Productivity challenge: Improving or transforming?
The commodity boom between 2000 to late 2012 led many mining and metals companies to turn their attention to production and mine development in order to get product out as quickly as possible but not as economically as possible. Innovation also slowed during this time compared to other sectors. As a result, both labour and capital productivity, on both a volume and cost basis, has been declining significantly in the mining industry for over a decade.
This challenge has come to the forefront in recent months. EY’s annual Business Risks Facing Mining and Metals Global Report reveals productivity as the top risk facing the sector this year. More than ever, productivity concerns are topping the boardroom and CEO agenda as executives begin to realize that regaining lost productivity will be critical for long-term profitability.
Making productivity gains is not as simple as further cost-reduction efforts. The length of the super cycle and pursuit of growth led to a subversive change of the organizational DNA of many mining companies. Their structures, processes, performance measures and cultures have all drifted to favour growth over productivity. The size of the problem is too large for conventional solutions to work. Real and sustainable productivity gains will only come from broad business transformation.
Unfortunately, many organizations see productivity as a phase after the slash-and-burn of cost reduction and before the return to growth. When the focus on productivity is short term and/or temporary, it is unlikely that improvements will be sustainable. The quest needs to be long term and requires a change in culture across the organization from the boardroom to the pit.
Transformation means that all systems, processes, interfaces and interlinks are well understood so informed decisions can be made. This may require significant adjustments including:
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Changing mine plans
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Reassessing mining methods
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Making changes to equipment fleet and configuration
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Reducing production
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Increasing or reducing automation
Leading companies are not thinking productivity in a conventional way. They think about it with a value-chain view. They are launching initiatives that will add to the long-term bottom line, instead of just moving the problem around. The most successful companies in addressing the productivity challenge demonstrate the following traits:
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Bold and not incremental
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Have a long term vision and plan
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Take an end-to-end view
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Look for broad solutions
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Eliminate silos
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Align objectives to strategy
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Set consistent performance measures for productivity that creates value
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Address the behavioral and cultural settings necessary for sustainability
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Learn from history, but are open to innovation
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Deliberate in planning and executing their initiatives
Now is the time for mining companies to boost productivity. Doing so will help them regain ground lost over the super cycle, support innovation to recover lost competitive advantage, and help counteract shrinking margins.
*Zahid Fazal is a partner and EY’s Quebec mining and metals leader. He is is based in Montreal.
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