Cement Manufacturer

C: I am a bit new to the Cement industry, would be able to help me gather any insights on how the typical value chain works?

I: Sure, so you can assume that the client buys the raw materials which includes Limestone, coal etc. They process this by heating and convert it into clinker. Which is further processed by grinding and mixing with gypsum and made into fine grains. Once we have the grains, we then pack it in bags and send them off to our warehouses. From the warehouses the cement is transported to the end customers.

C: Thank you so much.  That is insightful. So, in case we need to decrease the transportation cost, I would assume that there are three kinds of logistics operations that are taking place. These include inbound logistics, inter logistics (to the warehouse), and outbound logistics. Does that sound right, and do we have any specific bucket that I should look into first?

I: Yes, that is correct. Please go ahead. There is no specific larger cost bucket, we will need to explore each of these. Under each of these let's look at what steps the client could take to reduce the costs.

C: Sure, so just before moving ahead, I would also like to know what are the current modes of transport we are using?

I: We are using a mix of both road and railways – depending on the distance.

C: Understood, so in terms of the roadways do we have our own trucks or are we outsourcing that to the third party?

I: We are currently using a third-party logistics provider’s services.

Candidate: Great thank you. Let me now dig into each of the three cost buckets and generate some methods though which we can reduce the costs. For the first, inbound logistics, let me divide that into three parts people and process (route and mode) used. For people we can have a look at both the suppliers involved and people involved in logistics. We can optimize/consolidate the number of suppliers keeping in mind the impact that it could have on our cost of purchase.

I: Sounds good. What more can we do?

C: In terms of process, we can try to make use of technology extensively from ordering at an EOQ level to making our Third-party provider make use of GPS to carry out route optimization. Using these digitization tools, we can also get an understanding of how efficient are the drivers throughout the travel. Now all these points are also valid for our other two logistical cost buckets. But there might be some additional points in the “Inter travel to the warehouse” bucket.

I: Yes, and what would those be?

C: So, as I understand these inter travel will be done using our own truck?

I: Correct.

C: Ok So, I will divide this part again into two parts. One would be the issues with the logistical part – the recommendations for this would be like the ones that we discussed above. The other would be the external issues i.e., the issues related to the operations at the warehouse that could lead to an increase in the costs.

I: That is a great point. Tell me more about the warehousing part?

C: Yes, so since these warehouses are owned by the client, the client can do a trade off analysis of optimizing the location of the warehouse vs the rent that they pay so that it caters to the right demand centers and reduce the transportation cost. The client should also procure more efficient transportation vehicles. The other time-consuming part is the loading and unloading at the warehouse. These can be automated in the long term to make the process more efficient.

I: These points sound good; we can close the case here.