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Context / Scope of project
An open cast coal mine was suffering from a margin squeeze as a result of the Global Financial Crisis - costs had risen during a period of escalating prices and “increasing production at all costs” and then coking coal prices dropped 60%. PIP worked with the management in a short diagnostic to identify savings.
A number of control and wiring issues on site were apparent:
- There was no control of access to site
- Cost information was difficult to access
- Spend was initiated without authorisation resulting in erratic and escalating expenditure and inaccurate accruals
- The procure-to-pay process was not functioning effectively with unmatched invoices representing half the monthly costs ($35m)
- Cost Review Meetings were aimed at trying to allocate costs correctly not at problem solving how to reduce costs.
At the end of this diagnostic a target of $134m of cost savings (16% of total costs) was agreed. A four-month engagement was then started; this was extended by 2 months with a smaller team.
Cost per tonne had more than doubled over the last 5 years, with contractor costs being the largest contributor to this
Client achieved: (completed in 6 months)
- Developed a pipeline of $180m of improvement ideas of which $143m were fully evaluated and in Implementing + Cash Flowing + Locked-in statuses
- Reduced actual cash cost by 13%
- Improved competitiveness as a world coking coal supplier, and re-entered list of lower quartile coking coal producers
- Negotiated a 3% reduction in prices with suppliers
- Reduced usage of on-site contractors by $8m / year
- Eliminated work that unnecessarily built up inventory of pre-strip
- Consolidated labour on site
- Implemented a procure-to-pay process and recipient created tax invoices.
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What we did:
- Created teams in each area with specific targets (Mining, Maintenance, Coal Handling Prep Plant (CHPP), and Commercial). Later, separate streams were created for negotiating Price Reductions, and implementing Procure-to-pay improvements
- Each stream prepared Value Driver Trees, identified opportunities, held Idea Generation Sessions, prioritised ideas and then progressed these ideas through the Ideas Pipeline
- A pipeline worth $180m was created
- Commercial
- Initially addressed the usage lever by introducing a weekly “Spend SPIN” cycle to ensure pre-planned authorisation of contractor services on site and controlled management of them once on site and in the invoicing/payment processes
- Then, addressed the price lever, by setting up a Rapid Sourcing Stream to identify opportunity for negotiated price reductions and set up negotiations with selected suppliers to reduce prices, by taking advantage of the GFC (Global Financial Crisis)
- Renegotiated prices and terms with labour and consumables suppliers.
- Mining
- Created a tool to assist Supervisors plan their truck allocation based on the relative operating costs, capacities and distances to relative pits.
- Reduced equipment on hire e.g. loaders, dozers
- Stopped draglines uncovering coal, and used dozers instead to reduce losses in uncovering coal
- Postponed removal of pre-strip to maintain stocks and improve cash flow.
- Maintenance
- Introduced condition monitoring to predict failure and initiate repair or replacement of components
- Allocated cost of damage to the department that caused the damage; this was especially effective with Dragline operations and resulted in Superintendent taking responsibility for reducing damage
- Reduced number of contract staff and changed the service provider
- Created a project plan to implement maintenance schedules that had lapsed.
- CHPP
- Consolidated Maintenance contractors
- Changed contractor schedules to tie in with scheduled shutdowns minimising idle time.
- Wiring
- Reduced maximum limits for all authorisers of purchase and stores requisitions
- Raised authorisation of overtime to Superintendent level
- Established individual RARs (Results Action Reviews) between the EGM and his Managers to improve the focus, improvement pipeline and the quality of decision making around costs
- Established a Cost Review chaired by the EGM so that the costs in each department were interrogated
- Established Idea Owner Reviews to track the progress of ideas
- Implemented a rigorous procure-to-pay process ensuring that all expenditure would be authorised prior to making commitments, so that accruals could be made more accurately
- Implemented Recipient Created Tax Invoices in Commercial to improve the accuracy of invoicing, reduce invoice processing time and activities.
- Coaching
- Trained improvement team and line managers in Continuous Improvement tools and skills including Idea Owner Reviews, RARs, Cost Reviews
- Trained all users in procure-to-pay
- Coached Commercial department and Operations Superintendents and Managers in Negotiation Skills.
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