As we all come to end of 2012, we have time to reflect and look towards 2013, (even bigger things if you are on the Mayan calendar who start their new complete calendar). I find the time over the holidays a time to step back and think, absorb, read, reflect and strategise without the daily routine. As I flew back home, low over the northern coast of New South Wales, Australia I read a number of articles and one from Deloittes on “Tracking the Trends 2012” which lead with “It’s not raining; it’s pouring” was straight to point and not just for mining, but all industries. Combine this with an improved positive outlook from China and fewer significant potential changes in government next year, 2013 provides the opportunity to build momentum with companies starting the journey to take on solid challengers of unified solutions to achieve “Operational Excellence”. The challenge will be the constraint of bridging the gap between “time and urgency of getting to full production, vs the green light to proceed forward, vs the challenge of the existing install base of “islands of industrial systems”’.
So in the final blog of the year I would like review some of the points raised in this paper, and just expand and enabling further reflection.
The Paper “Tracking the Trends 2012, The top 10 trends mining companies may face in the coming year” by Deloitte (www.deloitte.com/mining). Do not get put off by the word “mining” as 80% of the points raised are relevant across most industries. The article starts with an extremely true statement:
“It’s not raining; it’s pouring.”
“It could be argued that the burning issues facing the industry tend to remain largely unchanged over time. While this may be factually correct, it fails to take into account the extent to which shifting social, economic and political trends affect the mining sector. Looked at in isolation, each challenge may seem familiar. Looked at through a macroeconomic and geopolitical lens, however, it becomes clear that the difficulties afflicting the industry are rapidly reaching an unprecedented level of extremity.”
I do not think enough people realise the extremity of these different factors affecting the ability to achieve “operational effectivness” tending to treat them as individual issues vs interactive. In the industrial sector as it has been traditionally an extremely slow moving, conservative and fragmented operational environment, but not anymore. With globalization, the required speed of decisions, agility to market changes, combine these with age of industrial systems, transitioning workforce and social change. Provides a real opportunity for leading companies to “leap frog” by taking a holistic approach to solving these challengers vs a “piece meal” approach.
- “The cost of doing business What goes up does not always come down”
“With commodity prices surging to all-time highs, but variable (28% change in price of Iron Ore between Sept and October 2012), accelerated production has become the mantra of most mining companies.”
The result is as onerous as it is predictable: costs are going up across the board.
This applies across all industries, but it is not just the costs going up it is also the volititiy in costs, that change at much more frequent rate, and these costs must be absorbed into the manufacturing costs in order to maintain margin. Energy is an excellent example this going up, and changing, effecting all the costs of materials, and transport costs as well as operating costs. Regulation is another hidden cost that is taxing on manufacturing; from regulations to fit markets, government driven regulation and the growing environmental commitment.
- “Commodity price chaos No price stability without greater transparency”
Have commodity prices been reset at a higher level or are we at the top of a bubble that’s about to burst? The answer to that question dictates whether or not current mining projects will be profitable. Unfortunately, indisputable indicators are sorely lacking. Project life times are getting shorter and time to full productin is the key metric, so how do you absorb this dynamic climate? The ability to have approved capex spend, and project designs ready to go at a “minutes notice” with teams executing fast is key. Projects need to sub divided into logical value steps that are achievable and build off each other instead of single huge projects, allowing agility to tune, achieve and adjust through the journey to Operational Excellence. This is as much a culutural change in project running to be journey, as much as an execution.
- “The battle to keep profits Government taxes target the mining sector”
“Resource sector profits have long been tempting to governments around the world. This is particularly true at a time when so many nations continue to struggle to repay record levels of debt.”
This statement while centered on mining is true across the world. Governments are looking to change GST, VAT, (sales taxes) or profit taxes in order to access the company profits and compensate for increase costs, and solving their long term debt crisis. This will also continue to increase the complexity in a supply chain that extends across the world, with increased need to be in control of the business, track products, materials and taxes in each to manage the tax costs.
- “Labour pains Bridging the precarious talent gap”
“Behind all the tonnes of articles, statistics and reports written about the talent and skills shortages facing the mining industry lies one stark fact: there simply are not enough people to power projected mining company growth.”
All through this year I talked about the workforce transition challenge, as the year progressed the reality set in that this is not a transition it is a total workflorce reset. There are fewer skilled people in the engineering and industrial space, they are less inclined to go to remote locations, and people are rotating jobs significantly. In Another article on Operational Practices in 2020 (which I will expand on in January) they predict 42% of the workforce will be made up Gen Y, and the average time in a role, job will be 2.4 years. This requires a different thinking in Operational System Design to absorb this type of change, and maintain continous production. As I interviewed many people in the latter part of the year, realization of this workforce challenge is starting to sink in, it will make the next 5 years an interesting time!
- “Capital project quandaries Project risk rises as the supply/demand gap widens”
“As countries around the world continue their push towards massive industrialization and infrastructure renewal, the number of capital projects across the globe is mounting. At the same time, declining assets across the sector and lower ore grades mandate investment in new development and exploration projects, particularly in light of the escalating safety risks associated with aging mines.”
This is not just mining all industries are seeing this in some form, consider food and beverage where they add new plants, or more than often acquire existing plants with existing aging systems, and practices then require for the alignment. The requirement for increased capital investments to gain alignment, but then the enormous costs of sustaining or evolving these aging assets and systems to be effective in the modern world. Both are putting a strain of project investment and financing and also project execution in a timely fashion due to a shortage of engineering, skilled personal.
- “The big get bigger Risk multiplies as companies diversify”
In order to stay competitive and in control, larger companies are getting bigger through acquisition to increase the vertical supply chain control and reduce risk, or increase responsitivity. With global expansion, new cultures, establish processes need to melded together and aligned. This expansion is key to stay in the market but in turn increases the risk to companies, and the leading companies are looking for ways, processes and technologies that will smooth out, reduce the risk in merging these new companies into the bigger picture. This can only be done through the roll out of standards and the concept of “federation” vs “rip and replace”. This allows plant cultures and system to be sustained, but the plants/companies to be “plugged” into the bigger value chain, and aligned.
- “Volatility is the new stability Planning for the unforeseeable”
“While risk planning requires executives to peer into the future, it traditionally does not demand that they plan for highly-unlikely occurrences. Unfortunately, the stepped-up incidence of implausible events is turning conventional scenario planning on its head. From the widespread effects of the global financial crisis and worldwide political instability to the tsunami in Japan and flooding in Australia, Brazil and South Africa, mining companies find themselves facing the unexpected on a frighteningly regular basis.
Although these so-called “black swan events” are by definition, rare, high-impact and hard to predict, they are finding their way onto corporate agendas, fuelled in part by boards of directors that fear ambush by issues that never appeared on their radar screens. Preparing for these unanticipated surprises – whether they are harbingers of risk or opportunity – may require more of a creative licence than mining companies are accustomed to exercising.
On some level, the process must begin by considering the organization’s vulnerability to extremely unlikely, but potentially catastrophic, incidents – those considered worst-case scenarios. The aim is to challenge existing business assumptions by asking questions that consider myriad sources, from geopolitical movements to volatile weather patterns.”
Continuity Risk Planning is becoming a big common concept in companies as they plan forward, this involves now bringing in these external events, and effect on personal safety, environment etc.
- “Legislative Olympics Countries compete to become the world’s toughest regulators”
In recent years, however, nations around the world have been loading their regulatory firearms, targeting areas such as bribery, safety, environmental, carbon, financial correctness, etc.
These regulations are coming from governments in the form of new laws, good example the new Carbon Tax in Australia, which will immediately affect the bottom line. Drive from customers and community, example is environmental where companies are starting to be judged based on the moral conduct towards the longevity of the planet. Also, food safety is playing a role in buying habits, this especially seen in China after their scares, so brand integrity is at risk relative to food safety, personal safety and operational safety. All of these bring a new level of risk to board and executive members of companies, as well as the bottom line cost. So naturally in the operational systems capability relative to reducing risk, and the cost is becoming natural a natural train of thought.
The final thoughts in the article sum up the change in the attitude and thinking in the industrial space and how companies are thinking. It is this thinking on a more holistic collaboration with real time coupling and alignment which delivers the most promise for the industry combined with the most risk and challenge.
“From competition to collaboration industrywide-wide issues require an industry-wide response.
It is becoming increasingly incumbent upon mining executives to broaden their purview by fostering improved collaboration – across their own organizations, among industry players and with communities and governments around the world. From an internal perspective, it may help to begin by adopting enterprise-wide processes capable of creating a cohesive culture among disparate international locations. These types of processes can run the gamut – from global labour practices, worker safety programs and supply chains through integrated financial reporting, business intelligence systems and regulatory compliance practices. No matter the adopted solution, the end goal is the same: to ensure consistent practices and communication across the entire global enterprise.”
I wish you all a happy holidays and all the best for the New Year, and I hope this blog through last year has prompted thoughts and thinking, and this article some provoking thoughts.
In the up coming year we have a lot of investment and innovations happening across the industry, and I will continue to explore the directions people are taking on the journey to Operational Excellence. 
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