psa wp - erp mining essentials

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Pronto Solutions Alliance Inc.

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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.

JOB COSTING PLANNED MAINTENANCE FULL INTEGRATION REAL-TIME ANALYTICS

ERP Software for Mining:

Essential Elements

Enterprise Resource Planning (ERP) sophistication has rapidly improved over the last 15 years, and as a result has become an

increasingly competitive environment. Through marketing and branding, products that are not typically associated with the

mining industry are becoming more widely recognized. Limitations and the lack of deep understanding of the mining industry

often force ERP users to look for integrations and third-party packages as a quick fix for the inadequacies of the solution.

The purpose of this document is to assist non ERP-savvy users in

understanding the essentials of ERP in mining, and define the

selection process ensuring the most appropriate system is selected

to avoid inefficiency and wasted capital. The ERP is an essential aspect

of any organization, and allows mining organizations to understand

their operations in more detail and in turn make better decisions with

the information available.

Common issues are becoming more prevalent as the industry grows

and more software vendors are pushing to capitalize on this growth.

Understanding the major pitfalls in non-mining-specific ERP offerings

is a great start in recognizing what software to avoid, and more

importantly which software to select. While there is certainly more to

consider when selecting a suitable ERP beyond the topics discussed

here, these are the topics we see as trending issues for non-mining-

specific ERP clients.

The obvious variations in any mining organization such as resource

body, operating locations, globalization, user experience, taxation

requirements and government legislation must be considered as part

of any selection process; however, the focus of this document is on

the areas:

1. Job Costing

2. Planned Maintenance

3. Full Integration

4. Real-time Analytics

Each of these areas have underlying functionality that must be

considered through evaluating ERP solutions to ensure the solution

is going to be relevant through the life of the mine and can ensure

its expansion as the company grows. There is a clear distinction in

ROI expectations between a mining-proven ERP and an adapted

solution, and ongoing direct benefits to the organization when an

appropriate solution is selected.

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

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Job Costing

The most essential module in any ERP system that is focused on mining is the Job Costing module.

It is arguable that most ERP systems have generic efficiencies built into most of the common modules

like General Ledger or Fixed Assets, but there is a significant variation in the Job Costing functionality

across the board and this is one of the primary elements that should be investigated when selecting

a mining proven ERP system. The primary requirement is that the job costing system is able to handle

multiple types of projects simultaneously allowing a company to explore, construct, and operate all

at the same time, if required.

The common perception of job costing is that it simply provides the ability to track costs for a specific

job or project. While this may be the case in a limited ERP, job costing must have a select list of

features to truly benefit a mining organization;

Budget Development

Budgets develop from a number of sources, and the most efficient and accurate way to develop

budgets for specific projects is to involve all required sources of knowledge and compile a budget

from this information that can evolve and be accessible to all interested members of the project.

Typically, this can be simplified into Labor, Material and Other Costs.

Labor costing can be directly attributed to the project by specifying resources in the HR system

and associated direct costs can be applied at accurate rates immediately.

Material costs should primarily come from the inventory module which would track average

buy price, average costs, last costs, accurate lead times, and supplier information to help build

an appropriate material cost into the budget. The integration to inventory also allows for the

budget to form a buying plan for the purchasing team to ensure anything entered into the

budget can be verified as accurate, as required inventory is committed to the project and

inventory is ordered. Instead of a user specifying a blanketed number for cost categories relating

to inventory, the inventory could be specifically selected from the stock catalogue and once

quantity is applied the value would automatically populate.

Other costs can come from a number of sources and allow the user to appropriate generalized

costs based upon experience and user intervention. Quotes from contractors are included here

even before the quotation is converted from a quote within the system to a valid PO.

Once a budget is formed it is essential that the original budget is locked into the project and any

subsequent variations or edits are stored separately so it is possible to report the actuals of the project

against all estimates.

AFE (Approval for Expenditure) and Capital Projects

Prior to the commencement of cost tracking a capital project, first there is a budgeting and approval

process that should occur. Within a job costing system designed for mining, users have the ability to

set up a project with a unique identifier that would then allow for multiple revisions of budgets as

discussed above, and then an approval process that could escalate through management as per the

organization’s approval hierarchy.

The approval process typically involves developing the estimated budget to completion and then

electronically attaching all documentation to the project allowing any approving member of the

organization to review all the relevant approval information prior to committing to the project. Given

that projects vary significantly in budget amounts, the most efficient ERP solution for approval is to

allow a tiered hierarchy to approve projects based upon the budgeted costs. As the project is created,

it would escalate to each level of management by an automated email and work-flow process which

would eventually arrive in the queue of a manager with the appropriate approval levels to then initiate

the approval of the project.

It is common within the ERP market that project approval is not sophisticated enough to handle this

process so many mining companies look to external software and integrate back to handle this

requirement.

Exploration

Exploration and Tenement Management provides a different challenge to managing operations

within an ERP system. Statutory information such as dates, project types, royalties, and analysis codes

should be available to ensure that tenements can be rapidly dissected to provide timely information

in a structured manner that makes sense and improves visibility.

Integrating exploration projects to the GL allows for any costs sent to a tenement to be cost tracked

in the general ledger, in the P&L, in a way that removes any manual intervention from accounting

staff to properly represent exploration costing. The automated integration effectively removes

exploration staff from coding anything directly to the general ledger and automatically applies

costing to the correct location so information within the project itself or the GL is accurate as soon

as it is posted.

Given that mine exploration may have its own costing methodology within the GL, the job costing

system should allow each of its exploration projects to be directed to whichever section of the P&L

makes sense for the type of exploration being conducted, otherwise it would be necessary to report

on the different forms of exploration and split these costs out manually to the GL which adds

significant effort to month-end closure and removes the ability to report timely.


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Cost Tracking and Work Breakdown Structure

Once any form of project is active, costs will start flowing through the project and the tracking and

integration of these costs to the general ledger will provide the users with the required information

to measure the success of the project as it operates and also will help determine the impact upon

the financials of the project.

Cost tracking is generally accomplished by adding a variety of cost categories to the project to assist

with the classification of costs that accumulate. These cost categories would be derived from how the

project was initially budgeted, and any cost applied to the project should comply with the structured

budget. Controlling these costs should be possible on a number of levels and this is dependent on

the organizations budget vs actual methodology.

There is no one right way to develop a cost tracking structure for projects but the ERP should allow

for this flexibility. For instance, some organizations prefer to classify their project costs in the exact

same manner as the general ledger, so any natural account for Fuel which may be code 5660 in the

GL, would also be code 5660 in the project system. This allows for complete consistency between the

modules and is very effective. However, in some organizations the GL is structured in a way that

makes sense for financial and management reporting but does not translate well to users of the

project costing system or operational staff. In this case it should be possible that the ERP would use

a Work Breakdown Structure (WBS) instead of the GL classified categorization of costs, so effectively

the job costing system can have its own cost category schema based upon a WBS.

Regardless of how the organization wants to classify its costs and track them within the project

costing system, the ERP system should be flexible enough to handle these requirements. This is

commonly overlooked when selecting an ERP and can force the structure of the GL to be adapted to

the poorly functioning project costing system.

Variation and Subcontract Management

It would be foolish to consider that projects always run to the exact budget and never deviate from

its initial scope. There is enough evidence to recognize the industry is complex, projects cannot always

be accurately measured, and unique challenges can rapidly arise. In the event that an unexpected

change was to evolve, a variations system allows the organization to effectively measure any

supplemental costs associated with the project in a way that the variation can be approved, much

like within the AFE section that was discussed earlier.

Subcontract management is another concept that allows for the management of endless

subcontracts on each project to help in tracking the progress as well as financial commitments a

project has based upon an agreed quotation at the start of the project. To work efficiently the

subcontract management should be completely integrated into the project in a way that allows for

project costs to be accumulated like any internal cost and measured against budget. Building out a

subcontract on the project assists in building out the initial budget of the project but also allows the

project manager to continually analyze what costs are expected and update accumulated costs in a

timely manner.

Each of these functions come with complex functionality requirements, and should certainly exist

within any job costing system offered within an ERP system. It is only logical that this functionality is

embedded into project costing given its reliance and impact on the project information.

Job Costing Conclusion

Without these elements it is inevitable that third-party software would be required, which provides a

number of challenges that can be easily avoided. Being forced to commit to an additional software

package because the existing ERP does not sufficiently deal with the requirements of the mining

company is not an efficient or cost effective solution for the modern organization and the selection

of an all-inclusive mining ERP is the solution for avoiding such unnecessary variation from managing

data. Given so much information flows through the job costing module in a mining environment, the

flexibility and completeness of this module have a direct relationship with how successfully the

organization would be able to use their ERP.


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Plant Maintenance

ERP systems are purpose built transactional tools that capture the events in the day-today operations

of an organization. An integrated plant maintenance module is essential in ensuring visibility of all

the organization’s transactions. Through research with our existing customers in a diverse subject

group, it is estimated that transactions commencing in a plant maintenance module, such as work

orders, material requests, or timesheets, make up between 50-70% of ERP transactions in any given

operating mine site.

Given there is so much volume flowing through the plant maintenance module there is an obvious

emphasis on ensuring that its touchpoints with the rest of the system provide value in improving the

timeliness and accuracy of the data.

Inventory Commitments

Inventory is essential for the performance of the plant maintenance program, thus it is necessary that

any ERP for mining allows communication between the maintenance module and inventory module,

instantaneously. Remote mine sites are especially vulnerable to inventory shortages and in the event

that inventory is required for a planned task this could trigger downtime due to equipment failure.

Any planned task that is set up within the ERP would contain all of the work required and all of the

inventory items by quantity that are needed to complete the work. A typical operation would forecast

its maintenance plan to three to six months, which provides adequate timing for the supply chain

department to ensure any required inventory can be isolated or ordered to prevent maintenance

from occurring. Since each of these tasks has inventory specified, it allows for a link to be built to the

inventory module to reserve these items on a specific date, usually a few days before the maintenance

occurs so inventory can be picked up and planned.

Without committing the inventory automatically as planned, there are obvious gaps in the supply

chain and the ordering process becomes reactionary, often resulting in inflated shipping charges,

rushed shipments or missed maintenance on plant items.

Labor Allocation

Labor is much the same as inventory in terms of integrating to the inventory module. Each planned

task allows the user to determine what labor types are required to service the plant items and for

how many hours. When this is done effectively, labor shortfalls and surpluses will be highly visible.

This allows the maintenance planner to bring forward maintenance where there is a shortage of work,

or bring in temporary labor to assist with excess work that is critical.

If on every piece of completed work, the maintenance crew is applying actual hours to each work

order, it becomes possible to refine the tasks moving forward. If a task is estimated to take two hours

within the system but routinely takes over four hours, it provides an opportunity to understand if

there are problems with the crew, the plant, the process, or perhaps the estimate. This allows the

planners to more accurately estimate the required hours and also adjust errors in the plant where

time might be lost due to inefficiencies.

Manufacturer Recommended Planned Tasks

Task management is functionality that allows a user to load-in the recommended maintenance

schedule from the equipment manufacturer and operate based upon these recommendations. The

main aspects of the PM Task, for the purpose of planning, is the triggering of the task itself and then

allocating the required resources to the task. Tasks should be able to be triggered for work in a

number of ways to ensure any requirement around the work is met within the maintenance schedule.

The scheduling requirements, at the most basic, should be triggered based upon a unit of measure

such as miles, meters, and hours on a piece of equipment such as a 10,000 KM service. Alternatively,

a piece of equipment may have a six-month inspection, so the system is triggered based upon any

date range such as the second Tuesday of each month, every fourth week at 12:00am on a Sunday

and so forth. These fundamentals allow for the significant portion of tasks to be triggered at the

correct time. Beyond this simple functionality, a task should be triggered based upon any other event

in the system like a work order that records the equipment breaking, downtime being scheduled on

equipment, or an item being put into production for the first time.

The PM Tasks that are set up within the system determine what routine maintenance is required to

keep a plant or a fleet running, and the more flexible the functionality the more accurately and timely

the planning process will be. Without such functionality operators will be forced to employ a more

manual process of estimating work due dates and remembering when tasks will be performed. This

in essence is completely opposite to the doctrine of ERP.

Predictive vs Planned with Condition Monitoring

If the name of the module didn’t purvey its purpose, planning when maintenance occurs accurately

is the primary performance indicator for a planned maintenance module. Once the recommended

PM Tasks are set up in the system to trigger every 2,500 miles it is important to have the ability to

schedule when that milestone may be met, not for one plant item but for thousands of items at a

time. The cure for this complexity is to operate a plant maintenance system that has condition

monitoring functionality.

Condition monitoring allows for plant item monitoring points such as hour meters or odometers to

be imported into the plant maintenance management system to provide trends and history on the

runtime of the equipment. The power of importing this information is it allows the system to calculate

average usage of the machine to help predict when a milestone will be met. If a plant item records

an average of ten miles a day, then the 2,500-mile service would occur every 250 days. This means


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that as the average fluctuates, the system can continually predict the next due date for the task to

occur, and if this is occurring for all plant items, it means scheduling becomes significantly more

accurate.

The follow-on effects of this allow labor to be scheduled accordingly and any essential materials to

accurately be ordered when compared against lead times and availability.

If used effectively, predictive maintenance is the best case scenario and provides the most significant

benefit to the organization; condition monitoring makes this possible.

GL Costing

The structure of the plant items for a mine site can quickly grow complex when looking at the

appropriate method of costing for each individual component. To handle the complexity in an

efficient manner, any plant maintenance system in a mining environment needs to be completely

automated and flexible enough to handle posting requirements.

An example which commonly occurs, requiring GL costing to be flexible, is haul trucks have tires

changed out. Some sites will set up each component of a haul truck within the plant tree, and want

the cost of change-outs, like tires, to be costed to the mining department as an operational expense

instead of the maintenance department. So, it is essential that the costing be allocated to the mining

department for some items, but not for others. Even more complex than this is the rotable or

component change-out process in which a plant item has a component changed to a spare, and then

the failed or worn component is rebuilt within the maintenance department and then checked into

inventory.

There are a large number of scenarios which occur when a plant item needs to be costed in a unique

manner beyond the cost hitting a cost center and a cost category, and this is important when

understanding the level of intelligence contained in the GL costing element of the plant maintenance

module. Without this flexibility, the accounting process becomes significantly more time-consuming

and opens the users to errors.

Plant Maintenance Conclusion

When a mine transitions from construction to production the plant maintenance module is most

likely the next step for the ERP evolution. When organizations are selecting an ERP prior to

construction or during construction, the plant maintenance functionality of the system is often

underestimated and thereby forces the use of a third-party package to assist in meeting the

organization’s needs. Plant maintenance is heavily reliant on the use of inventory and the volume of

transactions it creates means complete integration to the rest of the enterprise software is essential.

Plant maintenance management within an ERP is proven as the main reason organizations become

more efficient and accurate in scheduling work and limiting downtime due to missed maintenance.

Given that an operating mine will use the plant maintenance module for more than half of its daily

transactions, it is essential that the scope of the ERP includes a dedicated and robust maintenance

module.


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Full Integration

The functions of business within the mining industry is highly decentralized and creates unique

challenges in compiling accurate and timely information that a mining-focused ERP system can

resolve through integrating every business process with the relevant information. Full integration

refers to a system that can completely manage the resources of a mine site in a way that allows

departments to instantly communicate the flow of information with one another.

Integration is a driving force in keeping information users accountable because it forces relationships

that would not exist without the implementation of an integrated solution. Some of these

relationships are discussed in prior sections of this documentation but are visited below to assist in

showing the importance of integration and help explain why this promotes efficiency and accuracy

within the mining environment.

AP - Purchase orders

One of the most common pieces of integration available from off-the-shelf business and accounting

management packages provides the perfect example of why integration is essential in any form of

software. While this integration exists in basic software, the principal of integration reflects how

important it is to operate with a connected solution.

Procurement and AP staff operate independently but the purchases made on a PO need to be paid

by an invoice. In order to safeguard the organization against overpayment, the listing of purchase

orders and the details of their lines are integrated into AP so the invoice can be matched to the value

of the PO in real-time. If this information was unavailable to AP in real-time through integration, then

the invoice entry process would be manual and time consuming. In an environment where purchases

are of high value and staff are operating from different locations, this example provides evidence that

integration is the key to operating efficiently with minimized risk.

Inventory - Plant Maintenance

Plant maintenance transactions make up between 50-70% of most operating mine’s ERP systems. To

ensure the overall representation of the ERP’s data is correct and meaningful it is essential that any

modules that are closely related to plant maintenance integrate in real-time, and consider the

management and use of critical inventory items on a mine site that are allocated for the use of the

maintenance department in planned tasks.

If a task is scheduled to commence on the first day of each quarter, and the task requires specialized

inventory items to be successfully completed, it is necessary that inventory is fulfilled in time. If

inventory is not replenished to a suitable level on the task’s commencement date, then maintenance

cannot continue operating and the operations are subject to downtime due to lapsed maintenance.

For the maintenance and inventory management teams to operate efficiently, integration is

completely essential to the operation. In an integrated environment, once work is scheduled, the

inventory requirements are immediately sent through to the buying team to reorder and engage the

procurement process. The inventory information is also readily available to the maintenance team,

such as average lead time, which allows the scheduler and planner to submit work orders for long

lead time items earlier to ensure that work is not delayed because items did not arrive in sufficient

time.

Plant Maintenance - Fixed Assets

Plant items are routinely taken out of operations and scrapped or replaced, and the likelihood this

information is relayed to accounting staff in charge of fixed assets is very low. Through integrating

the PM and FAR modules, any changes to the plant are integrated to fixed assets so the accounting

team can properly treat the changes and the asset identification process is maintained.

GL - All Modules

The general ledger is the underlying module within in all ERP systems that result in financial reporting.

As such, the integration to the GL from all modules is essential and removes the ability of end users

from choosing a GL account during any regular business process. Consider the example of a

warehouse staff member dedicated to receiving inventory for different warehouses. Instead of

allowing that staff member to choose the GL account for each warehouse, the system should

automatically determine the GL account for each inventory item received based upon the setup of

the system. This integration removes errors resulting from users manually selecting GL codes and

directly impacts the amount of effort required during the month-end reconciliation process.

Integration Conclusion

Without integration within the business units of a mining company there is no accountability and a

lack of cohesion. Integration is absolutely essential in ensuring that information is complete, timely,

and reliable because it forms itself based upon real-world data, not user estimates or manual entry.

A user manually entering stock requirements for a planned maintenance work order every time a

work order is raised is prone to error, is untimely and a waste of a human resource where integrating

that information between the inventory and plant module allows the system to automatically develop

the stock requirements instantaneously and in an accurate manner.

Without integration the level of communication and automation drops considerably, and prevents

the organization from becoming more efficient and enhancing its use of resources. Ultimately, in a

cost controlling environment such as mining every advantage available to reduce costs and identify

a lack of efficiency should be pursued, and without an integrated ERP solution, it is next to impossible

to do in a timely manner, which is critical in such a volatile and challenging period of commodity

pricing.


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Real-Time Analytics

ERP has long been a strong solution for recognizing transactions within an organization as they occur,

but displaying this information in a manner that promotes analysis through streamlined and

meaningful reporting has often been done by third-party reporting tools. Business Intelligence (BI)

allows organizations to make sense of the data within an ERP system through graphical reporting.

Without the ability to analyze the information within an ERP it is hard to determine if business

processes are operating as designed or even tell if the performance of the business operations

actually meets expected budgets.

BI software is available as a standalone solution that allows for information to be structured in a

reporting format. As ERP solutions have evolved, an integrated out-of-the-box BI tool allows analysis

of information in real-time from anywhere in the world through a web browser. In an industry so

focused on remote operating and diverse geographical locations, this ensures that communication

between site operations and management is seamless and information is readily available at all times,

for every level of user within the organization.

Pre-integrated BI not only allows for users to develop reports on their data quickly and easily but a

significant portion of the groundwork is done in setting up the relevant cubes and data tables that

are commonly used and related in developing dashboards and reports, making it far easier to

integrate the reporting into the activities of users’ day-to-day processes.


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About the Author

Jarrad Sonnenberg

Manager, Business Development & Advisory

[email protected]

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.

Conclusion

In order to benefit a mining organization, it is essential that a mining proven ERP package is used in

managing the company’s business processes. There is a direct financial benefit in selecting a solution

that gives users the power to analyze relevant and accurate information in a way that suits the

industry’s unique requirements. As a cost management based environment, the way costs are

structured and posted is essential in keeping the day-today activities of the operations reflected into

a meaningful system that allows users access to make better decisions and understand the details of

mining operations.

While it is common that some mining companies are not ready for complete ERP functionality at the

time of implementation this should not limit the range of functionality that is invested in an ERP when

selecting a package, especially when the functionality may be available at the same price point of

another package. It is an all too common occurrence that a mining organization finds itself ready to

invest its resources into implementing a best practice approach to its business processes but is limited

by the functionality of the ERP. This can be avoided by understanding the key elements of a mining

ERP and selecting based upon this best practice functionality opposed to user preferences or prior

experience in an environment where software and technology change so quickly.

psa wp - erp mining essentials

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