Nucor – Porter’s 5 Forces

NUCOR AT A village CASE ANALYSIS NUCORS SUSTAINED PERFORMANCE RECORD ostiaryS 5 FORCES ANALYSIS Supplier Power With the eventual exit of body structured steel companies from buying challenge, the options available with providers to sell, reduce. Nucor started several small plants that were button up to suppliers customers, thereby reducing transportation cost. Also, the sites chosen had inexpensive electricity. Their employee-centric policies resulted in them having net friction directs a steady supply of new employees. Thus the supplier power was mode grade- downhearted. Buyer Power Although Nucor employed the latest engineering science warring prices, with imported steel available, the buyers had more options to choose from. However, Nucors customer utility was a differentiator that buyers were entrusting to pay for. Hence, the Buyer power was gently unattractive. Barriers to Entry Minimill business was a capital-intensive business for a new player. Also, for bre athing incorporated steel referrs, their reluctance to adapt to newer engineering smaller plateful discouraged them to get into the grocery store of the minimills. Thus it was mildly attractive from Nucors point of view. scourge of Substitutes With wide availability of substitutes such as aluminum, plastics travel composites, the demand for steel had stagnated. Hence, the menace of substitutes in the future was superiorly unattractive. level of rivalry The integrated steel answerrs didnt little terroren Nucors business. Nucor perpetually had the cost pull together efficiency coupled with superior engine room innovation. However, this was challenged by the global steel makers which resulted in lowering of prices lower margins. The scarcely none for Nucor was its highly sought-after customer service.Thus the degree of rivalry was high. Thus overall, Nucor had avered performance so far, due to its technology innovation, lean operations, high efficiency, hearty employee relations superior customer service. However, going ahead, with availability of substitutes growing threat of equally good foreign steel makers, the sustainability is in question un little Nucor innovates strategically aligns itself to the changing demands of its customers. FUNCTIONAL FIT Low Cost Focus dodge Nucor adoption of organic growth helped in bridging the gap between the connection and its customers.Mills were set up near the Vulcraft operations and Vulcraft in turn ensured sprightly deli truly of the products to its customers. The company was also able to bring down the rooted(p) order processing costs by using computerized order immersion and billing systems. With the help of competent distribution and other measures, the company was flourishing in top the voluntaryness of the customers to pay even if the price was increase. Also, the company focus on the low break off segment. Organizational systems / Procedures Nucor had a directly organisationa l structure. They decentralized the plant-level decision making to the respective plant managers.This led to a lot of autonomy faster decision making thus providing them an advantage over the competitors. The performance measurement was more quantitative in character for the plant managers, where they had to meet specific revenue targets. The Nucor management supported creative thinking risk taking as they firmly believed in innovation improvisation. thither was a relatively high degree of inter-plant communication vis-a-vis desegregation of orders, sharing of deliverables, etc. Thus the plants didnt entirely work in isolation, although the structure was decentralized.At the plant level, there were conscious efforts to treat all levels of employees at par make all of them feel equally important applicable to the organization. Performance Measurement The performance of the plant manager was more quantitative in nature. However for those of the other employees, it was a mix of qualitative as well as quantitative. This is because of their emphasis on productivity case. The reward / salary were more group based rather than individual based, encouraging teamwork. set / Culture Review Employee focus was the hallmark of Nucor.They encouraged risk taking, creativeness innovation. Their policies didnt allow for more than differentiation between different cadres. Their matte structure had decentralized decision making, they provided employees a sense of belonging / monomania with the organization. The all-cash incentives were regularly doled out were directly performance linked quality quantity-wise. Their pixilated employee-bonding started right from the age the plant was constructed, till retirement. They didnt believe in firing during lean times, would rather cut back on working(a) hours, than fire people.The completion result was that they not only had a highly productive, motivated, experienced non-unionized work force, but their employee turnover was much below the manufacture average they had many people leaveing to work for them. Their high human being capital was a clear differentiator advantage over the rival in the steel industry. Thus, Nucors come near of controlled growth, focus on technology innovation, high employee productivity coupled with a dedicated workforce, decentralized energetic decision making, fork up resulted in a sustained growth achiever of Nucor.For sustainability in the future, Nucor will cook to continue to focus on technology innovation as it has been its point of differentiation among its competitors. TETRA-THREAT FRAMEWORK FOR SUSTAINABILITY ANALYSIS Threat of Imitation The advantage it derived from a flatter decentralized structure a motivated workforce, was hard to imitate, as it would mean reorganizing the organization it would take much longer to be effective. Nucor constantly innovated used latest technology. Hence, even though a competitor copied its technology , it would take time for it to implement it in that while, Nucor would have moved n to a newer technology. Costs of imitation in this baptistry are the capital investments that would have to be made the economies of scale that will have to be achieved. Threat of Substitution The internal threat of switching by means of resource substitution is very little, as the employee attrition rate is very low compared to industry level the services offered to customers is of high honour for the customers. External threat of substitution is high due to matter of aluminum, plastics, etc as cheaper substitutes for steel.But as Nucor is focused on innovation, it can counter this by itself moving towards these substitutes or coming up with progress innovative ways to make steel which can compete with the substitutes. However this would mean further investments in technology infrastructure training of employees. Threat of Holdup Nucor has a strong vertical integration the merchandis e for the suppliers is limited as the integrated steel makers are no longer in its market. So threat of holdup from suppliers is low. It also adds value with superior customer service, which the buyers are willing to pay for.But the buyers do have option to opt for imported steel. Thus, Nucor will have to sustain the additional value it generates for its buyers. Threat of Slack Nucor has optimized the technology that is available for manufacture. It also has a dedicated skilled workforce. However it has not fully exploited these to venture into newer steel markets or into a joystick Venture with foreign steel makers who could provide newer technology. However its organizational structure policies are suited for sustained growth. UNCERTAINITIES AND RISKS ASSOCIATED 1.Technological threat CSP would become obsolete in 10-12 age time, as new technology of casting even gauzy slab was already under way. This posed risk and uncertainty to Nucors telling investment in CSP, but adopti on of this technology could give it the outgrowth mover advantage also. 2. Quality SMSs pilot plant ran only 7 minutes and produced 12 tons per posture due to shoes constraints. It wasnt clear if it could take the load from continuous operations and sustain the wear and tear. The components had to operate with more than 96% reliability for it to be cost-effective. 3.Raw textile Nucor used scrap as its crude material, and the uncertainty of the scrap prices could make the depict not viable. If scrap prices rose above $ 140 per ton, Nucor talent have to shift to Direct Reduced Iron as raw material which would require major changes in facility and operations. 4. Competition other minimills will also adopt CSP in a few years and hence Nucor may not be able to bask in the glory of commencement ceremony mover advantage. It wasnt even clear if inaugural mover advantage would offset the spacious costs this project entails. 5. come with They didnt have the expertise in flat roll ed products which had to be acquired.Integrated mills adopting CSP were a major threat as they already had the expertise in flat rolled production. 6. operations CSP plant was very full-size and more complex. It couldnt have been located in rural areas, where Nucor have till now established their plants, hence would require new scheme to cater to these plants. 7. Growth Nucor was concerned that it would have to image the high block up market if it plans to build more plants with CSP technology and that would require products with superior quality reliability of delivery, which CSP did not guarantee for such products.Moreover the high end market demanded relationship based marketing which involved the customers at early level of development of product, which would be difficult. 8. Resources If Nucor pursued both the projects i. e. CSP and joint venture with Yamato Kogyo, thence it would have to stretch its financial resources and raise equity or debt for huge capital uptakes fo r the initial years. But, according to its policies, Nucor restricted its debt/equity ratio to less than 30 % and did not issue new stock. So the problem of raising funds for the two projects is a matter of concern.PROJECT FEASABILITY ? Financial Decisions Assumptions The new project technology will become obsolete in 10 to 12 years of time, so assuming that this project will last for 12 years of time including 2 and half years of startup time and two years for full skill utilization. submitd that 50 % of capacity will be utilized in 3rd yr, 80% in 4th yr and full from 5th yr onwards. The capital expenditure of $280mn takes place in phase wise manner with $70mn today, $170mn in first year and $40mn in certify year with additional $30mn in second year for startup cost.Working capital of $30mn will also be dissever in 3 years based on their capacity utilization. The revenues and costs are adjusted with an inflation of 3. 5% each year. The rising scrap prices are also taken int o consideration. Assuming that reduction in restriction costs and savings in postcode will be clothed by inflation. Depreciation taken around 13% w. r. t. given entropy (Done by WDV method). Tax rate taken around 44%. Assume salvage value equal to the book value at the end of the project life. As the industry is stable, so taken beta value (=0. 95) around market beta (=1). Keeping the Debt/Equity ratio to be around 15%, according to existing capital structure policies. The expectant budgeting of the project leads to the following analysis IRR=11. 8%, NPV =$18mn and ROC=26. 5% The Expected rate of return of the project is more than the WACC (10. 19%) and NPVgt0, though it is not very high. The project is therefore financially viable and can be adopted. ? labor Opportunities As the market for low end products was beginning to reach saturation, CSP was a great opportunity for Nucor to enter into flat rolled products.It could easily enter into the low end of the flat sheet ma rket, consisting mostly of construction applications, where low price was key differentiator. Its internal sales (Vulcraft division) could be 100,000 tons of flat sheets each year to produce steel deck. Moreover, it could enter into the high end market after some years by expanding its capacity, which will make it possible for Nucor to compete with US integrated mills and capture their market share. The threat of ocean freight imports could be mitigated by the bring down costs. Construction industry offers good opportunity as it takes high priced products from the integrated steel mills and CSP will give Nucor the cost advantage to charge lesser price and hence be able to sell its products. ? Operations CSP would lead to savings in casting operations, labor costs and energy costs. Nucor would be able to achieve economies of scale at a reduced output as compared to the US integrated mills. The yields will be higher(prenominal) and the operating costs will reduce. ? Technology Nucor had the drive to embody scientific advances.It invested heavily in upgrading its capacity. Its investment levels were 2. 9 times its depreciation charges, wherein the leash largest integrated firms had a ratio around 1. 6. Through CSP, Nucor will gain the first mover advantage for atleast a few years. Hazelett Caster wasnt as effective as CSP. Also, there were some operational constraints with Hazelett approach like expensive conveyor belts, reduced product quality and increased maintenance costs. Conclusion Taking all the business and financial aspects into consideration, Nucor should go ahead with this technology.