By Craig Hook, Partner: Advisory, BDO Australia
In light of current market stagnation coupled with lower demand and declining commodity prices, it is becoming increasingly important for companies to plan ahead. Companies should focus on and invest time in procurement, maintenance, planning ahead and their people in order to better position themselves for growth in a flat market.
Companies need to learn how to sustain profits to reinvest in the business, reduce costs and/or take advantage of increasing output when demand or commodity prices increase to stay afloat during a flat market. But how does one begin to position for growth in a flat market?
The ultimate aim of a business owner or shareholders is Return on Capital (ROC). ROC is Profit divided by the Capital Base. Profit is Revenue less Costs and the Capital Base is made up of our Assets and People. So how can we improve revenue, costs, asset utilisation and organisational effectiveness? Despite commodity prices being weak there are still ways to improve Revenue. Businesses need to ask themselves if they are producing a quality product that doesn’t incur impurity penalties. If you are a mining services company, are there higher value add services you can provide that will also improve your customers bottom line?
It is wise to look at the company’s Cost Efficiency, which incorporates Productivity – both Labour and Equipment. For a mining company, it is imperative to seek ways to produce the same amount of ore but with less people and equipment. One solution would be to increase the availability of equipment, reliability and change rosters. Can you keep the workforce and equipment fleet the same but mine more ore? Yes, by increasing the working time to produce ore while people are rostered on.
Companies need to look at roster maintenance and operating crews better to reduce travel time, inspection times, and possibly employ a five day roster to eliminate a crew etc.
One area that is often overlooked in companies is Procurement. Many supply contracts may have been put in place but are not designed to reduce costs whilst in operation. It may be the case that there was little choice a few years ago and you had to sole source, now there is more competition so to re-tender may be an option. A big temptation for many mine owners is to defer maintenance – after all, that process plant is new so shouldn’t need much maintenance anyway. Look at ways to reduce maintenance costs yet maintain equipment reliability. Simple preventative checks can be put in place. Be creative and look at ways to have suppliers help, may be your suppliers can hold critical spares. Can they see better ways to increase equipment availability?
The last area that should be evaluated is people. Improvement comes from accurate and timely information so correct and timely decisions can be made. Companies should have a Management Operating System (MOS) that ensures plans are up to date, roles are clear and operational variances are dealt with promptly.
Planning ahead and putting solid measures in place is a great starting point for any company and aids in positive reactions during a flat market. Good planning is the ability to “Ready-Aim-Fire”, Ready: analyse and understand the business environment and economic drivers that need to be considered. Aim: assess options that give the best return given likely business conditions. Fire: execute the plan, monitor progress, and adjust accordingly if the results are better/worse than expected.
Planning should be part of normal planning cycles. To identify and implement sustainable improvement initiatives, approximately three to six months is required.
The overall impact on the workforce will be to improve planning capability, deliver role clarity and incubate a performance culture. There may be workforce size reductions through productivity however, more than often it is a redeployment of people from “fire fighting” and construction to planning, operations to maintaining and improving work execution.
