Effectiveness of ERP Systems in Mining
Mining has changed rapidly with the advent of the 21st century and the frontier of the new digital age. More often than not it has been observed that mines that are embracing technology and leveraging its benefits have remained ahead of the curve and critically, achieving positive ROI results – even in the face of current testing market conditions that the industry as a whole is facing.
For the greater part, mining in general has been slower to adopt new technologies as opposed to its other secondary and tertiary industry counterparts,particularly in the realm of ITC.This is compounded by the fact that there is a distinct lack of a singular solution to manage the multi-disciplinary aspects of a mining operation.
While Enterprise Resource Planning (ERP) systems are not new in the industry and strictly speaking cannot be labelled as ‘new technology’ they are evolving and the market place is now offering many next generation systems that are becoming more bespoke for the mining industry and geared up to assist in dealing with the challenges that a mining operation may face.
So in the mining industry’s quest to increase efficiency and productivity to offset ongoing CAPEX and OPEX escalation in the face of a volatile commodities market let’s do a critical analysis of the effectiveness of ERP’s in the mining industry and see whether they can be used effectively to address and mitigate these challenges.
5 Key Questions to evaluate while doing a critical analysis of ERP’s in Mining:
1. What is an ERP and more importantly what is an ERP in the context of a mining operation?
Simply put, an ERP is a means of connecting multiple disparate business processes and data of a company into an integrated cohesive structure to better achieve total enterprise resource management. Being a process industry, mining ERP needs are a lot similar to traditional manufacturing ERP requirements, however there are some fundamental differences and variables in the mining value chain that warrant a more bespoke approach to ERP’s in mining and a strong case for mine specific systems to be implemented to achieve the best possible gains.
2. What potential challenges can I face in adopting an ERP system?
- The wheels of a big machine often turn slowly! Adoption takes time as there can be a lengthy process involved in implementing systems of the scale and complexity of an ERP. A rushed implementation is not the answer either as this can be counterproductive.
- Business ‘not-as usual’: Change management is a challenge as adopting an ERP system often requires a fundamental change in business processes and the way of going about business to accommodate and indeed leverage the power of a newly implemented ERP solution.
- Learning curves – a part of life: An often necessary hurdle required to adopt any new system is training for its end users. Remember, the effectiveness of a system is directly proportional to the skill level and proficiency of the end users who are tasked with using it. With that being said there is often resistance to change and a ‘majority buy in’ of the new system is a critical requirement for the success of an ERP solution.
- The bottom line is that, the bottom line is the bottom line: Cost – ERPs can be costly with licencing fees, maintenance and SLA’s and it may be difficult to see a potential for return on investment, at least not in the short term. Cost of ownership and cost of change needs to be absorbed in the short term so that the long term financial benefits can be realised.
3. So what are the benefits of adopting an ERP system?
- Coordination and Visibility over the value chain: An ERP replaces and/or integrates with multiple disparate systems to provide one holistic solution with modules that talk to each other and exchange data meaningfully. A cohesive environment where data can be cross referenced to provide much needed context, insight and operational awareness. Good ERP’s are also scalable with scope for new functionality, modules and with other bolt on solutions an ERP can grow with your business and its evolving needs.
- Interact more efficiently with data: Remove and reduce the need for duplicate and potentially manual data entry, enjoy enhanced data integrity and a single source or truth. ERP’s generally also provide improved consolidated reporting with built in business intelligence and analytics.
- Standardise and improve business processes: ERP’s are designed using best practice business processes and adopting such a solution would reflect in the way operations are undertaken. ERP’s transcend the perceived notion of being just another IT project and actually represents an undertaking in broad based business transformation and improvement.
- Accessing data in the field: Many modern ERP’s are distributed and/or are cloud based and therefore accessible using mobile devices. The value of having access to data and in fact, real time data in the field (and therefore especially in the mining industry) cannot be underestimated especially considering that key decision makers and pivotal users will not be desk bound at all times.
- Reduce Administrative overhead: A unified solution reduces the necessity for an IT department to manage multiple systems by consolidating most core operational features into one system. It is more expensive to maintain multiple systems than it is to administer a single ERP solution. The margin for error and scope for risk is also similarly reduced.
- Efficiency, Accuracy, Optimisation: An ERP can increase productivity and reduce costs with improved resource and process management thus offering a double-barrelled solution in terms of bringing a notable return on investment in an ERP solution.
4. But does my business actually need an ERP system?
Ask yourself the following critical questions and if the below rings true, at least even partly so then it may be time to consider adopting an ERP solution.
- A sea of spreadsheets: More than 50% of your operational data is managed with MS Excel: Let’s face it, there will always be a need for Excel but if you’re effectively using it to manage a large operations data and manually generate key reports, its time to seriously consider using an ERP solution.
- Expansion: Riding the wave: ERP’s are designed to work effectively in large scale and expanding operations and when an industry or market is facing a boom or is in expansion phase adopting an ERP could help to deal with and achieve maximum growth trajectories.
- Contraction, a smaller piece of a smaller pie: Cost reduction through tight system enabled controls and efficiencies gained by using an ERP system can go a long way to help ride the harshest of economic storms. Consolidation and better oversight can assist in managing turbulent operating conditions and a well implemented ERP could just be what the doctor ordered.
- Multiple disconnected software packages: Are you using disparate systems for multiple business silos that in fact need to share data repositories and are joined by mission critical business processes? If this is even partly true and integration isn’t seamless and is in fact time consuming, then an ERP solution might be on the cards. The cost of lack of integration and inefficiency will always be greater than that of any ERP system.
- Data, how I need it and when I need it: If you are not achieving real time data and heaven forbid any sort of critical data on demand, then an ERP could be the solution. Consider it a means to manage your operation with an ‘eyes-open’ proactive approach. You’ll end up questioning how you ever managed before you adopted the new system. An informed decision is a better decision.
5. So how can I quantify the benefits and evaluate an ERP?
Not all ERP’s are created equal. Additionally, an ERP solution and the benefits experienced for one business may not translate into the same benefits for another operation, especially when there are different industries. It is challenging to quantify the performance and benefit of an ERP solution. Here are some financial related KPI’s that can be used to do this:
- Total Cost of Ownership: What is the solution costing me, directly and indirectly?
- Payback period: How long before the implemented solution effectively pays for itself. This is also a useful barometer for risk.
- Return on investment: If the benefits of the implementation of an ERP solution can be quantified on the balance sheet, then ROI can be calculated to see financial return that the ERP is providing with its implementation.
- Net Present Value: A useful barometer to measure the value of an ERP solution over a longer period of time from a financial point of view, especially if there are ongoing costs such as SLA’s.
It is useful to establish performance baselines, both in cost, efficiency accuracy and time required to do a proper comparative analysis and indeed implement continuous improvement in realising the greatest possible return from an ERP solution.
A survey in 2012 by the Aberdeen group on reasons for implanting an ERP solution yielded the following interesting results:
- Availability of low cost options that minimize risk and improve productivity 41%
- Pressure from customers or suppliers for data and collaboration 40%
- Explosive growth 33%
- Growth beyond predefined threshold 29%
- Regulatory compliance requirements 25%
- A disaster event that proved and ERP is essential to operate effectively 18%
- Mandates from parent company 11%
The benefits of using an ERP system are evident and clearly outweigh the challenges of adopting them. It is important to note that there is no ‘silver bullet solution’ out there in terms of ERP systems. Adopting an ERP solution that has real time data capabilities, provides analytics and true integration, even with 3rd party solutions will yield the greatest benefits. But the efficacy of an ERP system is in fact not exclusively based on the system but importantly how well it is adopted and implemented by the mine itself. A willingness to assess and improve business processes in order to leverage the full power of an ERP system must be considered and indeed a paradigm shift is required to get the most out of these systems. This may be a fairly lengthy process with implementation and change management process sometimes taking months to put in to place effectively but once implemented the benefits will be clear to see, with even a 1-3% improvement in efficiency, cost cutting and overall ROI it’s hard to make a case against why an ERP should not at least be considered for most mining operations.