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Eastern Talon Case Study

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    Introduction This report includes qualitative and quantitative analyses regarding the cost-benefit of the proposed move of Eastern Talon Transport’s (ETT) long-haul dispatch department inter-provincially from Laval, Quebec to Mississauga, Ontario. The qualitative section explores the reason why a reduction in operating costs is an important strategy for ETT, how the changes may effect staff productivity and what the union concerns around the proposed move would be.

    The quantitative section looks at how the estimated productivity gain will translate into fewer employees needed in the Mississauga office and how much this equals to in annual savings, coupled with that could be saved annually in paid rent should ETT empty one floor in Laval and sublet it. The amount of one-time investments associated with the move to Mississauga is also calculated in the quantitative analysis in order to help determine at what point these investments payoff.

    The recommendations section uses the results from both analyses to support the decision to move the dispatchers to the Mississauga location. Qualitative Analysis Considering the recent decline in cross-border heavy truck activity, increased costs of insurance and diesel fuel, is resulting in decreased profitability for most carriers, it may be in the best interests of Eastern Talon Transport to consider options in reducing operating costs within its long-haul division based in Laval.

    However, there are many factors to weigh before committing to such a big decision, particularly what the effects on staff will be. For example, there could be a language barrier for the dispatchers that move to Mississauga, seeing that French is likely their mother tongue, which may lead to difficulties communicating primarily in English at the Mississauga office where the native-French speaking population is considerably lower than in Laval.

    Also, moving the dispatchers closer to the accounting department in Mississauga promises a gain in productivity, however this may be offset by the fact that most of the dispatchers would be new hires at the Mississauga office, which will result in a learning curve, meaning the possibility for slower and more inaccurate transactions with customers at the start, especially when compared to the previous experienced staff in Laval.

    On the flipside, the dispatchers whom will likely displace roughly one third of the senior sales representatives may not be as successful in acquiring new contracts for the long-haul division in the Laval office, which will mean a decrease in sales and less work for dispatchers. Overall, ETT must weigh the financial benefits of the move to Mississauga with the fact that they will lose a lot of their experienced senior staff and how this might affect the productivity of the long-haul division, especially over the short-term.

    Another big consideration regarding this move will be dealing with a unionized environment, which stipulates rules about transferring and laying-off employees. Given that this proposed move will undoubtedly affect many senior employees at the Laval office in both the dispatch and sales departments, the union will likely have a strong presence in standing up for the rights of its employees. For example, regulations require a minimum of 120 days or about 4 months notice before any personnel changes could be completed, which could be a problem if Robert wants to have the floor cleared within about 2. months to have it ready to sublet.

    Similarly, any laid-off employee needs advance warning of dismissal and those who are senior are entitled to a severance package amongst release. Seeing that most employees will not want to move to Mississauga, means the union will have an active voice in expressing the concerns and rights of the Laval employees, therefore establishing and maintaining good union-management relations will be important to taking on the proposed move to Mississauga and also to prevent future labour disruptions.

    Quantitative Analysis The number of required dispatchers for the long-haul operations department will be reduced if moved to the Mississauga office; this is because of the close proximity to the billing personnel, resulting in a 40% decrease in communication time between these departments. This increase in productivity translates into a gain of 1. 5 productive hours per employee per day, which means that an optimal number of staff to cover roughly the same amount of hours in Mississauga would be 37 dispatchers as opposed to the 45 in Laval.

    Therefore, the estimated productivity increase with the move to Mississauga would drop the required dispatchers by 8 employees and existing management in Mississauga would mean 2 fewer managers needed from Laval. The need for fewer staff in the Mississauga office and one less floor’s rent in the Laval office will result in a large amount of annual savings for ETT. Specifically, the savings for 8 less dispatcher’s salaries and benefits equals $424,000 per year and the two less manager’s salaries and benefits results in $146,000 of savings annually.

    In effect, although not specified in the case, perhaps the reduction in communication time with the dispatchers will have a similar effect on the accounting department’s productivity and result in a similar cost benefit given that these two departments were about equal in size. Moreover, a significant amount can be saved by reducing the need to pay rent for only one floor rather than two in the Laval office building, especially considering only half of the second floor is currently in use. The rental savings would be $500,000 annually, given Robert’s ability to sublet the empty floor until 2008 when the lese is up.

    Together these savings mean a reduction of $1,070,000 in annual operating costs should Eastern Talon Transport decide to proceed with the move to the Mississauga office. The one-time investments associated with this move include severance packages and insurance contributions of laid-off employees, moving costs and employee training. Considering that the 30 senior dispatchers will likely displace the junior sales representatives, means 27 laid-off senior sales employees will be entitled to a severance package, which totals $2,700,000.

    Therefore, that leaves 3 junior sales representatives that will be laid-off and 6 (40% with fewer than 10 years service) junior dispatchers whom are likely to leave, which will result in ETT having to make an insurance contribution totalling $45,000. Also, the decreased need for management will mean two managers will have to be dismissed and paid severances totalling $300,000. Another investment will be the training costs for the 28 new dispatchers that will need to be hired in Mississauga, which will cost a sum of $84,000, also $45,000 worth of training for the 30 dispatchers who displaced sales representatives will be necessary.

    Moving costs will be $22,500 for the 9 transferred dispatchers with their one-time bonuses equalling $405,000, and the one-time bonuses which include moving costs for the 3 managers will total $165,000. In summary, the one-time investments associated with Eastern Talon Transport’s move to Mississauga come to a grand total of $3,766,500. Recommendation Given the analysis in this report I would recommend that Eastern Talon Transport proceed with moving the dispatchers department from the long-haul operations in Laval, however it must be executed in an transparent manner that respects union rights and regulations.

    In the long-term this move makes sense, as it will result in a significant gain in productivity amongst the dispatchers and probably the accountants too, which will mean less staff needed to do the same work in the Mississauga office. The result is a large savings in annual operating costs, which will be important for ETT to remain competitive and profitable considering the recent decline in the trucking industry.

    Furthermore, ETT is currently paying expenses in the form of rent for an office space that is only half in use, which is an inefficiency that must be addressed quickly to reduce lost costs. Therefore, in this regard the ETT owned Mississauga office is a preferable alternative for the dispatchers department, because it will eliminate the cost of rent for one floor in Laval, provided it is sublet until 2008. Overall, the estimated annual savings will pay for the one-time investments associated with the move in about 3. 5 years, which makes the move a financially sound decision in the long run.

    However, to make the move to the Mississauga office as effective and beneficial as ETT plans for it to be, will necessitate that they abide union regulations and keep good relations with employees and union representatives. Therefore, ETT must give employees the 4 months notice of the plan to move offices and jobs inter-provincially, while doing so they should be transparent, open and honest with employees and union stewards about the choices employees have available to them, while also providing reason and justification for the move.

    This means ETT will have to have this conversation with all of the Laval staff and give them perhaps two weeks to make their choice to move, replace junior employees in sales or leave with severance for senior staff, after these decisions have been made and the final outcome for each employee is determined only then can the 4 month notice of personnel change period start. Thus, Robert’s hopes of having the dispatcher’s floor in Laval empty in 2. 5 months to have it sublet will not be possible and should be re-evaluated to be empty in about 4. 5 – 5 months.

    Also, ETT will need to manage its expectations for productivity and efficiency gains related to the move in the short-term, as they will likely not be immediate. This is a result of a large number of new employees needed at the dispatch department in Mississauga and the possible language barriers for those employees transferred from Laval. Furthermore, the large amount of senior sales staff replaced by dispatchers with more seniority will most likely mean a decline in sales until this new segment of the sales team adapts to their new positions at ETT and hone in their sales techniques.

    Therefore, the estimated productivity gains may not become apparent right away as the employees settle into their new positions and surroundings, yet they should emerge over a span of a year or so as the “dust settles,” and the employees gain experience and confidence in their new roles. Conclusion In conclusion, this report used both qualitative and quantitative analyses to support the strategic move of the ETT long-haul dispatch department from Laval to Mississauga as a financially feasible and wise long-term investment.

    Also, considering the fact that ETT has just recently made the same move with their accounting department of a similar size and likely similar issues, should mean this second move of the same nature with the dispatchers should be easier, as ETT will know what obstacles to expect. Overall, the key variables to a successful move will be good employee/union-management relations and realistic short-term productivity goals.

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