December 26, 2009 Global Drive

Volume 12 | Issue 4

When SIFCO celebrated its 50-year anniversary last year, it did so as Brazil’s leading manufacturer of suspension components for buses and t

Brazil’s number one producer of front suspension components for heavy commercial vehicles and one of the top manufacturers of rear suspension and transmission system components, SIFCO has come a long way since 1958, when the small business founded by the Smith Vasconcellos family in the town of Jundiaí, São Paulo, began producing agricultural tools such as hoes and pickaxes (picaretas). The 1950s coincided with the original boom of the Brazilian automobile industry, most of whose activities were concentrated in and around the city of São Paulo. When American automobile companies began opening Brazilian affiliates, there was a sudden demand for parts that weren’t imported. SIFCO was the result of a merger between the Smith Vasconcellos start-up and an association between the American Brake Shoes Company and Steel Improvement Forge Company. In the beginning, the two American companies provided part of the capital as well as technology, staff, and training for personnel, but it was the small Jundiaí-based firm that happened to be in the right place at the right time.

A FOCUS ON HEAVY VEHICLES
With its superior technology and know-how, SIFCO soon gained a solid reputation for the production of cutting-edge forging components. In the beginning, it focused largely on agricultural machines and tractors, but it moved slowly into the car segment (early customers included Volkswagen and GM) as well as trucks and buses (Scania and Mercedes Benz were important customers), a gradual diversification that allowed it to enjoy steady organic growth.

By the early 1970s, the company started flexing its muscles. With a desire to enter completely new markets, the company began making parts for the aeronautical industry and, for a brief time, it supplied parts for Brazil’s military and railroad industries. The technology costs for the aeronautical sector, in particular, proved to be too heavy. “After these experiences, we decided to stick with the areas in which we had the most experience and technology,” recalls Leopoldo Munhoz, in SIFCO’s marketing department. “Over time, we concentrated increasingly on trucks and buses and we also decided to focus on our suspension line.”

The company’s original Jundiaí plant, currently housing the company’s headquarters, engineering departments, laboratories, and machining and assembly lines, is where SIFCO’s medium and light forging lines are produced. But when the company decided to move into heavy vehicle suspension components, it built a brand new plant in the town of Campinas. Located in the suburbs of São Paulo, the facility is devoted entirely to heavy forging equipment, including front axles that have earned SIFCO a worldwide reputation. The company’s new focus brought ample rewards. Today, the heavy vehicle segment represents around 75 percent of the company’s business. However, the Campinas plant was not only intended to consolidate SIFCO’s presence at home; it was also built to propel the company onto the global stage.

GOING GLOBAL
In the early 1970s, SIFCO had made initial forays into the international marketplace by exporting components to the North American automobile market. But the inauguration of the Campinas plant in 1979, followed by the acquisition, in 1986, of an American affiliate, the Westport Axle Corporation in Louisville, Ken., plant the ability to assemble front axles as well as warehousing and distribution of all SIFCO products exported to North America, marking the beginning of an aggressive global offensive.

Indeed, the company seemed poised for success when it was purchased in 1994, by Acesita, an important steel-producing group that formerly had been one of SIFCO’s suppliers. Under Acesita’s helm, the company underwent a complete restructuring and chose to focus almost exclusively on suspension lines for heavy vehicles – perhaps too much so for the changing demands of the globalized economy of the 21st century. In 2002, the company began concentrating on special stainless steel parts and launched a strategic planning initiative. That same year it was purchased by Grupo Brasil. This Brazilian-owned entrepreneurial group set about overhauling the company, creating an agile administration whose main objectives became worker, shareholder, and societal, not to mention customer satisfaction.

“The arrival of Grupo Brasil brought about financial recovery along with the opening up of new horizons,” recalls Munhoz. “At the time, we were very behind in terms of investments and our facilities had become obsolete. The group injected a lot of capital into the company, investing in new machinery and expanding and updating both plants to improve efficiency and agility. Aside from quality and safety, a lot of attention was given to becoming environmentally sound. We earned the ISO-14000 certification and also invested millions of reais in technology such as noise reduction, air, and water filters. We substituted oil for natural gas, set up an effluent treatment center, and even embarked on landscaping our grounds for the benefit of our workers.”

As a result, SIFCO became the most modern steel forge in Brazil, not only with respect to its technology, but also in terms of its mentality. “There was a major reorganization of our corporate strategy,” confesses Munhoz. “We began to diversify: widening not only our product mix, but also the segments in which we operated. Domestically, we aggressively went after new clients. At the same time, we began to explore new international markets via partnerships. With this revived interest in exports, the Westport affiliate became much more strategic than it had been in years.”

BIG TURNAROUND AND MAJOR GROWTH
Indeed, between the years 2002 and 2008, SIFCO grew like never before. Production capacity increased by 40 percent from 3,500 metric tons a month in 2002 to 6,000 tons a month in 2008. Over the same period, the company’s workforce grew from 1,500 to 2,500. Meanwhile, exports hit an all-time high; in 2005 they represented 40 percent of the company’s business. Of course, more recently, the situation has become tougher. The global crisis of late 2008 caused production levels to be cut back and led to lay-offs. Meanwhile, the rise of the Brazilian real against the U.S. dollar accompanied by increased competition from China and India has driven down exports to 15 percent and even threatened SIFCO’s domination of its home turf as the latter, competitors and others) attempted to stake claims to Latin American markets.

Fortunately, when it comes to combating tough times and increased competition, SIFCO has plenty of advantages in its favor. “With all the recent investments and upgrades we’ve made, SIFCO is now completely self-sufficient in terms of the production process,” says Munhoz. “Once we receive our raw materials, all operations are carried out in-house. All the tools and technology, engineering and lab testing is done here with our own vanguard technology. Many other companies waste time and money by having to outsource. In contrast, we achieve significant gains in time and agility.”

As for the raw materials the company depends on, Munhoz recognizes that steel is a commodity with tight price margins. Despite such constraints, SIFCO is committed to always using the best quality steel, while offering a price advantage to its customers. Says Munhoz: “We’re able to do this by using high-quality local steel and improving our processes so that we can bring the costs down for our clients.”

Meanwhile, the company is once again embarking on a strategy of branching out into new markets. The plan is to tap into lighter vehicle segments such as motorcycles and passenger cars and return to other markets it formerly catered to such as railways and agricultural equipment. Equally, if not more important, is SIFCO’s new proactive approach that involves not just fulfilling clients’ demands, but anticipating their needs as well.

“Traditionally, clients such as Mercedes and Volkswagen used to come to us with their project designs and ask us to produce them,” explains Munhoz. “Over time, however, we became so specialized in these forged suspension parts that we now offer consulting services. We suggest alterations in original projects and the use of alternative materials. We also look for ways of reducing costs. These days, clients are on the lookout for solutions that are more integrated and complete. Well, one of our most distinguishing factors is that we’re specialists in what we do. In the end, our company motto says it all: ‘Who knows the most, does the best.’”

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