Whole-of-life costs for mobile equipment fleets

March 20, 2008
Mining companies are at the top, (or near the top) of a boom in commodities prices that looks set to continue for some years yet. The entrance into the consumer markets of China and India has irrevocably changed the familiar boom and bust scenario of this sector. As long as these economies continue along their pathway of rapid development, then the high levels of demand for commodities such as metals, and petroleum, will also continue. This issue is discussed at length in my new book, The Maintenance Scorecard. For those in the mining community, this represents a once in a lifetime growth opp ...
Mining companies are at the top, (or near the top) of a boom in commodities prices that looks set to continue for some years yet. The entrance into the consumer markets of China and India has irrevocably changed the familiar boom and bust scenario of this sector. As long as these economies continue along their pathway of rapid development, then the high levels of demand for commodities such as metals, and petroleum, will also continue. This issue is discussed at length in my new book, The Maintenance Scorecard. For those in the mining community, this represents a once in a lifetime growth opportunity. Yet at the same time it poses unique pressures and problems for asset managers within this sector. Increased demand has everybody running to increase supply, so far so good! The problem is that there are limited resources for doing so! Instead of feeling the competitive pressures that manufacturing regularly feels, they are feeling the pressures of not being able to increase profits quick enough! A good problem to have! In the field of heavy mobile equipment there are a limited number of suppliers, each of whom require relatively long lead times for delivery of new fleets or equipment. This is not like buying a Ford motorcar, haul trucks, dozers, electric rope shovels and blast hole drills are multi million dollar pieces of equipment. Not only that, but supplies of parts are also extremely limited. So, one of the many goals for asset managers in mining during this growth period is to extract the maximum economic value from their existing physical assets. This will require targeted strategies aimed at decreasing unit costs, extending asset life, and combining reliability and production strategies to ensure maximum possible output. Easy to say right! But how is this going to come about? There are ranges of possible options. Mining is an old industry and one that has been the subject of many studies in productivity and efficiency. Principally, however, the goal needs to be on maximizing the whole-of-life net present value of the asset base. This means the value of all the fleet will ever be able to earn for its owners, minus the costs, in today’s money. (Deflated) To do this there is a need to look at several key aspects: How to minimize down periods (Not downtime, but operational down periods) Why do haul trucks, in particular, have operational down periods? Various reasons. Service times, lunch breaks, checks of nagging faults, tire changes, and a range of other reasons. So to minimize these there is a need for high levels of choreography between the maintenance and operations departments. In-pit services, breaking service periods into smaller parts, small modifications or changes to extend time between service periods, and in pit tire changes, are all effective means of tackling this problem. Effective use of all potential haul time can increase the ability of the company of reducing the overall fleet size also. This is a particularly important aspect of fleet management. If the fleet can manage the same amount of tonnage, with a reduced number of producing units, then overheads can be reduced. (Large scale overheads, last time I checked tires for these trucks were at USD$40,000 new) This is a particularly sensitive issue in mining companies. Many companies are still highly capitalized for the production levels that they are trying to produce. The ability to deploy these assets more economically can have a dramatic and immediate effect on profit and loss equations. Maximizing uptime from the asset management point of view! Challenges in this area are three fold. Sustained increased opportunities for making profits have created an almost unique situation for miners. But, this is also coupled with some new and extraordinary challenges, increased unit size, and increasing complexity of mineral deposits, has added to the challenge facing asset managers in raising the reliability of the haulage fleet. While electric rope shovels reached their maximum before the turn of the century, haulage trucks are still growing and are regularly getting larger and larger. Sounds good right? From a productivity point of view this is generally great news! But what strains does it put on the asset management function? When you have larger productive units, then the impact of losing one of them suddenly grows also. So keeping these units running takes on a dramatically higher level of importance when compared to a mere ten years ago. The challenge of mineral complexity basically means traveling greater distances, over more arduous terrain, all of which puts greater strain and pressures on the mobile fleets. With all of these factors together, there is a driving requirement for asset managers to look at more sophisticated ways of managing their fleets. Having maintenance periods driven by on board condition diagnostics, instead of time-based interventions is one option that will reduce the time away from the coalface. (So to speak) Ensuring that maintenance is driven by the changing performance and risk requirements is another potentially rewarding strategy. Fleet manager do have the benefit, on one hand, of modular equipment. Standardized parts components and processes. However, where mobile fleet management differs from anything else is the potential variability of the operational staff, and operating terrain, and this changes again depending on location and other factors. These combinations of conditions make the performance and risk profiles of each unit almost unique. It definitely will differ from company to company and from site to site. So the maintenance regimes in place need to be built based upon these issues, not just some one size fits all regimes that worked for some company somewhere. Tight project control and turnarounds of refurbishment projects With supplies limited, the other option is that of refurbishment of existing fleets. A smaller cost option initially, but generally with a reduced return on investment than that of fleet renewal. This project, in the modern asset management era, can be managed in ways that previous projects were not able to be. There are obvious areas of increased efficiency such as parts lead time management, just in time replacement, tight control over the actual refurbishment process, (sacrificing initial costs for speed of return where the cost/benefit equation justifies it, and ensuring that hand-back is one that is smooth and free of run-in failures. Grouping of all major tasks due in that year is also an option, designed to increase the operational uptime by doing everything at once. The small cost of early replacement of age-related components is easily offset by the production opportunities offered by increased uptime. If we are going to be focused on getting the maximum economic value from the physical asset base then there is a need for some “smart” planning and scheduling. For example, for the large (200 ton +) haul trucks there is currently a world shortage on tires. One strategy for this is to try to source good quality second hand tires. Some other strategies include rotating tires from haul trucks undergoing refurbishment, or mid-life overhaul, to be used in other units in the fleet. Amazing as it sounds, haul trucks are often out of service due to no tires being available. (A situation not dreamed of 5 years ago!) However, the actual setting of the refurbishment timeframes is something that today should be able to be done with a greater degree of accuracy. Advances in the fields of reliability modeling, deterioration modeling, and Whole-of-Life thinking have made prediction of refurbishment and replacement intervals a real possibility in a way that previously it was not. By managing carefully constructed reliability models, companies can pinpoint outage times, designed to make full use of the economically useful life of the asset. This could mean extensions to the normal mid-life overhaul, or end of life refurbishment. These are major opportunities not only to increase overall NPV, but also to delay spending on large-cost items. Vendors as Partners When purchasing a new fleet, most mining organizations are looking to involve the vendors as partners in the whole-of-life management of the fleet, and seek guarantees over costs. Managing these relationships, or MARC (Maintenance And Repair Contracts) is an art form in itself, not only from the point of view of the mining organization, but also for the vendors. There are many techniques to managing MARC contracts for maximum benefit, and at the heart of all of them is a comprehensive view of Whole-of-Life asset management. From the company’s point of view they need to be careful to get all the benefits out of the contract arrangement, so close management is a key issue. But from the vendors’ viewpoint, they need to make sure they deliver at least the minimum costs per period that has been contracted. Many vendors have lost money on the management of MARC contracts, and it is an issue of vital importance to both sides of the contract. Net present value All of these are important contributors to the net present value of your mining fleet. However, there are obviously ranges of other areas that will need to be considered. Planning and scheduling, large part change out and life extension, and continually improving operating procedures are just some of the day-to-day rigors of this challenging area. However, one of the most valuable aspects of a useful whole of life model is that is accurately represents the cost profile of the equipment. Many of the current methods in this area take forecast maintenance routines only into account. While this is by far the largest part, when done correctly, there is also the accurate prediction of corrective or reactive actions that are often overlooked. This is one of the fundamental downfalls of all CMMS and EAM systems that I have seen in today’s market. Using “an average of the past X years worth of history, minus 10% for improvement”, as many NPV models do, means almost nothing in terms of forecasting real corrective costs. WoL models need to be built to capture not only the predictive task but also the predicted task, not only the detective task but also the detected task, as well as the likelihood of those tasks that we have determined are managed most cost effectively in a run to fail fashion. (Which may change as the operating environment changes) When you establish a true proactive whole-of-life model, then you can determine, almost live, what the expected profit will be from the fleet, thus modeling the effects and impacts of changes and decisions made along the way. Current functionality in CMMS and EAM systems does not generally cater to the possible, merely forecasts of the likely based on history. (With all of the flaws that this can bring with it) This challenges one of the fundamental misconceptions regarding whole-of-life costing, that it is about minimum costs. It is not! It is about minimum costs for a given level of performance and risk! (A dramatic change in focus) The final challenge With all of the challenges currently faced by the mining industry one stands out above the others. That is the retention of knowledge within the industry, and within specific companies. The mining workforce, as a result of many reasons, is aging rapidly. It is retiring, moving to more hospitable locations, changing industries, and not entering the industry at the rate that is was a mere twenty years ago. So good quality human resources are becoming scarcer, not only that but as ore bodies are being exhausted and new ones found, mining locations are becoming more remote and inhospitable, so there is less incentive to move there for many people. As well as scarcity of resources, there is a dramatic increase in the demand for them. So companies are fighting to keep hold of good people, and the skill base is becoming spread thinly over many of the newer and expanding sites trying to exploit the opportunities in the marketplace. The retention of knowledge is one of the principal challenges that this industry has and one that will impact on every other aspect of its profitability in the short term. While things are good, and profit margins are up, there is a need to look towards the days when they wont be again. All long term miners know that every bubble bursts, and every boom busts, eventually. While you are in a position to do so, look at getting things right for when the lean times come again. Riding down the unit cost curve was not so difficult when everybody was coming from an era of inflated resources, inflated inventory, and over capitalization. It will require a much more sophisticated approach now that these easy benefits have been taken out of the industry. An approach focusing on knowledge engineering, net present value management, and sophisticated means of managing the mining haulage fleet, workforce, and information management assets.

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