Balancing Uptime and Working Capital: Maintenance and Inventory Strategies in Mining

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1 Balancing Uptime and Working Capital: Maintenance and nventory Strategies in Mining

2 Session Agenda ntroduction Overview of Maintenance Strategies in Mining Overview nventory Management Strategies in Mining Balancing uptime and working capital Questions & Discussion 2

3 Falling prices led to a focus on cost reduction... in order to offset squeezed margins. Miners are having to contend with rising costs in every facet of the business, from the energy and materials they use to build and maintain mines, to the people and equipment needed to work them and the U.S. dollars to pay for them. Cost issues do not discriminate by the metal produced or the size of the miner. now productivity and working capital are targets to help improve performance. 3

4 Performance is driven by the integration of Supply Chain, Maintenance and Operations Operations needs to release equipment to Maintenance when scheduled. Equipment Utilization Supply Chain Maintenance needs to perform repairs as planned and scheduled for equipment reliability and respond quickly to breakdowns. Equipment Availability High Performance Supply Chain needs to provide the right parts when needed in the right place at the right time while managing working capital requirements. nventory On-hand Operations Maintenance 4

5 The key question How can we optimally configure our activities to ensure uptime, at optimized inventory levels to manage working capital? How can we minimize maintenance and still ensure equipment reliability, availability and manage costs? How can we secure access to the right spare parts and consumables when they are needed, where they are needed? How can we manage our inventories of spare parts and consumables given the challenging geographical locations that our mines operate in? 5

6 Balancing Uptime and Working Capital Overview of Maintenance Strategies in Mining 6

7 Maintenance has far reaching impacts Maintenance impact Efficient production Utilization Effective Strategies Availability Cost of asset ownership $$$ Maintaining plant, fleet, facility and equipment represents a major portion of mining operating costs, typically from 30 to 50%. Break Downs and Un-Planned maintenance is 3x to 5x more expensive than planned maintenance, this does NOT include the cost of process interruption, production efficiency or scrap - resulting in lost revenue. Many mining operations run at less than 70% operating efficiency because of breakdowns, idling production and other operational issues. 7

8 t s all about efficient execution Maintenance Plan Production Plan Financial Plan Maintenance Work Management dentify work Plan Work Schedule Work Break Down Analyze Work Close out Work Execute Work 8

9 and effective tactical strategies n the past, Asset Management was tactically focused Most recent shift has been to a more Strategic and Management Systems focus First Generation Fix it when it breaks Second Generation Higher plant availability Longer equipment life Lower costs Third Generation Higher plant reliability and availability Maintainability Greater safety No damage to the environment Even longer equipment life Greater costeffectiveness Lower risk Fourth Generation Strategic Holistic Management systems PAS55, 2004 (revised 2008) S5500x, 2014 ntegrated with operations Governing organisational objectives considerations Tactical focus Strategic focus 9

10 Effectiveness and Efficiency in Execution Asset Effectiveness Reliability-based right task at the right time Asset Efficiency Wrench time: Lean and optimised execution of maintenance tasks Asset Management Strategy Maintenance Program Work Execution Performance Measurement Asset standardisation Asset investment planning Accurate asset database and hierarchy Technical content Asset condition Asset performance Asset criticality ranking Reliability-based Reliability-centred maintenance on critical assets Preventative maintenance optimisation or Maintenance task analysis on less critical assets People and skills Processes and structure Permitting and work clearance management Systems and data Business intelligence and reporting EAM balanced scorecard Dashboards and drilldown Push reporting Role-based metrics 10

11 Example: mpact of Maintenance Some key affects of reactive maintenance: nappropriate skills or contractors used Other planned scheduled work is disrupted Downtime searching for required parts Expedite costs for required parts not available nformal and intuitive work procedure Rushed or unclear verbal instructions Rough sketches rather than standard drawings Ad hoc safety / risk issue coverage Overtime costs and worker fatigue Repeat repairs and job quality issues ncomplete records for analysis Opportunity Current State Maintenance Spend of $56.7 m Planned Unplanned 45% 55% $20.o m $36.7 m mproved Ratio Maintenance Spend of $51.1 m Planned Unplanned 70% 30% $31.1 m $20.0 m mproved Ratio Maintenance Spend of $48.8 m Planned Unplanned 80% 20% $35.5 m $13.3 m 14% reduction in Maintenance spend Equivalent to ~$8m in Opex 11

12 Example: mpact of different tactical approaches Comparison table Parameters Break Down Maintenance nvasive PM nspection Condition Based Maintenance Maintenance time longer but also production time is lost (impact not included here) Maintenance Activities Downtime of Assets No invasive maintenance, only measured condition, e.g Vibration Analyzer Labour hours ~7k ~36k ~3k Repair hours if needed based upon Condition Based Maintenance Total costs 0 ~$700k 0 ~$3.600k 3.6k ~$66ok Condition Based Maintenance - repair is only performed when needed, ~20% inspections find a bad condition that needs to be addressed Break down maintenance activities - costs here are only maintenance costs, not production losses (may be acceptable if capacity exists) 80.5% 81.6% 12

13 t may not be intuitive but less is more! Less is actually more with an improved tactical approach to maintenance focused on Condition Based Monitoring. Less Maintenance activities ncreased Reliability ncreased Availability ncreased Productivity Only focused on maintenance where needed based on actual condition With increased focus on condition measurements reliability increases Only intervening when needed based on condition increases availability to equipment With increased availabilities of equipment comes increased productivity 13

14 Balancing Uptime and Working Capital Overview nventory Management Strategies in Mining 14

15 Spares nventory is at the heart of Uptime Preventive Maintenance Preventive Maintenance and Condition Based Maintenance designed to reduce the probability of failure Overhaul (shut down) Routine service Asset availability Uptime Spare Parts nventory Diagnostic Provide parts for rectification Repair fault Break Down Maintenance Restoration to operational condition following failure Test for successful operational state 15

16 However, inventory strategies require a balanced approach between performance, risk and costs When focusing mostly on performance, organizations tend to overstock all materials. Risk Focusing on risk usually overestimates criticality of materials, impacting associated stock levels. Few organizations focus on all three areas of Performance / Risk / Expenditure in a balanced fashion, and excess MRO inventory is usually the result. Performance Costs 16

17 nventory strategies have to be refined yearly for optimizing stock positions, and require historical input from: Maintenance management Failure management Reserved stock parts: Maintenance schedules Estimated number of parts to be replaced during maintenance Costs related to holding the inventory Replenishment rules Physical management of inventory: Number and location of warehouses Physical management of warehouses Accuracy of inventory records Time and costs required to get the material to the mine site Spare Parts nventory Management Safety stock parts: Criticality of failure effects Likelihood of failure effects Costs related to holding the inventory Which parts to hold in stock and how much Procurement input: Time required to get the spare part Costs related to getting the spare part Reliability of the suppliers Warranties Warehouse management Procurement 17

18 mproper Material Management leads to abnormal levels of excess stock and un-used materials for working capital mobilization Key questions for effective MM: What is the inventory turn, if any? Are ABC classifications being used: Per moving type Per criticality Per cost s stock allocated with respect to these ABC classifications? What is the zero-stock policy? Are cataloguing tools shared throughout the organization? When was the stock last reviewed for obsolescence? 18

19 Performance starts with the integration of Supply Chain with Operations and Maintenance ntegration starts with Operations releasing equipment to Maintenance on time, and Maintenance performing as scheduled, with available Materials. The first step to performance management is through acceptance of a joint responsibility, supported by mutual commitments which can be documented with service level agreements Absence of SLAs often result in: Supply Chain Equipment abuse Delayed maintenance Rush orders Performance Management Framework Cancelled work orders Returned materials Excess stock and obsolete materials Operation Measure KPs Dashboard Visual ndividual Enable Planning Reliability CMMS SLAs Maintenance With sufficient visibility on demand, Supply Chain can develop proper stocking and inventory strategies. 19

20 Developing stocking and inventory strategies is a complex exercise involving Operations, Maintenance and Supply Chain Our suggested high level approach involves Maintenance (steps 1-3), Material Management (steps 4 to 8) and Procurement (step 5) Map equipment and assess criticality dentify BOM Define criticality at the material level, and assign service level Develop Material ABC classification (price & velocity) Cross reference Criticality, Service Level and ABC Engage vendors on lead time and VM Define stocking strategy Define inventory levels 20

21 A successful inventory optimization exercise can target 15 to 30% inventory value reduction The excess stock is often identified without impact to service level (moving inventory position from to A ). The benefits are valued through inventory reduction and working capital release. Our typical approach is : 1. Perform diagnostic to identify root causes for performance gaps & improvement opportunities 2. Determine target stock given current constraints & business requirements 3. mplement target stock & define processes to maintain the optimized situation 4. Further improvement. Reconfigure Supply Chain Management (SCM) to improve service level and/or reduce cost Benefits realization depends on material type (fast mover or slow mover ) nventory Value Baseline 2 Quick Wins $XX M 1 Service Level $YY M N N Same SCM S C 3 S $ZZ M A C 4 B Revised SCM strategy A B 21

22 Balancing Uptime and Working Capital Balancing Uptime and Working Capital 22

23 An inventory optimization exercise is always a balanced approach between production, cost and financial return The objective should be to improve the overall service level delivered by Supply Chain and Maintenance to Operations, while reducing the amount of working capital mobilized. Foundational elements include: Review materials criticality, Reliability-centred maintenance on critical assets Condition-based monitoring. Analysis historical demand and supply, Revisit lead time with vendors, Define revised stock levels. Operational Expenditures Cost Production Service Level nventory Capital Employed Financial Return 23

24 Foundations for Balancing Uptime and Working Capital An ntegrated Maintenance and Supply Chain Strategy that reflects and supports the Vision & Mission of the organization. An effective mechanism to link strategy with maintenance and supply chain programs and execution. Robust mechanisms to execute the program. Targets and Measures as part of the programs process. Data and Tools to measure performance. Reward/Recognition Programs to create an environment for sustainable performance and driving the right behaviours. 24

25 How effective are your Uptime and Working Capital programs? Value Killers Setting reactive and arbitrary targets Lack of transparency of key cost and value drivers Operations lack of understanding of the importance of maintenance activities Maintenance lack of productivity prioritization Lack of communication and integration between Supply Chain, Operations and Maintenance Managers receiving weak inventory, operational and maintenance information ncorrect tactical choices in Maintenance activities Value Builders Strong direction from the C-suite for improving uptime and working capital (roadmap) Defined asset management strategy with involvement from Supply Chain, Maintenance and Operation Effective and efficient execution of the maintenance program Clear ownership of uptime and working capital at the operational level Frequent analysis and communication between operations, supply chain and maintenance managers Culture of continuous improvement - challenge of the status quo 25

26 Questions & Discussion Thank you This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.

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