After becoming independent from its parent company in 1988, Sada Siderurgia entered the Brazilian market to produce auto parts, railroad components and grinding media for the mining and cement industries. The quality of its products quickly propelled Sada to among the top producers in the country. Luis Miranda explains how Sada's productivity enabled the company to start a process of diversification as a way to expand its business opportunities.
Born in Italy, Sada came into existence after World War II. Seeking to expand, the company looked to South America, realizing that Brazil was a great prospect for Sada due to the country’s mineral wealth and plentifulness of workers. The first iron factory was established in the town of Betim, Minas Gerais, which later gave way to another facility in Varzea da Palma in the Northeast region. “I think this region of Minas Gerais is a very fertile land for business. Not only it is rich with raw materials we use to produce our products, but also because it is free of the logistics complications that other areas of the country present, such as traffic jams and access to infrastructure,” says Alberto Medioli, Sada’s general director.
Although in 1976, Sada was an enterprise dedicated to transportation, in 1988 new business opportunities allowed the company to spread its wings and look into other markets, growing first as a retailer of auto parts then expanding into auto dealerships and commercialization of fuels.
Sada’s transportation business was promptly recognized for its innovative use of technology in the production of auto components. Such an approach came to fruition as a consequence of Sada’s partnerships with European companies. The alliances prompted Sada to manage its sales through its sister company, Erta Automotive. Branching out allowed Sada and Erta to offer products that were sought by potential clients. Erta began working with model plates of 480mm by 600mm, and produced items that typically weighed up to about 18 kg and measured approximately 400mm by 500mm at most.
Even though Sada is selling most of its products in Brazil, it also exports to Chile, Mexico, Argentina, Canada, France and Italy. “It is not a secret that here in Brazil the tax load discourages many businesses from looking beyond the borders,” indicates Medioli, adding there isn’t real motivation for companies to look for opportunities abroad due to the lack of competitiveness that the country has in comparison with other nations. “If you take a look at Asia, for example, they pay 20 percent less in taxes than we do when it comes to exports so there isn’t a real chance for us to send our products out in greater amounts,” adds Medioli.
But this did not stop Sada from expanding. From the beginning, the idea to pave its own way gave the company the resources to train its workers, and to create new products for the national market. With so many hands ready to get to work, Sada established alliances with technical schools where future workers were trained to hit the ground running. This preparation drove Sada into a competitive business in a country in which growing industrial development offered a piece of the pie only to the best providers of new products and technology.
RISE OF THE MACHINES
In the second half of the 1990s, the boom that hit the automotive industry in Brazil opened the doors for new businesses. The use of iron, steel, aluminum and other metals to manufacture auto parts as well as to improve and in many cases create transportation infrastructure proved that Sada’s management was right. Sada dedicated much of its resources to producing cast iron parts that were made using two different alloys: grey or duction iron. Grey iron components have more abrasive resistance, which make them optimum for auto parts such as brake drums and brake disks as well as car engines, pulleys and clutches, among other applications. Duction iron are more flexible components, and are being used to make steering knuckles, steering housing, steering box, brackets, among several other applications. The company supplied raw or finished parts for the automotive sector and also began to produce various types of components for the railroad industry.
The key to Sada’s overall success was the implementation of new techniques to manufacture better products. By importing new machinery from Europe, Sada was able to make specific components faster with higher quality. The company acquired new casting machines, a larger induction furnace, fusion centers and state-of-the-art stations for the production of brake drums and brake disks. This automation made Sada more efficient and allowed it to increase its production. Most importantly: The advancements in the techniques used in the manufacturing process were literally born inside the company.
As a consequence of the expansion, Sada’s production capacity has reached 30,000 tons a year currently and will reach about 50,000 tons in 2009. The amplification of Sada’s production line enabled it to increase its work force from 100 to its current number of 600 employees. Sada’s growth increased exponentially in 2000 after establishing an agreement with OMR, an Italian company which, just like Sada, produced parts for the auto industry in Europe.
After the cooperation agreement began, Sada enjoyed annual growth of about 10 percent in the iron processing side of the business. In the last three years, the company saw this number explode to 100-percent growth when compared to the rate experienced at the turn of the century. The key, according to Medioli, was the aggressive investing policy that the company implemented. Sada’s output capacity allowed it to reach 1.5 million parts per month for an overall increase of 30 percent compared with previous years.
“This new technology we have in place puts us high atop in terms of how we produce and the quality of our finished products. This quality rivals with European and Asian companies, for example,” asserts Medioli. Since most of Sada’s production is commercialized in Brazil, the company decided to expand its list of clients throughout Brazil. Nowadays, Sada sends its auto parts and railroad components to Sao Paulo, Rio de Janeiro, Rio Grande do Sul, Bahia, Espirito Santo and Paraná, among other regions.
THE TWO SIDES OF SADA
Sada’s productive and commercial activities are conducted on two different fronts. One is iron works, the other one is the manufacture and sale of aftermarket brake components.
“These are two sides that are directly related. We are producing parts for the auto industry that are manufactured by a green sand molding process where the sand molds are produced in one of our three Disamatic vertical molding lines,” says Medioli. Such parts are sold either as finished products or as semi-finished iron components. “It all depends on what the need of the client is,” says Medioli. The process usually begins the same way: A piece of metal – scrap or pig iron – is set into an induction furnace, melted and then poured into a sand mold, and then cooled.
How much treatment is applied and for how long period depends on the use of the final product. According to Medioli, iron possesses its own characteristics, which make it optimum to produce auto parts or railroad components; however, sometimes those qualities can be enhanced or modified by applying more heat or combining it with other metals such as aluminum, chromium or titanium. The idea is to obtain a product that meets the demands of a specific project in a certain region of the country.
In the case of the raw product, Sada provides the goods to other companies that use those pieces to assemble components for an assembly plant. From its factory, the second biggest in Brazil, Sada also produces grinding media known for hardness (usually over 60 HRc).
This product is used by mining companies as well as cement companies to move their equipment, grind iron ore or clinker. Sada is also a traditional supplier of railroad support plates and clamps, and is one of the largest companies globally in this segment.
The success of Sada comes in part from its own ingenuity supported by its engineering and R&D branches. During the development, Sada utilizes specialized software, i.e. Magna Soft, in order to calculate and evaluate the prototypes pieces to avoid defects. Most of Sada’s output – around 60 percent – is dedicated to the automotive industry. Another 30 percent is used to produce grinding media and around 10 percent is sold as railroad components.
IDEAS SUPPORTED BY INVESTMENTS
In order to meet expectations, Sada invested around $13 million during the early years and, more recently, another $28 million to buy brand new automation devices and research laboratories.
Nowadays, Sada maintains a facility of 40,000 square meters, dedicating 3 percent of its income to improving its infrastructure and equipment.
“I think that another advantage we have as compared with our competitors is the fact that we strive for making our products good from the beginning,” says Medioli. Since the industry doesn’t have any major secrets, the goal is to make something good all the time. “It is one thing we dedicate lots of time and resources to because when we achieve quality or perfection it means we have a leg up.” Medioli adds that all employees work as a team, plugged into achieving the vital results that make Sada one of the top 30 companies in Brazil.
In addition, through ISO: TS 16949:2002- and 9001:2000-certification the company maintains a variety of quality control norms directly related to creating a sustainable productive process. “For example, in the foundry we have an automatic system for temperature and humidity control, which alerts us as to when there are any variances in those two factors. The production process is stopped if necessary until corrections are made,” says Medioli. The certificates and quality control norms are directly related creating a sustainable productive process.
After an eight-year run of aggressive investments and successful positioning in the Brazilian market, Sada now watches international market trends with interest. Although the automotive industry has experienced a moderate slow down lately, Sada’s business model has nonetheless positioned the company for solid growth in Brazil.