Products Manufactured by One Steel Manufacturing Company - Assignment Example

ONE STEEL MANUFACTURING COMPANY This research paper is going to focus on a company registered on the ASX referred to as One steel Manufacturing Company. It is a totally integrated worldwide manufacturer and distributor of both steel and refined steel merchandise. The company has expanded into both iron ore and scrap metal. The company has various manufacturing plants situated in Whyalla, South Australia, Melbourne, Victoria, Western Sydney and Newcastle, Queensland, New South Wales and Brisbane. In New Zealand and Asia One steel has more than 40 operating plants. The One steel mother company has expanded its wings into the United Sates of America by opening up a Grinding Media, LiteSteel Technologies; in Tampa, Florida a Recycling and a ferrous shredder has been put in place. (OneSteel Ltd 2008). It has been estimated that OneSteel markets more than 40,000products to slightly over 30,000 customers. This paper chooses to focus on the steel long products produced by the company. Just recently the company merged with the Smorgon Steel in the year 2007 so as to primarily include mining in its operations. The company is very sensitive to issues regarding its energy and environmental conservation. In its operations the company has adopted greenhouse intensive facilities that are made of iron ore; it has further considered using energy efficiently by making use of renewable sources of energy. Products Manufactured by OneSteel OneSteel manufactures and distributes such products as rail wheels and axles, cold finished bar, structural rail, grinding media and recycled metals. Bulks of these products are used in the construction industry, manufacturing, housing, mining, and agricultural industries. The mines and recycling plant in Whyalla Australia have made the company to be self sufficient in the production of iron ore and scrap metal since the company can extract the minerals itself. The company churns into the construction industry such products as the reinforcing steels. In the rural areas where there is a lot of farming the company has endeavored to produce quality fencing through the use of new technologies. In farming there is also the production of quality fishing implements that have been made by OneSteel Company. Rail wheels that are produced by the company are very important for they are used in the transportation of both goods and the people. Manufacturing Process One of the major manufacturing processes in the OneSteel industry is that of steel can recycling. As a matter of fact recycling of steel cans on average saves 87% of the energy it takes to make the cans from raw materials that is Iron ore and coal. Steel is 100% recyclable and this means that it can be potentially recycled over and over again without reducing the quality of the end product. (EcoRecycle Victoria 2004). In the production of steel the first process is to always make molten cast iron; which is a sum of heating a mixture of coke, iron ore and limestone or flux in a blast furnace. The product is then converted to steel using the basic oxygen steel making process. In this procedure the iron from the blast furnace is subjected to high temperatures of heat of around 1, 7000 ºc. These high temperatures are regulated by adding scrap steel into the furnace. In the Basic Oxygen – Steel making furnace, oxygen is blown over the molten surface, which extracts impurities and carbon from the iron. Alternatively steel can be made using electric arc furnaces and then processed in mini mills. These mills use electricity to melt scrap steel, that is then cast into slabs and further processed into other steel products. This process is less preferred to the basic oxygen steel (BOS) making. BOS is the most suitable method for manufacturing tin-plated steel cans. Under this process the metal is heated into a molten form in the furnace and then cast into slabs and hot strip rolled into coils. Afterwards the coils are cleaned and then they are cold rolled into gauges suitable for applying a thin layer of tin through a process called electrolysis. After the whole process tinplate is produced and then used to make steel cans. When it comes to wire products the company manufactures Armouring wire, conductor wire, galvanized wire working, hard drawn low carbon wire, nail wire Screen wire. In its manufacturing the company has converted the steelworks to feed based on magnetite ore other than using the previously used hematite ore. This has been possible through what is known as project Magnate that has seen improvement in environmental performance. Magnetite ore is distributed in form of wet slurry from the mine site to the steelworks. In the steelworks this wet slurry is altered into pellets. This process produces less dust as compared to the previous technology used in production. (Government of South Australia,2008). Steel making Flow Chart Production and support departments One of the support departments that play a very important role in the OneSteel Company is the Climate Change Department. This department has led to the establishment of energy and greenhouse intensive facilities in some of the subsidiaries of OneSteel Company. This department is involved in the recycling and solid waste conference. The department has put in place various programs; the national Energy Efficiency Opportunities program and energy saving fund at their various extraction. (Phil Ridgeway, 2008). Another support department is the Department of Further Education, Employment Science and Technology. In collaboration with other organizations like the TAFE NWS the department has forged a training plan for its employees. At OneSteel recycling steel mill base in Sydney for instance the department has successfully completed training the employees in the Certificate III in dogging through round-the –clock facilitation and assessment. These training programs are aimed at minimizing disruptions at work and making the manufacturing department even more efficient. With the training there are now professional and well experienced people who now have a good understanding to the business requirements of the OneSteel Company. The level of professionalism and safety is almost perfect. There are the support services that include placement services, financial advice and counseling services to the employees. These support services are provided to the employees through a comprehensive program encompassing redundancy and outplacement. These support services further make the employees more efficient hence creating an professional environment that can attract customers thereby increasing sales fro the company.( OneSteel Ltd, 2008). Another support department is the quality department that is charged with the responsibility of maintaining availability and consistency in the products of the company. The department provides services promptly whenever the customers require assistance. Therefore the department is involved with quality assurance; for instance in some occasions the department is involved in wiredrawing, stranding and mechanical testing processes. Under production docket there is the Products and Services department. This department is concerned with the distribution of carbon steel and stainless steel. There is the industrial piping which is the mandate of this department. Plate profiling and aluminum supply is the function of this department. The core of the company which is steel product development is under this department. This is supposed to ensure that the quality of products from this company is not compromised. It further deals with metals processing. (Economic Development and Tourism 2003). There is the Mills and Facilities department that is involved in the mining of the processes. The company owns various mines where the Iron ore is mined. Although the department is charged with responsibility of iron extraction it is supposed to carry some kind of environmental conservation measures. This can be done through use of intensive energy sources and also recycling. This department prepares an assessment plan that sketches out how the company is to asses its opportunities in view of improving the energy efficiency of various parts of its business over a five year program cycle. Type of Costs incurred by OneSteel Company There are three types of costs that are incurred by OneSteel Company. They include; direct costs that are incurred from the direct delivery of materials and goods to the company. The second, cost is the direct labor cost and the final cost is indirect cost or the manufacturing overhead costs. Direct costs involve the payment of goods that must be done directly on delivery. (Effective 1, 2004). Direct costs come about as a result of raw materials delivered to the company. Direct costs are more often associated with the finished products of the company. For example for the company to produce steel it needs relevant technology that can be able to heat the recycled materials at very high temperature. Other types of direct costs incurred by OneSteel company include; Special tooling and test equipment; computer services. Direct cost can come about as a result of acquiring the necessary materials in the extraction and mining of iron ore. The second type of cost is the direct labor. The company spends much in terms of labor. Direct labor is simply that cost which can be said to be a result of a certain amount of labor put in place to produce a given product. It incurs costs in the training program of its employees so that they can be able to maintain a safety and an almost perfect business environment. Labor costs can also involve allowances paid to the employees like the annual leave allowance. Wages and salaries are also direct labor costs. The third type of cost that is incurred by the Onesteel Company is manufacturing cost. This is any other cost apart from that which is incurred by direct labor and direct material. These costs cannot be pinned down to any specific products. Some of the overhead costs that are treated as overhead costs in Onesteel Company are the cost of Insurance; paying for bills like water and electricity bills; federal excise costs; consultant services and traveling expenses by the company management. Equipment cost is incurred by the company. Equipment cost cannot be avoided for it comes about as a result of the heavy machinery required to mine and heat steel. In terms of output the machinery are efficient and can heat heavy amounts of metal. On the other hand equipments do some times require a professional consultant which in itself is an extra cost. Although the packaging cost is incurred as it is used as a tool for attracting the end consumer; the output is always good, for the cost is passed to the consumer after the purchase. Product costing system Is a set of procedures that accounts for an organization’s product costs. Product costing system provides timely and precise unit cost information for pricing, planning and control, inventory valuation and financial statement preparation. Product costing system is a tool that is used to identify the authentic cost of producing each and every product.(Industrial Marketing Management, 2001) The likely form of product costing system being put in place by OneSteel is that of operation. To begin with OneSteel went into merger with Smorgon steel Limited. After the merger the company went ahead to experience what can be described as a steady increase in the list of the company’s shareholders. Even before its merger, OneSteel had gone ahead to acquire all of Blue Scope Steel’s shares. (Mark Gell, 2001). The company’s product costing system is biased on the company’s operational aspect as put by Tim Boreham, (2009). For the 2009 financial year the company was intending to rise what it was spending towards operational costs. Later on the company had to revise its operating profit guidance downwards from an earlier figure which was much higher. This included an institutional placement and rights rising. To a certain extent the company’s is prices have been affected, coupled with lower demand and reduced margins has seen its operations being affected negatively. The company is now bent on reducing raw material costs especially that of coking coal by taking advantage of the low prices of these raw materials at the moment. The advantages of the merger between OneSteel and Smorgon have not fully been realized but they will be realized slowly. Having put emphasis in its operational activities the company is having and edge over its competitors for it has two electric arc furnaces that are only operating at a 30% capacity. In calculating the cost of each product OneSteel is using product costing system by being bias on the operation. It is important for the company to emphasize on the operation because it does not depend on manual labor to do the job but rather machines are in charge. In manual labor the output is entirely dependant on the number of employees that have employed by the company. On the contrary when using machines you do not need to know the number of people that you have employed on the job. Labor costs are overt for they can be directly visible, but machine costs are less visible. Most of the costs incurred on the machines are due to depreciation rather than direct costs in labor. In the OneSteel Company there is no mass processing of products under one department. There are various different products produced under the same company under different departments; hence need for operation. Product costing is simply the allocation of operating expenses and cost of capital to the various different parts Conventional Costing System This is a cost system whereby there is the use of only unit /volume based cost drivers to apply overhead costs to products and services. The conventional costs actually shares out the overhead costs by way of the estimated production rates based on the direct costs. On the other hand the product costing system allocates the overhead costs in relation to the activities. One of the major pitfalls of the conventional cost method approach is that it does not pay any significant attention to the clear differences between products and services; markets and customers; all of these incur very different overhead costs. Stage One Under the first stage we have the Recycling department that is actually concerned with using intensive energy sources that can be more efficient and have reduced green gas effect to the environment. Under the conventional model zero defect is the concept whereby there is no allowance for scrap metal or other wastes. Scrap metal is used as a raw material in the production of steel. In the ABC model instead of the waste or scrap metal being dumped away into the environment and degrading it; it is used as an input in the production process therefore direct costs are directly traced to the products. The products and services department the supply of the company’s products is done by this department. To a certain extent the department undertakes the marketing of these products. Instead of a cost allocation of goods to be supplied being done the in a cost pool; you will find he process being undertaken in a careless way with every product to be supplied being handled differently. In the department of Further Education, Employment Science and Technology. Instead of adding value to their business environment and products by taking the employees for further training the company ignores and considers this as a way of time wasting or adding an extra cost to the company. On the brighter side this action will actually create an environment that is professional and environmentally conscious. In the production department there is an acquisition of a furnace that uses new technology to improve the production of steel products to better quality standards to absorb overhead. In a conventional setting this would not have been the case; instead the company could have increased the number of labor twice as much. There is the Climate change department makes use of today’s technology. Being a company that produces gases that have greenhouse effect it is important that the company mitigates this problem by using environment friendly technologies. This can be catered for in Budgeted Overhead Application Rates where the; the top management of the company do require this kind of information so that they can be able to make decisions on the pricing of products and which products can be de-emphasized. In conventional setting this would not have been the case for the management of the business would not create any budget that would cater for expenses arising out of environmental friendly technologies. The company would lose a lot in terms of revenue for the company wouldn’t be recycling steel which in the long run is cheaper. A company needs to move away from the direct labor intensive and labor paced jobs to capital intensive and machine paced production. There is also need to move away from the conventional low level of overheads to a high level overhead relative to direct costs. The company must and should always look at the bigger picture which involves maintaining competitive edge in the world market. Stage two In this stage what is expected to happen in the ABC model; are manufacturing overhead rates being calculated for each and every production department. In all the production departments it under conventional model all the costs incurred occurs from the use of high number of people to provide labor. The department concerned with employing labor would be calculating the number of man hours, and this is different from mechanization whose indirect cost is mainly depreciation. Lack of information is also a characteristic of this conventional setting where there are huge records of costs but no information is provided to show the relationship between cost and performance. The company needs to take account of its own operations by providing financial statements to the top management. The most important financial statements are; profit and Loss statement; Balance sheet that is Liabilities and Equity statements; and finally cash flow statements. In the conventional setting there is no roadmap fro a product that meets the customer’s demand for quality. Secondly, there is lack of value engineering/cost reduction. This determines the customer’s attainable demand for quality in any production department. Thirdly, there is no determination of production processes that determine the target cost in production performance. In stage two the production department must always focus on the cost driver per department, with cost drivers being measures of production volume. Activity Based Costing (ABC) System ABC is a system that adds value to the financial accounting system by integrating operational and quality information with financial records and then assigning this information to the original drivers of costs. (Oulu University Library, 2000). ABC costing from resources through activities to objects One of the major activities of the OneSteel is construction center. The company provides solutions in elemental housing systems through concept design. OneSteel has been known to come up with a prototype steel house frame that makes construction easier on site. This was mainly through their building systems. The second activity center is the Recycling Activity center. This is important for the company as the energy recycling plant can produce about ¼ of the company’s power , while burning no fuel and at the same time still remaining environmentally friendly. This same facility can be used to produce 30 to 35 megawatts of power. (Chief Executive, Globe Metallurgical, Inc 2007 ). OneSteel is a company that is known to be involved in mining. One of the facilities where we expect to be a lot of activities is at its mining plant in Whyalla. The facility is known for being busy in the extraction of iron ore as a raw material for the steel industry. The fourth place where it is known to have a lot of activity is the OneSteel piping system. The company’s piping systems has been in activities that have led to the fabrication and erection of two Australian Aldi distribution warehouses. In terms of pipe connection thee has been a lot of activity which deliver savings in both up-front and installation costs. Activity centers The company has opened up another facility through additional investment and installed a new shredder that is expected to process around 150,000 tons of scrap. Recycling scrap has various advantages both at cost and environmental standpoints. At the company’s recycling center the steel is produced from virgin materials. The first activity in the production of steel is the making of liquid cast iron by heating a combination of coke, iron ore and limestone/flux in a blast furnace. Thereafter the product, which is cast iron, is converted into steel by way of Basic oxygen steel- making process. In this process the iron from the blast furnace is heated to a high of 1,7000ºC. To control the high furnace temperatures, oxygen is blown over the molten surface. The main purpose of this is to avoid the emission of the carbon gases into the environment. This oxygen removes impurities and carbon from the iron that is harmful to the environment. OneSteel owns mini mills where steel is produced in electric arc furnaces. The electricity is used as a means of melting scrap steel. The molten scrap steel is then cast into slabs and other steel products are produced from this process. Basic oxygen steel making process is preferred as a means of making coils of steel. These coils of steel are appropriate for manufacturing tin-plated steel cans. At the end of the whole process of activity in the BOS furnace, other products like slabs and hot strip in form of rolled coils. The coils are cleaned and later cold rolled into gauges suitable for applying a thin layer of tin though a process of electrolysis, to produce tinplate used in making steel cans. The BOS strategy is the best for it does not give any allowance for scrap, waste, or rework. OneSteel Company has various departments and produces different products ABC approach would be the most appropriate as the company is a manufacturing firm and that it has various different department and produces different products for different purposes. In addition the company provides services in the construction and building industry OneSteel Ltd 2008. Welcome to OneSteel. Available online; http://www.onesteel.com/ . 14th May 2009. EcoRecycle Victoria 2004. Steel can recycling .Online available: http://www.sustainability.vic.gov.au/resources/documents/Info_8_-_Steel.doc. 15th May 2009. Government of South Australia,2008. Onesteel project strengthens steelworks at Whyalla.Online available: http://www.ministers.sa.gov.au/news.php?id=2904&print=1. 15th May 2009. Phil Ridgeway, 2008 OneSteel Limited. Available online: http://72.14.235.132/search?q=cache:iAsETkiHiCEJ:www.climatechange.gov.au/reporting/consultation/pubs/onesteel.pdf+onesteel+recycling+department&cd=4&hl=en&ct=clnk. (15th May,2009). Economic Development and Tourism, 2003. OneSteel Metaland. Available Online: http://www.biztas.com/entrypoint/biztas/590.html?query=text(query%3Dtas). 15th May 2009. OneSteel Ltd, 2008.Onesteel restructures bar mill operations. Available Online: http://72.14.235.132/search?q=cache:VVz9ciZLwnMJ:www.onesteel.com/images/db_images/news/OST%2520Release%2520-%2520Bar%2520Rationalisation%252015%2520Feb%252008.pdf+OneSteel+support+departments+to+manufacturing&cd=5&hl=en&ct=clnk&gl=ke&client=firefox-a (15th May 2008.). Effective 1, 2004. OneSteelnz Standard Terms and Conditions of Sale.Available Online: http://72.14.235.132/search?q=cache:REq0G2-sCxQJ:www.onesteel.com/New%2520Zealand%2520Terms%2520and%2520Conditions%2520of%2520Sale.pdf+Indirect+costs+in+OneSteel+Company&cd=2&hl=en&ct=clnk&gl=ke&client=firefox-a. (15th May 2009). Industrial Marketing Management, 2001. Your Product-costing System Seems to Be Broken: Now What? Available Online: http://www.sciencedirect.com/science?_ob=ArticleURL&_udi=B6V69-43XFHY6-5&_user=10&_rdoc=1&_fmt=&_orig=search&_sort=d&view=c&_acct=C000050221&_version=1&_urlVersion=0&_userid=10&md5=cd4063a3b5e121ffe77f2ea40fd62c63. 15th May, 2009. Mark Gell, 2001. Merged Group pro forma financial information. Available Online: http://www.onesteel.com/images/db_images/news/Statutory%20report.pdf. 15th May 2009. Tim Boreham, 2009. The Australian Business With the Wall Street Journal. OneSteel (OST) $ 2.56 – trading halt. Available Online: http://www.theaustralian.news.com.au/business/story/0,28124,25341897-5018039,00.html. 15th May, 2009. Oulu University Library, 2000. Implementation of design to profit in a complex and dynamic business context. Available online: http://herkules.oulu.fi/isbn9514264509/html/x1194.html. (15th May,2009). Chief Executive, Globe Metallurgical, Inc 2007. Available Online: http://72.14.235.132/search?q=cache:H7upadz5csIJ:www.recycled-energy.com/_documents/news/arden_sims.doc+OneSteel+company,+conventional+costing&cd=4&hl=en&ct=clnk&gl=ke&client=firefox-a Read More