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 Pozzolano cement (PPC)

Ordinary 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

Power

Clinker content

Fuel (coal)

Transport

Captive Power Plants, AFR

AFR/process efficiency / international sourcing

Composite cement

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

Terminal logistics

Cost drivers

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.

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THE SUPPLY CHAIN:

Suppliers Manufacturers Warehouses &Distribution Centers

Customers

Material Costs

TransportationCosts

TransportationCosts Transportatio

nCosts

Inventory CostsManufacturing Costs

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.

Using the Internet makes it easier, faster and cost effective for businesses to source their requirements on a timely basis.

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/TonCement

Main Source Major Cost Drivers ProcurementStrategy

Lime Stone

Coal

India has sufficient reserve of good qualitylimestone scattered all across the India

Domestic low quality , high ash coal is usedfor making cement which accounts formajority of consumption, companies alsouse imported coal duringpeak demandseason to hedge supplyrisk

Miningroyalty, Dieselprice,

Linkage coal prices

Captive mines andplantsnear quarry

Maximize linkage coalquantity

Fly ash Power plants are the main source of flyash.They are situated uniformlyacross India.

Diesel prices Nearest pointsourcing

Gypsum India’s limited gypsum deposits areconcentrated around Rajasthan . Companies

Import duty,freightcharges

Nearest pointsourcing

import most of the requirement fromThailandand Middle east

* All RM consumption fig. are approximate and only main rawmaterial has been mentioned

Sourcing- Limestone

Volume wise limestone accounts foralmost 60 % of raw material. Sincesetting up plants near quarry saves oninbound transport cost proximity toreserve is the single most importantcriteria.

To the benefit of cement industry highgrade limestone reserves are scattereduniformly all across India.

Mining royalty imposed by stategovernment are paid per ton basis.Dumpers and shovels used in miningconsume high quantity of dieselmaking it the second most importantcost driver

Sourcing- Coal

Government companies mined coal alsoknow as “linkage coal” is 15-20 % cheaperthan open market coal. Companies try tomaximize linkage off take by better liaisonwith railways and coal mining companies

Coal reserves are found mostly in easternstates. 95 % of coal mining is still in controlof center or state government. Steel ,power and cement companies are allowedto do captive or contract mining

Since coal reserves are skewed towards theeastern zone, freight cost is the biggest costdriver. Market coal prices are determinedby global supply and demand equation

Power Plants – Source of Fly Ash

Flyash prices are determined by localdemand and supply equation. Since freightcost is the major component companieslook for nearest source of flyash.

Burning of coal results into flyash. Thermalpower plants across India produce plenty ofgood quality flyash which can be used bycement industry. Flyash is used in producingblended cement grades like PPC

Freight is the biggest component thatdetermines the landed price of flyash

Cement Manufacturing Process

Limestone blendingBurned Limestone ( calledclinker) is blended with flyash,

slag or gypsum in grinding mills

Limestone is burned withcoal 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 consumedcustomized mixof cement,

sand and crushed stone

•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

Benefits for customer

•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

Challenges for companies – JIT model

DISTRIBUTION

COMPANY

C & F AGENTS

OWN ORGANISATION GOVERNMENT

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

Via roadways or railways

FOR EXPORTS:

FOR DOMESTIC MARKETS:

C & F agents /Warehouse

Dealers or distributers

Sub-dealers

End Users

Distribution Chain

CMU/GU

•Bags are loadedon wagon ortrucks

•Companies userail mode forprimarytransportation

C&FA

•CFA unloads thebags, store sanddelivers it whenorder is placedby distributor

•Trucks are usedfor secondarytransportation

Distributors

•Distributorsalsostore small quaintlyof cement to meeturgent demand

•Apart from sellingdistributors helpcompany inmarketing and salespromotionactivities

Retailer

•Retailers takeorder anddeliver to endconsumers

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.

Smaller GU are located near tomarket and flyash/slag source. TheseGU source clinker from Integrated

Distribution Strategy- Hub & Spoke Model

HubLarge Integrated units are fewin number & are situated near tolimestone quarry.

SpokeIntegrated units

Grinding units (GU)

unitsSea Transportation

Distribution: Numerous Challenges

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

Distribution: Key Cost Drivers

•Freight charges from plantsto warehouses

•Outbound freight tocustomers from warehouse

• Packing Bags (PPE) Cost• Bag Branding/ printing

costs

• Personnel Costs• Clearing & Forwarding

costs at Dumps• Local Taxes, etc

Transportation(65%)

Packing Costs(15%)

Others (20%)

Fuel PriceLead DistanceContractingwith TransporterWagon/Truck Loading

RegulationsRoad ConditionsTruck TypeRail to road ratio

Demand/Supply for PP granulesBag makers conversion costBag specificationsPrice Risk ManagementMarket StructureTax leviesAlternative Packing Solutions

Local taxes (of Municipalities)Dump Handling costsLocation of Dump & manpower

costsPacking Plant ManpowerAdministrative 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:

RAIL–580/ton

ROAD–670/ton

SEA–190/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 mines–green spots and water

reservoir

Global standards of environmental measures.