CWS 3.0: April 25, 2012

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Use Discounts Effectively to Manage Staffing Suppliers

Talk with any HR or contingent workforce professional and you’ll hear about the shortage of talent. But it doesn’t stop them from wanting to optimize their supplier list and apply discounts. The slow economic recovery has led buyers of staffing services to utilize multiple pricing strategies while giving suppliers enough opportunity to still be interested in delivering high quality workers.

But what strategies should you employ? Let’s talk about discounts and why they are so popular. Discounts are markdowns or concessions, and all buyers like those. With contingent workforce managers, it’s all about getting the best contingent worker deal while saving money. Discounts based on certain criteria are a great way to do that. There are numerous kinds: volume, tenure, overtime, FUTA/SUTA, pre/early-payment discounts and even rebates.

For instance, let’s take a bill rate-driven program. At the end of the year, if a supplier reaches a certain threshold in revenue from one customer, the customer could demand a rebate — X percentage back. Or with a pre-paid discount, the agreement could be that if the client pays the provider within a given period (10 days or less), then the client gets back a certain percentage. Sometimes it’s cash and others it could be the customer taking it off the invoice, the provider sends them.

Each discount strategy has value and a place in any program — but a word of caution. Too much discounting could negatively affect what most program owners and hiring managers have stated as their number one priority: quality.

For instance, let’s say you run your own shop. One of your clients purchases a high volume of goods/services from you. As a result, as a business owner, you feel good about giving a reasonable discount as long as you are still able to turn a profit. The increase to your bottom line enables you to provide a higher level of service, faster response times to their requests, and have one of your most qualified and dedicated account managers assisting the account. As a business owner you feel good about your delivery strategy. And as you get rewarded with more business, you feel even better and in return offer great service to support your best client.

Then it’s contract renewal time. The supplier does expect some discounting. But how much is too much?

If you expect a good relationship with your suppliers ensuring a quality talent pipeline, then limit how many discounting strategies you apply to a given supplier. Don’t squeeze suppliers. Suppliers that deliver candidates in niche skill sets that you would have difficulty getting somewhere else may warrant a discount strategy that takes that into consideration. While suppliers that provide workers across many basic skill sets may be in a better position to absorb volume discounts.

Buyers of staffing services should do a quality check and understand metrics like time to fill, turnover, and length of assignment statistics. Then, after you have instituted a deeper discounting program do another check and look for the tipping point when quality suffers thanks to lower cost. Regardless of your program spend, ours is a people business, purchased by people, managed by people and the delivery product is people. Finding the right strategy around discounts ensures you have happy suppliers, quality talent at reasonable prices and a successful contingent workforce program.

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