Mine to Port Supply Chains: Insights into asset utilisation and waiting time

4th Annual FeTech Conference, 26-27 November 2013

Duxton Hotel Perth

26/11/2013

Jim Netterfield

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Supply chain - road simile 1

Capacity

Flexibility HIGH-CAPACITY road tunnel characteristics • Each movement: SMALL relative to total

capacity INDEPENDENT of other

movements – minimal interference

• Infrastructure “passive” –

reseal road surface, inspect tunnel structure every few years, maintain fans on-line, change lighting off-peak, close individual lanes

• Designed for short-term PEAK loading, average loading << peak 20,000 to 50,000 movements per day

User expectation – can access infrastructure 24/7, without reference to other users (motorists) or infrastructure provider

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Supply chain - road simile 2

Operating Rules

Constraints

Queues

Access will be determined by the infrastructure, the operating rules and, critically, the demand or usage (arrival) pattern

LIMITED-CAPACITY road tunnel characteristics • Each movement MODERATE relative to total

capacity DEPENDENT on groups of

other movements – moderate interference

• Infrastructure “passive” –

reseal road surface every few years, inspect tunnel structure every year, maintenance activity interrupts operation

• Designed for average loading,

NOT short-term peak

• 200 to 1,000 movements per day

Supply chain – rail characteristics

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Single-track rail line

A single-track railroad = a single lane road tunnel: An empty line does not mean spare capacity, it means waiting time for

conflicting movements

Single-track railroad characteristics • Each movement LARGE relative to total

capacity DEPENDENT on each other

movement – minimal interference

• Infrastructure “active” –

repair rail surface continuously, inspect track/rail structure every few days, maintenance activity interrupts operation

• Designed for average loading, NOT short-term peak

• 10 to 20 movements per day

Supply chain – the Oakajee example

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Oakajee rail is a single line: It has finite, limited capacity and distinct operating characteristics that equate to performance

Oakajee single-track railroad characteristics • Effectively, a long series of single lane

sections (tunnels) • Passing siding at end of each section • Queuing at every section entry, exit at

Port • More passing sidings = more sections • More sections = more stop-starts, more

capex, opex • # sections optimised for passing

opportunities x stop-starts x capex, opex

• 10 to 20 movements per day

Shared access operating model example: A stand-alone infrastructure/supply chain company

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Responsible for providing transport logistics to iron ore customers

Supply Chain Agreements • Quantum • Timing • Performance

Port & Rail Infrastructure Provider

• Customer Management1

• Supply Chain Management2

• Operations Management3 • Asset Management3 Optional above-

rail contracts

3rd Party Operator(s)

Resources as needed

Mine Rail Port Ship Mill

Ore Sales Contracts

Train control function of SCM

Employment & Service Contracts

Inform

Owners

State

State Agreements – Special Act, leases, Statutory Authority Agreements , Economic Regulator Undertakings et al • Concession rights: Tenure, Scope, Expansion • Safety and Security • Competition Principles • Investment

Vessel ordering

function of OSC

Port & Rail Infrastructure

Provider

Mine

1 Mine 2 Mine load-out to ship 3 Port/Rail Company Assets

Infrastructure/supply chain company has to balance the requirements of customers, owners, the State and its agencies

Typical iron ore supply chain system

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Exploration Resource Definition Mine Planning

Drill & Blast Load & Haul Process Stockpile & Load-out

Rail

Dump Stockpile Reclaim Ship-load

Shipping Steel Mill

Mine Development

Mine Operations

Rail

Port

Port & Rail Infrastructur

e Provider

Shipping

Mine

Mine/Mill

Mine Mine

Mine/Mill Mine/Mill

Meeting all of the objectives requires the provision of a system, the components of which are supplied or managed by various parties

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Manage by segment

Improve with Improvement program (eg 6s, Lean)

Measure with Key performance Indicator (productivity, utilisation, reliability, speed, etc...)

System – an integrated set of elements, subsystems, or assemblies that accomplish a defined objective. These elements include products/plant (facilities, hardware, software, firmware), processes, (information, techniques, services) and people.*

Inputs Outputs

•Two distinguishing criteria •Emergence - formation of

complex but regular patterns from the interaction of the many simple parts of a system c.f. complicated and chaotic (no regularity) •Self-organising - closely

related to emergence and refers to the ability of the system to organise itself. The emergent features of the system appear spontaneously. There is no one (entity) in control of the (whole) system. (eg; telecoms, power supply)

Model system to understand performance c.f. “reductionism” – breaking systems down into component parts to understand performance Australian Academy of Science, A quiet Revolution – the Science of Complex Systems , Oct 2006

The iron ore supply chain – a complex system

*International Council on Systems Engineering (INCOSE), Systems Engineering Handbook, January 2010

An iron ore supply chain is a complex system, and this requires an adaptive approach by stakeholders

Information

Supply chain performance – Systems engineering approach

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• “Capacity” is a throughput rate – units of output (or input) per time frame through a system

• “System” = resources and information to “process” inputs into outputs

• “Process” = operations to transform, convert, combine, transport etc…

System

Inputs Outputs

System determines • Speed • Characteristics (e.g. quality, reliability) • Cost

Understanding the nature of the system enables understanding of the outputs (the “product”)

Utilisation of capacity

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Unit cost

$/t [Z]

Annual costs

$m 800 + 5 * [Y]

Fixed Cost (Capex, Labour & Admin)

$m 800 pa

Variable cost (Opex)

$m = $5/t * [Y]

Throughput

[Y] mtpa

Choke capacity

50 mtpa

Utilization, %

[X]

All numbers indicative, for illustration purposes only

Utilisation X (%)

Throughput Y (mtpa)

Unit Cost Z ($/t)

70% 35 28

80% 40 25

90% 45 23

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Utilisation of capacity

Choke Capacity, mtpa

50 m ±

Tonnes per day

144,000 ±

Tonnes per hour

9,000 ±

Op hours per day

16 ±

Delay hours per day

8 ±

Op days per year

350 ±

Down days per year

15 ±

Choke capacity by deterministic method: hourly, daily, annual

Typical for 160,000 DWT vessel

Speed factors • Rates • Delays

Rate factors • Stockpile geometry • Ore flow properties • Vessel • Terminal specification

Delay factors • Process • Vessel • Terminal

Operating day factors • No vessels arrived (berth vacancy) • No product available • Weather/ Wave • Scheduled Maintenance

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Utilisation of capacity

Throughput, mtpa

45 m ±

Choke Capacity, mtpa

50 m ±

Tonnes per day

144,000 ±

Tonnes per hour

9,000 ±

Op hours per day

16 ±

Delay hours per day

8 ±

Op days per year

350 ±

Down days per year

15 ± Utilisation, % 90%

Queue time

System performance Throughput & Queue Time

0

100

Utilisation, %

Queu

e Tim

e ∞ Demand factors

• Level • Variability Service factors • Speed • Rules • Variability

Speed factors • Rates • Delays

Operating day factors • No vessels arrived (berth vacancy) • No product available • Weather/ Wave • Scheduled Maintenance

Rate factors • Stockpile geometry • Ore flow properties • Vessel • Terminal specification Delay factors

• Process • Vessel • Terminal

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Utilisation of capacity

Target Utilisation

90%

Demand Vessels per day

0.81

Server Capacity Vessels per day

0.90

Tonnes per day

144,000

Tonnes per year

50m

Days per year

350 Tonnes per vessel

160,000

0 100

Utilisation, %

Queu

e Tim

e

∞ Random arrivals

Semi-scheduled arrivals (managed demand)

Variability in demand pattern and service sets the curve to read queue time from

Utilisation determines how far across the curve to read up to queue time

/

/

/

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Random queue characteristics

• 35 mtpa demand@ 160kt/vessel = 222 ships • Service rate = 0.9 vessels per day (50 mtpa) • Arrival rate = 0.63 vessels per day (70% utilisation)

• 53% of days = no vessel arrive!

Queue can reduce (> half year)

• 13% of vessels arrive

same day as another (2,3,4, or 5 vessels arriving same day)

Queue builds up (< half year)

• Queue average = 1.6

vessels

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Random queue characteristics

• 45 mtpa demand@ 160kt/vessel = 285 ships • Service rate = 0.9 vessels per day (50 mtpa) • Arrival rate = 0.81 vessels per day (90% utilisation)

• 44% of days = no vessels arrive!

Q can reduce (< half year)

• 20% of vessels arrive

same day as another (2,3,4, or 5 vessels arriving same day)

Q builds up (> half year) • Q average = 8.1 vessels

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Capacity Parameters

Description Comment

1. Level of Demand vs. Capacity

Allowable level of demand on the infrastructure, taking into consideration the associated vessel waiting time

Strategic choices are “high” to target lowest possible capex amortisation unit cost or “low” to allow for new entrants, and “spare” capacity to allow for variability in demand and service

2. Vessel Arrival Pattern

The manner in which vessels present at the Port (may vary from random, where there is no vessel coordination, through to highly managed vessel arrivals)

If ‘high” utilisation is chosen, then arrival pattern must be managed to avoid high demurrage. If random arrival pattern is allowed for, then level of demand must be kept low if demurrage is to be avoided

3. Production Rates & Variability

The material handling rates through the infrastructure of the supply chain

Given, the demand profile above (1 and 2 above) then service rate and variability of service rate is the driver of performance. Being able to manage root causes of poor performance across boundaries is critical, as well as being able to offset intra-system variability.

4. Operating Days

Calendar days less idle days (no vessel available to load), less other systemic down days (scheduled maintenance, weather, holidays not worked)

The number days of idle time in the system, directly relates to the desired level of utilisation (or demand) on the infrastructure. If demand is set “low”, then berth vacancies must arise. If berth vacancies are to be avoided, then “demand” must be set “high”. Even at “high” utilisation, idle days will far outweigh other down days.

Parameters for supply chain management

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Strategic options for determining utilisation

High wait time

High unit cost due to high wait time costs

and missed throughput due to higher vacancies

Low wait time

Lowest unit cost due to high throughput and low wait time

Low wait time

High unit cost due to low throughput

Low wait time

High unit cost due to low throughput

Not managed Managed

Demand management

“Spare” capacity lost to waste (e.g.,

declining speed or rates) or

incremental demand increase

High

UTILISATION

Low

Key points

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Supply chains work as a complex system, even if the system is not recognised fully

by its stakeholders

The physical relationships that drive the outcomes of the complex system are

universal and immutable

Any contractual relationship set out between parties within a complex system, at

best, can only avoid making things worse than if a single entity operated. At worst,

will reduce performance or increase total costs

Playing $800m waiting game

The number of coal ships queued

at Dalrymple Bay and Hay Point

coal terminals has skyrocketed to

90, as demand for coal returns.

This time last year, just 19 ships

queued for the ports.

Kate Bastable | Daily Mercury |

14th November 2009

END