Why Is Dynamic Tiering So Important for MSP Programs?

Jim Humrichouse Blog

For too long, contingent labor supplier selection was driven by legacy, relationships, and factors that weren’t always informed by data or based on facts. In short, it was an immature process that didn’t maximize value to staffing buyers or contribute to their longer term strategic goals.

Over our next series of blog posts, Pinnacle will cover the critical topic of utilizing data to drive better decisions within your contingent labor program – including supplier management , executive level reporting, and other critical topics.

Let’s start with a background on the history of supplier selection to understand the importance of a fair and data-driven process.

Generation 1: Single Tier

In the early years of Managed Service Providers (MSP) and Vendor Management Systems (VMS), new job requirements were often shared with all suppliers at the same time and on an even playing field. However, that presented a whole host of issues. The main problem with this approach was the amount of wasted effort by too many suppliers. This led to fewer opportunities for volume-based pricing, too much work for hiring managers, and too many under-qualified candidates. Additionally, the same candidates were often being contacted by multiple suppliers, leading to candidate ownership issues. These frustrations caused unnecessary conflict and a general discouragement with the process for many suppliers, and failed to maximize value for clients. Something had to be done.

Generation 2: Multiple Tiers

A relatively simple fix was to classify suppliers into tiers based on performance levels, skill categories, or sometimes both. In many ways, this was a great solution. Now, instead of having too many suppliers and not enough qualified candidates, this new allocation method enabled improved volume-based pricing, less wasted effort, and better overall supplier performance. However, the weakness of this approach was that it typically placed too much value on historical success and favored incumbent suppliers, and gave minimal opportunity to new (and potentially effective) suppliers. There was very little movement between the supplier tiers, which resulted in top tier suppliers feeling little pressure to improve their services while smaller suppliers had little incentive or ability to grow. The goal of one day achieving tier 1 status was not realistic for most suppliers.

Generation 3: Dynamic Tiering

Many advanced MSP programs have advanced beyond simple Gen 2 tiering and into dynamic tiering informed by data. Data has taken the human element out of supplier choice with the evolution of business intelligence engines. Now suppliers are evaluated in real time on a job-by-job basis. Their performance determines which future job requirements they get, using data that evolves daily. This more sophisticated, data-driven approach allows for newer and/or smaller suppliers to prove themselves by performing well in the (initially) limited number of roles they are offered, while encouraging larger suppliers to constantly improve their performance and keep their top personnel on the account. This approach continuously refreshes the supplier pool as capabilities and supplier personnel evolve. A world where actual supplier performance is used as the standard for earning future opportunities is the most effective outcome for staffing buyers and also rewards the highest-performing suppliers with additional opportunities.

Check out the next post in this series, which focuses on how to implement dynamic tiering in your MSP. It sounds daunting, but with a few important steps in the right direction it can be much more manageable.