Armco
Case 1, Armco Inc. – Midwestern Steel Division
Armco Inc is a steel manufacturer that used to be the sixth largest in its industry in United States in 1990. The Kansas City Works within its Midwestern Steel Division was hit by the decline in the business in the US steel industry. The firm produces grinding media and carbon wire rod. The first one has been successful in the industry with its great durability compared to the competitors. Carbon wire rods on the other hand were non profitable and covered only some of its fixed costs through its production volume.
The old performance measurement system used by Armco Inc did not work properly because it had some problems. First, it did not provide information on the product mix being produced while it provided data on total tonnage produced but didn’t breakdown what was produced. Second the measurement system compared actual to objective but didn’t provide data on what factors exactly caused variance. Third, the costs were not broken down by fixed costs, variable costs and relevant range. Also the reports were generated on the 15th day following every month ending so I think managers could not take immediate corrective actions which would have been sometimes very necessary. In my opinion, also the fact that the system did not measure Key Performance Index for each department such as the new system, is one important reason why the old system was inadequate. Even if the operating managers liked the old system, the new system was necessary. The operating managers may have liked the old system probably because it is understandable that no one likes to be moved out of their familiar comfort zone after many years. In my opinion the greatest weakness of the old system is that the data it provides isn’t clear enough and it is quite difficult to read and understand properly.
The new system for instance proposes to focus on ten different measures. The measures have exact “goals” which is positive. It is also good point that
Armco Inc is a steel manufacturer that used to be the sixth largest in its industry in United States in 1990. The Kansas City Works within its Midwestern Steel Division was hit by the decline in the business in the US steel industry. The firm produces grinding media and carbon wire rod. The first one has been successful in the industry with its great durability compared to the competitors. Carbon wire rods on the other hand were non profitable and covered only some of its fixed costs through its production volume.
The old performance measurement system used by Armco Inc did not work properly because it had some problems. First, it did not provide information on the product mix being produced while it provided data on total tonnage produced but didn’t breakdown what was produced. Second the measurement system compared actual to objective but didn’t provide data on what factors exactly caused variance. Third, the costs were not broken down by fixed costs, variable costs and relevant range. Also the reports were generated on the 15th day following every month ending so I think managers could not take immediate corrective actions which would have been sometimes very necessary. In my opinion, also the fact that the system did not measure Key Performance Index for each department such as the new system, is one important reason why the old system was inadequate. Even if the operating managers liked the old system, the new system was necessary. The operating managers may have liked the old system probably because it is understandable that no one likes to be moved out of their familiar comfort zone after many years. In my opinion the greatest weakness of the old system is that the data it provides isn’t clear enough and it is quite difficult to read and understand properly.
The new system for instance proposes to focus on ten different measures. The measures have exact “goals” which is positive. It is also good point that