Marketing in Changing Times.

Facing times that leave more questions than answers, marketers gathered to explore trends and tools for improving their strategic positions.

With the reality of a softened casting demand on the horizon, nearly 60 metalcasting industry marketing officials met November 15-17 in Orlando, Florida, to better understand how to improve their market position. The program included five speakers, including a special full-day seminar provided by the American Management Assn. (AMA).

The conference focused on higher-level topics that extend beyond the day-to-day activities listed in the marketing manager's job description. It served as a retreat for marketers to reexamine their firm's position in the market and their approach to managing the entire business while also learning how to identify emerging opportunities and threats.

With rapid changes in end-use forces (such as the 90% reduction in Tier-2 automotive suppliers expected over the next 5 years), methods of doing business (e-commerce) and competitors (rival manufacturing methods and imports), speakers concluded that the only given is that change is inevitable. Throughout the conference, one example after another was shared citing firms that had a lock on an industry or market that failed to evolve and change. In looking ahead, Robert Sherwood, AMA faculty member and consultant, said, "You can assume that an unknown competitor will attack you, the rules of engagement will be altered, and that you should obsolete your own products before someone else does."

Among his tips for attendees was that "If we make marginal responses, we will always make marginal changes. We must look to the bigger changes and change the rules of engagement ourselves."

Marketing Vision

John Keough, Applied Process, focused his presentation on setting a marketing vision for the future. The majority of Keough's address talked about the first of the four P's of marketing--the product--as he challenged foundries to improve their current offering. He also described how the best selling proposition is the casting process' unique capabilities and features it can deliver.

"We are an integral step in our customer's manufacturing process--that's it," he said. "Their requirements are our requirements, and their customers are our customers."

In talking about what is important to the customer, he said, "Quality is what the customer perceives it to be, not what the specification indicates. The customer will know it when he sees it. It's your job to find it, and it's not normally in the spec." Along the same lines, he noted that on time delivery is when the customer needs it, not what you can typically deliver.

Price, he maintains, is almost always further down on the customer's list of priorities. "Your ability to help your customers sell their product to their customers is of greater importance than price or delivery. Competitive pricing gets you in the door, reduced product cost is what sells."

Most foundries avoid pushing the envelope of their capabilities and rather work on incrementally improving the status quo, said Keough. He challenged foundries to truly know the capabilities of their process and fully extend themselves to figuring out how to get a job done--simply because the customer wants it. In addition to meeting atypical deliveries, these include pushing your operation to the limit on things like strengths, section thickness, dimensional accuracies, and the number of modifications that can be made to eliminate subsequent processing.

Noting how the sales staff may follow very clear rules (such as metal-section thickness limits) that they will quote on, he made a point by sharing the words of Margaret Thatcher: "Staying in the middle of the road is very dangerous; you get knocked down by traffic from both sides." In other words, dismissing a potential job as unrealistic does little more than open the door for a competitor to come in and be knighted a hero.

"Imagine the ultimate solution to the problem, and then back into the economic reality from there," he said. "When you come back and hit a solid 'triple,' the door is thoroughly wedged open--they'll be willing to pay for the value you bring. If you come back with only incremental improvements, they'll just keep asking you to sharpen your pencil."

He also discussed three ways that he's seen firms market themselves, including by the lowest price per pound, the lowest component manufacturing cost or the best component performance. "If you sell based on low price, you'd better be big, good and getting better; getting ready to sell your business; or looking for another avocation," he said.

He also offered a marketing viewpoint on common industry metrics. "If you track man-hours per ton, you re making a commodity. Prepare to make millions of pieces per year. Prepare to sustain falling prices and prepare to battle with India, Brazil, China, etc. for the title of lowest-cost-producer." Tracking sales per man-hour, on the other hand, is a measure of efficiency. "If this number is increasing, you're improving your efficiency and/or pricing the work to reflect the cost of your process.

He urged foundries to find the customers that best suit their material and process combination. "Try to be all things to all people, and you'll only be average," he said. He also advised foundries to know their customers' customers and keep an eye on what they are designing, what new technologies are showing up, what their concerns are and how you, the metalcasting supplier, can help.

Throughout his talk, Keough spoke several times about a "secret ingredient" that's high on the customer's list and one that is absolutely critical to success in the 21st century. The ingredient? "Passion. If you aren't passionate about what you do, get the hell out of the way and let the rest of us do it."

Making Sense of E-Commerce

With the current e-commerce buzz creating a stir in all markets and also resulting in some confusion for sellers, Bob Dzugan and Neil Chaudhry of buycastings.com, described some of the e-commerce trends at play in the metalcasting industry.

They discussed how Internet-conducted business saved $69 billion in transactions last year, and is expected to save $1.25 trillion by 2003. Among their citings was that the average cost of processing a single corporate purchase order can be reduced by 90% (Assn. of Purchasing Management), and 7500-10,500 new business-to-business e-marketplaces are expected to emerge by 2002 (Gartner Group).

More central to metalcasting, the pair cited a report issued by Goldman Sachs that stated that the metals industry holds the second highest estimated cost-savings (22%) available through business-to-business e-commerce.

The speakers described six e-marketplace models that draw buyers and sellers into one virtual place where participants can reduce transaction costs and reach new customers.

* Communities--offer information and communication for specific industries (VerticalNet) that generate revenue through advertising and/or commissions on sales referrals.

* Procurement Hubs--driven by buyers, these sites (such as Covisant) direct suppliers to particular companies or industries online in one place.

* Auctions--the most popular sales channel for unique items such as used equipment, surplus inventory and perishable goods. An example is Freemarkets. One response from the audience described auction sites as "Lopez (GM's former 'purchasing warrior') on steroids."

* Exchanges--similar to the stock markets in that buyers and sellers meet to agree on the prices of commodities, such as energy or telecommunications. (AltraEnergy for natural gas).

* Collaboration Hubs--These sites help see projects through completion, from design through manufacturing to distribution. "Buyers and sellers come together like traditional quoting and negotiation on how to decrease the cost together," said Chaudhry. An example is the construction industry's Bidcom, which provides a single online workplace for contractors to collaborate with architects, store blueprints, work through permitting processes and purchase building materials.

* Catalogs--these seller-driven sites digitize paper catalogs to provide easy search and one-stop shopping. These include sites like Plasticsnet and Grainger's OrderZone.com that sell supplies across many industries.

Another presentation by Stan Atkins, Omega Business Development, illustrated the reality of the e-commerce trend to date. He witnessed how a customer, which had a previous reserve price (price it is willing to move a pattern) of $700,000 on one job, received a final auction bid of $450,000 due to foundries' last-minute online underbidding.

Discussing his vision for how castings will be sold via Internet technologies, Chaudhrysaid: "If one considers castings an engineered product and not a commodity, then a combination of a community and a collaborative hub would be the most effective approach to enhance your future digital competitiveness."

'Owning Your Customers'

A special full-day AMA session was also offered to conference attendees. In a larger framework on competitive analysis, AMA faculty member and consultant Robert Sherwood told attendees that the current times require leaders to think about completely different models of operating their business.

Among the central themes of his talk was highlighting how managers spend far too much time working "in" their business in survival mode when they should be working "on" it to grow the business. "It's the difference between looking at a forest and asking if it's the right one or being already inside the forest and wondering which tree to cut down first."

Among the items Sherwood highlighted for managers was focusing on return on investment (ROI) instead of gross margin. A company may choose to take a lower margin if it can push up its ROI, he said, noting that practices exist to eliminate some traditional costs of sales and customer service. He also stressed how lower-margin accounts often can cost a seller 5 times as much as higher-end accounts. He advised foundries to increase their customer focus by reducing their customer base. "Shed the junk," he said, "and target those industries that can pull new work (such as markets/companies using components that are prime candidates for casting conversions) into your operation."

He also talked about new business models and examples of alliances that can position you closer to "owning the customer." "If you want a higher ROI, you can't be happy with just 10% of the business, Sherwood said. "You must own the market you're in or 'own the customer.'"

He suggested identifying 15 customers and attempting to go after 100% of their business." It can be done, he said, through new, creative approaches that might include providing 100% inventory management or design duties, or developing a system to provide an unprecedented ease of ordering. "Even though some firms may not want to rely on one supplier, they can be convinced that it's the best way to do business, if the fit is right."

He also discussed some eye-opening trends in alliance-building and cited several examples of competitors joining together in order to have a chance at 100% of a customer's order. Calling them information-based alliances, he cited several examples in which 2-3 suppliers fulfill 100% of a customer's business and, as part of the agreement, share with the customer and each other their costs, including labor, scrap, etc.

He also discussed how some suppliers have placed an employee at their customer's site (for extended periods of time) to fulfill a vital role for the customer. "In some cases," he said, "they stay on, always in a position to work on the next big contract."