Continuous Casting Investments at Usx Corporation Analysis
Unformatted text preview: Continuous Casting Investments at USX Corporation Section B Group 4 Anjana Baburaj - PGP/24/379 Apoorv Agarwal - PGP/24/070 Raginee Choubey - PGP/24/106 Rishabh Nagori - PGP/24/108 Karthik Balachandran - PGPLSM/01/016 Industry Analysis : Steel Industry Bargaining Power of Suppliers : LOW The raw material is easily available and the players themselves were also involved in extraction Threat of New Entrants: Medium With the new business model, the most crucial barrier in form of high capital, no longer existed and as minimills entered the market the competition increased. Although for a lot of products, the capital requirement was high. Industry Rivalry: High Lesser differentiation leads to higher competition to get big contracts, further leading to lesser switching costs. Bargaining Power of Customers:High As the number of players increased, the buyer had more option leading to high bargaining power. Threat of Substitutes:Med Threat depends on the product wise end use. In case where durability and strength is not a crucial aspect, substitutes in form of synthetic materials are available. In case of high strength requirement, its low. Challenges to the CEO Challenges faced by USX Corporation 1. Tough Competition: Capital cost was historically one of the most crucial entry barriers in the industry. Minimills adopted a business model through which they were able to enter the industry without high level of capital investment and give tough competition since there overall costing was also very low. 2. Stagnant Market Growth: The company was constantly losing its market share and was adversely impacted from recession and its high manufacturing costs which also led to company incurring losses for few years. 3. Uncertainty around Investments in CSP: Investment in CSP is a long term contract and involves high value of investment with uncertainty existing over quality of surface finish and unpredictability of rate of improvement Challenges to the CEO 4. Capacity Building: Whether or not USS should invest in additional production capacity, given the slow growth in demand. 5. Labor Commitments: USX was committed by the labor contract to install continuous casting capacity in Mon Valley. The layoffs would be costly as the compensation for unionized labor came down to $75,000 per person. Evaluation of the Technology Conventional Casting & Rolling Pros: ➔ ➔ ➔ ➔ Elimination of batch-casting of steel into ingot moulds and introduction of continuous casting of steel into thinner, longer, near-net shape forms before cooling resulted in a 15% reduction in processing costs Use of this technology was a crucial factor in the USS's turnaround in the 1980s. R&D expertise is strong in this area; upgrading will be easy; since it will be done in stages, no issues with cash flow Quality in terms of finish & preference of customers is high, hence it is a sustaining tech Cons: ➔ Output quality is inferior than that of continuous casting, which is a significant disadvantage. ➔ Nucor Steel was able to target customers who were less concerned about quality ➔ USS products, on the other hand, were known for their high quality. Cash Flow requirement was also stated upfront, posing difficulties in execution Compact-Strip Production Pros: ➔ ➔ ➔ ➔ ➔ 70% reduction in capital cost/ton of capacity Elimination of intermediate cooling, inspection and re-heating led to reduction in electricity consumption by more than 50% In rolling operations, thickness of the slab can be reduced by 50%, which is better than used in continuous casting (20%). This helped Nucor to produce a new range of hot rolled products up to a minimum of 0.1-inch thickness Throughput rate was 4 times faster than continuous casters In terms of operation cost, CSP was cheaper by $15 and $5 in best and worst case scenario Therefore, CSP is a "disruptive technology Cons: ➔ Quality of the output was lower than continuous casting method ➔ While Nucor did not focus on quality, USS products emphasised on the product quality ➔ Upfront cash flow was required Should he sign or not sign? No, he shouldn't sign the contract ➔ ➔ The decision was made keeping in mind the current industry structure and the client base. Performance of CSP and its ability to be the disruptive technology needs to be taken into consideration. As CSP is a disruptive technology, the suggestions from that of the mainstream customers need not be taken for the purpose of evaluation The effect of continuous thin slab casting would have a further impact on the overall steel industry. By signing, the company would be giving away the first mover advantage to its competitors considering the market and the potential development in the market Final Recommendation ➔ Kappmeyer should finalise the green field integrated plant using the latest CSP technology. This will help the company to have the first mover advantage as well ➔ This needs to be implemented with the utilization of services from a third-party organization. This will help the organization to realize the full potential in association to the technology ➔ Existing clients current requirements must be met. USS can build a rolling mill at their ET facility, allowing them to concentrate on their core business ➔ It will benefit the USS in the short term while allowing an independent unit to focus on revolutionary technology ➔ If tech fails: less resource committed; continue to compete in low quality segments ➔ If tech succeeds : Scaling up of USS further Compact Strip Production: A Potential Disruptive Technology Sustaining vs. Disruptive Technology ❏ ❏ ❏ In the Flat Steel production industry, there was a requirement of heavy capital investment of about $2bn in the production of flat-rolled steel at effective prices and good quality. With the success of the CSP technology, the cost could be reduced as the investment was only $300 per ton, while the continuous casting process was $1000 per ton The $30 million collaborative effort with the US Department of Energy, led by Dr. Michael Moore, to develop improved thin-slab casting technology shows that USS researchers saw potential in the thin-slab casting technology Strategic Significance of CSP ❏ ❏ ❏ CSP technology was not capable of producing high quality outputs in comparison to the conventional process The rate of improvement of this technology cannot be determined at this stage The possibility of the progression in the technology to be quicker than the demand of the consumers cannot be ignored Market for CSP ❏ ❏ CSP technology have provided outputs that are lesser in quality than conventional process Therefore, the target consumers would then be price conscious and less-quality focussed users CSP is a disruptive technology, which has a high strategic significance and target consumer group are price conscious and less quality focussed users How to compete with Steel Mills like Nucor? Industry experts have been of the opinion that CSP had the ability to change the fundamental structure of worldwide steel industry. USS was looking at the technology with respect to its existing customers. However, it must look at other small companies that were investing in this tech like Nucor, which had invested 25% of its net worth in its Crawfordsville plant. Way forward for USS is to invest aggressively in R&D to develop more on CSP technology in the following ways: ● Improve the surface quality of the final product to compete at par with the existing product line of USS ● Creating efficiencies in the technology in a way that it will serve as economies of scale at an higher output rather than diseconomies. A successful venture through in-house developed R&D resulting in any of the above options would create advantage for the company in the following ways: 1. 2. 3. Provide a first mover advantage to USS among other integrated steel mills competitors Create a structural barrier for expanding minimills like Nucor through involvement of high capital investments and high-scale technology to achieve efficiencies equivalent to that of USS Become a technology leader in the industry that could further lead this innovation into its other product mix ...
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