Mining Strategy: Driving Value Through Supply Chain Integration

Now that you have got your top priorities sorted, what else can you do to maximize revenue? How about we take a look at the system as a whole? Here’s where we see how our supply chain can make a big difference. 

The link between supply chain practices and procedures and financial performance has long been a well-established phenomenon in many industries, including the mining industry. Mining industry supply chains are unique in that they have greater operational complexity than a typical consumer goods supply chain. This complexity can stem from the need to share infrastructure between producers and logistics managers, or from the need to integrate functions of marketing, port, rail, and mine operations within a single owner-operator supply chain.

Buoyant markets can cause a rapid increase in profits and workload, and while these are generally a very good thing, adjusting to such rapid growth can cause problems in the supply chain. How do companies adjust to and compensate for a sudden increase in demand? And after the demand has died down, how do they readjust to more normal market conditions?

While most mine companies focus almost exclusively on achieving operational efficiency at mine sites, the more innovative companies are looking at their entire supply chain, end-to-end, and optimizing performance all across the board. This focus on improving performance across the entire chain helps maximize profits and efficiency. A more efficient end-to-end supply chain leads to greater revenue, reduced working capital, and reduced demurrage costs.

High performers in the mining industry use a variety of strategies to achieve those goals. This post will focus on four methods employed by top performers:

  1. Defining the right supply chain operating model
  2. Integration between supply chain partners
  3. Supply chain planning and forecasting
  4. Building and improving workforce expertise through training

Defining the right supply chain model can be employed to optimize different system bottlenecks. These models will vary based on geographic location and type of output produced by the mine site. For example, if the main bottleneck occurs at the port of departure for the products of the mine, a dedicated stockpile model may be useful. This aims to maintain a continuous buffer of inventory at the port to produce maximum efficiency and predictability of shipping schedules.  If the port itself is not the bottleneck, then a push may be made toward maximizing the supply of product that makes its way from the mine site to the port every day. This method of “pushing” a consistent level to port each day is known as the even railings operating model.

Integration with supply chain partners is key in the mining industry due to the operational complexity – from mine to rail to port to customer. Even if each individual component of a chain is optimized, if the chain as a whole does not communicate or work cohesively together, the chain as a whole will be inefficient and drag revenues down. Integration must take place for the entire extent of the supply chain. If even one piece is left out, the problem could complicate and snowball as operations proceed, so that what started as a small piece of the chain becomes a huge source of lost time and revenue. There are a few successful examples of integration in high performing mining companies.

First, it is important to always be improving communication along the chain. Information should be accessible and highly visible to all components in the supply chain to facilitate collaboration and easy decision making between the chain partners. Collaboration must take place at all stages during the planning process to ensure there is a single plan driving decisions and behavior across the entire chain. This is applicable to external as well as internal partnerships.

Second, the establishment of a basic, common set of metrics for performance evaluation is another component to integration. If all partners operate from the same baseline of performance goals, decision making and communication as a whole will improve drastically.

The average mining supply chain requires constant attention to planning, in order to maximize performance and revenue. Supply chain planning aims to align the level of demand, production, and capacity to ensure that the demand for product can be fulfilled at the optimal cost. Concentrating on different objects short, medium, and long-term contribute to high performance.

Short-term: focus should be on preparing a robust schedule of rail, port, and mine activities. Adhering to a strict, tight schedule will ensure that there is minimal down-time during operations.

Medium-term: focus should be on maximizing capacity by coordinating maintenance activities across the supply chain. This should be a proactive view which takes into consideration the expected level of demand and production. For export supply chains, one must make sure that the level of shipping arrivals aligns with the available supply chain capacity at all times.

Long-term: this focuses on using robust demand forecasts to drive capital investment decisions all along the supply chain. This is where supply chain integration will serve you well. Collaboration allows consensus view of the aggregate level of demand on each piece of the chain, insuring that the right infrastructure decisions will be made.

Finally, top performing mining companies should focus on building the expertise of their people through quality training. The people and culture within the organization arguably has the strongest effect on supply chain management. The mining industry is large and geographically dispersed, and from these differences various problems can arise. Supply chain training helps to compensate and negate many of these differences by providing a solid baseline from which the company as a whole can operate. Supply chain training can be done internally or outsourced to consulting companies.

Strong financial performance and buoyant market conditions have occurred many times over the recent years. It is an opportune time for mining businesses to pursue improvements in supply chain performance. Investment in supply chain performance will position a mining business for the future, as well as taking care of many problems and bottlenecks in the present.

 

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