Industry Q&A: Lifecycle Costing, Reducing Equipment Downtime and Achieving Optimal Asset Performance
Managing operational expenditure (OPEX) continues to be the major driving focus for most miners around the world. Therefore, we decided to catch up with Graeme Elgie, CEO at iSolutions, who is passionate about improving asset health, minimising operational expenditure through a smart dynamic lifecycle costing strategy and reducing equipment downtime in mining operations.
How do you see the next financial year rolling out for the mining and METS sectors?
From an entire mining market industry perspective, I would foresee it staying fairly flat. However, from the perspective of companies wanting to engage in innovation again, it will be a lot more positive. People in the sector have got their head around the fact that this economy is the new norm for mining operations and are wanting to focus more on innovation, a smarter approach to cost control and visibility, so I would see the next year being fairly positive in that respect.
With OPEX looking to remain a focus for miners for the foreseeable future, what should they be doing to achieve excellent asset performance?
This is already providing a challenge for lots of miners; traditionally the mining industry has had a very preventative maintenance approach, with structured maintenance plans that are followed and executed unless an incident occurs. Now many companies are challenging themselves to take the next step up the asset management maturity ladder to proactive maintenance.
I would see lifecycle costing being the foundation of this step up, as without that, mining operations have no transparency on what’s coming up in terms of maintenance or replacement, and can’t measure their current position. Opportunities exist right now for the mining companies to be more proactive and use technology in a smarter way. The hurdle for many is the sheer number of platforms or solutions in the market, leading to them being bombarded with people offering them software. Identifying the right product for your operations is a critical step in this journey.
How important is lifecycle costing for miners to be able to improve cost management and therefore regain competitiveness?
We view this as critical. Obviously you could say that we’re biased, but it’s more the reverse: iSolutions focused our software on it because it is critical.
Firstly, as a mining operator, contractor or equipment manufacturer, if you don’t apply the principles of lifecycle costing, you will have no visibility on what’s coming up in the future. This is so important in mining, because it’s not just about transparency for the next month or two, but needing it for the next 12 – 18 months as this is typically the lead time required for much decision making. Without dynamic lifecycle costing, there can be no proactive future planning. This is generally understood across the industry now.
Take an equipment replacement, mines need to be able to identify over the next two years when the sweet spot is to replace a piece of equipment. If this is only identified 1 – 2 months out, it is too late. The result is they caught having to perform expensive component rebuilds that are not sufficiently amortised by the time they replace the equipment.
Secondly, and in my opinion, more importantly, without lifecycle costing, you can’t measure your current position and that’s the necessary starting position for any continuous improvement. For example: if you’re running a fleet of haulage trucks that are currently costing you $120 per hour for maintenance on that truck – is that really good or really bad? You will only know if you can measure it in the context of where you are in the lifecycle of that asset. Mining companies tend to be focused on a year on year budget, but that approach gives you no clarification on how that individual asset is performing and, thereby removing numerous opportunities to identify potential improvements. To have a real understanding of where your assets are under or over performing, you must have lifecycle costing.
Thirdly, lifecycle costing is important in relation to risk management. Without dynamic lifecycle costing, you have no visibility on what your risks are (in this context think of risk as being a future potential liability). Lifecycle costing takes what might have been a small variance over the last six months and extrapolates it out to demonstrate what the impact of this small variance would be over the course of another six years, which will be significantly larger! This ability to forecast and predict these variances, rather than waiting for your accounting system to flag it, provides a great competitive advantage.
It’s also important that dynamic lifecycle costing is applied, meaning that it’s updating and displaying real time data. Sometimes organisations will perform one off or periodic lifecycle costing exercises (mainly for budgeting) but that loses a lot of the benefits. Lifecycle costing needs to be live and part of the day to day decision making.
For example, the component change out schedule should display the lifecycle benefits and risks associated with pushing out a component change out. Maybe if that transmission due next month is pushed out by 3 months there will be a $60,000 saving in future years.
Who within the mining sector should be using lifecycle costing for their assets?
We work with companies across the sector, including OEMs such as Caterpillar and Komatsu, to major contractors such as Downer and then the miners, including Newmont and Newcrest. The principles, and benefits, of lifecycle costing go across all three. Dynamic lifecycle costing is becoming a mature concept in the mining industry; five years ago you would only find a few early adopters around the world embracing it. Now we’ve got 60% of the world’s large mining equipment being managed or tracked in our life-cycle costing software. So managers not applying these techniques are really falling behind.
Coming back to the question on who should be using life-cycle costing, it’s really anyone who is managing assets. All segments of the mining sector have recognised the importance of lifecycle costing to achieve any level of excellence in asset management. Whilst these three different parts of the mining supply chain may have slightly different end objectives, what they have in common is an understanding that lifecycle costing is critical to taking that next step on the asset management maturity ladder.
Where are the biggest opportunities, as you see it, for mines to reduce downtime around operations?
The starting point is having accurate data. It sounds obvious but the old adage ‘what you can’t measure you can’t manage’ applies. Most mining operations we see will have Excel sheets supporting shiftlogs and equipment performance reporting, but that does not provide the detail needed for reliability analyses. For example, recording an equipment as being down for maintenance due to a breakdown is fine for reporting MTBF and availability, but it does not help for identifying improvement opportunities. Once they have the downtime data in a meaningful format it’s a relatively simple process using lifecycle costing and the Pareto principle to identify improvement opportunities and implement improvement initiatives. At this point we generally see operations will make quantum improvements in reliability and downtime, it generally turns out to be a few simple things that make a big difference. So the opportunity really is getting the processes, disciplines and systems in place to record downtime at a meaningful level.
How important is the balance of people vs. software in achieving the optimal asset performance for mining equipment?
This is absolutely critical. You will never be able to have software do everything in a completely automated way without the involvement of people. Balance is a great word to use in this situation, as you face risks on both sides of the equation. Sometimes mining companies have great people who understand reliability and lifecycle costing techniques, but don’t have the data or systems that allow them to apply these techniques, which can hold the people back. If you don’t have the systems, the volume of data is too big for spreadsheets to be utilised.
However, the reverse can also happen of course. Companies have world-class software, but don’t have their people trained in the required techniques or to use those specific platforms, so the company is not getting the best value out of the software. You must have a balance between the right people, who understand the techniques behind asset excellence, but also provide them with the tools to support them.
To see more about iSolutions, check out their website.