Cementos Argos (CemArgos), a multinational player in the cement industry, faces great challenges in Colombia, its core market. Changes in the local industry have caused its margins to almost halve in the past two years. Although operational efficiencies are being pursued intensely, they might not be enough. Could digitalizing its supply chain become a lever to recover lost profitability and build a sustainable competitive edge?<\/p>\n
CemArgos is an integrated cement and ready-mix concrete (RMX) player with operations in the U.S., Colombia, and 12 other countries. In 2016, the company reported revenues of 2.8 billion USD [1]. In the past two years, CemArgos Colombia \u2013 the company\u2019s subsidiary in Colombia, which in 2015 accounted for 38% of total revenues and 58% of total EBITDA \u2013 has taken a great hit in terms of profitability. Its EBITDA margin fell from 29.5% in 2015, to 17.6% in the third quarter of 2017 [2,3]. High local cement prices coupled with surplus installed capacities in Asia and historical low international freight rates fostered the appearance and growth of local players that import cement and\/or clinker to produce cement locally. This led to a \u201cprice war\u201d among cement players in Colombia. In 2016, local prices fell 17%-27% below the region\u2019s average [4]. The profitability of most companies was seriously affected.<\/p>\n
As a response to this, in 2016, CemArgos Colombia launched BEST, an ambitious operational excellence program that seeks to generate efficiencies throughout the company\u2019s supply chain. BEST includes initiatives such as: divestment of non-core assets, usage of alternative fuels, etc. [1, 5]. Although the program has been advancing well, increasing competitive pressure will push the company to explore other levers. Could digitalizing its supply chain be one such lever? Definitely!<\/p>\n
Today, digitalization enables the automatization and integration of discrete steps of a complex supply chain. \u201cThe chain can become a completely integrated ecosystem that is fully transparent to all the players involved \u2013 from the suppliers of raw materials, \u2026 to the transporters of \u2026 finished goods, and finally to the customers…\u201d<\/em> [6]. For CemArgos Colombia, digitalizing its value chain makes special sense for two main reasons:<\/p>\n First, this could generate additional and significant cost efficiencies<\/strong>. The potential is particularly high for CemArgos given the breadth and complexity of its supply chain. Small operational issues in a limestone mine can generate delays or backlogs in the delivery of RMX to hundreds of development projects in the big cities. This can be very costly for the company. According to a recent PwC study, digitized supply chains (DSC) can generate efficiency gains of 4.1% annually [6].<\/p>\n Second, a DSC could also increase the top line, improving margins. <\/strong>Digitalization can enable a closer integration with customers through better and\/or additional services, more compelling customer experience, etc. [5]. This could help CemArgos become more \u201csticky\u201d and, thus, defend market share in a highly commoditized and competitive industry. According to PwC\u2019s study, a DSC can boost revenue by 2.9% per year [6].<\/p>\n As part of BEST and a few other internal projects, CemArgos has started to work on digitalization initiatives. Among them are the following [5]:<\/p>\n In addition, the company states having a few other digital initiatives in their medium-term pipeline, including [5]:<\/p>\n Although these digitalization initiatives seem to point in the right direction, CemArgos should focus on two principles in order to build an effective DSC:<\/p>\n 1. Be more ambitious\/ aggressive in digitalization. <\/strong>CemArgos could go much further with DSC, proactively identifying, assessing, selecting, and implementing cutting edge digital technologies. To do so, they should be asking questions such as:<\/p>\n 2. Have a more holistic and structured approach towards digitalization. <\/strong>DSC cannot be archived through isolated initiatives. In order to truly integrate the supply chain through digital technologies, a holistic and structured approach should be considered. To achieve this, the following steps should be considered:<\/p>\n <\/p>\n Further questions:<\/strong><\/p>\n <\/p>\n References:<\/strong><\/p>\n In a highly commoditized and competitive industry such as the cement space in Latin America, digitalizing the supply chain can become a lever to boost profitability and build a sustainable competitive edge.<\/p>\n","protected":false},"author":10092,"featured_media":26881,"comment_status":"open","ping_status":"closed","template":"","categories":[1038,1604,2123,4085,17],"class_list":["post-26171","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-cement","category-colombia","category-digitalization","category-ready-mix-concrete","category-supply-chain","hck-taxonomy-organization-cementos-argos","hck-taxonomy-industry-industrial-products","hck-taxonomy-country-colombia"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/rc-tom-challenge-2017\/","yoast_head":"\n\n
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