Report on Methodology for

“Selection of a Demand Forecasting Technique for

Cement Industry: A Case Study on
HeidelbergCement Bangladesh Limited”

Course: P501-Managing Operations

Prepared for:
Abdullahil Azeem, Ph.D.
Professor, Dept. of IPE
Bangladesh University of Engineering & Technology

Prepared by:
1. Shuvojit Kumar Shil, Roll: 07
2.
Batch: 57E

Institute of Business Administration

University of Dhaka

April 05, 2018

INTRODUCTION
A business must adjust its production/supply process constantly responding to the changes
in market demand. In order to make those adjustments, management needs to forecast the
future trend in the marketplace and plan its strategy and productivity accordingly. Accuracy
in making forecasting can make the difference between being ready and being left behind.
Forecasting helps managers and businesses develop meaningful plans and reduce
uncertainty of events in the future. Managers want to match supply with demand; therefore, it
is essential for them to forecast how much supply they need to make available to each
demand.

Forecasting is the use of historical data to determine the direction of future trends with some
mathematical models. Businesses utilize forecasting to determine how to allocate their
budgets or plan for anticipated expenses for an upcoming period of time. This is typically
based on the projected demand for the goods and services they offer.

This current project works with the forecasting method of one of the largest cement
manufacturer companies of the country – HeidelbergCement Bangladesh Ltd. It is inevitable
that, Cement is a major ingredient for the construction industry and during this infrastructural
growth period of the country, cement industry is going through even bigger challenges to
forecast future market demand. This paper will try to identify the forecasting method that
HeidelbergCement uses based on their historical data and analyse the level of error in
forecasting methods.

CEMENT INDUSTRY OF BANGLADESH

Prior to liberation war in 1971, Bangladesh used to import cement from global market. As
new players entered into the market with no participants, they tapped into the already
existing huge demand for cement. Till 1990 about 95% of the country's demand for cement
had been met through import. However, the dependency on import lowered in the following
years and currently local producers and multinational companies have engaged in cement
production to fulfil the local demand as well as small scaled export.

Currently the industry is experiencing overcapacity of cement production. A recent survey

report shows that, Bangladesh's annual demand for cement is estimated to be about 25
million tonnes. But, the combined effective production capacity is more than 43 million
tonnes and the installed capacity is nearly 50 million tonnes. Yet, some makers continue to
expand their capacity in anticipation of spiralling demand in future. [Source: The Daily Star,
December 28, 2017, ““No cheer for cement industry in 2017”, http://www.thedailystar.net/
business/no-cheer-cement-industry-2017-1511329].

Capacity and Utilization of Some Major Cement Manufacturing Companies (2016):

Company Name Installed Capacity (mn MT) Production (mn MT) Capacity Utilization
HeidelbergCement 2.4 1.7 71%
Lafarge Surma Cement 1.5 1.5 97%
M I Cement 1.7 1.5 87%
Premier Cement 2.8 1.5 55%
Meghna Cement 1.0 1.2 120%
Confidence Cement 0.8 0.5 72%
Aramit Cement 0.2 0.1 48%
Source: Published Annual reports of the respective companies

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The cement production is mostly demand driven as it directly depends on demand. As such,
though the installed capacity of the local manufacturers far outstrips domestic demand, the
market demand is almost equal to the effective capacity during peak season.

Seasonality Effect in Cement Industry: Cement sector in Bangladesh experiences high

seasonality. Peak season is considered during the winter season (November to April) while
demand for cement goes slow during the monsoon (June to October) period. The demand
for cement sharply declines during the monsoons due to slowdown in construction
activities. According to the industry personnel, 60% of the total yearly sales are generated in
the first half of the year and rest 40% sales are generated in the second half of the year due
to seasonality. Though the yearly capacity of cement sector was saturated with overcapacity,
market demand gets matched or cross the effective capacity during the peak season.

Furthermore, the cement industry, like most other capital intensive industries, is cyclical in
nature with respect to supply. Manufacturers give incentive, commission and foreign trip
campaign to the employed executives and dealers/distributors/traders over the year while
taking promotional activities in off pick season.

SELECTED ORGANIZATION’S PROFILE: HEIDELBERGCEMENT

BANGLADESH LIMITED
HeidelbergCement Bangladesh Ltd. is a member of HeidelbergCement Group, Germany.
The group has 140 years of experience in producing cement and is operating in more than
60 countries. It has around 60,000 employees and an annual turnover of Euro 15.2 billion.
HeidelbergCement Bangladesh Limited claims to meet 13% of the Bangladesh demand for
cement from two plants located at Dhaka & Chattogram. In Bangladesh it represents two
reputed brands “Ruby Cement” and “Scan Cement”.

Sale of Portland Composite Cement (PCC) through two brands namely Scan Cement and
Ruby Cement is the key revenue driver of this company. Its manufacturing units are situated
in Chittagong and Kanchpur having a total installed capacity of 2.38 million MT.

Milestones of HeidelbergCement Bangladesh Ltd

1998 HeidelbergCement group established its presence in Bangladesh by setting up a

floating terminal with onboard packing facilities in the port of Chittagong.
1999 A Greenfield manufacturing plant was built near Dhaka namely “ScanCement
International Limited (SIL)” with an installed capacity of 0.750 million tones per year.
2000 Acquisition of “Chittagong Cement Clinker Grinding Co. Limited (CCCGCL)” was
completed.
2003 SIL & CCCGCL were amalgamated and the Company’s name was changed to
HeidelbergCement Bangladesh Limited.
2004 HCBL has diversified its product range by introducing Portland Composite Cement
(PCC) into the market.
2008 HCBL increased the capacity of its Kanchpur plant by setting up another grinding
unit of 0.450 million tones per year that was commissioned.
2012 HCBL inaugurated another grinding unit of 0.750 million tones per year in its
Chittagong plant which is in operation.
2013 HCBL inaugurated another Silo having capacity of 8,000MT in its Kanchpur plant.

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SCOPE OF THE PROJECT
We will conduct an analysis on forecasting method of Heidelberg Cement Group. For this,
we will analyze their historical production and actual sales data, identify their forecasting
technique and show the limitations.

Year-wise production and sale information of HeidelbergCement is as under:

Production Sales Production Sales

Year Year
(in MT) (in MT) (in MT) (in MT)
2003 863,400 862,260 2010 1,334,618 1,339,838
2004 807,875 807,623 2011 1,320,129 1,318,110
2005 818,260 816,470 2012 1,487,513 1,488,859
2006 1,007,401 1,010,478 2013 1,359,120 1,351,759
2007 1,018,827 1,018,944 2014 1,524,992 1,524,434
2008 1,058,016 1,059,606 2015 1,538,192 1,533,733
2009 1,163,767 1,162,187 2016 1,696,962 1,695,266
Source: Annual Reports of HeidelbergCement Bangladesh Ltd.

METHODOLOGY
1. We will analyze last 5 years’ sales data and find the forecasted demand as well as error
for the year 2017 based on historical production and sales figures of the company using
following statistical forecasting methods:
a) Simple moving average.
b) Weighted average. For this method, different criteria for applying weight on data
should be used.
c) Exponential smoothing. For this method, we shall apply different values of smoothing
constant 'alpha'.
d) Linear regression.
2. We will then compare our forecasted value with the actual production value for the year
2017. The method with relevant constants having the best match will be taken as the
default forecasting method for the company.
3. Simultaneously we will also compare our forecasted values with actual sales figure for
the year 2017. The most proximate match should be the recommended forecasting
method for the company.
4. Then we will suggest a better technique by which a better prediction about demand will
be possible. And the limitations of our method will also be discussed.

DATA COLLECTION PROCESS

We will use both Primary and Secondary data sources to extract relevant data for the
project.

Primary Data Source: Published annual reports of the company.

Secondary Data Source: (a) Contacting with acquainted persons for data.
(b) Searching in websites searching for relevant data sets or
articles where we can get possible data.

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LIMITATIONS
Due to unavailability of seasonal production to sales values, effect of peak and off season on
overall forecasting process has not been considered. Rather the project handles with gross
annual figure, which may vary on seasonal affect. Cement industry deals with demand
based production, where brand values may leave great impact. Such, comparative brand
image with peer group and market share have not been considered.

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