| Summary: | The steel industry is characterised by heavy fluctuations in product demand and fierce
competition from players across the globe. It is for this reason, important for Highveld
Steel to ensure that their strategic decisions are both effective and that there is a good fit
between market conditions and strategies. In this report, the product diversity strategy of
Highveld Steel regarding coiled products is evaluated against its efficiency in generating
positive contribution margins towards company profitability.
This was done by developing a model to quantify the real contribution margin of all coil
products produced. In this model, processing time, product downgrading costs and the
cost of production downtime due to production delays were quantified and a formula was
derived to calculate the cumulative effect of all these variables on product cost. This
formula was applied to historical yield information available for the past four years of
production. From this, the real contribution of different product categories were
calculated and used to identify products with negative or small contribution margins on
the one side, as well as products with large contribution margins on the other.
It was found that 15 % of all products produced by strip mill at present, have a negative
contribution margin and should for that reason, not be produced. The information
gathered from the application of the model was used to furnish recommendations on how
Highveld's marketing and production departments should go about improving the
contribution of coiled products to company profitability.
It was proven empirically that Highveld could, in applying the recommendations
furnished in this report, generate extra annual contribution on coil products of between 14
and 37%. The strategy developed was recommended as an interim strategy and it was
further recommended that the model developed should be continuously applied and used
on a monthly basis to evaluate order acceptance strategies to ensure a good fit between
these strategies and prevailing market conditions. === MBA, North-West University, Potchefstroom Campus, 2004
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