~Situation Analysis~

 

Company Situation: HR Mgt.-Productivity

 

 

The Productivity category examines the productivity of your workforce through the course of the simulation. There are three criteria:

  1. Sales / Employee. You want high sales volume per employee (Sales/Employee = Total Sales dollars / Complement).
  2. Profit / Employee. You want high profits per employee (Profit/Employee = Net Profit / Complement).
  3. Turnover rate. You want low turnover rate.

 

Sales/Employee is scaled based upon historical results in past semesters with Capstone®.

If you reach or exceed these targets, you earn 50 points:

 

Threshold Sales/

   

Target Sales/

 

Employee

 

Employee

Year 1

$80,000

 

$160,000

Year 2

$90,000

 

$180,000

Year 3

$100,000

 

$200,000

Year 4

$112,500

 

$225,000

Year 5

$125,000

 

$250,000

Year 6

$140,000

 

$280,000

Year 7

$157,500

 

$315,000

Year 8

$177,500

 

$355,000

 

You earn points for anything above the threshold. For example, in Year 1, if your sales are $80,000 or below, you earn nothing for Sales/Employee. At $120,000/Employee, you earn 25 points, and at $160,000/Employee you earn 50 points.

You can improve Sales/Employee several ways:

 

Profit/Employee is scaled based upon historical results with Capstone®. The threshold is $0/Employee. If your profits are negative, you earn no points. If you reach or exceed these targets, you earn 50 points:

For example, in Year 1, if you have negative profits, you earn no points. At $5,000/Employee you earn 25 points, and at $10,000 and above you earn 50 points.

 

   

Target Profit/

 

 

Employee

Year 1

 

$10,000

Year 2

 

$12,000

Year 3

 

$14,500

Year 4

 

$17,500

Year 5

 

$21,500

Year 6

 

$26,000

Year 7

 

$32,000

Year 8

 

$39,000


         

You can improve Profit/Employee many ways, since there are many ways to improve profits. From a productivity standpoint, reducing complement will improve Profit/Employee. However, there is one counter-intuitive relationship you should recognize. To improve Profits/Employee, you would expect to always reduce complement. But consider two Cases (see below).

REVENUE

Case 1

Case 2

Sales

$110,050

$135,300

VARIABLE COSTS

 

 

Direct Labor

$31,215

$38,330

Direct Material

$44,637

$55,151

Inventory Carry

$1,413

$1,390

Total Variable Costs

$77,264

$94,871

Contribution margin

$32,786

$40,429

PERIOD COSTS

 

 

Depreciation

$7,587

$7,587

SG&A:  R&D

$1,958

$1,958

Promotion

$4,100

$4,100

Sales

$4,070

$4,070

Admin

$848

$1,186

 Total Period Costs

$18,562

$18,901

Net Margin

$14,223

$21,528

Other (Fees, Write Offs, TQM)

$0

$0

EBIT

$14,223

$21,528

Interest

$5,395

$5,395

Taxes

$3,090

$5,647

Profit Sharing

$115

$210

Net Profit

$5,624

$10,277

 

 

 

 

 

 

Complement

        707

        854

Sales/Employee ($000)

$156

$158

Profits/Employee ($000)

$8

$12

Employee Turnover

10.0%

10.0%


--In Case 2 we increase Sales by $25M. To build the additional units, Complement increases by 147 workers, a whopping 21%. Yet Profits/Employee actually increase from $8 thousand/Employee to $12 thousand/Employee.

How can this be? The secret lies in the Period Costs. As Complement increases, Period Costs stay about the same, and Expenses/Employee actually fall. This reflects the more general principal that you want to work resources, including fixed expenses, as hard as possible.

Let's look at another example. Suppose you are running 100% First Shift, but can sell another 20% if you run on Second Shift. The Second Shift labor costs are 50% higher and you require a larger Complement. However, notice that the First Shift has already paid for Period Costs. Anything you produce on Second Shift gets a free ride on the fixed expenses. It is possible that your Second Shift units are more profitable than the First Shift units.

Turnover rate: