Gujarat Ambuja Cement (GACL) was the third largest and lowest cost cement producer in India through productivity improvements and cost cutting. GACL reduced costs through measures like increasing plant capacity utilization above 100%, lowering power consumption through captive power plants, reducing coal consumption in kilns, and implementing efficient logistics, inventory, and distribution systems. These cost savings allowed GACL to expand production capacity at low incremental costs and gain economies of scale, helping them become a cost leader in the Indian cement industry.

1. Case Study : Gujarat Ambuja – A Cost
Leader in the Indian Cement Industry

2. Introduction
• 1981 - Established as Ambuja Cements Pvt. Ltd
(ACPL)
• 1983 – Floated a public issue and its name was changed
to Gujarat Ambuja Cements Ltd. (GACL)
• 2004 – Third Largest Producer of Cement in India
• GACL was the lowest cost producer in the Indian
Cement Industry.
• GACL’s quest for Cost Leadership was driven by
Productivity Improvement & Cost Cutting.

3. Terminologies
• Cost Cutting : Cost cutting refers to measures implemented
by a company to reduce its expenses and improve
profitability.
• Kilns : a thermally insulated chamber that produces
temperatures sufficient to complete some process, such as
hardening, drying, or chemical changes.
• Freight : goods transported in bulk
• Clinker : the stony residue from burnt coal or from a furnace
• mtpa : million tonnes per annum
• Captive Power Plant : a facility dedicated to providing a
localised source of power to an energy user.

4. Demand of Cement vs. Indian Economy
• Cement demand in emerging economies was much
higher than in developed countries.
• Cement was consumed in large quantities in :
o Infrastructural Investment made by Government such as
construction of Roads & National Highways
o Construction of buildings and houses in Urban Areas
• Hence Demand was closely linked to the performance
of the Indian Economy.

5. Factors of Cost Control for GACL
• Manufacturing
• Logistics
• Order Processing Systems
• Inventory Management
• Packaging
• Transportation
• Warehousing & Distribution
• Future Outlook

6. Manufacturing
• Processes : Wet, Dry and Semi Dry
• Raw Material / ton of Cement = 1.2-1.5 ton of
limestone, 0.25 ton of coal, 120 kWh power, 0.05 ton of
gypsum.
• GACL’s TCM concentrated on two major areas :
o Productivity & Consumption of Coal
o Power
• 1999 : GACL achieved more than 100% Capacity
Utilization, with an installed capacity of 5 mtpa, the
company produced 6 mtpa.

7. • Power :
o Less power consumption (96 kWh) as compared to
industry average (110-115 kWh)
o Captive Power Plants reduced dependence on expensive
power supplied by State Electricity Boards.
o Cost of Power Generation :
Captive Power Plant : Rs. 1.30 per kilowatt
Electricity Board : Rs. 4.50 per kilowatt
o Reduced Power Costs from 120 units/ton to 90 units/ton
by adjusting the retention time, maximum temperature
and rate of cooling (just by observation).

8. • Consumption of Coal :
o GACL’s Coal Consumption was the lowest (170 kg/ton)
in the industry against industry average (250 kg/ton).
o At Kodinar Plant, GACL engineers used groundnut
husk as a substitute for coal to fire the kilns.
o At Ambuja Nagar plant, GACL replaced Coal by
Sugarcane, which created problems.
o GACL Designed a special mechanical system that could
adjust the rate of feeding to ensure stable temperature in
the kiln.
o GACL brought the energy bill down by Rs. 20/tonne of
sugarcane used.

9. • Mechanical Efficiency:
o GACL Replaced V Belt Drives with Flat Belt Drives
o GACL did not shift to pneumatic conveyors
(consume more power) to mechanical conveyors
(problems such as spillage & breakdown).
o The company devised an improved version of the
mechanical conveyor to eliminate the drawbacks.

10. • Mining:
o GACL made coordinated efforts to reduce mining
expenses.
o Explosives used in mining were negative on the list on
imports and substantial costs were involved in
implementing safety measures.
o GACL sent its engineers to Australia to study extraction
of metals.
o GACL implemented the ripping technology that could
access limestone in smaller areas.
o GACL introduced an Australian device called Surface
Miner, which was energy efficient and recovered more
material from a given area.

11. • Information Systems:
o Entire plant was controlled by computerized
process control system which had visual display
screens, and an interlocking system connecting
crucial stacks.
o Input of raw materials into the kiln was regulated
from the control room.

12. • Quality Control :
o Quality Control reporting was changed from once a day
to 48 times a day.
o Computerized control over 3000 operational
parameters, helped in improving quality at each step of
the production process.
o Machines were continuously monitored for
malfunctioning.
o GACL used Zero Error Electronic Rotary Machines
which checked the quantity of cement in randomly
picked bags.
o Capacity Utilization increased from 143 percent in
1991-92 to 149 percent in 1992-1993

13. Logistics
• Introduced an Integrated Logistics System (ILS)
• At each manufacturing unit a cross functional
committee was responsible for the efficient
management of logistic functions.
• The committee met at regular intervals and
recommendations were forwarded to the top
management.

14. Order Processing Systems
• GACL linked all the major offices through a Wide Area
Network (WAN), Electronic Data Exchange (EDE) &
Material Resource Planning Systems (MRP).
• This ensured timely and accurate processing of orders.

15. Inventory Management
• GACL linked its inventory management process to
functions such as production planning, raw material
planning, ordering etc.
• Online ordering reduced time and transaction costs.
• Raw Material (Limestone) from nearby mines was
transported to the production site by Overland Belt
Conveyor (OBC), this resulted in drastic reduction of
inventory carrying cost.

16. Packaging
• GACL replaced the conventional Jute Bags by Paper
bags in order to avoid pilferage and leakage, after
the industry was freed from the controls of JPMA in
1998 (after intense lobbying).

17. Transportation
• GACL was the first to use water transportation for
domestic as well as export consignments.
• Cost Comparisons:
Ship – Rs 190/ton
Rail – Rs 580/ton
Road – Rs 670/ton
• GACL set up ports and freight handling terminals (after
government allowed privatization of ports)
• GACL conducted periodic route surveys to arrive at the
best possible route for every destination.

18. Warehousing & Distribution
• Used dumps and Trans-shipment storage.
• The bulk shipment terminal in Surat had a storage
capacity of 15000 tons and the one at Panvel had a
storage capacity of 17500 tons.
• Also set up a bulk shipment terminal in Sri Lanka.

19. Future Outlook
• GACL setup two million ton Greenfield Cement unit in
Maharashtra at an investment of Rs. 500 crores.
• Expanded its existing Gujarat site from 3 million to 4
million at an incremental cost of just Rs. 100 crores.
• Planned to setup a Rs. 600 crore, 2 million ton
Greenfield project in Andhra Pradesh.
• GACL had also started offering ready-mix cement, the
demand for which was expected to grow in the future

20. • Research & Development
• Depreciation
• Rent
• Advertising & Marketing
Expenditure
Fixed Cost
• Electricity
• Raw Materials
• Wages
• Packaging
• Transportation
• Fuel
Variable Cost
Classification of Costs

21. Conclusion w.r.t Economies of Scale
• Cost advantage that a business obtains due to expansion.
• Situation in which output can be doubled for less than a
doubling cost.
• This clearly says that by reducing the different costs on raw
materials, power, fuel and transportation, Gujarat Ambuja
brought down its average cost which helped in increasing
the overall profits.

22. THANK YOU