CWS 3.0: January 26, 2011 - Vol. 3.3

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Perspective Column: A Vendor by Any Other Name

By Erika Halverson

What's in a name? Does it matter? In Romeo and Juliet, William Shakespeare answers that question to illustrate that what something is called matters less than what that something is. However, a large percentage of companies still spend time attempting to create the perfect name by mixing and matching adjectives and nouns to help quickly identify their vendor relationship statuses and rankings. Consider, for example, such adjective-noun parings as approved suppliers, preferred vendors, or strategic partners.

Many companies become dependent on their vendors' designations for too long and forget how and why these vendors were originally placed. Long-term or lingering rankings and lists can actually decrease the amount of inquiry a company may conduct on its designated vendors; and sometimes strategic partners slip back to performing as acquaintances without anyone noticing.

Understanding Rankings

Defining crisp standards and characteristics of any named group that infers preference or status is crucial. Preference and status should be given to vendors that companies trust due to repeated performance and consistent evaluation. The deeper the knowledge of a vendor, the purer the definition to its ranking and the bigger value it brings to a company.

Depending on who's creating them, reasons for lists and rankings vary. Procurement rankings may be based on vendor rates, spend and volume, while HR lists may be defined by vendor tenure, manager feedback, and compliance levels. Rankings and lists by either group may be affected by relationships and powerful internal pressures. Previous relationships are one of the main reasons new vendors are added to ranked lists, and a high-level executive relationship can help expedite a company's due diligence process.

Do managers understand how their company's list was put together, by which team and for what purpose? Program inconsistencies, lack of clear ownership, unregulated exceptions, and assumptions can be detrimental to these rankings and lists. Companies need to define what these rankings are in order for managers and vendors alike to understand what is expected of these vendors.

Breaking it Down

How well should a company know its ranked vendors? Here are just some of the topics and questions that companies should consider when determining the depth of their vendor knowledge and relationships:

Recruiting model. How does the vendor recruit its employees? Does the vendor use W-2-only hiring, allow 1099s or sub-contracting? Does it utilize an on-shore or off-shore sourcing model? Does this affect its markup? Does the vendor pre-screen candidates before submitting resumes to your hiring managers? Does it have a sister vendor? Allow payrolling for self recruited workers? Is its payrolling markup/bill rate lower than its regular markup?

Benefits. Does the vendor offer benefits to its workers? If not, are markups or bill rates appropriately lower than those of vendors that do? What perks are offered its workers to help retain talent?

Visa/green card policy. What is the vendor's policy on sponsoring visas or green cards for contingent labor? Does it primarily work with visa workers? Will it sponsor a worker if your company requests it? How long has it worked with visas and green cards? Is it compliant to all the rules and policies surrounding international workers? Does your contract mandate that it's the vendor's responsibility to be?

Third-party relationships. Does the vendor consistently use other vendors to help recruit? What is its pass-through markup? Does it transfer the worker to its company or does the other company payroll the worker? Does the contract between your vendor and the third-party vendor mirror the responsibilities in your contract (specifically SLAs, indemnification and liability terms)? Are you allowed to see the worker's pay rate to ensure appropriate payment?

Bill rates and markups. Are the vendor's bill rates comparable with the market's? What is its overtime rate? Does it properly classify workers as non-exempt or exempt? What is its average bill rate per job title? How does it compare to other vendors? What is its average markup? Does it have aggressive and competitive bill rates or markups? Does it give volume discounts?

Spend and volume. Which skill sets/managers/departments/business units/office locations/countries within your organization have the bulk of the vendor's spend? Does the vendor provide low-cost/high-volume workers or high-cost/low-volume workers? Has this changed from previous years?

Rank tenure. How did the vendor first get on the list? Was it grandfathered in? Via executive support? Did it get subjected to a full evaluation? How long has it been on the list? When was the last time it was evaluated?

Contract. Was the contract drafted by your company or by the vendor? What year was the original contract signed? Has it ever been amended? Does the contract contain standardized terms and conditions? Are there any exceptions to its specific contract that do not apply to other vendors? Does it offer anything additional that its competitors do not? Is the contract limited in any way?

Compliance. Has the vendor complied with all contract requirements? Has the vendor passed all audits? Has it improved, stayed the same or gotten worse? Does the vendor understand all compliance issues involving its industry and contingent labor?

Manager feedback. Do managers regard this vendor as vital to their business? Have there been complaints? Has feedback improved, stayed the same or gotten worse?

What something is and how it's defined or characterized matters. Vendor ranking can lead to contamination and gradual deterioration if not consistently defined, evaluated and managed. Knowing your vendors and how to explicitly define "preferred," "Tier 1," "approved," "strategic," or "master" clearly communicates to managers and other vendors of your company's standards and values. What does "preferred" mean to your company?

Best Practices -- Vendor To-Do List

  • Define clearly your evaluation criteria with measurable and consistent standards
  • Publish internally a list of vendors that meet your criteria as well as those that do not
  • Re-evaluate the lists and all vendors every one to two years
  • Re-evaluate list criteria every one to two years; note any changes
  • Compare vendors year-to-year and indicate vendor improvements as well as slippage

Erika Halverson is project manager at Brightfield Strategies, a consulting firm advising Fortune 500 companies on CW strategy initiatives. She can be reached atehalverson@brightfieldstrategies.com.

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