Date post: | 15-Apr-2017 |
Category: |
Documents |
Upload: | jarrad-liam-sonnenberg |
View: | 37 times |
Download: | 0 times |
Contact Us:
Pronto Solutions Alliance Inc.
T: +1 424 213 0401
W: www.psainc.ca
Pronto Solutions Alliance Inc.
(PSA) helps business clients reach
and exceed their potential through
implementation of Enterprise
Resource Planning software. We
are the leading North American
reseller of award winning Pronto Xi
ERP Business Software.
JOB COSTING PLANNED MAINTENANCE FULL INTEGRATION REAL-TIME ANALYTICS
ERP Software for Mining:
Essential Elements
Enterprise Resource Planning (ERP) sophistication has rapidly improved over the last 15 years, and as a result has become an
increasingly competitive environment. Through marketing and branding, products that are not typically associated with the
mining industry are becoming more widely recognized. Limitations and the lack of deep understanding of the mining industry
often force ERP users to look for integrations and third-party packages as a quick fix for the inadequacies of the solution.
The purpose of this document is to assist non ERP-savvy users in
understanding the essentials of ERP in mining, and define the
selection process ensuring the most appropriate system is selected
to avoid inefficiency and wasted capital. The ERP is an essential aspect
of any organization, and allows mining organizations to understand
their operations in more detail and in turn make better decisions with
the information available.
Common issues are becoming more prevalent as the industry grows
and more software vendors are pushing to capitalize on this growth.
Understanding the major pitfalls in non-mining-specific ERP offerings
is a great start in recognizing what software to avoid, and more
importantly which software to select. While there is certainly more to
consider when selecting a suitable ERP beyond the topics discussed
here, these are the topics we see as trending issues for non-mining-
specific ERP clients.
The obvious variations in any mining organization such as resource
body, operating locations, globalization, user experience, taxation
requirements and government legislation must be considered as part
of any selection process; however, the focus of this document is on
the areas:
1. Job Costing
2. Planned Maintenance
3. Full Integration
4. Real-time Analytics
Each of these areas have underlying functionality that must be
considered through evaluating ERP solutions to ensure the solution
is going to be relevant through the life of the mine and can ensure
its expansion as the company grows. There is a clear distinction in
ROI expectations between a mining-proven ERP and an adapted
solution, and ongoing direct benefits to the organization when an
appropriate solution is selected.
Translating ERP into ROI for Mining Companies PRONTO SOLUTIONS ALLIANCE INC.
Page 2 of 8
Job Costing
The most essential module in any ERP system that is focused on mining is the Job Costing module.
It is arguable that most ERP systems have generic efficiencies built into most of the common modules
like General Ledger or Fixed Assets, but there is a significant variation in the Job Costing functionality
across the board and this is one of the primary elements that should be investigated when selecting
a mining proven ERP system. The primary requirement is that the job costing system is able to handle
multiple types of projects simultaneously allowing a company to explore, construct, and operate all
at the same time, if required.
The common perception of job costing is that it simply provides the ability to track costs for a specific
job or project. While this may be the case in a limited ERP, job costing must have a select list of
features to truly benefit a mining organization;
Budget Development
Budgets develop from a number of sources, and the most efficient and accurate way to develop
budgets for specific projects is to involve all required sources of knowledge and compile a budget
from this information that can evolve and be accessible to all interested members of the project.
Typically, this can be simplified into Labor, Material and Other Costs.
Labor costing can be directly attributed to the project by specifying resources in the HR system
and associated direct costs can be applied at accurate rates immediately.
Material costs should primarily come from the inventory module which would track average
buy price, average costs, last costs, accurate lead times, and supplier information to help build
an appropriate material cost into the budget. The integration to inventory also allows for the
budget to form a buying plan for the purchasing team to ensure anything entered into the
budget can be verified as accurate, as required inventory is committed to the project and
inventory is ordered. Instead of a user specifying a blanketed number for cost categories relating
to inventory, the inventory could be specifically selected from the stock catalogue and once
quantity is applied the value would automatically populate.
Other costs can come from a number of sources and allow the user to appropriate generalized
costs based upon experience and user intervention. Quotes from contractors are included here
even before the quotation is converted from a quote within the system to a valid PO.
Once a budget is formed it is essential that the original budget is locked into the project and any
subsequent variations or edits are stored separately so it is possible to report the actuals of the project
against all estimates.
AFE (Approval for Expenditure) and Capital Projects
Prior to the commencement of cost tracking a capital project, first there is a budgeting and approval
process that should occur. Within a job costing system designed for mining, users have the ability to
set up a project with a unique identifier that would then allow for multiple revisions of budgets as
discussed above, and then an approval process that could escalate through management as per the
organization’s approval hierarchy.
The approval process typically involves developing the estimated budget to completion and then
electronically attaching all documentation to the project allowing any approving member of the
organization to review all the relevant approval information prior to committing to the project. Given
that projects vary significantly in budget amounts, the most efficient ERP solution for approval is to
allow a tiered hierarchy to approve projects based upon the budgeted costs. As the project is created,
it would escalate to each level of management by an automated email and work-flow process which
would eventually arrive in the queue of a manager with the appropriate approval levels to then initiate
the approval of the project.
It is common within the ERP market that project approval is not sophisticated enough to handle this
process so many mining companies look to external software and integrate back to handle this
requirement.
Exploration
Exploration and Tenement Management provides a different challenge to managing operations
within an ERP system. Statutory information such as dates, project types, royalties, and analysis codes
should be available to ensure that tenements can be rapidly dissected to provide timely information
in a structured manner that makes sense and improves visibility.
Integrating exploration projects to the GL allows for any costs sent to a tenement to be cost tracked
in the general ledger, in the P&L, in a way that removes any manual intervention from accounting
staff to properly represent exploration costing. The automated integration effectively removes
exploration staff from coding anything directly to the general ledger and automatically applies
costing to the correct location so information within the project itself or the GL is accurate as soon
as it is posted.
Given that mine exploration may have its own costing methodology within the GL, the job costing
system should allow each of its exploration projects to be directed to whichever section of the P&L
makes sense for the type of exploration being conducted, otherwise it would be necessary to report
on the different forms of exploration and split these costs out manually to the GL which adds
significant effort to month-end closure and removes the ability to report timely.
Translating ERP into ROI for Mining Companies PRONTO SOLUTIONS ALLIANCE INC.
Page 3 of 8
Cost Tracking and Work Breakdown Structure
Once any form of project is active, costs will start flowing through the project and the tracking and
integration of these costs to the general ledger will provide the users with the required information
to measure the success of the project as it operates and also will help determine the impact upon
the financials of the project.
Cost tracking is generally accomplished by adding a variety of cost categories to the project to assist
with the classification of costs that accumulate. These cost categories would be derived from how the
project was initially budgeted, and any cost applied to the project should comply with the structured
budget. Controlling these costs should be possible on a number of levels and this is dependent on
the organizations budget vs actual methodology.
There is no one right way to develop a cost tracking structure for projects but the ERP should allow
for this flexibility. For instance, some organizations prefer to classify their project costs in the exact
same manner as the general ledger, so any natural account for Fuel which may be code 5660 in the
GL, would also be code 5660 in the project system. This allows for complete consistency between the
modules and is very effective. However, in some organizations the GL is structured in a way that
makes sense for financial and management reporting but does not translate well to users of the
project costing system or operational staff. In this case it should be possible that the ERP would use
a Work Breakdown Structure (WBS) instead of the GL classified categorization of costs, so effectively
the job costing system can have its own cost category schema based upon a WBS.
Regardless of how the organization wants to classify its costs and track them within the project
costing system, the ERP system should be flexible enough to handle these requirements. This is
commonly overlooked when selecting an ERP and can force the structure of the GL to be adapted to
the poorly functioning project costing system.
Variation and Subcontract Management
It would be foolish to consider that projects always run to the exact budget and never deviate from
its initial scope. There is enough evidence to recognize the industry is complex, projects cannot always
be accurately measured, and unique challenges can rapidly arise. In the event that an unexpected
change was to evolve, a variations system allows the organization to effectively measure any
supplemental costs associated with the project in a way that the variation can be approved, much
like within the AFE section that was discussed earlier.
Subcontract management is another concept that allows for the management of endless
subcontracts on each project to help in tracking the progress as well as financial commitments a
project has based upon an agreed quotation at the start of the project. To work efficiently the
subcontract management should be completely integrated into the project in a way that allows for
project costs to be accumulated like any internal cost and measured against budget. Building out a
subcontract on the project assists in building out the initial budget of the project but also allows the
project manager to continually analyze what costs are expected and update accumulated costs in a
timely manner.
Each of these functions come with complex functionality requirements, and should certainly exist
within any job costing system offered within an ERP system. It is only logical that this functionality is
embedded into project costing given its reliance and impact on the project information.
Job Costing Conclusion
Without these elements it is inevitable that third-party software would be required, which provides a
number of challenges that can be easily avoided. Being forced to commit to an additional software
package because the existing ERP does not sufficiently deal with the requirements of the mining
company is not an efficient or cost effective solution for the modern organization and the selection
of an all-inclusive mining ERP is the solution for avoiding such unnecessary variation from managing
data. Given so much information flows through the job costing module in a mining environment, the
flexibility and completeness of this module have a direct relationship with how successfully the
organization would be able to use their ERP.
Translating ERP into ROI for Mining Companies PRONTO SOLUTIONS ALLIANCE INC.
Page 4 of 8
Plant Maintenance
ERP systems are purpose built transactional tools that capture the events in the day-today operations
of an organization. An integrated plant maintenance module is essential in ensuring visibility of all
the organization’s transactions. Through research with our existing customers in a diverse subject
group, it is estimated that transactions commencing in a plant maintenance module, such as work
orders, material requests, or timesheets, make up between 50-70% of ERP transactions in any given
operating mine site.
Given there is so much volume flowing through the plant maintenance module there is an obvious
emphasis on ensuring that its touchpoints with the rest of the system provide value in improving the
timeliness and accuracy of the data.
Inventory Commitments
Inventory is essential for the performance of the plant maintenance program, thus it is necessary that
any ERP for mining allows communication between the maintenance module and inventory module,
instantaneously. Remote mine sites are especially vulnerable to inventory shortages and in the event
that inventory is required for a planned task this could trigger downtime due to equipment failure.
Any planned task that is set up within the ERP would contain all of the work required and all of the
inventory items by quantity that are needed to complete the work. A typical operation would forecast
its maintenance plan to three to six months, which provides adequate timing for the supply chain
department to ensure any required inventory can be isolated or ordered to prevent maintenance
from occurring. Since each of these tasks has inventory specified, it allows for a link to be built to the
inventory module to reserve these items on a specific date, usually a few days before the maintenance
occurs so inventory can be picked up and planned.
Without committing the inventory automatically as planned, there are obvious gaps in the supply
chain and the ordering process becomes reactionary, often resulting in inflated shipping charges,
rushed shipments or missed maintenance on plant items.
Labor Allocation
Labor is much the same as inventory in terms of integrating to the inventory module. Each planned
task allows the user to determine what labor types are required to service the plant items and for
how many hours. When this is done effectively, labor shortfalls and surpluses will be highly visible.
This allows the maintenance planner to bring forward maintenance where there is a shortage of work,
or bring in temporary labor to assist with excess work that is critical.
If on every piece of completed work, the maintenance crew is applying actual hours to each work
order, it becomes possible to refine the tasks moving forward. If a task is estimated to take two hours
within the system but routinely takes over four hours, it provides an opportunity to understand if
there are problems with the crew, the plant, the process, or perhaps the estimate. This allows the
planners to more accurately estimate the required hours and also adjust errors in the plant where
time might be lost due to inefficiencies.
Manufacturer Recommended Planned Tasks
Task management is functionality that allows a user to load-in the recommended maintenance
schedule from the equipment manufacturer and operate based upon these recommendations. The
main aspects of the PM Task, for the purpose of planning, is the triggering of the task itself and then
allocating the required resources to the task. Tasks should be able to be triggered for work in a
number of ways to ensure any requirement around the work is met within the maintenance schedule.
The scheduling requirements, at the most basic, should be triggered based upon a unit of measure
such as miles, meters, and hours on a piece of equipment such as a 10,000 KM service. Alternatively,
a piece of equipment may have a six-month inspection, so the system is triggered based upon any
date range such as the second Tuesday of each month, every fourth week at 12:00am on a Sunday
and so forth. These fundamentals allow for the significant portion of tasks to be triggered at the
correct time. Beyond this simple functionality, a task should be triggered based upon any other event
in the system like a work order that records the equipment breaking, downtime being scheduled on
equipment, or an item being put into production for the first time.
The PM Tasks that are set up within the system determine what routine maintenance is required to
keep a plant or a fleet running, and the more flexible the functionality the more accurately and timely
the planning process will be. Without such functionality operators will be forced to employ a more
manual process of estimating work due dates and remembering when tasks will be performed. This
in essence is completely opposite to the doctrine of ERP.
Predictive vs Planned with Condition Monitoring
If the name of the module didn’t purvey its purpose, planning when maintenance occurs accurately
is the primary performance indicator for a planned maintenance module. Once the recommended
PM Tasks are set up in the system to trigger every 2,500 miles it is important to have the ability to
schedule when that milestone may be met, not for one plant item but for thousands of items at a
time. The cure for this complexity is to operate a plant maintenance system that has condition
monitoring functionality.
Condition monitoring allows for plant item monitoring points such as hour meters or odometers to
be imported into the plant maintenance management system to provide trends and history on the
runtime of the equipment. The power of importing this information is it allows the system to calculate
average usage of the machine to help predict when a milestone will be met. If a plant item records
an average of ten miles a day, then the 2,500-mile service would occur every 250 days. This means
Translating ERP into ROI for Mining Companies PRONTO SOLUTIONS ALLIANCE INC.
Page 5 of 8
that as the average fluctuates, the system can continually predict the next due date for the task to
occur, and if this is occurring for all plant items, it means scheduling becomes significantly more
accurate.
The follow-on effects of this allow labor to be scheduled accordingly and any essential materials to
accurately be ordered when compared against lead times and availability.
If used effectively, predictive maintenance is the best case scenario and provides the most significant
benefit to the organization; condition monitoring makes this possible.
GL Costing
The structure of the plant items for a mine site can quickly grow complex when looking at the
appropriate method of costing for each individual component. To handle the complexity in an
efficient manner, any plant maintenance system in a mining environment needs to be completely
automated and flexible enough to handle posting requirements.
An example which commonly occurs, requiring GL costing to be flexible, is haul trucks have tires
changed out. Some sites will set up each component of a haul truck within the plant tree, and want
the cost of change-outs, like tires, to be costed to the mining department as an operational expense
instead of the maintenance department. So, it is essential that the costing be allocated to the mining
department for some items, but not for others. Even more complex than this is the rotable or
component change-out process in which a plant item has a component changed to a spare, and then
the failed or worn component is rebuilt within the maintenance department and then checked into
inventory.
There are a large number of scenarios which occur when a plant item needs to be costed in a unique
manner beyond the cost hitting a cost center and a cost category, and this is important when
understanding the level of intelligence contained in the GL costing element of the plant maintenance
module. Without this flexibility, the accounting process becomes significantly more time-consuming
and opens the users to errors.
Plant Maintenance Conclusion
When a mine transitions from construction to production the plant maintenance module is most
likely the next step for the ERP evolution. When organizations are selecting an ERP prior to
construction or during construction, the plant maintenance functionality of the system is often
underestimated and thereby forces the use of a third-party package to assist in meeting the
organization’s needs. Plant maintenance is heavily reliant on the use of inventory and the volume of
transactions it creates means complete integration to the rest of the enterprise software is essential.
Plant maintenance management within an ERP is proven as the main reason organizations become
more efficient and accurate in scheduling work and limiting downtime due to missed maintenance.
Given that an operating mine will use the plant maintenance module for more than half of its daily
transactions, it is essential that the scope of the ERP includes a dedicated and robust maintenance
module.
Translating ERP into ROI for Mining Companies PRONTO SOLUTIONS ALLIANCE INC.
Page 6 of 8
Full Integration
The functions of business within the mining industry is highly decentralized and creates unique
challenges in compiling accurate and timely information that a mining-focused ERP system can
resolve through integrating every business process with the relevant information. Full integration
refers to a system that can completely manage the resources of a mine site in a way that allows
departments to instantly communicate the flow of information with one another.
Integration is a driving force in keeping information users accountable because it forces relationships
that would not exist without the implementation of an integrated solution. Some of these
relationships are discussed in prior sections of this documentation but are visited below to assist in
showing the importance of integration and help explain why this promotes efficiency and accuracy
within the mining environment.
AP - Purchase orders
One of the most common pieces of integration available from off-the-shelf business and accounting
management packages provides the perfect example of why integration is essential in any form of
software. While this integration exists in basic software, the principal of integration reflects how
important it is to operate with a connected solution.
Procurement and AP staff operate independently but the purchases made on a PO need to be paid
by an invoice. In order to safeguard the organization against overpayment, the listing of purchase
orders and the details of their lines are integrated into AP so the invoice can be matched to the value
of the PO in real-time. If this information was unavailable to AP in real-time through integration, then
the invoice entry process would be manual and time consuming. In an environment where purchases
are of high value and staff are operating from different locations, this example provides evidence that
integration is the key to operating efficiently with minimized risk.
Inventory - Plant Maintenance
Plant maintenance transactions make up between 50-70% of most operating mine’s ERP systems. To
ensure the overall representation of the ERP’s data is correct and meaningful it is essential that any
modules that are closely related to plant maintenance integrate in real-time, and consider the
management and use of critical inventory items on a mine site that are allocated for the use of the
maintenance department in planned tasks.
If a task is scheduled to commence on the first day of each quarter, and the task requires specialized
inventory items to be successfully completed, it is necessary that inventory is fulfilled in time. If
inventory is not replenished to a suitable level on the task’s commencement date, then maintenance
cannot continue operating and the operations are subject to downtime due to lapsed maintenance.
For the maintenance and inventory management teams to operate efficiently, integration is
completely essential to the operation. In an integrated environment, once work is scheduled, the
inventory requirements are immediately sent through to the buying team to reorder and engage the
procurement process. The inventory information is also readily available to the maintenance team,
such as average lead time, which allows the scheduler and planner to submit work orders for long
lead time items earlier to ensure that work is not delayed because items did not arrive in sufficient
time.
Plant Maintenance - Fixed Assets
Plant items are routinely taken out of operations and scrapped or replaced, and the likelihood this
information is relayed to accounting staff in charge of fixed assets is very low. Through integrating
the PM and FAR modules, any changes to the plant are integrated to fixed assets so the accounting
team can properly treat the changes and the asset identification process is maintained.
GL - All Modules
The general ledger is the underlying module within in all ERP systems that result in financial reporting.
As such, the integration to the GL from all modules is essential and removes the ability of end users
from choosing a GL account during any regular business process. Consider the example of a
warehouse staff member dedicated to receiving inventory for different warehouses. Instead of
allowing that staff member to choose the GL account for each warehouse, the system should
automatically determine the GL account for each inventory item received based upon the setup of
the system. This integration removes errors resulting from users manually selecting GL codes and
directly impacts the amount of effort required during the month-end reconciliation process.
Integration Conclusion
Without integration within the business units of a mining company there is no accountability and a
lack of cohesion. Integration is absolutely essential in ensuring that information is complete, timely,
and reliable because it forms itself based upon real-world data, not user estimates or manual entry.
A user manually entering stock requirements for a planned maintenance work order every time a
work order is raised is prone to error, is untimely and a waste of a human resource where integrating
that information between the inventory and plant module allows the system to automatically develop
the stock requirements instantaneously and in an accurate manner.
Without integration the level of communication and automation drops considerably, and prevents
the organization from becoming more efficient and enhancing its use of resources. Ultimately, in a
cost controlling environment such as mining every advantage available to reduce costs and identify
a lack of efficiency should be pursued, and without an integrated ERP solution, it is next to impossible
to do in a timely manner, which is critical in such a volatile and challenging period of commodity
pricing.
Translating ERP into ROI for Mining Companies PRONTO SOLUTIONS ALLIANCE INC.
Page 7 of 8
Real-Time Analytics
ERP has long been a strong solution for recognizing transactions within an organization as they occur,
but displaying this information in a manner that promotes analysis through streamlined and
meaningful reporting has often been done by third-party reporting tools. Business Intelligence (BI)
allows organizations to make sense of the data within an ERP system through graphical reporting.
Without the ability to analyze the information within an ERP it is hard to determine if business
processes are operating as designed or even tell if the performance of the business operations
actually meets expected budgets.
BI software is available as a standalone solution that allows for information to be structured in a
reporting format. As ERP solutions have evolved, an integrated out-of-the-box BI tool allows analysis
of information in real-time from anywhere in the world through a web browser. In an industry so
focused on remote operating and diverse geographical locations, this ensures that communication
between site operations and management is seamless and information is readily available at all times,
for every level of user within the organization.
Pre-integrated BI not only allows for users to develop reports on their data quickly and easily but a
significant portion of the groundwork is done in setting up the relevant cubes and data tables that
are commonly used and related in developing dashboards and reports, making it far easier to
integrate the reporting into the activities of users’ day-to-day processes.
Translating ERP into ROI for Mining Companies PRONTO SOLUTIONS ALLIANCE INC.
Page 8 of 8
About the Author
Jarrad Sonnenberg
Manager, Business Development & Advisory
Jarrad Sonnenberg has over 10 years of global experience in implementing and supporting ERP software in the mining industry. Jarrad specializes in financial management and business process
improvement for resource exploration companies ranging from operational mines to acquired companies that produce a wide variety of minerals including Copper, Iron Ore, Manganese and Gold.
Conclusion
In order to benefit a mining organization, it is essential that a mining proven ERP package is used in
managing the company’s business processes. There is a direct financial benefit in selecting a solution
that gives users the power to analyze relevant and accurate information in a way that suits the
industry’s unique requirements. As a cost management based environment, the way costs are
structured and posted is essential in keeping the day-today activities of the operations reflected into
a meaningful system that allows users access to make better decisions and understand the details of
mining operations.
While it is common that some mining companies are not ready for complete ERP functionality at the
time of implementation this should not limit the range of functionality that is invested in an ERP when
selecting a package, especially when the functionality may be available at the same price point of
another package. It is an all too common occurrence that a mining organization finds itself ready to
invest its resources into implementing a best practice approach to its business processes but is limited
by the functionality of the ERP. This can be avoided by understanding the key elements of a mining
ERP and selecting based upon this best practice functionality opposed to user preferences or prior
experience in an environment where software and technology change so quickly.