If you have read any of my previous articles or seen any of my presentations, you already know that I have a passion for pricing strategies. I believe that identifying the optimal balance of price, service, talent and program possibility is more an art form than a professional discipline. The process of identifying solutions to vexing program problems is a creative endeavor of the highest order. But unfortunately, too many managers don’t approach their programs with the mindset, which I think is due to a lack of information about what it takes to create an extraordinary program. While there are many techniques and tools to help companies in that journey, here I will address building supplier rate strategies.
Regardless, program owners can’t reach the point of creativity without first having a firm understanding of the basics that go into building a successful rate card and structure. Here are some of the basics each program owner should know.
Volume. This may sound obvious, but you first need to understand your program spend volume. This means not just the amount of dollars flowing through your program historically, but what that number may look like in the future and the types of events that may affect it over time. Further, it is critical to know the geography of your spend. I was once conducting a briefing with a company that was in the throes of an RFP exercise. The company wouldn’t identify the geographic nature of its spend, but was requesting firm pricing for a fixed bill rate card. Needless to say, the RFP saw an almost 90 percent no-bid rate from the suppliers.
Types of roles. What are the types of roles under consideration? Ideally, the role information would include a complete job description with headcount data and workers’ compensation coding — otherwise known as the NCCI code. If at all possible, these codes should match what your risk management department assigns to similar roles within your company. I can speak from personal experience that making sure the coding is correct can result in significant savings under the right circumstances.
Tenure. How long are your engagements? Do you have a number of shorter assignments or is your average contingent tenure more than one year? As you can imagine, longer tenures translate to more attractive opportunities.
Turnover. How many new requisitions are there in a month? In a week? And how does this change throughout the year? Do you have peaks of furious activity followed by periods of slow to no new business?
Service expectations. What is your company’s service culture? Does it require high-touch support and service? If you have a vendor management system, do your hiring managers use it or are they still picking up the phone for every requisition? Not knowing the company culture and service expectations is one of the more common reasons programs fail. Most often this dissonance occurs when the client expects four-star service for a no-star price, and the results can be disastrous.
VMS/MSP strategy. Are you planning to implement a VMS or MSP? If so I, would recommend holding off on any sourcing activity until after the program is implemented. The reason is twofold. One, it is not fair to ask suppliers to commit to a rate card only to hit them up later with an MSP/VMS fee. Second, and most important, many suppliers work well in a direct relationship but fail miserably in a VMS or MSP construct, or vice versa.
Talent draw and market power. You also need to understand your company’s standing in your local markets where you truly compete for talent.
These are just a few of the critical considerations you need to address when creating a rate card. To truly understand how to create the ideal program takes a deep understanding of the core elements of your program and how they work together to present the most attractive opportunity for your prospective suppliers. By doing your due diligence in the spirit of partnership and mutual success, you can best set yourself and your program on the path for the long term.