Lean-Manufacturing and Just-In-Time (JIT) methods got developed a decades ago in post World War Japan, which gave them tremendous advantage in manufacturing. This then translated into all kinds of innovations in all sectors. So much so that its hard to tell which improvements are Lean and which are not, almost all improvements that worked look like Lean. One key differentiation is developing a clear method to detect waste and then innovating to remove or reduce that waste. Achilles Heel of Lean is that it seldom makes a big bang in large and old companies, for instance Cement, but I came across an interesting thing Cemex of Mexico did with Lean.
I am surprised why this is not discussed in B-Schools, I got wind of it while attending my Entrepreneurship courses at Lehigh University, where an entrepreneur from the cement supplies industry (interesting story, for a later writing) casually referenced how Cemex used innovative methods to improve its cement production and delivery process. I put that in the back burner and forgot all about it, there were more interesting things being discussed.
This week at the University we discussed Lean and after doing the readings, I pulled the Cemex story out of my back burner and did some research and viola, there was an article by Wired Magazine had an article about it. Of all the places, Wired picked this up, usually focuses on technology and never cement , unless they did something cool with tech. In this case that is exactly what they did.
The real story is named ‘Bordering on Chaos‘, it’s a must read in my opinion. I will attempt to summarize it as the.
Cement is a commodity and no one pays much attention to it. The builders care about the quality and cost, but buying cement in bulk ahead of time is a waste of many things – waste of space(imagine high-rise cities), waste of manpower to safeguard against theft and weather and you can see where i am going with this. All the builders wanted was a concrete of a set quantity and quality at a given location at a given time, beyond which they couldn’t bother much about it.
Cemex, understood the waste in the downstream chain and offered to solve this in an innovative way, which would benefit them as well as their customer. Instead of selling tons of cement, they decided to deliver concrete on all the parameters that their downstream customer wanted. ‘X’ tons of concrete ready mix, delivered at ‘Y’ hours (give or take 5 min) or else 20% off the total price, just like the pizza delivery.
This has tremendous marketing implication, they changed the unit of business from tons of cement sold to tons of concrete delivered on time, which gives a big change in perception at the top and the employees involved.
So it worked something like this and there in lies the genius, they learnt from existing tech, stats and supply chain trends
- All orders come to a centralized control station all through the day
- Every morning a bunch of Ready-Mix trucks will go out into the city in and try to have a random distribution through out the city. The trucks have a GPS unit and the driver has a PTT(Push-to-Talk) phone, all movements of trucks and traffic conditions are monitored at the control station
- When a new order comes in, the control station redirects a nearest Ready-Mix truck that can reach the site given the traffic conditions. Since there is random distribution, there is a good chance that some truck is nearby
- The control station was modeled on the 911 service in the US where the operators have relatively high freedom of operation, the employee participation and freedom also was given, which included training and a path to succeed
Doing this Cemex reduced waste, reduced money tied up in inventory and production, championed JIT(Just-In-Time), opened up a new market, improved its employee morale and at the end became more profitable.
I think this is a fascinating story and all of this took place not in the US or Western Europe, but in Mexico, how often have you heard that. That gives hope to rest that innovation is not limited to rich society.