Achieve excellence in sales and marketing
The first area of focus for cement players is to achieve excellence in sales and marketing. By taking action on this front companies can both stimulate demand and improve price realisation to drive margin improvement.
Kanvic research into the Indian cement industry has identified four key elements of sales and marketing where companies currently lag and which can provide a winning advantage. These elements are: improving visibility beyond the factory gate, engaging in micro-marketing, getting disciplined in discounting and bringing key account management to non-trade customers.
Improve visibility beyond the factory gate
In our conversations with Indian cement companies, we regularly hear how limited their visibility is beyond the factory gate. Often companies are unaware of the actual price at which their product is sold by the trade, or the price at which their competitors' product sells. As a result of this limited visibility, cement companies' bargaining power with their channel is substantially weakened and they are less able to protect their price. Given the already slim margins in this commodity product, these blind spots can have a major impact on profitability.
In order to improve visibility cement companies need to implement an effective system for gathering information from the market on a continuous basis and applying it in decision-making. For example, one leading cement manufacturer has created a dedicated team whose sole purpose is to gather pricing information on the company and competitor products.
Become disciplined in discounting
With improved pricing information cement companies are better placed to bring greater discipline in discounting. Today cement companies lack a strategic approach to discounting, often succumbing to the pressure from their channel to increase discounts to stimulate demand. To counter these profit-eroding practices, companies need to implement policies and processes that target discounts at where they generate the most value for the business.
For example, by shifting from a uniform discounting policy to one that rewards loyalty and achievement of sales goals, cement companies can differentiate between their most profitable channel partners. The implementation of discount policies should also be accompanied by effective checks and balances that prevent abuse of discounts.
Engage in micromarketing
To maximise the effectiveness of their marketing and achieve optimal demand fulfilment Indian cement companies need to move to a micro-marketing approach. This involves getting a picture of demand that is much more granular than the regional or state-level focus that prevails today. Instead, companies need to zoom in at the district or pin-code level to measure an area's sales potential and allocate the necessary resources accordingly.
Today, new digital tools can make this fast and dynamic. For example, in a recent assignment with one building materials company, we helped our client implement a tool where its sales force could record construction activity at the ward level in a major city to indicate where upcoming demand could come from. Through this process, the company was able to uncover untapped areas of demand to focus on.
By building up a granular picture of demand in this way cement companies can deploy their sales force, allocate marketing spend, and plan fulfilment most effectively.
Furthermore, with a clear understanding of an area's sales potential, they can set more accurate targets for their sales team and more closely monitor changes in market share.
Bring key account management to non-trade customers
Although representing a smaller share of sales today, non-trade cement customers will account for an increasing share of business in the years ahead as the market further shifts towards non-trade. These larger customers will place very different demands on cement companies' sales and marketing due to their more exacting expectations on price, quality, fulfilment and customer service. In order to profitably serve this growing segment cement companies will need to implement effective systems of key account management.
Key account management is essential to ensure that large customers receive a level of service that is in line with the value they bring to the business. Here it is important to emphasise that the largest customers are not always the most profitable. Key account practices that only focus on the size of the customer will often result in leakage of margins. Instead, cement companies need to make the effort to estimate their customers' lifetime value to predict the profit their account could generate. On this basis, they can segment their key accounts and provide a level of service that is justified by their profitability.
Adopt a strategic approach to supply chain
The second area where cement players can improve profitability is their supply chain. Historically Indian cement companies have focused on achieving efficiencies in manufacturing. Here they have realised significant success by making good progress on Key Performance Indicators (KPIs) relating to plant and people productivity and cost reduction.
Yet when it comes to the supply chain, which on average accounts for 20-25% of a cement company's costs, there has not been the same level of focus. Where Indian cement companies have looked at their supply chain, they have tended to take a more operational view that focuses on improving dispatch or route planning.
However, to make supply chain a driver of profit improvement, cement companies need to take an end-to-end view that connects supply chain with their business strategy.
Align supply chain to customer segments
In developing a strategic approach, the first step is to align supply chain design with the customer strategy. This requires a differentiated approach that syncs supply chain with the needs of different customer segments.
Indian cement manufacturers serve two distinct segments - trade and non-trade. The larger trade segment is by its very nature more dynamic and higher cost due to the need to service thousands of geographically dispersed outlets in a highly price-sensitive market. Shifting demand and competitor moves mean that getting the product to the right place at the right time is a key determinant of sales. Therefore the trade segment requires a highly responsive supply chain.
On the other hand, the faster-growing non-trade segment, which comprises of large customers who buy direct, has different needs. Their expectations are for on-time delivery to meet critical project timelines along with lower price per ton due to their high volume requirements. These expectations demand an efficient supply chain that delivers cement at the lowest cost.
By shifting from an asset utilisation mindset to instead focusing on improving responsiveness or efficiency, cement companies can design a supply chain that improves the business' bottom-line.
Once the design of the supply chain has been aligned with the customer segments, achieving improvements in responsiveness and efficiency will require actions on three fronts: re-evaluating the geographic footprint, implementing data-driven decision-making, and bringing supply chain partners on-board.
Re-evaluate geographic footprint
In India's rapidly developing market the demand patterns for cement are constantly shifting. With infrastructure projects and housing developments springing up in new areas, there is a need to regularly re-evaluate the geographic footprint of cement manufacturers' supply chains to ensure they can fulfil emerging demand responsively and efficiently. This re-evaluation should include mapping the location of warehouses and go-downs against demand hotspots. Furthermore, following the implementation of GST, there is further scope to rationalise the supply chain based on actual market needs rather than the earlier focus on state-wise operations.
Implement data-driven decision-making
Achieving substantial gains in supply chain responsiveness and efficiency requires cement players to move to data-driven decision-making. Only by measuring performance at each and every step is it possible to identify and act on the incremental opportunities for improvement that contribute to supply chain excellence.
The first step towards data-driven decision making is to create better visibility of inventory, vehicles and product movement across the supply chain. Some cement companies are capturing data at specific points along the chain, for example, weighing trucks at the loading bay or installing GPS to track their movements, but few have taken the integrated approach that is necessary to realise substantial gains.
Instead, there is a need to identify all the points where valuable data can be collected and install sensor technology. Once installed these sensors need to be inter-connected which is now possible at low-cost thank to falling prices and the rise of cloud computing. With the data flowing from all sections of the supply chain, one is required to intelligently interpret this information to make the correct decisions.
This requires the applications of advanced analytics and machine learning algorithms as well as training people to utilise the generated insights they generate in their day-to-day decisions. As the supply chain is a cross-functional aspect of the business there is a need to integrate personnel from different departments in the decision-making process.
By taking this instrumented, interconnected and intelligent approach cement companies can bring more consistency and a higher level of predictability to their supply chain operations.
Bring partners on board
Achieving supply chain excellence in the cement industry cannot be done alone. Companies will need to collaborate closely with supply chain partners to realise the potential benefits. This includes working closely with logistics partners to implement technology in their fleet to ensure continuous visibility of product and vehicle movements. Even more importantly, there is a need to establish a joint review and problem-solving mechanism that can quickly flag up and resolve issues and develop creative new solutions to drive further gains. This partnership model requires a mindset shift from the traditionally adversarial relationship, focused on constant price negotiation, to a collaborative approach that incentivises and rewards performance improvement.
As well as logistics partners, cement companies will also need to work closely with technology providers and analytics experts to design and implement new systems and train people in their use. Companies should bear in mind that technology in this space is evolving rapidly so flexibility and adaptability are key.
Drive digital @ scale
The third area that can contribute to long-term profit improvement in the Indian cement industry is the application of digital at scale. Today companies are adopting new hardware and software solutions on a piecemeal basis to address specific problems, but few players are viewing digital as a driver of overall business performance and all are struggling to adopt a truly digital culture.
To realise the potential of digital for their bottom-line, cement companies should make four major changes. First, they need to make digital a priority for the C-suite. Second, they need to replace the technology lens with a business outlook. Third, they must invest in digital talent. Fourth, they need to break down the silo mindset.
Make digital a priority for the C-suite
Our study of Indian cement companies has revealed that digital is not yet a priority for C-level executives. In most cases, digital initiatives are usually left to lower levels of the organisation or the IT department, who are tasked with implementing new solutions like CRM. As a consequence, digital fails to become a strategic priority for the business.
To drive digital in a concerted way across the organisation leaders need to place it firmly on the C-suite agenda by discussing it alongside other strategic decisions. Furthermore, it is essential that a digital champion is appointed at a senior level who has the authority to lead the process across functions and with direct accountability to the board. They also have the responsibility of creating firm-level awareness of digital and its importance to the organisation's future.
To kick-start this process one large manufacturing organisation conducted a C-level workshop facilitated by external experts who brought an outside perspective on the opportunities and threats digital presented to their business. This helped foster a sense of urgency around digital and successfully brought it onto the board's agenda.
Go beyond technologies
Even in cement companies that have adopted progressive digital initiatives, there is a tendency to see them through the technology lens which limits the field of vision to specific solutions, rather than looking at the all-encompassing impact of digital across the business.
With digital technologies advancing at a fast pace and customers - even in more conservative B2B organisations - rapidly adopting new buying behaviour, a narrow view of digital will leave cement players exposed to the threat of digital disruption.
For example, one leading company successfully deployed drone technology to achieve lower pricing from Indian Railways by ensuring wagons were not overloaded - and thus avoided heavy fines. In another case, the same company implemented an automated fuel management system at its mines through RFID tagging which ensured fuel was only dispensed to authorised vehicles.
However, the real long-term benefits from digital will come when individual initiatives such as these are taken in line with a strategic roadmap to digitalise the business. This approach will help prioritise the areas to digitalise first for maximum business impact and provide a common infrastructure to realise synergies across the business.
Invest in talent
In order to digitalise their business cement companies will need to attract and retain a different a very different talent profile. Today's digital talent typically prefer to go to analytics and internet firms where they can learn and apply cutting-edge techniques. In order to attract this critical talent, cement companies will need to create a compelling value proposition for digital professionals to consider the industry and redefine their role and responsibilities beyond the traditional remit of IT.
Break the silo mindset
Finally, to realise the full benefits of digital there is a need to take an integrated approach across the business. This requires cement companies to break-down the traditional silo mindset that separates functions like production, marketing, and sales. Successful digital transformation ensures all departments have a common understanding of digital and its importance to their function. They also see the value of sharing information and developing cross-functional solutions to complex problems.