INDIVIDUAL ASSIGNMENT CASE STUDY
IGB40402 MANAGING DIGITAL FIRM
INSTRUCTION:
Read the case study carefully and answer the questions. Any plagiarism will be penalized and no marks will be given.
Duration: Monday 17th October 2011 – 21st October 2011
Late submission will not be entertained.
CEMEX: A Digital Firm in the Making
Cemex, based Monterrey, Mexico, is a 98-year old company that sells cement 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 concrete manufacturer. The concrete business is an asset-intensive, low efficiency business with unpredictable demand. Cemex dispatchers used to take orders for 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 have to be rerouted because of weather change, traffic jams of problems with building permits. Cemex's phone lines were often jammed as customer's truckers and dispatchers tried to get orders straight. Many orders were lost.
Until about 15 years ago, Cemex's Information Technology Division was viewed 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 distant dream. Lorenzo Zambrano, a grandson of the founder of the company, took over the business in 1985 and decided to apply information technology to these problems. He and Cemex chief information officer Gelacio lniguez developed a series of systems that would enable Cemex to manage unforecastable demand better than its competitors.
Zambrano and lniquez used ideas gleaned from visits to U.S. companies such as FedEx, Exxon and Houston's 911 emergency dispatch systems to see how other organizations anticipated demand for their services. They built a system linking Cemexs delivery trucks to a Global Positioning System satellite to help dispatchers monitor their location, direction and speed of every vehicle. This information help Cemex send the right truck to deliver a specific grade of cement or redirect deliveries when prompted by lastminute changes.
The company has reduced average delivery time from three hours to 20 minutes, realizing huge savings in fuel, maintenance, and personnel costs. Cemex customers are willing to pay premium prices to Cemex because they do 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 and coordinates them from a central clearinghouse. Dispatchers know the exact location, speed and direction of all vehicles at all times and can quickly select the most optimal arrangement of trucks and mixing plant locations to fill an order.
Customers, distributors and suppliers can use Internet to place orders directly, check shipment delivery times and review payment records without having to telephone a customer service representatives. Zambrano and his managers now have access to almost every detail about Cemex operations within 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 sin the 35 countries where Cemex operates. If a region is colored green, it is doing well. Yellow signals a potential 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 an individual plant. Sometimes Zambrano will send an e-mail about production issues to plant workers to let them know he is watching.
Cemex's profit margins are higher than its bigger rivals, Zurich-based Holcim Limited and Paris-based Lafarge SA, even as the company has expanded from a provincial Mexican cement maker to an international powerhouse. In addition to 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 for up 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 plan each month's energy consumption, ensuring that conveyors, electric grinders and other equipment run mainly during hours of off-peak electricity rates. As a result, 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, and production output has grown sixfold since 1985. In an industry known for tough price competition and thin profit margin, Cemex revenue has grown at a rate of 9 percent over the past decade. As an agile, efficient e-business, Cemex appears to have the right ingredients for staying ahead of the pack.
Sources: Andrew Rowsel/-Jones, The Best of Both Worlds," CIO Australia, July 12, 2004; John Lyons. "Expensive Energy? Bum Other Stuff, One Firm Decides," Wall Street Journal, September 1, 2004; www. cemex. corn, accessed September 2, 2004; John Lyons Cernex Cements Its Position with Agreement to Buy RMC," Wall Street Journal, September 28, 2004; and Melba Newsome, "The Cement Mixer," Context, December 200 1/Janua,y 2002.
Questions 1. Discuss in detail how digital technology transform the way Cemex runs its business. [20 marks]
2. What are the advantages derived from information systems adoption at Cemex? Are these advantages substantial as compared to its competitors? Are they sustainable? Why or why not? [10 marks]
3. In your opinion, what have contributed to the successful implementation of information systems at Cemex? Explain your answers. [10 marks] 