Gujarat Ambuja - Redefining Operational Efficiency
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WORKING HARD TOWARDS OPERATIONAL EXCELLENCE
According to analysts, GACL's strategic farsightedness was evident in its
decision to locate its plants in backward areas, so as to take advantage of
substantial sales tax and income tax incentives[2] . GACL's units in the states
of Gujarat, HP and Punjab also received sales tax incentives.
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This was possible as all new investments in cement
after 1986 enjoyed a sales tax benefit of up to 90% of the value of fixed
assets for a period of 14 years. To get the sales tax incentives on a
continual basis, companies needed to incur constant capital expenditure.
Thus, GACL continually expanded capacities in Gujarat and Punjab.
The Himachal Pradesh plant had the advantage of prioritized power supply at
a guaranteed cost for five years from the date of commissioning. The
decision to set up a plant in HP made all the more sense because the region
was cement deficit at that point of time. Also, the plant was closer to the
mines and the Punjab grinding unit.
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Another reason GACL finalized the plant location in HP
was that the area had substantial limestone deposits. However, there were
three hills directly between the quarries and the nearest piece of flat land
large enough for the plant. Though the actual distance was just a few
kilometres away, the only way existing was a 17 km stretch of road full of
potholes.
This would have involved time delays and large fuel bills for transporting
the limestone to the plant location. GACL engineers decided to get a
conveyor belt built across the three valleys, through the mountains. After
many big construction firms refused to do the job, GACL built the conveyor
belt on its own, in just 18 months. The distance was cut down to just 2.8
kms and the belt moved 800 tonnes of limestone every hour.
Even the company's latest plant at Chandrapur was set up to take advantage
of substantial sales-tax benefits for almost 18 years. This unit was
situated at the pit-head of coal mines, to save on freight costs. GACL's
management realized that the time taken to set up a plant was not entirely
in its hands. The company's actual work began after it had identified the
right location, acquired the necessary license, power and water supply
connections and machinery.
From this point onwards, the work at the site was something the company
could control. GACL decided to let its engineers define their own jobs and
gave them the authority to take on-the-spot decisions regarding capital
expenditure and schedules for achieving targets. The engineers were also
allowed to set daily, weekly and monthly tasks for themselves.
This empowerment of engineers proved to be very advantageous for the
company: job functions were more clearly defined and response time was
reduced by as much as 90% since engineers did not have to wait for
approvals. GACL's plant engineers placed orders for machinery well before
the site was chosen. So the equipment was ready for installation by the time
the site engineers had acquired the land.
As a result, GACL was able to cut down substantially on the commissioning
time of its plants. The very first plant at Ambuja Nagar was commissioned in
just 22 months. This was a significant achievement, as a plant of similar
size normally took three years to install. Even the second plant was
commissioned in a record time of 13 months. GACL was able to save a lot of
money just in terms of inflationary costs.
Anil Singhvi (Singhvi), Treasurer, GACL said, “By squeezing the project
time, you save 10 per cent on account of inflation alone; plus we estimated
an interest cost savings of around Rs 250 million.” Once GACL got the plants
running, it realized that to compete with the established players, who had
larger plants and economies of scale, cost control would be important.
The major cost components of cement are fuel (20%), freight and raw material
(17% each) and power (16%), with other components accounting for the balance
30%. GACL decided to adopt a two-pronged strategy to achieve total cost
management (TCM): enhancing plant productivity and reducing costs on each of
the cost components individually.
ENHANCING PRODUCTIVITY
CUTTING COSTS - POWER
CUTTING COSTS - FREIGHT
THE FUTURE
EXHIBIT I - GACL - STATE WISE PLANT CAPACITY
EXHIBIT III - VARIOUS AWARDS WON BY GACL
[2]
State governments in India provide various incentives to companies to set up
industries in areas that are classified as ‘backward,'a term used for
undeveloped/under-developed regions. These incentives include sales tax
concessions, availability of power at concessional rates, term loans with
subsidized interest rates, capital investment subsidies and price
preferences.
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