A Labor Problem

8/9/2019 A Labor Problem

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HUMAN RESOURCEHUMAN RESOURCE

DEMAND FORECASTDEMAND FORECAST


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Employees required for a future planEmployees required for a future planperiod is a function of the estimatedperiod is a function of the estimatedsales revenue (or production estimate)sales revenue (or production estimate)for that period and the productivityfor that period and the productivitygoal.goal.


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Current year Plan Year Estimate Plan Year Estimate

No Change in

Productivity

7% improvement in

Productivity

RevenueRs. 120 million Rs. 150 million Rs. 150 million

Present No. of

Employees

857

Productivity

(Revenue per

employee)

Rs. 1,40,000 Rs. 1,40,000 Rs. 1,49,600

Employees

Required

1071 1001


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. Productivity was determined by dividing. Productivity was determined by dividingRs. 120 million by the current work force,Rs. 120 million by the current work force,i.e. 857 employees, to get a revenue ofi.e. 857 employees, to get a revenue ofRs.1,40,000 per person.Rs.1,40,000 per person.

Year one, only revenue forecast with noYear one, only revenue forecast with nochange in productivity. Therefore, in orderchange in productivity. Therefore, in orderto realize increased revenues, given theto realize increased revenues, given thecurrent productivity levels of employees,,current productivity levels of employees,,the company will have to employ a total ofthe company will have to employ a total of1071 people, i.e. 214 more employees will1071 people, i.e. 214 more employees willhave to be recruitedhave to be recruited


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Forecast 2 calls for increase in revenue andForecast 2 calls for increase in revenue andan increase in productivity (7%). Thisan increase in productivity (7%). This

means employee productivity will be (Rs.means employee productivity will be (Rs.140000x107% = Rs. 1,49,800 per140000x107% = Rs. 1,49,800 peremployee). With improved productivity, no.employee). With improved productivity, no.of employees required will be Rs. 150of employees required will be Rs. 150

million /Rs. 149,800 = 1001. This is 70million /Rs. 149,800 = 1001. This is 70people less than without productivitypeople less than without productivityimprovementsimprovements


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Suppose The average wage bill (paySuppose The average wage bill (payplus benefits) per employee is Rs.plus benefits) per employee is Rs.20000, then the savings generated by20000, then the savings generated byproductivity improvement will come toproductivity improvement will come toRs. 1.4 million (Rs. 20,000 x 70).Rs. 1.4 million (Rs. 20,000 x 70).


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5 Basic Strategies to Improve Productivity

HR Focus

1 Increase output faster than inputs Increase sales or production faster than

adding employees or person-hours

2 Increase output while holding input

stable

Increase sales or production, while

keeping the workforce nos. constant; no

net additions to staff; replace exits

3. Decrease inputs faster than output In a declining situation reduce the work

force faster than the decline inproduction or sales revenues

4. Maintain output with reduced inputs Maintain sales or production with fewer

employees

5. Increase output with reduced inputs Improve sales and production with a

reduced workforce


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Productivity Important for HRM.Productivity Important for HRM.

Productivity goal plays a key role inProductivity goal plays a key role in

determining no. of employees required.determining no. of employees required.

Productivity is directly linked to achievingProductivity is directly linked to achievingorg. goals.org. goals.

Helps focus HR attempts/programsHelps focus HR attempts/programs


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A Labor Problem?!A Labor Problem?!

To be Skilled orTo be Skilled or

Professional??Professional??


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A garment export factory has signed a

multi-year contract with an American

retailer to produce X dresses each day at$10 per dress; this is the factorys only

output. The factory employs workers

who each use a sewing machine. Thecurrent sewing machines can be rented

for $7 per day.

The BackgroundThe Background


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If skilled workers are hired eachcan produce 5 dresses per 8-hour

day.These workers are paid $4 per

hour. If professional workers areused, each of whom is paid $6 per

hour, 7 dresses per day per worker

can be produced.

Which kind of labor should be used?

The ProblemThe Problem


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Skilled Or Professional?!Skilled Or Professional?!

Common SenseCommon Sense Use theUse the

Professional!!Professional!!Right?!Right?!

WRONG?!

Never forget the BOTTOMLINE

PRODUCTIVITY & PROFIT


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WorkerType

Revenueper day

Labourused per

day

LabourCost per

day

Sewingm/c cost

per day

TotalCost per

day

Profit perday

Skilled

Worker

10X X/5 $4per hr

x 8 hrs =$32.00

per day

$7 x X/5 ($32 x

X/5) + ($7x X/5)

$10X -

$6.4X- $1.4X =

$2.20X

Professio

nal

Worker

10X X/7

$6 per hr

x 8 hrs =

$48 per

day

$7x X/7

($48 x

X/7) + (7

x X/7)

$10X -

$6.86X

$X =

$2.14X

The SolutionThe Solution


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SKILLS MATRIX

Current Year Plan Year Forecast

Workforce

Category

Number Percent Expected

Number

Percent

Total Employees 857 100% 1000 100%

General

Managers

8 1% 10 1

Managers/Super

visors

128 15% 150 15%

Engineers/Techn

icians

214 25% 250 25%

Office Personnel 86 10% 100 10%

Production/Mai

ntenance

250 29% 290 29%


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Difficult to forecast. Strategy is to simply use theDifficult to forecast. Strategy is to simply use thesame distribution of skills as existing in currentsame distribution of skills as existing in currentperiod.period.

Some estimate support staff needs as a function ofSome estimate support staff needs as a function ofthe no. of critical skills required. E.g. wherethe no. of critical skills required. E.g. whereengineering talent is critical, the no. of engineersengineering talent is critical, the no. of engineersrequired becomes the determinant of the level ofrequired becomes the determinant of the level ofclerical, accounting and other support personnel.clerical, accounting and other support personnel.

E.g. ratio may be 1 support employee for every 20E.g. ratio may be 1 support employee for every 20engineers.engineers.

Documents

A Labor Problem