Pakistan Cement Industry

Pakistan Cement Industry

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Pakistan Cement Industry

Quality Issues, Challenges and Problems

Lack of Quality Innovation and Quality Control Technology DevelopmentThe industry lacks innovation due to which there has been insignificant inflow of new and advanced quality control technology into the industry. It is important for the cement industry to adopt modern and most advanced technology to improve production efficiency and produce high-quality cement to meet the local demand and export orders. As there are not enough machinery to check and meet the specific standards of quality management. So the industry should also introduce new quality machinery technology for measuring quality levels and for energy conservation and environmental improvement.

Lack of Funds to Take Up New Quality ProjectsA key weakness of the cement industry is that sufficient funds are not easily available that could be utilized by the industry for setting up quality projects or upgrading the existing units. The financial institutions in the country are providing limited finance that is not adequate for new investments.

Lack of Professional Quality ExpertiseOne disadvantage to the cement industry is lack of professional expertise in quality control department as well as in others. Due to shortage of professional and experts the industry is unable to effectively achieve improve quality, production targets, minimize production cost. Quality Experts will help and enable to improve the quality of product. This will increase the cost but in result it increases the demand and ultimately the market and market share will rise. Quality Experts also improve and enhance its marketing and distribution channels.

Quality related Research and DevelopmentThere is no institution in the private sector that could undertake quality research & development in the cement sector to improve the high-quality, productivity, efficiency, marketability as well as conducting feasibility for producing new quality products, optimising cost of production and industry expansion.

High Cost of Quality Tools, Machinery and Instruments.Due to increased cost of foreign currency quality tools and machinery are of high cost. As this increases high capital cost. Input such as furnace oil which price is increasing rapidly which shows negative trend in the economy, electricity, coal, paper bags, mark-up rates etc., the cost of production of high quality cement has increased over the years.

Industry Quality, Industry Concepts, Dimensions and Definitions

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Pakistan Cement Industry

Pakistan Cement Industry is highly focusing on the high quality level cement as to survive in the market and to keep succession and leading towards profit maximization. PCI is driven by quality consciousness and efficiency. At PCI quality is assured through systematic and effective adoption, implementation, monitoring and continuous enhancement of quality control systems using latest methods of analyses. All stages of the production process right from the selection of raw materials, processing of materials and the finished product are subjected to rigorous testing to ensure that each bag of cement is of the highest quality.

As we have studied that there is no organization who can provide all the dimensions at a time in the same product because we know that it is very impossible to meet all the requirement. Every product is famous only for one or two dimensions hardly it can reach up to 4 or may be 5 which is not possible. PCI is fulfilling on the requirement of three dimensions that are almost same by every cement company.

These are as follows:

1- Reliability2- Durability3- Performance

Quality Standards and Certificates and Awards

Quality has the main role in the manufacturing of cement production. So to make high quality level cement it is necessary to follow some quality standards and parameters. Pakistan Cement Industry is highly focusing in the quality level cement as it is exporting many countries in bulk form that contain more than 1,757,442 Metric Tons.

ISO 9002 is the appropriate standard for cement manufacture. This standard comprises 19 sections which are as follows:

1. Contract Review 2. Document & Data Control 3. Purchasing 4. Control of Customer-supplied Materials 5. Product Identification and Traceability6. Process Control 7. Inspection and Testing

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Pakistan Cement Industry

8. Control of Inspection/ Measuring and Test Equipment 9. Inspection and Test Status 10. Control of Non-Conforming Product 11. Corrective and preventative Action 12. Documented procedures 13. Control of Quality Records 14. Internal Quality Audits 15. Training16. Servicing 17. Handling, Storage and Package Delivering18. Statistical Techniques 19. Document where used for process control or product testing

Each section has a specific role in the quality assurance of a cement manufacturing. ISO is an authentic standard which globally fulfill the requirements. Pakistan Cement Industry also follows PAKISTAN STANDARDS (PS).

As Pakistan is exporting a bulk amount of cement so it is also following the standards of their country which are as follows:

Council for Quality Control and Environment Turkey Srilankan Standard Institution & Certificates South African Bureau of Standards & Certificates Bureau of Indian Standards & Certifications

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Pakistan Cement Industry

Status of Industry

Pakistan Cement industry started to grow since 1990s but from 1997 to 2002 there was insignificant growth. Majority of cement plants were installed in Pakistan in 1950s and 1960s and their rated capacity was quite different from their effective capacity. Total investments in cement industry currently exceed Rs.160 billion, which is likely to go further up to Rs.200 billion by 2010. Demand of cement enhanced 24 per cent during the period 2006- 2007, from 12 percent in 2002-2003 and around 8 percent in the 1980s. In 1990s, the demand remained stagnant or went up marginally due to political instability. Pakistan has around 12 million tons of surplus capacity, which can be exported to earn foreign exchange of approx. US$ 750 million. There is good scope for export of Pakistani Clinker to East Africa and UAE, and cement to the Maharashtra State of India.About 100 percent increase in the prices of imported coal, from around US$ 40 per ton, few years back, to US$ 80 per ton, has greatly affected profitability of cement industry. Also, about 30 percent fuel cost affected cost of production.

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Pakistan Cement Industry

Cement manufacturers should give due consideration to demand and supply parity of cement before embarking upon further expansions in cement production capacity. As there is urgent need for installing “bulk loading facilities” at ports in order to facilitate the cement industry to export in large quantity. Presently, only one company has arranged a limited bulk handling facility. Bulk handling facilities at the ports be provided on priority basis to facilitate the industry to export around 10 million tons of cement to India, Middle East and African countries to earn substantial foreign exchange.Cement industry has advantage due to domestic availability of raw materials in huge quantity and as such it does not have to import it from other countries. Availability of loans is important to develop and maintain the plants. Because of little profit, industry is still carrying older loans. Pak Land cement was role model for cement companies in 1980s but it collapsed in 1990s because of non-availability of loans to maintain plants. Industry suffered badly during 1996-2001.Cement Industry made decision to go for expansion at right time. Otherwise, price would have been increased more than Rs.500 per bag.

Taxes on Cement in Pakistan are the highest than most of the countries i.e. about 30 percent, as compared to 10 percent in Indonesia, Philippines, Egypt, 7 percent in Thailand and zero percent in Iran and Malaysia. As such, rationalization of taxes on cement in Pakistan should be considered. Excise Duty on cement may be reduced by at least half, to bring the taxes on cement at least to the level of India, if not to the level of other countries. Government should reduce excise duty and other taxes on cement, as promised by it few years back. Total cement production has gone up from 9 million tons to present 44 million tons but the excise duty has been unchanged. Royalty rate on cement, in different regions, varies considerably i.e. Rs.1 per ton in Islamabad, Rs.50 per ton in Balouchistan and Rs.15 per ton in Punjab/Sindh.

Port Qasim did not give an encouraging response when it was suggested by the industry to provide ‘bulk facility’ for availing emerging export opportunities. There is misconception about huge profits earned by cement sector. About 75% cost in cement industry is fully verifiable and nothing is hidden. Manifold increase in prices of electricity and fuel has impacted profits of cement industry. Majority of companies have ploughed back their profits because of economies of scale. A small cement plant consumes around 500 tons of coal. However, local coal supplied is inferior in quality and unsuitable for cement plants.

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Pakistan Cement Industry

2009-2010 2010-2011 2011-2012 2012-20140

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Industry Stnanding Position in Market

Profit Loss

Quality Management System

A Quality Management System process is an element of an organizational QMS. The ISO 9001: standard requires organizations seeking compliance or certification to define the processes which form the QMS and the sequence and interaction of these processes. Following are some examples of processes that includes:

Order Processing Production planning Measurement of product/ service/ process compliant with specified

requirements including statistical techniques such as Statistical Process Control and Measurements

Systems Analysis Calibration Internal Audit Corrective Action Preventive Action

ISO 9001 requires that the performance of these processes be measured, analyzed and continually improved, and the results of this form an input into the management review process.

Among the guiding principles, Pakistan Cement Industry has adopted Total Quality Management (TQM) concept as a core policy to bring about cultural changes in the Organization. PCI is committed to produce consistently high quality clinker and cement in conformity with relevant National / International specifications by strictly adhering to the Quality Management System (PS / ISO

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Pakistan Cement Industry

9001 : 2008) with continual improvement in its effectiveness with a view to provide customer satisfaction.

With the onset of globalization and liberalization of Pakistan economy, "Quality" has become a buzzword in cement industry.  Utmost emphasis is placed at PCI on maintaining strict Quality Control at each stage of the manufacturing process to ensure delivery of the best quality cement to the customer all the time. For effective implementation of the quality policy, State of the Art equipment procured from world renowned machinery manufacturer’s viz., LOSCHE, ABL, LNVT, Shenck, Siemens and ABB have been installed.

Philosophy and Approaches

There are several elements and approaches to a quality system, and each organization is going to have a unique system. Similarly Pakistan Cement Industry is progressing the most important elements of a quality system include participative management, quality system design, customers, purchasing, quality education and quality training, statistics, auditing, and technology.

Mainly Pakistan Cement Industry follows the quality management principles which is the key ingredient toward success. Moreover it also follows the Six Sigma principle which are very important to understand the method to measure and improve high-quality and high-volume production processes. Its overall goal was to produce high quality product by meeting the required standards and parameters. It also measure and eliminate waste by attempting to achieve near perfect results. The term six sigma refers to a statistical measure with no more than 3.4 defects per million.

Six sigma is a statistically oriented approach to process improvement that uses a variety of tools, including statistical process control (SPC), total quality management (TQM), and design of experiments (DOE). It can be coordinated with other major initiatives and systems, such as new product development, materials requirement planning (MRP), and just-in-time (JIT) inventory control.

The following is a brief description of the steps involved in the six sigma process:

1. Break down business process flow into individual steps.

2. Define what defects there are.

3. Measure the number of defects.

4. Probe for the root cause.

5. Implement changes to improve.

6. Re measure.

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Pakistan Cement Industry

7. Take a long-term view of goals.

These are some principles that are gently applied in PCI that leads the PCI and meet the demand of customers. Following law, rules and principles leads anyone to the virtue of success. There are some examples in the PCI that succeeded in bulk production as well as quality level production. Kohat Cement was having a market share of Rs.25 in 2002-2003 but know she become the leading company and have a market share of Rs.191 which is a very good effort. This was only done by obeying the laws and working on required levels and principles.

Cost and Rewards of Quality

The quality movement and quality systems have had many different names or terms of reference in the past few decades, and might look like a short-lived business management trend at first glance. With ever increasing competition and consumer expectations, professionals and business managers cannot ignore quality issues and expect to maintain or improve their competitive position. Quality systems, time and again, have been responsible for substantial increases in the bottom line of businesses in every industry and have given organizations the boost they need to meet overall goals and objectives.

Every Cement Company aims to get maximum profit with minimum cost. Unfortunately every organization is unable to perform such a healthy task. Quality Assurance, Quality Control and Quality Management all they need a huge finance to cover these operations. PCI is working on the Quality Performance and Conformance as well. There is an average estimate that PCI spent Rs.288, 000,000 annually just on quality assurance. This includes buildings, equipment’s, machinery, employees, utilities and other running assets.

After progressing and meeting the desired quality standards ISO and Pakistan Standards have given certificate and awards on this achievement. Moreover the organization also get awards on the maximum production of cement.

Quality Training & Institutes

Pakistan Cement Industry is driven by quality consciousness and efficiency. At PCI quality is assured through systematic and effective adoption, implementation, monitoring and continuous enhancement of quality control systems using latest methods of analyses. All stages of the production process right from the selection of raw materials, processing of materials and the finished product are subjected to rigorous testing to ensure that each bag of cement is of the highest quality.

All staff is highly qualified and well trained with highest level of technical competence in their respective fields in order to achieve an efficient and smooth production process which is necessary for ensuring quality.

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Pakistan Cement Industry

Apart from the usual quality control equipment, PCI’s laboratories are equipped with state-of-the-art technologies such as X-ray Fluorescent, Analyzers and Diffractometers which were introduced in Pakistan for the first time by Bestway Cement. By virtue of this equipment, the Company has been able to consistently produce better quality cement than is currently available in the country. Later on almost all of the companies adopted the same method for production.

The cement produced by PCI conforms to the product specification defined under Pakistani, Indian, British, European and American Standards.

Organizations employ well qualified and experienced staff to ensure that required standards of job performance are met. At the same time, they realize that for the work force to perform at their optimum level regular training and up gradation of their knowledge and skills are essential.

The Quality Training Department achieves this goal through carefully thought out and elaborate training programs. These programs cover a wide spectrum of training and development needs of the entire work force starting from basic communication skills to development of best operational techniques, practices and managerial skills. The Training Department’s role is to plan, organize, coordinate and conduct both in-house and out sourced courses, seminars and workshops. Besides utilizing the most experienced officers of the company’s, the services of well-known experts and trainers in the relevant disciplines are utilized for conducting various courses. The organizations also sends staff for relevant training courses to various reputed training organizations like Pakistan Institute of Management and Sciences (PIMS), National Productivity Organization (NPO), National University of Science & Technology (NUST) etc. Staff is actively encouraged to also pursue professional development and career enhancement independently.

A comprehensive and well organized training program is also in place for fresh graduates from Engineering Universities and apprentices to provide them with intensive on-the-job training. This program was initially started to train high quality engineers for employment within the organization. In cognizance of the dire need of skilled engineers and acute shortage of training opportunities for fresh engineers and technicians in the country, PCI decided to expand its training program and it currently imparts training on a regular basis to a large number of engineers and technicians who, after completion of their training move on to successfully pursue careers with other organizations within and outside Pakistan.

PCI views this as an essential component of its social responsibility. A major contribution for quality assurance was made by the Bestway Cement Company.

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Pakistan Cement Industry

Future of Industry

In the future therefore, it is expected that the cement industry will follow trends of economic growth within the country. This means that as GDP rises, the demand will grow in direct proportion to the development expenditure allocation by the government of Pakistan. However, in order to be competitive the cement industry requires controlled or regulated costs for the factor of production as well as lower discount rates so as to reduce debt-equity ratios for the industry which have gone up to as much as 114%. Additionally because of the oligopolistic structure of the market and the cement manufacturers past evidence of collusion, control measures need to be put in place to enable increased completion which will not only bring further efficiencies in production but also seek to establish a relatively level playing field for smaller players.

CONCLUSION:

From the analysis conducted in this report, we can accept both hypotheses established earlier that is:

The cement industry follows an oligopolistic market structure which is determined by the yearly average and financial data.

The cement industry will follow economic trend of the country as it is based on the evaluation of GDP trends, expansion cycles corresponding to cement demand.

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Pakistan Cement Industry

Industry is progressing steadily with more scope for future growth. All indicators i.e. production, demand, exports and investments are showing rising trends.

Industry is capable to export to new markets but non-availability of bulk-handling facility at Ports, hampers them to seize the emerging export potentials.

Industry’s biggest challenge is that despite constant increase in demand of cement, the per capital consumption is much lower than in other cement producing countries.

Industry needs a long-term vision and strategy to achieve sustained growth, meet future challenges and seize emerging export opportunities.

Industry has to pay high taxes and duties, which increases its cost of production. The Government should consider rationalizing the taxes on cement Industry.

Industry should give special focus on minimizing the production cost in order to increase their profit margin and become competitive in international export markets. Management Accountants can offer their expertise to help the industry in this regard.

There are some Conflicting Issues for the PCI by which PCI moves towards declining. These are as follows:

Issue of Sale Price of CementThe Cement manufacturers are of the view that price per bag of cement in Pakistan is much lower than in other countries and as such it should be enhanced. The price is low due to two main factors i.e. fierce competition and undue government pressure to keep the prices low. The Government, on the other hand, says that it do not exert any pressure on it, rather the cement companies increase the prices without justification and form cartels, which need to be discouraged. There is another conflicting opinion on this issue that the cement companies do not pass on the benefit to consumers, even if they get any tax concession from the government.

Issue of Low Profitability of Cement CompaniesIt was indicated by the stakeholders that the profit margin of majority of the cement companies has declined. However, there was no consensus on the specific reason(s) for this decline. The Industry felt that the profit decline was due to exorbitant increase in electricity and fuel prices. The government side indicated that the profit before depreciation of some cement companies had improved due to capital investment. There is a general impression, as hinted by industry representatives, that the cement sector conceals its huge profits by showing high production cost.

Issue of High Production Cost This issue also needs thorough analysis as participants expressed different opinions on it. The industry indicated that input cost has increased

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Pakistan Cement Industry

manifold and about 75 percent cost is fully verifiable and nothing is hidden. On the other hand, it was informed by a government representative that the cost of raw material has not increased during the last few years. Moreover, it was suggested by another participant that a benchmarking study on costing of cement be carried out.

Issue of Expansion in Cement IndustryThere are much differences in views of the management of the industry for making investments for further expansion. The cement companies, with aggressive approach, are opting for expansion whereas other industries feel that demand and supply parity of cement should be considered before going for further expansion. This conflicting situation provides a research area to find out as to whether expansion should be made or not to benefit the industry?

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