Armco Case Study

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Armco, Inc.: Midwestern Steel Division

Case Background
Armco, Inc was producer of stainless, electrical, carbon steels, and steel products from United States. It was the sixth largest steel manufacturer in the United States in 1990. Kansas City Works was by far the company’s largest entity in the Armco’s Midwestern Steel Division, contributing around $250M in sales from $550M of Armco’s steel division net sales in 1990. The Kansas City Works produced two primary products: grinding media and carbon wire rod. Grinding media were steel balls used for crushing ore in mining operations while carbon wire rod was used to make shopping carts, coat hangers, etc. Armco was recognized as the leading supplier of grinding media in the United States because it was durable and less complains received compared to its competitors. Carbon wire rods on the other hand were a commodity product. The production in Armco was not cost competitive due to old technologies, however it helped to cover some fixed cost of the plant. The Kansas City Works was not a low-cost manufacturer. The Works had an inefficient plant infrastructure as it was designed to accommodate five times as many employees as were currently working there. The salaried employees in the Works were all eligible for cash inventive awards based on performance evaluation made by the division president, ranged 5-30% of the annual salary depends on the individual organization level. Before the changes in 1991, the measurements for performance of the cost center managers and superiors in plant were the cost control and safety. The key cost performance measure was a summary measure called “Cost Above” which was the cost added per ton of steel at each production stage. Cost above and the details of it were reported to the managers as an Operating Statistics Report, produced 15th day following each month end. In January 1991, the management of the Kansas City Works of Armco’s Midwestern implemented a new performance...
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