Armco History and Performance Measures
Armco, Inc. produced stainless, electrical, carbon steels and steel products. Armco, Inc., along with the help of other companies Armco, “produced coated, high strength and low-carbon flat rolled steel and oil field machinery and equipment” (Merchant & Van der Stede, 2012). In 1990, Armco was the sixth largest steel manufacturer in the United States. Armco’s Midwestern Steel division generated $550 million dollars in sales in 1990. Within Armco, the Kansas City Works division was their largest entity. It accounted for approximately $250 million in sales. Within the last decade, along with other steel producing companies, business within the Kansas City Works division began to decline. (Merchant & Van der Stede, 2012)
Kansas City Works was divided into five different cost centers: melting, casting, the 19’ mill, the rod mill department, and the grinding media department. Performance measures of management and their superiors were based on terms of cost control and safety. The main performance measurement was known as “Cost Above.” The Cost Above and the specific items that made up the Cost Above were reported to managers on an Operating Statistics Report. “The Operating Statistics Report showed a five-year history, monthly, and year-to-date actual’s and monthly and year-to-date objectives and variances from objectives for each of the factors that determined total Cost Above for each cost center” (Merchant & Van der Stede, 2012). The Operating Statistics Report also provided the same accounting information, which was utilized for financial reporting and inventory evaluation purposes. Management had become accustomed to the Operating Statistics Report and found it to be valuable. Therefore, when the Cost Above system was eliminated managers became unhappy.
Bob Nenni, the director of finance, wanted to implement a new performance measure system, and in 1991 Rob Cushman, President of the Midwestern Steel...
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