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Intervention is the Name of the Game

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Cement channels and solutions in logistics are evolving to relinquish traditional methods for more innovative and modern ones. The key driving factor in this transition is finance. ICR delves into the changes in logistics in the face of automation and data analytics.

The connection between logistics, channels of selling, the revenue line and the cost line were established over the last several decades with a mix of supply chain efficiency and cost optimisation. The recent best cases talk about innovation as the driver of change, which in some cases could be deemed as common sense but that seems to be in short supply.
Take the example of cost. Logistics cost (presumably the highest element of cost in the cement cost hierarchy) is not merely transportation cost that most of us make it out to be but the sum total of transportation, warehousing and distribution, inventory holding, ordering cost and documentation, which includes all the wastes that are associated with this. It also includes the trade-offs that are made, which is where most cement companies differ in their approaches to channels and logistics.
There are so many trade-offs that come in the way of cement manufacturing and distribution right up to reaching it to the customer. Some of these trade-offs include reach, penetration and growth versus the cost of each of these when you construct an end-to-end view of the cement outbound chain. Some trade-offs could be around service level and number of warehouses or direct shipsets versus moving through sticky stocking. There is no end to the number of warehouses that will enhance penetration and reach to the markets and service levels, while inventory holding would zoom.

Working with smarter solutions
Maister’s Square Root Law when applied to cement tends to point to as few stocking points as possible to make the optimisation work, but then Maister’s Rule of Inventory is one-dimensional around safety stocks for reduction of lead time variability and demand variability. It does not look at the trade-offs around inventory and the other objective functions. Thus, the network optimisation programme that most cement companies run is a cauldron where many objective functions go in, but only a few emerge as the winning combination of inter-dependencies on which Management Action is to be ordained. Building algorithms around these inter-dependencies start with rocking the entire boat with data requirements at every stage of the cement journey from the inbound to the outbound, right up to the point where customer exchange happens. Most companies are straddled with one part of the chain governed by the proximity to the resource, while the other outbound part needs a network to establish cost efficiency, together with service levels.
At the end, the optimiser should rule the roost as this could be very complex when constructed over micro markets, prices, availability, service, inventory and transportation cost that need data tables not as static interfaces but a more dynamic one. Most companies have ended with an oversimplification as when complexities rise to the hilt, the solutions tend to become just the opposite. Guided by data and observations, communication and sharing of information, a very complex interaction of all of these is vetted for management review almost on a daily basis. That is where the most successful sales and operations implementation rests in the best of cement companies in India. Most of them have planning algorithms to facilitate these processes. But not as a hands-free approach.
Some innovation in channel and logistics is predicated on the digitisation initiatives that separates data as it exists in the system, with the actual reality on the ground. Data is the source of everything, but it must be real, as we know that prices in spatially separated markets are governed by the equivalence of logistics cost. In simple terms, it means prices must cover logistics cost differences in spatially separated markets. Cement logistics cost being the most sensitive parameter, the actual knowledge of the associated cost of moving millions of parcels of cement over distances in spatially separated markets therefore becomes a huge area of focus. A price, which includes the associated logistics cost, must convey in the information the true cost by which two parcels could be separated, given that similar commodities do not have more significant differentiating factor to make a decision ‘play’. Samuelson’s treatise of 1958 still holds good and the question therefore is to digitise information on price as accurately as possible, where the true cost of logistics is part of the information. Best cases in this regard struggle to achieve a 100 per cent accuracy rate, understandably. But efforts are directed to achieve this with tracking and tracing and control towers and the rest.

Paradigm shifts
The next level of innovation will be to actually move from bagged to bulk entirely and from cement to concrete. That is where the world has moved. This changes the supply chain question and one of the major dimensions holding inventory and warehousing for a sales channel is hugely moderated or eliminated at the end, as selling becomes directly to the projects, no matter how small or large they may be.
The advanced nations have moved to this paradigm, which has changed the entire logistics, channel and innovation question to a different level, where the product cement is converted to a service of concreting at prescribed schedules. This, however, is no small switch, it would obviously mean the setting up of supply chains, that would be different from the current ones, with channel partners who are very different. The optimisation question for Ready Mix Concrete would also be different as there are more than one material source involved, aggregates, sand , gravel etc would step in. To be able to extend this step by step across the whole of India, starting with cities and towns and then the deeper areas would need several actors to step in to see how value can be created. At least the world has many examples where this has progressed with more sophistication of markets in construction. It would, however, need more planning and scheduling, use of digital tools and data driven decision support systems. This is where slowly and steadily some companies are progressing and they would obviously be the leaders in the next transition.

-Procyon Mukherjee

Concrete

Lower sales realization impacts margins for cement makers in Q2 FY25

The industry encountered several challenges, including an extended monsoon season.

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Major cement manufacturers reported a decline in margins for the September quarter, primarily due to lower prices, which led to decreased sales realization.

With the exception of three leading cement producers—UltraTech Cement, Ambuja Cement, and Dalmia Bharat—smaller companies, including Nuvoco Vistas Corp, JK Cement, Birla Corporation, and Heidelberg Cement, experienced a drop in both topline and sales volume during the second quarter of the current fiscal year.

The industry encountered several challenges, including an extended monsoon season, flooding, and a slow recovery in government demand, all contributing to weak overall demand.

Despite these challenges, power, fuel, and other costs largely remained stable across the industry. The all-India average cement price was approximately Rs 348 per 50 kg bag in June 2024, which represented an 11 per cent year-on-year decrease to Rs 330 per bag in September, although it saw a month-on-month increase of 2 per cent.

In the first half of FY25, cement prices declined by 10 per cent year-on-year, settling at Rs 330 per bag. This decline was notable compared to the previous year’s average prices of Rs 365 per bag and Rs 375 per bag in FY23, as reported by Icra.

Leading cement manufacturer UltraTech reported a capacity utilization rate of 68 per cent, with a 3 per cent growth in volume. However, its sales realization for grey cement declined by 8.4 per cent year-on-year and 2.9 per cent quarter-on-quarter during the July-September period.

In response to a query regarding cement prices during the earnings call, UltraTech’s CFO Atul Daga indicated that there had been an improvement in prices from August to September and noted that prices remained steady from September to October. He mentioned that the prices had risen from Rs 347 in August to approximately Rs 354 currently.

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Concrete

Steel companies face Rs 89,000 crore inventory crisis

Steel firms grapple with Rs 89,000 crore stockpile amid import surge.

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Steel companies in India are facing a significant challenge as they contend with an inventory crisis valued at approximately Rs 89,000 crore. This situation has arisen due to a notable increase in steel imports, which has put pressure on domestic producers struggling to maintain sales in a competitive market.

The surge in imports has been fueled by various factors, including fluctuations in global steel prices and increased production capacities in exporting countries. As a result, domestic steel manufacturers have found it difficult to compete, leading to rising stock levels of unsold products. This inventory buildup has forced several companies to reassess their production strategies and pricing models.

The financial impact of this inventory crisis is profound, affecting cash flows and profitability for many steel firms. With domestic demand remaining volatile, the pressure to reduce prices has increased, further complicating the situation for manufacturers who are already grappling with elevated production costs.

Industry experts are urging policymakers to consider measures that can support local steel producers, such as imposing tariffs on imports or enhancing trade regulations. This would help to protect the domestic market and ensure that Indian steel companies can compete more effectively.

As the steel sector navigates these challenges, stakeholders are closely monitoring the situation, hoping for a turnaround that can stabilize the market and restore confidence among investors. The current dynamics emphasize the need for a robust strategy to bolster domestic production and mitigate the risks associated with excessive imports.

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Concrete

JSW and POSCO collaborate for steel plant

JSW Group and POSCO ink MoU for steel project.

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JSW Group has signed a Memorandum of Understanding (MoU) with South Korea’s POSCO Group to develop an integrated steel plant in India. This collaboration aims to enhance India’s steel production capacity and contribute to the country’s growing manufacturing sector.

The agreement was formalized during a recent meeting between executives from both companies, highlighting their commitment to sustainable development and technological innovation in the steel industry. The planned facility will incorporate advanced manufacturing processes and adhere to environmentally friendly practices, aligning with global standards for sustainability.

JSW Group, a leader in the Indian steel industry, has expressed confidence that the joint venture with POSCO will bolster its position in the market and accelerate growth. The project is expected to attract significant investments, generating thousands of jobs in the region and contributing to local economies.

As India aims to boost its steel output to meet domestic demand and support infrastructure projects, this partnership signifies a crucial step toward achieving those goals. Both companies are committed to leveraging their expertise to develop a state-of-the-art facility that will produce high-quality steel products while minimizing environmental impact.

This initiative also reflects the increasing collaboration between Indian and international firms to enhance industrial capabilities and foster economic growth. The MoU sets the stage for a promising future in the Indian steel sector, emphasizing innovation and sustainability as key drivers of success.

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