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Inland Steel Industries is a $3.5 billion corporation with two main businesses. The Inland Materials Distribution Group (IMDG) is essentially a combination of a metals "hardware store" for small machine shops and small users of steel, and a vehicle to provide customers with materials management services--just-in-time inventory and initial processing, for example. The IMDG contributes about $1.5 billion in sales annually. The other business is the Inland Steel Co., which focuses on manufacturing.
Inland Steel Co. is fixed-capital-intensive and has more employees than the IMDG, which is working-capital-intensive. The two fit together nicely, particularly in their complementary cycles of capital demand and availability. When the steel company needs cash in a business downturn, the distribution company usually generates cash through liquidating inventories and accounts receivable.
The steel company has extensive experience in using strategic planning to drive organizational change. In 1985, Inland Steel Co. was an integrated steel manufacturer making a full range of products for a variety of customers. As an integrated company, we owned all the raw materials needed to make steel, many of the modes of transportation needed to get them to the plant and fully integrated manufacturing processes capable of turning them into finished products. The company had very broad customer coverage--seven or eight hundred customers--and a raw steel capacity of nine million tons. However, we were at a cost and quality disadvantage with the Japanese mills, which at that point were making significant inroads into the U.S. market. Over the previous four years, we had lost approximately $500 million.
We underwent a major strategic change, and today, we are much more focused on sophisticated products. We have focused our customer base much more tightly through a strategic account emphasis. We have reduced our raw steel capacity by 3 million tons, and we are no longer fully integrated. We sold our coal and limestone companies and much of our transportation capabilities. We kept our iron ore businesses. We have become cost-competitive with both Japanese and European mills, and we have just completed a $1.5 billion capital program for new finishing facilities.
BECOMING WORLD-CLASS COMPETITIVE
Our strategic change, which focused on leveraging technology and changing the market structure and customer requirements, included three major elements.
Reducing Complexity. We realized that if we...