Selling Smelter Equipment : Know When to Sell, and to Whom

This is the second in a series of articles on the aluminum smelter market and how to approach it. Other coming articles will address:

Why the investment decision cycle lasts so long.

Understanding the spare parts market: why your most effective competitor is local.

The key periods in a smelter life when major investments must take place.

The consequences and cost of delays in equipment delivery and start-up.

The four phases in the life of a smelter: know them to take advantage of them.

Managing market share to reduce business risks.

An aluminum smelter decides to buy your equipment. Who made the investment decision? Who prescribes the technical decisions? How to sell, when, and to whom.

This is the second of a series of articles on the Smelter Equipment Market by Dr. Andre Teissier-duCros.

You design, manufacture and sell some kind of equipment, component, or system used in primary aluminum. I am sure your product is a good one. I suppose you have several references. (If you don’t, wait for my editorial "Innovating in Smelter Equipment," coming in October of 2005.)

You certainly know by now that there are some 250 smelters in the world; that they are always far away from your plant (except perhaps one or two), in a far away country; and, in that country, far away from any major city or airport, in a deep valley, on a coastline, or on a waterway. Let’s talk about one: The 30 year-old Koonihan smelter located in the middle of the Republic of Nowhereland.

In that smelter, there is life. Several hundred or thousand employees live there, each with a family. The show must go on: the production cycle never stops. Machines are maintained; spare parts are changed; procedures, jigs and tools are improved. Internal meetings take place to discuss small and large investments, to speculate whether “they” will or won’t renew the energy contract, and the consequences; to dream about adding a new pot line or integrating anode production; to calculate how fast a major revamping – say, a bigger anode – would pay for itself. And sometimes, a supplier such as yourself is visiting, to discuss if what he sells fits in any of these plans.

Meanwhile, you came from far away. The trip is costly and time consuming. Maybe you are tired with jetlag. Maybe you worry that your boss is wondering right now if this expense was worthwhile. You told him: “It’s been three years since we visited them last. They must know what we offer now. They use the same Kaiser cell as two of our best references. I have to visit our customer in Sheduhook smelter which is only 700 miles away…” Boss said OK. Now that you are here, let’s try to learn something about Koonihan. So, who should you meet?

There always is a Plant Manager who runs the whole operation. Now watch out: what does the operation consist of? The casthouse, for instance, may be owned by a different company or be a joint venture. This means a different management. Do they have a carbon plant or do they import anodes? They have their own plant. Since the origin? No, they used to import anodes, they added a carbon plant when they built the 2^nd pot line 15 years ago. Was the Plant Manager already here at the time? Yes, he can tell the story. Good to know. Note that the Plant Manager must know who you are, and right now he may not if he has been here more than 15 years and he's never worked in another smelter. You see him as actor in the decision to buy your product. He lives his smelter every day, knows where they make money, where he has problems, where he should invest if “they” would let him, how fast rising energy costs are going to hurt, and he wonders where you might fit. So do you.

Ask him about history of the casthouse: initially they were shipping billets and T bars. Then came from the top a joint venture project with Worldwheels, Inc. to cast aluminum wheels. “They do their own alloy compounding but we do the metal treatment.” Any plans to go into other value added semis? Yes, but all depends on future terms of energy contract. This tells you of a context: they used to have cheap energy, but that's not the case anymore.

There generally is a Maintenance Manager who focuses on keeping operations trouble free while spending the least. Always try to meet him. Where does he see problems? What would he like to do if he had the money? He also shares in investment decisions. Ask him to visit the plant with him and encourage him to show you where he has concerns. Ask his opinion on their other suppliers. On the way, try to introduce yourself to the various superintendents. Try as quickly as possible to form your own diagnostics on their situation, and on what you can offer.

There should always be a Procurement Manager, unless purchasing for major equipment is centralized. In any case it is time to learn their procedure to get a Purchase Order approved. See how they qualify a supplier if you aren’t yet on their short list. You might hear then about a Head of Engineering. He is the one who makes technical decisions and who is supposed to best understand what your product could do for them. His colleagues expect him to know suppliers, processes, and technologies; and they expect him to ask you the tough questions about specifications and performance. In a sophisticated operation you might run into specialists covering anode, process control, feeding process, metal treatment… One of them must become your correspondent and understand why your product should interest them.

Finally, if they already plan for a major investment – say, a complete pot line revamping – you will meet a Project Manager. The smelter may have retained an Engineering Contractor to mastermind the project, which has his own Project Manager too. If this is the case, I hope this is not your first visit because, at that stage, suppliers are already selected. You should have been here a year ago to get qualified, and perhaps two years ago to generate their interest and “cook the specs” with them.

Now that you know them all, how are you going to answer your questions? This is where your own diagnostics comes in the picture. You can follow a check list looking like this:

Can I sell them something that will have a one year payback because it would:

1. Increase yield on energy, in other words Faraday efficiency? Watch out: Do you have a serious reference that can testify that it works, and can you explain their engineers how it will work? You can trigger their interest if your technical presentation is rock solid.
2. Reduce labor costs? Not very interesting. Labor costs are a small fraction, and they will prefer more throughput with same labor. This brings us back to 1.
3. Reduce raw materials cost: alumina, cryolite or bath constituents, carbon products? That is very attractive if you have credible references.
4. Reduce costs of energy other than electrical, notably fuel for baking oven, compressed air? Same as 3.
5. Eliminate troublesome incidents that interfere with potline operations and directly affect production? This again falls under 1. References are essential.
6. Reduce polluting effects? This sells only if the smelter is compelled to comply with new standards, unless what you propose also reduces incidents as in 5: Anode effects for instance. Note that often improving Faraday and reducing emissions go hand in hand.
7. Recover metal or raw material from waste, rejects? Dross recovery is a classical example.
8. Save on spare parts consumption and cost? There are some functions for which spare parts need periodic replacements (seals, valves, wear and tear elements). It is very difficult to replace another supplier simply on a cost argument, except for some specific reason the present supplier causes problems. You must also explain why you will offer something more. For instance, your component can replace the competitor’s and provide an advantage bringing you back to 1, 3 or 4.
9. Allow them to enter into Value Added semi-products. This is the largest and most diversified avenue. All smelters are pushed by rising energy costs into extending their casthouse to produce coils, foils, profiles, plates, even industry-specific castings such as wheels, etc. One can expect that 2^nd transformation smelters will move closer and closer to smelters for the same reason: work directly from molten metal and eliminate energy losses due to cooling and reheating. Such diversifications may affect Metal Treatment processes, where you may bring a specialty: filtration, degasification, etc. Note that you will raise interest if the smelter plans such a move. Again you must be informed ahead of time.

Note that in each case, you must be informed way ahead of time of smelter’s plans and be in regular contact to make suggestions. As a rule, your sales team should be prepared to touch base with a key contact in each smelter once a year at least, and pay a visit at least once every three years. This means 250 contacts by phone once a year, or one per day; and 80 visits on site per year, or almost 2 per week. This is difficult to maintain, which is why most suppliers are satisfied with a limited market: North America; China; Latin America; Greater Europe… But by doing so, you lose the advantages of market share, which I will develop in another paper.

So what can you do? Ask ENAL to do the legwork. We are equipped to constantly update our general Aluminum Industry Database and our Smelter Database with all contact information, and to manage phone follow-ups for several clients at a time. If you are interested, click here (info@enalnewsletter.com) to make an appointment for a phone interview.