Sun Hydraulics: Leading in Tough Times

Case Study

Executive Summary Sun Hydraulics, an industry leader of hydraulic valves and manifolds, has seen steady growth over the past eight years. It has been a profitable company throughout the years with varying return on sales. Presently Sun is constrained by declining sales and high labor costs heading into the present recession. The horizontal corporate structure has proven ineffective in ridding itself of low performing employees that are weighing down the company and thus decreasing profitability. It is time for Allen Carlson, president and CEO of Sun Hydraulics Corporation, to address the employees and shareholders of his decision on how Sun plans to deal with labor and profits …show more content…

Critical Issues

The critical issue facing Sun Hydraulics is controlling labor costs during a recession, while ensuring the long-term future viability of the company. The company in the past has a history of employee’s willing to step up to the plate and take pay cuts when times are tough, but would that alone be enough. As orders continued to decline during the summer of 2001 employees began looking for ways to protect their jobs within the open structure. For example, they might hide parts to continue the work tomorrow; they wouldn’t share work if they were busy, or the day shift would take all the work and leave nothing for the night shift. Allen must decide on salary reductions or potentially look at layoffs to curtail the labor expense. Shareholders, employees, and customers were awaiting his decision.

Alternatives

➢ Early Retirement/Layoffs o Pros ▪ Ability to rid the company of low performers hiding in the system creating great inefficiencies. ▪ Increased moral of employees not let go as they were doing most of the work already making up for the low performers. ▪ Immediate effect to profitability having a labor force able to meet the lower demand. ▪ Create a younger workforce with the “old timers” option for early retirement. ▪ Expected overall hourly wage would decrease as some of the senior workforce retires. o Cons ▪