A.D. Small, Inc., provides management consulting services from its offices located in more than 300 cities in the United States and abroad. The company recruits its staff from top graduates of recognized MBA programs. Upon joining A.D. Small, a recruit attends an intensive two-month training program at the Boston headquarters, and upon successful completion of the training program is assigned to a consulting team in a field office.
To make sure that the training program covers new management concepts and techniques, A.D. Small retains internationally recognized professors from the Harvard Business School and MIT's Sloan School of Management to conduct the program. The professors are paid a fixed retainer for their services so that the cost of providing the training program, exclusive of salaries paid to recruits while attending the program, does not depend upon the number of recruits who participate. Faculty salaries and other expenses for the training program amount to a total of approximately $850,000.
Because personnel in a consulting capacity tend to be uncommonly well qualified and to develop many contacts with organizations through the consulting process, A.D. Small's staff members experience many lucrative opportunities to accept permanent positions with client firms. To maintain harmonious relationships with its clients, A.D. Small cannot vigorously discourage the pirating of its staff. As a result, A.D. Small must obtain about 180 new recruits per year to replace departing staff members. Departing staff members leave A.D. Small at an essentially uniform rate throughout the year. The attrition rate is approximately 3.5 persons per week.
Thornton McDougall, director of Human Resources at A.D. Small, was discussing personnel problems with Lou Carlson, president. "Lou, I've been playing with some figures, and it looks like we should rethink our training program. As you know we need about 180 new people each year and have fallen into the habit of bringing in 180 new recruits each June for our annual training program. However, on graduation day we have 180 more people on the payroll than we actually need, each earning about $90,000 per year. During the year, of course, positions will become available for these new people due to the normal attrition process, but until the positions open we are carrying a surplus of a very expensive commodity. It might be prudent to conduct more than one training program each year with smaller enrollments. That way we could cut down on the period between the time that an individual is put on the payroll and the time that the person is actually needed."
Lou Carlson responded, "Thornton, that is an interesting idea. It seems to me that there are two fundamental issues that must be addressed. The first issue is how often we should conduct a training program. The second issue is how many people should be enrolled in each session. Also, we must recognize our obligations to our clients. We must make sure that we will always have enough trained people on hand to service our accounts. The one thing that we cannot afford is a shortage of qualified staff."
Assignment
Use inventory models to address Lou Carlson's questions. Support your recommendations with cost justification.