Nucor - Porter's 5 Forces

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NUCOR AT A CROSSROADS
CASE ANALYSIS

NUCOR’S SUSTAINED PERFORMANCE RECORD

PORTER’S 5 FORCES ANALYSIS
• Supplier Power: With the eventual exit of integrated steel companies from buying scrap, the options available with suppliers to sell, reduced. Nucor started several small plants that were close to suppliers & customers, thereby reducing transportation costs. Also, the sites chosen had inexpensive electricity. Their employee-centric policies resulted in them having lowest attrition levels & a steady supply of new employees. Thus the supplier power was moderate-low.

• Buyer Power: Although Nucor employed the latest technology & competitive prices, with imported steel available, the buyers had more options to choose from. However, Nucor’s customer service was a differentiator that buyers were willing to pay for. Hence, the Buyer power was mildly unattractive.

• Barriers to Entry: Minimill business was a capital-intensive business for a new player. Also, for existing integrated steel makers, their reluctance to adapt to newer technology & smaller scale discouraged them to get into the market of the minimills. Thus it was mildly attractive from Nucor’s point of view.

• Threat of Substitutes: With wide availability of substitutes such as aluminum, plastics & advanced composites, the demand for steel had stagnated. Hence, the threat of substitutes in the future was highly unattractive.

• Degree of rivalry: The integrated steel makers didn’t threaten Nucor’s business. Nucor always had the cost advantage & efficiency coupled with superior technology & innovation. However, this was challenged by the global steel makers which resulted in lowering of prices & lower margins. The only differentiation for Nucor was its highly sought-after customer service. Thus the degree of rivalry was high.

Thus overall, Nucor had sustained performance so far, due to its technology innovation, lean operations, high efficiency, strong 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 unless Nucor innovates & strategically aligns itself to the changing demands of its customers.

FUNCTIONAL FIT
• Low Cost Focus Strategy: Nucor adoption of organic growth helped in bridging the gap between the company and its customers. Mills were set up near the Vulcraft operations and Vulcraft in turn ensured speedy delivery of the products to its customers. The company was also able to bring down the fixed order processing costs by using computerized order entry and billing systems. With the help of competent distribution and other measures, the company was successful in raising the willingness of the customers to pay even if the price was increased. Also, the company focused on the low end segment.

• Organizational systems / Procedures: Nucor had a flat organizational 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 nature for the plant managers, where they had to meet specific revenue targets. The Nucor management supported creativity & risk taking as they firmly believed in innovation & improvisation. There was a relatively high degree of inter-plant communication vis-à-vis consolidation of orders, sharing of deliverables, etc. Thus the plants didn’t 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 & relevant 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...
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