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EXECUTIVE SUMMARY

This study is about the various operations that take place at Kepy cement private limited. Most of the information presented pertains to the various details of the operations at Kepy, their efficiencies and that various drawbacks that they might have. We have identified the various benchmark firms in the country that have the best practices in the operations functions. We then compared the functional details of Kepy cement and the benchmarked firms. This way, we were able to determine not just the areas that Kepy cement was not perfect in but also the extent to which Kepy cement was not perfecting in the various functions of operations management. The various functions of operations discussed in this study are design of goods and services, process design, capacity design, location strategy, human resource and job design, supply chain management, quality management, inventory management and maintenance.

We conclude the study by providing relevant suggestions and recommendations to Kepy cement so that they can improve the areas of operations that they are weak in. This study however is limited to information obtained from direct interview and data provided to us.

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  • 1.1 INTRODUCTION

CHAPTER 1

Cement is one of the key produces of Nepal. Nepal has very rich limestone deposits and exploits them to the brim. Currently 42 factories produce 3.90 million tons of cement annually in Nepal. The full utilization of the resources pertaining to the cement factory however has not occurred. There are many more deposits that remain to be used. While most of the materials required for cement production is found in Nepal itself, the industry imports come raw materials like gypsum, clinkers and coal from India. Kepy Cement is also a firm that is involved in producing cement in Nepal.

Kepy Cement Private Limited was established in the year 2005 with the aim of providing quality cement to consumers in the Kathmandu Valley. The company also provides cement to consumers in the vicinity of Kathmandu. Kepy produces OPC and PPC cement of 43 grade under the brand name of Kepy and Bhawani. The key element of Kepy cement is that most of the raw materials used in the production are obtained from mineral deposits of Nepal. Kepy cement was established to exploit the available local resources of the country so as to increase sustainability of Nepal in construction materials.

Establishing a factory is not a walk in the park. The initial phases of establishment of Kepy cement involved research of the limestone deposits, feasibility of establishing a cement company that would exploit local resources and methods of compliance with the environmental and labor laws of the country. Upon conducting these researches, it was found that Kepy cement would be a feasible project and therefore, contracts were granted to Chinese companies to initiate procedures for designing and producing various factory parts that would be required to start the cement factory. It was only in the year 2010 that Kepy actually started producing the cement that we see in the markets today.

  • 1.2 STUDY OBJECTIVES

Our study focuses on the various functions of the operations of Kepy cement which primarily comprise of process and capacity design, location strategy, layout strategy,

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human resources and job design and design of packaging in Kepy, the supply chain management, inventory management, scheduling, managing the quality of the cement and the various maintenance routines, methods and procedures that occur at the factor of Kepy cement.

Apart from investigating the salient features at Kepy cement, we have also conducted an analysis of the standards that prevail in the industry among other cement factories. Through benchmarking with the best practice companies in the cement industries, we have been able to identify the strengths and the weaknesses that exist in Kepy cement. Our study aims to provide constructive criticism as well vis-à-vis the generic trends that prevail in the ideal firm in this industry. Each company has weaknesses and strengths and therefore it is difficult to conclude that the best cement firm in the whole country is so and so company. Instead, we have studied each function of operations separately and discretely. In doing so, we came to the conclusion that there is a separate best practice firm for each of the function. Maruti cement may have the best practice for inventory while Udaipur cement may have the best quality standards. This type of analysis eliminates the limitations that arise from studying just one firm for benchmarking.

  • 1.3 METHODOLOGY

Most of our study is based on the interview granted to us by Mr. Bibhav Kunwar, assistant manager and Mr. Keshav Upreti, managing director of Kepy cement. Filling out questionnaires and survey forms has many limitations, the primary one being that the answers given in written interviews are confined and narrow in scope. Telephone interviews are a better alternative but time is a constraint in telephone interviews. The best form of interview is a person to person (direct) interview which we conducted with both the persons mentioned above.

  • 1.4 LIMITATIONS

There are several limitations in this study. The first limitation is that the study is based on interviews, information and charts provided by Mr Bibhav Kunwar and Mr Keshav Upreti. None of the members of the team members actually visited the factory, warehouses or the mines of Kepy cement. A field visit was beyond the scope of this

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study. We were also not able to visit other cement firms that we have identified as benchmarks for best practice firms in the cement industry. Visits to the best practice firms were also beyond the scope of this study. Therefore we solely relied on the information given to us for this study. Direct observation was not an option. Being a private company, Kepy cement was understandably hesitant in providing actual operations data which are sometimes confidential.

The second limitation is that Kepy cement has only been operational for two years. Many of the topics that this study encompasses become permanent after a longer period. Topics such as maintenance, human resource and scheduling only become necessary as a company becomes old and more experienced in the field. The same goes for prudency. New companies sometimes find it difficult while adhering to proper standards due to inexperience. Kepy cement is still in the introduction/growth phase and at this point many of the activities conducted are of an experimental nature. Prudent operations practices only come with age as experience is the biggest teacher of all, especially in the industries.

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CHAPTER 2

FUNCTIONS OF OPERATIONS

1)

Design of goods and services

2)

Process design

3)

Layout strategy

4)

Capacity design

5)

Location strategy

6)

Human resource and job design

7)

Supply chain management

8)

Scheduling

9)

Quality function

10) Inventory management 11) Maintenance

2.1 DESIGN OF GOODS AND SERVICES

Kepy cement started producing Kepy cement with the objective of satisfying their requirement by serving them with standard quality cement at reasonable price. Initially, it used to sell cement to the authorized dealer, who used to sell them to retailers and end users (customers). With the flow of time, Kepy cement understood that the ultimate user (customer) were paying very high price because of the presence of dealer and retailer. So, with the aim of providing the cement at lower price, Kepy Cement Company also started selling the cement directly to its end user. Thus, by the selecting this new service, the company was able to reduce price by NRS. 30. This helped the company to win loyal customers as well as increase the market share.

Manufacturing and value Engineering

Kepy cement understood the importance of manufacturing and value engineering in the factory as it would help them to reduce the cost by 10 %. At first, the company reduced the complexity of the factory by adopting VSK (Vertical Shaft Kiln), which is very

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simple and reduces cost by many ways (less installation cost, low consumption of fuel and water, negligible maintenance cost etc). Secondly, the company gave various trainings to all the engineers, workers and other staffs related to the production department in order to reduce the cost of maintenance resulting from mishandling the various equipment.

2.2 PROCESS DESIGN

KCIPL produces OPC Cement and PPC cement under the brand names, Kepy Cement and Bhawani Cement respectively. Both of the brands of Kepy cement belong to grade 43. Kepy brand cements are used for making huge structural buildings whereas Bhawani brand cement are used for making small or ordinary buildings. One of the major decisions that manager has to face while designing a well functioning process is to choose a process type and as Kepy cement are produced in high volume and in low variety by the transformation of various inputs, it can be said that Kepy Cement Company has adopted Product focused strategy. Since, the product focused facilities assures standardization and effective quality, Kepy Cement Company is successful in producing high quality cement, achieving time flexibility and minimization of cost. Another reason for choosing product focus strategy is that Kepy produces high volume of cement characterized by standardized production with rigid line flows. However, the adoption of product focused strategy has resulted in high fixed cost but low variable cost.

The startup process of Kepy cement is capital intensive, so, the raw material flows continuously through one operation to the other without significant stoppage so as to avoid expensive shutdown and start-ups. Kepy cement can operate continuously for long time (twelve months) with minimal time for maintenance. It uses various inputs for the production of cements which are as follows:-

  • (i) Labor : Various people are engaged in the Kepy cement factory at various stages of production Petroleum products: Fuel is the most important petroleum product used by Kepy cement factory to generate energy for clinker production.

(ii)

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(iii)

Raw materials used: Limestone, coal, clay, gypsum, flash, PB bags are major constituent and the largest bulk in terms of input to cement. For producing

(iv)

one tone of cement, approximately 1.6 tones of limestone is required, which is purchased by the management through personal contacts. In rainy season, company stores high inventory of coal as compared to the normal seasons to avoid the shortage of limestone. Coals forms about 25 percent of the total operating cost and around 25 tons of coal are used to produce 100 tons of cement. These coals are imported from India. Energy use: It uses energy in the form of electricity for the production.

(v)

Technology used: Kepy cement uses VSK (Vertical Shaft Kiln) technology to produce the Kepy brand cement and PPC cement. VSK cement plants are environmental friendly. VSK are free of water pollution and air pollution as VSK emits negligible amount of nitrous oxide and carbon mono oxide. The plant is well equipped with the appropriate pollution control device at every transfer point to ensure dust free operation. Kepy Cement has adopted VSK technology because of the following reasons :-

  • a) Less power consumption

  • b) Low installation cost

  • c) Shorter gestation

  • d) Trouble free technology

  • e) Negligible maintenance

  • f) Easy in operation

  • g) Fuel saving

Manufacturing process of Kepy cement and PPC under VSK technology

The cement manufacturing process begins with limestone and it consists of many simultaneous and continuous operations using some of the largest moving machinery in manufacturing. The steps used by Kepy cement for the production of cement under VSK technology are as follows:-

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  • (i) Crushing Section: - The raw materials mainly limestone, clay, coke are crushed in

the separate crushers and stored automatically into the respective silos. (ii) Storage & Proportioning: - The different raw materials are extracted from the silos in the desired proportion through table feeders and conveyed to raw mill. (iii) Raw Milling and mixing: - Since the clinkering process requires a raw meal, which is ground to a fineness of about 10 percent retained on 170 mesh sieves, it is generally preferable to grind the raw mix in a closed-circuit system for efficient control. Generally, the clay and coke-breeze components will have moisture, so it is preferable to use an air-swept ball-mill system with a drying compartment or a vertical roller mill. For dry raw materials a closed-circuit ball mill with a bucket elevator and mechanical separator can be selected. A small air-swept ball-mill system can be selected in case moisture exists only for short periods in the rainy season. The raw mix is ground into a Ball Mill at desired fineness to produce Raw Meal, and transported for Homogenizing. (iv) Blending & Homogenization: - The capacities of homogenizing silos are normally selected based on 3-4 hours of mill operation or higher. Blending is done pneumatically in a silo in batches. A batch requires nearly an hour of aeration to homogenize completely.

Relatively smaller plants may use a single-blending silo on top of a storage silo whereas the others may use two blending silos on top of one or two storage silos. Relatively larger plants of more sophisticated construction may use a single blending-cum-storage silo with a continuous- blending operation.

  • (v) Palletizing & Burning: - The nodules are made into a nodulisor and charged into the VSK for burning. The clinker after discharge is stored in the clinker yard through deep Bucket Elevator.

(vi) Clinker/gypsum crushing, storage & proportioning: - Clinker & Gypsum after crushing stored into the hoppers and extracted in the desired proportion with the help of table feeders and transported to the Cement mill Hopper.

(vii) Cement Milling: - The clinker & Gypsum mix is ground in the cement mill to produce cement.

(viii)Storage & Packing: - The cement is stored into the cement silos and aerated, visually tested and packed for dispatch. There is Quality control unit, which checks the

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cement visually and rank them if they are excellent, pass or fail. Each cement product is stored in an individual bulk silo until needed by the customer. Bulk cement can be distributed in bulk by truck, rail, or water depending on the customer's needs. Cement can also be packaged with or without color addition and distributed by truck or rail.

2.3 LAYOUT STRATEGY

The layout of the machines in a factory hugely affects efficiency of production. The properly laid out factory can ensure the smooth and rapid movement of material, from the raw material stage to the end product stage. In order to provide the optimum relationship among the output, floor area and manufacturing process Kepy Cemet has implemented product-oriented layout.

The machines and equipments in the factory are arranged in a single line depending upon the sequence of operation required for the processing. The materials move from one workstation to another sequentially without any backtracking or deviation. The first part in the layout is the silos where raw materials like limestone and clay brought after quarrying and are stored. These raw materials are crushed and stored separately in different silos. The second machine on the line is raw mill where the required amount of different raw materials are put and mixed. The area next to raw mill is occupied by blender and another huge container. Before passing the blended materials to clinker, they have to go through the process of burning so, the burning machine is placed between clinker and blender. Going through this section, the cement is then passed to grinding machine, which is also called cement mill, for final grinding. Two huge storage containers have been installed beside the grinding machine so that the finished product can be easily stored minimizing fruther flow of the final product. At the end of the string, the packaging machine has been placed so that the cement can be filled into bags for packaging and distribution when required eliminating unnecessary movement of materials and workers. The machines have been installed in such a manner that the output of one machine becoming input of the next and therefore, the materials fed into the first machine, moving from one workstation to another with minimum work in progress storage and material handling, automatically comes out from another machine as a final

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product. Hence, in this way Kepy Cement has been successful in effective utilization of factory space. Furthermore, this factory layout has proved to have minimized material handling cost, aided efficient utilization of labour, and eased supervision and control of operations resulting sound productivity.

10 product. Hence, in this way Kepy Cement has been successful in effective utilization of factory

Fig:- Layout of a typical vertical shaft kiln 2.4 CAPACITY DESIGN

Capacity of a cement factory can be defined as the number of units it can produce in a specific period of time and in cement industry it is generally calculated as productions as tons per day. The production capacity of Kepy cement is 125 tones per day which in aggregate comes to 3000 bags per day. Although the plant has been designed to produce 6000 tones a year, the production is only 86% of the actual capacity.

The annual demand of cement in Nepal is around 3.9 million tons which is rapidly increasing with the fast pace of development in the country. Local production fulfils

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about 72 percent of the total market requirement and the rest is met by imports from India. In spite of such a big market is home country, Kepy decided to build plant with capacity of 6000 tons per annum. The major reason behind this decision is the limited availability of limestone in the particular area. By setting up this unit, the cost of production will be lowered and further, cement will be manufactured as per the local demand. Moreover, the unit will contribute towards the industrialization of the country, utilization of local resources & giving employment to the local people.

The operation managers of Kepy cement have realized the importance of design capacity, utilization and efficiency and used them as important measures in order to harmonize the various inputs, production and demand patterns so as to satisfy the customer and company in a profitable way. The scope of capacity design works in a Kepy cement plant which uses VSK technology includes a study of such areas as transport, receiving, storage, production, packaging, material handling, unit operation required for the process, warehousing, external facilities, buildings, maintenance and safety. The company has strived to utilize the capacity design effectively for the following purposes:

  • (a) Facilitate the manufacturing process of the cement;

  • (b) Minimize material handling at various stages of production;

  • (c) Maintain flexibility of arrangement and of operation so as to meet the demand;

  • (d) Maintain high turnover of work;

  • (e) Minimize investment on equipment;

  • (f) Make economical use of the available plant space;

  • (g) Promote effective utilization of the workforce; and

  • (h) Provide employee convenience, safety and comfort in doing the work.

In order to monitor and improve the performance of a cement plant, Kepy Cement Company has evolved a performance evaluation system. This performance evaluation system includes the collection of monthly plant performance data such as quality of raw materials, raw meal and clinker, evaluation

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and analysis of cement produced, performance of individual unit operations (crushing, grinding, blending, clinkerization, packing etc.), downtime data of equipment - mainly kiln and mills, details of cost such as the production cost, raw material/fuel cost etc. These monthly data are compiled for trend analysis over a longer period of time, say one year.

The capacity utilization has a significant impact on the productivity and efficiency of any industry and Kepy cement factory is not an exception. It has done its best to achieve full capacity utilization. However, in terms of capacity design, Kepy cement lags behind Maruti cement which is far more efficient in fully capitalizing its production capacity.

As the primary market of kepy cement is Katmandu valley, where the demand for cement is sky high, so, there is poor match between the actual demand that exists and available capacity of Kepy cement. The demand for the Kepy cement in summer season is extremely high because lots of construction takes during this season. The management has the option to curtail the demand by raising the prices and scheduling long lead times. However, these options cannot be realized because of the competition from the Maruti cement and Hetauda cement factory. Again in the rainy seasons the demand declines and the price has to be reduced in order to reduce the inventory of finished goods. Generally

there is mutual understanding among the cement factory to reduce the price during “off- peak” periods but not during the peak periods. Over the years demand for the cement has

increased by a significant margin and the management of Kepy cement has realized this and it is planning to increase its capacity in order to bridge the gap between the actual existing demand and capacity to produce the cement. The various reasons why Kepy

cement is planning to expand its capacity are as follows:-

  • (i) To achieve the long run solution for the excess demand

(ii) To reduce the risk of losing the market to its competitor

(iii)To increase its ROI (Return On Investment)

(iv) To

achieve greater efficiency

  • (v) To target new markets

(vi) To meet the pattern and growth of the construction industry

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2.5 LOCATION STRATEGY

Selecting the right location is the most crucial decision a company will even make in the course of its lifetime. It is imperative that a company chooses the best location. There is no generic formula to pick the best location for the company. Every company has unique priorities and unique needs. Location for the factory is only chosen once and the fixed and variable costs of production depend upon that choice. A malicious location will inevitably have disastrous effects whereas a proper location will have numerous benefits. Location strategy is a cardinal decision that has to be made after much research, considerations and thoughts.

The main factory of Kepy cement is situated in Naubise Village Development Committee, ward 7, Dhading. According to Mr Keshav Upreti, during the initial setup and survey phases, Kepy cement had the option of selecting the site from two different locations. One was at Dhading Naubise which would be ultimately selected and the other one was at Bhardeu VDC, several kilometers away from the current factory. The initial setup team conducted a thorough study of the feasibility of both the sites. Ultimately, Dhading was chosen over Bhardeu for the following reasons.

1)

Location of markets

Although both the sites were located at a reasonable distance from Kathmandu valley, the prime market of Kepy cement, Dhading proved to be nearer and more facilitated with transportation routes. Dhading/Naubise is almost 30 kilometers from the Kathmandu valley. The area has an excellent system of roads that connect it directly to Kathmandu. The proximity and exhaustive transportation routes to and from Kathmandu made Dhading/Naubise the ideal sport for mining and processing cement.

2)

Labor and energy costs

Bhardeu proved to be slightly less efficient in terms of labor and energy costs. Albeit the NEA has uniform rates throughout the country, the timings of load shedding is different from district to district. Different districts have different fluctuations of electricity. Using a generator is always more costly and in Bhardeu, Kepy had to use the generator more

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than use the supply from NEA. The amount of electricity supplied by NEA at Bhardeu was simply insufficient. Manpower for the factory was also more abundant in Dhading than for Bhardeu.

3)

Government rules and regulations

The government of Nepal is extremely scrupulous in giving licenses to factories located inside the Kathmandu valley. Pollution, environmental degradation, noise and obstruction to urban life are some of the reasons cited by the government for imposing such restriction. During the initial setup phases of Kepy cement, Bhardeu fell in the jurisdiction of Kathmandu municipality. Although these days, the jurisdiction has changed, at the time of Kepy’s setup, Bhardeu was considered to be in the valley and therefore, procuring a license from the government to set up a cement factory was an arduous task. Naubise on the other hand was well outside of Kathmandu valley and therefore did not have any restrictions.

4)

Raw materials and energy

At the Naubise facility, most of the energy that is used by Kepy cement is obtained from coal and electricity. The coal is imported from India whereas the electricity is local. Because the electricity provided by NEA is spasmodic most of the time, Kepy maintains a backup generator. Some other tangible costs incurred by Kepy cement are taxation which is the same throughout the country, transportation.

Some of the raw materials that are used in the production of Kepy cement are imported from India. Gypsum, coal, clinkers and other accessories are best imported as the cost of producing them locally is quite high. But the limestone and clay, both primary elements of cement, are mined from a local limestone deposit in the Lele valley which is situated about 25 kilometers from the main factory at Naubise. With a relatively small capacity of 3000 bags per day, the limestone deposits at Lele are more than sufficient for Kepy cement. Most of the limestone and clay are brought to the main factory in large trucks called dippers.

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5)

Political and environmental factors

Kepy cement has been approached various times by local goons and thugs for money. While the company remains adamant in its policy of not supporting such behavior, it is customary in Nepal to bribe away such unruly and surly social characters. Because Kepy cement is located outside the Kathmandu valley, the plant itself has not had any problems or strife with the government or local parties.

The cardinal concern of a cement factory’s deleterious effect on the environment is noise pollution and dust. Kepy cement however uses state-of-the-art equipment that does not emit any form of pollutants in the air. This zero emission plant does however produce a lot of noise but Kepy is trying very hard to bring the noise to a subliminal level.

Benchmark of location with best practice firm

Although Kepy cement’s plant is built in a very suitable location, it is not the best

according to Mr Keshav Uprety, managing director of Kepy. Keeping in mind the close relationship between the market and the location of the factory, the best location in the cement industry is that of Maruti cement which is located in the far eastern part of Nepal

in Sagarmatha Zone. Maruti’s location is ideal because of its proximity to bigger and steadier markets in India and Bangladesh. These markets are only several hours away from Maruti cement and the roads that connect the plant to the markets are efficient. Maruti does not use local resources because it does not have to. The plants of Maruti are in such ideal locations that Maruti can import large volumes of raw materials from India, convert them to cement and sell them back to India at a higher price!

2.6 HUMAN RESOURCE AND JOB DESIGN

The primary objective of human resource function is to manage labor and design jobs so that employees are efficiently and effectively utilized. Human resource is definitely considered as the backbone by Kepy Cement and key source in building and developing the company. Kepy Cement is one of the well known organizations in the cement industry employing human resources with entire satisfaction of employees. Presently

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Kepy Cement has 85 employees and has recruited the local people from Dhading in the plant to boost the living standard of the locals.

The organizational structure of the company is shown in the figure below:

16 Kepy Cement has 85 employees and has recruited the local people from Dhading in the

Labor Planning

Employment - Stability Policies

As the production is continuous Kepy Cement has been using hold employment constant policy for dealing with stability which keeps hiring, termination, and unemployment costs to a minimum. However the issue about full utilization of the labor during slack period is observed. This policy treats labor as fixed cost.

Work Schedules

As per the standard work schedule of Nepal the employees of Kepy Cement are required to work six 8- hour days and are given 4hrs of overtime. Since the production is 24 hrs there are three shifts of duties (morning, evening and night). The company also recruits part time employees during peak season. It also allows flexible workweek in specific conditions.

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Job Classification and Work Rules

Kepy cement has strict job classification and work rules in its plant that specifies the duties of each and every worker. Such classification has restricted employee's flexibility on the job and hindered responsive factor.

Job Design

Job design is an approach that specifies the tasks that constitute the job for an individual. Some of the components of job design used in Kepy Cement are discussed below

Job Specialization

Each individual/group is assigned unique task (division of labor) in the production process that develops dexterity and faster learning among the employees and reduces the loss of time for changing the jobs or tools.

Job expansion

Recently the company has been practicing job rotation approach in order to reduce the monotony of the job and give the employees a wider experience and help them gain more insights. But this approach is being applied only in the managerial level jobs.

Motivation and incentive system

Kepy Cement is providing several types of allowances to its staffs like lunch allowance, special pay allowance and night shift allowance. Likewise it is also providing gloves, masks and safety glasses considering the safety of the employees. Bonus and monetary incentives has not been given as the company is still incurring loss since its establishment. As per the Labor law any company needs to provide 10% of net profit to its staffs as bonus.

Ethics and work environment

Managers of Kepy Cement are certainly regulated by moral principles in their every corporate decision making process. Managers do have some guideline. The managers legally comply with the Labour Law and consider workplace safety by proving different

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trainings or hazard disclosure. Issues including employment itself, privacy, and compensation in accord with comparable worth, collective bargaining (and/or its opposite) are seen either as inalienable rights or as negotiable. Regarding the working conditions continuous exposure to noise, heat and dust concentration definitely affects the health of the workers, addressing this issue Kepy Cement has been using dust free technology and has given special attention towards work place safety providing employees gloves and safety glasses.

Benchmark of human resource with best practice firm

Kepy Cement has benchmarked Jagadamba Cement regarding the human resource management. Jagadamba Cement works for continual improvement in quality of works and services rendered by the company, enhancing the involvement of all levels of employees. Moreover Jagadamba has been practicing job enlargement and enrichment. The company conducts employees training programs and workshops frequently to improve the quality of workers.

2.7 SUPPLY CHAIN MANAGEMENT

Raw materials acquirement

The raw materials for the cement manufacturing are acquired from various places through various transportation means. Limestone and clay, basic raw materials of cement, are brought from limestone mine situated at Lele, Kathmandu which is at a distance of fifty kilometers from the factory location. Although the company owns the mine, Kepy cement has appointed contractors who are responsible to quarry and transport the limestone to the factory. Coal and gypsum, other major elements required for production, are imported from India. All these raw materials required for the production of cement are transported by trucks.

Logistics management

As Kepy Cement

is

new

in

the industry the

target market is relatively small in

comparison to that of other well established cement companies. To be specific, the

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Kathmandu valley is the only market that Kepy Cement has been serving. The company believes in flat distribution network. Therefore, with the market size that it has been serving, Kepy currently has only twelve distributors selling its product which are spread throughout the valley.

In initial stage of its business, Kepy cement had gone through many distributors to deliver its product to the end consumers. To enter into the market and compete with other brands of cement, the company at first selected, and provided cement bags to distributors

on credit. As the product’s fame spread, the company trimmed down the number of

distributors on the ground of their accountability and timeliness of payment. Distributors who made transactions on cash were the most preferred ones, while others were chosen on the basis of bank guarantees they provided and the number of sales they could make. With a motive of involving less number of middle agents in supply chain, Kepy cement at present, is making deliveries directly to the end users as well. The company receives orders from two sources: (a) distributors and (b) end users. The end users can place order directly to the company or can get the product through distributors. The main objective behind selling directly to end users, according to the company, is to deliver the product in nominal price, eluding the price that middle-agents would charge. Hence, the prices charged to the end users and distributors are different.

Once the order is received by the factory, cement bag filling and packaging process is performed. The bags are then loaded to trucks and dispatched to intended places. The concept of Just in Time has been effectively used here. The bags are packed only when orders are received.

Aggregate planning

The market for Nepali cement is very good. All the stock cement sells easily for they are good in quality. Domestic cement production accounts for only 40% of total consumption. Nonetheless, there is difference in quantity demanded in different seasons. The demand plummets in winter season while it rises in summer. In spite of this fact, the production plant of Kepy cement operates in full capacity throughout the year. The excess production in winter is stored to sell them later when the demand goes up.

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Kepy cement uses demand options as an aggregate planning strategy. The company cuts the price per bag of cement in winter to influence demand in the market. During peak period, the price per bag of cement is Rs. 725 while that is Rs. 675 during trough period. The price cut, however, has not been so effective in increasing the demand in off season because the major construction functions are conducted during summer season. Likewise, the competitors also lower their prices in off seasons because of which the customers are divided among competitors.

2.8 SCHEDULING FUNCTION

Effective schedules are communicated both within the organization and to outside suppliers. Better scheduling improves the ability to meet customers' orders, drives down inventory by allowing smaller lot sizes and reduce work in process. Furthermore good scheduling means greater use of assets and hence greater capacity per dollar invested which in turn lower the cost. Kepy Cement has set up various schedules regarding production of cement, purchase of materials, workers and delivery of cement to the customers so that faster and timely movement of the product is ensured and due dates promise of the customers is met.

Capacity schedule

The plant capacity is 3000 bags per day (125 tons per day). Regardless of slack time or peak time the production capacity remains the same, but unfortunately the company has only been able to utilize 90% of its capacity.

Material requirement schedule

The raw materials required for the production like limestone, coal and clay are bought in

quantity which is enough to produce for at least a month so that production doesn’t stop

in unfavorable circumstance.

Worker schedule

The employees are required to work required to work six 8- hour days and their duty

schedule in three shifts (morning, day and night). Each staff is assigned specific task in the plant.

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Short term schedule

Since manufacturing process in Kepy cement is a continuous process (24 hrs) the scheduling generates a forward looking schedule that can meet the demand with the existing fixed capacity. Input output control technique is also being used to manage facility work flows and avoid overloading or inefficiencies. For sequencing the jobs Kepy Cement is practicing FCFS (first come, first served) priority rule.

Maintenance Schedule

Maintenance management is carried to increase equipment availability and overall effectiveness. Lubrication and oiling is done in every shift and duty to maintain the efficiently of the machinery avoid breakdown and breakdown maintenance cost. Besides these other maintenance tactics like motor belt replacement, fan blade cleaning, fan wheel balancing, and compressed air system maintenance is done at least once a month.

Manufacturing schedule

The production process for Kepy Cement consists of drying, grinding and mixing

limestone and additives like bauxite and iron ore into a powder known as “raw meal”.

The raw meal is then heated and burned in a pre-heater and kiln and then cooled in an air cooling system to form a semi-finished product, known as a clinker. Clinker (95%) is cooled by air and subsequently ground with gypsum (5%) to form Cement.

2.9 QUALITY STRATEGY

Quality is meticulously maintained at Kepy cement. To the customers of Kepy, quality means durable cement that provides strength to the buildings. To manufactures i.e. Kepy cement, quality means providing cement with the right amount of mixtures with the best quality of limestone and gypsum available. In order to stay with the competition and sustain production according to standards of the industry, Kepy cement not just maintains the minimum ISO standards but also makes every effort to exceed these standards.

Total quality management (TQM) was however not observed at Kepy cement. Quality was measured at Kepy cement in only two stages of the production. First stage was in the

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harvesting of raw materials, primarily limestone. Most of the limestone was either graded as good, O.K. or fail. Good and O.K. limestone was sent to the factory for processing whereas fail limestone was disposed off into another location. The second quality control step was taken in the end stage of the production process where the actual cement that is produced in powder form was assessed to see if it had the attributes and features required by Kepy cement. This is one of the issues we discuss in later parts of this report. Some important highlights regarding quality at Kepy cement are discussed below.

1)

Damages accrued from loss of quality

The reason why Kepy cement places priority on quality is that cement is the cardinal ingredient of any construction work and therefore, it should be of good quality. If the cement that is used is of poor quality, not strong or durable, the construction project would collapse and disintegrate in a short span of time. Usually construction projects such as houses, buildings, bridges, dams, hydropower projects and reservoirs are meant for long term. The average life of such projects in more than 50 years therefore, it is imperative that the cement used in the projects be of good quality. The losses incurred when quality is compromised are quite high. The disintegration and collapse of dams can lead to massive flooding, the breakdown of buildings can lead to loss of hundreds of lives and the collapse of hydropower project can cause serious economic hardships on the country.

2)

Staying in competition

There are many firms in Nepal that manufacture cement like Hetauda, Udaypur, Kepy, Maruti, Bhawani, Ambuja, Bishwokarma and Jagadamba cement. Due to the abundance of suppliers, the consumers have a choice of purchasing the cement that they desire to purchase. If the consumers realize that the quality of one of the firms is not good then they have so many alternatives in the market that they will not hesitate to switch brands. A graver concern is that the flow of information in the market among the consumers is quite efficient. The opinion of one consumer directly affects the decision of many other consumers. No one wants to take risk in long term projects such as construction therefore, it is important that Kepy maintains a good reputation in order to survive in the market.

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Compromising

quality

would

surely

knock

it

off

a

market

that

has

bottleneck

competition.

A testimony to the quality of cement produced at Kepy is that not even one complaint has been received or cement bags brought back to the factory because the quality was not as expected by the customer.

Benchmark of quality with best practice firm

Even though Kepy cement produces good quality cement, the best quality cement is produced by Udaypur cement factory. Udaypur cement is the most expensive one in the market and is also perceived by consumers as the best. Several factors affect the quality of cement of Udaypur.

  • a) The quality of limestone deposits that Udaypur harvests from the vicinity of its factory is of superior quality. The limestone there is one of the best limestone deposits in the whole world. Kepy cement gets limestones from Lele and although the limestone is quite decent, it is not as good as the deposit in Udaypur. Kepy cannot attain the quality of Udaypur because transporting limestone all the way from Udaypur to Dhading is impossible.

  • b) The machineries used at Udaypur factory are extremely efficient and produce very high quality and quantity of cement. Kepy cement uses machineries that are environmentally friendly but the quality of the final product that is produced by Kepy cement’s machines is not as fine as that of Udaypur.

2.10 INVENTORY MANAGEMENT

Kepy Cement has two types of inventories: (a) raw materials, (b) finished goods. Since the company has its own limestone mine, it does not have to purchase limestone and clay from outsiders. The contractor is responsible for excavating and bringing the limestone and clay when required. Coal and gypsum are imported from India while synthetic bags used for packaging are purchased from local manufacturer. These raw materials are kept in storage until their usage. A proper recording system has been maintained where every

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detail of incoming and outgoing inventories are recorded. In addition, a report on daily production is maintained where information about the amount of opening stock, consumed amount and the amount of remaining stock at the end of the day is registered. This has helped the manager to inspect and arrange critical ingredients in production and inventory system.

In order to run the factory smoothly without any disruption, appropriate levels of inventories are stored beforehand. The spare parts of machinery equipments that are easily available in local markets are kept in single units while those which have to be imported are reserved in multiple units according to the possibilities of their requirement. These spare parts of machines are imported from India, which may take lead time of about one month. Other inventories such as synthetic bag, gypsum, and coal are stored in

quantity that is enough for a month’s production. Coal is imported from Assam and

Jharkhand of India. The lead time to receive coal and gypsum is 10 days. Conversely, considering the uncertainty in the transportation accessibility because of strikes of different political parties of the country, the orders are placed some time ahead of actual requirement of the materials. The lead time to receive synthetic bag is normally 5 days. The routine ordering quantity of bags is around 100,000 bags per order which is placed at the end of every month.

The recording of inventory is done in computer system. Further, the list of raw materials, their consumption amount and stocks remaining in the storehouse are printed and safely filed on daily basis. Besides, the inventory controller regularly visits the stockroom to inspect the inventories on weekly basis.

2.11 MAINTAINANCE AND RELIABILITY FUNCTION

The objective of maintenance and reliability is to maintain the capacity of the system while controlling the cost. Maintenance includes all activities involved in keeping a system's equipment in working order. Reliability is the probability that a machine part or product will function properly for a specified time under stated conditions. Kepy Cement's maintenance strategy keeps its dedicated machinery and equipments in good condition which operates everyday for 24 hours. Because maintenance expenditures

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make up a percentage of production costs, attention is being turned to maintenance. Kepy Cement has tried to use standard production methods to control maintenance which in turn increases profits in two main ways: decreasing expenses and increasing capacity

Reliability tactics

In order to maintain the reliability of the whole system and achieve further productivity improvement, Kepy Cement has been focusing on improving the individual component as failure in any one component to perform can lead to overall system failure. Each in every component involved in the manufacturing process is handled with great care and attention and the reason behind the occurrence of the failure is properly studied in order to enhance the reliability of the system. Likewise back up components are also added to ensure if one component fails the system has recourse to another.

Maintenance tactics

High productivity at the Kepy cement plant is highly dependent on regular, scheduled maintenance. The company staff has the knowledge, manpower and parts on hand to give equipment the attention it needs when it’s due for scheduled maintenance. Maintenance at the plant is classified as electrical and mechanical workshop. The primary maintenance approach is to do what necessary to keep the equipment running with maximum production. Maintenance include elements such as motor and bearing lubrication, motor belt replacement, fan blade cleaning, fan wheel balancing, and compressed air system maintenance. Lubrication and oiling is taken as the routine work and done in every duty shift. The checking of the system is done on regular basis to reach expected performance and quality standards. Kepy cement has given its employees a sense of ownership of their equipment. They are allowed to carry preventive maintenance measures like lubrication , cleaning, wheel balancing on their own which ultimately avoids breakdown and breakdown maintenance cost.

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CHAPTER 3

ISSUES, PROBLEMS, CONCLUSION AND RECOMMENDATIONS

There are several issues and problems that are incumbent at Kepy cement. We have identified them and also provided recommendations based on our knowledge and understanding of operations management.

1)

Inconsistent raw materials

One of the primary problems faced at Kepy cement was that the raw materials, mainly limestone, were not consistent. Different qualities of limestone made it difficult to produce good cement. A lot of cost is being borne by Kepy cement to segregate the limestone at the production site.

Recommendations: The quality of limestone that is harvested is beyond the control of Kepy cement. Humans merely take what the earth gives. But the schedule of segregating limestone can be changed in order to save some costs. We recommend that Kepy cement install a quality department at Lele, the site where they obtain most of their limestone. Transporting the limestone all the way to Naubise and then filtering it for quality incurs transportations costs to and from Lele. The limestone that is rejected does not have to be transported all the way to Naubise and then assessed. The screening and filtering of limestone can take place by an expert at Lele itself.

2)

Absence of TQM

Total quality management is completely ignored at Kepy cement. The only quality that is considered by Kepy cement is of the raw materials and the finished product. Total quality management encompasses ensuring quality in the whole procedure i.e. from the very first stages to the final consumption stage. Kepy cement does not consider issues such as quality if logistics, warehousing at the wholesalers and quality at other ancillary processes that are connected with cement supply. All the employees of Kepy cement

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must be educated about quality issues. This is the only way to ensure that quality is converted to a strategic function.

Recommendations: We recommend that Kepy cement install a human resource department that is responsible for ensuring the empowerment of employees. The human resource department would be pivotal in educating the employees about the various quality priorities of Kepy cement. When every employee is informed about the quality standards of the organization, quality becomes the cardinal focus of the organization. This way, little is compromised when it comes to quality. When all employees are trained on issues such as quality, then quality becomes emphatic in every step of the operation.

Kepy Cement has only been in production for 2-3 years. This is a relatively short tenure for a thorough analysis of the various functions of the organization. Many of the functions that we hinted on actually require years and years of operations before we can fully ascertain them in accuracy.

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REFERENCES About us. (September 2012). Retrieved from http://www.kepycement.com/about1.php Heizer, J, Barry, R, (2010). Operations management 10 th edition. Prentice Hall. Kunwar, Bibhav (personal interview, 2012)

Subedi, B. (May, 2012). Domestic cement industry: on the path to self sufficiency. Retrieved from http://ekantipur.com/the-kathmandu-

post/2012/05/01/money/domestic-cement-industry-on-the-path-to-self-

sufficiecy/234411.html

Upreti, Keshav (personal interview, 2012)