best way to implement a pricing strategy – bill rate vs ......best way to implement a pricing...

IBM Integrated Supply Chain – Technical Services Procurement

Best Way to Implement a Pricing Strategy – Bill Rate vs Mark Up

Kirk ReadeGlobal Subcontract Services Strategist


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Agenda

About IBM Discussion: What’s a “fair” price?

What goes into a bill rate. Where is the market today Bill Rate vs Markup – is that really the question what about

Gross Margins and the supplier sourcing model Next generation pricing model for high end skills Auctioning at the transaction level


About IBM

Globally integrated internal MSP Program Global Procurement Chair supported by a team of global strategists

and geo/country leadership teams $6b++ in total spend

Key Geos with Procurement Leadership North America EMEA LA AP Japan

Internally developed VMS (CSA) in 50+ countries Pricing Models

Technical Services, Complementary Workforce, and Business Services

Agency vs Software House country models

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Clients, Procurement, HR use analytics to

evaluate strategies

Hiring Approval is given

Subcontractor candidates

identified and chosen

Central On Off Boarding process

Hiring Requester begins resource

search

The end-to-end process and tool set integration is progressing well towards completion in 2012

SLICFINANCIA APPORVALS

CSA ON OFF BOARDING

TALENT MARKETPLACE

Progress: integration enabling data flow; correct resource (incl. subk) capacity, integration with Siebel

Next: integration with engagement costing tools, demand plan integration

Progress: fully deployed in Europe, 90% in AP; integrated with the SLMT toolset providing streamlined execution and visibility; supports the process through predefined stakeholder criteria and visibility to resource balancing actions

Next: complete Americas rollout in 2012

Progress: live in 44 countries; 85% adoption; consistent global process and a central support organization (in Manila, with some one-off exceptions)

Next: sunset other local tools

Progress: supplier quality and CSA metrics; redefined existing metrics, Metro and OOBT reports; new Procurement filters

Next: Spend Cube –flexible PO and Spend reporting, CWF spend, new SCS metrics deployed

Progress: finaldeployment plan:

• CSA T&M deployed in 42 of 44 countries

• CSA Lite deployed in 9 of 24 countries

Next: complete CSAT&M deployment by YE; deployment of CSAFixed Price in Japanand expand to other FP countries


Discussion Question

What is the best pricing strategy?

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Where is the market today?

Key Findings from the 2011 SIA Buyer Survey -

A strong majority of buyers – 84% - use a vendor bidding model in which opportunities are distributed to a select group of primary staffing agencies, who may in turn subcontract some jobs.

Nearly two thirds of buyers – 64% – said that they cap bill rates. An additional 44% and 43%, respectively, of buyers said they use a “pay range plus mark-up” structure or use open bill rates.

Since 2007, the use of all types of vendor bidding models has increased, but the use of primaries has increased most dramatically, from 41% of buyers reporting use in 2007 to 84% in 2011. In addition, large increases were seen in the use of two rate structures: max bill rates and open bill rates.

•Use of open bidding models varies positively as a function of buyer spend, although not at the expense of any of the other vendor bidding models. Use of structured tiers likewise increases as a function of company size.

BP3

BP3 I'll insert some graphs from the dataBryan Peňa, 8/20/2012


What goes are you paying for?

What goes into a bill rate?

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Pay Rate

Statutory Expenses

Gross Margin Operating Expenses/Profit

SUTA/FUTA/FICA/WC

Direct Pay to Worker

Markup


What pricing strategies are there?

Bill rate-Open/Fixed/Max Pay Rate Plus Mark up

But some others are… Fixed $ per unit/output Fixed $ per unit/time Flat rate per day/week Gross Margin based pricing Etc.

* for the purposes of this session we will focus on baseline pricing and not address discounting strategies.

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What are other buyers doing?

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64%

44% 43%

14%

24%

53%

15%

36%

Max

Bill Rates

Pay Ra

nge Plus

Marku

p

Open Bill Ra

tes

Fixed Rates Per

Job Title

2007 2011

Staffing agency rate structures

Source: SIA 2011 Buyers Survey


Pro /Con of Bill Rate vs. Mark Up

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Pricing Strategy Pro Con

Fixed Bill Rate Ceiling ProtectionPredictability

Job Category SpecificityLess DownsideMisclassified CandidatesRecruiters Not Incented

Max Bill Rate Ceiling Protection Misclassified PositionsRecruiters Not IncentedPossible fill rate issues

Open Bill Rate Market Rate No rate protectionsVolatility

Pay Rate /Mark UP Pay Parity Pay rates may edgeupwardMisclassified Candidates


A New Way to Price…….

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The Next Generation of Pricing? Size and scale can allow you to rethink your pricing strategy, beyond

the rate matrix vs margin model


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We are using the results to manage pricing

All ClientsAll Skills

All Clients Application Developer


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Lets add a bit more to it… Transactional Reverse Auctioning (lite) At the transaction level for each T&M placement Allow suppliers to see the current lowest rate submitted by the

competing suppliers Internal requesters see the response sorted by price first What we have seen since the program began


SMARTER Labor rate dynamicsincrease focus on MI, analytics and tools to stay ahead of the

game

Data Analytics capabilities significantly expanded and incorporated in client R&CM and sourcing work

Supplier Developmentmanagement system with focus on strategic suppliers

In short we want to establish an Integrated end-to-end and Smarter Services Supply Chain with Equilibrium Pricing and Efficient Operations

INTEGRATED • SLMT tool set deployment and

integration progressing well towards 2012 finalization

CSA successfully deployed in 50 of 68 countries with 92% utilization (where deployed)

Improved Client Managementwith heightened focus on Quality and Growth Markets

EQUILIBRIUM • CSA Auctions continue to proof

its value in deployed countries. Solution designed for multi-core

agency and SW markets

New Incentive Pricing Model designed, tested in the Nordics and being incorporated in RFPs

In 2011, the Procurement led a pilot has expanded the ‘CrowdSourcing’ concept

EFFICIENT • Global ownership in all positions (work streams, metrics).

CWF support centralized in Sourcing Hubs by ye 2011

TS Sourcing Hub support successfully piloting staff augmentation centralization

Integrated end-to-end and Smarter Services Supply Chain with Equilibrium

pricing and Efficientoperations


Equilibrium Pricing is a natural next step in the evolution of our strategy

PRICECOMPETITIVENESS

QUALITYCOMPETITIVENESS

COMMODITIZATION- Taxonomy

- Matrix Pricing- Fair value management

COMPETITION- Taxonomy RFPs

- Supply Base streamlining

- Core supplier set up- Margins minimized

DEEPER RELATIONSHIPS

- Supplier partnerships- Client partnering

- Compliance mandates

EQUILIBRIUM PRICINGSupply

- Competition at request level- Decoupling of intermediaries

Demand- Demand forecasting

- Demand planningAnalytics & MI

- Predictive models and state of the art analytics

SLMTtools andprocesses

Disruptive Plays

Quality Mgmt System

Incentive Pricing

SLIC and other Analytics

CSA deployment and utilization


Questions?

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Thanks!

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