Strategic Issues Faced by Nucor
The operational focus of the Nucor Corporation is to “Take Care of Our Customers.” The company operates under this philosophy by providing the highest quality good at the lowest cost maintaining highest operational standards in the industry. The company has a strong culture and follows environmental stewardess by paying back to the communities where it is operating. However, the corporation I facing some strategic issues that are given below:
Plant Efficiency and Cost reduction effort
New plants construction
International growth through joint ventures
Increased competition
High population and economic growth
Increased bargaining power of buyer.
Cost Reduction Effort
NUCOR is always trying to increase the plant efficiency and reduce its manufacturing cost. Presently, there are many other competitors working in this industry. Nucor always tries to increase the efficiency of the plant so they can provide their products to customers at lower prices. Managers are accountable for demonstrating that their operations are competitive in both product quality and cost with the plants of their rival companies.
New Plant Construction
NUCOR is facing the strategic problem of constructing new plants. For continue to be a technological leader in the market and to attain opportunities in constructing new plants which help the company in expanding business. Technology is changing day by day, so NUCOR face problem to build new plants
International Growth through Joint Ventures
Nucor almost all plants are working in the US. In this regard, they have to face problems to compete with Asian countries with lower production cost. Since 2007 management decided to begin building an international platform. However, the rate of international expansion to meet the growth aspirations is low.
Increased Competition
In the steel industry competition is very high. Increased population in many countries especially in Asian countries increased the demand for steel. Economic growth increases the buying power of buyer, and the ratio of switching cost of the buyer is very low. Competition is basically on price. In this industry rivalry is very high.
Key Elements of NUCOR’S Low-Cost Strategy
Nucor made a low-cost strategy to stimulate demand and market share. In 2007, approximately 86 percent of Nucor’s production was sold to external customers. The commodity nature of steel products meant that the prices a company could command were driven by prevailing market demand-supply chain. Nucor sells its products to its customer at prevailing market price. Nucor’s strategy to remain low-cost dictates to quote same payment terms to all their customers. Key elements of Nucor’s low-cost strategy are
Value products
Fair pricing
High market share
Market control
Positioning
Nucor’s always try to sell their product at low prices. There were salespeople located at most every Nucor production facility. They made a contract and fulfilled contracts within 6 to 12 months. In long-term contracts, there is a clause about adjustment the price according to price prevailing in the market.
Factors That Achieve Low Cost
Nucor’s is working with low pricing strategy. Nucor is providing its customer with low price products. There are many factors which help any company in achieving a low-cost position in the market. Nucor’s also achieves this position very successfully. The main factors which help Nucor’s to achieve this position are
Technology
Leadership
Using recycled scrap steel
Successfully implanting policies
Porter’s Five Forces Model
Porter’s model contains five forces
Rivalry among existing competitors
Threat of new entrants
Bargaining power of buyer
Bargaining power of supplier
Threats of substitute
Internal Rivalry within Industry
Steel companies are facing internal rivals as there are many domestic companies in this industry. Therefore, there is competition in domestic companies leading to price wars.
Threats of New Entrants
There is a threat to new entrants about product differentiation, access to raw material, economies of scale, and capital requirement are biggest barriers to entry for domestic markets.
Bargaining Power of Buyer
There is high bargaining power in this industry. There is low product differentiation so the buyer can easily switch because there is low switching cost.
Bargaining Power of Supplier
There are few suppliers in this industry. So supplier can have a high power of bargaining. Mostly raw material is Imported, which increases the cost.
Threats of Substitute
There are few substitutes like wood, plastic and other material like aluminum. But they cannot be compared with steel durability and robustness.
Each force has impact on the profitability of the industry
Buyer power is high
Supplier power is high
Internal rivalry is high
Threat from substitute products is low
Threat of new entrants is low
With advance globalization and economy regaining momentum, the steel industry is looking attractive. In the present era, there is a huge demand for steel. Therefore, the steel industry has an attractive position.
Nucor’s Resources and Capabilities
Nucor’s is working with a lot of resources and use capabilities to attain market share and high profit. If we see resources of Nucor’s they are
Strong financial capital
Decentralize management
Manufacturing/technology facilities
Low cost production
Acquisition
Employee loyalty and customer services
Nucor’s is working with strong financial capital. In 2012, the production capacity approached 27 million tons and became the largest steel manufacturing in North America and 11 largest steel company in the world. It was regarded as a low-cost producer, and it had sterling innovations steelmaking technologies throughout its operation. They have a corporate culture in a company which works for low-cost production using expertise & technology. The significant resources of Nucor’s development are their employees who are loyal to Nucor and provide better customer services.
Nucor’s increases capabilities by increasing the diversification with more acquisition as they are doing joint ventures internationally. Nucor is optimizing the current operations which increases the capabilities and helps in excelling in the green field projects.
Lessons Learnt
I have learned from this case analysis that effective strategies enable a business to develop high market share and earn high profit. It will help in developing employee and customer loyalty. If a company uses its resources and capabilities in a good way, it will help in producing low-cost products which resultantly increase the demand for their products. By using technology and innovative manufacturing methods, the company can decrease the cost and sell goods at a low price.
