CFOs, Apply Supply Chain Logic To Human Capital Management – Part 1

Add More Value by Creating Efficiencies in Recruiting

I wish I had been the first to draw parallels between supply chain management (SCM) rigor and human capital (HC), but several academics and HR practitioners have already thought about this. Most of the articles have been written for supply chain managers on how to build a better HR team, or for HR professionals on how to deploy people as a resource, just like any resource needing to be managed to generate economic value for the organization.

This article is written specifically for CFOs. We believe that CFOs should understand how SCM logic can be applied to HR programs to identify areas to improve efficiencies and financial performance. According to a 2018 McKinsey report, among other strategic initiatives, CFOs are asked to take on increasing responsibility for improving financial efficiencies in the organization.

Given that people costs are often a company’s single largest line-item expense, realizing small improvements in efficiencies of HR processes can drive large accretive impact to the bottom line.

Applying an SCM lens can help you ASK THE RIGHT QUESTIONS of HR to confirm the alignment of programs and processes to business strategy and identify opportunities to improve efficiencies. We aren’t suggesting CFOs get into the nitty-gritty of designing and managing HR programs; we are suggesting CFOs partner with CHROs to enhance the impact of HR on bottom-line performance. The partnership of financial rigor with program and people expertise will generate measurable benefits.

Supply Chain Management Defined and Applied in Recruiting Programs

SCM optimizes activities that take the raw material to a final product. It involves planning, designing, executing, controlling, and monitoring supply-chain activities with the objective of creating net value, building a competitive infrastructure and synchronizing supply with demand and measuring performance globally.

We can draw many parallels to SCM and the process of managing Human Capital resources via a rigorous and disciplined process to generate value-creating products/outcomes.

Let’s take the recruiting process. Recruiting for an organization is it’s “life-blood”. Given the war on talent, and the shrinking labor pool, effective and efficient recruiting strategies and processes have never been more important – or challenging — for organizations. For many organizations, recruiting is a process of filling open positions. However, if we apply supply chain management logic, we will think about the process more holistically than merely filling open positions – and extend our understanding of the end-to-end need for and deployment of labor.

Why CFOs Must Pay Attention

Of all the HR processes, poor recruiting may be the biggest “money pit” as far as resources go (monetary and human)¹. Recruiting is perceived as having a low ROI and often has the highest potential for efficiency improvements. Recruiting requires cash and human effort: cash to pay for ads, headhunters, etc. and human effort to screen, interview and coordinate the activity candidates through the interview process. And much of this effort is expended on people (candidates) that will never return any value to the organization as most candidates interviewed will not be offered a job and, of those who are, many will not accept the offer. This is unlike other HR initiatives where investments in programs for current employees tend to generate some level of measurable return, as current employees generate economic value for the organization.

To identify where improvements in efficiencies and ROI can be achieved in the recruiting process, we suggest CFOs team up with their CHROs to examine each step in the recruitment process with a supply chain management approach.

1. Demand, Planning, and Forecasting: In SCM this is focused on anticipating future resource needs. Planning leads to better forecasting and smoothing demand levels. For recruiting, this would involve predicting the needed quantity, quality and timing of new employees based on predicting future job openings and vacancies rates. Understanding attrition trends and future human capital needs allows an organization to plan and forecast, making sure the right talent is in the right place at the right time. Some questions CFOs should ask to determine if demand, planning, and forecasting elements are considered include:
• What are our workforce planning needs in the short- and long-term?
• What evidence is there that supports keeping the position or creating a new position? How has this position supported our business model?
• What are our current overall and first-year attrition rates?
• What is our estimated cost of attrition? (For an estimate use CFO.University’s Cost of Employee Turnover Calculator)
• What is our job offer acceptance rate?

2. 

   Production Planning and Scheduling: In SCM as applied to manufacturing, this exercise established future inventory acquisition schedules and optimizing production to fit quality and quantity needs. For recruiting, this would entail using analytics to understand where and how we’re sourcing candidates, the quality and performance of those sources, and which source generates the organization’s highest performers, or those that have the longest tenure. Questions CFOs should ask to determine if production planning and scheduling elements have been considered include:

• What has been our best source of candidates (school recruiting, headhunters, job boards, LinkedIn network, employee referrals, etc.) from a job acceptance rate, performance over time and tenure perspective?
• What are our projected costs associated with sourcing candidates from each source? What delivers the greatest ROI on recruiting investment?
• What has been the most promising entry point in terms of jobs or job levels for employees (entry- mid- senior-level, specific function, job-type)?
3. Distribution and Logistics: In SCM this is planning how goods will move through space and time, identifying where to place goods and optimizing choices about which sources to use. For recruiting, this would involve decisions on whether to recruit locally or more broadly, hiring full-time employees or engaging contractors and how we incorporate remote work into each position. Employing analytics to understand how best to deploy current human capital (i.e., promotion of mobility) can identify the strategy that has (and could) generate the greatest value to the organization. Questions CFOs should ask to determine if distribution and logistics elements have been considered include:
• What is our overall time to hire? (How long are positions open before they are filled – or what is our productivity opportunity cost associated with open positions?)
• What is our overall experience in promoting from within? How many and how long does it take for our employees to get promoted?
• What is our overall mobility rate? Are we moving (and at what rate) people/talent through the organization?
• Does our remote work policy/philosophy fit our culture and provide us with the best talent pool?
• What is our bench strength for our key positions?
4. Inventory Management: In SCM the key concept is managing resources – how much inventory should we have, where can shortages and surpluses be tolerated, and how much is this costing the organization. For recruiting, this would involve quantifying the inventory of skills and competencies in the organization to facilitate deployment of this asset where and when needed in the organization. Another important aspect of inventory management related to skills/competencies would be planning how far in advance to build these inventories of current employees, job applicants and a pool of contingent workers. Questions CFOs should ask to determine if inventory management elements are considered include:
• What are the current skills/competency levels in the organization? How are these aligned to needed skills/competencies? Can we develop the needed skills/competencies in the current employee base rather than recruit new talent? (Make vs. buy?). Are the skills/competencies ongoing or sporadically used? (Rent vs buy?)
• What are our aggregate needs in the near-term and far-term? Where are our gaps? What are our alternative sources of skills/competencies (contingent workforce)?

By asking these questions, CFOs can work effectively with other business leaders and HR professionals to identify opportunities to better enhance efficiencies in recruiting programs which better align cost/benefit opportunities for the organization and optimize dollars invested and resulting return in the recruiting process

HR executives will continue to be masters of their domain (soft side), and in a partnership with finance leaders, can find opportunities to enhance the impact of HR initiatives.

By applying SCM rigor with financial and data analytics techniques, the nature and quality of data can help target human capital activities and improve decision-making related to budget allocations.

Footnote: Solange created HCMoneyball as a first of its kind solution designed to capture and report on much of the data needed to address the above questions and reveal the efficiency and impact of all HR programs.

¹ 5 Ways Ineffective Recruiting is Hurting Your Business Herd Freed Hartz https://dev.herdfreedhartz.com/5-ways-ineffective-recruiting-hurting-business/

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