Why margin is hard to see in a foundry
Foundries have features that make profitability more opaque than in other manufacturing sectors:
- prices are per kg or per piece, often set by analogy with similar items, while costs depend on the casting’s complexity;
- metal prices are volatile, and so are ferroalloys and energy;
- yield and scrap vary from item to item and over time;
- a large share of costs is fixed (furnaces, moulding lines, sand plants, staff);
- many items are produced in small batches, with frequent pattern changes;
- patterns and tooling may be paid for by the foundry or by the customer.
The result is that the overall P&L can be positive while some items, or customers, are loss-making without anyone noticing.
Contribution margin and production margin
To reason correctly it helps to distinguish two levels:
Contribution margin = revenue − variable costs of the casting
Production margin = contribution margin − allocated fixed production costs
Typical variable costs of a casting are: metal (net of the value of returns and including melting loss), ferroalloys and inoculants, cores (sand, binders, coating), melting energy, outside processing, specific packaging and transport, and the impact of scrap.
Fixed costs include depreciation, maintenance, shop-floor staff not tied to volume, and engineering and sales overheads. Allocating them to castings requires a driver (moulding hours, furnace hours, kg poured) and some approximation: for short-term mix and pricing decisions, the contribution margin is more reliable.
The price-per-kg trap
The price per kg is a convenient reference for customers and sales staff, but it penalises simple castings and favours complex ones: a solid casting with no cores costs relatively little per kg, while a thin one with many cores, low yield and more fettling costs much more. If both are sold at the same price per kg, or at per-piece prices derived from an “average” price per kg, the first subsidises the second. The example below shows it with numbers.
Margin per bottleneck hour
When capacity is saturated, the right question is not only “how much do I make on this casting?” but “how much do I make for every hour of my scarcest resource?”. In many foundries the scarce resource is the moulding line; in others it is the furnaces or the core shop.
A casting with a high unit margin that takes up a lot of line time (few pieces per mould, long cycle times) can earn less per line hour than a casting with a lower unit margin that is very productive.
Cost items that quietly erode the margin
- Internal scrap and customer returns, often left in overheads instead of being charged to the item.
- Unplanned rework, repairs and sorting.
- Small batches and frequent pattern changes, with set-up times not reflected in the price.
- Outside processing paid for but not correctly charged to the casting.
- Metal price adjustments not applied, or applied late.
- Energy, when tariffs change without the price lists being reviewed.
- Tooling paid for by the foundry and not amortised over the items.
- Special packaging and transport requested by the customer.
How it is usually analysed
In many foundries profitability is calculated by the controller once or twice a year, exporting data from accounting and the ERP into spreadsheets and applying standard costs defined in the past. Results arrive late, are hard to trace back to individual items and are more often debated than used.
The limits of spreadsheets and generic ERP systems
- Outdated standard costs: real yields, times and scrap change; standard costs do not.
- Production data separate from financial data: shop-floor actuals never reach the margin calculation.
- Scrap not charged to the item that causes it.
- No view by critical resource: margin per moulding hour cannot be calculated.
- Late analysis: problems emerge after the books are closed, when prices have already been agreed for another year.
How FOND/WISE handles it
FOND/WISE calculates standard and actual costs for every casting and contribution margins by customer and item, with year-on-year and month-by-month comparisons. Actuals come straight from the shop floor through the MES.
- Standard and actual cost: from the casting’s technical data (alloy, cores, routings, standard times) and from real production declarations.
- Margins by customer and item: to see at once who and what really carries the P&L.
- Comparisons over time: year on year and month by month, to catch falling margins early.
- Per-piece and/or per-kg price lists, simple or split: price broken down into alloy, cores, conversion and packaging, so only the component that changes is updated.
- Alloy price trends: component price history to assess the effect on metal cost.
- Scrap statistics: scrap causes by item show where margin is lost.
Key features
Standard and actual costs
Expected versus real cost, item by item.
Margins by customer
Contribution margin by customer and by individual item.
Year on year, month by month
Margin changes over time, at a glance.
Split price lists
Alloy, cores, conversion and packaging as separate price components.
Component prices
Price history of alloy components.
OLAP and BI tools
Multidimensional analysis of costs, margins and production.
Worked example
Two iron castings, both weighing 12 kg. Casting A is a solid flange with no cores, sold on a per-kg price list at €3.20/kg; casting B is a small body with 5 cores, lower yield and more fettling, sold on a per-piece price list at €38.40/piece. Revenue per piece is identical. Variable costs only; illustrative values.
| Item (€/piece) | Casting A | Casting B |
|---|---|---|
| Revenue | 38.40 (12 kg × €3.20/kg) | 38.40 (price per piece) |
| Metal, net of returns | 10.80 | 12.60 |
| Cores | – | 6.20 |
| Melting energy and consumables | 3.10 | 3.60 |
| Finishing and outside processing | 1.20 | 2.80 |
| Scrap impact (2% vs 7%) | 0.31 | 1.90 |
| Contribution margin | 22.99 (60%) | 11.30 (29%) |
Same weight, same revenue, margin halved: a per-piece price that is “worth” €3.20/kg like the per-kg one ignores cores and yield. And that is not all: if the moulding line is the bottleneck and produces 60 moulds an hour, with 4 A castings per mould and 2 B castings per mould:
| Casting A | Casting B | |
|---|---|---|
| Margin per mould | €91.96 | €22.60 |
| Margin per moulding hour | €5,518 | €1,356 |
Every line hour spent on B generates about a quarter of the margin of an hour spent on A. That does not mean dropping B: it means pricing it correctly, or knowingly producing it for other commercial reasons.
Frequently asked questions
What is the difference between contribution margin and production margin?
Contribution margin is revenue minus the casting’s variable costs (metal, cores, melting energy, outside processing, scrap). Production margin also deducts fixed production costs allocated to the casting, such as plant depreciation, maintenance and shop-floor staff. The first suits short-term and product-mix decisions; the second suits an overall assessment of prices.
Why is the price per kg or per piece not enough to judge profitability?
Because the cost of a casting depends on yield, number and complexity of cores, moulding and finishing times, scrap and outside processing, not just on weight. Two castings of the same weight and price, per kg or per piece, can have very different margins.
How is the metal price reflected in profitability?
Metal cost must be updated with real purchase prices and compared with any price adjustment clauses agreed with customers. If the adjustment is applied late or not at all, the margin shrinks without anyone noticing.
How often should profitability be analysed?
Ideally continuously, with a monthly analysis by item and customer and a check at every new quotation or price review. Waiting for the year-end accounts means discovering losses when it is too late to act.
What is margin per bottleneck hour?
It is the contribution margin generated in one hour of the foundry’s scarcest resource, often the moulding line or the furnaces. It helps decide which items to prioritise when capacity is saturated.