3/8 inch rebar rolling mill productivity case

Gordon Forward (MIT graduate, Canadian) at Chaparral. Mandatory week-per-year with the salesman discovers 20-30% premium on 3/8 inch rebar. First attempt: roll faster — instabilities, maimed workers. Second attempt: slow down and split the bar — one in, two out, then one in, four out. Took over the 3/8 inch market with quality gains as a bonus.

What happened in the 1970s is people like Gordon Forward and Ken Iverson realized you could buy scrap steel at $100 a ton on the open market. There are millions of tons out there. Cast iron cost $200 a ton. You had a $100-a-ton advantage on something that sold for $400 a ton — a 25 percent cost advantage to use 100 percent scrap. Except the quality of the scrap was not very good because it had all these alloying elements, and about the only thing they could make was reinforcing bar for concrete. It just has to have 60,000 strength and be the right diameter. You don't have to have toughness requirements — let's face it, the concrete has no toughness, so you put the steel in, it's tougher than it was.

Chaparral cannot run rolling mill faster than 60 mph (instabilities at 70). Solution: run slower, split into two strands, then four. Doubles productivity; takes over the 3/8" rebar premium market.

When they went out there, they found that rebar comes in sizes. Number three rebar is three-eighths of an inch. Number five rebar is five-eighths of an inch diameter. The smallest rebar is three-eighths of an inch. They found out there was like a twenty, thirty percent premium per ton for three-eighths-inch rebar. They decided, we want that extra profit, and we want to run our rolling mill faster to get the extra profit from making three-eighths-inch rebar. The problem with three-eighths-inch rebar is you can't make very many tons when it's only three-eighths of an inch diameter. You can turn out a lot more tons of five-eighths, right? Five-eighths is 25 over 9, almost three times the tons per inch if you're running at the same rate.

Tom's worked example within the Chaparral story — the #3 rebar premium and the four-strand discovery (run slower, split more times, double productivity).

The specific Chaparral product/market discovery: smallest-diameter rebar carried a price premium because rolling speed bottleneck; Chaparral solved by splitting strands rather than accelerating.

They invented what's called a mini mill. The mini mill is an electric furnace steel mill. One of these mini mills was Chaparral Steel down in Texas. Gordon Forward became president of Chaparral Steel, very innovative manager. He won a Manager of the Year award from the American Management Association for the way he ran Chaparral. They used to send their mill workers one week a year — they had to go with the salesmen to talk to the customers. They found out that steel reinforcing bar that goes in concrete — the three-eighths inch diameter, the smallest diameter — got a premium price because it was so small. When you're hot rolling the steel, you could only roll it so fast. You're going at 60 miles an hour, and everybody in the world tried to go faster, and they couldn't do it.