Purity Steel

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Purity Steel Corporation was an integrated steel producer. The annual sales of this corporation amounted to about 4.5 billion in 1995, 225 million out of which was the sales of the Warehouse Sales Division. The latter was an autonomous unit, operating 21 field warehouses all over the United States. Half of its sales were still products which were purchased from the inside, Purity¡¦s Mills Products division. The other half of the sales volume of Warehouse Sales division was copper, brass, and aluminum products, which were purchased from outside large producers. This division had to compete with other independent warehousing companies and purchase from its internal division at the market price. Harold Higgins, the general manager of the Warehouse Sales Division, was appointed to this position in mid-1994. He spent 12 years in the Mill Products Division of the same company prior to his appointment to the general manager position. After Harold appointment, the Division was mostly decentralized as he had full authority over the division operations and should only present and get approval of the annual profit plan and meet the proposed capital expenditures appointed by corporate headquarters. Before Harold¡¦s appointment, the division had centralized operations. For example any purchase decision had to be made by the division headquarters, and the operating decisions of any branch mostly was to be approved by the division headquarters. By getting that authority he was responsible for the growth of division and the rate of return on investment, and in addition Harold decided to decentralize all branches operations by putting the responsibility of those operations on the shoulders of branch managers. One of the features of the decentralization was the incentive compensation plan for his branch managers, which Harold announced in late 1994 and implemented with the divisional sales manager Howard Percy¡¦s help in January 1 1995. The incentive was based on the minimum of 5%...
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