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Competing in a stagnant industry.

While some segments of the foundry industry have experienced sizable growth over the past decade, most have not. This seems to qualify us generally as a "stagnant" industry--one whose total unit demand over the last 10 years has declined or increased at half the rate of real GNP.

Appreciating this reality is an important first step in developing a successful management strategy to compete and generate high returns in this industry. Strategies that fail to recognize the realities of a static position usually fail, while those which are consistent with market conditions often succeed.

Perhaps the most difficult reality for foundrymen to accept is that rapid growth probability will not return to the stagnant segments of the industry. Of course, there will be years when demand is buoyant, but in these periods managers must not let wishful thinking cloud their judgment.

Instead, they must accurately assess the long-range prospects for growth in their particular segment and face the problems of competing in what may well be a stagnant marketplace. Of course, competition is much more intense in sluggish markets than in those that are growing rapidly.

A foundry can substantially increase sales in a rapidly growing industry without taking market share from competitors. However, when business slows down, sales growth can be achieved only at the expense of foundry competitors. Thus, competition intensifies and the number of companies competing declines--an all too familiar scenario in our industry.

Establish a Strategy

Against these realities of competing in a stagnant industry, there are four strategies that not only help avoid the possibility of extinction but also can provide for generating a reasonable return on investment:

* Identify and develop sales to markets whose needs closely match your areas of specialization. Choosing what business to go after is the essence of strategic formulation. Since identifying your best prospect markets requires considerable insight and creativity, it is difficult to outline procedures that will lead to their identification in all cases. Nevertheless, one way to help identify prime markets is to recognize that most customer industries are composed of numerous segments and subsegments.

And these, and the companies they comprise, can be defined along many dimensions: customer group, product characteristics, volume of casting usage, pricing policies, level of technology and geography. Just listing the segments is not enough. Detailed breakdowns of industry and customer casting usage also are required.

* Emphasize casting quality and develop programs to ensure meeting customers' acceptable quality levels. Evidence that high quality and innovation are particularly important in stagnant industries comes from analysis of the 1000 businesses in the PIMS (profit impact of market strategies) data base. For all these businesses, higher product quality is associated with a larger return on investment, but the relationship appears to be most significant in stagnant markets.

* Improve customer services with such programs as tie-in machining services, casting design services, inspection and guaranteed delivery programs. Seek to partner with your customers. A big advantage of strong service programs is that they tend to promote solid customer relationships. The foundry now becomes more than just another casting supplier; it takes on added importance as a component supplier, building greater customer reliance. Also, the casting price usually becomes a less important consideration. Because of their close, service-oriented relationship with the customer, foundries that provide a broader range of services tend to feel recessionary effects to a much lesser extent than shops that are in the business of only supplying castings.

* Systematically and consistently improve efficiency of your casting production. A common characteristic of successful foundries is their constant attention to meaningful cost reduction programs. Scrap reduction can be a key factor in profitability because every dollar saved in this area falls right to the bottom line.

It should be noted that these four characteristics of overall strategy tend to reinforce each other. Although the degree to which they are emphasized will vary, the successful foundry will exploit elements of each.

Be Consistent

In adopting your particular strategy for survival and growth, plan to stick with it until there is ample evidence that something should be changed. Most managements in our industry keep wavering among a broad range of strategies, not giving any particular one a chance to work. This lack of consistency not only wastes valuable time and fails to produce results, but also confuses middle managers who are trying to understand strategies and help the company.

When good strategic paths are followed, competing in this industry can be very profitable, and slow growth can in fact become an ally. While competitors stumble into the many ever-present pitfalls, tremendous opportunities are created for foundries that are willing and able to compete aggressively and imaginatively.

For these foundries, competition in this "stagnant" industry is both exciting and profitable.
COPYRIGHT 1992 American Foundry Society, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1992, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

Article Details
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Title Annotation:foundry industry
Author:Warden, T. Jerry
Publication:Modern Casting
Date:Jun 1, 1992
Previous Article:Computer modeling leads topics.
Next Article:Gate, runner location critical to quality castings.

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