Digitalizing the cement supply chain – A way to succeed in a highly commoditized and competitive industry?

In a highly commoditized and competitive industry such as the cement space in Latin America, digitalizing the supply chain can become a lever to boost profitability and build a sustainable competitive edge.

Cementos Argos (CemArgos), a multinational player in the cement industry, faces great challenges in Colombia, its core market. Changes in the local industry have caused its margins to almost halve in the past two years. Although operational efficiencies are being pursued intensely, they might not be enough. Could digitalizing its supply chain become a lever to recover lost profitability and build a sustainable competitive edge?

CemArgos is an integrated cement and ready-mix concrete (RMX) player with operations in the U.S., Colombia, and 12 other countries. In 2016, the company reported revenues of 2.8 billion USD [1]. In the past two years, CemArgos Colombia – the company’s subsidiary in Colombia, which in 2015 accounted for 38% of total revenues and 58% of total EBITDA – has taken a great hit in terms of profitability. Its EBITDA margin fell from 29.5% in 2015, to 17.6% in the third quarter of 2017 [2,3]. High local cement prices coupled with surplus installed capacities in Asia and historical low international freight rates fostered the appearance and growth of local players that import cement and/or clinker to produce cement locally. This led to a “price war” among cement players in Colombia. In 2016, local prices fell 17%-27% below the region’s average [4]. The profitability of most companies was seriously affected.

As a response to this, in 2016, CemArgos Colombia launched BEST, an ambitious operational excellence program that seeks to generate efficiencies throughout the company’s supply chain. BEST includes initiatives such as: divestment of non-core assets, usage of alternative fuels, etc. [1, 5]. Although the program has been advancing well, increasing competitive pressure will push the company to explore other levers. Could digitalizing its supply chain be one such lever? Definitely!

Today, digitalization enables the automatization and integration of discrete steps of a complex supply chain. “The chain can become a completely integrated ecosystem that is fully transparent to all the players involved – from the suppliers of raw materials, … to the transporters of … finished goods, and finally to the customers…” [6]. For CemArgos Colombia, digitalizing its value chain makes special sense for two main reasons:

First, this could generate additional and significant cost efficiencies. The potential is particularly high for CemArgos given the breadth and complexity of its supply chain. Small operational issues in a limestone mine can generate delays or backlogs in the delivery of RMX to hundreds of development projects in the big cities. This can be very costly for the company. According to a recent PwC study, digitized supply chains (DSC) can generate efficiency gains of 4.1% annually [6].

Second, a DSC could also increase the top line, improving margins. Digitalization can enable a closer integration with customers through better and/or additional services, more compelling customer experience, etc. [5]. This could help CemArgos become more “sticky” and, thus, defend market share in a highly commoditized and competitive industry. According to PwC’s study, a DSC can boost revenue by 2.9% per year [6].

As part of BEST and a few other internal projects, CemArgos has started to work on digitalization initiatives. Among them are the following [5]:

  • Monitoring mine inventories with drones
  • Automated cement packaging with robotics
  • “Live” tracking of orders

In addition, the company states having a few other digital initiatives in their medium-term pipeline, including [5]:

  • Self-driving vehicles for mines
  • BIM (Building Information Modeling)
  • Exploring AI and AR

Although these digitalization initiatives seem to point in the right direction, CemArgos should focus on two principles in order to build an effective DSC:

1. Be more ambitious/ aggressive in digitalization. CemArgos could go much further with DSC, proactively identifying, assessing, selecting, and implementing cutting edge digital technologies. To do so, they should be asking questions such as:

  • What cutting edge digital technologies are being implemented by key competitors and other players in the global industry?
    • For example, Cemex – its main competitor – is developing and integrated App with IBM to improve client experience [7].
  • What cutting edge digital technologies are out there? Which could be relevant for CemArgos?
    • For example, Joy Global offers connected mining systems that, with thousands of sensors, enable centralized monitoring and control of operations, optimized maintenance, etc. [8].

2. Have a more holistic and structured approach towards digitalization. DSC cannot be archived through isolated initiatives. In order to truly integrate the supply chain through digital technologies, a holistic and structured approach should be considered. To achieve this, the following steps should be considered:

  • Define digitalization objectives and priorities
  • Design methodology to identify, asses, select, and implement new technologies
  • Define required capabilities, organizational structure, and operating model
  • Design implementation roadmap, including required cultural changes


Further questions:

  • What type of organizational structure and operating model would CemArgos need to pursue a DSC?
  • What key capabilities and cultural aspects would CemArgos need to adopt? How can gaps be identified and closed?



  1. Cementos Argos (2016). Integrated Report 2015 – Cementos Argos. [online] Colombia. Available at: [Accessed 14 Nov. 2017].
  2. Cementos Argos (2017). Argos BEST Day. [online] Colombia. Available at: [Accessed 14 Nov. 2017].
  3. Cementos Argos (2017). Integrated Report 2016 – Cementos Argos. [online] Colombia. Available at: [Accessed 14 Nov. 2017].
  4. Cementos Argos (2017). Memorandum – Cementos Argos Reporta los Resultados Financieros del Tercer Trimestre 2017. [online] Colombia. Available at: [Accessed 14 Nov. 2017].
  5. Cemex (2016). CEMEX to digitally transform its customers’ experience in collaboration with IBM. [online] Available at: [Accessed 14 Nov. 2017].
  6. Hernandez, M. (2017). Cemento local: una competencia mas roja que gris. La Republica. [online] Available at: [Accessed 14 Nov. 2017].
  7. Porter, M. and Heppelmann, J. (2014). How Smart, Connected Products Are Transforming Competition. Harvard Business Review.
  8. Schrau, S. and Berttram, P. (2017). Industry 4.0: How Digitization Makes the Supply Chain More Efficient, Agile, and Customer Focused. PwC.


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Student comments on Digitalizing the cement supply chain – A way to succeed in a highly commoditized and competitive industry?

  1. Organizing around digitization poses several challenges – especially for those organizations, like CemArgos, whose core product / service wasn’t birthed in the wake a digital age.

    Businesses seem to manage this organization challenge in three ways:
    1. Convergence: bring digitization investments to one place in the organization (i.e., under one single executive)
    2. Coordination: add mechanisms to organize and coordinate digitization initiatives, but keep the same organizational structure
    3. Digital stacks: this approach allows each unit (by geography, product, etc.) to mange its own digitization without coordination or convergence.

    I can imagine two organizational structures that might work for CemArgos. Given the newness of digitization to CemArgos, I don’t think the digital stack approach would work , leaving convergence or coordination as best options.

    Convergence would allow CemAgros to manage digitization from the top-down by funneling efforts through a digitization organization. However, this approach may meet resistance instead of the business owners embracing and owning any DSC initiatives. Coordination, on the other hand, allows the executives to own DSC initiatives. However, a more decentralized approach may realize fewer synergies across the company.

    I’d advocate for a convergence strategy (roll digitization under one executive who is in charge of it). CemArgos organizes its operations into geographies – since the goal of a DSC would be to coordinate across geographies, having DSC ownership under the VP of Innovation or VP of Shared Services might allow for better coordination across the company and its supply chain.

    Sources Used:
    Weill, Peter and Stephanie Woerner, “Is Your Organization Ready for Total Digitization,” Harvard Business Review, July 24, 2013, accessed November 2017.

  2. Thinking in the context of a cement business, I would think that digitization would be more relevant for its role in supplying its customers and how it stores cement, which relates to the second point you made in regards to why Argos would want to digitize.

    Cement production is a continuous flow process and its raw material inputs (limestone, coal, etc.) can be stored at the plant for long periods of time. Also, cement companies often store cement at the plant and terminals which serve as a network to service customers and increase the service area of the cement plant. Sensors could be immensely in value in tracking customer demand and levels of cement in the terminals. This data could then be used to influence production and transportation costs to terminals.

    I think your question about changes to the organizational structure and culture are critical in the context of sensors and a cement plant. In an industry where it is key to run the plant as much as possible to keep capacity high and with an ability to store so much material and finished product, how do you change the culture to focus more on data and not just producing cement to store it in a terminal?

  3. With regard to the author’s question: “What key capabilities and cultural aspects would CemArgos need to adopt? How can gaps be identified and closed?” – I believe a key barrier to achieving a fully digitized supply chain and truly “going further” in this regard is the people the company employs. Often, a company has to ask itself a fundamental question – do I have the right people to execute this initiative? I believe this is often glossed over or thought of as obvious, but I think about the skills that managing this more advanced supply chain would require and I wonder if CemAgros has people with those skillsets. For example, manipulating more complex computer systems to coordinate with suppliers, handling and interpreting large datasets to unearth inefficiences, crafting predictive analytics to optimize processes – and then most critically, ensuring that the front-line workers at each step of the supply chain can actually understand these digitized outputs and that they use it to drive their actions and decision-making. So as CemAgros moves down this road, I think it will be crucial that they not lose sight of this human capital aspect to digitization. Simply implementing digital does not add much value – you need your people to know how to use it.

  4. I really enjoyed reading about the competitive and business context of CemArgos. I think this illustrates very well how digitalization can be a powerful tool, in this case one that can bring about a turnaround for the company.

    The author urges the company to aggressively embrace digitalization and to have a holistic and structured approach. This second point I think is paramount. In this holistic approach, companies must take a step back to make sure that they aren’t simply automating their current processes. They should be re-evaluating their business and reinventing their business model in light of technology. The McKinsey article cited below mentions that digitalization can lead to “cutting the number of steps required, reducing the number of documents, developing automated decision making, and dealing with regulatory and fraud issues.” I think CemArgos could benefit greatly from re-assessing their business model.

  5. Great article. I agree that digitizing the supply chain of CemArgos would boost profitability but I think it would be a short term effect. It’s reasonable to assume that its competitors will also digitize their supply chain and this will eliminate CemArgos’s competitive advantage. Similar to mining, the competitive advantage in a commoditized space, as you’ve outlined, is the level of costs in the business. Where a company lies on the mining cost curve tends to depend on both the geological and operations/process factors of its mines – the geological factors (depth of mining, age of mine, yield, etc.) being the main factor as processes can be replicated. In CemArgos’s case, there is no geological advantages and processes can be replicated. If CemArgo doesn’t move first and digitize its supply chain, its competitors will. Therefore, I agree that it’s necessary for CemArgo to digitize its supply chain and not only to strive to succeed, but simply to survive.

  6. Thanks Andres 😉 Really enjoyed reading this article. (big infra/commodities fan!)

    First I’d like to address Astatine’s comment. While I do agree that digitalization is necessary for CemArgos to operate successfully in the space, I would think that the effect is more medium-term than short-term. Being first to market will enable CemArgos to provide a value proposition that no other player can offer and also allows CemArgos to effectively control its own destiny by being able to respond to changes in the market (since they’ve already made the jump into digitalization). This will also enable CemArgos to cultivate relationships with its customer base, and the construction/commodities industry tends to follow a multi-year contract approach with greater loyalty among customer and supplier. Since these products are not highly specialized, it is then up to CemArgos to focus on reducing its cost since price is market-fixed.

    To address your question around organizational structure, I’d like to add to Clare’s excellent post. The way I see it, there are three viable options.
    The first is to build a distinct vertical focused on digital transformation where all employees devoted to digitalization are housed. You can think of this as sort of a center of excellence/call center/innovation hub. The advantages of this option is it would enable the team to extract synergies; however, they are less accountable for day to day operations and could perhaps cause friction among the various departments in case something does go wrong.
    My preference: The second option is to build one lean centralized team in addition to housing specific employees under the different verticals. This option would increase accountability across the board, but synergies are likely reduced and you could face communication challenges that will make the digitalization team less adaptive/responsive to changes in the market once competitors begin their own digitalization venture.
    The third option is for the risk-averse. It would entail building a small lean team but outsourcing most of the work to a facility manager who would operate the day to day. This might make sense if the player was small scale, but I would assume CemArgos should be able to fund/develop a capable team internally.

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