Can Supply Chain Analytics Deliver Investor Returns in Mining?
June 13, 2017
Metal prices have been on an upward trend, with the recent WorldBank data showing that prices have increased for four consecutive quarters. Iron ore has been the biggest driver of this upward trend, posting gains of more than 20% for two consecutive quarters. While this is good news for mining companies, they are not celebrating, yet. While some such as BHP Billiton are expecting iron ore prices to fall, others such as Rio Tinto are expecting the prices to remain more stable. Future prices will primarily depend on demand from China, and with record high iron ore stockpiles, coupled with supply-side constraints in zinc and copper – it’s anyone’s guess which way the prices will move. It’s no wonder mining companies are cautious about uncertainty in the metals market.
However, what is definitely certain, is that mining companies continue to be razor-focused on investor returns. Following the commodities price slump in 2015, all mining companies have been forced to cut costs, reduce debts, shut down unprofitable operations and generally focus on nursing their balance sheets back to health. While the balance sheet health has improved, aided by the surprising rally in metal prices in 2016 – companies have now realized the perils of depending excessively on higher commodity prices to drive investor returns. Mining stocks have underperformed spectacularly during the last few years. With the rebound in metal prices in 2016, institutional investors are getting impatient to see returns and are forcing mining companies to show results. With this background, it’s not hard to understand why mining companies continue to be fixated on investor returns and ways of buffering them against volatile commodity prices.
Fortunately, with advances in technology, companies are finding ways to control one important lever governing investor returns – i.e. cost savings as a result of gains in efficiency and productivity. While mining companies have ruthlessly focused on productivity over the last few years in response to dwindling commodity prices, the focus on efficiency still continues, albeit towards sustaining those productivity gains, as evidenced by the annual reports of the large mining companies. Companies have realised that they need to adopt technology to drive sustainable innovation in productivity through their supply chains. Mining companies are increasingly fitting their trucks and equipment with hundreds of sensors to make them completely automated. Significant cost benefits have been realised by companies using drones to measure and monitor their sites. Advances in mining software, IoT and 3D modelling have made it easier for companies to remotely manage their stockpiles – minimizing inventory mismatch and write-offs.
On the flip side, due to the very nature of these technologies, large quantities of data are generated at each stage of the mining supply chain – often from multiple software systems. Collecting this data is very time consuming and analysing it often produces contradictory results. For instance, consider a scenario where a mine operator is trying to identify deviation from “plan versus actual performance” and the root causes of those deviations. To answer this question, a mine operator needs to collect and analyse information about start/end times, product quality/quantity, tonnage/speed, equipments, stockpile volume/shapes, loading/unloading rates, etc. The operator also has to account for a number of factors that causes delays or deviations. Often these factors are inter-dependent and a delay in one part of the chain creates ripples that affect other operations within the site. To analyse such scenarios, mining companies need to leverage supply chain analytic platforms that have algorithms built specifically for bulk commodity market participants such as Eka Analytics
Eka’s InSight CM® platform includes support for bulk stock management, process management, task execution, and business intelligence for the bulk handling industry including mining operations, grain facilities, and port terminals for all types of commodities. With Eka’s bulk handling software platform, physical assets (machinery, storage locations, ports, etc.) operate at maximum efficiency in the storage or movement of physical bulk commodities — providing the most throughput for the least amount of downtime and cost.