Plant Locations Logistics are the main costs incurred while production Hence the Free Essay Example

Plant Locations: Logistics are the main costs incurred while production. Hence, the success of any cement company is largely dependent on how economic its logistics and operations are. This can be achieved through optimising plant locations in supply and demand-rich regions to minimise inbound and outbound logistics costs. Product Management: Production of value-added products like Ready Mix Concrete (RMC), Portland Pozzolan Cement (PPC) and Portland Slag Cement (PSC), although costly to produce, are a major factor contributing to success in the cement industry.

CREATING VALUE IN THE CEMENT INDUSTRYCement companies usually struggle to generate returns on invested capital greater than their cost of capital. Main reasons for this are structural factors like large fixed costs and fluctuations in supply and demand. However, a major non-structural contributor to value creation is the lack of a coherent commercial strategy. The first step to build a holistic strategy requires to gain a comprehensive understanding of what’s happening in the market. Based on the market analysis, companies should determine their strategy- whether they want to follow the cost leadership model or go in for premiumisation.

Scenario analysis can help them identify potentially emerging issues and build actions accordingly, such as governance, escalation and decision rights. After determining their strategy, companies should identify their structural advantages which could be in the form of acquiring productive assets, or building integrated plants or even dedicating production capacity to exports. Segmenting products and controlling volume is key in managing capacity or refining quality. This can help companies to strengthen their value proposition.

Companies should redefine their value offerings in the market. They are now focussing on a B2B2C strategy with B2B being the push segment and B2C being the pull segment. This allows them to focus on all aspects like distribution and logistics and also branding and value perception in customers. PORTER’S 5 FORCESPorter’s 5 force model provides a competitive framework that allows us to better understand the different dimensions that govern market competition and other external factors in the cement industry. The 5 forces are explained as follows- Threat of new entrantsThe barriers to enter into the cement industry are high, owing to high set up and installation costs. Sourcing of raw material (limestone and gypsum) is difficult and costly, mainly because most existing players have already established their own mines. Location of the cement plant is key, as the plant should be located near the mineral deposits in order to minimize raw material assembly costs. While deciding plant location, it is a trade-off for the company between proximity to raw material sources and proximity to markets. Cement is also a high bulk and low value commodity, and majority of the expenses are incurred during the transportation of the raw material. There is also increased competition as the cement industry in India is oligopolistic, as the top 5-6 firms together capture almost 55% of the market. Tough government clearance further restricts new competition, as the larger, already established players continue to enjoy economies of scale and well-established marketing and distribution channels. Bargaining power of buyers The bargaining power of buyers in the cement industry is generally low as most of the buyers are bulk-buyers. Majority of the buyers include those involved in construction activities, and the lack of substitutes for cement considerably reduces their buying power. Buyer power is also limited due the small number of cement firms and the demand for the products. Bargaining power of suppliersThe bargaining power of suppliers is moderate-high mainly because the raw material forms a very integral part of the manufacturing process. Shortages in supply of raw material may have adverse effects on the entire production and hence, suppliers exert great influence in the decisions of a cement-manufacturing firm. Cement prices increase due to increase in raw material and transportation costs. However, since raw material used is a natural resource, much of it comes under the control of the Government and companies have to buy rights and continuously take necessary approvals from the Government to set-up a cement plant. Thus, the supplier power is moderate, and not very high. Threat of substitutesThe cement industry in general faces low treat from competition from substitutes. There is no substitute for cement. While construction firms can use less cement in exchange of other similar materials like timber or steel, they are either too costly or not appropriate for construction of all kinds of buildings, and hence, the substitution effect is negligible on the market price of cement.Competitive rivalryThe inter-firm rivalry in the cement industry is high as it is one of the most competitive markets in the country. Many established players are large-scale companies with huge capital investments in their production units. This raises the exit barriers for such firms. Hence, they stay in the industry and compete with other firms aggressively. Another reason for increased competition is that the products are relatively homogenous i.e. differentiation is very minimal which in turn lowers the switching costs for customers. Companies thus invest a lot in gaining and retaining their market share. However, the competition is mostly regional as transportation costs for cement across different regions are relatively higher.SWOT ANALYSISStrengthsThe growth in cement industry is directly linked to strong economic growth and growth in housing sector will further boost the industry. Increase in demand and the ability to achieve economies of scale are the major strengths of any company in this industry. This, coupled with improved technology making production easier and cheaper has the scope of achieving massive profitability. Moreover, companies enjoy less competition and there are only a few major players in the market. WeaknessesThe industry is highly fragmented. Plant locations need to be very regional as the costs of transporting raw material to plants and finished goods to channels are very high. Cement being a low value commodity makes transportation over long distances very uneconomical. Logistics make up for more than 80% of the total cost of production. It is not available in all the regions which affect profit margins to a greater extent. Moreover, global recession directly impacts the real estate market which has an adverse effect on the cement industry. OpportunitiesThe economy is expected to grow stronger in the long run. Particularly, the increase in the number of infrastructure projects by the government gives a major scope for the growth of cement industry. The advancements of technology make production more profitable. ThreatsGovernment interventions can increase the prices of inputs like limestone and gypsum and other regulations may make it very difficult for new entrants to source raw materials and set up new manufacturing plants. Moreover, high transportation costs are a major drawback for this industry. 6. TECHNOLOGICAL AND REGULATORY SHIFTSWith the changes in technology, the cement industry in India has seen some major shifts in the last few years. Some of them are as follows- The plant operations have seen substantial developments with the introduction of Dry Process Technology to manufacture cement. With this shift, the sizes of the plants have also increased on an average. The new dry process cement plants which are being installed all over the country are now equipped with effective pollution control measures to meet the pollution standards laid down by the authorities. Advanced equipment for pollution control is also being installed. The machines used for cement manufacturing have also seen considerable changes with the rapid advancements in technology. For example, for grinding of raw material and coals, new vertical roller mills are being used instead of the traditional ball mills. Moreover, electronic packaging machines for improved weight reliability and efficiency and advanced instrumentation and process control equipment is being installed. Modern manufacturing methods are being used in the new plants. For example, computer aided mining and material handling, conveying limestone using belt conveyors, high efficiency burners, blenders and grinders and storage capacities are being implemented. As a result of these technological improvements, the installed capacity of the cement industry in India has grown from 5MT’s per annum at the end of the first 5-year plan to 43 MT’s at the end of the sixth 5-year plan. It has also resulted in a considerable reduction in the input and processing costs. Various Government regulatory policies recently have directly impacted the Cement Industry in India. These are- Union Budget 2018-19: In 2018-19, Union Budget allocated USD 92.22 billion for the Government’s infrastructure push, housing development, Smart Cities Mission and the Swachh Bharat Abhiyan which will boost the overall demand for cement in India. Affordable Housing: Under the National Housing Bank (NHB), the government set up an Affordable Housing Fund of Rs. 25,000 crores, for ease of availing credit for people willing to buy a house. This will boost the demand for cement coming from the housing segment. Pradhan Mantri Awaaz Yojana (Gramin Scheme): 4.9 million houses are proposed to be built under this scheme which will directly impact the cement industry of India. Auction of Limestone Block: The Government has auctioned 23 limestone blocks and 42 more blocks will be auctioned by March 2019 which will increase the availability and reduce cost of the raw material required to manufacture cement. 7. VISION/ MISSION AND RELATIVE PERFORMANCE TARGETS Mission Statement: To deliver superior value to our customers, shareholders, employees and society at large. Vision: To be a premium global company, with a clear focus on the business.Values: Ultratech Cement is built on the following value systems- Integrity- Honesty in every action Commitment- Delivering on promises Passion- Energised action Seamlessness- Boundaryless in letter and spirit Speed- Always one step aheadUltratech Cement focuses on providing customers with the best quality products and services. Their long-term aim is to become the most sought after, complete end-to-end building solutions provider, and to achieve this in a sustainable manner, they are innovating to move towards sustainable models and process from the traditional ones. They also focus on understanding the global mega-trends and their effects along with other geographical, physical, technological and legal factors which directly impact their business. They have reached a record revenue of $43 billion and a market capitalization of over $50 billion. These spectacular achievements are a reflection of not only their growing size and scale, but the inherent soundness of their strategies, operations and the enormous confident that the investors and other stakeholders have reposed in them.Indian cement companies, including Ultratech Cement have adopted various strategies to ensure more growth and development. Some of them are as follows- Increasing overseas presence by tie-ups with countries like Switzerland to reduce energy consumption and developing newer and more efficient production methods. Companies are trying to develop a niche market for Ready Mix Concrete (RMC), with the help of the Government by adopting cement instead of bitumen for construction of roads which make them more durable and less expensive. BRANDING BY ULTRATECH CEMENT Pricing- Because of a wide product portfolio, UltraTech Cement employs a varied pricing strategy. Places with surplus supply like the Southern regions experience lower pricing whereas regions which higher demand like Eastern and Western India experience higher pricing. Distribution- They use a three-level distribution channel involving a manufacturing agent, a distributor/retailer and ultimately the end consumer. Premiumisation- The product entered the market with the tagline The engineers’ choice! which depict the premium quality of the brand. They have also associated with sports such as cricket and hockey to brand themselves as youthful and energetic, and have various architects, builders and engineers to vouch for the quality of the brand to justify their premium pricing and quality focus. MERGERS AND ACQUISITIONS UltraTech Cement is further strengthening its leadership and gain additional scale, particularly in north India, with the acquisition of Binani Cement. Furthermore, the latter’s limestone reserves will help in low cost capacity expansion for UltraTech.

Remember! This is just a sample.

You can get a custom paper by one of our expert writers.

Get your custom essay

Helping students since 2015