Foster talked companies like Ingersoll-Rand, Cooper, and Dresser into closing their in-house foundries -- which often lay idle in downturns -- and going with his job shop. "I'll sign a long-term agreement," he pledged, "that we will maintain a critical mass in our shop to stabilize the business. That way you won't be throwing money down a sinkhole every time the economy softens."
The critical mass the plant has been maintaining is 70% of capacity. Beyond that, Foster refuses to stir. "Depend-able, short-term delivery is the prime aspect of quality our customers require. I'm not going to get greedy or stupid," he promises. True to Foster's word, Elyria operates with a 30% cushion specifically to be able to offer customers short lead times. "I'm interested in being an excellent company to as many people as we can take care of -- and not one person more," Foster proclaims. On that basis, he's been pruning out one-shot customers in favor of a few mutually committed ones. Impressed by Foster's commitment, several large orderers have abandoned the traditional mode of letting several vendors carve one another up on price, and already have granted Elyria sole-supplier status.
At the same time, Foster sold himself to employees. "It was like going back in time," he says, recalling his pre-acquisition plant tours, "like in Cool Hand Luke, where workers thought they had to call their supervisors 'boss.' " After taking over, he renovated the factories' old locker rooms and installed a new lunchroom and new toilets. "Employees wouldn't take me seriously if they lived in a dump while management didn't." It's become a dictum that every year at least 50 hourly workers get plucked from the factory floor to go along with Foster on visits to customers, so they can see the results of their labors.
So far Foster has sunk $5 million into reconstruction. "This place requires an awful lot of capital. It's been a cash-management nightmare. I had no idea expenditures would be this high," he admits. True to his mission -- "My passion is for basic skills, for heavy industry, for the kinds of enterprises that are fading away; if I screw this up, it becomes a parking lot" -- Foster spruced up the foundry, cleaning windows and whitewashing walls that hadn't been touched since Hoover was president. "People who had worked here for years wondered what I was worrying about; a foundry is a foundry," says the fastidious Foster. "But when our customers tour the factories, they don't know foundries are supposed to be dark and grimy. Where they come from, they have machine shops and assembly plants that look like hospitals."
Foster may have been primed for union trouble and customer skepticism, but he was not ready for recession. He got a taste of the cruel world when, three months into a deal, a customer who had just been shipped a large order declared Chapter 11. "I was absolutely blindsided. I never even considered the possibility of getting stuck for a lot of money right out of the block," Foster confesses. "Things did not go perfectly."
His biggest mistake since he took over, he concedes, has been a tendency to assume that if you wait long enough, things that don't go perfectly will fix themselves. But patience impedes recovery, he discovered: for one thing, bad customers were being retained too long.
With that, Foster dictated to his staff the fiscal foundation of the turnaround -- a self-devised cost model that formulates the kind of work the foundry can take on and make money with. For his purposes, Foster considers a variable cost anything that would have been avoided had the product not been made, such as labor and materials. Everything else -- maintenance, supervision, materials handling, roof repairs, depreciation -- is a fixed cost.
"Our cost system is very sophisticated. It's designed to attract the kind of work we can make the most money on," says Foster. "Before, the company was going after metal-intensive work it got the least profit from, and it didn't think it could be competitive on the labor-intensive work it should have been doing."
In an effort to keep its customers, Chromalloy had rolled prices back to 1978 levels. "That," Foster says, "was reversible in the first week. We persuaded our people to go after markets that require highly trained workers to make the castings." To turn the company around and make it "the only foundry that's knocking doors down," Foster sold his capabilities on advanced labor skills and high-tech performance. Where job quoting traditionally is considered a clerical function, he forged a crack team of metallurgists and technicians dedicated to the task. "We surveyed the kind of jobs Chromalloy had lost, and we told ourselves to forget the profit numbers -- right then, this wasn't a profit question. Were they jobs that would go though our shop well? Did we have the skills to do them? We redefined fixed and variable costs according to the new system and ran them through again to find out whether there was margin in them.
"And son of a bitch if there wasn't!"
THE TURNAROUND IN NUMBERS
1980 1981 1982 1983* 1983** 1984 1985 1986 1987 1988 1989 1990 1991***
Net sales (in $ millions) $16.8 $15.7 $7.7 $2.3 $2.8 $8.0 $8.9 $8.7 $12.6 $15.8 $19.4 $23.0 $28.0
Total assets (in $ millions) $7.2 $7.4 $5.2 $5.5 $1.4 $3.5 $3.7 $4.3 $5.8 $6.0 $6.7 $6.5 $7.5
Employees 391 339 135 107 102 125 116 136 183 190 216 229 265
Sales/employee (in $ thousands) $49 $54 $57 $21 $28 $64 $77 $64 $69 $83 $90 $100 $109
Production (in thousands of tons) 11.1 10.3 4.5 1.4 1.6 4.9 6.2 6.9 8.3 10.0 12.1 12.4 13.6
*Seven months pre-acquisition
**Five months post-acquisition
***Forecast
