Supply Chain Frontiers issue #37
Market leadership and more than 70 years in the business provide a solid foundation for success—but do not make an organization impervious to change. This is what cement and concrete manufacturer Argos realized about six years ago, when it had become too detached from its customers in Colombia. Since then, Argos has implemented a supply chain-driven business strategy that is closing the gap with its customer base. The company’s Logistics Manager for the Colombian Region, Fernando Velez, explained the strategy at the Leaders Summit conference in Bogotá, Colombia, May 2010, organized by logistics education and consulting firm LOGyCA.
Founded in 1934, Argos is a $3.5 billion manufacturer that earns about 44% and 34% of its revenues in Colombia and the United States, respectively, with the remainder coming from other countries in Latin America and other businesses. Sales of concrete and cement account for about 47% and 40% of its total business, respectively. Argos is the fourth-largest cement producer in Latin America.
The so-called “self-construction” retailing and building market segment in Colombia is thriving, but a few years ago Argos was in danger of losing out on this important growth opportunity. The self-construction segment is the market driven by people who renovate, remodel, or rebuild houses. They include homeowners and construction enterprises. Growth in this market has stimulated demand for products such as cement and bricks.
“In the past, we were not selling—customers were buying,” says Velez. In other words, the onus was on customers to come to Argos for product; the manufacturer was less interested in going to buyers to find out what they actually needed. “We were competing as a commodity and not a value-added business.” When competition for small-volume customers became more intense, the company concluded that it could no longer do business “in the old-fashioned way,” Velez says.
The company decided to make it easier for customers to engage with Argos by consolidating its eight brands into a single recognizable name. This exercise also encompassed the way the organization was structured. The managerial silos that made it difficult to run the company as a single cohesive enterprise were eliminated. Also, there was a lack of effective leadership because the senior managers who ran departments in each of the eight fiefdoms tended to pull in different directions, explains Velez. These positions were telescoped into central management teams that are responsible for operations in the Caribbean, Colombia, and the United States. “Communication is better, and there is a clearer focus on long-term strategy and financial results,” Velez says.
Supply chain management is a key element of the remodeled organization. “Five years ago, there was no supply chain department at Argos,” says Velez. Activities such as inventory management were carried out “informally” using spreadsheets. The company invested in demand planning software, and started modeling the way products are delivered from its 11 cement production plants and 16 distribution centers (DCs) in Colombia to develop optimum network configurations.
The company is also piloting an automated DC in Medellín, explains Velez. When a truck approaches the facility, a radio frequency identification (RFID) system identifies the vehicle and automatically assigns its loads. This information is uploaded by the warehouse and the relevant loads are picked. When the truck leaves the DC, it is tracked by global positioning technology to make sure that it takes the appropriate route. When the vehicle arrives at its destination, the driver uses a cell phone to confirm the final status of the shipment. “There are codes for confirmation of delivery or to notify us that there was an issue like an unloading problem,” says Velez. The company plans to introduce the systems it is testing in other DCs.
Attention is also being paid to the vehicles that transportation companies use to deliver Argos product to customers. These vehicles represent the Argos brand, and the fleet has been given a makeover with newer trucks and more professional operators. The way loads are handled has been improved by palletizing products and equipping vehicles with truck-mounted forklifts. Velez points out that this is an example of where the supply chain is supporting the company’s marketing strategy, another critical component of its new customer-oriented market approach. There are important operational paybacks as well. Argos outsources product deliveries, and—as part of its revamped fleet management program—is tracking performance metrics such as on-time delivery and service quality.
A notable innovation is a program Argos is sponsoring to train construction workers in order “to give them a formal education on the quality and use of materials and construction methods,” Velez says. In addition to strengthening the company’s ties with these customers, the aim is to raise working standards in the self-construction segment.
The strategy to move the company closer to its customers has led to a seven-fold increase in the number of retailers Argos supplies in Colombia. Moreover, the number of wholesalers that mediate between the manufacturer and its customer base has been cut by one-third. “I still see a long road ahead working with self-construction, small customers, and retailers instead of wholesalers, but we are differentiating now not just on price, but also on service and quality,” Velez says.
For more information on LOGyCA’s Leaders Summit and related presentations, please contact Isabel Agudelo, at iagudelo@logyca.org . LOGyCA and the MIT Center for Transportation & Logistics created the Center for Latin-American Logistics Innovation as part of the Global SCALE network of supply chain research centers.