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You are consulting for the No. 1 producer of cement- Khaitan, located in the central part of
India. Central India is rich in the raw materials (such as coal mines, limestone mines)
required to produce cement which saves the transportation cost of incurring the raw
material. The plant is spread over 20 hectares of land and is one of the most well designed
plants in the country. This company currently has 40% of the market, and feels it could
have more, but is running at 100% capacity in one of its plants, located in Madhya Pradesh
(Central India). The market share of the company has fallen from 50% to 40% because of
the entry of a new player, namely JP Cement which has managed to capture 10% of the
market share. The other big players are Tech and Sirla with 25% and 15% market.
The cost structure for cement production is as follows:
Raw materials-51%
Labor and allocated fixed costs-19%
Distribution & transportation-19%
Sales and Overhead-11%
The companys selling prices are set by the prevailing market prices in India. Some
problems faced by the cement industry today are that the cement exports are falling at

great rate. Moreover, it is required by the law that they supply a minimum of 20% of the fly
ash1 produced to the brick industry. This reduces the amount of fly-ash the company can
recycle. This has increased costs as they now have to purchase fly ash. The company also
recently switched its coal supplier due to quality issues. This shift has increased costs by
1%.
Land is available to expand the current factory and there is a suitable site available near
Madhya Pradesh, about 200 miles to the North. Approximately 80% of the customers are
within 100 miles of the current plant. Besides coal, the raw materials are purchased from a
government-owned company, and prices are set through a yearly contract with the
government company. The plant is unionized, and extra shifts are not possible.
The trucks that Khaitan uses for transportation are owned by the company itself. These
trucks are used to transport the final product directly to customers throughout the country.
Customers pay for trucking by the mile.
The fixed cost of plant additions is roughly the same as the cost of a new plant of the same
capacity. There are technological advancements taking place in the cement industry such as
new roller mills which save 15% power but cost twice as much as those used by the
company in status quo. Recently, the Government of India has passed an Act that places a
ceiling on the number of mines (limestone) a plant can own.
As Khaitans consultant, you are required to advise them on what they should do to
improve their conditions.
ALL THE BEST!

1.

Fly Ash is a by-product of the cement industry which is recycled and used again in the production
process of cement for environmental and efficiency related reasons.