78 percent of consulting work goes to preferred suppliers

Being on preferred supplier lists (PSL) of clients is becoming a strategic importance for management consulting firms. Research from research firm Source shows that 78% of the total value of all consulting work in a client organization is won by consulting firms on a PSL.

Preferred supplier lists (PSLs)

Clients are increasingly using preferred supplier lists as a means to standardize their purchase procedures and terms & conditions. In addition, clients use the argument of buying a larger volume of consulting work from a selector number of advisory firms to squeeze rates and negotiate other favorable terms & conditions. Amongst organizations which spent more than €10 million on management consulting in the last six months, 70% have a PSL for consulting suppliers. And consulting firms on a PSL win about 78% of the total value of all consulting work in an organization. But the report says that the good news, both for consulting firms and clients, is that PSLs aren’t, on the whole, closed shops, though they’re more so for Tier 1 firms than they are for Tier 2.

To get on to a PSL, a Tier 1 firm needs to be winning lots of work, to stay there it needs to show how good its work is. Tier 2 firms, on the other hand, need to assure people about the quality of their work to get on to a PSL but the critical thing in keeping them there is to win lots of work.

Big Four dominate PSLs

Almost two thirds (59%) of client procurement departments categorise consulting firms in the PSLs, also referred to as ‘tiers’ in the advisory branch. 50% also make the distinction in terms of the way firms are presented to end users, for instance ‘strategy’, ‘finance’ or ‘ICT’. For many procurement heads, Tier 1 appears to mean the Big Four. Amongst this group, Deloitte sits top – with 90% considering it to be a Tier 1 firm. The report says that the firm has been especially successful in establishing its reputation amongst procurement departments. It sits ahead of KPMG (86%), with Ernst & Young and PwC (8%) tied in third place. There’s then a gap, followed by a large range of consulting firms, including the well-known strategy firms (McKinsey, BCG, Roland Berger, etc), generalists (Accenture, PA Consulting Group, etc), HR players (Mercer, Aon Hewitt, Towers Watson, etc) and IT players (Capgemini, Logica, etc).