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Nucor at Cross Roads

Case Anaysis

Shashank Shrivastava

on 9 November 2012

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Transcript of Nucor at Cross Roads

Case Analysis
Group - 3, Section A Nucor Corporation at Cross Roads US Steel Market Domestic consumption : 90 million tons in 1986
Integrated Steel makers: Capacity of 107 million tons of steel

Minimills:Capacity 21 million tons of steel
Speciality steel makers: Capacity 5 million tons of steel
Due to efficient use of steel,decline in demand has been observed

Types of products
Semifinished products, sheets, bars , wires, other structural shapes

Flat sheet accounted for half of domestic shipments in 1986
US steel market was catering to Service centre , distributors, Automotive sector, Construction, Appliance and equipment industries High cost producers face a dim future of weak demand and price concessions

Low cost producers are poised to succeed, but they must fight foreign firms seeking to dump excess capacity and gain market share

Aggressively pursue and implement cost-saving technologies
Create a low-cost culture

Offshore joint ventures

Backward integration of supply chain Q.4 How should Nucor think about uncertainties surrounding thin slab casting ? What should it do. Continued
Q.3 Is thin slab casting likely to afford Nucor a sustainable competitive advantage in flat rolled products-Continued. Smaller plant will have lower investments , lower operating costs and henceforth cost of production of flat sheets will low and it will give larger profits.
First mover advantage is there with Nucor in adopting thin slab casting technology.
Even if others try to adopt it, Nucor will have an advantage over them in that it has economically constructed and efficiently run plants. Other player will be lagging by at least two year in adopting the technology. Q.2 How attractive do the economics of thin slab casting look-Continued No commercially viable process for obtaining thin sheets.
Thus it is clear that the process itself is not proven for commercial exploitation but it holds promise for the Nucor to capture the largest component of US steel segments and gain early mover advantage.
This will result in capturing market for automobile and appliances sector which are the largest consumers of flat sheet materials. Q.2 How attractive do the economics of thin slab casting look. Flat sheet market comprises of 50 % of total steel market of US.
Thin slab casting method will result in cheaper production of flat sheets as compared to current technologies being used by integrated steel plants.
Thin slab casting also suffers from the same disadvantage as integrated plants of reheating the slabs before rolling.
No of rollers required is four in thin slab casting as compared to dozen in integrated plants. Commitment at Nucor Major strategic decisions usually involve investment in sticky factors: physical assets, resources, and capacities that are durable, specialized to the particular strategy that the firm follows, and untradeable
Commitment-intensive decisions are fraught with risk and require that managers look for into the future to evaluate alternative strategic actions.
Nucor was the first American firm to adopt thin slab casting.
This adoption was a major commitment for Nucor, which was successful. . The Effect of Strategic Commitment The strategic effect of the commitment may depend on the degree of horizontal differentiation among the firm making the commitment and its competitors.
When the products are highly differentiated, the strategic effect of the commitment is small
When the products are less differentiated, the strategic effect of the commitment is large Strategic Commitment Whether to invest in new capacity or introduce new products are examples of strategic commitments.
Strategic commitments are decisions that have long-term impacts and are difficult to reverse.
Strategic commitments can significantly influence competition in an industry.
If firms are farsighted when they make their commitments, they will anticipate the effect their decisions will have on market competition.
The market rivalry can influence the commitments firms make. Constraints of using CSP plant Expensive
Difficulty in operating
It is still in embryonic stage
Technological leapfrogging
First mover advantage would not sustain for long Competitive advantage of Nucor Building steel manufacturing facilities economically and operating them competitively
Continuous innovation, modern equipment, individualized customer service and producing at competitive prices.
Large applicant pool to hire from because they are seen as an attractive place to work, allows them to be very selective for who they hire
Have a willingness to take risks. Value Creation at Nucor Managers are given autonomy at each plant
Decisions are made quickly without the need to wait for decisions from headquarters
Plants can source there inputs from other Nucor plants or from the outside market.
Nucor is constantly innovating
high quality products are being produced using modern equipment at competitive prices.
Promote good customer service.
Monitoring and adoption of new technologies, mettalurgist reporting directly to Iverson and keeping track of latest developments.

Advantageous location: Plants were located in rural areas with cheap electricity, cheap labour , nearness to market and plenty of water.

Geographical spread of plants in all four directions and fabrication plants of vulcraft were located near them.
Why has Nucor performed so well in the past? Q.1 Why has Nucor performed so well in the past? Building economical steel plants and operating them efficiently. ATPE is maximum for any US company and is the second best in the world.

Flatter organisation ( only 5 layers ) results in faster communication and rapid effective decisions. This results in considerable saving of costs. Also decentralisation at plant level is there.

Tighter control of plant performance at head office level was there, critical parameters were evaluated and incentives were fixed on the basis of those parameters. Daily display of group performance at main gate was there. This prompted employees to perform better .
Weekly payments of incentives.

Non unionised and incentive driven work force .

Good facilities apart from pay to employees and quick responses to employees queries resulted in boosting their morale.

Some room for risk taking by managers was given provided they learn from their past mistakes and do not repeat them. Moderate Low Low Moderate Porter’s Five Forces in US Steel Industry Threats
Heavy competition in the industry with excess capacity

Demand for steel stagnated in the US market

Experienced players can enter and sustain in the market.

Threat of substitutes

Plastic, aluminium, advanced composites industry taking over market share of steel in future.

Raw material availability

Technology is changing very fast Weaknesses
Decentralized profit center
Decisions being taken at the division level will lead to divisions competing against each other.
No dedicated R&D team.
No long-term strategic vision of plan.
Presence only in the US market Strengths Strong market position with 2.1 million tonnes of production capacity.
Decentralized management philosophy
Performance based compensation
Egalitarian benefits
Customer service and quality
Highly efficient labour force.
Employee’s loyalty to the firm
Nucor’s customer service
Nucor started small plants closer to suppliers &customer
Reduction in transportation cost
Cheap support facilities-Electricity
Employee centric policies Founded by Ransom Eli Olds as Reo Motor Car Company in 1904

Reorganized and christened as ‘Reo Motors’ and start manufacturing trucks and luxury lawmowers.

TelAutograph Corporation acquires Reo Motors in 1955 and formed Nuclear Corporation of America.

After 1960, Nuclear Corporation diversifies into semiconducts , joists , airconditioning ducts, aerospace, tin cans and plain paper copiers.

Acquisition of Vulcraft in 1962.

Kenneth Iverson becomes President and A modern minimill built in Darlington in 1968-69

Nuclear Corporation was renamed Nucor Corporation in 1972 History of Nucor Corporation Q.4 How should Nucor think about uncertaintities sorrounding thin slab casting ? What should it do. ACTION BY NUCOR
Investing in uncertain technology
More evaluation of performance data on prototypes of thin slab casting machinery, so that problems if any can be rectified before commercilaisation.
Even if the technology was proven , it will become obsolete in 10-12 years
Some flexibility in the plant design has to be there, even if the technology becomes obsolete, Nucor will have first mover advantage and will reap in benefits by that time.
Uncertainty on returns, low cost imports
Thin slab casting will provide a window of opportunity for future technology and 50 % of total steel market of US as the cost of production will be cheaper by this process.
Resource constraint
Resource allocation for two technologies Wide Flange beams and thin slab casting required. One holds promise for the future and the other will help in focusing on Niche market
Market focus
Firstly the focus has to be on low end market then on high end markets of Automobile and appliances.
Economy of project dependent on scarp prices
With large scale adoption of Thin slab casting technologies, scrap prices will be likely to go up , thus the flexibility of using direct reduced iron as raw material at the design stage has to be explored. Q.3 Is thin slab casting likely to afford Nucor a sustainable competitive advantage in flat rolled products Yes , the future of US industry lies in the flat products and it will provide Nucor a competitive advantage in flat rolled products as more than 50 % of market is from flat products.
By employing thin slab casting technology vis a vis the technology being used currently by integrated steel mills, smaller size of plants will sufficient for achieving economics of scale ( .8 MT-1 MT vis a vis 3 MT) Potential benefits of CSP plant Cost reduction
Increase in efficiency
Consent of the project team
Nucor will gain maximum share of low end flat sheet business
SMS is highly confident on CSP that it will improve on company’s own developmental effort.
Discount of $10-$20 million on immediate purchase. Success due to Nucor’s HR policies Four tier management structure

Group-based bonus incentive plan that trickles up to management

They have a scholarship program for children of employees which promotes long-term employee retention

Managers have dinner with all employees with open forum for discussion on how to improve and increase innovation, allows employees to ask questions and managers to provide feedback

All managers, including CEO, wear same color hard hat at work

Policies promote teamwork and allow the company to grow from within because of open communication and experience from their employees Opportunities
Most steel companies in the US are in major cities and much higher operating costs.
Import share is low in flat sheet segment.
52% of total steel consumption is in flat sheet segment
Supplier’s power is low.
Exit of Integrated steel makers from buying scraps. The Steel Process THANK YOU
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