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Avoiding redundancy: Get smarter on labour spend

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Spend smartJohn Simmonds explains how a few simple steps can enable major savings for organisations looking to cut back on labour spend amidst the growing climate of economic gloom, without the need for job losses.


Redundancies and job losses are at the top of the news agenda on a daily basis in the current economic climate. But are these drastic actions really necessary? I strongly suggest there is an alternative, and one which is very much within most organisations’ grasp.

“The benefits of using temporary labour are numerous; flexibility and responsiveness being a huge factor in the current climate.”

There is a real need for businesses across a whole range of sectors to get smarter and streamline their operations, therefore making savings and finding alternatives to job losses.

Over the last few months we have seen an increased pressure for HR and procurement professionals to evaluate and tailor their processes and to focus more than ever before on cutting back on existing recruitment and labour spend. The latest report on jobs stated the number of permanent placements in the UK fell at its sharpest rate this summer since 2001. During these turbulent times however, we see the demand for temporary labour increase.

The benefits of using temporary labour are numerous; flexibility and responsiveness being a huge factor in the current climate. Staff can be provided by agencies quickly, as and when they are required. At the moment it is extremely difficult for companies to predict staff usage and requirements beyond a certain date so using temporary workers makes better business sense.

However using temporary labour without putting in place a framework of efficiencies can mean extra costs, not fewer. Latest figures suggest that UK Plc spends more than £23.4bn on temporary labour each year, but this figure can be decreased without cutting workforce numbers. For many of the larger blue chip companies who spend millions of pounds each year on temporary agency labour, making small efficiencies within their processes can have a huge impact on overall temporary spend.

Preferred agencies

So what are the key priorities for effectively using temporary labour and reducing costs associated with its procurement?

Step one in my opinion is identifying a national panel of preferred agencies. It should then be a primary objective for organisations to operate with a preferred panel of agency suppliers, implementing a system of control enabling organisations to assess costs, alongside agency performance and service level agreements.

“Finding the balance between the market-driven charge rate and a competitive pay rate… is the key to ensuring the continued supply of high quality temporary agency workers.”

Points to consider when selecting a preferred agency panel include whether or not they have access to workers with appropriate skill sets; how reliable are they; what their geographic presence is (important for larger nationwide or multinational firms); and crucially, what their track record is like when it comes to complying with current legislation.

Traditionally, companies have put in place preferred suppliers lists (PSLs) with no operational input or used a master vendor solution to channel all placements. Neither approach allows adequately for operational requirements. Twelve months later, compliance to the supplier list is low and spend is once again uncontrolled and unregulated.

Standardised fees

Step two is agreeing standardised fees – something which many agencies don’t like and can be tough to negotiate. However, 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.

Agreeing fixed, standard and overtime pay rates to various job types in advance with each approved panel agency, provides a level playing field for agencies to compete on. This alleviates the added responsibility placed on operational managers to negotiate fees on a supply and demand basis, allowing them to focus on organisational objectives.

Finding the balance between the market-driven charge rate and a competitive pay rate, the optimum level, is the key to ensuring the continued supply of high quality temporary agency workers.

Agreeing terms

Step three is all about terms. Whilst the recruitment industry remains a highly fragmented marketplace, the barriers to entry are low; it is relatively easy to set up a recruitment company. There are no standard industry terms and conditions, allowing agencies to operate under their own agreements, but I see this as a vital step in any relationship with an employment agency.

“With a UK-wide spend of £26bn on temporary and permanent labour, the potential to streamline and save is enormous.”

They can be tricky to broker, but once these simple foundations are in place, a relationship that works far better for the organisation can be established.

Many major blue chip clients across varying sectors including retail, construction, waste and logistics have seen direct cost savings of between 6-12% of total labour spend by putting in place these efficiencies, resulting in savings of many millions of pounds.

Ian Lathey, director of procurement for City Link explains how working smarter has helped them to make significant savings and process efficiencies: “From a procurement point of view margins are reduced and applied consistently across all suppliers and de Poel also ensures that statutory costs are calculated and applied at the correct level. The reporting capabilities of their system has provided us with unprecedented visibility of our spend on agency labour delivering benefits from an operational and resourcing perspective. This has enabled us to control a cost that can easily become invisible across a multi-sited operation.”

With a UK-wide spend of £26bn on temporary and permanent labour, the potential to streamline and save is enormous, reducing the need for redundancies and offering some major brownie points for HR and procurement staff!

John Simmonds is managing director of de Poel Consulting. For further information please visit www.depoelconsulting.com or contact [email protected].

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