ECONOMICS CASE STUDY

KCCMS PGDHM NAME CHRYSHELS DCOSTA ROLL NO - 29

CASE ON AMBUJA CEMENT LIMITED

1) Any one cost activity that was lowered?

As per my understanding of the case, the cost of transportation had gone down immensely after the introduction of the sea route. The cost of the road transport was very costly and the railways were not feasible due to a limited number of wagons available by the Indian Railways. Besides the transportation cost, the time consumed for the transportation of the cement was also reduced to a distance of 315 kms due to the sea route whereas, the railways covered 1060 kms. 2) Is there anything in the case that suggests how the firm tried to lower fixed costs?

Coal being the important source of energy for production was located in the central and eastern parts whereas the cement industry was located in the western and southern parts. The cost of transporting coal to the cement plant was very high. Moreover the quality of the coal was very poor and so they had to decide whether to use imported coal or substitutes such as lignite, natural gas and oil.

GACL imported cheaper, but high quality coal from South Africa. This led to a considerable reduction in the operating cost of their power plants. GACL consumed only 96 kWh of power per ton of cement against the industry average of 110-115 kWh per ton. Thus in this way the cement lowered its fixed cost to great extent.

3) Give an example of how Ambuja Cement lowered long run costs?

According to me the most successful of GACLs innovative strategies was the development of a sea transportation route for its cement business. The company had invested Rs 1 billion to set up modern ports and freight handling terminals at different places so as to transport the cement. They had also designed fleet of ships to deliver the consignments to various ports thus reducing the long run cost for transportation and bringing about more markets within the reach of the company. 4) Show how there was a reengineering of cost activities to reduce overall costs. The company used the following innovative strategies to bring about a reduction in their over - all cost activity. The company's engineers have picked up best practices during visits to overseas plants in countries like Japan and Australia and many other countries.
ENHANCING PRODUCTIVITY AND QUALITY

GACL worked hard to reduce mining expenses. Mines were not only extremely destructive environmentally but were also expensive to operate. GACL sent its engineers to Australia to study the extraction of metals. On their return, GACL implemented new technologies that could access limestone in smaller areas where blasting was not possible. The company introduced an Australian device called Surface Miner. The GACL engineers found that by focusing on kiln operations, they could not only ensure cement quality, but could also reduce power consumption.
COST CUTTING IN ORDERING AND PROCEESING DEPARTMENT

Order Processing Systems involved the flow of information about the orders from generation to order fulfillment. Orders once received, had to be processed quickly and accurately. GACL had linked all the major offices through a Wide Area Network (WAN).

Electronic Data Exchange (EDE) and Material Resources Planning (MRP) systems facilitated timely and accurate processing of orders.

FREIGHT

GACLs most successful innovative strategies were the development of a sea transportation route for its cement business. The sea route has cut down the distance and the cost of the transportation to a great extent. GACL was able to save roughly Rs 160 million annually due to sea transportation.
POWER

Power accounted for a large part of GACLs cost of production. GACL realized that a captive power plant would increase savings substantially as power sourced from the power grids was both unreliable and costly. So it set up fuel based captive power plants and they were also selling the excess power generated to the local state governments.

5) Do you think that Ambuja Cement is now better able to negotiate with large customers? Explain. India's cement industry is exceedingly promising and is growing at an exceedingly fast pace. Being cost competitive and focusing on all the aspects of reducing cost preposition holds key for all the companies. Ambuja cements have been able to stand tall in this concern from the past 9 years when it overtook ACC as the cost leader. Even though the company is not the overall market leader but since it has joined hands with the Swiss giant Holcim it has

started to cement its position as a strong contender for the position of market leader as well. By covering all the parameters like Productive Performance, Financial Performance, Cost Effectiveness Ambuja Cement is capable to negotiate better with large customers. 6) Indicate how the organization is more insulated from the power of suppliers? Ambuja limited has gained some advantage and emerged as cost leader. Firstly Ambuja had very few competitors in this field with only 2 big players i.e. ACC and Ultratech thus there could not be much variation in fixing cost price. With usage of smart cost cutting technologies and huge investments to bring in high quality of cement fuel and mining Ambuja stood out from its competitors. Ambuja is also looking out for global ventures by joining hands with Swiss giant Holcim thus intending to grow and become a strong contender in the market.