Volume 8

Issue 1
February 2010

Premiere Industries
Case prepared by Professor Kannan NILAKANTAN,1 Ruchir GUPTA2 and Ankur KALE3

Premiere Industries – Abstract

The case illustrates a situation wherein operational efficiency, achieved through the application of
quantitative methods and techniques, is a major contributor to the firm’s competitive advantage.
It provides an illustration of the negative effects of uncoordinated production and how these
factors contribute to inventory stockpiling, resulting in poor performance of the unit.

Introduction
Terence Hill parked his car in a hurry and ran quickly towards his booth, where his personal
assistant was waiting to tell him about the accident that had taken place early that morning. The
shaft of a crane carrying a heavy steel coil had suddenly broken and the coil had come crashing
down. He enquired about casualties and damage, but thankfully there were none.

Terence had joined Premiere Industries as VP, Operations just a few months back. He had a bit of
previous experience in the steel sector, having worked for another conglomerate which dealt in
similar work. And in his long career spanning three decades, he had come across some pretty
poorly run units and had always prided himself on being able to turn them around. It was not for
nothing that he had earned a reputation as a “turnaround specialist” in corporate circles. But he
was quite unprepared for what he encountered soon after joining Premiere, though he had been
given an inkling of what he was getting into during his appointment and earlier discussions with
the Chairman and other members of the Board.

Since he had an explicit mandate from the board to clean up the operations of the unit, it was not
surprising that, from the day he joined Premiere, he had been highly dissatisfied with the running
of the plant. The departmental records of the company had been showing very poor results and

1
Kannan Nilakantan teaches at the Institute of Management Technology in Nagpur, India.
2
Ruchir Gupta is an Assistant Systems Analyst at Tata Consultancy Services, Bangalore, India.
3
Ankur Kale is a Senior Business Development Executive at RAMCO Systems (India), New Delhi, India.
© HEC Montréal 2010
All rights reserved for all countries. Any translation or alteration in any form whatsoever is prohibited.
The International Journal of Case Studies in Management is published on-line (www.hec.ca/revuedecas/en), ISSN 1911-2599.
This case is intended to be used as the framework for an educational discussion and does not imply any judgement on the
administrative situation presented. Deposited under the number 9 50 2010 002 with the HEC Montréal Centre for Case Studies,
3000, chemin de la Côte-Sainte-Catherine, Montréal (Québec) Canada H3T 2A7.
 Premiere Industries

machines were not being utilized to their maximum capacity. The target inventory levels were not
achieved and work-in-process inventory was very high. There was also a high level of rework
which contributed to the increased inventory and low production levels.

Industry Background
Premiere Industries’ cold rolling and coated steel plant was one of the first modern and highly
advanced cold rolling mills in the country for the production of cold-rolled galvanized and
colour-coated sheets. It was set up in collaboration with Hitachi of Japan. The Hi-Combination
Reverse Mill, with its state-of-the-art technology, was still one of the best in the country. Their
colour coating plant was the first of its kind in the country and Premiere was the first to introduce
colour-coated sheets in the national market.

The company’s main competitors in terms of their capacities and reputations are Global Steel and
Universal Steel.

The first of its competitors, Global Steel, had recently commissioned a new 6-Hi universal crown
mill supplied by Hitachi of Japan. The process know-how, provided by Sumitomo of Japan, had
highly sophisticated features such as auto shape control. The mill was producing high-width
sheets for applications in the automobile and white goods sectors, and had a capacity of
600,000 metric tonnes per annum (TPA).

Its other major competitor, Universal Steel, had commissioned its cold rolling mill with an annual
capacity of 600,000 TPA. Various equipment, including the 20-Hi mill, continuous annealing and
pickling lines, skin pass mill and a strip grinding line, had been installed in the plant to produce
high-quality cold-rolled products with superior surface finish in a cost-effective manner. The mill
was supplying cold-rolled products in conformity with the stringent quality standards of the
government railways, the government mint (coinage), atomic energy plants, etc. Universal was
fully equipped to supply steel sheets with precise dimensional tolerances and stringent flatness
requirements.

There are also several other big names in the country’s market associated with the steel sector,
making it a highly fragmented but extremely competitive field.

Plant and Process Background

Premiere Industries deals in cold-rolled (CR) steel products. The plant has a capacity of
500,000 TPA and comprises various processing units. A schematic diagram of the process
operations is shown in Figure 1 below, while a materials flow chart of the plant operations is
given in Figure 2, which covers all the processes in hierarchical order. Apart from plain cold-
rolled steel sheets and galvanized sheets, the plant also produces some highly customized CR
products, like corrugated sheets and colour-coated sheets. While the volume of corrugated sheets
is fairly small (5%), being required only for very specialized applications, the volume of colour-
coated sheets is fairly substantial, accounting for almost 20% of the total volume.

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 Premiere Industries

The complex houses two technically advanced plants: a 300,000-TPA galvanized

plain/galvanized corrugated plant, and a 75,000-TPA colour-coated sheet plant. The raw
materials for its operations, the hot-rolled (HR) coils, are supplied by its sister plant located about
900 kilometres away.

Figure 1

Steel Manufacture at Sister Unit Premiere Industries

Figure 2

1. Colour Coating
2. CGL – 1
3. CGL – 2
4. CGL – 3
5. 6 HI Mill
6. 4 HI Mill
7. Pickling

D1- External Demand for Galvanized Sheets

D2- External Demand for Annealed Coils
D3- External Demand for Pickled Coils

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Basic Plant Processes

The production process consists of the following operations in sequence.

Continuous Pickling Line

The HR coils are first passed through the continuous pickling line (CPL) to remove rust, oxides
and scales from the strip surface, before being sent to the cold rolling mill (CRM), where their
thickness is reduced to the desired level. The CPL process is basically a leaching process in
which the HR coils are passed through a series of chemical tanks in which leaching solutions
react with the impurities, rust, oxides and scales on the coil surface and remove them. Rust and
scales cause the steel to deteriorate in quality and thus have to be removed before further
processing. The installed production capacity of the CPL is 500,000 TPA. The company
sometimes sells a small quantity of pickled coils to certain smaller rolling mills.

Cold Rolling Mills

After the pickling operation, pickled coils are sent to the cold rolling mills (CRM). There are two
types of CRMs – 6 Hi CRM and 4 Hi CRM. The pickled hot-rolled coils of higher gauges are
reduced to thinner gauges by rolling them through these mills. Whereas the 4 Hi CRM reduce the
thickness up to 0.25 mm, in the 6 Hi CRM, thickness is reduced by up to 0.13 mm (ultra-thin
gauge). The rolling process is computer-controlled and ensures close thickness tolerances and
perfectly flat strips. The installed production capacity of the 6 Hi mill is 300,000 TPA and that of
the 4Hi mill is 200,000 TPA.

Electrolytic Cleaning Line

During the rolling process, a thin coating of the coolant remains on the surface of the coil. For
further processing, a clean surface is required to avoid abrasions and spots from occurring on the
coil surface. Also, an oil-free base material is essential for the production of bright and corrosion-
resistant steel sheets. The surface of the coils is cleaned in the ECL through an electrolytic
process which uses sodium-ortho-silicate as a cleaning agent. The voltage applied is based on the
thickness and width of the coil and on specific customer requirements. All CR coils are sent from
the CRMs to the ECL, which has an installed production capacity of 500,000 TPA.

Cold-Rolled Closed Annealing (CRCA) Line

The CR coils are transferred directly from the ECL to the batch annealing furnaces. The
annealing of the CR coils serves to obtain the desired surface and hardness properties and tensile
strength. In the annealing process, the material is heated to a pre-determined temperature (420-
480 °C) in a protective and inert atmosphere with a controlled rate of temperature increase. It is
held at that temperature (“soaked”) for a specified period of time and then cooled to room
temperature. The installed production capacity of the line is 500,000 TPA. The annealed coils are
then sent either for dispatch to customers via the finishing lines or for further processing to the
galvanizing lines.

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 Premiere Industries

Galvanizing Line

Premiere Industries pioneered the manufacture of thin, medium and thick gauge galvanized steel
sheets in the country. The company has three working galvanizing lines (CGLs), with a total
installed production capacity of 375,000 TPA. Premiere’s philosophy is to offer its consumers
leading-edge technology in galvanizing. Consequently, the galvanizing lines use the latest
technology and produce coils and galvanized plain/corrugated sheets to international standards.
In the galvanizing operation, the coils are passed through a zinc pot where zinc coating is carried
out using a technologically advanced hot-dip process. Zinc and antimony of the highest purity are
used to coat the sheets.

Colour Coating Line (CCL)

In 1988, Premiere Industries installed a colour coating line – the first of its kind in the country –
for the manufacture of pre-painted coloured steel sheets. The colour coating line has a capacity of
50,000 TPA.

Galvanized coils constitute the raw material for the colour coating process. The colour coating
operations include surface preparation, service coating, heating, cooling, primer coating, top
coating/printing and guard film application processes.

The processes described above constitute the unit’s main manufacturing processes.

Other End-of-Line Finishing Processes

There are also several end-of-line finishing processes, as described below:

Skin Pass Mill: to improve the coils’ flatness, surface finish, and tensile strength (capacity:
100,000 TPA). The coils/sheets are sent to this mill only if required;

Cold Roll Slitter: to slit the coils along their lengths to uniform widths (cap.: 500,000 TPA);

Cut-to-Length Line: to cut the coils to their desired lengths;

Corrugation Line: to produce corrugated sheets (cap.: 100,000 TPA);

Profiling Line: to produce colour-coated sheets of the desired profiles.

Problems Faced in the Unit

Operational Problems

On his very first day on the job, Terence had noticed a few coils lying right in front of his booth.
Upon enquiring, he was told that they were being stored there temporarily and would be removed
soon. His booth was located right within the plant itself, as he had wanted it to be so he could be
in direct touch with the processes and the operational problems. But he soon became extremely

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disappointed with the inventory procurement and storage methods followed in the plant. Upon
analyzing the whole process, he discovered that there was no systematic method of inventory
handling, especially for WIP, and no specific location designated for coil storage. Upon
completion of processing operations, the plants stored the WIP in any free space that they could
find nearby, after which it was the responsibility of the next department to locate the coils and
process them further. As the coils were not easily identifiable, a considerable amount of manual
inspection was required to correctly identify them. They then had to be transported to the next
process by cranes which moved them back and forth in the yard, causing a lot of interference
between people, the WIP and the vehicles. There had also been a few accidents in the process of
identifying and moving these coils.

The plant had installed and implemented ERP software (mySAP) on its system, and an entry for
each coil was registered in it; but since there was no particular location identification system, it
was very difficult to physically trace and locate the coils for further processing. Not only had this
resulted in delays, but the coils had even at times become completely untraceable. It was on
record that, on one occasion, it had taken up to six days to identify and locate a particular coil for
further processing! Such delays resulted in the rusting of the coils and they had often to be sent
back to the pickling unit for rework.

Another matter of concern for the VP, Operations involved the pileup of rework coils and wasted
and rejected products from the end of the line. He had earlier called a meeting of the quality
department executives and all the line managers. The line managers had complained about the
imperfect quality of the coils that they received from upstream departments. They pointed out to
him that they had already voiced earlier complaints about hot spots, strains and other defects in
the coils. He also asked the General Manager (Quality) about quality measures and the high end-
of-process rejection rates. As the discussions progressed, he realized, to his dismay, that there
was no systematic quality reporting in the individual processes and plants. There was, however, a
stringent quality check at the end of the line, just before the coils were finally prepared for
delivery to the customers.

Sudden breakdowns of machines were frequent, often involving small parts which needed to be
replaced. And often, for want of these small parts, the machines had to be kept idle for several
hours. A frequent problem was found in the chokes of the 4 Hi Mill. One day, the whole line had
come to a halt due to a small part failure, and since the part was not in stock in the unit, it had
taken around 36 hours to get it back on line, after the part was procured on emergency.

He noticed that the spare parts inventory accounted for a significant portion of the total inventory
at Premiere, representing approximately 15% of the total inventory value. But not much attention
had been given to this component of the inventory. And he reckoned that this was one of the
prime reasons for the non-availability of spare machine parts which often played havoc with the
production schedules.

The galvanizing line used large quantities of zinc for coating purposes, which was imported by
Universal Zinc (UZ) and supplied by its local dealer. There were frequent shortages of zinc in the
plant because the local vendor had failed to make its deliveries at the proper time. On one
occasion, one of the lines was kept idle for a whole day because of a shortage of zinc. This again
derailed the production plan.

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 Premiere Industries

Production Planning

Soon after he took charge, Terence noticed that there was no formal production planning process
in place. Planning and scheduling in the plant was done on a daily basis by the Production
Planning and Inventory Control Department (PPIC), headed by the General Manager (PPIC), and
rolled over from one day to the next. After confirmation of the final order by the Marketing
Department, the PPIC planned for its production. All production-related communication in the
company took place through the ERP software, from which PPIC imported data on the available
raw material. According to the orders received by the company, PPIC planned the schedules for
the different shops on a daily basis. The PPIC would hand over the next day’s schedules to the
respective departments at 18h00 on the previous day.

If there was a breakdown, the entire plan was rendered void and had to be changed. This required
the involvement of the GM (PPIC) and even sometimes that of the VP Operations himself. This
happened on a frequent basis and placed additional pressure on the PPIC as well as other lines in
the plant.

He also noticed that the machine-part assignments were done on a “first-free-machine/line” basis.
He surmised that this could be the reason for the long machine-idle times he had noted at times as
well as for the large pile-up of inward WIP for the lines at other times.

Plant Layout

The plant had been set up with a traditional process-focused layout. One of the problems
resulting from this was a haphazard flow of material in the plant. For example, after every step a
crane was required to transfer the coils to distant locations, resulting in wasted time and
resources. One of the major constraints to altering the plant layout was the massive weight and
size of the machinery, which made moving them impractical. They also operated continuously
throughout the day. But their locations were such that they resulted in a lot of backtracking of
material.

Work-In-Process Inventory

The WIP was another, and perhaps the biggest matter of concern for the VP Operations. The
inventory levels were much higher than their target levels.

Very soon after joining the unit, Terence had called a meeting with the GM (PPIC) to discuss the
problem of high WIP inventory and to enquire about how the target levels had been determined
in the first place. During the discussion, he realized that these target levels had been set a very
long time back and had never been revised. However, in the meantime, a number of changes had
taken place in the patterns of demand, and in the economics and operation of the plant.

Even at that time, the VP had felt the need to revise the whole production and inventory planning
process and to optimize it in light of changes in the market and the demand pattern, as well as in
the operation of the plant. The average monthly demand pattern of the last few years is shown in
exhibit 9, and past records had justified an assumption of normality.

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 Premiere Industries

Bottlenecks in the Plant

The company had been in the process of putting together a long-term plan for capacity
augmentation. These circumstances made it necessary to identify the bottleneck units in the plant,
if any. The problem of how to go about identifying the bottleneck units had been worrying the
VP ever since he took charge of the operations. One option was to use the installed (rated)
capacity. However, given the staccato operation of almost all the units, it was obvious that they
were not operating at their rated capacities. Another option was to use current inventory levels
and to identify the bottlenecks as those with the highest input inventories. Resolving this issue
seemed to be the key to efficient production planning and operation of the unit.

Profitability of Operations

Soon after joining the unit, it had been made clear to the VP that the profitability of the unit was
declining rapidly and that it was imperative for him to improve it. He immediately set about
collecting and compiling the cost figures for the unit, and then checking them one by one, and
stage by stage, to see if they could be reduced in any way. He started with the input raw material
costs. The unit was procuring its HR coils by trucking them in from its sister unit more than
900 kilometres away. The price of the hot-rolled coils was regulated by a federal agency as per a
price-control mechanism put in place by the federal government, and was hence non-negotiable.
Upstream, its sister company had the same problem, since the price of primary steel from the
steel-making units was also regulated by the same agency. However, the transportation costs
from its sister unit to the plant were very high.

Premiere used Volvo trucks with a capacity of 120 tonnes for the procurement of the HR coils
and other raw materials, the running costs of which were quite high given their superior design
and control features and their high carrying capacities. One HR coil weighed around 20-
25 tonnes. Until the last fiscal year, the trucks had carried four to five coils in one trip. But at the
beginning of the current fiscal year, the federal government had passed a new ordinance
prohibiting road transport vehicles from carrying loads of more than 30 tonnes at a time. As a
result, Premiere’s transportation costs, which were already quite high, increased three- or four-
fold, since these trucks could now carry only one coil at a time. This had pushed up input costs
considerably. And since his suggestion to procure HR coils from a closer unit was shot down by
the Board, Terence was now actively considering the possibility of procuring the HR coils from
its sister unit by rail instead.

Railway freight rates were lower than truck rates, but the railways insisted on large
consignments, with a minimum tonnage of 30,000 tonnes per consignment. The VP reckoned that
procurement in such large tonnages would push up the unit’s raw material inventory holding
costs, but would reduce transportation costs. The difference in the transportation freight rates was
about $1 per tonne until last year, but had gone up to nearly $4 per tonne this year, with the
introduction of new road safety regulations. In addition, such large procurement tonnages would
need to be accommodated in the factory yard. There was also the problem of rusting of the coils.
Just as problematic was the storage of the HR coils for its sister unit (for dispatch to Premiere).
Indeed, the costing records showed that the holding cost of HR coils for its sister unit was nearly
twice that for Premiere due to a variety of regional factors, the prime one being the concessional
rates of interest and insurance charges for Premiere by virtue of its location in a designated rural

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 Premiere Industries

area; this was as per the federal directives on interest and insurance rates. Currently, the HR coils
were arriving continually in daily consignments by truck.

On the downstream side, the market for the company’s products was highly competitive and
price-sensitive, and all attempts to increase the prices of its products had met with staunch refusal
from customers. The company was thus caught between a controlled price mechanism for its raw
materials and a severely price-sensitive market for its products.

The Current Scenario

The VP was sitting in his booth, going through some documents. There was a large spreadsheet
in front of him, exhibiting inventory details of the last few Mondays. The sheet contained details
of WIP inventory levels at every stage of the process and their comparison with target levels (the
target levels had been set based on industry benchmarks). The more he looked at it, the less he
liked what he saw. The main aim was to track the inventory levels and to cut away any excess.
But to his dismay, he found that at some stages, the inventory levels had been heading northward
continuously and were nowhere near their target levels. In fact, they had not touched their target
levels on even a single occasion, exceeding them at all times. The overall inventory holdings
were also far too high. The figures are shown in exhibits 7 and 8.

After a while, he put the spreadsheet down, and sat back with a deep sigh. He pondered over the
problems that he was besieged with and decided to look at them one by one. He concluded that
the problem of the layout and inefficient material flow, together with improper storage of the
WIP coils, though not easy, was probably comparatively less difficult to tackle. Or at least he
knew what needed to be done in this matter. The factory yard was big and specific areas could be
earmarked for WIP storage between the production lines, which could also bring down the travel
distances and times for WIP. Regarding production line holdups during breakdowns due to a lack
of spare parts or the non-availability of zinc, he felt these could be handled by establishing a set
of control policies for spare parts and annual supply contracts together with bulk spot purchases
to ensure the availability of zinc. He resolved to put someone to work on these immediately.

But the problem of production planning and inventory control was what had him really worried.
The inventory levels had been set a very long time ago and the question of whether they were still
optimum bothered him immensely. The excess inventory was costing the company dearly. To
make matters worse, the office grapevine had it that a visit to the plant by the Chairman was
imminent. The Chairman was certainly not known to mince his words if he noticed things amiss,
and Terence dreaded to think what the Chairman would say if looked at the plant’s inventory and
cost records. He had been known in the past to call a spade a spade. Heads would no doubt roll
and he doubted whether he himself would come through unscathed. The thought made him
wince. Things were certainly getting out of hand, he thought; something had to be done about it,
and quickly.

But whom could he rely on in the plant? The task was Herculean and would require a great deal
of time and effort. The plant personnel were far too busy with their daily skirmishes and putting
out fires, which had become a way of life at the plant. And besides, they were constantly at
loggerheads with one another and, given the kind of blame-game that was being played out

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almost daily in the plant, it didn’t seem too likely that they would cooperate with any insider
assigned to the job. His mind wandered back to one of their earlier meetings in which operational
issues had again flared up, with frayed tempers, raised voices and insinuatory remarks flying
back and forth. It had taken a bit of effort and some stern and even peremptory remarks on his
part to restore calm and order to the meeting. Decidedly, this wouldn’t do at all, he thought. The
better alternative would be to bring in someone from outside, a consultant perhaps, who could
also bring a fresh perspective to their thinking and approach. In the process, he could also get all
the production planning procedures revamped. The idea seemed perfect, and even imperative
considering the impending visit of the Chairman. There was not a moment to be lost, he reflected,
as he reached for the Yellow Pages directory lying on his shelf.

Consequently, a consultant was hired, and the VP explained to him the problems that Premiere
was facing. The consultant decided to undertake an in-depth study of the unit’s operations and
determine the root causes of production failures and high costs. He observed that, apart from the
problems such as the layout and material flow, WIP storage and organization, lack of a proper
quality reporting system, lack of a predictive maintenance system, lack of a spare parts inventory
system, and zinc procurement, the single most significant problem area – and that which
contributed the most to the increased costs and low profitability of the unit – was production
planning and inventory control.

And the biggest decision he faced was this: What changes should he make to the production
planning and inventory control process and the production and inventory plans to reduce costs
and improve profitability?

He soon found that, for the purpose of analysis, the process flow could be taken as shown in
Figure 2 (reproduced below).

The consultant realized he had his work cut out for him!
Figure 2
Material Process flow
1. Colour Coating
2. CGL – 1
3. CGL – 2
4. CGL – 3
5. 6 HI Mill
6. 4 HI Mill
7. Pickling

D1- External Demand for Galvanized Sheets

D2- External Demand for Annealed Coils
D3- External Demand for Pickled Coils

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Note: After the rolling operation, all coils were sent to the ECL (Electrolytic Cleaning Line) and
from there to the Annealing Plant, before being sent to the Galvanizing Lines, or to dispatch.

The ECL and the Annealing Plants were batch processes operating continuously in small batches,
and could be approximated to continuous flow processes.

List of Acronyms

HR → Hot rolled (refers to the steel coils rolled out at very high temperatures (red-heat),
produced in the primary steel-making units)

CR → Cold rolled (refers to the steel coils rerolled at much lower temperatures, produced in
the secondary rolling mills (like the one discussed in this case))

TPA → Tonnes per annum (refers to the capacity of the unit)

CPL → Cold Pickling Line (explained in the text)

CRM → Cold Rolling Mill (explained in the text)

ECL → Electrolytic Cleaning Line (explained in the text)

CRCA → Cold Rolled Closed Annealing (explained in the text)

CGL → Cold Galvanizing Line (explained in the text)

CCL → Colour Coating Line (explained in the text)

CTL → Cut-to-Length Line (where the strips are cut to the required lengths)

2010-02-11

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Exhibit 1
The Cold Rolling Industry in the Country
A survey of the existing cold rolling units/plants in the country showed that the country’s cold
rolling industry was highly fragmented in terms of unit capacities and widths that could be rolled.
The findings are presented below:

No. of CR units: capacity of units, width range, total capacity and type of mill
No. of CR units Unit Capacity (TPA) Width Range (mm) Total capacity(TPA)
20 up to 30,000 up to 450 240,000
16 up to 72,000 450-700 570,000
15 up to 300,000 700-1,250 1,420,000
5 up to 300,000 1,250-1,560 1,310,000
1 > 1,000,000 > 1,560 1,490,000
5,030,000

Of the 57 units shown in the above table, 53 were installed prior to 1991. The capability of the
country’s cold rolling industry could be broadly summarized as follows:
a. About 40 to 50 per cent of the installed capacity was capable of rolling up to 700 mm
width only, and could make only commercial grades for less surface critical applications
and were uncompetitive in cost.
b. The federal government-owned Steel Authority, which had 40 per cent of the total
installed capacity, was cost competitive mostly in the low-end segment. After the
completion of the on-going modernization of one of their CR Mills, the company was
expected to be competitive in the high-end segment of the market also.
c. Out of the 57 units, 54 were stand-alone units without in-house hot-rolled coil supply.

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Exhibit 2
Consumption Pattern of Cold-Rolled (Cr) Products in the Country
The broad sector-wise consumption pattern of cold rolled products in the country is as follows:

Broad sector-wise consumption of CR products in the country

Name of sector Consumption Share
(%)
Coated Sheets 25
Auto Sector 18
Furniture & Tube Manufacturers 17
Cycle Industry 15
General Engineering 14
Oil and Gas 11

Total 100

Segment Product and Applications

Automobiles – Outer skin panels, inner critical components, reinforcement and under-body
components
Appliances – Refrigerator doors, side panels, washing machine panels
Electric Panels – Switch gear cabinets, computer and electric equipment cabinets
Engineering – Tubes, pollution control equipment, motors, transformers, ventilation and air-
conditioning ducting
Packaging – Drums, barrels and containers
Furniture – Cupboards, chairs, office furniture components
Construction – Galvanized corrugated sheets for roofing, galvanized plain sheets

The Macro-Environment for Cold-Rolled Steel

The economy had recently slowed down and hence the demand for these products had begun to
flatten out. The prognosis for the economy was that it would take a couple of years at least before
an improvement could be expected. This naturally would impact the steel market also, as a result
of which the steel market was not expected to grow by any appreciable extent in the near
foreseeable future.

Thus, it was all the more imperative for Premiere to try to retain its market share and not lose
ground in the market. The competition and competitiveness of firms in this sector hinged on three
main parameters: cost, quality, and delivery. And Premiere’s main competitors were good on all
three. They had both recently undertaken intensive cost-cutting measures.

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Regarding the price of raw materials, since this segment was at the downstream end of the steel-
production chain, the price of raw material for this segment (hot-rolled steel) was virtually closed
to negotiation, since it was set as per a price control mechanism instituted by the federal
government. This made it all the more necessary for this segment of the industry to increase its
efficiency to remain competitive on price.

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Exhibit 3
Major Producers of Galvanized Products in the Country
The capacities of major producers of galvanized products in the country are as follows:
Other major producers of galvanized products
Unit Capacity (‘000 TPA)
Steel Authority 430
National Steels 100
Taurus Steel 250
Global Steel 600
Lloyds Steel 150
Universal Steel 600
Others 600

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Exhibit 4

Order received from Marketing

Reject or compromise with other size/wt.

Order clearance from respective dept.

Commitment to Marketing

Is order possible?
No

Yes

No
Is raw material available? Requisition for HR indentation

Yes

Yes

Planning for pickling

Planning for rolling mill

Planning for cleaning (ECL) Planning for galvanizing

(CGL - 1, CGL - 2 or CGL – 3)

Planning for colour coating

Planning for annealing

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Exhibit 5
Organizational Chart

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 Premiere Industries

Exhibit 6
Set-Up Operation and Cost Data
The set-up operation includes coil retrieval and loading onto the machines for processing. The
process itself is automated, but while a coil is being processed on the machines, the men are busy
with the retrieval of the next coil. Therefore, the manpower is used exclusively for set-up.

The details of the manpower involved in the set-up operations on the various lines are given
below:

Pickling Rolling Mills CGL CCL

6 Hi 4 Hi CGL 1 CGL 2 CGL 3
No. of men involved 5 4 4 4 4 4 4
Production (in
400 200 180 160 160 280 60
tonnes/shift)

Note:

1. The average CTC (cost to company) per worker per month is $10,000/-. The labour is
hired on monthly contract basis.

2. In general, the workers are not all present all the time for the set-up operation, and we can
assume their presence for 95% of the time (the remaining 4-5% is utilized for other
operations).

3. The weight of a coil varies from 22 to 25 tonnes.

4. A set-up operation is required for every coil and involves retrieval of the coil from the
yard, its transport to the unit and its loading onto the machines. While one coil is being
processed, the men are engaged in retrieving and transporting the next coil for processing.

Regarding the holding costs, the company pays interest and insurance on the inventory. Other
miscellaneous charges also add to the inventory holding costs, which have been estimated to
be as follows:

Pickling Rolling Mills CGL CCL

6 Hi 4 Hi CGL 1 CGL 2 CGL 3
Raw material holding cost
0.44 0.64 0.64 0.84 0.84 0.84 1.14
($ per tonne per month)

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 Premiere Industries

Exhibit 7
Target and Actual Inventories for the First Four Weeks
Target Actual Target Actual Target Actual Target Actual
A
1 HR STOCK
a) Unpickled (processable) 2,500 72 2,500 1,311 2,500 787 2,500 187
HR slitting 345 23 168 453
HR no order/non-processable 535 343 50 140
Reserved for value-added grade 500 179 500 534 500 550 500 528
HR buffer 500 0 500 0 500 0 500 0
For inner rings/plates/sleeves 150 66 150 67 150 45 150 55
b) In transit 3,000 5,303 3,000 2,232 3,000 2,889 3,000 2,381
Total 6,650 6,500 6,650 4,510 6,650 4,489 6,650 3,744
2 a) Pickled for mill 2,000 846 2,000 922 2,000 1,217 2,000 1,535
CR stock WIP (EXP+CCL+GPSP)
b) For galvanizing CGL1 700 198 700 118 700 647 700 275
CGL 2 700 127 700 481 700 301 700 319
CGL 3
CGL 4 700 1,551 700 1,491 700 1,912 700 2,181
c) CRFH for export 0 0 0 0
d) CRFA for export 0 0 0 0
e) CR no order (CCL) 25 25 10 20
f) MTS/line start-up 150 352 150 306 150 291 150 432
Total HR+CR 4,250 3,099 4,250 3,343 4,250 4,378 4,250 4,762
3 WIP for CCL
GP for CCL 350 361 350 456 350 421 350 529
Packing for home consumption 150 180 150 166 150 109 150 86
Profiling accessories parting (CC) 100 502 100 780 100 591 100 532
For sheet cutting (CC) 100 88 100 102 100 114 100 84
Total 700 1,131 700 1,504 700 1,235 700 1,231
4 WIP for quality clearance
For clearance 300 666 300 702 300 564 300 570
For segregation 100 118 100 156 100 167 100 194
Total (for quality) 400 784 400 858 400 731 400 764
5 For finishing
For slitting
a) For slitting CRCA 250 891 250 1,092 250 1,391 250 1,039
b) For slitting CR 250 660 250 674 250 584 250 437
c) For slitting GP 150 925 150 852 150 1,249 150 1,012
d) For slitting GC 50 28 50 32 50 76 50 85
For corrugation GP/CC 200 12 200 41 200 103 200 293
For cutting
a) For CRCA/HR 200 499 200 669 200 178 200 222
b) For GP 150 341 150 404 150 488 150 519
For rewinding/parting 250 415 250 1,025 250 616 250 428
For ECL CRCA 300 687 300 289 300 120 300 219
Total 1,800 4,458 1,800 5,078 1,800 4,805 1,800 4,254
6 Others
1) For HR pickled slitting 201 94 125 117
2) For CRCA skin pass 300 1,073 300 674 300 304 300 91
3) For CRCA annealing 900 1,224 900 591 900 132 900 691
4) For replanning 55 55 50 347
Total 1,200 2,553 1,200 1,414 1,200 611 1,200 1,246
Total WIP stock (2+3+4+5+6) 8,350 12,026 8,350 12,197 8,350 11,760 8,350 12,257
B ROLLING BALANCE 6 HI 4 HI 6 HI 4 HI 6 HI 4 HI 6 HI 4 HI
a) For CR export
b) For GP trade 1,500 1,455 1,500 1,730 1,500 1,500 1,500 1,030
c) For GPSP OEM 2,000 2,244 2,000 2,350 2,000 2,345 2,000 2,266
d) For GP export 12,000 2,558 4,998 12,000 2,169 3,002 12,000 2,137 3,684 12,000 1,521 4,859
e) For CCS domestic/export 2,000 307 2,000 385 2,000 1,066 2,000 1,988
f) For CRCA OEM 2,500 900 2,500 774 2,500 796 2,500 520
Total 20,000 7,464 4,998 20,000 7,408 3,002 20,000 7,844 3,684 20,000 7,325 4,859
C SALEABLE STOCK
a) CR export 100 4 100 4 100 4 100 4
b) CRCA OEM 400 1,043 400 1,346 400 1,464 400 1,334
c) CR MTS 0 27 0 111 0 117 0 22
d) HR MTS/SOP 0 266 0 265 0 240 0 180
e) GP export 1,500 952 1,500 1,368 1,500 1,369 1,500 1,600
f) GPSP OEM 100 815 100 772 100 582 100 547
g) GPSP depot 100 2,149 100 1,822 100 1,669 100 1,666
h) GP MTS 100 895 100 642 100 662 100 441

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i) CCS prime/exports/MTS 300 1970 300 1,847 300 1,973 300 1,889
j) HR Skip 0 1075 0 1,055 0 825 0 862
k) Arisings 800 974 800 936 800 772 800 787
Totals 3,400 10170 3,400 10,168 3,400 9,677 3,400 9,332
D SCRAP 300 979 300 1,061 300 1,133 300 750
E FOR DISPATCH UNPACK 150 687 150 1,234 150 910 150 980

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Exhibit 8
Target and Actual Inventories for the Last Three Weeks
Target Actual Target Actual Target Actual
A
1 HR STOCK
a) Unpickled (processable) 2,500 107 2,500 3,538 2,500 2,463
HR slitting 600 473 271
HR no order/non-processable 0 0 0
Reserved for value-added grade 500 267 500 846 500 848
HR buffer 500 0 500 0 500 0
For inner rings/plates/sleeves 150 55 150 44 150 48
b) In transit 3,000 5,159 3,000 2,850 3,000 2,656
Total 6,650 6,188 6,650 7,761 6,650 6,286
2 a) Pickled for mill 2,000 1,561 2,000 1,473 2,000 2,294
CR stock WIP (EXP+CCL+GPSP)
b) For galvanizing CGL1 700 109 700 821 700 462
CGL 2 700 309 700 210 700 707
CGL 3
CGL 4 700 1,091 700 775 700 2,039
c) CRFH for export 0 0 0
d) CRFA for export 0 0 0
e) CR no order (CCL) 20 0 20
f) MTS/line start-up 150 362 150 198 150 432
Total HR+CR 4,250 3,452 4,250 3,477 4,250 5,954
3 WIP for CCL
GP for CCL 350 527 350 1,020 350 922
Packing for home consumption 150 94 150 120 150 181
Profiling accessories parting (CC) 100 489 100 510 100 543
For sheet cutting(CC) 100 77 100 153 100 156
Total 700 1,187 700 1,803 700 1,802
4 WIP for quality clearance
For clearance 300 239 300 531 300 510
For segregation 100 264 100 293 100 368
Total (for quality) 400 503 400 824 400 878
5 For finishing
For slitting
a) For slitting CRCA 250 1,017 250 1,229 250 1,108
b) For slitting CR 250 398 250 452 250 444
c) For slitting GP 150 1,447 150 1,494 150 1,451
d) For slitting GC 50 85 50 50 50 38
For corrugation GP/CC 200 290 200 88 200 108
For cutting
a) For CRCA/HR 200 141 200 213 200 123
b) For GP 150 668 150 626 150 576
For rewinding/parting 250 297 250 426 250 291
For ECL CRCA 300 45 300 81 300 292
Total 1,800 4,388 1,800 4,659 1,800 4,431
6 Others
1) For HR pickled slitting 97 441 658
2) For CRCA skin pass 300 315 300 584 300 590
3) For CRCA annealing 900 1,018 900 325 900 510
4) For replanning 627 614 185
Total 1,200 2,057 1,200 1,964 1,200 1,944
Total WIP stock (2+3+4+5+6) 8,350 11,587 8,350 12,727 8,350 15,009
B ROLLING BALANCE 6 HI 4 HI 6 HI 4 HI 6 HI 4 HI
a) For CR export
b) For GP trade 1,500 1,717 1,500 2,368 1,500 3,565
c) For GPSP OEM 2,000 2,401 2,000 1,665 2,000 2,080
d) For GP export 12,000 1,712 4,639 12,000 2,380 2,724 12,000 1,143 1,044
e) For CCS domestic/export 2,000 2,565 2,000 3,611 2,000 2,732
f) For CRCA OEM 2,500 580 2,500 909 2,500 891
Total 20,000 8,975 4,639 20,000 10,933 2,724 20,000 10,411 1,044
C SALEABLE STOCK
a) CR export 100 4 100 4 100 4
b) CRCA OEM 400 1,001 400 696 400 808
c) CR MTS 0 54 0 30 0 26
d) HR MTS/SOP 0 179 0 109 0 216
e) GP export 1,500 1,674 1,500 1,762 1,500 1,832
f) GPSP OEM 100 921 100 846 100 913
g) GPSP Depot 100 1,700 100 1,044 100 1,576
h) GP MTS 100 502 100 422 100 566

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i) CCS prime/exports/MTS 300 1,704 300 1,456 300 1,363

j) HR skip 0 955 0 1,347 0 1,409
k) Arisings 800 696 800 776 800 859
Totals 3,400 9,390 3,400 8,492 3,400 9,572
D SCRAP 300 581 300 1,067 300 1,054
E FOR DIESPACH UNPACK 150 1,205 150 47 150 1,114

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Exhibit 9
Average Monthly Demand at Premiere Industries (in tonnes)

Colour
Month Pickling Rolling Mills Galvanizing
Coating
6 Hi 4 Hi CGL 1 CGL 2 CGL 3
April 29,589 15,753 12,750 7,390 11,151 6,786 3,840
May 32,108 18,081 12,601 1,578 15,259 11,054 4,055
June 31,053 16,023 14,241 6,801 9,574 11,793 4,142
July 27,012 20,484 5,780 3,125 6,882 15,156 3,925
August 25,269 18,844 5,596 3,901 8,413 11,086 3,960
September 24,909 18,360 4,685 1,563 6,062 12,930 4,273
October 31,500 16,419 13,662 3,391 12,129 11,596 4,809
November 30,448 15,403 13,640 5,323 8,940 12,100 4,728
December 32,323 14,609 16,287 5,710 10,489 11,689 5,039
January 28,820 12,664 14,772 5,953 7,317 9,676 4,592
February 28,618 13,984 13,771 4,188 8,656 10,333 4,669
March 31,072 14,957 15,222 6,762 7,047 11,773 4,842

Note 1: After the rolling operation, all coils are sent to the ECL (Electrolytic Cleaning Line) and
then to the CRCA (Annealing Plant).

Note 2: From the Annealing Plant, the coils are sent either for dispatch to customers via the end-
of-line finishing processes such as the Skin Pass Mill, Slitter and CTL, as required, or for further
processing to the galvanizing plant.

Note 3: From the galvanizing plant, the coils are sent to dispatch via the end-of-line finishing
processes, as required, or for further processing to the Colour Coating Line.

Note 4: The company also sells a small quantity of pickled coils to smaller rolling units.

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