This page contains a Flash digital edition of a book.
to profit maximization over time. Part families, which are the heart of the market pricing process, are sub-sets of the larger universe of compatible cast- ings and groups of “like parts,” such as housings, valve bodies, couplers, impellers and so on. Look first to key manufacturing characteristics, includ- ing production design, risk profile and cost structure, and then to how and where the market assigns value, when defining part families. Once part families have been identi-


fied, pricing databases—one for each part family—can be constructed. Prices then are established by pricing up or down from a new part’s closest family relative. Each database line item (i.e. part number) must show the part’s key characteristics (e.g. size, volume, alloy, etc.), as well as the critical information needed to pinpoint the part’s value as the market does. Once the part family databases are usable, market pricing can commence, cost-plus pricing can end, the cost estimator can be rede- ployed, and pricing becomes a simple, straightforward and highly efficient process where every quote can be submitted in 24 hours or less. Pricing then can become far more effective, as market pricing maximizes price realiza- tion over time; cost-plus pricing is a race to the bottom.


Negotiating Price Increases If not to establish prices for poten-


tial new work, what is the proper role of cost within the advanced, profit- oriented management approach? It is to support replacement and/or re-pricing of parts already in production via an- other important advanced management tactic—mix and margin enhancement. The number one mix and margin enhancement priority is to replace non- compatible parts with compatible ones. Foremost here is to rid the company of “losers”—those handful of parts which generate the lion’s share of waste within the casting facility, cause the most problems with customers, are shown by the job cost system to generate zero net margin (or worse), and (despite what some may say about absorbing fixed costs) represent the most serious threat to the business’s financial health. If these parts are compatible, they should be re-priced. If they are not compat- ible, they should be removed and the business downsized accordingly. While such actions may sound extreme, they


MODERN CASTING / January 2011


Metalcasters need to become more selective about who they do business with, which parts they produce, and what levels of profitability they are willing to accept.


are the best thing metalcasters can do to immediately improve their bottom lines and set themselves up for profit maximization over time. Beyond eliminating the “losers,”


mix and margin enhancement means systematically and relentlessly replac- ing non-compatible parts with compat- ible ones and, once that primary goal is accomplished, replacing average compatible castings with compatible parts that possess even higher profit potential. In this way, the question- able portions of the part population are continuously and proactively turned over, thus helping to protect the company from product obsolescence and competitive encroachment while driving profit improvement. Mix and margin enhancement also


means re-pricing all those parts which were brought into the business at below market prices. This process should com- mence on an account-by-account basis, beginning with the accounts that are costing the business the most in terms of lost profits, manufacturing problems (e.g. scrap, flow disruptions, etc.), late deliveries, customer complaints and so on. For each of these accounts, detailed margin and re-pricing analyses should be completed and the non-confidential aspects shared with the customer as the kick-off to formal price renegotiations. Customers obviously do not want


prices to go up and will do almost anything to avoid that happening. They also tend to act in predictable ways throughout the negotiating process, beginning with a resounding “no” right off the bat. But customers cannot dic- tate what prices suppliers charge, and metalcasters should not relent or make unilateral concessions early on. When customers next attempt avoidance by way of delay tactics, metalcasters should set and adhere to milestone dates. Starting the clock and sticking to an early implementation date is the


best way to convince customers you are serious. Those customers who still refuse to negotiate often will threaten legal action or to pull the work to de- ter price increases. Again, persevere, knowing that legal threats are all but empty and customers want to move work about as much as they want a big price increase. When the tactics of deny, delay


and deter all fail to dissuade the de- termined metalcaster, customers will move beyond avoidance and become serious about negotiating acceptable prices. The amount of the increase (or decrease) should be unique to each individual part number and achieve market-based margin targets for each part within its family and for the part family as a whole. Large increases should not be split up to be imple- mented over time, but rather negotiated and put into place all at once. While not great, there is some risk


that customers will refuse to negotiate in good faith and pull the work. But fail- ure of this type is often for the best, as metalcasters are almost always better off without those intractable customers and their underpriced work. Metalcasters need to embrace this kind of turnover in the customer base and become more selective about who they do business with, which parts they produce, and what levels of profitability they are will- ing to accept. Such an attitude is the first sign of profit-oriented leadership, the foundation of the profit-oriented management approach, a first step towards real marketing and manufac- turing success, and a jumping-off point for profit maximization over time. MC


About the Author


Dan Marcus is the owner and principal consul- tant in the firm TDC Consulting Inc., Amherst, Wis., which for more than 20 years has special- ized in management consulting, turnaround management and executive development for the metalcasting industry.


43


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44  |  Page 45  |  Page 46  |  Page 47  |  Page 48  |  Page 49  |  Page 50  |  Page 51  |  Page 52  |  Page 53  |  Page 54  |  Page 55  |  Page 56  |  Page 57  |  Page 58  |  Page 59  |  Page 60  |  Page 61  |  Page 62  |  Page 63  |  Page 64  |  Page 65  |  Page 66  |  Page 67  |  Page 68