8/14/2019 Case Study 1_Cemex

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Case Study 1

Management Information Systems –  Managing the digital firm, Kenneth

Laudon, Jane Laudon. 9th

 edition, PH

CEMEX: A DIGITAL FIRM IN THE MAKING

CEMEX, based in Monterrey, Mexico, is a 98-year-old company that sellscement and ready-mix concrete products. It has 53 plants around the globe in

countries including the United States, Spain, Egypt, Colombia, and the

Philippines, and is the world’s third largest cement and concretemanufacturer. The concrete business is an asset-intensive, low-efficiency

business with unpredictable demand. CEMEX dispatchers used to take ordersfor 8,000 grades of mixed concrete and forwarded them to six regional mixing

plants, each with its own fleet of trucks. Customers routinely changed half of

their orders, sometimes only hours before delivery, and these orders might haveto be rerouted because of weather change, traffic jams, or problems withbuilding permits. CEMEX’s phone lines were often jammed as customers,

truckers, and dispatchers tried to get orders straight. Many orders were lost.Until about 15 years ago, CEMEX’s Information Technology Division wasviewed as a support department for the sales function. CEMEX did not have an

adequate computing or telecommunications infrastructure. Only a few

executives had personal computers and integrated systems were a distantdream.

Lorenzo Zambrano, a grandson of the founder of the company, took over the

business in 1985 and decided to apply information technology to theseproblems. He and CEMEX chief information officer Gelacio Iniguez developed aseries of systems that would enable CEMEX to manage unforecastable demand

better than its competitors. Zambrano and Iniguez used ideas gleaned fromvisits to U.S. companies such as FedEx, Exxon, and Houston’s 911 emergencydispatch system to see how other organizations anticipated demand for their

services. They built a system linking CEMEX delivery trucks to a Global

Positioning System satellite to help dispatchers monitor the location, direction,

and speed of every vehicle. This information helps CEMEX send the right truckto deliver a specific grade of cement or redirect deliveries when prompted bylast-minute changes.

The company has reduced average delivery time from three hours to 20minutes, realizing huge savings in fuel, maintenance, and personnel costs.

CEMEX now uses 35 percent fewer trucks to deliver the same amount ofcement. Customers are willing to pay premium prices to CEMEX because theydo not have to keep work crews idle waiting for cement deliveries to show

up. CEMEX’s production facilities previously operated independently, without

precise knowledge of customer demand. A satellite communications system

called CEMEXNet now electronically links all the firm’s production facilities andcoordinates them from a central clearinghouse. Dispatchers know the exact

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location, speed, and direction of all vehicles at all times and can quickly selectthe most optimal arrangement of trucks and mixing plant locations to fill an

order.

Customers, distributors, and suppliers can use the Internet to place orders

directly, check shipment delivery times, and review payment records withouthaving to telephone a customer service representative. Zambrano and his

managers now have access to almost every detail about CEMEX operationswithin 24 hours, whereas competitors are working with month-old data.

Zambrano built a sophisticated executive information system that enables him to

monitor closely from his laptop computer operations in the 35 countries whereCEMEX operates. If a region is colored green, it is doing well. Yellow signals apotential problem, and red indicates a real problem. Zambrano can then

systematically dig down to find out the details of any area of interest. At that

level of detail he can even read the e-mail exchanges about a production

problem at an individual plant. Sometimes Zambrano will send an e-mail aboutproduction issues to plant workers to let them know he is watching.

CEMEX’s profit margins are higher than its bigger rivals, Zurich-based HolcimLimited and Paris-based Lafarge SA, even as the company has expanded from

a provincial Mexican cement maker to an international powerhouse. In additionto maximizing operational efficiency, CEMEX saves by using petroleum coke for

half of its fuel needs. Petroleum coke, also known as pet coke, is the blackened

leftover from the oil-refining process. In the cement industry, energy accounts forup to 40 percent of operating costs.

CEMEX also designed software to make it easier for company executives and

plant managers to keep tabs on power use. Managers use the software to planeach month’s energy consumption, ensuring that conveyors, electric grinders,

and other equipment run mainly during hours of off-peak electricity rates. As aresult, CEMEX cut its energy bills by 17 percent in the past four years.

CEMEX’s productivity has outpaced all of its major rivals in Mexico, andproduction output has grown sixfold since 1985. In an industry known for tough

price competition and thin profit margins, CEMEX revenue has grown at a rate of

9 percent over the past decade. As an agile, efficient e-business, CEMEXappears to have the right ingredients for staying ahead of the pack.

Source: Andrew Rowsell-Jones, “The Best of Both Worlds,” CIO Australia, July12, 2004; John Lyons, “Expensive Energy? Burn Other Stuff, One Firm

Decides,”Wall Str eet Journal, September 1, 2004; www.cemex.com, accessedSeptember 2, 2004; John Lyons, “CEMEX Cemts Its Position with Agreement to

Buy RMC,” Wall Street Journal, September 28, 2004; and Melba Newsome,“The Cement Mixer,” Context, December 2001/January 2002.

To Think About: How did digital technology transform the way CEMEX ran itsbusiness? It has been said that CEMEX has refocused efforts from managingassets to managing information. Explain. To what extent is CEMEX a digitalfirm?