Marking global resources: sourcing castings to India and China has helped Clay and Bailey Manufacturing Co. build a firmer foundation for its metalcasting facility in Kansas City, Mo.

Four years ago, Clay and Bailey Manufacturing Co., Kansas City, Mo., was concerned that it hadn't received business from a particular customer in a couple of years. So sales manager Brad Holmes went to visit the plant.

The customer was located four miles outside of a small, isolated Missouri town near the Ozark Mountains, down a number of gravel and dirt roads.

Through their discussion with the owners of the small operation, they learned the company was no longer doing business with Clay and Bailey because it was bringing its castings in from China.

"If that company is doing it," Holmes said. "Then it's easy."

Clay and Bailey Manufacturing Co., an 80-employee green sand casting facility located a stone's throw from Kauffman and Arrowhead stadiums in Kansas City, has been buying castings from foreign sources for 12 years to compliment its casting production. The company uses a strategy of sourcing simple castings to India and China in order to stay competitive enough to continue making more complex, higher specification parts.

"We're not waiting for the customer to come in and tell us our price is too high," Holmes said. "We offer our customers both bananas from the banana cart and let them choose. We don't try to persuade them to go with the foreign casting, but this allows us to offer both."

Choosing a Source

Working with foreign metalcasters to source castings that meet U.S. specs and standards can be complicated, but as Holmes pointed out, conducting business globally may not be as hard as it looks.

Clay and Bailey first began purchasing municipal castings, such as manhole rings and lids and meter hole rings and lids, from an Indian metalcaster 12 years ago. The company knew who the foreign importers were for its product line, and one of the major suppliers from India approached the firm about establishing a relationship. Clay and Bailey was familiar with the reputation of the company and quality of its castings, so they agreed to sign a contract. More than a decade later, Holmes is happy with the relationship and communication built between Clay and Bailey and its overseas casting sources.

"With email and websites, it's like they're across the street," he said. "When you send them an email, sometimes you'll even get a reply the same day. With test reports and digital cameras, the web has really revolutionized how to work with foreign companies."

Holmes said it is easier to deal with countries that were part of the English empire, such as India, because of the common language and their understanding of the American culture and Western business practices. Other countries, he admits, are sometimes black holes, where information goes in and never comes out.

"We've received solicitations to quote for us, but after a reply, we never hear from them again," Holmes said.

Clay and Bailey recently began purchasing petroleum castings from China after it saw its competitors were doing the same. Not as familiar with the Chinese metalcasting industry, the firm used a broker to find a supplier. Because Clay and Bailey was on several importers lists, it would receive several solicitations a week to buy castings from low-cost countries like India and China. Its present broker was once a competitor who started its own importing agency.

The broker is given a list of different products Clay and Bailey wants the supplier to produce, along with target prices, and sources are narrowed down from there.

Quality continues to be an important qualifier in choosing a source and sticking with it. If Clay and Bailey sells a casting, it wants to be sure it meets the company's standards, no matter where it was cast. Holmes said one of the biggest things the firm keeps track of is the weight of the delivered castings, because that is where it will most often find a discrepancy.

"If we supply a casting to a customer, we want it to meet our specs," he said. "If we advertise a 400-lb. ring and lid, class 35, we want to be sure we are selling a 400-lb. ring and lid, class 35."

According to Holmes, Clay and Bailey rarely runs into problems with pieces being delivered off specification, but the company does not leave the question of quality unanswered.

"We verify by weight and test bars, even on some longstanding products," he said. "Sometimes there are castings delivered that are too light or broken. But when we let the casting supplier know about it, they will give us a credit."

Wrangling Inventory

Besides verifying weight and testing for quality, Clay and Bailey has to handle the long lead times and inventory associated with shipping from overseas. The firm's overseas suppliers typically need 14 weeks to deliver a product, but many of its customers demand something much sooner. The metalcaster has had to figure out a system to ensure enough inventory is always in stock at a given time while avoiding a flux of castings that just sit on the shipping docks.

"We purchase based on our average sales from the last two or three years and may include additions depending on what our focus or targets are going to be that year," Holmes said. "We monitor the amount of inventory we have and look at what we've sold and what we have left to sell. If we're in a bind, sometimes that 14 weeks can be cut down to eight, but generally, we count on 14."

It took Clay and Bailey a couple of years to acquire a strong handle on accounting for the inventory lag, but with detailed spreadsheets, inventory tracking is manageable.

Since sourcing castings to foreign countries, the company has not needed to add staff to handle that area of the business. Because the original supplier in India had existing patterns and Clay and Bailey had a working relationship with a customs broker, only about 30 hours total were spent on setting up its foreign sourcing.

Now, Holmes, who handles the foreign sourcing, spends as little as 15-30 minutes a day on this sector of the business.

The Cost Advantage

Currently, Clay and Bailey's municipal castings are roughly 50% domestic-made and 50% foreign-made. Holmes sees the foreign castings increasing in this market in the future. Foreign costs for these castings are roughly half that of domestic castings, and more cities accept foreign castings now. Holmes said the customers would prefer to purchase a domestic casting, but in the end they want what's least expensive.

"Some might take a domestic lid and a foreign ring because they don't want people to see the lid saying Made in India," Holmes said. "But, really, it's cost-driven."

It's cost driven on Clay and Bailey's side, too. "We tried to fight domestically for two or three years, but foreign companies maintained their foothold. Really, some jobs are more profitable for us to purchase overseas."

Clay and Bailey has a basic margin that it wants to make on its castings. Pricing for the foreign castings is based on three things:

* The standard profit margin the firm wants to make with a casting.

* Competitive pricing with customers.

* Contribution pricing or contribution to margin. "If we have the opportunity to increase our sales with a customer, we may lower the price," Holmes said.

As costs go up with what Holmes calls non-production-enhancing items, such as health insurance and new OSHA requirements, more customers will look to foreign metalcasters for a better price, particularly in the municipal casting market, where the parts are simple gray iron castings. But Holmes doesn't see this spelling doom and gloom for the U.S. metalcasting industry or his company. Nor is he fearful that all his customers might cut him out and go directly to the Indian or Chinese metalcasters on their own.

"Very few of the customers themselves see a big enough portion of their business go toward these type of castings, so most do not want to put in the time to find foreign sources," he said. "It's not viable for them to deal with things like inventory lag."

And while more of their municipal castings might be purchased overseas, Clay and Bailey's petroleum castings, which make up 65% of the firm's production, don't show signs of making big shifts to low-cost sources.

"The petroleum business has a different mindset than municipal," Holmes said. "The municipal market is more worried about cost, but in petroleum, the product has to function properly. They still want it to be inexpensive, so we're buying the simpler castings from China. But the more complicated components we make here."

Holmes said that 99% of Clay and Bailey's petroleum castings are still made at its facility in Kansas City. While some of the firm's competitors will expand their imports in this sector, Clay and Bailey would like to grow its business domestically, first. Plus, after a year and a half working with suppliers in China on petroleum castings, the metalcaster is starting to bring a few products back to the states.

"The transition there has been slower than I anticipated," Holmes said. Achieving a common understanding of what was required of a part took time that he couldn't afford to give.

So far, Clay and Bailey hasn't felt strong enough pressure from its customers to stake more of a claim in low-cost, foreign petroleum castings. For example, one casting that Holmes thought would be a prime candidate for overseas production was kept in the states by the customer.

"It was a simple, 70-lb. gray iron component that we machine and sell to a Fortune 500 company," Holmes said. "We thought it would be a natural for going overseas, but because it's a small portion of the customer's business, it wasn't worth going to a foreign source. They liked getting it right away and having that service element."

Holmes is confident that the U.S. metalcasting industry will survive the growing global competition, if U.S. firms figure out how to better use their expertise as an advantage.

"At some point, India and China costs will go up, but they'll be replaced by someone else," he said. "Just-in-time is not a concept and six sigma is not a concept at these low-cost sources. A lot of the low hanging fruit is what you are seeing going to China and India. I think the U.S. metalcasting industry can be strong if we work smarter. Honestly, I don't think we can work any harder."

For More Information

Visit the following websites for more information on setting up your global business.

export.gov--includes list of U.S. Commerce Dept. offices, international logistics information and a database of trade leads.

www.uschamber.com/international/directory--lists the American Chambers of Commerce abroad.

www.ilo.org/public/english/employment/index. htm--the International Labour Organization's site includes employment policies from around the globe.

www.dol.gov/ilab--U.S. Dept. of Labor

www.wipo.int--World Intellectual Property Organization.

RELATED ARTICLE: Perks, pitfalls of going global.

Clay and Bailey Manufacturing Co., Kansas City, Mo., was able to capitalize on low-cost foreign companies by sourcing castings abroad and selling them to U.S. customers. Rather than lose a customer, the firm added a low-cost option to its product line.

"The main reasons to go overseas is to expand your product line or enhance what your company is selling," said Mike Swartzlander, vice president and managing director-India for Ashland Inc. "Rather than sell a casting, sell a complete component."

Leveraging operations outside the country provided Clay & Bailey with new strategies, and sourcing commodity materials allowed the business to expand its definition.

If your metalcasting facility is considering going global, the first step, according to Swartzlander, is to define what the business needs to be in the future.

"I don't care whether you are a two-person metalcaster or a 2,000-person metalcaster," he said. "If you don't have a strategy, you're dead."

The strategy should be based on how you currently add value and how the value will change over time.

Swartzlander recommends figuring out how you can add the most value to your customer's operation. If you've made the decision to expand overseas by setting up a metalcasting operation in another country, a look at your current customer list will help point you to a profitable location.

"In many cases, that customer, or his ultimate customer, might already by making durable goods outside the U.S.," Swartzlander said. "Whatever value you're bringing to the supply chain domestically might be brought to that foreign location."

Building a grass roots operation or forming a joint venture are ways to stretch your dollar, but you'll have to take care you're not stretching your resources, as well.

"Medium and small companies don't have to be everywhere," he said. "They have to be very selective so as not to dilute their limited resources. You have to focus, and once you find the focus, you need to resource it with dedicated skillsets."

The transplanting of knowledge is one of the major sources of potential setbacks in going overseas. An engineer, who wished not to be named in this article, from a U.S. automotive supplier expanding its operations in China has witnessed this struggle firsthand.

"First you must find people willing to be transplanted, willing to be ex-patriots," he said. "You need good people who know the product, process and customer. You cannot transplant knowledge with a few plane flights. You need feet on the ground, and you need to give the ex-patriots and the local employees time to learn."

Swartzlander pointed to the current pool of engineering students in the U.S. that are visiting from low-cost labor countries, such as India and China, to help with the transplanting of knowledge. "My feeling is that companies need to move quickly at hiring in the local markets they are targeting," he said. "Familiarity with the company invokes a tremendous amount of trust. Once employees feel good about a company, they are extraordinarily loyal."

After a few years learning the ropes at the company stateside, the young engineers can play an important role in helping put a metalcasting facility on track in their homeland.

Depending on the extent of globalization your company plans on undertaking, the initial phase of starting up a company in another country doesn't have to be expensive, Swarzlander said, but it will need full-time attention from a staff person or two. Early involvement in legal matters will be important as you enter new markets. "You are going to need a fair number of resources, but the rewards are worth the investment," he said.

Expanding your resources globally may give your company flexibility, but the engineer in China warns against not knowing the real costs of producing a part in a low-cost country. For instance, in China, the material is not the same as that used in the U.S. If you want to use U.S.-specified steel, you will have to import it. If you want China-specified steel, you will pay a premium, according to the engineer. Use of local materials will mean a redesign of the part to meet the new system of specifications. Translation of quality standards can be difficult, and lost knowledge due to translation difficulties can result in mistakes in reading drawings and managing equipment, among other things.

Finally, the engineer points to overhead costs. "Most suppliers in China do not have the equipment U.S. suppliers do, like a spectrometer to verify that the chemistry of the metal they just sent you is in spec," he said. "So you inspect for your supplier. How? Send out samples and wait three weeks to receive results from an outside test lab? Maybe buy your own spectrometer? In either case, your overhead will go up."

Good management of the new global venture is key, said Swartzlander. "Going overseas requires an astute understanding of the business culture and business climate. You have to be flexible in what you are doing to get to the end result. It would be a bad idea if the company is going to rely on an overseas partner. This has to be done on a full time basis," he said. "If you made good choices, you should get financial returns from that operation and gain stability and flexibility in your company as a whole." MC Visit the following websites for more information on setting up your global business.

RELATED ARTICLE: Made in India.

Clay and Bailey, Kansas City, Mo., has been sourcing castings to foreign countries for more than a decade. The aim was to meet the needs of its customers and lend some flexibility to its line of products in order to strengthen the foundation of the metalcasting facility in the U.S. In the firm's municipal casting line, all gray iron products are cast both domestically and overseas, except for low volume parts. On the petroleum side, Clay and Bailey sources only a few products from China and keeps the production of parts involving plastics, stainless steel and aluminum stateside. This chart (r) offers a better picture of how much Clay and Bailey sources to foreign metalcasters compared to its domestic production.

Markets Served

Petroleum:                     65%
Construction (including
  municipal castings):         25%
Custom Castings:               10%

Product Sourcing
Municipal Casting

Made domestically:             50%
Made abroad:                   50%

Petroleum Castings

Made domestically:             99%
Made abroad:                    1%

Shannon. Kruse, Senior Editor