Are you managing the foundry? Or are you managing the business?

Sept. 9, 2006
Process consistency ? following the same procedure every time ? is where the profit-oriented foundry manager puts his or her efforts.

There is a critical difference between managing a foundry and managing a business. It is the difference between tons and dollars, and it is the difference between production and profit. In today’s highly competitive metalcasting industry, it is also the difference between success and failure. And, by my standards, “success” means double digit pre-tax profit every month of every year, regardless of whether demand is up or down. Failure is performance at any profit level that is substantially less than that.

Most foundry executive managers spend the best part of their time and energy managing the operation, but not necessarily the profitability of the business that surrounds the foundry itself. This is not because they don’t know how to make castings or manage people. To the contrary, most foundry CEOs are experienced foundrymen, and they know very well how to make castings. What they don’t know how to do is to make money. They don’t have the perspective or tools they need to manage for profitability.

Profitability management begins with perspective. It consists of focusing on building a team to control the business through key profit-oriented concepts, such as consistency of processes and labor costs, rather than on detailed operating statistics, such as scrap costs and man-hours per ton. The former are preventive and predictive, and are broad enough to control and positively impact the business and not just the operations. The latter are reactive and focused on symptoms rather than causes. They are too narrow and “after the fact” to be of any real use in effective profit management.

Process consistency — following the same procedure every time — is where the profit-oriented foundry manager puts his or her efforts. Through such an effort, processes are defined and maintained, materials are selected and their use controlled, process sheets are developed for all phases of the operation, audits and daily scrap review meetings are held, and so on. This kind of effort exerts a degree of control over the operation, and the business, that a focus on scrap never can impose. And, when such an effort is successful, scrap rates decline (often dramatically). More significant, huge chunks of cost and waste are taken out of the business. It’s only at this point, when processes are under control, that the scrap rate becomes an acceptable indicator of the profitability of a foundry business. Until that point is reached, scrap rates are merely a look in the rear-view mirror; a backward-looking metric that may help managers prevent a particular defect from recurring, but will do little to help them manage the business and make it achieve the kinds of profit levels it should.

For most foundries, labor is by far the biggest single element of operating cost. One common measure of labor cost is man-hours per ton of castings produced. In my experience, far too many foundry managers are criticized unfairly for operating their plants at man-hours/ton rates that are “too high.” Unlike most, the profit-oriented foundry manager understands that man-hours per ton is ultimately a result of factors that are out of the control of operations managers (mainly, product mix), and that productivity is the proper concept to focus on.

Like scrap, productivity and labor costs are of themselves very difficult to manage, except indirectly. For example, the management does control manpower levels but often is stymied in its efforts to reduce labor cost, for the simple reason that it will always take a given number of people to staff the melting unit, molding operations, pouring process, shake-out, etc. In this case, the critical factor is to manage the product mix to “fit the foundry” and the skill levels of its work force. It’s in this indirect way that a profit-oriented executive manages productivity and, in turn, profit.

The greatest progress in profitability management is achieved when a foundry’s CEO and management team have sufficient control of the business that they can predict what is going to happen during the month, manage accordingly, measure their progress toward targets in real time, and adjust their plan as needed and on the fly. When all of this is accomplished, they can claim to have made the foundry as profitable as it can be — and should be.

Unfortunately, most common operating statistics and financial statements tell managers what has already occurred, both operationally and financially, and the foundry executive is left to figure out what to do after the money is already spent.

Traditional accounting and production management systems (ERP, MRP, etc) do nothing to help managers to understand what their financial position is during the week and month, and offers no direction about what should be done to adjust current conditions. In many situations, foundry managers get their operational data daily — but they get their profit-and-loss (P&L) statements weeks after the financial period is closed. Then, managers spend extraordinary amounts of time trying to figure out what happened last month, but by then it’s simply too late. Wouldn’t it be much better to know what is going wrong — and what’s going right — while it is occurring?

In fact it is possible, and the profit-oriented foundry executive strives to create systems that do just that — enable him or her to predict what is going to happen, measure and monitor what is happening in real time, control what is happening through the use of these real-time data, and make those profit predictions come true. This is another demonstration of indirect management, this time of the bottom line, and it is rooted in a simple system that parallels the foundry accounting system. The system is not “accounting” in any sense of the word, but it can predict and enable the profit-oriented foundry executive to achieve much higher levels of profit than is typical in our industry. And that is success by any definition.

Joel R. Parson is a management consultant and the principal of J.R. Parson & Associates, Waukesha, WI.