AMBUJA CEMENTS LTD

INTRODUCTION

Ambuja is the most profitable cement company in India, and one of the lowest cost producer of cement in the world.

3rd largest cement company in India, with an annual plant capacity of 16 million tonnes including Ambuja Cement Eastern Ltd. and revenue in excess of Rs.3298 crore.

Ambuja Cements was set up in 1986. The company is engaged in manufacture and market cement and clinker for both domestic and export markets.

PRODUCTS
CEMENT
Portland Ordinary

Pozzolano cement (PPC) Portland cement (OPC)

CLINKER
POWER

MATERIAL REQUIRED FOR THE PRODUCTION OF

CEMENT PER TONNE OF CEMENT

1.2 1.5 tons of limestone

0.25tons of coal

120 kwh of power

0.05 tons of gypsum

Cost drivers
Power

Captive Power Plants, AFR

Fuel (coal)

AFR/process efficiency / international sourcing

Clinker content

Composite cement

Transport

Grinding facility close to end user, production close to raw materials Terminal logistics

Techniques used by ACL to reduce its cost of production

V belt drives which consumed more energy were replaced by flat belt drives.

improved version of mechanical conveyor was used to eliminate breakdown and spillages.

Adjusted retention time, maximised temperature and the rate of cooling to reduce power cost from 120 units per ton to 90 units per ton.

Reduced mining expenses by implementing ripping technology.

 Introduced an Australian device called Surface miner to recover more material from the given area and save energy.

Computerized process control system for easy access and regulating the production process.

Zero Error Electronic Rotary Machines to increase capacity utilization.

Improvement in efficiency and lower shutdown rates to increase

capacity utilization.

THE SUPPLY CHAIN:

Suppliers Manufacturers Warehouses & Customers Distribution Centers

Transportation Transportation Costs Transportation Material Costs Costs Manufacturing Costs Inventory CostsCosts

E-PROCUREMENT
E-Procurement

(Electronic procurement) is one such area, where the Internet was instrumental in automating the purchase process, thereby significantly reducing cost and time. the Internet makes it easier, faster and cost effective for businesses to source their requirements on a timely basis.

Using

CNTD

Key strategic initiatives, lesser time-to-market and

increased global competition, e Procurement aids

organizations in streamlining their entire purchasing

process.

There are several approaches to e-Procurement taken by

different vendors to manage supplier relationships.

ACL has a large distribution network of 11500 outlets. it is

one the first cement companies in the country to

recognize the importance of brand building.

ACL had merged as one of the most energy efficient and

technologically advanced cement manufacturer in India.

ACL was the overall market leader in the Indian cement industry and earned a huge profit

 ACL

worked hard to reduce mining

expenses.
ACL

implemented new technologies that

could access lime stone in smaller areas

where blasting is not possible.

Sourcing- Summary
Raw Material Qty/Ton Cement Main Source Major Cost Drivers

Procurement Strategy
Captive mines and plantsnear quarry

Lime Stone

India has sufficient reserve of good quality limestone scattered all across the India

Miningroyalty, Diesel price,

Coal

Domestic low quality , high ash coal is used for making cement which accounts for majority of consumption, companies also use imported coal duringpeak demand season to hedge supplyrisk Power plants are the main source of flyash. They are situated uniformlyacross India.

Linkage coal prices

Maximize linkage coal quantity

Fly ash

Diesel prices

Nearest point sourcing

Gypsum

Indias limited gypsum deposits are concentrated around Rajasthan . Companies import most of the requirement from Thailandand Middle east

Import duty,freight charges

Nearest point sourcing

* All RM consumption fig. are approximate and only main raw

material has been mentioned

Sourcing- Limestone

To the benefit of cement industry high grade limestone reserves are scattered uniformly all across India. Volume wise limestone accounts for almost 60 % of raw material. Since setting up plants near quarry saves on inbound transport cost proximity to reserve is the single most important criteria. Mining royalty imposed by state government are paid per ton basis. Dumpers and shovels used in mining consume high quantity of diesel making it the second most important cost driver

Sourcing- Coal
Coal reserves are found mostly in eastern states. 95 % of coal mining is still in control of center or state government. Steel , power and cement companies are allowed to do captive or contract mining

Government companies mined coal also know as linkage coal is 15-20 % cheaper than open market coal. Companies try to maximize linkage off take by better liaison with railways and coal mining companies

Since coal reserves are skewed towards the eastern zone, freight cost is the biggest cost driver. Market coal prices are determined by global supply and demand equation

Power Plants Source of Fly Ash

Burning of coal results into flyash. Thermal power plants across India produce plenty of good quality flyash which can be used by cement industry. Flyash is used in producing blended cement grades like PPC

Flyash prices are determined by local demand and supply equation. Since freight cost is the major component companies look for nearest source of flyash.

Freight is the biggest component that determines the landed price of flyash

Cement Manufacturing Process

Limestone blending

Burned Limestone ( called clinker) is blended with flyash, slag or gypsum in grinding mills

Limestone is burned with coal inside rotary kilns

Limestone Quarry

FORECASTING

Demand forecasting is based on : The past sales. The government policy and the budget for the construction activities like ROADS & BUILDINGS.

THRIVE DEMAND FORECASTING is a method, based on seasonal patterns:

High season time and

Low season time

ERP
Launched

Connect India Plus for the overall integration of data across its plants and carried out in batches. Within two years, Ambuja rolled out Connect India Plus that was conceived as an ERP implementation program for installing SAP with all its modules at 200 locations across India and 2,500 users with a single instance on a server in Mumbai. The project kicked off on June 1, 2007 and went live on August 1, 2008a period of just fourteen months.

CHALLENGES FACED

Need to create a single business blueprint across the

organization.

Need to integrate individuals with diverse background to be able to work as a focused team.

Infrastructure refreshes was another critical challenge.

Data migration was another major challenge since data had to be imported from eight different legacy systems.

IMPROVEMENTS..

Exploring some cutting edge technologies to improve supply chain.

Implemented a sophisticated smart-card based

vehicle tracking system to improve operational

efficiency in terms of cycle-time monitoring and fleet management.

Information is dispatched to customers via SMS

TQM

A computerized process control system with field instruments supplied by Larsen and Turbo were also being installed to give consistently high quality cement with maximum productivity.

The control procedures cover all aspects of cement manufacture from quarry operation, handling, mixing and

grinding to packing.

CONTD..
Computerized mine planning and deposit evaluation to enable optimum use of raw material Online X-ray fluorescence spectrometer for raw material control and raw mix design Better aided instrumentation and process measurements using X-ray analysis, gas analyzers, temperature and pressure measuring devices, etc. Centralized kiln control system in conjunction with expert control systems for process and operation control. Continuous monitoring of quality in production by plants as well as by the certifying agency, namely, Bureau of Indian Standards (BIS) under compulsory Certification Scheme.

RESULT.

First company to receive the ISO 9002 quality certification. Received ISO 14000 certification for environmental systems.

The only cement company to be awarded the National Quality

Award in recognition of total quality management. The parameters adopted by the Government for this award are on the

lines of the most prestigious international awards such as the

Malcom Baldrige National Quality Award of the USA, the Demming prize of Japan and the European Quality Award.

Its environment protection measures are at par with the best in the world. The pollution levels at all its cement plants are lower than the rigorous swiss standards of 100mg/NM3.

JIT

Linked its inventory management process to most of the functions such as production planning, raw material planning,

ordering etc. Online ordering, not only reduced time, but also
transaction costs.

Electronic Data Exchange (EDE) and Material Resources

Planning (MRP) systems facilitated timely and accurate

processing of orders.

Uses the ABC analysis and XYZ analysis for the inventory

control

Company maintained a buffer stock of about 10 to 20 days depending upon the location of the production unit.

ERM

A stretch assignment requires an employee to go beyond the

job description. It challenges people to stretch, learn new skills, surprising everyone, specially themselves.

Under this programme middle to senior level employees are given two weeks of intensive training focusing on their stretch objectives. Each batch consists of 30 people. The programme has been designed in consultation with IIM Ahmedabad and is followed by a 360-degree evaluation of each participant.

Balance Score card- This is a modern management tool to monitor the performance of employees at all levels within the organisation.

CRM

High Quality product Low cost

Timely delivery
Loyalty discount - frequent and regular supplies, and also passed on some discount to customers (bulk consumers)

Ready Mix Concrete

RMC: Ready to be consumed customized mixof cement, sand and crushed stone

Benefits for customer Consistent concrete mix for large construction projects Compared to traditional methods no space is required for storing and preparation of ingredients such as sand Saving on labor and supervision cost Less wastage of concrete Faster and smoother construction Challenges for companies JIT model Orders are received only few hours in advance , putting extra pressure on planning and coordination Vehicle route planning is a serious challenge Accurate sourcing of sand and crushed stone requires additional planning

DISTRIBUTION
COMPANY FOR EXPORTS:

C & F AGENTS
Via roadways or railways

Cement reaches nearest port and is then transferred to importing country.

FOR DOMESTIC MARKETS:

C & F agents /Warehouse

OWN ORGANISATION

GOVERNMENT

Dealers or distributers
Sub-dealers End Users

Distribution Chain

CMU/GU Bags are loaded on wagon or trucks Companies use rail mode for primary transportation

C&FA CFA unloads the bags, store sand delivers it when order is placed by distributor Trucks are used for secondary transportation

Distributors Distributorsalso store small quaintly of cement to meet urgent demand Apart from selling distributors help company in marketing and sales promotion activities

Retailer Retailers take order and deliver to end consumers

CNTD..

Large network of over 7500 dealers and 20000 retailers across 18 states in India.

Penetration into core rural and semi urban markets.

It has network of port, bulk terminals, bulk cement ships has supported a sustainable strong market position.

SALES & DISTRIBUTION

Cement in India is primarily sold through a distributor - dealer network Total margins for the distribution channels - 17 to 18 % Direct sales less than 2 % of total sales

Managing the distribution network & strong working relationships with distributors, contractors etc., critical.

Distribution Strategy- Hub & Spoke Model

Hub
Large Integrated units are few in number & are situated near to limestone quarry.

Spoke
Smaller GU are located near to market and flyash/slag source. These GU source clinker from Integrated units
Sea Transportation Integrated units Grinding units (GU)

Distribution: Numerous Challenges

Cement has a useful shelf life of approximately 6 months. Customers also have a bias towards fresh cement ( Garam Cement ) forcing manufacturers to predict accurate amount of inventory In India construction activities slows down during rainy season that is why cement demand is cyclic in nature. A fine balance needs to be achieved between inventory cost and capacity utilization. Since railway route is the cheapest mode of transport, availability of railway wagon is a big constraint in present scenario. Since companies put multiple plants to save on transportation cost, which market should be served from which plant is big challenge Value added services such as Ready Mix Concrete ( RMX) has now become a industry trend. It is putting pressure on lead-time and vehicle TAT.

Distribution: Key Cost Drivers

Freight charges from plants to warehouses Outbound freight to customers from warehouse

Transportation (65%)

Fuel Price Lead Distance Contractingwith Transporter Wagon/Truck Loading Regulations Road Conditions Truck Type Rail to road ratio
Demand/Supply for PP granules Bag makers conversion cost Bag specifications Price Risk Management Market Structure Tax levies Alternative Packing Solutions

Packing Costs (15%)

Packing Bags (PPE) Cost Bag Branding/ printing costs

Others (20%)

Personnel Costs Clearing & Forwarding costs at Dumps Local Taxes, etc

Local taxes (of Municipalities) Dump Handling costs Location of Dump & manpower costs Packing Plant Manpower Administrative Overheads

LOGISTICS

ACL was one of the 1st cement producer company to introduce Integrated logistics system(ILS)

Order Processing System

Involved the flow of information about the orders from generation to fulfillment.

Involved transmission of customer order, paper processing, retrieval from the ware-house, dispatch to the

transporters ,transmission of information to production

planning dept.

Inventory Management

Involved knowing both, when to order and how much to order

Management had to control the cost of carrying larger inventory

Had well developed system for in bound raw materials

Packaging

cement was packed in 25-50kgs packet bags using jute bags.

Was 1st to use paper bags for packaging having advantage

of low pilferage, better preservation ,appearance with low cost.

Each bag contained the brand name, ISI logo ,with identification number ,price of the bag and net weight of

the bag

TRANSPORTATION

Cement is highly freight intensive in nature. Manufacturing of each tonne involved a transportation of 1.6tonne of

limestone, 0.25 tonnes of coal, 0.05 tonnes of gypsum.

Road transportation beyond 200kms was not economical, 55% transported through railways.

Unavailability of wagons for transportation on western and

south eastern railways

In 2003, 70% of the movement worldwide was by sea compared to only 1% in India

ACL was the first company To use water transportation for domestic as well as export consignments.

As a result the cost came down drastically The cost of transporting were as follow:

RAIL580/ton
ROAD670/ton SEA190/ton

Bought ports and freight handling terminals at Muldwarka, surat and vashi.

In 2003 muldwarka was equipped to export clinker, cement,

import coal and furnace oil

Built a bulk terminal at cochin Kerala Setting up Break water and jetty facilities in Gujarat, Maharashtra and Kerala.

Acquired five ships for transporting cement in bulk 350 self financed trucks and a railway siding its in its factory premises provided flexibility in the mode of transportation

REVERSE LOGISTICS

Concrete is used for production of reclaimed concrete aggregate, which is a popular substitute for natural stone aggregates. Concrete is hauled to a central facility for stockpiling and processing which is crushed, screened. They remove the reinforcing steel by using magnetic separators.

FUTURE OUTLOOK OF ACL

ACL has been pursuing a combination of strategies like

Strategic alliances Capacity expansion New plants Aggressive takeovers. The company had set up a two million ton Greenfield cement unit in Maharashtra at an investment of Rs.500crores.

It had expanded capacity at the existing Gujarat Site from three million to four million at an incremental cost just of Rs.100crores

It had also set up a one million ton grinding units, one at Bhatinda and another one at West Bengal.

Also to enhance its presence in the south ,the company had planned to

set up a Rs600crores, two million ton Greenfield project in A.P

ACL has also started offering ready mix cement. As 2004 got under way, ACL looked well placed in the Indian Cement Industry.

Best quality cement

Good packaging Higher customer satisfaction Strong distribution network Ecofriendly operations such as Use of agro waste and biogas as alternative fuel Use of surface miners- blast free mining.

Restoration of minesgreen spots and water reservoir

Global standards of environmental measures.