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    Blog Image

    European Buyers of Casting Parts – Is Eastern Europe a Preferred Sourcing Destination?

    November 07, 2016 | MRO

    “Casting is a manufacturing process in which a liquid material is usually poured into a mold, which contains a hollow cavity of the desired shape, and then allowed to solidify. The solidified part is also known as a casting, which is ejected or broken out of the mold to complete the process.”

    Casting products are used in most of manufacturing industry segments in some form or the other. Automobile industry is one of the key end user of the castings market due to its wide applications in manufacturing parts like engine parts, suspension, brakes, steering etc., and the most common forms of castings used are iron, steel, aluminum, and magnesium. It is estimated that about 50% of the castings are used for the automotive and heavy equipment industry.

    The global steel casting market is expected to grow at CAGR 4%, whereas the global iron castings market is expected to grow at CAGR 6% and the global aluminum die casting market is expected to grow at CAGR 5.5% during the 2016-2020 period. Around 65% of total casting production is dominated by APAC regions, with China being the leader, followed by India, Korea and Singapore.

    The European market is considered a close second for sourcing casting parts. Within Europe, Germany and Eastern European countries are relatively better production markets for steel and iron castings. In 2015, Germany’s steel and iron casting production reached 4.4 million metric tons and is expected to grow to 4.6 million metric tons by 2018. The Eastern European iron castings market was estimated at 7.9 million tons in 2015 and is expected to reach 4.6 million metric tons by 2018.

    Eastern European markets derive their cost advantage due to lower labor costs, strategic location connecting Western European markets and presence of major automotive brands such as Volkswagen, General Motors in these markets.

    Within Eastern Europe, strong sourcing markets are Czech Republic, Poland, Hungary and Slovakia due to its skilled educated workforce, high export competitiveness, quality infrastructure, strong R&D development platform, transparent investment incentives, availability and quality of local suppliers, low regulatory controls and accessibility to EU markets. As per a World Bank 2016 report, in “ease of doing business,” global rank of these markets fall under 50 when compared with 189 countries. Bulgaria, Belarus, Moldova, Croatia could be probable sourcing markets due to the moderate skilled workforce required to manufacture low complex parts manually.

    European Buyer Trends: European Buyers considered Eastern Europe for sourcing due to requirements of specialty products and reduction of operational costs.

    • Specialty Products: Buyers in Europe have mostly considered China as key market for sourcing products of low complexity. China’s recent shift into specialty casting products have not met with expected success, as suppliers in eastern and central Europe have cornered that market.
    • Savings on Operational Costs: European buyers are focusing on reduced operational cost and lower lead times over the past few years. The shorter turn-around time expected has been benefiting the central and eastern European countries.
    • Strict Supplier Evaluation: European buyers have shifted their focus from initial purchasing costs to total TCO. Besides base price cost, they evaluate costs related to energy, quality, risks, LEAN manufacturing and LEAN supply chain management.

    However, sourcing from Eastern Europe presents certain advantages and disadvantages.

    Opportunities

    Challenges

    • High volume orders due to high cost savings, lower labor costs since product lifecycle is about 5-6 years
    • Frequent deliveries with shorter lead time
    • Strict compliance and consistent lean manufacturing, just-in-time delivery, constraint management
    • Interconnection of buyer and suppliers’ ERP system to respond on buyer’s order request
    • Possibility of small-batch production to improve profitability
    • Maintenance of buyer-supplier relationships
    • Logistics costs: Add about ~15%-20% to the cost of the products dependent on distance
    • Inventory costs: Add about ~4-5% to the costs due to low frequency of supply and protection against any delays
    • Hidden costs: Hidden charges like inspection, quality assurance and risks are estimated to add ~10% to the costs
    • Final costs: The cost of the final product to clients’ gate would total up to ~35%

     

     

    Therefore, Eastern Europe is considered the potential alternative sourcing destination as it provides buyers opportunities to save costs and increase flexibility in their operations.

     

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