Lehigh Steel
Lehigh Steel
Background-
Lehigh Steel was founded in 1913 and it manufactures specialty steels for high strength, high use applications. In 1975 it was acquired by Palmer due to its ownership of Continuous Rolling Mill, a specialized equipment that convert steel intermediate shape to wire for Palmer’s bearing. The industry as a whole is highly competitive, even a small change in price could alter customers’ consumption decision greatly, keeping costs down is therefore, one of the most important targets Its financial performance was always remarkable because of the high quality of products and loyalty of customers. However, severe downturn performances could be identified since 1991 as the business condition was in recession and the industry started to decline. In order to resurrect the financial performance, Mark Edwards, Director of Operations was eager to change the traditional way of manufacturing. He suggested to adopt toyota’s lean, pull-based manufacturing concepts which could reduce stock piling up and therefore, reduce inventory costs, however this management theory was not perfectly suitable to Lehigh, due to the incapability of current technology to produce small orders efficiently. Although the theory did not apply to Lehigh efficiently, it successfully attracted many new customers who ordered in small quantities, along with the market recovery in 1992, Lehigh faced an increase in demand and it had to decide to emphasize in a few most profitable products in order to create a good product mix and improve the financial performance. As it should be, identifying profitability of products require accurate cost analysis of each product and compare them with their selling prices. The company had a tradition of using standard cost accounting for decision making and this method showed that Alloy was the most profitable product, however, management started to doubt this result as evidence proved that sales of Alloy did not actually have a positive relation
Background-
Lehigh Steel was founded in 1913 and it manufactures specialty steels for high strength, high use applications. In 1975 it was acquired by Palmer due to its ownership of Continuous Rolling Mill, a specialized equipment that convert steel intermediate shape to wire for Palmer’s bearing. The industry as a whole is highly competitive, even a small change in price could alter customers’ consumption decision greatly, keeping costs down is therefore, one of the most important targets Its financial performance was always remarkable because of the high quality of products and loyalty of customers. However, severe downturn performances could be identified since 1991 as the business condition was in recession and the industry started to decline. In order to resurrect the financial performance, Mark Edwards, Director of Operations was eager to change the traditional way of manufacturing. He suggested to adopt toyota’s lean, pull-based manufacturing concepts which could reduce stock piling up and therefore, reduce inventory costs, however this management theory was not perfectly suitable to Lehigh, due to the incapability of current technology to produce small orders efficiently. Although the theory did not apply to Lehigh efficiently, it successfully attracted many new customers who ordered in small quantities, along with the market recovery in 1992, Lehigh faced an increase in demand and it had to decide to emphasize in a few most profitable products in order to create a good product mix and improve the financial performance. As it should be, identifying profitability of products require accurate cost analysis of each product and compare them with their selling prices. The company had a tradition of using standard cost accounting for decision making and this method showed that Alloy was the most profitable product, however, management started to doubt this result as evidence proved that sales of Alloy did not actually have a positive relation