Nucor at a Crossroads

Dr. Shubhabrata Basu

Chair - Strategic Management Area, IIM Indore

The Issues Industry Analysis Industry Competitiveness Nucors Growth Options Nucors Resource Position The Available Options The Decision & Implications

Presentation Sequence

Matured Industry - Steel Falling Profitability & Stock Prices Competing Processes Integrated vs. Direct Reduction Value Chain Reconfiguration
Introduction of New Technology Adaptation to New Technology

Procurement Decision

The Issues

Japanese-Canadian (high quality) & Asian (Cheap) Exporters Integrated Producers & MiniMills Aluminum, Plastics, Advanced Composites

Mining Cos. & Scrap Sellers

Infrastructure, White Goods & Equipment

Transactional Factors - Price, Quality & Dependability

Industry Analysis

500 450 400 350 300 250 200 150 Total Cost $/Ton Revenue ($/T) Margin $/T

100
50 0 HR CR HR CR HR CR Mini-Mills Modernized Integrated Plants Older Integrated Plants

Industry Competitiveness

New Product

Product Development No new product from Nucor

Diversification Nucor is not undertaking new business

Old Product Market Penetration Nucor Market Development No Export Focus is competing in US

domestic Market pricing is the issue Product Market Matrix

Old Market New Market

NUCOR must Adapt a Technology that Gives it Competitive Advantages by giving Lower Costs and Higher Revenues

Nucors Growth Options

Procurement
Outsourced to single point purchasing agent

Human Resources
Group Level Weekly Cash Incentives, No Overt Hierarchical Distinctions, ESOPs, Shortfall & Shortcut not tolerated

Infrastructure
No new CapEX, Corpo. Approval for Investment, Investment/depreciation-2.9, Yearly modernization, D/(D+E) < 30%

Technology
No dedicated R&D budget

Inbound Logistics
o Bulk & Centralized, o Freight on Board Basis both input and output

Corporate Processes
o 5 layer Hierarchy o Decentralized decision making o 3 Corpo & 4 Funcl level meetings o Intra-plant informal visits o Iterative Capital Budgeting

Outbound Logistics
o 67% external customers o 25% to Vulcraft o 11% - downstream operations o No preferential or bulk discount

Marketing & Sale & After Sales Services

o Sales to ensure 25% ROA within 5 years of start up o Significant Assured Sales and Revenue by Transfer Pricing from Vulcraft

Nucors Resource Position

 Focus Revenue Yielding High-Value Coils Needs to Import Cutting-edge Technology Available Options Hazelett Caster US origin Pros
Twin Belt Water Cooled Conveyer, High Casting Speed 1 inch thick Coil Cons Frequent Replacement of Costly Conveyor Belts High Down time Quality Issues Hot Metal Break outs Hazards

CSP SMS W. Germany Pros

Similar to Conventional Casting Lens Shaped Mold Lesser Rolling Strands Labor and Energy Savings

Cons 2 inch thick Coil Proto-Type on suboptimal scale Plant Size also sub-million ton Actual wear and tear not known Suffers from NIH syndrome

Options

 Buy and Co-Develop CSP

Easy to Adapt - Similar to Conventional Casting less set-up time Price Discount as Co-Developed & Risk Taker NIH Issues US makers are unlikely to adopt in near future Small Prototype Simple & Easy to understand Plant Size Custom Built to Mini-Mill Design SMS a known Vendor Introduction no drastic change in Revenue for a Matured Market

NUCORs own experiment with Hazelett Caster were unsatisfactory

Decision & Implications

QUESTIONS