Forging Stronger Chains

Producers are taking steps to ensure future calamities won’t break essential links in supply chains

By Russell A. Carter, Contributing Editor

Like other basic industries, mining has traditionally been bound by chains — sequences of connected events, actions, expectations or demands regarded as essential for efficient business operations.

Localized developments that spiraled outward into global scope during the pandemic’s first wave in 2020 — factory shutdowns, workforce disruptions, supplier failures and delays, for example — dissolved some of those chains as if they were made of paper mâché.  Prices and demand for industrial metals suddenly plummeted.

The consensus, however, seems to be that the mining industry, using experience and ingenuity gained from years of dealing with globally scattered, remote and often diverse operations, navigated these waters more successfully than many other major industrial sectors. Recent management reports to stakeholders also indicate that the pandemic succeeded in focusing industry attention on complex supply-chain lessons that, surprisingly, can be expressed in simple terms: Optimize, localize, diversify, digitalize. Get and stay agile. Be resilient.

Resiliency is not an inherent strength in many modern, just-in-time supply chains that are optimized for cost and centered around a few geographies and vendors, Ernst & Young Global Metals & Mining Leader Paul Mitchell noted in a brief article last year. The days when miners didn’t need to understand the complexities across their supply chains are gone, he argued, but there are steps that can be taken to mitigate disruption and cultivate a deeper understanding of supply-chain intricacies. These include:

• Conducting an end-to-end supply chain risk assessment to develop a calculated risks index. The assessment should include demand and supply risks, operational performance, global trade implications, and the impact on customers and the workforce.

• Identifying supply chain gaps by developing crisis scenarios based on how long disruption may continue. Activating existing crisis management policies and protocols in each scenario can identify gaps in the current supply chain model.

• Prioritizing critical focus areas that may have changed in light of current circumstances — for example, personal protective equipment, food and provisions, spares and equipment.

• Investing in more collaborative, agile planning and fulfillment capabilities, which may include, for example, sharing inventory with other mining and metals companies in the same country.

• Ensuring good visibility of commodity demand — and protection if it doesn’t eventuate. A clear view of demand helps companies direct stock to the most important work.

• Reviewing contracts to determine whether a company and its suppliers, contractors or subcontractors have force majeure rights.

“When supply chain structures are no longer fit for purpose, companies will need to act fast — first, to ensure continued inbound and outbound flows of products now and, second, to build a more resilient supply chain for the future,” he concluded.

Not so Simple…

Every year, processing equipment manufacturer FLSmidth makes 750,000 supplier deliveries and 250,000 customer deliveries — representing 90 deliveries every hour of every day. Asger Lauritsen, chief procurement officer at FLSmidth, recently explained the company’s strategy for maintaining a smooth flow of inbound and outbound material even in the face of a global pandemic.

“Seen from one perspective, it is a very simple task — goods need to be moved from one place to another — but in reality, there is an almost endless amount of details that create additional complexity. When something like COVID-19 occurs, things can get even more tricky,” he noted.

“We find the best local suppliers for a specific component and, once they have proven their reliability, we help them grow in that region but also help them expand into the global market. In this way, we can support the local business community in the areas where we work, while making our supply chain more agile.”

The result, said Lauritsen, has been that FLSmidth experienced very few disruptions in the supply chain: “With minor exceptions, all our sites have been operating at all times 90%-100% — and on-time delivery has been equal to the last year’s high level.

“We have redundancy built into the system. This gives us greater flexibility and agility and we have developed a network of producers and suppliers on all continents who can complement each other. We started implementing this structure before anyone had ever heard of COVID-19, so in that regard we have enjoyed a little bit of ‘lucky timing,’ while other companies with a more centralized supplier setup have faced bigger challenges.”

He went on to explain that given the company’s high number of external suppliers, “We are much more agile than many competitors. We are running an asset-light model and have not invested in expensive production facilities because we have nurtured a trusted network of suppliers in the right locations with the right capabilities. It is a solid mix of make/buy and insourcing/outsourcing — this allows us to shift quickly between different suppliers in different parts of the world.

“Our ultimate goal is to look at outsourcing everything that makes sense to outsource. It can easily end up being a quite high percentage. What we add to the process then is design, commissioning with our specially trained engineers, who guarantee the quality, uptime and continuity with our support.”

The final piece of the supply chain puzzle, he explained, is digitalization, which “provides benefits such as deeper insights into customer requirements, developing demand in certain regions or commodities, and a simplified overview of the entire supply chain, updated in real time. The efficiencies and streamlining supplied by digitalization and data analytics are also helping us move toward a CO₂-neutral supply chain, which is one of our priorities.”

New Additions

Additional chains also have emerged in response to mining’s appetite for technical innovation and expanded awareness of social responsibility, such as chains of custody to ensure claims of appropriate mineral origin, expanded chains of management accountability, and who hasn’t heard of blockchain, a hot-topic digital asset management concept that few non-techies fully understand?

Although the function of these newer chains is the same — defining a pathway to achieve a specific outcome or behavior — the composition of the links that form them is changing. Unlike familiar transactional chains linked by customary practices, reams of spreadsheets or stacks of standard operating procedures, new chains are likely to be forged from data streams, algorithms and artificial intelligence.

Digital technology now allows producers to model, tweak and stress-test various value-chain scenarios for maximum efficiency, with the goal of bringing the enterprise’s supply chain data flow up to speed with its product flow.

For an industrial giant such as Caterpillar, for example, that can be a tall order; it has thousands of ground, ocean and air “lanes” in its supply chain structure, moving literally billions of inventory items ranging from a few inches in size and a couple of ounces in weight up to pieces weighing more than 100 tons and measuring 50 feet long or more, to dealers and end-user customers around the globe.

But recent developments have shown that size and weight aren’t accurate indicators of importance for items in the supply chain. Caterpillar’s chief financial officer, in an interview with Bloomberg in April, warned that production could be affected later this year by a global microchip shortage that’s already causing problems for automakers and consumer electronics manufacturers — in other words, a major company risks being pushed off course by a shortage of computer chips, probably the smallest active component in any of its mining-class trucks, shovels, drills and dozers.

Beyond Digital

Many challenges associated with the upkeep of outbound/inbound supply chains are of a distinctly nondigital nature, such as climate change, politics or stakeholder preferences. For example, global warming can lead to water scarcity or unavailability — a make-or-break concern for new or expansion mine projects and a significant supply-chain issue when extreme weather results in disruptions to factory output and transport availability.

The political realm poses additional concerns: The World Bank estimates that 80% of global trade, at one point or another, passes through countries with declining political stability scores, and other studies have pointed out that hundreds of product categories have manufacturing sources dominated by just one country. Meanwhile, investors are paying more attention to a company’s ethical practices, corporate culture and commitment to social responsibility, while producers are focusing less on dollars-and-cents transactional details and more on macro-level changes needed to derisk their supply chain.

All of these issues are underscored by the fact that miners, unlike computer chip manufacturers or automakers, can’t just move operations back onshore or near-shore to avoid supply chain complications. Minerals are where you find them, and increasingly they’re being found in harder-to-reach, undeveloped locales that may lack supporting infrastructure, stable government or an experienced workforce. So, mineral producers are innovating — adopting policies that involve supply chain initiatives to assure customers that the commodities they’re buying have been produced in accordance with ESG principles, convince local and national governments that mining operations can have a positive social impact, and cultivate sources of funding in an increasingly activist investor environment.

For example, Rio Tinto recently launched START, intended to help its aluminum customers meet demand from consumers for transparency on where and how the products they purchase are made. According to the company, START will empower end-users to make informed choices about the products they buy and to differentiate between end products based on their environmental, social and governance credentials.

Customers will receive a digital sustainability label — similar to a nutrition label found on food and drink packaging — using secure blockchain technology. It will provide key information about the site where the aluminum was responsibly produced, covering 10 criteria: carbon footprint, water use, recycled content, energy sources, community investment, safety performance, diversity in leadership, business integrity, regulatory compliance and transparency.

Through START, Rio Tinto will also provide technical expertise through a sustainability advisory service and support for customers looking to build their sustainability offerings, benchmark and improve performance, support sourcing goals and access to green financing.

Multi-mineral producer Anglo American said it has committed to reaching a goal of having at least half of its operations undergo third-party audits against recognized responsible mine certification systems in 2021, and all of its operations audited by 2025. Among other initiatives aimed at supply chain optimization, in May, the company announced it has partnered with the South African Council for Scientific and Industrial Research (CSIR) and U.S.-based technology company, Ivaldi Group, to explore opportunities to digitally distribute spare parts for mining and processing equipment to be manufactured locally using 3D printing.

The project includes an analysis of Anglo American’s inventory of spare parts, such as impellers for pumps, shaft sleeves, gasket bonnet valves, and rock drill bits, exploring the impact of adopting a digitally distributed supply chain, and then digitizing, locally producing and testing these parts at Anglo American’s operations in South Africa.

Matthew Chadwick, head of socioeconomic development and partnerships at Anglo American, said, “The ability to send files — not physical spare parts — will reduce our carbon footprint, delivery lead times and logistics costs. Importantly, this has the clear potential to create industrial and service jobs for host communities and surrounding regions through on-demand manufacturing systems to produce spare parts locally.”

Building Out Blockchain

End-user interest and actual usage of blockchain digital ledger technology is escalating as mining companies develop a better understanding of its practical value and availability. One of the most recent participants is Nornickel, the largest producer of palladium and high-grade nickel and a major supplier of platinum and copper.

In January, Nornickel said it would join the Responsible Sourcing Blockchain Network (RSBN), an industry collaboration among members across the minerals supply chain using blockchain technology to support responsible sourcing and production practices from mine to market.

The move to join RSBN, said Nornickel, came after it announced a broad strategy to use digital technologies to create a customer-centric supply chain, which would include metal-backed tokens on the global Atomyze platform, a tokenization platform that represents physical assets in digital form.

Nornickel said that after joining the RSBN, a series of its supply chains will be audited annually against key responsible sourcing requirements by RCS Global. The audits cover each stage of the company’s vertically integrated operations from Russian mines to refineries in Finland and Russia. Once audited against responsible sourcing requirements, each supply chain will be brought on to the RSBN and an immutable audit data trail will be captured on the platform, proving responsible nickel and cobalt production, its maintenance and its ethical provenance.

Built on IBM Blockchain technology and the Linux Foundation’s Hyperledger Fabric, the RSBN platform is claimed to help improve transparency in the mineral supply chain by providing a highly secure record that can be shared with specified members of the network. Additionally, RCS Global Group assesses each participating entity both initially and annually against responsible sourcing requirements set by the Organization for Economic Cooperation and Development (OECD) and those established by key industry bodies, including the Responsible Minerals Initiative (RMI).

Now that climate change and pressure to “decarbonize” have become constant factors in management guidance throughout the entire mining value chain, the scope of these concerns, once confined to a company’s directly controllable operations, now extends to its sources of supply as well as its outbound product flow. In December 2020, the World Economic Forum’s Mining and Metals Blockchain Initiative (MMBI) released a proof of concept, known as the Carbon Tracing Platform, that uses blockchain to track embedded greenhouse gas emissions to help producers ensure traceability of emissions from mine to the final product.

The founding members of MMBI, Anglo American, Antofagasta Minerals, Eurasian Resources Group, Glencore, Klöckner & Co., Minsur, and Tata Steel, joined forces in October 2019 to design and explore blockchain solutions to accelerate responsible sourcing in the industry. By pooling resources and costs, the mining and metals companies aim to accelerate future adoption of a solution for supply-chain visibility and ESG requirements.

According to MMBI, it not only tests the technological feasibility of a solution, but also explores the complexities of the supply chain dynamics and sets requirements for future data utilization. In doing so, the proof of concept responds to demands from stakeholders to create “mine to market” visibility and accountability.

The proof-of-concept work, said the organization, lays the foundation for the next phase of development and reinforces comprehensive feedback sessions with stakeholders. It also supports the MMBI vision to enable emissions traceability throughout complex supply chains and to create “mine to market” visibility and accountability.

Integrate, Illuminate

Producers are also tightening up their internal organizational structure and technology resources to handle future supply chain demands. In a Q4 2020 earnings call held in late March, an executive of Polish copper and silver producer KGHM called attention to a supply chain project that the company said had paid off handsomely by integrating three processes: resource planning, supplier procurement and inventory management. “Now,” said Radoslaw Stach, vice president of the management board for production, “that integration and digitization and automation of these processes translated into enormous cost savings in real-time, and we could watch the results as we rolled out the program in the fourth quarter of 2020.”

Another strategy gaining momentum is improved visibility of the chain through implementation of a “control tower” concept — as explained in an analysis of supply-chain agility progress in mining published by Deloitte earlier this year: “While many mining companies have taken steps to mitigate risks in their supply chain, for most, the true nature of the risks still remains unknown,” wrote report authors Chris Coldrick, a consulting partner based in Australia, and Rhyno Jacobs, an operational engagement expert with Deloitte’s Africa Strategy and Operations business.

“The rate of response and priorities have varied; however, there is still a need for companies to assess and manage the risk by illuminating the extended inbound supply network and actively managing it through a so-called control tower view: a central hub with the required technology, organization, and processes to capture and use transportation data to provide enhanced visibility. Balancing the inherent risk with continued cost focus will likely be key.

“Risk mitigation strategies should then follow suit, including establishing alternative supply sources — with an emphasis on building a sustainable local supply base — and reevaluating inventory strategies to have greater control over access to critical spares,” according to the authors.

As an example, Fortescue Metals Group officially opened its Hive in mid-2020, an expanded Integrated Operations Center (IOC) in Perth, Australia, that provides the technology needed to serve its supply chain. The purpose-built facility includes FMG’s planning, operations and mine control teams, together with port, rail, shipping and marketing teams. The newly refurbished space allows more than 300 team members across Fortescue’s supply chain to work together, 24 hours a day, seven days a week, to deliver improved safety, reliability, efficiency and commercial outcomes, according to the company.

Fortescue CEO Elizabeth Gaines said the center seamlessly links the company’s core exploration, metallurgical, mining and marketing expertise to deliver value to customers, shareholders and the broader community.

However, not all technological tools need to be all-encompassing. There are also opportunities for improvement using technologies that focus on smaller fields of play, such as site maintenance. Global mining supply chains are dependent on the reliability and performance of physical assets such as mine fleets, stockyards, warehouses, transportation modes, terminals and ports. The industry’s financial health is tightly tied to the maintenance of steady outbound material flow from the pit to the plant and ultimately to the customer. Conversely, the inbound flow of parts, consumable materials and other supplies needed to support a mining operation must be equally efficient to keep the outbound product stream moving.

One of the pillars of efficient production is access to a field service management system that, at a basic level, schedules work orders, dispatches technicians, tracks labor hours and job status, and archives completed jobs that, in the mining industry, are often done by workers or crews that may not be in constant contact with the office and are carried out in rugged outdoor environments.

E&MJ asked Travis Parigi, CEO and founder of LiquidFrameworks, a software developer that markets the FieldFX suite of field service management (FSM) modules, to point out some indications that a mining company could benefit from an FSM system.

“A field service management solution is needed once a company finds that its paper processes have grown to a point whereby labor and processing time have become barriers to scale and increased efficiency,” Parigi said. “Losing field documentation or delaying the collection of field documentation that negatively impacts the company’s financial health is another indicator. A lack of visibility into centralized, accurate and timely data for the purpose of business intelligence reporting, which makes for more difficult decision-making, is also another sign.”

He also said that the latest generation of FSM products can accommodate the diverse nature of mining: “FSM solutions can accommodate a wide variety of configuration options found at mining companies, especially if sites are dispersed across multiple countries. Options for internationalization and globalization include a series of features to support multiple languages, multiple currencies and workflow configurations that can vary based on geography and division.

“Modern, cloud-based FSM solutions suited for enterprise mining operations can be maintained and undergo software updates with resources and effort much lower compared to legacy on-premises solutions,” he added.