The foundry industry: Under threat of an economic meltdown?

No foundries would bring everything to a stop: no cars on the roads, no spinning wind turbines or airplanes in the sky. Heating, plumbing, beer tapping would be out of the question and no windows or doors could open without handles. Recycling and upcycling ‒ they too are unthinkable without casting. The foundry industry, however, is also suffering significantly from the effects of the global pandemic. What are the biggest hurdles of the present for the industry and how can companies overcome them?

Reiner Winkelbauer and Wolfram W. Hackbarth, finance and production experts at enomyc, are providing important insights based on their professional experience along with a pioneering questionnaire for managers, shareholders, and investors.

In May 2019, the foundry industry in Germany comprised some 600 companies. 95 percent of these are medium-sized enterprises and employ more than 75,800 people. The industry produced 5.4 million metric tons of cast iron and had a turnover of around 14.1 billion euros, according to the Federal Statistical Office of Germany. Leading in Europe and recognized worldwide, the German foundry industry is an indispensable partner, the connecting element between the supplier industry and its customers. According to the Federal Association of the German Foundry Industry, there is scarcely any branch in the capital goods industry that could survive without cast components. This is exactly where the economic importance of this industry lies for Germany. A pandemic, however, does not take something like this into account.

Aftermath of the crisis

Many companies in the foundry industry are facing serious existential crises. In some cases – and especially for those involved in the automotive industry – the supply and value chains together with extended workbenches, orders are being slashed back or completely cancelled virtually by the hour. Added to this are the occasional and unfortunately recurring disruptions in the supply chains. The traditional German foundry industry is especially at risk. It faces a total jobs loss plus complete disappearance of its know-how and a strong established network, which has been a system-relevant and supporting pillar for the international and especially the German automotive industry in recent decades. This industry is currently under massive economic fire and struggling to survive. With over 60 bankruptcies in the past three years, the looming risk is plain to see. Fear is in the air, from Stadtallendorf to Bad Windsheim. The 30 largest German foundries employ more than 25,000 people and generate sales that exceed 6.5 billion euros.

Problems in everyday foundry operations

The framework conditions and planning figures in production can vary immensely from week to week. To remain economic in manufacturing and production, personnel and capacity planning along with program controlling and fine controlling must be adapted and updated as quickly as possible. It has become very clear that possible structural breaks in processes and internal value-added stages pose a huge challenge to the entire organizational and technical agility ‒ especially of the management teams on the shop floor. What can be done?

Putting things on the right track

In the highly challenging situation now being faced, intensive addressing of the liquidity issue is of the utmost importance for every company in the business. Despite the pressure to act and make decisions, transparency and accuracy of the information must by no means be neglected. The ability to provide information about the current state of liquidity and possible future liquidity developments in terms of planning must be guaranteed at all times. It is therefore all the more important to establish continuous liquidity planning in the company ‒ ideally supported by integrated financial planning.

A questionnaire for managers, shareholders, and investors

In this crucial phase, it is more important than ever to deal with the differing individual framework conditions and risks. How can companies reposition themselves operationally and strategically? It is worth taking a look at the constraints that speak in favor of restructuring. This includes the following questions:

• How limited is the product portfolio currently?
• Keyword electromobility: Are there products marketable in the future?
• How energy-saving and efficient are the manufacturing and production processes really?
• Are outdated machines and plant technology in use?
• Are small batch sizes offered to customers that do not economically justify automation?
• How flexible is the company with regard to personnel and production processes?
• How tight is the liquidity situation? How high is the pressure to invest?
• Are absolutely essential new investments in machines, systems and equipment required?
• What about the steadily growing environmental and regulatory constraints that require high levels of funding?
• Is there a monopolistic product position on the market?
• Is there an acute risk of losing market share to competitors, for example due to the customers' double sourcing strategy?
• What other questions do you have about foundries?