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Nucor At A Crossroads Essay

1387 words - 6 pages

Nucor at a Crossroads Case Analysis

In 1986, three distinct segments defined the U.S. steel industry; integrated steel mills, mini-mills, and specialty steel makers. The integrated mills have the capacity to produce a maximum of 107 million tons of steel per year, mini-mills produced a maximum of 21 million tons of capacity a year, and the nation’s specialty steel makers could produce a maximum capacity of 5 million tons of stainless and specialty grades of steel. This leads to a total capacity of 133 million tons of production per year. In 1986, the market consumed only 70 million tons of steel, leaving 33 million tons unused. Nucor is at a crossroads. It faces a saturated market ...view middle of the document...

The threat of substitutes is moderate because buyers have the option of choosing other materials (aluminum, plastics, ceramics, etc.), and new materials technologies are currently being developed and sought after. The threat of suppliers is moderate because iron ore and scrap metal prices are currently high, energy prices are increasing, Nucor pays for transportation of its raw materials to its plants, there is no easy substitute to take the place of iron ore/scrap metal, and there is currently an overabundance of buyers of scrap metal and iron ore. Lastly, the threat of buyers is weak to moderate, because there is excess capacity, low switching costs, few high volume buyers, many low volume customers, strong demand from China, and rising feedstock prices.
With the difficult business landscape in the steel industry, Nucor had to develop competitive advantages over its rivals to achieve its success. These advantages included differentiating itself by being an early adopter of computerized order tracking and allowing customers to make short time orders thus reducing their inventory. Second, it invested in modernization of its plants at an average of 2.9 times its depreciation expenses vs. an averaged of 1.6 of its competitors through the 1970s and 1980s, and refurbished on average a plant a year. Third, Nucor strategically located its plants closer together to share orders for minimal cost and maximum sales, and building new plants in smaller rural areas with access to railroads, low energy costs, and a plentiful water source allowed Nucor to keep labor costs relatively low and made sure that COGS remained competitive. Fourth, base wages were lower but incentives were higher than average, and direct communication on expectation vs. performance provided feedback on compensation. Also, during down times, officers and CEO pay dropped dramatically while average workers did not. This led to lower employee turnover 1-5% vs. 5-10% for competitors. Fifth, Nucor’s hiring practices focused on making sure that they focused on hiring people based on potential, not experience. Finally, Nucor’s business hierarchy was different- mostly flat, resulting in less bureaucracy and more productivity per worker. In short, many of these advantages led to Nucor becoming the second most productive steel maker per employee in the world due by 1985.
Thin-slab casting was a proposed technique for mini-mills to fill orders for flat sheet steel, a segment that accounted for approximately half of the U.S. steel industry. To expand its steel market share, Nucor needed to enter the flat sheet segment. In the thin-slab casting business, Nucor would initially compete with international firms from Canada and Japan that provided high quality flat sheet steel, and cheap flat sheet steel providers in newly industrialized nations. Barriers to entry would include large capital expenditures making new entrants cost prohibitive, but not impossible as the barrier is...

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