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Management and Steel Industry Essay

1. List and elaborate some strategic issues facing NUCOR.

Key strategic issues challenging NUCOR include legislation related to climate change, fluctuating cost and supply of iron ore and scrap steel, increasing amount of steel imports, production technology improvements and economic weakness. Changes in legislation could have severe impacts on the firm’s numerous production facilities and could be costly to become compliant. The fluctuations in both the cost and supply of iron ore and scrap steel directly impact the firm’s profitability because it is difficult to pass those costs on to the customers due to the price-driven level of competition in the steel industry.

The rise of low cost steel imports increases the domestic U.S. supply which puts pressure on NUCOR. The firm must stay at the front of technological advances for the production and processing of steel in order to stay competitive. Common for many firms and industries, economic weakness is an issue that challenges NUCOR’s strategy because it can impact the demand for its reputable high quality steel products.

2. What are the key elements of NUCOR’s low cost strategy? What factors have helped NUCOR achieve a low cost position?

Key strategy elements for NUCOR:
Conservative financial strength
Team-based culture and decentralized operations
Vertical integration
Diversification
Innovation – information technology, speed of design process
Close proximity to important customers
Financially stable employees – higher than average wages and non-discretionary incentive programs
Employee empowerment
Honesty and openness within the company
No employee lay-offs

Factors that have contributed to NUCOR’s low cost position: Strong, long-term relationships with outside parties for services such as research and development, purchasing recommendations, advertising, public relations, and legal or environmental regulation compliance Stepping away from the steel industry’s tradition of equalized freight and offering all customers the sales terms of price plus actual shipping costs Not offering customers volume discounts

Fleet of nearly 150 trucks for product delivery
Vertical integration from joist manufacturing into steel production
Steel production utilizing mini-mill technology
Holding workstations responsible for identifying bottlenecks to increase efficiency
Sophisticated computer program is used to compute accurate bids
Improvements in the melting and casting processes for steel production including “continuous casters”
Flat organizational hierarchy

3. Please apply Porter’s Five Forces model to the steel industry. While doing so, clearly identify who is behind each force and what the impact is of each force on the profitability of the industry (high/medium/low). At the end, also provide a summary of all the five forces and propose whether you think the steel industry is attractive or not.

The bargaining power of buyers is high due to minimal product differentiation, low switching costs, excess capacity of steel production and large volume purchases. The threat of substitutes is medium because substitutes such as aluminum and plastic would not provide equivalent strength and durability but could still serve the same purpose as steel.

The bargaining power of suppliers is low primarily due to the product being a commodity, high ratio of imported raw materials, and low switching costs.

The threat of new entrants is low due to the trend toward consolidation and high amount of capital required to establish production/processing facilities capable of achieving economies of scale.

Rivalry is intense because the steel industry is mature with little differentiation among products and mergers both in the U.S. and across the globe creating giant companies with deep pockets.

Generally speaking, I think the steel industry is unattractive primarily due to its maturity, significant capital requirements and intense price-based competition that ultimately lead to low profitability.

4. What are NUCOR’s resources and capabilities?

Resources:
Team-based organizational culture
Alliances with outside parties for support services
Joint ventures with
Physical locations of plants in proximity to key customers
Loyal employees comprised of production workers, department heads, support and administrative staff, and senior management
Innovative mini-mill technology
Own fleet of nearly 150 trucks for distribution
Computer program to generate bids
Plants, mills, equipment, and machinery
Reputation
Financial capital

Capabilities:
Management’s philosophy and leadership skills
Successful quality control process
Flat organizational hierarchy and incentive program that keeps the workforce cooperative and productive
Acquisition management
Multidivisional coordination
Speed of design process

5. Elaborate on some of the key lessons you have learnt from the case analysis.

The most significant lesson I learned from this case analysis is that management style and culture can be key to being competitive. These really are the two things that will give NUCOR sustainable competitive advantage because they are the most difficult to find and imitate. Building such an impressive employee loyalty takes time and cannot be replicated easily. In addition, the minimization of the corporate bureaucracy is something that makes employees at all levels feel comfortable and as if they are part of a family. I think there are many companies, including the one I work for that could really benefit from adopting this management style.


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