Mployee resourcing for factory relocation.HRM

SHR017-06 People Resourcing

Semester 2, 2008-09

Coursework assignment: Case study

Employee resourcing for factory relocation

Note: the following case study is based on a real company, but has been somewhat simplified and fictionalised to enable it to be used for educational purposes. It is copyright and may not be reproduced.

Hertfordshire Shelving Systems Ltd is a light-medium engineering company located in Watford, a town on the outskirts of London just within the M25. The company manufactures a range of products, primarily systems for shelving and storage including adjustable and decorative shelving systems. These are produced for two main markets, corporate and retail. For the corporate market, the company supplies a variety of products systems to be used in design and layout of shops, factory stores, offices etc., where functionality is a primary factor. These products are supplied to wholesalers and also to direct users, often to architectural specification. The retail market comprises retail stores selling directly to the public for use in the home; these products, in addition to being functional, often also have to be viewed as aesthetically pleasing. During the 1990s, sales to the retail market increased dramatically as the company gained contracts to supply major retail chainstores in the do-it-yourself and home decor business, companies such as B&Q, Homebase, Wickes. The corporate side of the business tended to be relatively low volume but providing high profit margins; the retail side was relatively high volume, but was increasingly subject to pressures on price and therefore on margins.

Over the past two decades, the company has also expanded by acquisition of other companies manufacturing similar or related products. By the early 1990s, production was based at two sites, Watford and in a town in Devon. At the Watford factory, which was also the site of headquarters office, the manufacturing systems had been subject to a programme of modernisation, including increased automation and other applications of computer technology to the design and production processes. This had enabled the company to keep employee levels down whilst meeting the increased demand. Adoption of total quality management approach, including gaining ISO9000 accreditation, have enabled the factory to engage in processes of continuous improvement. There had been little recent investment in the Devon factory prior to its acquisition, and production there tended to be labour intensive. The company also had a warehouse in Staffordshire in the Midlands, welllocated in terms of transport links, particularly the motorway network.

By 2000, the firm was being subject to a range of competitive pressures. A UK-based company offered similarly designed products, sourced from a manufacturer in China. A company based in Germany was also attempting to gain a foothold in the marketplace with similar products, which were manufactured in Hungary. Although these competitors could produce only much smaller volume, their presence tended to destabilise the pricing structure in the marketplace. The major retail chains such as B&Q, themselves operating in a very price-sensitive competitive marketplace, adopted aggressive purchasing policies, pushing their suppliers to engage in a process of continuous price reduction. Hertfordshire Shelving Systems therefore needed to engage in a radical programme of cost-reduction in order to maintain profitability. Part of that programme involved a rationalisation of the product range, identifying those products for which it was more profitable to outsource to other manufacturers, and those which could be more profitably manufactured by the company. Moreover, in the case of those products that the company would manufacture itself, major improvements were necessary in the manufacturing process.

It was decided that the necessary improvements could not be made in either of the two factories. Both factory sites were built in the first half of the twentieth century, and were now costly to maintain. Their existing internal structure did not allow for the re-organisation of the layout of the production process appropriate to modern manufacturing. Major internal  gutting and rebuilding would require a lengthy closedown, which was not feasible. The Watford factory, at approximately 110 thousand square feet, was judged to be larger than required; the Devon factory, at about 20 thousand square feet, was too small. It was therefore decided to find a new factory site, around half the size of the Watford site, to which the firm would relocate all of its production. After an initial transport survey, it was decided that relocation should be made to a site in the Midlands, particularly to gain proximity to the warehouse site. A recently-build but as-yet unoccupied factory in the city of Stoke-on-Trent, Staffordshire, was found to be suitable.

Relocation and re-organisation of production would allow the company to reduce labour costs. This would be achieved partly by reduction of wage levels and partly by reducing headcount.

Being close to London, Watford had an unemployment rate below 1% in 2000, and relatively high average wage levels. The main traditional industry of printing has been largely replaced by a wide diversity of employment, particularly in the service sector including retail, leisure, financial services, IT and transport services. Stoke-on-Trent is located in an area referred to as  The Potteries , because of the major industry that developed there during the 18th and 19th centuries, manufacturing ceramic and porcelain products including decorative fine tableware. Stoke-on-Trent was formed from six separate towns, which had each grown up around local pottery factories as the industry developed and expanded. The industry was a major source of employment in the area, with whole families spending their whole working lives in various aspects of the industry, often with a single employer.

The pottery industry declined rapidly over the past two decades, as a result of international competition. Local companies, increasingly being taken over by larger corporations, began to source their products from overseas where labour costs were lower, partly because of much lower wage levels and partly because of investment in modern manufacturing methods. There is little of a tradition of metal-based manufacturing and light-medium engineering in the area. The other main sources of employment in the area had traditionally been coalmining, and iron and steel foundries. These industries, too, had been in decline for several decades. By 2000, the unemployment rate in Stoke-on-Trent was almost 5%. This is reflected in the wage levels for semi-skilled and unskilled manual labour.

By 2000, the Watford factory employed about 150 workers, of whom about 120 were directly engaged in production work ( direct labour ), primarily machine attendants. Workers were organised into teams under team leaders. The main manufacturing process involved the loading of strips or rods of steel onto the production line, which were then cut, pressed, or stamped to form the basic product, which was then transferred to the area called the  Paint Shop . Here the basic products were loaded onto metal hooks on a continuous belt, in order for them to be carried into the large paint machines. The finished products were then removed into containers (pallets) which were then transferred to stores for transfer out of the factory. The painting was an electro-chemical process which required the hooks carrying the basic metal product to make good electrical contact. To achieve this, it was vital that all hooks were loaded with product items before entering the paint spraying area, as empty hooks would also be sprayed and would then be unable to make good electrical contact.
The Watford factory operated a two-shift system, one from 6am to 2pm, the other from 2pm to 10pm.

The production process was organised to be as far as possible a  lean system, adopting ju