It's a classic example of a company which in at first at a brink of sucess and fails at last.

1. Johannsen Steel Company
In-Depth Case Analysis
Researchers
Sanjog
Nimisha
Gajendra
Subodh

2. Acronyms
• JSC- Johannsen Steel Company.
• WVS- West Virginia Steel.
• R&D- Research and development

3. Brief history
Surface analysis
• 1928- Get establish by Johannsen brothers in Pittsfield,
Rhodes Island.
 Concentrates on high quality, high carbon steel wire.
• Products-Music wire for instruments such as piano
and violin.
 Copper, teen and other coated wires.
 High tensile-wire for the newly emerging aircraft industry.
• Pioneeres new types of wire.

4. Started prospering
• 1930-1940
 Maintains reputation for high quality.
 Maintaines reputation for In house design/construction of
it’s own equipment.

5. Downfall of Johannsen
Brothers
 The last remaning Johannsen brother sells the company
to WVS for $4 million.
 JSC is now wholly own subsidiary of West Virginia
Steels.
 WVS ggets 3 steels mills located in Pittsfield, Rhode
Island (500 employees), Akron, Ohio (100 employees),
and Los Angeles (16 employees)–and two steel-wire
warehouses–one in Chicago (8 employees) and one in
Los Angeles (4 employees).

6. Increasing sales and profit
• 1940-1950
 JSC sales to the U.S. military and to U.S. automakers
and tire makers is in increasing rate.
 Sold wild varieties of wire for different use susch as use
in staples, nails, cables, cookie cutters, steel
brushes/wire wheels, and electrical products.
• Continued to climb in sales and profit.

7. Turning point of Us steel
industry
• 1960
 Customers throughout the United States turns to the
Japanese.
• Reason behind turning to Japanese
 14-week strike makes steel customers to suffer.
 The US steel customers quality, price, and even delivery
of Japanese steel was acceptable.
• Competition from offshore steel makers is now
going to be high.

8. Lowering steel prices
• 1960-1970
• Increasing Offshore competition and a productivity-
minded economy results steel prices to go down down to
very competitive levels.
• Reaction from JSC
 To strengthen sales expansion for maintaning profit
levels, JSC focuses on cost cutting strategy.

9. Main strategy-Sales
expansion
• 1978
 Formal sales manager Joe Thomas becomes president.
 Emphasizes as well on sales expansion.
• 1970-1980
 Sales nearly grows by 2 million pounds per year.
 Growth in sale revenue corresponds the tonnage sold.
 Throughout late 1980s, after tax profit on sales never goes up 2%.
 But still JSC maintains its reputation for high quality .It wins
prestigious NASA and computer-industry contracts and still
produced "music wire" and other high-carbon grades. The
percentage of these high-quality/high-margin sales to total sales
continues to decrease however.

10. Low profit rate
• Mid 1970s
• Both JSC and it mother company profit
rate is low.JSC spends less on it’s capital
investment.
• WVS restrictions
 WVS won’t spend much unless a 40% return on
investment (ROI) before taxes could be demonstrated.
 Sixty percent of JSC's total purchase of steel rod (the
raw material for steel wire) is to be purchased from WVS
.

11. Result of WVS restriction
 Little spending on capital investment.
 JSC total purchase of steel rod comprises of lowest
quality WVS steel rods.
 The number of machine setups and production cost of
JSC increases due to the smaller size of WVS rod coils
(300 lb.), compared to the newest industry sizes from
Bethlehem Steel (1500 and 3000 lb.).
 Joe Thomas orders his sales people to increase sales at
least 100 percent per year to use quota of WVS steel
rods and to spread overhead cost per tonnage.

12. Success in increasing sales
 JSC gets success in increasing sales.
 Order and revenue from the more common grade steel
wire products such as staple wire, stitching wire, tire
bead wire, and brush wire continued to increases.

13. Japanese competition
 Price of steel wires continues to fall as Japanese
manufactures steel wires with greater eefficiencey
reducing costs,

14. Change of plan
• 1980
Wire-drawing machinery get sophisticated.
No longer designs or produced its own
machines.
By the 1980s purchases used equipment.

15. Bulk of problems
 Several JSC product innovations appearing is not
significant.
 No cost control measure- Constant R&D staff size and
no increase in funding for cost control.
 Good working order machines but old.(much of it’s
orignal equipment, some over 50 years old).
 Low sales salaries, with 6% commission paid on all sales
generated.
 Sales staff travel get reduces to cut costs.

16. Profit at zero
• JSC operational manager says
 In conversation with John Green, JSC's operations
manager, Joe Thomas was overheard to say; "I can't
understad why our profits are now at zero. Sales are up
again. Scrap rates are reasonable (5%). Even our raw
material costs per ton shipped are lower. John, if we can
just lower our labor cost and maintenance costs per
shipped ton and spread our fixed overhead costs over
more tonnage, I am sure we can pull ourselves out of
this."

17. Bankrupted
• 1982
Faces Bankrupcy.

18. In depth analysis
• Wholly owned subsidiary
A company whose common stock is 100%
owned by another company.
Allows allow the parent company to retain
the greatest amount of control leaving the
parent company with all the cost and risk
of full ownership.
Parent company can involve a associate
company.

19. In house design/construction
• Pros
Control of Quality and Reputation
Containing Intellectual Property
• Cons
Increased Product Costs
Training/Equipment Costs


20. Maintaining high quality
reputation
• Best raw materials
• High quality steel wire reputation in this case was due to
best or standerd raw materials(steel and steel rods).
• After WVS took over JSC, JSC still tried to maintain its
high quality reputation and got prestigious Nasa and
other contacts inspite of restriction of WVS to use 60
percent of low quality rod of WVS of it’s total purchase
and inspite number of machine setups and production
cost of JSC increased due to the smaller size of WVS
rod coils (300 lb.), compared to the newest industry .

21. How they did it?
 Their strategy always focused increasing sales and cutting down
cost to maintain the profit after the competition form Japanese firm
arised. So they still maintained high quality reputation by increasing
sales. They thought by increasing sales they could use up 60
percent quotas of WVS low quality steel rods and still use 40
percent for high grades contracts like NASA. So they decided by
increasing sales, they could increase in quantity of raw materials
they purchased for producing different varieties of goods and again
keep on increasing in sales which would maintain their profits level.
However, the profits as well as high level contracts was bound to
decrease to less to zero at last.

22. Maintaining high quality
reputation
• Link with suppliers

23. Case study
• Question 1
What would be a good mission statement
for (a) JSC and (b) for the production
function of JSC?

24. Question 1 a analysis
• Good mission statement for JSC will be or could have remained
 To identify and sell to those markets for which JSC’s engineering
and processing provide a competitive advantage.
 To be a high quality finished wire small batch producer firm selling
high quality high margin products to the US customers.
 Investment in reach and development and to those area of the frim
for which JSC’s engineering and processing provide a competitive
advantage

25. Question no 1 b analysis
• Production function mission could have been
 To provide unique processes and system to maximize
that maximize the traditional capability of JSC to
manufacture high-quality, custom wire 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.

26. Question 2
• What does an analysis of external threats,
opportunities, and internal strengths and
weaknesses suggest?

27. Question 2 analysis
• Internal Strengths
 High-quality products.
 In-house expertise in design/construction of own
equipment.
 New product innovations from time to time.
 Good maintenance of equipment.
 Low costs of raw materials per ton shipped.

28. ………………
Internal Weaknesses
 Very little spending on capital investment.
 Sixty percent of JSC's total purchase of steel rod (the
raw material for steel wire) had to be purchased from
WVS, even though it was well acknowledged throughout
the industry that WVS's steel rod was the lowest in
quality.
 The smaller size of WVS rod coils (300 lb.), compared
to the newest industry sizes from Bethlehem Steel (1500
and 3000 lb.)

29. …………….
 No increase in size of R&D staff or funding for R&D
department for many years.
 Rise in equipment and building maintenance costs.
 Low sales salaries.
 Considerable reduction in sales staff travel in order to
curb costs.

30. ……………………..
• External Opportunities
 Enter into joint venture with some Japanese companies
to utilize their more efficient technologies, and quality
control and delivery techniques.
 Adopt new technologies to gain competitive advantage.
 Outsource non-core activities to lower costs.

31. …………………
• External Threats
 Offshore competition, especially from the Japanese.
 Productivity-minded economy.
 Continuous fall in prices of steel-wire products because
of the Japanese (in particular) manufacturing these
products with greater efficiency.
 Improvement in technology, such as that of wire-drawing
machinery.
•

32. All of these suggests
• The management of JSC made the error of not aligning
its mission with the OM capabilities. They failed to
operate with quality, equipment, processes, capacity,
product development, layout, scheduling, personnel,
inventory, maintenance, pricing, and margins all properly
aligned.

33. Question no 3
• Review the ten OM decisions discussed in
this chapter and determine the reasons
(both strategic and tactical) behind JSC's
problems. What are JSC's options, and
what strategic or tactical decisions should
it make?

34. Question no 3 analysis
• The management of JSC made the error of not aligning
its mission with the OM capabilities. They failed to
operate with quality, equipment, processes, capacity,
product development, layout, scheduling, personnel,
inventory, maintenance, pricing, and margins all properly
aligned.

35. -------------------
Looking at the low-volume,high variety
(job shop/ process focused) facility that
was the traditional JSC operation. The
failure was that management and some of
the market moved to the high volume, low
variety (product focused) without making
the investment in the facilities and new
systems required to make such a system
work.

36. Product strategy
• They continued to try to compete in markets that formerly had held
high margins (e.g., music wire), but now were medium priced at best
due to competition.. They should have adequately responded to
these downward margin shifts by aggressively soliciting high-margin
orders (experimental wire, hard-to-produce wire, small jobs, etc.)
that JSC was best suited to produce. With little or no profits and with
little or no capital expenditures allowed, JSC focused on productivity
improvements and cost cutting for solutions—Instead they should
have focused on analysis of the kinds of orders that were profitable
and on which they could successfully compete.

37. Process strategy
• To fill its excess capacity, spread its overhead costs, and attempt to
raise profit levels, JSC sought orders of standard, commodity type
wires (e.g., stitching wire, tire bead wire), despite the fact that most
of JSC’s process equipment was flexible, but slow running. These
were the easiest orders to get .Because of its reputation for high
quality and flexibility, JSC was able to obtain these orders. In fact
these types of orders increasingly represented the majority of orders
taken and tonnage produced. However, because of their commodity
pricing and JSC’s competitively inefficient production process, there
was little or no profit in them.They should have focus on what they
were based at high quality wires specilization.

38. Quality and supply chain
strategy
• Another reason for the moves in the commodity
direction was that JSC’s president was under
pressure to buy WVS’s steel rod—it was ok for
commodity quality wire, but unsuited for higher
quality products. This mandate also prevented
JSC from benefiting from the larger Bethlehem
Steel rod coils.It was WVS investement on JSC.
So west Virginia should have been smart
enough to understand that and save there
investment.

39. Question no 4
• What tools and techniques would help you
in your analysis of JSC and in explaining
your recommendations to top
management?

40. Question no 4 analysis
• What I understand about JSC is it has always tried to
maintain quality. I got many high level contracts. It had
many potentials. My final recommendation to JBS would
be Total Quality management.
• Total Quality management
 It’s not a tool but a philosophy.
 Seeks organization-wide improvement by involving every
individual in the organization.
 Unlike traditional quality control methods

41. Total quality management
• Ensuring quality is the responsibility of everyone in the
organization.
• Quality is not restricted to only manufacturing
department or set of specifications.
• Understands importance of service provided by other
departments to manufacturing department.

42. Philosophies behind TQM
• A number of tools and techniques are used to give shape to TQM
philosophy. The main focus of these tools is on team building and
empowering employees. Some of these tools are:
 Continuous improvement in process, skill sets, systems and
operations.
 Development of grass root employees through initiatives like Quality
Circles.
 Improvement in inter-department coordination and functioning by
initiatives like QITs (Quality Improvement Teams).
 Preventive maintenance of machinery and other capital equipment
by initiatives like Total Productivity Management.

43. Reducing maintenance cost
• Very costly and sophisticated machinery are being used at JSC.
Also, a steel company works 24 hours a day, in different shifts, So a
machine breakdown is totally unwarranted in a steel company.
Moreover, as per Joe Thomas, president of JSC, maintenance costs
per shipped ton are to be lowered.
• I would undertake Predictive Maintenance, in addition to
Periodic Maintenance. Predictive Maintenance is the set
of irregular preventive maintenance activities, which
detect problems while the equipment is still performing at
satisfactory levels and rectify the problems when the
equipment is not scheduled to be used.
•

44. Predictive maintenence
• Predictive Maintenance helps in reducing the overtime costs for
maintenance labour. The concept of Predictive Maintenance is
gaining significance as it is easy to monitor the condition of a
machine by using newly developed sophisticated technologies.
Operations managers can use sensors to measure the temperature
or vibration of an equipment and feed the data into a computer. This
data can be analyzed to determine the problem areas by comparing
the trends of the recorded vibrations with those recorded when the
machine was working under normal conditions. Managers can also
use infrared imaging to examine the problem areas identified
without dismantling the machine, so that the extent of damage can
be determined before stopping the machine. Thus, Predictive
Maintenance reduces the service time as much of the diagnostic
work has already been done.

45. Questions???
• We demand to ask questions to us!!!!!