Maintaining a cost effective balance is a challenge for any business in the present economic climate. The value of the Rand is a huge influence on any South African company trading internationally, while domestically, the rising cost of fuel puts a strain on margins.
For Plaaslike Boeredienste (Pty) Ltd (PBD), the trick has been to diversify but also to strategically locate its offices in such a manner that logistics costs become less of a headache.
The company is a renowned supplier of lime, and over a decade ago expanded to supply fertilizers to South Africa’s farmers. Whilst lime is readily available at the company’s mines, the fertilizer business has added a new dimension in regards to risk management, fluctuating commodity prices and import costs.
Wayne Degnan, General Manager, has worked for PBD for the past 7 years and has seen the business transform in that period:
“We are the largest supplier of lime in the country and we produce between 600,000 and 700,000 metric tonnes each year. Additionally we supply roughly 3 per cent of the country’s fertilizer, importing raw materials which are then processed and distributed. We have other smaller business interests in both properties and logistics, but the lime and fertilizer businesses are our primary focus,” he describes.
Headquartered in Vanderbijlpark, the company operates an open cast mine in Orkney (Orange Free State), Glaudina (North West) and Roedtan (Limpopo) and further lime reclamation sites in Middelburg (Mpumalanga), and Meyerton (Gauteng).
The Middelburg operation is a lime reclamation project linked to the local steel industry and involves the refinement of lime, crushing and purification processes.
Degnan says that the business remains privately owned and has come a long way since it was first launched:
“The business started back in 1969 when 2 brothers from the Cape Province – both involved in lime application and fertilizers went their separate ways. One of the brothers travelled north and ended up in Vanderbijlpark close to raw materials stream available at that time from nearby the steel industry which today is owned by the major steel producer ArcelorMittal.
“Back in those days PBD was involved in the application process and the supply of the raw material but the application became too capital and labour intensive requiring the business focus to change, so the business rationalised its focus to simply supplying lime and diversified into mining.
“Then over a decade ago we diversified into fertilizers. An independent operation originally started in the North West Province approached PBD in search of a supply stream of raw materials. After a while the venture was under financial and operational pressure requiring PBD to acquire and re-locate the business to the current day site of Vanderbijlpark, hence PBD’s entrance into chemical bulk blending process via a company trading as Greenlands Kunsmis in Vanderbiljpark.
“The fertilizer business remains successful but we have tended to keep a low profile in this market and are content with our present production levels of 60,000 metric tonnes per year,” he states.
Degnan explains that the company can sell up to 90,000 tonnes in a good year and whilst the capacity exists to produce up to 200,000 tonnes, the business prefers to concentrate on product and service, with quality a key driver.
Much of the demand and supply pressure is related to factors beyond PBD’s control – namely the weather. Both the fertilizer and lime interests are seasonal and demand is very much influenced by the farmers’ cash flow capabilities, which more often or not are controlled by rain or rather the lack of rain.
“To a degree the lime and fertilizer seasons complement each other; the farmers will plough their fields from May to July for liming and this will continue up to October. Fertilizer sales start in February but our main sales take place from May through to November.
“We are indirectly dependent on rainfall though and don’t know in June (when we typically place raw material orders) what the rainfall will be like in September (when farmers are placing their orders with us) – but even so we have to ensure we have sufficient stock.”
Whilst fertilizer by volume (60,000 metric tonnes) is significantly less than PBD’s lime production, it is a strong contributor to the consolidated bottom line, despite the significant costs of importing, supply chain and storage pressures and rigorous quality control processes that are required to run an effective fertilizer business.
“Lime is very much a logistics game and the price is effectively determined by the furthest point of delivery. We have established our offices so that each one will only supply customers within approximately a 300 kilometre circle – normally beyond this point it becomes uneconomical.”
At peak times of course it is vital that equipment and vehicles are running to full capacity and PBD has an extensive in-house preventative maintenance teams to maintain equipment and service agreement in place with truck suppliers, to ensure the fleet can deliver customer orders on time.
Operating to “make–to-order” standard also puts great demand on the company’s supply chain management – particularly given that the chemicals for the fertilizers come from all 4 corners of the world.
“Roughly 70 per cent of our fertilizer chemicals are imported and knowing where to look in the world for available chemicals of the right quality and how to complete the relevant import papers all takes time while it can take a further couple of months to receive a shipment.
“That means you have to carry sufficient stock to meet demand in the interim and this brings great pressure to bear on the stock carrying costs.”
The processing plants are highly automated and Degnan says that PBD has developed its own system which automatically measures quantities before the blending and packaging processes create 50 kilogram bags of fertilizer.
Quality control takes place before chemicals are loaded onto ships from as far afield as Chile, China, Germany and the Middle East – and further quality checks also take place once the raw materials arrive in Durban and finally on arrival at the factory in Vanderbijlpark.
“Quality is paramount,” comments Degnan, “and we operate to high standards. South Africa’s Agricultural Research Council monitors fertilizers and provides feedback to the industry – I am pleased to report that PBD has consistently remained free of deviations for the past 5 years.”
PBD continues to evolve and opened a new mine in Glaudina roughly 18 months ago, which started operations last June and according to Degnan is progressing well. About 3 years ago the company also invested to create its second blending plant which increased capacity for fertilizer production and helps to ensure the company can exceed service level demand in peak season. “The key element is then ensuring we have sufficient stock as we aim to deliver fertilizer to farmers within a 48 hour to 72 hour period which gives us an competitive edge.”
Whilst he says that the Fertilizer business is not growth motivated, Degnan is excited by the future which could include a new range of products shortly:
“We are looking at new fertilizer products; in particular there are coating agents we are developing with a local chemical manufacturer which can be used to create nitrogen inhibitor products. We are running a series of trials right now and we are awaiting the results which could see us launch our own brand.
“We are also examining trace element blending products and are currently reviewing a coating of trace elements which could also lead to new products.
“In the meantime we will continue to look at ways to streamline the business by working smarter.”