Frank DeMeo: Bringing an 'outside' business acumen to foundry management. (Industry Faces).

Spend a few minutes with Frank DeMeo of General Casting (GC), and it becomes clear that he marches to a different beat, a likely byproduct of the fact that he did not "grow up" in the foundry business. While at times an industry contrarian, DeMeo is a student of the industry nonetheless, and one quick to share his own analysis on the ever-changing industry dynamics.

DeMeo, who spent 21 years in various engineering and business development capacities in the pump and compressor business (including the division president role at Dresser Industries and the top post at Atlas Copco N.A.), "found" the foundry business by accident when looking for compressor companies to acquire. Instead, he was presented with an opportunity to acquire General Casting's four foundries, and in 1990 entered a business he admittedly knew little about.

Now overseeing 10 operations in his group (each of which he has turned into focused factories), he recently acquired Grede's Cynthiana, Kentucky operation as a home for his growing lost foam interest. An acquisition of Hodge Foundry, Greenville, Pennsylvania, is also pending, which will increase GC's upper size range capabilities.

Asked of GC's performance relative to its peers, DeMeo said it's in the middle of the pack. "We can't stay there, though, or we'll lose to offshore competitors," he said, noting that one-half of his work is vulnerable to offshore competition. Following are some of his thoughts on today's business climate.

On Industry's Current Woes

Among the roots of today's competitive problems, he said, is undisciplined pricing (even when foundries know their costs) and the absence of a switching penalty to inhibit pattern shopping. "Then, our industry spends its capital to be the same," he said, citing foundries' regular investment in higher productivity equipment only so they can sell their castings cheaper than the next.

The casting industry differs widely from his previous experience in that so few ways exist to add significant value to the product. "It takes far more imagination to do so in this business and even more to be thought of as an integrated part of the supply chain," he said.

Through each of his acquisitions, DeMeo learned how true the statement is that foundries "never see a casting they don't like." Once the acquired foundries are integrated into GC, however, work is redistributed so each plant operates closer to its "sweet spot," or what it does best. Meanwhile, the group's centralized structure keeps S,G&A costs to a minimum.

Another problem he sees is the marketing efforts of an industry that grew mostly out of local, smaller sellers responding to quotes. Too much of that still remains today, he said. "Buyers and sellers both talk in cents per pound. Plus, purchasing and design trends are changing far faster than the industry's sales and marketing efforts."

Yesterday is Out the Window

DeMeo, a frequent "business model" speaker on the industry circuit, recently said much of what he thought he knew is "out the window." While the one-stop shop approach (described in the April 2000 edition of MODERN CASTING) gave GC a competitive advantage and was right for the time, DeMeo said it needs changing and refining. Talking about online auctions, he said a broad product offering makes all foundries available to all buyers at the same time. "The more volume a customer has, the greater the attraction is to look offshore."

GC realized the one-stop shopping approach was running its course, "We found that the buyer had little incentive to choose us if our unique selling proposition was different than what he was measured by."

On the reverse-auction sites, he added: "OEMs think there's a nirvana out there, but while no one will admit it, there isn't a CEO at an OEM that hasn't been burned. Yes, there is a good casting price to be found out there, but customers are finding they need to investigate things more and do it properly--more than just sending bidders a questionnaire."

A Future in Foam

Since it started its MetFoam Casting subsidiary in 2000, GC is moving headfirst into establishing a lost foam organization that will feature all metals, markets and geographic areas. Foam, said DeMeo, is part of the plan to raise GC up the technology ladder.

Asked to explain his pro-foam agenda when so many others have dismissed the process, DeMeo said the successes and failures may be equal in number, but the reasons for both are known.

DeMeo concludes that much of the problem lies in attempting to win existing parts over to the process. "You can't do that. You have to go in at early design, go up a few levels and create the right application for a larger system. You're dead in the water in lost foam if you expect to respond to quotes."

This, he said, is a solid marketing approach regardless of the process. "We all need to stop responding to RFQ's and go out and market a better value package."

Exec-to-Exec Selling

Asked of things he'd do differently if he was starting out today, DeMeo said he'd be more involved with sales, something that GC's acquisition mode left little time for in the firm's first decade.

"It takes a different level of responsibility to establish strategic alliances," he said. "President-to-president selling, we've found, accelerates the process. Executives are accustomed to searching for opportunities to achieve lower cost by looking at the total activity cost, not just the purchased price per pound. There are other opportunities in the total supply chain in which you can be the low-cost producer but still make margin."

That point--being the low-cost producer in a given market--is a foundry's only insurance policy, he said. Cautioning against a strategy built solely on price, however, he said, "You can build a competitive advantage on proprietary know-how, new technology, and/or facilities and equipment that create a barrier to entry. One or more can be accomplished in the same business plan."

GC intends to learn to go to the market in a more sophisticated way. Citing the global shoe industry as an example, DeMeo said India sells a lot of shoes at $6 each, while Italian producers sell them for S300. "The high-volume casting can survive, but that's not the part of the spectrum where we'll be."

Just Say No

Under as much price pressure as everyone else, DeMeo stressed that GC is not buckling to flat-out price reduction demands. "Collapsing your gross margin is the slippery slope to Chapter 11," he said.

"Instead, what we do is say 'yes' to partnering on a continuous improvement plan to realize a comprehensive cost reduction. We say we think we can hit their target, but need to do it in a certain way, such as getting one of their Six-Sigma black belts assigned to us. You can get them their savings in a way other than slashing prices with a stroke of the pen. You have to run to customers prepared to work with you in such a way."

While this approach is working for the most part, he added: "If customers don't want to do things right, you have to be willing to walk away."

On the Future

"We are in a global market with differing exchange rates and a digital world with information available in real time. Business plans are more complex and the skill sets required are very different. The ability to make a good casting, while very important, will be a substantially smaller part of the success equation tomorrow. Success has everything to do with the business plan and its execution."

In the years ahead, DeMeo expects to see fewer, larger foundries while smaller ones survive on select niches. "Casting work will go to the most efficient producer, regardless of its location," he said. "Fiduciary duties of the buyer will dictate the work go wherever it's least expensive."

DeMeo is focusing GC's service proposition on what he describes as "free, good and now." By his definition, "free" means a price that is insignificant to the customer's total evaluated cost over the long-term, "good" means castings or maybe assemblies of a guaranteed quality (possible through machining) and "now" means delivery rates that can be achieved through a demand-flow process that stores no inventory for either party. "All this is possible by partnering with the customer, good tooling and design, and better foundry and casting technologies. It's a long road, but one that leads to long-lasting prosperity for both parties."

DeMeo has identified the following priorities for the remainder of the year:

* continue to invest in lost foam;

* bring on more talent and capacity;

* launch aluminum lost foam capability;

* reposition conventional sand niches;

* integrate the Hodge and Grafton operations.

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RELATED ARTICLE: C. Frank DeMeo

President and CEO

The General Casting Co., Grafton, Ohio 

Age: 59

Immediate Family: Wife-Lorraine, Daughter-Loren Lamb, Son-Stephen.

Education: Newark College of Engineering, B.S. in Mechanical Engineering; St. Bonaventure Univ., Masters of Business Administration

Industry Affiliations: AFS, DIS, FEF and ICRI 

Company Information

Founded: 1943 (in current ownership since 1990).

Metals Cast: Gray, ductile and alloy irons in 1-30,000 lb.

Mold Processes: Green sand, nobake and lost foam (23 molding lines).

Locations: Acquired 1990--Liberty Road, Delaware, Ohio; Toledo Street, Delaware Ohio; Powers Street, Cincinnati; Acquired 1991--Domestic Foundry, Shippensburg, Pennsylvania; Acquired 1995--Cleveland Street, Grafton, Ohio; Acquired 1996--North Detroit Street, West Liberty, Ohio; Acquired 1998--Eckman Street, South Bend, Indiana; Started 2000--MetFoam Casting, Columbus, Ohio; Acquired: Astro Pattern, Waukesha, Wisconsin; Acquired 2001--Penn-Cast, Cynthiana, Kentucky; Acquired 2002 (pending)--Hodge Foundry, Greenville, Pennsylvania.

Key Markets: Food processing equipment, plastic injection machinery, ag equipment, compressors and blowers, pumps, power generation, machine tool, construction/off-road and power transmission.

2001 Total Sales: $75 million.

Total Employees: 700.