2009 metalcasting purchasing survey: before making a purchasing decision, consider what your fellow metalcasters do in order to be informed consumers.

Metalcasters want to spend money in 2009.

According to the results of a purchasing survey conducted in February and March 2009 by Readex Research, Stillwater, Minn., for MODERN CASTING, metalcasting companies plan to spend on average $5.95 million dollars on new equipment and materials in the coming year (Table 1).

Large companies (annual revenues of $50 million or more) reported a willingness to spend up to and exceeding $100 million in 2009, while the majority of small (annual revenues of less than $10 million) and medium casters (annual revenues of $10-49.9 million) plan to spend up to $500,000.

These spending plans appear to fly in the face of recent economic forecasts, which predict a slow year for metal casting sales. But according to metalcasting consultant Peter Macler, Peter E. Macler Associates PLLC, Canyon Lake, Texas, this is exactly what businesses should be doing in a down year.

Macler said a typical economic cycle runs from five to six years. Periods of economic growth tend to last three to four years, while downturns last on average only 24 months. With the current downturn throttling through its first year, metalcasters can capitalize now while production is slow and maximize their productivity during the upturn that is sure to follow.

"If the [metalcasting facility] has the necessary capital to execute a project, it could significantly reduce the project cost, reduce production interruptions, and benefit from the economic up-turn into a full bull market cycle," he said.

According to Macler, in addition to falling between production booms, a capital expenditure performed now could be done at a reduced cost, as metalcasting suppliers should be willing to deal during difficult times and contract labor can be purchased at a discount rate. By his estimates, project cost savings could approach 10-15%.

But if you're one of the companies looking to maximize profits while industry sales minimize, don't go into the purchasing process blind. Consider the experiences of your fellow metalcasters when they've made purchasing decisions in the past, as reported in the 2009 Metalcasting Purchasing Survey.

Maximize Your Return

You've decided to spend the big bucks. The hard work is yet to be done.

"Good purchasing goes a long way to making a plant profitable," said metalcasting consultant Paul Cervellero, president, Induction Melting and Holding Systems, Feasterville, Pa.

Most metalcasters know that capital investments should hinge on the return on investment (ROI)--"face it, we're in the business to make money," said Dave Leitten, president of Fansteel/ Wellman Dynamics, which is currently completing a 5,200-sq.-ft. expansion.

To judge a product's return on investment, the metalcaster must determine whether it will help them produce higher quality castings at a lower cost. The difficult part is performing an accurate cost analysis. According to Cervellero, consultants can be brought in that specialize in performing those sorts of analyses.

"Metalcasters don't purchase equipment frequently and can't be expected to have expertise in the specific area in which they are making a purchase," he said. "And relying on the manufacturer for the analysis is not the best strategy, either."

If you want to perform the analysis in-house, you'll have to gather information on the operational costs of the equipment--purchase price, labor, materials, maintenance and utilities needed to operate the equipment--as well as benchmarking data regarding the equipment's actual performance. And you'll want to get data on equipment from several suppliers. Of the 76% of metalcasting companies surveyed that issued multiple requests for quote on equipment in 2008, 67% sent proposal requests to at least three vendors. Cervellero said to contact three suppliers at a minimum.

To gather the data on each suppliers' product, metalcasters can turn to a number of sources. According to the purchasing study, 83% of purchasers turn directly to the vendor and its sales representatives for information on products and equipment before pulling the trigger (Table 2). Another 67% rely on suppliers' websites, and 57% gather information at trade shows and conferences.

For an unbiased viewpoint, Joe Chmelar, puchasing manager for Non Ferrous Cast Alloys Inc., Norton Shores, Mich., recommends turning to fellow metalcasters.

"Whether it's a new project or a piece of equipment, I'm going to make phone calls to different metalcasters and ask who's using what and what's working for them," he said. "We recently purchased two new [grinding machines] and had several people make some phone calls. I am not going to take a supplier's word for much at the very beginning."

Sixty-nine percent of Chmelar's colleagues agree with that strategy, according to the purchasing study. And 57% of metalcasters will turn to a final source of information on products and equipment: trade publications.

Once the costs and performance data are gathered, metalcasters can compare the numbers and estimate how long it will take until the initial capital outlay and any additional recurring costs of the equipment are recouped. How long that should be can depend on the cost of the equipment.

"We look for an ROI of one to three years, but we would typically look for one year unless it were a high priced item," Leitten said.

Other Considerations

Metalcasters surveyed indicated that the three most important factors they look at when making a purchasing decision are overall dependability and the product's ability to increase productivity and improve quality (Fig. 1).

"It's price, quality and service," Leitten said. "We evaluate any purchase using those three criteria. But if someone is twice as high as the other guy, we probably won't look at them, because no one can give you that much quality or service."

Metalcasters also looked for the products to reduce overall plant costs, satisfy customer demands, better meet environmental of worker safety standards, reduce scrap rates, increase capacity, reduce manpower and increase automation.

When deciding on a particular brand of equipment, overall dependability, parts availability and overall support topped the wish list (Fig. 2). And for metalcasters like Leitten and Chmelar, brand loyalty can be a critical factor in making decisions. According to Leitten, Fansteel/Wellman attempts to use a common supplier for similar pieces of equipment in order to re duce the cost of upkeep.

"We try to maintain duplicity where possible," he said. "It limits maintenance costs, and you don't have to store as many spare parts. It works especially well for hoists, mixers, rollovers, and furnaces--things that are commonly used throughout a [metalcasting facility]. You don't want 42 different types of heat treat equipment."

Chmelar agrees, noting that when his company makes an appointment with a technician from a particular company, service can be performed on a number of machines rather than just one. And if he has done business with a particular company in the past, it will have a leg up when he makes a decision in the future. But Chmelar also said that brand loyalty doesn't mean he is a slave to the brand.

"I'm not just looking out for a name anymore," he said. "I'm looking for a reputation. I want to not only know that they will make a superior product, but that they can do it at a competitive price. Nine times out of 10, I can find the same product fabricated locally for one tenth of the cost."

Chmelar is in the minority on one of his primary purchasing considerations. Metalcasters surveyed reported that the difference between foreign and domestic sourcing was of only moderate importance (3.1 on a 5-point scale) when making their decisions. "I will not buy [foreign] if I can get the same thing made in the states," Chmelar said.

The Purchasing Plan

Making the decision to purchase new equipment can be difficult in a vacuum, but in the real world, it also has to fit in with your overall business model, according to Leitten.

"We purchase only what we need," he said. "We build our strategic plan going out five years and have a feel for what's needed, and we budget based on that strategic plan. The main ingredient to a successful capital plan is to have the strategic plan that goes with it."

The capital plan furthermore should account for two kinds of capital--that intended to deliver cost reduction and increased capacity and replacement capital for equipment that has become too old to be efficient. In the 2009 Metalcasting Purchasing Survey, the most commonly reported items for purchase were health and safety equipment (44% of respondents) and mold consumables (42%), but machining and finishing room equipment followed closely behind (Table 3).

Cervellero also said that a purchase should fit in with a company's overall direction. Take a good look at your business, he said, and decide what your expectations are for the purchase and how it will help you achieve your vision for your future.

"You should leave some space in the plant for future growth and make a purchasing decision with that in mind," he said.

Once the decision is made to go ahead with the purchase, metalcasters still have two concerns--setting up financing and executing the acquisition and installation.

"It's critical in the budget process that when you need to do the spending you are able to afford it and don't have to go out and borrow a ton of money," Leitten said.

Most metalcasters agreed, with 62% of companies preferring to purchase new equipment with cash on hand (Table 4). However, the smaller the company, the greater the tendency to take out a bank loan in order to pay for a major purchase--metalcasters with 2008 revenues below $10 million did so 51% of the time.

Leitten said that his company lays out a time-line in order to budget for a capital improvement. Depending on the lead time, you will have a certain period in between payments--one at purchase and the second at receipt. Finally, you assign your project manager, put together the engineering team and sit back and admire your purchase.

76% of respondents issue requests for proposals for major purchases. Of those, 67% send proposal requests to 3 vendors.

Table 1. Metalcasting organizations plan to spend an average of
 $5.95 million on all new equipment and materials in 2009, according
 to survey results. Here is the breakdown by company revenue.

Amount planning to spend         2008 Revenues
                        $50+       $10-49.9       <$10
                       million      million      million

$100 million or more      4%           0%           0%
$50-99.9 million          4%           0%           0%
$10-49.9 million         18%           5%           0%
$5-9.9 million           12%           5%           0%
$1-4.9 million           28%          12%           8%
$500,000-999,999          4%          19%           5%
$100,000-499,999          4%          43%          27%
$50,000-99,000            0%           5%          13%
$10,000-49,999            0%           2%          13%
Less than $10,000         0%           0%          15%
Don't know               26%           7%          19%

Table 2. Survey respondents gathered information from a variety
of sources before making a purchasing decision.

Vendors/sales representatives            83%
Referrals by colleague/word of mouth     69%
Company websites                         67%
Professional journals/publications       57%
Trade shows/conferences                  46%
Other                                     4%

Table 3. Equipment/Materials Organizations Plan to Purchase in the
Next Two Years

                                                  2008 Company Revenues

Equipment/Materials                    All         $50+     $10-49.9
                                    Respondents   million   million

Health and safety equipment             44%         49%       43%
Filters, sleeves and other
mold consumables                        42%         49%       34%
Machining equipment                     33%         37%       33%
Blasting/grinding equipment             30%         30%       36%
Furnaces and melt equipment             27%         44%       29%
Environmental control systems           25%         40%       28%
Mold conveyors/material
handling                                22%         25%       28%
Pouring equipment                       22%         23%       22%
Robotics and other lift-assist
automation                              19%         39%       22%
Modeling and design software            17%         12%       26%
Sand reclamation systems                17%         16%       24%
Testing equipment                       17%         26%       16%
Coremaking machines                     15%         14%       21%
Spectrometers and melt
quality equipment                       13%         16%       17%
Heat treatment equipment                11%         23%        9%
Shakeout systems                        11%         16%       10%
Pattern and die making systems          11%          5%       14%
Sand conditioning systems                9%          7%        9%
Molding and diecasting machines          8%         14%        9%
Trim presses and cutoff equipment        8%         14%        7%
Rapid prototyping systems                3%          2%        7%

                                    2008 Company Revenues

Equipment/Materials                    <$10
                                      million

Health and safety equipment             42%
Filters, sleeves and other
mold consumables                        45%
Machining equipment                     29%
Blasting/grinding equipment             23%
Furnaces and melt equipment             18%
Environmental control systems           21%
Mold conveyors/material
handling                                18%
Pouring equipment                       18%
Robotics and other lift-assist
automation                              13%
Modeling and design software            18%
Sand reclamation systems                13%
Testing equipment                        9%
Coremaking machines                     14%
Spectrometers and melt
quality equipment                        6%
Heat treatment equipment                 8%
Shakeout systems                        10%
Pattern and die making systems          12%
Sand conditioning systems               12%
Molding and diecasting machines          6%
Trim presses and cutoff equipment        5%
Rapid prototyping systems                4%

Table 4. Financing Methods on New Equipment Purchases

                                              2008 Revenue

Method of financing        All       $50+     $10-49.9    <$10
                        companies   million   million    million

Cash                       62%        74%       74%        56%
Bank loan                  44%        30%       64%        51%
Supplier financing         16%         9%       21%        19%
Government assistance       5%         5%        7%         0%
Other                       2%         2%        5%         1%

Figure 1. Overall dependability and the ability to increase
productivity ranked highly as factors used in a purchasing
decision.

Not important 1 [right arrow] 5 very important

Overall dependability                 4.6
Age of equipment or technology        3.7
Increase productivity                 4.6
Improve quality                       4.6
Reduce overall plant costs            4.5
Satisfy customer demands              4.4
Better meet environmental or worker
  safety standards                    4.3
Reduce scrap rates                    4.3
Increase plant capacity               4.1
Reduce manpower                       4
Increase automation                   3.7

Note: Table made from bar graph.

Fig. 2. When selecting a brand of equipment, purchasing
decision-makers felt overall dependability and availability
of parts were the most important factors.

Overall dependability                    4.6
Part availability                        4.5
Overall support                          4.4
Ease of maintenance/serviceability       4.3
U.S.-based service representative        4.1
Product features                         4
In-plant technical assistance            4
System/representatives' reputation       4
Price/less rate                          3.9
Previous experience with brand           3.9
Manufacturer's reputation/brand image    3.8
Warranty                                 3.8
Foreign or domestic manufacture          3.1
Financing arrangements                   3
Trade-in/resale value                    2.7

Note: Table made from bar graph.

Who Was Surveyed?

The 2009 Metalcasting Purchasing Survey was sent to
hundreds of metalcasters, and 292 usable answers were
received in return. The following charts indicate the
demographic breakdown of the companies involved
in the survey based on number of employees and
2008 revenues.

Full-Time Employees

1-9:             7%
10-49:          21%
50-99:          16%
100-249:        22%
250-499:         9%
500-749:       4.5%
750-999:       1.5%
1000 or more:   19%

Note: Table made from pie chart.

Company's 2008 Revenues

$1-1.9 million:          6%
$2-4.9 million:         13%
$5-9.9 million:         13%
$10-24.9 million:       21%
$25-49.9 million:       10%
$50-99.9 million:        7%
$100 million or more:   23%
Less than $100,000:      2%
$100,000-249,999:        2%
$250,000-499,999:        2%
$500,000-999,999:        1%

Note: Table made from pie chart.