Chaparral Steel

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Anshul ||Ashish||Parthsarthi||Umang (Group 9)

Table of Contents Introduction..................................................................................................................................................

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Type chapter title (level 2) ........................................................................................................................ 2 Type chapter title (level 3) .................................................................................................................... 3 Product strategy ...........................................................................................................................................

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Manufacturability ..................................................................................................................................... 5 New product opportunities .................................................................................................................. 6 Product Mix ........................................................................................................................................ 6 Competition ................................................................................................................................... 6 Strategic move ........................................................................................................................... 6 Continuous improvements .................................................................................................... 6 New product opportunities ............................................................................................... 6

Human Process ........................... ......................................... ............................ ............................ ............................ ............................. ............................. ............................ ............................ ......................... ........... 1 Quality management ................................................................................................................................ 2

Project management ............................................................................................................................ 3 Process design ..............................................................................................................................................

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Technological development ...................................................................................................................... 5 Process streamlining ............................................................................................................................. 6 Continuous Evolution ........................................................................................................................ 6 Process characteristics ................................................................................................................... 6 People participation ................................................................................................................... 6 Competitor's effect ................................................................................................................. 6 Constraints ........................................................................................................................... 6 Expansion constraints ..................................................................................................... 6

Multi activity chart ........................... ......................................... ............................ ............................. ............................. ............................ ............................ ............................ ............................ .................. .... 1 Job design and work process design............................................................................................................

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Management philosophy .......................................................................................................................... 5 Management decisions ......................................................................................................................... 6

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Resulting behavior and cultural traits ............................................................................................... Concluding perspectives .............................................................................................................. 6

Design and management of incremental and step development projects ............................ ....................................... ........... 1

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Introduction: Chaparral Steel Company, located in Texas, owns and operates a technologically advanced steel mill that produces bar and structural steel products by recycling scrap steel. Chaparral's facilities and its operating philosophy reflect the latest advances in electric arc steelmaking. We have analysed the case from product design dimension of operations management. Product design itself has multiple dimensions associated with it like 1. 1. 2. 3. 4.

Product lifecycle related decisions Product value by analysis New Product development/enhanceme development/enhancement nt opportunities Manufacturability Design Aspects: robust and modular

We have discussed few of these points based on the information available in the case, over and above these points we have discussed some additional issues which are specific to this case. Also we will see implications of macro as well as micro level goals on product design. Chaparral Steel has proposed heavy capital expenditure in its production capacity growth. Despite the high costs and the risks involved, such a major step is justified considering the below mentioned points 

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The company, Chaparral has been making heavy capital expenditure in its capacities from the last four years. And this expenditure has been translating into the higher returns in form of the incremental product sales . Sales have leapt from 203,000 tons to 383,000 in the span of 4 years. The proposed investment in electric furnace, continuous caster and rolling mill will increase the capacity by more than 200 %. Apart from these, in the areas where chaparral is contemplating to venture out, there is a little competition from the domestic steel makers of US in terms of capacities and capabilities. Also, they will almost be better than the foreign steel players from Korea in America in terms of price competitiveness and offerings. Chaparral steel plans to follow the old model of having light, modular construction with machinery that could be quickly changed over and upgraded. So this capital expenditure will be worthwhile keeping in mind the future investments in capacities to tap economies of scale. The potential market is estimated to increase by 600,000 tons in next 10 years by 1987 and the company has presence in 20 states currently which it plans to expand to more number of states. Company is also looking towards product augmentation by introducing beams of 3 categories for home segment where there lies an opportunity to tap upto 50 % of the market.

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Products Strategy: In the initial years of operation Chaparral steel produced products like reinforcing bars and special quality billets. Over the span of next four years company started producing other small merchant shapes like angles channels etc. because of higher profitability associated with them But they were providing these products in small shape and size category. Main reason they have not entered in bigger size and shape market because of high cost associated with raw material production. As the market for smaller size products was very competitive they differentiated their product by focusing on quality and customer commitment. To survive in the competitive market they worked effortlessly on operational efficiency to cut costs. More on operational aspects and process will be dealt in later section of report. The proposed expansion of capacity would add a second electric furnace, continuous caster and rolling mill that would more than double the capacity of existing operations. The proposed layout of the expanded plan put both furnaces and their continuous casters in a single melt shop, but put the rolling mills in separate buildings. Also for the proposed expansion, to accommodate also the junior beams for the mobile-home segment, it would take additional million to up the power and roughly same amount for the heavier equipment. This may not be justifiable only based on the junior beams, but may be  justifiable based on the possibilities of making other bigger products the company haven’t thought of yet. When it started, Chaparral steel was only into producing Reinforcing bars but slowly it went for producing more profitable items like merchant shapes and special bars. The company tried to go for as broad a product mix as possible without compromising on productivity. The company also rejected orders where there were short runs involved because it didn’t want to compromise on its productivity. While going for expansion another key factor was the trade-off  between flexibility, quality and productivity and all the three could not be incorporated at the same time. Thus, Chaparral was contemplating on entering upscale product range for which the competitors were located in either primary or the secondary regions giving them a strategic advantage. While other mini mills were adding capacity for traditional mini mill products (niche), Chaparral’s thinking was to go upscale and aim part of big steel markets. The rationale behind this was that making heavier billets would not lead to higher costs, provided you have the required horsepower. More so, steel is bought by pound.

Manufacturability: Since steel manufacturing is a continuous process, for any product switch it takes considerable amount of time. As a result, even though specialised products had higher margin, Chaparral had certain cut-offs to ensure efficiency is not lost with regards to certain minimum number of tons of orders. For example, it used to only accept those orders which exceeded 300-500 tons. In case, customer used to request for lower quantity, Chaparral used to keep them in waiting, so that similar orders of multiple customers can be combined together. If not found, they used to decline the order. By1979, Chaparral was producing following steel products ± Rebar, Small Rounds, Medium Rounds, Angles, Channels, Flats and Billets. Dynamic product means how 4

much customization can be provided into specific designs and dimensions of these products. In Rolling Mill unit, technology is less standardized. For Chaparral, till 1979, they made above products of only certain dimension. This is due to machines support only certain range and large dimension producing ones can't be used for producing smaller dimensions and vice versa. Products not in these standard dimensions are supplied by integrated domestic companies or offshore companies from Korea.

New Product Opportunities Going forward they had two options either to increase the capacity in current small size products or to start product offering in large dimension components. Their aim was to compete in large dimension product market beating prices of not only domestic competitors but also imported steel; here they wanted to leverage the operational efficiency they have mastered over the period to attain lower cost as compared to competitors. From market point of view they had options to increase their market share in existing markets or venture out into new markets. To increase market share in current markets required them to decrease prices which will in fact lower their margins conflicting with their original goal of  profitability. So they consciously took decision for going into new markets.

Product Mix The production type and capacity of a mill is dependent on the rolling mill machinery and its horsepower. Chaparral‘s goal was to have a broad mix of products. Therefore, unlike typical mini-mills that had limited range of merchant shapes and no beams Chaparral’s targeted the share of Big Steel’s market. In Big Steel’s, because of inefficient rolling mills and hot -meal operation the production cost of domestic mills was very high. Since Chaparral’s had the required rolling mill machinery and horsepower horsepower to run it they focused focused on going upscale, upscale, aiming for the part of big Steel’s market instead of introducing smaller products or going niche like the mini mills.

Competition The wide range of product mix that Chaparrals offered made both the manufacturers of light structural products- the minimills as well as the manufacturer of the upscale product rangeintegrated steel mills its competitor. There were four very small mini mills operating before Chaparral was built but it was “Nucor” tha t was Chaparrals main competitor in local minimill market. In the upscale product range Chaparral had few competitors as integrated steel mills were reducing their capacity in lower ranges of product line due to high production cost. Nucor, which opened a 2, 50,000 tonnes per year mini mill in Texas was chaparral’s principal competitor in local market. They had a competitive advantage over their rivals that they could make a seamless product while their rivals made welded product. They would easily capture one third of the market, maybe even one half. The cost of goods sold which is around $207 per ton now, was expected to rise very little, l ittle, as productivity improvements offset increases in wage rates and other input costs. The estimated comparable cost per ton for Nucor, its direct

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competitor, was about the same; and for a domestic integrated mill, the cost was 50-70% higher than this. Theirs was the most unique kind ki nd of equipment that they were about to make. Because of high cost especially for raw steel production, the domestic integrated mills could not compete and had significant reduced the capacity in the lower ranges of the product line. Their production costs were $400 per ton for beams that importers would sell for $400 per ton. While other mini mills were adding capacity for traditional mini mill products (niche), Chaparral’s thinking was to go upscale and aim part of big steel markets. Chaparral’s sales had reached $112 million, a net income of over $13 million with fewer than 500 employees or about 2.7 hours of labour per ton. They were looking forward to continued growth similar margins and expected their labour quotients to fall below 2 labour hours per ton. Their closest competitor Nucor was also close at 2.7 hour of labour per ton. Also, Chaparral was contemplating on entering upscale product range for which the competitors were located in either primary or the secondary regions giving them a strategic advantage. For example, about 70% of larger bars and wide flange beams 20-30% of other structural and flats were provided by manufacturers outside their area. Their closest competitor Armco in Houston had eliminated all but is products above 14”. Two more distant plants CF&I and U.S. steel were eliminating products at the bottom of their lines which would have overlapped with Chaparral’s proposed mill. So, this was an added advantage to them. Also the competitors were planning to expand but only across a limited range at or slightly above their current capabilities. Nucor was planning a 300,000 ton expa nsion with a 6” product as maximum. Bayou Steel was planning new 350,000 tpy plant with angles to 6” and channels and flats to 8”. Ohio Steel bought an existing with no furnace but intended to roll 250,000 tons of  structural up to 6” from imported billets until its own shop was built. Florida Steel was also contemplating a plant with products to 6”. As we can observe most of the products are in around the same portfolio thereby increasing competition. Chaparral’s expansion would increase its portfolio of products. They have little competition in the domestic market in terms of capacities and capabilities. Instead addition of one or more caster or minimill as a whole can only add to the benefit of  planning. Also sometimes the incremental addition would lag behind the demand of the steel. In such cases the opportunity lost is the opportunities given out to the competitors. Hence by proposing a larger capacity addition, Chaparral is following leading strategy which will also act as a barrier for any new players pl ayers from entering the market in future. f uture.

Strategic Move Apart from these, in the areas where chaparral is contemplating to venture out, there is a little competition from the domestic steel makers of US in terms of capacities and capabilities. It considered Korea and other offshore producers as their competitors moving up to large structural shapes would lead to greater competition with inputs. They were looking for trigger price mechanism in order to make metal at a relatively lesser cost. The currency situation situation also supported Chaparral’s keeping imports relatively constant. Also, they will almost be better than the foreign steel players from Korea in America in terms of price competitiveness and offerings. The domestic integrated mills were unable to compete with the importers. Their costs of production were in line with the importers selling price. In contrast to that Chaparral steel due to streamlined operational operational procedures and and keeping abreast with the 6

latest technological developments (Chaparral’s electri c arc furnace , originally rated at 250,000(tpy) was producing hot metal at the rate of 370,000(tpy)) was able to demonstrate high productivity with low cost. As a result in the larger structural shape sector they were considering offshore producers as their main competitors. Their goal was to make steel for less than the imported steel. Chaparral Steel Company has kept up with the latest technological development and incorporated the techniques of best steel plants. The following human processes and their inherent skills have played an important role in company’s strategic management of  operations.

Continuous improvements: The company’s emphasis on matching up with the latest technology in their operations by concentrating on technological advancements has helped the company in increasing their melt capacity by one-half. Chapparal utilized about 2.7 labor hours for producing per ton of steel. The management tracked the performance of its competitors which were at par with itself and looked forward to lower its labor quotient to 2 labor hours per ton.After implementing creative changes in operating procedures the caster was matching the furnace capacity in production.

Human processes: Chaparral had a non-union operation based on participatory management and profit-sharing. The company believed that work must be fun and satisfying. Decision making was taken to the lowest competent level and thereby the lowest level was made competent.Its management philosophy precluded formal meetings and paperwork. The management structure was lean and flat with only four levels from top to bottom. This participatory management excluded formalities and everyone was on a first-name basis. Chaparral people were confident of  implementing their target with the firm belief on “we can do it”.The management gave responsibility and rewarded the employees along with the paycheck. The employees had the freedom to experiment, mistakes being tolerated. Job training was always a top priority.

Quality management: The company had quickly earned reputation for quality and competitiveness in price. Its operating philosophy was commitment to the customers. When Chaparral faced problems with the transformer of the furnace, in order to serve the customers, it afforded to buy billets from outside. The billets were costly and yielded less steel which was again a loss to the company. So, the company demonstrated its non-financial commitment to serve its customers. 7

Project management: In Chaparral, the work was defined with a specific goal and deadline. Here, the work contained complex interrelated tasks requiring specialized skills. The defined goal was to make steel as fast as possible. The plant was scheduled to run for 3 shifts per day, 7 days per week, 50 weeks per year. The company encouraged people assigned to the project receive the motivation, direction and information needed to do their jobs. Proper management of the workforce, resources and meeting the deadlines, rather finishing before deadline was practiced in Chaparral. a. Will need to play in any major future change management process, such as the major capacity expansion programme at the company as was being considered in 1979. The managers of Chaparral were confident of tackling future competition as trigger price mechanism was introduced. They aimed at producing steel at a cost lesser than the price at which importers will shift. The expansion would more than double the capacity of the existing operations. This will lead to expansion of employee base. They would able to cater the growing growing needs of the future market. The new furnace would be the world’s largest electric furnace. Usage of technology will support their goal of producing steel faster f aster and will add to enrichment of their productivity and survive in the competitive world. Though there were no producers of the machines that Chaparral wanted as a part of expansion they did not give up the plan. They found a German manufacturer who built most modern structural mills in the world and got their required machinery built. This shows their dedication to quality and innovation. The company was planning to take care of its supplies during volatile times with steady purchases. They also planned to backhaul scrap from distant markets. This would help them in maintaining good relationships with their suppliers. The expansion will create new opportunities for growth for individual workers and managers.

Process design The current management structure was lean and flat (only 4 levels), thereby supporting their philosophy of participatory management. Also they precluded formal meetings, paperwork, memos etc. to increase the efficiency of people without any extra non useful work. Over the last few years the furnace was completely rebuilt with new technology. Due to improvements along with streamlining operating procedures, a significant increase in the melt capacity was seen. The current size of rolling mill stands and horsepower of motor were suited for the products of  group 1 and 2, but for expanding the size for group 3 and 4(21” – 28” mill range) an additional cost will be incurred which is about 40 percent of the total hard cost. If some technique can be devised to reduce this cost, a great amount of expansion cost will be reduced. 8

Also for the proposed expansion, to accommodate also the junior beams for the mobile-home segment, it would take additional million to up the power and roughly same amount for the heavier equipment. This may not be justifiable only based on the junior beams, but may be  justifiable based on the possibilities of making ma king other bigger products the company haven’t thought of yet. Process design describes how the product will be made. The process design decision has two major components: a technical (or engineering) component and a scale economy (or business) component. The technical component includes selecting equipment and selecting a sequence for various phases of operational production. The scale economy or business component involves applying the proper amount of  mechanization (tools and equipment) to make the organization's work force more productive. This includes determining: 1) If the demand for a product is large enough to justify mass production; 2) If there is sufficient variety in customer demand so that flexible production systems are required; 3) If demand for a product is so small or seasonal that it cannot support a dedicated production facility.

(i) Technological development: The expansion of productivity was being considered at at Chaparral since since a long time. But the proposed plan for expansion was a bit intriguing as it required putting the rolling mills in a separate building; on either side of the melt shop (Traditionally these rolling mills were kept in a single melt shop). Currently the company was using such equipments which were not made by anyone in this world. They were using ‘Typical Rolling Stands’ which were massive pieces of  equipment which required great deal of handling and caring. Much because any defect in single component of this system required complete change of the equipment. Because of all these reasons company wanted to use light, modular and constructive design of machineries that could be quickly changed over and their parts were easily available. This light, modular and constructive design system was already been used in the old plant of the company. Technological had to play a major role in making Chaparral’s proposed model successful. For this they visited numerous plant and equipment manufacturers across the world when they finally ended up with a deal with Schloemann- Siemag, a German company. This company was the master of the modern technology and they had built many modern structured mills in 1979. Chaparral’s idea of modular design for mills was surprising for the German company at first but later they did wonderful job in using modern technological developments and making the modular design come true

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Process Streamlining: The streamlining of the process in Chaparral was very critical. Their 1 hour 40 minutes of  processing to produce 70 40-foot billets. It required 3 helpers, one stocker and one scrap crane operator to run the process to create sufficient amount of heat. Another set of 3 people were required to tap the molten liquid into a ladle. The issue with this layout was that told the caster and the furnace was not always synchronized. The caster had four strands, and three operators were always ready to take action should something happen to any of the strands. In case of anything wrong, the production rate was poised to be slow because then strands were required to be plugged off, cleaned and restarted.

(ii) Continuous Evolution: With increasing revenue and reputation, the onus was on the furnace and caster to ensure uninterrupted production and both were matching their rate of production. But with an anticipated increase in furnace melt capacity, the current caster capacity might become a bottleneck. So, the capacity of existing caster was needed to be increased else, a new caster was needed. So, Chapparal observed the sequence casting procedure used in a Japanese steel mill and implemented it with a minimal investment if compared with new caster was purchased. This reduced Chapparal’s co st and provided improved production level, thus, reflecting continuous evolving of the steel plant.

(iii) Process Characteristic: The molten metal is poured into a ladle, which is lifted by a crane to the top of a continuousstrand casting machine. The molten metal is then released through a hole in the bottom of the ladle, where it flowed into a tundish. Through the holes of tundish, the metal flows into molds that oscillate to ensure more homogeneous structure. The billet-shaped strands flow in a curved path from the molds into covered spray chambers. Then the strand moves slowly on the rollers towards a level plane. Still orange and pliable, they are cut by automatic torch into standard lengths called billet.

(v) People Participation: Chapparal followed the participatory management thus reaching out to the lowest competent level for decisions and make them competent. This kind of participatory management also rejected formalities. The people people took pride in doing their jobs and getting getting credit for it. Also, people took every challenge to turn the impossible into possible and create best solutions for the customers. But this emphasis on output didn’t compromise with quality and meeting specifications. So, the environment ensured people feel important in the company and provide their best to supplement the company’s value-adding value -adding process.

(vi) Competitor’s Effect: Chaparral was facing competition from various companies like Nucor, Bayou Steel, Ohio River Steel and Florida Steel. But the major competition was faced from Nucor which opened at the same time as Chaparral and had a capacity of 250,000 tons per year. Many of these competitors 10

were planning to expand their production capacity. However, Chaparral had kept a close look on their competitors’ movement and has ha s planned accordingly. As in 1979, Chaparral came to know that Nucor’s productivity was 2.7 labor hours per ton, and its i ts closest domestic rival was at 5 labor hour per ton. In regards with this company looked to continue revenue growth with similar margin and tried to reduce its own productivity to less than 2 labor hour per ton. With its continuous innovative strategies Chaparral has earned a reputation of quality as well as competitiveness in the price. Apart from these domestic competitors, its other concerns were US minimills (Including Nucor). Chaparral’s goal is to make metal at a cost which is lower than the cost at which they (foreign competitors) can ship metals here. However, the currency situation has been in favour of  Chaparral and it has kept imports constant since last three years Management always tried to systematically track the performance of its major m ajor mini mill competitor’s especially of Nucor Steel and used to evaluate its performance with respect to Nucor Steel. It also used to track its closest mill rivals to see its performance.

(vii) Constraints: Size of rolling mill stands as suited to product groups 1 and 2 correspond to continuous equipment type with average estimated costing of $60,000,000 and produces 65% of the total demand of the products. But this capacity and horse power constraints make it unsuitable for high valued product which requires reversing equipment (entails fewer but much larger stands) and requires an investment of close to 125,000,000.

(viii) Expansion Constraints: Proposed expansion will take an additional million to up the power and at least that much more for heavier equipment. Whether this will be able to do all the 3 sizes of beams is also debatable but it is like a low cost insurance policy which will help produce the never thought bigger products and establish the Chapparal as a high valued company.

Issues faced in ‘Process design’:

The current management structure was lean and flat( only 4 levels) , thereby supporting their philosophy of participatory management. Also they precluded formal meetings, paperwork, memos etc. to increase the efficiency of people without any extra non useful work. Over the last few years the furnace was completely rebuilt with new technology. Due to improvements along with streamlining operating procedures, a significant increase in the melt capacity was seen. The current size of rolling mill stands and horsepower of motor were suited for the products of  group 1 and 2, but for expanding the size for group 3 and 4(21” – 28” mill mill range) an additional cost will be incurred which is about 40 percent of the total hard cost. If some technique can be devised to reduce this cost, a great amount of expansion cost will be reduced.

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Also for the proposed expansion, to accommodate also the junior beams for the mobile-home segment, it would take additional million to up the power and roughly same amount for the heavier equipment. This may not be justifiable only based on the junior beams, but may be  justifiable based on the possibilities o f making other bigger products the company haven’t thought of yet. b. Expected to be experienced reactively (i.e., through the resulting actual organizational processes) as ‘emergent’. ‘emergent’. Issues faced in determining ‘Capacity strategies’:

A number of incremental increases in furnace capacities, and partially matching increases in caster capacity spread over time during 1975 to 1979 creating pressures for further capacity increases in caster capacity. Initially the furnace and the caster both were rated at 250,000 tpy . The sequence assumed that caster was synchronised with the furnace without any interruptions. However due to the strands in the caster, many a times clogging or a breakout happened, due to which a slower rate of production than expected. On the other hand, Japanese steel mill had a much efficient procedure that allowed the cleaning and maintenance of the tundish only after 12 cycles (compared to 3-4 in Chappral). But to upgrade to such a method will require an extra capital expenditure of $2.5 million milli on and would shut down caster for round 6 weeks. Also they continually evolved through continuing investments, albeit modest, and sending operating people to visit best steel plants and equipment manufacturers worldwide. Also the plan of expanding by adding a second electric furnace, continuous caster, and rolling mill would more than double the capacity. The rated capacity was 516,000 tonnes per year but according to Werner and by their past experience we can conclude that they can get much more out of it. It would be the world’s largest electric furnace

Diagram showing the three stages of production in Chaparral’s mini -mill 1. Release of charge to furnace 2. Lowering of electrodes 3. Melting 4. Repeat 1-3 three four times 5. Tapping of molten liquid in Ladle 6. Wait for the right temperature 7. Lift ladle 40 inches above tundish 8. Opening of slide gate, molten metal flows to tundish 9. From tundish to oscillating oscillating moulds through 4 small holes 10. Tundish and moulds cleaned ///////// lifting l ifting empty ladle and lowered it to ground

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Release of charge to furnace

Wait for the right temperature

Lift ladle 40 inches above tundish

Lowering of  electrodes

Tapping of molten liquid in Ladle

Opening of slide gate, molten metal flows to tundish

Melting

Repeat preceding steps three -four times

From tundish to oscillating moulds through 4 small holes

Simultaneous process Tundish and moulds cleaned

lifting empty ladle and lowered it to ground

Issues faced in developing ‘Internal work culture’ at the company Chaparral, a steel minimill in Texas, has practiced systematic and comprehensive Knowledge Management (KM). Chaparral’s senior manager s who conceived the management approach, do not think of it as KM, only as the most effective and appropriate approach to secure sustained exceptional performance. Their business results, which they attribute to their people-centric approach, validate their beliefs. Their success is exceptional and it is important to consider some of the salient characteristics of their approach:

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Management Philosophy Chaparral’s management pursues the “hologram” philosophy where each employee is a replica of the whole and understands management’s visions and the company‘s full business situation. That allows each employee to make independent decisions that become part of implementing corporate strategy while taking into account broad business implications. The management believes that their employees must be better educated and have a better understanding of the technical and business aspects of operations than competitors. That is the basis for distributing decision making and encouraging individuals to act on their own.

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Chaparral’s employees are salaried and divided into teams. Team leaders are rotated every few months. There are no individual department bonuses. Twice yearly profit sharing is distributed to all based on the total company’s performance. There are no production quotas  – only a stated desire to produce as much as possible at the highest quality required by the present market. Operations are closely integrated to break down barriers between departments Continuous casting and mill operations report to the same general manager to strengthen integration.

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Individuals are not afraid to ask others for inputs and expertise  – Chaparral maintains a “safe environment.” Management is careful to not blame individuals. Operating problems are examined to find what can be learned -- if it is technical or human. If technical, solutions are sought and corrections implemented. If human, management explores how it can change the situation through its own behaviour, education, staffing, or perhaps by changing the operation itself. There is a strong feeling by each team that they “own” their production equipment and the teams are eager to keep their equipment in top condition. They are responsible for its condition and operating performance and share that responsibility with the other shifts.

Concluding Perspectives Chaparral has implemented these practices and has reaped significant benefits from these endeavours. They have learned adopting greater people-centric perspectives. To be viable, they need constant learning  – led by constant innovation. Technology by itself only goes so far and can only provide them with rudimentary reasoning devoid of innovation. People are the intelligent agents that make organizations function. People create new opportunities and act on them. However, they need to provide the same people with opportunities, permission, motivation, and knowledge.

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1)

The incremental capacity growth happening in the company for the past four years has

achieved its significant results by operating a 250000 tpy furnace at 383000 tpy. But the continuously running at over capacity would only post some additional constraints in the resources used. The caster would become a constraint at higher operating efficiency. The process should be fine-tuned in order to maintain the output at such desired levels. Instead addition of one or more caster or minimill as a whole can only add to the benefit of planning. Also sometimes the incremental addition would lag behind the demand of the steel. In such cases the opportunity lost is the opportunities given out to the competitors. Hence by proposing a larger capacity addition, Chapparal is following a leading strategy which will also act as a barrier for any new players pl ayers from entering the market in future. One bottleneck which can be found in the process is the amount of molten metal carried by the ladle. Immediately after the electric furnace which has a higher capacity, one single ladle to transfer the molten metal from furnace to Tundish would be time consuming. Hence addition of another ladle, tundish and caster can increase its output, yet which makes this operation to be more efficient than the capacity of the furnace. This too signifies the importance of adding up the additional capacity. Considering the market situation, the growth of the industry is estimated to be at 5.1 million in 1986. Chapparal steel, enjoying a 10% market share currently(1979), if expected to have the same share in 1987, it would require require a plant capacity of atleast atleast 510000 tpy. Hence the proposed plan by 1979, when everything goes right, would end within 2 years which would result in the plant operating at 500000 tpy from 1983 onwards! Hence the proposed expansion plan looks good with a futuristic view. 4 years of continuous technological changes has absorbed 11 million dollar in terms of  cost. But the proposed investment of $166 million, the investment would start fetching the returns from 8 th year (Assumption: the net sales growth is same over the rest of the period and plant will fetch the complete use of capacity and demand would be matched) of operation, which is not very high comparing the industry in which the plant is operating.

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The general capacity of minimills used to be around 50,000-2,50,000 tons around the

years 1960-1970s. Chaparral steel was founded in the year 1973. At starting the capacity of  Chaparral steel at finish end was twice that of melt shop. Thus equipment ordered for rolling mill and the furnace&caster were rated 0.5million tons and 0.25 million tons respectively [Per year+. By the year 1979 Chaparral steel’s electric furnace, originally rated at around 0.25 million tons per year (tpy). But it was producing at the rate of 0.37 million tpy and was soon expected to reach capacity of 0.45 million tpy. 15

Thus in 1979 there was pressure of continuous operation [3shifts a day, 7days a week and 50 weeks per year which makes 350 days year] on caster. Still due to creative changes in the design model the capacity of caster was matched according to the furnace. But with the anticipated capacity reaching upto 0.45million tpy, unless and until the caster capacity is raised upto 20% it is not possible to meet the capacity. Hence a new n ew caster should be added. In these circumstances Chaparral discovered another alternative in the form of a Japanese method called Sequence Casting Following is the table showing the differences between the two methods Adding New Caster 1)No Significant increase in yields 2)No shut down of process required

Japanese Sequence Casting Technique 1)Yields may increase upto 2% points 2)Shut down of process for at least 6 weeks is needed 3)Needs an investment of $20million for 3)No significant capacity is increased apart increase of capacity by 0.25million tpy from yield, and needs an investment of $2.5 million

With the present orders and the running capacity Chaparral Steel cannot risk stopping it’s procedure for six weeks. It is given in the case that due to problem in transformer the production was stopped for two weeks at one point which made them buy the orders from it’s competitors. competitors. As an expanding company it can’t take any risk by losing it’s good will and also

can’t pay extra price due to lack of additional additi onal capacity Now clearly Chaparral can take risk of increasing its capacity in 1979 Moreover clearly from the given case most of the minimills cannot make any sizes beyond 4inches *angles+ and 6inches for channels and flats. Hence mostly minimills don’t increase capacity. But Chaparral steel is trying to build upon it’s initial success and trying to go upscale and aiming for the part of Big Bi g steel market Clearly from the market research of Chaparral steel the total steel consumption would be increased to around 5.1 million tpy within 10 years[By 1987]. Similarly the expected price in

this product line is expected to be stable for the coming 5 years [ By Japanese Sequence Casting Method, only 2% yield is increased which is way below the forecasted demand]

Also coming to competition in the lighter markets there was only one major competitor in the form of Nucor which has a capacity of around 0.25 million. Looking at the competitors in the upscale market it can be identified that Chaparral had very less competition. Almost 70% of large bars and wide flange beams. Hence expanding capacity 16

and upgrading to Big Steel Company would give Chaparral a first mover advantage in their local area and also would give an advantage of being the best in the Small Scale segment Also in the small steel sector companies like Nucor, Bayou, Ohio River, Florida are trying to increase their capacity as well as product range. Hence 1979 November was definitely ideal time to increase capacity of Chaparral. MULTI ACTIVITY CHART TIME

OPERATION

OPERATORS

FURNACE 

Scrap crane operator

MELT SHOP

1 hr 40 mins

FURNACE 

20 mins CASTER

ACTIVITY

Picking up scrap and and lime charge Release to furnace 3 Helpers and 1 Lower electrodes Stocker Melting Continue for 3 or 4 charges Crane operator Lifting caster above tundish Slide gate operator Opening the slide gate Crane operator Pouring of molten metal Utility person Cleaning tundish and molds Insert Dummy bars to mold Prepare mold for heat Scrap crane operator Move empty ladle to ground Pickup charge, raise to caster 3 operators Ready the upper level and feed the metal

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Multi activity flow chart

Job Design & Work Systems Design The manager of personnel had consciously tried to make the place of work as fun and satisfying for the employees of Chapparal steel. For the company the people were the most important priority. Participatory management was encouraged encouraged to make employees feel being a part of the organization and develop a sense of ownership. Decision making was encouraged at the lowest level and they were made competent by providing them with quality training to take independent decisions. This ensured a flat and lean management structure with only 4 levels from the top to bottom. There was no practice of formal meetings, memos and they did away with paperwork. Formalities were minimal and everyone was known by first name basis. As people had a sense of pride and ownership owner ship for their work a feeling of “We can do it” permeated throughout the company. Also there were not heavy penalties for making mistakes .Hence employees could work without fear. Also first priority for the company was always the customer. Chaparral has practiced systematic and comprehensive Knowledge Management (KM). Chaparral’s senior managers, who conceived the management approach, do not think of  it as KM, only as the most effective and appropriate approach to secure sustained exceptional performance. Their business results, which they attribute to their people-centric approach, validate their beliefs. Their success is exceptional and it is important to consider some of the salient characteristics of their approach:

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Management Philosophy Philosophy 



Chaparral’s management pursues the “hologram” philosophy where each employee is a replica of the whole and understands management’s visions and the company‘s full business situation. That allows each employee to make independent decisions that become part of implementing corporate strategy while taking into account broad business implications. The management believes that their employees must be better educated and have a better understanding of the technical and business aspects of operations than competitors. That is the basis for distributing decision-making and encouraging individuals to act on their own.

Management Decisions 

 

Chaparral’s employees are salaried and divided into teams. Team leaders are rotated every few months. There are no individual department bonuses. Twice yearly profit sharing is distributed to all based on the total company’s performance. There are no production quotas  – only a stated desires to produce as much as possible at the highest quality required by the present market. Operations are closely integrated to break down barriers between departments. Continuous casting and mill operations report to the same general manager to strengthen integration.

Resulting Behavioral and Cultural Traits  



Individuals are not afraid to ask others for inputs and expertise  – Chaparral maintains a “safe environment.” Management is careful to not blame individuals. Operating problems are examined to find what can be learned -- if it is technical or human. If technical, solutions are sought and corrections implemented. If human, management explores how it can change the situation through its own behavior, education, staffing, or perhaps by changing the operation itself. There is a strong feeling by each team that they “own” their production equipment and the teams are eager to keep their equipment in top condition. They are responsible for its condition and operating performance and share that responsibility with the other shifts.

Concluding Perspectives Chaparral has implemented these practices and has reaped significant benefits from these endeavors. They have learned adopting greater people-centric perspectives. To be viable, they need constant learning  – led by constant innovation. Technology by itself only goes so far and can only provide them with rudimentary reasoning devoid of innovation. People are the 19

intelligent agents that make organizations function. People create new opportunities and act on them. However, they need to provide the same people with opportunities, permission, motivation, and knowledge.

Scale and Capacity Planning Macro level issues: Big step capacity expansions Chaparral Steel was planning a large capacity expansion in 1979 by adding a new 500,000 tons per year (tpy) capacity furnace, continuous caster and rolling mill which combined with the upgradation of the existing plant capacity would lead to a production of over 1 million tons per year by 1986. This would more than double the capacity of the existing operations. The new furnace included in the proposal would be the world’s large st electric furnace and was capable of producing at 516,000 tpy. Due to the constant innovations to the existing furnace by observing the best practices, this new furnace would come installed with these additions. The medium section rolling mill was rated at 160 tons per hour. The rolling mill would be capable of  producing the largest sizes of their current product line as well as larger structural shapes hitherto made only by the integrated steel companies. Thus, adopting a specific strategy of occasional, big step capacity expansions would allow Chaparral to realise economy of scale benefits.

Micro level issues: Incremental capacity expansions At its inception in 1975, Chaparral Steel’s electric arc furnaces had a capacity of 250,000 tpy. However, in four years, the plant had undergone significant evolution in terms of new equipment and procedures though continuing investment. They kept up with the latest technology developments in steel making all over the world and then incorporated these changes in their plant through minimum capital investment. In the last two years, the furnace had been almost completely rebuilt with the newest technology at a cost of about $11 million. Such improvements, along with streamlines operating procedures had resulted in a total melt capacity increase of nearly one-half. In 1979, Chaparral’s electric arc furnace was producing hot metal at the rate of 370,000 tpy and expected its furnace to reach 450,000 tpy over the coming years. The increase in furnace capacity lead to pressure on the continuous casting operation, which was now matching the furnace in production. The anticipated increase in furnace capacity to 450,000 meant that unless the capacity of the existing caster be increased by 20%, a new caster would be needed. This led the company to examine the novel casting procedures followed in a 20

Japanese steel mill, which used sequence casting. To convert the existing caster to sequence casting, however would require additional capital expenditure of $2.5 million (and caster shutdown for six weeks), whereas a new 250,000 tpy caster represented a $20 million investment.

Following is the table showing the differences between the two methods: Adding New Caster

Japanese Sequence Casting

1)No Significant increase in yields

1)Yields may increase upto 2% points 2)Shut down of process for at least 6 weeks

2)No shut down of process required

is needed

3)Needs an investment of $20million for

3)No significant increase in capacity &

increase of capacity by 0.25million tpy

needs an investment of $2.5 million

It is given in the case that due to a problem in the transformer in 1976, the production was stopped for two weeks at one point which made them buy the orders from their competitors. As an expanding company it can’t take any risk by losing it’s good will and also can’t pay extra price due to lack of additional capacity. Hence, it is more advisable to go for a new caster.

Size& timing: With the present orders and the running capacity Chaparral Steel cannot risk stopping it’s procedure for six weeks. In 1976, due to a problem in the transformer the production was stopped for two week, which made them buy the orders from their competitors. As an expanding company it can’t take any risk by losing it’s good will and also can’t pay ext ra price due to lack of additional capacity. Now, Chaparral can take the step of increasing its capacity in 1979. Moreover, most of the mini-mills cannot make any sizes beyond 4inches [angles] and 6inches for channels and flats. Hence mostly mini-mills don’t don ’t increase capacity. But Chaparral steel is trying to build upon its initial success and trying to go upscale and aiming for the part of Big steel market. Clearly from the market research of Chaparral steel the total steel consumption would be increased to around 5.1 million tpy within 10 years (by 1987). Similarly the expected 21

price in this product line is expected to be stable for the coming 5 years (by Japanese Sequence Casting Method, only 2% yield is increased which is way below the forecasted demand) In terms of competition in the lighter markets there was only one major competitor in the form of Nucor which has a capacity of around 0.25 million. Chaparral also had very less l ess competitionin the upscale market. Hence expanding capacity and upgrading to Big Steel Company would give Chaparral a first mover advantage in their local area and also would give an advantage of being the best in the small scale segment. Also in the small steel sector companies like Nucor, Bayou, Ohio River, Florida are trying to increase their capacity as well as product range. Hence 1979 November was definitely ideal time to increase capacity of Chaparral.

Design and Management of  Incremental  and Step Development Projects Chaparral Steel’s expansion plans require an integrated effort by the human capital at the organization. The involvement of the company’s company’s human processes will will allow the company to harness the inherent problem solving capabilities of its people. Over the years, Chaparral has had a mixed approach to problem solving through three types of  projects, major advanced development, platform and incremental, each having its own organization. This approach has benefitted the company in the past. In case of a major capacity expansion programme at the company being considered, in the new plant, the management might have following expectations from the employees: 

Skills of the employees need to be upgraded to produce newer variety of product range. The new plant will need massive manpower addition. The old team will have to work hard to instil the same work ethics and skills in the new work force. Hence relevant inhouse training programmes will have to be arranged. Continuous improvement in the tune of Japanese “Kaizen” should happen



The operations team shall have to work harder to reduce the manpower requirement per unit of output and try to bring in i n below the present levels.

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