14 Aug Case Study for Applied Steel Applied Steel is one of two major producers of wi

Case Study for Applied Steel

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 to
compete mainly on price in nearby markets where they can keep transport costs
low. Typically, all interested competitors charge the same delivered price,
which varies some depending on how far the customer is from either of the two
major producers. In other words, local prices are higher in more remote geographic
markets.
Wide-flanged
beams are one of the principal steel products used in construction. They are
the modern version of what are commonly known as I-beams. USX rolls a full
range of wide flanges from 6 to 36 inches. Applied Steel entered the field about
30 years ago, when it converted an existing mill to produce this product.
Applied Steels mill is limited to flanges up to 24 inches, however. At the
time of the conversion Applied Steel felt that customer usage of sizes over 2
inches was likely to be small. In recent years, however, there has been a
definite trend toward the larger and heavier sections.
The
beams produced by the various competitors are almost identical-since customers
buy according to standard dimensional and physical-property specifications. In
the smaller size range, there are a number of competitors. But above 14 inches,
only USX and Applied Steel compete. Above 24 inches, USX has no competition.
All
the steel companies sell these beams through their own sales forces. The
customer for these beams is called a structural fabricator. This fabricator
typically buys unshaped beams and other steel products from the mills and
shapes the according to the specifications of each customer. The fabricator
sells to the contractor or owner of the structure being built.
The
structural fabricator usually must sell on a competitive basis. The bidding is
done on the plans and specifications prepared by an architectural or structural
engineering firm and forwarded to the fabricator by the contractor who wants
the bid. Although thousands of structural fabricators compete in the United
States, relatively few account 6for the majority of wide-flange tonnage in the
various geographical regions. Wince the price is the same from all producers,
they typically buy beams on the basis of availability (i.e., availability to
meet production schedules) and performance (i.e., reliability in meeting the
promised delivery schedule).
Several
years ago, Applied Steels production schedules saw that they were going to
have an excess of hot-rolled plate capacity in the near future. At the same
time, development of a new production technology allowed Applied Steel to weld
three plates together into a section with the same dimensional and physical
properties and almost the same cross section as a rolled wide-flange beam. This
development appeared to offer two key advantages to Applied Steel: (1) It would
enable Applied Steel to use some of the excess plate capacity, and (2) larger
sizes of wide-flange beams could be offered. Cost analysis showed that by using
a fully depreciated plate mill and the new welding process it would be possible
to produce and sell larger wind-flange beams at competitive process-that is, at
the same price charged by USX
Applied
Steels managers were excited about the possibilities, because customers
usually appreciate having a second source of supply. Also, the new approach
would allow the production of up to a 60-inch flange. With a little
imagination, these larger sizes might offer a significant breakthrough for the
construction industry.
Applied
Steel decided to go ahead with the new project. As the production capacity was
converted, the salespeople were kept well informed of the progress. They, in
turn, promoted this new capability to their customers, emphasizing that soon
they would be able to offer a full range of beam products. Applied Steel sent
several general information letters to a broad mailing list but did not
advertise. The market development section of the sales department was very busy
explaining the new possibilities of the process to fabricators at engineering
trade associations and shows.
When
the new production line was finally ready to go the market reaction was
disappointing. No orders came in and none were expected. In general, customers
were wary of the new product. The structural fabricators felt they couldnt use
it without the approval of their customers, because it would involve deviating
from the specified rolled sections. And as long as they could still get the
rolled section, why make the extra effort for something unfamiliar, especially
with no price advantage. The salespeople were also bothered with a very common
question: How can you take plate that you sell for about $460 per ton and make
a product that you can sell for $470 per ton? This question came up frequently
and tended to divert the whole discussion to the cost of production rather than
to the way the new product might be used or its value in the construction
process.

Evaluate Applied Steel’s
situation. What should Applied Steel do?Case Study for Applied Steel 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 to
compete mainly on price in nearby markets where they can keep transport costs
low. Typically, all interested competitors charge the same delivered price,
which varies some depending on how far the customer is from either of the two
major producers. In other words, local prices are higher in more remote geographic
markets. Wide-flanged
beams are one of the principal steel products used in construction. They are
the modern version of what are commonly known as I-beams. USX rolls a full
range of wide flanges from 6 to 36 inches. Applied Steel entered the field about
30 years ago, when it converted an existing mill to produce this product.
Applied Steels mill is limited to flanges up to 24 inches, however. At the
time of the conversion Applied Steel felt that customer usage of sizes over 2
inches was likely to be small. In recent years, however, there has been a
definite trend toward the larger and heavier sections. The
beams produced by the various competitors are almost identical-since customers
buy according to standard dimensional and physical-property specifications. In
the smaller size range, there are a number of competitors. But above 14 inches,
only USX and Applied Steel compete. Above 24 inches, USX has no competition. All
the steel companies sell these beams through their own sales forces. The
customer for these beams is called a structural fabricator. This fabricator
typically buys unshaped beams and other steel products from the mills and
shapes the according to the specifications of each customer. The fabricator
sells to the contractor or owner of the structure being built. The
structural fabricator usually must sell on a competitive basis. The bidding is
done on the plans and specifications prepared by an architectural or structural
engineering firm and forwarded to the fabricator by the contractor who wants
the bid. Although thousands of structural fabricators compete in the United
States, relatively few account 6for the majority of wide-flange tonnage in the
various geographical regions. Wince the price is the same from all producers,
they typically buy beams on the basis of availability (i.e., availability to
meet production schedules) and performance (i.e., reliability in meeting the
promised delivery schedule). Several
years ago, Applied Steels production schedules saw that they were going to
have an excess of hot-rolled plate capacity in the near future. At the same
time, development of a new production technology allowed Applied Steel to weld
three plates together into a section with the same dimensional and physical
properties and almost the same cross section as a rolled wide-flange beam. This
development appeared to offer two key advantages to Applied Steel: (1) It would
enable Applied Steel to use some of the excess plate capacity, and (2) larger
sizes of wide-flange beams could be offered. Cost analysis showed that by using
a fully depreciated plate mill and the new welding process it would be possible
to produce and sell larger wind-flange beams at competitive process-that is, at
the same price charged by USX Applied
Steels managers were excited about the possibilities, because customers
usually appreciate having a second source of supply. Also, the new approach
would allow the production of up to a 60-inch flange. With a little
imagination, these larger sizes might offer a significant breakthrough for the
construction industry. Applied
Steel decided to go ahead with the new project. As the production capacity was
converted, the salespeople were kept well informed of the progress. They, in
turn, promoted this new capability to their customers, emphasizing that soon
they would be able to offer a full range of beam products. Applied Steel sent
several general information letters to a broad mailing list but did not
advertise. The market development section of the sales department was very busy
explaining the new possibilities of the process to fabricators at engineering
trade associations and shows. When
the new production line was finally ready to go the market reaction was
disappointing. No orders came in and none were expected. In general, customers
were wary of the new product. The structural fabricators felt they couldnt use
it without the approval of their customers, because it would involve deviating
from the specified rolled sections. And as long as they could still get the
rolled section, why make the extra effort for something unfamiliar, especially
with no price advantage. The salespeople were also bothered with a very common
question: How can you take plate that you sell for about $460 per ton and make
a product that you can sell for $470 per ton? This question came up frequently
and tended to divert the whole discussion to the cost of production rather than
to the way the new product might be used or its value in the construction
process.Evaluate Applied Steel’s
situation. What should Applied Steel do?

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