Case study - Italcementi Group
Italcementi Group - Cement plant supply chain
optimisation: From strategic simulation to the preparation of annual
budgets
Founded in 1864 in Bergamo, Italy, Italcementi
became Italcementi Group following the acquisition of Ciments Français
in 1992. Today, the Group is Europe's number one cement producer
and a world leader. It's world revenues for 2000 totalled 3.8 billion
Euros. Italcementi operates in Europe, North America and Asia, and
counts for over 50 cement plants, 150 quarries, and 500 ready-mix
plants. In brief, the activity of a cement plant includes the production
of clinker - the base material of cement - the production of the
cement, which is obtained after grinding and adding various components.
The last phase before shipment is bagging.
Problem
As for any company for which the cost of logistics represents a
significant share of the cost of the end product, optimising the
production and distribution plan represents significant economic
stakes for any cement company. Variable production costs and internal
logistical costs can represent up to 40% of the sales price. As
early as 1980, the Management of Ciments Français used a
model to optimise the Group's supply chain, which comprised 20 plants,
20 distribution centers and over 200 customer-supply points in France.
Part of the annual budget preparation involves
the optimal scheduling of the clinker and cement production of each
plant and the best cement distribution scenario from the plants
and centers. The minimization of costs, or maximization of profits,
can only be achieved using optimisation tools, given the number
and types of constraints. Such a particularly complex problem can
be solved using operational research techniques, notably linear
programming. Since this technique had been successfully tested in
the oil sector for similar data-intensive problems, the team headed
by Joel Mariotti, Strategic Planning Manager, adapted the software
to the specific requirements of the cement plants.
Until 1988, the results provided by this software
were used to prepare the annual budget and occasionally used as
the foundation for strategic thinking based on 'What if' or What
would happen if' scenarios. But the software was used sparingly.
It was expensive as it was implemented on a powerful mainframe,
was unwieldy to manage and took roughly ten days between data preparation
and the provision of results.
Solution
In 1988, Eurodecision took over the project and developed a PC-based
prototype for Ciments Français that was quickly transformed
into an operational system driving production and distribution cost
reductions. This was a real innovation as so complex a linear programming
problem had never been solved on a PC. The final version of the
system is based, for supply chain optimisation, on Eurodecision's
business component, LP-SupplyChain and Dash Associate's Xpress-MP
solver.
Each simulation is run on the basis of a set of
representative data for the scenario examined - on the demand side,
the volumes planned at each point per type of product. The composition
of the products produced, the production capacity and costs detailed
for each kiln and grinding mill, and the shipping capacities and
costs must be indicated to simulate production. In terms of logistics,
the inter-plant clinker and cement transfer matrix and the matrix
of transportation between sites and the customer are indicated.
Other constraints are also taken into account. As regards results,
in addition to the production and distribution plan, the software
provides financial values, the average or marginal costs (or margins)
for each entity and at each phase of the process: cost of products
ex-works, ex-depot, delivered.
The system set up makes it possible to very quickly
simulate strategic scenarios, up to ten in a half day, and provides
scenarios for simulating the external growth of the company: 'What
would be the impact of the acquisition of a plant?' Each time there
is a change in the production or distribution system, the best scenario
must once again be determined. The system also handles all transport
modes: road, train, sea, which allows the impact of a new contract
with a forwarder to be evaluated very quickly.
After the acquisition of Ciments Français,
a new version of the software was developed under Windows to facilitate
its development in the Italcementi group. The software is currently
used in Italy at the head office, in the international division
of Ciments Français in Paris and in several subsidiaries,
notably in the United States at Essroc and in Turkey at Set Cemento.
"We now have a measurement tool in place
that enables us to cost and compare scenarios. We can quickly respond
to the issues of a strategic nature like the impact of closing a
site or the acquisition of a new grinding mill. We can also specify
the most favourable geographical area for canvassing new customers,
or the area offering the best margin in relation to operations"
Joël Mariotti, Vice President Strategic Plan, Essroc
Results
Using Eurodecision's LP-SupplyChain and Dash Optimization's Xpress-MP
has improved control over annual budgets and provided a better detection
of production bottlenecks.
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