Kelman Steel Manufacturing Company
Kelman will be a steel manufacturing company that will specialize in the production of iron, soft iron, cast iron, alloy, bearings, pipes and precision tubes. The company will also manufacture locomotive parts, agricultural parts, machinery, cables are wires. It will also manufacture branded products and solutions, including Nets-in building and Pravesh doors. Since the company will be an integrated steel manufacturing company, the basic raw materials that will be used in the production process include iron ore, coking coal and other fluxes such as dolomite and limestone.
How to create value chain at Kelman Steel Manufacturers
The primary production units at the company are the points of handling the raw materials; coke ovens sinter plant and the refractory material plant. It will also include the blast furnace, steel melt shops and the merchant mills. There will also be the wire rod mills, and special bar and structured mills. There are other additional production units such as the power plant, the oxygen plant and the engineering shop. The hot metals produced at the blast furnace will be converted into steel through the removal of impurities in the metal through the oxidation process. The steel will be further refined in the steel melt shop at the secondary refining facilities. The blooms produced are then converted into various finished products, including wire rods, rounds, structural mills, squares, and many more (Boyns & Edwards, 1997). Porter developed a value chain with five primary activities and other supporting activities
Value chain- the primary and secondary activities
Primary activities in the company will be those that are directly involved in the conversion of the basic raw materials into the finished products. It also includes the receipt of the raw materials from their suppliers and the marketing of the products in the market to the customers. There are product-related value chain activities and the market-related ones that are done to add value to the products. There are inbound logistics services that include the receipt of the raw materials that are required in the steel-making process, stacking and reclamation of the materials to various departments within the organization (Acharyulu, Subbaiah & Rao, 2015). The operations or management of the production process include the processes of handling the raw materials to make sinter, coke, lime magnesia bricks. This will also include after-sales services such as the delivery of the products. There are other support activities like the management of the materials, vendor development, making purchases from the relevant suppliers and other logistics.
Budget plan and benchmarking for the company
The start-up budget of the company will include the purchase of the machinery and the costs of raw materials. Additionally, it will consist of the hiring of employees, legal and business registration costs. Benchmarking refers to the process of measuring the performance of the company’s products in the industry against others that are well-performing in the industry. This will help in identifying the internal opportunities in the company that require improvement. The management will carry out a process benchmarking to ensure that it understands the processes and to compare and find ways of optimizing the processes (Sarkis, Amin & Banerjee, 2010). The company will also carry out strategic benchmarking to compare its strategies and those of the best industry players. Besides, performance and marketing benchmarks will be appropriate.
Costing systems for the company
There are various types of costing systems that will be used throughout the management of the company. First, activity-based costing will be relevant for decision making since it helps to assign the overhead costs and the indirect costs that will be incurred, including salaries and the other utilities in the process of production. ABC will be based on the activities, both at primary and secondary stages. This will give a more accurate product costing and will be more effective in the allocation of the raw materials. Marginal costing will also be appropriate, and it involves the variable costs incurred (Boyns & Edwards, 1997). Under this system, the marginal costs will be changed to cost units and fixed costs that are written off against the marginal contribution.
Additionally, standard costing will be beneficial in the identification of the differences or variables. This will help to get the variance between the actual costs that were produced and the costs that should have occurred when the actual goods were produced. Finally, direct costing will help in the analysis of the variable costs that are incurred in production and the factors that affect them.
Challenges in implementing the costing systems
The main challenge in implementing an Activity-based costing is the difficulty in identifying costs based on the activities. Activity-based software is also expensive and lack of readily available consultants. Marginal costing is associated with several challenges, including the valuation of the stock, and the problem of classification of costs into either fixed or variable costs. The controversies that exist on the limits of materiality and non-reporting of certain variances that occur in the process of production.
How to overcome the challenges
However, to successfully implement an activity-based costing system, I will look at the overhead costs, especially the considerable ones and also to identify the activities that use up such costs. I will also use appropriate measures to trace the activities that consume most of the overhead costs. The company will continuously conduct stock-valuation to ensure that marginal costing helps in the determination of the profitability of every stage in the steel manufacturing process. To effectively implement a standard costing process, the company will ensure that the employees are well motivated through the use of incentives and also to ensure that all the variances that occur in the production are recorded.
Conclusion
Kelman manufacturing company intends to manufacture various steel products. The budget involves the purchase of various raw materials, a costing system and the costs of hiring new employees. The company will also carry out a benchmarking process to ensure that the activities, management process and the process of manufacturing are compared with those of the major industry players. Activity-based costing, marginal costing and direct costing are among the strategies that will be used to meet the objectives of the company.
References
Acharyulu, S. G., Subbaiah, K. V., & Rao, K. N. (2015). Value chain model for steel manufacturing Sector: A Case Study. International Journal of Managing Value and Supply Chains (IJMVSC) Vol, 6, 45-53.
Boyns, T., & Edwards, J. R. (1997). The construction of cost accounting systems in Britain to 1900: the case of the coal, iron and steel industries. Business History, 39(3), 1-29.
Sarkis, J., Amin, M. R., & Banerjee, S. (2010). Benchmarking environmental performance: five leading steel mills in India. Benchmarking: An International Journal.