Strategic Scenario Planning in the South African Foundry Sector

CIE42 2012

Hannelie Nel, MCTS Strategy

Farouk Varachia, MCTS Manager

Dr Shawn Cunningham, Owner mesopartner

July 2012, Cape Town, South Africa

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CONTENT

• The Challenge: Supplier Localisation

• IPAP II

• Benchmarking with RALIS 2008/9

• Brief Overview of the MCTS

• Findings of the 2010 and 2011 Industry Think Tanks

• Outcomes and Implementation

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Eskom aims to spend in the region

of R1.3 trillion up until 2025 on new

power infrastructure.

Transnet has estimated an

expenditure over the next five years of

at least R76 billion.

The major State-Owned Enterprises (SOEs) are set to embark on large-scale infrastructure

recapitalisation and expansion programmes over the next 20 years and beyond.

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THE CHALLENGE:

Currently, and to a large extent, technology is procured from foreign suppliers, linked to

company practices on global strategic sourcing. It is therefore clear that localisation of

supplies to the major SOEs presents a massive economic opportunity for the South African

manufacturing and related industries. However, in many categories of procurement, the local

industries lack the competitiveness necessary to enter the supply chains of the SOEs. Bold

intervention is needed to raise the capabilities of local manufacturing companies so that they

can earn a share of the recapitalisation investments, and ultimately enter export markets as

competitive suppliers to the OEMs (Original Equipment Manufacturers)

• In January 2007 the South African Cabinet adopted the National Industrial Policy Framework (NIPF) which introduced the implementation of industrial policy as set out in the Industrial Policy Action Plan (IPAP).

• The Industrial Policy Action Plan II established key actions in prioritized sectors in South Africa – one of which is metal fabrication, capital and transport equipment.

The DST developed the Technology Localisation Plan as a key outcome of IPAP2.

Strengthening the foundry industry was identified as a key objective of the Technology Localisation Plan.

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• The MCTS was launched in 2005 and is an initiative of the Department of Science and Technology through the national Technology Innovation Agency – in response to IPAP II.

• The MCTS aims to increase the competitiveness and innovation of the foundry industry in South Africa. Its mandates are technology transfer and skills development in the metal casting industry in South Africa.

• Five Technology Focus Areas and Laboratories: – Sand Technology

– Physical Metallurgy

– Additive Manufacturing , Design and Simulation

– Education and Training

– Rural and Emerging Foundries

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www.saif.org.za

Phele, Roberts and Stuart (2005): Sub-Sector analysis of the South African foundry industry, CSID, Wits University

RALIS (Rapid Appraisal of Local Innovation Systems):

• A methodology that provides an overview of a local innovation system, or the competitiveness of a sector in a given region;

• A number of proposals for practical activities to strengthen the local innovation system and thus improve competitiveness.

RALIS conducted in 2008 / 2009 in the South African Foundry Industry.

FINDINGS IN THE FOUNDRY SECTOR:

•Variable production and technological capabilities across firms;

•Low capital investment rates;

•Absence of an industry-wide skills development and training initiatives;

•Limited pool of skills across all skills levels;

•Weak industry organisation; and

•Uncompetitive input prices (particularly scrap metal).

Strengths: • The foundry industry is currently doing well

with a strong demand for foundry products.

• Much production capacity is not utilised.

• Optimistic perception in industry regarding ability to compete against international firms, including those from China

• Some firms are upgrading some equipment and processes, especially in the automotive parts sector.

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• Some firms can show really great products.

Weaknesses: • Process inefficiency.

• Limited capital expenditure, marketing or strategic management.

• Limited ambition of many medium-sized businesses to grow.

• Group think has paralysed firms in Jhb about skills, risk etc.

• Companies depend mainly on suppliers and some experts for technology transfer and innovation.

• The majority of companies is experience-based (trial and error) rather than science-based.

• Very little benchmarking occurs in the sector.

• Technology institutions are weak or irrelevant to industry.

OBJECTIVES OF THE INDUSTRY THINK TANKS:

•To connect various leaders and role players of the foundry industry.•To reflect on the performance of the foundry sectors; and•To identify future priorities for the sector.

Foundry Industry

LOCAL CONTENT•More had to be done to support local content into large contracts of both the public and private sectors; and to urge industries that buy from foundries to buy local.•More had to be done to foster local competition in a fair way as a means to stimulate local content, local innovation and better service.

SKILLS AND TRAINING•There is a need for a focused effort to attract bright students into engineering and foundries. •Much more had to be done to help students find work and to gain experience.•Training is needed within foundries and at universities – foundry owners and senior managers are ageing and the replacements are not obvious.

GREEN FOUNDRIES•The industry needs to do more to comply with environmental guidelines.•Going green saves electricity and saves money – it is not just about the environment but also makes business sense.

TECHNOLOGY AND PRODUCT DEVELOPMENT•More had to be done to get products to the market faster – for instance by investing in better technology. Investment in software, better process management and new equipment are required.•Industry should use the offers of government programmes to upgrade or replace redundant equipment.

STRATEGY FOR THE FOUNDRY SECTOR•The industry to be better organised with the supporting institutions.•Foundries to deepen their cooperation on matters of common interest.•A roadmap for the upgrading of the industry and its competitiveness is required.•There is a general need to improve the image and visibility of the foundry industry

Phele, Roberts and Stuart (2005): Sub-Sector analysis of the South African foundry industry, CSID, Wits University

SCENARIOS OF THE 2011 INDUSTRY THINK TANK:

SCENARIO 1: Competitiveness of the local foundry industry combined with SA’s ability to respond to increased demand in Sub-Saharan Africa

SCENARIO 2: Trade policy combined with financial innovation

SCENARIO 3: Critical skills shortages combined with metal casting substitutes

SCENARIO 4: Availability of scrap combined with reliability of electricity supply.

SCENARIO 5: Competitive pressure from international foundries combined with the global economic environment

SCENARIO 1: Competitiveness of the local foundry industry combined with SA’s ability to respond to increased demand in Sub-Saharan Africa

The foundry sector to better

understand the opportunities and

risks of trading in Africa.

The private sector to start

exploring opportunities in Africa.

The industry to retain

Experienced foundry experts to

improve performance

and competitiveness of foundries.

SCENARIO 2: Trade policy combined with financial innovation

•The complete value chain around the foundry sector to be analysed in detail, including employment needs, skills gaps, logistics and group negotiations.

•Supporting organizations to form part of the lobbying efforts of the sector.

•R&D must be planned and executed in close cooperation with the private sector.

•The IDC to play a stronger role in developing tailored funding for the foundry sector.

•The foundry sector to ensure that the right skills development and training occurs.

SCENARIO 3: Critical skills shortages combined with metal casting substitutes

•Improve company capabilities with company specific – and relevant - training.

•Continue and expand current skills initiatives.

•Foundries to invest in new technology and training to become more competitive.

•Foundries to introduce profit share and incentives for their staff.

SCENARIO 4:

Availability of scrap combined with reliability of electricity supply

•Foundries in South Africa to form closer ties, share ideas and technology.

•Foundries to invest in skills development in existing and new work areas.

•Invest in the scrap collection business.

SCENARIO 5: Competitive pressure from international foundries combined with the global economic environment

•Local foundries to focus on export markets.

•Develop local markets and regain lost market share.

•Build a reputation as a competitive and reliable supplier, particularly on smaller and more complicated runs.

•Guide policy formulation to support an export drive.

•Support the development of the local market by using infrastructure investment to drive industrialisation.

INITIATIVES AND IMPLEMENTATION TO DATE:

1.The SAIF stabilizes and appoints a permanent CEO.

2.The MCTS establishes five focus areas and invests in technology.

3.The DST provides funding for the technology assistance programme for process improvement in 27 foundries.

4.The DST establishes and funds the RIFT Programme with CPUT and UJ.

5.The NFTN establishes 7 Key Focus Areas and national Working Groups:– Capital and Investment

– Technology, Innovation and Competitiveness

– Environmental and Waste Management

– Skills and Training

– Localisation and Market Development

– Energy Management

– Input Scrap

5.Germany and SA secures funding for the EFFSA Found Programme.

6.The IDC and the German Development Bank have partnered to establish a R500million facility for energy efficiency projects within South Africa. 

7.The NFTN hosts the first industry roadmap workshop in 2011.

8.First tri-party national Metal Casting Conference and hosting of BRICS March 2013.

9.Establishment of Western Cape Foundry Training Centre at Atlantis Foundries.

10.More funding from TIA for support of work integrated learning students.

11.Annual road shows to create awareness of the MCTS.

12.The NFTN and SAIF engage with government on relevant issues.