GENERAL CASTING: DEPLOYING ITS FORCES FOR ONE-STOP CASTING SUPPLY.

Since its formation 10 years ago, this industry consolidator has strategically entered new markets through a series of carefully planned iron foundry acquisitions.

In times of war, arduous battles are fought. Though determination and resilience are key to victory, a well-designed and well-executed strategy is the backbone of success. In this situation, an experienced general is needed to carefully map out a battle formation and deploy forces to where they will be most efficient in succeeding at the task at hand.

At The General Casting Co. (GC), an Ohio-based company that specializes in gray and ductile iron castings in green sand and nobake, a similar strategy is utilized. In the foundry's case, Chairman and CEO Frank DeMeo acts as its general. It was his vision upon purchasing the company in 1990 that has led GC to bolster its "troops" of casting capabilities, penetrate new markets and increase companysales by 200% (Fig. 1). After 10 years with DeMeo at the helm, the 80,000-ton capacity foundry group now maximizes the resources of 23 distinct molding lines at eight separate facilities to achieve the highest output and most effective manufacturing cost for its customers. Rather than viewing the business as a set of isolated activities, we create a synergy among all the activities to compete as a system, not discrete parts," said DeMeo.

Strategy Implementation

DeMeo entered an industry he knew little about when purchasing GC in 1990. What he lacked in knowledge of metalcasting was made up, though, by his experience in business planning. A mechanical engineer with a background mostly in the pump and compressor industry (Dresser Industries and Atlas-Copco), DeMeo had spent a large part of his career not only running companies but also planning their long-term futures. Learning the methodologies of how to evaluate business opportunities supported him in his decision to purchase a foundry, an opportunity he said he "sort of backed into."

"I had been looking into compressor' companies to acquire and was told by one that no, they weren't interested in selling, but knew of a foundry that was up for sale," DeMeo said.

Upon being presented with this opportunity and performing market research, he discovered that the foundry industry was largely fragmented, Also, with the mergers and acquisition & trend already infiltrating the pump, valve and compressor business in the late 1980s, he identified the advantages of building a company that could offer customers a, consolidated casting supply source. "Plus, we knew that from the supplier perspective, we had to differentiate ourselves from being one out of 30 foundries on a source list," said DeMeo.

DeMeo predicted right in that the trend toward supply chain reduction would soon affect casting purchasers as it has the automotiye component industry. "The reason why they carried so many casting suppliers was that no one supplier was capable of making the whole spectrum of their casting requirements" said DeMeo, who used this knowledge to spur a plan of putting together a consolidated foundry group that could meet these varied requirements.

In his search for a company that could execute his strategy, DeMeo concluded that GC was a perfect platform. The company already had four foundries with a variety of capabilities and primarily supplied the compressor industry, DeMeo's area of expertise. At the time of the acquisition, the foundries, which consisted of one green sand (Powers Street Foundry, Cincinnati) and three nobake facilities in Ohio (Poulton Foundry, Columbus; Liberty Road Foundry, Delaware; and Toledo Street Foundry, Delaware) produced gray iron castings up to 60,000 lb and ductile iron castings up to 6000 lb.

"General Casting already was profitable," he said, "and since I didn't know then how to run a foundry, it's better to run one that's already profitable. You don't have to worry about trying to fix something." The company's proficiency also afforded him the time to learn more about the business.

To put together a manufacturing strategy that would be consistent with the foundry's marketing strategy, DeMeos plan was to offer GC's customers "capacity and capability," or a wider choice--small-, medium- and large-sized castings in a small-, medium- or higher-volume production (Fig. 2). To accomplish this, DeMeo planned to acquire foundrieswith specific manufacturing capabilities that matched the needs of his customers and were not redundant to those of his existing foundries. "If we had automatic molding equipment for higher-volume, larger castings, then we were going to look for cope and drag equipment for castings that required greater depth," said DeMeo.

Most of the larger manufacturers in the early 1990s wanted a few foundries with a certain economy of scale that could meet their present and future requirements but not be overwhelmed, said DeMeo. He wanted to direct the foundry into higher-end customers because of their wide product line range and demand for large-volume, diverse castings.

Because GC is a private company, its capital to buy foundries was limited. Furthermore, most foundries over the last decade have been profitable, which has driven up the acquisition price. DeMeo's plan was to purchase marginally profitable plants that needed help, and he was confident in taking the risk of buying foundries and making them grow. "General Casting was capable of enhancing the marketing, management and capital structures of each facility," he said.

Forming Alliances

During the past decade, DeMeo has spearheaded several acquisitions of foundries to complement GC's original four operations. The following acquisitions came to fruition.

Domestic Foundry--In 1991, DeMeo made his first acquisition, purchasing a former ITT captive gray and ductile iron pump foundry in Shippensburg, Pennsylvania, and renaming it Domestic Foundry. With Powers Street Foundry as its only green sand facility, which ran jolt squeezers and Rotolifts, GC needed additional resources that not only could produce castings at higher volumes but in larger sizes as well. This facility runs five different mold lines. Another advantage to the acquisition was that it allowed the foundry to expand its casting capacity and capability to pre-existing pumps and compressor markets.

Grafton Foundry--In its market research, GC identified a growing demand for plastic injection machine components and found Larson Foundry, a nobake facility in Grafton, Ohio, that cast ductile iron parts for this segment. At the time ('95), GC featured two ductile plants (Poulton and Liberty Road) with 6000-lb capability, so the Larson acquisition gave the firm additional capacity in the growing ductile iron market. Renamed Grafton Foundry, the operation allowed GC not only to enter a new and thriving market segment, but to produce ductile iron castings up to 30,000 lb, expanding its previous limit by 25%. Castings are produced using pit molding and floor molding. The Grafton location also became the company's corporate headquarters.

West Liberty Foundry--In 1996, DeMeo acquired PMI's captive green sand foundry in West Liberty, Ohio, that supplied the food processing industry. He reached a multi-year supply agreement with the firm that allowed GC to make its previously captive jobs, and others, on the facility's cope and drag as well as automatic lines. West Liberty Foundry was born, and GC had been introduced to yet another new market. This facility, which runs four molding lines, also gave GC a unique surface finish feature to sell, as it was a key process control parameter for the food equipment parts.

South Bend Foundry--The next step in DeMeo's plan was to acquire another green sand foundry with higher mold size capabilities. In 1998, he located Sibley Foundry & Machine, South Bend, Indiana, which was running two automatic molding lines and a slinger. Its construction and agriculture product line, which made up 35-40% of its total production, would serve an increasing demand of larger castings at higher volumes for GC. The operation, renamed South Bend Foundry, reallocated the jobs in this new market to its other foundries, holding to GCs' underlying guideline of not making any one customer more than 10% of its business or 25% of any one foundry.

Each foundry's customer backlog and forecast is monitored to keep track of the customers and what percentage of the business they make up. "If we see one customer representing 30% of the business in one foundry, it alerts us that we may need to consider reallocation of some jobs," said DeMeo.

Centralized Resources

One of the things that has separated GC from some of the other firms in acquisition mode over the last decade has been its "centralized" structure. Authority is provided to the plant level, but the functions that are best handled by the operational headquarters are centralized. This eliminates the duplication of efforts and, in the case of cost estimating, the margin-reducing competition between plants.

The new operating headquarters in Powell, just minutes from the Delaware, Ohio foundries, handles all accounting, sales/marketing, business development, operations and employee benefits. In addition, corporate officials are assigned to oversee environmental control, quality and operations. While customers are encouraged to contact any of the foundries working on their jobs if they so desire, multi-plant customers have one account manager. "The person coordinates all work for the customer, whether it's in one plant or all eight," said Tom James, vice president of sales and marketing.

The "one company" philosophy is best illustrated through the firm's self-developed Gate Keeper Cost Model (see sidebar "Gate Keeping: Ensuring Optimal Placement of Casting Work"). Led primarily by David Knapp, vice president of engineering and business development, the foundry began development on the PC spreadsheet model in 1998 as the firm recognized that less-than-optimal pricing/job placement can exist when there are 23 different molding lines across eight foundries in which to assign work. The firm's mission in estimating jobs is to "place every casting on the smallest line possible to give the highest throughput and lowest cost."

"The artificial intelligence allows near-instant decisions based on a known database of limitations for each foundry and its operating departments," said Knapp. "Basically, the model determines the least cost mold line for a particular casting on the basis of a small number of variables."

Within the 2.5-megabyte program resides a database of all company specifications, sand/binder mixes and flask inventories for the entire company-- information that is vital to accurate processing. Direct labor calculations are made through algorithms that were developed through shop floor data collection. The model allows no complacency, said DeMeo, noting that productivity data is based on attainable results (not actual data), continually stretching the foundry toward meeting best-in-class rates. Also, as processes change in the plants, revisions are made to the model, along with new metal and labor rates.

The system utilizes a mold hierarchy that spans from its fastest green sand automated line to nobake floor molding. If a mold line's limit is for 3-in.-thick sections, and the pattern calls for 3.25in. wall, it will not allow the job to be considered for that particular line.

While "grossing up" overhead often is an undercost item for many foundries, GC's system immediately factors overhead into the quote by pulling the plant overhead factor from the appropriate foundry. "We feel we can quote new jobs quickly with higher confidence," said Knapp. "Usually, we find accuracies within 1-2%."

According to James, 25% of most U.S. foundries' volume does not truly fit their operation. "But foundries take the jobs in many cases because the customer is sourcing as a package," he said. "With our 23 lines, we have more of an opportunity to niche it to the lowest cost system, and for short-to-medium runs, we generally have a line that is best suited for the size and quantity needed."

In use for nearly 2 years and currently quoting 225 items/month, the model has resulted in a win rate of over 20%. Plus, it also has been useful for reassigning existing jobs to the lines where they'd be more cost-effective. According to Vice President of Operations Jeff Hipple: "Once we familiarize ourselves with an acquisition and add its data to the system, we can rationalize work at both the new and existing plants. Oftentimes, work at an acquired foundry is better suited for one of our other plants, and vice-versa."

Other benefits of the centralized structure are the intangibles, like technical sharing, "There's probably more of a free-flow of that kind of information, since the plants truly are not in competition with each other," said Hipple. "Plus, all incentive systems are company-wide--not on the individual plant level--so everyone has a vested interest in seeing the other plants succeed."

While centralization has clearly made the most sense for the firm in this era, it is by no way the easiest route. GC officials have found it to be more painful to assimilate an acquired foundry into GC's current structure than allow it to be its own profit center.

It also takes careful planning when a large customer, with castings in numerous different foundries, wants a complete package arriving at one location at once. "We must operate better than what a customer could obtain by working with individual plants," Knapp said. Because there are customers whose castings are being produced by all eight plants, "we're only as good as our worst performing foundry," he said. "One company may be a large customer in one foundry and a small one in another. There must be a systematic way to avoid any one plant giving the company a black eye overall."

Hipple added that communications is key, noting that the firm is improving its computer networks and installing business management software at each facility. Added Knapp: Twenty years ago, you simply couldn't make a system like this work. But you can today because of computer networks, email and digital photos."

Sticking to its Guns

Looking back, DeMeo recalls that the early years were trying, although market conditions certainly eased growing pains. Last year ($65 million) was the first year that sales had not exceeded the previous year's totals, but that's because four out of the top five market segments were soft, he said.

"It's when a foundry is dealing primarily with one segment that it needs to worry. When it's spread over 10, you don't worry as much. As long as we can add new customers to the portfolio, we'll be in good shape. Getting half of a customer's business even in a very bad year for its segment can still represent a significant growth opportunity."

An obvious similarity in all of GC's foundries is their casting of only gray and ductile iron. According to DeMeo, foundries that do not specialize in a particular niche, market or customer would struggle in consolidated strategies. "Our strategy is to serve a wide variety of customers better than our competition," said DeMeo. "If we do that, the by-product is growth. If we weren't effectively competing for market share in gray and ductile iron, then we might have to diversify and grow into other metals."

The opportunities for gray and ductile iron still are large relative to GC's size, and DeMeo expects to double its production within its existing assets (its plants are capable of allowing 80,000 tons annual capacity), These include improved productivity, the addition of more powerful furnaces for lower electrical costs and upgraded molding equipment. If these expectations are met it then would allow other business strategies to enhance the foundry's existing portfolio (see sidebar "Newest Tool in GC's Marketing Mix: Lost Foam Casting"). "We're thinking about acquisitions for other metals and a joint venture with a foundry capable of producing castings larger than 40,000 lb" said DeMeo. "We are refining General Casting's strategy, which hopefully will continue to getstronger and diversify."

                          The General Casting Co.
            Casting Data: Gray and ductile iron castings from
                          1-30,000 lb.
Corermaking Capabilities: Coldbox, shell, nobake and oil sand.
    Molding Capabilities: Green sand, nobake and lost foam
                          (MetFoam subsidiary).
    Melting Capabililles: Coreless induction.
Value-Added Capabilities: Painting, heat treating and
                          engineering/design.
                 Markets: Food processing equipment, plastic
                          injection machinery,
                          agricultural equipment, compressors
                          and blowers, pumps,
                          power generation components, machine
                          tool components,
                          construction/off road and power
                          transmission components.
              1999 Sales: $65 million.
               Employees: 700.
            Year Founded: 1943 (current ownership since 1990).
     Corporate Officials: Frank DeMeo, chairman & CEO; Jeffrey
                          Hipple,
                          vice president of operations; Frank
                          Johnson, vice
                          president of information technology;
                          Geoff Lamb,
                          corporate legal counsel; David Knapp,
                          vice
                          president of engineering and business
                          development;
                          Tom James, vice president of sales and
                          marketing.

1990-2000 A DECADE OF GROWTH

1990 Frank DeMeo purchases GC, a gray and ductile iron company that runs four foundries (three nobake and one green sand) for a number of industrial markets.

1991 Acquires ITT, a former captive foundry in Shippensburg, Pennsylvania, renaming it Domestic Foundry. These gray and ductile iron automatic molding lines strengthen the company's green sand forces, which at the time feature only the squeezers and Rotolifts at its Powers Street Foundry. The company also expands its product line into pump parts, an expertise of DeMeo's.

1995 Acquires Larson Foundry in Grafton, Ohio, renaming it Grafton Foundry. This nobake facility brings GC into the plastic injection market and specializes in larger ductile iron castings (up to 30,000 lb).

1996 Acquires PMI's captive foundry in West Liberty, Ohio, renaming it West Liberty Foundry. A third green sand operation is added to the forces, allowing the company to enter the food processing market.

1998 Acquires Sibley Foundry & Machine, South Bend, Indiana, renaming it South Bend Foundry. This facility provides GC with the capability to produce larger green sand castings as well as enter the agriculture/construction market.

2000 Reopens its Poulton Foundry as MetFoam Casting, L.L.C., a lost foam subsidiary of GC expected to be fully production capable by July. This facility will produce gray and ductile iron castings from 50-1000 lb for various industrial markets.

GATE KEEPING: ENSURING OPTIMAL PLACEMENT OF CASTING WORK

The key parameters of GC's Gate Keeper system are casting weight, metal type, metal section thickness, pattern dimensions (length, width, cope and drag height), quantity and quality requirements and number of impressions. "Once the criteria are known for a casting, the cost model program can generate an answer as fast as the estimator can enter the data," said Knapp, noting that results are typically processed in 2 min or less.

To illustrate how the Gate Keeper Cost Model system works, consider 410-lb elevator sheave casting that GC was invited to bid on. The casting is class 40 gray iron, and there is an annual purchase of 400 pieces. The pattern envelope is 30 x 30-3/3 and the casting requires a blue primer.

With each subsequent entry by the estimator on the input screen, the model identifies the preferred line for the job. Next, the core screen allows the estimator to enter the quantity of cores and core process and see the cost difference between using multiple-cavity coreboxes. An option also exists for purchased cores.

With each entry, the model pulls sand, labor and core costs from the foundry and best-fit mold line that is selected. The final screen compiles detailed data on variable costs, overhead costs, minutes to make and sand requirements, among others. It also contains data on more than 20 contract machining sources.

In cases where it makes sense to specify the line or plant to be used (for instance, to have the parts produced in a plant nearer to the final shipping location), macro buttons allow the estimator to force the foundry or line desired so that he can see the cost variance.

In this sheave example, the Gate Keeper selected green sand molding on the Herman Mold Master line at GC's South Bend Foundry, which uses 46 x 46 - 16/16 flasks. There is one center core and yield; expected scrap and returns have been entered rather than using the default values. Upon selecting the margin, the resultant price is calculated for the estimator.

NEWEST TOOL IN GC'S MARKETING MIX: LOST FOAM CASTING

In late February, GC announced that it was entering a new realm of casting--lost foam--with the formation of a subsidiary, MetFoam Casting, L.L.C. The seeds were first planted about 3 years ago, when DeMeo was surprised to learn that one of his highest-volume airset jobs was being converted to lost foam. Aware that the industry has likely undergone the most difficult part of the technological learning curve and the fact that one can, count the iron lost foam jobbing foundries in the U.S. on one hand, GC decided to make the leap.

Jeff Vogel, a 17-year lost foam veteran, is the vice president and general manager of the new subsidiary. Willard Industries, Cincinnati, (an aluminum lost foam lob shop) also is a partner. The operation will produce gray and ductile iron castings from 50-1000 lb for numerous non-automotive industrial markets, a market that hasn't been captured by existing lost foam job shops, said James, Lost foam will mark the firm's entry into much higher-volume production than it currently knows in nobake and green sand. With existing customers and the new ones that lost foam should bring to GC, James sees real synergies that should further open the doors to customers.

The subsidiary will reside in the firm's previously named Poulton Foundry in Columbus, the group's smallest operation which was closed last May as its nobake jobs were absorbed by the other operations. A 38 x 58-in., 26-flask automated line was purchased from Robinson Foundry, and lost foam will be the only process used in the plant. The facility will have a capacity of 6000 net good tons/yr and will eventually require about 40 employees. It will be fully production-capable by July.

Asked about the bold move into the process, Vogel said the operation will initially make straightforward products, not "things that never have been tried in foam before." Plus, since the line is simply being installed in an existing foundry, most of the risk is not in the infrastructure but rather in the ramping up."

He added that the strategic plan calls for a second lost foam facility within the next 3-5 years. "This is not an R&D operation," he said, "We are committed to the process and will grow as fast as the market and our management capabilities will allow."