Aditya Bandi

Nucor Steel

Aditya Bandi

Summer ’10

Econ 136

Professor: Robert Baden

Nucor Industry Analysis

Nucor was once considered the fastest growing steel company in the US. In the twenty-first century though, Nucor is being challenged by a slew of powerful steel conglomerates, and a worldwide decrease in demand for steel and steel related products, and has environmental concerns about clean air rules. Nucor in response has implemented a growth strategy based on an efficient management team and working on further developing their core competency of better technology utilization and good customer management. Porter’s five forces model shows how the steel industry looks for Nucor.

Degree of Rivalry. High, when firms compete fiercely for customers, who demanded lower prices, the degree to rivalry escalated.

Barriers to Entry: Medium, there are a lot of players in the market, but the initial cost to start has been steadily going down.

Buyer Power. High, on the demand side, minimal product differentiation and low switching cost allow buyers to switch between steel producers with ease.

Supplier Power. Medium. There are many steel companies, but with overall demand going down, suppliers have less power than before, but suppliers also have the flexibility of going with any steel manufacturer they want.

Threat of Substitutes. Low. Steel usage is unique. Though there have been other composites being used now along with steel, there is no replacement to the strength of steel in construction and cars. Aluminum is being increasingly used as an alloy.

Nucor’s Core Strategy

Nucor’s core strategy is that of cost leadership through the use of technology. Nucor achieves the cost advantage through innovations and using better technology to process their steel. Nucor also invests a lot into research and development, and has a lean management structure, giving them even more efficiency.

Strengths:  Technology is one of Nucor’s key strengths because of the amount of resources they can save through it. Technology also gives Nucor plans with low pollution levels, and helps them be more competitive in the market. Continuing innovation allows Nucor to be competitive against the global competitors who threaten Nucor through lower prices by allowing Nucor to be technologically efficient and advanced. Nucor also has recently acquired the David J. Joseph Company, which allows Nucor to own a primary supplier of the scrap metal along with the rail cars, making this acquisition a part of its vertical consolidation strategy.

Weaknesses: Nucor has plants only in the US, so it cannot compete effectively against competitors who have plants in a wide range of areas. Nucor’s primary market is also domestic, and this is a problem because the US market is declining sharply due to the housing crisis and the domestic automobile industry.

Opportunities: Nucor could continue innovating with the Hismelt technology, or the liquid iron project. If Nucor could be successful, it would give it advantages to manufacturing while reducing pollution. Nucor also has the opportunity of using the rail car network acquired through the purchase of David J. Joseph Company to have a better network domestically to reach customers.

Threats: Nucor faces threats from the global industry, especially Chinese steel makers. China has lax environmental regulations, which means they have an advantage in terms of cheaper and lower cost of steel. These steel makers also dump a lot of the steel into the market, dropping the prices industry wide. Another threat is in the domestic market, with the market declining and threats of a German company ThyssenKrupp AG threatening to expand into the domestic market.

Value Chain Analysis - Inbound Logistics

Nucor corporation’s primary inbound logistics are scrap metal and electricity. Nucor bought David J. Joseph Company recently, which was its primary supplier. This increased their competitive advantage because it gives them vertical chain security for their supply chain.

Nucor corporation’s primary inbound logistics are scrap metal and electricity. Nucor has secured itself against rising energy prices by using innovative technology to reduce energy costs.

Value Chain Analysis – Production

Nucor uses innovative technology, great management to gain advantage in the manufacturing process and obtaining raw materials. Nucor actively participates in its product value chain by constantly trying to get better; they are also not very dependent on outside suppliers because of securing their supply chain.

Value Chain Analysis - Outbound Logistics

Nucor sends steel all over the world with attractive exchange rates for outside buyers. Projects in Australia, Trinidad, and Brazil raise Nucor’s brand awareness. Nucor also coordinates well with its suppliers and those in its supply chain, making things much more synchronous and efficient.

Value Chain Analysis - Sales and Marketing

Nucor’s marketing is aimed at environmental friendliness while maintaining competitive prices. Domestic market sees that Nucor has not moved to third world markets to cut costs and abandon them, which works in Nucor’s favor. Nucor is heavily involved in the community making, helping them maintain an image of good and caring for the community.

Value Chain Analysis – Service

Nucor offers several services to its customers. There is the domestic market where customers relocate around Nucor plants. Customers doing this achieve substantial reductions in cost and can work with Nucor to sync production schedules. Nucor also gives no volume discounts, so they do not favor large businesses over smaller ones. Helping them gain more customers.

Nucor follows a strategy, which cuts cost to be an industry leader in reducing manufacturing costs, and also focuses its efforts into creating the best steel in the industry by making only one product and continually trying to make it and the process better. Nucor’s market share is also very small compared to its competitors, but Nucor has the highest gross margin of all its competitors because of how well it manages its costs.

Recommendations:

Nucor needs to continue innovation and focus on integrating more with suppliers in the domestic market to stave off competitors, and increase the barrier of entry into this market. The company also needs to continue innovation and make its manufacturing process much more efficient to counteract the cheap Chinese steel. Nucor needs to expand to other markets using the better technology, but cheaper labor to quickly gain market share in the global market. Its management structure and clarity should also be emulated in these other markets. Nucor also needs to secure its domestic market in such a way that new competitors will have a high barrier of entry. Nucor can continue to do this, by getting unique deals with its suppliers to get better rates and make it harder for its competitors.