Gujarat Ambuja: Cost Leader in Indian Cement Industry Growth

- A Concrete Story..


        

Sonal Arya Sarjak Kikani Shailja Kapoor Shalu Weling Shivika kanchan Shashank Rai Sanket Bhatia Shailesh gupta Shivani maheshwari Shakti Dash Shazia Tasneem

    

Introduction Background Note Indian Cement Industry Manufacturing Process Total Cost Management

     

Order Processing Systems Inventory Management

Transportation Warehousing Future Outlook and Conclusion


Started production in 1986 Cement factories Sea terminals
mn tons

1986 Capacity 0.7

2002 13.0

.INTRODUCTION  In 2004 GACL was the third largest producer of cement in India   Widely considered to be the lowest cost producer GACL’s quest for cost leadership had been driven by productivity improvement and cost cutting measures.  Believed in doing things in innovative and unconventional ways.

. low-manpower cost. high degree of automation.  Picked up best practices during oversees visits. power tariff. large kilns.    Use of substitutes instead of coal to cut energy costs. Low cost funds helped to cut the cost capital. Ship transportation to cut down freight costs. fuel cost.…  Pioneered in various cost cutting measures like: Modern plants.

BACKGROUND        GACL was established as APCL in 1981 by Narotam S Sekhsaria. Midigama Cement. In 1996. . In 1983. in Sri Lanka. Suresh Neotia was appointed the Chairman & Sekhsaria took over as MD of APCL.7 mtpa in Ambuja Nagar Gujarat. GACL commissioned its 2nd plant named Gujambuja Cements. company floated a public issue & changed its name to GACL & production started at 0. it set up a 1. In 1993. through which it acquired a small company. Originally a cotton trader.5 mtpa plant in HP called ACHU & floated a wholly owned subsidiary in Mauritius – CAIL.. In 1995. GACL floated Ceylon Ambuja Cements Ltd.

In 1998. . GACL became the 4th largest cement manufacturer in India after ACC. It was renamed ACEL.5 billion to acquire a 51% stake in Delhi based DLF Cement. GACL acquired Nadikudi and Proddatur limestone mines in AP to strengthen its presence in Southern India.CONTD. In 1997. GACL also established grinding and packing units at Ropar & Panvel. In December 1999.4 mtpa at Raipur for Rs. it acquired sick Modi Cements. After this merger.      3rd plant at Ambuja Nagar named Guj Line – II (1 mtpa). L&T and Grasim.66 billion. GACL paid 3. plant of 1. 1.

ACC has 14 manufacturing units in India with a total capacity of 11 mtpa. In December 2001.2% stake in ACC for Rs 4.5 mtpa. taking its total capacity to 12. Maharashtra with 2 mtpa. GACL began trial production in Chandrapur. GACL acquired 7.CONTD.55 billion. In FY 2003.     In December 1999. the company recorded a sales figure of Rs 2173 crores and a PAT of Rs 293 crores .

 . Foreign MNC’s entered the country-Lafarge and Italicementi Gujrat was the largest cement producing state. With the capacity of 151. The demand was closely linked to performance of Indian Economy. Indian Government was a major consumer of cement      Top 20 companies accounted for more than 70% of the total cement production in India. it is big in size and hence accommodates a number of cement companies in the market .2 Million Tones (MT).THE INDIAN CEMENT INDUSTRY   India . The total installed capacity is distributed over 129's second largest cement producer after China. owned by 54 major companies across the nation.

4% .2% L & T – 10.MAJOR PLAYERS IN INDIAN CEMENT INDUSTRY(2003) ACC – 13.1% India Cement – 5.1% Others – 24.3% Gujrat Ambuja – 11.7% Grasim Ind – 10.

OLIGOPOLY       Market Structure characterized by few sellers and interdependent price/output decisions Significant barriers to entry Product could be homogenous (similar) or differentiated Potential for economic profits in the long run Incentive for illegal price setting Competition can be vigorous among the few firms .

Demand is relatively inelastic because all other firms leading to similar price cut leading to price war. .Stable price conditions under Kink Demand Curve In oligopoly firms operate under imperfect competition. With the fierce competitiveness created by sticky upward demand curve firms use non price competition in order to accrue greater revenue and market share.

42 1734.GU J) Bhatinda(PUNJAB) Chandrapur(MAH) Daburji(PUNJAB) Suli(HP) Capacity (‘000 tonnes) 4150 520 1730 1400 1200 Production quantity 4876.96 974.Manufacturing Plant locations and their capacities(June 2003) Location Ambujanagar(amreli.8 Basic raw materials used for manufacturing of cement are : – Limestone – Clay – Silica – Gypsum .67 1918.45 335.

220 3.695 5.845 %age to total 94 2 4 100 .40.930 13.21.• Cement manufacturing process involves the following steps: – Quarrying and crushing – Grinding and blending of raw materials – Clinker production – Finish grinding Types of processes for production of cement •Wet process •Semi dry process •Dry process Cement Capacity in India(break up by process) Process Dry Semi-Dry Wet Total: Capacity 3.

20 per ton. . This bought energy bill down to Rs. Dry process reduced the fuel consumption from 330kg to 250kg of coal.  Vertical shaft technology –mini cement units-wet process  Rotary kiln technology used in large plants –dry process  GACL’s engineers used husk and crushed sugarcane to fire the kiln.  Output of dry process was 2.  GACL replaced V belt driver by flat belt drivers.5 times than wet process.  GACL’s clinker was heated at right temperature thereby reducing the power costs from 120 to 90 units per ton.


05 tons of gypsum    .2 – 1.25tons of coal 120 kwh of power 0.5 tons of limestone 0.MATERIAL REQUIRED FOR THE PRODUCTION OF CEMENT PER TONNE OF CEMENT  1.

POPULAR VARIETIES OF CEMENT ARE:  Ordinary Portland cement Portland Pozzoland cement Portland blast furnace slag cement White cement    .

. Dec. Fuel cost K...Cost   1. Jul-sep Power cost 2003 2002 2003 Units consumed Cost (Rs/Ton) 85 180 86 187 90 183 2. GACL always attempted to reduce their cost of production in any which way possible. Dec.. There were two main costs associate with the production costs of GACL: Dec. July-sep 2003 718 229 2002 729 224 2003 727 230 .Cal/Kg of Clinker Cost (Rs/Ton) Dec .

Zero Error Electronic Rotary Machines to increase capacity utilization. improved version of mechanical conveyor was used to eliminate breakdown and spillages.        Improvement in efficiency and lower shutdown rates to increase capacity . Adjusted retention time. Reduced mining expenses by implementing ‘ripping technology’.Techniques used by GACL to reduce its cost of production:  V belt drives which consumed more energy were replaced by flat belt drives. Computerized process control system for easy access and regulating the production process.maximised temperature and the rate of cooling to reduce power cost from 120 units per ton to 90 units per ton. Introduced an Australian device called Surface miner to recover more material from the given area and save energy.


CLASSIFICATION OF COSTS Fixed Costs Variable Costs • • • • Research & Development Depreciation Rent Advertising & Marketing Expenses • Inventory Management • Order Processing Systems • • • • • • • Electricity Raw Materials Wages Packaging Transportation Fuel Consumables .

Situation in which output can be doubled for less than a doubling of cost. Types of Economies of Scale: a) External Economies b) Internal Economies     .ECONOMIES OF SCALE  Cost advantages that a business obtains due to expansion.

76 5th plan (1974-79) 22.22 106.83 76.INCREASE IN THE SIZE OF INDUSTRY End year of plan Capacity (Mt) Production (Mt) 14.42 Capacity Utilization (%) 74 86 72 74 4th plan (1969-74) 19.26 9th plan(19972002) 10th plan(200207) 145.13 45.90 161.66 19.58 6th plan (1980-85) 42.37 8th plan (1992-97) 105.66 72 73 91 .37 177.00 7th plan (1985-90) 61.42 30.

2200 Crore capacity expansion and aimed at hiking its capacity to 20 million tonnes over next three years. By rationalizing the use of vertical shaft technology in Mini units of cements and rotary klin technology in large plants. which helped them to minimize the wastages. . from 13.INTERNAL ECONOMIES OF SCALE  GACL is executing Rs.7 million tonnes.   The Company used Zero error Electronic Rotary Machines.


transmission of information to production planning dept.  involved transmission of customer order.  Order Processing System  involved the flow of information about the orders from generation to fulfillment. dispatch to the transpotrers. retrieval from the ware-house.  . paper processing.LOGISTICS GACL was one of the 1st cement producer company to introduce Integrated logistics system(ILS).

.     Inventory Management Involved knowing both. .…. when to order and how much to order Management had to control the cost of carrying larger inventory Had well developed system for inbound raw materials.

appearance with low cost. Each bag contained the brand name. Was 1st to use paper bags for packaging having advantage of low pilferage.…. price of the bag and net weight of the bag. better preservation. ISI logo. with identification number.     Packaging cement was packed in 25-50 kgs packet bags using jute bags. .

.6 tonne of limestone.TRANSPORTATION  Cement is highly freight intensive in nature.  Unavailability of wagons for transportation on western and southeastern railways.70% of the movement worldwide was by sea compared to only 1% in india. 0.  In 2003.0.25 tonnes of coal.  Road transportation beyond 200 kms was not economical.05 tonnes of gypsum. manufacturing of each tonne involved a transportation of 1.55% transported through railways.

 As a result the cost came down drastically. to use water transportation for domestic as well as export consignments. GACL was the first co.  The cost of transporting were as follow: RAIL – 580/ton ROAD – 670/ton SEA – 190/ton .

cement. Setting up Breakwater and jetty facilities in Gujarat. Built a bulk terminal at kochi in kerala.. import coal and furnace oil. In 2003 muldwarka was equipped to export clinker. surat and vashi. Bought ports and freight handling terminals at Muldwarka. 350 self financed trucks and a railway siding its in its factory premises provided flexibility in the mode of transportation .CONTD…. Maharashtra and Kerala. Acquired five ships for transporting cement in bulk.

Surat 2. Online connectivity for facilitate efficient delivery of goods. Galle . Bulk cement terminals located at 1.WAREHOUSING AND DISTRIBUTION The Company used to types of warehouses – Dumps and Transhipment point storage. Vashi 3.

The fate (or the payoff) of a player in a game depends not only on the actions of that player but also on the other players! The Prisoners’ Dilemma Game theory analysis has direct relevance to our study of the behaviour of businesses in oligopolistic markets    . A game occurs when there are two or more interacting decision-takers (players) and each decision or combination of decisions involves a particular outcome .GAME THEORY  Game theory is mainly concerned with predicting the outcome of games of strategy in which the participants have incomplete information about the others' intentions.

IMPLICATIONS OF GAME THEORY 2003 AMBUJ A 2004 235 293 248 450 2005 235 468 242 544 2006 235 1503 242 1231 2007 232 1971 242 1438 2008 262 1402 257 1212 2009 275 1218 273 1606 2010 270 1263 270 1120 PRIC E NP PRIC E NP 235 222 250 350 ACC •. now price of both the cement bag is 270 per piece in 2011 . 1120 By game theory. 293 . we can conclude that constant price is desirable. So. A C Constant C Decrease Constant AMBUJA Decrease 1503 . 1231 450 1971 . 1263 1438 .

• • .100 crores. It had expanded capacity at the existing Gujarat Site from three million to four million at an incremental cost just of Rs. The company had set up a two million ton Greenfield cement unit in Maharashtra at an investment of Rs.500 crores.FUTURE OUTLOOK OF GACL •     GACL has been pursuing a combination of strategies like Strategic alliances Capacity expansion New plants Aggressive takeovers.

P GACL has also started offering ready mix cement. one at Bhatinda and another one at West Bengal. Also to enhance its presence in the south .    .CONTD…  It had also set up a one million ton grinding units. As 2004 got under way. GACL looked well placed in the Indian Cement Industry. the company had planned to set up a Rs 600 crores. two million ton Greenfield project in A.

 .blast free mining.…..  Restoration of mines – green spots and water reservoir  Global standards of environmental measures. Best quality cement  Good packaging  Higher customer satisfaction  Strong distribution network  Eco friendly operations such as  Use of agro waste and bio gas as alternative fuel  Use of surface miners.