This document contains all the cases made by learning group 4. |
1. What was wrong with the Midwestern Steel Division’s old system? (As part of your analysis, study Exhibit 3 carefully and figure out what the columns tell you, individually and in total.)
Before 1991 the performances of the cost center managers and their superiors in the plant were evaluated in terms of cost control and safety. The key cost performance measure was a summary called ‘Cost above’ which included the cost added per ton of steel at each production stage and for the entire plant.
Cost above and the items that comprised it were reported to …show more content…
Cash flow 8. Product mix 9. Inventory days on hand 10. Sales price minus cost of net metal
Compared to the old system, these performance measures are not all about costs being made. Measure 1 is only relevant to the melt shop. Because it is a bottleneck operation, heats per week was a critical measure for the whole company.
Measures 2 through 6 were applicable to all manufacturing areas. ‘Tons per man hour’ was a productivity measure. The disabling injury index was a safety measure. The total quality index was made out of 3 measures physical yield, percentage of product meeting specification, and on time shipment. 7 through 10 were plant wide measures. Where then is a measure for value added.
In comparison to the old system, the new system has its goals much clearer. Its focuses on productivity, safety, quality, costs and value added. There for you can measure you company’s performance way better compared to have only financial numbers.
Another change was that cost above was eliminated, production managers were no longer held accountable for all costs incurred in their respective areas. The only cost figure on which managers were evaluated was the spending by the employees in their organization; because of this the costs made by maintenance would be listed at the maintenance manager, and not by the production manager. Making a brighter picture of spending.
The implementation didn’t go smoothly. They started by saying the old system can’t be used