APPLIED STEEL CASE STUDYOPERATIONS MANAGEMENTCASE STUDY QUESTIONS:Evaluate Applied Steel’s situation.What should Applied Steel do? CASE NUMBER 6:APPLIED STEELavailability to meet production schedules) and performance (i.e., reliability in meeting thepromised delivery schedule).Applied Steel is one of two major producers of wide-flange beams in the United States.The other producer is USX. A number of small firms also compete, but they tend toSeveral years ago, Applied Steel's production schedules saw that they were going to havecompete mainly on price in nearby markets where they can keep transport costs low.an excess of hot-rolled plate capacity in the near future. At the same time, developmentTypically, all interested competitors charge the same delivered price, which varies someof a new production technology allowed Applied Steel to weld three plates together intodepending on how far the customer is from either of the two major producers. In othera section with the same dimensional and physical properties and almost the same crosswords local prices are higher in more remote geographic markets.section as a rolled wide-flange beam. This development appeared to offer two keyadvantages to Applied Steel: (1) It would enable Applied Steel to use some of the excessWide-flange beams are one of the principal steel products used in construction. They areplate capacity, and (2) larger sixes of wide- flange beams could be offered. Cost analyststhe modern version of what are commonly known as l-beams. USX rolls a full range ofshowed that by using a fully depreciated plate mill and the new welding process it wouldwide flanges from 6 to 36 inches. Applied Steel entered the field about 30 years ago,be possible to produce and sell larger wide-flange beams at competitive prices-that is, atwhen it converted an existing mill to produce this product. Applied Steel's mill is limited tothe same price charged by USX.flanges up to 24 inches, however. At the time of the conversion, Applied Steel felt thatcustomer usage of sizes over 24 inches was likely to be small. In the recent years,Applied Steel's managers were excited about the possibilities, because customers usuallyhowever, there has been a definite trend towards the larger and heavier section.appreciate having a second source of supply. Also, the new approach would allow theproduction of up to a 60-inches flange. With a little imagination, these larger sizes mightThe beams produced by the various competitors are almost identical-since customer buyoffer a significant breakthrough for the construction industry.according to standard dimensional and physical property specifications. In the smallersize range, there are number of competitors. But above 14 inches, only USX and AppliedApplied Steel decided to go ahead with the new project. As the production capacity wasSteel compete. Above 24 24 inches, USX has no competition.converted, the salespeople were kept well informed of the progress. They, in turn,promoted this new capability to their customer, emphasizing that soon they would be ableAll the steel companies sell these beams thought their own sales forces. The customerto offer a full range of beam products. Applied Steel sent several general informationfor these beams is called a structural fabricator. This fabricator typically buys unshapedletters to a broad mailing list but did not advertise. The market development section of thebeams and other steel products from the mills and shapes them according to thesales department was very busy explaining the new possibilities of the process tospecifications of each customer. The fabricator sells to the contractor or owner of thefabrication at engineering trade associations and shows.structure being built.When the new production line was finally ready to go, the market reaction wasThe structural fabricator usually must sell on a competitive-bid basis. The bidding is donedisappointing. No orders came in and none were expected. In general, customers wereon the plans and specifications prepared by an architectural or structural engineering firmwary of the new product. The structural fabricators felt they couldn't use it without theand forwarded to the fabricator by the contractor who wants the bid. Although thousandsapproval of their customers, because it would involve deviating from the specified rolledof structural fabricators compete in the United States, relatively few account for thesections. And as long as they could still get the rolled section, why make the extra effortmajority of the wide-flange tonnage in the various geographical regions. Since the pricefor something unfamiliar, especially with no price advantages. The salespeople were alsois the same from all producers, they typically buy beams on the basis of availability (i.e., bothered with a very common question: How can you take plate that you sell for about$460 per ton and make product that you can sell $460 per ton? This question came upfrequently and tended to divert the whole discussion to the cost of production rather thanto the way the new product might be used or its value in the construction process.1. Evaluate Applied Steel's situation.2. What should Applied Steel do?

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APPLIED STEEL CASE STUDY OPERATIONS MANAGEMENT CASE STUDY QUESTIONS: Evaluate Applied Steel’s situation. What should Applied Steel do?