For most companies, building a vendor management system is a recipe for disaster.
But SAP is no ordinary company. The world’s second-largest enterprise software company, SAP took its technology, joined forces with a managed service provider, Yoh, and built a VMS in 2008. Such partnerships are core to SAP’s growth strategy.
Since its inception, the company has had a network of solution providers and technology and service partners that has developed into a broad ecosystem, feeding SAP’s bottom line.
“We help businesses become better run,” says Mark Steinke, SAP’s global vice president of recruitment. The $36.5 billion company is headquartered in Walldorf, Germany, and has locations in more than 50 countries.
Helping businesses generate profits as well as contributing to SAP’s bottom line are its workers—employees and contingents. And it was around five years ago that SAP first discovered that it had little or no idea of the size or structure of its contingent workforce.
For a company that touts its efficiency, this was unacceptable. Subsequently, a program was implemented in the U.S. and Canada.
The idea was to take a good look at SAP’s contingent workforce and see how it could be better utilized. Its first move was to define its approach to temporary workers.
As a consequence, SAP had to understand how its contingent workforce fit into its talent management policy.
Line of attack
Employees are hired to implement the core mission of the corporation: help customers get the most out of their IT investments so that they can maximize their business performance. The goal is to bring in people who are essential to the business, then keep them.
On the other hand, Steinke says temps are brought in to meet unexpected spikes in demand for SAP products.
“If there’s so much business that the amount of IT support needed has grown by 8 to 10 percent, at that point we’ll use contingents instead of increasing our headcount,” Steinke says. Typically, temps don’t work on assignments that are connected to SAP’s critical core mission.
Like other large corporations, SAP converts roughly 10 percent of its contingents into traditional employees. These are people with core technical skills that SAP requires. A project allows the company to evaluate the worker while on site.
Evaluating and ultimately recruiting contingents is human resources’ responsibility at SAP. It’s a departure from many organizations, where the procurement department is in charge.
While HR has taken ownership of the contingent workforce program, procurement’s know-how is still required. Steinke believes it is crucial to have a close working relationship with the procurement department in which both units align their goals. HR’s objective is to bring in the best talent, whereas the procurement’s is to bring in people at the most efficient cost.
At SAP these goals are merged. For instance, Steinke meets regularly with the procurement department’s global representative responsible for HR decisions. In regularly scheduled monthly meetings, they review key performance indicators and metrics involving compensations plans.
It comes down to having a recruiting department that understands the role that a contingent workforce plays in talent acquisition and the risks involved. That’s where a managed service provider, or MSP, comes in.
The MSP’s role
One of the reasons Yoh was brought in last year was to address co-employment issues. Among Yoh’s tasks are to manage contingents; keep abreast of trends, laws and regulations affecting a contingent workforce program; and inform SAP of necessary changes.
To that end, the company has quarterly reviews with Yoh to analyze operations and discuss improvements. The mutual relationship between the HR and procurement units has also helped Yoh maintain clarity of focus and bring in the right talent.
In addition, the MSP manages the other suppliers in the program. SAP’s relationship, however, is only with Yoh, which in turn has relationships with 12 to 17 vendors.
When it came down to choosing an MSP, SAP was clear that it wanted a company that reflected its values and goals. Yoh had the advantage of being an SAP customer.
SAP rejected potential vendors that lacked a sophisticated behavioral interview process. Because employees give the company its competitive edge, it was important to SAP that even contingents reflect the same company values. Accordingly, Yoh conducts an “SAP values” interview process.
The successful candidate is one who is customer-centric and has the right combination of technical skills and leadership capabilities as well as the proficiency to communicate effectively.
Applicants who are not a cultural fit, regardless of technical abilities, are rejected. But those who make the grade are given additional training by Yoh to make sure their skills are up to date.
Another factor in Yoh’s favor is its on-site presence at SAP. There are several representatives in the company’s American headquarters in Newtown Square, Pennsylvania.
A Yoh manager will help if any issue surrounding contingents crops up. The MSP’s recruiters are also present, working at the same site as other SAP recruiters. Conversations and weekly reports help Yoh refine its search for temporary help.
The MSP is evaluated on metrics such as percentage of fills versus number of requests, time taken to make fills, amount of spending and how many workers it provided compared with the sub-vendors. Yoh generates fees as a percentage of supplier billing. In a supplier-funded model like this, a sub-vendor typically pays 2 to 5 percent of its bill rate to the MSP.
An MSP needs a full-fledged VMS in order to be effective. Yoh was looking for technology to bundle along with its MSP services to become a full-fledged talent workforce solutions provider. Because Yoh’s parent company, Day & Zimmermann, is a longtime user of SAP technology, it made sense to examine SAP’s technology to see if it could be used.
“We ended up building on top of some of their supplier relationship management modules, a VMS, and we bundled it together with our services,” says Joel Capperella, Yoh’s vice president of customer solutions.
Yoh Exchange, as it’s called, has a complete set of features including risk mitigation and payroll tools. Since summer 2008, it has been marketed as an HR management portal that helps companies improve how they acquire talent.
Among Yoh Exchange’s benefits is that it synchronizes HR, finance and administrative functions to improve billing. It also evaluates independent contractors’ classifications and price points. An added advantage is that both the VMS and SAP’s enterprise resource planning system are built on the same platform, which makes for easy integration.
“SAP was keen on helping us develop a state-of-the-art tool,” says Kathy Martin, Yoh’s vice president of managed services operations. Customers will not have to run SAP software to use the tool, but users of SAP solutions will benefit from the data integration that Yoh Exchange delivers.
Integrating talent management with an enterprise resource planning system will help automate a complex process. SAP says it has saved around $1.4 million in its first year of using Yoh Exchange.
Steinke had the buy-in of the executive floor after he built the business case and showed the CFO both the efficiencies involved and the cost savings. Today, SAP knows who its contingents are and how much they cost.
Now that the program has taken off in North America, the company plans to roll it out worldwide. Implementation has begun in 46 European countries. Next on the list is Latin America, then Asia.
After the rollout, the company plans to evaluate the program in 2012. The VMS plays a big role in the restructuring.
Going forward, Yoh and SAP will be jointly marketing Yoh Exchange to SAP customers in the United States. If Yoh Exchange takes off, it means increased profits and new markets for both companies.
Moreover, it would also mean increased customer success as the product helps companies optimize performance and reduce costs—a smart way to maintain dominance in the marketplace.