Why addressing demand management, and bringing down your demand can realise more of a procurement saving than simply cutting costs.
This article was written by Jon Milton, Director at Comensura.
Most of us know too well the need to tighten the purse strings occasionally in our daily lives. When doing so it’s a natural response to search for cheaper alternatives to the services and products that you’re already buying.
Think about your home energy expenditure for example. Let’s say that you shop around and find a supplier that charges 5 per cent less than you already pay. That’s a good reduction, but it’s a saving within the scale of pricing which, aside from some major shift in energy production trends, is only going to vary to a certain degree. This kind of cost-saving approach will typically only be incremental and rarely save you a dramatic amount.
However, there is an alternative way to save – by managing down your demand. Rather than the pain of switching provider, you could install a smart energy meter and manage down the demand for energy throughout your home, eliminating excessive energy used, and pinpointing when and where you need the heating on. A smarter approach like this could save you much more than 5 per cent.
It’s for that reason that a cost cutting approach that goes beyond incremental savings should be applied to the corporate world too – especially in complex spend categories such as temporary labour. It’s difficult to know for sure how many workers you need, as it requires you to have an overall view of your organisation’s demand.
And once you establish a number, the sample of workers that are on offer to you vary by qualifications, experience, skills, availability, geography and more – all of which affect how much the candidate costs – making temporary recruitment a complex service category.
Think about how much money organisations could be wasting by hiring the wrong number of temporary workers, the wrong kind, or by not utilising their skills properly. Our evidence as a labour supply management specialist shows that by accurately sourcing the right skills against the organisation’s demand, you can take your cost saving on temporary staff from less than 20 per cent, to over 50 per cent.
Addressing Demand Management
Here are some steps you can take to address temporary labour demand management issues:-
1. Understand your expenditure
Temporary labour is typically ordered directly by line managers as it is under their supervision and control that workers are engaged. There’s usually a business rationale, but is it justifiable?
Additionally, the original rationale for engaging temporary labour will normally be linked to a set time period, such as three months. Any expenditure beyond this initial period should therefore be questioned as to why it is required.
2. Challenge usage
Once you’ve established an understanding of what’s being spent on temporary labour, ask your managers to justify any anomalies. If they cannot provide sound business rationale, ask them to create an exit plan for the worker and an agreed date. When you review usage the following month, make sure that the worker has been exited.
3. Start planning your workforce
If your use of contingent labour is reactive, ‘fire fighting’ to meet business demand, it is unlikely that you will be in control of your expenditure. Try and review your ordering patterns to identify trends, as this will enable you to plan the workers’ tasks and/or help you to plan your permanent headcount’s activities better.
For example, if historically your usage of contingent workers has a spike in August when staff go on holiday, you may want to review the way that you co-ordinate leave requests, and then plan ahead where cover is required.
4. Properly evaluate needs
Feeling the pressure to hire contingent staff and then recruiting staff that are over qualified (and paid more than the work requires) is one way to rack up an unnecessarily hefty bill. By understanding your requirements fully, you can better establish the experience and type of individual required.
5. Provide a detailed specification
Once you’ve established and understood your requirements, make sure that you, or managers across your organisation communicate these requirements properly. If you want someone with certain skills and experience, be specific about what you need. It sounds simple but it is one of the most common pitfalls that we come across and can cause significant issues.
Often the role is specified (which in an applicant’s mind they could do), but the experience, demonstrable evidence of skills and attributes are not. The more detailed you are, the closer your applicants should be to the requirement. You may get fewer applications, but the quality of hire should be much better.
Saving on Category Procurement
Many organisations are already taking a sound approach to complex category procurement, and with the financial benefits they’ve seen, it’s safe to say that they don’t regret the decision. One of our customers regularly uses temporary staff, and chose us as a single platform to place orders, assign candidates, and manage its temporary staff time sheets.
Having saved £900,000 on temporary staff in 17 months, and delivered a 10 per cent cost saving overall, the customers’ smarter approach to managing temporary staff means that it can invest more funds into vital areas of the organisation.
Just as its name suggests, complex category procurement is a tricky process, particularly when looking for ways to make procurement cost-effective. But provided you look at the wider picture of your organisation, you can restructure processes and gain the benefits.
It starts with making a distinction between your complex and simple procurement, and approaching processes like temporary recruitment in a smarter way that means not just finding cheaper providers.