Nucor Case Analysis

Topics: Steel, Competition, Capacity utilization Pages: 6 (1975 words) Published: February 3, 2013
The U.S. steel industry is comprised of three distinct groupings of companies – integrated steelmakers, minimills, and specialty steelmakers. The main difference between them is the stark divide in capacity as well as what they actually manufacture. Integrated firms can produce 107 million tons of steel through reduction of iron ore, and minimills have a capacity of 21 million tons, and these businesses utilize a scrap melting process. Specialty mills have a capacity of 5 million tons, and for the purpose of this analysis, the focus will remain between the first two types of firms.

Integrated firms dominated the industry until the 1960s. This segment was dominated by powerhouse companies such as U.S. Steel and Bethlehem Steel, which mainly competed in the flat sheet segment, which accounted for nearly half of U.S. shipments in 1986. The buying criteria for customers of these firms revolved around price, quality, and dependability (both structure and strength). Integrated firms’ mills were located primarily in the upper-Midwest and Pennsylvania, and prided themselves on staying ahead of the curve in technological prowess, at least through the 1950s. A subsequent decline in performance was actually caused by a failure to keep up technologically, as well as low price and high quality imports. These developments paved the way for the development of minimills. Minimills used electric furnaces to melt scrap into steel, took advantage of improvements in casting technologies, and were thus able to reduce the capital cost per ton of capacity.

Minimills, by pursuing regional strategies of being located within 200-300 miles of their target markets, were able to reduce operational costs through inexpensive electricity, as well as less expensive labor. Also, because of a narrower product line (which decreased the amount of time spent on manufacturing), minimills began to steal market share from integrated firms. Because of increasing prowess in the manufacturing of low-end bars, wire rods, and small structural shapes, minimills claimed sole manufacturing power over those products; however, they were still shut out of flat-rolled products, which were the specialty of integrated firms.

The Nucor that existed in 1986 came from a Ken Iverson’s (CEO) $6 million gamble on the building of a minimill in Darlington, South Carolina in the late 1960s. After Iverson was handed the reigns, he focused much of the company’s then diverse efforts on the manufacturing of steel components. By 1986, Nucor solely competed in steel, and Iverson was named “Best CEO in the Steel Industry.” Iverson was a firm believer in the least levels of management possible to conduct business. Thus, Nucor maintained five levels of hierarchy, whereas most competitors has around twelve; it also empowered its lower level employees by decentralizing all decisions besides major capital expenditures, hiring/firing, and plant organization.

In addition, Nucor also implemented well-paying performance incentives, as well as made many efforts to get rid of noticeable differences in status amongst its employees. For blue-collar workers, Nucor was an enviable environment in which to work; employee turnover ranged from 1-5%/year (compared to 5-10%/year in the industry as a whole). The organizational structure and performance-based incentives provided Nucor with an advantage over its competition by reducing unnecessary levels of management, reducing employee turnover, and encouraging employee performance.

Nucor had a strong history of adopting the latest technology in the steel market and rather than have a separate R&D division, the company used the launch of new plants and new items from suppliers as a means to develop new processes and products. Operations were key to Nucor’s success, including both the production process and the order, shipping, and payment operations that allowed customers to order lower quantities and keep less in inventory.

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