What are preferred or approved vendor lists in Staffing or MSPs
When large companies need to buy staffing services often, they select a few suppliers, negotiate and create a ‘preferred vendor list’ or an ‘approved vendor list’. This saves their employees time and effort when they need to make a purchase in the future as the research and vetting of the provider/supplier has already been done. Sometimes this is done with the help of a staffing MSP (Managed Service Provider).
Selecting the preferred vendor may include checking their reputation- online or reference checks with previous customers, evaluating their financials and certifications to ensure quality and reliability and negotiating pricing, terms and conditions. Once selected, these vendors remain on the ‘preferred vendor list’ for a few years or until they stop performing.
This is similar to what a consumer does when they sign up for a frequent flier program with an airline or for an Amazon Prime account. In exchange for their loyalty and commitment to buy from these providers, the sellers offer better prices, better services (Free 2 day delivery) and other discounts and benefits.
Some of the benefits companies get from having a preferred vendor list are
- Negotiate all terms and conditions of the purchase just once
- Obtain price discount for higher volumes
- Get better service level commitments from its suppliers for service, delivery times or problem resolution
- Receive dedicated account management (concierge like service) so they have someone at the supplier to take care of their issues without having to follow-up
- Better payment terms- ability to pay 30-60 days after receiving the items which improves their cash flow
Examples of Preferred Vendor Lists:
- Almost all companies use staffing agencies to hire temps or contractors. Many of them use a variety of different agencies that they end up hiring from depending on who the hiring manager was, what they were looking for, etc. but as the volumes rise and it starts becoming difficult to manage or know which vendor to use, the company's procurement department ends up doing an RFP and creating a preferred vendor list. for example - here is the list of Apple's preferred staffing agencies
- Citibank buys laptop computers for its offices. They will have a preferred vendor (someone like Dell, HP or Lenovo) with whom they negotiated for specific models they are interested in having for their employees. In exchange, the supplier may offer a steep discount, assure these laptop models are available in stock always by keeping a few extra ones in all Citibank locations worldwide, offer onsite next day service to fix broken computers and a 3 year warranty at no extra cost. All Citibank employees or procurement persons would now know which laptop computers to buy and from whom, and Citibank benefits from better price discounts and service.
- Coca-Cola buys a lot of TV advertising and so they would have consolidated all their media purchases through 1-2 advertising agencies. Its marketing employees know which preferred agency is on its preferred vendor list if they needed to buy a TV advertising slot and don’t need to research or negotiate one-off deals.
- IBM’s consultants travel a lot and need hotel rooms, airline tickets and rental cars. Its employees know which travel agency/website or provider to use for booking because it is listed on IBM’s approved vendor list.
Sometimes preferred vendor lists may also be selected for the benefits of customers and partners instead of employees. This is best explained as examples below.
- A wedding hall wants to make it easier for its customers to find providers and may maintain a list of preferred vendors for printing wedding cards, flower decorations, bakery for cakes, music bands, etc. The wedding hall benefits from not having to educate new service providers, ensuring satisfied customers and possibly referral fees from the other providers.
- SAP wants to ensure its customers find good consultants to implement SAP software else it may hurt SAP’s reputation if the customer doesn’t manage to do this successfully. SAP may therefore maintain a preferred vendor list based on company size, reputation, or geography- that have worked well in the past and recommend consulting companies on this preferred vendor list to its clients.