Keeping costs under control is a key priority for most procurement leaders. When your job is all about acquiring the various resources and assets your company needs to succeed, you have to be sure those acquisitions are happening in a cost-effective manner.
When it comes to recruitment, the task of tracking direct costs - such as wages and the amount you pay to advertise particular roles - is relatively straightforward.
But it's important to ensure that you're not focusing all your attention on direct hiring expenses and ignoring indirect costs, such as the productivity losses that occur when people are absent or when vacancies remain unfilled for a long time. Indirect costs are harder to quantify and represent on your budget, but can have a significant impact on your financial performance. To achieve the highest levels of efficiency, you need to be aware of the widest possible range of factors affecting your time, productivity and workforce spend.
In short, tracking your indirect labor costs puts you in a better position to manage and reduce them. Below, we take a look at some of the most common indirect costs, and what you can do to keep them under control.
absenteeism and turnover
A high rate of absenteeism places a substantial financial burden on a business. When people aren't available to do work that needs to be done, you face the choice of paying to bring in additional staff at short notice, redeploying the workers you already have, or asking people to do overtime. The latter options can result in lost productivity as people are taken away from their regular work and might not have the right skills to do the job in question. You also need to consider potential knock-on effects like increased stress.
There are similar costs and disadvantages associated with high staff turnover. If people are leaving in unsustainably high numbers, you'll find yourself spending a lot of time, money and energy on recruiting to plug workforce gaps. Aside from the obvious financial implications, this can cause disruption in the workplace and damage morale.
The costs associated with both absenteeism and turnover can be minimized by taking a proven, effective approach to recruitment. Following established processes to ensure you acquire the right people will increase the chances of recruits having a healthy, happy working relationship with you.
prolonged fill times
Too much time spent filling vacancies is another good example of an indirect workforce cost that can be easy to overlook. The more time you dedicate to hiring, the less time you're able to spend focusing on your core business, bringing in revenue and driving profitability.
One of the most important things you should be doing to optimize performance on this front is establishing relevant metrics and key performance indicators, which will help you track the right data and know when you're spending too much time on recruitment.
Modern employers also have the advantage of technology to help with reducing fill times without sacrificing quality standards. With a tool like Checkster, for example, you can harness the power of automation to speed up reference checking, while AllyO leverages artificial intelligence, machine learning and natural language processing to reduce the administrative burden on hiring teams.
training and induction
The recruitment process doesn't end when you've completed your assessments, selected your chosen candidates and they've accepted a job offer from you. To really get the best results out of your staff, you need to support them as they familiarize themselves with their new role and settle into the organization.
It's possible that this process might include some informal training or mentorship from other employees. While this could make a vital contribution to new hires getting up to speed and becoming productive, it might not be viewed as an obvious cost of recruitment, even though it's taking up time and affecting the productivity of other members of staff.
Furthermore, you'll need to consider the additional costs involved in certifying people for particular skills and temporarily stepping up your quality control measures, as well as the potential for reduced productivity across the entire team.
Induction and onboarding is another area where you can gain vital advantages from the latest tech and expert support. Modern tools can help you take an integrated approach to everything from advertising roles to onboarding. With the right HR partner, you can find the most effective technologies and processes to get the best results in these areas.
To identify potential cost savings within your organization, you should start considering your indirect costs too. To learn how to do this download our guide: ‘5 ways procurement teams can make labor cost savings.’