SI Review: May 2013

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Straight Talk From the Customer

Stand Out

Differentiating your services in the bid process and beyond

By Mark M. Reed

AARP had enjoyed a very good relationship with our payroll services provider, which we migrated to several years ago when we implemented a VMS solution and outsourced daily operations to an MSP. In gearing up for a new competitive bidding process, we discovered that much of the knowledge about this spend category and the supply market transitioned to our external partners, making it a challenge for our internal bid team to quickly identify and assess potential cost and service improvement opportunities.

I suspect other companies may be in the same boat, which presents a great opportunity for prospective and incumbent suppliers to distinguish themselves in the bid process by becoming a reliable source of information, options and best practices. If you can put options on the table that drive cost reductions and mitigate risk while maintaining overall service quality, you at least have a shot!

Markup. Don’t assume that the HR stakeholders or even their procurement support understand how the industry works. The best place to start is with markup: often folks overreact to the initial markup percentage without understanding that the majority is absorbed by taxes, and that supplier margin is typically just a small fraction of the total. So have a visual prepared that breaks down the major elements of the markup.

Then you can discuss in detail those components that are variable — and typically dictated by the customer, such as healthcare, vacation and retirement benefits. Customers that have not bid payroll services or contingent labor recently may well be surprised at what is or is not being provided.

As either the incumbent or prospective supplier, you can really earn some trust and credibility by not only helping folks understand these levers, but also what the options are — and how other clients have addressed some of the same challenges. For example, if an organization wants to ensure it is partnering with a payroll supplier that provides access to affordable healthcare, there are solutions that range from what amounts to essentially customer paid or subsidized (via a higher markup), to those that are funded completely by the payroll associate. Even if an RFP dictates a certain solution or requirement, make sure you price the option requested AND provide alternatives that could accomplish the same end.

Exemption status. Another area I think organizations would appreciate help with is exempt/nonexempt classification, which dictates if overtime is required and creates a lot of risk if folks get it wrong. Most companies don’t maintain dedicated legal counsel that specializes in this area. Connecting your attorney with the prospective customer’s legal team can often help accelerate the decision and contracting process. This is not to provide a customer with legal advice, but simply to educate them on current laws, issues and prospective solutions based on what others have done. One benefit that came out of these discussions for AARP was the opportunity to be more specific in the job descriptions we provided. Where they were vague, it became a much bigger issue on whether or not a position was clerical and administrative versus professional, and either fell into the exempt or nonexempt category.

To be fair, this approach only works if your offering is cost competitive too. As a CPO, I am rarely a fan of the lowest bidder. My team and I use the bid process to establish a market rate, and expect providers to end up within a few percent points of one another once price negotiations are completed. We then can take price off the table as a key decision criteria, and select the supply partner who we are most comfortable with and believe gives us the best chance of success.

We were absolutely delighted with the service provided by our prior incumbent — but learned through the bid process that their solution had not kept up with the market, and that they could not close the gap. It was the right business decision to make the change, but it was heartbreaking. So don’t be complacent! Stay on top of your industry, continue to grow and gain efficiencies to stay cost competitive, and then use some of this free advice to help differentiate your company from the rest of the market. I wish you every success.

Mark. M. Reed is chief procurement officer, procurement and contract management with AARP.

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