A new approach to managing preferred vendors

Guest post by Joe Golemo

One large local financial institution recently decided to dramatically revamp their preferred IT vendor list. They had issued an RFP to about 60 vendors and after 7 to 8 months of cogitating, decided to significantly reduce the number of preferred vendors -– in fact the number on the new list is exactly 12 –- 5 on the first tier and 7 on the second tier for each region of the country!

Word has it the IT organization put this plan in place for some very specific reasons:

• Develop common pricing for each position – a smaller number of vendors is easier to manage, but its even easier still when you issue a rate sheet to the vendors as this company did.
• Eliminate pass-throughs – why pay gross margin to two vendors when you don’t have to?
• Assure each preferred vendor does enough business to reach the higher levels of the revenue-based discount schedule. 

Here is how the process is supposed to work:

1. The Hiring Manager enters a position description into the VMS system.  If he receives at least five resumes from the first tier vendors and at least one person is qualified, the hiring manager must hire one of these consultants.  If the Hiring Manager doesn’t get five resumes or gets five from the first tier and none are truly qualified for the position, he must go to the second tier.  However, when goes to the second tier, the first tier vendor gets a dink in the helmet and with enough dings, the submitting vendors are in danger of being thrown off the list.
    
2. In order to enforce the no pass-through rule, hiring managers cannot even speak with IT firm that are not on the approved list.  If one of the approved firms is approached by a hiring manager or by an unapproved consulting firm with a pass-through deal, they are required to inform procurement about the situation so the hiring manager can be reprimanded.  If they don’t, they risk being thrown off the list.  If procurement finds out they did a pass-through anyway, they will be thrown off the list.
    
3. BTW, Account Executives (AEs) from the approved vendors are encouraged to create an on-site office and to meet directly with each hiring manager in order to understand specific and on-going needs, etc.  None of that “all communication must go through the central VMS system” for this company.  Although in this case, the AEs might welcome this rule as the volume of openings is overwhelming.  This company told the preferreds they will receive hundreds of openings per month!!  Over 400 consultants rolled off during the first few months of this new system due to their policy limit of 12-months of billable time per consultant.
4. The preferred vendors are evaluated every week and the many metrics are closely watched.  The first tier firms must have a placement for every three resumes submitted.  And, most of their consultants must be W-2 employees – they can only have a low percentage of 1099.
5. This is definitely a higher volume, lower margin approach and clearly, there are great long-term rewards for performing and following the rules and great risk for the opposite.

What do you think of this approach?  Will the IT department's stated goals be met?  Or is this whole thing just an excuse to make it so difficult to find local talent that IT managers decide to take the work offshore, as the rumor mill states?  Let me know what you think -- leave me a comment below, or email me.

--Joe Golemo

Joe Golemo is vice-president of business development at Charter Solutions, a Minneapolis systems integration firm, and a seasoned business development and management executive with more than 25 years of IT industry experience.  He has been a manager and vice president in companies such as IBM, BORN, Connect Computer Company, and is.com, starting as an IBM engineer. He has a BS in chemical engineering and an MBA in finance and strategic planning and currently serves as board chair for Starbase Minnesota, a not-for-profit organization whose mission is to get disadvantaged youth interested in science, math and technology.

Comments

[David Russell]

As a professional recruiter in the generalist staffing field I think the organization you are speaking with is going to fail. In theory it sounds great, small amount of vendors, less red tap, etc.

This is the real world and we not dealing in wigits we are dealing in employees and talent. It is crazy for someone not to be able to look at the entire list of available talent that is presented thru a reasonable list of qualified vendors. I think a thorough prescreening of the companies that the organization is considering and putting them in competition is the best approach. The clients normally hold all the cards if they make sure they have contracts that cover all situations. Large corporations like easy answers to complex problems. I think mine is pretty cut and dry.

Or your rumor mill could be correct ;)

Have a great weekend folks - David Russell