Nucor at a CrossroadsDr. Shubhabrata BasuChair - Strategic Management Area, IIM Indore

Presentation Sequence

• The Issues• Industry Analysis• Industry Competitiveness• Nucor’s Growth Options• Nucor’s Resource Position• The Available Options• The Decision & Implications

The Issues

• Matured Industry - Steel• Falling Profitability & Stock Prices• Competing Processes – Integrated vs. Direct Reduction• Value Chain Reconfiguration• Introduction of New Technology• Adaptation to New Technology

• Procurement Decision

Industry Analysis

Mining Cos. & Scrap Sellers

Integrated Producers & Mini-

Mills

Infrastructure, White Goods & Equipment

Aluminum, Plastics,

Advanced Composites

Japanese-Canadian (high quality) & Asian (Cheap)

Exporters

Transactional Factors - Price, Quality & Dependability

Industry Competitiveness

HR

CR

HR

CR

HR

CR

Mini-Mills Modernized In-tegrated Plants

Older Integrated Plants

0

100

200

300

400

500

Total Cost $/TonRevenue ($/T)Margin $/T

Nucor’s Growth Options

New Product Product Development – No – new product from Nucor

Diversification – Nucor is not undertaking new business

Old Product Market Penetration – Nucor is competing in US domestic Market – pricing is the issue

Market Development – No – Export Focus

Product - Market Matrix

Old Market New Market

NUCOR must Adapt a Technology that Gives it Competitive Advantages by giving Lower Costs

and Higher Revenues

Nucor’s Resource Position

Procurement Outsourced to single point

purchasing agent

Inbound Logistics

o Bulk & Centralized,

o Freight on Board Basis both input and output

Corporate Processes

o 5 layer Hierarchy o Decentralized decision

makingo 3 Corpo & 4 Funcl level

meetingso Intra-plant informal visitso Iterative Capital

Budgeting

Human ResourcesGroup Level Weekly Cash

Incentives, No Overt Hierarchical Distinctions,

ESOPs, Shortfall & Shortcut not tolerated

Outbound Logistics

Infrastructure No new CapEX, Corpo.

Approval for Investment, Investment/depreciation-2.9,

Yearly modernization, D/(D+E) < 30%

o 67% external customers

o 25% to Vulcraft o 11% - downstream

operationso No preferential or

bulk discount

Technology No dedicated R&D budget

Marketing & Sale & After Sales Services

o Sales to ensure 25% ROA within 5 years of start up

o Significant Assured Sales and Revenue by Transfer Pricing from Vulcraft

Options

• Focus – Revenue Yielding High-Value Coils• Needs to Import Cutting-edge Technology

Available Options

Hazelett Caster – US origin CSP – SMS W. Germany

Pros • Twin Belt Water Cooled Conveyer, • High Casting Speed• 1 inch thick Coil

Pros • Similar to Conventional Casting• Lens Shaped Mold • Lesser Rolling Strands• Labor and Energy Savings

Cons• Frequent Replacement of Costly

Conveyor Belts • High Down time• Quality Issues• Hot Metal Break outs – Hazards

Cons• 2 inch thick Coil• Proto-Type on suboptimal scale• Plant Size also sub-million ton• Actual wear and tear not known• Suffers from NIH syndrome

Decision & Implications

•Buy and Co-Develop CSP• Easy to Adapt - Similar to Conventional Casting – less set-up time

• Price Discount – as Co-Developed & Risk Taker

• NIH Issues – US makers are unlikely to adopt in near future

• Small Prototype – Simple & Easy to understand

• Plant Size – Custom Built to Mini-Mill Design

• SMS – a known Vendor

• Introduction – no drastic change in Revenue for a Matured Market

NUCOR’s own experiment with Hazelett Caster were unsatisfactory

QUESTIONS