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Addressing tomorrow’s challenges

World Coal,

Dan Miklovic and Bas Mutsaers, Ventyx – an ABB company, explain that, in order for the mining industry to develop solutions to some of the challenges it faces, industry professionals must begin to think in new and different ways.

The challenges facing the mining industry today are many and varied: market volatility, labour cost and availability, energy costs and regulatory pressures, to name but a few. While in some cases these are relatively new to mining, they have been faced in other industries before. One lesson that mining can learn from these other industries is that sometimes the solution requires thinking in new and different ways to solve problems. 

One example of such thinking is the Theory of Constraints (TOC). This is a management paradigm introduced by Eliyahu Goldratt in his 1984 book, The Goal. TOC promotes the concept of buffers – essentially work-in-process inventory – and the idea that some idle labour is acceptable. TOC also dismisses traditional cost accounting, arguing it is counterproductive.

There are five key steps in applying TOC to improve profitability:

  • Identify the current bottleneck/constraint.
  • Figure out how to exploit the constraint to maximise throughput.
  • Align the system to support the decision above.
  • Make changes to maximise the flow through the constraint/bottleneck.
  • Repeat: i.e. look for the next bottleneck and start the process again. Do not let inertia become a constraint.

The mining industry could potentially benefit from TOC as one way to re-examine some of the challenges facing the industry today. Some examples of how TOC could be applied in mining include the following:

  • Production accounting and planning/scheduling.
  • Equipment utilisation and productivity.
  • Inventory and logistics management.
  • Accounting, planning, scheduling and execution

Expanding on these, we can first look at traditional cost accounting limitations as they manifest in mining. Cost accounting generally focuses on individual units, rather than the whole system or process. For example, in the case of two underperforming pieces of equipment, cost accounting will typically identify the worst-performing machine and recommend its replacement or repair as a way of increasing its utilisation. However, TOC says this only makes sense if that machine is the constraint. If it is not the constraint, then is it pointless spending money on it until the constraint is broken.

A practical example: a crusher may be producing well below its nameplate production level, but spending any money on it is pointless if the excavator that is feeding the crusher is maxed out. In this case, the excavator is the constraint in the process. This is not always obvious if an operation only uses cost accounting to manage production, as cost accounting would identify the crusher as the problem because it is returning a high cost per tonne running cost! On the other hand, the excavator will be identified as very productive from a financial perspective, although it is ultimately the problem.

Equipment utilisation and productivity

Faced with escalating costs of labour, mining has traditionally sought as high as possible labour utilisation as the key measure of productivity.  But not all industries have taken this approach. Car racing, for example, relies on labour that is idle a majority of the time to accomplish rapid pit stops. In Formula 1, as many as ten crew members may be engaged in a four-tyre change during a pit stop, resulting in a 3 sec pit stop. However, between pit stops these crewmembers are idle. TOC embraces the pit crew approach in that it recognises that sometimes, idle labour is needed to ensure that a particular step in the process does not become a constraint due to inadequate staffing.

In mining, the concept of idle labour or capital assets is almost abhorrent. Instead, a cost accounting approach will aim to maximise the cost efficiency of capital equipment and labour. But this does not always make sense. Take an example that occurs on a regular basis. A coal mining operation has one coal handling and preparation plant (CHPP). If that plant is at full capacity, TOC says it is the constraint, not the pit. However, working within the goals of cost accounting, the pit superintendant will still try to make sure that there is no spare capacity with his people or equipment – perhaps undertaking some pre-stripping on the excuse of making more coal available to feed the plant.

This is ultimately pointless as the CHPP is unable to take any additional coal. It is also likely to cause rehandling of material. In this case, there is no marginal revenue benefit from removing spare capacity.

Inventory and logistics management

Inventory and stockpile management is another area where TOC could benefit mining. Here, TOC accepts that some buffer may be needed to ensure an operation does not become a bottleneck or constraint. This does not imply that TOC endorses inventory, as it emphasises that buffers need only be large enough to prevent a bottleneck – no larger. This requires a risk management discussion and experience of typical constraints in various plant scenarios.

Ventyx has adopted many of the principals of TOC and built them into its software solutions for inventory and stockpile management. The solutions help mining companies measure throughput and stockpiles, so they can identify constraints and consider how to remove them. The solutions can be configured in a number of ways to help optimise inventory flow and stockpile scenarios so that throughput is maximised. Using these tools, mining companies have been able to better manage their inventories and achieve maximised throughput. For example, one solution provides a complete view of the mine-to-market process, including provision of stockpile management and vessel loading. It allows detailed tracking of inventories, quantity and quality – from their sources to their loading points and ultimately to the vessels they are destined for. This means that the quality engineers can ensure that buffer stockpiles are effectively used to reduce constraints and maximise ore throughput to the vessel loading points, without product give-away.

Moving forward

While TOC may not solve every challenge facing mining today, it does provide a new way of thinking about some of them. By applying non-classic approaches to the challenges facing the industry, mining companies can better equip themselves with tools to remain profitable in these turbulent times.

This article first appeared in the April issue of World Coal as: MIKLOVIC, D., and MUTSAERS, B., “Addressing tomorrow’s challenges”, World Coal (April 2014), p. 14.

Written By Dan Miklovic and Bas Mutsaers.

Edited by Sam Dodson

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