Is it over yet? I ask this question often to my colleagues in the industry who have been waiting impatiently for the down cycle to end. It looks like we still have a way to go. During super cycle, people imagined commodity prices will go up forever, people now think that market will never recover. Neither hypothesis is correct, however the fact is that the cycle is lengthening, which means it could take years for the industry to adjust to market forces. In my opinion, below are top 4 trends we will see in the Metals and Mining industry in 2016 and beyond.
A. Operational Excellence Tops Corporate Priorities
Metals and mining companies have spent several years cutting costs, improving operational efficiency, and stopping discretionary spending. Depressed commodity prices continued to threaten profits, generate lower return on capital invested and undermine capital budget. These factors are challenging companies to revisit their core competencies, focus on only things they are good at, partner with experts on other aspects of the business and drive ongoing operational improvements. Among several strategies, most visible has been ongoing investment on innovation. Starting from process automation to advanced machinery to big data analytics to cloud technologies, companies are increasing operational efficiencies while reducing expenditure.
Rethinking supply chain: Greatest supply chain challenges stem from lack of confidence on suppliers’ performance (measured in terms of risk, reliability and quality) and supplier capacity. Improved visibility on end to end supply chain is essential for better alignment with customer needs in this ultra-competitive environment. Rethinking existing supplychain structure, companies can drive productivity gain and efficiency through co-opting suppliers into cost equation, setting shared productivity targets, and reforming industrial/labor/supplier relations.
"Starting from process automation to advanced machinery to big data analytics to cloud technologies, companies are increasing operational efficiencies while reducing expenditure"
Refocusing Capital Allocation: It is typical for traditional organizations to have fragmented capital allocation. It is hence difficult to connect capital spend to financial and operational returns. Centralized purchasing, improved asset tracking, computerized maintenance management help improve corporate visibility into spare parts, replacement and repair evaluation, cost and equipment performance and improve budgeting and forecasting.
Garnering Collaboration: Talent pooling, sharing infrastructure, partnering on capital projects, managing procurement as shared service within the industry are strategies to consider to not only increase buying power and to extract economy of scale and scope but also reform relationships with suppliers/competitors.
Optimizing Working Capital: While the cliché “cash is king” is old, it never gets tired. Predictive analytics and ERP consolidation helps strengthen focus on working capital lever to better match inventory/stockpile with market demand. The ultimate goal is to free up capital for more productive use.