AAYAAM DURABLES LTD.

SCENARIO - II

By:

Hemant Kumar (232008)

Juli Gupta (232009)

2

Introduction Aayaam Durables Ltd is a public company

in consumer durable sector. In brown goods, ADL sells LED/LCD in flat

Panel Display category. In white goods, it sells refrigerators (both

Frost free and Direct Cool Categories) and washing machines (Top loading and Semi-automatic categories)

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Organization ChartCEO

Vice President (HR)

Head (Corporate HR)

Head (Sales HR)

Vice President (Customer Service)

CFO Vice President (S&M)

Head Marketing Head Sales

Regional Manager North

Regional Manager South

Regional Manager East

Regional Manager West

Head FPD Head Refrigerator

Head Washing Machine

Vice President (R&D

Electronics)

Vice President (R&D

Appliances)

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Problem areas

Facing tough competition from global brands.

Both top line and bottom line shrinking for all revenue generating products.

Unable to invest in R&D and marketing Lower brand recall value High inventory carrying costs Over-manned in some areas

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ArgumentsProduct Team only a testing team and not working on any new models

VP (S&M) losing market share because of lack of new models. Negligible investments in marketing resulting in low brand recall Unhappy with Customer Service network.

CFO 20% schemes to network on higher side Wanted more investments in accounting systems but opposed

by VP (HR)

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Arguments Contd.VP (R&D) Engineers demotivated due to lack of investments in new

technology

VP (Supply chain) Wants more investments in software systems and

warehouses to reduce inventory carrying costs

CEO ADL top heavy and over-manned.

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Scenario - II

It was felt that the industry will grow in 2015 by 15% over 2014. As penetration level in the industry was low in India and there might be global stagnation in economy.

In the circumstances, it was felt that revenue growth for ADL was important. The strategic objective decided was to achieve revenue of Rs. 900 crores in 2015 and improve the profit by -5.5% to -2.5%

To achieve the strategic objectives, it was decided to reduce the manpower cost by 5% (of 2014 revenue level)

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ADL Turnover and Profitability

Revenue in Cr Growth in % Profit in Cr Profit in %

2012 800 - -8 -1

2013 882 10.00% -44.1 -5

2014 842 -4.70% -46.31 -5.5

2015 900 6.89% -22.5 -2.5

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Manpower cost for 2014Band No. of employees Avg. CTC Total cost

4 12 1,20,00,000 14,40,00,000

3 83 75,00,000 62,25,00,000

2 158 35,00,000 55,30,00,000

1 327 15,00,000 49,05,00,000

Total 181,00,00,000

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Objective

Manpower cost to be reduced by 5% of 2014 revenue

Cost reduction = 5% of 842 cr

= 42cr

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Solution

• Attrition of employees

• Layoff due to underperformance

• Reduction in hiring

• Reduction in the % of salary increase

• Increased manpower in R & D Department

• Increased manpower in sales Department

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Savings due to attrition

Band Attrition rate

Total no. of employees

No. of employees

leaving

Average CTC Costs saved

4 10% 12 1 1,20,00,000 1,20,00,000

3 10% 83 8 75,00,000 6,00,00,000

2 15% 158 24 35,00,000 8,40,00,000

1 25% 327 82 15,00,000 12,30,00,000

Total 29,90,00,000

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Firing of 2% under-performers

Band Total no. of employees

No. of employees fired

Avg. CTC Costs saved

4 12 0 1,20,00,000 0

3 83 2 75,00,000 1,50,00,000

2 158 3 35,00,000 1,05,00,000

1 327 7 15,00,000 1,05,00,000

Total 3,60,00,000

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Prune manpower from low productive areas

Band S&M

Marketing Corp

Sales Corp Regional sales

FPD Refrigerator Washing machine

4 2 1 - - - -

3 4(-1)= 3 4(-1)=3 4 2 2 2

2 - 3 15 4(-2)=2 3(-1)=2 2(-1)=1

1 1 1 146(-5)=141 2 2(-1)=1 1

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Prune manpower from low productive areas

Band HR CFO

Corp General Affairs

Regional Corp Regional

4 1 - - 2 -

3 3(-1)=2 3 5(-1)=4 10(-2)=8 4

2 1 10(-4)=6 5(-1)=4 15(-4)=11 15(-3)=12

1 - 2 - 29(-3)=26 -

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Prune manpower from low productive areas

Band Customer Services Supply Chain R&D

Corp Region Corp Region Electronics Appliances

4 1 - 1 - 1 1

3 4(-1)=3 19(-2)=17 3 4 3 5

2 3 26 3 - 21 31

1 - 105 - 19 10 8

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Savings due to pruning

Band No. of employees Avg. CTC of employees pruned

Cost

4 0 1,20,00,000 0

3 9 110,00,000 9,90,00,000

2 16 45,00,000 7,85,00,000

1 9 20,00,000 1,80,00,000

Total 30 20,10,00,000

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No. of employees remaining

Band Initial employee

count

Less(Attrition)

Less(Layoff of

under-performers)

Less (Pruning from non

productive and over-manned areas)

Final employee

count

4 12 1 0 0 11

3 83 8 2 9 64

2 158 24 3 16 114

1 327 82 7 9 219

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Appraisal costs

Band Avg. appraisal

rate

No. of present

employees

Avg. CTC Salary before appraisal

Appraised amount

4 2% 11 1,20,00,000 13,20,00,000 13,46,40,000

3 5% 64 75,00,000 48,00,00,000 50,40,00,000

2 8% 114 35,00,000 39,90,00,000 43,09,55,000

1 8% 229 15,00,000 34,35,00,000 36,75,45,000

Total 135,20,00,000 143,18,40,000

Increase in salaries = 6,98,40,000

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Hiring to compensate for attrition

Band S&M R&D Min. CTC offered Cost incurred

4 - - 1,00,00,000

3 - - 40,00,000

2 3 4 20,00,000 3,50,00,000

1 12 8 5,00,000 5,00,00,000

Total 8,50,00,000

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Manpower cost

Savings:

Costs:

Total Savings = Savings – Costs

= 52,60,00,000 - 14,48,40,000

= 38,11,60,000

Due to attrition 29,90,00,000

Layoff of 2% under-performers 3,60,00,000

Layoff from pruning non-productive areas 19,10,00,000

Total 52,60,00,000

Annual appraisal 6,98,40,000

New hiring 8,50,00,000

Total 14,48,40,000

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THANK YOU!!