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Staffing Association Issues Vendor Management Guidelines

March 4, 2008
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The spectacular collapse in January of one of the largest vendor management system companies in the staffing industry has prompted the American Staffing Association to issue a set of best-practices recommendations, not only for its member staffing companies but also for corporations using staffing services.

In a letter sent to about 2,000 CFOs at some of the nation’s largest companies, American Staffing Association president and CEO Richard Wahlquist said the best practices from his organization were intended to help companies avoid the fallout that followed the collapse of Los Angeles-based Axium International and its subsidiary, Ensemble Chimes Global.

“The Chimes bankruptcy caused tremendous disruption for clients, suppliers and employees,” Wahlquist wrote in his letter, dated February 25.

Chimes provided vendor management services to clients based on software that could help companies track and manage the vendors that provide temporary and contract workers and related services. Chimes was part of Axium, a company that began as a payroll service provider to the movie industry and then branched out into the broader field of vendor management services.

When Axium abruptly filed for bankruptcy in January, it left an estimated $100 million to $300 million in outstanding bills owed to staffing companies and other staffing service providers. The bankruptcy came as a surprise, leaving staffing companies and their clients scrambling to cope.

In his letter, Wahlquist says that Chimes had become a leader in a field that sprang up over the last few years to help companies manage their contract and temporary staffs. These new service providers functioned as intermediaries between corporations that needed to hire contingent workers and the staffing companies that actually provide the workers.

Chimes functioned as a vendor management system provider, one of the main types of companies in this new space, using software and online connections to help corporations manage their staffing needs. But there are a host of other variations, sometimes with overlapping functions. The various staffing management services help corporations rate and hire staffing companies, manage those staffing contracts, track performance and handle payments to vendors.

The selling point of these services is that they can help corporations improve coordination and reduce costs of contract and contingent labor. But Wahlquist noted that the emerging field lacks oversight.

“These services have not been well-defined, and the result has been confusion,” Wahlquist wrote.

After assessing the field, ASA issued an eight-page best-practices guide for using VMS companies, the related managed service providers and other types of vendor management products. ASA also provided a two-page best-practices guide for overseeing financial arrangements of these managed services providers. The guidelines are intended to help companies evaluate and monitor managed services providers, and to make sure money moving through a VMS provider reaches its destination.

Among the top recommendations:

• Review financial statements before hiring a vendor management system or managed service provider. Ask for audited statements and look for signs of trouble, such as commingled funds or the use of staffing funds to finance other company activities.

• Consider directly paying staffing companies for workers, instead of channeling money through a vendor management system or managed service provider—or else require these companies to place such money in escrow.

• Monitor cash flow through a vendor management system provider to ensure proper handling of client funds. Periodically run credit checks.

—Irwin Speizer

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