February 2018

Lean management processes in the resources sector

  • By Byron Burridge, Mechvac Engineering

The cyclical nature of mining means that real value can be achieved by implementing lean methodologies across all areas of business

Since the industry downturn, the resources sector has received a lot of media attention regarding cost reduction and productivity improvement. Significant gains have been made in lowering labour costs, improving equipment uptime, using automation, minimising ore waste in processing and reducing machine downtime for maintenance. For example, BHP embarked on a productivity improvement program three years ago and have reduced their overall operating costs by 14 per cent (Fitzgerald, 2016).

Since the mining boom there has been a lot of opportunity to reduce operating costs due to inherent inefficiencies being ignored or at least tolerated during the boom. This has produced easy gains with the fall of commodity prices and an ability to focus on operating costs. These gains have also helped to defend share prices during the downturn.

However, the industry has relied heavily on automation, for example autonomous vehicles, remote operating centres and innovative technologies such as drones for site inspections to reduce costs. These methods offer excellent solutions but are capital intensive. Some require extensive research and development time to realise their full gains, while others have a tendency to be a one-off activity that an organisation only undertakes every seven to ten years to control costs.

Outside of optimising internal processes, an alternative method to reduce operating costs is to seek aggressive cost reductions from suppliers. This may be in the form of direct price discounting or improvements to the suppliers’ own operating efficiencies. In addition to this, increased revenue can be gained from the improvement of grade, recovery and throughput.

Various mining companies have used a combination of all of the above methods of reducing costs, but very few seem to have undergone the continuous improvement path that is typical in the manufacturing industry. Nor does it seem that many resources organisations have taken this path to the full extent of a lean manufacturing system that is embedded in management and drives all upgrades and improvements to the organisation, whether there is a downturn in the industry or not.

The mining industry seems to lack focus on ‘lean thinking’, which is in contrast to high-volume manufacturing sectors – such as the automotive, whitegoods and electronics industries – where this concept has been embedded for the last 40 years. To obtain a consistent approach where cost control, high efficiency and low waste becomes automatic requires a lean management system that drives a lean manufacturing mindset throughout the whole organisation.

Many companies believe they already have a lean program in place. However, this often consists of standalone programs such as the ‘5S’ system for housekeeping, or ‘Kaizen hits’ (ie waste minimisation programs on bottlenecks in their processes). Such programs are often championed by new employees who have come from manufacturing industries and undertaken relevant training. They are without doubt beneficial, but do not equate to a lean management system, where a top-down approach guarantees that all reporting and measuring mechanisms are geared towards generating continuous improvements in a never-ending cycle.

A number of lean manufacturing mechanisms can be applied to reduce costs. A plethora of lean terminology and techniques exist, originating from the Toyota production system, where this management methodology originated.

The most fundamental tool in lean manufacturing is the ‘value stream map’, which is a flow charting procedure that can be applied to any business process. It can be applied to a whole business value stream, such as producing copper, and to entire divisions of a business such as a production process, inventory, administration, engineering or maintenance. The value stream map simply lays out all the steps taken in a process to transform raw product into a finished product for an internal or external customer. Once a value stream map is produced, it is then subjected to rigorous analysis to eliminate waste along the stream, and identify potential areas for de-bottlenecking. It is at this point that classic lean tools are implemented. These include Kaizen hits, quick machine changeovers (eg single minute exchange of die), operator sequence charting and just-in-time deliveries. There will also be further opportunities for elimination of non-value-added work, delays and defects, and minimising transport times through plant layout changes. These strategies result in continuous improvements, cost reductions within the business and a significantly improved value stream map. Generally, the process changes that are required, such as plant re-layout, process and machine modifications, are of low capital value but can be labour intensive. Once the upgrades have been implemented, the improvements must be maintained and monitored for effectiveness, and analysed for further improvements to control costs.

A lean management system must be sufficiently resourced to make it effective. In general, a combination of consultants, existing staff, new recruits and training of internal staff is necessary. To establish a self-managing system takes time, typically between two to three years. It is vital that an organisation understands that a self-managing system cannot be implemented overnight. A long-term strategy is essential with a program that is fully supported by senior management, with constant progress reporting and key performance indicator (KPI) monitoring.

A lean management system can easily be incorporated into current quality assurance programs, such as an integrated management system (IMS) that incorporates quality, environmental and safety aspects. These management systems, which include continuous improvement criteria, can enhance a continuous improvement culture within an organisation. If additional lean procedures are standardised and documented within an IMS, they can easily become an extension of the quality, environmental and safety systems. Like the other systems, these procedures will be included in the rigorous internal and external auditing process required to maintain certification.

Once implemented, there are many benefits of a lean management system. These include bottom line productivity improvements and cost reductions, as well as improvements in workplace culture, and improved health, safety and environmental outcomes. Improvements in quality, inventory, lead times and floor area savings can also be expected. A summary of benefits that can typically be achieved in such projects is:

  • productivity improvements up to 50 per cent
  • inventory reductions up to 80 per cent
  • floor space savings up to 25 per cent
  • quality improvements up to 30 per cent.

Unfortunately, lean improvements can easily be perceived by the workforce as a means of reducing the headcount. At times, this is unavoidable. No manager wants to feel responsible for industrial unrest, but if the ongoing success of the company is at risk, a proactive mindset is essential. When a workforce reduction is urgently required, it must be clearly communicated that the short-term focus is job security for those employees who can be retained on a fully productive basis. This will help guarantee the survival of the company in tough economic times. Appropriate arrangements should be put in place for those employees who are to be made redundant.

If the company is in a good trading position, productivity improvements can be realised through natural attrition of the workforce or through the re-assignment of resources. It is important that this be done in such a way that all non-value adding processes are designated to a minimum number of employees, not spread widely throughout the workforce. This will enable further continuous improvement activities to minimise the non-value-added waste in those areas of the organisation.

The methods employed to achieve the above will impact significantly on an organisation’s morale and culture. If proactive methods are adopted and include open communication and consultation with employees, an improved company culture should follow. This in turn will help drive further productivity improvements, a sense of employee wellbeing and encourage a workforce with minimal staff turnover.

Lean management practices adopted by organisations with multiple sites will also provide significant benefits. Work methods, processes and procedures can be standardised across all sites. By removing variations across all sites and adopting best practice methods that may have been developed at a particular site, overall productivity, quality control and maintenance systems can be improved.

Productivity improvements need not always be a primary focus, and indeed, the importance of workplace health and safety, and improved environmental outcomes should not be overlooked. Significant cost reductions can be achieved by improving lost time injuries, medical costs, environmental clean-ups and hazard management. Organisations often devote significant resources to these areas. Many operate a hazard and incident reporting system, of which analysis can lead to improvements and elimination of hazards. Lean management processes can access this information to further predict and eliminate hazards.

Justifying expenditure on identified continuous improvement activities can be via return on investment and payback analysis. However, major upgrades to existing, high-cost mineral processing plant and equipment may be more difficult to justify as the costs involved may well exceed the savings. When this is the case, the only solution is to include the improvements with major planned future upgrades. For new greenfield sites, it is essential to include, from commencement, all lean improvement processes learned from previous operations.

When lean process upgrades are implemented, it is essential that the new process is supported with sufficient training for relevant personnel. This training should be documented and records maintained. Training will be more effective if relevant personnel have been involved in the improvement planning process. Employees will be familiar with the upgrade and feel rewarded, especially if they have contributed to the planning process, which is not unusual. Where possible, trials should be conducted before the upgrades are implemented, to validate the new process and provide any adjustments that may be required.

Documentation of the upgrades should be comprehensive and not limited to a job file, and drawings kept in a location that is not readily accessible. Appropriate standard operating procedures (SOPs) that incorporate charts, photos, diagrams, colour coding and status lighting should be on display within the workplace to reinforce new work methods. To maintain improvements, these visual cues should be accompanied by a KPI program with visible charts indicating performance versus targets. In lean manufacturing terms, this is termed the ‘visual factory’, where the status of a production area can be determined within five minutes without the need to seek support from those involved.

Once in operation, the new process should be revisited and re-evaluated by the planning team on a regular basis. This will enable the team to monitor the effectiveness and success of the upgrade and provide any further adjustments to ensure continual improvement.

A lean management system will also include and encourage regular process upgrades. These upgrades may involve a technological breakthrough that completely replaces an existing process. These will typically occur every five to ten years, and require much planning and costs that, if substantial, may need to be financed. Once such a step is considered, it is recommended that a lean review of all its processes be conducted to maximise the full potential value. Once implemented, the new process will also be subject to the organisation’s continuous improvement procedures, thus continuing the cycle until the next major upgrade.

This is a brief summary of how an organisation might transition to a fully functioning lean management system. The optimal time to transition is when a company is stable and profitable. Unfortunately, this is often the time when transformation is not carried out due to overriding demands to meet throughput and customer expectations. However, like risk management and insurance protection, the sooner a company implements a lean management system, the better it will be positioned when the next downturn arrives.

Feature image: Praphan Jampala/Shutterstock.com.

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