Armco Case Study

In: Business and Management

Submitted By hey12345
Words 1354
Pages 6
1. Context 1.1 Brief analysis of the situation
The management of Armco, Inc.: Midwestern Steel Division began implementing a new performance measurement system in January 1991.

Bob Nenni, Director of Finance for the Midwestern Steel Division, explained the rationale for this new system: The old system had managers spending more time explaining why changes in cost were due to accounting system problems than they did fixing the problems.

The new system will provide for management better management focus on the things that are most important for managers to worry about, earlier warning of problems, and improved commitment to achieve objectives.

1.2 Background on Armco, Inc.: Midwestern Steel Division
Armco Inc. is a producer of steel products. Within the Armco Inc. Midwestern Steel Division, the Kansas City Works was the largest entity, accounting for approximately $250 million in sales. However, business at Kansas City Works had declined significantly in the last decade.

The Kansas City Works produced two primary products: grinding media and carbon wire rod. Armco was recognized as the leading supplier of grinding media products in the United States. Carbon wire rods, on the other hand, were made by Armco’s rod mill, which used relatively old technology and was not cost competitive, so rods were not a profitable product. But the rods did generate volume and helped cover some of the fixed costs of the plant.

The Kansas City Works was not a low-cost manufacturer, with its union labour costs higher than some of its nonunion competitors. Also, the Works had an inefficient plant infrastructure, accommodating less than its optimum number of employees and is inefficiently laid out. This cost disadvantage from the plant causes managers to looked for ways to differentiate their products and to develop new higher-value products, and they had…...

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