Where Have the Captive Foundries Gone

At one time most manufacturers using castings had their own foundry to produce them. It made sense. They didnít have to depend on anyone else for their needs. If they needed XYZ casting, they went down to their captive foundry, and if it wasnít on the shelf, they had it made the next day.

Some fifty years ago when I started in the industry there were still many, many such captive foundries. In particular, the automotive companies made almost all of their own castings; the agricultural implement manufacturers of any significant size had their own foundries, and stove manufactures still had their own in-plant casting facilities. While jobbing foundries were common, many other manufacturers maintained their own foundries.

Today, captive foundries are rare. The automotive companies in the U.S. still have some, but they are mainly used to produce the specialized castings of blocks and heads. Most of the rest of their casting needs are met by jobbing foundries. The same can be said for agricultural implement manufacturers. While a smaller manufacturing company can still be found producing their own castings, they are rare.

If it was logical for the companies to have their own foundries then, why donít they have them any longer? If you have a captive foundry, itís most likely important to find out why you are standing alone. If youíre thinking about starting one, itís even more important.

Through circumstance Iíve had contact with and the opportunity to study a number of captive foundries. While many of them are no longer in operation, some still are. Iíve seen things that appear to be why captive foundries are no longer as logical for manufacturing operations as they once were.

It appears the reasons for the loss of captive foundries are different depending upon the size of the organization with the foundry.

Large Organizations

There are a few problems faced by captive foundries in large organizations making it difficult for them to be competitive with the larger jobbing foundries.

Overhead

The first of these is overhead. Most of the larger organizations with captive foundries have a far more extensive hierarchy than even the large jobbing foundry organizations. The accounting departments feel every department must pay their share of the Board of Directors expenses as well as those of the president, divisional vice-presidents, and down the line of staff positions.

Even more significant is the marketing overhead applied to costs of captive foundry made castings. Obviously, marketing is important, and the jobbing foundries are doing something or they wouldnít have any business; however, the jobbing foundry made castings are not saddled with the costs of consumer marketing. Conversely, the casting made in the General Motors foundry has to have its part of the cost of ďThe Chevrolet Player of the GameĒ.

Naturally, those additional overhead costs make it more difficult for the captive foundry to be competitive when their ďcostsĒ are compared to the price a casting can be bought from a jobbing foundry. (Hopefully, someone in those large organizations has been smart enough to realize in the ďcostingĒ of their castings that if the foundry isnít there, many of those overhead costs will still be there and will drive up the costs in other areas of the organization. However, acquaintances working in captive foundries indicate that isnít the case.)

Before leaving overhead costs, another factor needing consideration is the cost of labor. It certainly isnít overhead, but it is part of the baggage coming to many of the larger organizationsí (particularly automotive) captive foundries.  Because of the captive foundry workers being part of the larger body, the wage rates the unions were able to obtain for their members far exceeded what was typical in the jobbing foundries. I certainly wouldnít put the entire blame for the failure of the larger organizationsí foundries on this; however, I donít doubt it was a factor.

Revolving Door

What I believe may be the most important factor in the demise of the captive foundry was the rotation of personnel. In particular, managers have a shorter tenure in large captive foundries than in jobbing or smaller captive foundries.

I hadnít thought of this factor until talking with a foundry specialist from a captive foundry in the agricultural equipment area. He pointed out that as part of the manager development program in the company, the ďbossĒ of the foundry would typically spend less than 5 years in the foundry before another was brought in.

Making sure the top managers of the company had some foundry experience before reaching the executive level sounded like a good idea to me; however, my friend pointed out the weakness in the program. The managers were pretty smart in order to get that far and didnít have any problem figuring out that if their next move was to be up instead of over, the foundry had to perform well while they were in charge. The problem arose from the tools used to measure performance.  They were short term. The managers either eliminated or minimized as much as possible things not contributing to the immediate bottom line. My friend believed some of those things were necessary for the long term improvement of the operation.

Another friend from an automotive research facility pointed out another facet of this problem to me. He mentioned he was thinking about putting out a memo every three years not to make a certain change. He didnít go into specifics, but apparently every time a new manager came into one area of their foundry system, a change to the process would be made and defective castings would result. Apparently, the change appeared quite logical. (I think weíve all seen things like that Ė something that appeared logical but didnít work.) Their manager training system brought new managers into the area about every three years. My friend thought if he issued the warning every three years maybe he wouldnít have to solve the problem again and again.

Thereís no doubt in my mind that a good manager can manage anything once s/he has learned the technical aspects of what is being managed; however, foundries do have a degree of specialized technology that does take some time to learn. 

Before leaving the large captive foundries, there is one other characteristic requiring comment that I believe was part of the problem. While there were some notable exceptions, the employees of the large captive foundries gave the perception of believing if their foundries werenít doing something, it wasnít worth being done. Conversely, the employees of the jobbing foundries gave the perception they were eager to explore anything being done anywhere to see if it would improve their operation. Obviously, the latter attitude would lead to more efficient operations.

Smaller Organizations

The Step Sister

In talking with employees of the smaller captive foundries, the most common complaint I heard was that they felt like the proverbial step-sister. They believed the other departments in their organizations got all of the perks and new toys while they got only what was absolutely necessary.

I really didnít find that to be the case universally and, in general, donít believe it to be a significant reason for the vanishing captive foundry. There were many of the captive foundries that really didnít fare any worse than jobbing counterparts. On the other hand, I have seen captive foundries in the last few years that were very similar to small out-dated foundries I saw when I graduated from college.

Specialization

What I do believe to be the most significant problem faced by captive foundries is their lack of specialization. Most jobbing foundries will make one type of metal and one general size of castings. That isnít what I typically see in captive foundries. It seems most captive foundries try to produce all of their parent companyís casting needs. They produce aluminum in one part of the plant and iron in another. They pour castings weighing ounces along side castings weighing thousands of pounds.

The logic of doing it all for the parent company is apparent. Why should they have to buy castings from a jobbing foundry when they have a foundry of their own? Maybe they shouldnít; however, there are certain efficiencies that come from specialization.

We are in an era of specialization. Perhaps the most well known athlete in recent years is Michael Jordan. His athletic skills were unquestioned by the experts; however, when he tried baseball in the middle of his career, he not only wasnít a star but most likely wouldnít have made it to the majors if it hadnít been for his crowd appeal from playing basketball. It was theorized by some he would become a professional golfer upon his retirement. His athletic skills didnít prove great enough for that leap either.

Iíve spent most of my career studying gray and ductile iron metallurgy and still feel if I knew more, the foundries I work with could be more efficient. Most captive foundries are lucky if they have a metallurgist at all much less one for each type of metal they pour. The gating and risering requirements are different not only for different metals but different size castings as well. Yet, without specialization, the person responsible for that area must be up on the latest for everything made.

Without the economies of specialization, it isnít surprising the captive foundry doesnít fare too well when someone in the front office decides to get prices for their castings from jobbing foundries.

Jobbing/Captive

To combat some of the things already mentioned, many, if not most, captive foundries try to sell castings to others. One of the difficulties facing the captive foundry trying to sell to others is convincing the casting buyers the foundry will respond to their needs at crunch times. Most casting buyers have experienced the frustration of not being able to get the castings they want when they want them if the foundry industry is going through ďgoodĒ times. Itís logical for the buyer to believe a captive foundry will give preference to their parent company in those times.

What to do

So if you have a captive foundry or even more importantly, if you are considering starting one, you might want to consider the reasons that led to the demise of so many other captive foundries. There are certainly benefits to having a captive foundry, but there are potential pitfalls. If a captive foundry is going to be successful, a plan must be implemented to address these issues.