Chaparral Steel Case

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  • Topic: Furnace, Electric arc furnace, Management
  • Pages : 5 (1624 words )
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  • Published : December 16, 2011
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Answer 3 A.) Strategy to be pursued proactively:
On a broad level, an organisation can adopt any of the three strategic concepts i.e. a) Differentiation b) Cost Leadership c) Response. Differentiation: Steel is such a product that not much product innovation can be done. Cost Leadership: Chaparral Steel is already a cost leader in the market with its limited range of products. But if it needs to expand itself in terms of capacity, it needs to come up with a new product line and that too at a low cost. Chaparral needs to continue its strategy of low cost leadership with addition of new product lines to tap the market potential for larger steel products. The only competitor being Korean companies, if Chaparral plays its cards right, it can have virtual monopoly in the larger steel products segment. This is the strategy that Chaparral should proactively pursue. Response: Delivering orders on time is one strategy which in the steel manufacturing industry may not yield much result as everyone in the industry is more or less at the same level and the level cannot be increased. We shall now consider how the strategy of low cost leadership will impact product, process and capacity strategy. 1. Product Strategy : Chaparral’s current product line Rebar and merchant shapes ranging up to 4”. With the increased planned capacity expansion, company should focus on adding new products to its portfolio. Product scope:

a. Introduce new products in category of larger bars and wide range beams. b. Size of existing products to be increased.
Product Scope: Variety augmentation through new product launches. Product Profile: Company should concentrate on development and launching of more, newer streams of end products to continually match changing customer’s needs. The reason for introducing these new products is: 1. Existing market is not going to grow to double the size in few years whereas existing capacity expansion plans will increase the capacity to more than 200%. Excess capacity can be used to tap new markets. 2. Lower competition in the market of wide range beans and larger bars with higher profit margin. 3. Market for product 1 and 2 groups to grow to 3 million tons by 1987.

2. Continous casting
Continous casting
Process Strategy:
Shipment to customer
Shipment to customer
Rolling Mill
Rolling Mill
Billets
Billets
Electric furnace
Electric furnace
Lime,flux and scrap
Lime,flux and scrap

The stages (as depicted in the diagram above) in production are melting steel into furnaces, putting the molten steel through casters for shaping them and finally passing it through rolling process to produce the rebars and others shapes. 1. The company is now planning to adopt a process called Sequence casting. The problem with existing system is that any problem in caster can act as a bottleneck disrupting the entire process. With the new process, this problem will be taken care of. 2. The production of new shapes and angles also posed a challenge to get new dyes and frames to be fitted into the casting machines. So new equipment will be needed for same. 3. Rolling section also needs to be upgraded if they are to produce new shapes. Process design: In addition to above mentioned points, company should in general follow the “KAIZEN” process of continuous improvement if it wants to retain its cost leadership. 4. Capacity Strategy: Existing capacity is as follows: Electric arc furnace is rates at 250,000 tons per year were producing 370,000 tons/year, 2.7 hours of labour/ton. Company should increase the capacity. Currently it is aiming to increase the capacity to 516,000 tons/year electric furnace, 1 500,000 tons per year casting machine and rolling mill rated at 160 tons per hour. All this will cost the company more than 160 million dollars. The initial investment is justified in that the new products added will have higher margin. Scale of Capacity Expansion: Company should adopt a...
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