Armco, Inc.: Midwestern Steel Deivision

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MCS Case 2 Armco, Inc.: Midwestern Steel Division Background Armco, Inc. was a producer of stainless, electrical, carbon steels and steel products. In 1990, Armco was the sixth largest steel manufacturer in the United States with slightly over $1.7 billion in net sales, and operating profits of $77 million. One of the divisions of Armco is Midwestern Steel Division, and within the division the largest entity is the Kansas City Works with $250 million sales in 1990. Kansas City Works produced two primary products: grinding media and carbon wire rod. Through this entity, Armco was recognized as the leading supplier of grinding media products in the United States. The carbon wire rod was not a profitable product. The labour cost of Kansas City were higher than most of their competitors; however, their plant was not efficient, because it should have accommodate five times as many as current employees. Because of this disadvantage, the managers increase the value of their products to increase the profit and sales. All salaried employees in the Works were eligible for cash incentive awards based on performance evaluation made by their immediate superior and Rob Cushman with a range 5-30% of annual salary. The performance evaluations were subjective. The Kansas City Works has several strong points in their manufacturing process. The first one is the melt shop, which is the process of melting of scrap metal. The Works used several different type of scrap metal to produce different grade of metal. Next is the rolling and finishing which shape the melted metal into a desired shape. The last part is maintenance which aims to maximize equipment uptime. The cost of maintenance is significant, which consume 40% of the 700 hourly employees in the plant. Using the old system, the performances of the cost centre managers and their superiors in the plant were evaluated

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