By Matthew Sanders, CEO de Poel Consulting
As the recession tightens, the pressure is increasing for businesses to make savings. As one of a company’s biggest outlays, labour spend is one of the first areas which comes under scrutiny. Many organisations have turned to redundancies to cut costs, but there are plenty of other less drastic ways to reduce spend as a first step.
For the vast majority of businesses, uncertain economic times generate a reluctance to commit to long-term significant expenditure, including labour. During a recession, temporary labour becomes a far more attractive proposition for businesses.
Some see temporary labour as a complete solution during harder economic times. But whilst temporary labour certainly does have its advantages (flexibility and responsiveness, low cost and risk too a business in terms of holidays, sickness pay etc), if not managed carefully, using temporary workers can be hugely inefficient.
In my experience, the average British blue chip company can shave up to 12 percent off it’s spend on temporary labour by following a few steps. Naturally, each company is different and will need a different approach, as will different sectors. And let’s not forget that whilst cost saving is a key priority for most businesses, other issues such as staff quality and recruitment agency service levels are equally important. What’s needed is an approach that satisfies both sets of demands, to ultimately produce a slicker, more cost-effective solution all-round.
Step 1 – Preferred agency panel
A primary objective for organisations should be to operate with a preferred panel of agency suppliers. Implementing a system of control enables organisations to assess costs, alongside agency performance.
Step 2 – Standardised Fees
As organisations are squeezed by tougher trading conditions and battling with tighter budgets, the need to reduce and control their agency labour spend intensifies.
We regularly hear of companies negotiating fee levels and pay rates with agencies during or after placements. Not only does this compromise their negotiating position, but also has an adverse effect on their relationships with agencies. If fees are to be negotiated, this must happen prior to the commencement of placements.
Step 3 – Terms
Organisations should compile their own set of terms and conditions, providing a standardised service agreement to be adhered to and agreed by existing suppliers prior to commencing assignments.
Organisations can often be left, unknowingly, legally exposed, particularly with the constantly changing legislative landscape that we have seen recently. This year alone, the Government has not only introduced several new laws relating to employment, but has been extremely active in auditing its implementation. There have been over 130 prosecutions so far this year for the employment of illegal immigrants with individual fines of £10,000. This is also an area where a specialist consultant such as de Poel can prove invaluable.
Step 4 – Monitor/Review
Perception of performance is often influenced by the relationship HR departments have with an agency consultant and not by actual facts and figures. Service agreements with measurable KPI’s form the basis of a review process.
Quarterly reviews, regularly re-assessing pay and charge rates, provide a more structured approach to performance and more importantly, ensures a perpetual review of the preferred agency panel.
Step 5 – Streamlined Administration
The recruitment industry relies heavily on the processing of paper based timesheets and invoices. They have an increased risk of error and inaccuracy, with a 15 percent typical error rate. The more recruitment agencies employed by an organisation, the more temporary workers there are, as a result the more invoices and timesheets processed — it is not unusual for a large organisation to have to process 50,000 invoices a year. The administrative burden of processing can be expensive, with some putting the figure at £2.1 billion a year UK-wide.
The conventional means of handling multiple time sheets and the collation, reconciliation and payment of invoices typically adds around 15 percent to agency service costs.
The indirect costs to companies of handling the associated timesheets and invoices are enormous, but through a simple web-based time sheet system, the number of invoices can be drastically cut — often to just one per week.
Step 6 – Management Information
Typically, large organisations have very little, or in some cases, no visibility of temporary agency labour usage and spend, which in turn can present difficulties when forecasting or leveraging spend. Companies are often unaware of the amount they spend on temporary labour or which different pay and charge rates are in existence within their organisation.
Operating with an appropriate software system which provides real time management information, is a vital tool when attempting to take control of agency spend. Therefore, helping an organisation to adopt a more strategic approach and making better more informed decisions.
It is evident during this climate of economic unrest and instability that businesses have the opportunity to seek more modern, efficient and innovative ways to reduce and control spend on labour whilst ensuring maximum efficiency, accountability and measurability at all times.
This structure develops a more strategic partnership with suppliers, making the process slicker, simpler and ultimately more cost effective.