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Address to 2002 FEF College Industry Conference Nov 8, 2002.
Roger Stanbridge. President and CEO. Foseco Metallurgical Inc. Cleveland, Ohio.
This is an interesting time to speak to a group of young people preparing to enter the workplace. It is a time of change and uncertainty in almost all segments of the economy. The Foundry industry is no exception. It faces many of the same challenges as other industries, and some unique challenges of its own. As we shall see, it also presents some unique opportunities, which can be exploited through good management and through the contributions of talented and well-motivated people. I believe some of those people are here today and that they can look forward to successful careers in a successful industry.
What is the Foundry Industry?
It is certainly not homogeneous.
- Around 3000 Foundries in USA and Canada with from 2 to 2000 employees.
- Supplying products which sell from a few cents to thousands of dollars per pound
- Serving markets as diverse as agricultural tractors and medical implants, iron ore mining equipment and computers, aerospace turbines and oil platforms, machine tools and pressure cookers. Railroad cars and race cars. In fact there are very few nooks and crannies of the North American economy, which can function without a reliable source of cast parts.
- Casting metals and alloys as different as steel and magnesium, bronze and titanium, iron and aluminum. In fact the range of alloys cast in the foundry industry is estimated to employ, by design, as many as 51 elements, or 44% by number of the elements in the periodic table…. And by happenstance up to 5% more.
- As different as the jobbing foundry with thousands of patterns and capable of delivering a single casting to a unique specification and the highly focused repetition foundry producing castings of nearly identical form and function in the hundreds of thousands.
About the only generic statement defining the industry is that all of its participants manage processes for converting molten metal into new solid shapes… and must succeed at it by adding value which exceeds by as much as possible the cost of doing so.
Where do foundry suppliers fit in?
The Foundry Industry also includes a strong and active base of suppliers of raw materials, process consumables, production equipment, and services… many of whom are dedicated to serving only the special needs of metal casting processes and all of whom must succeed by enabling their customers to add more value at lower cost.
As a representative of this latter group I am honored to have been invited to address you today and to discuss with you opportunities in the full breadth of the activities of the industry.
The suppliers who work closely as part of the industry are challenged to participate in the change processes which are transforming the nature of the business, and in many cases we can help drive those changes. We have unique opportunities on a daily basis to observe the forces which are reshaping the industry. To be successful we must understand, and preferably anticipate, the real needs of our customers. We must have detailed understanding of the demands of our customers' customers, of the nature of external environmental and regulatory issues impacting the industry, and of the many sophisticated process technologies which are applied in castings production. Most important….. we must understand how to favorably influence the overall economics of making castings. How can we help our customer to make a casting at lower cost, or better , to make a casting of higher value. In such a diverse industry these are tough and complex challenges, but facing them in partnership with customers is both rewarding and enlightening. This enlightenment leads to some firm views on the future of the industry, the business strategies which will lead to success and, of interest to many of you here today, the keys to forging a rewarding career in the industry. I intend to share these views with you today.
But first, I would like to tell you a little about the specific part of the foundry business I know best. Most of you who have spent any time in a foundry will recognize the Foseco name. It is attached to many products, which are integral to the manufacture of steel, iron, and non-ferrous castings.
The Foseco culture
In the USA and Canada Foseco is 350 people focused on making more profits for our foundry customers
Our #1 priority is Innovation. We invented most of what we sell and much of the application technology which makes it work. We have a strong commitment to R and D.
Just a few examples of what we do, including some more recent developments:
- Feeding systems…. Started by Foseco decades ago, but still a continuously evolving technology to enhance yield, quality, and productivity . Recent developments include high efficiency "spot feeders" for ductile iron castings, and patented direct pour systems for steel, iron and aluminum. The direct pour technology enables complete elimination of conventional gating systems for many castings… resulting in dramatic yield and productivity gains.
- Filtration …. Foseco introduced filtration technology to foundries. Filtration has revolutionized the production of high volume iron castings… providing higher yield, reduced scrap, more consistent mechanical properties, and better
machinability. These advantages are now being extended to high volume aluminum castings, with unique products for these applications, and we are proving that the reduced mold filling turbulence predicted by simulation studies is real and that filtering with the right products offers major quality improvements beyond inclusion removal. The Holy Grail of steel castings filtration…. economic inclusion removal for carbon steel castings, plus priming and reliable flow without superheat… has been found. New Foseco Steel filter technology is now being introduced which meets these critical needs.
- Insulating ladle lining systems for Steel and for Iron. Another Foseco innovation which provides the benefits of precise pouring temperature control, reduced tap temperature, reduced non-metallic inclusions, and major energy savings.
- Iron Stream Inoculation systems which combine patented dispensing equipment and purpose designed stream inoculating alloys to deliver consistent metallurgical performance and tight process control.
- Degassing systems for Aluminum, with patented rotor designs. Now augmented by the development of on-line hydrogen measurement and real-time process control.
- Products for the rapidly growing Lost Foam casting process. Foseco is intimately involved in this technology-intensive market. We supply consumable lost foam patterns and coatings. In fact Foseco is by far the largest supplier of externally sourced patterns to North American lost foam foundries. Here again innovation is a key strength… with our unique ventless pattern technology and patented copolymer pattern materials which have helped to solve the problem of lustrous carbon inclusion defects in Lost Foam iron casting.
- Application Engineering and simulation software for feeding and gating system optimization and for filter selection and placement. In addition to on-site technical support we provide our customers with the tools they need to obtain maximum economic gain from investing in our products.
These are products…. but we know that our real business strength is our people and the commitment of those people to the single goal of improving our customers' businesses.
A business is defined by its culture and its values…they set behavioral expectations which transcend organizational issues. Ours:
- Focus on customer needs.
- Innovate through customer partnerships
- Invest in R and D
- Think global, act local
- Be flexible, move fast
- Hire the best people, give them the best training,… then expect them to think and empower them to act.
The best people, for Foseco, has included a large number of FEF alumni. Some have passed through the Foseco organization and gone on to success in other roles in the industry. Some have joined us after gaining experience with foundries. And some have started their careers with us and developed their careers to date in our organization. I know that all have contributed greatly to our business and to the industry as a whole. A recent count showed that we currently have 9 FEF alumni in the Foseco organization. I personally had a tough act to follow around 4 years ago when I succeeded an FEF alumnus as CEO here. In addition Foseco continues to actively support the FEF internship program. In the past 10 years approximately 30 FEF students have interned at our North America headquarters in Cleveland, and a number of these were subsequently recruited to start their careers with us. We like to think that we can provide a very valuable opportunity to overview the way the industry works effectively with its suppliers in the development and application of manufacturing technology.
That's our culture. There are a lot of different business cultures discernable in our customer base, but interestingly many of the most successful foundry organizations seem to share many of our core values. Of course, it could also be true that we have learned that to be successful we must emulate the behavior of our successful customers. After all, the starting point for every successful partnership is willingness to listen and learn and we train our people to be good listeners.
Challenges and opportunities.
Enough philosophy… what can we say about the immediate prospects for the foundry industry in North America? Is it a good place to start a career ?
Firstly, we all know that the manufacturing sector has suffered disproportionately in the economic slowdown of the past 2-3 years. We also know that capital goods markets, which are important consumers of castings, have been and continue to be the weakest sector of the economy. After very strong demand in the latter half of the 90s the foundry industry here has hit a deep trough. Consumer markets, notably autos and housing, have held up better and castings demand from these segments has served to prop up the numbers. However some independent foundries have found it difficult to deal with the price-down demands of high volume customers, so that even relatively busy foundries have failed to deliver the profits expected by their owners, shareholders, and lenders. There have been business failures, bankruptcies, and closures throughout the industry. Some of these wounds were self-inflicted … consequences of over-expansion, acquisitions made at costs, which now seem unrealistic, and balance sheets loaded with debt, which could not be serviced. In some cases we have simply seen the law of the capitalist jungle in action…the best-managed foundries survived and their weaker brethren, who could live only in an environment where demand exceeded supply, have perished.
As castings markets begin to recover there remain some major challenges for those foundries, which have survived:
- The challenge of globalization. Many castings for domestic consumption and which were previously sourced here are now coming from so-called "low cost" economies… China, Mexico, Brazil, South Africa, India, and Eastern Europe have all increased their castings shipments to our market. A long period with a strong US dollar has accelerated this process. In addition some global USA-based capital goods companies - in such markets as construction equipment, agricultural equipment, mining equipment, and oil exploration equipment - have found it attractive to move what was formerly export production to offshore locations in or closer to end markets. A loss of indirect export castings business.
- The challenge of regulatory compliance. The Foundry Industry is a major recycler... recycling is built into foundry process technology. The industry should be beloved to both the scientific and the emotional environmental communities. Unfortunately this is not always so. Our legislators continue to pile-on, with wave after wave of well intentioned, but muddle-headed, new initiatives. The Foundry Industry has complied proactively and responsibly with its obligations to the global community. But nothing will be gained if a quest to make basic process industries look like Wal-Mart's results in production moving offshore to locations where jobs are still more important than the green credentials of legislators. Nevertheless in order to do business here our industry must deal with these issues effectively, and must do so during a time when capital resources are scarce.
- The challenge of pressure on castings prices. The customers of both captive and independent foundries are under continuous pressure to reduce their costs in order to maintain competitive position and meet their financial performance goals. This is translated down the food chain to insistence on lower prices for castings. This is not new, but it has become more intense during the economic slowdown and is now being leveraged by the threat of offshore sourcing and by the use of Internet auction processes. US industry has a strong record of driving down costs through increased productivity. Customer and competitive pressures are great stimuli for the productivity gains, which benefit the overall health of the economy. However many foundries now realize that each added percentage point in price reduction is more difficult than the previous one.. The learning curve on a given casting must eventually flatten, at which point the rules of the game must be changed or the game will be lost.
Those are just some of the challenges, and they all sound like really bad news.
However, by examining how successful foundries are responding to this environment we can see that there is
lots of really good news about the future of the industry.
- To see the model for success we have to look no further than some of the outstanding products being conceived and delivered by US and Canadian foundries. There are plenty of examples to consider…. Just a few of them can be seen in those nominated and recognized in the "Casting Design of the Year" process which has been sponsored by the AFS Marketing Services Division over the past two years.
Let's look at a few examples.
- A ductile iron one-piece agricultural combine air-scoop produced by Neenah Foundry. This 25 lb cast component was converted from a complex weldment. A stronger and simpler design, which reduced the customer's net cost by 40%.
- This year's winner.. a magnesium casting developed as a housing for a computer graphics projector and produced by Prototype Casting Inc. of Denver. A spectacular thin wall casting developed to provide needed thermal stability in an application traditionally fulfilled by injection-molded plastic.
- A ductile iron casting produced by Aarowcast of Shawano Wisconsin is another excellent example. This is a two-piece 530 lb casting used in Caterpillar agricultural tractors. The casting replaced a 38 piece steel fabrication design, providing lower cost, higher strength, and improved appearance.
- A two-piece cast steel articulated hinge produced by Grede Milwaukee Steel Division. This is a component in specialty logging equipment and it was formerly a welded assembly of no less than 65 parts. The cast design reduced assembly time and approved component performance.
- A ductile iron exhaust manifold produced for Mazda by Wescast. This thin-wall casting, made in greensand, was redesigned by Wescast and replaced a multiple weld stainless steel tube fabrication at 50% cost savings to the customer.
These are just a few typical examples of the innovation, technical excellence, process management skills, and partnership ethos, which the people in the North American foundry industry are applying to their businesses.
Reviewing the background to the successful design, and production ramp-up of the many castings which have been featured in the past two years serves to highlight the effective use which successful foundries are making of sophisticated computer techniques for predicting the results of thermal and physical stress , for simulation of mold fill and solidification, and for rapid prototyping. Many of these castings also involved the creative contributions from a whole spectrum of foundry suppliers, from software developers, to consumables companies and equipment suppliers.
- Delivering more profit for a customer is not limited to high volume, design intensive, castings. There are a number of very successful short run jobbing foundries which have developed business models built on fast response times for existing patterns and for new limited production castings… often in specialized alloys and including coordination of third party heat treating and machining services. These foundries have developed packages of skills and customer-friendly services providing end-to-end value which eliminates the "$s per pound" quoting treadmill.
- Success is also not limited to foundries with external customers. For example, the story of GM Powertrain Division development of the high performance Vortec series of aluminum light truck engines first unveiled in the wildly successful new Trailblazer SUV has been well documented. Concurrent design of a revolutionary new engine, and the foundry for production of its primary castings in the lost foam process which was chosen, is a remarkable achievement. The science of casting, and the contributions the dedicated manufacturing engineers who applied that science, are at the core of one of the most commercially important projects undertaken by GM.
- Environmental and regulatory challenges are being met head-on by foundries who have embraced the position that good environmental impact is good business and improved working conditions pay big dividends. For example, there is a surge of investment in cleaning room automation. In the new generation of cleaning rooms entry-level foundry production employees need no longer be challenged by physically demanding labor. Many of the most progressive foundries have set environmental goals far exceeding those required or contemplated by regulation and have invested capital resources whose justification is founded in the belief that well managed foundry operations will continue to play a vital role in the economy.
Lots of good news…. all involving foundries succeeding by applying innovation to their casting processes and their business processes in order to deliver increased profits for their external or internal customers. There are hundreds of such stories developing daily in US foundries. What do they tell us about the future?
- They tell us that castings markets are not limited solely to those applications whose have traditionally been met by castings.
- They tell us that the future is not in doing the same things in the same way. Absence of change is a prescription for being commoditized out of business. There is no casting which can not be improved to provide more value…. Just look at what Waupaca Foundry is doing in development of compacted graphite iron as a material for severe service truck brake drums. A simple "commodity" casting becomes a lighter, stronger, more durable component… much more valuable to the truck builder than a 20% price cut from a Chinese foundry.
- They tell us that the performance of foundries has to be measured in terms of value added for customers, not in terms of tonnage produced. The days when a good foundry business consisted of making more tonnage of the same castings, to the same specifications, and with the same performance as 5 or 10 years ago, are long gone. Those are commodity castings, or soon will be. The offshore producers can make those castings, and will be pleased to do so at prices 5%, 10%, or 20% below ours. If we let our customers believe that is what they need, that may be what they will buy. To participate in that "commodity" segment US foundries should probably be operating, or outsourcing, offshore.
- They tell us that success lies in partnering with customers, and with suppliers. Good profitable foundry business is being established by US foundries who are collaborating with their customers in design and development of cast components, and with their suppliers in innovative process technology to optimize the performance and production cost of those castings. At Foseco we are privileged to work with many of the foundries whose business models are delivering success. We have the opportunity to see successful US foundry people at work.. and it is impressive.
- Offshore "price per pound" casting suppliers can not compete with customers who want to be served under the new rules .The new rules demand close, responsive, continuous and iterative communications between casting customer, casting producer, and suppliers. Innovative and well-managed North American foundries will thrive in this environment.
In a moment we can look at what this all means for those of you who here because you are serious about embarking upon careers in this industry.
First, we should recognize that there are other options for application of an expensive education and maybe a few comparisons are in order. After all, how can this ancient industry be compared favorably to the excitement, which is available in the go-go worlds of telecom, energy trading, media conglomerates, and creative auditing?
Let us call them the "New Economy" businesses.
A few specific comparisons for your consideration.
Top Ten clues to tell you whether you are working in a Foundry or in a New Economy
cubicle.
Clue #1
In the Foundry: You can labor hard for 10 years and get to be a Foundry Manager.
In the Cube: You can make Chief Financial officer in just 6 months… then do 10 years hard labor.
Clue #2
In the Foundry: You have the opportunity to market near net shape Investment Castings.
In the Cube: You have the opportunity to market near net worthless Investments.
Clue #3
In the Foundry: You learn that increased burn rate is good. It means that you are getting steel castings through the cleaning room faster.
In the Cube: You learn that increased burn rate can be bad. Pay those bonuses before the cash runs out!
Clue #4
In the Foundry: When you speak in public you are introduced by the AFS program chairman, after dinner.
In the New Cube: When you speak in public you are introduced by… "Will the defendant please rise."?
Clue #5
In the Foundry: You are protected in the workplace by your hardhat and safety glasses
In the Cube: You are protected in the workplace by the Fifth Amendment
Clue #6
In the Foundry: You can watch scrap melt down.
In the Cube: You can watch your 401-K melt down.
Clue #7
In the Foundry: You will need Capital budgets for the melt shop, molding, and the cleaning room.
In the Cube: You will need just one Capital budget… for paper shredders.
Clue #8
In the Foundry: You can learn how to improve business results by inventing products and processes.
In the Cube: You can learn how to improve business results by inventing customers and sales.
Clue #9
In the Foundry: Charge sheet… generated by the Melt Shop Superintendent
In the Cube: Charge sheet…. Generated by the Grand Jury foreman.
And finally…
Clue #10
In the Foundry: Your parents can easily explain what you do to their friends.
In the cube: They will have to explain why you have moved back into your old room.
On the whole I think you will agree with me that the Foundry Industry, as part of the "New Old Economy" has more career attractions than some of these "New Economy" businesses. Boring is better… if it means owning real assets, making and selling real products to real customers, and employing people who are dedicated to personal growth through contributing to improvement of the economy and to the quality of life in their communities.
In conclusion:
You will make your own judgments on whether specific industry players are potential winners... one good clue is that the potential winners are likely to be recruiting from the ranks of FEF students.
I have enjoyed this opportunity to share some ideas with you. Good luck with your careers!
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