Manufacturing News

HR outsourcing offers bottom line benefits

IN the current tight labour market conditions, many companies are finding it hard to obtain and keep the right employees, and this in turn can have an impact on growth and the bottom line.

More innovative approaches are needed, and one solution which is likely to receive increasing attention is the outsourcing of the human resources function to a specialist service provider.

According to Greg Puttick, general manager of HR service provider EL Blue, a wide range of expertise can be part of a successfully outsourced service including recruitment, training, succession planning, flexible workforces, OH&S, payroll, career planning, employment legal issues, work agreements, and workers compensation.

Two main HR models are offered by the company: HR Outsourcing (HRO) and Employment Process Outsourcing (EPO). The former involves replacing the HR function within a business and running it more efficiently; while with EPO a company’s workforce can be contractually taken over and managed externally in a partnership arrangement.

“Cost savings of 10% of labour cost net of our charges, and profit increases of 25-35% can typically be achieved by outsourcing all or part of the HR function,” Puttick told Manufacturers Monthly.

“These gains result not only from the provision of hands-on expertise, but also from the introduction of established business processes that are simple, practical, and ready to go..

“Services of this type can be particularly relevant for companies with high growth, flexible workforce requirements, and those that do not have an HR manager, or have an under-resourced HR department.

“HR experts can be provided, who may come and go as needed, to ensure best practice input across a wide range of specialist HR areas. Every organisation has areas of strength and weakness, so contracts can be flexible and exclude areas that are already being looked after competently.

“With the EPO option, outsourcing can be taken to the extent of the service provider contractually employing a customer’s workforce, while the client company continues to manage the workforce in terms of work tasks, business requirements and leadership.

“Responsibilities undertaken by the service provider can include ensuring an appropriate number of suitably qualified employees at any given time, planning future workforce needs, and dealing with a wide range of HR tasks such as induction of new employees, work place agreements and workers compensation issues,” Puttick said.

Student program

According to Puttick, effective recruitment strategies should be seen as a critical part of the HR function.

“For example, we have developed a program designed to provide clients with a ‘best in class’ long-term workforce whereby relationships are formed with universities and professional institutes to enable students to work for a period of time in a client environment.

“This early contact enables us to qualify, filter, and recruit the most talented employee prospects before they hit the job market.

“Success depends largely on the ability to create a culture and environment of mutual care, commitment and employee engagement, and best value can be added to companies that want to focus on core business, maintain a flexible workforce, and plan to grow.”

Puttick says HR outsourcing is a common concept in the US and Europe, and is slowly finding its way into Australia.

“The manufacturing sector overseas is a pioneer in taking up this service in response to cost pressures, workforce shortages, and the need for a seasonally flexible workforce. Improved practices and cost savings can usually be made in a wide range of areas.

“For example, some companies have an absenteeism rate of over 4.5%, where an acceptable rate of 2% is very achievable.

“An Australian-owned engineering and manufacturing company that we have provided outsourced HR services to for four years has experienced three years of double digit growth.

“Initially, the workforce had a highly unionised, inflexible culture with very little alignment to the company’s goals, and this was reflected in high absenteeism and injury rates.

“Absenteeism is now under 2%, multi-skilling has been introduced, and improvements in efficiency and flexibility have contributed to greater competitiveness and profitability.”

Puttick says big gains can be achieved by providing management with the time to spend on business planning, performance and growth, instead of people issues.

“Cost savings for a manufacturing enterprise from handing the HR responsibility to an expert organisation can be as high as 200k for an organisation with approximately 60 employees,” Puttick said.

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