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10 tips for setting up a Preferred Supplier List (PSL)

9 February 2016

1)  How Many Suppliers?

Quite often, companies are use a number of different temporary agency labour providers. The optimum number for a company have is quite difficult to define as this depends upon a number of factors including; geography, skills required and the number of different locations your business operates in. As a starting point, it is advisable to have at least 3 companies who can provide the required skills in each of your locations (this could be 3 different agencies in each location, or 3 across all). Working in this way ensures that you will have access to the required skills and keeps the competitive nature of having more than one supplier.

2)  Capability to Supply the Right Workers in the Right Locations

Geographic capability and ability to supply the right skills should be assessed as part of a due diligence process to ensure that your Preferred Supplier List has the capability across all current and potential projects.

This can be done by putting out a Request for Information (RFI) to your temporary agency labour agencies and asking them to respond highlighting the areas that they work in.

To verify this information, it is also worth surveying your hiring managers to ask them what sort of service they have received from these agencies in the past and whether their responses reflect this.

This is also good opportunity to ask for copies of insurance documents, audited accounts and to check for financial stability.

3)  Centralising the Ordering Process

Centralising the management and engagement of temporary agency labour will not only ensure a standardised process is achieved, but will also stop new agency suppliers from being engaged on their own terms, minimising compliance risk and the risk of increased margins being charged.

It is possible to achieve consistency without centralised ordering but not unless you also have a technology solution (see point 9).

4)  Key Performance Indicators (KPI’s) and Service Agreements

There should be an overarching Service Agreement that all agency suppliers will be required to sign. The Service Agreement will define minimum requirements from the agency suppliers in terms of insurances, but will also define processes that agency suppliers will go through when they supply candidates, for instance, every candidate should be interviewed; every candidate should have the correct Personal Protective Equipment (PPE) and have valid work certification for instance. Each project or site may have differing requirements in terms of compliance items and they should be added as an addendum to the service agreement as required.

A standard suite of job specifications should be drawn up for each requirement.

Key Performance Indicators (KPI’s) will measure the response time from agency suppliers, for instance, how quickly did they provide candidate details, did they arrive on time, were they of a suitable standard?

5)  Compliance Items

There are a number of statutory requirements that need to be ensured for every agency worker, for instance, Rights to Work in the UK, there is also a requirement to track tenure to ensure compliance with the Agency Workers Regulations (AWR).

Different sites may have different requirements and these can be catered for individually.

Compliance items will be covered in the service agreement with the agency suppliers, however it is important to ensure that these are adhered to, so it is recommended that agencies are audited at least twice a year. Evidence suggests that 71% of suppliers fail their first audit and 32% fail on legal compliance items (source Datum RPO).

If you need any reminders of why this is important - The home office are currently targeting illegal workers in an initiative called ‘project magnify’, fines of up to £20,000 per worker are being imposed.

6)  Standardised Payment Terms

Agency payment terms can vary wildly and should be standardised in with your requirements. Remember that agencies pay their workers long before they receive payment from you so payment terms should be fair and reasonable.

7)  Standardised Margins

Margins should be examined and it is recommended to standardise margins across all suppliers so that there is a level playing field. Margins will vary depending on the category of worker supplied, i.e. Project Managers will be 

supplied at higher margins than operatives due to lower volumes. Consider working to a fixed pence per hour figure for high volume, low pay rate positions and percentages for higher pay rate positions.

8)  Standardised Pay Rates

Pay rates can vary, even for the same job in the same location, when this is left for agencies to manage themselves, it could lead to excessive pay rates that are out of line with the market. Managing pay rates will lead to cost savings, but will also result in parity and fairness of pay for the temporary workers doing the same job in the same location.

9)  Technology and Reporting

Technology has an important part to play in the management of a successful PSL. Technology can provide on-line timesheet authorisation and real-time reporting. It will also ensure legal compliance items are tracked and provide consolidated invoicing.  Technology solutions come into their own where volume of requirements are high or very complex but may not be suitable if the volume is low.

10)  Team and Ongoing Management 

Managing a Preferred Supplier List can be a full time job and should not be left to manage itself. The performance of agency suppliers will vary over time and agencies should be removed and added as their performance rises and falls. A well managed PSL should be fluid not static; this ensures that agencies are continually on top of their game, as they are aware that they risk being removed for poor performance.

Depending on your volume of temporary agency workers, a team of people may be required to manage agency suppliers, take in vacancies, audit agency suppliers, and drive continual improvements in the process.

Without dedicated management resource, any work done risks being eroded over time and the PSL may become ineffective.

Get in touch to speak to one of the team about building and maintaining an expert PSL:


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