Healthy Babies Inc
You are the HR Director of Healthy Babies Inc. Your company manufactures baby milk bottles and baby toys. The bottle manufacturing unit has 2,000 employees and produces one million milk bottles every year that are sold in U.S.A. Your CEO announces that the company is looking to expand to overseas markets. She is happy that she has just signed an agreement with a Mexican retail giant that will buy 100,000 milk bottles from Healthy Babies every year for the next three years, generating additional revenue of 12 million dollars for the company every year. Naturally, this would require the production capacity to be raised by 10%. She entrusts you and the operations director to suggest the best way to achieve this. The new operations would start from next year (2017)
After discussions with operations director, you realize that investing in new equipment or technology will be very expensive. So the only feasible option is to employ more workforce. Your initial reaction is to increase the current working hours in the production unit by 10%, from 40 to 44 hours per week, and pay overtime to existing employees. This would achieve the desired 10% increase in production. However, your assistant director suggests that instead of increasing the work hours, the company should hire 10% additional workers to work alongside existing workers to achieve the desired growth in production.
If you increase the workweek to 44 hours, each employee would need to be paid overtime for 4 hours per week. The legally mandated overtime rates are time and one-half. Since the current hourly wage for the employees in manufacturing unit is $18.50/hour, the overtime premium would be $9.25 per hour, i.e. for each overtime hour, an employee would be paid $27.75 instead of usual $18.50. Their benefits will remain the same.
If you hire new employees, you will need to pay their wages at the current rate and a benefits package costing $8,850 per year to each employee. While the wages are expected to be unchanged in the next few years, the cost of benefits is expected to go up by 20% in 2018 and again in 2019 due to rising cost of health insurance. Furthermore, the costs of recruiting, selecting and training these new employees would amount to $15,000 per new hire. At the end of 3 years, you would need to terminate the new workers at an average termination cost of $3,500 per terminated employee.
For this assignment you are to prepare a business case to present the explanation and rationale for the proposed approach. Remember, you are proposing an HR solution to a business problem. It needs to be clear, direct, concise, and professionally written. It needs to be convincing and supported by the results of your calculations. It should be in the form of a memo to the CEO.
Your business case should cover the following:
Q1. Calculation of yearly costs, total nominal costs and discount rate for cash flows is 8% for each of the options.
Q2. Based on the ROI (for the entire period of three years), which option is financially more attractive to achieve the target? 10 points (for Q1 & 2)
Q3. What are the non-financial advantages of each of these options? Please think like an HR professional 5 points
Q4. Which option would you finally recommend to the CEO? Give reasons. 5 points
Q5. If the contract had been for one year only, would your recommendation be the same? Explain. 5 points
Writing, format and preparation of the report 5 points
Q6. When companies hire new workers for a project, sometimes it is possible to accommodate some of these employees in other areas of the company, instead of laying them off after the project is over. If at the end of three years, Healthy Babies can redeploy 80 workers instead of firing them, what would be the impact on ROI? bonus 3 points
The assignment should be typed in double space
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