Seven steps to manage recruitment supplier margins cost-effectively

Jon Milton
posted by Jon Milton
16 October 2015

Using temporary workers has been recognised as a costly process if it is not managed effectively.

In fact, NHS organisations in financial difficulty now face new regulations on how much they can spend on agency staff. But in any sector there’s a need to make recruitment supplier costs transparent and to scrutinise margins. This can help you build a full picture of how much you should be paying for temporary staff.

The following steps can help you ensure that you’re getting value for money from supplier costs when using temporary staff:

Review and standardise supplier margins. Determine a standard supplier margin for each job category in your organisation, even if this means you “re-procure” temporary workers to these margins. By ensuring consistency, you can iron out any instances of job roles having an excessively high margin.

Establish how supplier margins are calculated. Your supplier margins might not be as simple as just a percentage of the temporary worker’s pay rate. Some recruitment suppliers apply the margin to the temporary pay plus the National Insurance (NI) and Working Time Regulations (WTR), meaning that you’ll pay them a higher margin. Scrutinise the terms of your contract so that you know for sure how much you’re paying per worker.

Seek clarity on NI and WTR charges. Charges based on NI and WTR are difficult for recruitment suppliers to manage, as they’re based on hours used and earnings thresholds. Consequently, each will have their own approach, so find out how your recruitment supplier will charge you for these costs.

Stimulate competition. Tell your recruitment suppliers that they aren’t the only agency you take business from, or that you’re looking for additional suppliers, to help generate competitive pricing. Online job advertising and the current employment market has lowered the costs of acquiring candidates, and don’t be afraid to ask for this to be passed on to your supplier margin.

Review supplier performance. Create and maintain a league table or scoring mechanism to measure and compare supplier performance. You can do this by establishing the importance that your hiring managers place on the performance of suppliers in areas such as price, speed of response and quality of candidates. This will help you benchmark the effectiveness of your suppliers, giving you a better idea of how you can make them more competitive.

Negotiate discounts for long-term assignments. When recruitment suppliers find you a candidate that will fill a long-term role, remember they’re getting business from you for this whole period. The recruitment supplier may be more willing to lower the price to keep the business, so make the most of this by negotiating a discount.

Give something back. Don’t exploit your suppliers. Negotiate a deal that they will benefit from too, otherwise you risk them being unhappy suppliers and not performing the best to their ability. You can do this by committing to a volume of orders with them over a period of time to make it easier for them to offer you a lower margin, but remain profitable.

It’s important to closely examine recruitment supplier costs so that you’re not hit with any hidden surprises when it comes to paying the recruitment agency’s fee. Hiring temporary staff can be a worthwhile way of maintaining productivity, particularly when staffing demands fluctuate, but there’s always the risk of it being too costly. The best way to begin tackling the issue is by trying to achieve low supplier margins with the recruitment agencies you procure from.

Jon Milton is business development director at Comensura. Milton will be speaking on the Supply Management webinar Demand management for complex services: What it is and how to do it on Thursday 22 October at 1pm. Click here to register.

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