- Supply Chain Costs are not carefully managed
- Supply chain scheduling is not properly thought through
- Supply chain risks are not properly understood
- Recruiting logistics talent for remote locations is difficult
A brief introduction to Urs
This guy is something of an Indiana Jones. His career started out ordinarily enough in the 1990s as an engineer. Work in the logistics and supply chain sectors inspired him to complete an MBA focusing on supply chain management. Since then, his career has taken him to the most extreme of climates and the remotest of locations - jungles, deserts and mountains - in Peru, Siberia, Egypt and many other exotic places.
He has worked primarily on massive gas projects, mines, and more recently, solar projects. And he has done this from both the supplier and the logistics sides.
His contributions to project planning and execution are always immense and he has worked on some of the largest supply chain projects there is. Take, for instance, Chevron TCO Future Growth and LNG Canada; both projects run into the tens of billion dollars investment.
If that’s not Indiana Jones enough for you, how about delivering 450-ton equipment up into the Andes? He had to invent, design and build 700-ton temporary bridges across raging piranha-infested rivers. Did I mention the part about the port being destroyed by an earthquake? He built temporary structures to hold the pier in place while the heavy equipment was discharged from the vessel. It’s all true – except for the part about the piranhas.
There is nothing new about mining’s supply chain problems
I have worked directly on mine sites in Chile, Peru and Argentina and consulted for mining industry clients in Canada and Russia. I have seen a lot, whether it is getting by at the driest place on Earth or exchanging mill drives at an altitude of 4,800 meters.
Right from the first big project, one thing became very clear. The planning did not properly include logistics planning or cost visualization. The big decisions were invariably driven by fabrication and engineering demands, which was strange given the biggest savings we made were in logistics, not project execution.
Mines suffer the same supply chain issues as any big activity in a remote location. I have studied those issues from the four challenges of costs, scheduling, risk and recruitment, although, of course, they are all intertwined. In each of the following sections, I state what I see as the foremost problem, briefly outline how to solve this and relate a real-life example from my experience. I have not focused on the problems but believe me I can talk for hours about them - and also about the solutions.
Supply Chain Costs are not carefully managed
I would say the root cause for most cost-related issues in mining is poor visibility of transport costs, both budget amounts and actuals. This issue spawns many problems, such as:
- Containers not being properly utilized.
- Detention and demurrage costs being catastrophically high.
- Difficulties validating invoices, and costs often not being transparent.
Here is an example of how a cost perspective problem played out on a project I was working on. The logistics manager thought he had nailed trucking costs by securing the lowest rate. Unfortunately, he had not properly stipulated service expectations.
The trucker was able to keep his costs low by working his drivers on day rates. Trucks only picked up from the port in the morning and only delivered to the mine in the afternoon. This caused massive bottlenecks each day which overwhelmed the unloading crews, who were idle most of the morning. It also meant drivers often stayed overnight before their truck could be unloaded.
Detention charges went through the roof, more unloading and logistics personnel had to be hired, and the project ran into huge cash flow problems.
The key takes from this were that the project team failed to clearly communicate service expectations and that there was insufficient visibility of costs and operations to effectively manage the project.
There a plenty of ways to solve the cost challenge. In my experience, the most effective solutions are:
- Clearly spell out, understand and document SOPs, and communicate service expectations.
- Integrate with service partners to gain operational transparency of shipment statuses, capacity utilization and on-time performance.
- Establish full financial transparency with a landed cost data model and monitor cost performance closely.
Supply Chain Scheduling is not sufficiently thought through
Ultimately, poor scheduling means that timelines are not met, triggering costly delays. That happens because:
- Assumptions and planning data are not carefully thought through, validated, or communicated.
- On-site construction and logistics schedules are not synchronized or continuously monitored and adjusted, leading to bottlenecks.
- Purchase ordering and shipment execution are managed by spreadsheets and emails, resulting in multiple versions of truth, misalignment, confusion and delays.
The following is a classic scenario from several mine construction projects I have worked on. Again, it involves trucks. During construction, several EPC (engineering, procurement, and construction services) companies are on site, each with its own delivery schedule. Site layout is in constant flux meaning deliveries are regularly being redirected. This causes confusion and congestion at offloading points. Drivers become severely delayed and often cannot get back to home-base in time. As a result, they stay overnight at the site or stop somewhere along the route.
In short, the total lack of coordination increases costs, strains relations between the various parties (project managers, EPCs and trucking companies) and adds another layer of risk from a safety perspective. Although clearly everyone would benefit by working together to coordinate deliveries, that is incredibly difficult to do manually.
My three key takeaways for keeping on top of supply chain scheduling are:
- Deploy network planning and simulation modeling.
- Devise an optimal logistics plan within a cloud-based solution that continuously updates forecasts according to capacity constraints and dynamically synchronizes and adjusts operational plans with all stakeholders.
- Deploy a cloud-based supply chain management system that integrates purchase order, inventory and shipment execution capabilities to provide live control tower functionality for all stakeholders.
Supply Chain Risks are not properly understood
The worst-case scenario that poor risk management can result in is that the project fails, damaging both brand and business. Let me give you a real example from a project in which I was involved. I could have chosen many scary examples but here is an instance that went right.
We needed to bring some heavy equipment into a site, but that meant the only entrance to a care facility would be blocked for several hours. Our project schedules would need to fit into, what were clearly, more important demands. Despite a high risk of insufficiently communicating the plan as it evolved, we did manage to successfully execute the plan. Firefighters and ambulances were positioned at the facility in case of emergency, and we were able to cater for other movements such as medical appointments, family visits and staff shift handovers.
We completed the planning with the standard tools – spreadsheets, emails, meetings - but with such sensitive alignment requirements, we could have really done with a visibility tool that ensured specific information was proactively provided to all involved parties.
The three leading reasons why so many mining projects run unnecessary risks are when:
- Team roles, skills and capabilities are inadequately thought through, objectively assessed, or expertly adjusted. As a result, project ramp-up is not sufficiently steep, causing delays and stress.
- Suppliers are not carefully selected based on objective criteria resulting in bottlenecks, frustrations and damages.
- Constraints based on local stakeholders are not carefully considered. This causes relationship stresses and potentially even social unrest.
Among potential solutions, the three that most stand out, are, to:
- Free up logistics managers from low-value administrative and reactive firefighting tasks by deploying tools that offer real-time visibility and enable logistics operations to run exceptionally well and extremely precisely.
- Establish clear requirements and robust evaluation and analysis tools to reduce performance risk and avoid unpleasant surprises.
- Understand and document stakeholder priorities and concerns and devise a plan to meet objectives with frequent communication to report performance.
Attracting good logistics people is a problem for all big projects in remote locations. In my career, I have had some amazing opportunities, but it has meant enduring challenging living conditions. I haven’t met many others that are keen on those experiences, no matter how exotic the location sounds.
It doesn’t help when advance workers are sent in to familiarize themselves with local conditions but spend much of their time troubleshooting instead. When they get to planning, it is mostly boring repetitive spreadsheet work. Neither of these makes for high job satisfaction. The solution is simple - give these people the appropriate supply chain tools so they can better focus on planning and optimizing. The right tools also mean fewer logistics workers are required.
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