Nucor_corporation_case_analysis.docx

Running head: NUCOR CORPORATION CASE ANALYSIS

Nucor Corporation Case Analysis

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NUCOR CORPORATION CASE ANALYSIS

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Table of Contents Background ................................................................................................................................ 3 Financial Analysis ...................................................................................................................... 3 Financial Performance Analysis Table .................................................................................. 3 PESTEL Analysis ...................................................................................................................... 4 Political Factors ..................................................................................................................... 4 Economic Conditions ............................................................................................................. 5 Sociocultural Factors ............................................................................................................. 5 Technological Factors ............................................................................................................ 6 Environmental Factors ........................................................................................................... 6 Legal and Regulatory Factors ................................................................................................ 6 Five Forces Analysis .................................................................................................................. 7 Threat of New Entrants: Low ................................................................................................ 7 Threat of Substitute Products: Moderate ............................................................................... 7 Bargaining Power of Suppliers: Moderate ............................................................................. 8 Bargaining Power of Buyers: High ........................................................................................ 8 Intensity of Rivalry: High ...................................................................................................... 8 SWOT Analysis ......................................................................................................................... 9 Strengths ................................................................................................................................ 9 Weaknesses .......................................................................................................................... 10 Opportunities........................................................................................................................ 10 Threats.................................................................................................................................. 11 Value Chain Analysis: Primary ............................................................................................... 11 Inbound Logistics................................................................................................................. 11 Operations ............................................................................................................................ 12 Outbound Logistics .............................................................................................................. 12 Marketing and Sales ............................................................................................................. 12 Service.................................................................................................................................. 12 Value Chain Analysis: Secondary ........................................................................................... 13 Organizational Structure ...................................................................................................... 13 Technological Development ................................................................................................ 13 Procurement ......................................................................................................................... 14 Core Competences ................................................................................................................... 14 Core Competencies: VRIO analysis .................................................................................... 15 Core Strategies ..................................................................................................................... 16 References ................................................................................................................................ 18

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Nucor Corporation Case Analysis Background Nucor Corporation is a United States based steel manufacturing company ranked among the largest steel manufacturers with a current production capacity of 27 million tonnes of steel per year. It was founded by Ken Iverson (CEO) in 1960 and currently operates in 9 states. The company was a pioneer in producing steel using mini-mills and electric furnaces. The company has more than 20,500 employees. The company recorded a profit of 21.1 billion US dollars in 2014. Nucor Corporation’s mission is to “Take Care of Our Customers”. Consequently, the company strives to achieve this by providing most profitable and productive, high quality, lowest cost, and safest steel and steel products to its customers (Nucor Corporation, 2014).

Financial Analysis Nucor has enjoyed attractive profits for decades. Since the company’s beginning it has only experienced a loss in one year and that was in 2009 following the economic crisis, from which it quickly bounced back. The following table shows the summary of key financial ratios of the company that indicate its past progressive performance in 2012, 2013, and 2014. Financial Performance Analysis Table Ratio Table

Industry Performance Measure

2012

2013

2014 Average

Liquidity

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Current Ratio

2.8

2.8

3.3

3.7

Cash Ratio

1.4

1.7

1.5

1.7

WIP Turnover in Days

43.9

50.9

50.8

52.3

Finished Goods Turnover in Days

32.1

33.7

33.5

36.2

A/R Turnover in Days

11.3

10.8

10.9

13.4

A/P Turnover in Days

20.4

22.3

20.0

23.2

Cash Conversion Cycle

55.6

62.3

64.3

67.8

Fixed Assets Turnover

4.8

4.1

4.1

3.9

Total Asset Turnover

1.3

1.3

1.4

1.3

LT Debt to Total Capitalization

23.8

28.8

27.9

29.4

Cash Flow Coverage Ratio

3.2

2.9

3.6

3.8

Gross Margin

7.8

7.4

9.0

8.9

Operating Profit Margin

4.4

4.9

6.4

5.9

Net Profit Margin

2.6

2.6

3.38

3.4

ROA

3.5

3.3

4.6

4.3

ROE

6.7

6.4

9.26

8.4

Asset Management Raw Materials Turnover in Days

Long-term Debt Paying Ability

Profitability

PESTEL Analysis Political Factors

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Nucor Corporation has faced political factors during the time of the Clinton administration. In 1999, steel companies in Canada, South Korea, Taiwan, Italy, Belgium, and South Africa were illegally dumping stainless steel in the United States. Governments of Belgium, Italy, and South Africa accelerated the dumping by giving their steel producers unfair subsidies that partially made up for the revenue losses companies from these countries were experiencing. Clinton and Congress did not impose tariffs or quotas on imported steel, which precipitated the number of bankruptcy filings by U.S. steel companies (Cash, 2011). Though, trade practices were regulated by the Bush Administration in the early 2000’s Nucor still faces market share loss today to foreign competitors dumping steel at artificially low prices in the United States. Economic Conditions Nucor is plagued by severe losses of sales in times of economic downfall, although in the industry they manage to cope with these times better than most. The 2001 financial crisis led to diminished sales for the company that took several years following to creep back up to healthy profits. Then again in the crisis of 2008 Nucor Corporation experienced lower than average profits for years to come and are still recovering to this day. Foreign exchange rates also affect Nucor sales in a negative manner. Manipulation of rates by governments in foreign countries such as China allows their companies to sell steel in the United States at rock bottom prices while remaining profitable (Cash, 2011). In response steel firms in the U.S. are losing market share and are forced to lay off thousands of employees raising the unemployment rate. Sociocultural Factors

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Population growth is a massive force that has an impact on Nucor Corporation and the steel industry. The need for steel to erect buildings and houses, and build automobiles is increasing with the growth of populations in all regions. This helps boost sales volumes for Nucor and its competitors leading to more desirable profit margins. Consumers increased interests in going green creates the need for steel companies to be more economically friendly (Dlabay & Scott, 2010). Nucor strives to be a leader in this category as they update their plants with the technology needed to perform jobs in the most environmentally friendly and safest ways possible. Technological Factors There are not any outside technological advances that directly affect companies in the steel industry. However, technological advances within the steel industry have a significant impact on the efficiency in which companies operate. Nucor Corporation has been an early and aggressive investor in two types of steel-making breakthroughs: disruptive technological innovations and leapfrog technological innovations (Hitt, Ireland & Hoskisson, 2007). This allows the company to disrupt efforts of competitors in matching Nucor Corporation’s cost competitiveness and product quality, and overtake competitors in producing quality material at low expenses. Environmental Factors The case does not describe any environmental factors that have an impact on the steel industry. The only aspect that may be an issue would be severe weather that eliminates the capability to ship products to different regions limiting the ability to fill orders on time. Legal and Regulatory Factors

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There are no specific legal, and regulatory factors stated within the case. However, Nucor Corporation stresses to be a leader in environmentally friendly operations. They are constantly focusing on new ways to reduce or recycle their use of energy. They also make improvements to their plants to lower their emissions. Therefore, any regulations imposed by the government on environmentally friendly practices would be likely be met first by Nucor Corporation and would have minimal impact on the company’s productivity and profitability both in the short term and long term periods. Five Forces Analysis Threat of New Entrants: Low Industries typically have to worry about the threat of new suppliers to the market; however, in the steel industry the threat is quite low. The steel industry is comprised of few well-planted companies who have been in the industry for decades. A new corporation would not have the managerial experience, distribution channels, name recognition, capital, or production capabilities to get even their foot in the door in this industry. Threat of Substitute Products: Moderate Though there is not a direct substitute for steel, as it has to be used in many applications there are varying qualities of steel that customers can choose from. Nucor was aware that there was a need for high-quality products by customers leading to a shift in production in 2010 to start including value-added products (Witcher & Chau, 2010). With the implication of mass-producing galvanized steel in the new heat treated facilities, Nucor essentially eliminated the risk of substitute products of other companies by offering higher quality products that had a high demand. By offering these different degrees of product Nucor thwarted efforts of competitive companies.

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Bargaining Power of Suppliers: Moderate Supplier’s prices for a long time have had a substantial effect on Nucor’s operating and production costs. They were required to purchase large quantities of scrap metal and scrap substitutes for production. Scrap prices driven by market demand fluctuated tremendously making it at times very expensive for Nucor to produce steel. Nucor has reduced these costs by integrating backward to produce internally almost 5 million tons of substitute scrap metal annually to be used in production. Though they are now producing a lot of their raw material used in production they still have to purchase from outside suppliers and are forced to pay the prevailing market price. Bargaining Power of Buyers: High Buyer bargaining power has a substantial impact on the success of Nucor as they compete to obtain repeat customers from competitors. Purchasers of steel have a multitude of domestic and international producers to choose to do business with. Nucor strives to keep prices and distribution costs low as well as produce quality material to appear a favourable choice for customers. The greatest power a buyer has been the choice to invest in an alternate supplier where they feel their dollar is better utilized. To eliminate buyer bargaining power, Nucor must continue to improve technology to create top notch products at a low cost, and convince customers that their product is perceived as having the best value. Intensity of Rivalry: High Nucor faces rivalry from domestic as well as foreign steel producers. It is entrenched in an industry where competition is fierce due to limited differentiation and high switching costs. Being a low price leader and having the ability to meet customer demands is of utmost

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importance for gaining large portions of market share. Technological advancements are necessary so as to cut production costs leading to the capability of undercutting competitor’s prices. Though there is an annual growth rate of 5.5% for the demand of steel, companies still have to be extremely efficient so as to steal business away from competitors. SWOT Analysis Strengths 

Lean Management: The management model adopted by Nucor Corporation is efficient and promotes high productivity while minimizing waste rates. The company focuses on the use of incentive programs that play a central role in motivating the employees to work hard, develop high quality, reduce costs, enhance delivery services, as well as offer competitive prices. The company has sustained good management relations over the years and an efficient organizational style.



Strong brand name: Nucor Corporation has built a robust brand name both locally and internationally that is critical in its marketing strategies.

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Economies of scale: Nucor Corporation has vast economies of scale as it buys scrap metal in bulk so as to produce large quantities of steel products at cheaper costs per tonne. The company’s operations are set up to produce millions of tonnes of steel annually at the lowest costs feasible leading to the realization of benefits of economies of scale.

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Experience/learning curve effect: Nucor Corporation has continually established strategies to enhance their technologies to be more energy-efficient in steel production and produce more product quantities with less effort therefore driving their costs down. The company has also trained its workforce to enforce strategies to

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enhance product quality and maintain cost per tonne low compared to the competitors. Weaknesses 

High shipping costs: the company incurs enormous expenses in shipping material to foreign nations since its production is centralized in the United States.

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Limited range of products: the company relies heavily on steel and steel products to generate revenue. As competitors diversify their operations, the company’s dependence on one line of production would limit its competitive ability.

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High dependence on local market: the company’s largest portion of sales is made in the United States, which would present severe risks if the steel industry in the country suffers drawbacks or economic crisis.

Opportunities 

Expansion to European and Asian markets: Nucor Corporation can expand to the European and Asian markets to improve its global market share and competitiveness. These would be achieved through joint ventures, and realization of economies of scale would help lower costs of production and increase sales through competitive pricing.

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Technological and product innovation: new technology has played a central role in developing multiple sizes and shapes of steel sheets, beams, rods, and pilings among others to meet different needs and preferences of the consumers.

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Acquisition of scrap metal producing companies: this move would lower costs by eliminating the need to buy scrap metals for production from outside suppliers

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Continued improvements in research and development: This aspect can help reduce costs significantly.

Threats 

Continued loss of market share to foreign companies: the emerging manufacturers in China and India pose a significant threat to the market share of Nucor Corporation and long term profitability and expansion strategies. These foreign players have a cost advantage, and Nucor Corporation have to strategize to overcome this threat.



Raw material costs may continue increasing: rising cost of raw materials would slow down the growth rate of the company in the long term and harm its competitive capacity.

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Competitors are offering diversified lines of products: competitors have continued to provide goods and services that match or surpass those of Nucor Corporation lowering its competitive advantage in the industry.

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Labour costs may increase: continued lobbying of increased wages and salaries in the country and expansion of operations in the company could result in increased labour costs adversely affecting the business’s profitability.

Value Chain Analysis: Primary Inbound Logistics

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The company focuses on developing processes to create own raw materials to avoid an increase in base price and transportation prices. Besides, superior computerized inventory management helps the beat out competitors, making them superior to competitors. Operations Nucor Corporation has controlled process in the production of steel before being passed to inspection for quality assurance. The workers have control and responsibility for quality of each product. Approaches to increasing flexibility have helped cut costs and increase opportunities. Outbound Logistics Nucor Corporation distributes its steel products all over the world with attractive exchange rates for foreign buyers. Projects in Australia, Trinidad, and Brazil have also played a critical role in improving its brand awareness efforts. The company also coordinates well with its suppliers and those in its supply chain, making operations more synchronous and efficient. Marketing and Sales In the business, individual plants control marketing and sales through a decentralized system. Strong alliances, acquisitions, and joint ventures have contributed significantly to the company’s marketing strategies. The company uses national advertising campaigns to market products. It has initiated strong selling forces because of adoption of computer programs to develop designs for consumers at competitive prices through estimation of overall cost and time of production. Service

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Nucor has a strong brand name associated with innovation, quality, and costeffectiveness. As an innovative company that puts their employees and stockholders first the company offers efficient customer service and prioritizes customer satisfaction. The firm also continually tries to obtain and supply the lowest prices possible. Value Chain Analysis: Secondary Organizational Structure The company has plants-based manufacturing, selling, accounting, engineering, and personnel management only responsibility is to contribute profit to headquarters. The plants are highly decentralized and thus allows for more freedom and flexibility for each division manager. The managers often collaborate and share efforts to improve each other’s division. All the vice presidents and general managers share the same bonus rates, so there is a real effort for everyone to succeed at Nucor Corporation. The distinctive organizational style sets Nucor Corporation apart from its competitors, keeping them superior in this aspect. Human Resource Management

The company has a history of treating their employees very well. Nucor Corporation believes that satisfied employees and autonomy is secret to production efficiency. The company ensures the flow of information and practice equality among employees. It uses a lean, bottom-line approach aimed at empowering workers. This approach helps keep Nucor superior to their competitors in human resource management. Technological Development

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Although Nucor Corporation has no research and development department, it has established an active monitoring team to investigate technological advances. This approach helps to avoid research and development costs while ensuring constant adaptation of technology since technology is always changing. Nucor enjoys more efficient rates, high productivity slightly above their competitors attributed to this approach. Procurement Merger and Acquisition strategy for scrap metal companies increased flexibility for Nucor Corporation and reduced the dependence on external suppliers of materials, thus improving the bottom line. It enables the firm to have the capacity to produce and have extra capacity to sell raw materials, thus adding additional revenue. Core Competences 

Strategic Acquisitions and Joint Ventures: This is the primary success factor that helped the company increase capacity and capability against rivals. The major acquisitions included Auburn steel, ITEC, Trico, Sumitomo, BSC, Worthington, Corus Steel, Fort Howard, Marion, Connecticut, Verco, Harris Steel, Fisher, and Ludlow steel companies which helped Nucor Corporation to moderate the competition in the steel business (Nucor Corporation, 2014). To make an entry into the international market, Nucor entered joint ventures with foreign companies that helped them to enter foreign markets. These joint ventures were established not only to enter the international market but also to attain the technological advancement and low-cost raw materials thereby making them an active player in the steel industry. Low Priced Products: Nucor is a leader in the low cost of production of steel, offering prices than their local competitors. With the low cost of production strategy,

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the company was able to sell their products at a low price that helped them to acquire numerous customers leading to increased sales. 

Innovation: Constant ability to stay innovative with Innovate culture new techniques to decrease costs for both in production and for the pricing.

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Lean Management Structure: the use of an efficient lean management team lowers costs significantly, enhances the decision making process, and improves efficiency. The decentralized system with autonomous power to get activities done quickly improves performance. Division managers enjoy the freedom to come up with creative ways to increase profit margins.



Human Resource Management: Employees enjoy their job, and they are treated well. The company also has trademark employee incentives and benefits that allow their employees to be one of the highest paid groups in Steel Industry. High efficiency is always rewarded, and Labourers paid bonuses of 60% of their base salary for quick production times. Employees also get opportunities for investment into a profit sharing plan (Nucor Corporation, 2014).

VRIO Analysis Feature/Competence

Valuable?

Rare?

Difficult

Exploited by

Competitive

to

organization?

implications

Yes

Sustained

imitate? Global Growth via Joint Ventures

Yes

Yes

Yes

Advantage

NUCOR CORPORATION CASE ANALYSIS

Strong Leadership

Yes

Yes

16

No

Yes

and Innovative

Sustained Advantage

Ability Strategic

Yes

No

No

Yes

Acquisitions Human Resource

Parity Yes

No

No

Yes

Management Outstanding Customer

Competitive

Competitive Parity

Yes

No

No

Yes

Competitive Parity

Experience

Core Strategies Nucor Corporation used differentiation strategy to develop a competitive advantage over their competitors. The company differentiated its products and services by offering steel users with a broad range of steel products. The following are the three critical approaches the company employs to distinguish its goods and services to sustain its competitive position. 

Low Cost of Production Strategy: Nucor Corporation consistently worked on achieving a low cost of production by enhancing their production efficiency. The company repeatedly made investments in upgrading of their production plants, as well as new technology in the manufacture of steel. The firm implemented automated technology that facilitated fewer requirements of personnel to function. Thus, improving the productivity of labour and reducing the cost of production significantly. Besides, the management system of the company was planned in a way that occasioned increased innovation by the workers as well as quick decision making

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processes. All these practices helped Nucor to have a competitive advantage over the competitors. 

International Market Entry Strategy: Nucor Corporation acquired different existing steel manufacturers who had significant potential growth in the industry. The acquisitions assisted the firm to improve its portfolio of products, new domestic markets, and customer databases.



Cost leadership strategy: Nucor Corporation’s strategy is that of cost leadership by use of innovation and technology. The company develops the cost advantage by promoting and implementing changes as well as employing advanced technology to manufacture steel. The firm also invests significantly in research and development, and has a lean management structure, giving them even more efficiency.

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References Cash, R. M. (2011). Advancing differentiation: Thinking and learning for the 21st century. Minneapolis, MN: Free Spirit Pub. Dlabay, L. R., & Scott, J. C. (2010). International business. Mason, Ohio: South-Western. Hitt, M. A., Ireland, R. D., & Hoskisson, R. E. (2007). Strategic management: Competitiveness and globalization: concepts. Mason, OH: South-Western.

Nucor Corporation. (2014). 2014 annual report. Available at: file:///C:/Users/User/Downloads/80768%20NUC%202014%20Annual%20Report_R 1_Final_LR.PDF

Witcher, B. J., & Chau, V. S. (2010). Strategic management: Principles and practice. S.l.: Cengage Learning.