There are stranger places to see
the latest in complexity theory in action,
but delivering cement in Mexico
is a pretty good start.
By Peter Katel
This article appears with the kind permission of Wired Magazine,
where this article was first published in May 1997.
Here's how the cement business worked in Mexico's second-largest city, Guadalajara, only a couple of years ago:
A builder telephoned in an order a day or so ahead, two days in advance for big jobs. He specified a time, knowing it was basically theoretical, depending on an endless array of variables - weather, traffic, a missing receipt, the number of other orders the plant had to try to fill. Trucks got lost - up to 140 might be on the road at a time - walkie-talkies conked out, ill-financed projects shut down with their foundations half poured.
Cemex - with satellite links, expert systems, and a computer in every truck - is confounding old ideas about the lines that separate the world's info haves and have-nots.
Penalties or not, on delivery day half of the customers canceled or rescheduled their orders. The bottom line: tons of costly cement rumbling around town with nowhere to go, even as builders were lucky to get delivery the right day, let alone the right hour. "You tried to stay on top, but something would always get by," recalls Alejandro Contreras, a veteran dispatcher with the local subsidiary of Cementos Mexicanos - Cemex for short. "When the phone rang, it was usually someone who was upset. You had to sit there and take it - let the customer blow off steam - then try to negotiate a solution. Hijole! Oh, man! When the phone rang, sometimes I wanted to just not answer it."
Here's how things worked in the same city one afternoon this March:
In an air-conditioned operations room on the top floor of a two-story office, Contreras and Oscar Suárez are manning their stations. The ambience is ops-room generic, with five screens - including a 19-incher with a glowing map of the city - and half a dozen phone sets.
It's half past twelve, and Contreras is fielding a request: a load of ready mix in 40 minutes for a new gas station. No hay problema. A satellite-linked GPS system pinpoints three Cemex trucks on the road, one of them right in range. Still talking, Contreras does a quick check on the customer's billing status. Then he taps a few keys, the instructions go out to the onboard computer in a truck near the site, and the concrete is on its way.
Over on Suárez's side, Alarma flashes onscreen in white letters: a delivery is due in 30 minutes, but the customer hasn't called to confirm. Suárez glances at the city map, then goes back to some paperwork: If the builder calls, there's a truck available. If he doesn't, the plant will automatically be notified to cut back the rest of the day's production. Any dispute? The customer's welcome to come by and listen to a Teac digital recorder play back not only his original phone conversations with the dispatchers, but - like a cockpit voice recorder - everything said in the operations room. On the other hand, if a truck is more than 20 minutes late, it's 20 pesos (about US$2.50) off for each cubic meter, about a 20 percent discount. To promote the offer, Cemex has even printed miniature pizza boxes labeled with a slogan that pokes a little fun at the local Domino's franchise: "Now, the concrete is faster than the pizza."
There are probably stranger places to see the latest in complexity theory in action, but delivering cement in Mexico is a pretty good start. Cemex is a company on a high tech roll that has carried it in scarcely a decade from a sleepy perch in northern Mexico to its place as the world's third-largest cement company. Its 20,000-plus people, 486 plants, thousands of vehicles, and fleet of freight ships move more than 50 million tons of the stuff annually in 60 countries - including places that make Guadalajara look like Geneva. And in doing so, Cemex is confounding ideas about the lines that supposedly separate the info haves of the world from people like Alejandro Contreras and Oscar Suárez.
In parts of the world where complexity - if not outright chaos - is the defining characteristic, the rewards for creating order can be great.
Cemex has its First World operations - through astute acquisitions, it's now Spain's top cement supplier and has a US subsidiary based in New Braunfels, Texas. But it specializes in places that lack highly developed road systems, solid telephone networks, and legions of well-educated workers - where surviving in the construction business is like keeping one's head above water in a raging sea. Where equipment breaks down, workers can't get to the site, and exchange-rate fluctuations jack up supply costs. Where competing becomes a matter of showing customers that you can save them from uncertainty. Where reliable information has real scarcity value.
A lot of that is Information Technology 101. A data network that uses a combination of local and international carriers, plus Cemex's own satellite system, hooks up every plant and office, providing streams of real-time data on everything from daily sales and output to truck oil change schedules. Technical flying squads get newly acquired subsidiaries online in only a few months. There's a private satellite TV network for in house training and videoconferencing. A local call from virtually anywhere on the planet hooks traveling executives directly into the companywide international phone system.
But what has happened in the Guadalajara control room goes past all that. What Cemex is looking for now are ways to adapt global technology to the developing world's essentially limitless range of local problems. Complexity theory is one answer - systems that take uncertainty for granted and allow solutions to evolve, rather than trying to rigidly engineer them. Ad hoc options in place of schedules. On-the-spot decisionmaking instead of hierarchies. Those kinds of strategies are not unknown in the mainstream corporate world - companies like GM and Citicorp use complexity-based systems for everything from streamlining manufacturing to keeping financial portfolios abreast of market waves. Cemex's leap is to apply them to parts of the world where complexity - if not outright chaos - is the defining characteristic. And where the rewards for creating order can be great.
Cemex executives will dutifully tell you that the idea of going high tech came from chair and CEO Lorenzo Zambrano, a 53-year-old Stanford MBA whose grandfather consolidated Cemex as a modern company in the 1920s. Company lore portrays Zambrano as a cyber whiz who goes through his LotusNotes email while he flies, then jacks in his IBM ThinkPad to check on his far-flung operations wherever he touches down.
In fact, Cemex had basically no choice but to go global - and fast. Even before NAFTA applied the coup de grâce three years ago, Mexico's centuries-old protectionist walls were crumbling, exposing its comfortable old oligopolies to sharp-edged foreign competitors. Added to that was hair-raising economic instability - the kind of roller coaster that, in 1995, sent Cemex's home-market sales plummeting 50 percent. Fortunately by then, more than 60 percent of the company's revenues were coming from abroad, including Europe, the Caribbean, and South America. Any doubts about the wisdom of spreading the risk through globalization fell away.
The problem was keeping control, especially in a company used to being run on a short leash from its Monterrey headquarters. "Lorenzo is one of those people who sits up at the top and believes if he screams loud enough he'll get results," says Kenneth Massey, a 55-year-old American who began his career south of the border two decades ago as head of the University of Monterrey's Department of Information Sciences, later jumped to private industry, and eventually joined Cemex in 1992. "He was getting the idea that he couldn't shout much louder and that he couldn't believe everything people were telling him."
Massey and Zambrano were well aware information technology was the only way to keep control of a company with global horizons and revenues growing 20-plus percent a year. To keep growing in a commodity business, where you compete on price and service, computers had to be deployed as more than industrial-strength calculators. But Zambrano also homed in on one of Massey's pet ideas: the importance of a system that enables employees to make - and keep - commitments. "He asked me what kind of promise I was ready to make. I said, 'I'll return my salary and waive any indemnization, and I'll sign that in blood.' He said, 'You don't have to sign anything in blood. Pero yo tengo larga memoria. (But I have a long memory).'"
Shortly after Massey joined Cemex, he took a dozen company executives on an eye-popping trip to the Memphis headquarters of another company facing delivery problems: FedEx. There, along with the flashy logistics, was a deeper message: the value of delivering perfect service, what came to be known at Cemex as "impeccability."
They also paid a visit to what seemed to be an odder choice: the fire ambulance division of Houston's 911 operation. "We were amazed at how quiet it was," says Homero Resendez Saleh, a slender, baby-faced computer scientist who heads Cemex's Center for Business Processes. "We wondered, 'How can they be dealing with emergencies?' The answer was that what was an emergency for us was routine for them." Lessons? The system got the necessary information from people quickly. It pinpointed available resources in real time. And it gave operators on the spot - not distant managers - the authority to respond instantly.
Massey, who left Cemex amicably last year to go into private consulting, also expanded on the idea he had broached with Zambrano: the paramount importance of commitments as a way to cut through chaos and uncertainty. To back up that concept, he brought in Business Design Associates, an Alameda, California-based consulting firm whose ideas were starting to circulate through the business-process subculture. BDA's Chilean-born founder, Fernando Flores, has the perfect background for offsetting fears of yanqui high-handedness: the economics minister in Salvador Allende's ill-fated Socialist government at age 30, he spent three years in a military prison, then went into exile, ending up pursuing a self-designed PhD in management, linguistics, and philosophy at UC Berkeley. The core of Flores's message: successful systems are driven by loops of people working to fulfill commitments - say, getting a truckload of ready-mix concrete to a certain building site at 1:35 p.m.
"No machine can make commitments," Flores says. "Only a free man can make commitments." And one with a clear picture of what's going on.
For all the money Cemex has spent on information technology - an estimated 1 percent of its US$3 billion annual revenue - the first thing its executives want to say is that none of this is really about 19-inch monitors or digitized truck schedules. Raul Prieto de la Fuente, part of the company's internal consulting branch, even disses computers as " fierros." Simply translated, it means "hardware," but the word is more archaic - a term you'd use for horseshoes or pipes or guns. The point made is that the Guadalajara ops center's machines might as well be a pile of rusted-out filing cabinets for all the importance that Cemex's philosopher-engineers attach to them when they are deep into what they call "the conversation."
Cemex's InfoWarriors radiate the sort of intellectual energy and engagement that one expects from scientists or university professors or political activists.
In one guise or another, the conversation - an ongoing process of top-to bottom self-examination - is standard-issue late-20th-century consultant-speak. But the idea has clearly struck an eager chord with Cemex's cadre of information warriors. Indeed, sitting around a table at one of Guadalajara's power-breakfast haunts, Prieto de la Fuente and his colleagues radiate the sort of intellectual energy and engagement that one expects from scientists or university professors or political activists.
"Conversations," Prieto de la Fuente tosses out, "are where things are invented." I look at him quizzically. "People conversing about what they do and what they can do better. That's how you find out where you need to focus your efforts."
Francisco Pérez Madero, operations manager in Guadalajara, chimes in: "We had six to eight months of conversations. We realized that we had to reinterpret what we were doing." Resendez adds, "We started by asking, What is it we want?" Prieto de la Fuente says, "We were searching for anomalies and examining our conventional wisdom: 'We have to schedule deliveries one day ahead of time.' Why? 'Because that's the way you do it.'"
Ask a Mexican to pick a likely city for innovation and Guadalajara won't be the first choice. Perhaps Mexico City, the country's power center, or Monterrey, home to Cemex and a host of other powerful corporations - places embodying capitalist force and state might. As for Guadalajara and the surrounding state of Jalisco, they are, by Mexican law, the source of all tequila.
But there was another reason Guadalajara was the perfect laboratory for Cemex. Business is down 60 percent since the '94 crash. Some 50,000 new houses sit empty. The 140-truck fleet Cemex once had on the road has shrunk to 20. In this climate, every customer and every order counts. But if a radical new project goes horribly wrong, it's not a company killer.
The mission in Guadalajara was to build a system that could surf the complexity by making each ready-mix truck as independent as possible - in effect, an autonomous agent cruising the city, waiting for orders. Instead of stationing an order taker at each plant, Cemex would have just one central ops room for the whole city. Most important, instead of struggling hopelessly to keep to a fixed schedule, the goal would be to keep enough options open to handle any likely request. Says Massey: "If I can predict where the orders are coming from and can maintain random distribution of trucks, I should always be able to have one close to where it's needed. If I can have a chaotic distribution of vehicles, then I'm really trying not to control chaos, but to use it to my advantage."
The foundation for what Cemex calls its Sincronización Dinámica de Operaciones is a set of business-process software and expert programs painstakingly gleaned by a team of Cemex specialists during nearly a year of meetings - Suárez counted 40 in all - in which the Guadalajara crew were grilled on the realities of their jobs: Thursdays and Fridays are busier because builders like to let concrete set over a weekend. The summertime's afternoon rains mean more morning deliveries. "You throw linear programming out the window," says Massey. "The time it takes to go from point A to point B is a function of experience. What you're putting together is a world of judgments, not a world of facts."
Fed with streams of day-to-day data - customer orders, production, traffic problems, roadwork in progress, even changing weather conditions - the result is what software designers call an adaptive system, one that actually gets smarter the longer it runs. Operating over a PC-based LAN, its only really unusual fierros are the book-sized onboard computers and GPS relays that sit by each driver. The machines, made by the California-based firm Distributed Networks, have a screen for ops center messages and customized buttons: "Leaving plant" or "Arrived at site," plus a laconic "Customer not ready." The data meshes seamlessly with the rest of the system. "If a route normally takes 15 minutes, and after 15 minutes the driver isn't there, we'll get an alarm," says Suárez.
The result is three integrated systems: one for taking orders, another for checking a customer's financial profile, and the last for tracking software the ops room dispatchers use. And the whole thing is accessible from any of the 30 PCs spread throughout the Guadalajara headquarters - sales, accounting, maintenance - as well as through Cemex's global WAN by any staffer armed with the right passwords.
Forget about paving paradise to put up a parking lot: in Chiapas, in Peru's squatter cities, in the open-sewer slums of Port-au-Prince, cement is the stuff of dreams.
Does it work? That is, does it work every day, in the field? Francisco "Paco" Rivera, a Cemex programmer and troubleshooter visiting the Guadalajara ops room, jacks in his IBM ThinkPad and calls up Cemex's South America network. In the first half of March, the company's low tech Venezuela operation made 771 deliveries, 34.4 percent on time. By contrast, in Guadalajara in March of last year - with the system barely six months old - 97.63 percent of 1,365 deliveries were on time, within 10 minutes of the promised hour. This year, with business creeping back toward normal and the number of deliveries doubled, the on-time percentage is even higher - 98.15 percent. And plans are already being made to expand the Guadalajara experiment to Monterrey and Mexico City.
Not everyone is entirely enthusiastic. Héctor Javiér Arenas Novoa, a grizzled driver and local union chief, says that if customers are happy, they order more concrete and everybody benefits, but some of the younger guys have complained: Why does the company have to know where I am every single minute? But as he waits for a new load in his air conditioned eight-wheeler, Arena Novoa makes it clear that he isn't about to call any strikes over that. The 16 Cemex trucks typically on the road in Guadalajara are already at least five fewer than would have been needed before. And for anyone who asks whether that's a good idea in a country where 40 percent of the breadwinners are jobless or barely working, the answer is blunt: If we're not competitive, some foreign corporation is going to come in and eat our lunch.
Hello, Ross Perot
Competition is the reality that Cemex's top people deal with from their perch in Monterrey. The city doesn't get extensive treatment in guidebooks; people visit Monterrey for business, not Kodak moments. It's not popular, either, among Mexico City's chattering class, for whom northern Mexico has always been viewed with suspicion as a sort of 51st US state run by corporate types who wish that the border were moved south. Such people do exist, but if any lurk in Cemex, they don't set the tone.
Gelacio Iñiguez Jáuregui, Cemex's vice president of information technology, is as polished as any Mexico City sophisticate - a product of an old-fashioned private school system that believes in turning out well-rounded leaders. A gourmet cook and a connoisseur of Colorado's ski slopes, he's spent his entire career designing and running information systems - always for Mexican-owned companies. Were Cemex swallowed up by a foreign competitor, he says, "you're opening up an opportunity for Mexicans to works for maquiladoras" - border-area assembly plants. "That's not what I want to do." It's something Ross Perot might keep in mind: free trade is a lot scarier south of the Rio Grande.
Iñiguez's idealism may sound odd in a business that, for First Worlders, conjures hard-hatted guys paving paradise to put up a parking lot. But in Cemex country, cement and concrete mean roads, hospitals, sewers, power plants, and water systems. In Chiapas, in Peru's squatter cities, in the open-sewer slums of Port-au-Prince, cement is the stuff of dreams.
A lot of Cemex's know-how originated north of the border, but in the transnational era now upon us, it's also clear the so-called developed world is losing its once-exclusive claim on innovation and efficiency. Cemex's phone net shames most global media companies. The self contained technologies that have been developed in Guadalajara will work in places where many First World companies would be scared to make a sales call. Who better, after all, to confront chaos and inefficiency than those who've grown up with it? "Most Europeans and Americans don't distinguish Chile from Chiapas," Flores says. "And yet in big companies, even in Germany - or Switzerland, where they have a reputation for punctuality and rules - they hire me, a Latin American. And you know what? They bring me for impeccability. That's a major transformation."
As PointCast headlines flutter by on his office monitor, Iñiguez talks about how in Mexico, fathers and children are more like partners these days. Only a couple of decades ago, he says, children didn't have real conversations with their fathers. Now, with kids often a step or two ahead in manipulating technology, parents and children are on a more equal footing. It would be tempting to sketch out a thesis about the decline of patriarchy in Latin America, but I'd had virtually the same conversation three weeks earlier with my oldest friend, a New York-born computer marketing executive with no Latin blood. "I'm like a pal to my kids," he mused.
But change is real, and if companies like Cemex are to stay in the game, they need to cultivate people other than the well-rounded private school graduates who run everything important in Mexico. Everybody knows that: In the Guadalajara ops room, both Oscar Suárez and Alejandro Contreras - thirtysomethings whose schooling stopped after high school - are getting university degrees at night on Cemex scholarships. At a ready mix plant a few miles away works Javiér Esparza, a 33-year-old who started out with Cemex changing oil. His schooling ended when he was 15. Now he's an integrated systems manager making sure that all trucks in Cemex's Pacific region are up-to-date in their maintenance schedule. As part of the deal, he's back in school too.
From ratcheting off oil pans to tapping a keyboard is not a bad career path. But something deeper is at work as well, centered on what William A. Orme Jr., a longtime American writer on Mexico, calls the "cult of the licenciado." Literally, the word means someone with a college degree. In practice, it signifies someone who can make things happen, usually from behind a desk. Traditionally, all information goes to the licenciado and all decisions come from him. Or don't, which is where the classic bureaucratic morass starts.
North of the border, the word "empowerment" may have lost some of its freshness, but in Mexico it still has the ring of a call to arms.
What Cemex is doing - giving employees the knowledge that they need and the authority to use it, to make and keep those commitments - turns that hoary old tradition upside down. Cemex people like to use the English word "empowerment." North of the border, this term may have lost some of its freshness, but in Mexico it still has the ring of a call to arms. People such as Suárez, Contreras, and Esparza may indeed someday become licenciados - but they already have the power to make real decisions, which is shocking enough.
So the revolution spreads, even to places as unlikely as the cement business in Mexico. Iñiguez, hardly a rabble-rouser, has the fervor of a permanent revolutionary. "IT" - he pronounces the letters in English - "that locks in business-as-usual is simply using new technology for old principles. Automation is not the essential point; the philosophy is not to try to control everything. What we do is an architecture of human styles of behavior. Of course, tomorrow someone could invent another conversation, one that could take us out of the running. So you have to learn how to make distinctions among conversations - and understand how the world is transforming itself."
A load of ready-mix, anyone?