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Nucor steel case 2
- 1. Kristin DeSouza Travis Jernigan Nicholas Morrison Sujan Patel Oksana Seeley
- 2. Largest Steel Producer in the US
- 3. Largest Steel Producer in the US Fortune 500 Rating
- 4. Largest Steel Producer in the US Fortune 500 Rating Unconventional
- 5. Largest Steel Producer in the US Fortune 500 Rating Unconventional Use of electric arc furnaces and mini mills
- 6. Largest Steel Producer in the US Fortune 500 Rating Unconventional Use of electric arc furnaces and mini mills Minimal management layers
- 7. Largest Steel Producer in the US Fortune 500 Rating Unconventional Use of electric arc furnaces and mini mills Minimal management layers 200 operating facilities
- 8. Largest Steel Producer in the US Fortune 500 Rating Unconventional Use of electric arc furnaces and mini mills Minimal management layers 200 operating facilities 100 people at corporate headquarters
- 9. Origins traced to 1905
- 10. Origins traced to 1905 Evolved through successive companies Reo Motor Company Nuclear Corporation of America Vulcraft-- the first whole steel company Nucor Steel in 1971
- 11. Low threat of new entrants MATURE INDUSTRY WELL ESTABLISHED COMPANIES CONSOLIDATION OF FIRMS IN US EXIT OF MAJOR FIRMS
- 12. Low threat of substitute products INCREASING DEMAND FOR STEEL AND STEEL PRODUCTS WELL ESTABLISHED MAJOR CUSTOMERS LARGE MARKET SIZE DOMESTIC AND INTERNATIONAL CUSTOMERS
- 13. High bargaining power of consumers OPPORTUNITY TO CAPITALAZE ON THE COST LEADERSHIP OPPORTUNITY TO CAPITALIZE ON QUALITY CONSISTENCY AND VARIETY OF PRODUCTS
- 14. ALLOWS FOR HIGH LEVEL OF SUPPLIER-SELLER COLLABORATION COMPETITION DRIVES DOWN THE PRICE LOWERS SHIPPING COSTS High bargaining power of suppliers
- 15. Low threat of new entrants Low threat of substitute products High bargaining power of consumers Intense Industry Rivalry High bargaining power of suppliers
- 16. Economical
- 17. Economic Political
- 18. Economic Political Environmental
- 19. Economic Political Environmental Technological
- 20. Economic Political Environmental Technological Social
- 21. Economic Downsides of Steel Industry: • Increasing cost of steel scrap In year 2000 – 6.54% In year 2011 – 3.89% In year 2014 – 3.29% • Tight profit margins In year 2000 – 6.54% In year 2011 – 3.89% In year 2014 – 3.29% • Intense competition in US and Globally • Labor and energy intensive industry
- 22. Political Pressures on Steel Manufacturers: Increasing demands to be environmentally conscious Taxes and fines imposed by the government since the steel industry has unfavorable environmental impact Pressure to develop new technologies in order to move towards “green” production
- 23. Environmental Pressures on Steel Manufacturers: Increasing number of environmental groups fighting against air pollution Increasing pressure to have “clean” production Increasing costs to comply with environmental laws
- 24. Technological Opportunities in Steel Industry: Pressure to advance existing technology in order to cut costs/maintain market share Increasing variety of products offered Continuous pressure to maintain uniform consistency and quality throughout the different products offered
- 25. Social Pressures on Steel Manufacturers: Continuous pressure for “clean” production Growing number of “green” movement Pressure from environmental groups
- 26. Mature industry Highly cyclical, depending on ups and downs of the economy Opportunity for increasing market share by purchasing existing companies Labor intensive industry Need for advanced technology
- 27. Low Cost Provider • Commodity Nature for Pricing
- 28. Low Cost Producer Market Price – Low Cost
- 29. Low Cost Producer Advanced Technology Market Price – Low Cost
- 30. Low Cost Producer Advanced Technology Market Price – Low Cost Plant Efficiency
- 31. Low Cost Producer Advanced Technology Market Price – Low Cost Plant Efficiency Employee Satisfaction
- 32. Low Cost Producer Advanced Technology Market Price – Low Cost Plant Efficiency Employee Satisfaction Cut Costs – Even Higher Management
- 34. Low Cost – Increased Market Share
- 35. Low Cost – Increased Market Share Low Cost – High Profit Margin
- 36. Better Low Cost – High Profit Margin Technology Low Cost – Increased Market Share
- 37. Better Low Cost – High Profit Margin Technology Low Cost – Increased Market Share Acquisitions – Gain Market Share
- 38. Better Low Cost – High Profit Margin Technology Low Cost – Increased Market Share Acquisitions – Gain Market Share Value-Added Products
- 39. Better Low Cost – High Profit Margin Technology Low Cost – Increased Market Share Acquisitions – Gain Market Share Value-Added Products Leader in Environmental Performance
- 40. Better Low Cost – High Profit Margin Technology Low Cost – Increased Market Share Acquisitions – Gain Market Share Value-Added Products Leader in Environmental Performance American Made
- 42. Innovation 1968 Darling Mill was one of the first plants of major size in U.S to use electric arc furnace Late 1980’s Crawfordsville plant was the first to employ a revolutionary thin slab casting process
- 43. Innovation 1968 Darling Mill was one of the first plants of major size in U.S to use electric arc furnace Late 1980’s Crawfordsville plant was the first to employ a revolutionary thin slab casting process Low cost Low cost leadership strategy Low cost per ton produced(allowed them to compete with foreign manufacturers (NBC business documentary)
- 44. Innovation 1968 Darling Mill was one of the first plants of major size in U.S to use electric arc furnace Late 1980’s Crawfordsville plant was the first to employ a revolutionary thin slab casting process Low cost Low cost leadership strategy Low cost per ton produced(allowed them to compete with foreign manufacturers (NBC business documentary) Sound management Posted a dividend for 156 straight quarters Ken Iversen was a “Model Company President” Streamlined organizational structure
- 45. Leadership Execution strategy
- 46. Leading Market Position in North America
- 47. Leading Market Position in North America Diversified and balanced product mix
- 48. Leading Market Position in North America Diversified and balanced product mix Robust Production network
- 49. Dependence on outside vendors for raw materials
- 50. Dependence on outside vendors for raw materials Competition with International Imports
- 51. Strategic acquisitions and expansions
- 52. Strategic acquisitions and expansions Robust growth perspectives in the US steel market
- 54. Intense competition Greenhouse gas regulation
- 55. Intense competition Greenhouse gas regulation Overcapacity in the global steel industry
- 56. Proven track record via acquisitions and Joint Ventures 1988 Yamato-Kogyo Early 2000’s Harris Steel 2006-2011 Acquired several other facilities, mostly troubled at discount prices
- 57. Steel shapes and steel products are considered commodities The Steel market is highly cyclical
- 58. Year Nucor US Steel Baosteel 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
- 59. Year Nucor US Steel Baosteel 2000 310.9 (29) 2001 113.0 (2.45) 2002 162.1 .62 2003 62.8 (4.64) 2004 2005 2006 2007 2008 2009 2010 2011
- 60. Year Nucor US Steel Baosteel 2000 310.9 (29) 2001 113.0 (2.45) 2002 162.1 .62 2003 62.8 (4.64) 2004 1121.5 1135 2005 1310.3 910 2006 1757.7 1374 2007 1471.9 879 2008 1831.0 2212 2009 2010 2011
- 61. Year Nucor US Steel Baosteel 2000 310.9 (29) 2001 113.0 (2.45) 2002 162.1 .62 2003 62.8 (4.64) 2004 1121.5 1135 2005 1310.3 910 2006 1757.7 1374 2007 1471.9 879 2008 1831.0 2212 2009 (293.6) (1401) 2010 134.1 (482) 2011 778.2 (53)
- 62. Year Nucor US Steel Baosteel 2000 310.9 (29) 488.6 2001 113.0 (2.45) 418.2 2002 162.1 .62 697.6 2003 62.8 (4.64) 1139.2 2004 1121.5 1135 1527.2 2005 1310.3 910 2068.4 2006 1757.7 1374 2124.6 2007 1471.9 879 2076.9 2008 1831.0 2212 1054.8 2009 (293.6) (1401) 949.8 2010 134.1 (482) 2101.6 2011 778.2 (53) 1202.3
- 63. 2007 2008 2009 2010 2011 Nucor EPS USS EPS Nucor ROE USS ROE Nucor Current USS Current Nucor D/E USS D/E
- 64. 2007 2008 2009 2010 2011 Nucor EPS $4.96 $5.99 $(0.94) $0.42 $2.45 USS EPS $7.44 $18.04 $(10.42) $(3.36) $(0.37) Nucor ROE USS ROE Nucor Current USS Current Nucor D/E USS D/E
- 65. 2007 2008 2009 2010 2011 Nucor EPS $4.96 $5.99 $(0.94) $0.42 $2.45 USS EPS $7.44 $18.04 $(10.42) $(3.36) $(0.37) Nucor ROE 29.4% 28.1% -3.8% 1.8% 10.7% USS ROE 15.9% 43.1% 30.0% -12.5% -1.5% Nucor Current USS Current Nucor D/E USS D/E
- 66. 2007 2008 2009 2010 2011 Nucor EPS $4.96 $5.99 $(0.94) $0.42 $2.45 USS EPS $7.44 $18.04 $(10.42) $(3.36) $(0.37) Nucor ROE 29.4% 28.1% -3.8% 1.8% 10.7% USS ROE 15.9% 43.1% 30.0% -12.5% -1.5% Nucor 3.2 3.5 4.2 3.9 2.8 Current USS Current 4.8 5.12 4.58 4.1 3.8 Nucor D/E USS D/E
- 67. 2007 2008 2009 2010 2011 Nucor EPS $4.96 $5.99 $(0.94) $0.42 $2.45 USS EPS $7.44 $18.04 $(10.42) $(3.36) $(0.37) Nucor ROE 29.4% 28.1% -3.8% 1.8% 10.7% USS ROE 15.9% 43.1% 30.0% -12.5% -1.5% Nucor 3.2 3.5 4.2 3.9 2.8 Current USS Current 4.8 5.12 4.58 4.1 3.8 Nucor D/E 29.4% 28.3% 28.9% 36.9% 35.7% USS D/E 58.9% 64.2% 71.9% 96.9% 120.8%
- 68. Rising Scrap Steel Costs
- 69. Rising Scrap Steel Costs Costs have been rising since 2001
- 70. Rising Scrap Steel Costs Costs have been rising since 2001 Costs fluctuate frequently
- 71. Rising Scrap Steel Costs Costs have been rising since 2001 Costs fluctuate frequently Year Cost of Scrap per Ton 2007 $278 2008 $438 2009 $303 2010 $351 2011 $439
- 72. Domestic Market Share United States Steel
- 73. Domestic Market Share United States Steel Foreign imports
- 74. Domestic Market Share United States Steel Foreign imports Country Crude Steel Percentage China 752 45.9% Japan 118 7.2% United States 95 5.8% India 79 4.8% Russia 76 4.6% South Korea 75 4.6%
- 75. Mergers and Acquisitions To mitigate foreign competition cost advantage Russia, India, S. Korea expansions Lower labor costs and regulations Thwart Supplier Power Acquisition of raw material suppliers Vertical integration Invest in Product Mix Diversification Helps to offset cyclical nature of certain product sales
- 76. Mergers and Acquisitions To mitigate foreign competition cost advantage Russia, India, S. Korea expansions Lower labor costs and regulations Thwart Supplier Power Acquisition of raw material suppliers Vertical integration Invest in Product Mix Diversification Helps to offset cyclical nature of certain product sales
- 77. Mergers and Acquisitions To mitigate foreign competition cost advantage Russia, India, S. Korea expansions Lower labor costs and regulations Thwart Supplier Power Acquisition of raw material suppliers Vertical integration Invest in Product Mix Diversification Helps to offset cyclical nature of certain product sales
- 78. Mergers and Acquisitions To mitigate foreign competition cost advantage Russia, India, S. Korea expansions Lower labor costs and regulations Thwart Supplier Power Acquisition of raw material suppliers Vertical integration Invest in Product Mix Diversification Helps to offset cyclical nature of certain product sales
- 79. Mergers and Acquisitions To mitigate foreign cost advantage Russia, India, S. Korea Lower labor costs and regulations Thwart Supplier Power Acquisition of raw material suppliers Vertical integration Invest in Product Mix Diversification Helps to offset cyclical nature of certain product sales
- 80. Mergers and Acquisitions To mitigate foreign competition cost advantage Russia, India, S. Korea expansions Lower labor costs and regulations Thwart Supplier Power Acquisition of raw material suppliers Vertical integration Invest in Product Mix Diversification Helps to offset cyclical nature of certain product sales
- 81. Mergers and Acquisitions To mitigate foreign competition cost advantage Russia, India, S. Korea expansions Lower labor costs and regulations Thwart Supplier Power Acquisition of raw material suppliers Vertical integration Invest in Product Mix Diversification Helps to offset cyclical nature of certain product sales
- 82. Mergers and Acquisitions To mitigate foreign competition cost advantage Russia, India, S. Korea expansions Lower labor costs and regulations Thwart Supplier Power Acquisition of raw material suppliers Vertical integration Invest in Product Mix Diversification Helps to offset cyclical nature of certain product sales
- 83. Mergers and Acquisitions To mitigate foreign competition cost advantage Russia, India, S. Korea expansions Lower labor costs and regulations Thwart Supplier Power Acquisition of raw material suppliers Vertical integration Invest in Product Mix Diversification Helps to offset cyclical nature of certain product sales
- 84. Mergers and Acquisitions To mitigate foreign competition cost advantage Russia, India, S. Korea expansions Lower labor costs and regulations Thwart Supplier Power Acquisition of raw material suppliers Vertical integration Invest in Product Mix Diversification Help to offset cyclical nature of certain product sales Combat substitute threats
- 85. Mergers and Acquisitions To mitigate foreign competition cost advantage Russia, India, S. Korea expansions Lower labor costs and regulations Thwart Supplier Power Acquisition of raw material suppliers Vertical integration Invest in Product Mix Diversification Help to offset cyclical nature of certain product sales Combat substitute threats
- 86. Nucor Corporation (2014, October 28). Retrieved October 28, 2014, from http://www.nucor.com/ Vehicle Uses. (n.d.). Retrieved November 22, 2014, from http://www.drivealuminum.org/vehicle-uses Robert C. Allen, "International Competition in Iron and Steel, 1850-1913, Journal of Economic History, (1979) 39#4 pp 911-37 David Jardini, "From Iron to Steel: The Recasting of the Jones and Laughlins Workforce between 1885 and 1896," Technology & Culture (1995) 36#2 pp 271-301 Etsuo Abé, "The Technological Strategy of a Leading Iron and Steel Firm, Bolckow Vaughan & Co. Ltd: Late Victorian Industrialists Did Fail," Business History (1996) 38#1 pp 45-76 Preston, Richard (1992). American Steel. Quill Hoerr, John P. And the Wolf Finally Came: The Decline of the American Steel Industry (1988) Hogan, William T. Minimills and Integrated Mills: A Comparison of Steelmaking in the United States (1987) United States Steel Corporation. (n.d.).Retrieved November 20, 2014, from https://www.ussteel.com/uss/portal/home/investors/annualreports Baoshan Iron & Steel Co., Ltd. (n.d.). Retrieved November 20, 2014, from http://www.baosteel.com/group_en/contents/2942/40191.html
Editor's Notes
- MGMT 6722 Strategic MGMT
- Mini Mills were used instead of the traditional blast furnaces. They rely on scrap metal as main source. Electric Arc furnace, a 90 to 150 megawatt powerhouse, can transform high volume of scraps and iron into liquid steel fast and efficiently.
- Through mergers and acquisitions. Vulcraft became a supplier of joists and gurders.
- Lost cost provider – The pricing in the steel industry is commodity in nature, so the pricing is very competitive Efficient Technology Scrap metal is biggest cost, but they recycle
- Lost cost provider – The pricing in the steel industry is commodity in nature, so the pricing is very competitive Efficient Technology Scrap metal is biggest cost, but they recycle
- Lost cost provider – The pricing in the steel industry is commodity in nature, so the pricing is very competitive Efficient Technology Scrap metal is biggest cost, but they recycle
- Lost cost provider – The pricing in the steel industry is commodity in nature, so the pricing is very competitive Efficient Technology Scrap metal is biggest cost, but they recycle
- Lost cost provider – The pricing in the steel industry is commodity in nature, so the pricing is very competitive Efficient Technology Scrap metal is biggest cost, but they recycle
- Lost cost provider – The pricing in the steel industry is commodity in nature, so the pricing is very competitive Efficient Technology Scrap metal is biggest cost, but they recycle
- Electric Arc furnace was attractive because the labor and capital requirements to melt steel scrap and produce crude steel were far lower than those at conventional integrated steel mills Thin slab casting process substantially reduced necessary capital investment and costs Forbes magazine described Nucor’s pioneering use of thin slab casting as the most substantial, technological, industrial innovation in the past 50 years.
- Electric Arc furnace was attractive because the labor and capital requirements to melt steel scrap and produce crude steel were far lower than those at conventional integrated steel mills Thin slab casting process substantially reduced necessary capital investment and costs Forbes magazine described Nucor’s pioneering use of thin slab casting as the most substantial, technological, industrial innovation in the past 50 years.
- Electric Arc furnace was attractive because the labor and capital requirements to melt steel scrap and produce crude steel were far lower than those at conventional integrated steel mills Thin slab casting process substantially reduced necessary capital investment and costs Forbes magazine described Nucor’s pioneering use of thin slab casting as the most substantial, technological, industrial innovation in the past 50 years.
- Electric Arc furnace was attractive because the labor and capital requirements to melt steel scrap and produce crude steel were far lower than those at conventional integrated steel mills Thin slab casting process substantially reduced necessary capital investment and costs Forbes magazine described Nucor’s pioneering use of thin slab casting as the most substantial, technological, industrial innovation in the past 50 years.
- Yamato-Kogyo: Major Japanese producer allowed them to gain access to Structural steel segment, several years later they opened together the largest structural beam facility in the western Hemisphere. Harris Steel had over 70 fabrication facilites in the US and this more than doubled their rebar fabrication capacity
- Companies that do have the scales of economy or robust product mix are highly susceptive to volatile prices. Nucor has proven to weather these storms and position themselves for expansionary times. We see this continuing to be the biggest market opportunity for Nucor moving forward
- Automakers are expected to increase their use of aluminum from 327 pounds in 2009 to 550 pounds in 2025, according to a 2011 survey of automakers conducted by Ducker Worldwide.