CASE 2

LEISURE TEXTILES SALARY vs PIECE RATE

INTRODUCTION THE ISSUE ANALYSIS THE CASE RECOMMENDATION
Leisure Textiles : Salary Versus Piece Rate

LEISURE TEXTILE

Introduction

The Issue

Analysis

The Case

Recommendation

• Knitwear industry in Pakistan evolved during 1990s • Leisure Textile : a knitwear manufacturer in Lahore, Pakistan • Start operation in 1990 with 50 sewing machines and dyeing capacity of 2 tons/day • Had followed the predominant system of “The Piece Rate System” for compensating its sewing workforces • In 2000s, it implemented “The Salary Based System” in one of the sewing units on a test case basis, but cannot copy the model to other unit • In 2006, Leisure Textile had a plan to deploy new unit in sewing department in new area approximately 15 KM from existing unit with 2 options available : Set up the new unit leveraging the existing business model, or Go with new model offered by KSA, an international consulting agency
Leisure Textiles : Salary Versus Piece Rate

Introduction

The Issue

Analysis

The Case

Recommendation

• • • •

End of quota restriction : Market was open to global competition and price dropped to the range $2.5 to $3.5 from similar product New entrance : More knitwear manufacturing available Price pressure from customer Labour Practices in Sewing Industry : Sewing department worked under the piece rate system Provided by Labour Contractor or ‘Master’ The process of establishing piece rate was two tiered : Negotiated with Management and with Labour Responsibility of training a new workforces rested with Master Some problems faced by sewing industry : • Quality of product • High labour cost • Productivity On time delivery product to costumer
Leisure Textiles : Salary Versus Piece Rate

Introduction

The Issue

Analysis

The Case

Recommendation

Historical Condition Adopted the piece rate system Lack of discipline of workers

Production disruption

Labour Cost

Change Have Been Initiated

Benchmarking : • Failure deployment of salary based system with male worker • Success rate was higher in countries with female workers in sewing lines Experimentally deploy salary based system in one of its sewing units
Leisure Textiles : Salary Versus Piece Rate

Introduction

The Issue

Analysis

The Case

Recommendation

• Start the pilot project of sixty-machine unit under salary based system with female workers • The problem occur : To find skilled female workers • Making Decision : Hire and Train unskilled female worker • The training process initiated in Leisure Textile : • Female trainee was trained for a few months • Ensure the security of female worker by deploying extra surveillance • Need about 8 – 10 months to completely fill-up a sixty-machine unit with trained female staff • The expansion of salary based system to other unit : • Failure in training program as the objective to have expertise level of worker could not be reached • A lot of resistance from worker and supervisor
Leisure Textiles : Salary Versus Piece Rate

Introduction

The Issue

Analysis

The Case

Recommendation

SALARY BASED SYSTEM
Fixed salary Provided by Company The workers was trained by the company

PIECE RATE SYSTEM
Based on unit produced Provided by Master Trained by master

Mostly female workers

Male workers

Leisure Textiles : Salary Versus Piece Rate

Introduction

The Issue

Analysis

The Case

Recommendation

PIECE RATE SYSTEM

Leisure Textiles : Salary Versus Piece Rate

Introduction

The Issue

Analysis

The Case

Recommendation

SALARY BASED SYSTEM
Leisure Textiles : Salary Versus Piece Rate

Introduction

The Issue

Analysis

The Case

Recommendation

Salary based system sewing unit

Piece rate system Leisure Textiles : Salary Versus Piece Rate sewing unit

Introduction

The Issue

Analysis

The Case

Recommendation

Total cost per piece
60 50 40 30 20 10 0 1 2 3 4 unit 1 unit 6

5

6

Total Production
60.000 50.000 40.000

Line performance in May 2006
Unit #01 : total score 91,77% Unit #6 : total score 9,76%

30.000 20.000 10.000 1 2 3 4 unit 1 unit 6

5

Leisure Textiles : Salary Versus Piece Rate

Introduction

The Issue

Analysis

The Case

Recommendation

• Leisure Textile had a plan to deploy new unit in new area approximately 15 KM from existing unit. • The new unit will operate 600 machines. • There are 2 options available : Set up the new unit leveraging the existing business model (Piece Rate), or Go with new model offered by KSA, an international consulting agency (Salary Based)

Leisure Textiles : Salary Versus Piece Rate

Introduction

The Issue

Analysis

The Case

Recommendation

EXISTING BUSINESS MODEL

KSA PROPOSAL

Use piece rate system

Use salary based system

Consists of female worker New training center would be set-up Maximum Efficiency (150%) Timeframe : 14 -16 months
The Salary : 1st six months : based on government regulation Afer six months : based on performance

Middle management Leisure will be trained Textiles : Salary Versus Piece Rate

Introduction

The Issue

Analysis

The Case

Recommendation

Consideration :

Great opportunity in global market

Price pressure from competition and costumer

Margin was dropped to under 10%

Leisure Textiles : Salary Versus Piece Rate

Introduction

The Issue

Analysis

The Case

Recommendation

Recommendation :

Leisure Textile should take the KSA proposal as it will give more benefit to the company

Opportunity in global market will lead to increasing of demand for knitwear product

With salary based system, increasing in production means optimalize the current capabilities and will lead to cost efficiency to compete with competitor in highly industry competition

The problem occurs in existing salary based unit (Unit 1) will be eliminated as training program held for workers and middle management, salary based on performance and skill grade system and improvement in manufacturer’s in house problem such as work standardization technique, operation and layout design, etc

Leisure Textiles : Salary Versus Piece Rate