Many people suffered agonies, albeit vicariously, when James Howells lost a fortune in Bitcoins (which he got for nothing, when their value was almost nothing, valued at $9 million at the last count)! The IT worker threw away a hard drive which held the cryptocurrency, forgetting that it held the digital wallet with the necessary details. Now, the only way to ever retrieve them seems to be searching a landfill, inch by inch!
Companies have two basic responsibilities when it comes to financial performance. One is to earn it through increased sales. The other is to not squander it all away, maximizing operating profit. One step all companies tend to take to maximize profit is to manage purchases of goods and services through the establishment of a Procurement organization.
Driving supplier costs down is a major part of Procurement’s responsibilities; but does the same approach fit the sourcing of materials and workers? Is there a fine line that divides and differentiates the way procurement approaches these two dramatically different types of sourcing? Can the sourcing of temporary workers be treated as a “commodity buy”? This is a question many users of contingent labor services also have a hard time resolving.
When sourcing materials, the specifications of a given item and its utility may be identically similar or equal to an item being offered by another supplier. But, when sourcing people, the important thing is to make sure that the right talent is found at the right time. Many ‘buyers’ have found that, to their chagrin, that open positions stay open for long periods when the pay rates are lower than market standards or the suppliers’ margins are driven down. With high demand talent, the business may find itself unable to fulfil its projected business plan and actually incur losses, all because of a laudable aim of achieving cost savings. In talent sourcing as well as any other activity, austerity and cost cutting are acceptable only if the business is able to focus on its mission and meet its goals.
In our experience, companies that consistently trade off supplier or worker qualifications for lowest price experience the highest rates of “out of program” spend. If the line managers feel that the system is inhibiting the sourcing of the talent they require, they may turn to maverick spending out of desperation to keep their work from suffering negative consequences. As a result, the business will lose every advantage expected from the stiff supplier margins and will end up paying much higher prices as most line managers are not focused on cost savings..
So, make sure you understand the market realities. Conduct rate assessments, factoring in skills, levels of experience and hiring location. Use objective external sources to determine appropriate supplier mark-ups. Insist on complete transparency in understanding each element of the mark-up. Monitor results each month, focusing in on positions that remain open for long periods of time or patterns in pricing exception requests. Regularly communicate with your suppliers to understand the challenges they face when filling your requisitions. Getting the key participants to willingly accept the program, because they feel comfortable with its terms, means ultimate success for the business – and everyone else.
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