Pricing remains the most complex and difficult management task and is by far every metalcaster’s most important marketing challenge.
Lesson 5: Pricing Remains the Most Difficult Job I’ve often said
that metalcasting is the most complex of all manufactur- ing processes, and nothing I expe- rienced over the past four years has changed my mind about that. From the CEO’s perspective, pric- ing remains the most complex and difficult part of the management task. In fact, pricing is by far every metalcaster’s most important marketing challenge, and as such, it requires earnest CEO involvement. Pricing has long been a problem for the metalcasting
industry, and major pricing mistakes are at the root of many turnarounds. Current market conditions have made matters worse, as normal pricing rules change with the shifting rela- tionship between supply and demand. This is an unavoidable fact of life in a deep recession, but it must not be anything other than temporary. To prepare for the time when this economy rights itself
and we return to normal business conditions and pricing rules, CEOs should arm themselves with the strategies, tac- tics and data required to install advanced pricing systems and practices. Key elements of the approach to pricing we installed over the past four years included: • an enhanced surcharge, which included energy, chemicals, and other key cost elements, including casting yield, in addition to basic metals and alloys;
• simple systems to determine and routinely report each job’s cost at the gross margin level, including each job’s quality costs (applied as a scrap percentage);
• no tolerance whatsoever for the worst losers (low priced, high scrap parts);
• a sophisticated market pricing system which was based on the systematic collection of actual prices over time; these data were used to price “like parts” and set manufacturing
The CEO’s resolute focus needs to be on improving people and processes. If that can be achieved, profitable growth naturally will follow.
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cost improvement targets; experience suggests that such a system is the only way to come close to consistently identifying the optimal part price;
• selective price increases as either cost or market price considerations warranted;
• selective price decreases as margin or market price con- siderations prescribed;
• resistance to calls for price decreases in favor of cost reductions driven by tooling and/or manufacturing process redesigns.
Lesson 6: No Magic Bullet for Growing Sales As my mentor of-
ten tells me, much of what constitutes good management is indirect in nature. That is especially true for growth. In other words (with present recessionary condi- tions aside), defining business success in terms of growth and/ or defining the marketing task in terms of sales growth is virtually always a mistake. In fact, much of my turnaround work has been rooted in the need to rescue metalcasting businesses from too much work, as was the case four years ago. Instead, the CEO’s resolute focus needs to be on improv- ing people and processes. If that can be achieved, profitable growth naturally will follow. The past four years reminded me yet again that existing customers remain the best source for sales growth. Our long- standing customers responded quickly to improvements in capabilities, delivery, quality and cost by awarding us new work and also by being less price sensitive on both existing and new jobs. Moreover, as customer satisfaction increased, they shifted work from our competitors to us. When it comes to new customers, my relentless message
to the staff was that, among the nearly limitless opportunities that exist, the key is to separate the opportunities that should be pursued from the ones that could be pursued. On that basis, we pursued only those opportunities that promised to be distinctly profitable and sustainable. Using this approach, each new job we brought in was characterized by one or more of the following profit-enhancing characteristics: • The part fit perfectly with our manufacturing capabilities and, as a result, would flow smoothly through the metal- casting facility and machine shop with no scrap.
• The part required a capability, certification, service or other tangible or intangible attribute and/or combination of at- tributes that was unique (or nearly so) to our organization.
• The part had been getting the customer into trouble because of a recurring supplier quality and/or delivery failure for which we were able to provide a unique and/ or comprehensive solution.
• The part required extensive design engineering input, such as a conversion from a fabrication.
• The demand for the part exceeded its supply. This final point deserves more attention, as until re-
cently, there was only one way to grow in our mature industry—by wresting business away from a competitor.
MODERN CASTING / March 2010
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