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Author: PaulEngr Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 1625  
Subject: Re: Free Education for science and engineering Date: 7/23/2005 4:15 PM
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You work in a foundry making pipe? I'm guessing Ductile Iron. That's interesting, we're probably competitors. Your market share is decreasing every year as PVC and PE keep on gaining. It's hard to beat corrosion free, and Europe is almost exclusively PE. Do you ever think about that. Changes in technology can always zap your company.

Yep. It's ductile iron, and competitors is probably right since it's down to American, McWane, Griffin, and U.S. Pipe. Of those, McWane is taking it on the chin in the regulation area but has deep pockets & protection from their owner (Walters Industries). U.S. Pipe is darned close to death and word has it they were weeks away from closing the doors during the recent price wars last summer/fall. The other two are pretty darned strong.

Yes, I'm aware of the status of ductile iron pipe. However, don't forget that the same situation is true in ALL commodity markets regardless of whether the market share is declining or not. I've seen the same thing in white pigments, pH increasing agents (lime/caustic soda/soda ash), desulfurization, taconite, copper, you name it. The situation repeats itself endlessly, regardless of whether product switching will occur or not.

PE is great stuff. Before working at a DI plant, in all heavy industrial operations I've worked at, my choices as an engineer usually settled on either PE or SS (PVC has almost no place in a heavy industrial plant). It is somewhat more difficult to install, which is where DI maintains an advantage. I have to say this last one somewhat tongue-in-cheek since I've run fusers pumping out hundreds of feet of pipe personally so I don't for a minute believe in the DI industry hype. But, there's no mass exodus from DI to PE or PVC. The trend is more gradual and steady than that. So I feel pretty safe.

In any case, in a commodity market, it's all about market share. You can't differentiate yourself on quality, service, etc. So the only thing you can change is price. Although sometimes market size is increasing, most of the time, it is a mature market which means that it is either flat or declining. Most of the time, there are just two choices to make. Either decrease the price (and the already slim profit margins) to gain market share or maintain the same price (and market share) but decrease costs. Usually the nature of the business is that things are so tight that decreasing prices is simply not an option so market shares don't usually fluctuate drastically without some sort of outside influence to upset the market dynamics.

Either way, it should be obvious that the key to long term survival as a company in this environment is by being the lowest cost producer no matter what the going market price is. If you can make it cheaper, you make more money. And in the long run, you can increase market share at the expense of your competitors.

The two keys to your continuing employment in that environment (ignoring the things that will affect you in any environment) are whether the company recognizes the value of your engineering talents (if can you deliver on substantial cost reduction initiatives year on year), and how easily they can avoid making short-term decisions (such as cutting all "nonessential" staff) in spite of inducing longer term damage.

If you think the market for ductile iron is bad, try industrial silica. The market is completely flat and there are really just two dominant players and a handful of minor niche companies. The only reason that you don't have competitive products is that with product pricing in the neighborhood of $5-$20/ton (depending on specifications), it is hard to imagine anything else with that kind of price level. With one plant at $2/ton profitability and sales of about 600K TPY with 26 employees, my leaving that plant increased profits by about $0.20/ton (a nice 10% profit increase for the year) that year over the short term, nicely making their cost reduction numbers for the year. Relatively speaking, the ductile iron pipe business is far safer.

On the other hand, from a career progression perspective, commodity markets are a good thing. Companies are playing the scale-up game to the hilt so you are dealing with extremely large players who don't normally quibble over penny-wise/pound-foolish decisions (how many pencils you use in a week for instance). You have relatively large flexibility when it comes to engineering decisions (million dollar projects are not out of reach). And by nature, they generally tend to avoid being top-heavy these days, so you have fewer players in the political game as compared with for instance the automotive or railroad industries. You also tend to get lots of resume material from a variety of projects which helps make you more marketable when or if the job turnover day comes.

In a lot of ways, I look at commodity businesses as "value plays" from a career perspective. There is no growth; nada, zip, zero, zilch, in the market. "Growth" means that you take away business from a competitor. In fact, there's nothing glamorous about them at all. Probably the most exciting thing about working in that kind of industry is that quite often they've been doing things the same way for decades or centuries so there is easily lots of opportunity for substantial change and improvement.

Take for instance the exciting world of lime as a classic "value play" for engineering careers. They have been making lime for 2500 years. The market is totally flat. The three major customer groups are steel, water treatment, and flue gas desulfurization (FGD, aka power plants). In every one of those markets, there's a competing product that essentially locks the price down at a low level. So what to do? Well, many of those plants are and were running around 8-10 million BTU's per ton of product. It is easily possible (and practical) to cut that down to 4-6 million BTU's per ton, perhaps even lower with capital expenditures into other technologies. At 1/3 of the total operation costs and sales of around 1 million tons a year for some of the larger plants (I'm not sure what the size of the market is), we're talking about reductions in the trillions of BTU's and millions of dollars per year. I helped prove out that exact scenario a few years ago.


Let me summarize this way. Any time that somebody tells you that there is nothing more that can be done to improve a product/process, that should prick your ears up as an engineer. It means that somebody has thrown up an artificial wall and isn't looking hard enough. When I hear that, I smell opportunity. At one plant that declared this, I was involved in an engineering team that "helped" them. We found about $12MM annual savings that were implemented with virtually no capital in the first year and another $50MM that could be done over a couple years.
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