Problems identified in Nucor Corporation

Strategic Profile: Background

The Nucor Steel Corporation is an industrial company headquartered in Charlotte, North Carolina. It was founded in 1897 by Ransom Eli Olds, who was an auto manufacturer who established REO motor company when the company made the first Oldsmobile under the name “Reo Truck Company”. In 1995 took over a tiny nuclear services company called Nuclear Consultants, Inc. It was in 1962 F. Kenneth Iverson was hired as general manager, who was into mini steel production. Nucor Corporation was named by him, and is the largest steel producer in the United States and nation’s largest recycler. The company operates through three segments: Steel Mills, Steel Products, and Raw Materials. They are best known for producing steel with recycled strap steel. The product line is diversified including products such as steel joists, steel bars, steel deck, cold rolled bars, metal building systems, light gauge steel framing and structural steel. Nucor Corporation deals with many capital equipments including mill stands, furnaces, and overhead cranes in nine states and is maintained by an effective system ensuring that it operates in peak efficiency. Nucor Corporation exceeded with regard to the internal organization structure. By 2005 Nucor had 16 steel facilities.

Strategic Profile: Mission Statement

There goal is “Take Care of Our Customers.” The company is made up of more than 21,000 customers. There are committed to ensuring safety, highest quality, lowest cost, most productive and most profitable steel and steel products company in the world. They are committed to working together (Nucor.com).

Analysis: Problem identification and case analysis

The main problem that the company has faced for past few decades is the entry of imported steel. There have a demand to put a ban on product into the market from import steel companies. The US administration has removed the ban several times. At present there is no ban on product dumping into the steel market. Another problem would be the minimal management system, the four tier system worked well for the organization which was practiced for many years. But the new five tier system has resulted in the communication barriers within the segments. The most important problem they faced was strict regulations of pollutants created by the plants and mills. They have only faced one issue with the E.P.A therefore they have to be cautious.

The Nucor Company in the US finds it hard to keep up with the Asian manufacturers due to their lower production costs. The company is reliable on scrap metal which is becoming scarce and much more expensive and at the same time volatile. The absence of R&D makes the company rely on partners or suppliers to bring in new technology. Nucor being decentralized makes it difficult to coordinate among divisions in a time of purchasing or sales which result in doubling marketing and sales efforts and not capitalizing the economies of scales in support of purchasing. The most significant problems are to do with its domestic market. The US market is the primary customer base and Nucor is unable to compensate losses because of a diversified location worldwide. This at present is identified as a problem. The production of the big-three has substantially declined over the past 5 years and is not close to rebounding anytime soon.

The steel industry is cyclical which can be seen as a downfall to the company with the demand for steel fluctuating. This challenge for Nucor can accumulate more costs for the company. The need to include new acquisitions will result in increase geographic locations, customer base and make it harder for rivals to compete. There by resulting in accumulation of increased costs, for the training and development, of employees. The competitive forces affecting Nucor Corporation is numerous and the primary ones include the number of rivals, pace of technological change and market change. The numbers of rivals are declining high capital requirements and labor costs. Nucor competitors include Mittal Steel Company, AK Steel Holding Corporation, United States Steel Corp., Baosteel Group Corporation, Corus Group Limited and Corus Group Limited (according to Exhibit 11). The market size is said to be shrinking due to the high number of competing international steel companies. The pace of technology in the steel industry is fast and the company that obtains the latest technology has a competitive advantage over the other producers. In other words if a company obtains new technology this enables them to produce at a low cost then it has a big advantage in the steel industry. In Nucor Company technology has been their key strengths. They have several key success factors that enable them to be a successful company. Nucor corporation has qualified workers that help improve productivity, advancement in technology and the breadth if the product line that add to the success of being one of the low cost producers.

The key strength of Nucor is the employees. The organization structure has strong leadership throughout the hierarchy levels that enable them to make quick decisions and share their success and failures with each other. Dedicated workforce indicated by lower turnover (only 5%) than the industry average (10%-12%). By being risk taking and innovative they have been able to produce the best products that are of high quality and is superior. The company took a risk when they invested hundreds of million dollars when adapting to the untested German process manufacturing flat steel and the company was the first to use mini mills to produce flat rolled steel.

Section IV

Identification of Opportunities and Threats and Firm Strengths and

Weaknesses (SWOT Analysis)

Strengths

Weaknesses

Strong market position -historically based

Geographical concentration

Increased production capacity

Mature Industry

Strong technological focus

Opportunities

Threats

Joint ventures

Cyclical nature of the industry

Inorganic Growth

Consolidation in the global steel industry

Overcapacity in the global steel industry

Increasing raw material costs

Identification of Strategic Options and evaluation

The first option (A) is to look into their existing venture supplier. Are their cheaper suppliers out there in the global market? If Nucor is to bring down their production price they first need to cut down on the prices of the raw materials. Since 1980 Nucor Corp. has been in joint venture. Now countries like Korea and china are becoming industrialized and Nucor has a great opportunity to capitalize on lower supplies. If they don’t look into this they might miss a great opportunity in expanding their future business.

The second option (B) Nucor technological advances have always being the key success factor in making them no one. In order for them to compete in the market they need to continuously improve their technology and focus on producing at lower production cost with high profitability. They should increase their output by maintaining the existing levels of costs and at the same time bring more steel into the market. Economies of scale lowers the average cost per unit through increased production since fixed costs are shared over an increased number of goods.

There are pros and cons to these options. The option A reduces the production costs and will enhance the relationships with foreign countries. Will bring about profits and the potential for innovative methods is higher. But the drawbacks are the loss of relationships with the existing joint ventures. For option B again this will help to lower the production costs and increase the output. Can push the company towards growth and bring Nucor into the top position in the U.S. But again the drawbacks would be the high costs for investing in new technology and sometimes may not deliver the expected results. Also could be difficult to achieve it in old mills.

In May 2008, Nucor also announced two joint ventures overseas to capitalize on thriving construction markets outside the U.S.

Recommendation

As an outside analyst, I think should focus on several strategic elements. The first tool is market development. Nucor is only focusing on the U.S market and are not expanding internationally. This will be one of the key steps in competing with the rivals. They can expand to emerging regions such as India, Brazil, China and Russia through acquisitions, mergers and joint ventures. Nucor Corp. can benefit from low production costs and at the same time be near to the growing markets.

To focus on product development, due to strong competition in the market continuous product development is essential. This can also be done through long term relationships with customers this can help in

a. Reduction of cyclical demand and possibilities of customers switching to other suppliers (manufacturers).

b. Determine products to be eliminated from our offering.

c. Tailor our pre- and after sales services based on customers’ need and expectations.

They need to bring back the organic hierarchy which helps Nucor to keep the communication channels short in order to make decisive quick decisions just like when they started off. The option A as proposed by the company would be the best way to bring in fast and effective way and to revolutionize the steel industry. There will be minimal costs involved. Since the prices of raw materials decrease the production costs will go down. They will also be able to increase their global reach through partnering with a company of a developing nation. They will be able to experience a bottom line net income. Nucor Corp. should be able to see the bottom line profits which are greater than a minimal increase.

A company such as Nucor which has innovation, strong autonomy and creativity as their critical success factors will not find it hard to survive. But survival is not guaranteed if there is no continuous reshaping the company’s position. Therefore it is easy to see giant companies become obsolete.