The project is the first municipal solid waste (MSW) incineration kiln in the world.  The [...]]]> China’s Tongling Conch unveiled a new technology earlier this year that allows for the reduction of landfills while maintaining plant productiveness.  The Tongling Conch Municipal Garbage Incineration Demonstration Project is under construction in the mountain village of Tongling in the Anhui province.

The project is the first municipal solid waste (MSW) incineration kiln in the world.  The plant is planned to be built in two phases, with the first already completed.  The completed section is already processing approximately 250 tons of garbage each day.  The second phase will be able to handle roughly the same amount of garbage as the first.  The MSW is initially sent into a pre-treatment plant that vaporizes it.  The gases are pumped into a new type of rotary kiln for further burning while the un-burnt solids are used as additives in clinker material and raw materials.

Concerns have been raised over emissions of odors into the city’s atmosphere, but Tongling has provided a solution.  They sealed the pre-treatment plant and use negative pressure to pump the combusted gases into the kiln.  The project, costing approximately $36.3 million, has already allowed city officials to close the local landfill.  Li Quanfeng, Tongling Cement’s general manager, said, “This is an effective energy conservation project that benefits the local residents immensely.”

With this new technology, China can face their problem of overcrowded landfills and subsequent environmental difficulties.  The Chinese have once again shown their determination to lead the way in green expertise.

Ours has been a long journey, starting with a melting pot of equipment manufacturers and cement producers who had close ties, progressing through a period of globalization. We watched the Chinese enter the market and examined the response. Today we close our story by taking a final [...]]]> Part five – A new reality and the way forward

Ours has been a long journey, starting with a melting pot of equipment manufacturers and cement producers who had close ties, progressing through a period of globalization. We watched the Chinese enter the market and examined the response. Today we close our story by taking a final look at the realities of the current market and describing a way forward.

As the hangover from the go-go boom period of the last several years settles in for a nice long stay, where are we? What is the status of he relationships between producers and suppliers? How do cement producers choose partners for strategic projects from among the surviving suppliers? How do the equipment suppliers define the value they provide to their customers?

Here are the facts:

First, the majority of the equipment from any supplier is manufactured in China, India or other low cost country. This new reality makes differentiation based on expected quality of delivered equipment a matter of fantasy, supported only by the perception that the higher level of expertise in the traditional OEM’s results in improved specifications and greater quality control, which leads to…

Second, the ties between the engineers and factory floors are, if not lost completely, tenuous at best. The sole exception to this might be, ironically, the Chinese suppliers who maintain their “own” manufacturing capability. In the high stakes world of cost containment and control, it is far too commercially dangerous to allow engineers to interact directly with the “vendor” (even the term is somewhat derogatory). And besides…

Third, as the western OEM’s have increased capability overseas, they have shed experience and neglected succession in their centers of experience. This is especially true in this time of contraction where cuts have been so deep in North America and Europe that it is an exercise in imagination to believe that core competencies have not been lost. While R&D may still (for now) remain the domain of western engineers, the detailed design and project engineering is widely outsourced. The people performing the bulk of the work have no relationships to the customer in general or the plant personnel in particular. Many of them will never see the plant they helped design. It is difficult to make a distinction in real terms between this situation and working with a Chinese supplier.

Cement producers tomorrow will be working with an equipment supplier who, for all intents and purposes, doesn’t know them. Their engineers have not, except in rare cases, shared a country, let alone an office building. They will be purchasing equipment that is manufactured for the lowest possible cost, by people who have never seen the drawings before and will never speak to the engineer who designed the part. These manufacturers do not know the engineer’s intent, nor do they have any real concept of the duty the part will be asked to perform. Cement producers will sit in project meetings across from smiling faces who, while perhaps knowledgeable and experienced, actually have very little control over the work being performed on the project.

Given this new reality, large cement producers will increasingly take their decision on the basis of cost. They can now feel even more confident in their believe that they have more expertise than the suppliers (they have believed this for a long time anyway). Small and independent producers have a more difficult decision. They do not have all the required expertise and need to rely on a network of suppliers and designers that they can trust to serve their needs. While they may be enticed by the lure of low prices, they may not be comfortable with the responsibility that comes along with the decision to work with a Chinese supplier.

There is a place for a new project partner in this new reality. An independent party with technical breadth and depth in cement process and equipment design, knowledge of the local market and competitive environment, the ability to navigate the regulatory maze, a focus on quality as a process, not an afterthought, and most importantly a desire to create win-win relationships for everyone involved in a project. BridgeGap Engineering is an organization of cement professionals from across the matrix of producers, suppliers and manufacturers, with relationships across companies and across continents. We’re here to bridge the communication gaps, translate expectations into reality, and treat your project as a partnership instead of a pricetag. We’re here to provide cement engineering solutions for the Americas from arround the globe.

To this point, everything we’ve discussed in this series has been a trip down memory lane. Today we start to examine the latest changes, and where things stand today.

Western equipment suppliers had already been in a race to remain competitive, and cost reduction was a major focus for the reasons described in Part [...]]]> Part Four: The response

To this point, everything we’ve discussed in this series has been a trip down memory lane. Today we start to examine the latest changes, and where things stand today.

Western equipment suppliers had already been in a race to remain competitive, and cost reduction was a major focus for the reasons described in Part two of this essay. With the threat of Chinese competition on the horizon this accelerated rapidly. While few suppliers felt they could compete with the Chinese on a cost basis alone, it was clear that costs would have to be reduced.

As we discussed, the suppliers had already outsourced the vast majority of their manufacturing, mostly to former eastern bloc countries and other well established low cost manufacturing centers. Soon China as a low cost supplier was part of the strategy for everyone. After all, if Chinese manufacturers had the capability to produce equipment for local supply, they could produce it for the western OEM’s as well. And after all, western designs and specifications were superior and the OEM’s depth of experience was so great that there seemed very little risk in using Chinese factories. In fact the greatest risk feared by most boards of directors was theft of their intellectual property, and the lure of low cost proved too tantalizing to resist.

With very few exceptions, the entire process was treated as a pure cost savings exercise, the stuff of accountant’s dreams. “We’ll just do what we’ve always done, except we’ll do it in China and it will cost less.” Spreadsheets and charts with circles and arrows and PowerPoint presentations proved it to be so. Everything had been considered, shipping costs and risks, intellectual property issues, even additional costs resulting from expected ‘minor’ quality hiccups.

Engineering was approached in a different way, at least initially. The Asian boom and bust cycle and the consolidation of the previous period had reduced the number of suppliers, and these suppliers had emerged with a lean workforce. The more visionary suppliers first looked to low cost engineering centers as a way for them to increase their capacity while maintaining the highest skill sets and flexibility in the western centers. The “experts” would keep the most critical activities in their hands, working together with the customers to provide the highest level of service and the most appropriate solutions. At the same time, they would guide and oversee the activities of skilled but inexperienced engineers and designers in far away lands to take care of the detail work.

Teething pains for these pioneers were not insignificant. Communications technology, while improving daily, was not a substitute for personal relationships and side by side working. Language and cultural barriers had to be addressed, quality was not what was expected and required significant rework in the west. Still, the low cost engineering centers improved and the engineers in the west learned how to work effectively in this new framework.

These “western” engineering centers became the OEM’s key differentiators (aside from technology) between one another, and ultimately in the face of Chinese competition. These were the centers of customer service and innovation, filled with people who could build and maintain relationships with corporate and plant people and stay in touch with their needs. Larger suppliers could boast of fully qualified and capable engineering centers on multiple continents ready to serve the cement producers’ needs.

But for many, engineering was not a differentiator, but another cost to be minimized. Armed with the evidence that SOME outsourcing had been beneficial to the company, allowing more work to be done at a lower cost, it only stood to reason that MORE outsourcing would lead to more benefit. They could even allow themselves to dream of COMPLETE outsourcing, if only engineering could be brought to do things in a more standard, easily replicated way!

The push to standardize design had very little to do with providing the customer with the solution he wanted, and much more to do with providing the solution with the lowest internal cost for the supplier. This is not to say that there are not many valid end user benefits to standardized solutions such as shorter engineering lead times, potential reduced initial and continuing costs and possibilities for improved quality through repetition. All of these factors helped push the concept in the most recent boom. All these factors ALSO helped erode the remaining differentiation between the equipment suppliers on the basis of customized or optimized solutions. Standard solutions moved the traditional OEM’s closer to the Chinese competitors, rather then creating additional differentiation.

Still the strategy was successful. Such was the demand for projects that it was possible to sell standard solutions AND maintain a price premium for the “western expertise” of the traditional OEM’s. But this party would not last forever.

What followed was a near complete breakdown of the “system” that had served the industry for so long. The quality of engineering from the low cost centers was not suitable for the project environment in the Americas or Europe. Project overruns soared and fingers were pointed. Chinese manufacturers, bulging with record levels of business from everywhere, failed to uphold quality to the expectations of the suppliers and had no interest in entertaining any thoughts of re-work. Schedules slipped, costs rose, inferior products shipped, and fingers were pointed. the promise of the traditional OEM’s, seamless and integrated project management and execution, on time and on cost, failed to materialize. Projects were considered successful if the parties involved “only” lost their contingency.

The final installment of this series is next, and there we will look at the new realities of the cement project business. Join us for  Part five – A new reality and the way forward.

Previously we examined the cement industry and the relationship between all the players as it existed for generations, and then looked at how it began to change in the face of globalization. Today our little story about differentiation and changes in the marketplace is going to turn its focus on the relatively [...]]]> Part Three: Enter The Dragon

Previously we examined the cement industry and the relationship between all the players as it existed for generations, and then looked at how it began to change in the face of globalization. Today our little story about differentiation and changes in the marketplace is going to turn its focus on the relatively recent (last decade) impact of the entrance of Chinese equipment suppliers into “western” markets. Certainly no other single change in the environment has had such a rapid or significant influence, one that is sure to make itself felt for the next decade and beyond.

While the cement producers consolidated and grew, and the equipment suppliers fought to remain competitive, the world’s growth markets continuously shifted. Rapid development in the Middle East, Far east as well as India, Latin America and other areas of the world gave the international producers plenty of opportunities for growth and gave the equipment suppliers plenty of opportunities to hone their points of differentiation.

From the outside it might have been easy to believe that China was sleeping from the time Nixon visited until the 1990′s. After all, other than swamping the market with low cost, low margin textiles and cheap disposable products, what impact had the mighty Chinese industrial machine had on the western world? Conventional consumer wisdom told us that the Chinese produced very inexpensive but far inferior copies of goods from “developed” nations. China was equal to “cheap”, and sometimes “good enough”, but never “world class”.

Careful observation revealed a much different picture. The Chinese were manufacturing world class products, they were just doing it for western companies. They were also learning. They were becoming the world’s supplier while focusing their own brands within the nations boarders. True, initial offerings of Chinese branded products left much to be desired in terms of quality, but from the onset the Chinese have demonstrated a nearly bottomless capacity to get better, and to do it quickly.

China’s politics made it nearly impossible to see the cement picture inside the countries borders. Everyone knew there was a lot of cement being produced. What news there was revealed giant hydro electric projects and major infrastructure work, consuming vast amounts of cement. Yet most of the OEM’s had very little contact with Chinese equipment suppliers since the early 1980′s, when they supplied them with a few pieces of equipment and some licenses for old technology. Until about five years ago, cement manufacturers and equipment suppliers alike expressed their market share in terms of “outside China”.

Producers entered and suppliers “re”-entered the Chinese market at approximately the same time. Lafarge and other large producers invested in Chinese cement production. As the licensed technology of the 70′s began to create obstacles to growth, Chinese producers did purchase some new equipment and technologies from western suppliers.

The Chinese equipment suppliers own technology had grown significantly in the period where the gates were closed. Suddenly there was an awareness that these suppliers were capable of manufacturing and supplying a complete facility on the scale that was being demanded by the large cement producers. At first, China’s seeming unquenchable thirst for cement fully occupied the local suppliers, but competition outside China was coming, and coming fast, and everyone knew it.

And come it did. Predictably at first, Chinese equipment suppliers focused on the markets most like China. Markets with a focus on initial cost, less ambitious technology aspirations, large – low cost labor forces, and friendly regulatory environments. These toeholds proved their capability and, at the same time, provided fodder to the established OEM’s. The party line was that Chinese supplied plants were inexpensive because they lacked state of the art technologies, they took longer to erect, had higher operating costs and lower reliability. But they made cement, and in turn made profits for the owners. And they got better.

These early projects did expose the challenges of working with an unfamiliar supplier and without established relationships. Serious gaps between expectations and reality surfaced. Project management issues plagued the process. Quality of supply and suitability of the equipment to the conditions were questionable, and communications were flawed. But the plants were ultimately built. And the savings, while not what was originally expected, were nevertheless real. And they got better.

The cement producers who had invested in Chinese facilities were the first of the majors to take the leap of faith. After all, their facilities INSIDE China were built with Chinese equipment, and running profitably. And let us not forget thet they were already operating from a belief that they were fully capable of completely controlling the design of the cement plant and only needed the OEM’s to provide the labor (and take the risk). They began to consider Chinese supply for more demanding markets, and higher profile projects.

As cement demand boomed, more opportunities were available for the Chinese suppliers. The OEM’s were at (or over) capacity and the market demanded more projects. Equipment suppliers saw their revenues soar, but there was danger lurking in the shadows. In three short years, the market share of Chinese equipment suppliers outside China went from non existent to about 30% of sold capacity, eclipsing all but the very largest of the OEM’s. A rising tide lifts all ships, but this was a disturbing development for the equipment suppliers, and one that could not be ignored.

In the next article in this series we will look at how the cement producers and suppliers responded to the China Factor. Part four – The response