On March 1, 2005, at the end of a nearly six-month acquisition process of UK-based RMC Group plc, Monterrey, Mexico-based Cemex, S.A. de C.V. saw its
On March 1, 2005, at the end of a nearly six-month acquisition process of UK-based RMC Group plc, Monterrey, Mexico-based Cemex, S.A. de C.V. saw its position in many areas of its business shift. The deal instantly made Cemex the world’s largest ready mixed producer (at 77 million cu. yds.), the third-largest cement maker internationally (97 million metric tons), and the globe’s fourth-largest aggregates manufacturer. But internally, the move was seen on a more important level, as it marked the company’s first acquisition of another global construction materials player.
In the United States, Houston-based Cemex USA now operates about 230 ready mixed plants with an annual production capacity of 23 million cu. yds.; 55 aggregate operations, expected to produce 53 million tons in 2006; and, 63 building materials facilities (block, pavers, mortar, lentels, etc.), including approximately 200 million units of gray block per year. In terms of vehicles, the company’s mixer fleet stands at 3,100, as well as 700-plus concrete products trucks and 200 bulk transport vehicles.
With the end of the reorganization process in sight, Cemex USA officials working closely on the integration are able to reflect on the last year and discuss the philosophy behind what has changed and what will stay the same at their new ready mixed operations.
According to Cemex USA’s Steve Wise, executive vice president Û ready mix, aggregates & concrete products, the four-month post-merger integration (PMI) phase was the shortest in the company’s long history of acquiring new properties. We do more than just gobble up a company, especially one like RMC, which had great projects in place when we came in, he says.
Cemex assembled an executive committee of about 40 to 50 people from both companies to identify best practices and create a plan to bring the units together. Part of this process includes identifying places where operations can be more efficient and eliminating redundancies. With a decentralized organization like RMC, which comprised 17 different companies sharing almost no common operating practices, culture or information, this task was especially challenging. There were literally two companies in the same state using different practices, with no sharing of best practices. So, we looked at things like human resources, accounting, procurement and information technology, and stripped most of those functions out of the individual offices and brought them into either Houston or Monterrey, explains Wise. Something like H.R. belongs in the field, so you do have that to a degree on the regional level. We also have environmental and safety people in the field, but with guidance and support tools from Houston.
Wise adds that no outside-U.S. executives were part of the PMI process. It was an all-U.S. team.
Francisco Aguillera, vice president of Cemex aggregates division in charge of the integration, observes, Having RMC people on the executive committee and among the 70 or so people who worked on this merger is a fairly new development for Cemex. But, it allowed RMC executives to explore and understand Cemex and go back to discuss it with their co-workers.
Management oversight for the RMC ready mixed plants was reconfigured into seven regions under Cemex USA, all reporting to Wise. The geographically based regions are North and South California, Arizona, Texas/New Mexico, North and South Florida, and the Carolinas (North and South as one division). Cemex’s cement regions are divided similarly, although they aren’t exactly the same, says Wise. They are close enough that they can coordinate and talk to each other and move product from cement operations to ready mixed plants with ease.
Wise estimates that Cemex was able to retain about 95 percent of the RMC workforce, with many job eliminations primarily in upper management. We made it a priority to identify and retain talent. Obviously, there was a lot of anxiety during this part of the process, Aguillera says.
Among those RMC managers kept on is Chris Crouch, who is now vice president of Cemex’s Concrete Products division in Florida and the Carolinas, which includes the old RMC paver, pipe, precast, building materials, and gray block products. Also still on board is Hank Krehling, who manages the South Florida region. Our philosophy in Phase 1 is to identify and take out of the day-to-day management responsibility anything that distracts from customer service, says Wise.
PMI leaders were also charged with identifying synergies between the two companies. We had to prove to Wall Street that this merger makes sense, Aguillera explains. The PMI leaders did a 100-day assessment during which they evaluated and analyzed the data for the two companies and put together a plan for implementing the changes. Most PMI members were also in charge for implementation. This is a process that has been honed over 20 years of growth at Cemex, but never at this scale.
The most important Phase 1 mission was to set the stage for maintaining business as usual during Phase 2, or the Cemex Way phase. This process involves implementing standard practices and procedures at each plant, one region at a time. Steve Wise, who has been on the receiving end of the Cemex Way changeover as a one-time Southdown employee, explains that during this phase, everybody’s job changes. We upgrade dispatch, reporting and benchmarking systems, as well as make sure everyone has the latest computers, hardware/software upgrades and Blackberries. Training of employees is an important part of this phase. And, we do more than just throw a manual at these people; we give them hands-on training on everything from new customer service procedures to truck tracking to order taking.
We come in on a weekend, and by Monday morning, it’s like the Big Bang. It’s quite an undertaking.
Employees from RMC seem to appreciate the single vision and no longer having to consider fellow companies within RMC as competitors, adds Francisco Aguillera. We’re pushing down walls and getting the RMC team to communicate and work with each other. The biggest benefit to standardization is the common language.
This standardization of processes is what is known as Cemex Institutional Tools, and all Cemex plants around the world use the same systems, explains Aguillera, so that someone in a plant in Southeast Asia could effectively do the same job at a U.S. facility. The company expects that in the United States alone the RMC integration will save them more than $75 million in 2006 and $100 million per year beginning in 2007. Worldwide, the RMC integration is expected to result in $380 million of savings in 2007. In terms of sales, Cemex’s U.S. operations are now the largest contributor (at $4 billion) to the company’s global numbers. In terms of profitability, it ranks a close second behind Mexico.
But Phase 2 is more than just turning RMC operations into Cemex. During the PMI process, projects and practices that RMC had ongoing at its operations were evaluated, and some are now scheduled to be implemented throughout the new company. For example, the pilot program for Redi-Slump (a system that monitors water levels in the mixer and injects water if necessary) in Florida is still very much alive, with plans to expand the program nationwide in the next 12 months.
In the Florida aggregate operations, Blackberry technology was being used by RMC to communicate between truck loader operators and drivers. Once the driver enters the quarry, the operator tells him exactly where in the quarry to proceed, thus eliminating the need for the driver to check in. The system also generates tickets for the order. Cemex also plans to take this process nationwide soon.
Cemex will also continue most of its in-place supplier partnerships for trucks (with Peterbilt and Kenworth) and mixers (McNeilus, Continental and Schwing).
One process Cemex USA plans to introduce into all former RMC businesses is its pay-by-load practice rather than an hourly wage.
In addition to making certain the flow of business goes uninterrupted during the transition, Cemex must also make sure its own ready mixed operations remain supplied. Obviously, we have better control of our raw material supply, says Aguillera.
When you look at the supply chain of ships, trucks, trains, the merger tightens the costs up. There used to be a situation when Cemex and RMC mixers would pass each other. No more.
Currently, the operations in the Carolinas are going through Phase 2 of the integration. This region is unique because there are more developed product lines here than in any of our other regions, something in the neighborhood of 5,000 different products, accessories, tools, etc., says Wise, who adds that the last region to go the Cemex Way will be Northern California.
Aguillera is quick to mention that the integration process is a fluid one with changes happening at facilities that have already been through the initial Phase 2 changeover. For example, we’re still working on getting all of the trucks painted, but most of the signs in front of the plants have been changed, he explains. There are continuous improvements being made, but changes are easier now to implement because everyone is working on the same platform.