By utilising temporary workers, organisations can maximise their labour spend whilst keeping outgoings low. Alison Harter examines how businesses can make the most of a more flexible and cost-effective workforce.
As with most things in business, temporary labour is not a one-size-fits-all. Temporary labour can be more or less effective depending on the organisation, the market it operates in and of course the impact the recession has on this market. Does, for example, a lower consumer demand reduce the need for warehouse and logistics workforce? Regardless, for most organisations access to visibility of spend enables a more strategic approach and better, more informed decision making. Here follows the do’s and don’ts of recruiting and managing temporary labour.
Do:
- Know your spend
Perhaps hard to believe, but many companies don’t have proper visibility of what they are spending on temporary labour or where it’s being spent. Often individual depots or sites are responsible for recruiting their own temporary workforce, and this unregulated procurement can lead to different levels of service and different charging structures across the organisation, ultimately meaning less standardisation, more admin and greater cost. Focus on knowing where the money is being spent, and gaining visibility of what was spent in the past in order to predict the future. - Understand your spend
Once a company has gained insight into how much they are spending on a temporary workforce, it is essential that they understand where and why the spend is occurring. Knowledge of the skill sets required, local operational needs and shift patterns, all help companies to understand where, and more importantly, how, a temporary workforce is adding value to the business. This can lead to maximising the workforce and, a more strategic approach to temporary labour can be taken. This alone can help to reduce spend and reliance on a temporary workforce, whilst maximising the flexibility benefits. - Manage your spend
By improving reporting to give visibility of spend, it is possible to then manage and control spend, even at operational level. Standardising fees enables companies to know in advance the cost of a temporary worker. Using systems to ascertain the length of supply allows companies to predict and forecast spend. Using tools such as electronic timesheets and reporting gives real-time management information, critical to helping organisations manage their spend. - Tackle the basics
Once spend is visible and better managed, it is necessary to tackle the basics. Companies should address the reasons behind using temporary labour and the benefits they gain by doing so. For example, do temporary workers provide better flexibility for the business and is the temporary workforce more responsive to commercial needs? - Focus on a robust supply chain
Supply of temporary labour typically comes from multiple suppliers across a number of different locations. By selecting optimum panels of suppliers based on their strengths in order to meet demand supply in specific locations and specific skill sets, the most robust supply chain is built. - Manage your suppliers
Performance of your suppliers is critical to your organisation’s performance not least in a recession. All suppliers should have key performance indicators, and be measured against these. All too often we identify a number of preferred measurements an organisation has put in place that are never measured against, or if they are, suppliers are not managed in or out of the process based on their performance. - Understand legislation
Legislation relating to temporary workers is changing on a continual basis. In recent months the introduction of the immigration points scheme and the Temporary Agency Workers Directive has been agreed. Both will have an effect on companies who do not understand the implications of not adhering to the legislation. By understanding the legislation, companies can protect against any unexpected costs arising from litigation.
Don’t:
- Go for the cheapest rate
Focus on negotiating the optimum rate for your own unique position. The cheapest rate can de-motivate suppliers and at best will have a negative impact on fill rates and quality of workers and service. At worst, the supplier may agree to rates that are simply not sustainable, leaving them financially exposed and at risk of bankruptcy. Whilst the cheapest rate may help in the short term the effect on a supplier going bankrupt at short notice represents a far more significant cost to the supply chain and business. - Extend payment terms
Unlike many other suppliers, agencies cannot negotiate payment terms with their workers. A temporary worker is paid by the supplying agency at the end of each week, often waiting up to 30 days from invoice before being in a position to recoup this outlay. Extending payment terms further affects the sustainability of the agency business model and could result in an agency being forced into bankruptcy due to a cash-flow crisis. - Put restrictive processes in place
Control and management of temporary labour does not need to be restrictive and such processes should be avoided. By putting in processes that make the sourcing of temporary labour harder the most likely outcome is a lack of compliance from operations. There will almost always be a sound, commercial reason that operations use temporary labour, the best outcome is to control this labour in a more strategic, efficient way without effecting supply. - Ignore opportunities to increase revenue
In a recession the pressure to focus on operational margin increases. Whilst a focus on cost should be considered, it is important to explore opportunities to promote a growth in revenue. - Rush into outsourcing to one supplier
In hard economic times the lure of cost savings through a fully outsourced solution can be strong. However it takes time to bed in and understand your business, and the long-term gain often involves short term pain. During a recession, it is essential that focus should be maintained on the long term, but what is crucial is that this is not at the expense of the short term.
There is no doubt that once the economy starts to stabilise, consumer confidence will increase. The timescales are hard to predict and the near future looks to be hard for all organisations. By implementing the above practices, it is possible to have a significant impact on the bottom line, and to build a long-term strategic approach to temporary labour.
Alison Harter is sales and marketing director at de Poel Consulting.
3 Responses
Obtaining skills quickly and flexibly as necessary is the key bo
The ability to obtain skills quickly and flexibly through freelancers or temporary agency workers will be vital when the upturn starts and businesses need to get more skills on-board fast in order to expand: this is when flexible forms of labour will come into their own.
For the time being, it is vital to be clear about what kind of worker you want and why you want them. You may need to cover short-term items of work that are not guaranteed to endure, or have to implement a change management programme: freelancers or other flexible workers will be ideal then. But be wary of taking on flexible workers as a supposedly cheap substitute for employees: if they are doing the same type of work as employees, in the same manner, they will probably be able to claim employment rights from you, even if they have their own limited company. So if you’re going to
engage non-employees, be sure to do it on a proper business-to-business commercial basis.
John Kell, Professional Contractors Group
Developing a strategy for procurement of agency staff
Alison’s article is completely correct in saying that in temporary labour there is no one-size fits all approach to the procurement of agency staff.
A very useful paper called ‘Improving the Procurement of Agency staff in Local Government’ (2004) (available free as a pdf. at http://www.strategicps.co.uk) backs up many of her points, and would suggest that organisations should additionally apply a strategic purchasing portfolio model to decrease costs.
The paper suggest that most low skilled agency expenditure can be categorised as bottleneck or leverage eg factory operatives, street cleaners, non-professional administrative roles etc. Demand for this category is linked to local employment conditions and the extent of outsourcing undertaken. However, specialist agency staff are categorised as ‘bottleneck’ or ‘strategic’. These incur higher agency rates (in comparison to routine or leverage), and importantly the quality of those secured may not be comparable to the permanent staff employed.
Having worked at a Local Authority where I applied this framework to a large agency spend (over £20m), I found it really helps to determine where management priorities should be for reducing spend. For example, agency street cleaners cost almost 40% less than their permanent staff equivalent – therefore to increase agency staff usage (and decrease permanent) would make significant savings. On the other hand, because there is a shortage of building control officers and children’s social workers in London, they cost almost 25-40% more than their permanent staff equivalent.
Of course, it is not as simple as making redundant all your ‘routine type’ permanent staff and filling with agency staff. Also, in the short-term organisations can do very little about these varying market forces in relation to the costs of contingent to permanent staffing. However, in the medium to long term, I would recommend that robust workforce planning linked to a contingent staffing strategy (using the purchasing portfolio model) will show improved dividends.
from an agency perspective
interesting article and as a regional independent agency we have experienced many of the “donts” you mention to the detriment of the client.
local suppliers have a more vested interest in successful supply than a national seeking to tie a company into a national agreement. normally local companies have far more knowledge of the local market and can respond more effectively to changes
i would also advise users to audit suppliers on a regular basis, especially given the new legislation and pressure on the immigration service to control illegal workers. many companies merely assume their suppliers make the necessary checks when often they dont
there are several companies offering national agreements to vet and control your suppliers, and offer implied cost savings. remember cost savings do not necessarily lead to more profit. many of these companies have no quality procedures on the checking process and select agencies on their ability to work on reduced margins on the premis of a preferred supply status. often these deals offer nothing more than a cheaper deal and our own experience has shown no standards or quality procedures whatsoever