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1 Introduction
Over the last decades, but especially since the turn of the new millennium, the mining
industry has drawn global attention for its strength and growth rates that have been
following economics trends of developing countries such as Brazil, Russia, India and
China (BRIC). Despite of the sector advances, mining still faces problems that are
intrinsic to its activities and challenges brought by modern techniques of management,
from which it has been detached for long time.
The exuberance of financial results from mining companies all over the world seems
to be part of a much bigger phenomenon. Brazil owns some of the biggest natural
deposits of both metallic and non-metallic ore in a planet eager for this kind of raw
materials. The Asian demand, China’s in particular, has raised international prices
of metals to impressive all-time standards.
According to Paul (2006), the London Metal Stock Exchange registered raises
of 382% in Nickel prices, 323% in Copper prices and 280% in Zinc prices over the
previous four years. Iron ore, Brazil’s top exporting item, almost doubled its price in
2007. Paul (2006) also states that economists and experts expect the market conditions
to be maintained at least until 2010. Such escalation of metal demand and prices
explains the increase of 54% in Brazilian’s mineral production from 2002 until now.
BNDES (Brazilian National Bank for Economic and Social Development) projects
that the mining industry will invest at least US$ 24 billion in the exploration of new
Brazilian ore deposits until 2010 (www.vale.com). This statement only supports a recent
announcement made by Vale (www.vale.com) where the company says it plans to invest
more than US$ 59 billion until 2010 in organic structure and new mining operations.
In another study, Malhotra (2001) suggests that the responsible use of mineral
resources is providing developing countries with a considerable number of opportunities
for poverty reduction and economic development. However, current practice seems
to indicate that such countries, including Brazil, do not always have proper mechanisms
in place for balancing opportunities against risks whenever environmentally and socially
correct initiatives are to be addressed.
In such highly competitive global market conditions, and especially when the
world markets cast their eyes onto Brazil’s ore production, the local mining industry
has initiated a general effort to restructure its productive processes to align them with
new production techniques and paradigms.
Companies in general are commonly valued according to standards associated
with productivity, as income and expenditure. The same principle applies to the mining
industry, but coupled to these general economic indicators, mining business valuations
also take into account additional risks for dealing with the unknown. The mining industry
is inherently heterogeneous because of the variety of products exploited, grades, markets,
and, most importantly, size of its companies, but it does have a number of similarities
amongst its competitors. For instance, regardless of the market being serviced, these
companies continuously seek competitive differentials to increase their profit margins.
Coulson illustrated the perception of value within the mining industry:
“When began his career in a gold mining company, a young engineer was
asked what the mission of that company was. Quickly he replied: ‘extract and
produce gold’. He was wrong; the extraction and production of gold were not
the goals of the company, but the means to achieve it. The real purpose of this
and all other companies is to return money to their investors.” (Coulson, 2004)
Lean mining: principles for modelling and improving processes 281
The mining industry intensively uses its capital investments, working continuously within
a high degree of financial leverage, with large investments to obtain large revenues.
It is also a high-risk activity, since a mine plan is based only on estimates, and there
is never a complete certainty of the quantity or quality of the ore available until the final
depletion of the deposit. Vale (www.vale.com) confirms this situation through
a company statement where the company executives announce that after reaching the first
billion ton of ore from the Carajás district, the mine still has proven and probable reserves
of 2 billion tons of ore. However, the geological reserve, according to the National
Department of Mineral Production (DNPM) is much greater than that, potentially as big
as 17 billion tons. Thus, mining operates under permanent uncertainty conditions and it
requires not only proper business planning and analysis, but also a certain degree of faith
in committing significant capital investments to start a new project.
This uncertainty-driven environment clearly emphasises how valuable is the
structured and steady acquisition of production information within the mineral value
chain. Initiatives such as production process modelling and analysis provide appropriate
knowledge for mapping out and assessing the behaviour of key variables in the process
from extraction at the mine face all the way down to sales and delivery of the ore
products. According to van der Zee (2007), a challenge in simulation modelling is
to produce models that are transparent, that is, facilitate stakeholders in validating and
understanding key decision variables, their workings, and model output. Unfortunately,
many simulation models tend to be less transparent, being influenced by the analyst’s
mental reference models and simulation software libraries. Only the tight control
of productivity, ore quality and mining costs given by models can balance the inevitable
losses incurred by the uncertainties steaming from geological data.
The competitive advantages sought by shareholders and investors within the mining
industry may be realised as technological innovations, quality and delivery assurances,
or even as costs reductions through process reengineering. Traditional mining processes
for extracting metalliferous minerals, fossil fuels and industrial minerals incorporate
various stages and activities that require modernisation and optimisation so that ore
quality and quantity of the products sold by mining companies can be properly managed.
According to Chow et al. (2006) in recent years, the restructure of the customers’ supply
chain and logistics network has redefined the way a logistic service is operated. Despite
of the development of various kinds of logistics information systems to store and process
all sorts of data and information to support daily logistics operations, the logistics
planning or decision making of logistics activity is still executed manually.
This desired quality assurance can only be achieved through a structured effort
to modernise and so increase efficiency throughout the entire mineral value chain.
Only then, mining companies will be able to maintain and maximise their
competitiveness in global markets.
2 Literature survey
The research methodology used in this paper is based on the literature survey of both
mineral logistics and all kinds of lean thinking theories and applications.
282 J.G. Steinberg and G. De Tomi
supply chain design. The ultimate success of supply chain modelling, however,
is determined by a combination of the analyst’s skills, the chain members’ involvement,
and the capabilities of the simulation tool. This combination should provide the basis
for a realistic simulation model, which is both transparent and complete. The need for
transparency is especially strong for supply chains as they involve (semi)autonomous
parties each having their own objectives. Usually, these parties are represented
by multimodal logistics channels. Mutual trust and model effectiveness are strongly
influenced by the degree of completeness of each party’s insight into the key decision
variables. Ideally, visual interactive simulation models present an important
communicative means for realising the required overview and insight.
Unfortunately, most models strongly focus on physical transactions, leaving key
decision variables implicit for some or all of the parties involved. This especially
applies to control structures, that is, the managers or systems responsible for control, their
activities and their mutual attuning of these activities. Control elements are, for example,
dispersed over the model, are not visualised, or form part of the time-indexed scheduling
of events.
Mineral supply chains are usually multimodal chains. The balance between the origin
where minerals naturally occur and final consumers of processed minerals is maintained
through several logistical channels and knots that transport, store and deliver using ships,
trucks, trains, warehouses and many other logistical modals and facilities. By adopting
multimodal logistics, companies can significantly reduce lead time and inventory
carrying costs, which may constitute major improvements in both profit and customer
service (Grasman, 2006).
In lean systems the results certainly matters, but the approach of achieving them
differs sharply from conventional management methods. The difference in a lean
management system is the addition of a focus on process, as well as a focus on results.
The premise is that when designing a process the designer should seek to produce
a specific result. If the job is well done, the results must be achieved. In concept, this is
simply a matter of maintaining production at task time. If this is done, the demand is
satisfied. As improvements in the process are made, improved results should be expected.
Six Sigma, as the operational lean tool focused on drastically reducing defects was
also used to propose improvements in mineral value chains. Devane (2004) states that
lean manufacturing and Six Sigma are two powerful process improvement disciplines
that provide a set of tools, methods and principles to improve processes that meet or
exceed customer requirements. The ultimate goal of any improvement initiative is
to provide products or services of high quality to customers when they require them at an
affordable price that would result in a profit for the provider.
Lean manufacturing and its most powerful tool, Six Sigma, support this high-level
goal. Six Sigma provides an advanced statistical toolkit and a management system that
focus on reducing output variation by controlling inputs and virtually eliminating defects.
Lean provides principles and simple tools that focus on eliminating waste, increasing
speed and increasing throughput.
3 Logistics concepts
Figure 1 Inventory management continues to improve (see online version for colours)
Source: www.census.gov
Figure 2 shows logistics costs have trended downwards, from about 16% of GDP
(Durable goods list) in 1981 to around 8.5% in 2003. Transportation costs have
declined by nearly 25%, whereas inventory carrying costs have declined by more
than 65%. Logistics costs have declined primarily because inventories are managed more
efficiently: warehousing expenses have been reduced, and risks have been minimised
as third-party providers increasingly furnish specialised and customised logistics
solutions that are more efficient.
Figure 2 Logistics costs continue to fall (see online version for colours)
Source: www.bea.gov
According to Taylor (2005), problems in the supply chain have devastating effects on
companies’ financial sector. Nike, for example, in 2001 estimated losses of $100 million
by logistic problems. Several other companies also reported losses due to lack of a
well-structured supply chain. A properly addressed supply chain usually results in
a competitive advantage for any company, making it competitively strong. There are
several examples of companies in the world that needed to change its supply chain to
remain in the market. Siemens innovated and reduced the delivery time of equipments
286 J.G. Steinberg and G. De Tomi
from 22 weeks to only 2 weeks. Gillette was another company that registered a reduction
of $400 million in inventories. Chrysler also needed to improve its supply chain in the
1990s, resulting in a net annual economy of over a billion dollars. The reduction in costs
coupled with improved supply chains allow companies to benefit enough to cause a
turnaround in the structure of the entire industry it is immersed in.
Well managed supply chains can bring huge success to corporations, but on the other
hand, supply chain structures with disabilities can bring catastrophic results. Transporting
goods is expensive, and any slight change in the supply chain has a major impact on the
success of the operation. Customers are indifferent to the difficult negotiations on the
supply chain. It is irrelevant to them for any decision being taken in the chain.
The important thing to them is how to choose the best product at the lowest price.
To have this product with the lowest price, companies must work together; manufacturer,
distributor or retailer are all related and must seek to bring quality together.
Despite of the global advances in the logistic area, the mining sector still has much
to benefit from the application of modern techniques of management in supply chains,
and this is the main issue of this paper. Through research and innovation, the objective is
to present the mining industry with challenging solutions from the logistics perspective.
Management is to be encouraged to understand their supply chains and to establish
efficient mechanisms to improve their productions processes wherever and whenever
necessary.
Since 1980, production efforts were concentrated in designing products that are
easy to manufacture. Nowadays, this effort covers the entire supply chain, because the
manufacturing process emerged from within the factories. There is a homogenisation of
manufacturing today, such as sources 110 or 220 volts. This standardisation is also seen
in new products, where components can be used in various configurations depending on
the consumer. The products are currently designed to reduce inventory and maintain the
presentation. For example, baskets of gardens can be stored embedded in each other,
reducing space required for storage at the store.
The most exciting innovation related to logistics and the design of products is the
technique of postponement of differentiation. This technique is applied nowadays in the
mining industry. A large factory, or in the mining case, the mine itself, produces generic
products. These products will only be customised when they are in DCs near to their final
consumers. It is a very useful management tool for products that are delivered throughout
the world and manufactured in one place. This technique brings many advantages
because it reduces the security inventory and increases the economy of scale. With this
technique, the DCs must be adjusted to the idea of becoming involved in final assembly
of goods, with machines, personnel and space. The postponement may be so great
that reaches the house of the final consumer, such as in the cases of home theatres
and bicycles configured specifically for a consumer. In the mining business, the final
consumer can be considered the final shipment of mineral in the grade specified by the
consumer. The mineral is usually blended in the harbour to meet the standard required by
each buyer, mixing minerals from different mineral origins, ages and compositions.
This technique and several others implemented during the modelling and
improvement of the supply chain can place any company in charge of its supply chain,
but the invention of new techniques is the most guaranteed way to turn a company into
a legitimate leader of the market.
FROM TO
Compliance Commitment
Exclusive focus on efficiency. Posture: Commitment and engagement with the
“I can live with that”. Changes are not needed process of cultural change
Complexity Simplicity
Guidance for perpetuating complex processes An orientation for processes whose success is
and accepting losses in the value chain measured by its speed and simplicity
Tolerance with the error Elimination of error
Acceptance of a certain margin of error and a Six Sigma is a constant goal in everything that
consequent undisciplined corrective actions is done. Guidance to raise the Sigma level of
taking processes
Weak measures Strong measures
Financial measures incomplete or ambiguous; Financial measures solid, documented and
without inspection process of the impact on aligned with the results of the business;
business results formal monitoring system for the projects
development
Analysis Collaboration
Departmentalisation of operations. Passive A collaborative mentality, and an informal
resistance to changes and virtual impossibility standard pattern of discussion and debate of
of success in multidisciplinary projects multidisciplinary projects
Impatience Discipline
Urgency style. Attack the less important and Focus on the long term and sustainability of
short-duration benefits. Declaration of the results. Discipline in the method
premature victory over results
As far as the supply channels are concerned, the priority should be mapping out the
primary suppliers. In a mine, this normally means the geological deposit, which is the
source of the ore, also known as ‘ROM’ (‘Run-of-Mine’). If the ROM undergoes
transformations before reaching the processing plant, such as in crushers and screens,
these unit processes are identified as secondary suppliers, tertiary suppliers, and so on.
The channels that interconnect these facilities are then analysed according to their
operational conditions, and according to the volume of material handled by them.
The distribution channels are located downstream from the plant and they represent
the mechanisms to distribute the plant production. The facilities in this portion of
the logistics network are usually processing units for resizing or repackaging delivery
parcels in intermodal terminals, or simply intermediate warehouses. These represent DCs
to regulate demand and to control the output of products. The channels that connect
these DCs are analysed in a very similar manner to the supply channels. Figure 3 shows,
in a simplified form, the conceptual sequential stages of the ore from the mine face down
to the end customers.
Figure 3 Mining conceptual sequential stages (see online version for colours)
Lean mining: principles for modelling and improving processes 291
After the assembly of the model of the mineral value chain, the next step is
to improve the logistic network by applying advanced managerial models. The starting
point of lean thinking is the definition of value. Unlike popular belief, it is not the
supplying company but the end customer who defines value. For final customers, value is
associated to their needs. Companies should concentrate efforts towards determining and
meeting the specific needs for their operations, and charge appropriate prices to ensure
increasing profitability through continuous improvement of their production processes.
The ability to understand and manage the relationship between value and end
customer needs is one of the major difficulties to implement the lean thinking
methodology in mining. The conventional operating mode of the mining industry is to
push high production regardless of demand and to store products as ready-to-go
‘commodities’ at the ending nodes of the logistics channels. Lean thinking focuses on
demand-driven systems able to follow and react to shifts in demand.
For a successful lean thinking implementation, the management challenge is
to provide appropriate fluidity to the value-adding processes and activities. This requires
a change in the mindset of the staff involved with running the network, shifting from
production-driven to a value-added decision-making approach. It is important therefore
to expose the personnel that deals with the mineral value chain to sites and industries
where lean thinking has been properly applied, and allow them the opportunity to apply
the same principles to the mining activities, hence establishing a lean mining approach
to the business.
The immediate effect of creating a value-adding, continuous production flow is
the reduction of the design time of ore products and of the quantity of ore in inventory.
The ability to develop, process and distribute ore products quickly means a higher degree
of visibility and presence of such products in the market. Lean mining provides the
company with a clear path on how best to meet the need of the end customers almost
instantaneously and with a high-efficiency logistics solution.
The long-term success of Lean mining depends on the proactive participation
of all the staff and decision makers related to the production process. The search for
continuous improvement towards an ideal state should guide all the efforts of the
company. All participants in running the mineral value chain such as operators,
assemblers, manufacturers, distributors and retailers should have a thorough knowledge
of the production process as a unique, transparent system and they should be able
to dialogue to continually seek better ways of creating value.
Sales of minerals are normally detached and quite independent from the production
process and the logistics connections end up being limited to specific portion
of the mineral value chain. Geological processes provide the estimates for the contents
of the ore body and in some instances the geological information can be carried across
the mineral value chain all the way to product sales. However, these are only estimates
for the quality and quantity of ore, and because of that, the actual mine production
will always differ from the geological estimates. The challenge for mining companies is
to manage the discrepancy between the planed/estimated outcome and the mining
operation results, and to ensure that the expected results are achieved at the end of the
process. To address this issue, a number of mining companies have been applying the
Six Sigma concept.
Lean mining: principles for modelling and improving processes 293
• Analyse: Analyse data to identify what is related and what is coincidence. Determine
what the correlations are and make sure that all factors were considered.
• Improve: Improve and optimise the process based on the analysis of data.
• Control: Check to ensure that any change in the system is corrected before it results
in failure.
Figure 6 Awareness levels through full lean thinking commitment (see online version
for colours)
Lean mining: principles for modelling and improving processes 295
Figure 7 Example of a LDCB as the one used in Carajás, Brazil, designed and operated
by Vale (see online version for colours)
Another example of lean concepts being applied in mining processes are the conveyor
belts that feed ore in the holds of ships in ports. They gained the differential of being
articulated and with dashes allowing its repositioning during the loading operation.
Usually ships have multiple compartments of cargo, and when each of the compartments
was full, there had to be an extra time to repositionate the conveyor belt for the next hold.
296 J.G. Steinberg and G. De Tomi
In the modern process adopted by VALE, the loading is continuous, since two
spears alternately operate in parallel. At the same time as one loads, the other is
repositioned ensuring stability in the transport of ore through the supply chain as shown
here (Figures 8 and 9).
Figure 8 Articulated conveyor belt charging vessel (see online version for colours)
7 Conclusions
Over the last few years, mining has become a leading force of economic progress
in developing countries such as Brazil. Mining companies have managed to increase
their productivity rates to a significant degree but even if such results fill the eyes of
those who look at them superficially, in most cases the actual production processes
conceal an intrinsic lack of efficiency that requires a change of management and
administration strategies.
Often the sequential processes that compose the mineral value chain have been
repeated for many years without significant modernisation. These sequential processes
are structured in such a way that most unexpected variations in quality and quantities
are absorbed and diluted along the way. Therefore, the typical mineral supply chain
incorporated various obsolete and unproductive processes that have to be reengineered
to enable mining companies to reach a much higher degree of rewards. Lean mining
delivers those results by encouraging management to get a deeper understanding of the
key productive stages of the mineral value chain and the logistics channels that connect
them. This promotes intelligent, market-oriented decision-making, moving away from the
uncertainty-driven strategy of keeping large stockpiles of ore products stored along the
way with significant value and working capital locked away.
Acknowledgements
The authors wish to acknowledge the advice and guidance provided by their colleagues
at LAPOL/USP and the Int. J. Logistics Systems and Management technical reviewers
in the preparation of this paper. The financial support by the research agencies FAPESP
and CNPq is also acknowledged.
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