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Deciding Whether to Use Flexible Staffing

The Kaiser Manufacturing Company (KMC) has been in existence for over 50 years. Its main products are specialty implements for use in both the crop and the dairy herd sides of the agricultural business. Products include special attachments for page 146tractors, combines, and discers and add-on devices for milking and feeding equipment that enhance the performance and safety of the equipment.
KMC has a small corporate office and four manufacturing plants (two in the Midwest and two in the South). It has a core workforce of 725 production workers, 30 clerical workers, 32 engineers and professional workers, and 41 managers. All employees are full time, and KMC has never used either part-time or temporary workers. Those in charge of staffing feel very strongly that the strategy of using only a core workforce has paid big dividends over the years in attracting and retaining a committed and highly productive workforce.
Sales have been virtually flat at $175 million annually since 2012. At the same time, KMC has begun to experience more erratic placement of orders for its products, making sales less predictable. This appears to be a reflection of more turbulent weather patterns, large swings in interest rates, new entrants into the specialty markets, and general uncertainty about the future direction and growth of the agricultural industry. Increased unpredictability in sales has been accompanied by steadily rising labor costs. This is due to KMCs increasingly older workforce, as well as shortages of all types of workers (particularly production workers) in the immediate labor markets surrounding the plants.
Assume you are the HR manager responsible for staffing and training at KMC. You have just been contacted by a representative of the Flexible Staffing Services (FSS) Company, Mr. Tom Jacoby. Mr. Jacoby has proposed meeting with you and the president of KMC, Mr. Herman Kaiser, to talk about FSS and how it might be of service to KMC. You and Mr. Kaiser agree to meet with Mr. Jacoby. At that meeting, Mr. Jacoby makes a formal presentation to you in which he describes the services, operation, and fees of FSS and highlights the advantages of using a more flexible workforce. During that meeting, you learn the following from Mr. Jacoby.
FSS is a recent entrant into what is called the staffing industry. Its general purpose is to furnish qualified employees to companies (customers) on an as-needed basis, thus helping the customer implement a flexible staffing strategy. It furnishes employees in four major groups: production, clerical, technical, and professional/managerial. Both full-time and part-time employees are available in each of these groups. Employees may be furnished to the customer on a strictly temporary basis (temps) or on a temp-to-perm basis, in which the employees convert from being temporary employees of FSS to being permanent employees of the customer after a 90-day probationary period.
For both the temp and the temp-to-perm arrangements, FSS offers the following services. In each of the four employee groups it will recruit, select, and hire people to work for FSS, which will in turn lease them to the customer. FSS performs all recruitment, selection, and employment activities. It uses a standard selection system for all applicants, composed of an application blank, reference checks, drug testing, and a medical exam (given after making a job offer). It also offers customized selection plans in which the customer chooses from among a set of special skill tests, a personality test, an honesty test, and background investigations. Based page 147on the standard and/or custom assessments, FSS refers to the customer what it views as the top candidates. FSS tries to furnish two people for every vacancy, and the customer chooses from between the two.
New hires at FSS receive a base wage that is similar to the market wage, as well as close to the wage of the customers employees with whom they will be directly working. In addition, new hires receive a paid vacation (one week for every six months of employment, up to four weeks), health insurance (with a 25% employee co-pay), and optional participation in a 401(k) plan. FSS performs and pays for all payroll functions and deductions. It also pays the premiums for workers compensation and unemployment compensation.
FSS charges the customer as follows. There is a standard fee per employee furnished of 1.55 base wage hours worked per week. The 1.55 is labeled markup; it covers all of FSSs costs (staffing, insurance, benefits, and administration) plus a profit margin. On top of the standard fee is an additional fee for customized selection services. This fee ranges from .50 to .90 base wage hours worked per week. Finally, there is a special one-time fee for temp-to-perm employees (a finders fee of one months pay), payable after the employee successfully completes the 90-day probationary period and becomes an employee of the customer.
Mr. Jacoby concludes his presentation by stressing three advantages of flexible staffing as provided by FSS. First, use of FSS employees on an as-needed basis will give KMC greater flexibility in its staffing to match fluctuating product demand, as well as movement from completely fixed labor costs to more variable labor costs. Second, FSS provides considerable administrative convenience, relieving KMC of most of the burden of recruitment, selection, and payrolling. Finally, KMC will experience considerable freedom from litigation (workers comp, EEO, torts) since FSS and not KMC will be the employer.
After Mr. Jacobys presentation, Mr. Kaiser tells you he is favorably impressed, but that the organization clearly needs to do some more thinking before it embarks on the path of flexible staffing and the use of FSS as its provider. He asks you to prepare a brief preliminary report including the following:”

A summary of the possible advantages and disadvantages of flexible staffing

A summary of the advantages and disadvantages of using FSS as a service provider

A summary of the type of additional information you recommend gathering and using as part of the decision-making process

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