Cemex’s success: vertical integration, centralization

The acquisition of RMC has been successful for Cemex by improving manufacturing and centralizing its data.(Zambrano devoted a team of 400 people to the integration — known as ”Cemex Widows,” since they were asked to go to Europe without their families.)Since taking over the United Kingdom’s RMC this year, Cemex, the world’s third-largest cement manufacturer, has been busy overturning stereotypes.The company was built on its expertise in selling cement in emerging markets, where high profit margins are available, and in the southern U.S. Its decision to take over one of the biggest players in western Europe was greeted negatively in the markets as a dangerous departure from its core strengths.The doubts have now been vanquished, with Cemex’s share price up by two-thirds in the year since the deal was announced.Lorenzo Zambrano, Cemex’s chairman, told The Financial Times the company had identified recurring annual synergies of $360 million — almost double the $200 million promised when the acquisition was announced a year ago. ”And I am confident we are not finished.”Those savings have been achieved without the significant disposals projected at the time of the deal. Indeed, Cemex has generated savings mostly by taking RMC’s existing assets and making them work more efficiently.CENTRAL SYSTEMSWhile RMC, which had businesses across Europe and in the U.S., had a devolved structure, Cemex is using its own more centralized plan. By the time the integration is complete, its plants and sales teams’ daily figures will be pumped through the central computer system at its Mexican headquarters.Zambrano devoted a team of 400 people to the integration — known as ”Cemex Widows,” since they were asked to go to Europe without their families — spread across the countries in which RMC operated. All spoke English, Cemex’s official corporate language even though it is based in Monterrey with predominantly Mexican executives.The single greatest gains have come from turning around RMC’s flagship plant at Rugby in central England, which had long been a source of problems. A Scot who had worked for Cemex in the U.S. led the integration effort. The Rugby plant operated at 71 percent of its capacity last year, during which its central kiln was stopped 229 times. ”It’s not miraculous, but the turnaround of that plant was very efficient,” Zambrano said. ”It had never worked very well.”By April, two months after taking over, Zambrano says utilization had risen to 93.9 percent, with production increasing from 83,000 to 105,000 tons per month.Zambrano says the problems included a failure to keep the feed into the kiln precise. ”They would shut down the kiln at the drop of a hat. We said no, the kiln has to keep running, so you have to fix things.”HUMAN ELEMENTThe system was designed with 3,000 separate alarms monitoring the process. ”The engineers had a lot of fun designing the plant, but it wasn’t designed to be operated by humans. We said we would choose only the most important alarms, and ignore all the rest. And then it began to work very well.”Beyond the U.K., the biggest challenge will be in the U.S., now Cemex’s largest market. The aim there is to achieve vertical integration, so the cement plants Cemex owned following its acquisition of U.S. manufacturer Southdown provide materials for RMC’s ready-mix concrete plants.”The whole point of buying RMC is to get vertical integration for Cemex overall,” Zambrano said. ”Not only in the U.S. but everywhere — the U.K., Germany, Croatia, everywhere.”Strategically, the move has also completed the process of ridding Cemex of its dependence on Mexico, its home market where it has long faced complaints that it has enjoyed monopoly pricing power.Asked about prices in Mexico, once the key variable for Cemex’s business, Zambrano paused before admitting he had forgotten how prices in Mexico had performed this year. ”The more you diversify the less that matters. We need to keep a healthy home business and a healthy market share and so on. But right now Mexico isn’t as important as it was before.”BY JOHN AUTHERSFinancial Times

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