Nucor – Porter’s 5 Forces

NUCOR AT A CROSSROADS CASE synopsis NUCORS SUSTAINED PERFORMANCE RECORD ostiaryS 5 FORCES ANALYSIS supplier Power With the regular(a)tual exit of corporate brand name companies from buying scrap, the creams available with suppliers to sell, trim back. Nucor started some(prenominal) sm either lay downs that were close to suppliers nodes, thereby cut pass transportation greets. Also, the sites chosen had inexpensive electricity. Their employee-centric policies resulted in them having depressionest attrition levels a besotted supply of sore employees. Thus the supplier volunteer was moderate- poor. Buyer Power Although Nucor sedulous the a la mode(p) engineering competitive footings, with trade brand name available, the buyers had to a greater extent options to choose from. withal, Nucors customer service was a differentiator that buyers were involuntary to pay for. Hence, the Buyer power was gently unattractive. Barriers to Entry Minimill channel was a swell-intensive business for a new player. Also, for existent integrated steel makers, their reluctance to change to newer technology sm aller scale reject them to get into the market place of the mini mill about. Thus it was mildly attractive from Nucors point of view. flagellum of Substitutes With wide onrushability of substitutes much(prenominal) as aluminum, plastics advanced composites, the demand for steel had stagnated. Hence, the nemesis of substitutes in the future was extravagantly gearly unattractive. tip of rivalry The integrated steel makers didnt threaten Nucors business. Nucor always had the cost profit efficiency conjugate with brilliant technology innovation. However, this was challenged by the global steel makers which resulted in down(p)ering of prices lower margins. The tho differentiation for Nucor was its highly sought- later on customer service.Thus the story of rivalry was high. Thus overall, Nucor had prolong performance so far, due (p) to its technology innovation, lean operations, high efficiency, wet employee dealing superior customer service. However, going ahead, with availability of substitutes growing threat of equally bang-up foreign steel makers, the avowability is in distrust unless Nucor innovates strategically aligns itself to the changing demands of its customers. FUNCTIONAL garment Low Cost Focus strategy Nucor bridal of organic growth helped in bridging the gap in the midst of the club and its customers.Mills were tick off up near the Vulcraft operations and Vulcraft in turn ensured speedy deli real of the products to its customers. The company was to a fault able to bring down the fixed order processing be by using computerized order instauration and billing systems. With the help of competent dispersion and other measures, the company was successful in raising the spontaneousness of the customers to pay even if the price was increased. Also, the company guidanceed on the low intercept segment. Organizational systems / Procedures Nucor had a jejune organizational structure. They decentralised the whole works-level purpose make to the respective plant managers.This led to a lot of autonomy faster decision making thus providing them an good over the competitions. The performance measurement was more(prenominal) vicenary in nature for the plant managers, where they had to see specific revenue targets. The Nucor management support creativity risk taking as they firmly believed in innovation improvisation. there was a relatively high degree of inter-plant communication vis-a-vis consolidation of orders, manduction of deliverables, etc. Thus the plants didnt completely work in isolation, although the structure was decentralized.At the plant level, there were conscious efforts to treat all levels of employees at par make all of them feel equally important pertinent to the organization. Performance Measurement The performance of the plant m anager was more quantitative in nature. However for those of the other employees, it was a smorgasbord of qualitative as well as quantitative. This is because of their emphasis on productivity fictitious character. The fix / compensation were more group found rather than individual establish, encouraging teamwork. determine / Culture Review Employee focus was the trademark of Nucor.They encouraged risk taking, creativity innovation. Their policies didnt allow for much differentiation between different cadres. Their like a shot structure had decentralized decision making, they provided employees a sense of be / ownership with the organization. The all-cash incentives were regularly doled out were at a time performance linked quality quantity-wise. Their robust employee-bonding started right from the time the plant was constructed, manger retirement. They didnt believe in venting during lean times, would rather cut bandaging on working hours, than fire people.The e nd result was that they non only had a highly productive, motivated, experienced non-unionized work force, besides their employee turnover was much below the sedulousness average they had many people leading to work for them. Their high human outstanding of the United States was a clear differentiator advantage over the competition in the steel application. Thus, Nucors approach of cont involute growth, focus on technology innovation, high employee productivity coupled with a dedicated workforce, decentralized agile decision making, set out resulted in a sustained growth success of Nucor.For sustainability in the future, Nucor allow for have a bun in the oven to continue to focus on technology innovation as it has been its point of differentiation among its competitors. TETRA-THREAT FRAMEWORK FOR SUSTAINABILITY ANALYSIS holy terror of Imitation The advantage it derived from a insipidter decentralized structure a motivated workforce, was hard to imitate, as it w ould plastered reorganizing the organization it would distribute much perennial to be effective. Nucor constantly innovated employ latest technology. Hence, even though a competitor copied its technology, it would take time for it to implement it in that while, Nucor would have moved n to a newer technology. Costs of imitation in this berth ar the capital investments that would have to be made the economies of scale that allow have to be achieved. Threat of Substitution The familiar threat of rally by subject matter of resource substitution is very little, as the employee attrition rate is very low comp bed to industry level the services offered to customers is of high mensurate for the customers. External threat of substitution is high due to emergence of aluminum, plastics, etc as cheaper substitutes for steel.But as Nucor is focused on innovation, it spate counter this by itself moving towards these substitutes or coming up with set ahead ripe ways to make steel which bum compete with the substitutes. However this would mean further investments in technology infrastructure information of employees. Threat of Holdup Nucor has a strong vertical integration the market for the suppliers is especial(a) as the integrated steel makers are no longer in its market. So threat of holdup from suppliers is low. It in addition adds appreciate with superior customer service, which the buyers are willing to pay for.But the buyers do have option to opt for imported steel. Thus, Nucor will have to sustain the additional measure it generates for its buyers. Threat of Slack Nucor has optimized the technology that is available for manufacture. It also has a dedicated skilled workforce. However it has not fully exploited these to impale into newer steel markets or into a sum Venture with foreign steel makers who could provide newer technology. However its organizational structure policies are suited for sustained growth. UNCERTAINITIES AND RISKS ASSOCIATED 1.Technological threat CSP would work obsolete in 10-12 long time time, as new technology of plaster cast even thinner slab was already under way. This be risk and unbelief to Nucors lumbering investment in CSP, but adoption of this technology could give it the tooth root(a) removal company advantage also. 2. Quality SMSs wing plant ran only 7 proceedings and produced 12 tons per charge due to space constraints. It wasnt clear if it could take the load from continuous operations and sustain the wear and tear. The components had to operate with more than 96% reliability for it to be cost-effective. 3.Raw Material Nucor used scrap as its lancinating material, and the uncertainty of the scrap prices could make the proposal not viable. If scrap prices rose above $ one hundred forty per ton, Nucor might have to shift to coach Reduced Iron as raw material which would look at major changes in facility and operations. 4. Competition Other minimills will also adopt CSP in a few historic period and thusly Nucor may not be able to relish in the glory of first agent advantage. It wasnt even clear if first moving company advantage would offset the spacious costs this project entails. 5. Company They didnt have the expertise in flat rolled products which had to be acquired.Integrated mills adopting CSP were a major threat as they already had the expertise in flat rolled production. 6. operations CSP plant was very freehanded and more complex. It couldnt have been moved in rural areas, where Nucor have manger now established their plants, hence would require new strategy to cater to these plants. 7. produce Nucor was concerned that it would have to immortalize the high end market if it plans to build more plants with CSP technology and that would require products with superior quality reliability of delivery, which CSP did not guarantee for such products.Moreover the high end market demanded kin based marketing which involved th e customers at early level of development of product, which would be difficult. 8. Resources If Nucor pursued both the projects i. e. CSP and joint jeopardize with Yamato Kogyo, then it would have to stretch its monetary resources and raise equity or debt for huge capital expenditures for the initial geezerhood. But, according to its policies, Nucor curtail its debt/equity ratio to less than 30 % and did not issue new stock. So the problem of raising funds for the both projects is a matter of concern.PROJECT FEASABILITY ? Financial Decisions Assumptions The new project technology will fail obsolete in 10 to 12 years of time, so assuming that this project will last for 12 years of time including 2 and half years of startup time and two years for full capacity utilization. Assumed that 50 % of capacity will be utilise in 3rd yr, 80% in 4th yr and full from fifth yr onwards. The capital expenditure of $280mn takes place in phase wise trend with $70mn today, $170mn in first ye ar and $40mn in second year with additional $30mn in second year for startup cost.Working capital of $30mn will also be split in 3 years based on their capacity utilization. The revenues and costs are adjusted with an inflation of 3. 5% severally year. The rising scrap prices are also taken into consideration. Assuming that reduction in labor costs and savings in energy will be captive by inflation. Depreciation taken most 13% w. r. t. given data (Done by WDV method). Tax rate taken roughly 44%. Assume salvage value equal to the book value at the end of the project life. As the industry is stable, so taken beta value (=0. 95) roughly market beta (=1). guardianship the Debt/Equity ratio to be around 15%, according to existing capital structure policies. The Capital budgeting of the project leads to the following analysis IRR=11. 8%, NPV =$18mn and ROC=26. 5% The pass judgment rate of return of the project is more than the WACC (10. 19%) and NPVgt0, though it is not ver y high. The project is therefore financially viable and can be adopted. ? Industry Opportunities As the market for low end products was beginning to r individually saturation, CSP was a great luck for Nucor to enter into flat rolled products.It could soft enter into the low end of the flat sheet market, consisting mostly of construction applications, where low price was key differentiator. Its internal gross revenue (Vulcraft division) could be 100,000 tons of flat sheets each year to produce steel deck. Moreover, it could enter into the high end market after some years by expanding its capacity, which will make it possible for Nucor to compete with US integrated mills and capture their market share. The threat of ocean freight imports could be mitigated by the reduced costs. eddy industry offers good opportunity as it takes high priced products from the integrated steel mills and CSP will give Nucor the cost advantage to charge lesser price and hence be able to sell its produc ts. ? Operations CSP would lead to savings in casting operations, labor costs and energy costs. Nucor would be able to achieve economies of scale at a reduced output as compared to the US integrated mills. The yields will be higher and the operating costs will reduce. ? Technology Nucor had the drive to embody expert advances.It invested heavily in upgrading its capacity. Its investment levels were 2. 9 times its depreciation charges, wherein the three largest integrated firms had a ratio around 1. 6. with CSP, Nucor will gain the first mover advantage for atleast a few years. Hazelett caster wasnt as effective as CSP. Also, there were some operational constraints with Hazelett approach like expensive conveyor belts, reduced product quality and increased nutrition costs. Conclusion Taking all the business and financial aspects into consideration, Nucor should go ahead with this technology.