Optimizing the Human Resource Supply Chain

Reading the various outlooks for the coming year, I came across the Manpower Employment Outlook for 2012. Interesting statement from the report is that although employers are more inclined to hire new personnel there continues to be uncertainty about the market, so they are reluctant to make the investment in a permanent hire. At the same time employers also have trouble filling vacancies for specialist jobs like technicians, sales people, skilled trade workers and engineers, as indicated by another report from the same agency. This makes balancing the demand and supply of human resources a though job. Overstaffed units will put pressure on the EBIT because of too high cost levels, while understaffed units will suffer from service degradation or loss of revenue. However, when companies link their strategic workforce planning with their business planning the workforce productivity can be optimised which will result in a decrease the total cost of human capital, while maintaining or increasing the overall quality of their workforce and customer service.

Effectively managing demand and supply for human resources requires a structured planning process, starting with a forecast of the demand for human resources as derived from the business planning. Next the supply of resources needs to be forecasted. Since people change jobs, retire, get hired or fired available human capital will change over time, dynamics that need to be taken into account in strategic workforce planning. Matching the forecasted demand and supply for human resources indicates where shortages of overages can be expected. Making a choice on the instruments for adjusting human resource supply a company can than take appropriate action to establish the best possible balance between supply and demand. In this process the HR manager can benefit a lot from the Operations Research models in making these decisions fact based.

When comparing the dynamics of human resource capacity in supply chains with other resources in the supply chain you will see that human resources are different. The dynamics of other resources are mostly restricted to ordering, whereas human resources have a wide variety of characteristics which all influence the availability of human resources over time. To name a few; acquiring new skills, productivity increases due to learning, change of role/function and getting hired or fired. These characteristics will influence the available resource capacity and cause forecasting resource availability to be difficult. Operations Research offers all kinds of methods to incorporate these dynamics, improving the quality of forecasted availability. For example, stochastic loss network models or somewhat simpler the Markov approach as described in my The OR in HR blog entry. The parameters of these models, for example transition probabilities, need to be estimated based on the data in the HR systems and can best used together with subject matter experts to incorporate factors that are not present in the available data. These models than can be used stand alone or for optimisation purposes, like in deciding on the most cost effective capacity deployment.

In long term capacity planning it is decided how to deploy the expected available capacity, which is not straightforward to accomplish. Human resources differ from ‘normal’ resources since they are not consumed in the make process (they deliver a service) and productivity and efficiency depends upon their workload and utilization (Parkinson’s Law and the Student Syndrome in action?). Also human resources can perform more than one skill at a time and doing so across multiple assignments. In the service industry, like in Operations Research consulting and IT services, the process of assigning people to tasks/roles is further complicated by simultaneous allocation of multiple resources and resource sharing over assignments. I know from own experience that making a long term capacity plan for my team is a hard. Assignments simply don’t start when you would want them to start leading to over-utilized or underutilized consultants. Also you want assignments to fit with the capabilities of the consultant and stimulate the development of new capabilities and knowledge. The right assignment for that is not always available. To complicate things even more, both demand and supply for human resources are uncertain. In long-term capacity planning the exact assignment of resources to projects or tasks is not required. What is needed is to verify if there is enough capacity to satisfy demand or master plan. One way to answer that question is by making a rough cut capacity plan, RCCP. Usually this requires formulating and solving a mixed integer linear program. The RCCP will indicate if the master plan can be satisfied (is it do-able?) and what are possible bottlenecks and mitigation actions when the master plan changes, for example due to changes in demand.

Operations Research will improve managing the balance between supply and demand for human resources significantly. It allows for the incorporation of the dynamics of human resources in the decision making, resulting in better quality and fact based decisions. It will support management in making a choice on the instruments for adjusting human resource supply on the longer term optimizing the human resource supply chain.