THE VIETNAM CEMENT INDUSTRY – COMPETITION AND CONSUMPTION

Historically, in many Vietnamese enterprises, the conventional accounting system has always been considered an effective and essential managerial tool for evaluating and controlling business performance

TABLE OF CONTENT TABLE OF CONTENT .I LIST OF TABLES II ACKNOWLEDGEMENT I ABSTRACT II CHAPTER I INTRODUCTION .1 I RATIONALE II PROBLEM STATEMENT III RESEARCH METHODOLOGY CHAPTER II CONCEPTUAL FRAMEWORK I VALUE CHAIN CONCEPT AND RELATED ISSUES OF STRATEGIC MANAGEMENT IN MANUFACTURING II THE CEMENT INDUSTRY .11 CHAPTER III HPCC - COMPANY PROFILE 15 I BACKGROUND 15 II THE VIETNAM CEMENT INDUSTRY – COMPETITION AND CONSUMPTION .15 III BRIEF OF HPCC’S OPERATION 16 IV THE NEW PLANT PROJECT 17 CHAPTER IV AN ANALYSIS ON THE COMPANY’S CURRENT VALUE CHAIN 18 I SUPPLY 18 II MANUFACTURING 20 III MARKET ANALYSIS 23 IV SUMMARY .30 CHAPTER V THE PROJECT OF THE NEW PLANT IN THUY NGUYEN – TRANG KENH - HAI PHONG .32 I THE NECESSITY OF THE NEW PROJECT 32 II THE NEW PLANT’S OPERATION 33 III MARKET ANALYSIS 34 IV INFORMATION FLOW 36 V ORGANIZATIONAL CHANGES 36 CHAPTER VI CONCLUSIONS AND RECOMMENDATIONS 38 I CONCLUSIONS 38 II RECOMMENDATIONS .39 REFERENCES 43 APPENDICES 44 EXHIBIT 6.A HAIPHONG CEMENT COMPANY (OLD STRUCTURE) .46 EXHIBIT 6.B HAIPHONG CEMENT COMPANY (NEW STRUCTURE) 47 EXHIBIT 7.A BALANCE SHEET 48 EXHIBIT 7.B INCOME STATEMENT 49 EXHIBIT GEOGRAPHICAL CONSUMING MARKETS .50 HA GIANG 50 MIDDLE AREA 50 LAO CAI 50 SON TAY 50 HAI PHONG .50 HANOI .50 THAI BINH 50 MIDDLE AREA 50 LIST OF TABLES Table Increases in material inputs price and their influence on costs Page 19 Table Proportion of material inventory to current assets Page 19 Table Comparisons of productivity and capacity Page 20 Table Components of product cost Page 20 Table Cost structure of major activities Page 22 Table Proportion of inventories to current assets’ value Page 22 Table Comparison of costs and price Page 23 Table Geographical consuming markets Page 24 Table The supply of Clinker Page 25 Table 10 White Cement product Page 25 Table 11 Selling prices for different types of cement provided by HPCC Page 29 Table 12 Structure of consumption in type of cement Page 29 Table 13 Commission expenses Page 30 Table 14 Transportation cost Page 30 Table 15 Estimated production capacity Page 34 Table 16 Consumption capacity in geographical markets Page 35 ACKNOWLEDGEMENT I wish to express my sincere gratitude to Prof N Ramachandran, my teacher and also my advisor, for his valuable support and enthusiastic encouragement during my research work I would like to give sincere thanks to Prof H Paul who gave me useful recommendations on dealing with the issues raised by the research I am honestly grateful to Dr Do Ba Khang for his kindly suggestions and contributions to the result of my research presentation Special thanks should go to the Government of Switzerland, SAV Programmers, and my teachers for their great support during my two-year study in Vietnam and AIT I am very thankful to people at Hai Phong Cement Company, especially Mrs Hue and Mr Hai, for the enthusiastic help they gave me during my collection of research data Thanks are also dedicated to my lovely friends and SAV classmates for their warm sentiment and sharing Especially, love and gratitude are reserved for my grandparents, my mother, and other family members who gave me invaluable support and encouragement i ABSTRACT It has been recognized that the traditional accounting system, with a narrow focus, is no longer appropriate in the today’s turbulent business environment However, though Strategic Cost Management has been increasingly paid attention by economists, a formal adoption of concepts like Value Chain Analysis and Activity-Based Costing into enterprises is in fact not as simple as we initially thought One of the biggest hindering forces is people’ mindsets How to change their viewpoints of managing, controlling, and operating a business has been still a great question With Hai Phong Cement Company (HPCC) being a case study, the research attempts to analyze and identify problems and their reasons, and also opportunities for improvement Based on the theoretical issues reviewed in Chapter 2, the study is continued in Chapters 3,4, and to consider the possibility to involve these strategic concepts into organizations like HPCC, which had a long time operating under the old management mechanism With recommendations given in Chapter 6, it is expected that a selective adoption of the strategic management approach will benefit not only HPCC but other enterprises in other industries as well ii CHAPTER I I INTRODUCTION RATIONALE Historically, in many Vietnamese enterprises, the conventional accounting system has always been considered an effective and essential managerial tool for evaluating and controlling business performance Companies almost rely on ledgers, which record data of inside transactions only Costs are calculated based on units of materials purchased, direct labor employed, and overhead Analyses of financial statements also go around these three main items of costs Such a management mechanism might be appropriate in the past, when there were not many players in the market, and customer requirements were simple At that time, moreover, direct labor was the major force in production and, generally, accounted for a large proportion in the manufacturing cost structure Thus, while it was not very difficult for producers to sell their products, there was also no big concern about the current accounting system It is, however, not the case of today’s business environment, which is characterized as strongly competitive with higher and more complicated customer demand Low cost is no longer the only effective weapon for firms to compete on the market Direct labor is also not a reliable variable for determining cost allocations due to the emergence of advanced technologies and machinery as a replacement for manual work The current accounting system alone serves as a tool just for checking and investigating variances Only little strategic insights could be withdrawn from those rigid numbers The rapidly changing business environment, therefore, necessitates a new management approach The Value Chain Analysis and Activity-Based Costing (ABC) concepts have been introduced since 1980s They bring in a comprehensive view of analyzing and managing a business’s operation The Value Chain Analysis concept takes into consideration not only internal manufacturing (operating) processes but also linkages and relationships between the firm with suppliers and customers, whereas the ABC method studies costs through out the value chain with activities, not units of items, being the basis These concepts are, indeed, rather new in Vietnam, both intellectually as well as practically The research is, therefore, aimed to get an understanding of the importance and necessity of adapting a new management approach Considerations and judgements of whether it is feasible to apply the whole concept into any business are also needed, since not all enterprises and their own business environments are the same II PROBLEM STATEMENT Relying on the current accounting system, many companies could not recognize that they, while reporting profit, are in fact not profitable at all Through a Value Chain analysis, weaknesses are likely to be revealed more convincingly With Hai Phong Cement Company being an example, the study is expected to prove why some Vietnamese companies, particularly State-owned enterprises fail to manage costs and sales effectively and, as a result, lose their competitive position in the market Finding possible roots of such incompetence and determining whether it could be improved are the issues raised for the research One of the biggest problems for any enterprise is how to change the management’s mindsets of adopting and involving the new concepts into the organization The author has no ambition that a new accounting system will immediately replace the traditional one Although the results of many researchers have favored Strategic Management with Value Chain Analysis and ABC System as the central elements, it does not mean that problems will surely be solved all at a time Success or failure also depends on characteristics of the industry and of the company itself In fact, applications of the new approach should be acknowledged as support for, not an elimination of, the current accounting system In the case of Hai Phong Cement Company, which is now under pressures of the market with strong competition from other cement producers, recognition of weaknesses is not easy, but how to deal with these in a tough condition of limited capital, time and other resources is an even more difficult task This issue should be taken into account by the decision makers III RESEARCH METHODOLOGY Objectives The study is to: - First, get general ideas about the necessity to adopt Strategic Management, with Value Chain Analysis and ABC system as central elements, into the corporate strategy - Second, examine the current situation of management in the reality as well as the possibility for these concepts to be implemented in Vietnamsese enterprises (in this case, Hai Phong Cement Company) - Finally, realize what further adjustments are needed for such an application of the concepts, and where and how to start Information sources For an in-depth understanding about the nature of the industry in which the studied company operates, i.e cement manufacturing, secondary information is crucial: - Articles on Strategic Cost Management: to have basic ideas of the concepts - Industry Books: to get better understandings of the manufacturing processes so as to know what, who, and how to add value as well as where possible for cost savings - The Internet: information about famous companies producing cement is searched for as a source for learning and benchmarking For example, Lafarge Corporation of England is considered a good illustration - Newspapers: news about the cement market, including the demand, the production capacity and, if possible, the operating situation of some domestic cement producers like Hoang Thach, Chin Fon, and so on The most important source of information is from visiting the company Observations, direct questions with accountants and employees, together with collection of financial statements are the focus of the research This approach is expected to help our understandings of the company with real and valuable information, through which a comprehensive analysis could be achieved Scope The study is expected to collect cost-related information as much as possible, but it did not go in details into ABC calculations Instead, it concentrates on, along the value chain, findings of important items ignored by the management, which have been obviously the roots of the company’s ineffectiveness Presentation of the Research report The report is presented as follows: Chapter 1: Introduction Chapter 2: Conceptual framework Chapter 3: Hai Phong Cement Company Profile Chapter 4: An analysis of the current value chain at Hai Phong Cement Company Chapter 5: The project of a new plant in Trang Kenh – Thuy Nguyen – Hai Phong Chapter 6: Conclusions and recommendations Limitations The study was conducted at the end of the financial year, 2000 In addition, Hai Phong Cement Company is now carrying out its project of moving the current factory to the suburb, and building a new clean-technology plant instead Therefore, there were some difficulties in collecting sufficient needed information since the people were busy accomplishing their urgent mission and responsibilities Moreover, the ability to get exact costs and expenses for each specific activity, as required by the ABC concept, was limited due to the fact that the company is still relying on the conventional accounting system, which focuses only on examining items purchased and employed CHAPTER II CONCEPTUAL FRAMEWORK I VALUE CHAIN CONCEPT AND RELATED ISSUES OF STRATEGIC MANAGEMENT IN MANUFACTURING What does Value Chain Analysis say? The Value Chain framework is a method for breaking down the chain, from basic raw materials to end-use customers, into strategically relevant activities in order to understand the behavior of costs and the sources of differentiation (See Exhibit 1) EXHIBIT Value Activities within a Firm Raw Materials R&D Manufacturing Marketing Distribution Service Traditional Accounting vs Value Chain Concept It has been recognized that the traditional accounting system is no longer appropriate for a comprehensive evaluation of an enterprise’s performance It has increasingly revealed disadvantages, particularly in the today’s highly changing business environment Exhibit clarifies and compares the scope covered by the Traditional Management system and the Value Chain Analysis approach The former is characterized as internally oriented, while with the latter, up- and down-stream linkages are both scrutinized EXHIBIT Traditional vs Value Chain Management Linkages with suppliers Material arrival Manufacturing Sales revenue Linkages with customers Traditional Accounting System Value Chain Analysis Management Approach The traditional cost accounting techniques allocate costs to products based on attributes of a single unit, such as number of direct labor hours required to manufacturing a unit (in manufacturing), or purchase cost of merchandise resold (in retailing) Let’s consider the overhead cost, which has been usually inaccurately calculated in financial reports of companies The traditional cost accounting method allocates most overhead costs on the basis of either direct labor or direct materials When the product line becomes more complex, however, those costs traced to individual product are more inaccurate, especially for overhead costs Thus, distortions may occur if we calculate overhead using direct labor or machine hour rules For example, while allocating overhead based on direct labor, the system suggests overhead would decrease with decreasing direct labor It is, in fact, not always true Overhead, once increased, is difficult to reduce when sales figures decrease, especially as the decrease in sales will occur sometime before you can reduce overhead, thereby causing the overhead percentage to go up for the period of reduced sales Moreover, there is a tendency for overheads to climb in the high performance divisions When sales decline, overheads not decline in direct proportion to sales, because management has a tendency to hold on employees and inventories in the hope of recovery in the near future Under the stress, companies start using crisis or pressure methods such as: temporary layoffs; firing deadwood from indirect personnel without a thorough analysis; cutbacks on preventive maintenance; and slowdown of R&D These actions may have initial success; however, the gains from the programs are always short-lived and are accompanied by costly negative effects such as lower quality of products, reduced services, increased absenteeism, and lower productivity The traditional accounting system may contain the total cost of each value-creating process, but may not reveal the causes or factors for the significant individual costs Using single output or volume measures to assign costs is often misleading Causality is very difficult to determine because unfavorable variance may have multiple causes With numbers summarized on an aggregate level, it becomes difficult to allocate individual responsibility for variances The traditional management accounting focuses on internal information It places excessive emphasis on manufacturing costs It also assumes that cost reduction must be found in the value-added process, i.e selling price less the cost of raw materials It considers this process as the only area in which a firm can influence costs There is misleading here since there are also other purchased inputs such as engineering, maintenance, distribution, and service According to this system’s principles, we have limited choices: raising the selling price, or reducing costs The first option of increasing the price is really unfeasible today, especially it seems to be impossible when the firm has no predominantly competitive advantage The second option, i.e reductions in production costs, could be carried out as follows: + Reduce cost of raw materials: buying cheap materials at high volume while compromising quality, raising inventories and thus raising costs for warehousing and handling In fact, many companies often “forward buy” to take advantages of lower prices As a result, shipments are typically made in large volume, requiring minimal packaging and special handling, leading to higher unnecessary costs for quality control and storage + Reduce cost of direct labor: lowering the wage will negatively affect employees’ morale and productivity In the reality, downsizing and reorganizing the operation is usually the preferable solution of companies + Reduce cost of overhead: the question for almost all enterprises is always how to start, through layoffs, firing, or cutbacks on maintenance Overheads are not merely tools, trucks, and furniture as many people think There are a large number of overhead functions which remain in the ‘back offices” and are not associated with any single department Looking at items in financial reports, if we want to improve profitability by reducing costs, we find it difficult to determine where to start with, and how, because each item consists of multiple activities Moreover, there are other non-value-creating activities that could have been eliminated, but they seem to be invisible and not presented in the report paper As a result, these non-value-creating activities still exist and continue contributing to the burden of costs The Value Chain Analysis, on the contrary, covers both external and internal data It uses appropriate cost drivers for all major value-creating processes It exploits linkages throughout the value chain and provides continuous monitoring difficulties and challenges facing the management as well as the employees They arise inside the company, from existing and potential competitors, and also from changes in the Government’s policies Therefore, efforts should be proactively taken on various aspects: production, technology, people, and marketing There are two great issues that should not be ignored: information flow and organizational structure It is good news that changes are going to be take place as the new plant at Trang Kenh comes into operation IV INFORMATION FLOW Currently, cement is produced by the manufacturing units according to monthly plans made by the management These sub-units make reports of production and machinery situation to the operation center and then to the management Meanwhile, daily information is submitted to VNCC through the data connection system Information management at HPCC is currently still characterized as manual work, mainly through telephone and on papers In case of production break downs or any adjustments in product ingredients, the technical vice director has to go right to the field for solving the problem It is expected that when the new plant comes into operation, problems will be dealt with and handled at the Central Control Department All are performed through a connected computer network V ORGANIZATIONAL CHANGES With commitment to a more flexible organizational structure, employee recruitment is expected to focus on both professional skills and mental health condition, especially for important positions like manufacturing operators It is planned that employees will be sent to practice and study new technologies in some cement producers who are also members of VNCC Please refer to Exhibit to see changes in the company’s labor force The company plans to move a proportion of the redundant employees, particularly female workers, to the clean industrial plants, which are located at the current factory site For the rest employees, the company encourages early retirement The new structure will consist of less managerial levels than before, implying a step of decentralization A significant change is the prominence given to the Sales Department Previously, this department is placed at the same level with others such as Planning, Accounting, Human Resource, and Material Purchasing and Warehousing For the new factory, there is a vice director responsible for activities related to sales, including material purchasing unit, warehouses, transportation units, and consuming agents (For more details, please see the appendices – Exhibits 6A and 6B) As presented in Exhibit 6A, with the old structure, the major manufacturing divisions (limestone crushing, heating, coal grinding, and cement grinding and packaging) had been placed under direct control of the Manager It indicates the company’s focus being in favor of manufacturing Sales people had little motivation to actively search for new markets as well as attract new customers Regarding the decision-making process, it usually takes weeks for production planning, additional weeks for budgeting, and more weeks for getting approval from the management board This time-consuming procedural mechanism has obviously raised a lot of costs and wastes 36 In the new structure (Exhibit 6B), there is no longer Vice-Manager of Technology and Environment Production Technology and Product Quality Assurance units are now put into the manufacturing area This change reflects one step of decentralization The manager now has direct control over Planning, HRM, Office, and Accounting departments Before, the Manager also held responsibility and authority on sale, materials, and construction Now, there is a Vice-Manager taking over sales and sales-related activities 37 CHAPTER VI I CONCLUSIONS AND RECOMMENDATIONS CONCLUSIONS Not until the decision of moving the current factory to a new plant got approval, but before that, the emergence of Chinfon in 1997 had been a real “shock” to HPCC’s operating environment The bad result since 1997 reflected the company’s ineffective corporate strategy and, partly, inadequate management and investment policies made by the Government Whatever the reason is, it is crucial for HPCC to study and involve the Value Chain concept into its operation and organization We will follow the structure of the concept as presented in the Literature Review section We are now going to summarize the situation of HPCC’s operation through its activities Structural activities Manage location: for HPCC, the distribution channels should be rearranged in terms of number and locations of wholesale and retail agents The channels should be organized in a way that it would be comfortable and efficient for transporting products to consumers in a timely manner Integrate vertically: Vertical integration does not always mean lower cost and thus high profitability HPCC carried out an upstream expansion, i.e producing cement package, from its core business – cement However, the issue of how to improve and to make this affiliated unit’s operation more effective has not been paid enough attention by the management As previously analyzed, the self-production of cement packages currently costs more than if they are bought from outside ($28 vs $24 per 100 pieces) One possible reason is that the unit, which was put into operation for more than one year (August 1999), has not accumulated sufficient experiences in terms of both quality and capacity Since this is not a minor issue, therefore, the unit’s prospect need to receive adequate consideration If the situation cannot be improved regardless efforts made by the management and employees, HPCC should try another alternative, i.e outsourcing, and focus more on its core business An expansion of the product range will possibly be a promising and more feasible solution Integrate horizontally: After examining the situation of HPCC’s geographical markets, it was concluded that some markets not bring any profit but even loss to the company These unprofitable markets include not only small but also large ones While it is not easy to increase the selling price, the problem now is how to reduce costs of production and other procedural costs arising during the distribution stage Manage technology: In the cement industry, technology is undoubtedly a competitive weapon For HPCC, therefore, technology should be well managed not only within the production process but, rather than that, from the selection stage Applications of new technology into the manufacturing will require some changes throughout the whole process Therefore, in-depth training, both theoretically and practically, should be provided to operators and workers Manage complexity of products: Currently, HPCC’s major products are PC30 and PC40 Its narrow range of products may be good in a sense that complexity is avoided However, it has also revealed certain disadvantages, especially when the market has become increasingly competitive and customers, more demanding A reasonable expansion of the existing product line (dry mortar, for example) is really needed for HPCC to gain the market share Costs for the new product may be higher, but savings could also be achieved on the total cost once sales increase, and when economies of scope are brought into play Manage institutional structure: High inventories have lead HPCC to a situation of high debt for acquiring current assets needed for production High interest paid was one reason for the 38 company’s high costs Therefore, materials purchasing and capital utilization should be well planned so as to reduce the debt burden Procedural activities: It is the fact that the cost drivers relating to Total Quality Management concept, which was discussed in the previous section, such as return merchandise rate, customer satisfaction rating, employee morale level, lead time, throughput time, and so on, have never formally practiced at HPCC The company, while concentrating much on the “hard” factors like productivity and number of sales, ignores these “soft” but crucial principles for gaining competitiveness When Chinfon penetrated into the market in 1997, HPCC was not really ready for protecting its home market As a result, 70% of its home market’s share has belonged to the new player The company was operating at only 80% capacity, indicating a higher long-run absorption cost of sales Thus, procedures for managing employees’ morale, capacity, product complexity (number of separate operations, for example), and plant layout must be established in a way that assures reliability, smoothness and flexibility Communications and cooperation in a constructive manner between the management and the employees, not blames and responsibility pushes, is essential for success of the company’s sustainable development In a State-owned enterprise like HPCC, which is strongly affected by the central-planning mechanism, decentralization of authority is actually not an easy task Therefore, initiatives and commitment from the management is really needed Operational activities HPCC pays much attention in assuring the product’s quality as well as smoothness of its production However, one cost driver has not been looked at carefully That is the set-up In producing cement, setting up heavy machines costs much If the production is not well organized, costs incurred may go up rapidly while it is usually not reflected in financial reports For example, in low-demand periods, if number of setting up is not controlled and planned, the unit cost will be unjustified higher This is one of notable things HPCC should pay sufficient consideration II RECOMMENDATIONS The transition to a new plant in Trang Kenh gives HPCC an opportunity and also challenges to redefine its value chain It will be an illusion, however, if we ask for such problems to be solved all at a time It is the mission of HPCC management to determine, firstly, what critical success factors are and then, what priorities should be given to those factors Below are some recommendations: - Firstly, at the top priority, product quality must be ensured This necessitates more active and creative role of the Product Quality Assurance Department (PQA) Currently, the PQA at HPCC only plays a role as a controller More in-depth researches and studies should be carried out to develop what exactly customers need The people here should become experts in both technical and market knowledge Integration with the sale department is really needed with the common goal of expanding the product range for more applications - Good relationship and cooperation with suppliers should be consolidated in order to assure stable price and quantity of inputs, avoiding sudden fluctuations that negatively affect profitability as happened in the past The company can negotiate lower costs of 39 process inputs The suppliers might be willing to drop their prices if the company negotiates long-term contracts with high commitment - Plans for purchasing materials and other inputs should be made carefully, including contingent factors, in order to minimize costs for controlling, storage, and also minimize interest expenses caused by stagnated materials - HPCC does not have a low-cost competitive advantage due to its obsolescent technology Moreover, it has been facing difficulties in selling its products since there are many cement brands competing in the market Therefore, too narrow product line is not a wise strategic choice in this case - A study on the possibility of the company to provide packaged products, i.e concrete together with cement, is another recommend since the company can make use of its experienced workers Surely, strict control over this new product is necessary, particularly proportion of ingredients must comply with technical standards - Product diversification should be taken into consideration as a good direction for the company’s competitive strategy, with the focus on grey cement and mortar, which will bring more comfort to end-users Meanwhile, further strategic consideration should be also on White Cement Currently, HPCC is the only producer of this kind of product in the domestic market However, it has not been able to take advantage of this due to its high cost as well as its incompetence in marketing activities The development strategy for White Cement could be redirected in a way that more investments are made on R&D activities - As mentioned in the theoretical section, maintenance and preservation of cement cost a lot, and it needs many efforts The current warehousing system at HPCC is managed and operated rather manually Regular movements of the cement cause pollution and even damage Therefore, a scientific layout for storing, maintaining and transporting the product should not be ignored - The distribution channels needs to be re-examined Those agents that operate ineffectively should be rearranged and, if necessary, shut down The reward system should be applied not only to workers who participate directly in production process but also to wholesalers and retailers that achieve very good sales - Means of transportation are required to be available at every selling outlet, facilitating buyers to transfer the product to the needed destination regardless the distance and the purchased quantity as well This will help improve the relationship with customers, thus facilitating and creating a stable long-term customer base, which is really a competitive weapon for the company - For the cement industry, although some cement producers are currently using price as a major competitive tool, a very low price is not an optimum strategy to gain market share, particularly in this highly competitive period of time To some extent, low price may be interpreted as low quality product, thus rejected by the market However, in the case of HPCC, a discount of 1-2% in the price can be applied to those who purchase at high volume - HPCC, while providing cement, can also become a useful advisor to its customers by introducing them to other reliable construction-related suppliers (e.g steel, sand, gravel, and brick suppliers) These suppliers, in return, would give suggestions to their customers about HPCC’s product This means a win-win solution when both parties are beneficial - The company’s policy of vertical integration should be continued However, together with the staff redundancy program, HPCC can make use of its employees in low-demand 40 quarters (quarters and are wet seasons) by moving them to the Cement Package production unit - Customer profitability analysis should become a principle and an essential component in the company’s business strategies There were cases that some customers have not brought any profit, but even loss to the company HPCC has concentrated too much on the highvolume target Obviously, several large markets are not profitable at all: Hai Phong, Ha Giang Now it is necessary for the company to protect and then expand small but potential markets like Phu Tho, Thai Binh While making efforts to reduce production cost, an appropriate customer policy is essential to attract these market segments - Also regarding customer profitability, HPCC should pay more care for big construction projects like dams, to which cement is transported in large containers Costs during transportation in serving this category of customer are more likely to be saved in terms of machines, fuel, human resource, and time - In the case of HPCC, an analysis of the value chain and Pareto’s “80-20” rule should be kept in mind so as to identify and then focus on strategically value-adding activities (80% of what you care about is covered by 20% of what you do), especially the distribution stage Currently, while the small markets appear more profitable, the bigger markets, which bring even loss, are still considered the most important market segment Obviously, implementation of Pareto’s rules is not a simple, but rather difficult, task - The distribution network should be organized in a way that it helps save time, fuel, and people For example, one truck is responsible for several customers in the same location At the same time, empty returns should be avoided to minimize the waste - At this point of time, when the company is in its transition to a new plant, such lots of necessary missions cannot be completed in only several days or months What is the most important now: to stabilize production, training, labor force reorganization, and savings on costs New product development and marketing campaigns should be the next step that also requires an adequately integrated consideration - An extremely important factor is people With new equipment and new technology being installed in the new plant, extensive technical training is essential for smooth operation Capable workers should be sent to other member cement companies for study and practice - Taking into consideration the seasonal factor is also a necessity Quarters and are wet seasons with the demand for construction being much lower than that in quarters and During the second and third quarters, when sales are slow as a result of low demand, the question raised is how to deal with labor, inventory and production arrangement Together with the season factor, high costs incurred for holding and transporting the product require careful scheduling of material purchasing as well as product manufacturing In another word, cooperation among production plans, budgeting, and distribution scheduling is really needed - Although ABC has been introduced as much more advantageous to the traditional accounting method, an immediate application of ABC as a replacement for the current accounting system is not a simple task at this point of time However, a value chain analysis is crucial when it requires dividing the organization into distinct strategic activities, not in functions For the coming years, the demand for cement is expected to increase since the Government is carrying out its policy of concretizing canals and ditches More cement is needed for hydraulics in rural areas For HPCC, that the production capacity is planned to increase from 400,000 tons to 1,200,000 tons per year will help achieve economies of scale, thus reducing the unit cost 41 With such a prospect, it is quite necessary at this time for the company to accelerate the project’s progress A lot of efforts should be made by the company itself However, support from the Government and VNCC is really needed There are some words regarding the role of the Government and VNCC, that encouragement should be given to domestic cement producers, including HPCC, to invest in producing white cement which is not only at higher quality but comparable costs as well Restrictions on the imported White Cement (mainly from China) need considering and then, determining This, in deed, is not as simple as just giving a signature on a decision, because Vietnam is now in its integration stage Such restrictions can have effects on other aspects and relationships in doing international business In such case, by involving cost-benefit analysis, the Government may consider preferable policies given to domestic cement manufacturers in terms of preferable taxes, capital, and technology, thus facilitating these firms to be able to produce white cement profitably There is a saying ‘Better late than never” It is expected that HPCC, with today’s efforts, will be able in the near future to overcome challenges and difficulties facing it in such a highly competitive environment 42 REFERENCES Institute of Management Accountants, Implementing Activity-Based Costing, Statements on Management Accounting, Number 4-T, Sep 30,1993, pp.18-25 Institute of Management Accountants, Cost Management for Freight Transportation, Statements on Management Accounting, Number 4-I, Jun 1, 1989, pp.10-11 Institute of Management Accountants, Cost Management for Logistics, Statements on Management Accounting, Number 4-P, June30, 1992, pp.6-7 Institute of Management Accountants, Integrated Supply Chain Management, Statements on Management Accounting, Number 4-II, Sep 1999 Institute of Management Accountants, Value Chain Analysis for Assessing Competitive Advantage, Statements on Management Accounting, Number 4-X, Mar 31,1996, pp.7-40 Institute of Management Accountants, Converting General Ledger and Payroll Detail to Resource Cost Elements, Statements on Management Accounting, Number 4-EE, Nov 1998, pp.15-22 Peter Hines, Richard lamming, Daniel Jones, Paul Cousins, Nick Rich (2000) Strategy and Excellence in the Supply Chain, Value Stream Management John K Shank, Vijar Govindarajan (1993), Strategic Cost Management, The Free press, Chapters 4,5 Joseph G Donelan and Edward A Kaplan (March/April 1998), Value Chain Analysis: A Strategic Approach to Cost Management, Journal of Strategic Performance Measurement 10.Glenn R Taylor (February, 1994), The Importance of Estimating Your Overhead, Journal of Cost Engineering, Vol 36/No 11 http://www.lafargecorp.com/ 12 http://www.fpt.vn/InfoStore/400D0001/2000/10/39D2D7D7.htm 13 http://scgweb.cementhai.co.th/ 14 http://www.holderbank.ch/ 15 http://www.milburn.co.nz/ 43 APPENDICES EXHIBIT : HPCC’S DISTRIBUTION OF LABOR FORCE EXHIBIT 6.A : HAIPHONG CEMENT COMPANY (Old Structure) EXHIBIT 6.B : HAIPHONG CEMENT COMPANY (New Structure) EXHIBIT 7.A : BALANCE SHEET (December 31, 1999) EXHIBIT 7.B : INCOME STATEMENT (Year 1999) EXHIBIT : GEOGRAPHICAL DISTANCES (Between Hai Phong and consuming markets) 44 EXHIBIT 5: HPCC’S DISTRIBUTION OF LABOR FORCE Positions A Managerial staffs - Old factory New factory 100 47 Manager 1 - Vice Managers 3 - Chief Accountant 1 - Head of department 54 22 - Head of manufacturing unit/workshop 40 20 B Divisions 320 98 - Production technology 12 - Laboratory and product quality assurance 45 10 - Electrical engineering 15 4 - Production safety 15 - Marketing 30 - Materials and warehouses 12 - Human resource 14 - Planning 20 - Finance and managerial accounting 28 10 - Staff 128 50 2210 610 10 C Manufacturing Units - Mining (Limestone exploitation) 350 140 - Major production process 650 200 - Grinding and packaging 190 60 - Engineering 245 40 - Electricity 90 40 - Trucking and machinery maintenance 80 30 - Water treatment and compressed gas 60 20 - Transportation 450 60 - Warehousing 95 20 A+B+C 2630 755 Intermediaries and retailing system 570 300 Total 3200 1055 D 45 EXHIBIT 6.A HAIPHONG CEMENT COMPANY (Old Structure) MANAGER Vice manager of the mine Trang Kenh Limestone Exploiting Enterprise Vice manager & Head of New Project Management Vice manager of Manufacturing Planning Electrical Mechanics Production Allocation Management Board New plant project Stone Crushing Kiln/ Calcining Coal Grinding Cement Grinding and Packaging Accounting HRM Material Purchasing Basic Construction Inspection Vice manager of Technology and Environment Production Safety Assurance Materials-Equipment Management Production Technology Production Quality Assurance Materials Warehouse Product Warehouse Mechanical Engineering Security Dynamics Medical Care Assembly Kindergarten Construction Reparation Sales Dep Package Production Thai Binh Subsidiary 46 Transportation & Maintenance Guest House Office EXHIBIT 6.B HAIPHONG CEMENT COMPANY (New Structure) MANAGER Vice Manager of Sales Marketing Vice Manager of Manufacturing Vice Manager of Mechanics Production Technology & Central Control Production Safety Assurance Materials & Warehouses Transportatio n Unit Agents Electrical Mechanics Laboratory & Product Quality Assurance Mechanical Plant Mining Workshop Electricity and Automation Plant Major Manufacturing Water Treatment & Compressed Gas Units/Divisions Trucks & Machines Maintenance 47 Planning Dep HRM Dep Office Chief Accountant Financial Accounting Dep EXHIBIT 7.A BALANCE SHEET Hai Phong Cement Company 31-Dec-99 (Unit: USD) Assets A Current Assets Cash Accounts receivable Inventories + Materials + Work-in-process + Finished goods Others Liabilities and Equity A Liabilities Short-term loans Accounts payable Customer deposit Tax payable Wage payable Others Long-term debt 9,000,000 1,000,000 2,000,000 5,800,000 4,500,000 700,000 600,000 200,000 11,800,000 4,350,000 1,450,000 18,000 72,000 410,000 700,000 4,800,000 B Fixed assets and long-term investments Fixed assets + Visible assets Initial value Accummulated depreciation + Invisible assets Financial investments Construction in process 15,000,000 B Owner Equity 12,200,000 9,880,000 9,830,000 19,480,000 -9,650,000 50,000 36,000 5,084,000 Source of capital and funds Source of expenditures 10,360,000 1,840,000 Total Assets 24,000,000 Total Liabilities and Equity 24,000,000 48 EXHIBIT 7.B INCOME STATEMENT Hai Phong Cement Company For the year ended Dec 31, 1999 (Unit: USD) Items Value Net sales Cost of goods sold Gross profit Selling expenses Corporate managerial overheads Net profit from operating activities 22,500,000 -19,000,000 2,500,000 -1,450,000 -2,000,000 50,000 Income from financial activities Outcome for financial activities Net profit from financial activities 34000 -32000 2000 Irregular incomes (Fixed asstes liquidation) Irregular outcomes (Selling substandard materials) Irregular net profit 540000 -120000 420000 Profit before tax Income tax (32%) Net profit after tax 472,000 -151000 321,000 49 EXHIBIT GEOGRAPHICAL CONSUMING MARKETS Market Distance from Hai Phong (km) 80 100 700-800 140 360 370 Thai Binh Hanoi Middle Area Son Tay Lao Cai Ha Giang Ha Giang Lao Cai Son Tay Hai Phong Hanoi Thai Binh Middle Area 50 Middle Area ... was the only producer of cement in Vietnam, dominating the domestic cement market Then, Vietnam cement industry also took over Ha Tien, Bim Son, and Hoang Thach factories HPCC, together with these... residence II THE VIETNAM CEMENT INDUSTRY – COMPETITION AND CONSUMPTION Prior to 1995, the Vietnam cement industry had only two kinds of cement manufacturing models, The first one were high-volume-rotary... Grey Cement, White Cement, and Dry Mortar The White Cement consists of two brands: Elephant and Tiger While the former is used for decorative works, particularly terrazzo and washed sand, the