Wednesday, March 4, 2009

How to reinvent a traditional business.

Word association: When you hear cement, what do you think? Heavy, traditional, old world, boring? Now, put a cement company in Mexico. Whatever's in your mind, it's probably not a picture of nimble, new management and state-of-the-art innovation.

Here's how the cement business used to work in Mexico's second-largest city, Guadalajara: A builder telephoned in an order a day or so ahead, two days in advance for big jobs. He specified a time, knowing it was basically theoretical, depending on an endless array of variables - weather, traffic, a missing receipt, the number of other orders the plant had to try to fill. Trucks got lost - up to 140 might be on the road at a time - walkie-talkies conked out, ill-financed projects shut down with their foundations half-poured. Penalties or not, on delivery day half the customers canceled or rescheduled their orders. The bottom line: tons of costly cement rumbling around town with nowhere to go, even as builders were lucky to get delivery the right day, let alone the right hour. "You tried to stay on top, but something would always get by," recalls Alejandro Contreras, a veteran dispatcher with the local subsidiary of Cementos Mexicanos - Cemex for short. "When the phone rang, it was usually someone who was upset. You had to sit there and take it - let the customer blow off steam - then try to negotiate a solution. When the phone rang, sometimes I just didn't want to answer it."

Here's how things work in the same city today: In an air-conditioned operations room on the top floor of a two-story office, Contreras and Oscar Suárez are manning their stations. The ambience is ops-room generic, with five screens - including one with a glowing map of the city - and half a dozen phone sets. It's noon and Contreras is fielding a request for a load of ready-mix in 40-minutes for a new gas station. No hay problema. A satellite-linked GPS system pinpoints three Cemex trucks on the road, one of them within range. Still talking, Contreras does a quick check on the customer's billing status. Then he taps a few keys, the instructions go out to the onboard computer in a truck near the site, and the concrete is on its way.

Over on Suárez's side, an alarm flashes onscreen in white letters: a delivery is due in 30 minutes, but the customer hasn't called to confirm. Suárez glances at the city map, then goes back to some paperwork: If the builder calls, there's a truck available. If he doesn't, the plant will automatically be notified to cut back the rest of the day's production. Any dispute? The customer's welcome to come by and listen to a Teac digital recorder play back his original phone conversations with the dispatchers. On the other hand, if a truck is more than 20 minutes late, it's a 20% discount for each cubic meter. To promote the offer, Cemex printed miniature pizza boxes labeled with a slogan that pokes a little fun at the local Domino's franchise: "Now, the concrete is faster than the pizza."

Delivering cement in Mexico is a good place to see the new management theories I've been writing about in action. Cemex, a 96-year-old Mexican cement manufacturer based in Monterrey, is using a global network and a focus on emerging markets to revamp one of the oldest of old-line industries. At the heart of the firm's success is an IT system that manages production, personnel, and delivery in 33 countries. The business has reached $7 billion in annual revenue by selling its product in places as far flung as Venezuela, Costa Rica, and Egypt, including places that make Guadalajara look like Geneva. Cemex is now the third-largest - and most profitable - cement manufacturer in the world.

Credit goes to the company's CEO, Lorenzo Zambrano. "We're early adopters of leading-edge technology," he says. And in doing so, Zambrano has confounded ideas about the lines that are supposed to separate professional managers with information at their fingertips from ordinary workers.

More tomorrow.

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