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Supply Chain Management: CEMEX Company

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Supply Chain Management Case Study Report: CEMEX

Characteristics of Mexico cement supply chain and its supply chain challenges

Cemex is part of the building materials industry founded in 1906 whose headquarters are
in Monterrey. The company expanded into Mexico in 1960s through acquisitions, mergers and
regional expansions in Mexico. The company originally focused on cement and concrete (bagged
and bulk cement) but also ventured into unrelated businesses such as hotels and other unrelated
companies by 1968. However, with the appointment of Lorenzo Zambrano as the CEO in 1985,
the company rid none-core business and then expanded within Mexico to become the largest
Mexican cement producer. Over the years since, CEMEX has transformed to include other
cement-related companies e.g., companies dealing in rebars in line with their evolving focuses
and project specifications. CEMEX then expanded in Mexico, and expanded to over 15 countries
worldwide. Even though the global growth improved the geographical diversification, increased
production and returns, Mexico remains to be critical to the survival of the company,
contributing to 36% of its corporate sales and 50% of EBITA by 2004.

a. Product Analysis

Cement is the main product offered by CEMEX, yielding the highest sales. Cement is a
product of crushed limestone, mixed with iron ore and clay. Cement and concrete majorly serve
self-contractors, housing developers, transformation companies and large infrastructure projects
such as schools, hospitals.

As a value of product, the supply chain of cement industry in Mexico relies on asset
utilization, economies of scale and market differentiation. In this case, companies in this industry
such as Holcom and Lafarge S.A strive to occupy large regions and included other strategies
such as vertical integration to increase the value of the product and efficiency of their supply
chain. CEMEX also operates on these strategies through acquisitions of smaller companies and
progressively attaining product differentiation through technology. Also, CEMEX recently
embarked on having multiple products that includes other building materials such as rebar, steel

According to the Supply Chain Council SCOR model, processes involved in supply chain
networks are plan, source, make, deliver and return. Planning involves gathering customer
requirements, resource collection and balancing of requirements needed to fill a resource gap.
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Sourcing process describes patterns of ordering and receipt of goods and services whereas the
process of making involves a description of all the activities involved in the transformation of
raw materials into finished products, or sometimes in the provision of services for consumers.
The process of delivery accords the systems put in place to create, maintain and fulfil consumers
orders whereby CEMEX has 79 distribution centers, 8 marine terminals and a fleet of 5000
trucks, 250 of which are owned by CEMEX while the rest are operated by independent
companies. The delivery channels used by CEMEX also includes railroads and ships through
which some 1 million and 750,000 metric tons of cement are transported per month.

Critic of CEMEX’s strategic moves in merger and acquisition and investment in IT

since 1985

Mergers and Acquisitions are potent avenues for companies to realize growth and to avert
competitors. By merging or acquiring businesses with convincing portfolios and assists, and a
sizeable return on profits, companies can hope to stand a better foot against their competitors.
Other reasons include synergies and increase economies of scale. This appears to be the case
when CEMEX purchases RMC group, a British cement company in 2004. In regards to
synergies, companies purchases or merges with companies of similar businesses to consolidate
resources and improve on the accretive of a business. The accretive of CEMEX from the
acquisition of RCA is seen in increased production of cement from 38 million to 170 million tons
which also introduced CEMEX on Europe, and the United States. For CEMEX, M&A positively
reflected on the performance of the company as it not only led to improved world standards and
status, but also became a buffer for the company against volatile Mexican market.

M&As face the risks of integration, culture clash and other market-led reactions such as
reduced operating margins. For the purpose of supply chain management, integrating merged or
acquired companies can be challenging, mores due to disparities in technology, processes,
departments, information, organizations and clashes of organization cultures. Integration risks
can be averted through avoidance reduction, transfer or acceptance of these risk for example
when CEMEX began selling construction products aside from dealing in cement and concrete, it
faced a logistical challenge of integrating the new businesses in its model because manufacturers
had very unstable forecast. In response, CEMEX avoided the risk of spending more on inventory
mismatch by delaying shipping details for the manufacturer. Of consequence too in addressing
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the possible risks with their M&As is the evolution of a new culture of technology, innovations
and education. In the IT sector, CEMEX capitalized on the strengths of proper communication
between management in Mexico and other branches worldwide and the Executive Information
System allowed manager to conduct inspections and assess demand requirements of all their
markets from one place. This way technology solved for physical deficiencies of management in
the Acquired or merged companies

Illustrate how CEMEX’S IT initiatives enables its supply chain integration at

various dimensions

Technology improves processes in the supply chain with the internet reducing logistics
costs by 18-45% through faster delivery of goods and services, quicker order placements and
reduced transportation errors. Through CEMEX's logistic IT programs such as SCS Tactician,
the Exception Handling Administrative System ("SAPE"), the Delivery Visibility Systems
among others are likely to reduce logistics costs by responding to challenges such as segregating
urgent and important orders on time, distribution and transport at costs among others.

With the current advanced information technologies, companies such as CEMEX enjoys
virtual no cost throughput supply chain communication hence reducing administrative costs,
increasing lead times and responsiveness. It is improbable for CEMEX to remain competitive
without effective and timely communication. The designing of the Executive Information System
thus enabled managers to input manufacturing information easily from their diverse geographical
locations that could be viewed by other managers at their convenience and be integrated for
decision-making. This system allowed Zambrano to conduct “virtual inspections” of all aspects
of the processes up to the performance of individual cement plants. When he had questions or
found problems,

Analysis of CEMEX’S supply chain innovations

1. Setting up of a logistics department

In 1994 the demand for a logistics department arose from observation that distributors
waited in line for days to pick up cement from the cement plants. The setting up of distribution
engineering within the new logistics department reduced the long lines and thus increased
customer satisfaction by delivering within 24hrs of receiving an order. By 2005, 90% of orders
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were delivered on time, a significant rise from the 30% in 2000. In turn, the company capitalized
on the sophisticated software’s of the department to predict shortages and shortage risks, increase
visibility at each stage of the supply chain and improved inventory reduced the transportation
and distribution costs.

2. Setting up of Logistics University

Because the new logistics department involved sophisticated tools and programs,
CEMEX came up with a Logistics University where employees were taught policies, logistics,
management and administration, processes, inventory, organization, transportation, and systems.
The training programs improved employee output and efficiency at each stage of the supply
chain. This innovation benefits the company in increasing output and improving delivery of
services.

3. Construmex program

This program was designed to bridge CEMEX workers working in the United States and
their families in Mexico. instead of the workers sending money to their families in Mexico for
construction, they would give their money to CEMEX in the US and CEMEX in turn provided
construction materials to their families in Mexico for just $1. Compared to transaction fees of 7-
12% and 7-12% currency exchange charges. The program therefore saved customers in America
from the costs of constructing in Mexico and the company also increased its interactions between
the two states. By 2005, Construmex was available in three states, servicing up to 200
transactions each month.

4. Patrimonio Hoy

The poorest customers were organized in organized groups where CEMEX gave loans for
construction materials (all the materials at once) servicing over 100,000 families by 2005. The
participants of the Patrimonio Hoy program also received professional advice on construction.
The program was designed to be customer oriented and, in the end, construction time for the
poorest of members reduced from 4 years to one year and three months, and the costs reduced by
a third.

Factors that promoted implementation of the strategies

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The high GDP/Capita- higher GDP meant more housing development and thus more
formal constructors. In Mexico, most formal constructors used ready-mix cement which explains
why the business had grown from 10% in 2002 to 13% in 2003 and 22% in 2004. However, the
costs of constructing homes would be high for an average customer. Owing to the fact that 40-
50% of Mexican consumers are self-constructors using bagged cement. The Patrimonio Hoy
program would thus benefit this population by leveraging on the average customers in Mexico
and the finances from offshore countries.

The Mexican phone system was unreliable, and insufficient to network the company’s
operations. CEMEX invested in a satellite communications system that it called CEMEXNET.
This enabled all the CEMEX facilities (then 11 cement factories) to communicate and be
managed in a coordinated fashion instead of as a set of independent operations. Demand
requirements could be balanced against the company’s overall production capabilities, and
fulfilled by the appropriate operation. Zambrano could also be able to observe the operating
conditions and performance of plants around the world and make managerial decisions e.g
changing their production approach, or replace incompetent managers.

Recommendations

a. How should CEMEX respond to shift in purchasing from bagged to

bulk cement in Northern Mexico?

Supply chain management of any businesses primarily relates to the flow of businesses
processes and coordination of these processes through elements such as products, orders, demand
and supply information and transportation of required services or products to the consumers. For
companies to be able to measure the efficacy of their supply chains, it is imperative to
understand the business processes and the nature of the market- product, markets, suppliers, and
consumers. In this case, bagged cement is more prevalent in an emerging market such as is with
other areas in Mexico and is generated by Do-It-Yourself customers and small SME contractors.
Bulk cement is therefore functional whereas bagged cement is innovative. Functional products
should have an efficient supply chain while innovative products should have a responsive supply
chain. For this reason, a Configure-To-Order (CTO) SC design should be applied in Northern
Mexico
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References

"9 Technology." National Research Council. 2000. Surviving Supply Chain Integration:

Strategies for Small Manufacturers. Washington, DC: The National Academies Press.
doi: 10.17226/6369.

Georgise, F. B., Seifert, M., & Thoben, K.-D. (2014). Identifying the characteristics of the
supply chain ... Research gate. Retrieved from
https://www.wseas.org/multimedia/journals/economics/2014/a045707-176.pdf.

Picardo, E. (2021, December 7). How M&A can affect a company. Investopedia. Retrieved
December 13, 2021, from https://www.investopedia.com/articles/investing/102914/how-
mergers-and-acquisitions-can-affect-company.asp.

SCC. 2010 SCOR (Supply Chain Operation Reference) Model 10.0 by Supply Chain Council
USA.

Spacey, J. (2015). What is integration risk? Simplicable. Retrieved December 13, 2021, from
https://simplicable.com/new/integration-risk.