Can your company reduce its relocation spend while simultaneously improving service levels? The answer is a resounding "yes," but it requires attention to the unique drivers that can influence costs in this spend category. With years of experience in partnering and strategizing with procurement professionals to identify these drivers, and in a series of three posts, I'll overview the most common. I'll also detail the typical challenges facing procurement professionals looking to drive substantial relocation cost savings, and proven techniques that could help companies generate savings up to 15% or more of total spend.
Consider the following:
- Cost Drivers
With average costs easily mounting upwards of $70,000, relocation is an expensive and highly visible benefit. Direct costs are driven by policy, how it is administered and the services that support various programs. Indirect costs can hit the bottom line through lost productivity, attrition and replacement costs.
You've seen the invoices: home selling expenses, household goods shipment and storage, tax gross-up, temporary living, final move costs and the like. According to the Employee Relocation Council, some of the biggest line items are:
- Home Selling Costs $25,018-$52,231 (depending on the type of sale)
- Household Goods Transportation $9,658
- Federal Tax Liability (Gross-up) $9,918
Most direct costs are "passed on" to companies by the relocation service provider responsible for selecting and monitoring such service partners as brokers, appraisers, inspection companies and van lines. Effective supply chain management, therefore, can yield savings not only in the form of discounts and volume leverage, but also in more effective systems and process integration.
Direct costs range from a low of a few thousand for college recruits to a high of tens of thousands for senior executives, reflecting the type of policy provided to each tier. To lower your spend, the obvious solution would be to reduce benefits. But dramatic reductions can jeopardize the ability to attract and retain the best talent. The perfect balance involves aggressive management of the selection, recruiting and monitoring of service providers, a competitive policy and relentless attention to such details as accurate tax gross-up and monitoring exceptions.
Today, most companies outsource the majority of their relocation program administration. Dedicated resources can deliver a level of expertise most organizations just can't provide, and relocation is getting more complex every day. Centralized policy administration will drive consistency and leverage volume.
Service fees and van line bills aren't the only costs to be concerned with; lost productivity, attrition and replacement costs can far outweigh the actual bills you pay. Consider that the average relocation takes approximately four months to execute and renders the transferee only 70% productive during that transition. Then compound these costs with the fact that turnover among transferees can be as high as 30% above norm and that the cost of replacing a lost employee runs about 1.5 times salary. Suddenly, you've added millions to the cost of relocation. Consider this example:
Example: 100 transfers
Lost productivity = $100,000 average transferee salary
At 70% productivity for 12 weeks = $692,307 Turnover = 30% above norm or 7 transferees/100 employees
Replacement costs = 1.5 X salary $100,000 X 7 new recruits = $1,050,000
TOTAL INDIRECT COSTS: $1,742,307
Stay tuned for typical challenges faced and their solutions.
-- Pete Kolp, CEO of AIS (Advanced Integrated Solutions)