Eastern Talon Case Study

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Eastern Talon Transport Relocation Analysis: The Concepts of Relevant Costing

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 2.5 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...
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