Managing Director & Senior Partner
Related Expertise: Metals and Mining Industry, Innovation Strategy and Delivery, Operations
It’s 3 am, and perched high in the dark city skyline is a single floor lit up. In it, highly skilled operators are controlling assets and investments worth billions—remotely. Working around the clock, the team is collecting information in real time from thousands of data sources, collaborating constantly, and making smarter decisions. It might sound like a financial trading floor or deep-sea petroleum operation, but this is the future of mining.
In the past few years, mining investors and executives alike have shifted their focus from greenfield growth to achieving higher productivity and better returns from existing operations. Mines are getting deeper, ore grades and prices are declining, and labor costs are increasing. Given the enormous resources needed to get minerals out of the ground and to the customer, even very small improvements in productivity are meaningful to the bottom line.
Miners face some unique challenges including operating in remote and harsh environments subject to variable weather conditions. These realities, combined with understandable conservatism around safety and environmental risks, have historically meant that technological progress has been ad hoc and incremental. Reliance on a vendor-led approach to technology innovation risks leaving significant value on the table.
In industries such as transport, logistics, manufacturing, and petroleum, technology has already become the primary enabler of higher productivity. The automotive sector has been transformed by introducing automated production equipment and robotics in end-to-end manufacturing systems to eliminate inefficiencies.
Now we are on the cusp of a new wave of technology-led productivity improvements known as the “Industrial Internet,” or the “Internet of Things,” which captures five converging technology trends: low-cost IP-connected sensors and actuators, powerful on-board control systems, ubiquitous high-speed network connectivity, scalable variable-cost processing and storage, and advanced algorithms and analytics.
In our view, recent advances in low-cost technology can drive productivity and safety benefits at mines just as they have done in other industries. They can also help miners avoid capital spending. The technologies will allow companies with geographically dispersed operations to overcome the tyranny of distance and achieve similar levels of integration as “everything under one roof” manufacturers.
Better integration across the mining value chain—from pit to port—will afford miners the same level of control and predictability that many other industries already have. Meanwhile, technology costs are falling and vendor solutions continue to evolve. For example, mining trucks have hundreds of smart sensors, costing less than 0.5 percent of the total manufacturing cost.
A holistic technology strategy with integration at its core is needed. It should recognize the role of vendors in innovating but not allow them to dictate the priorities and pace, nor take an unfair share of the value for themselves. It should focus on defined outcomes that demonstrate material benefits and erode cultural and organizational resistance to embracing technology. It also needs to take a stand on the most important issues around technology for that particular company. And, although no one knows exactly what new technologies are around the corner, the strategy needs a clear vision about the place and purpose of technology in the end-to-end value chain.
A successful strategy will have three elements. The first element is a genuine commitment to innovation. In a Financial Times article, Mark Cutifani, Anglo American CEO, put it this way: “[Mining industry] spending on innovation, research and development is one-tenth that of the petroleum industry. If we don’t start to bring innovation back and do a hell of a lot better on our cost structures and deliver returns, the major diversifieds will be subsidiaries of General Electric or some other conglomerate that has still got innovation in their vocabulary.”
The second element is about different vendor interactions. Miners need to move from transactional relationships to long-term partnerships, where vendors develop new technology to boost productivity, but also ensure it is effectively integrated and that the necessary steps are in place to realize benefits. This calls for innovative ways to manage shared intellectual property, new operational and organizational capability sets, and appropriate, clear working responsibilities.
The third element is about “rewiring” not just technology but also operations. Chief operating officers will have to fundamentally change not only physical assets and technology but also management systems and people systems—the three pillars of Mine Operations Systems Transformation (MOST), BCG’s approach to mine operations.
As one study manager on a recent project put it: “Technology is just 5 percent of the solution. The other 95 percent is about implementing operational systems and processes across supply chains to make sure the technology works, that it is safe for all workers, and that it is productive.” BCG’s MOST approach has 12 elements. (See the exhibit below). The following case study highlights how these work in practice.
MineCo is a bulk commodity producer with a complex supply chain within a single province—multiple producing pits, crushing and screening at a number of inland hubs, a rail network, stockyards that blend multiple product grades, and port operations. Each site operation had a control room for operations monitoring and coordination, but volume growth had increased the scope and complexity of operations, producing an increasing number of interdependencies across the network.
To improve coordination and boost productivity, MineCo launched a project to consolidate operations monitoring and control to a central hub located in a city hundreds of miles away. Although the individual components of enabling technology were already in place—sensors and actuators, control systems, network connectivity—it was the combination of those technologies, working with multiple vendors, that made the difference.
The implementation highlights a number of elements from BCG’s MOST approach: integrating planning across sites, functions, and different time horizons; governance, compliance, and risk management; data analytics to identify and address bottlenecks; changing process workflows within physical operations; change management by engaging with managers and operators about where people are located, how they work together, and how changes affect them; and encouraging a culture of continuous improvement.
New talent was required to perform roles that blend traditional mining and mechanical engineering disciplines with new digital disciplines. Despite some initial reservations about transparency and a perceived loss of control at site, a structured communications program highlighted improvements to safety and efficiency, to help site management and crews understand and accept the technology.
The benefits to MineCo have been substantial. The center was completed successfully on time and under budget, paying for itself within 18 months. Hundreds of staff were relocated to the city, reducing fly-in fly-out and accommodation costs. Real-time visibility on where, when, and how bottlenecks shift across the supply chain has allowed management to focus their continuous improvement efforts, delivering real productivity gains and cost savings.
The center is enabling the pilots of other technologies, such as automation, and experiments with big data and advanced analytics. And operations report that better integrated plans and a stricter adherence to schedules has decreased the variability inherent in so many mining operations and has led to a safer operating environment.
Mining executives should ask themselves these questions about their business:
As margins come under increasing pressure and access to capital becomes increasingly scarce, miners cannot afford to ignore the potential for technology to strengthen their bottom lines, manage risks, and enhance safety. But technological innovation must be matched by innovation in the way companies operate, how they make decisions, and how they manage their people. Companies that can do both will capture the greatest benefits.
A version of this article was published in Mining Journal on October 14, 2014.