Background Nucor Corporation is a leading American steel company with a headquarters’ staffs of less than 95 people and just 5 layers of management, from the CEO to the front-line employee1. It managed to make profit for decades in America despite the period of slow demand for steel, and the stiff competition in the industry. So, what are Nucor’s competencies that enable it to enjoy continual success? To explore its sources of competitive advantage, value chain analysis is constructed. Value-Chain Analysis Inbound Logistics Scrap metal is one of the main inbound logistics.
To better control the raw materials inputs, Nucor took a backward integration approach and acquired David J. Joseph Company (DJJ), which had been the primary supplier of scrap to Nucor since 1969. DJJ also provided Nucor 2000 railcars for transportation of raw materials. Electricity is also Nucor’s main inbound logistic. Nucor is able to reduce its energy consumption through innovative mini-mill and Castrip technologies. Castrip process consumes just 0. 17 decaderms of energy compared to 2 decaderms at conventional mills, a savings of $25 to $30 a ton at current energy costs2.
Operations Nucor’s production is excellent with innovative technology, which allows them to cut out some manufacturing processes. As the first scrap-based electric arc furnace mini mill operator, Nucor benefits from better productivity, lower unit operating costs, and capital efficiency compared to integrated producers, relying on iron ore mines, coke batteries, and 1 Nucor Corporation | Our Story | Chapter 3: Culture. Retrieved September 7, 2011, from http://www. nucor. com/story/chapter3/ 2 Nucor Adds Second Castrip Facility. (2005). Metal Center News, 45(12), 56-57.
Retrieved from EBSCOhost. blast furnaces3. Nucor has also developed thin-strip casting technology which is trademarked under the name of Castrip. This involves direct casting of molten steel into its final shape and thickness without further hot or cold rolling, resulting in lower investment costs4. Lean management and the incentive system have also contributed greatly in this area. They stripped away management layers and gave all employees even hourly wage earners, respect, power and rich rewards for doing good work safely5. In return, they have a very cooperative and productive workforce.
Besides that, Nucor strengthened its production capacity through joint ventures and acquisitions6. Outbound Logistics Nucor’s plants were linked electronically to customers located next to the plant and this allowed them to practise just-in-time inventory mode more efficiently. It also possessed a 150-truck fleet to ensure quick and on-time delivery of the products to all of the states. Sales and Marketing Nucor did not have a corporate public relations department or aggressive marketing strategy, but it managed to maintain significant revenues for decades.
They build close and long-term relationship with their customers. By locating the plants near to its customers, Nucor is able to maintain consistent sales and eliminate the need for advance distribution channels. Currently, Nucor’s marketing pitch is environmental friendliness, worker safety and stronger community. “We are committed to being cultural and environmental stewards in the communities where we live and work7”. 3 DATAMONITOR: Nucor Corporation. (2008). Nucor Corporation SWOT Analysis, 1-9. Retrieved from EBSCOhost. 4 DATAMONITOR: Nucor Corporation. (2008).
Nucor Corporation SWOT Analysis, 1-9. Retrieved from EBSCOhost. 5 Nucor Corporation | Our Story | Chapter 1: Corporate Overview. Retrieved September 7, 2011 from http://www. nucor. com/story/chapter1/ 6 DATAMONITOR: Nucor Corporation. (2008). Nucor Corporation SWOT Analysis, 1-9. Retrieved from EBSCOhost. 7 Nucor_SustainabilityReport09. Retrieved September 7, 2011 from http://www. nucor. com/sustainability/2009/download/Nucor_SustainabilityReport09. pdf Service Nucor provides on-time delivery and customer integrated computer management software, enabling customers to use just-in-time inventory mode.
Besides that, Nucor broke the tradition of equalizing freight and offered all customers the same sales terms. Conclusion After evaluating Nucor’s value chain, I would say the sources of Nucor’s competitive advantage are technology and lean management with effective incentive system. Kenneth Iverson also commented that 70% of Nucor’s success has to do with culture and 30% has to do with technology8. Nucor’s lean management and incentive system lead its employees to adopt the mindset of owner-operators. As a result, they are able to produce steel at margins and increase their productivity.
Nucor has also shown in joint-ventures and acquisitions that its labour practices and unique culture can be instilled successfully in the new facilities. These practices not only create value for the company and are rarely practiced by the other companies, but are also nonsubstitutable and hard to be imitated as these would involve complicated interpersonal relationships and trust. Hence, its management and incentive system provide it a sustainable competitive advantage. Nucor is known for pioneering new production technologies, such as electric arc furnace and thin-strip casting technology.
All these technologies enable Nucor to lower the production costs, increase its efficiency and productivity. Although they create value, other companies are also adopting such technologies and they are neither costly-to-imitate nor nonsubstitutable. Hence, technology alone does not provide sustainable competitive advantage. But, with continuing innovation, Nucor will be able to hold its technological edge on the competition and be the industry leader. 8 Iverson, F. (1993). Changing the rules of the game. Strategy & Leadership, 21(5), 9. Retrieved from EBSCOhost. pet