Enabling visibility and control in your temporary labour supply chain
The drive for organisational improvements and a competitive landscape are just a few reasons why businesses seek new ways to reduce costs and improve financial stability. Executives and Directors are under extreme pressure to reduce expenditure and improve the bottom line. This report highlights the significant benefits (both financial and process) of efficient temporary workforce management.
This is no easy task - there are many barriers to having full visibility of your contingent labour spend. Factors that make this difficult may include: siloed business working, regionalised P&L reports, incorrect cost coding and lack of consolidated reporting. On top of this, resource constraints — specifically, lack of procurement time & resource and technologies to support — make this a goal difficult to achieve.
The reality is that many large companies are not organised to effectively control the spend on their contingent workforce and the agencies supporting them. Following the analysis of invoices from hundreds of thousands of transactions, Datum RPO found that almost 100% of companies analysed did not fully understand how much they were actually spending with their agencies.
The cost inefficiencies arising from this lack of visibility can bring down a company’s bottom line, EBITDA and lower earnings per share. It should be no surprise, then, that a growing number of large companies are seeking new solutions and resources that can help deliver more responsive and effective workforce management.
Visibility & Control in perspective:
In recent years, Recruitment Process Outsourcing (RPO) has emerged as a major new business strategy to help large businesses achieve six key strategic goals:
- Greater visibility and control
- Improved performance
- Legal compliance
- Cost savings
- Supplier management
- Brand management
Greater visibility and control of expenditure, suppliers and processes helps to increase earnings per share to protect operating profit, by enabling strategic decisions to be made with clarity. The savings generated free up money to reinvest in the company, its technologies and future growth. These benefits can be achieved by deploying an RPO management solution and can transform a business, both financially and on a compliance and brand perspective – the latter also having indirect cost savings.
Competitive pressures and a need for greater legal compliance have placed the management of contingent workforces squarely back on the strategic boardroom agenda. Several factors contribute to this, which include; better supplier management, consolidated invoicing, harmonisation of business processes and spend management.
Greater visibility of expenditure provides companies with the insight and control to optimise their spend. It involves cutting operating costs (and other costs associated) and creates a 360-degree view of the enterprise wide activities.
While large organisations may employ professional spend management techniques in handling direct expenditures, their approach to contingent workforce spend is often through tactical procurement, separately conducted by each business division, which has several disadvantages. Those responsible for making the purchases are typically not procurement specialists, this results in multiple terms and conditions and trading agreements, often with the same agencies, and mitigating additional savings which could be made from strategic pricing delivered from economies of scale. Another factor is that multiple trading agreements often include varying levels of compliance, resulting in higher levels of non-conformances with financial or legal repercussions.
To take advantage of available savings when sourcing a contingent workforce company, divisions and/or regions need to work together. Typical siloed business working creates a situation where there is no way to track indirect spend and report it to the CFO. As a result, companies typically control only 35% of their indirect spend. Recent analysis from Datum RPO highlighted that in some organisations the annualised spend on a contingent workforce was 100% higher than their own calculations – which was over £6m in one particular case.
When procurement leaders control their spend on contingent labour, they transform their business, producing significant returns.
How greater visibility can improve the bottom line:
Spend management affects a company’s bottom line directly: a pound saved drops directly to the bottom line; whereas a pound earned drops only 11 pence to the bottom line due to the costs incurred in generating this income (Source: IBM, Supply Chain Management Report).
Typically, companies within the industry norm apply strategic sourcing to only 35% of total spend and negotiate only 7.5% cost reductions, on average. Datum RPO typically deliver cost savings of up to 12% on contingent workforce spend by managing the supply chain and providing total spend visibility using the latest technology platforms.
With the right strategic procurement strategy, expertise and technologies in place, a company can fully manage its spend management. A contingent workforce solution (CWS) enables a greater percentage of a business’s spend under management and can yield as much as 12% in savings, versus the 2-3% savings typically achieved through tactical budget cuts.
Visibility of spend and efficient process-driven management improves bottom line profits by providing spend analytics — which means identifying total spend and achieving total vendor leverage. It helps improve regulatory compliance by assisting companies in creating the internal procurement controls required and help businesses increase savings, by tracking projected versus actual savings according to each business unit.
Visibility and Control scenario:
We have touched on how greater visibility and control can increase the bottom line, but how does this look in an operational perspective in relation to workforce management? Below are a few of the areas that organisations need to/should be able to report on in real-time:
- Current agency spends v budgets – How much is being spent on agency labour?
- Suppliers used – How many agencies are being used and what percentage of work do they have?
- Supplier performance – what are your agencies’ placement rates and how long do they take to fill vacancies?
- Placement Performance – what are the quality of candidates provided?
- Pay rates – are your agencies paying the right rates for the type and level of work?
- Regional and National spend – are some regions performing better than others?
- Legal Compliance - Are your agencies complying with industry standards? Are your workers legal to work in the UK, paying the correct amount of tax and being paid correctly and/or not subject to Modern Slavery?
How can Datum RPO help?
If you have a large contingent workforce and use multiple agencies, then a Recruitment Process Outsourcing (RPO) specialist can provide processes/ procedures and reporting via a technology platform that offers a complete holistic view of your organisations spend and agency performance.
In essence, making a complex situation easy and having the best possible experience, consistent with your own brand values. An RPO company will also be able to deliver many more benefits which include:
- Online management of the entire recruitment process from order to invoice that deliver real-time management information and reporting across your entire business.
- Measurement of agencies through tailored Service Level Agreements, quarterly reviews and feedback, and benchmark their performance against the entire supply chain.
- Systems to manage rights to work in the UK and tenure in line with Agency Workers Regulations. Including auditing agencies and agency worker records every six months.
- Direct cost savings of between 6% and 12%, by standardising pay rates and margins and stopping overcharging on Employers National Insurance and Holiday Pay.
- Minimising changes in the supply chain, the majority of existing suppliers will be retained, taking into account process, financial stability, geographic capability and legal compliance.
Standardise engagement experience to ensure agency workers view your business in a positive light, and have the best possible experience, consistent with your own brand values.
By partnering with a technology driven RPO company, organisations have real time visibility and control which provide the foundation for effective management of a contingent workforce. Recruitment Process Outsourcing has emerged as a major new business service that helps organisations increase earnings per share, protect operating profit and free up more money to reinvest in the company, its technologies and growth. New technologies and RPO services now make spend and agency management simple across an entire organisation — not just a single cost centre.