Picture this. It’s 1998. You’re the works manager in a mine in the Northern Territory in Australia, and during the night shift a crucial part of your breaking unit has broken. Without a spare you have no choice but to phone your supplier, then wait for someone to arrive at the office the next morning, hear your message, find the part and sort out delivery while you wait and hope they send it without wasting too many days clearing payment and distributing it.

Now fast-forward 13 years. With your laptop at your side, the new part is a mouse click away and with luck is ready by the time the morning shift begins. Here lies the power and potential of e-business.

What is e-business and why is it necessary? It clearly involves more than just buying and selling products via the Web. Among other things, e-business covers managing the flow of information within supply chains between suppliers and customers, tendering by e-mail, e-commerce, order taking, international communication and customer feedback.

Those on both sides of the transaction appreciate the transparency and the potential to improve cost and efficiency. “Whatever field you are working in, there are potential savings in personnel to be made in the ordering, purchasing and delivery process,” says Ilpo Makinen, consultant and manager of mining at Dragon Mining in Sweden. “There is a knock-on effect in terms of efficiency because the fewer people there are in the chain, the less likely it is that mistakes are made due to communication issues.”

In the mining and construction sector, if you’re a customer who needs a continual delivery of small parts and you’re looking to enter the world of e-business, you have two main choices.

You can choose to deal directly with your supplier, setting up a system that could be as simple as e-mail contact. The transactions can be straightforward and personal and will need little in the way of infrastructure.

For a larger organization, though, the cost/benefit analysis gets more complex. If you are an international mining operation where much of your business is with overseas suppliers, it may be necessary to set up a full-scale IT department, with staff using a marketplace as well as direct purchasing. Alternatively, this could be the “tipping point” where you are too large to do without an e-business operation but not large enough for an IT department. In this case, joining a marketplace would be a viable option. Another advantage to such a strategy would be the opportunity it gives to “meet” multiple suppliers with a wider range of products and prices to choose from.

The most prominent natural resources marketplace is Quadrem, where every­­thing from the smallest screw to a full-scale construction machine is available. Formed in 2000, it now has more than 70,000 suppliers connected in more than 40 countries and was involved in transactions worth 30 billion US dollars in 2010.

Quadrem’s shareholders include some of the largest and most global players in mining: Anglo American, Alcoa, Rio Tinto, Barrick, DeBeers, BHP Billiton, Codelco, Votorantim, Newmont, Penoles and Vale. Its common platform covers e-business for mining in Africa, the Americas, Europe and Australasia.

Both methods have advantages and drawbacks. The direct method is still perceived to make it easier to form closer bonds with customers and suppliers, as communication is more direct. The value of the human touch is still prevalent within an industry that often seems happy to be considered “old school.” E-business may be growing, but it is still evident that in many cases a customer will search online for a service or product, but will still want the transaction to be handled personally.

In an e-marketplace, a customer has an opportunity to reach a large number of potential suppliers and achieve favourable prices, without having to repeat the same task for each potential supplier.

“In many ways, digitizing the marketplace has leveled the playing field for everyone, regardless of size or location,” says Chris Haydon, senior vice president of Global Marketing and Solutions at Quadrem. The scale of the Internet means that a small operation in a remote part of the globe can theoretically deliver a product or service just as easily as a multinational conglomerate. In this respect, the Web becomes business’s global leveller.

Moreover, mine operators like our hypothetical works manager in Australia benefit by being able to procure products and services on short notice. The availability of spare parts and maintenance plays a vital role in the production process, so anything that helps unblock bottlenecks in the supply chain is a big help.

Ilpo Makinen agrees. “At the mine, the main differences we can see by using e-business are in speed and efficiency. It is easier to track cash flow now and have a better idea of stock levels and requirements. When drilling, for example, it is very important to access up-to-date statistics and data. A constant flow gives us a clear idea of productivity and where we can improve efficiency. The same goes for the loading and transportation part of the process. This is quicker, easier and more cost effective than before.”

Visibility, or the lack of it, has long been a general concern in small and mid-sized mining companies, a point taken up by UK Coal senior purchasing manager Nick Barker.

“The big advantage for us is that it makes our planning easier if we know where the stock is, how much is available and when we can receive it,” Barker says. “This helps our ordering process and hopefully will also bring about a cost saving in the long run.”

The journey has not been completely painless, and opposition tends to come in two forms – technological and habitual. Some of the mining companies, barely used to working with e-mail, have reported teething problems with new computer systems, on top of the more common problems associated with working in a changed technological environment.
Many mines are in remote areas where Internet access itself is a problem, and even with access there can still be a complicated learning process.

Equally, the lost human contact can lead to problems. “I don’t see customers buying equipment from somebody they don’t know” is a commonly expressed fear. Using traditional methods of business is a hard habit to break, but therein lies a challenge and an opportunity, according to Quadrem’s Haydon.

“E-business should actually enhance customer intimacy,” Haydon says. “It gives you, as a supplier, the chance to be part of the channel your customer wants to follow. Furthermore, a marketplace can open up new potential sales channels, and the chances of being paid reliably and on time are increased. The whole chain becomes more efficient.”

The mining industry may not have been the first, or the quickest, to see the potential benefits of e-business and to adopt it, but perhaps by taking it slowly it will reap the longer-term rewards. Technology by its nature is hard to predict, but it will surely continue apace.
“Where will technology be in four or five years’ time?” Haydon asks. “We are still a long way from every supplier being electronically connected to their customers, but the gap is getting smaller all the time.”

Meanwhile, back in the Northern Territory, the morning shift arrives ready to work, blissfully unaware of the drama required overnight to keep production humming.

Read more

www.atyourservice.sandvik.com/campaign
www.dragon-mining.com.au
www.quadrem.com
www.ukcoal.com
E-asier business
A giant’s next step
The energy challenge