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Posted on Aug 31, 20205
Understanding the dynamics of competition in the industry is a key part of any development strategy. The foundry industry can be analyzed from an overall strategic perspective, using the well-known "Porter's 5 forces" as a useful starting point.
Determining the company's business model, both current and desired, is also a key part of your development strategy. Understanding the competitive dynamics of the foundry industry, as well as understanding business models, is the basis for building robust growth strategies that are able to sustain long-term growth.
:: Read more : Introduction to Cast Iron Castings
First developed by Michael E Porter in 1979. At Harvard, Porter's Five Forces is now a staple tool used by business strategists. Particularly useful for understanding the intensity of competition in the industry, Five Forces helps define the environment where the company needs to find, develop and protect its profits. Below is a summary of Porter's five forces used in the foundry industry. This is a general overview that would be applied individually to a specific foundry.
• Strength 1: The customer's bargaining power. A key question from a customer base perspective: How easy is it for customers to lower their prices? Pricing depends on many factors such as the number of buyers, the importance of any customer to your business, the total cost of the change, the ability to switch to substitute products, and so on.
In the US iron casting industry, many years of overcapacity compared to demand has given cast buyers enormous bargaining power. Also the rapidly growing capabilities of foreign foundries combined with lower procurement costs from low cost countries benefits for buyers casting. Over the past decade, the consolidation of OEMs using castings, especially as they centralize and leverage increasingly sophisticated global supply chains, has arguably the biggest single event that has given an advantage to casting buyers. My company estimates that fewer than 200 companies consume more than 50% of all castings in the world by value. It seems fair that die casting customers generally have very much bargaining power in the industry.
• Strength 2: The supplier's bargaining power. As raw materials, consumables, and specialized equipment are key requirements for iron casting, understanding the bargaining power of suppliers is also important. In addition to the number of suppliers, bargaining power is influenced by availability, unique performance characteristics, serviceability and the cost of changing foundries, to name a few.
Even more than customer consolidation, the US foundry supplier base has shrunk dramatically over the past two decades. Suppliers of foundry-specific consumables and equipment currently represent only a few suppliers for a given material or specialized equipment. Suppliers of metals, scrap, alloys etc. Pricing and supply all over the world. Often, other sectors shape the prices of these materials because the consumption of foundries is low by comparison. Even sand supply has become problematic for foundries, with competition for limited sand supplies from shale gas fracturing markets.
Again, it is fair to say that foundry suppliers generally have a lot of bargaining power. Overall, it's no surprise that many foundries feel between the hammer and the anvil, given the bargaining power of both suppliers and customers!
• Strength 3: The intensity of the competitive rivalry. How many competitors do you have? What are their relative capabilities compared to yours? This is perhaps the most critical factor that needs to be carefully and objectively analyzed. However, it is often overlooked or not understood by most foundries. True, some metalworkers have such a well-developed, diversified and protected position that they have few competitors - perhaps the investment jet blade wheels fit into this category. There have also been many closures and consolidations of foundries in the slow-growing US market. This can and has led to a reduction in competition. However, the consolidation of the customer base, coupled with increasing competition from low-cost countries, has kept the competition from foundries high.
Cast iron casting is not an industry, it is a manufacturing process and as a result operators are usually removed from the OEM suppliers they supply.
The ease of entry into the market for new competitors in the foundry industry is interesting in the US. For several decades, the ease of entry has been strongly influenced by the oversupply of easily available cheap equipment from shutter foundries. Likewise, entire failed foundries available for a fraction of the initial investment seem to be a recurring theme.
This situation may finally change. Even old casting equipment eventually cannot be repaired or becomes technically obsolete. In addition, new foundries are nearly impossible to obtain approval in the US, and existing foundries exceed their aviation permits and other regulatory restrictions. Indeed, in many foundry markets, domestic supply appears to be very limited at the moment and lead times are drastically increasing.
Unfortunately, a huge amount of new casting opportunities have been added around the world. Significant new production capacity has been built up in China and India in particular. Costs are inherently lower and will remain so. While most of the production from these foundries is fortunately consumed in their home markets, the potential for availability in the US market is significant. Especially in the event of significant slowdowns in their home markets, imported castings can pose a serious threat to competition.
Force 5: Risk of Substitute Products. There is and will always be the substitution of one material for another, for example plastics instead of metal for some components. Likewise, there will always be competition between metals such as iron and aluminum. Alternatives to making metal parts by machining and welding, by forging, using powdered metals, etc. are part of the strategic discussion for metalworkers. Fortunately, major material changes take time for metal foundry founders to adapt proactively. Likewise, there are many opportunities that proactive metal casters pursue substitution, such as converting weldments to castings.
I prefer the simple but elegant definition of a "business model" - how an organization uses and maintains commercial casting opportunities.
With this in mind, we can discuss two basic business models for foundries: Jobbing and Captive. There are also two additional important varieties: independent foundries with an emphasis on the market and partially monopolized foundries.
Foundries operating before the industrial revolution, and possibly even before the written date. Simply put, a freelance foundry produces every job that arrives on its doorstep within its metallurgical capabilities, sizes, etc. A critical factor in the past has been the ability to use a rough sketch, a broken part, or even a complete engineering suite. drawings and make a mold and apply it. The craftsmanship of making the mold combined with the technical possibilities of metallurgy and foundry were enough to set it up and highlight the foundry. Until recently, this market was mainly defined geographically. Indeed, many foundries took the name of the city in which they were located. It is estimated that approximately 64% of all US foundries fall into the Jobbing category.
:: Read more : What are Custom Iron Castings?
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