Traditionally dependent on endowments and supplies of natural resources and raw materials like clinkers and characterized by a surplus production, the cement industry needs to identify and address gaps in the supply chains and procurement networks to steer clear of the risks of price volatility and market corrections. Moglix Business partners with cement companies to get them covered from supply chain and procurement risks and get greater visibility into the road ahead.
The supply chain in the cement industry is highly leveraged on creating avenues of efficiency from procurement processes and utilization of fixed assets like plant, equipment and machinery and use of multi-modal transport for logistics. Global demands on construction and infrastructure improvements are especially driven by the construction boom in China. Aggregate demand for cement has been highly dependent on the demands from construction and infrastructure in China.
Being heavily dependent on the sourcing of clinkers, the excess capacity in the global cement industry is concentrated in pockets, with the surplus being shipped to adjoining markets that are well connected by trucking and railways. However, the low price to weight ratio of cement impedes the geographical outreach from a production center. Supply chains in the cement industry are witnessing substantial overcapacity. Global cement capacity has tripled since the beginning of this century to 6.2 billion tonnes. The current quantum of excess capacity shall suffice to fulfill the world’s cement needs for at least the next 20 years. At 895 Mt and accounting for 45 percent of the global surplus, China leads the pack of surplus producers of cement. With a capacity to consumption ratio of 200:1, Europe stands exposed to great risks of price fluctuations. India sits on a stockpile of 100Mt of excess production out of its total capacity of 425Mt. Examined against the backdrop of excess supplies, cement companies that follow the Build to Stock (BTS) model of supply chain design are likely to fulfill the demand for functional products but stand exposed to risks of lack of adaptiveness and agility required for customized products. The composite age of the four largest cement companies in the world is 130 years. As such adapting the supply chain design to fulfill the demand for more customized products for greater agility and granularity poses a risk. With early signs of downward spiraling of prices of cement visible since the global meltdown of 2008, operating margins have remained persistently range-bound at less than 12 percent. Further, an economic slowdown in China leaves the prospect for a market correction, wide open.
Cement companies can look forward to creating new avenues of efficiency by digitizing collaboration and information sharing with upstream and downstream supply chain partners to gain greater alignment. Deployment of IoT devices and artificial intelligence-driven systems to support data processing, real-time connections, and demand-driven production can enable cement companies to make their supply chain design more agile, adaptive and granular. Proactive detection of anomalies through search and AI-driven analytics can enable cement companies to administer more equitable contracts and reduce forward buying practices to generate value. Cement companies can also look forward to reducing delays in procurements, augmenting precision in shipments and improving their margins by closely aligning functions of planning, maintenance and sales to make procurements more analytical, predictive and proactive.
The Moglix Advantage
At Moglix Business, we partner with cement companies to traverse the distance of the digital transformation of their supply chains and procurement networks with our offerings of supply chain consulting, digital technology stacks and customized packaging solutions.