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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.

The importance of Enterprise Resource Planning (ERP) software in the mining industry is

unquestionable. Once simply an accounting transaction engine and a way to collect data for

the production of statutory reports, ERP has evolved into an essential part of the mining

industry, improving decision making, bringing visibility of key indicators to the surface, and

helping businesses improve their bottom line.

This is evident through the industry wide

implementation of software solutions, as well as

market indicators such as the dramatic increase in

demand for experienced ERP professionals. ERP has

become an accepted requirement of mining

companies at any phase in the organizational

development life cycle.

Mining is a diverse industry due to the variety of

minerals produced, geographical locations,

globalization, production methodology and the

varied functions of the organizations. ERP has

evolved to provide endlessly valuable insight into

the business.

An effective use of an ERP, across any of these

disciplines, can have a direct impact upon the

financial well-being of an organization. While an

ERP system may not ultimately turn a company’s

fortunes around, it can, if implemented correctly,

provide a return on investment that will dramatically

improve the performance of an organization as

opposed to one without ERP.

With the influx of ERP packages marketed to the

mining industry, it is difficult for both emerging and

established companies to decide on the most

suitable software package. Emerging organizations

typically may not be exposed to industry best

practices; while established companies may have a

legacy of an existing selection process based on

personal preference and opinion. Regardless,

achieving any kind of return on an outlay for

software is reliant on the following three processes:

Selection of a suitable ERP package

Effective implementation

Ongoing development and alignment of the

ERP to the business

Each of these processes requires significant

planning and discussion. Prior to implementation of

any process, it is important to understand the return

on investment (ROI) behind the software. Although

this is common practice elsewhere, the ERP industry

does not provide much detail on the return.

While the ROI should be the first criteria the

organization considers, it is often misunderstood as

a measure for ERP’s effectiveness. The business

needs to evaluate whether the ERP will add both

short and long term value to its operations.

Evaluating how an ERP can translate into an ROI is

essential for successfully streamlining and

improving business operations.

Through client opinion, interviews, projects and

industry best practice, ROI for mining organizations

comes from a range of sources that are best broken

down into the following broad categories:

1. Outbound Demand Planning - is managing the

inventory that leaves the warehouse, bound for

internal use; typically, critical spares,

consumables, personal protective equipment

(PPE), and anything used in the ongoing

operation of the mine site.

2. Inbound Demand Planning - procurement and

replenishment process of inventory coming into

the mine’s warehouse.

3. Labor Management and Scheduling -

managing labor head count and efficiency to

maximize downtime and cost.

4. Real Time Knowledge - gathering accurate

information quickly is critical to the decision

making process and improving the business.

5. Accountable Management – understanding

the remote nature of mining, having an

accountable management of the operation is

essential to meeting targets.

Outbound Demand Planning

The internal use of inventory is a major component

driving costs - primarily from the large quantity of

supplies and materials held in mine warehouses.

Managing how a mine allocates and commits the

inventory is critical for effectively running the plant

and fleet associated with the mine. Despite the

advances in technology, a number of mining

organizations still monitor inventory requests and

allocations using a “paper-based” or “honour”

system. Implementing an efficient inventory control

system, allows mines a greater understanding of

their real usage.

Translating ERP into ROI for Mining Companies

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Given the significant values of the inventory held, and issues facing most

mining warehouses, building a seamless and logical process for tracking

internal inventory is essential for g the financial health of an organization.

A best practice life cycle is summarized below, with each step of the

process contributing to the overall improvement of the ROI:

1. Departments who have a reliance on store inventory (Environmental,

Maintenance, Mobile Maintenance, Construction/Capital

Development, Geology, Drilling, Blasting) should request materials

on a picking slip request. The request should include the inventory

item required, where the item will be used, a piece of equipment, a

General Ledger (GL) code, a capital project, etc. This immediately

recognizes that there is a demand for the specified inventory to allow

the Supply Chain department to plan for its replenishment and issue.

2. Picking slip requests should go through an internal approval process

which allows the organization to prevent over commitment of

inventory items and minimize any abuse of inventory.

3. Once the picking slip request is approved and categorized as such,

the warehouse is notified of the demand for inventory. The

Procurement department can use this approval to separate actual

demand from potential demand.

4. Inventory is set aside for future use, and marked as committed. The

Purchasing department is notified, and accountants know what

accruals may be necessary.

5. Once the item is delivered/picked up, the inventory is updated to

note it is no longer in the store, and the necessary costing posted to

the GL immediately for accurate inventory on hand and financial

standing reporting. The implementation of this process can only be

achieved through ERP. There is a distinct relationship between

managing the amount of inventory used to reducing the outward

flow of cash and eliminating the abuse of inventory.

Inbound Demand Planning

The second step in the process of demand planning is fulfilling all the

necessary internal demands by going to an external vendor and procuring

the requirements. It is essential that the replenishment process is swiftly

carried out to make use of assisted purchasing quantities and automatic

order creation. Mines can use an ERP system to not only help understand

how much to order, but also to determine why a certain quantity has been

suggested. Downtime related to supply chain inefficiency is significantly

reduced in all of the subject user group operations, because the ERP

system is being used to help handle the demands of procurement.

Inventory catalogs can range from 15,000 to 100,000 line items from

thousands of vendors. The time it would take to accurately analyze this

information manually would significantly delay supply chain processes. In

addition to the huge amounts of data, this type of information has the

ability to change at a moment’s notice if there is an urgent requirement

to fix a critically broken piece of equipment or carry out additional

shutdown maintenance. The implementation of the ERP software allows

the mine to react quickly to such changes in demand and recalculate

suggested order quantities and prices, improving the supply chain

process. Each change to the ERP’s data flows through to the

replenishment calculations so that ordering is up to the minute.

Calculating replenishment requirements includes a number of factors:

• Size of shipments • Speed of shipments • Supplier average lead time • Suggested buying quantity for economy reasons such as bulk

discount • Shipment cost/method • Minimum/maximum recommended inventory on hand • Average demand for the inventory item • Seasonal usage • Inventory already on order/in transit Each of these factors allows for the purchase replenishment automation

tool to suggest to the end user the quantity of each item to be ordered,

and the vendor to be used for the replenishment of the items. In doing

so, an inventory catalog of thousands of reorder items can be suggested,

modified and approved, and loaded into bulk purchase orders in a matter

of hours.

Direct financial benefits for streamlining:

• Force users into ordering based on standardized rules on demand

and lead times.

• Order inventory so that required items are readily available to keep

the mine operating.

• Replenish critical spares so that production is not halted.

• Keep artisanal labor busy with required materials to prevent labor

downtime.

• Allow the Procurement staff to spend less time managing the entry

of orders, and more time managing the performance of vendors.

A typical process for the replenishment of inventory in a structured ERP

environment:

1. Parameters are set up at the time of implementation, suitable to the

mine site’s replenishment road map. All mine sites are different,

especially if a mine site location is in a remote area, out of range of

the expedited supply chain. These parameters set out the guidelines

for the system to automatically generate purchase order demand.

2. A regular replenishment report is processed, which can be run with

defined parameters for any dynamic requirements, such as ordering

Translating ERP into ROI for Mining Companies PRONTO SOLUTIONS ALLIANCE INC.

Page 3 of 4

items that are at critical levels of inventory, ordering based on

shipment method, or changing the types of items ordered. Running

this process on a regular daily or weekly basis allows demand to be

picked up as it arises.

3. Orders are consolidated by supplier, and modifications to system

suggestions can be made as needed. This is essential if the price is

not as important as the lead time, or based on supplier availability.

4. Orders are placed electronically to expedite order placement. This

saves significant time in not only the supplier commencing to ship

the order, but also minimizes handling time and reduces the need

for oversized procurement teams.

Labor Management and Scheduling – From a Maintenance

Perspective

A key for mine operations, especially those working on a fly-in and fly-

out basis, is determining adequate staffing levels. Not only is this relevant

from a cost perspective, but also to satisfy the need to keep a plant

running with no downtime. Generating a preventative maintenance plan,

including all labor types and estimated job times, allows a mine to

forecast their short and long term commitment to labor identifying

existing shortfalls and surpluses. Such planning helps mine sites manage

their labor, and assists maintenance departments in forecasting,

budgeting and accurate reporting to finance users.

The process of managing labor starts with understanding what is actually

required of the labor force. A Plant Maintenance department is

responsible for the preventative and retrospective maintenance and

repairs for the mine site’s fleet of mobile and fixed plants. Visualizing the

work load of a maintenance team is next to impossible without an ERP

package. Typically, an ERP implementation will house:

Plant items to be maintained

Required PM Tasks / scheduled jobs

Labor types

Condition monitoring (monitoring point integration for meters and

gauges)

Mapping out the entire plant structure provides the visibility over all of

the equipment that is required to be maintained for the ongoing

operation of the mine. If maintenance is neglected, this directly impacts

the ability of a mine to haul, or process ore. In order to ensure production

is not impeded due to a lack of preventative maintenance, the ERP

software allows maintenance departments to schedule work at the level

of each employee and be aware of:

• Periods of time where employees are under / over utilized

• Equipment that is due for service

• Documented cases of machine failure to improve the reliability of

the fleet

• Trend analysis on where the plant can be improved

Without an ERP, there is no accountability on the maintenance

department to keep up with the demands of running a plant without fail,

and more importantly, the information is not accessible by the other

departments of the organization. It is absolutely essential that the

maintenance information is visible to other departments to minimize risk

on equipment that is occupationally unsafe and prone to downtime, and

to review any inventory items needed for purchasing, forecasting, and

running a costing analysis. ERP ensures transparency and accountability,

providing the Maintenance department with the necessary tools to keep

mine sites running at optimum performance and identify shortfalls in

their maintenance plan before they arise.

A halt to production is likely to be more dangerous to the bottom line

than cost saving, so it is essential to consider maintenance as part of the

ROI plan for an ERP system.

Real Time Knowledge

One of the most significant changes to ERP systems in the last ten years

has been the ability to transform a transaction engine into a reporting

tool. An integrated Business Intelligence (BI) solution provides users with

real time information anywhere in the world from any internet accessible

device. The reporting tool has helped managers working offsite, without

a connection to their ERP, make decisions and understand the key

performance indicators of the organization. An integrated BI tool is

becoming a foundation level must-have for all clients.

By providing real time information, an intelligent ERP system generates

the necessary insight needed to operate on a dynamic basis. Such

knowledge can be obtained through a number of ways:

• Automated alerts that notify specific users of events - A recent

example included a client that needed to see when shipments are

processed through customs to track the availability of incoming

supply chain deliveries to the mine. Through the automated alerts

via third party logistics integration, the client was able to determine

where risks exist for goods that were not meeting delivery deadlines.

• Real Time Reporting Portal - Following the example above, in case

a shipment is delayed, dashboards can be integrated into an ERP

user’s smart device, browser window or ERP pane to provide

complete visibility over what items may not arrive as expected. The

organization can use this data to source critical items locally or

through expedited air freight.

This real time knowledge allows mining companies to operate with

dynamically to meet its requirements. The examples of real time

knowledge benefits are endless. Using real time knowledge to improve

the reaction speed of users makes it easier for companies to prevent high

risk scenarios such as the example above of critical items not reaching

the mine in sufficient time, projects going over budget or time-sensitive

orders that require approval.

Accountable Management

Navigating the development of a mining organization’s life cycle can be

difficult. A well-planned ERP software implementation can evolve with the

mine, providing management accountability throughout the mine’s

progression. Costs can accumulate in different ways, especially for a

mining organization, and circumstances like fluctuating commodity price

require companies to see value in all exercises.

Project Costing and GL are two standard ERP modules that integrate to

form a budgeting tool that allows the Finance department to keep

managers at any level accountable for the accumulation of cost. Being

able to see costs at the level of a specific project, or at the level of a

Translating ERP into ROI for Mining Companies PRONTO SOLUTIONS ALLIANCE INC.

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About the Author

Jarrad Sonnenberg

Manager, Business Development & Advisory

jsonnenberg@psainc.ca

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.

department cost center, has become key in knowing where budget

variances exist and who is responsible. This driver is the underlining

strength of an ERP system.

It is simply not effective enough to manage budget on a monthly period

at the level of a GL code. This means that a Trial Balance is not an effective

tool for promoting accountability among the organization’s managers;

using an ERP allows CFO’s to budget at any level.

A great example is the Construction (Work) in Progress balance we find

for mining organizations in the process of capitalizing development.

Typically, the GL would summarize this into one line, but by linking the

GL to a Project Costing ledger, it is possible then to break that one line

into projects for each construction project and then even break each one

of those projects into phases. By doing so, the ERP can be set up to mirror

the organizational responsibility structure so that project managers

oversee each of their projects at a suitable level and can be made

accountable for their budgets. It is essential that such integration exists

in the administrative function of the mining industry so that employees

can be given a chance to succeed. This also provides CFOs faith that their

management is operating in a uniform manner when it comes to budget

management.

Other Considerations

Customization

Organizations should embrace customization as it is a continual

investment into the ERP software. It is rare that software can satisfy 100%

of the organization’s needs. The proper methodology would be to

perform a cost benefit analysis to determine the overall benefit of

customizing the software. The right modifications can add significant

value to the effectiveness of the ERP system. A common example seen in

the ERP industry is the need to integrate to 3rd party vendors like

shipping companies. The same evaluation process, performed at the time

of implementing and selecting an ERP solution, should be applied to

customization projects to ensure the same value is added at each step of

an ERP development life cycle. Whether a differentiation exists due to a

geographic location or a mining methodology, it is common for

organizations to customize their ERP to ensure its full functionality.

User buy-in

Involving multiple segments of the business in the selection and

deployment of the ERP is necessary for ensuring a successful

implementation and in maximizing ROI. There is a common

misconception that ERP software falls into the management of

Information Technology (IT), which can be problematic unless the IT

personnel have ERP exposure. ERP implementation and selection is most

effective when all major business units are able to contribute. As

discussed earlier, ROI is achieved in all major departments of business,

including Supply Chain, Maintenance and Finance, and as a result each

should be equally represented in the selection. If an ERP package does

not provide the ability to procure inventory in an efficient manner, then

a full ROI will not be realized. The Supply Chain Manager would be in

best position to analyze whether this is the case or not.

Fraudulent operating environments

A significant number of clients that have discussed the topic of ROI were

concerned with minimizing fraud and improving the fundamental

controls within the business. ERP allows these businesses to set up control

mechanisms to be aware of damaging behavior. An example of this

would be a client that managed to catch an attempt to change a vendor’s

bank details to a fraud based account prior to a large EFT run. Additional

controls include the need to segregate functions like entering an invoice

and paying an invoice or entering a PO and entering an invoice. The

installation of a robust and secure ERP system may have a positive impact

on the bottom line of businesses that are continually experiencing fraud.

Conclusion

The progression of the mining industry coupled with the strength of ERP

software in collecting and managing data volumes makes ERP an

essential tool for business. The evidence supports that ERP has significant

potential in providing ROI, while also providing control and visibility to

unify operations. In an industry where building shareholder value is

critical, it is clear that ERP has become an accepted requirement of mining

companies at any phase in the organizational development life cycle.