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Cement is a dry powder that creates concrete when

mixed with water and sand. People interact with concrete

every day. It is often the building material of
choice for sidewalks, curbs, basements, bridges, and
municipal pipes. Cement is manufactured at billiondollar
continuous-process plants by mining limestone,
crushing it, scorching it in a kiln, and then milling it again.
About 24 companies (CEMEX, Holcim, and Lafarge
are some of the biggest) manufacture cement at 90 U.S.
plants with the capacity to produce 110 million tons per
year. Plants serve tens of markets distributed across
multiple states. Companies regularly benchmark delivered
costs to understand whether their plants are cost
leaders or laggards.
Delivered-cost benchmarking studies typically subdivide
manufacturing and logistics costs into five parts:
fixed-bin, variable-bin, freight-to-terminal, terminal operating,
and freight-to-customer costs. These cost components
are estimated using different sources.
Fixed- and variable-bin costs represent the cost of
making a ton of cement and moving it to the plants storage
silos. They are the hardest to estimate. Fortunately,
the cement industry association PCA publishes key
data for every plant that features plant location, age,
capacity, technology, and fuel. Companies combine the
industry data, satellite imagery revealing quarry characteristics,
and news reports with the companys proprietary
plant-level financial data to develop their estimates
of competitors costs. The basic assumption is that
plants of similar size utilizing similar technologies and
raw- material inputs will have similar cost performance.
Logistics costs (including freight-to-terminal, terminal
operating, and freight-to-customer costs) are
much easier to accurately estimate. Cement companies
use common carriers to move their product by barge,
train, and truck transit modes. Freight pricing is competitive
on a per-mile basis by mode, meaning that the
companys per-ton-mile barge cost applies to the competition.
By combining the per-ton-mile cost with origindestination
distances, freight costs are easily calculated.
Terminal operating costs, the costs of operating barge
or rail terminals that store cement and transfer it to
trucks for local delivery, represent the smallest fraction
of total supply chain cost and typically vary little within
mode type. For example, most barge terminals cost
$10 per ton to run, whereas rail terminals are less expensive
and cost $5 per ton.
By combining all five estimated cost elements, the
company benchmarks its estimated relative cost position
by market. Using this data, strategists can identify
which of the companys plants are most exposed to volume
fluctuations, which are in greatest need of investment
or closure, which markets the company should
enter or exit, and which competitors are th