Ready Mix Concrete: A Mixed BagBy Kevin Fogarty | Posted 2005-02-01 Print
Concrete maker RMC has poured energy into moving its technology processes out of the Stone Age. Is the company ready to produce 21st century efficiencies?
It's not surprising that Dave Miller must explain to friends that running a concrete business requires sophisticated technology. The business sure doesn't look complicated when slurry slops down a chute into a hole in the ground.
What's surprising is how hard it was to convince the company's business executives that technology, in fact, matters. After all, two years ago, the RMC Group was more a federation of 30 semi-autonomous companies than one coherent organization. The company—which has 1,400 plants producing ready-mixed concrete in 18 countries—was assembled entirely through acquisition. The only glue holding the various pieces together was the profits that flowed toward the same parent company.
RMC's chief executives and financial officers had considered information systems a "necessary evil," says Miller, director of the information-technology project office at RMC Industries, the U.S. holding company of the Surrey, U.K.-based corporation.
That mind-set changed after Miller and his team completed a $3 million project last year to integrate enterprise resource planning systems at RMC subsidiaries in South Carolina and Florida with that of RMC's U.S. headquarters in Atlanta, providing a single view of finances for those three units and eliminating more than $1 million in administrative overhead a year.
"There were three separate instances of Oracle apps, all configured separately, all with different charts of accounts, item masters and other configuration structures," Miller says.
The benefit after the integration: reduced head count. "You don't need three presidents, three CFOs, three controllers, three credit managers, three procurement departments or three HR systems," Miller says, declining to specify the number of workers who lost their jobs or were reassigned.
Miller is about to find out how good his work has been—or whether it will be undone. Cemex, a $7.2 billion-a-year concrete producer in Monterrey, Mexico, has received approval from its shareholders for the acquisition of RMC for $4.1 billion in cash and another $1.7 billion in assumed debt. As of mid-January, U.S. anti-trust regulators were reviewing the deal.
Cemex is well-known for the efficient use of information technology to keep both its logistics and financials running efficiently, Miller says. It's a characteristic he hopes will mean good things for his team at RMC after the acquisition.
Determining whose information technology is more effective isn't a casual issue. The overall numbers for combined U.S. and international operations don't favor RMC. Cemex made $659 million in profit during 2003, while RMC lost $279 million during the same time.
Concrete companies live or die by their efficiency. Pennies count.
"You're dealing with a product—ready-mixed concrete—that's very heavy, has a very low profit margin and has a shelf life of maybe three or four hours," Miller says. "A customer will call and say, 'I need 10 trucks tomorrow morning starting at 6 a.m., and I want one truck every 20 minutes because my finishing crew is staffed to accommodate that flow.' Then, at 5:30 the next morning he calls and says, 'My guy's late; I'm not going to be able to take the first truck until 10 o'clock.' Then, at 9:30 he calls and says, "Make it one truck every 10 minutes instead of every 20.'
"It's a very dynamic schedule," Miller says. "And when you've got 4,000 trucks across the U.S. and their schedules change hourly, we end up with a very complex billing and routing system."
A big step toward improving the efficiency of information-technology operations at RMC came three years ago. Miller and his team devoted nine months and allocated $250,000 to implement project management and information-technology portfolio management software from Niku Corp. that quantifies the time technology staffers allocate to each project or support for each division, and matches actual project and support expenditures for each division against its budget. That gives division managers a clearer idea of how they're spending their information-technology budgets, and what is left to spend.
"When a subsidiary comes to me and asks for a project, I can say, 'Your cost for this would be $2 million worth of I.T. requests, but you have a budget of $1 million. Do you want to authorize us to outsource the work, or will it increase the business enough to justify it?" Miller says, recounting his conversations with managers. "Before, we were just kind of winging it and hoping it turned out right."
The portfolio software is also credited with helping the technology department better manage its expenses by showing how many people work on each project, and letting managers shift workers to get the most efficient results.
Previously, the information-technology department would assign a certain number of staffers to a project, but the initiative inevitably ran over budget when business managers asked for extra help without budgeting for it in advance.
Now, RMC managers can pinpoint where technology staffers are working and reassign a programmer from a day of routine bug fixes, for example, to work on the integration project instead. Miller estimates that feature helped save more than $500,000 during last year's project to combine the financial systems.
Some vendors peddle portfolio management software that is little more than dressed-up accounting and project management applications, says Mark Lutchen, head of Pricewaterhouse-Coopers' information-technology risk management practice. Niku's product, he says, falls somewhere between project management and portfolio management software.
That helps companies like RMC improve the efficiency of their systems development, but doesn't go far enough to bridge the conceptual gap between technologists and financiers, Lutchen says. Companies should use an activity-based costing method that shows how X amount of support from a technology staffer whose skills are in high demand will cost Y, while support from a less skilled staffer will cost Z, he adds.
A Cemex spokesman declined to talk about merging technology operations.
In a Webcast announcing the acquisition, Cemex CEO Lorenzo Zambrano, though, said his company uses "cutting edge" planning and logistics systems in the U.S. and elsewhere.
"Our proprietary ready-mixed management platform controls the entire process from raw material sourcing to production and delivery of the product to the end user, and links into our back office platform," he said. "We believe we can achieve significant cost savings as well as improve the customer experience as we deploy this technology throughout RMC.''
Does this sound like a company that is dying to get its hands on RMC 's technology?
Said Zambrano: "I am confident that we will also learn from RMC."
RMC Group Base Case
U.S. Headquarters: 1 Glenlake Parkway, Atlanta, GA 30328
Phone: (770) 829-2000
Business: Largest maker of ready-mixed concrete in the U.S.
I.T. Project Office Director: Dave Miller
Financials (for year ended Dec. 31, 2003): Revenue of $7.9 billion; operating income of $281 million; $279 million in losses.
Challenge: Improve management of technology projects and make sure costs are clear to business managers.
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