Nemak accelerates on the global track: you don't become the world's largest producer of engine castings without a handle on the most up-to-date technology, but how it's managed is equally critical.

Since the day maritime explorers first set out from Europe and began to discern the shape and extent of the world, mercantilist principles (i.e. there's only so much to go around, so grab as much as you can) have maintained a place in the collective consciousness. For a Mexican metalcasting superpower, harnessing a portion of what its parent company had to go around created a chance to do a little exploring of its own.

Alfa, an industrial giant in Monterrey, Mexico, consists of four distinct business groups. Just a year and a half ago, the company's automotive castings, petrochemical, processed foods and telecommunications businesses were augmented by a steel producer, and the roost was full.

So, when a downturn made the company sell off the entirety of its steel assets, it was no easy task to determine how to reinvest the approximately $1 billion that was left over after the divestment's returns had been used to pay off company debts. Which of the four remaining segments would benefit?

The automotive castings portion of the business, Nemak, Monterrey, Mexico, felt that it could find good use for the funds.

"Alfa analyzed its portfolio and approved two of Nemak's most interesting projects," said Armando Tamez, CEO of Nemak's Mexico and U.S. operations.

Nemak identified two international castings businesses whose purchase could expand their global reach considerably, not to mention increase their annual production of engine cylinder blocks and heads. When the dust settled in March 2007, Nemak owned the majority of the casting properties of Teksid Aluminum, Detroit, Mich., and the European operations of Hydro Aluminum, Oslo, Norway, in addition to its existing global assets. The company had become the world's largest producer of metal castings for automotive engines. The only thing left was to integrate all of the acquisitions.

"The Teksid and Hydro acquisitions will essentially double our production, but we'll need to learn some new languages," Tamez said.

(Not So) Humble Beginnings 

Prior to the purchase of" the Teksid and Hydro assets, Nemak already held a considerable portion of the market in engine cylinder blocks and heads, as well as a strong global presence. Less than a quarter century after opening its doors, the company's annual production worldwide reached 15.7 million heads and 2.6 million blocks in 2006. In the last five years, the company has launched 70 new products, with a product mix of 69% heads, 26% blocks and 5% suspension, chassis and other components. Organic growth prior to the most recent acquisitions was 22% annually. Nemak currently counts Porsche, Ford, Volkswagen, Audi, BMW, Jaguar, Daimler Chrysler, Hyundai, Mazda, Mitsubishi and GM among its customers. The company provides a variety of the most technologically advanced cylinder heads to the first; the last asks for Nemak's largest single order with 1.8 million identical heads. In all, Nemak supplies 46 different engine plants in 17 countries. Revenues were $1.34 billion in 2006, or roughly a fifth of Alfa's overall intake of $7 billion. After the most recent acquisitions, Nemak will be responsible for approximately a third of the industrial behemoth's incoming funds.

Originally, Nemak's flagship plant in Mexico consisted of two unassuming buildings. The company was founded in 1979, and its facilities first were designed after the Ford Essex Aluminum plant (in which Nemak later purchased a majority share), Windsor, Ontario, Canada. It was not until the 1990s, when construction began on two of four planned structures, that the Mexico facility's current landscape began to take shape.

It was also in the 90s that Nemak's global footprint began to materialize, when it purchased two plants in Ontario. In the following decade, the company purchased the assets of Europe-based Rautenbach.

Today, the original Mexico operation sits on a sprawling 16,150,000sq.-ft, manufacturing campus that is uniquely designed to handle its portion of the updated capacity. Four separate facilities produce cylinder heads through the processes of gravity and low pressure semi-permanent molding; two additional plants make engine blocks via a patented low-pressure precision sand technology. Worldwide, Nemak has 25 plants spread throughout 12 countries.

Several Up on the Competition

To position itself as the foremost global authority on complex aluminum engine parts, Nemak prides itself on drawing the most out of its machinery and people.

So when Nemak Mexico executives decided they wanted to see a 50% operational cost reduction on one of its molding lines, engineers decided it was time to change the shape of things. They had been trying to find a way to reduce costs for weeks without coming close to achieving the kind of savings required. In the end, the answer was to take that which was a straight line and turn it back on itself--a rotary system would lower the bottom line. While it wouldn't achieve the lofty 50% cost reduction, it represented a good start. The new design also increased the molding line's throughput.

Like so many modern high production facilities, Nemak executives recognize the importance of weighing the benefits of cost. Price reigns as the number one driver to gaining new business. So, it's an area over which the company maintains strict control. But you can't just quote one of the lowest prices in the business because you want to. Nemak does so because it achieves superior quality, advanced product development and global support at low overhead.

"For the Detroit 3, the main driver is cost," Tamez said. "For some of the European companies, they see more of the global package. They are interested in technology differentiation and are willing to pay for it."

At the Mexico plant, a product development team of 291 employees spends about five months on engine cylinder head development and three months on engine cylinder blocks. Once a head or block is developed, it joins a product mix of hundreds of part numbers.

Over a casting's five- to seven-year production life, Nemak expects to reduce production costs enough to offset the effects of inflation. The earlier its engineers start working on the product's design, the more significantly they can lower the startup costs.

"We examine every process closely and find ways to eliminate cost," Tamez said. "If you're going to invest in new things, you better design better equipment."

Nemak can eliminate costs so feverishly primarily owing to its reputation. When a customer comes to the company with specifications, the company's engineers can determine the most cost-effective way to meet those requirements.

"We say to customers, 'Don't give me the recipe, just tell me what you need, and I will tell you how to achieve it more easily," commercial manager Marco Landeros said.

Nemak meets the customer's expectations, but it finds the most efficient means to that end. The company has that ability because of customers' perceptions.

"We have built a reputation and track record, so customers trust us," Tamez said. "Trust. You don't build it overnight."

Improving on the Best

If objects in Nemak's rearview are closer than they appear, then they are but a speck on the mirror. As a clear industry frontrunner, Nemak finds it difficult to judge its success and progress against others. But, as evidenced by its global dilation, that doesn't keep it from striving for more.

"We don't only look at the casting industry for benchmarking," said Tamez. "We look at other industries for best practices. For example, we compare our operations to other industries such as electronics, pharmaceutical and global logistics companies. The metalcasting industry to some extent is conservative and tries to do more of the same. We think we can learn from others and re-energize the industry."

But Nemak does keep an eye on the developments in the metalcasting industry. For example, Tamez predicted that in the coming years, diesel engines will see a surge in North American markets. And when such changes come along, he said, the company will be ready to react.

The company also looks to experts in the field of management. Nemak established a relationship in 1996 with Stefan Thomke, a Harvard Business School professor who serves the company as a consultant. Thomke works with several companies worldwide to improve their technology and product innovation management.

"From the very beginning, Nemak's management impressed me with their leadership skills and passion for excellence, which were the primary reasons why I decided to work with them," Thomke said.

People People

Nemak's global operations employ 13,300 people in 12 of the world's nations. That many humans require considerable resources, both on the floor and at the executive level. The global company's HR policies therefore have developed out of a Mexican ideal that is absent in many countries.

"With the same equipment and the same price, what makes the difference?" asked Tamez. "The people."

With roots in Mexico, the worldwide treatment of Nemak's employees starts in the home country, where there is a large talent pool due to the positive perception of the metalcasting industry (and specifically Nemak as a company) by young engineers. And once the talent has arrived, Nemak Mexico counteracts its superhuman size with meticulous focus on the individual.

"We try to keep a low turnover because it's very costly," Tamez said. "After [an employee has been here] one year, our turnover is less than 1.5%. Before that, it is 3%. It's very important to keep and attract the best talent we can. We're fortunate to have the best universities for the metalcasting industry. We're lucky in Mexico to be able to capture bright, intelligent people. [We get them because we're] a high tech aluminum component supplier."

Potential Nemak executives are required to be fluent in two languages (a third offers an advantage over other applicants), and international experience is preferred. For floor workers at the Mexico plant, only one out of 15 applicants is chosen. The selected are then sent through nine weeks of training, during which another two out of three are released. According to Tamez, the company has a 90% acceptance rate once they invite an applicant to begin work. What's more, the company often finds potential employees before they enter the job market--or even think about doing so. Nemak maintains a relationship with several prominent engineering schools in the country and makes contact with graduate students before they begin writing their theses. In many cases, the company develops the thesis topic along with the student, and a symbiotic relationship is born.

"Eighty five to 90% of the people that do a master's thesis for us stay here at Nemak," said Jose Talamantes-Silva, director of research and development.

Today, Nemak Mexico employs 4,500, more than a third of the company's global workforce.

Going Global

There's no instruction book describing how to become a global manufacturing power. If there were, Nemak would probably have its say on a chapter or two. So learning to integrate several cultures comes to any company gradually. But just as Nemak has enough experience to suggest alternative processes to an accomplished engineer, they know how to engineer a smooth cultural transition.

"What makes a good and bad integration?" Tamez asked. "One of the elements is how you approach the culture. You need to be sensitive to culture; you don't want to go and try to conquer. That destroys the cooperation, and we're more sensitive in that regard. We will retain management in each nation."

That management will report to various CEOs that have been kept in each of Nemak's three main areas of operation--Mexico/U.S., Canada and Europe. Tamez currently works closely with the two other CEOs, and his executive-level cooperation will likely have to increase in the coming years.

"We are working with a company that has a lot of experience in post-management integration," Tamez said of the group at Hydro. He believes that the teams from that company will be able to assist in the integration of the rest of the company's new acquisitions. "We've put together a strong team, but it's going to be a challenge. We have identified 15 different teams to integrate. I can't say it will be a 100% success, but we are prepared for that challenge."

With its 25 global metalcasting plants and wide international reach, the process should be familiar.

"I am not worried about the next quarter but the long term," Tamez said. "We see some potential synergies by joining forces and eliminating some redundancies."

Or perhaps, like the European explorers who set out to sail the ocean blue so many years ago, it is what Nemak doesn't see that will serve it best.

Nemak Mexico Monterrey, Mexico

Year Founded: 1979.

Metals Cast: 319 and 356 aluminum.

Casting Process: Gravity and low pressure semi-permanent mold.

Size: 16,150,000 sq. ft.

Monthly Production: 700,000 pieces.

Value-added: Full research and development facilities.

Employees: 4,500.

Just High-Tech Enough

The buildings that compose Nemak of Mexico, Monterrey, are unmistakable in their size and design. Once you have seen them, it is very difficult to miss them, even whizzing by their backside on the interstate.

"I didn't like the design at first," said Armando Tamez, CEO. "Sometimes you ask for high-tech, and it turns out too high-tech."

Indeed, the buildings so closely resemble indoor sports stadiums that when the Pontiac Silverdome began having structural problems, Nemak brought a civil engineer in from the U.S. to assure its buildings were sound.

"It's always better to double check," Tamez said.

The Mexican company that designed the 720 x 270-ft. (240 x 90-yard) structures won the contract over several other architectural firms. Prior to construction in 1996, Nemak brought five firms in to pitch their ideas, and the unorthodox, arena-like blueprints won out.

But it's not the novel look of the buildings that made them the ideal choice for the future manufacturing space of the world's largest engine casting producer. It's the environment and efficiency they provide.

Architects positioned the structures parallel to the prevailing wind patterns. So, with openings at the east and west ends, wind whips through the floor space like a Peyton Manning spiral. According to Tamez, the air in the buildings is flushed and freshened naturally 12 times in an hour, meaning cool temperatures and clean air for the comfort of metalcasters. The natural AC also brings the energy bill down, and the design draws on skylights and a translucent building material to provide natural light to reinforce that effect.

Nemak workers and machinery occupy 100% of the manufacturing space in the new buildings, again the result of a design feature. Architects placed the support columns for the facilities on their perimeters, preserving the 4-5% of floor space that they would have occupied.

And not to be outdone by the designers, Nemak's construction team turned in a world class timetable, as well, making each building production-ready 10 months after work began.

Aluminum Making Gains in Engine Market

Being a two casting pony may be risky, but the risk so far has paid off for global producers of aluminum engine cylinder blocks and heads. Aluminum captured 96% of the heads market and 75% of blocks in 2007 (Figs. A and B), according to forecasts by Stratecasts Inc., Estero, Fla.

[FIGURES A-B OMITTED]

Aluminum castings in internal combustion engines will show a 0.7% growth rate through 2016, compared to a 1.6% downturn in gray iron, says a recent Stratecasts report. In cylinder heads and engine blocks taken together, the growth has been closer to 5% per year

[FIGURE C OMITTED]

Shea Gibbs, Assistant Editor