Lean in the mining industry - Can the lean production system reduce the potential ineffciencies of the mining valu-e chain?

Abstract

Iron is one of the most importantly used metals on earth. The industry is currently facing a number of interesting challenges: Iron ore has become the primary raw material for steel and the iron ore industry is booming at an unprecedented rate, largely driven by the rapid expansion of China. To this extent, with a demand growing faster than supply, the iron ore industry is an extremely attractive and profitable business. The supply is dominated by three major worldwide companies, namely CVRD, BHP Billiton and RTIO. Even though their financial results reflect the favorable market conditions, changes in the marketplace introduce new challenges and mining companies must consider changing the way they do business if they want to increase customer satisfaction and maximize their long-term performance. In fact, China has changed the way business used to be conducted in terms of setting prices (skyrocketing of spot market prices vs. long-term contract prices) and the market is attracting new suppliers highly competitive on their niche market. In such an environment, the main question arising is: How existing mining companies, more particularly the leaders, should address such changes in the market place so that they remain leader in their market and maximize their performance? Mining firms have to make two types of business decisions: - Decisions relating to capitalistic investments to increase the overall production capacity of the value chain - Decisions relating to the exiting supply chain as to how to maximize operations with existing capabilities In this report, we have tried to give insight into the second type of decisions and we have introduced a new concept – Lean mining, to highlight the extent to which Lean production system can reduce potential inefficiencies of the value chain. We were planning to concentrate our report on one particular company; however, to maintain confidentiality of crucial data and of operations’ bottlenecks, we were asked by this very company to enlarge our research to the whole industry and to demonstrate Lean efficiencies to mining companies in general by making assumptions as to their potential bottlenecks along their value chain. After an extensive analysis of the Lean tools and of the potential difficulties a mining company can face on its value chain, our findings highlight that different Lean tools have the potential to reduce a number of inefficiencies, particularly the information centers, Jidoka, Heijunka, Kaizen and the TPM system. To reduce the main problem mining companies have to address, that is to say the high variability of the production process, and to increase flexibility, the implementation of a pull system vs. the existing push system is highly efficient. To this regard, we have realized the benefits of an MRP compared to the use of Takt time and Kanban, as prescribed by Lean. In fact, because of the inherent characteristics of the mining value chain, an MRP run on a daily basis has all the potential to decrease variability along the value chain and is a better tool than the Kanban to achieve the flexibility advocated by the Lean production system.