The Definitive Guide To Transforming Business Planning In Cement Manufacturing
Manufacturing | 11 min READ
    
Why Are Business Planning And Budgeting Critical For Cement Manufacturers?
According to McKinsey, the $450 billion cement industry has shown a mixed financial performance over the last 30 years.
Even though the industry suffered from the 2008-2009 financial crisis and the COVID-19 pandemic of 2020, it has bounced back due to a significant construction increase worldwide. Rapid population growth warrants the construction of housing complexes as fast as possible. Moreover, emerging economies are funding large infrastructure projects, whereas governments worldwide seek to enhance existing infrastructure.
Raj Pradhan
Raj Pradhan

Practice Director

Construction and Building Materials Vertical

Birlasoft

Shobhit Joshi
Shobhit Joshi

Head of Delivery

Process Manufacturing Business

Birlasoft

 
Despite these market growth factors, growing revenues steadily and sustainably is a challenge for a capital-intensive industry like cement manufacturing.
Cement manufacturers struggle to generate returns more significant than their investments because of:
  • Unanticipated variable costs (raw material, energy, freight)
  • Fluctuations in demand
  • Volatile supply chains
  • Significant wastage from inefficient material consumption or quality control issues
With rising pressure to reduce CO2 emissions and make manufacturing processes more environment-friendly, the challenge becomes more complex. While the industry will always be capital intensive, it’s possible to increase profit margins and grow revenue by:
  • Optimizing costs
  • Increasing operational efficiency and switching to greener solutions
  • Mitigating business risks
That’s where a deep understanding of market dynamics in real-time can help. Cement manufacturers can invest in business planning and make informed decisions on budget allocation by:
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  • Spotting market trends, rise in urbanization, or changes in supply chains
  • Analyzing and interpreting any shifts in the market or consumer expectations
  • Insulating themselves from market disruptions while capitalizing on upcoming opportunitiess
For instance, if market trends indicate an upcoming infrastructure boom, cement manufacturers should increase their production capacity and invest in marketing campaigns to build brand recognition. When the boom happens, customers will opt for the most popular brand to sustain large infrastructure projects.
Such planning and preparation will give cement manufacturers an edge against the competition and make their businesses less susceptible to disruptions like pandemics or economic downturns.
Cost Optimization: Top Priority For Cement Manufacturers In Business Planning
The first step to widen profit margins is saving costs. The enormous costs involve raw material, power consumption, and freight costs, among others. Before we explore what to optimize, let’s break down the costs incurred.
Typical Costs Incurred By Cement Manufacturers
Raw Material
Raw material, mainly limestone, is one of the highest costs in cement manufacturing. Since limestone is bulky and cannot be transported over long distances without severely spiking the costs involved, most cement plants are near limestone quarries. Other raw materials like gypsum, slag, and fly ash are also needed to manufacture blended cement, and these components are transported to the manufacturing plant from different locations.
Conventional fossil fuels like pet coke, HSD (diesel) oil, and coal that account for 80% of the fuels used in cement kilns, also contribute towards raw material costs.
Switching to sourcing raw materials from industrial waste or natural pozzolanic materials will cut costs while reducing its carbon footprint
Power
After sourcing raw materials, the next step is to prepare them for cement kilns, an energy-intensive process. Thermal power (fueled by coal) is still widely used to fire up cement kilns. Besides coal, other fossil fuels, as mentioned above (diesel, pet coke, lignite), are required to grind the raw materials.
Depending on the manufacturing process, the power consumption varies throughout the day. Also, since cement manufacturing is a continuous process, power outages can adversely affect production and reduce its efficiency.
Several manufacturers have switched to on-site power sources to reduce their reliance on grid power maintained by conventional electricity generating plants. Maintaining these power plants is yet another considerable expense.
Investing in alternative fuel sources can make their power consumption greener, more efficient, and cost-effective in the long run.
Freight
Since cement manufacturing plants are closer to limestone quarries in industrial zones, they’re far from the end-user markets.
Transporting large volumes of cement over long distances is a considerable expense. Factoring in other transportation costs such as tolls, fuel costs, and handling charges only increases the total costs.
Outsourcing the transportation aspect of cement manufacturing can be an economical alternative to owning the vehicles (and consequently, maintaining them and the drivers).
Others
Other expenses include administration costs, repair and maintenance charges, employee costs, spare part procurement, and maintenance. These can eat up around 15-20% of the total revenue from sales.
Top Challenges In Business Planning And Budgeting For Cement Manufacturers
Tedious Budgeting Cycle And Inaccurate Forecasts
The cement industry has been a laggard when it comes to innovation and digitization. It’s also constantly affected by time-consuming and cumbersome budgeting cycles because of:
  • Outdated, legacy systems for resource planning
  • Inability to collect real-time data, causing inaccurate forecasts and leading to a reactive (instead of proactive) approach to cement plant maintenance
  • Traditional, non-agile management
The Definitive Guide To Transforming Business Planning In Cement Manufacturing
Data Consolidation Challenges
The cement industry is notorious for having different departments maintaining data on spreadsheets using traditional methods. These departments seldom communicate, leading to silos and making it almost impossible to consolidate all data in a single repository.
Moreover, their efforts to collect and record data are manual, leading to the creation and management of too many spreadsheets.
Ineffective Decision-Making
Besides, traditional methods also make it harder to update data and keep it relevant. That makes forecasting budgets, plant capacity, or raw material needs inaccurate. Without the correct data or forecasts, you cannot make data-driven decisions and rely on the "gut" or experience.
Often, significant decisions are stalled since there’s no single, credible data source on plant operations, manufacturing processes, or profits. This is a top reason why budgeting cycles can be tedious, time-consuming, and despite all precautions, inaccurate, leading to budget overruns and ever-shifting deadlines.
Inefficient Plant Operation And Management
Another reason cement manufacturers suffer is because of their operating model, which relies on:
  • Conventional organizational structure mired with hierarchies
  • Manual or archaic infrastructure
  • Equipment and machinery built to only operate with fossil fuels
  • Traditional, non-agile processes
Collecting the correct data isn’t possible without fixing these issues first, which requires a fundamental shift in the mindset of the management.
A work culture shift to adopt leaner, more flexible, and nimbler ways of running cement plants across geographies must follow the mindset change. Such changes will also make it easier for cement manufacturers to hire and retain talent, especially millennials and Gen Z.
Lack of Innovation
When faced with rising costs and decreasing profitability, the knee-jerk reaction cuts resource costs — closing plants, laying off workers, or shutting down R&D centers. While such measures might seem prudent for the short term, they do more harm than good, eventually.
That’s why it’s crucial to invest in innovation.
For instance, replacing fossil fuels with alternative sources can have economic and ecological benefits. This requires transforming cement plants by procuring equipment built for green energy sources. Other arenas to fuel innovation could be plant operations, management styles, and substitutes to high-cost raw materials, among others.
Top Challenges In Business Planning
Top Challenges In Business Planning
How To Solve The Problem?
From Collecting The Data To Analyzing The Data – Process And Tech Interventions
Tackling the challenges mentioned earlier requires a series of process and tech interventions in plant operations, resource allocation, and overall management.
Greater Efficiency And Profitability
The most important of all is to set up an infrastructure that collects, stores and analyzes data from cement plants in real-time. Such data provides management with all the information they need for accurate business planning and budgeting.
According to McKinsey, investments in digitization and sustainability can lead to an average OEE of 90% and increase profit margins by $4-9 per ton of cement. Let’s explore how this can be achieved.
Plant-Wise Planning And Profitability
Existing technologies that cement plants use might not be equipped to process real-time data. Investing in data architecture that facilitates real-time data analysis empowers cement manufacturers to:
  • Gain complete visibility into plant operationsv
  • Set up alerts for whenever plant productivity drops below a specific limit and perform predictive maintenance
  • Predict supply versus the demand from market dynamics and adjust production capacity
  • Reduce wastage, cut unnecessary costs, improve OEE (overall equipment effectiveness), and operate more sustainably
KPI-Based Planning
With a single source of truth for all data, employees, managers, and other key stakeholders can access the correct data anytime, anywhere in real-time. This helps establish smart and achievable KPIs for plant operations and employees, leading to greater productivity, efficiency, and growth.
Better Business Planning And Budgeting
Besides boosting plant efficiency and profitability, technology can also help cement manufacturers plan better with digital tools that facilitate forecasting and what-if analysis. Let’s understand how.
Cater Dynamic Business Scenarios
In an increasingly uncertain world, all businesses must be prepared to cater to dynamic business scenarios and build resilience so that they can continue business operations despite unforeseen setbacks (from recessions, political uprisings, disasters, labor shortage).
That means doing away with error-prone spreadsheets requiring numerous manual updates, approvals, and consolidations. Instead, it’s critical to:
  • Invest in the proper digital infrastructure
  • Build a digital transformation roadmap (that won’t disrupt operations significantly)
  • Get the correct resource planning and budgeting tools
Reduce Time For Budgeting Cycle
With the right tools, management can use forecasting for more accurate and faster budgeting by addressing questions such as:
  • What are the quarterly forecasts on revenue and profitability for a particular region?
  • Are there any unexpected expenses that could crop up due to market volatility? If so, what contingencies must be in place to mitigate these expenses?
  • Do the current revenue and expenses match their forecasts?
What-If Analysis
Similarly, cement plants can benefit from what-if scenarios, which help foresee the fallout from unforeseen events and adjust business planning accordingly. Some of the most common scenarios are:
  • What if there is a significant rise (or fall) in demand?
  • What if the raw material price surge unexpectedly (because of political instability in a specific region)?
  • What if the company had to close a certain number of cement plants?
Key Pillars of Solving The Business Planning Problem in Cement Manufacturing
Key Pillars of Solving The Business Planning Problem in Cement Manufacturing
Benefits of Data-Driven Business Planning In Cement Manufacturing
The benefits of data-driven business planning and budgeting are four-pronged:
Revenue Growth
The most significant benefit from accurate forecasts and higher manufacturing efficiency is wider profit margins, leading to more remarkable revenue growth. Real-time data collection and analysis make it easier to tweak pricing proactively in response to the cost of raw materials, energy, oil, and other fixed expenses.
Assessing product-wise contributions can help cement manufacturers boost revenue growth even further. For instance, both the US and Eastern Europe are set to witness a boom in housing projects owing to lower interest rates and a strong housing market. In India, it’s the government spending in infrastructure projects (like highways) and social housing that will drive demand.
Picking the suitable projects in the right markets or forging partnerships with the proper entities is bound to grow revenue exponentially.
Risk Mitigation
All industries face the risk of a slowdown from economic downturns. Real-time data on plant operations and market dynamics, what-if analysis, and robust forecasting can alleviate these risks and prepare companies for better business planning.
For the cement industry, an added risk is that of carbon emissions. The growing regulations on CO2 and rising environmental pressures for greener construction have led to a surge in sustainable, green cement demand.
As a result, several cement manufacturers have made sustainability a core business value. The global cement producing giant Dalmia Cement gets 32% of its raw materials from industrial byproducts. It has also pledged to become the world’s first carbon-negative cement producer by 2040. Other cement manufacturers will follow suit.
Cost Savings
Saving costs is directly tied to performance transparency, and technology plays a significant role.
Real-time data helps cement manufacturers improve operational excellence by tracking and measuring KPIs such as:
  • Energy consumed
  • OEE
  • Production rate
They can also track the right product mix that consumes the least number of resources and produces less waste without compromising quality. Such measures optimize power and raw material consumption, making it easier to budget accurately.
With forecasting, it’s possible to manage inventory and adjust the supply versus demand ratio to optimize costs.
Additionally, cement manufacturers can cut freight costs with real-time GPS tracking to optimize delivery routes and gauge driver productivity.
Operational Efficiency
Technology also gives cement manufacturers the ability to understand plant operations, track all activities, and spot processes optimized to improve the overall operational efficiency.
For example, analyzing the fuel mix ratio to the raw material mix helps improve production rates without too much wastage. Real-time alerts on machine performance notify technicians about potential issues before they become severe and lead to costly, unplanned downtime. A unified platform with all data brings all teams on the same page, improving coordination between downstream and upstream lines at plants or mines.
Benefits of Data-Driven Business Planning In Cement Manfuacturing
Benefits of Data-Driven Business Planning In Cement Manfuacturing
Cement manufacturers that digitize their processes and use technology for business planning and budgeting are more likely to build a thriving, sustainable future. It will give them a competitive edge, increase operational efficiency, improve profit margins, grow revenue, and build resilience.
Having witnessed the fallout from the devastating COVID-19 pandemic, it’s safe to say that only those who invest in radical digital transformation efforts will remain standing once the dust settles
 
 
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