Against this backdrop, mining companies are under pressure to improve business processes, review IT solutions and prepare for the future. Investment cuts and staff reductions will not be enough for them to thrive into the future - there is also a desperate need for innovation and investment into technology to drive better productivity.
Mines may even need to rethink exactly what productivity means to them. McKinsey's report, 'Productivity in mining operations: Reversing the downward trend', points to a fundamental problem in the way that productivity is traditionally measured in the industry.
The way we've been measuring productivity isn't very good when it comes to actually improving productivity. Too many factors outside the control of mining companies get taken into account without enough focus on factors they can control and improve.
As a developer of enterprise software, IFS never tires of reminding companies that you can't improve what you can't measure. What McKinsey seems to be adding to this maxim is that if you can't improve it, you shouldn't focus on measuring it. A data-driven approach to operational and asset productivity, backed up with enterprise software systems that capture and analyse information in real time, gets the best results.
To help focus companies' efforts, McKinsey has proposed a new measure of productivity performance, the MineLens Productivity Index (MPI). The MPI measures the underlying productivity of mining companies, focusing on the total amount of material moved, and excludes extraneous factors such as ore grade, stripping ratio, or commodity prices.
McKinsey's analysis of its MPI figures are pretty shocking, finding that mining productivity globally has declined by 3.5% a year over the last decade. That's a 28% reduction in efficiency in digging up and moving each unit of material. Africa's mining productivity has declined 4.5% a year from 2004 to 2013.
Short-term improvements that come from aggressive cuts to operating and capital expenditure may not be a sustainable way to reverse this trend. McKinsey points to a need for mining companies to set their operations on the right course for high long-run productivity performance, recommending three areas of focus:
This is a massive opportunity for mining companies to gain more visibility into operational performance. It is also potentially a great way for them to free up people and resources as well as drive effective performance management. According to McKinsey: "This approach will help resolve an important challenge that the industry has struggled with: making productivity performance (and its measurement) a priority. It's not just about looking at one or two metrics, like lowering capital intensity or increasing throughput - it's about taking a holistic view on productivity."
Mining groups must treat productivity improvement as a core competence. Operational excellence comes from a continuous focus on reducing costs, eliminating waste, enhancing productivity of assets, and improving throughput. To break through the capability constraints holding them back, mining companies should invest in technology to build organisational capacity, and in training and skills development to build the capabilities of their people.
The mining industry wasn't innovating during the commodities boom because they didn't see the need to; now, many feel they don't have the capital for investments in new technologies and processes. However, the present crisis the industry faces demands new approaches. A good place to start for mines is to use advanced analytics to explore their vast amounts of data for opportunities to improve productivity and drive down costs.
Operational leaders will need to seize innovation as part of their roles, and align with other corporate functions to explore technology breakthroughs. Mining companies should look at how peers in manufacturing, construction, and other industries are using technology to drive innovation. They should also explore partnerships with equipment and technology providers around areas such as robotics and the Internet of Things.
If mining companies are to be serious about reversing the downward trend in productivity, innovation and technology should be at the fore, supporting a data-driven approach to continual improvements in operational and asset efficiency, with management operating systems providing visibility into real-time operations.
How would this work on a practical level? Based on IFS's experience you need a main run-the-business system or enterprise resource planning (ERP) application to drive the following seven enterprise capabilities:
1. Enterprise-wide visibility.
2. Real-time operational data.
3. Integrated asset management.
4. Tailor information to people's roles.
5. Support for digital devices.
6. Bring in new technologies.
7. Agile systems to enable change.
To achieve the best results, mining companies should look for a single, integrated solution spanning enterprise asset management (EAM), project-based ERP, supply chain management and enterprise service management (ESM). And ideally, they should partner with a vendor that offers deep, industry-focused expertise in their sector.
