Nucor at a Crossroads

CASE STUDY SOLUTION

1. Analyse key features of the US Steel industry in the mid-1980s 

The key features of the US steel industry are as follows:

 The highlights of the US Steel Industry in the mid – 1980 are their homegrown utilization
that had reached $90 million tons in 1986, and the limit of 107 million tons of steel
through their coordinated steel producers.
 The steel-mills were segmented into -Flat sheets ( hot rolled, Cold rolled & coated
striped) contributing 52%, followed by, bars contributing 17.4%, followed by structural
shapes & others contributing 6.5% & 6.4 % respectively, followed by Ingots, Billets & 
slabs contributing- 1.9% , pipe & tubing- 4.1%  and lastly plates contributing 5.1% of the
domestic shipments.
  The proficient utilization of steel had demonstrated the decrease in the interest and the
uncompetitive pricing led to losses (lost in imports). Besides integrated steel makers
were criticized for charging excessive premiums during tight supply and also faced
arbitrary favouring over other buyers.
 The shipment was classified on the basis of customer groups (ranked by volume):
1. Service Centres & Distributors (share increased)
2. Automotive Sector 
3. Construction (comprising 1/10th & flat sheet)
4. Appliance & equipment industry
Together 1,2 & 4 accounted for half of total domestic shipments & 3- quarters of
shipments of flat sheets.
 The buyer purchasing criteria was based on three parameters:
1. Price
2. Quality (Physical strength, Surface quality & Internal Quality) 
3. Dependability 
The large buyers namely General motors & General Electric were willing to pay higher
prices for quality & dependability.
  The primary focal point of US Steel Market was to gracefully support focus, wholesalers,
car parts, development business, machine and hardware industry. The serious weight
originating from the merchant purchaser cooperation and the bartering from the
purchaser side. There was danger of passage of new adversaries which was forcing the
market players.
  The providers of crude materials, or other asset inputs expanding the provider dealer
coordinated effort and bartering and there was also a danger from the other market
players who were attempting to poach the purchasers and attempting to sell their items.
The weight of contending dealers by moving among rival venders to pick up the market
position and upper hand among them.

2.Give a “People” (HR) focused explanation of why Nucor has performed so well in the
past.
Nucor has performed so well in the past because of its robust HR policies and practices which
delivered the best results. The policies were.
 Development of company culture- 
 Vision shown to the employees that what was expected out of them
 Reflecting the business standards that the company needed to maintain
 Provided guidance & tools to the managers 
 Provided rules surrounding fairness, consistency and clarity 
 Followed open book management style
  Performance linked bonus
 Fair evaluation system
 Excellent feedback mechanism:
The company implement these policies in the following ways:

The company shared its values, goals, attitude and practiced it throughout the company.
The company followed the strategy of Fewest Layers of management (5 layers
supervising 275 employees per plant) for effective communication among employees &
for better and fast decision making. The flat hierarchy system decentralized most of the
decisions (except capital expenditures, changes in plant organisation, & pricing). 
The managers were given a clear target to fulfil each year and were either required to
fulfil it or give explanation for unfulfillment. 
Management believed in Green Motivation and controlled the employees via high
powered performance incentives. Employees including the production workers were
given high compensation for high-powered performance. Company awarded
discretionary bonuses to non-officers during its strong corporate performance.
Fairness & Equality was maintained among the workers where every worker had the
same set of uniform (green jackets & hard hats) and therefore removed the authoritarian
practice.
The company believed in minimizing the status related differences among employees by
providing same insurance coverage & holidays. Besides, it gave the scholarships for
their employees’ kids and the open forum between the managers and employees over
dinner which helped in increasing the innovation in work.
The annual reports consisted of the names of all employees in the front page which
reflected the contribution and importance & respect for the employees.
The CEO directly answered his calls and communication was open for all employees &
they responded back within 24 hours.  Their enquiries/queries were sorted rapidly and
with their satisfaction which also resulted in boosting morale. 
Top management believed and encouraged in the concept the Good managers make
bad decisions as well but also took care of the fact that they keep repeating those bad
decisions.

3.Give a “Plant” (Investment) focused explanation of why Nucor has performed so well in
the past.
Mentioned below are the reasons which led to the high performance of Nucor:
 The company invested steadily & heavily in upgrading its capacity & rebuilt at least one
steelmaking or fabricating facility each year and embodied technological advances
 Nucor did not have any R&D budget, instead it regarded capital equipment suppliers as
its R&D laboratories and treated them as cost incurred while starting up a new plant or
equipment as its own process R&D investments.
 Nucor focused on the strategy of attaining 25%  ROA in the first 5 years of start up as
well as also compared the projections with the historical data. 
 Followed the policy of  longer payback schedules which allowed the space for
investments leading to increased capacities than those for reduced costs.
 Nucor focused on long term planning for its new plants maintaining the informal rule for a
ceiling of at least 500 employees per plant .
 Nucor actor acted as its own construction manager where as otis competitors rely on
Turnkey contractors
 Invested in a less risky joint venture with Japanese steelmaker, (which helped the
company to produce wide-flange beams) to establish a strong foothold in the high-end
construction market.

4.How attractive do the economics of thin-slab casting look?

 
The thin slab casting has extremely attractive economies of scale because :
In the case of thin slab casting, the steel is cast directly to slabs with a thickness between 1.2
and 2.4 in (30 and 60 mm) instead of slabs with a thickness of 4.72 to 11.8 in (120 to 300 mm).

The method involves pouring molten steel into the Tundish at the top of the slab caster, from a
ladle.  They are sized with a working volume of min 100 t, which will deliver the steel at a rate of
one ladle every 40 minutes to the caster. The temperatures of liquid steel in the tundish as well
as the steel purity and chemical composition have a significant impact on the quality of the cast
product.

When performing a unit-cost comparison in thin-slab casting between thin-slab minimill

production and integrated mill production. This analysis is based on comparison of both initial
construction costs allocated per ton of steel shipped, and also based on a comparison of
hypothetical operating costs.

CONSTRUCTION COST: this  cost contains 3 type of construction melting, casting and rolling

S.NO. THIN-SLAB MODERNIZED INTEGRATED MILL

MINIMILL

HOT-ROLLED SHEET $236 $451

COLD-ROLLED SHEET $450 $675

The difference between predicted cost and actual cost would have to be drastically different in
order to change the preference for thin-slab casting. Actual construction cost for Nucor’s  for hot
rolled sheets would have to increase by more than 90% of the consultant’s estimate.

actual construction cost for cold-rolled sheets for Nucor’s would have to increase by 50% to
change the preference towards thin-slab minimill construction over a modernized integrated mill.

OPERATING COST:

The table below shows the operating costs and revenues for operating thin-slab casting
compared to integrated mills.

For HOT-ROLLED SHEETS:

S.NO. THIN-SLAB MINIMILL MODERNIZED INTEGRATED MILL

TOTAL COST $225 $261.50

TOTAL REVENUE PER TON $306.50 $390.50

 

COLD-ROLLED SHEETS

S.NO. THIN-SLAB MINIMILL MODERNIZED INTEGRATED MILL

TOTAL COSTS $283 $349

TOTAL REVENUE PER TON $390.50 $454.50

As we can see from table 1 for operating cost the total cost for hot-rolled sheets total cost has
reduced to $225 and for modernized integrated mill again reduces to $261.0. again. Total
revenue of hot-rolled sheets was $306.50.

Table 2 shows us the result of cold-rolled sheets, the total cost for thin-slab mini mill of cold-
rolled sheets is $283 reduced from $450. Total revenue earned from cold-rolled sheets is
$390.50

5.Is thin-slab casting likely to afford Nucor a sustainable competitive advantage in flat-
rolled products?  
The thin slab casting will likely help Nucor to attain a sustainable competitive advantage because
the future of the US industry lies more in the flat products because more than half the market
demand is based on the flat products. The implementation of the thin slab casting technology will
help in achieving economies of scale for smaller plants as they will be able to fetch more profits
because of low investments as well as low operating costs leading to much lower cost of
production of the flat sheets. Besides, adapting to the thin slab casting, it will give Nucor the first
mover advantage over the new entrants who are yet to adopt to this technology thus making
them lag behind.
 
6.How should Nucor think about the uncertainties surrounding thin-slab casting – what
should it do?
Nucor should think about the uncertainties in the following manner which surrounds the thin-slab
casting:
 The company should focus on the evaluation of the output data which is available in
order to rectify the issues which may hamper the operations prior commercialization
 Focusing on the planning for the plant flexibility (for long term) in its design, so that
redundant technology that would become obsolete could be replaced much easily & the
benefits could be reaped by then.
  Thin slab casting will be able to provide a window of opportunity for the future
technology, as this method will make manufacturing costs much cheaper.
 The two technologies Large Flange Beams and Thin Slab Casting require capital, one of
which gives niche market emphasis to the future promise and another supports it.
 The scrap prices are likely to rise with the introduction of thin slab casting, resulting in
flexibility at the end to use directly reduced iron as raw material.