Manufacturing strategy.

Manufacturing strategy is, without question, the most important element of the foundry business planning process. Yet we have found that manufacturing strategy is not very well-understood at all. While everyone can easily envision all of the manufacturing tactics surrounding the process of producing castings, manufacturing's link to business strategy is still a mystery to many.

Driving Business Methods

It's very useful for foundries and their managers to consider strategy in terms of flexibility and efficiency. On one hand, a flexibility-driven business strategy is one that must give rise to (or, alternatively, is derived from) a manufacturing operation that can effectively handle a wide variety of product types, typically in lower volumes. Businesses in our industry that fit this description have long been described as jobbing foundries, and they must be operated in such a way that the plant's flexibility--its economies of scope--is maximized.

On the other hand, an efficiency-driven business strategy is one that fits with a manufacturing operation that is highly efficient. It is thus best suited to produce a narrow range of product types, typically in higher volumes, which, in today's industry, means anything more than a couple of thousand pieces per year. Foundries serving the automotive industry are the best examples of these cost-driven businesses, and they must be operated in such a way that the plant's efficiency--its economies of scale--is maximized.

Maximize Performance With Production

The fact that these concepts are mutually exclusive is what has caused trouble for many foundries over the years, especially jobbing foundries. In other words, it is simply impossible for a foundry to be both flexible and efficient. Attempts to accomplish this feat often produce wildly unforeseen and damaging results.

For example, when jobbing foundry manufacturing managers seek to alter the facility so that it will be more efficient, the result is more than mere cost reduction--the result is a dangerous violation of business strategy. Consider the squeezer shop that invests in automated molding machines or the nobake foundry that invests in a high-tech loop molding system, each for the laudable goal of "improving efficiency." Very soon, management of such a foundry finds that because of a burdensome debt load and significantly increased capacity, it must seek higher and higher volumes of work (and lots of it) in order to fill the foundry. Shortly thereafter, management discovers that it needs more melt capacity to do so and then again that it needs greater cleaning room capacity to cure the latest bottleneck.

Before you know it (and it can happen very quickly) everything management thought it knew about selling, pricing, manufacturing and management itself no longer works. That's because their investments did more than increase efficiency. They inadvertently invalidated the company's business strategy, and thus changed everything.

In order to maximize the overall performance of the business enterprise, manufacturing strategists must seek to continuously improve their plant's performance while staying scrupulously within the confines of the company's chosen business strategy. We have found that the best way for CEOs to ensure this happens is to have the management team focus on productivity rather than efficiency.

Bigger Is Not Always Better

When productivity becomes the driver of manufacturing strategy, the sales pitches of all the purveyors of new foundry equipment can be put into their proper perspectives. These alternatives are right on the money when it comes to increasing the effectiveness of efficiency-driven businesses, but are almost always a waste of money for flexibility-driven operations.

In fact, instead of helping jobbing foundries become more successful, such misguided capital investments typically have the opposite effect--they force the business to become bigger, to compete in market segments management is unfamiliar with and to suffer dramatic reductions in profit margins. Thus, the business may look more successful from the outside, but inside the company is absolutely no better off profit-wise, as higher sales plus lower margins equals no change in the number of profit dollars that cross the bottom line.

Moreover, and more so in the past 20 years as our industry has become more mature--negatively mature, in fact--such foundries are often stuck with a debilitating debt burden. This in turn can send the foundry into the cash trap spiral where money goes into the business in the form of capital investment and cannot be recovered in the form of increased profits. For these foundries, and almost all jobbing foundries in negative maturity, bigger is most definitely not better.

Unfortunately, the moral of this story comes too late for all of those former squeezer shops whose customers have taken this work in droves to China and elsewhere. But it is not too late for the job shops that remain. For these foundries, especially those looking to erase the volume losses suffered over the past couple of years, the key is to stay true to your business strategy, even if it means shrinking to fit the new realities of doing business in today's global metalcasting industry.

Dan Marcus

TDC Consulting, Inc., Amherst, Wisconsin