Change Orders: Why Closed-Loop is the Way to Go
Posted on Thu, Jan 26, 2012 @ 01:04 PM
By Peter Parks, Vice President of Product Management
When implementing a VMS one of the key considerations is whether to integrate. This is not as simple as, “should we integrate?,” but rather a series of questions – should we integrate with HR, should we do SSO, should we integrate POs, PPM, etc.
The question that gets the most attention is typically PO integration. It is often billed as a silver bullet, delivering efficiency and control. But as with many sales pitches, there is much more to the story.
All mature procurement systems (Oracle, PeopleSoft, JDE, SAP, Ariba, Coupa, etc.) support a standard for PO integration. The most common, Punch-out/cXML, is typical in the functionality it offers. From a user accessing the VMS through SSO through the end process of a PO being created and dispatched back to the VMS. Shazam! Mr. Customer, you now have total control over spend because your procurement system and the VMS are in lock step. And the best part is that the VMS will ensure there is no overbilling. And that’s where the story typically ends.
However, when procuring services, the story does not end there. Does this sound familiar?
Two months after a contractor’s assignment begins, the contractor receives a raise or is extended and a change order is required.
If your PO integration ended with the dispatch, then let the games begin. In the best case scenario the VMS has been configured with sufficient alerts to inform the hiring manager and supplier that the assignment is approaching its scheduled end or that the funds are nearing full consumption. Even with those helpful reminders in place, there is still a manual process required to get the extension processed.
In an ideal environment, the process begins in the VMS because it has all of the data and logic to guide the hiring manager to an appropriate extension amount based on the bill rate and duration of the assignment (back to that efficiency and control idea).
In practice however, it often begins with the hiring manager going straight to the system he knows actually controls spending authority – his own procurement system. Unaided by the guidance the VMS provides, the hiring manager takes a stab at how much more funding he will need to complete the assignment. When the extension is approved there is typically no notification sent to the VMS or MSP. And if the extension is approved for less than the actual cost, what is adjusted in the VMS? Either way, you are going to run out of something – time or money.
On the flip side, if you extend for the true duration and amount then you are in danger of overbilling. The result is always the same – a tremendous amount of manual reconciliation, emails and phone calls, some overbilling and overall discontent with the process and the system.
It does not have to be this way! These issues can be alleviated with the integrated change order. Depending on the procurement system, there can be several ways of accomplishing it: re-punch-out, supplier-initiated changes or messaging. The key to an integrated change order is to utilize the VMS to build the change order because it is the VMS that contains the logic to do an accurate projection of the cost of an extension.
Initiating changes in the VMS also enables the VMS to submit a change request to the customer’s procurement system, only when it results in a request for increased funding. It also drives a more consistent experience for the hiring manager - there is only one system to go to for all services spend, whether new or extended.
True nirvana in VMS integrations is a fully integrated change order. The hard and soft savings to the customer and the MSP are significant, leaving more resources and energy to focus on the elements of the program that drive true excellence.