A look inside Robar Industries' recovery.

The firm's president speaks candidly about how the foundry survived a dangerous financial situation and is now operating profitably.

What helped you through the recession?

Charleston: Besides our product diversity, we feel that one of our greatest strengths is that we try to develop "partnerships" within the key components of our business and customers. As one example, despite the fact that we have a strong union (United Steelworkers of America), we were able to work together to negotiate a 5% wage rollback during the critical year of recovery. Similarly, we renegotiated our bank funding, which saved us a great deal of money. Also, with the help of our suppliers, our customers continued to receive the products and service they expected.

As you watched the company's sales fall, what did you do to improve the foundry's viability?

We considered our problem due to lack of sales. Consequently, we hired a professional sales and marketing person who we hoped would address a perceived shortcoming in this area. This didn't work out as the person just didn't know the markets or the products that we made. This clarified for us the importance of product and market knowledge in our field. We then rehired our ex-waterworks sales manager, who had become available. This worked very well for our Waterworks Div., resulting in increases in their sales of 20% per annum over the next three years, although this only increased foundry production by about a quarter of this figure. We then reasoned that what had worked for Waterworks might also work for the foundry. Therefore, we re-hired our ex-foundry sales engineer, who had left in early 1990.

What did you do to increase sales?

For Waterworks sales, we hired four salespeople to cover eastern Canada.

Our logging fittings have grown in sales, since we are one of the few steel-pouring foundries with automatic molding facilities. Our chief competitors are offshore and their quality hasn't yet proved to be reliable. We rely upon direct contact and advertising, especially for our overseas sales of these items.

Our jobbing castings sales presented a challenge because this was the area hardest hit by the recession and we were in direct competition with other foundries who were also hurting. Also, the low value-added type of ferrous castings we mainly make are not competitive in wider geographical markets.

What was the key factor in accomplishing increased sales?

Charleston: People. Our sales engineer took over responsibility for the foundry division and we rehired another ex-employee as foundry systems administrator. This helped free up our foundry superintendent and technical manager for more important work. We also appointed two new charge hands, who brought a new enthusiasm that showed immediate results.

We made greater efforts to communicate better "all-around" with management, supervisory, department and general information meetings.

What steps did you take to reduce expenditures?

We concentrated on two strategies--inventory control and moving "up-market." Inventory is unquestionably a cost and probably a greater one at Robar--with our two major product lines--than at most foundries. However, we increased our own inventory levels substantially during these past two years as business improved. The foundry division, in particular, has doubled its inventory of castings for its own product line. As the saying goes, "you can't sell it if you don't have it," and in these days of instant gratification, that's probably even more true now than it was then.

Another statement that comes to mind is that a nation's generals often train to fight the last war, not the next one. This statement is particularly applicable to inventory control. A few years ago when interest rates were in the high teens, low inventories made more financial sense than they do now. Nonetheless, many companies waste much more time, effort and money by processing dozens of small orders in order to minimize inventory' costs than they would save by processing fewer, larger orders and having stock available for unforeseen orders and eventualities.

At first, to a certain extent, we attempted to "buy" work from our competitors by bidding at lower than normal prices, something all foundries tend to do. We also attempted to move up-market by taking on stainless steel and higher specification work that we wouldn't normally have done.

How did that affect the foundry's position?

Not well. Although we succeeded somewhat in gaining new work from both these strategies, we found it did nothing to help our profitability. In the first instance, we were bidding our regular work below regular prices, the difference obviously coming out of margins. Secondly, the new up-market work involved a learning curve that drained supervision from our regular work, disrupted production and resulted in a relatively high reject rate.

What route was taken next?

We were frustrated. Our options were severely limited. Our initial feeling was that profits were low due to a decrease in sales. Sales of our waterworks product line were increasing due to hiring more salespeople in other geographical areas. Sales of our logging product line were increasing because we had a quality product in a poorly serviced market which was receptive to it. However, the foundry's mainstay, its customer casting work (at 70% of the total at that time), wasn't responsive to increasing profitability by increasing sales in the prevailing market.

Consequently, gross profit from the foundry division was little more than half of what it needed to be.

Our next approach was to get back to the basics. After all, if profit equals sales minus costs and we couldn't increase sales, there isn't much else to look at but costs. But because we were so heavily leveraged, we couldn't contemplate capital investment as an option in reducing costs.

Where did you stand following the recovery?

All our subsequent gains were made with virtually no capital outlay during the two-year transition period. During this time, the foundry division:

* Reduced material costs by 10%. This was accomplished by doing things right the first time and reducing scrap. While we once thought of purging suppliers, we were limited because of our location and we realized they were serving us well.

* Reduced rejects by 40%. We began focusing more on rejects. That was something we didn't have a good focus on before--we never recorded them properly. With good records, we could say this is our reject percentage; now what can we do so it won't happen again.

* Reduced man-hours/sales dollar by 25%.

How did you achieve a 25% reduction in man-hours per sales dollar without capital investment?

First of all, we measure man-hours against sales dollars and not tons, as might normally be the case in our industry. This is because more emphasis was placed on making money, rather than making castings. We feel that this is a very important viewpoint that is insufficiently appreciated in our industry. It became clear to us that making castings that were inadequately priced or unsuitable to our niche market capabilities--just for the sake of keeping busy--wasn't a profitable strategy.

Our emphasis was placed upon getting costs in the correct relation to selling price by measuring and communicating graphically to our employees their departmental performance for each pay period. This, we felt, put the emphasis on efficiency and cost reduction on a shop floor basis. However, jobs for which costs couldn't be brought in line with the quotation were subject to price increases to reach profit targets.

Did you lose work while raising prices during a recession?

Yes, but in many cases we didn't. Either way, we felt that the action was warranted. Although it is easy to appreciate that keeping a job at an increased profit contributes to profitability, it isn't as easy to see that losing a job that is unprofitable, or a loss maker, can contribute equally to profitability.

Needless to say, this concept took a certain amount of courage to implement, but I think it is true to say that if all foundries took only those jobs they could make profitably, each foundry would be more profitable and the industry would serve its customers better. We would all have more money to do a better job and I'm sure we would all be busier because castings would be viewed as a more reliable option compared to forgings, fabrications, etc.

How do things look for the future?

It is certainly a great relief to be back on a profitable footing again. From our point of view, it seems that the recession is definitely over. 1993 was a record year. 1994 looks to be shaping up better still. Although cash flow has to be carefully managed, for the first time in three years we are looking at capital projects.

What advice can you give other foundry owners based on your recovery experience?

Six things. One, people make the difference. Two, if it isn't working, fix it and if it still doesn't work, keep fixing it until it does. Three, profit equals price times volume minus costs--they are all subject to our influence. Four, pragmatism pays. Five, communicate with staff, employees, bankers, customers and suppliers. And finally, the focus of the foundry business must be profit, not castings.

Robar Industries, Ltd. is a 90-employee Canadian manufacturing company in Surrey, British Columbia, near Vancouver. Serving manufacturing and logging industries, its foundry division produces about one-half the company's revenue and pours 45% ductile, 35% steel, 15% gray and some bronze and stainless, using induction melting and green sand molding.

Robar started in 1958, producing 3-plus-in. diameter pipe coupling cast in ductile iron and fabricated in stainless steel. In 1966, it built a foundry to assure the company of a dependable source of quality castings. Although about 25% of production remains waterworks related, the balance is now split between outside jobbing work (local), which is 50% of the total, and the firm's logging fittings product line, which is about 25% of foundry production. In total, the foundry accounts for about half of the company's annual sales of about $10 million.

modern casting interviewed Michelle Charleston, president, who bought the company in 1989. Although the firm was purchased just prior to Canada's recession, a new cleaning room and powder epoxy coating facility were installed. Shortly after, Charleston saw company sales fall 16% and outside customer casting sales by 54% in 1990. Robar was faced with several problems. The foundry is located in a $20-plus/hr labor area that is also far from major markets and suppliers. During the recession, the company, already running short-handed, faced layoffs--almost to the point of laying off staff.

While it doesn't have many of the advantages other foundries take for granted, Robar retrieved its profit position and is now on solid ground--without spending a cent on new capital investments.

Areas for Capital Investment at Robar

* a second larger automatic molding system

* increased steel melting capacity

* a monorail pouring system

* more efficient coremaking

* an automatic sand system

* rotary shakeout 

The Sales Perspective: Managing On Less

Thirty two-year foundry veteran John Scott joined Robar in 1983 and left in 1990. He returned in 1991 as vice president foundry operations, after much of the damage had occurred.

"After seeing the union accept the 5% rollback," Scott said, "that encouraged me to come back in. That kind of commitment laid the groundwork for the recovery."

Talking about the experience, he said, "When sales go down, there isn't a tremendous amount of things you can do about it. The key is to do what you can to reduce costs and operate more efficiently. The answer doesn't always lie within sales. You can't get new work when everyone else out there is hungry. You stay in business by managing on less."

As for the recovery, Scott said management got the entire foundry's work force involved. With daily meetings on the shop floor, people were informed what sales were like and how the competition was measuring up. In turn, he said, employees would show supervisors and management how processes could be improved.

"People were anxious to do what they could do to reduce costs," Scott said. "It became a very participatory atmosphere--especially for a union shop like ours."

He said it is critical in such situations to make sure everyone sees that it is in their interest to work together cooperatively. Management must be responsible, he said, but the employees need to know that if the company succeeds, everyone benefits. "If not," Scott noted, "we're all out of jobs."

Commenting more on the nature of sales, Scott said the foundry industry must think better of itself.

"In many cases, we're our own worst enemy," he said. "When a purchasing agent accepts bids, we just work for whatever price he'll pay us. We must stand up for ourselves and take the consequences if we have to. My philosophy is to see things the way they ought to be and stick to it.

"For instance, if Foundry XYZ is making castings for $1, the instinct is to say we'll do it for 95 cents. But if it takes you $1.05, then that's what we should base the price on, and forget about the other foundries."