Plung…(Nucor Case 2009)

Dandalina – ErlisNia – Satrio

MBA Shariah 2, SBM ITB

Steel is a cornerstone and

key driver for the world’s

economy

The Use of Steel

Nucor: A Successful Steel

Company

Financial Strength

Low & Highly Variable Cost Structure Highly Flexible Production Capabilities

Product Diversification & Market Leadership

Nucor’s People = THE RIGHT PEOPLE for our culture!!!

Nucor Strength:

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2000 2001 2002 2003 2004 2005 2006 2007 2008

LONG-TERM PROFITABLE GROWTH Net Income 2000-2008 (millions of dollars)

25% CAGR

8

Nucor’s Industry Leading Profitability2004-2008 Return On Equity (average annual ROE %)

21.1%

26.8%

32.2% 32.5%33.6%

0

5

10

15

20

25

30

35

GerdauAmeristeel

CommercialMetals

U.S. Steel Steel Dynamics NUCOR

9

Nucor’s Industry Leading Profitability – With Industry Lowest Leverage2008 Yearend Debt-To-Capital Ratios

61.9%

51.1%

44.7%

39.0%

28.3%

0

10

20

30

40

50

60

Steel Dynamics GerdauAmeristeel

CommercialMetals

U.S. Steel NUCOR

10

Sheet - 30%

Bars - 21%

Structural - 11%

Plate - 10%

Downstream Products - 14%

Raw M aterials - 14%

Diversified Product Mix2008 Sales Tons

PRODUCT DIVERSIFICATION REDUCES EARNINGS VOLATILITY!!!

Nucor is North America’s Most Diversified Steel Producer

11

Nucor’s Highly Flexible Production

Highly flexible production process utilizing electric arc furnaces and highly productive labor allow Nucor to almost instantaneously adjust output to match market demand

Nucor is company that value its peoples

13

                                                                                           

              

The Business Week 50: The Best Performers

April 6, 2009

Top Stories

The BusinessWeek 50: The Best Performers

From 3D software designer Autodesk to

steelmaker Nucor, our annual list of top performers shows innovation remains the engine of success

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2000 2001 2002 2003 2004 2005 2006 2007 2008

LONG-TERM PROFITABLE GROWTH Net Income 2000-2008 (millions of dollars)

25% CAGR

Plunge…Krisis Ekonomi 2008 telah membuat demand

untuk baja berkurang sangat signifikan, demikian juga laba bersih perseroan

Slowdown was occurring already before the financial shock

The financial shock reduced capital availability

Causing a contraction in fixed asset investment

(OECD)

Steel-using sector plunge

The challenges :1. To asses the threats & opportunities2. To select the best strategies & structure

Key succes factor : established organization design, management philosophy, incentive system.

Nucor’s Formula For Success

3 Divisions : joist plants, steel mills, & miscellaneous plants.

Decentralized operation with own manufacturing, selling, accounting, engineering, & personnel management. 4 levels from top to bottom

expect to earn 25% of ROA Efficiencies : scrap steel from independent broker,

actual shipping cost, no volume discount, just in time.

Organizational style : not constrained, “Stripped down” & “No nonsense”. Informal, trusting, not bureaucratic.

Division Managers Informal, trusting, not bereaucratic. Each month :

financial consolidation, sharing information, corporate mgt examination

High Competition for many small customer : Cost Leadership.

1. Vulcraft The Joist Divisions : steel joist & joist girders, high competion, the largest supplier in 1975, price & delivery performance

2. Steel Divisions : Provide raw material for the vulcraft plants 75%, other customer 25%, the first that build a mini mill to manufacture steel

3. The Steelmaking Processing

SBU Form of the Multidivisional Structure for Implementing a Related Linked Strategy

Porter 5 Forces

Porter 5 Forces of Nucor Strategy The first is industry competitors, which is the intensity of

rivalry among firms in the industry. There are two basic types of competition; price and quality. Nucor focused on the manufacturing segment know as minimills and thus saved on costly labor, raw materials, and the capital-intensive machinery necessary to produce steel from iron ore. “Nucor was able to expand sales from the minimills by keeping costs below its competitors.” Also, another means of maintaining quality control and costs was a “highly decentralized organizational structure.” Corporate staff was kept to a minimum and individual plant-level mangers were given authority on decisions. By using the minimills and keeping the corporate staff to a minimum, costs would be kept at a minimum and quality would still be maintained; thus keeping the industry competitors in a need to keep up.

The second is new entrants which were threats of new competitors entering the market. As was said before; the minimills and minimum corporate staff helped keep prices below competitors. In addition, the risk of adapting an untested German process for manufacturing flat steel also paid off and helped get the company ahead of the competitors. This process was quite a risk for the Nucor Company but Ken Iverson, CEO, made the decision and luckily it paid off. Again by keeping price down and quality up, new entrants were kept from coming in and if they did decide to enter it would take them a lot to get up to Nucor’s level.

Porter 5 Forces of Nucor Strategy

The third and fourth are the bargaining power of consumer and buyers and these two are controlled by also keeping the costs down and the quality up. As long as Nucor carefully monitored costs and paid attention to the needs of its markets, then it had the upper hand in the decisions of the company because as long as they keep the top standing as cheapest and best quality production, then the consumer and buyers have no where else to go and thus can only follow what Nucor decides and therefore gives it the upper-hand.

Porter 5 Forces of Nucor Strategy

The fifth force is substitutes which is the threats of substitute products or services. This also is answered with; as long as prices are kept at a low and quality kept at a high then Nucor has the upper hand and people would have no need to go and find other substitutes elsewhere.

Porter 5 Forces of Nucor Strategy

Strategy vs. Structure: Evolutionary PatternsSeveral structure forms are used to implement strategies, including: 1. Simple 2. Functional 3. Multidivisional

Strategy and Structure Growth Pattern

Functional Structure

FK IversonChairman

President/CEO

HD AycockPresident/COO

Samuel SeigelVP Finance

Personnel

VP & GM Nucor Steel 4 steel mills

VP & GM Vulcraft6 jist plants

Planning

Research Chemicals

Machined Products

Fastener

Grinding Balls

Cold FinishVP & GM

Related Linked Strategy

Terry LisenbyEVP CEO, Treasurer

Eliz BowersGM Taxes

James FriesGM Controller

Jim CoblinVP Human Resources

Ham LottEVP

6 joist plants3 cold finish

1 grinding ball

Mike ParrishEVP

9 bar mills1 fastener mill

GM Construction

Dan DiMiccoVice Chairman President/CEO

Rae EagleGM Secretary

Jeff KempGM Strategic

Planning

GM Environment

John FerriolaEVP

3 sheet milsNucor/Yamato

Joseph Rutkowski EVP International

Div.

Robert JohnsDirector Marketing

Sheet mils

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