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Datum RPO Blog

Neutral Vendor vs Master Vendor? A Guide to the Key Differences

Posted by Jarrod Mollison on 03 Jul 2020
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If your organisation hires temporary and contract workers, you may have considered appointing a company to manage this on your behalf. You may have heard the terms master vendor and neutral vendor, but do you know what the key differences are? To help you with this we have put together this guide to highlight the key differences.

Let’s begin by defining what is a Master Vendor and what is a Neutral Vendor.

A Master Vendor is when a sole recruitment agency has full responsibility for filling vacancies for a company. Master vendors attempt to fill vacancies with their own  candidates and when this is not possible, they then release them to other competing recruitment agencies (Sometimes called a 2nd  tier). 

A Neutral Vendor is not a recruitment agency. They simply form partnerships with various recruitment agencies and when a client needs vacancies to be filled, the neutral vendor goes to market to their different partner agencies in order to find the most suitable and cost effective candidates to fill the requirement. There is no conflict of interest between the neutral vendor and the agency partner..

So now let’s go into more detail and understand the key differences between neutral vendor and master vendor to help you decide which model might work better for you and your temporary labour recruitment process.

Relationships

Neutral Vendor Master Vendor

Minimal change in process for hiring managers

Relationships with the agency suppliers are often built up over the course of many years. Neutral Vendors allow hiring managers to continue to liaise directly with the agency suppliers to discuss requirements and applicant suitability, this minimises any change to existing processes and protects relationships. Supplying agencies also hate to be cut off from their clients, and allowing communication channels to remain open minimises any risk of resistance to the new programme.

As there is minimal change, the time to implement is short and benefits are realised quickly

Cost savings can be delivered from day-1 as there is no need to wait until a critical mass is reached by filling vacancies directly.

Central control

A Master Vendor solution will normally insist on all communication with hiring managers or agencies being channelled through their team as the Master Vendor will need to be aware of all vacancies as they need to fill as many as possible themselves to make the commercial model viable. This can prove to be an efficient solution. However, this can also create bottlenecks and “Chinese whispers” due to agency suppliers having communication links with hiring managers severed. Additionally, hiring managers often don’t like to be told that they are unable to speak with/use their existing suppliers when relationships may have been built over many years, which can then require constant reinforcement and governance by the client to force behavioural change.

Dedicated support team

Whilst hiring managers are able to liaise directly with the agency suppliers should they wish, Neutral Vendors will also implement a team of individuals who can do all the heavy lifting on the manager’s behalf. From the fulfilment of vacancies, contacting multiple agencies if required, to providing recruitment help and industry advice.

2nd tier agencies become demotivated

As the Master Vendor needs to fill the majority of vacancies to support their commercial model, it is common for 2nd tier agencies to only be given the opportunity to fill 10%-20% of vacancies where the Master Vendor has been unsuccessful in sourcing labour themselves, where time has already been lost and the candidate pool explored.

2nd tier agencies are also unlikely to go-the-extra-mile to fill vacancies as they receive no recognition for doing so, as this is masked from the client by the Master Vendor, and are likely to prioritise other clients vacancies over these “hard to fill” positions.

Additionally, as the Master Vendor is an agency themselves, they often look to transition workers from the 2nd tier to their own payroll to deliver cost saving/increase their own earnings, further demotivating the supply chain.

Cost savings delivered centrally or locally

Cost savings can be properly benchmarked against each site, cost centre or division and can be taken either as an immediate reduction in charges to benefit the individual hiring location, or can be accrued and rebated centrally.

Delivery of cost savings

Master Vendor solutions do not have the same incentive as a Neutral Vendor to deliver cost savings due to them also being the main agency on the supply chain as this would mean reducing their margin on all areas of supply. Master Vendors benefit twice by protecting/increasing the numbers of temporary workers supplied, firstly via their management fee and secondly by the margin that they make from supplying workers.

Additionally, cost savings may be slow to deliver as the benefits of a proposed lower agency margin are often only realised when the Master Vendor reaches a certain percentage of supply.

 

 Cost & Cost Savings

Neutral Vendor Master Vendor

Cost of the Neutral Vendor service is not subsidised by making placements

Neutral Vendors do not make money from placing candidates and therefore the cost for delivering their service is all contained within their management fee, therefore, on a like-for-like comparison, neutral vendor management fees can be more expensive than management fees of a master vendor. However, the savings delivered should far exceed any extra cost in management fee due to the effective implementation and engagement by hiring managers and agencies alike.

Incentivised to make and deliver cost savings, particularly in relation to reducing the demand for and the duration of assignments.

Part of demonstrating ongoing value for a Neutral Vendor is to show how they can drive down reliance on agency workers by challenging the use of agency workers, assignment extensions and length of assignment and driving cost savings in an innovative way, e.g. temp to perm incentive, contractor mobility incentives to move from job to job, tenure discount for long serving temporary workers, etc.

Management Fees for Master Vendor solutions can be lower than Neutral Vendor

A Master Vendor solution will only be partly subsidised by the management fee charged, instead the majority of their fees will come through directly sourcing and supplying temporary workers. Whilst this means that a Master Vendor is often able to offer a low management fee, the Master Vendor will also need to fill a high percentage of vacancies to make the model commercially viable for them. If they are unable to achieve or maintain a high percentage of supply then they may find it difficult to continue to deliver the service as it will quickly become unprofitable. The risk to the client in these circumstances is that there will not only be a risk to the delivery of the management services, but also to the actual supply of a high proportion of the temporary workers.

Cost savings delivered centrally or locally

Cost savings can be properly benchmarked against each site, cost centre or division and can be taken either as an immediate reduction in charges to benefit the individual hiring location, or can be accrued and rebated centrally.

Delivery of cost savings

Master Vendor solutions do not have the same incentive as a Neutral Vendor to deliver cost savings due to them also being the main agency on the supply chain as this would mean reducing their margin on all areas of supply. Master Vendors benefit twice by protecting/increasing the numbers of temporary workers supplied, firstly via their management fee and secondly by the margin that they make from supplying workers.

Additionally, cost savings may be slow to deliver as the benefits of a proposed lower agency margin are often only realised when the Master Vendor reaches a certain percentage of supply.

 

Compliance & Reporting

Neutral Vendor Master Vendor

Independent, unbiased audit & compliance management

A Neutral Vendor will audit all agency suppliers without any bias. A Neutral Vendor should be recognised as experts in this area and provide these services, not only as part of their Neutral Vendor solution, but also as stand-alone audit services to companies who continue to manage their own agency relationships.

Questionable audit independence

As the majority of temporary workers will be supplied by the Master Vendor, who will audit their workers and will the results of the audit be honestly and comprehensively shared if there is evidence of poor practice or legal risks?

Compliance

A Neutral Vendor should have a number of automated, systematised compliance checks, however, also conduct physical audits on the agency suppliers to ensure all contractual requirements are being adhered to.

Real-time management information

Comprehensive management information is normally provided, however, there can be scepticism over the accuracy of data relating to the fulfilment performance of the Master Vendor as they are the only body able to report on their own performance.

 

How Can Datum RPO Help?

Datum RPO are one of the UK’s leading Neutral Vendors, we are experts in managing the agency supply chain and enjoy long lasting relationships with our recruitment agency partners. We carry out unbiased audits to ensure legal compliance, deliver significant cost savings each time and are able to adapt our solution to adapt to your business and therefore providing innovation and value throughout the duration of the contract term and beyond.

Want to learn more?

Download our 'Enabling Visibility & Control in Our temporary Supply chain' Guide 

Read or blog '5 Ways Vendor Neutral Management Can Transform The Way You Manage Your Agency Spend'

Enabling-Visibility-&-Control

Get in Touch!

If you’d like to know more on how Datum RPO can provide visibility and control to your labour spend, feel free to contact me on the details below: M: 07872 870996 E: Jarrod.Mollison@datumrpo.com



Topics: Managing Temporary Labour, Benefits of RPO, Recruitment Trends, Temporary labour supply chain