Part 1: determining your foundry's target castings; this article shows foundries how to uncover the single most important element in the formula for a successful sales and marketing program. (The Market-Driven Foundry).

Editor's Note: This is the first installment of a three-part MODERN CASTING series highlighting concepts and methods for foundries to consider in increasing their marketing effectiveness.

It's been said that the definition of insanity is continuing to do the same things day in and day out expecting a different result. This certainly applies to traditional notions of gaining casting business.

Traditionally, foundries have relied on word of mouth more than any other method in attracting business. In slow economic times, foundries hire salespeople and/or enlist representatives to increase sales and spur growth, but often provide little direction as to the type of sales desired. Instead of just waiting for request for quotes to roll in from any and every type of casting buyer, the marketing function should lead and steer salespeople in a focused direction.

The problem is that a great deal of confusion exists in the area of casting marketing. In fact, many foundries do not have a sound foundation in marketing at all, or believe marketing and sales is one and the same. Definitions of marketing can vary widely, from lengthy descriptions and concepts related to product mix or selling concepts. One simple way of looking at marketing is the conversion of the customers' needs (both expressed and unexpressed) into profitable opportunities for the foundry.

Market-oriented foundries have begun to break from their old order-taking mindset. These foundries have determined what they're good at producing, and they're heading for the trenches to actively find additional jobs or customers that match this criteria.

Drawing Up Plans

Instead of waiting for the economy to recover, your marketing staff can begin to assemble a plan for short-term survival and long-term growth. The first step is to define who you are and your foundry's particular strengths. Next, develop a plan to delve into the market segments you are most competitive or believe you can become competitive in. Last but not least, get your sales force excited and out in the marketplace.

This article will use a familiar, hypothetical example to illustrate how a typical foundry can approach niche determination--the core of any successful marketing plan.

Meet ABC castings

Located in the Midwest, ABC Castings is an iron casting operation that was built in the 1960s. It is now in its second-generation of family ownership and management. Like many foundries, it evolved over the decades from squeezers to automatic matchplate molding, and from cupola to electric melting, a choice made easier with customers' demands for ductile iron, (Still to this day, "The customer is always right" summarizes ABC's views toward customer satisfaction.)

Core and finishing equipment were later installed to keep pace with molding. Today, one could argue that ABC is among the most automated and best small iron jobbing foundries in the region. As management has come to realize, however, plant improvements don't automatically land additional business, particularly with the presence of global competition.

Since the firm's inception, the owners have continued to directly handle most of the sales functions. Now operating at only 60% capacity with dramatically eroded profit margins, the firm is asking 'What should we do?"

Focusing Your Sights

The definition of a niche is an especially suitable place or position. When it comes to castings, a true niche would be a preferred group of castings to produce for an especially attractive market in which to sell.

Your foundry's casting niche may already be apparent to you. But before you commit yourself to knowing it, however, you may want to step outside and look into the foundry from your customer's eyes, as they may see you in a radically different light.

For instance, ABC Castings has supplied gray iron castings to the compressor industry for many years and considers these type of parts its "forte," but this work represents less than 5% of its business today. The reality is that it produces more power transmission castings than anything else. While it is still well respected for its skills in compressors, its business in this sector has largely moved elsewhere. Viewing oneself by yesterday's paradigm is not uncommon.

To determine your niche, you will want to gather all available data on current jobs or groups of jobs. Foundries measure themselves in many ways: man hours per ton, tons per shift, tons shipped, internal scrap and customer returns, to name a few. Each of these measures presents a meaningful picture, but until you know what to sell to somebody, these measures are of little help.

Grade Your Castings

Begin your analysis by examining each of the castings you currently produce (be prepared with information that describes the component and quantities). A simple "grading" system can help you qualitatively assess your current casting production with your in-house experts--those who make the castings. They have the best idea of whether or not each job is a grade of:

* A: Flows Well Through Plant;

* B: OK (requires some trouble to produce);

* C: Changes Needed (consider redesigning, increasing price or rationalizing from mix.

By using this easy method, you can determine what flows easily through the foundry and what is the most difficult to produce and ship. This will reveal the type of jobs that are hard to mold, cause excessive grinding, etc. and also will give you a starting point for uncovering why some of the low-margin jobs may not have been costed correctly. Keep in mind that at this stage, the "A" jobs don't necessarily reflect profitable work; but only that these jobs flow easily and create few production headaches.

Once you've qualitatively graded each of the castings, examine your plant's measurement data on each of the jobs.

Segment Analysis

A segment analysis is the next step. Look at your total product mix and assign their respective percentages of the whole. This information will be useful later in focusing the niche and near-niche markets to go after first.

For example, ABC found 28% of sales was for agricultural equipment customers, 15% for heavy trucks and 13% for electric motors. Next, take a look at how your "A," "B" and "C" jobs fit within these markets. For instance, ABC found that 37% of all "A" jobs fit in agricultural.

On the other side of the spectrum, however, the foundry discovered that 9% of its total sales went to oil field equipment customers, nearly all graded as "C's." Not surprisingly, these represented the lowest margin jobs in the building. If this type of work does not represent "strategic" customers for ABC Castings, it would be an obvious candidate to first subcontract to another foundry or perhaps shed from its mix altogether.

Defining Your Target Casting

The next step is to set a meeting of management and foremen to develop the perfect world (or target casting) scenario for each molding line in your foundry. Using established criteria, the group's mission is to determine what the foundry's target casting is in terms of size, shape, sand to metal ratio, core ratio or whatever other measures you can use to maximize profitability and minimize scrap and lead time. It will become evident that one line may be competitive for a given type of work while the others are not at all.

Of all these criteria, the amount of casting weight, total mold weight and molds per hour are the most important, as this highlights the achievable sales figure per mold. This data is vital for quoting, planning and ultimately scheduling the castings to the molding line. Figure 1 shows the analysis of ABC's "target casting" investigation.

The idea behind determining your "target" casting for each mold line is to give the sales force a direction to shoot for. From the ideal casting model, they can then determine what groups of components have the best profit potential and then lock their sights on the customers and markets requiring such work.

Results?

Interestingly, management determined that its foundry's molding lines were most competitive in two very different types of work:

* no-core, 50-75 lb jobs at 100+ molds/hour.

* high core ratio work (due to recently installed, highly efficient core equipment and many years of success in running intricately cored castings).

Upon review of its jobs, about 40% of current customers would fall within one of these two areas.

While the first area (no-core work) is volume-centered and applies broadly, the second niche can have market implications, and ABC should evaluate industries and customers that they know to have high core requirements, such as hydraulic bodies and other large housings.

From there, the foundry looked at its mold lines in analyzing their niche performance (Fig. 2).

Resources Needed

Taking a critical look at your foundry and what it is good at (and not so good at) will push you much further into planning your survival and growth strategies. Assuming you are meeting other business goals, and not struggling financially, it would be good to gather other information such as dollars spent on sales efforts and customer appreciation. Looking at marketing expenditures as a % of sales and sales expense against new business generated will provide a good picture. Given traditional habits and the highly competitive market today, many foundries would be wise to consider increasing their marketing budget for the next 12 months.

Despite its 60% capacity, ABC Castings has maintained its cash flow position fairly well. To fund its new marketing focus, it is allocating roughly 1% of sales to marketing efforts this year.

Using this 1% budget wisely can produce many lasting residual effects to ABC's sales growth. While discussions abound around things like redesigning sales literature, the team agreed that this will not bring in new customers and/or sales alone. Instead, ABC Castings wants confirmation on this "casting niche" before proceeding too far down any path. Therefore, it decided to spend the first dollars of its plan on a survey of current and former customers to investigate how the foundry's service offering is actually viewed on the outside. In addition to the feedback received, this activity keeps the ABC name in front of the customer at the same time.

Survey Results

ABC Castings received a 30% response rate from the survey (80% from current customers). Former customers gave ABC poor grades on short runs and quick lead times, as well as abilities in service operations (post-casting processing). Meanwhile, current customers largely confirmed the identified niche areas, but also contradicted former customers, giving high marks in short runs and short lead times. How could this be?

In explaining this contradiction, management surmised that customers are in fact treated differently. Orders for customers whose work fell into the niche areas were almost always processed first for their relative ease in production. The nonniche work is often delayed, presumably because of debates on how to best run it.

Next Steps

Now that ABC has a better feel for "what it is," the next step is putting the company-wide marketing plan together and setting it in motion. After reviewing reams of job data, ABC decides the best short-term survival plan is to "Plow the old 'tator patch!" ABC knows it is far easier to sell someone who knows or already does business with you than to start blind cold calling on new accounts. The sales force and owners agree to leap into action, calling the short list of important customers.

Through these phone calls, ABC discovered many missed opportunities, from customer consolidations to foundry closings. It had been too busy "waiting for the economy to recover" to notice there was very little relationship with their customers. The phone calls revealed that several of the "A" customers appeared willing to pay the foundry for additional service operations (painting, subassembly, coordinating machining, etc.), which could potentially offer greater margin potential on already easy-flowing jobs.

Despite what's said about the information age, ABC realized that its relationships with customers would still be the most important sales effort for them. This keeps it in touch with their customer's business and other opportunities that may arise from other casting sources.

Also, the team has discussed the 600/a of jobs falling outside of its niche, and decided to run an indepth cost and margin analysis on each. It is likely that ABC will weigh the "opportunity cost" of continuing with certain jobs, as they may be hurting overall foundry efficiency and profitability. Over time, some jobs may be shed from the mix or subcontracted to other foundries.

Long-Term Solutions

ABC Casting's long term growth will be based on strategies employed now that can be expanded in the coming years. ABC decided to use its current niche jobs to investigate niche markets using industry data. It joined and attended professional organizations that niche customers participate in. In a time when customers are looking for foundries with the strength to endure, ABC began elevating itself by advertising to designers and buyers in these important markets, and also steadily improving its website and collateral materials. Through this increased presence, ABC is maintaining important contacts and finding new ones.

ABC also identified accounts located near niche customers in order to minimize sales expenses while maximizing effort in a given locale, as regions around large customers or the foundry itself can collectively add to the sales growth. Take a new look in your backyard for casting opportunities with new or even former customers. A lot may have changed.

Finally, ABC Casting has begun training employees in other areas of business such as painting, machining and sales. Through communication with employees and customers, it is committed to stressing an organizational culture in which the foundry will do whatever is necessary to first understand, and second, meet the needs of the certain customers. This includes such out-of-the-box thinking as synergistic alliances that make sense to satisfy these needs.

Choices

Choices always exist, even in the toughest of market conditions. Making no choices at all can be worse than making some "bad" ones, and inactivity has been known to kill a foundry faster than heading down the wrong path. You should assume your competition (whether from another state or country) is moving forward with a business plan that will leave you behind unless you too begin to plan and act on your future.

ABC has its marching orders. After determining its niches and increasing spending in attracting the "right" business, it started concentrating on rebuilding relationships with niche customers and looking for other opportunities close to home or near large customers. ABC's long-term strategy includes education of employees and customers and promotion of the foundry into new markets through advertising, sales methods and professional societies,

Just as important, ABC management launched a company-wide initiative into niche relationship marketing. Employees are embracing the growth strategy and the can-do attitude that is so key to the success of this new organizational and business culture.

Fig. 2

After determining its two most profitable niches, ABC performed a
segment analysis to examine the current "niche performance" breakdown on
its molding lines

Market Segment Analysis

                                     Line 1    Line 2   Line 3
                                     (Small)  (Medium)  (Large)

% of Sales Type A                      50        35       10
% of Sales Type B                      35        45       35
% of Sales Type C                      15        20       55
# of Markets Served                     3         7        2
# of Niche Markets Served               2         1        0
% of Sales in Niche Markets            40        25        0
% of jobs with Secondary Operations     5        15       30

Type of castings:

A: Flows/Runs through the foundry well from a qualitative perspective.

B: Flow is OK, but causes some bottlenecks in some areas, excessive grinding, etc.

C: Flows poorly, delays production, disliked by employees.

Marketing Recommendations:

Mold Line 1 runs well and is focused on niche markets. Could improve in secondary operations (painting, machining, special packaging, etc.) to gain profitability.

Mold Line 2 runs OK, but is not focused in any particular market. New mold handling may improve the B and C jobs to A's, but we still need to find more niche work on this mold line.

Mold Line 3 is outdated and should be replaced. Consider converting the tooling on the A-B jobs to the medium flask size (Mold Line 2) and moving Type C work. Don't spend any sales effort to fill this line as it is marked for obsolescence.

For More In formation

Visit www.moderncasting.com to download a blank "Target Casting Worksheet" that was pictured on page 35.

"Talking Marketing...Jack Steele Style," M.J. Lessiter, MODERN CASTING, p. 31-33, March 1995.

RELATED ARTICLE: The Role of Organizational Culture in Marketing

A successful marketing plan is a company-wide effort. If everyone in the company doesn't buy into it, there will be letdowns in customer service, quality, delivery, etc. This in mm affects sales and loss of orders, whether niche or non-niche work. No marketing plan in the world can overcome poor quality or a bad attitude exposed to the customer. Perception, not reality, affects a good portion of the buying decision.

About the Author

A third-generation foundryman, Stephen Lane is the Midwest Sales Manager of Southland Metals, Inc. Since earning metallurgical engineering and engineering management degrees from Univ. of Missouri-Rolla, he has spent the last 10 years in casting industry sales and marketing. The 2001-02 chair of the AFS St. Louis Chapter, he is currently the vice chair of the AFS Marketing Div. and chaired its 2002 conference.