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

Transcription

1 Best Way to Implement a Pricing Strategy Bill Rate vs Mark Up Kirk Reade Global Subcontract Services Strategist

2 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 2

3 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 3

4 The end-to-end process and tool set integration is progressing well towards completion in 2012 Hiring Requester begins resource search Hiring Approval is given Subcontractor candidates identified and chosen Central On Off Boarding process Clients, Procurement, HR use analytics to evaluate strategies TALENT MARKETPLACE FINANCIA APPORVALS CSA ON OFF BOARDING SLIC 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: final deployment plan: CSA T&M deployed in 42 of 44 countries CSA Lite deployed in 9 of 24 countries Next: complete CSA T&M deployment by YE; deployment of CSA Fixed Price in Japan and expand to other FP countries 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

5 Discussion Question What is the best pricing strategy? 5

6 Where is the market today? Key Findings from the 2011 SIA Buyer Survey - 6 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 In addition, large increases were seen in the use of two rate structures: max bill rates and open bill rates. BP3 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.

7 Slide 6 BP3 I'll insert some graphs from the data Bryan Peňa, 8/20/2012

8 What goes are you paying for? What goes into a bill rate? Gross Margin Markup Statutory Expenses Operating Expenses/Profit SUTA/FUTA/FICA/WC Pay Rate Direct Pay to Worker 7

9 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. 8

10 What are other buyers doing? 64% Staffing agency rate structures 53% 44% 43% 36% 24% 15% 14% Max Bill Rates Pay Range Plus Markup Open Bill Rates Fixed Rates Per Job Title Source: SIA 2011 Buyers Survey 9

11 Pro /Con of Bill Rate vs. Mark Up Pricing Strategy Pro Con Fixed Bill Rate Ceiling Protection Predictability Job Category Specificity Less Downside Misclassified Candidates Recruiters Not Incented Max Bill Rate Ceiling Protection Misclassified Positions Recruiters Not Incented Possible fill rate issues Open Bill Rate Market Rate No rate protections Volatility Pay Rate /Mark UP Pay Parity Pay rates may edge upward Misclassified Candidates 10

12 A New Way to Price. 11

13 The Next Generation of Pricing? Size and scale can allow you to rethink your pricing strategy, beyond the rate matrix vs margin model 12

14 We are using the results to manage pricing All Clients All Skills All Clients Application Developer 13

15 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 14

16 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 Management with heightened focus on Quality and Growth Markets EQUILIBRIUM Integrated end-to-end and Smarter Services Supply Chain with Equilibrium pricing and Efficient operations SMARTER Labor rate dynamics increase 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 Development management system with focus on strategic suppliers 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

17 Equilibrium Pricing is a natural next step in the evolution of our strategy PRICE COMPETITIVENESS CSA deployment and utilization COMMODITIZATION - Taxonomy - Matrix Pricing - Fair value management Disruptive Plays Incentive Pricing COMPETITION - Taxonomy RFPs - Supply Base streamlining - Core supplier set up - Margins minimized DEEPER RELATIONSHIPS - Supplier partnerships - Client partnering - Compliance mandates EQUILIBRIUM PRICING Supply - Competition at request level - Decoupling of intermediaries Demand - Demand forecasting - Demand planning Analytics & MI - Predictive models and state of the art analytics SLMT tools and processes Quality Mgmt System SLIC and other Analytics QUALITY COMPETITIVENESS

18 Questions? 17

19 Thanks! 18