Lucky Cement Limited

Distribution and Channel Management

BACKGROUND OF CEMENT INDUSTRY

Pakistans cement sector contributes to 1.2% of the global cement production. There are 24 plants with
annual production of approximately 44.7 million MT of cement. Majority of the demand for domestic is
driven by the Public Sector Development Program, real estate and industrial construction. This sector
faces certain challenges, of which energy cost is the most important, and comprises of more than 50% of
the total input cost. To counter this issue, various initiatives have been taken by cement companies.
The market size of the cement industry in Pakistan comprises of the following statistics:
YEARS
2007-2008
2008-2009
2009-2010
2010-2011
2011-2012
2012-2013
2013-2014

TOTAL
DISPATCHES(In Growth (%)
million tons)
30.286
24.8%
31.306
2%
34.22
9.4%
31.36
-8.32%
32.52
3%
33.43
2.8%
34.28
2.54%

The Pakistan cement industry ended the financial year at June 30, 2009 with a 2% growth with
aggregate sales of 30.77 million tons against last years volume of 30.286 million tons. The demand
from the local business saw a bleak negative development of 14% because of unfriendly financial,
monetary and in addition lawfulness circumstances in Pakistan. On the fare front, the industry saw a
strong development of 47% with deals volume of 11.381 million tons against last years deals volume of
7.716 million tons every annum. The deficit in residential deals was remunerated by fares which
finished with an extent of 37% of the aggregate offers of the business.
The Pakistan Cement Industry ended the monetary year in June 30, 2010 with an average development
of 9.4% and attained most noteworthy ever deals volume of 34.22 million tons against the most recent
year's deals volume of 31.28 million tons. The business saw a steady development of 14.6% in volume
and attained the most noteworthy ever local volume of 23.53 million tons in the historical backdrop of
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the Country notwithstanding discouraged open division improvement task using by the Government.
The recuperation in neighborhood deals was basically accomplished on the again of private
division,coupled with recuperation of rural economy in light of better farming support prices. On
opposite, the business saw a breakeven in fare deals and sent out 10.69 million tons of concrete and
clinker as contrasted with 10.75 million tons traded a year ago.
The Pakistan Cement Industry closed the monetary year ended June 30, 2011 with negative development
of 8.32% and accomplished aggregate deals volume of 31.36 million tons as contrasted with a year ago
volume of 34.21 million tons. The interest in residential markets decreased by 6.69% and attained
volume of 21.97 million tons against the most recent year volume of 23.55 million tons. This decrease
was predominantly ascribed because of obliterating surges and absence of Government using on open
foundation and other advancement ventures. The fare deals volume enrolled a decrease of 11.94% and
accomplished a volume of 9.39 million tons as contrasted with volume of 10.66 million tons in the same
period a year ago.
The money related year finished June 30, 2012 was a development year for the concrete business and
additionally the most noteworthy ever yearly local deals volume of 23.95 million tons was accomplished
ever. The business recorded aggregate deals volume of 32.52 million tons for the year 2011-12 which
was expanded by 3% over going before year. The local deals volume enlisted a great looking
development of 9% while trade deals volume shrunk by 9% and recorded at 8.57 million tons for the
year contrasted with 9.43 million tons sent out a year ago.
Concrete industry in Pakistan developed by 2.8% to 33.43 million tons amid the money related year
finished June 30, 2013 contrasted with 32.52 million tons a year ago. Nearby deals volume enlisted a
development of 4.6 % to 25.06 million tons amid the current year contrasted with 23.95 million tons of a
year ago. Without precedent for the historical backdrop of the nation, the business touched the
characteristic of 25.0 million tons of nearby deals. Trade deals volume enrolled a decrease of 2.3% to
8.37 million tons amid the current year contrasted with 8.57 million tons a year ago.
Cement industry in Pakistan grew by 2.54 to 34.28 million tons during the financial year ended June 30,
2014 compared to 33.43 million tons of the last year. While local sales volume registered a growth of
4.34% to 26.15 million tons compared to 25.06 million tons of the last year, export sales volume
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registered a decline of 2.84% to 8.14 million tons during the current year compared to 8.37 million tons
of last year.
Exhibit 1 shows Historical Analysis of Cement Production Capacity & Dispatches.

Major Players of Cement Industry in Pakistan

Cement Industry of Pakistan has been divided into two zones i.e. North Zone (Punjab and KPK) and
South Zone.(Sindh and Baluchistan).
Major players of this industry according to their zones are shown in Table 1.

The north zone has 19 players while the south zone has 5 players. The purposes behind a larger number
of players in North than in South are: firstly, the business of North zone is greater than the business of
south zone and thus the plants in north have such vicinity that they have a more extensive range towards
these businesses. Also, there are huge questions towards the North than the South, making it simple for
the accessibility of crude materials. Additionally, all real development undertakings, in the same way as
large ones, for e.g. development of dams, streets, structures, other government ventures and so forth
happen in the North zone. The primary rivalry between both of these zones exists in the square
concrete's Market. In north the accessible crude material is snappy solidifying henceforth the setting
time needed for piece bond is low and the north zone takes a lead in square concrete's business sector.

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Distribution and Channel Management

1. Organizational Structure of Lucky Cement

Chief Executive

Executive
Director

Chief Operating
Officer

Director
Finance/CO &
CIO

Chief Operating
Officer
International
Projects

Head of Internal
Audit &
Compliance

Audit Committee

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2.

Cement Manufacturing Process

The production of cement takes place with several steps:

Quarrying and Blasting

Grinding

Blending of components

Fine grinding

Burning

Finish grinding

Packaging and/or shipping

2.1 Quarrying and Blasting

The quarry is the starting point and cement plants are usually located closely either to hot spots in the
market or to areas with sufficient quantities of raw materials. The aim is to keep transportation costs
low. Basic constituents for cement (limestone and clay) are taken from quarries in Karachi Plant which
is located in Nooriabad. Quarrying of limestone and shale is accomplished by using explosives to blast
the rocks from the ground. After blasting, huge power shovels are used to load dump trucks for
transportation to the cement plant, which is setup in the same area.

2.2 Grinding
After the raw materials have been transported to the plant, the limestone and shale which have been
blasted out of the quarry must be crushed into smaller pieces. Some of the pieces, when blasted out, are
quite large. The pieces are then dumped into primary crushers which reduce them to the size of a
softball. The pieces are carried by conveyors to secondary crushers which crush the rocks into fragments
usually no larger than 3/4 inch across.

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2.3 Blending
After the rock is crushed, plant chemists analyze the rock and raw materials to determine their mineral
content. The chemists also determine the proportions of each raw material to utilize in order to obtain a
uniform cement product. The various raw materials are then mixed in proper proportions and prepared
for fine grinding.

2.4 Fine Grinding

The dry process of fine grinding is accomplished with a similar set of ball or tube mills; however, water
is not added during the grinding. The dry materials are stored in silos where additional mixing and
blending may be done.

2.5 Burning
Burning the blended materials is the key in the process of making cement. The mix is fed into the kiln,
which is one of the largest pieces of moving machinery in the industry.
As shown in Exhibit 1 when the kiln revolves, the materials roll and slide downward for approximately
four hours. In the burning zone, where the heat can reach 3,000 degrees Fahrenheit, the materials
become incandescent and change in color from purple to violet to orange. Here, the gases are driven
from the raw materials, which actually change the properties of the raw materials. What emerges is
clinker which is round, marble-sized, glass-hard balls which are harder than the quarried rock. The
clinker is then fed into a cooler where it is cooled for storage.

2.6 Finish Grinding

The cooled clinker is mixed with a small amount of gypsum, which will help regulate the setting time
when the cement is mixed with other materials and becomes concrete. Here again there are primary and
secondary grinders. The primary grinders leave the clinker, ground to the fineness of sand, and the
secondary grinders leave the clinker ground to the fineness of flour, which is the final product ready for
marketing.

2.7 Packaging/Shipping
The final product is shipped either in bulk (bulkers or trucks) or in strong paper bags which are filled by
machine. The mode of transport depends on the way cement is transported, such as loose cement is
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transported through heavy bulkers of two sizes (50 and 70 metric tonnes) and bagged cement is
transported through trucks.At Lucky Cement Limited, one bag of Portland cement contains 50 kg of
cement. The dealers from Lower and Central Sindh and from Balochistan go to the Karachi Plant
directly to get the cement. However, to cater to the rising demand of cement within Karachi and to
ensure maximum availability in the region Lucky Cement Limited has opened 4 warehouses in prime
locations. Thus around 4000 tonnes of cement is transported to the warehouses on a daily basis from the
Karachi Plant to make it easily accessible to the Karachi dealers. The warehouses which are located at 4
prime location of Karachi are in the following areas:
i.

Korangi

ii.

Gulshan-e-Maymar

iii.

S.I.T.E

iv.

Quaidabad

The storage capacity of each warehouse is 1000 to 1200 tonnes and it is ensured that the activity at
Karachi Plant and the warehouses is kept under balance to ensure that the cement transportation activity
is taking place at both the locations.

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Lucky Cement Limited

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Lucky Cement Limited Bulker for transport of loose cement

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Exhibit 1: Lucky Cements cement manufacturing process

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Distribution and Channel Management

3. Marketing Department
The Marketing Department at Lucky Cement Limited has been broadly divided into two segments i.e.
Local Marketing and Export Marketing. Local Marketing has been further classified into Institutional
Sales, Commercial Sales and Associates. Institutional sales are based on direct sales, commercial sales
are based on vast dealer network where the associates consists of the sister companies of Lucky Cement
Limited who have shares in the company such as Lucky Knits (Private) Limited and Lucky Paragon
Ready Mix Limited.

Marketing
Department

Local

Export

Institutional
Sales

Commercial
Sales

Associates

Direct Sales

Dealer
Network

Initially in 2006-2007 it had an objective of keeping strategic focus on the export market. But because of
profitability; rising demand and prices of cement in the local market, LCL shifted its strategic focus
from export market to local market. The objective was rightly implemented and the local dispatches
have been increasing ever since the FY 2010.
Efficient and effective management of vast dealer network has been the core function of achieving the
said objective.

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Lucky Cement Limited

Distribution and Channel Management

3.1 Demand Forecasting And Target Setting

The demand forecasting and target setting do not only depend on the past sales record of Lucky Cement
but also on the market trend and potential. The market trend and potential analysis includes:

Government spending.

Industry growth.

Construction activities.

New competitors in the market.

Existing competitors enhanced their capacities.

Standing of Lucky Cement (in terms of production capacities).

Upcoming mega projects.

Events (Eid, Ramadan).

Consumers propensity to consume.

Inflation rate.

3.2 Sales Target Planning

The overall monthly sales targets are broken down into daily sales targets and in order to achieve them
LCL implements the following actions:

Allocating per day targets to each dealer as per their potential.

Assigning territories to each member of sales force.

Building relationships with the retailers through daily market visits of the sales force.

Monitoring and reporting sales through automated sales system on daily, weekly, and monthly
basis.

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4. Dealers Network at Lucky Cement Limited

4.1 Geographic Distribution:
Pakistan has been divided into three main regions i.e. Karachi, Sindh, and Baluchistan. Karachi has been
further classified into four zones: East, West, Central, and South. Sindh has been classified into Upper,
Central and Lower while Baluchistan into Coastal Belt and Central.
The geographic distribution is illustrated as follows:

LCL
Dealer
Network
Sindh

Upper

Karachi

Lower

East

West

Central

Balochistan

South

Coastal
Belt

Central

There are a total of 12 dealers of which 9 are for Karachi, 2 for Sindh and 1 for Baluchistan. The dealers
in Karachi are:

Amber Jatoi

Al-Badar (Ashqeen and Shehzad)

Khalid Abid

City Traders (Alam Shah and Aziz ur Rehman)

Mehmood

Malik

Haji Yusuf

Amanullah

Anwar Asghar
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The main dealer in Lower Sindh and a part in Central Sindh is Amber while Haji Yusuf dominates in
Balochistan, Upper Sindh, and a part of Central Sindh.

4.2 Distribution Structure of Lucky Cement

Local Sales

Institution

Associates

Commercial

Governement
Organizations,
Contruction
companies
(Bahria &
Maymaar
Builders),
Armed Forces
Associates

Sister
companies
such as Lucky
Knit, Lucky
Readymix
Paragon
Limited

Dealers

Sub dealers

Wholesalers

Retailers

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Distribution and Channel Management

Dealer's network
Dealers, retailers, and block makers form an integral part of Lucky Cement's sales-force strategy. We
have a strong network of 200 dealers, strategically located across the country. This strong network
provides us with an impressive distribution system and access to even remotest areas of the country.

Associate Sales Structure

The Associates consists of the sisters companies of Lucky Cement Limited and they prefer and are
bound to get cement from there only. Lucky Cement Limited caters to the cement demand of its
associate companies by directly dealing with them and it transports the cement to them using its own
fleet of bulkers (for loose cement) and trucks (for cement bags).

Commercial Sales Structure

For Commercial Sales category, the company has hired a dealer who has then hired a sub dealer who in
turn supply cement to retailer and wholesaler. In some cases company directly invoice sub dealers as
well so as to spread the market. Cement is dispatched to dealers in two ways: one is from the Karachi
Plant at Nooriabad and second through warehouses. Warehouses have been built in order to facilitate
those dealers who dont buy in bulk quantity rather in small quantities. Unlike FMCGs, transportation
cost is not shared with the dealers. Dealers have their own transporters.

Institutional Sales Structure

For institutional sales category, there is no need of any intermediary hence company directly deals with
the end users i.e. Government organizations, Institutions, Associates, Armed Forces, Builders, Industrial
Sector. Lucky Owned Freight of Vehicles (Trailers & Bulkers) or sometimes Commercial Transport is
used to serve such clientele. Institutional customers have their own transports as well.

Dealers Relationship Building

Lucky Cementhas hired a dedicated market research specialist, who provides further insight into the
world of our customers. After evaluations have been made, recommendations are submitted to the
relevant departments such as production and sales. The company undertakes the following activities to
sustain its relationship with its customers (dealers).

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Activity

Description

Frequency

Dealers, Retailers, BlockMakers Get Together

As a token of appreciation for our dealers and

retailers, an annual get together is organized. More
than 1,000 cement dealers, retailers and block makers
attend the event and appreciated our efforts to engage
with our customers.
Lucky Cement holds convention for the ultimate
consumers of cements; masons and contractors. The
event brings together more than 300 dealers.
To get the firsthand knowledge of market and develop
closer intimacy with its customers, LCL sales force is
always in the field. Information gathered by them is
analyzed to create further value for customers.
LCL has developed a customer hotline to discuss any
problem being experienced by the customers in the
use of cement.
To keep abreast of the changing demands of its
customers, Customer Satisfaction Survey is
conducted among all dealers, retailers and blockmakers.
To help improve the product and service; feedback
from customers is sought by circulating customer
feedback form at the time of transactions with them.
This ensures continuous customer engagement with
the product and helps meet the new trends emerging
in the market.

Annual

Masons and Contractors

Convention
Market Visits by our sales
force

Customer Services and

Support Desk
Customer Satisfaction
Survey

Customer Satisfaction
Feedback

Annual

Continuous

Continuous

Annual

Continuous

Logistics
Smart logistic set-up and supply-chain management
In order to ensure that all the logistical arrangements are systematic, LCL has acquired multi-purpose
trailers capable of moving diverse set of cement consignment either bagged, raw or loose form. In the
first phase 40 trailers have been inducted in the transportation fleet. Each trailer can carry goods up to 80
tons. These trailers are used to transport bagged cement from factory to port and also carry coal from
port to factory. Changing to a well-synchronized transport system does not only strengthen the overall
logistical capacity of the company, but also cuts heavy transportation cost along with cost of outsourcing
transport contractors.

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Our integrated supply chain structure offers superior quality and smart procurement within the shortest
possible lead time. Our supply chain process is directly beneficial for all the stakeholders. Our combined
purchase strategies give us leverage and add to our negotiation strength. Our team consists of dedicated
people with the talent to network and coordinate effectively with our purveyors of goods, service,
transportation and warehousing.

Logistics Terminal at Karachi Port

Lucky Cement is the first and only cement company that has its own state-of-the-art infrastructure and
logistics terminal at Karachi port. The company runs a fleet of specially designed cement bulkers that
carry loose cement from Karachi plant to the terminal on the port. These bulkers are equipped with
unique compression system and are capable of carrying up to 50 and 70 tons of cement.
In order to reduce vessels idle time and make timely shipments, LCL has installed cement storage silos
capable of storing 24,000 tons of cement at the terminal. The terminal has unique loaders that make fully
automatic loading from the silos when the vessels arrive. These loaders release cement from the silos
into the vessels at with rapid discharge rate enabling quick loading time. This advanced Port Terminal
not only ensures cement availability at the port anytime but also plays a major role in increasing export
capacity of the company and its international market share.

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