Management Function

The function of management should focus on getting people to work towards and achieve organizational goals and objectives. In short, management’s primary purpose should be to increase shareholder value through the efficient and effective use of organizational resources. One environmental change that has drastically impacted management, particularly management in organizations involved in production in the United States, has been globalization. However, globalization brings with it several opportunities that we might not think of at first glance.

Management is often the driver of success or failure for many organizations. One key area that may be drastically impacted by management is productivity—defined by the formula of outputs divided by inputs for a specified period of time. Managers must ensure that performance levels are in line with goals, which is achieved through control. There are four steps to the control process, which includes establishing standards, measuring performance, comparing performance to some standard, and taking corrective action when necessary. This case will illustrate the extreme influence a well-designed control system can have on performance.

Read the case below and answer the questions that follow.

Globalization and acquisition of U.S. production facilities might be viewed by some people as being a negative thing. However, for one steel production plant in Burns Harbor, Indiana, it has been a lifesaver.

Just 10 years ago, a 50-year-old Burns Harbor steel production facility was basically left for dead until a Luxembourg based producer, ArcelorMittal, purchased it. In 2008, Burns Harbor was “twinned” with ArcelorMittal’s hypermodern facility in Gent, Belgium. The idea was to have the Burns Harbor facility mimic the processes, procedures, and controls being used in the Gent plant.

As a result, Burns Harbor now enjoys record output and productivity, not only based on its own previous production levels, but it is producing at levels that are among the best in the world. According to Peter Marcus, president of World Steel Dynamics, an Englewood Cliffs, N.J.-based consultancy, a good measure of productivity is worker-hours per ton. The Gent plant is presently producing at 1.25 and Burns Harbor is just behind at 1.32. “Those are both currently among the better numbers in the world,” he says. The average in the United States is 2.0.

The Burns Harbor furnaces, where steel is made out of iron ore, coal, and limestone, are run with software developed in Belgium. Its engineers utilize robots instead of pencils, and workers are learning to make the same amount of steel with nearly half the people it employed three decades ago. These changes have resulted in productivity increases that have saved the mill from oblivion.

Globalization often is blamed for the travails of American manufacturing—from the relentless pressure of imports from lower-wage countries to outsourcing and overseas production by U.S.-based manufacturers. But globalization has its upsides as well. Not only does it often mean cheaper goods for American manufacturers, but it puts pressure on U.S. factories to become more efficient to keep up with global competition, making it possible for them to survive.

Lakshmi Mittal, the billionaire Indian who assembled ArcelorMittal, which is now the world’s first successful international steel conglomerate of its size and the largest by production, perfected a simple business model. Buy rundown, often state-owned mills, cut costs, lay off workers, improve productivity, and turn a profit. It worked from Slovakia to South Africa, and from Ukraine to Trinidad.

Twinning, which involves benchmarking two mills against each other—represents the next evolution. “The process doesn’t change: melt iron, cast, roll. But there are always incremental improvements you can make,” Mr. Mittal said in an interview. The weaker mill is ordered to copy the practices of the better mill, while the stronger is told to keep its edge. Managers are summoned to regular meetings and ordered to divulge and compare their performances. Although there is no explicit policy on the consequences of poor performance, ArcelorMittal has been quick to idle or shut down unprofitable mills, as it did in Liège, Belgium, last year.

One example of improved processes involved the Burns Harbor plant changing hose nozzles and moving the nozzle on 2,500 horsepower hoses used to scrub flakes off the steel closer. This reduced the amount of power needed to propel the water. Those two changes saved the plant $1.4 million in energy costs, the company said. Another example involves workers being directed to trim less rough steel off the sides of coil, saving the equivalent of 725 coils a year. “That’s 17,000 cars,” says Mr. Fabina, the mill’s manager for continuous improvement.

But that’s not all. Last year, Burns Harbor implemented Coordi—a computer model used to collect and monitor data. Since then, the mill has increased the average number of 298-ton caldrons of molten steel it produces daily, known as “heats,” to 50 from 42.

Source:

Excerpted from John W. Miller, “Indiana Steel Mill Revived with Lessons from Abroad,” The Wall Street Journal, May 21, 2012, pp. A1, A12.

Changing hose nozzles and moving the nozzle on 2,500 horsepower hoses used to scrub flakes off the steel closer to reduce the amount of power needed to propel water saved the plant $1.4 million in energy costs. These savings would most directly change which of the following budgets?

Sales or revenue budget

Operating budget

Expense budget

 

Nonmonetary budget