Sourcing and Procurement

Advance stock management to modernize the mining industry

Maintaining adequate inventory is critical for any product-intensive industry. In the context of mining, the advanced stock arrangement is even more crucial, considering the high-risk environment. Yet, predicting the requirement of safety stock is the biggest challenge that mining operations face today.
The onus then falls on the procurement teams to deep dive into identifying the future requirement of commonly used materials, and also analyze the historical stock consumption trend to maintain adequate stock levels and manage advance order accordingly.
The absence of a predictive capability to analyze future stockpile requirement can have an adverse impact on mining operations, and could even lead operations to cease temporarily, which can further lead to a major escalation of risk. Typically, mine operators would try to source material on an immediate basis in case of a stock-out situation and end up paying much higher for it. The freight cost also escalates due to random selection of freight forwards, as per availability, which further impacts cost negotiations. In cases where materials have to be air-lifted, the cost escalates further, compared with road transportation.
The volatility of the mining sector aggravates further when other factors such as the holiday season, festive season, etc., are considered. Several times, adverse weather conditions or forecasts impacting cargo movement, could also be a major setback for the industry. To tackle this situation, procurement teams must be prepared to maintain adequate safety stocks in inventory, not just for the calendared disruptions, but also foresee probable obstructions in the near future and prepare the stocks accordingly.

The change is nigh

The mining industry isn’t unaware of the shortcomings elaborated above. Over the past few years, mining majors have started implementing a shift in their strategic approach in sourcing inventory items, to tide over the challenges posed.

Aiming to be more organized, the majority of the industry players now follow a standardized and centralized system, wherein they rationalize the list of products, equipment, and services needed across the organization. The players have also made an effort to work with a lesser number of vendors to ensure better management of the process, and have catalogued goods under various categories such as cost, criticality to business, consumables, and services, to simply the dealings.

While the industry players are making concerted efforts to streamline mining operations, a lot still needs to be addressed. Often it happens that an unintegrated approach between the supply chain manager and the end-user creates a discrepancy between the requirement and the decision of re-ordering, implying a gap in spending as measured in the ERP, versus the real-time usage of the material. The situation demands that an improved supplier-customer relationship is established, which will allow a holistic review and forecasting of demand, aiding in speedy delivery in case of urgent order.

The data additive

Apart from streamlining and consolidating processes, usage of data and analysis is also a crucial part of restructuring supply chains. For instance, purchase requisitions and purchase orders can be leveraged to obtain insight from the past data to enable precise budgeting and understanding of future requirements.

An analysis of past purchases must consider the causes of a sudden spike in requirements that may range from accident to natural calamities. However, the focus should stay on materials that are in almost always in demand.

Since warehousing is a determining factor in inventory stock management, it is critical to also identify the stocks that are obsolete, out of requirement or overstocked to free up space for goods and working capital that are in constant demand.

Currently, the mineral industry is spending only 1% of its income towards the adoption of technology, as compared with 5-7% average spend on digital by other sectors. As a result, the industry is yet to tap into competitive gains realized by leveraging technologies such as big data and inventory management software. While big data can resolve inventory stock management issues by gathering patterns and trends to predict future stocks, inventory management software can help in reducing the occurrence of existing stock, dictating new location for stocks, and so on. Therefore, it is essential to expedite the technological intervention in the mining industry so that the companies can manage, as well as monitor processes for both present and future demands.

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