When should a company use a search firm?

A: Only when it's cost justified!

This decision should be treated as any other business decision. It should be cost justified.

In addition to a free Resume Referral Service and free Job Postings, your APICS Chapter's Recruitment and Employment Coordinator offers free council to hiring officials on the best methods to fill your open positions. Before recommending a method, we typically go through a fact gathering check list:

• What is the job to be filled?
• What are your company's own capabilities to fill this position?
• What is the urgency? (How much is it costing you to have the position remain unfilled?)
• Is the search confidential or unusual in any way?

It is worthwhile to have this discussion early because time is typically of the essence. In my role as a consultant and outside recruiter it is refreshing to work with companies that know which positions they should use a specialized outside recruiter to fill and which ones they should fill for themselves. I am sometimes called upon to work on failed searches, where they have brought in a professional recruiter as a last resort. In these instances, it alarms me to see how much money has been wasted getting to that point.

It is reasonable for some companies to have a recruiting staff in their Human Resources departments that is able to fill most of the ongoing needs. The more specialized the requirements and urgent the need, the more likely there is justification to outsource this function to a specialist. It is important for the staffing and hiring managers to know their own capabilities and to make their decision early.

It is exciting for me to talk with a Human Resources Manager or a hiring official who is bottom line oriented and can have the same perspective as an owner of the company. For managers oriented to consider the bottom line of a company, this can easily be looked at as a Supply Chain Management decision. But in all fairness, quite often the person making this decision is rewarded for inappropriate performance factors which lead to incorrect decisions. If they are not rewarded for their favorable impact on the bottom line and are penalized for incurring outside recruiting fees, then the company is handicapping its overall success by its own metrics and rewards systems.

Dr. John Sullivan, Head of the Human Resources Management Program at San Francisco State University, uses the example, "If an airline bought a new 747, and then let it sit for two months on the runway because they didn't have a pilot, what would the cost be to the airline?"

When a company tells me it costs them nothing to keep a position unfilled, I typically recommend, "In that case you should never fill that position. Why fill a position that is not going to make you money."

During the boom period of the '90s, Don Schwerzler, Managing Director of Southern Business Research, convinced me that unfilled positions were costing the U.S. economy billions of dollars by taking longer to fill than they should.

"Most organizations fail to make a direct connection between the time it takes to fill a vacancy, and any specific dollars they end up losing from the bottom line." Schwerzler went on to explain, "As a rule-of-thumb, the average manager should earn for their company at least five times their salary, i.e. a $50,000 supervisor should move $250,000 to the bottom line; a $100,000 executive should personally be responsible for $500,000 profits."

Allow me to give you a real life example using this formula: In January a company came to me through APICS to find both a Purchasing Manager and a Materials Manager. The Purchasing Manager position was important to them and was relatively straight forward. The Materials Manager position was a newly created position with tremendous potential but appeared to have a lot of internal ambiguities still to be ironed out. Free candidate resumes were sent to them from the APICS Resume Referral Service but none turned out to be exactly on target, so I counseled them on using outside recruiters.

I regret to admit I failed to persuade the company of the need to use an outside recruiter differently on the Materials Manager position than the typical 'contingency search' that was appropriate for the Purchasing Manager position. I recommended using a 'retained search' to fill the Materials Manager position, because it would allowed the consultant to interview each of the decision makers and eliminate their internal differences in expectations before beginning the search.

With their own recruiting and using outside recruiters on a contingency search basis the Purchasing Manager position was filled but the Materials Manger position remains open nine months later. They have experienced a parade of candidates and a sizable expenditure for numerous candidates' travel, executives' interviewing involvement and even several banks of psychological testing, and still without a successful hire being made.

Using the above formula, and assuming this position will eventually be filled by an $80,000 Materials Manager, that person should earn for the company five times his or her salary, or $400,000 per year. The company has wasted approximately $33,000 a month in lost opportunity cost for each month this job has remained unfilled, an amount totaling approximately $300,000 as of this writing, and still counting. This may be a conservative number considering that during this period it is likely they have failed to install needed computer support systems, failed to reduce potential excess inventories, failed to find available production efficiencies, failed to increase service levels that would improve sales, and failed to accomplish maximum benefit from strategic and tactical sourcing that would reduce raw material, MRO and transportation costs - all of which they are expecting to be accomplished by this new Materials Manager.

I am quick to report that this example is an exception and we have many more success stories coming form the APICS program than negative examples. So, call upon your APICS Chapter's Recruitment and Employment Coordinator for this free opportunity to discuss your staffing situation if you might benefit from having another perspective.