Is Caterpillar’s Labor Management Leading To Its Demise?

Recently manufacturing employees at Caterpillar plants in Illinois and across the world suffered significant pay cuts as well as cuts to some of their benefits. Now Caterpillar is experiencing a backlash from its employees. At an Ontario plant, workers were locked out when they refused to accept a 50% pay cut. In response, Caterpillar moved production to Muncie, Indiana where workers were willing to accept the lower wages. In May of last year, Caterpillar threatened to cut health care and other benefits for employees at a plant in Joliet, which resulted in a three month strike. Workers were finally forced to accept the cuts and returned to work. Caterpillar is also currently in a dispute with workers at a Milwaukee plant.

On the contrary, Caterpillar’s earnings would not indicate a need to cut employee wages. The company earned almost $6 billion in profits this year from a record-setting $66 billion in sales. In addition, the average salary of executive at has increased by 56% in the last six years and CEO Doug Oberhelman’s salary has risen by sixty percent since 2011. He made $22 million last year. His rationale behind Caterpillar’s hard line on labor is that they have a need to stay competitive. He says the only reason executive salaries rose so greatly is because people in these positions are going to find other work if they don’t receive a competitive wage. Whether such a steep increase is justified depends on who you ask. At the same time, he believes he has no reason to raise employee wages when he can just easily open a plant in a Southern state, where workers would gladly accept lower wages. He also contends that workers these days are less skilled and thus don’t deserve more money.

Oberhelman has received opposition on both of these points. Opponents argue that the only reason workers seem less skilled is because too much is demanded from them for too little pay. They also say that manufacturing employees at nearby rivals Cat and Komatsu plants are paid $3-$4 more per hour for the same work. However, people in these positions have much less mobility because there are a lot less manufacturing jobs today.

Caterpillar needs to resolve this issue with its employees before serious damage is done. Their reputation is on the line, which could ultimately affect their bottom line. Constant conflict with its employees could result in reduced productivity and quality from them. I believe they should just pay their employees wages that are comparable to nearby competitors. If the company is profitable and executives are experiencing pay bumps, shouldn’t lower-level employees experience them too? Who do you think is right or wrong in this situation? Do you think Caterpillar’s ongoing conflict with its employees is going to hurt the company in the long run?

http://www.businessweek.com/articles/2013-05-16/caterpillars-doug-oberhelman-manufacturings-mouthpiece#p4

 

The Cost of Cutting Costs

Have you ever gone to the store only to find that the shelves are bare and you can’t get what you’re looking for? Many Walmart customers nationwide are complaining that they cannot find what they need at their local Walmarts. Because of this, Walmart lost many of their customers to their competitors such as Kohls, Target, and

Why the empty shelves? Since the recession, Walmart has tried to cut costs. To accomplish that, Walmart cut staff. “In the past five years the world’s largest retailer added 455 U.S. Walmart stores, a 13 percent increase, according to company filings in late January. In the same period its total U.S. workforce, which includes employees at its Sam’s Club warehouse stores, dropped by about 20,000, or 1.4 percent.” So as Walmart continues to open new stores throughout the country, they also continue to cut their workforce. This has had some severe consequences. Some of these include longer checkout lines, less help available to customers throughout the store, and disorganization.

These issues have caused Walmart to place last amongst department and discount stores in the American Customer Satisfaction Index. This is the sixth consecutive year that Walmart has tied or taken the last spot. The lack of customer service due to a lack in staff is definitely to blame. Walmart has so much inventory in back, but not enough staff to stock the items on the shelves. Customers cannot find what they are looking for and cannot find an employee to help them. When the customers go the check out, they are faced with long lines and few checkout lanes open.

In the past, other retailers have viewed labor as a controllable expense that is an easy way to cut costs. In the early 2000s, Home Depot had the same thoughts as Walmart. They could easily cut expenses and grow profits by cutting staff and relying on part time workers. Eventually customer services and satisfaction plummeted causing sales growth to fall throughout established Home Depots.  If Walmart continues to cut costs by cutting labor, they could face the same fate as Home Depot.

Adding five full time employees to Walmart’s U.S. stores would cost around $448 million a year. This would add about a half-percentage point to Walmart’s selling, general, and administrative expenses. For such a big company, a half-percentage point is nothing, especially when looking at the future and long run of the company.

If Walmart continues to cut costs by cutting labor, they will fall into a vicious cycle. With no staff to stock the shelves, the company cannot sell things that are not out and made available to customers. Eventually customers will choose Walmart’s competitors over Walmart for all their shopping needs. A change definitely needs to occur or Walmart will have many problems in the future. What are some ways that Walmart can cut costs without cutting out customer service and satisfaction?

 

Reference: http://www.businessweek.com/articles/2013-03-28/walmart-faces-the-cost-of-cost-cutting-empty-shelves#p1