Tuesday, April 2, 2019
The role of procurement has evolved over the past few years. These teams are now considered a strategic partner in providing real financial value and are positively referred to as the “corporate money saver.”
As the nickname suggests, procurement’s job is to improve and protect their organization’s bottom line. This includes driving financial performance through acquiring assets, controlling costs and reducing risk. Tactics used to reach these objectives include consolidating the supplier base, effectively negotiating contracts and ensuring regulatory compliance. What most probably don’t realize is that talent is arguably the most important asset, and cost, for any organization – and sourcing candidates effectively requires procurement’s expertise, in addition to that of human resources.
Calling on Procurement in Light of Tight Labor Market
Today’s labor market is tight, which means it is more important than ever to involve procurement in talent acquisition conversations. The current unemployment rate is holding steady around four percent, making the market ideal for job seekers, but not so much for employers. While organizations struggle to fill open positions, employees have the advantage of shopping their skills in search of the highest bidder. As you can imagine, this can be costly for organizations that are committed to securing the best talent for the job, especially when specialized skillsets are required. And even more costly – making it more of a concern for procurement teams – is the cost of making a bad hiring decision; for example, picking the first candidate to come through because of the tough market. The Society for Human Resource Management (SHRM) is often quoted as estimating an average cost of six to nine months of an employee’s salary to replace him or her. That means for an employee making $60,000 annually, recruiting and training replacement costs are $30,000 to $45,000. Work Institute estimates that in 2016, the total cost of turnover for organizations is the U.S. was a whopping $536 billion.
Hiring in an on-demand capacity with freelance and contractual workers can help alleviate the pressure of a tight market, as these short-term roles are not only helpful in speeding the time to fill specific project needs, but also offer organizations the ability to scale their workforce depending on priorities. Some of the most promising candidates are only available through a gig or contingent relationship, but they can also be more difficult to hire for than traditional full-time positions because alternative roles come with more employment regulations and management considerations. This is where procurement’s contract, negotiation and regulatory compliance expertise comes in – to ensure the organization is hiring the best candidate for the job, but at the right cost and under the right terms.
As a function focused on cost savings, procurement teams are often asking, “Could we have found a similar candidate at a lower cost?” Often that answer is “yes” when we talk about contingent labor. From a procurement perspective, contingent labor is not only seen as a less expensive option than a traditional workforce, but also more effective in driving the organization’s financial performance, since short-term contracts allow the business to reduce overall labor and workforce costs while boosting productivity.
Procurement’s expertise in supplier management, contract negotiation and budgeting plays a big role in hiring for these positions because they are often built on a statement of work and come with predetermined expectations and deliverables – just as a supplier contract would. Additionally, procurement already has experience in leveraging partnerships and tools for more efficient talent sourcing processes, as it’s similar to how they likely use supplier management and spend analysis partners and tools.
This expertise, in conjunction with HR’s employment policies, recruiting and performance management knowledge is a sure-fire way to get the most value out of alternative workforce hiring. Together, organizations can acquire high quality talent at a lower cost in addition to reducing the unnecessary risk of making a bad hiring decision – which can cost organizations tens of thousands of dollars for just one mistake. It’s a win-win for procurement teams focused on identifying savings and reducing risk.
Creating partnerships with managed service providers (MSPs) and utilizing vendor management systems (VMS) are two of the best ways to expand procurement’s expertise and improve negotiating leverage. The right technological capabilities and data insights, combined with the knowledge of outside advisors, create a secret weapon for procurement in choosing the best path forward. The consultative approach saves procurement time, while maximizing talent quality and reducing total labor management costs to drive overall financial performance.
When it comes to hiring contingent labor, HR is the go-to source for bringing in and retaining the best talent, but procurement teams are also necessary to help HR understand other critical components of contingent labor hiring, like supplier management or the overall financial impact of new hires. Together, procurement and HR can find the best candidates, with the right mix of talent and cost.
For more insight on how procurement and HR can meet in the middle on modern talent management: