Travails of Cement Travel

Final Project Submission

Supply Chain Management

Group 2
Section A
15P002
15P047
15P055
15P070
15P072
15P083
15P088
15P089

Aashima Mittal
Dhvani Shah
Varun Baxi
Somyata
Rastogi
Ayan Panda
Himanshu
Jhamb
Keshav Bajaj
Kriti
Chowdhary

Introduction to Cement Industry

One of the most widely known substances, Cement is a binding agent
which is extensively used in building and construction activities. The latter
spans the breadth of nearly the entire human civilization, thus making
cement a quintessential product affecting lives of all and sundry. Widely
used in key segments such as housing, real estate and infrastructure
development, the growth of the cement industry is directly linked with the
economic growth of the country.
With a whopping capacity of 390 million tonnes of production capacity,
India is the second largest producer of cement in the world. It is estimated
that the cement capacity of the country will scale up to 550 million tonnes
by 2020. The growth of the cement sector in India is expected to grow at a
rate of 7.9% CAGR. Also, the domestic consumption is expected to reach
398 million tonnes by FY2017.

Cement Production process

Raw materials
extraction

Grinding and
storage of raw
materials

Packaging of the
final produced
cement and
shipping it to
various distribution
centers
Cost structure of the Cement industry

Formation of
Clinkers

Grinding the
obtained clinkers
and mixing them
with the right
amount of gypsum
for cement
formation

The figure below indicates how the costs are distributed for a typical
cement plant major cost centers in the cement industry are

Power and fuel cost

Raw material cost

Selling expenses

Other expenses

Raw
material cost accounts for 20-25% of the cost of sales of cement players.
Limestone comprises a major share of this cost. Cement plants earlier
were generally located near limestone quarries as limestone is difficult to
transport over long distances. Limestone is essentially found in 10 clusters
viz., Satna, Gulbarga, Chandrapur, Bilaspur, Chanderia, Nalgonda,
Yerraguntla, Saurashtra, Himachal Pradesh and Thiruchirapalli.. Moreover,
limestone is considerably bulky in nature.
So, it did not make economical sense to transport it over long distances
and companies saved the cost of transportation on the raw material.
Other raw materials used in the cement industry include fly ash, slag,
gypsum, etc. Gypsum is available as a natural product and is also derived
from sea water and chemical plants. It is mostly found in Rajasthan (which
accounts for more than 80%) followed by Jammu & Kashmir (which
accounts for around 15%). A small portion of 5% is found in states such as
Tamil Nadu, Gujarat, Himachal Pradesh, Karnataka, Uttarakhand, Andhra
Pradesh and Madhya Pradesh. Gypsum from Rajasthan is dispatched to
cement plants in India spread across Rajasthan, Gujarat, Madhya Pradesh,
West Bengal, Uttar Pradesh, Bihar, Jharkhand, Chhattisgarh, Himachal
Pradesh, etc. In terms of proportion, gypsum would account for 4-5% of a
tonne of cement.
Fly ash is a fine, glass-like powder recovered from gases created by coalfired electric power generation. It primarily consists of silica, alumina and

iron. Fly ash can account for 10-25% of the cement mass, while slag
comprises 25-65% of the cement mass. Slag is a by-product of the steelmaking process, produced during the separation of molten steel from
impurities in steel-making furnaces. It is used in cement manufacturing.
The availability of slag in India is limited and is found mostly in the East
due to the concentration of steel plants in the region. Both fly-ash and
slag are used as additives in the production of blended cement.
However, cement is a low-value, high-volume commodity. The main
characteristic of the cement is it becomes perishable after it is packed.
Thus the life of the packed cement is very less and it needs to be quickly
transported this results in heavy outbound logistics costs. Thus to save
these costs companies are looking to setup the plants close to the end
users.
Transportation cost in India is also on the higher side owing to the fact
that Cement is the retail commodity in India and is sold in smaller
quantities. It is usually sold in the packaging of 50 kilogram bags. After
cement is bagged the actual weight of the commodity to the actual weight
of shipment falls leading to higher transportation costs. Freight costs
constitute a significant proportion at 20-25% of the total cost of sales.
There are three major modes of transport used by the cement industry road, rail and sea. Rail is the preferred mode of transport for long-distance
transportation owing to lower freight cost. However, the availability of
wagons and the extent of last-mile connectivity need to be taken into
consideration. Road transportation is beneficial for short distances and
bulk transportation as it minimizes secondary handling and secondary
freight costs and also provides higher flexibility. Cement transportation by
rail is cost effective when it is transported for more than 300 kms while
road is a preferred transportation mode for distances less than 300 kms.
Transportation by sea is the cheapest mode. However, only coastal
players in Gujarat are being able to take advantage of this mode. Hence, a
very small proportion of the cement is transported by the sea route.
In order to control freight costs, companies try to strategically locate
plants close to raw material sources and end-user segments by opting for
split location units.
Sale of cements is either to the trade or non trade customers. Trade
customers involve dealers while non trade involves large construction
sites which buys cement directly from the companies. Transportation cost
to either of these customers is the function of the distance travelled one
cement plant usually thus caters to the area in the radius of about 250
kms. Thus Cement industry is highly localized and is concentrated in the
regions in India.

Potential issues and challenges in Internal supply chain

management

Major processes undertaken during the internal supply chain management

are Purchasing
Logistics
Marketing and sales
Production
R&D
Finance
Issues that surface in the company during internal supply chain
management can be listed as Environmental Issues
Mining causes deforestation, noise pollution and emission. As
environmental laws are gradually getting more stringent cement
industries are facing challenge of meeting those norms. Generally, the
consideration of the impact of firms actions on the society is what we call
a Corporate Social Responsibility. The waste disposal into water bodies,
procurement of resources from earths crust and many more factors lead
to deterioration of environment. Following this, the researchers and
practitioners began to promote the concept of green supply chain
management (GrSCM). The listed 10 top environmental issues as for
cement industry are: climate change, energy, water, biodiversity and land
use, chemicals, toxics and heavy metals, air pollution, waste
management, ozone layer depletion, oceans and fisheries, and
deforestation.
Human Resources
Most of the cement plants are located in hinterlands and difficult areas.
Additionally cement plants produces many hazardous emission and dust.
Due to all these problems they are not very attractive place for bright
employees.
Labor unions
There is a recurring problem of labor unions prevalent in this industry.
Cement plants employs a large number of labor force directly or indirectly
who are well organized under various unions. Successful management of
labor union is a big challenge for cement plants.
Information technology
These days information is not only a resource, but it is a main resource of
securing a competitive advantage in coordinating within and across
organizations activities. Ineffective information communication is
becoming a hindrance to supply chain collaborations as globalization
brought about the essence of competition one supply chain with the other
supply chain member.

Even though foreign companies are exceling but Indian

companies still manifest underdevelopment of Electronic data
interchange (EDI) which means purchase orders, invoices as
well as order status, pricing enquires and scheduling
transactions are still not automated and rather manual in
many companies and even if they are automated, efficiency of
IT systems deployed is poor.
Enterprise Resource Planning (ERP) systems were developed
to integrate the business of suppliers and customers through
an integrated database environment which are also under
developed in some of the companies or else end to end
integration has not been achieved.
The use of Web Development Technologies enabled two way
flow of information among strategic partners that allow
accelerating their decision making in the SCM processes is
being deployed in some of the companies.

Distribution Management
This refers to the outbound logistics part of a chain. It involves finished
goods warehousing, materials handling, freight delivery, order processing
and scheduling. Finished goods could be stored either at the
manufacturing facilities or at the distribution centers. They also
underlined the significance of caution that should be undertaken in the
process of transportation, management determining highly cost,
availability and reliability of goods and services. Different distributions
channels are used to enable the target customers buy the products at the
desired point of purchase. These points of purchases could be online or
through retailers and distributors, where their performance shall be
evaluated against their level of customer reach, operating efficiency and
service quality. Cost minimization, timely delivery, etc. are some of the
issues in distribution management.

Inventory control
Few competitive threats are listed as:
Purchased inputs are the primary operating cost.
Greater emphasis is given on cooperative, long-term buyer supplier
relationship as required by Just-in-time (JIT) manufacturing revolution.
Large amount of information that are needed for strategically managing
buyer-supplier relationships made possible to be stored and tracked via
the new information technologies.
Better trained and competent managers began to enter into the system.
The decision at procurement process would be a binding contract for the
organization and it has a great impact on operations, inventory level and
quality of product and services to be delivered to customers. Inventories
are expensive unless and otherwise they are properly managed. Costs are

reduced by managing inventories. A low cost strategy can be attained by

striking the right balance between inventory investment and the level of
customer services, going only to reduce inventory costs may lead to
production stoppage and stock out for the customers. The very objective
of inventory control is to support the high levels of customer satisfaction
with optimal inventory level. In addition, an optimal level of investment
and the accuracy of inventory system records equally play an important
role in reducing costs and service delivery. Cycle inventory is the main tool
to rectify inventory record inaccuracy. They went on to say that when the
system record is higher than what is actually available, at the end of the
day operations would freeze due to stock outs. The other extreme
scenario is when the physical count is more than what the record system
shows, due to the recording fallacy, there would be an inflated inventory
which would be costly to the organization.
Supply chain integration and collaboration
The web of networks is formed in the process of supply chain
management process where the issue of integration would come into the
picture. Enterprises integration is mainly the linkages between the parts
of an organization. The issue of integration is becoming the current issue
in the study of supply chain management. Integration does not come by
its own. It needs commitment, well planned and relentlessly executed and
monitored collaboration among the supply chain members. These
collaborations provide access to skilled, resources and markets. They also
enable to solve problems quickly by generating novel ideas and to
transfer technology. Moreover, collaboration reduces lead times,
minimizes inventories and increase asset utilization, where all these in
turn lowers the cost of production. However, the execution of supply chain
integration is somewhat difficult than what is simply said. Barriers to
supply chain integration as lack of visibility of demand, inventory holding
status across the supply chain and adversarial relationship between the
trading partners.

UNIQUE SUPPLY CHAIN PRACTICES FOLLOWED BY

CEMENT COMPANIES
ULTRATECH
Throughout the years, UltraTech has accomplished market leadership by
giving benchmark administrations to clients by embracing client situated
procedures at each stage, right from planning to delivery.
Through a strong logistics network of 30 plants, 500 or more distribution
centres and 150 or more railheads, UltraTech serves 14000 orders for
each day by utilizing a blend of different logistics modes including rail,
road and ocean. These orders begin from 50000 or more merchants,
retailers and institutional clients with lot estimate differing from of 1 MT to

40 MT. The way to overseeing such scale and multifaceted nature is the
utilization of strong procedures for planning, dispersion, network plan,
order execution, perceivability and optimal resource utilization.
UltraTech has been one of the pioneers in the Indian Cement Industry in
utilizing innovation to give real time visibility across all partners. From
their channel accomplices (merchants, institutional clients), administration
accomplices (handling and transporting specialists, railroads) and even
inner functional groups, this visibility empowers ideal business choices
regularly.
With an eye on the future, UltraTech has executed a RFID based Vehicle
Movement System at one of its plants to screen real-time, in-plant
development of vehicles, enhance general well-being inside the plant and
diminish the general time taken inside the plant for road loading.

SOME OF THE BEST-IN-CLASS SCM PROCESSES

ADOPTED BY ULTRATECH

Network optimization
Web and mobile based order management system with real time
visibility of order status
Customer service level measurement on real time basis
GPS based vehicle tracking system for dedicated fleet
Automation at secondary service points like railheads and
godowns
RFID based vehicle movement system to reduce in-plant time of
vehicles

Ocean Logistics
Ocean transport is the most economic method of transport, particularly
where plants are arranged close ports. UltraTech is focused on ocean
mode as it is protected, environment well-disposed and contamination
free.
UltraTech has its operation on the Indian west drift with the stacking
terminals arranged at Pipavav and Jafarabad, Gujarat. The supplies go to
Magdalla, JNPT-Mumbai, Ratnagiri, New Mangalore, Cochin and fare to Sri
Lanka, Persian Gulf, African landmass and Far Eastern locales.
The best in class framework incorporates the payload passing on and
handling framework as a part of the bond plant. This captive pier handles
around 5 million tons of captive cargoes of concrete and clinker, with more
than 80% compartment inhabitancy rate.