As mining companies grow and adopt global business models, sophisticated and integrated tools are required to optimize efficiency. Advances in information technology are also changing how miners run operations and back office functions. A leading industry report recently concluded that mining technology is rapidly moving toward integrated processes, accessible information, greater collaboration and more automation.
Technology, global expansion and the innate complexity of mining projects pose a challenge to executives and managers as they attempt to balance corporate goals of greater value and efficiency with the needs of individual mining locations. To achieve these goals, some miners are forming partnerships with third parties. Outsourcing is a potential solution to two main challenges: cost and access to skilled labor. Many mining companies are already outsourcing not only non-core activities like back office and IT services, but also critical activities like drilling, hauling and blasting (Bringing Together Strategic Outsourcing and Corporate Strategy, European Management Journal).
Like any other industry, cost reduction is the dominant reason for outsourcing in the mining industry (Toward a Model of Strategic Outsourcing, Journal of Operations Management). Commodity organizations aim to lower production and transaction costs or turn fixed-cost operations into variable cost operations. This minimizes the risk of negative profit margins during slow periods. To avoid large capital spending, mining companies typically outsource activities that depend on fixed investment. Instead of buying a fleet of trucks and excavators, for example, a mining company can partner with a contractor that will build the investment into their variable rate.
Talent attraction and retention is another major operational issue that can be solved by outsourcing. Despite a slower rate of development, skills shortages remain a problem in the mining industry. A 2014 industry study showed that many regions have a short supply of mining geologists, engineers and project designers because a significant portion of the workforce is retiring or nearing retirement age. During periods of skills shortages in the mining industry, working with a third party staffing solutions provider can alleviate the need to invest in the recruitment, hiring, support and management of expensive, highly skilled professionals and other personnel.
Outsourced Mining Solutions
Outsourcing Mining Services to the Philippines
Mining companies face other challenges besides cost pressures and a lack of skilled professionals. Factors such as increasing competition between established, diversified players and new mining firms, new infrastructure investment, market volatility that affects cash flow, the push for more innovation, and sustainability challenges in host countries make mining projects even more complex.
New infrastructure investment. The availability and cost of capital investment are primary considerations for mining companies. Infrastructure (technology and equipment) is a heavy and fixed capital investment for the owner, at least initially, and periodic maintenance and replacement of these assets require additional spending (Outsourcing in the Mining Industry: Decision-Making Framework and Critical Success Factors, Journal of the South African Institute of Mining and Metallurgy 2014).
Market volatility. According to a FactSet report, the S & P/TSX Global Mining Index fell by about 10 percent through the end of November 2014, while the S & P 500 index rose by 11 percent, indicating a sluggish outlook for demand. Bloomberg similarly reported a steep drop in the prices of gold, silver, iron ore, coal and copper in 2014 due to ample supply, weak global demand, and a stronger U.S. dollar. As a result, investors are wary of the mining industry’s ability to improve shareholder returns and counter the long stretch of declining productivity.
Pressure to innovate. In a market where competitive advantage depends on technology, companies are forced to innovate and adopt sophisticated mining solutions. The trend is to move from labor-dependent methodologies to automated systems and harness the power of third platform technologies. Compared to financially secure diversified mining companies, smaller mining outfits may find it harder to get funding for new tools and processes that will help improve margins and reduce costs sustainably.
To improve a mining company’s competitive edge and address these challenges cost-effectively, outsourcing providers are stepping up and offering integrated solutions. An industry specialist outsourcing firm can help a company:
Improve competitiveness. Companies can improve their competitive advantage by working with best-in-class service providers specializing in the mining sector. Providers have more efficient and value-creating capabilities, such as advanced data analytics that increase productivity and give the company a better understanding of the market.
Improve scalability with autonomous solutions. During times when demand for commodities is low, a third party specialist can develop a strategic, long-term cost and operations management system that is easily scalable based on output level. Through the use of technology, this strategy can be implemented across the supply chain to create a corporate culture independent of industry cycles.
Strategic workforce management. The mining industry is highly sensitive to economic cycles and fluctuating commodity prices, but mining companies understand the need to build a long-term workforce. According to a 2013 study by the Mining Industry Human Resources Council of Canada, the industry needs to hire about 145,870 workers by 2023. Even during economic downturns, mining HR managers said that retention and development of mining professionals are key priorities. An offshore staffing specialist employs strategic workforce planning tools to allow HR departments to manage the workforce through mining cycles and provide the right people at the right time while minimizing costs.
Outsourcing companies in the Philippines such as Sourcefit can bring extensive domain expertise and a solid foundation of knowledge, technology, and people to address mining industry challenges in a cost-effective way. Companies consider outsourcing mining services to the Philippines not just for the custom offshore staffing solutions, but also for strategic partnerships that help their business achieve long-term success.