Logistics are vital to well-organized supply chain management (SCM) – to keeping goods and services flowing. All industries rely on SCM, and few are more dependent on finely tuned logistics than the resource sector.
Some businesses are simple businesses – finished goods are shipped from manufacturer to warehouse or distributor. Job done. But mining, oil and gas, and other resource sector companies face many more logistical challenges, including extracting materials from hard to access locations, and transportation by road, rail and water to the processing facility.
Adding complexity is the need to keep costs down, all the while reducing carbon emissions – important considering the pressures on businesses to go green – and lowering environmental impact by hauling loads shorter distances in an energy-efficient way.
Embracing technology
As with many other industries, mining, oil and gas, and pulp and paper have gone through large technological shifts in the past few years. And like other sectors, resource-based businesses are feeling the pinch, striving to lower expenditures, boost efficiencies, and increase profits simultaneously.
An important part of succeeding in this is using the latest digital technology to enhance logistics.
According to Productivity in mining operations: Reversing the downward trend, a report from U.S. based management consulting firm McKinsey & Company, mining companies are changing their direction towards increasing productivity, and away from volume growth.
“Worldwide mining operations are as much as 28 percent less productive today [2015] than a decade ago,” says the McKinsey MineLens Productivity Index (MPI). “Importantly, our research also shows that some mining companies are already turning around productivity performance, suggesting room for improvement throughout the industry.”
According to the report, mining productivity goals took a back seat to the meeting of demand in the 2000s. To address this issue, the MPI was developed to address areas that are within the control of mining companies, including capital, labour and non-labour operating expenditures.
Recommendations to increase declines in productivity, according to MPI, include ensuring mines have effective management operating systems, making operational excellence a priority, and adopting new technologies.
This includes being more receptive to innovation in other industries and making “better use of advanced analytics to harness the potential of the vast amounts of data generated in typical modern mining operations to boost productivity improvement initiatives. Doing this will require a broadening of the responsibilities of operations leaders and tighter integration with other corporate functions.”
Benefits of improved logistics
Using digital technologies and MPI (McKinsey MineLens Productivity Index), performance at individual mines can be tracked. While this requires capital expenditures, benefits such as greater output and enhanced productivity are measured with greater accuracy, an investment which pays off.
In fact, some estimates predict that mining companies can achieve net freight savings of 8 to 12 percent by optimizing efficiencies in their existing freight networks. Large logistics companies with a global presence also have internal methodologies, ongoing staff training, and adhere to verified quality management systems such as ISO 9001.
To accomplish logistics goals requires end-to-end solutions incorporating technology and methodology. To achieve this, mining and mineral companies can use trained employees internally, or retain the services of a 3PL (third-party logistics) company.
Experts in key areas including transportation of goods and warehousing, 3PLs offer many value-added services. Most times, mine sites are located hundreds of miles away from the nearest transportation, and require specialized carriers to handle loads specifically for them.
In this demanding and very specific environment, 3PLs use SAP (Systems Applications and Products in Data Processing), and database management systems like Oracle to monitor workloads.
Host of problems
A lack of carriers, or working with companies unfamiliar with the demands of mining, oil, gas, and other resource-sector operations can create a host of problems. These include unreliable service, not enough carrier capacity to handle large loads, and sky-high freight costs that come from having to pay truck drivers for inbound loads, and empty return vehicle trips.
Working with large 3PLs experienced in the resources sector – as opposed to freight-broker intermediaries who handle transportation – holds many benefits, as they have the expertise to identify and address potential issues such as delays.
3PLs also have business dealings with a base of pre-qualified transportation businesses including trucking companies, railroads, and shippers, and can draw from many companies to move materials at a competitive price.
Big 3PLs have the know-how to determine metrics to improve supply chains. This is extremely important for mining companies who use more than one type of transportation, such as trucks, flatbeds, rail, roads and barges to transport materials to ports and processing facilities.
In-depth knowledge of freight management and logistics is vital to coordinate the movement of product, including potentially hazardous materials, from one location to another via different carriers.
More than moving minerals
Mining, oil and gas exploration and other resource industries need to be constantly moving product to stay competitive and stay in business.
From drilling equipment during the exploration and feasibility phase to spare parts, food, shelter and storage-facility construction, personal protective equipment, clothing and equipment, logistics is vital to ensuring resource sector companies remain profitable.
Just as importantly, logistics is needed during the decommissioning phase, when mining operations come to a close, and reclamation waste, and long-term monitoring comes into effect.
Working with established logistics companies also means mining and other resource-sector businesses can track the movement of goods with greater precision through technology like radio-frequency. Better known simply as RFID, tags or stickers with microchips – sometimes equipped with batteries – are attached to items to track their exact whereabouts, and provide other information like serial, stock or batch numbers.
Along with greater capabilities to handle large volumes of data and materials, big 3PLs tend to be more familiar with other areas impacting logistics, such as the Foreign Corrupt Practices Act. A U.S. law passed in 1977, the FCPA prohibits American companies and individuals from bribing foreign officials, including oversight of third parties such as consultants.
The myriad other benefits that come from working with experienced logistics companies include speedy delivery. If a key piece of equipment breaks down, offshore oil platforms, fracking operations and mine sites stand to lose thousands of dollars every hour they are idle.
To address this, larger logistics companies work with a network of aircraft and trucking firms performing ‘hotshot’ services, picking-up and delivering parts quickly to ensure operations are down for as short a time as possible.
Inflection point
The resources sector is at a point where it cannot afford to lose money through poor logistics, lack of productivity, or any other avoidable inefficiency. According to the McKinsey MineLens Productivity Index (MPI), the mining industry is at an inflection point, “in which digital technologies have the potential to unlock new ways of managing variability and enhancing productivity.”
Specifically, the technological areas include data, computational power, and connectivity; analytics and intelligence; human-machine interaction; and digital-to-physical conversion.
“Taken together, these technologies enable a fundamental shift in the way mining works — a shift marked both by harnessing the flow of information to reduce variability in decision making, and by deploying more centralized, mechanized operations to reduce variability in execution,” says MPI.
Although logistics in the resource sector are challenging, even smaller- to medium-sized mines can benefit from working with established logistics companies to streamline their operations, increase productivity and turnaround times, improve safety, and simply come up with better end-to-end solutions.
