Recruitment is vital, but often neglected, part of a company’s supply chain. As it is often thought to be a “one-off” process, the laws of business governing other procurement processes are often not applied to the acquisition of an organisation’s greatest asset – its human recourses. By way of example, the concept of Total Cost of Ownership (TCO) can and should be applied to company’s recruitment process.
In the past few years there has been a significant shift in the relationship between enterprises and their supplier(s) of human resources – i.e. the recruitment agencies. This in turn has culminated in the appointment of a “preferred supplier” for HR.
The premise behind this move is that a carefully selected and managed supplier offers the greatest guarantee of consistently meeting demand at consistently high quality level. In return for an increase in sales volume the supplier will agree to a lower price structure. Conversely, the buyers use competitive market forces to set rates with their preferred suppliers and are not investigating why the original rate structure was negotiated in the first place.
We have been in a ‘skills shortage’ market for most of the last decade and this had led to the employers paying more, both to the employee and the recruiter. Currently the recruitment industry is not regulated by any laws other than those contained in the Labour Relations Act (LRA). ‘Contingency Recruitment’ (i.e. payment is made only to that agent which provided the successful candidate) is the norm today. It is expensive as the high risk is carried by the recruiter.
‘Preferred Supplier’ agreements do nothing to decrease this risk and without assisting the recruiters to decrease their risk and increase their efficiencies, a reduction in rates ultimately forces them to search for alternative clients or lose money. This, in turn, leads to a reduction in the quality of service buyers are receiving.
Those using price as the selection criteria without implementing effective management techniques, are then actually increasing the Total Cost to Ownership of their human resources as they are not necessarily getting the quality appointments who carry the greatest return on investment.
The TCO approach encourages the ‘balanced management’ of supplier agreements. In order to gain greater value from suppliers of your greatest asset – your human assets – enterprises must apply the same rules to this acquisition of resources as to any other, and adopt more creative pricing structures than what is currently in existence.
Some industries are now experiencing unprecedented competition due to the entry of many international players who have lower entry costs than local players. The ‘brain drain’ is a major concern as the increase in numbers of players in industry leads to added competition for the skills pool. Employment equity has led to an increase in costs of recruitment due to the limited resource pool.
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