Temporary workers remain a key component of any business’s ability to be agile and adapt to meet customer demand. More and more businesses are realising that they need to operate in a manner which lets them flex their staffing levels and remain in financial control, while continuing to provide an effective product or service.
However, continuous levels of poorly managed temporary worker usage can be costly, particularly when an organisation places high levels of reliance on agency staff. While many employers focus on reducing agency costs and managing supplier costs, the wider issue of controlling and managing the supply and demand of all types of temporary workers needs to be addressed to achieve real savings.
By focusing solely on reducing supplier costs, many procurement and HR professionals underestimate the demand costs of recruitment. This is a direct cost of hiring managers ordering temporary workers without first justifying the need for another worker and/or not fully assessing alternative approaches.
Factors behind demand costs include:
- History – ‘we’ve always used temporary labour’
- Vacancy rates
- Mobility of the workforce
- Poor task prioritisation and workforce planning not being closely aligned to strategic objectives
- Insufficient authorisation processes
- Short-term planning and temporary worker assignments that are not properly reviewed
- Management decisions
Employers need to scrutinise all the information available to determine cost-effective staffing levels and understand demand levels to improve supply. Understanding and managing demand delivers significantly more savings than managing supply costs alone.
How can employers better calculate their demand costs?
Understand why demand costs are important
HR managers and procurement professionals are too often informed there is a need for temporary labour too late in the process or at the point of order. Having a comprehensive understanding of demand costs (prior to orders being placed) might mean the full cost can be eliminated. In turn, this has the potential to deliver significant savings and allow businesses to make informed staffing decisions which are in line with the organisation’s strategic and operational goals.
Assess the business case
To manage internal demand for temporary labour effectively, it is important to assess the need for temporary workers and, if justified, how much the business is prepared to spend. Ensure a method to evaluate temporary worker demand is implemented. This will guarantee an agreed approach throughout the business and allow for sense-checking and evaluation of the following internal needs:
- The use of temporary workers in different business units
- The seasonal demands placed on the business unit and its capability to meet demand
- The business unit’s workforce plans and how critical a flexible workforce is to deliver an efficient performance
- The complexities and priorities of your organisation
You should also conduct an annual business case for each temporary worker category, assessing historical patterns of use and expected future demands. This will mean workforce plans can be appropriately designed, scheduled and authorised.
Assess the alternatives to agency-supplied temporary workers
One of the biggest issues for many organisations is that a hiring manager’s default position is to use an agency for any short-term labour demand. But simply because the need is temporary and an agency approach has been suitable in the past doesn’t mean it is always the right choice. One way to manage demand is to assess alternative options, including; permanent workers; fixed-term contracts; direct workers; limited company contractors; welfare to work; and apprenticeships.
Considering alternatives like these could, in many cases, remove or reduce the demand for temporary labour. The key to achieving this is to think about your workforce requirements with an open mind and evaluate fully the merits of your current approach.
Review processes for existing assignments
A common occurrence with temporary staffing is that the original financial commitment is exceeded because there are no effective review mechanisms. By putting in place an effective review process, we estimate 75 per cent of the expenditure can be eliminated, or at least justified against a new set of criteria. When reviewing existing assignments, be sure to set key review dates to assess if demand still exists and if the worker is meeting productivity targets.
☛ Jamie Horton is managing director at Comensura
☛ For more information on how to manage temporary worker costs download Comensura’s practical guide