ValidExTM
Physicals Management & The Resource Sector $
VRT Solutions has developed the understanding that each business' operating $ can be divided between three areas of spending. Experience has shown that each dollar can be roughly broken down as shown in the spending pyramid below. VRT believes that this philosophy is supportable across the Mining/Minerals Resources Sector.
Typically Business Information and Process Improvement projects tend to be driven by Financials, IT or Logistics benefits, and tend to be focussed on improving the way the business spends money on planning, managing information, reporting and analysing profit and loss. The Finance, IT, Logistics and HR functions use dollars as the measures for managing. As the spending pyramid above shows, a 1% saving in production is worth more than 6 times a 1% saving in Admin (ERP).
What are Physicals?
Physicals are the quantities or measures associated with inputs and outputs used by the business in describing the activities of that business. In the Operations areas it is the Physical measures that are used for managing (tonnes, grade, temperature, work activities, material consumption). These physicals also need to be validated, accurately calculated; variation identified and then passed to the ERP systems to provide the vehicle for moving costs around the financial systems.
The nature of the physical quantities will vary according to the type of business being considered. For example in a coal mine, the physicals will include cubic metres of overburden removed, tonnes of coking or steaming coal, % ash and % phosphorous assays taken from the final product. In a metal refining operation the physicals would be different - they may include tonnes of mined ore (plant feed), head grade of the mined ore, tonnes of final product and various grades and quality variables associated with the final metal product.
In addition to production physicals all companies use non-production related physicals (such as man hours worked or lost time incident frequency rates). Today's need for business sustainability means that these non-production physicals in areas such as safety, environment, and community relations are equally important if not critical for success.
"The traditional, predominantly financial, indicators used to measure corporate performance are becoming increasingly recognised as having their limitations. They do not tell a company's full story and are not adequate to deliver true insights into what creates value in the long term." PriceWaterhouseCoopers Report - "Digging Deeper", 2003
Delivering the ERP Promise
Traditional commerce and discrete manufacturing businesses can readily justify the benefits brought by integrating business processes through ERP. Measures of performance are absolute: the number of items bought, manufactured or sold can be measured with a high degree of accuracy. These quantities are trusted, and can easily be assigned a $ value, allowing much of the financial management capability in ERP to deliver benefits in operations management.
Businesses in the resources sector face a special challenge deriving benefits from ERP. The total ore reserve is at best an estimated quantity. Measurement of the production & consumption of physical quantities is performed by automation systems that need constant monitoring and calibration. So many variables can impact the quality of this data that it becomes impossible to use directly in the ERP system with any confidence. Consequently, operations staff spend an ever increasing amount of time sanitising and vetting data for reporting purposes, rather than managing operations.
"...mining company management admit they are struggling to put the right data management and other performance management systems in place to provide adequate quality of information" PriceWaterhouseCoopers Report - "Digging Deeper", 2003
Does this sound
familiar? A new manager in the mine or process plant commences work and looks
around for some sort of description or documentation about how things are
done. Not always finding the (current) answer, or not being able to
understand the calculations or assumptions in (his predecessor) "Bill's
spreadsheet", he soon resorts to starting afresh with his own pet
spreadsheet or database application, advising those providing the
information that "here are the numbers that I require, and here is what
they mean". The situation described here is relatively common, needless
to say this does nothing for morale or for retention of corporate memory or
knowledge. Extensive research has shown that most spreadsheets contain
errors, and yet businesses continue to rely on data generated in this
environment to make high value business-critical decisions. How exposed are
you? Read more »
