Johannsen Steel Company

JOHANNSEN STEEL COMPANY

This is a great case to discuss mission and matching OM strategy

to that mission. The case can address these issues at several levels

of sophistication to meet the needs of either undergraduate or

graduate students.

Johannsen Steel Company (name disguised) did actually exist

from the late 1920s until its final bankruptcy in 1982. The case

writer worked for the company as an industrial engineer for nearly

six years.

1. (a) Johannsen Steel's mission did change over time. Some

students will focus on what the mission was, others on

what it is, and still others on what the mission should be.

Perhaps what it was and might have remained is a good

mission with which to start.

The JSC mission was (could have remained): To identify

and sell to those markets for which JSC's engineering and

processing provide a competitive advantage. Specifically,

to be a high quality "finished wire" job shop/small batch

producer working closely with customers to manufacture

high-quality high-margin products to the mutual advantage of both the customer and JSC in the U.S.

market.

(b) The production function mission: To provide state-of-theart processes and systems that maximize the traditional

capability of JSC to manufacture high-quality, customwire in job lots and small batches, and to maintain advantages in engineering, cost, and delivery that will keep JSC

a leader in its industry segment.

2. In the early 1960s the external conditions for competition

changed:

(a) External threats/opportunities

■ Prompted by the steel shortage caused by the 1960 steel

strike (lasting 14 weeks), the Japanese got their feet in the

U.S. industry door--never again to be shut out. This resulted in:

● falling prices on margins for steel products, particularly for common grades, shapes, and finishes

● more pressure on reduced delivery times (The Japanese would produce steel wire in Japan, ship to warehouses in Connecticut, and offer better delivery times

to the New England area than U.S. steel mills operating in Massachusetts.)

■ Grades of steel wire, which at one time were considered

difficult to make (e.g., music wire for pianos, violins, etc.

and coated wires), were now near-commodities and

could not attract their historical high margins.

*Solutions to cases that appear on our Internet home page

(www.prenhall.com/heizer). ■ With the U.S., Japanese, and Germans strongly competing to sell steel wire-drawing equipment in the later

1960s and 1970s, the state of wire-drawing technology

advanced dramatically. No longer were JSC's process

machinery competitive for standard or even semi-diffi-

cult quality grades and no longer could it design and

build its own machinery that could rival the newest

equipment offered by domestic and foreign manufacturers.

■ The steel shortage days of the 1940s and 1950s were finished; now the industry had excess capacity further depressing prices on common steel products.

■ The combination of Japanese equipment productivity

coupled with lower wages at least for the 1960s, 1970s,

and early 1980s made them formidable competitors despite the cost of trans-Pacific shipping. No longer was

the Pacific Ocean the wide cost and delivery barrier it

had once been.

■ Backward integration; standard technology, commodity

type products are candidates for backward integration

by large users. Large tire companies such as B.F.

Goodrich and Firestone purchased outright or made significant investments in small steel wire producers. Although this provided the large tire producers with

closer, lower cost and more dependable sources of wire,

it cut into JSC's volume orders for tire wire (and later

value spring and hose wire).

(b) Internal Strengths and Weaknesses

The changes did not occur rapidly. The set of problems

and errors that befell JSC occurred over a 25-year period,

probably beginning in the middle 1950s with a failure to

reinvest in new equipment, followed in the 1960s by a

failure to assess the changes in the competitive environment. Comparing the most recent year's performance to

last year's or the last several years would not provide a

sufficient means or depth of analysis.

Constraints were overbearing. The combination of constraints on outmoded equipment and facilities, insufficient

funds for capital expenditures, decreasing product pricing

and margins, increasing labor costs and OSHA/EPA expenses, and rod coil sourcing restrictions had probably

doomed JSC in its present form--it was only a matter of

time.

Inability