CASE STUDY THE CASE OF EFFECTIVE DOWNSIZING

CASE INTRODUCTION
The case emphasizes on the poor performance of the total industries soap and oil division and what measures were taken by the top management.

CASE INTRODUCTION
Abhinav kumar- Managing Director of the Total Industries Guneen Roy- President of Total Industries soaps and oil Division Both were concerned about the declining performance of the soap and oil division.

FACTS ABOUT DIVISION PERFORMANCE

Capacity utilization- anaemic 35% Profit declined to Rs 0.50 lakh a year. Profit was the lowest among all divisions of the industry. In retail segment the company was lacking behind with less than 2% share.

SOLUTIONS PREDICTED BY MR ROY

First either target Institutional buyers like hotels, hospitals and launderettes Since its growing at a rate of 2.5% a year Client- base is captive Demand is predictable Supply only to a few centralized buyers No worry about brand building

SOLUTIONS PREDICTED BY MR ROY

Second option is to become a contract manufacturer for one of the three companies in the retail segment of the market

THE SELECTED SOLUTION

Mr Roy preferred the second option by selecting to target B&B B&B is the second largest company in the retail segment with a share of 36% The reason behind selecting this option could be the avoidance of risk since B&B was already one of the leading players, and by merging with them they together could lead the market.

B&BS REPORT AFTER ANALYSING THE DIVISION

Totals soap and oil divisions cost is very high Manpower cost comprise 55% and 22% of fixed and overall costs. Teeth to tail ratio was 1:18 while it was just 1:4 in B&B indicating the accumulation of unnecessary workforce. 40% of division employee i.e 160 are over 50 years of age which are only 11 in B&B. number of management layers are 11 while its only 4 in B&B.

B&BS VIEWS
They wanted to overtake Indian Soaps LTD, so they need a captive manufacturing facilities across the country ( they need a company that only manufactures for them). IF they form a joint venture with Total, they ll help them with new technologies and formulations. They wanted Total to downsize its soaps division.

THE PROPOSED SOLUTION FOR DOWNSIZING

The chairman of the total industries, KUMAR Senior, proposed the scheme of Voluntary Retirement in order to decrease their workforce, which was liked by the other executives of the Total industries and of B&B.

VOLUNTARY RETIREMENT SCHEME

The voluntary retirement scheme(VRS) is the most humane technique to provide overall reduction in the existing strength of the employees. It is a technique used by companies for trimming the workforce employed in the industrial unit. It is now a commonly method used to dispense off the excess manpower and thus improve the performance of the organization. It is a generous, tax-free severance payment to persuade the employees to voluntarily retire from the company. It is also known as 'Golden Handshake' as it is the golden route to retrenchment.

VOLUNTARY RETIREMENT SCHEME

A business firm may opt for a voluntary retirement scheme under the following circumstances: Due to recession in the business. Due to intense competition, the establishment becomes unviable unless downsizing is resorted to. Due to joint-ventures with foreign collaborations. Due to takeovers and mergers. Due to obsolescence's of Product/Technology.

VOLANTARY RETIREMENT SCHEME

A company may make the following announcements while implementing a voluntary retirement scheme:

The reasons behind downsizing the organization. The eligibility criteria for voluntary retirement scheme. The age limit and the minimum service period of employees who can apply for the scheme. The benefits that are offered to the employees who offer to retire voluntarily. The rights of the employer to accept or reject any application for voluntary retirement. The date up to which the scheme is open. The income tax benefits and income tax incidence related to the scheme. It should also indicate that the employees who opt for voluntary retirement and accept the benefits under such scheme shall not be eligible in future for employment in the organization.