Get Granular to Reduce Global Mobility Costs
In today’s economy, reducing or containing costs is a priority for many companies. Smart companies must methodically approach global mobility cost control. Make the wrong cuts and you risk alienating suppliers, hindering assignee performance, and diminishing assignee satisfaction. Use the right approach and you can reduce mobility costs and improve efficiencies, while also increasing employee satisfaction in global assignments.
Reducing global mobility costs begins with understanding where you are spending your mobility dollars; after all, you can’t cut costs without first knowing what you are spending.
Companies should begin with a spend analysis. The purpose of a spend analysis is to identify what you are already spending on mobility services, with whom you are spending it, and determine if what you are receiving for that spend is aligned with your expectations.
Easier Said Than Done
On the surface, a spend analysis might seem like a simple exercise, and for some services it is. But, for relocation, it’s complicated. That’s because many companies are not aware of their true mobility spend.
They know how much they are spending to relocate a senior executive from one country to another, but the transparency stops there. They might also know the management fee they are paying their relocation provider, but management fees don’t shine a spotlight on pass-through costs.
Management fees—which account for only a small percentage of total relocation costs—are the amount a relocation provider charges a client to manage the outsourcing of relocation services to multiple third-party suppliers. The vast majority of costs are often unseen, and it’s within this gray area where the biggest opportunities exist for companies to reduce mobility costs.
Adding to the spend analysis challenge are limited resources and a general lack of tools to analyze each relocation component. These challenges might seem overwhelming, but there’s a simple solution: Have your relocation provider pull the numbers for you. Your relocation provider is already tracking these component costs. They might not be excited to share them, but they do have this information, so ask them for it.
Compartmentalize Your Relocation Spend
The real potential for mobility savings lies in the component costs. Ask your relocation provider to compartmentalize your global mobility spend, so you can see the granular details of what you’re paying for each piece of the puzzle.
Simply knowing the cost for each service isn’t enough. It’s important to understand these component costs and their cost drivers. For example, household goods shipping costs account for a large part of a relocation spend. Just knowing what you’re paying for household goods shipping is of little value when trying to reduce costs. Instead, go deeper. What are you paying for overseas air or ocean freight? What are you paying for inland freight? What are you paying for package costs? And beyond direct costs, do you know how many times your employee’s information is being handed off to another sub- supplier and how this personal information is being handled?
Don’t stop with household goods costs. Assess every mobility service to understand what is involved. Once you have an accurate picture of how your household goods shipping, destination services, tax consultation, travel, language training, fees, and every other relocation component cost breaks down, you can look at each of these categories individually to find savings.
Start with the big-ticket items, and identify what is included in each of these components. What services are included in your destination services benefit? Do you need each of these services? These are tough questions, because they transcend cost. Don’t ask whether you want to pay for it, truly determine if you and your assignees need it.
It might be expensive to pay for an in-country resource to accompany an assignee on a tour of their new city or help them find temporary housing or schooling for their children, but what would life be like for that assignee if that benefit didn’t exist? What’s the cost to value tradeoff? Once you compare the cost to value, you can make more informed decisions about which benefits are essential and which benefits you no longer need.
For example, determine what services are included in a three-day Settling-In Service benefit and compare this with a two-day service. Are there opportunities to scale back? Can the provider accomplish the same or similar service in two days instead of three days to save on labor costs?
What’s the Worst that Could Happen?
Cutting costs is easy. Eliminating mobility benefits or squeezing relocation suppliers can reduce your global mobility costs significantly, but it’s not the smart way to save. This slash and burn approach has consequences, which is why it’s important to be methodical in cost-cutting decisions. A lot can go wrong.
Imposing cost reductions on suppliers could result in suppliers doing the bare minimum when supporting your assignees. Demanding suppliers lower their costs could alienate them.
Eliminating a benefit can also have drastic impacts. The more an assignee has to do on their own—as opposed to having in-country assistance—the less time they have to dedicate to their new assignment, which is the reason for the relocation.
Shifting the burden to assignees can decrease assignee satisfaction in their new role, which can lead to failed assignments. It could also encourage an assignee—an individual you have heavily invested in—to leave the company upon returning to their home country.
It’s always tempting to look for a single solution to cut costs, such as cutting benefits, but while these might be effective in lowering costs in the short term, there could be performance impacts in the long term.
Make Spending Reduction an Ongoing Process
Reducing global mobility costs should not be a one-time exercise or an annual event. It should be an ongoing process, which is fluid and relevant to changing variables such as the economy, company goals and objectives, changing demographics, workforce supply and demand, and new mobility products and innovations.
Standardizing this approach will transform cost reduction from an exercise into a culture of efficiency and a way of conducting business. By getting into the granular details of your mobility program, you’ll understand how to identify mobility savings and where to focus cost reduction efforts, which ultimately leads to a more cost-effective, competitive and successful global mobility program.
Vice President, Global Supply Chain & Procurement