amount of resumes. The reason is logical: to prevent overwhelming those who screen and review the candidates. After all, if they’ve got say, 100 resumes, certainly there’s a good candidate in there somewhere just by virtue of the odds. So what happens? Vendors are motivated to throw as many candidates as they can into the system as fast as they can before the requirement closes and they get shut out of the bid. Is this the best environment to foster diligent pre-qualification and presentation of only their best candidates? Of course not. Speed becomes the overriding focus and vendors are operating full-throttle on “fast as you can”, not “best that you can”. Two simple solutions: (a) impose a limit on the number of candidates each vendor can present for each requirement, say one or two, and (b) keep the requirement open for a reasonable time period, perhaps three to four days. Don’t emphasize speed over quality.

Big Blunder #2: Designing the Program in a Vacuum

Many VMP results are far less than their potential because two major constituencies are excluded from the program design phase: hiring managers and vendors. Both audiences have strong vested interests in seeing the VMP succeed. The hiring managers need good people at the best rates. The vendors want to deliver this (or else they won’t continue as a vendor). In the final analysis, that’s what company management wants too. HR wants safe and cost-efficient staffing solutions. So does Purchasing. Here’s a newsflash: we all want the same thing! An effective and efficient program that delivers good people, at fair rates, within a reasonable timeframe. Don’t assume we’re working at cross-purposes. Involve your best suppliers and your hiring managers in the design of the program. Listen to their suggestions and understand their needs. Explain yours. Incorporate the best ideas and best practices that each party offers. And watch your VMP succeed.

Big Blunder #3: Hampering Communications between All Parties

Good communication between hiring managers, the managed staffing personnel and vendors is critical, but some VMP’s are purposely structured to thwart communications. After all, it’s reasoned, keeping the vendors away from the hiring managers is a tenet of the VMP. However, vendors need good information and timely feedback on candidates. Without it, they will be shooting in the dark and recruiting qualified candidates will suffer. If a candidate is rejected, the full reason why is important - the vendor needs to become more knowledgeable with each presentation. This will increase the percentage of “targeted” resumes received on future positions. Now does this mean a return to a stampede of vendors throughout the office? No. There are others ways to ensure communications, such as requiring hiring managers to respond within a certain time period with detailed information. This can be readily accommodated with good program management tools/systems. It can be channeled through the vendor management personnel, if so desired, as long as an expedient process is in place. Lack of, or sketchy, information will undermine nearly every single objective of a VMP.

Big Blunder #4: Attempting to Manage the Vendors’ Business

According to the American Management Association, “organizational flexibility is highly desirable in many environments, but an over-emphasis on controls often gets in the way. Empowerment is an approach that maximizes flexibility” (Organizational Dynamics, June, 1997). Many successfully managed companies define overall organizational processes and goals, and then rely upon employees to manage their own responsibilities to achieve those goals. Successful vendor management programs are similarly structured. Share the program goals with your suppliers (i.e., quality consultants, cost reduction, streamlined hiring process, etc.), allow them to manage their business to deliver the results, and you will achieve program success. One example is billing rates. The competitive marketplace is a great regulator of fair billing rates, subject to basic supply-and-demand principles. Yet some VMP’s attempt to “manage the rates”, spending an inordinate amount of time and frustration, and in the long run simply “getting what they pay for”. The business of the vendors is getting today’s best people at today’s fair price - let them do it.

Big Blunder #5: Withholding Program Metrics from Vendors

Of course, this assumes solid, meaningful metrics are in place. Good consulting companies welcome comparative performance metrics and apply the information into improving their processes - resulting in better consultants for the client. By the way, the most important metric is consultant performance/hiring manager satisfaction - interestingly, most VMP’s don’t measure this.

Big Blunder #6: Creating a “Win/Lose” Situation

There’s an old Monkees song that includes this verse:

“I thought love was more or less a give-and-take…seems the more I gave, the less I got.”

It’s a refrain that many vendors in poorly designed VMP’s sing, as they realize they’re getting far less than their “fair share” of business despite investing a fair amount in the program. It’s important that your vendors’ recruiters are motivated to work on your requirements. How can you help in this area?

  • Reasonably limit the number of vendors - you want a healthy, competitive environment, but crazy amounts like 30,50 or 100 vendors (and yes, I’ve seen it happen) are just that: crazy. Vendors simply can’t afford to commit recruiting resources to your account without a chance at a reasonable amount of business. (One placement a month is not a reasonable amount of business.)
  • If you expect suppliers to pay for a portion of the program, give them something in return. Many VMP’s impose fees of some sort on the vendors for the program management - are they truly given a good shot at additional business compared to pre-VMP?
  • If you expect to receive lower rates from suppliers, lower their cost of doing business with you. It sounds elementary, but often clients do the opposite. I’ve seen clients increase supplier costs by requiring additional unwarranted insurance coverage, even though the basics of the business transaction are unchanged. How can you lower vendors’ cost of doing business? For one, ask them. Here are some other ideas:
    • Make sure the Requirements Process is well defined and easy from the get-go and stick with it - laborious or constantly changing processes add costs.
    • Provide timely feedback and responses to vendors - if vendors are left in the dark, they will keep expending efforts that may be futile (and costly).
    • Pay your bills on time or early - lower receivables translate into lower costs.
    • Don’t burden vendors with elaborate reporting requirements - again, the less time spent on “frills” the lower the cost of doing business with you.

I’ve said it a number of times, but once more for emphasis: your vendors will lead you to your goals. They truly do want to participate in a win-win program and can help you design a successful one. Like any well-executed initiative, upfront collaboration not only taps the “best of the best” ideas but also secures buy-in from all involved parties. Mutual respect goes a long way - vendors realize your tasks are not easy and neither is theirs. Keep the definitive goal in mind: quality talent - that’s what will help you gain competitive advantage. The result? The best people, fair pricing, thrilled IT hiring managers, a successful program and the loyalty of your area’s best IT consulting firms. Now that’s a goal to strive for!


Tim Waterloo is president of Oak Enterprises.
Tim welcomes your comments by phone at 630-858-4443 or by e-mail at tim@oakenterprises.com.

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