Nucor at Crossroads Essay

In 1986, three distinct segments outlined the U.S. poise industry incorporated firebrand dweebs, mini-mills, and specialty steel makers. The integrated mills have the capacity to elicit a maximum of 107 one thousand thousand loads of steel per year, mini-mills produced a maximum of 21 million tons of capacity a year, and the nations specialty steel makers could produce a maximum capacity of 5 million tons of clear and specialty grades of steel. This leads to a total capacity of 133 million tons of action per year. In 1986, the market consumed only 70 million tons of steel, going outside(a) 33 million tons unused. Nucor is at a crossroads. It faces a pure market suffering from significant e actuallywherecapacity. Nucors only opportunity for return seems to be to expand into the production of flat winding-clothes metal. However, to compete in that bea, Nucor would need to invest in a very risky bare-assed engineering science, a boil down-slab mould plant that, if succe ssful, would allow Nucor to manufacture flat woodworking plane metal with a low minimum efficient scale and a low marginal hail of production. This case leave examine Nucors history, the impacts of entering the thin-slab casting business, the advantages Nucor would reap, and whether they should build the new-sprung(prenominal) thin-slab casting plant.Looking at the business landscape of the steel industry, it is amazing to see how well Nucor has through considering the industry is so agonistical and has relatively low profitability. Using porters mold, the little terror of rivalry is blue due to weak domesticated conduct, excess global capacity, a maturing industry, low switching costs, high vent barriers, rising operating(a) costs (increasing earthy material prices), and more than 5 comparable competitors. The threat of conductger entry is low due to high barriers to entry (economies of scale have been achieved and high capital requirements), growth and profitabilit y are modest at best, and most viable candidates are already act in the industry and are looking to expand into separate markets. The threat of substitutes is moderate because buyers have the option of choosing other materials (aluminum, plastics, ceramics, etc.), and new materials technologies are currently being originateed and sought after.The threat of suppliers is moderate because urge on ore and piece metal prices are currently high, energy prices are increasing, Nucor pays for transportation of its raw materials to its plants, there is no easy substitute to take the place of exhort ore/scrap metal, and there is currently an overabundance 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 volume buyers, many low volume customers, strong demand from China, and rising feedstock prices. With the difficult business landscape in the steel industry, Nucor had to develop compe titive advantages over its rivals to achieve its success. These advantages included differentiating itself by being an primal adopter of computerized order tracking and allowing customers to make short sequence orders and then reducing their inventory. Second, it invested in modernization of its plants at an average of 2.9 seasons its wear and tear 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 smaller rural areas with entrance money to railroads, low energy costs, and a plentiful water source allowed Nucor to preserve labor costs relatively low and made sure that COGS remained competitive. Fourth, tooshie wages were lower besides incentives were higher than average, and direct communication on expectation vs. performance provided feedback on compensation. Also, during down times, officers and CEO 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 rivet on reservation 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 second most productive steel maker per employee in the world due by 1985. Thin-slab casting was a proposed technique for mini-mills to come across orders for flat sheet 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 sheet segment. In the thin-slab casting business, Nucor would initially compete with international firms from Canada and Japan that provided high quality flat sheet steel, and cheap flat sheet steel pr oviders in newly industrialized nations.Barriers to entry would include large capital expenditures making new entrants cost prohibitive, but not impossible as the barrier is small comparative to the overall costs for steel manufacturing. plot of land new rivals may not pop up immediately, new entrants from brisk rivals will dilute Nucors competitive advantage. Nucor needed an innovative technology to be profitable in this segment as a new entrant. However, innovative technologies are risky due to development costs, unknown long operating costs, and the unknown quality of future products.Also, as a world-class mover, increased costs will be realized. Increased maintenance in a higher place forecasts, the risk that production will not keep pace with the minuscule model, the risk that the new tech will not be in full understood by the employees and harder to run. Also, an increased likelihood that other companies will realize from their mistakes as SMS has not made any offer to keep development gleaned from a large-scale operation confidential. However, the benefits of being a first 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 turn sheet produced in an integrated mill and 226% higher than the margin from an unmodernised 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 advantages may be reduced over time as others in the industry may imitate them so long as the model is proven to deliver the targeted results. If Nucor works out the kinks, then other companies will join up and the competitive advantage window will shrink, making the overall scheme too costly. If the program 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 into the new technology proves successful, Nucor would have a significant cost savings over integrated mills initially, two 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 easy for competitors to duplicate this technology. umpteen of the companies that do steel would imitate the path that Nucor is taking. They have done an resplendent 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 start 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 almost 5 years to chip in (see attached chart) even and the other companies would be able to use lessons wise(p) from Nucors first mover and apply it to lower their breakeven point. Overall this would be a very risky undertaking for Nucor to undertake at this time as the technology is not at an adequate tech set level, the initial cost to implement, as well as it could move Nucor away from its competitive advantages.