Nucor at a Crossroads

11794 Words48 Pages
Harvard Business School

Rev. January 20, 1998


Nucor at a Crossroads

On December 7, 1986, F. Kenneth Iverson, chairman and chief executive officer (CEO) of Nucor Corporation, awaited a delegation from SMS Schloemann-Siemag, a leading West German supplier of steelmaking equipment, at his company’s headquarters in Charlotte, North Carolina. Iverson had to decide whether to commit Nucor to a new steel mill that would commercialize thinslab casting technology developed by SMS. Preliminary estimates indicated that the mill would cost $280 million, and that start-up expenses and working capital of $30 million each would push the total cost to $340 million, or nearly as much as Nucor’s net worth. Successful
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A significant percentage of the steel sold to service centers found its way to end-users in the automotive sector and the appliance and equipment industries. Taken together, these three customer groups accounted for half of total domestic shipments and three-quarters of the shipments of flat sheet. Service centers emphasized the most basic form of flat sheet, hot-rolled sheet, whereas the others’ direct purchases were weighted toward cold-rolled and coated sheet that had been subjected to further primary processing. Construction accounted for another one-tenth of shipments of all steel mill products and of flat sheet. Price, quality and dependability were the three most important buyer purchasing criteria. Uncompetitive pricing was probably the major reason U.S. steelmakers had lost ground to imports. Integrated steelmakers had been criticized, in particular, for charging excessive premia in periods of tight supply, pressing buyers to purchase higher-grade steel than they needed, requiring minimum orders that were too large for many buyers and arbitrarily favoring some buyers over others. Quality had several dimensions: internal quality, as determined by metallurgical structure and physical strength, which mattered most when durability was important; surface quality, which was a major concern in uses

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