final nucor (1)
TRANSCRIPT
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Mission
To Take Care Of Our Customers
By being
The safest,
Highest quality,
Lowest cost,
Most productive
Most profitable
Steel and steel products firm
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Nucor History
1897 - Ransom E. Oldsfounded the Olds Motor
Vehicle Company which waslater sold to General Motors.
In 1905 Olds launched the ReoMotor Car Company in Lansing,Michigan. This company filed for
bankruptcy in 1938 and wasreorganized to focus on building
trucks during WW II and lawnmowers in the post-war era.
The firm was sold at a $3miilion loss to BohnAluminum and Brass
Company and was leftwith no viable
businesses primarilybecause of the intensecompletion in the lawn
mower industry.
In 1955 a group ofdissident share-holders
opposed the Nucorboards decision to
liquidate the company.Instead, they forced it to
acquire a tiny nuclearservices company called
Nuclear Consultants,Inc.
The original Reo MotorCompany was renamedthe Nuclear Corporation
of America, Inc. Its andthe headquarters weremoved to the EmpireState Building in New
York City.
Source: www.Nucor.com
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1950s -1960started acquiring unrelated
businesses including Vulcraftamanufacturer of steel joists
located South Carolina. Kenneth
Iverson was hired as GeneralManger of Vulcraft in 1956.
1965- promotion of Ken Iverson topresident and Sam Siegel to chief
financial officer.
Iverson and Siegel sold off orliquidated all Nuclear businesses
except Vulcraft and movedcompany headquarters to NorthCarolinaslightly over 100 miles
from the Vulcraft plant inFlorence.
1969-Expansion into steel joistsand introduction of mini-
mills
1980-one of the most profitablecarbon steel operations in
the world
2000 -Don DiMicco was
promoted to CEO in andKen Iverson retired.
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2 Basic Businesses in the Steel
Industry
Steel joist plants
Steel frames for building
Steel mills using Mini-mill technology
Smaller scale production
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Reasons for success
Ken Iverson restructured the company Engaged in divestment of high-tech business
Focus on profitable business: steel
Decentralized operations with decisionmaking power to managers.
No volume discounts
Shift from the normal shipment delivery
charges Use of the latest technology and advancement
in processes
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Steel and Iron Industry
Three main competitors
ArcelorMittal USA, Inc.
Commerical Metals Company United States Steel Corp.
Less competitors = more opportunities
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Nucors Philosophy
There were three principles that defined their
philosophy
Honesty
Autonomy to workers in decision making and
allowing them to focus upon more effective
ways to perform their duties
Fairness to all employees
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Steel Making Process
Mini-mills Bar mills
Used junk auto parts instead of
ore
Used Steel scrap as raw
material
Produced steel used inintegrated mills
Production process: melting,casting and extrusion
Production cost: $250 per
tonne
Production cost: under $ 135
per tonne
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Evolution of US steel Industry
The US steel industry witnessed cyclic periods ofgrowths
In the mid 1980s faced with external competition fromAsian steel firms, slowdown in the automobile industry,the steel industry faced a slowdown
However with focus on modernization, cost reductionand innovation the situation improved for the US steelfirms
In 1997-98. due to fall in demand and flooding of theUS steel market with imported steel, the situationchanged quickly
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Competitive Advantage
Corporateculture
TechnologyInnovation
Low coststructure
Operationalexcellence
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Cost leadership
Lean structure
JIT
Mini mills technology using scrap as rawmaterial
Offices in rural areas near the markets they
serve
Simple routine office building
Emphasis on recycling and less use of paper
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Nucor culture
Egalitarian
Same colouredhard hats for allemployees
No designatedparking spaces formanagers
No separateexecutive dininghalls
Bi-directionalcommunicationeven with KenIverson
Pay for performance
Weekly bonus ashigh as 150% ofbase pay for work
groups those whoachievedproductivityabove standards
College tutionplan
Employee stockownership options
Flat organizationstructure
Four layers ofmanagement onlybetween
chairman andhourly workers
Wide spreadsharing ofinformation
Source: Nucor website
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Corporate success factors
Corporatesuccess
Employeerelationship
Compensation/ benefit
system
Organisational
structure
Work ethics
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Organisational Structure
Nucors structure was decentralized, with only the fourmanagement layers: Chairman / Vice Chairman / President
Vice President / Plant General Manager
Department Manager Supervisor
The general manager at each plant was grantedconsiderable autonomy, essentially operating thefacility as an independent business.
Each plant could source its inputs either from anotherNucor plant or from the outside market
Tolerance for experimentation and risk taking.
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Leadership
From a bankrupt conglomerate to the 2ndlargeststeel producer in US . It took some acuteleadership skills from Aycock and Iverson
Iverson had the courage to do thing and take risksas Iverson believed that- failure to take risk is afailure
Iverson always promoted independence andautonomy
He set an example by living a modest life andallowed only for simple and organized offices,sending a message that steel production wastheir sole focus not public appeal
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Incentive Plan
At 4 levels:
Production Incentive plan
Department manager incentive plan Non-production and non-department
manager incentive plan
Senior officer incentive plan
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Personnel Policies/Employee relations
Nucor plant did not have job description, flexibleworkforce and non-union status of employees.
No performance appraisal. If employee was notperforming well , dealt directly.
Employees were kept well-informed about thecompany.
Absenteeism and tardiness was not a problem.
Safety was a concern for critics. The average hourly workers pay was more than twice
the average paid by other manufacturing companies.
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Vulcraft: Joist division Nucors major businesses was manufacture and sale of open web steel
joists and joist girders at vulcraft division.
Joist industry was characterized by high competition but Nucor had beenlargest supplier of joist in U.S since 1975.
It sought to be the lowest cost producer in the industry. Materials andfreight being the most important elements of cost. Maintained fleet of 150 trucks to ensure on-time delivery.
Plants located in rural area near the market they served.
Workers were responsible for quality and a quality control inspector
was appointed to keep a check on the produced items.
Time required for manufacturing joist varied with different
specifications and this time helped in determining plant teams
bonuses.
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Steel divisions
Nucor got into steel business in 1968 to provide rawmaterial to Vulcraft plants to make steel available tothem at a cheap rate .
It marketed its 75% of its shipments to Vulcraft andrest 25% to outside customers.
It also built 3 more bar mills between 1973-81.
Nucor was the first steel company to build mini-mill tomanufacture steel sheet for auto industry followed byother 3 plants in 1990.
Nucors total steel production capacity was 5.9 mn tonsper year at a cost of $300 per ton of annual capacity.
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Value chain
Source:businesssetfree.com/porters-value-chain/
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Each division/plant is manage marketing and sales
activities Domestic markets see Nucors position in small towns and
their ability to contribute to the community.
Nucors major customer segments were the constructionindustry (60 percent), the automotive and applianceindustries, (15 percent), and the oil and gas industries (15percent), with the remaining 10 percent divided among
miscellaneous users.
Marketingand sales
Each Vulcraft plant maintained its own engineeringdepartment to help customers with design problems orspecifications
All customers treated fairly with the same sales terms(closer is cheaper)
Service
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Support activities
Commonly ask the equipment supplier to provide aboutmaterials information
Buy materials from independent broker who followed the marketand made recommendations regarding the materials.
The company had alliances with outside parties and suppliers
Acquisition strategy (DJJ, Harris) and Joint Venture (Nextframe,Hismelt commercial plant)
Procurement
Didnt have a formal R&D department, a corporate engineeringgroup, or a CTO
Monitoring others work worldwide and attracted investors whobrought them new technical applications at the earliest possibledates
Technologicaldevelopment
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Support activities
No formal HR department Human
Proper wage and incentive structure Resource
Four principles of Employee Relations
No lay off policies
Attracts local workforces
HRM
Very flat organization, but then increase due toacquisition strategies Firm
Decentralization Infrastructure
Cost-effective management information systems
Union-free (except in the subsidiary Harris)
Firminfrastructure
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Nucor in the 21stcentury
Nucor was doing well in the beginning with mostof the other steel companies in the US operatingunder Bankruptcy.
Many regional companies underwent mergers in
Europe and Asia, making survival difficult forNucor.
However, after US introduced the protectivetariffs and rise in Demand , The Steel prices rose
in the country and Nucor took advantage of it. They acquired local steel companies like Trico
steel ,Birmingham Steel corp., Magnatrax corp.
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Contd.
Through Joint Ventures and Acquisitions Nucor
became the second largest steel producer in the
US with an annual capacity of 20.3 MMT.
With the rise in the raw material prices, Nucormaterial started with backward integration and
started acquiring scrap metal selling firms.
However in 2008, due to slowdown in theautomobile and construction industry, the
demand and price steel fell abnormally.
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Management Evolution
Iverson was removed as chairman in January,1999
John Correnti succeeded Iverson but he too
was voted out in June, 1999 David Ayecock came out of retirement to
become chairman
A level of Executive VPs added over four areasof business
Also appointed a new CFO a director of IT
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Necessary to change the perspective from
individual plant level to corporate level
In September, 2000, Daniel DiMicco becamePresident & CEO
Peter Browning was elected as Chairman of
the Board of Directors Nucor planned to achieve 10-15 percent
average annual growth and be the market
leader in every product group over the nextdecade
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Organizational Chart in 2000
Source: case
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Environmental and Political Issues
Nucors mill in Crawfordville was in news for
alleged violations of federal and state clean air
rules
Fast track approval to one of the facility which
was situated on the Chowan river and on a
stretch which was critical for marine life
Excessive incentives by the North Carolinagovernment to set up a steel mill in their state
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Issues
In 2008, fourth quarter, a severe economicdecline hit the company in 4thquarter
This was part of the world-wide recession thatbegan in September 2008
Steelmakers in US experienced sharp pullbackfrom buyers who were concerned about theslowdown in automobile and construction market
Capacity utilization (at Nucor) was 95% in the firstthree quarters of 2008. It dropped to 48% in thefourth quarter of 2008 and 45% in the firstquarter of 2009 (a 40% decline).
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Financial Issues
In April 2009, Nucor's loss, which was expected,totaled $189.6 million,
Revenue fell 47 percent to $2.65 billion.
Shipments dropped 43 percent and averageprices slipped 7 percent
Its mills operated at just 45 percent of capacity,down from 92 percent a year earlier. That meant
energy costs raised about $11 per ton because itsfurnaces continued using large amounts of powerbut produced less steel
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Nucors Financial Ratios
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Nucors response
Cut down prices
Suspending expansion plans
Reducing hours of plant employees but not
indulging in lay offs like major steel players in US Salaried employees also absorbed pay reduction
of 40% (share the pain philosophy)
Nucors acquisition and integration into steelproducts markets and raw material also providedmany opportunities
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Conclusion
Overall, despite the current credit crisis, we expect NucorCorporation to capitalize on the weakness competitors areexperiencing due to the current economic downturn. Weexpect Nucor to continue making a profit and payingdividends while positioning for growth through acquisitions.
Key Points for Basis of Recommendation: Cash is King: Nucor can afford to wait until things get better.
Secondary Offering raises $1.85 Billion. May 08 $1 Billion in cheap debt sold. May 2008.
Within the Steel Sector, Nucor clearly provides better returnson equity, assets, and investment than competitors.
Likely to benefit from US Government Stimulus Packagefocused on Infrastructure and Energy.
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THANK YOU