Business Process Improvement at Concete Co. Cemex

You wouldn’t expect to find a cement company in the pantheon of innovation superheroes?shoulder-to-shoulder with those who created plastic, fiber optics and Post-it notes. There are few industries more basic or old economy than cement. Like Clark Kent’s Superman though, the cement industry has an alter ego that has shed its gray three-piece suit and can leap outdated business practices in a single bound. That alter ego is Cemex, a nearly 100-year-old multinational cement corporation based in Monterrey, Mexico. During the past 16 years, it has completely changed the processes by which cement companies communicate with and deliver to their customers. The company based its process redesign on three components: a satellite communications system called Cemexnet; an overhaul of its tracking,

scheduling and routing system known as Dynamic Synchronization of Operations; and a digital global initiative that links worldwide offices via the Internet.

If you had taken a snapshot of Cemex in 1984, it would have looked like any other regional cement company. Cemex had six autonomous plants that rarely communicated with each other. Managing the network of mixing plants and delivery trucks was a nightmare. Weather, traffic and labor problems caused almost half of Cemex’s customers to change their orders, usually close to the originally scheduled delivery time.

As a result, Cemex couldn’t give customers a definite delivery time. It could only say that the concrete would arrive within a three-hour window. This cost customers time and money, but it was standard practice in the industry. Up to that point, no one was able to do any better.

Out with the Old

The turnaround began in 1985, when Cemex appointed a new CEO. Lorenzo Zambrano is the grandson of the man who founded Cemex. After working his way up through the ranks of his grandfather’s company, he found himself at the helm of a monolithic company struggling with inefficiency and poor customer satisfaction, both caused by an inability to forecast customer demand.

Zambrano began Cemex’s makeover at ground zero by changing the fundamental business strategy. In 1987, he hired Gelacio Iniguez as CIO, and the two sat down with the rest of the management team to solve the issues of efficient delivery and unforecastable demand. “At that point, there was no IT department,” says Jose Luis Luna, Cemex’s current CIO, who joined the company in 1987 as the head of technology development. “Basically, there were a couple of computers that ran accounting programs. We realized that IT needed to be a key part of our new business strategy.” Rather than building an IT department concurrently but separate from the ongoing business redesign, Luna and the other Cemex officials focused on fundamental alignment.

Cemex’s production and delivery methods weren’t serving the company or its customers very well, so the executives looked at how other companies?FedEx, Exxon and the city of Houston’s 911 emergency system?handled similar problems successfully. FedEx had created a reliable worldwide delivery system that successfully managed unforecasted demand. Exxon’s tracking, scheduling and rerouting system efficiently handled its network of oil tankers and deliveries despite unpredictable weather, market and political conditions. Houston’s 911 system had developed a way to dispatch and coordinate emergency vehicles in response to occasionally sketchy information.

New Foundation

Because Cemex couldn’t change the way its customers work, Zambrano and his IT team changed the way the company handles unpredictability. Dependable, on-time delivery and customer flexibility are at the heart of their business, so they looked to technology and the lessons learned from FedEx, Exxon and Houston to streamline Cemex’s processes. “We saw it was almost impossible to deliver information in real-time, and we knew it was time to invest in infrastructure,” says Gilberto Garcia, IT planning director at Cemex, who also joined the company in 1987.

They started from the inside out. In 1989, the company developed Cemexnet, a satellite communications system that linked all the cement plants. The company also opened a central office to coordinate its production facilities. Cemexnet made it easier for the plants to remain abreast of supply and demand. It also streamlined the flow of financial information and other back-office functions, which were gradually automated.

Now that the plants could communicate, it was time to deal with the delivery systems. During the early 1990s, Cemex installed a logistics system called Dynamic Synchronization of Operations, which uses GPS technology to link delivery trucks to a central control center. Cemex merged the individual truck fleets and equipped each truck with a computer and a GPS transmitter. Because dispatchers at operations centers in Monterrey, Mexico City and Guadalajara could see the location, speed and direction of each truck, they could make sure deliveries were picked up by the trucks closest to each of the production plants. They also had detailed information on traffic conditions, inventory and the customers’ location, so trucks could be rerouted if traffic got too hairy and deliveries could be redirected if a customer’s order changed at the last second.

Cemex’s global digital program, which began in the late 1990s, is the third piece of the puzzle. It connects each element of Cemex’s worldwide operations via satellite and the Internet. An online portal lets Cemex’s suppliers, distributors and customers check their order status.

Cement on Demand

These technology initiatives have helped Cemex slash its delivery window from three hours to 20 minutes, dramatically increasing the value to its customers. Cemex makes deliveries within that window 98 percent of the time. Eventually, it aims to cut the 20-minute window in half. Customers can change their orders up to the moment of delivery at no charge, and they get a 5 percent discount if the order is late.

Zambrano’s gamble has paid off so far. By the first quarter of 2001, Cemex’s net sales increased to $1.6 billion, up 19 percent compared with last year’s first quarter. “Our growth has been driven by the fact that we are completely integrated,” he says. “It makes us faster and more informed than our competitors.”

That business sense is what made the company’s redesign innovative, says David Bovet, vice president and coleader of the supply chain management team at Mercer Management Consulting, a global strategic management company. “This is not just a good technology application,” Bovet says. “It’s a brilliant business design. They have taken the ultimate commodity product and showed that you can achieve differentiation through service. It isn’t so much the product or the industry, it’s rethinking what the customer wants and how you can respond to it in a way that’s economical for the company.”

Cemex charges a premium for its services because of the efficiency it offers, though Luna is quick to note that prices are regulated more by the market than by the company. Company executives say Cemex now uses 35 percent fewer delivery trucks than it did before overhauling the system, or “one truck for every two” used by the competition. Luna projects cost savings of $100 million during the next year on fuel, maintenance and payroll. Cutting costs is good for many reasons, not the least of which is that Cemex spent almost $200 million during the past decade on its transformation. It is starting to recoup on that investment, mostly through reduced production costs that Luna attributes to the IT-business redesign.

The challenge now, he says, is to keep updating Cemex’s business practices to stay ahead of the game in terms of innovation. “The challenge is to set an innovation process that keeps us ahead of the game in winning customer trust,” Luna says. “It’s not a matter of who has better technology, it’s a question of who does things faster.”