Business: OEM's Discover Kappa Engineering
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Two of South Africa’s leading heavy vehicle and mining machinery OEMs (original equipment manufacturers) are negotiating contracts to buy hydraulic cylinders directly from Kappa Engineering.
The cylinders, key operational components within the OEM products, have been manufactured by Kappa for some years but were previously purchased through high profile intermediaries.
Negotiations to buy direct were apparently prompted by the need to cut costs.
Kappa Engineering’s CEO, Gerhard Hauptfleisch, said that OEMs would gain substantial price advantages through the newly signed contracts.
“Quality, lead times and dependable deliveries will remain the same, because we have been making cylinders for these companies for many years,” Hauptfleisch said.
“The difference is that they are no longer buying a re-branded product. They are dealing direct and realising the benefit of a lower price.”
East Rand-based Kappa Engineering has been manufacturing, assembling, testing and repairing high pressure hydraulic cylinders for 22 years, but the use or intermediaries for distribution has meant that the company has remained relatively unknown.
Management took the decision to manufacture directly for the OEMs in 2009.
“We are expanding, we are BEE accredited, and we want to grow the business without taking on more work than we can manage,” said Hauptfleisch.
“Our infrastructure is of such a nature that we can build any cylinder that’s needed in South Africa at a reduced price, without any change to the OEM’s quality standards.”
Hauptfleisch explained that Kappa’s price advantage was sustainable because of the way that the company was funded and organised.
“We don’t have investors making demands on the available profits,” he continued.
“We are self-funded, and we have built up a substantial raw material stock that makes us better able to manage fluctuations in, for example, the price of steel.
“Our machinery is the best and the latest available.”
According to Hauptfleisch, the most important investment that Kappa Engineering has made is in a young and energetic management team.
The average age of management is 28 years, with the managing director 32 and the SHEQ manager just 24. Hauptfleisch himself is 48.
“I specifically chose Generation X-ers because they are not scared to do business cross-culturally and cross-border. They’ll take chances, and if they fail then they try again and they don’t give up until they have made things work.
“They will eventually succeed in more than 90 percent of cases.”
Kappa is particularly strong in the underground trackless markets, in earthmoving, drilling and exploration, and in the waste removal market, all of which require different sizes and different shapes of hydraulic cylinder.
Factory capability allows for cylinders of up to 20 metres in length.
“Because of our in-house capacity, we don’t have to send anything to a third party, “ Hauptfleisch continued.
“All our chroming is done in-house at one of the country’s largest facilities. We also have one of the largest in-house honing facilities in South Africa, perhaps even the world, and we’ve got one of the largest in-house CNC facilities.
“There are some areas where our competition is bigger and stronger than us, but in general we are the biggest,” Hauptfleisch said.
Hauptfleisch is quick to admit that it is difficult to differentiate the manufacturing processes used by Kappa Engineering from those of the competition, because hydraulic cylinders share essentially the same design and technology.
“Perhaps our surface finishes and our seals are better than most, but Kappa’s differentiation comes mainly from delivery, quality and service.”
Turning to exports, Hauptfleisch says that he is working on large enquiries from France, Australia and Peru, with African interest being shown by potential customers in Ghana, Tanzania, Zambia and the DRC.
“We are in the fifteenth month of our export drive. By end 2010 we want to be exporting at least 30% of our capacity,” Hauptfleisch concluded.
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