The analysis of industry value chain

and firm value chain of Siam City

Cement (Lanka) Limited.
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 Acknowledgment
We would like to express our special thank of gratitude to our lecture Ms. Chathurini
Kumarapperuma for their able guidance and support in completing our assignment. Moreover
we are greatly thankful to Mr. Yasas Kasthuriarachchi Senior Manager Planning and Inbound
Logistics of INSEE Cement Limited for his support and guidance to successfully complete
our assignment.

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Cover page and declaration ...……………………………………………………………….i
Acknowledgement ...………………………………………………………………………..ii
Table of contents ...…………………………………………………………………………iii
List of figures …...…………………………………………………………………………..v
List of tables ………………………………………………………………………………...v

Table of contents
1 Introduction to the cement industry................................................................................. 1
1.1 Highest global cement producing countries ............................................................. 3
1.2 Top global cement manufacturing companies .......................................................... 4
1.3 Global cement consumption ..................................................................................... 5
1.4 Top cement exporting countries ............................................................................... 6
2 Cement industry value chain analysis ............................................................................. 8
2.1 Pre-production activities ......................................................................................... 10
2.1.1 Inputs ............................................................................................................... 10
2.1.2 Production ....................................................................................................... 10
2.2 Post-production activities ....................................................................................... 11
2.2.1 Packaging and processing ............................................................................... 11
2.2.2 Storage and distribution................................................................................... 11
2.2.3 End markets ..................................................................................................... 12
3 Introduction to Siam City Cement (Lanka) Limited ..................................................... 13
3.1 The product range of Siam City Cement (Lanka) Limited ..................................... 13
3.1.1 INSEE Sanstha ................................................................................................ 13
3.1.2 INSEE Mahaweli Marine Plus ........................................................................ 14
3.1.3 INSEE Extra .................................................................................................... 14
3.1.4 INSEE Mahaweli Marine ................................................................................ 14
3.1.5 INSEE Rapid flow ........................................................................................... 14
3.1.6 INSEE Rapid flow plus ................................................................................... 14
3.2 Recent improvement practices implemented by Siam City Cement (Lanka) Limited
15
4 Mapping the firm’s value chain of Siam City Cement (Lanka) Limited ...................... 16
4.1 Introduction to the value chain analysis ................................................................. 16
4.1.1 Primary activities ............................................................................................. 16
4.1.2 Support activities ............................................................................................. 17
4.2 Value chain and competitive strategy ..................................................................... 17

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 4.2.1 Lower cost advantage ...................................................................................... 18
4.2.2 Differentiation advantage ................................................................................ 18
4.3 Primary activities of Siam City Cement Limited ................................................... 18
4.3.1 Inbound logistics ............................................................................................. 19
4.3.2 Operations ....................................................................................................... 20
4.3.3 Outbound logistics ........................................................................................... 21
4.3.4 Marketing and Sales ........................................................................................ 22
4.3.5 Services ........................................................................................................... 22
4.4 Support activities of Siam City Cement Limited .................................................... 23
4.4.1 Firm infrastructure ........................................................................................... 23
4.4.2 Human resource management ......................................................................... 24
4.4.3 Technology development ................................................................................ 24
4.4.4 Procurement ..................................................................................................... 25
5 Conclusion ..................................................................................................................... 26
6 References ..................................................................................................................... 27

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 List of figures
Figure 1-1-Highest global cement producing countries. | Source: Beta version of the Global
Cement Directory 2018 ........................................................................................................... 4
Figure 1-2-Top global cement manufacturing companies. | Source: Beta version of the Global
Cement Directory 2018 ........................................................................................................... 5
Figure 1-3-Global cement consumption .................................................................................. 6
Figure 2-1-Cement industry value chain ................................................................................. 9
Figure 4-1-Firm value chain | Source – Exploring Strategy 11th Edition .............................. 19
Figure 4-2-Cement production process ................................................................................. 20

List of tables
Table 1-1-Highest global cement producing countries. .......................................................... 3
Table 1-2-Top global cement manufacturing companies. ....................................................... 4
Table 1-3-Global cement consumption ................................................................................... 6
Table 1-4-Top cement exporting countries. ............................................................................ 7
Table 4-1-Locally manufactured and imported raw materials. ............................................. 19
Table 4-2-International locations SCCL purchased raw materials........................................ 25

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 1 Introduction to the cement industry
The cement industry has very large competitors and establishes competitive advantages in
operations is important to survive in the market. Cement is one of the key manufacturing
industry that implements a vital role in the development and expansion of any country. It is
essentially a combination of mixtures, containing mostly of silicates and calcium aluminates
(cpp.edu, 2016). The demand for the cement is highly dependent on infrastructure,
construction and engineering sector of the economy. Cement is used as a construction
material and is used worldwide for all construction works, such as housing construction,
industrial construction, as well as for the constructions of infrastructure such as ports, roads,
buildings and power plants. Cement is the general term used to designate powdered materials
that initially have a plastic flow when mixed with water or other liquid, but which have the
property of curing in several hours to form a solid and hard structure, with varying degrees
of resistance and binding properties.

Cement is one of the fundamental raw material in the construction industry. Even though
global cement production and cement consumption have rapidly increased in the last several
decades, the global cement industry is recognized as one of the least regulated industry. Like
other industries, the cement industry has consisted of many firms as well as these firms have
many interconnections with firms in the cement industry as well as firms in other industries.
Each firm in the cement industry value chain undertakes specific tasks to perform in order to
add values to the final product. Siam City Cement (Lanka) Limited is a limited liability
organization operates in the domestic cement industry.

The organizations involve in research and development and have come up with new cement
products and it also expand their operations through its groundbreaking results by going
beyond the normal cement production. Organizations converts numerous raw materials with
the help of labor into good and service. It uses the highest efficient level in its operations
activities.

The preparation of cement includes mining, crushing, and grinding of raw materials, and
mixing the clinker with gypsum and milling and packaging the finished cement product
(casarenili.it, 2018). Within the production process cement is categorized as Portland cement,
Blended cement or specialty cement.

Cement can be identified under the two main categories.

1
 1. Hydraulic cement
2. Non-hydraulic cement

1. Hydraulic cement

Hydraulic cement is the cement that requires water to obtain adhesive properties, while non-
hydraulic cement requires water to obtain adhesive properties, for example. Hydraulic cement
araldite, fevicol, etc. They are also of two types. They are natural and Portland cement
(assignmentpoint.com, 2019).

1.2 Natural cement

Hydraulic cement manufactured by calcining a normal clay-limestone at a temperature under

the sintering point and grinding it into a fine powder (assignmentpoint.com, 2019).

2.1 Portland cement

Portland cement is mostly used worldwide. Basic raw materials used to produce Portland
cement include gypsum (CaSO₄·2H₂O), fly ash, slag, coal, iron ore and limestones. Hydraulic
calcium cement manufactured by clinker spraying consisting essentially of hydraulic calcium
silicates (Ca2SiO4), which generally contain one or more forms of calcium sulfate (CaSO4)
as an underground addition, hydraulic calcium silicates (Ca2SiO4) have the capability to
strengthen without drying or by reaction with carbon dioxide (CO2) atmospheric
(assignmentpoint.com, 2019). The reactions involved in curing the cement are hydration and
hydrolysis. Its hardening is due to the chemical reaction between the cement and water.

2. Non-hydraulic cement

The carbonation reaction requires that dry cement be exposed to air (amootiranian.com,
2019). This is the reason why slaked lime is a non-hydraulic cement and cannot be used
underwater. This whole process is called the lime cycle.

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1.1 Highest global cement producing countries
There are top 10 cement producing countries such as China, India, USA, Russia, Vietnam,
Brazil, Turkey, Iran, Indonesia, and Saudi Arabia. Sri Lanka is perhaps the only country in
this region that uses a 100% dry process for manufacturing cement. In the world market, the
top 10 countries that produce cement are China, India, USA, Russia, Vietnam, Brazil, Turkey,
Iran, Indonesia and, Saudi Arabia. More than half of the global production of cement is
produced and distributed by Chinese companies. China accounts for more than 2,400 Mt of
global cement production as well as India is the second dominated market player which
accounts for 290 Mt of cement production followed by the USA (The Energy and Resources
Institute, 2017). The global cement production has divided among countries unequally,
however top 10 cement manufacturers in global cement industry account for more than 70%
of global cement demand. The following table shows the production of cement produced by
the top 10 countries in the year 2017.

Table 1-1-Highest global cement producing countries.

Country Production – 2017
China 2490 Mt/yr.
India 290 Mt/yr.
USA 120.5Mt/yr.
Russia 114.4Mt/yr.
Vietnam 86Mt/yr.
Brazil 104.5Mt/yr.
Turkey 95.6Mt/yr.
Iran 88.4Mt/yr.
Indonesia 73.9Mt/yr.
Saudi Arabia 73.2Mt/yr.
Source: Beta version of the Global Cement Directory 2018

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 Highest global cement producing countries.
3000
Cement Production Mt/year

2500
2000
1500
1000
500
0
Saudi
Russi Vietn Turke Indon
China India USA Brazil Iran Arabi
a am y esia
a
Production 2490 290 120.5 114.4 86 104.5 95.6 88.4 73.9 73.2
Countries

Figure 1-1-Highest global cement producing countries. | Source: Beta version of the Global
Cement Directory 2018

1.2 Top global cement manufacturing companies

The largest producer is Lafarge Holcim in Switzerland that produces 345.2 Mt of cement per
year. The following table shows the list of the top 10 producers with their capacity and the
number of plants as of 2018.

Table 1-2-Top global cement manufacturing companies.

Producers Capacity Plants
Lafarge Holcim - 345.2 Mt/yr. 220
Switzerland
Heidelberg Cement 185.4 Mt/yr. 141
(Germany)
Cemex (Mexico) 91.6 Mt/yr. 61
UltraTech Cement (India) 91.4 Mt/yr. 39
Votorantim (Brazil) 70.8 Mt/yr. 59
Inter Cement (Brazil) 53.5 Mt/yr. 42
CRH (Ireland) 50.5 Mt/yr. 54
Buzzi Unicem (Italy) 49.2 Mt/yr. 37
Eurocement (Russia) 47.2 Mt/yr. 19
Dangote Cement (Nigeria) 43.8 Mt/yr. 12
Source: Beta version of the Global Cement Directory 2018

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 Global cement production by companies
400
Production capacity and no. of plants

350
300
250
200
150
100
50
0
Heidelbe
Lafarge UltraTec
rg Votorant Inter Buzzi Eurocem Dangote
Holcim - Cemex h CRH
Cement im Cement Unicem ent Cement
Switzerl (Mexico) Cement (Ireland)
(German (Brazil) (Brazil) (Italy) (Russia) (Nigeria)
and (India)
y)
Capacity Mt/yr 345.2 185.4 91.6 91.4 70.8 53.5 50.5 49.2 47.2 43.8
Plants 220 141 61 39 59 42 54 37 19 12
Company

Capacity Mt/yr Plants

Figure 1-2-Top global cement manufacturing companies. | Source: Beta version of the Global
Cement Directory 2018

Siam City Cement Group ranks 11th place from the top 100 and has a capacity of 40.3 Mt/yr.
with 10 plants.

1.3 Global cement consumption

In 2016 global cement consumption is approximately equal to 4.8 billion metric tons.
However, cement consumption is probable to rise up to 6 billion tons by 2020. In 2011 cement
consumption was 3.59 billion metric tons, in 2012 3.75 billion metric tons. From 2011 to
2012 cement consumption was grown by 4.3% (The Energy and Resources Institute, 2017).
In 2017 China cement consumption was approximately equal to 2.7 billion metric tons and
cement consumption of India was approximately equal to 240 million metric tons. China
consumption of cement is more than 59% and India’s consumption of cement is
approximately 7% from global cement production in 2017. Therefore, China and India can
be identified as countries which are consumed more than 50% from global cement production.
Therefore, these countries lead to determine global cement industry trends. Urbanization and
industrialization in these two countries are vital to determine the cement consumption in the
global cement market.

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Table 1-3-Global cement consumption

Year Production
2011 3311.23
2012 3585.56
2013 3745.87
2014 4033.58
2015 4140.36
2016 4256.47
2017 4389.39

Source - Cement industry trend report 2017

Global cement consumption

5000
Global Consumption Metric Ton

4500
4000
3500
3000
2500
2000
1500
1000
500
0
2011 2012 2013 2014 2015 2016 2017
Production 3311.23 3585.56 3745.87 4033.58 4140.36 4256.47 4389.39
Year

Figure 1-3-Global cement consumption

1.4 Top cement exporting countries

In 2017 the total value of global cement exports is approximately equal to 9.1 billion US
dollars. Cement can be identified as the most needed raw material in the construction industry.
In 2017 portland cement exports represented more than 60% of global cement exports because
portland cement is heavily used in many construction activities. In 2012 there is a reduction
in cement exporting -20.2% for all exporting countries (The Energy and Resources Institute,
2017). In 2015 to 2016 there were high reduction by-12.6%. In 2017 Asian countries exported
total amount of 4.4 billion US dollars’ worth of cement or 44.8% of total global cement
exports.

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Table 1-4-Top cement exporting countries.
Country Value in US$ % total exporters
China $692.4 million 7.6%
Thailand $612.2 million 6.8%
United Arab $544.4 million 6%
Turkey $494.8 million 5.5%
Germany $486.3 million 5.4%
Spain $477.3 million 5.3%
Vietnam $403.0 million 4.4%
Japan $391.3 million 4.3%
Canada $368.7 million 4.1%
India $267.0 million 2.9%
Greece $248.6 million 2.7%
Senegal $209.0 million 2.3%
United States $205.9 million 2.3%
Pakistan $185.6 million 2%
South Korea $162.9 million 1.8%
Source - Cement industry trend report 2017

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 2 Cement industry value chain analysis
An industry can be defined as a group of business organizations that are organized in terms
of their primary business activities. The common goal of any business organization is to
maximize the wealth of the owners. However, in the current business world, any business
organization will not be able to survive as a single entity without depending on other business
organizations in the same industry or other industries. Therefore, any business organization
in any industry is highly linked and correlated with many other business organizations in the
same industry or other industries.

The value chain analysis of the cement industry represents the activities that are undertaken
by each organization in the value chain in order to offer a final product to the ultimate
customers. The value chain of cement industry can be divided into five phases; inputs,
production, processing and packaging, storage and distribution and end markets. These five
phases can be categorized as pre-production activities and post-production activities. The
below diagram consists of flow of activities that are performed by each firm in the cement
industry. The accumulated value of each phase in the industry value chain has measured in
terms of accumulated values each firm added in that specific segment.

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Figure 2-1-Cement industry value chain

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2.1 Pre-production activities
2.1.1 Inputs
The input phase of cement industry value chain describes the fundamental requirements to
continue the cement production process. The root level of cement production process is
consisted with land, labor, capital and entrepreneurship. The raw materials which inputs
manufacturing process will depend on the cement product. Very basic raw materials are used
to produce portland cement, but advanced raw materials and advanced techniques are used to
produce hydrographic cement. But most of the time cement manufacturing process includes
gypsum, clinker, slags and other mineral components. These inputs are collected as bulk
stocks or derived from local natural resources. Other minor inputs for cement industry are
coal (which use to heat clinker), silica sand. Iron ore, fly ash and natural water. Services in
inputs phase are quality standards, market data providers, career services, logistics providers,
and other support services such as (bankers and financial firms). In this phase SCCL does not
add any value to the final product.

2.1.2 Production
The production phase of cement needs the accessibility of various raw materials and services
in the input phase such as fixed resources (land, labor and capital) and other raw materials
such as (gypsum, clinker and slags). As well as logistics services, financial services and other
support services should maintain an optimum level to keep a continuous production process.
The manufacturers in this manufacturing process could be varied according to the scale they
operate. There are three type of manufacturers in the production phase; small scale producers,
medium scale producers and large scale producers. Production scale, technology used by
companies and production quantity can be identified as the major differences between these
three manufacturer categories. In the cement industry most of the organizations are mutually
exclusive, for example Siam City Lanka Cement imports cement from Indian cement
manufacturers, when their production capacity reaches to the maximum level. Most of the
time large scale cement manufacturers enter into agreements with small and medium scale
cement manufacturers to acquire companies and to exchange excess factory capacity. This
interrelationship between companies is very important to expand market share and to achieve
economies of scale. Siam City Group considers as the 11th largest cement manufacturer in the
global cement market as well as the largest cement manufacturer in the south east Asia. The
annual capacity at SCCL’s Puttalam plant is 1.3 million metric tons as well as the annual

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capacity at SCCL’s Galle plant is 1 million metric tons. In this phase SCCL adds 50% of
value addition to the final product.

2.2 Post-production activities

The post-production activities of cement industry consists with packaging and processing,
storage and distribution and end market.

2.2.1 Packaging and processing

There are three key players in packaging and processing phase such as small scale producers,
medium scale producers and large scale producers. Each player in this phase follows
sophisticated strategies because packaging is a vital task to reach to the customers. Cement
is an important raw material in construction and engineering industry. The quality of
constructions depends on the quality of raw material. Therefore the quality of cement product
is vital to continue effective construction activities. Clients in the cement industry demand
high quality packaging practices due to the uncertainty associated with construction and
housing industry. Most of companies in the cement industry follows standardized packaging
practices to keep the quality of product for a certain time period. SCCL handles packaging
and processing plants in Puttalam and Galle factory sites. In this phase SCCL adds 35% of
value addition to the final products.

2.2.2 Storage and distribution

Storage and distribution phase of the cement value chain acts as the intermediate phase to
create the necessary linkages between pre-production activities and ultimate customers. This
phase provides facilities for customers to reach the ultimate products in the cement industry.
The major actors in the storage and distribution phase of the cement industry value chain are
regional agents, wholesalers, and retailers. Storage and distribution phase of the cement
industry value chain requires specialized services such as logistics providers and warehousing
facilities providers. As well as it requires specialized capital equipment such as prime movers
and bowsers as well as trained manpower to minimize the wastage and maintain the product
quality while warehousing and distributing final products. SCCL handles five warehouses to
store their final products and employ hired and their own vehicles (approximately 300) to
distribute their final products among customers. In this phase SCCL adds 10% of value
addition to the final product.

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2.2.3 End markets
Regional agents, wholesalers, retailers and clients are dominating local, national and
international markets. The cement industry value chain is a producer driven industry value
chain in that to have high barriers to entry. Entry barriers can be identified such as the
technology, capital and economies of scale. While Western developed markets require high
quality cement products and complex specifications but developing markets such as India and
China require low quality cement products. In this phase most of companies launch
advertising campaigns and other strategic marketing tactics to make the awareness of
customers. Advertising agents and market intermediaries can be identified as key players in
this market. Most of companies in the cement industry use TV commercials and print media
advertisements. However, in this phase SCCL adds 5% of value addition to the final product.

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 3 Introduction to Siam City Cement (Lanka) Limited
Siam City Cement (Lanka) Limited is a member of the Siam City Cement Public Company
Limited (SCCC) group, a Thailand based cement manufacturing company. It acquired the
most popular cement manufacturing company in Sri Lanka known as Holcim and this was
announced on 1st December 2016. From then on, the Holcim range of products is marketed
as INSEE Cement. It is involved in producing cement and it is known to be the only fully
integrated cement producer in Sri Lanka. It has been able to consolidate its position to be the
most preferred local manufacture of cement in Sri Lanka. It has a distribution network of over
7000 dealers in retail Segment Island wide. The company has a large portion of the local
market share (more than 50%) and, thus it is the leading market player for its market segments
such as infrastructure, individual house builders and industrial commercial and institutional.
The company gives high priority on quality and innovation. They have greatly invested for
the growth of the business. The ‘Sanstha’ brand is considered as Sri Lanka’s first cement
product that was awarded the green labeling certification by the green building council. Its
mother company Siam City Cement Company Limited (SCCC) is regarded as an active
member of the global cement sustainability initiative. INSEE cement records the lowest
carbon emission in cement production in Sri Lanka. In 2017, they were awarded the green
platinum award in recognizing the approach towards sustainable constructions. With tough
competition in the market, it thrives to provide good quality, durable and reliable products
through research and innovation to serve to its different customer segments.

3.1 The product range of Siam City Cement (Lanka) Limited

3.1.1 INSEE Sanstha
INSEE Sanstha is one of the most popular brands in Sri Lanka and it is the first blended
cement to be introduced to the market. This cement is of high quality that produce
significantly strong and durable structure than other cement. When comparing to other cement
brands blended cement has many significant benefits such as:

1. Improve strength

2. Long durability

3. Better workability

4. Provide an aesthetic finish

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3.1.2 INSEE Mahaweli Marine Plus
This is a type of Portland fly ash cement. Mahaweli Marine Plus gives an extra strength and
is of high-performance cement that offer a range of advantages. It gives a significant cost
benefit when comparing to other traditional cements.

3.1.3 INSEE Extra

This is also a blended cement produced with the use of fly ash. INSEE Extra is the ideal
cement for the use in marine construction works, water retaining structure, and large floor
slabs and dams.

3.1.4 INSEE Mahaweli Marine

This has been the revolutionary cement product of the domestic construction industry since
1980. It has been used in the construction of the Victoria dam and the Mahaweli Development
Program. This cement is produced using high quality, grade 1 clinker and specially developed
additives to give the highest comprehensive strength.

3.1.5 INSEE Rapid flow

This cement is used for large infra structure projects such as bridges, roads and high-rise
buildings. This is specially designed and produced for infrastructure and other large-scale
construction projects.

3.1.6 INSEE Rapid flow plus

This is a Portland fly ash cement that has advantages of advanced strength and significant
cost benefits when compared to traditional cement. This is produced with high grade clinker,
quality fly ash and specially developed additives.

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3.2 Recent improvement practices implemented by Siam City
Cement (Lanka) Limited
With the increasing demand for the cement, the company has been investing in various
capacity expansion over the last few years. Below are the some of the capacity expansion that
the company had undergone recently.

1. With the increasing of the import of clinker new cement grinding plant with a capacity of
400,000 Mt was established in the Galle port to strength the supply capacity to the market.

2. Since the Galle port has a constrain for handling larger vessels, the company makes
Trincomalee, Colombo and Hambantota ports to become INSEE logistics.

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 4 Mapping the firm’s value chain of Siam City Cement
(Lanka) Limited
4.1 Introduction to the value chain analysis
Competitive advantage for an organization cannot consider as just matching or surpassing
what do other organizations in the same industry but delivering what customers demand and
satisfying the customers more profitable way even exceeding their expectations. If
organizations are willing to achieve the competitive advantage by offering value to customers,
managers should have a clear understanding of activities their organizations consider as
value-adding activities, and which are not (Johnson, et al., 2017). The idea of the value chain
developed by Michael Porter who is the professor attached to Harvard business school.
According to Porter, the value chain can be described as the “internal processes or activities
an organization performs to design, produce, market, deliver and support its product”
(Institute of Management Accountants, 1996).

Porter emphasized two main segments in the value chain analysis; primary activities and
support activities. Within the organizational context inbound logistics. operations, outbound
logistics, marketing and sales, and services can be identified as primary activities as well as
firm infrastructure, human resource management, technology development, and procurement
can be identified as support activities. According to the value chain analysis, primary
activities have directly involved in converting inputs into outputs and marketing, sales and
services related to the final product however support activities are handled by the
organization’s staff to continue organizational activities smoothly.

4.1.1 Primary activities

1. Inbound logistics - Include activities that are associated with materials and services
receiving, warehousing and distributing materials and services among production
processes. Ex: stock controlling, material handling and transport.
2. Operations - Include activities that are associated with transforming collected raw
materials into final products or services. Ex: assembling, packaging, and testing.
3. Outbound logistics – Include activities that are associated with distributing final
products and services among end customers. Ex: warehousing, product handling, and
distribution.

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 4. Marketing and Sales - Include all activities that are implemented to make the
awareness of customers about products or services produced by the organization.
5. Services - Include all activities which enhance or maintain the value of products or
services provided by the organization.

4.1.2 Support activities

1. Procurement – Describes all activities which are associated with acquiring resources
to continue primary activities.
2. Technology development – Associated with technology improvements that may help
to enhance the efficiency and effectiveness of primary activities.
3. Human resource management - This describes all fundamental activities which are
associated with recruiting, performance appraising, training and development, and
grievance handling.
4. Infrastructure – General organizational structure of corporate finance, quality control,
planning, and authority distribution.

According to the Shank and Govindarajan industry value chain begins with the fundamental
value-adding activities of suppliers who provide basic raw materials. Industry value chain
combines suppliers and end-users of different segments in the industry value chain and
describes disposal and recycling processes that are delivered by different suppliers and end-
users in the industry. The relationship between the industry value chain and firm value chain
is exhibited in the below diagram.

4.2 Value chain and competitive strategy

To be survived in any industry organizations should understand two main criteria. They
should provide what customers demand (provide value to the customers), and they should
face to the competition. The organization’s overall competitive advantage is sourced through
how the organization creates value for its customers and the efficiency and effectiveness of
the value-creating process. The efficiency of the value-creating process has determined by
the costs of supplying and the ability of rivals to imitate that value-adding activity.

Any organization can accomplish the competitive advantage by following two possible
strategies. The first strategy is offering low-cost products (low-cost advantage) as well as the
second strategy is offering differentiated products (differentiation advantage).

17
4.2.1 Lower cost advantage
Lower cost advantage emphasizes being the lowest cost organization in a domain of activity
(Johnson, et al., 2017). This strategy enables the organization to enjoy the lower cost
advantage if the organization’s cost is lower than the market average. However, this strategy
mainly facilitates an organization to enhance market share and to maintain the current
profitability level by implementing the low-cost strategy. Low-cost raw materials, economies
of scale, and improvements in the technology can be considered as the sources of the cost
leadership strategy.

4.2.2 Differentiation advantage

Differentiation advantage acquires customers when customers perceive that the organization
is offering unique, high quality and outperformed products and services than rivals’ products.
Differentiation advantage may consist of the organizations’ ability to access modern
operation technologies, distribution channels, quality raw materials and other unique features
that can enhance the customers’ value. Differentiation advantage enables the organization’s
managers to achieve the advantage in two possible ways. Managers will be able to grab
market share by keeping the offerings’ prices below the market average as well as to increase
the price level and to improve the profit margins of the organization.

4.3 Primary activities of Siam City Cement Limited

According to the value chain analysis, primary activities have directly involved in converting
inputs into outputs and marketing, sales and services related to the final product.

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Figure 4-1-Firm value chain | Source – Exploring Strategy 11th Edition

4.3.1 Inbound logistics

Inbound logistics are activities concerned with the receiving, storing and distributing of inputs
used in the production processes. Raw materials used for cement production are, clinker,
gypsum, fly ash, coal, slag and other mineral components. 700,000 metric ton of limestones
are derived from locally situated sources. The major input is clinker which is produced from
limestones. Limestones are extracted from quarries. SCCL has a quarry in “Aruakkaru” very
close to the Puttalam plant. They extract nearly 3000 Mt per day from that quarry, after that
they sent those limestones to the Puttalam plant. Each quarry is subjected to rehabilitation
plan in order to promote the biodiversity and sustainable development. Some amounts of raw
materials are locally manufactured (clinker) as well as some raw materials are imported. They
import 3.11 million metric tons of raw materials annually.

Table 4-1-Locally manufactured and imported raw materials.

Raw material Locally manufactured (Mt/yr.) Imported (Mt/yr.)
Clinker (Limestones) 700,000 1,200,000
Gypsum 120,000
Fly ash 90,000
Slag 100,000
Mineral component (MC) 200,000
Coal 700,000

They spent 28 billion to import these raw materials. They operate in all four ports including
Trincomalee, Colombo, Galle and Hambantota as well as Hambantota port is considered as
an INSEE logistics hub where cargo vessels arrive. They use their own and hired vehicles to
transport their raw materials. The raw materials are sent to the cement manufacturing plant
in Galle by using vessels (siamcitycement.com, 2018). However, Puttalam plant received raw
materials by using dippers and prime movers. Similar to the other cement manufacturers in
Sri Lanka, SCCL heavily depends on the import of clinker. Supply chain management plays
an important role and according to the senior manager planning and inbound logistics the
company is focusing on lean and agile supply chain practices in SCCL to meet the dynamic
market demand. Other than dippers and prime movers SCCL uses several equipment to
enhance the efficiency of inbound logistic process such as pipelines, bucket elevators,

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excavators and tankers. Stock control takes a momentous part of their inbound logistics.
Setting safety stock levels, setting EOQs and stock reviews are the main inventory control
methods implemented by SCCL.

4.3.2 Operations
Operations are the stages at which the raw materials are turned into the final product. The
main operation of SCCL is to manufacture the cement powder to fulfill local cement
requirement. The organization converts various raw material with the help of labor into good
and service. It uses the highest efficiency level in its operations activities. From acquiring raw
material to delivering the goods to its customers, it follows various techniques to ensure that
the activities are done efficiently and effectively as possible. Operations should be well
managed to achieve the organizations' overall goals and objectives. It has a fully integrated
cement plant in Puttalam and Galle (siamcitycement.com, 2018).

Flow chart of the cement production can be shown as follows.

Adding raw materials -

clinker, coal,

Crushing and grinding

Blending and kiln feed

Preheating and kiln cooling

Adding other raw materials needed

Cement milling

Figure 4-2-Cement production process

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After receiving each type of raw materials, they crushed them and grind them using their
machineries. Clinker is produced by preheating limestone in large kilns. The raw materials
pump into the upper kiln, moves down the tube countercurrent to the flow of gases and toward
the flame-end of the rotating furnace, where the raw meal is dried, calcined, and enter into
the clinkering section (calmac.org, 2015). In the clinkering zone, the combustion gas reaches
a temperature of 1800°F. Coal is using as the primary fuel in kiln. After melting limestone,
they add other raw materials and grind it again. Cement powder is the output of this process.
After finishing the production, they do packaging. To reduce damages, they have their own
standard packing methods. Cement from the silos will be withdrawn to the electronic rotary
packer and the cement will be filled to the paper bags as soon as the weight becomes 50kg.
After that the bags will be closed.

4.3.3 Outbound logistics

All activities related to collect, store and distribute final products to the customers. SCCL
cannot themselves to go and sell their final products in the marketplace, because it is a time
and cost consuming procedure. Therefore, the company has a widespread distribution
network that comprises of over 7,000 dealers in the retail segment located island wide.
Distribution network is consisted with , regional agents, wholesalers and retailers. SCCL
makes sure that the products are always available to cater even when demand fluctuates.
They have arranged a good transportation system that provides goods to the market within a
day and ensure less time is taken to put the products to the retail stores. Its newly introduced
palletizers help in the quick loading of the cement packets to the trucks. This helps in the
efficient delivery of the products to its customers.

A bag palletizer is used to increase the speed of delivery. The bag palletizer helps INSEE to
respond faster to the market demand for fluctuation through a buffer stock management, it
reduces the customer waiting time, lower bag packages in handling, etc. Once the production
is over it is sent to their warehouse located in Colombo, Kurunegala, Kelaniya, Peliyagoda,
and Trincomalee where distributors pick the products to sell it to the customers. They have
two distribution channels as pickup and delivered. Pickup distribution method covers 70% of
sales volume and delivery distribution method covers 30% of sales volume. They deliver both
bags and bulks cement powder.

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4.3.4 Marketing and Sales
All activities which are related to making the awareness of customers. This involves
advertising, promotions, distribution channels, pricing and managing the final products.
Under Marketing and sales, they have a marketing department, a sales department, a
customer service department, and a business development and intelligence department. The
main objective of their marketing department is to expand the market share and increase the
profitability of the company. The marketing section is located in Colombo, but the group
company (SCCC) closely supervised it. Even though Sri Lanka’s cement market is relatively
smaller there are more than 20 cement brands in Sri Lanka. Therefore, any company in this
market needs strong marketing practices to strengthen the brand name of them. SCCL has
segmented its customer base into five segments; the southern segment, the western segment,
the northern segment, the central segment, and the eastern segment. Five senior regional
managers have been appointed by the company to handle marketing functions in each of these
segments. The main objectives of SCCL marketing department can be identified as follows.

1. Increase the profitability.

2. Expand the market share.
3. To enhance the customer satisfaction.
4. Promote the sustainable development.

The product mix of SCCL is consisted with six main products; INSEE Sanstha, INSEE
Mahaweli Marine Plus, INSEE Extra, INSEE Mahaweli Marine and INSEE Rapid flow plus.
Pricing can be mentioned as the importance function which formalized through SCCL
marketing department. They employ cost plus margin method to price their cement products.
Television commercials and newspapers are heavily used as indirect marketing
communication medium. Sales promotions and personal selling can be identified as their
direct marketing communication mediums.

4.3.5 Services
This refers to the activities that are required to continue or improve the final product's
performance after it has been produced, including installation, maintenance, training,
warranty, and after-sale services. They provide very few services related to their products.
There is a separate section to handle customer affairs and customers’ complaints under the
supervision of a senior manager. The main objective of this department is to handle
customers’ complaints and to give instructions related to engineering and constructions. The

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major ecological effects related with cement production are depreciation of natural resources
and energy as well as emission to air. To minimize the environmental and health impact due
to the cement production, SCCL implements several programs such as; rehabilitating
limestones quarries by reforestation, converting industrial waste into raw materials which are
used in cement manufacturing process and plantation of corals in the southern beach
(siamcitycement.com, 2018).

4.4 Support activities of Siam City Cement Limited

According to the value chain analysis support activities are handled by the organization’s
staff to continue organizational activities smoothly.

4.4.1 Firm infrastructure

Infrastructure refers the formal and regular organization of finance, quality control,
management information systems and planning of SCCL. Infrastructure supports the whole
chain to create value to the overall business activities. SCCL consist of production
department, marketing and sales department, human resource department, accounting and
finance department and quality assurance department. The quality control function of SCCL
is continued by a management team under the supervision of senior managers. SCCL
implement modern techniques and methodologies of quality control and total quality
management to provide a quality and well designed products for their customers. The major
task of accounting and finance department to provide reliable cost and finance information
for internal external stakeholders of the company. Human resource department involves with
effective utilization of human capital to achieve objectives and goals of the company. The
main objective of marketing and sales department is to enhance profit margins and to increase
the market share.

Mainly they have three plants as Puttalam cement works, Ruhunu cement Works which is
situated in Galle and the other plant is in Colombo. Puttalam plant is an integrated plant. Galle
is a grinding plant and Colombo plant is a packaging and processing plant. In Colombo plant
they do import cement powder, packing them and distributing them. SCCL cement has five
warehouses Including Colombo, Kelaniya, Peliyagoda, Kurunegala and Trincomalee. In
Puttalam plant they do all the activities need for the production.

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4.4.2 Human resource management
Human resource management associated with efficient and effective utilization of human
capital within organizational context. Human resource department of SCCL involves with
recruiting operational level and executive level employees, training and developing human
capital, grievance handling, performance evaluation and rewarding employees. Human
resource performance is concerned with ensuring that the organization has adequately trained
and competent personnel for its operations. Business organizations rely on the quality and
talent of the people they serve. Therefore, by providing a competent workforce for the
organization to perform their operations efficiently and effectively, HR adds value. In this
company they have an annual budget of 40 million for their HR activities. Employee salaries
are paid on time, and a bonus is paid in April and December based on the company profit.
And they are conducting training and development programs every year. And they give gifts
for every employee on their birthdays. HR team is more concerned about motivation of
employees to retain employees for a longer period of time without leaving the company. They
conduct an award ceremony called ‘Supiri Awards’ to reward employees.

INSEE academy was launched to develop the employees through a people development
strategy. The academy will provide an average of 50 training hours per employees per year.
The company have invested 50 million for this. It has affiliated with leading local and global
institutes and it has competent internal trainees to develop the employees.

4.4.3 Technology development

Can be used in the research and development stage, in how new products are developed and
designed, and in process automation. SCCL uses SAP system which includes highly
developed technologies. It is one of the largest ERP software and related enterprise
application. Companies must find ways to reduce costs and protect and maintain competitive
advantages. Therefore, SCCL also use technology heavily to reduce their cost. They are
always trying to maintain a lower cost compared to their competitors therefore they need
information technology to do that because in a large organization it is not possible to maintain
information systems manually. And they use talk simulation tools. They monthly analyze
total cost to serve. In addition, the company uses an accounting package to generate reports
and set schedules with the use of the Internet that only employees within the company can
interact with. Moreover, they use artificial intelligence and business intelligence to make
corporate decisions within organizational context.

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Digitalization - The company has recently introduced sales for automation (SFA) system.
That helps salespeople and distributers in making order.

Introducing an innovation and application center - This is a fully equipped mobile laboratory
that provides doorstep solutions to customers in order to improve the quality, efficiency and
trouble shoot of the products.

4.4.4 Procurement
Procurement is how the raw materials for the product are obtained. In other words, it can be
defined as the process of buying resources used in the value chain of a company. These
recourses include raw materials such as clinker, gypsum, fly ash, and coal. Not only raw
materials but also the machineries, office equipment and all other items consumed for the
process. Spare parts, packing materials, contracts comes under this procurement section. The
raw materials of SCCL purchased from various suppliers in India, Indonesia, Thailand.
Vietnam etc.

Table 4-2-International locations SCCL purchased raw materials.

Raw material Imported country
Clinker Vietnam, Indonesia and Thailand
Gypsum Kenya, India, United State and Turkey
Slag Thailand
Mineral components Thailand and Vietnam
Coal China, India and Indonesia

However, SCCL try to be the cost leader in the domestic cement market by offering high
quality products for lower prices. Therefore, planning and inbound logistics section of SCCL
is highly focusing on procurements. Before each purchasing order SCCL ensures the quality
of raw materials and other required utilities and equipment. SCCL collects fly ash for
production process from Lakvijaya power station. After reaches to the optimum level of
domestic cement production they import cement powder from India to meet local demand.

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 5 Conclusion
As a group of business management undergraduates in the final year, we conducted the value
chain analysis of the cement industry and Siam City Cement Lanka Limited. According to
our analysis, the global cement industry can be identified as a competitive industry. However,
the competition in the local cement industry is relatively at a lower level due to the consumer
protection laws and regulations (ceiling price) imposed by the government. There are two
cement manufacturers and more than 17 cement importers in the local cement market.
According to our analysis, 55% of the local cement market is dominated by Siam City Cement
Lanka Limited. However, SCCL is currently suffering financial losses due to the slight
declined in local constructions and engineering sector. The value chain analysis of SCCL
indicates that SCCL follows cost leadership strategies.

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