Question

A.D. Small Consulting

A.D. Small, Inc., provides management consulting services from its offices located in more than 300 cities in the United States and abroad. The company recruits its staff from top graduates of recognized MBA programs. Upon joining A.D. Small, a recruit attends an intensive two-month training program at the Boston headquarters, and upon successful completion of the training program is assigned to a consulting team in a field office.

To make sure that the training program covers new management concepts and techniques, A.D. Small retains internationally recognized professors from the Harvard Business School and MIT's Sloan School of Management to conduct the program. The professors are paid a fixed retainer for their services so that the cost of providing the training program, exclusive of salaries paid to recruits while attending the program, does not depend upon the number of recruits who participate. Faculty salaries and other expenses for the training program amount to a total of approximately $850,000.

Because personnel in a consulting capacity tend to be uncommonly well qualified and to develop many contacts with organizations through the consulting process, A.D. Small's staff members experience many lucrative opportunities to accept permanent positions with client firms. To maintain harmonious relationships with its clients, A.D. Small cannot vigorously discourage the pirating of its staff. As a result, A.D. Small must obtain about 180 new recruits per year to replace departing staff members. Departing staff members leave A.D. Small at an essentially uniform rate throughout the year. The attrition rate is approximately 3.5 persons per week.

Thornton McDougall, director of Human Resources at A.D. Small, was discussing personnel problems with Lou Carlson, president. "Lou, I've been playing with some figures, and it looks like we should rethink our training program. As you know we need about 180 new people each year and have fallen into the habit of bringing in 180 new recruits each June for our annual training program. However, on graduation day we have 180 more people on the payroll than we actually need, each earning about $90,000 per year. During the year, of course, positions will become available for these new people due to the normal attrition process, but until the positions open we are carrying a surplus of a very expensive commodity. It might be prudent to conduct more than one training program each year with smaller enrollments. That way we could cut down on the period between the time that an individual is put on the payroll and the time that the person is actually needed."

Lou Carlson responded, "Thornton, that is an interesting idea. It seems to me that there are two fundamental issues that must be addressed. The first issue is how often we should conduct a training program. The second issue is how many people should be enrolled in each session. Also, we must recognize our obligations to our clients. We must make sure that we will always have enough trained people on hand to service our accounts. The one thing that we cannot afford is a shortage of qualified staff."

Use inventory models to address Lou Carlson's questions. Support your recommendations with cost justification

Answer 1

The problem of the excess number of consultants which are causing the extra added cost to the firm can be dealt with by implementing some additional measures which will not only reduce the burden of excess employees on the firm but also keep the morale of the employees on a high despite the corrective measures implemented. Following are some of the factors which are listed and which can be helpful in handling the situation mentioned above,

• Restructuring the hiring cycle and determining the new hiring cycle which will optimize the flow of employees and would not keep unused employees on payroll and hence increasing the cost.
• Reducing the outsourcing work the firm is engaged in and passing on the outsourced work on the excess employees till the time they get a free run due to vacancies in the working team. This will reduce the cost of outsourcing and help the firm in utilizing the employees.
• The work hours of the employees can be reduced and also the Pay involved so that more employees can be accommodated in the working teams and hence reducing excess employees. This may somehow give the firm cost implications and help in reducing idle time of the employees.
• The new system of pay according to work hours can be implemented for the new employees until they spend a particular amount of time with the firm. This will not let the firm pay full salaries to the employees rather pay only the basic salaries involved.
• increasing the variable pay component of the CTC and setting variable pay dependent on the work hours. This will ensure fair pay to the employees.

These are some of the ways by which we can reduce the burden of excess employees and their cost implications for the firm by optimizing the flow of new employees to the firm considering the attrition rate of the firm.