IBM Integrated Supply Chain – Technical Services Procurement
Best Way to Implement a Pricing Strategy – Bill
Rate vs Mark Up
Kirk Reade
Global Subcontract Services Strategist
IBM Integrated Supply Chain – Technical Services Procurement
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
IBM Integrated Supply Chain – Technical Services Procurement
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
IBM Integrated Supply Chain – Technical Services Procurement
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
TALENT
MARKETPLACE
FINANCIA
APPORVALS
Progress: integration
enabling data flow;
correct resource (incl.
subk) capacity,
integration with
Siebel
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: integration with
engagement costing
tools, demand plan
integration
Next: complete
Americas rollout in
2012
Subcontractor
candidates
identified and
chosen
Central On Off
Boarding
process
CSA
ON OFF
BOARDING
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
Clients,
Procurement, HR
use analytics to
evaluate strategies
SLIC
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
IBM Integrated Supply Chain – Technical Services Procurement
Discussion Question
 What is the best pricing strategy?
5
IBM Integrated Supply Chain – Technical Services Procurement
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. 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.
6
Slide 6
BP3
I'll insert some graphs from the data
Bryan Peňa, 8/20/2012
IBM Integrated Supply Chain – Technical Services Procurement
What goes are you paying for?
 What goes into a bill rate?
Gross Margin
Markup
Statutory Expenses
Pay Rate
7
Operating Expenses/Profit
SUTA/FUTA/FICA/WC
Direct Pay to Worker
IBM Integrated Supply Chain – Technical Services Procurement
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
IBM Integrated Supply Chain – Technical Services Procurement
What are other buyers doing?
Staffing agency rate structures
64%
53%
44%
43%
36%
24%
2007
Source: SIA 2011 Buyers Survey
9
2011
14%
Fixed Rates Per
Job Title
Open Bill Rates
Pay Range Plus
Markup
Max Bill Rates
15%
IBM Integrated Supply Chain – Technical Services Procurement
Pro /Con of Bill Rate vs. Mark Up
10
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
IBM Integrated Supply Chain – Technical Services Procurement
A New Way to Price…….
11
IBM Integrated Supply Chain – Technical Services Procurement
The Next Generation of Pricing?
 Size and scale can allow you to rethink your pricing strategy, beyond
the rate matrix vs margin model
12
IBM Integrated Supply Chain – Technical Services Procurement
We are using the results to manage pricing
All Clients
All Skills
13
All Clients
Application Developer
IBM Integrated Supply Chain – Technical Services Procurement
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
IBM Integrated Supply Chain – Technical Services Procurement
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
•
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
SMARTER Labor rate dynamics
increase focus on MI, analytics
and tools to stay ahead of the
game
Integrated end-to-end and
Smarter Services Supply
Chain with Equilibrium
pricing and Efficient
operations

Data Analytics capabilities
significantly expanded and
incorporated in client R&CM
and sourcing work

Supplier Development
management system with focus
on strategic suppliers
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
IBM Integrated Supply Chain – Technical Services Procurement
Equilibrium Pricing is a natural next step in the evolution of
our strategy
PRICE
COMPETITIVENESS
Disruptive Plays
Incentive Pricing
DEEPER
RELATIONSHIPS
- Supplier partnerships
- Client partnering
COMPETITION
- Compliance
- Taxonomy RFPs
mandates
- Supply Base
streamlining
SLMT
- Core supplier set up
tools and
- Margins minimized
processes
CSA deployment
and utilization
COMMODITIZATION
- Taxonomy
- Matrix Pricing
- Fair value management
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
QUALITY
COMPETITIVENESS
SLIC and
other Analytics
Quality Mgmt System
IBM Integrated Supply Chain – Technical Services Procurement
Questions?
17
IBM Integrated Supply Chain – Technical Services Procurement
Thanks!
18