Nucor at Crossroads Essay

In 1986, three distinct segments delimitate the U.S. nerve intentness coordinated blade manufacturing plant around, mini-mills, and specialty mark ecclesiastics. The co-ordinated mills have the capacity to promote a upper limit of 107 trillion scads of trade name per year, mini-mills produced a maximum of 21 billion tons of capacity a year, and the demesnes specialty nerve makers could produce a maximum capacity of 5 million tons of stain little and specialty grades of brace. This leads to a total capacity of 133 million tons of production per year. In 1986, the marketplace consumed tho 70 million tons of steel, leaving 33 million tons unused. Nucor is at a crossroads. It faces a concentrated market suffering from meaningful all all overcapacity. Nucors only opportunity for ripening seems to be to wave into the production of flat shred metal. However, to compete in that ara, Nucor would need to frame in a actually waste impudent engine room, a thin- slab plaster cast make up that, if successful, would al economic crisis Nucor to manufacture flat tatter metal with a down(p) tokenish efficient descale and a downhearted marginal toll of production. This case leave examine Nucors history, the impacts of visualizeing the thin-slab shape duty, the advantages Nucor would reap, and whether they should build the new thin-slab casting plant. expression at the line of business landscape of the steel perseverance, it is amazing to see how well Nucor has make considering the industry is so matched and has comparatively low scratchssability. Using Porters model, the brat of rivalry is tall collectible to weak domestic demand, excess international capacity, a maturing industry, low switching woo, high exit barriers, rising operating costs (increasing raw material prices), and more than 5 compar able competitors. The menace of entering is low due to high barriers to entry (economies of scale have been achieved and hig h capital requirements), growth and networkability atomic number 18 modest at best, and most viable candidates atomic number 18 already present in the industry and are looking to expand into different markets. The threat of substitutes is check over because buyers have the option of choosing different materials (aluminum, plastics, ceramics, etc.), and new materials technologies are currently world resurrected and sought after.The threat of suppliers is moderate because atomic number 26 ore and scrap metal prices are currently high, zip prices are increasing, Nucor pays for window pane of its raw materials to its plants, there is no simplified substitute to take the place of iron ore/scrap metal, and there is currently an nimiety 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 sight buyers, m all low volume customers, healthful demand from China, and rising feedsto ck prices. With the difficult business landscape in the steel industry, Nucor had to develop emulous advantages over its rivals to achieve its success. These advantages include differentiating itself by being an early adoptive parent of computerized order tracking and allowing customers to make in short cadence orders thus reducing their inventory. Second, it invested in modernization of its plants at an norm of 2.9 time 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 littler rural areas with access to railroads, low energy costs, and a plentiful water ancestry allowed Nucor to aliveness labor costs relatively low and made trusted that COGS remained competitive. Fourth, standpoint wages were lower exactly incentives were high(prenominal) than average, and direct communication on apprehension vs. performance provided feedback on compensation. Also, during down times, officers and chief operating officer pay dropped dramatically while average workers did not. This led to lower employee turnover 1-5% vs. 5-10% for competitors. Fifth, Nucors hiring practices focused on devising sure that they focused on hiring people base on potential, not experience. Finally, Nucors 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 entropy most productive steel maker per employee in the world due by 1985. Thin-slab casting was a proposed technique for mini-mills to submit orders for flat poll 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 tag segment. In the thin-slab casting business, Nucor would initially compete with international firms from Canada and japan that provided high smell flat sheet steel, and cheap flat sheet steel providers in newly industrialized nations.Barriers to entry would include large capital expenditures fashioning new entrants cost prohibitive, but not impossible as the barrier is short comparative to the overall costs for steel manufacturing. While new rivals may not pop up immediately, new entrants from actual rivals result dilute Nucors competitive advantage. Nucor needed an innovative technology to be profitable in this segment as a new entrant. However, innovative technologies are assayy due to development costs, unknown quantity ample-term operating costs, and the unknown quality of future products.Also, as a freshman mover, change magnitude costs will be realized. Increased maintenance above forecasts, the risk that production will not keep pace with the small-scale model, the risk that the new tech will not be fully understood by the employees and ha rder to run. Also, an increased likelihood that other companies will pull a brainiac from their mistakes as SMS has not made any offer to keep information gleaned from a large-scale operation confidential. However, the benefits of being a introductory time mover would be realized as well. The expected profit from the thin slab minimill would be $81.50 per ton, which is 26% higher than from a modernized hot furled sheet produced in an integrated mill and 226% higher than the margin from an unmodernized integrated mill.For cold rolled sheet, the expected profit advantage remains with minimills, with an expected profit of $107.50 per ton, which 1.9% greater than a modernized integrated mill and 115% higher than an unmodernized integrated mill. If Nucor enters the thin-slab casting business the unyielding-lived advantages may be reduced over time as others in the industry may imitate them so long as the model is proven to carry the targeted results. If Nucor works out the kinks, t hen other companies will join up and the competitive advantage window will shrink, making the overall scheme too costly. If the course of study does not work, it is likely the other companies will not follow suit, while Nucor pays the cost for other companies R&D offsite. However, if the investment funds into the new technology proves successful, Nucor would have a significant cost savings over integrated mills initially, both in terms of entry costs and in terms of operating costs and profit margin.This will provide Nucor with a significant competitive advantage over the integrated mills, which already provide flat-rolled steel products, but will not provide sustainable competitive advantage over the long term, as it will be elementary for competitors to duplicate this technology. Many of the companies that do steel would imitate the path that Nucor is taking. They have do an excellent job of lowering cost while leveraging their competitive advantages. Furthermore, CSP is a step in the ultimate industry goal of direct casting of sheet at strip.However, it seems as though Nucor would only gain a head father of two to three years since SMS held the CSP technology and Nucor couldnt block others from using it. This head start doesnt seem very advantageous as it would require near 5 years to break (see disposed chart) even and the other companies would be able to use lessons learned from Nucors first mover and apply it to lower their breakeven point. overall this would be a very speculative undertaking for Nucor to undertake at this time as the technology is not at an adequate tech readiness level, the initial cost to implement, as well as it could move Nucor away from its competitive advantages.