Vik Bakshi's Profile

Hey, thank you for your comment – those are great observations. I actually was the process engineer for our EAF at Nucor Steel Memphis, which is where Nucor is specifically attempting to high-end “engineered” steel products for automotive applications. I saw many distinct differences between our operational processes at the EAF versus other Nucor steel mills, where the focus might only be on overall performance, cost savings, efficiency, etc. rather than quality starting at the EAF.

Good to Great is definitely a worthwhile read. Having worked at Nucor and seeing the “man behind the curtain” so to speak, I can’t help but to wonder if Nucor will not become an example of one of the giants that is actually surpassed in the next few decades in the same way they did to US Steel. Although they make significant capital investments on innovative technology, it is often done in a haphazard manner without thorough financial analysis and lacking in adequate engineering due diligence.

Luke,

Great article – I was not familiar with Coyote before. In my previous work, getting shipments out the door was massively important for our financial performance each month/quarter, and we had a huge in-house brokerage to ensure that we had trucks coming on site to pick-up steel at all hours of the day. Coyote obviously identified a niche place in the market by creating a loyal network of customers through reliable carriers who are held accountable.

Based on our discussion today of the Google car, I’m curious what potential effects you see on Coyote and trucking carriers in general based on autonomous vehicles. As Verdell pointed out, many trucking companies have been investing in the R&D of self-driving trucks. I believe these could completely overhaul supply chain logistics as we know it, given that these trucks could drive for virtually 23+ hours a day, stopping only to refuel. Products could be shipped across the country in a fraction of the time, given the benefit of both driving constantly and using GPS to optimize routes and reduce traffic. Reduced transit time could allow sellers to better match their supply with consumer demand, especially in the instance of fast-spoiling products like produce and dairy. How do you see a a freight brokerage company like Coyote reacting, either to stay ahead of this disruptive technology or to capitalize on it?

Scott,

Outstanding explanation of the business and operating models utilized by AMUSA. However, given my own background, I can’t help but to identify a few issues that I think are prevalent throughout the steel industry:
1) How does AMUSA expect to compete with the low-cost steel that is being heavily imported from China? It seems like the glut of steel being produced at much lower cost by state-owned enterprises in China (with questionably low labor costs and considerably lower safety standards) is disrupting the domestic market for steel, which already has excess supply due to over-capacity.
2) What is AMUSA doing to maintain its innovative edge? You gave a great description of the high-end (ergo, high margin) steel grades that are being developed, but these R&D efforts are prevalent throughout the steel making landscape. How can AMUSA do this better than other steel makers, who are all competing for the same R&D resources, metallurgists, I.P., steel consultants, etc.?
3) You mentioned that AMUSA is using a fully integrated process, to include mining and shipment of the raw materials, i.e. iron ore. However, at Nucor I saw that vertical integration was questionable in its ability to actually increase profits. Namely, by vertically integrating how can one grow profit margins at all links in the value chain? It’s essentially pushing and pulling in both directions.
4) Ultimately the mini-mill has proven to be considerably more nimble and cost effective than blast furnaces, although with the rise of scrap and electricity prices that cost advantage is shrinking. Regardless, even US Steel is now converting it’s Fairfield, AL plant to EAFs after decades of employing blast furnaces. Furthermore, although many can see the writing on the wall in terms of automation replacing massive labor forces, this is an option that all competitors will eventually take advantage of. What can AMUSA do to maintain an advantage given that scrap-fed EAFs are simply a cheaper way to produce steel in a price-driven market?

Great insights and fantastic description of the operating model.

Excellent observations, Matt. Despite the appeal of TC, I’ve never ordered from them because the prices seemed rather high. I was curious how they were able to maintain a profit margin given the cost of shipping products both to the customer and then the 50-70% that the customer will return; it makes much more sense given that they are purchasing the previous years styles at a discounted price and then re-selling at full price.

I’m curious how sustainable their model is and if they are truly in a defensible position given the relatively low barriers to entry for this segment. There are numerous online retailers, some of which are specifically targeting professional, working men such as Bonobos. TC does not seem to have an intellectual property advantage since their core IP holders (the stylists) can easily leave and go elsewhere. What are your thoughts on new entrants in this market?

Gavin,

Great observation/connection. I wasn’t able to explain this (or many other things) given the limited word count. Essentially, Nucor was paying steel companies (e.g. US Steel) to supply their steel joist business, called Vulcraft. Producing steel internally was initially a vertical integration move to supply their Vulcraft business. In using the EAF technology, Iverson and Nucor recognized that they could produce steel at a much lower cost than traditional steel producers and began selling their excess supply (in contrast to trying to serve an under-served market). From there they grew into out-competing their peers as they expanded rapidly in their highly profitable steel production business.