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Nucor March 7, 2008 Nile TecleMariam Business 499
By Pankaj Agarwal Praxis Business School
Table of Content I. C. C. General Environmental Analysis Industry Analysis Competitor Analysis Internal Analysis III. Strengths Weaknesses Opportunities Threats IV. Strategic Profile and Case Analysis II. B. SWOT A. B. Situation Analysis A. Conclusion 2 . D. D.
Nuclear Consultants was not very successful. steel fasteners. The standard unwritten practice of equalizing freight was stopped by Nucor which was unheard of in the steel industry. who founded Olds Motor Vehicle Company in 1897. The company was rename Nucor Corporation in 1972 and expanded steadily through 1986. It emphasizes technological leadership by aggressive pursuit of innovation and technical excellence. Nucor was started by an auto manufacturer Ransom E. Nucor recycles approximately ten million tons of scrap steel a year. and light gauge steel framing. Another group is the flat-rolling. The board of directors made Iverson President and Samuel Siegel as Vice President of Finance. South Carolina in 1968. beams. responsive service. In addition. and plate. The company decided to integrate backwards into steel making by building its first steel bar mill in Darlington. Steel goes into thousands of products. steel deck. the United States lost the role of world’s steel produced and imported more than what it exports. however. All the other business not related to steel were either sold or liquidated. thus starting the Nucor Era. cold finished steel. A group of shareholders challenged the liquidation Ransom was trying to do and forced Ransom to take over a tiny nuclear service company called Nuclear Consultants. The semi-finished products that are at least eight to ten inches thick and require more processing is one group. steel joists and joist girder. South Carolina from the founder’s widow.Strategic Profile and Case Analysis Steel is the backbone of many industries. Another group is one where bars and thins rods are made. By the 1980s. 3 . into a few groups. Ransom sold the manufacturing operation. The simple. It operates in nine states and produces carbon and alloy steel in bars. it was able to purchase the Vulcraft Corporation. a steel joist manufacturer located in Florence. The company is highly decentralized. The corporate strategy is focused on being the lowest cost provider of steel by finding opportunities to reduce cost. North Carolina. sheet. Inc. Kenneth Iverson was hired as general manager for Vulcraft == the only business division making money. Nucor Corporation is the second-largest steel producer in the United States and had net sales of $4. The United States in the 1960s produced most of the steel used in the world. Olds. streamlined organization structure to allow employees to innovate and make quick decisions works very well for Nucor. in the broad sense. which could be grouped. employee relations with fair compensation and egalitarian benefits were just as important as technological advances. and competitive pricing. Iverson moved the corporate headquarters from Phoenix to Charlotte. which yield plates (more than 0.25 inches in thickness) and sheets or strips.6 billion in the year 2000. General Environmental analysis Nucor over took US Steel to become the second-largest steel producer. The production cost is the most important if the company is going to be profitable and survive. Situation Analysis A. which makes them able to make uncompromising quality. metal building systems.
" We are accomplishing this by being the safest. C. Research and development is another asset greatly valued. Three European companies decided to merge to from the world’s largest steel producer. operate in the red. most productive and most profitable steel and steel products company in the world. The imported steel in many cases were subsided by their governments. Among them are Bethlehem Steel Corporation and LTV. In 1987. We are succeeding by working together. Nucor was able to use this situation to grow in size by identifying and acquiring some of the US companies that aligned with their strategic vision. Competitor Analysis Most steel companies in the US were only utilizing 75 percent capacity resulting in production inefficiencies. D. Nucor is one of the leanest corporate organizations in the nation. A typical Fortune 500 company has a triple-digit corporate staff.300 teammates whose goal is to "Take Care of Our Customers. SWOT A. Nucor was the first steel company in the world to build a mini-mill to manufacture steel. so the basis of competition is cost. Internal Analysis Nucor mission statement: Nucor Corporation is made up of 17. We are committed to doing this while being cultural and environmental stewards in our communities where we live and work. uses electric arc furnaces to melt scrap into steel. foreign steel producers were dumping steel in the US market at cut-rate prices with no restriction from the US government. and finally to the micro-mill. The product is standard and not much can be done to create differentiation. lowest cost. the more the company grew.and fourth-largest steel producers. The smaller the mill sizes became. . If Nucor was going to survive against the imported steel. This was a very risky 4 . High costs of US steel were driving consumers to import steel. who were the country’s third.B. Employees are valued as a critical asset for the corporation. which made them. respectively. Nucor strives to put plants where there is the least amount of cost overhead and where transportation costs to their customers can be minimized. Industry Analysis The steel industry is undergoing consolidation and there are many companies filing for bankruptcy. highest quality. The competitive pressure is very high since there is huge excess capacity and orders are huge. Nucor ranks 189 on the list in 2005 with 75 corporate employees. Nucor believes that bigger is not better. they would have to make sure that their costs were as low as possible. Their technological advances allowed production to shift from the mill to the mini-mill. Two Japanese companies did the same to form the second-largest steel producer. They took great effort to make sure that they were using the latest technology to reduce the size of their mills. Strengths One of the greatest threats to the US Steel industry is the importing of steel.
Even the hourly employees are encouraged to think of ways to improve the plant and bring them to their supervisor. hiring and firing division managers and prices. Economics still favored the minimill. self-reliant people. Minimills took advantage of the declines in the use of scrap metal. which makes it one of the smallest corporate offices among a Fortune 500 company. customer service and quality. This opened up another 50 percent of the total steel market.000 tons compared with 7 million tons from an integrated mill. weekly tonnage reports. with the shorted life. which is used in the integrated mills. The minimill labor cost is only $35 to $70 per ton compared to $100 to $150 per ton with integrated mills. It would take all the companies assets and a huge loan to build the mini-mill. Nucor has five layers of management (supervisor/professional. department manger. Each year Nucor has increased its production capacity which improves its competitive position.1 The minimill is designed to last only 10 years where the integrated mill has a 25 – 30 year design life. instead of iron ore. Each division manager had a business target to accomplish. Nucor now has eight mills that sell 80 percent of their output to outside customers and the balance to other Nucor divisions. Most decisions were made at the plant level except for things like capital expenditures. The minimill technology improved very fast and soon Nucor was able to expand its market place with new product (Higher quality products for larger structures. Corporate would take a share of each division’s profits. such as junk auto parts. over the integrated mill. executive vice president and president) where most steel companies have many times the layer of management. which made each division a profit. Switching to basic oxygen furnaces help increase the capacity of the mill. and monthly cash management reports. These performance incentives were given to everyone in the plant. headquarters received monthly operating reports.000 to 600. wire rod and small structural shapes. which had only been built at pilot plant sizes before Nucor. Nucor decentralized as many decisions as the next layer down could manage. 2 The mini-mill utilized scrap steel. and technological leadership. The Nucor culture can be summaries in five areas: decentralized management philosophy. Nucor strong market position with production capacity of more than 25 million per year and sales of more than 22 million tons in 2006 makes Nucor very strong. In Iverson’s word. they had performance incentives. Most of the promotions on the shop floor are made from within based on performance and peer evaluations. Another strength Nucor has over other US steel manufactures is its “Nucor Culture”. plant organization.”3 In decentralized management. Failure to meet the target could lead to firing of the division manager. performance based compensation. “The fewer you have. The top managers of Nucor believed that “the best motivation is green”. To compare the performance of its plants. egalitarian benefits.business decision made by Nucor President Inverson. The typical annual capacity of a minimill is 200. the more effective it is to communicate with employees and the better it is to make rapid and effective decisions. Each plant general manager administered a psychological test to prospective employees that sought to identify goal-oriented. There would be caps for the production workers and none for the professional employees. Impurities in the scrap metal at first limited the use of the material generated by the minimill to lowend products such as bars for reinforced concrete. There are only 70 employees at the corporate office. pipes and tubes). division manager. This means that even though the workers get paid lower base pay than other 5 .
There is a giant board at the entrance of every plant that informs people of each department’s goals. Nucor pays a straight commission per ton of scrap at all the plants. for example anyone late for a shift lost a day’s bonus and anyone who misses a day’s work missed that week’s bonus. Sometimes it turned out to be a waste of money. they made more than any steel worker in the US due to their performance. bonus and college education allowance for their children and stock in the company. but when something was found to work. the bonus percentage. One of the best opportunities and strengths Nucor has to improve profit is by improving their technology. If the group fell short of its productivity goal. The employee turnover at Nucor is about 1. Other incentives programs were things like profit sharing.5 percent per year. its entire member’s lost their bonuses for the week. Senior officers are based on Nucor’s annual overall percentage of the net income to stockholder’s equity and are paid out in cash and stock. The price of the finished product is sent based on a computer program at each plant.steel workers when the performance incentive was added. it was shown to save the company millions of dollars. The ability to react to the plant operation or special orders quickly is one of Nucor’s strength and the credit goes to the community of Nucor employees. This philosophy has helped to retain employees. Increasing production means increase in profit for everyone in the company. the company’s return on equity for the month and the latest stock price. he feels it is the workers responsibility to inform the manger how they could make those poor decisions better. the plant’s performance relative to the target of 25% return on assets. The rate is calculated based on the capabilities of the equipment employed and no bonus is paid if the equipment is not operating. There are no company cars and everyone wears a green spark-proof jacket and hard hat in the plant. Labor costs are very steady and help keep the company competitive. The year’s annual report lists all employees on its cover in alphabetical order. other US steel companies during this time either just closed or lay people off. Nucor went against the business norm by not giving any price adjustment for raw material and finished products. Iverson heard about a German company with some promising new technology. This is a very smart way of reducing the threat of closure and minimizes the losses. Nor did they lay off any employee when times were very slow in the 1980’s. Nucor President Inverson believes that an average person makes good decisions 50 percent of the time and a good manager will make good decisions 60 percent of the time. the employee’s hours were shortened but the production bonus program stayed intact. Nucor does check what the market price and quality of the material all the time and makes adjustments as needed. The open door policy is for everyone who works for Nucor. The employee can earn an average from 80 to 150 percent of the employee’s base pay. The top executives of Nucor 6 . The bonus can be no more than 80 percent of the employee’s base pay. The other 40 percent of the time. Openness and risk-taking is emphasized rather than denying the possibility of managerial mistakes. Nucor reinforces these rewards with stiff penalties. The bonuses are based on productivity of their work group and are given out weekly. Nucor spent millions of dollars researching better ways to make steel. Department managers earn annual incentive bonuses based primarily on the percentage of net income to dollars of assets employed for their division. Nucor benefits are the same for all employees. Professional and Clerical staff gets bonuses based on the division’s net income return on assets. The company called it the “Share the Pain” program.
In addition to DJJ's scrap processing operations and expertise.5 Nucor selection of the site for the new plants is always in different areas around the country. Indiana. The company has made moves to improve its environmental requirements. The David J.S. The industrial scrap programs of DJJ will also provide improved channels of raw materials to Nucor. Nucor does not meet all three of the core competencies parts. C. The acquisition of DJJ will bring a variety of benefits to Nucor. B. there was no long-term strategic vision of plan for Nucor. It is easy for the competitors to imitate as there are standards for the finished product. Later their other plants in Alabama. which sells to Nucor.flew to German to meet with SMS Schoemann-Siemag AG to see the novel pilot plant. being done at the division level is that the divisions start to compete against each other. Nebraska. sales. and Utah were sited. this was not true. Many believed that the environmental issues would be less by locating the plants in the rural areas. Another weakness in Nucor is that no one was watching the environmental issues enough. which Nucor has successfully used in the past. The first avenue of growth. could come from the acquisition of other companies that specialize in steel or other services that complement Nucor’s business divisions. scrap companies. The fact that Nucor is in the US is a weakness for them since it relays on the US economic to drive its customers business. The customer values the product coming out of Nucor as good quality and reliable. In December of that same year. The 7 . the Germans came to Charlotte for a meeting to hammer out a deal. After Iverson retired. its extensive brokerage operations provide Nucor with global sourcing of many key steelmaking raw materials. Opportunities There are numerous opportunities available for Nucor to expand its businesses in the US steel industry. The $98 million result was “the largest and most comprehensive environmental settlement ever with a steel manufacturer.” The University of Massachusetts ranks Nucor as the fourteenth-largest contributor to the US air pollution. general and administrative expenses have increased every year with the redundancy. Texas. including marketing and sales. It does provide consumer benefits and the material can be widely used in many products and markets. Other steel industries would have a hard time imitating the company. DJJ's rail services and logistics capabilities will allow Nucor to leverage the largest private railcar fleet in North America dedicated to scrap transportation. When the VIRO test is used on the Nucor Company. The plant is near a distribution site in order to keep down shipping cost. There is duplication and redundancy in company that has led to many salespersons calling the same customer to get their business. Joseph Company (DJJ) is one of the leading U. the new board of directors realized this problem and is starting to develop a plan. Moreover. The Environment Protection Agency cited the mill in Crawfordsville for alleged violations of the Federal and State clean air rules. it gets high marks. Iverson decided that this technology was going to run their new plant before the Charlotte visit and announced at the meeting that the deal was complete. administration and employee value would be hard to do. They could use the mini-mill but the ability to reduce raw material cost. Weaknesses One of the weaknesses of Nucor is that by having a decentralized profit center with all the functions. Arkansas. Another weakness is that by having so much power in each division.
Threats The economy after the September 11th terrorist attacks fell into a recession and the demand for steel dramatically reduced. Most steel companies in the US are in major cities and much higher operating costs. electricity and water would be cheap. An example would be to keep operating cost and human relations separate 8 . Conclusion Nucor has close to $1 billion in cash on its balance sheet. The percentage of debt to capital ratio has been steadily increasing each year and is currently over fifteen percent. but not often. plants are easily determined to be success or failures quickly and then the company takes action. Based on Porter’s five forces: Competition is fierce and foreign competitors are dumping steel. The backward and forward integration in the steel market as worked for Nucor and should be continued. This is one of Nucor’s strength in that with its computer program. Each division within the company was evaluated every month and purchase and building of other plants were evaluated based on demand in that area. This is strength and opportunity for Nucor. Steel requires large amount of money and expertise to enter the industry. Raw material availability and cost are always a threat to Nucor’s survival. Nucor answered the raw material issue by purchasing it’s supplier of scrap material. Nucor quickly becomes one of. Nucor has had success with partnering with other companies. Sometimes US steel quality is an issue. This venture turned out to be very successful. While earning outlooks are still good. They would locate along major highways. Nucor was one of the few steel companies in the US that was able during this time to expand and show a profit. Decentralizing management is working for Nucor but it does not help its cost structure. It is a buyers market and Nucor is heavily reliant on the producers of iron ore and scrap. Nucor has successfully integrated into steel products and backwardly integrated into scrap/recycling. In the past. The second joint venture was with Brazil’s Companhia Siderurgica National to build a $700 million steel mill in the state of Ceara. they should continue to raise dividends and consider share buybacks. where they would build a mill on the Mississippi River together. Trinidad proven to be more expensive than originally expected and was deemed unsuccessful then closed. It is always in a small town where land. Nucor was able to keep their cost low so that they were able to compete with the foreign steel industry. They should consider only decentralizing parts of management and putting others under one group for the company. plus the industry is not growing but consolidating.customer would see the plant as a way of promising supply for them and would become a steady customer. rivers or railroad sites so that transportation would be cheap. IV. Nucor’s plan was to ship iron from Brazil and processes it in Trinidad. There is still an overcapacity in the global steel industry. D. The first one was with Yamato Kogyo Ltd. if not the highest paying job in the area. Foreign steel coming into the market and under cutting cost is always present. Another opportunity that Nucor can take advantage of is the use of joint ventures. Plastics and other components have taken market share from steel and will continue to do so. The purchasing of bankrupted companies may not always fit because to make that plant cost-effective would require massive amounts of money with a long-term pay out. They should consider scaling back acquisition strategy and pay down long term debt. There is heavy competition in the industry with excess capacity.
http://biz..for every division but centralize purchasing.com/indexinner.com/aboutus. January 20.v=101.org/wiki/Nucor Nucor at a Crossroads. They should continue to invest heavily in research and development as this industry is about being the lowest cost producer. sales and information technology.htm Nucor.aspx?finpage=aboutus Nucor Corporation. Technical innovations ultimately lower the cost of producing steel. The tangible resource that Nucor has is technology and its employees. 9-793-039.yahoo. Strategic Management. Datatmonitor/companyprofile/Nucor Nucor press release. Nucor in 2005.com/prnews/080208/clf027. Another intangible resource is its US competition as they go into bankruptcy. 1998 Nucor Company.en wikipedia. www. Friday February 8.html?. Bibliography Barnes Frank C and Tyler Beverly B. www. 9:00 am ET 9 .nucor. Harvard Business School. Fall 2006 Nucor. 2007 Knowledge Management’s Social Dimension: Lessons From Nucor Steel. http://www. Sloan Management Review. http://www.nucor. The intangible resource is the loyalty the employees feel to the firm.
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