Supply Chain in Components for Mining Machinery - Case Study Example

Title: sustainability of supply chain in parts, components and sub-assemblies for mining machinery in Australia Name of Student: Course Code and Name: Date Assignment is due: 1.0 Introduction 1.1 Background of Australia’s mining industry The Australian mining industry is a great contributor to the country’s economy. Australia has historically experienced mining booms that have attracted immigrants into the country. Australia is endowed with ores and minerals that are mined in different parts of the country. Inevitably, mining has had many environmental impacts in many areas within Australia. On a positive note, the industry has been a key contributor to the country’s Gross National Product. There are many multinational mining companies that operate in Australia, such as Newcrest, BHP Billiton, Alcoa, Chalco, Tinto, Shenhua, Xstrata and Alca. The mining sector in Australia is technologically advanced. Various factors have contributed to this advancement. These factors include first-world safety regulations, importance that is attached to mining research by successive businesses and governments and distinctive geology. Some of the machines used in Australia’s mining sector include wheel loaders, excavators, skid steer loaders, telescopic handlers, dozers, trucks, cranes, attachments and trailers. They are used to mine diamonds, gemstones, iron ore, and many other minerals that are of utmost importance to Australia. 1.2 Supply chain of mining Efficiency in the use of long-lived, high-tech, costly equipment requires more than just a good operations schedule; it also requires a well-designed schedule for purposes of maintenance. Generally, a good maintenance schedule entails a trade-off between various costs. These costs include repairs, replacements, costs of inspection, and costs incurred as a result of equipment failure. On the one hand, too many inspections and repairs bring about a scenario whereby unneeded maintenance practices are carried out. On the other hand, infrequent inspections and repairs may result in the occurrence of very costly failures. This research explores how supply chain in expensive mining machinery parts, sub-assemblies, and components can be managed in order to ensure that expensive machines that have a very long operational life span remain useful to a mining company. 2.0 Maintenance of the supply chain 2.1 Service delivery options: the choice between in house capability and outsourced service The maintenance of the supply chain entails a proper understanding of all products and services. One needs to have ample knowledge of various aspects of the manufacturing process, including raw materials, different manufacturers, intermediate product manufacturers, various wholesalers, distributors and retailers. High performers in the Australian mining industry are those that have adopted the best principles of supply chain management. This type of management is the one that sets them apart from other competitors when market assessments are being made. It is important for a choice to be made between two most common service delivery options: the outsourced service and the in-house capability. The best decision is one that is made in light of changing realities in the world of business. Whereas some mining industry practitioners choose to go for one option or the other, others choose to combine both strategies. Outsourcing is beneficial for business players in the mining industry since future investments such as upgrades of machinery, sub-components, and parts are avoided. However, although the outsourcing vendor takes care of all upgrades made in the future, this may limit industrialist’s ability to make improvements on the end-to-end process, yet this is where the greatest value is to be found. 2.2 Organization of the maintenance function and the way maintenance tasks are structured. The primary elements of performance of machinery used in mining include business drivers; process and development; and business results. Each of these elements is made up of various sub-components. Business drivers consist of leadership management style and strategic planning. The process and development element consists of customer and focus market; human resource management, process management, and information and analysis. Business results take the form of customer satisfaction, efficiency in utilization of human resources, favorable environmental and social indicators. In all levels of maintenance (that is level 1, level 2 and level 3), all these elements should be analyzed in great detail in order for the benefits of each level to be determined. This way, a mining company can select a level of maintenance that best suits its operational needs. However, the best approach entails focusing on simultaneous lean, reliability and maintenance improvements, whereby focus is put on the stabilization of all production processes. Elements of workforce location, plant specialization and workforce specialization also play an important role in maintaining supply chain sustainability. Every manufacturing facility pursues production systems and equipment that are easy to operate in a reliable fashion. Profitability can be maximized if there is plant and workforce specialization since the equipment will be properly designed to perform what it should do when the tasks requires to be done in a specified location. 2.3 Maintenance methodology: the selection of maintenance policies Preventive maintenance is one of the ways in which equipment failures can be avoided in the mining workplace (Franklin 2006, p. 114). In proactive mining organizations in Australia, it is often emphasized that basic equipment care remains one of the most important elements that affect the reliability of equipment. Thus, tasks such as routine cleaning and inspection for deteriorating conditions are always emphasized. Condition-based maintenance is an equipment maintenance strategy that is based on the measurement of the actual condition of equipment so as to assess whether it is going to fail during some period in the future, so as to take appropriate actions in order to avoid the consequences of such failure. Condition monitoring and statistical process control techniques are often used to assess the performance of equipment. Alternatively, Human Senses may be used to determine when design improvements are needed in the equipment. According to Shirose (1992, p.1), the ultimate aim of TPM (Total Productive Maintenance) is to ensure that ‘perfect manufacturing’ is implemented. Pomorski (2002, p.1) observes that TPM has matured into a very comprehensive equipment-centric effort that optimized outcomes in all manufacturing processes. 2.4 Design of the infrastructure that supports maintenance Through Total Productive Maintenance, it is possible to lay down the ideal infrastructure whereby the effectiveness of equipment is guaranteed. According to Pomorski (2002, p.1), an in-depth investigation into the appropriate manufacturing infrastructure for purposes of maintenance of equipment should focus on organizational structures, analytical tools, human interactions, and success criteria that relate to proper implementation of TPM. TPM maximizes equipment effectiveness and establishes a thorough system through which the Preventive Maintenance for the entire life span of the equipment is established (Knights 2000, p. 17). For it to be properly implemented, the manufacturing infrastructure must consist of engineering, maintenance, operators and managers. Hartmann (1992 p. 15) spells out the differences that exist between the Western and Japanese approach in defining TPM as an important element of infrastructure design. However, Hartman quickly adds that these differences are subtle, with more commonalities being highlighted as opposed to significant variations. The Japanese model puts more emphasis on the role that is played by teamwork, the participation of all employees, and small group activities in various TPM-related activities in order to accomplish various equipment improvement objectives. On the other hand, the Western approach puts focus on the equipment whereby an understanding of participation in TPM efforts and involvement of the operator is needed (Pomorski 2002, p.2). 2.5 Performance of regular check on machines by external auditors Regular checks on machines are based on the premise that maintenance of equipment in the mining industry can never be reactive if productivity is expected to be achieved. This is the reason why in today’s lean manufacturing practices, emphasis is always put on systems that have the ability to provide data on a machine’s current performance. The analysis of such data is always highly valued. The data are often used to bring about continuous improvement. Regular checks tend to be directed towards the analysis of such data. Additionally, regular checks form an integral element of facilitation of life cycle asset management. External auditors can be of great help in cases whereby internal auditors are not able to carry out regular checks objectively. There may be various reasons why internal auditors’ may not be satisfactory. First, they may lack a sense of ownership of the company’s assets. Secondly, they may be so much used to the regular checks that objectivity is eroded. Thirdly, the internal auditors may be an integral part of a culture that fails to value reliability. In such circumstances, external auditors should be invited in order to offer professional help on the best available maintenance practices. 2.6 Designing the right ‘safety level’ stock of components In general terms, spare part inventory and maintenance policies are often treated either sequentially or separately in industry (Ilgin 2007, p. 5). However, since maintenance policies determine the stock level of various components of equipment, it is often a better practice to deal with both problems simultaneously. In Ilgin’s (2007, p. 5) study, a simulation optimization approach was proposed, whereby genetic algorithms (GAs) were proposed for optimizing the spare provisioning and preventative maintenance (PM) policies within the automotive sector. Through a factorial experiment, Ilgin (2007, p. 6) identified the best values for various GA parameters. Probabilities on the population size, crossover and mutation, and number of generations were also determined. The computational experiments revealed that the parameter settings provided by the proposed approach could attain a desirable level of cost reduction. At the same time, they could increase the throughput of the manufacturing system. When the right ‘safety level’ stock of components is maintained, it is becomes possible to get a replacement immediately a component becomes faulty (Farrero 2002, p. 191). If, for reasons relating to cost or size, the part cannot be stocked, the maintenance policy should explicitly indicate the channels that should be followed in getting a replacement from the Original Equipment Manufacturer (OEM) (Riis1997, p. 356). 3.0 When a component has a problem 3.1 The situation whereby the OEM manufactures the missing/faulty component It is obvious that some components of mining equipment will sometimes become faulty. If this happens, the first thing that equipment maintenance managers do is to check whether the OEM still produces the required components. In case the OEM still produces the parts, one needs to ensure that there is an agreement indicating that a continuous supply of the indicated parts is guaranteed. Additionally, the agreement should specify on issues of quality assurance, timely delivery and the costs to be incurred by the buyer (Gurgenci 2001, p. 278). As time goes, industrial products continue to become more advanced and complex. As this continues to happen, the role of supporting services needed in order for the equipment to achieve a certain agreeable level of productivity within its long lifespan is increasingly becoming critical. In order to attain the best performance for the longest time, mining industry customers are entering into various service contracts with OEMs or independent service providers (Kumar & Markeset 2004, p. 412). Essentially, such contracts involve a service contract negotiation and agreement between the service provider/OEM and the client. If such contracts are not fully negotiated, this may result in poor system performance and conflict. In order for both parties to achieve a win-win situation, the negotiation process should entail a lengthy discussion of all the terms of the contract (Mahama 2006, p. 323). Examples of such terms include what services are to be delivered, who is to deliver them, how they should be delivered and received and the level of performance required in the delivery process. Kumar & Markeset (2004, p. 411) developed a conceptual framework for the negotiation process of service delivery. Their model was based on review of literature as well as an analysis of results from various surveys relating to different industrial service contract negotiation approaches. A key element of equipment maintenance program in many Australian mining establishments is the close working relationships that exist between OEMs, mining customers and dealers (Kumar & Kumar 2004, p. 301). In mining, one cannot afford not to have a good working relationship with his dealer (Miskin 2006, p. 6). In this era of rapid technological changes, service remains a key element in every industry (Kumar 2008, p. 776). In most cases, the most important aspect of the relation between the dealer and the miner is for the distributor to be the provider of trained technicians to the miner. The work of these technicians is normally to fix various sophisticated electronic components for their customers as the need arises. In many mines, these maintenance personnel are also responsible for minimizing the downtime for mine operators. This is often done by coupling various maintenance schedules whenever the need arises. 3.2 The situation whereby the OEM cannot manufacture the missing/faulty component In the case whereby the OEM no longer manufacturers the parts, the miner needs to seek licensing from other manufacturers so that they the missing or faulty parts can be produced (Emery 1998, p. 71). Quality should always be assured in addition to time delivery and costs being specified. Today, mine operators find it very important to outsource non-core business processes. However, owing to problems arising when a component becomes faulty, these operators are choosing to change the terms of service that they negotiate with the OEMs. Consequently, in today’s business environment, many users of industrial mining equipment are choosing to buy performance as opposed to physical products. It is now becoming a common practice for the OEM/suppliers to own, maintain, operate and support his own product in the mines. In this regard, product performance becomes a negotiated agreement. In most cases, this agreement is entered into on a cost-per-hour basis. In this case, the terms of the agreement are based on a certain level of performance for every hour’s level of work done. Kumar & Kumar (2004, p. 305) recommend the adoption of ‘total care solutions’ and ‘solution selling’ into the mining industry. According to them, there is a strong likelihood that these concepts can be beneficial in situations whereby negotiations have led to conflicts between miners and OEMs in the mining industry. Both total care solutions and solution selling are considered as suitable for the mining industry mainly because the equipments used are highly specialized and very expensive (Ghosh & John 2009, p. 606). In this case, the best option is to buy processes as opposed to physical products. It is important for the miner to be ultra-careful in terms of maintaining any equipment whose components and sub-assemblies the original equipment manufacturer has stopped producing. There are many reasons why the OEM may find it untenable to produce these components. The reason could be because the technology has become obsolete or market dynamics dot not allow continued production. Nevertheless, if these components undergo breakage, the only two available options would be to either reengineer the components or to buy a new mining machine. 3.3 Options available while waiting for replacement components The task of replacing a component of a mining machine may take a considerable time to be completed. During this time, it is unwise to halt all operations. The mining company may choose to lease mining equipment or the mining site itself to other mining companies. Alternatively, a partnership may be entered into with another mining company in order for the ongoing mining project to be completed promptly. Another option would be to work on other mining tasks that had been halted upon the commencement of the current mining undertaking (Lugtigheid 2007, p. 959). Frequent mining companies are faced with a dilemma when time comes for deciding whether to replace a piece of equipment or to continue using it. The mining managers who are good planners are those who always think ahead. In this case, they should also worry about the operations that will be going on as the replacement of the component is being sought. In most cases, a systematic decision-making process is not followed. The implication of this scenario is that mining operators lack the preparedness to shift their operation to alternative areas as they await the replacements of components to be made. In some cases, miners are reluctant to replace certain components of their mining equipment because they have not planned on the operations that they will be carrying out during the replacement period. During this period, the losses encountered when operations are halted would be to enormous to face. Galisky & Guzmán (2008, p. 6) use the Capacity-Related Unreliability (CRU) model in order to determine the time in which a second component should be brought in as a replacement. During this time, Galisky & Guzmán recommend that the mining company should divert its equipments that are fully operational into other income generating activities. Leasing these equipments is one of the options that should be considered. The downtime tends to increase at the same rate at which the equipment gets older. Whenever any equipment enters into any unscheduled downtime, a fall in capacity that leads to a loss of income should be considered. Temporary capacity losses should also be substituted. In this case, the opportunity evaluation becomes paramount. According to Navon and Maor (1995, p. 182), one simple way of doing this is to make an assumption on the cost of making a lease on a new machine so as to replace the lost capacity. In such a calculation, one must consider all costs associated with maintenance and additional administration. 4.0 Recommendations 4.1 research and development Many new studies continue to be undertaken in mining equipment maintenance methodologies. The gaps in these researches need to be filled, specifically in areas such as run to failure, condition-based maintenance, preventive maintenance, and design improvement. More research is needed in order to determine the relationship that exists between the level of maintenance and equipment capacity development. Additionally, spare part inventory and maintenance policies should be treated either sequentially or separately within the mining industry. 4.2 Optimum Contingency plan In order to reduce the losses incurred during downtimes, mining industry players should insist on buying ‘total care solutions’ and ‘solution selling’ as opposed to buying physical products. These products are very beneficial since negotiations are limited. The implication here is that there are slim chances that conflicts will arise between miners and OEMs in the mining industry. These service-based solutions are considered to be better, considering that the equipments used are highly specialized and very expensive. Additionally, these services should be sources from various suppliers in order to maintain relationships with as many service providers as possible. 5.0 Conclusion In summary, as the Australian mining industry continues to grow, the tools and equipments being used continue to change in terms of design and operational complexity. Miners cannot afford to risk halting business as a result of failure to sub-assemblies, parts and components. Every hour of downtime costs would cost these mining companies millions of dollars in terms of profits in addition to a decrease in service levels to their loyal customers. In order to avoid these inconveniences, the best preventative maintenance policies and methodologies should be adopted. Today, the best maintenance strategies are proactive rather than reactive. Additionally, miners are choosing to hire services instead of buying physical equipments in order to overcome tricky negotiations with OEMs and possible future conflicts. When these OEMs take charge of all operations and maintenance of equipment, charges are determined on a ‘cost-per-hour-basis’. In this way, continuity of mining operations is guaranteed. References Emery, J 1998, ‘Improving coal mining production performance through the application of Total Production Management’, Coal Operators' Conference, University of Wollongong, p. 71-80. Farrero, J 2002, ‘Optimization of replacement stocks using a maintenance programme derived from reliability studies of production systems’ Industrial Management & Data Systems, Vol. 102, No. 4, 188 – 196. 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