The document discusses how enterprise resource planning (ERP) software provides value and return on investment for mining companies. It describes how ERP improves operations such as inventory management, procurement, maintenance scheduling, and real-time reporting. ERP allows mining companies to more effectively plan labor, track inventory usage, automate replenishment orders, and provide executives with accountability and visibility into project costs. When implemented correctly across key business areas, ERP can significantly improve performance and financial outcomes for mining organizations.

1. The importance of Enterprise Resource
Planning (ERP) software in the mining industry
is unquestionable. Once simply an accounting
transactionengine and a waytocollectdataforthe
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
Eachofthese processes requires significant planning
and discussion. Prior to implementation of any
process, it is important to understand the return
on investment (ROI) behindthe software.Although
this iscommon practiceelsewhere,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.
TRANSLATINGERPINTOROI
FOR MININGCOMPANIES
PARTNER
Marc Harris, Partner
905 270 7770 Ext. 5462
mharris@bdo.ca
AUTHOR
Jarrad Sonnenberg, Consultant
905 270 7700 Ext. 2126
jsonnenberg@bdo.ca
www.bdo.ca/solutions
BDO SOLUTIONS

2. 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.
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 the financial
health of an organization.
Translating ERP into ROI for Mining Companies | BDO Canada

3. 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
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 over sized
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
Oneofthe most significantchangesto ERP systems inthe lasttenyears has been
the abilitytotransform atransactionengine into a reportingtool.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 understandthe key performance indicatorsoftheorganization.An
integrated BItool is becoming afoundation level must-havefor allclients.
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
Translating ERP into ROI for Mining Companies | BDO Canada

4. 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 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 InformationTechnology (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.
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Translating ERP into ROI for Mining Companies | BDO Canada
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