OPS 660 Operations, Logistics, And Production
Dr. Frederick Chen
Grace, T., Hoffman, V., Jafuneh, E., Nieto, C.
2/238/15
USX Case Study
Should Kappmeyer sign the proposal and why?
Our recommendation after reviewing the case study and gaining a basic understanding of disruptive technologies and how they impact the steel industry is that Kappmeyer should not sign the proposal. The reason we feel USS should not sign the proposal is because by doing so they would be associating themselves with a business model and technology that is fading. On the surface it appears that signing the proposal is a good idea, however, it does not have long term sustainability, because they are only considering their current customers and not taking into…show more content… A lay-off to unionized steel manufacturers cost about $75,000 per person, when you factor pension, severance, and various other costs. Mon Valley has over 3500 people working there. This represents a large expense that must be factored into any decision.
We have now reached a point, at which, the team was ready to recommend to Kappmeyer that it proceed with the design and procurement of a conventional system. Before making this final recommendation, the team was asked to evaluate the alternative of creating a system that would handle 1.5 tons per year rather than the 3 tons per year, but it was determined the cost of capital for this solution was only 13% less than that of the conventional system which was deemed to offer future potential of being de-coupled from any commitment and modernized, offering greater flexibility in the future in addition to its implications on making better cash flows for USS. Another consideration was the fact that USS engineers felt as if SMS and Nucor’s published numbers were exaggerated because the when CSP escalates capacity beyond the optimal level it encounters diseconomies of scale in capital costs and SMS may have subsidized Nucor’s initial equipment purchase, knowing it would be
