Nucor March 7, 2008 Nile TecleMariam Business 499

Conclusion 2 . Strategic Profile and Case Analysis II. C. D. C.Table of Content I. B. Strengths Weaknesses Opportunities Threats IV. SWOT A. B. General Environmental Analysis Industry Analysis Competitor Analysis Internal Analysis III. D. Situation Analysis A.

B. the United States lost the role of world’s steel produced and imported more than what it exports. thus starting the Nucor Era. and competitive pricing. The company was rename Nucor Corporation in 1972 and expanded steadily through 1986. The corporate strategy is focused on being the lowest cost provider of steel by finding opportunities to reduce cost. By the 1980s.Strategic Profile and Case Analysis Steel is the backbone of many industries. Industry Analysis 3 . Situation Analysis A.6 billion in the year 2000. responsive service. Olds. Another group is the flat-rolling. Another group is one where bars and thins rods are made. South Carolina in 1968. employee relations with fair compensation and egalitarian benefits were just as important as technological advances. who founded Olds Motor Vehicle Company in 1897. The United States in the 1960s produced most of the steel used in the world. The production cost is the most important if the company is going to be profitable and survive. however. steel deck. Nucor recycles approximately ten million tons of scrap steel a year. The board of directors made Iverson President and Samuel Siegel as Vice President of Finance. which could be grouped. streamlined organization structure to allow employees to innovate and make quick decisions works very well for Nucor. which yield plates (more than 0. All the other business not related to steel were either sold or liquidated. South Carolina from the founder’s widow. The semi-finished products that are at least eight to ten inches thick and require more processing is one group. beams. sheet. Inc. steel fasteners. and plate. Nucor Corporation is the second-largest steel producer in the United States and had net sales of $4. Nucor was started by an auto manufacturer Ransom E. metal building systems. steel joists and joist girder. The standard unwritten practice of equalizing freight was stopped by Nucor which was unheard of in the steel industry. The company decided to integrate backwards into steel making by building its first steel bar mill in Darlington. into a few groups. In addition. The company is highly decentralized. It emphasizes technological leadership by aggressive pursuit of innovation and technical excellence. a steel joist manufacturer located in Florence. Nuclear Consultants was not very successful. Iverson moved the corporate headquarters from Phoenix to Charlotte. The simple. which makes them able to make uncompromising quality. in the broad sense. and light gauge steel framing. it was able to purchase the Vulcraft Corporation. It operates in nine states and produces carbon and alloy steel in bars.25 inches in thickness) and sheets or strips. Ransom sold the manufacturing operation. 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. Steel goes into thousands of products. North Carolina. General Environmental analysis Nucor over took US Steel to become the second-largest steel producer. Kenneth Iverson was hired as general manager for Vulcraft == the only business division making money. cold finished steel.

. If Nucor was going to survive against the imported steel. which had only been built at pilot plant 4 . The smaller the mill sizes became. Two Japanese companies did the same to form the second-largest steel producer. Competitor Analysis Most steel companies in the US were only utilizing 75 percent capacity resulting in production inefficiencies. Nucor believes that bigger is not better. SWOT A. It would take all the companies assets and a huge loan to build the mini-mill. who were the country’s third. Nucor is one of the leanest corporate organizations in the nation.The steel industry is undergoing consolidation and there are many companies filing for bankruptcy. We are committed to doing this while being cultural and environmental stewards in our communities where we live and work." We are accomplishing this by being the safest. This was a very risky business decision made by Nucor President Inverson.and fourth-largest steel producers. 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. They took great effort to make sure that they were using the latest technology to reduce the size of their mills. D. The competitive pressure is very high since there is huge excess capacity and orders are huge. highest quality.300 teammates whose goal is to "Take Care of Our Customers. Employees are valued as a critical asset for the corporation. most productive and most profitable steel and steel products company in the world. Strengths One of the greatest threats to the US Steel industry is the importing of steel. operate in the red. and finally to the micro-mill. Their technological advances allowed production to shift from the mill to the mini-mill. Three European companies decided to merge to from the world’s largest steel producer. respectively. the more the company grew. Nucor strives to put plants where there is the least amount of cost overhead and where transportation costs to their customers can be minimized. The product is standard and not much can be done to create differentiation. Research and development is another asset greatly valued. The imported steel in many cases were subsided by their governments. A typical Fortune 500 company has a triple-digit corporate staff. We are succeeding by working together. C. 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. High costs of US steel were driving consumers to import steel. Among them are Bethlehem Steel Corporation and LTV. they would have to make sure that their costs were as low as possible. uses electric arc furnaces to melt scrap into steel. In 1987. which made them. lowest cost. Nucor ranks 189 on the list in 2005 with 75 corporate employees. foreign steel producers were dumping steel in the US market at cut-rate prices with no restriction from the US government.

with the shorted life. 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. This opened up another 50 percent of the total steel market. Each division manager had a business target to accomplish. Economics still favored the minimill. instead of iron ore. plant organization. To compare the performance of its plants. Switching to basic oxygen furnaces help increase the capacity of the mill. such as junk auto parts. Minimills took advantage of the declines in the use of scrap metal. and technological leadership. hiring and firing division managers and prices. 2 The mini-mill utilized scrap steel. Most decisions were made at the plant level except for things like capital expenditures. Most of the promotions on the shop floor are made from within based on performance and peer evaluations.000 tons compared with 7 million tons from an integrated mill. There are only 70 employees at the corporate office. Corporate would take a share of each division’s profits. they made more than any steel worker in the US due to their performance.sizes before Nucor. Each year Nucor has increased its production capacity which improves its competitive position. department manger. The bonuses are based on productivity of 5 . egalitarian benefits. In Iverson’s word. Nucor now has eight mills that sell 80 percent of their output to outside customers and the balance to other Nucor divisions. which made each division a profit.000 to 600.1 The minimill is designed to last only 10 years where the integrated mill has a 25 – 30 year design life. which is used in the integrated mills. weekly tonnage reports. Even the hourly employees are encouraged to think of ways to improve the plant and bring them to their supervisor. they had performance incentives. executive vice president and president) where most steel companies have many times the layer of management. which makes it one of the smallest corporate offices among a Fortune 500 company. This means that even though the workers get paid lower base pay than other steel workers when the performance incentive was added. pipes and tubes). Each plant general manager administered a psychological test to prospective employees that sought to identify goal-oriented. wire rod and small structural shapes. The Nucor culture can be summaries in five areas: decentralized management philosophy. headquarters received monthly operating reports. The minimill labor cost is only $35 to $70 per ton compared to $100 to $150 per ton with integrated mills. 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. These performance incentives were given to everyone in the plant.”3 In decentralized management. Failure to meet the target could lead to firing of the division manager. and monthly cash management reports. performance based compensation. customer service and quality. Nucor decentralized as many decisions as the next layer down could manage. division manager. Another strength Nucor has over other US steel manufactures is its “Nucor Culture”. 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. over the integrated mill. 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. “The fewer you have. self-reliant people. There would be caps for the production workers and none for the professional employees. Nucor has five layers of management (supervisor/professional. The top managers of Nucor believed that “the best motivation is green”.

Nor did they lay off any employee when times were very slow in the 1980’s. The top executives of Nucor flew to German to meet with SMS Schoemann-Siemag AG to see the novel pilot plant. One of the best opportunities and strengths Nucor has to improve profit is by improving their technology. 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. There are no company cars and everyone wears a green spark-proof jacket and hard hat in the plant. Sometimes it turned out to be a waste of money. Nucor spent millions of dollars researching better ways to make steel. it was shown to save the company millions of dollars. The company called it the “Share the Pain” program. the Germans came to Charlotte for a meeting to hammer out 6 . The employee turnover at Nucor is about 1. bonus and college education allowance for their children and stock in the company. the company’s return on equity for the month and the latest stock price. Other incentives programs were things like profit sharing. he feels it is the workers responsibility to inform the manger how they could make those poor decisions better. Iverson heard about a German company with some promising new technology. 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. Openness and risk-taking is emphasized rather than denying the possibility of managerial mistakes. The bonus can be no more than 80 percent of the employee’s base pay. but when something was found to work. 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. Nucor benefits are the same for all employees. the plant’s performance relative to the target of 25% return on assets. The other 40 percent of the time. 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. 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 price of the finished product is sent based on a computer program at each plant. Nucor went against the business norm by not giving any price adjustment for raw material and finished products.5 percent per year.their work group and are given out weekly. its entire member’s lost their bonuses for the week. The rate is calculated based on the capabilities of the equipment employed and no bonus is paid if the equipment is not operating. Nucor pays a straight commission per ton of scrap at all the plants. Labor costs are very steady and help keep the company competitive. Professional and Clerical staff gets bonuses based on the division’s net income return on assets. the bonus percentage. Department managers earn annual incentive bonuses based primarily on the percentage of net income to dollars of assets employed for their division. In December of that same year. Nucor reinforces these rewards with stiff penalties. other US steel companies during this time either just closed or lay people off. There is a giant board at the entrance of every plant that informs people of each department’s goals. Increasing production means increase in profit for everyone in the company. the employee’s hours were shortened but the production bonus program stayed intact. If the group fell short of its productivity goal. This is a very smart way of reducing the threat of closure and minimizes the losses. This philosophy has helped to retain employees. The employee can earn an average from 80 to 150 percent of the employee’s base pay. The year’s annual report lists all employees on its cover in alphabetical order.

sales.a deal. Weaknesses One of the weaknesses of Nucor is that by having a decentralized profit center with all the functions. Texas. It is always in a small town where land. electricity and water would be 7 . After Iverson retired. Indiana. this was not true. It does provide consumer benefits and the material can be widely used in many products and markets. including marketing and sales. The company has made moves to improve its environmental requirements. The customer would see the plant as a way of promising supply for them and would become a steady customer. its extensive brokerage operations provide Nucor with global sourcing of many key steelmaking raw materials. Later their other plants in Alabama. They could use the mini-mill but the ability to reduce raw material cost. The first avenue of growth. 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. Another weakness is that by having so much power in each division. B. could come from the acquisition of other companies that specialize in steel or other services that complement Nucor’s business divisions. which Nucor has successfully used in the past. Many believed that the environmental issues would be less by locating the plants in the rural areas. Joseph Company (DJJ) is one of the leading U. The customer values the product coming out of Nucor as good quality and reliable. general and administrative expenses have increased every year with the redundancy. and Utah were sited. it gets high marks. there was no long-term strategic vision of plan for Nucor. Nucor does not meet all three of the core competencies parts. being done at the division level is that the divisions start to compete against each other. Opportunities There are numerous opportunities available for Nucor to expand its businesses in the US steel industry. scrap companies. Another weakness in Nucor is that no one was watching the environmental issues enough.S. It is easy for the competitors to imitate as there are standards for the finished product. The David J. Arkansas. Moreover. The plant is near a distribution site in order to keep down shipping cost.” The University of Massachusetts ranks Nucor as the fourteenth-largest contributor to the US air pollution. administration and employee value would be hard to do. In addition to DJJ's scrap processing operations and expertise. DJJ's rail services and logistics capabilities will allow Nucor to leverage the largest private railcar fleet in North America dedicated to scrap transportation. Nebraska. The Environment Protection Agency cited the mill in Crawfordsville for alleged violations of the Federal and State clean air rules. which sells to Nucor. 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. The industrial scrap programs of DJJ will also provide improved channels of raw materials to Nucor. Other steel industries would have a hard time imitating the company. C. The acquisition of DJJ will bring a variety of benefits to Nucor. the new board of directors realized this problem and is starting to develop a plan. When the VIRO test is used on the Nucor Company. The $98 million result was “the largest and most comprehensive environmental settlement ever with a steel manufacturer. There is duplication and redundancy in company that has led to many salespersons calling the same customer to get their business.5 Nucor selection of the site for the new plants is always in different areas around the country.

D. Nucor has had success with partnering with other companies. if not the highest paying job in the area. They should consider scaling back acquisition strategy and pay down long term debt. They would locate along major highways. where they would build a mill on the Mississippi River together. rivers or railroad sites so that transportation would be cheap. Decentralizing management is working for Nucor but it does not help its cost structure. Nucor was able to keep their cost low so that they were able to compete with the foreign steel industry. Nucor quickly becomes one of. plants are easily determined to be success or failures quickly and then the company takes An example would be to keep operating cost and human relations separate for every division but centralize purchasing. Threats The economy after the September 11th terrorist attacks fell into a recession and the demand for steel dramatically reduced. In the past. Nucor has successfully integrated into steel products and backwardly integrated into scrap/recycling. IV. Nucor was one of the few steel companies in the US that was able during this time to expand and show a profit. This venture turned out to be very successful. There is still an overcapacity in the global steel industry. but not often. Each division within the company was evaluated every month and purchase and building of other plants were evaluated based on demand in that area. Steel requires large amount of money and expertise to enter the industry. Another opportunity that Nucor can take advantage of is the use of joint ventures. This is strength and opportunity for Nucor. This is one of Nucor’s strength in that with its computer program. plus the industry is not growing but consolidating. 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. The first one was with Yamato Kogyo Ltd. The backward and forward integration in the steel market as worked for Nucor and should be continued. Conclusion Nucor has close to $1 billion in cash on its balance sheet. They should consider only decentralizing parts of management and putting others under one group for the company. Foreign steel coming into the market and under cutting cost is always present. They should continue to invest heavily in research and development as this industry is about 8 . sales and information technology. It is a buyers market and Nucor is heavily reliant on the producers of iron ore and scrap. Plastics and other components have taken market share from steel and will continue to do so. Sometimes US steel quality is an issue. There is heavy competition in the industry with excess capacity. they should continue to raise dividends and consider share buybacks. Nucor answered the raw material issue by purchasing it’s supplier of scrap material. Based on Porter’s five forces: Competition is fierce and foreign competitors are dumping steel. The percentage of debt to capital ratio has been steadily increasing each year and is currently over fifteen percent. Nucor’s plan was to ship iron from Brazil and processes it in Trinidad. While earning outlooks are still good. Most steel companies in the US are in major cities and much higher operating costs. The second joint venture was with Brazil’s Companhia Siderurgica National to build a $700 million steel mill in the state of Ceara. Trinidad proven to be more expensive than originally expected and was deemed unsuccessful then closed. Raw material availability and cost are always a threat to Nucor’s survival.

January 20.nucor.being the lowest cost producer. The tangible resource that Nucor has is technology and its employees. http://biz. Another intangible resource is its US competition as they go into bankruptcy. www.html?. Fall 2006 Nucor at a Crossroads.. www. Technical innovations ultimately lower the cost of producing steel. Bibliography Barnes Frank C and Tyler Beverly B. http://www. 9:00 am ET 9 . Nucor. The intangible resource is the loyalty the employees feel to the firm.en wikipedia. Nucor in 2005.aspx?finpage=aboutus Nucor Corporation. 1998 Nucor 2007 Knowledge Management’s Social Dimension: Lessons From Nucor Steel. http://www. Friday February 8. Harvard Business School.v=101. Datatmonitor/companyprofile/Nucor Nucor press release. Sloan Management Strategic Management.